Historic Financial Reset (Uncut) 04-28-2025

Economy Entering ‘1930’s-Style’ Transformation; Historic Financial Reset | Neil Howe

Kim Jong-un in North Korea is doing very well and no one dares bother him versus someone like Muammar Gaddafi, right, who agreed to get rid of his nuclear weapons and he ended up shot dead in the ditch, right? I think that’s the difference. Where would Ukraine be today, David, if Ukraine had nuclear weapons? As it once did, by the way. So there is a chance now that the U.S. could abandon NATO.

Global tensions continue to intensify. Just this week, the rivalry between India and Pakistan has escalated to new levels on the region of Kashmir. Elsewhere, the region of Gaza continues to see conflict, Ukraine, Russia, nowhere near a peace deal yet.

In fact, missiles were just sent to Kiev just this week. This is all happening as the global economy faces pressure from trade wars and Trump’s policies surrounding tariffs. We’ll talk about how this may reshape international trade in the future of the global economy.

Joining us to discuss these themes is Neil Howe. He is a director of demography at Hedgeye Risk Management, also the author of Demography Unplugged, interesting substack with this podcast, also in it, so check out his work there. Neil, good to see you again.

We’ve had you on the show several times in the past. You’ve been talking about the fourth turning, the 80-year cycle. Let’s revisit these themes and whether or not this is it, this is what you were talking about before.

Welcome back. Yeah. Great to be on, David.

Yes. War news around the world, right? You left unmentioned the two-month deadline that Trump has given Iran, so. Yes.

Yeah, that was a big one. He threatened to bomb Iran a couple of weeks ago if a nuclear deal weren’t met, but I don’t know how serious that threat is. Well, you don’t know, but he’s constantly reiterated again and again that any deal, Iran must get rid of all nuclear weapons, and of course, people are trying to figure that out, but it probably would involve or require some sort of inspection in Iran.

It’s hard to see how that’s going to go down, right, with the Iran leadership. And then, of course, we continue to have big tensions in the Western Pacific. The Philippines and the US are currently having their big war exercises right there, right up at the Luzon Strait between the Philippines and Taiwan, and they’re actually testing out their mobile land-based missiles on those islands.

This is the US, which is installing these mobile launchers, which China is furious about, right? This is China’s worst nightmare, right, that you’re going to have these mobile missiles. It’s not like these hardened sites in Guam where they know where they are, but these would be mobile sites that can move around, and for the first time, Japan is joining in these exercises. So, again, David, I think your estimate is correct.

We see around the world these new, kind of, how would you want to say it, authoritarian regimes which have this ethnocentric focus, right, on getting back to whatever greatness they once had. And what could go wrong in a world where that’s happening, right? Hungary wants to be greater Hungary, Turkey wants to be greater Turkey, Iran wants to get back to what they once were, I mean, all around the world, right? We’re kind of going back to our roots. And meanwhile, there seems to be very little patience around the world for the rules-based international order of the great powers who choose to so-called run the system, right, whether it’s the World Trade Organization or the G7 or NATO or these powers coming together, all these are being somehow delegitimized in favor of just powerful people leading their own countries.

It’s a dangerous moment. Neil, you told me offline that President Trump is taking us at warp speed towards a new type of world, a new type of reality. What does this new world look like? And how does it fit into your work surrounding the 80-year cycles and the fourth turning? Well, you know, one truth about social history, and this goes back all the way back to the 19th century with Durkheim and Weber and all of the great sociologists who sort of founded the study of social science, was one of the things they all agreed upon was that the whole problem with modernity was a loss of community.

In Germany, this was the movement from, you know, Gemeinschaft to Gesellschaft, you know, from community to society. And you had all these huge urban areas where people were losing their sense of community. And what they all agreed upon is, looking back historically, is that what creates community is conflict, right? That’s where we create community, because in conflict, you need to be a united community, right? So one way of looking at this life, you know, this lifelong cycle that I talk about, this, you know, 80-90-year cycle, is that once you’ve created a world of tight community after one crisis, that sense of community is gradually lost with subsequent generations until finally you reach a state where absolutely no one who remembers the earlier formation of community is left alive, right? And then it’s up for new nations, new populations, new societies to recreate that community, which moves us back into these periods of conflict, right? That’s where we are today.

