I've been kinda croggled by the Guitar Hero phenomenon. [more]
I'm smelling a new investing thesis and I like what I'm smelling. [more]
I'm a big fan of the generational history theories of Strauss and Howe as written up in their 1991 book "Generations: The History Of America's Future". It really knocked me out when I first read it and I keep going back to it and finding more than I saw the first time. A couple of days ago I just thought of something else that I am finding more than a little errie.
We need a little bit of background for this to make much sense. In Strauss and Howe's nomenclature there are four different kinds of generations in America. They are the Idealist, the Reactive, the Civic and the Adaptive. A generation lasts 18-22 years and the generations follow each other in that pattern like the links in a bracelet. A complete cycle takes about 88 years to go all the way around back to the start of the next cycle.
In our own times, the Boomers (1943 to 1960 inclusive) are an Idealist generation.
The GI generation (1901 to 1925 inclusive) and the Millenials (1981 to 2000 inclusive) are Civic generations. The Gen-Xers (1961 to 1980 inclusive) are a Reactive generation. Each generation has its own unique character, but generations of the same type have a lot of similarities.
So what was the new thing I noticed that gave me the chills down the back of my spine?
We are in the same generational pattern right now that we had during the great depression. It looks like great financial disasters are a feature of this part of the generational cycle.
To see this we need to look back a bit. In 1929, the GI generation ranged from 28 years of age down to 4 years of age. Most of the public attention was still going to the preceeding generation, the Lost generation (1883 to 1900 inclusive), which was a Reactive generation much like the Gen-Xers. The next Adaptive generation, the Silents, (1926 to 1942 inclusive) were rolling off the ways, but were too young to participate much in the action to come. The preceeding Idealist generation, the Missionary generation (1860 to 1882 inclusive) were at this point the generation in power. So to recap, we had an Idealist generation holding the reins of power, a Reactive generation partying hard, and a Civic generation just starting to find its own power. And then we add in a lot of credit in the form of margin.
Now let's look at our own situation. We have an Idealist generation, the Boomers (of which I have the fortune for good or ill to be a member of) holding the reins of power, with a Reactive generation that has been nicknamed the slackers partying hard, and the next Civic generation, the Millenials that are just starting to find their power. And then we add in a lot of credit in the form of dubious
mortgages and credit card debt.
So what I think happens is this: Starting about the time that the new Civic generation starts to roll off the ways and into our basinets, the last people who remember why credit can be very evil have mostly left the business world and public life. That would be about 1980 in our cycle. Credit starts to expand and at first doesn't have any great evil consequences. So we get into the classic "boiling a frog" story and each year the amount of credit increases a bit. The consequences aren't horrible, so we conclude that this must be ok and increase the amount of credit. Sometime about 5 years after the last of that cycle's Civic generation have finished being born, the credit house of cards finally comes undone and we have a generational financial crisis. It was the stock market crash of 1929 that started the previous action and it was the crash of the housing price boom in 2005 that started this one.
We could at this point try to conclude that we are in another great depression. But I don't think so. Government monetarist policy has been extremely different this time around. We also have avoided the disastrous Smoot-Hawley style protective tarifs that devastated world trade. Accordingly, I think we will have a different outcome this time. (Note: I didn't say a GOOD outcome, just different.) I think we can look at the previous cycle and say that it will take a while for the recession to work its way through. This could be the start of a generational bull market, especially if some materials science projects bring some new basic wonders into our lives. But be wary about the punchline from the book. What was it?
The punchline: Strauss and Howe predict a world war in 2025 or so. Remember, buy the cannons
and sell the trumpets. [more]