A Further Look | Oct 19, 2021
How America’s Next Economic Powerhouse Comes of Age
David B. Root, Jr.
Our research partner, Hedgeye Risk Management, employs a brilliant demographer, Neil Howe. Twenty-five years ago he wrote a compelling book titled, "The Fourth Turning". Howe’s premise is that throughout history, civilization experiences a series of four cycles each lasting 20 years or more of which the "fourth turning" represents an upheaval of values or a secular crisis.
In the most recent cycle in the U.S., the First Turning was the American High of the post-World War II Truman, Eisenhower, and Kennedy presidencies. The Second Turning was the Consciousness Revolution, stretching from the Vietnam War and campus revolts of the mid-1960s to the inflation surge of the early 1980s. The Third Turning has been the Culture Wars, an era that began with Reagan's mid-1980s Morning in America.
The Fourth Turning is history's great discontinuity. It ends one cycle and begins another.
Howe believes we are in the midst of such a secular crisis due to the pandemic and other societal challenges we face today. Using history as a guide, he believes such a crisis can cause distress economically, socially, culturally, technologically, ecologically, politically and militarily where our institutions begin breaking down and many long-standing cultural norms cease to exist.
…. sound familiar?
But historically (there has been three such periods since the founding of our country marked by the Revolutionary War, Civil War and WWII), Americans enter the Fourth Turning with a unique opportunity to achieve new greatness. And like the Greatest Generation in America’s last Fourth Turning, Howe sees the millennial generation as the heroes who will lead us out of crisis. It is a generation whose character has been shaped by how they were raised and the timing of their coming of age.
As generations before them have done, our current political class is entertaining more socialistic programs and ideals. Even the Greatest Generation, those responsible for the most significant capitalist expansion in history following WWII, experienced this during FDR’s time in office. Today Millennials have been exposed to unemployment incentives, cries of free tuition, and student loan bail-outs. But by taking the controls for the next great economic mega-trend, I believe a new surge in capitalism will take us to even greater heights. A sleeping giant will be awoken.
Howe’s forecasting has me feeling optimistic about the new opportunities before us. In particular, we are witnessing a society that is shifting from a face-to-face culture to a face-to-screen culture. ‘Screen time’ is no longer just an occasional mode of entertainment. It is a lifestyle, which has been accelerated further by the pandemic. Pair this with the rise of battery technology and electric vehicles (EV) which are no longer just a possibility, but already a come of age story.
The millennial generation in the United States has been leading the world into this completely new lifestyle. Economically, both the screen time and battery-powered megatrends will create powerful moneymaking opportunities for decades to come. In fact, it might be the most powerful trend since the Industrial Revolution.
Many of the "first movers" of the screen time megatrend have achieved spectacular success already. Companies like Facebook, Microsoft, Apple, Amazon.com, Alphabet (Google) and Netflix identified this megatrend while it was still in its early stages – and moved decisively to capitalize on it. While 4G powered Amazon and Netflix to predominance, 5G will provide a massive 10X upgrade in data speed. Likewise, Tesla and Volkswagen are first movers in the EV revolution.
The new businesses that will feed these megatrends will employ the power of scalability in a way few other businesses can match. As this revolution transforms our world, it will create one of the biggest wealth building opportunities of our lifetime.
Many of the companies leading the way will be companies even yet to be conceived. We are in the early stages of this coming new age. By the end of this decade, we will have created a different society than the one we entered with.
The next decade will provide exciting new investment opportunities for those who are paying attention and not distracted by radical societal change. But like the internet megatrend of the 1990s, there will be winners and losers. That’s why we embrace our Four Seasons Asset Allocation Process that doesn’t allow for emotional reactions to occurrences in the market. It ensures staying invested in the right places while managing risk.
Investors who understand this opportunity will be rewarded. Reliable research and analysis will separate many of the winners from losers. Success will mean understanding the software, materials, manufacturing, supply chain distribution and application of the new technology. Software creators, 5G-related companies, autonomous vehicle companies and even rare-earth metal producers are just some of the businesses that will lead the way.
And just as Neil Howe’s Fourth Turning projects, this new spirit of innovation will be driven by the next great generation coming of age at the right moment in history.
Thanks for reading,
This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.
David B. Root, Jr.