I have no doubt that if you, we do this all the time, is looking at surveys of young people today, and the epidemic of loneliness and detachment, a feeling as though young people have no, they’re disconnected from their jobs, their political systems, they’re distrustful of democracy, they feel they have no voice in it, it’s not doing them any good anyway. It just does nothing but talk about problems, never solves problems, never really acts on anything. This is the breeding ground for what we call forth-turning psychology, mass social psychology, which is movement back to a community and happens through conflict.

Now, in the United States, it’s happening partly through internecine conflict within the United States, red zone versus blue zone, right? Trump is dealing with his political enemies in the United States as enemies, you know what I mean? Yeah. You can break any rules as long as you make sure that your tribe wins, right? The vision of your tribe prevails. And I think the big problem that people see, even people who voted for Trump, is will the rules-based Republican order, as enshrined by the Constitution, survive? And these are people, by the way, who completely agree with Trump when it comes to, you know, kicking out immigrants or reducing the level of global trade or, you know, getting tough with Europe.

And you know what I mean? I mean, these are people who agree with all that, but do you do it in a way in which we are left with no rule of law and the executive becomes, in a sense, this kind of patrimonial one-person rule where, you know, he takes a cut of everything, right? And whatever he wants goes, regardless of what the rule of law says. That is, I think, a slow-motion crisis. We’re beginning to see a little bit in these contempt proceedings in a couple of district courts that are starting.

But I think a few months from now, it’s going to become obvious in all the huge cases that are going to come before the Supreme Court on all the ways that the Trump administration is breaking constitutional guidelines, right? Whether it’s the Enemy Aliens Act or when it comes to the impoundment of funds or whether, you know, violating the Administration’s Procedure Act. I mean, we could go on down the line, right, of all those things. So that is really a regime question in the United States.

So you have this possibility of conflict within the United States. But meanwhile, we have the possibility of conflict around the world, right? Between great powers or between great powers and somewhat lesser powers. I don’t know.

Pakistan and India is an interesting case, I guess. Neither one is, we call it great power, but that would be they’re both nuclear powers, right? So that’s reason for us to be worried. So this is, as I described in the fourth turning, a very interesting moment that time and time and again we meet.

And that is, is the conflict going to be within a nation or is it going to be between nations? This isn’t the first time we’ve been here. Let’s talk about that just a bit. Is this conflict going to escalate to a regional thing? Well, beyond a regional thing to an international conflict.

Going back to what you said earlier about the fourth turning and what this generation wants, Trump has been pretty consistent so far in delivering what he promised on the campaign trail in terms of tariffs, immigration policies, tax policies, and trying to broker a peace deal between Russia and Ukraine, which we’ll talk about in just a minute. But the general theme of this administration could be summarized, at least let me try to summarize, nationalism, populism, protectionism. Again, consistent with what he’s delivered on the promise on the campaign trail.

Are you saying that this is what the American people want right now? I think it largely is. I think Trump was very prescient of all American leaders eight, nine years ago. He’s the only one who really saw where the world was going in terms of everything from globalization, the repudiation of globalization to this increased nationalism focus.

You could even say toward this trend toward cultural conservatism, which you could say we may be partly in. He anticipated that. He’s also shown unparalleled focus and energy at pursuing his goals.

This is something where I think that the Democrats are left panting way behind him. He’s at it. You know what I mean? Every day, he’s throwing out more executive orders.

He’s a fountain of energy. It’s something that we really haven’t seen in a political leader in a long time. Here’s a guy who really wants to transform America, maybe almost as a consequence, transform the shape of geopolitics and the global trade along with it.

He’s determined to get it done. Here’s the problem, though, David. I think this is where you see an indeterminacy about Trump.

You could say that on the one hand, all he wants is this patrimonial idea of a leader where what he says goes and no interest in foreign policy. In other words, would Trump be completely satisfied to have these autocrats elsewhere in the world just rule their own little areas? So, yeah, let Trump take Ukraine. If Europe can’t keep Ukraine out of Eastern Europe, well, maybe Trump could go back and do what he always says he wanted to do, repeat what Stalin did.

Then would he really be willing to go to a war with Iran, go into Iran to eliminate nuclear weapons, or do we just be satisfied with that? Do we let China just keep the Western Pacific? In other words, this would be sort of a, you might say, what the leaders of the America First Committee back in 1938, 1939 saw as maybe what America’s policy should be, which is to let autocrats have their sphere of influence. Why should we get involved? Now, as you know, Franklin Delano Roosevelt disagreed. He always wanted to urge America out of its isolationism.

America at that time was strongly isolationist, and I think that the policy of leave the world alone was something that most Americans wanted. But then there arose a moment, David, and that’s when suddenly American opinion shifted, and I believe that moment was June of 1940 with the fall of France. Suddenly everything began to shift, and suddenly we had huge appropriations for armaments.

We became an arsenal of democracy almost overnight, and the real question is, is that moment coming to America, and will Trump shift along with it? You see where I’m going with this, and so maybe I’ll ask the question for you on that. I was just wondering whether or not this counter trend towards conservatism, which is what you alluded to earlier, is a global phenomenon or a purely American trend? Well, you know, I just note that Prime Minister Keir Starmer came out and suddenly said he changed his opinion on whether trans women were really men. He changed his mind.

They are really men after all, right? Now, this is in UK. This is the leader of the progressive party in the United Kingdom, right? It would be like—do we expect a similar statement from Kamala Harris? Oh, probably not. But I do think that we are seeing something of a trend.

There’s also news that came out from the Pew Research recently. I don’t know if you saw this, but apparently the share of Americans who declared themselves as Christian, which reached its nadir—you know, it’s been falling now for about three or four decades. It reached its nadir back early in the pandemic.

It’s actually rebounding now. It’s about the same as it was back in 2019, 2018. This is the first time that’s happened in several decades.

A lot of it is led by young people, and it may be partly political. You know, part of the politics of the conservative brand is saying you’re Christian. So I don’t know if this is associated with Christian practice.

A lot of these people seem to be non-denominational, but it’s very interesting because we see the change in direction in the youngest cohort, right? That’s what you’d expect, a generational change to start. Look, I don’t know. What do you want to look at, David? The popularity of country western? I mean, where are you going to look at a change in culture? But I do think it’s fair to say that I think there’s been a shift in the past four or five years.

Let’s break down different hot spots one at a time and then piece together what may happen to our future at the end. Let’s start with Ukraine and Russia. This is what Trump posted on Truth Social just yesterday.

I am not happy with the Russian strikes on Kyiv. So like I mentioned earlier, Russia sent missiles to or fired missiles to Kyiv. Not necessary and very bad timing.

Vladimir, stop. 5,000 soldiers a week are dying. Let’s get the peace deal done.

By the way, this came a week after Putin already publicly verbalized that he’s willing to come to some sort of negotiation or some sort of deal. He’s willing to not advance westward anymore and just keep the territory that he already had. And then now we have this.

What’s going on? I think it’s bait and switch. I think Putin is brilliant at the diplomacy end of this. You know, frankly, I think Putin sort of has Trump around his finger a little bit because he gave up something without saying anything about what he would agree with to go along with that.

He said, yes, I’ll let these current battle lines just stand as part of a settlement. But then he didn’t say what he would demand along with that. He sort of said on the issue of guarantees for Ukraine, as we know, his position is Ukraine should have a downgraded defense force, no European troops in Ukraine.

And in fact, Putin has been on record as saying he thinks that NATO should actually back away from the Russian border. The Russian-Byelorussian border should back away. Now, if Putin gets that, that would be a huge victory for him.

But it made Volodymyr Zelensky look very bad. It put Zelensky in a bad position. I think Zelensky is a straight on fighter.

I don’t think he’s very good about diplomacy and basically said we would never agree to abandon Ukraine, which is probably his weakest position. I think what Zelensky should have said is, yeah, sure, we’ll do that. We’ll have a big constitutional ceremony and get rid of our possession of Ukraine.

And these portions of these four, you know, Oblanskys, these Oblanskys, when Putin actually has a similar ceremony in Moscow, giving up, right, his ownership, of course, Putin would never do that. I mean, the loss of face would be crushing for him, right? In other words, Zelensky could have been smarter. Putin has been very smart.

Putin is always bait and switch. Oh, yeah, sure, we’ll get rid of this Ukraine thing. But now, Donald, let’s divide up the world.

I got all this energy. You got stuff. I mean, think of the two of us could do together.

That’s sort of Putin’s approach. And by the way, I’ll kind of get Eastern Europe along with it, right? So what is Putin’s endgame at this moment, do you think? Hard to tell. I think, look, I think Putin is thinking, I think Trump is not going to end this war.

I think it’s very simple. I think these two nations- In the next four years, Neil? Well, it may come to an end in the next four years. I just don’t think Trump’s deal is going to do it.

I see. Right. That’s all I’m saying.

I’m just saying, look, I think Putin has reshaped the very identity of his regime now as being an anti-Western, anti-NATO regime, determined to rid the West’s incursion and the taking of Ukraine as he sees it. He’s going to push the West out of Ukraine, and he probably has further ambitions, too, I think, starting with the Baltic republics. Keep in mind, Ukraine is a huge country.

It has a large population. It’s only about 40 million people. These Baltic states, Latvia, Lithuania, Estonia, they’re tiny.

They’re like two, three million. Some of them are part of NATO, though. I think that’s the- Is NATO going to respond, right? Who’s going to die for Gdansk? You remember that famous headline in 1939, who’s going to die for some little town in Poland, right? That’s really the question.

Your question has a very interesting layer to it. Is NATO going to respond? That’s assuming they have a choice. They have to respond.

Do they not? If that happens- Are they going to respond if the US isn’t going to help them? I see what you mean. That’s my point. So there is a chance now that the US could abandon NATO.

If put to the test like that, they may just say, why should we get into a war like that? This would be a sequela. Look, this would be after the Ukraine thing were over. But by that time, the US might be in a very different place.

They might have very different interests by then. They might not really care what’s happening in this particular place in the world. Let’s talk about that for just a minute, the hypothetical dissolution of NATO.

I’m not talking about Trump abandoning NATO now. I’m just saying, let’s assume the US has an option to just step away. What does that mean for the world order? Are we going to see military buildup in Europe? Are we going to see a different bloc altogether and just kind of a breakup of alliances? I think we’re already beginning to see it.

You have several leaders of Western European countries basically announced that we’re on our own now. There’s a huge ramping up of defense spending in Europe, and obviously led by Germany now under the new chancellor. I think it’s a new game.

All around in Europe, people are beginning to say, we have to prepare for a post-US defense environment. I think this is very pro-defense. In Europe, there’s a sense of remobilization.

It’s interesting because, of course, Americans, not just Trump, Americans on all sides have been saying for a long time that Europe ought to be spending more. In some weird way, David, you can say, well, Trump is brilliant. He actually did what all the Americans, the rest of the world have been saying for a long time.

Why doesn’t Europe spend more on their own defense? It just shows you that you often don’t act until you get the fear of God. You start staring into the abyss. That’s what Europe is doing.

That’s why they’re spending more. I think Trump very well understands that systems don’t get things done. Incentives get things done.

Right. You need to actually see the full cost, the full risks of your actions stare you in the face to actually change course. I think Trump is saying, we actually have to threaten to pull out entirely to get them to actually change.

Right. India, Pakistan, I mentioned escalations there. Is this a beginning of more regional conflict after Liberation Day was enacted, reciprocal tariffs, the breakdown of global trade? Is this going to lead to more chaos right now? Well, I think it always does.

Here’s where the analogy of the 1930s works perfectly, right? We had the huge ramping up of tariffs in the early 1930s, led by the Smoot-Hawley tariff. The total drying up of global tariff as people tried to do beggar than neighbor, at the same time as you had dictators take over country over country in Europe, and dictatorship spreading in East Asia as well. That was the decade of the rise of fascism and the terror of Stalinism in the Soviet Union at the same time.

I don’t think terrorists really play a role much in Iran-Pakistan. India-Pakistan has a conflict. India doesn’t trade that much, as assured of its GDP, and Pakistan’s trade is managed.

I think they do a fair amount. Neither country is a trading dynamo, let’s put it that way. But the reason we should be worried is that these are nuclear powers, I think, full stop.

That’s why we worry about that conflict. Has your assessment of nuclear conflict now in April changed, versus when I spoke to you in January? Meaning the odds of that kind of thing happening lower, higher, same, no difference? Well, anything with Iran-Pakistan, you’d have to say they’re higher. Yeah, India-Pakistan, excuse me.

Iran is an interesting case because, of course, Iran is very close. Iran probably has the uranium somewhere hidden away in caves that would probably create weapons. I think a lot of people are wondering whether there’s going to be some sort of surprise.

As some of the high-level members of the Revolutionary Guard have basically said comments to the effect that if Iran had a nuclear weapon, as we all know, the United States wouldn’t be making these demands. I think that’s one lesson that the world has learned from the fate, on the one hand, of Kim Jong-un in North Korea, who’s doing very well, and no one dares bother him, versus someone like Muammar Gaddafi, who agreed to get rid of his nuclear weapons, and he ended up shot dead in the ditch. I think that’s the difference.

Where would Ukraine be today, David, if Ukraine had nuclear weapons? As it once did, by the way, at the breakup of the Soviet Union. Ukraine gave them up for an agreement that no one would ever violate its borders. Russia, United States, Europe didn’t do it any good.

I think the lesson is for the world is that nuclear weaponry gives you protection. And I think what Iran is trying to do is stall. If I had to lay a bet, I would say they have some program to somehow quickly speed up their means of actually making a demonstration.

Let me just, I understand what you’re saying, and I think a lot of people agree with you. Let me just provide one pushback to that statement about Ukraine having nuclear weapons. Even if Ukraine possessed nuclear weapons today, how would that change the calculus of Russia invading? It’s not like Ukraine would nuke Russia.

Nuke Russia would just nuke them back. The threat of mutually assured destruction goes both ways. It’s generally agreed upon that in a nuclear standoff, the country that’s getting beaten, that is to say the country that is negatively being affected by a change in the status quo, is at the most risk of launching its nukes simply out of desperation.

Putin himself did that. He was getting beaten in the Ukraine war. He actually threatened, right? The West keeps aiding Ukraine.

We might actually launch tactical nukes. You remember that? He only did that when he was losing. And by the way, the United States did that.

The United States, we often say that we’re not a first-use country. But back in the height of the Cold War, back in the 1970s, early 1980s, the US basically said, if Soviet tanks came through the Fulda Gap and started invading the West, and we did not have the conventional troops on the ground necessarily to block that, we would use nukes to stop, right? We would engage in first use. That was our doctrine back then.

And why? Because we would have been on the losing side. I think the general presumption is, David, it’s the side that’s being humiliated, that’s taking the losses, that’s going to take the most risk. People are loss averse.

With much more pain from losses than pleasure from wins. And I think that’s one of the reasons, by the way, why the nuclear peace after World War II was generally deemed to be a peace that favored the status quo, right? Because it meant that whoever’s losing would be most likely to use them. All right.

Well, let’s turn now to the fourth turning, no pun intended, and talk about how the economy may be affected. First of all, can you walk us through why it happens every once in a while, not once in a while, every 80 years or so? What is the significance of eight decades? Presumably it’s happening now, and we can compare the economy today to 80 years ago. Well, as we alluded to earlier, it’s the changing of generational experience.

In the model that I lay out, there are four basic types of generations. And we have a pattern in American history. And I think increasingly in global history of having these huge civic moments about the length of one lifetime apart, when everyone who recalls the earlier moment passes away, right? That we have another one of these great civic reshaping moments, constitutional moments.

It’s a moment typically of conflict where we reshape politics, the economy, infrastructure, the public world, right? And roughly halfway in between those, we have the great awakenings of American history. And these are the, you know, we number them. Among historians, we call them the first great awakening, the second great awakening, and so on.

The most recent period was the 1960s, early 70s, when we reshaped the inner world. And this yin and yang oscillation between moments of reshaping inner world and outer world has been a huge pattern in American history going back. And I think it’s something that we see global participation in today, right? And the deeper reasons for that are kind of laid out in the book.

It’s the fact that we generally believe that we can make societies better over time. And each generation thinks it has better ideas about how to do that. So there is this trend of oscillation with generational leadership as generations take over nations and societies.

And right now we’re in that classic, you know, we call third turning to fourth turning transition where we were in the 1930s is exactly where we were. And keep in mind that Bill Strauss and I laid this out in 1997, long before we were here. We said the 2020s would be the decade, right? We were kind of counting forward.

And now we’re here. And this is what we’re facing. In terms of the economy, we see this trend toward autarky, right? Repediation of globalization, getting back to this integrated, you know, community with much higher walls.

I mean, everyone’s building walls today. We build walls against immigrants. We build walls against migration.

We build walls now against trade. The big danger is, I think, that the Trump administration hasn’t thought through entirely is that by shutting the window on goods and service trade, he shuts the window on capital trade, capital imports and exports. And the problem is, is that, yeah, we import a lot of goods and services more than we export.

But we also export a lot of pieces of paper that are IOUs more than we import, right? And what that’s going to mean is it’s going to mean the shutting of the capital inflows into the United States, which is going to reverberate throughout capital markets. It’s going to be the higher real rate of return on bonds, on loans, you know, just basically higher real interest rate, regardless of inflation. Inflation will obviously just add to that.

But the idea that we could have a capital shortage, I’ll tell you something that’s really alarming about the last four weeks, and that is just as America has been, you know, going into this economic slowdown, everyone begins to is anticipating at least an economic slowdown, possibly a recession. Now, typically when that happens and you have the VIX is much higher, you have a lot more volatility in capital markets, particularly in the downside. Typically when that happens, David, the dollar goes up and long-term treasuries go down, right? That’s what happens.

All the money around the world flows into the US. It’s going the opposite way this time. And I think that is a sign.

That’s a worrying sign. Because at the same time, yeah. No, sorry, go ahead.

But at the same time, you see the dollar falling and interest rates rising. Yeah. Trump wants to expand the deficit, right? One often underappreciated danger with closing off trade flows is it also closes down capital flows.

And the United States is critically dependent on borrowing from abroad to fund investment and fund its very high deficit levels. We are a nation that doesn’t save very much. Our net national savings rate is close to zero, right? We run these enormous deficits.

And oddly enough, rather than close the deficit in its new budget resolution with the reconciliation that’s going to go with it through the Senate to get around the filibuster rule, Trump wants to expand the deficit, right? So this could lead to a situation of not just the economy slowing down and possibly going at least a kind of a one-time price hit, right? Inflation hit through tariffs. But at the same time, we could have higher real interest rates and a real capital crunch in this country, which we haven’t seen for a long time precisely because we do freely borrow from the rest of the world, right? They’re always free to lend to us. So we’ve never really experienced capital shortages in the United States.

We could experience it with this new tariff regime. When you said earlier that trade is closing off, what do investors do with this new paradigm of more closed off trade? Well, you get out of any firm that trades a lot, right? That exports or imports a lot. Should we be focused more on countries or companies that produce domestically? Yes, these are companies which are called import substitutors.

So in other words, any company that produces something where the United States is running a big deficit, they gain, right? You name your industry, particularly in materials and manufacturing, suddenly you get the Walmarts and the Amazons, they can’t resist their price. So I think that’s pretty simple. I think that’s what an economist would say.

Do you think there are companies that are more resilient to tariffs, meaning they’re through, I guess, inelastic demand or just sheer pricing power, they’re able to absorb the cost of higher tariffs and pass it on to consumers without any damage to margins? Some, not a lot. Look, if America were completely ambivalent about buying foreign products versus buying American products, on the one hand, when it comes to imports, and if our exports were absolutely desperately needed by the rest of the world, no matter what the price, then we could have painless tariffs. You understand what I mean? Then, of course, we wouldn’t have any of the price hikes and we could export our products even with a higher dollar, right? The dollar would go up, which would mean the actual price, even with the tariff, would remain what it is before for Americans.

And then even with a much higher dollar, other countries would still import what we export. But that is not the case, David. You know that.

I don’t think U.S. exports, whether you’re talking about soybeans or anything else, they’re very price sensitive. There are some exports that we do. We’re very specialized.

Obviously, you’re thinking of chips and stuff like that. We do, particularly in the services. Now, these aren’t really impacted by tariffs.

But on the good side as opposed to the service side, I don’t think there’s a lot that we export where we are price makers rather than price takers. Do you think China is a price taker? I think in the market for most goods, I think most of the place where you’re a price maker is in services. I think when it comes to goods, yes, there are some.

You know, if you create those specialized lithographic machines that actually create the chips, I mean, there are these companies which are amazing, right? There’s only one or two in the world. You know, if you’re one or two of the top chip makers in Taiwan, yeah, you’re a price maker, not a price taker. But those are rarities.

I think if you’re looking at the total economy around the world, it’s very hard to find one country, you know, maybe Denmark with Novorodansk, right? Making Wigabee. Maybe they’re a whole country that’s a price maker. Maybe that’s a good example of that.

But I’m just saying in general, in the market for goods, most goods from most countries are price takers. Yeah, unless you’re in a command economy, but we’re not exactly. You mentioned the dollar floating downwards in the interest rate, the 10-year yield going up.

Well, here’s a chart of the DXY. It’s at a three-year low. Last time we saw this level was in 2022.

Do you think we’re entering a multipolar world for currency reserves, meaning the dollar will no longer be the de facto currency of trade and we’re going to see others pop up like the renminbi or euro or yen? I’m just naming things off the top of my head. Is that what’s happening? I mean, I don’t know. I would say, you know, the decline we’ve seen so far is just basically people getting out of, you know, private sector people, not necessarily government people, just getting out of U.S. equities.

I think there was a huge movement into U.S. equities around the world. We’re seeing laying off that or some withdrawal from that. Where is that capital going? Into domestic companies.

You know, Japan is going into Japanese companies, South Korean companies, maybe into each other’s companies, but it’s just no longer an American guy. I think they suddenly see, for a long time, America was just seen as this. You have to remember, the dollar is much higher than it used to be.

Terms of trade have improved. The real value of the dollar has improved. So to some extent, it’s just correcting for the overvaluation it was.

But there is a danger of it if it keeps going down. I think also people are investing increasingly in other precious metals, particularly gold, rather than the dollar. But when it comes to a liquid, interest-bearing foreign reserve market, it’s really hard to beat the dollar, right? And for decades and decades, what made the dollar such a perfect safe haven asset was that anything went terribly wrong with the world, David, the dollar would go up, which means that not only is a liquid market and you earn interest on T-bills wherever you are in the world, right? But if things really went bad in the world, the value of the dollar went up relative to your currency.

That’s like a win-win. I mean, no other currency in the world has that property. It’s going to take a lot of bad news from America to get most investors around the world from getting out of that habit.

So when the dollar doesn’t go up on bad news, what does that imply? That implies that we’re losing the magic. That’s what it implies. When you see that trend happening, what’s your first instinct? Where do you park your cash for safety, then, if not U.S. dollar-denominated treasuries and assets? I think you have to park it.

It’s not really an issue for Americans because our stuff is just automatically in dollars. I think if you’re in another country, looking for other countries, do you look at the Swiss franc? It’s up like 15%. You can call it up on your screen.

It’s amazing. We see these other opportunistic currencies going up. A lot of Americans and their money also moving to Switzerland.

Yeah, there’s a CHF-USD pair. Look at that. That’s what you’re talking about here.

Yeah, exactly. That’s not really an issue for Americans. I think for the rest of the world, it’s simply looking at more domestic assets.

I think it’s going to be interesting to see going forward. You have to think the big long-term fear, which is a long-term problem, but it casts a shadow back on today’s market prices, David, is this question. America has, I think, its net investment position of the rest of the world is something like negative 100% of GDP, something like that.

In other words, the rest of the world owes us rather relative to what we owe the rest of the world. The rest of the world is thinking, if they’re closing off all their goods and trade exports, how are we ever going to get that value back? Meaning that the only way that the American can ever pay this back is someday America is going to have to run a surplus with the rest of the world. You know what I mean? But if America never again runs a surplus, how is it ever going to get the value back? It’s a little bit like if Amazon, you remember all those years it wasn’t paying any dividends? And people invested in anyway, because they thought, oh, it’s retained earnings.

It’ll be dividends someday. What if Amazon, five years ago, had basically said, you know what? We’re never going to have the dividends. And we’re never going to do buybacks either.

I think that would have had a negative impact on the stock. In other words, you’re never going to get that money back again. I’m just curious, this outflow of capital away from US equities into domestic equities, does this present a buying opportunity for you right now? Well, as we just discussed, it’s buying in some things, not others.

But the broad index, let’s say the S&P 500. I think it was overvalued anyway. So I think it was due to come down regardless.

I think we’ve seen passive indexing and a lot of other forces just push it way up. And I think, actually, it was getting so extreme that that’s why the rest of the world was basically joining in on it. I think it was, to some extent, a bubble, right? Very high valuation ratios.

For instance, S&P market cap as a share of GDP, some of those measures, Shellers PE, a variety of these indexes just showed that the S&P was very much overvalued. So a lot of this is just coming back from overvaluation. And the question now is, could it fall further? I guess maybe one way David is summing it up is, could it go beyond just correcting from overvaluation? Could it continue to go down? Could it become undervalued, right? In which case, we’d be looking at much farther drops in the S&P.

Well, what do you think? I hesitate to say. I would hate to be the reason why anyone suddenly made a portfolio change. But you can imagine it’s a crazy world, right? We’re seeing much higher volatility than we did before.

I do think that one aspect of this new Trump economy is going to be higher national savings rate. I think Americans will be saving more. They’ll be consuming less.

And I think ultimately, we’ll be rearming. We’ll be doing more in things like hardening installations, doing more infrastructure, all of the rest of it. We’ll certainly be spending less on personal consumption.

How do you feel about defense stocks? Well, it’s because we can’t borrow. We can’t borrow from the rest of the world anymore. And because we have all these public needs, which we’ll have to pay for.

Speaking of rearming, how do you feel about defense stocks? I’ve been pretty bullish on them, and they’ve done very well over the past three years. And finally, just looking at the 80-year cycle that we talked about earlier, how does this impact economic cycles? Do changes in generational habits and needs and wants impact how the consumer interacts with the economy right now? Yeah, I think it does. There’s a basic correspondence between the K-wave and the cyclum, the generational cycle throughout history.

The times that are hardest for capital markets are the fourth turnings and the second turnings, the awakenings. I mean, the 1970s was a terrible time for markets, as you know. But basically, the rule is basically the second turnings and fourth turnings are bad news.

First turnings and third turnings are really good news. The American high was a pretty good news for both markets and the economy, economic growth, particularly standard of living growth. And the late 1980s, 1990s, early 00s was a pretty good time for standard of living growth, although not so good for inequality.

There is a shape to the economy that corresponds with these four seasons, David. We kind of lay it out in the book, talk about how, yes, there is such a thing as a fourth turning economy. And much of what you can describe in a fourth turning economy is an economy which sooner or later is taken over by the public sector.

That’s the element of mobilization and conflict. Are you talking about nationalization of companies? No, you don’t have to nationalize them. You just have to steer capital and steer workers and so on, labor, where it should go.

So we did that very effectively in World War II. We basically nationalized investment during World War II, right? By the end of World War II, the US government owned well over half of the capital stock of US manufacturing corporations. What happened to productivity during this time? What happened to earnings? Oh, productivity soared because, of course, we had these certain mass-produced things we wanted to build, and we produced a zillion of them, right? When you don’t have to worry about consumer welfare or consumer customization, productivity goes through the roof.

I see. Great. Neil, this was a very good discussion.

Thank you. Well, I mentioned your Substack. You have a book.

Tell us about your book. Tell us where we can find your work. Well, I do have a podcast.

I do every week on Substack, Demography Unplugged. You can go there to look it up. I have a new book coming out probably early next year, and it’ll really be the answer to the question most people ask after reading The Fourth Turning Is Here, David, and that is, okay, let’s say I believe you, Neil.

What the hell should I do? It’s a practical book. It’s basically, where do you live? What careers do you choose? How do you deal with your family? And above all, what do you do with your wealth? How do you deal with your family? I’m just curious. Let’s give us a teaser here.

What’s the interplay there? Well, think about it. What if you’re scattered around, and what if there’s a real crisis, right? Where is your family going to get to where you are? How are you going to take care of them? How are you going to protect them? This happened even during COVID, right? You had seniors who were in nursing homes that had to be picked up and so on. Things happen fast in a fourth turning, and things can happen unexpectedly.

We do see this sort of spread of prepping down to the level you can go into Costco and buy these survival buckets. I mean, it’s everywhere, right? People stashing cash, people thinking about what to do in their own homes. And what I try to do is just make that practical.

Unfortunately, too much of the prepper stuff is sort of Sylvester Stallone in the jungle for three weeks. You know what I mean? It’s not practical. It doesn’t speak to us where we are and how we actually live.

Maybe some people want to live like that. Who am I to judge? Well, yeah, but this is for everyone else. Let’s leave it at that.

Fair enough. We’ll put the links down below, so make sure to follow Neil’s work there. Thank you again, Neil, for coming on the show.

We’ll speak again soon. Great. Thank you, David.

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