The first shariah-compliant ETF

by Rossputin | 12:56 am, July 2, 2009

(H/T Delta Mike)

Starting Monday, a company called Javelin Funds has launched the first Shariah-compliant ETF (exchange traded fund), essentially a tradeable basket or index of 100 companies, based on – wait for it – the Dow Jones Islamic Market International Titans index maintained by Dow Jones & Co.

The index is made up of 100 companies outside the US whose practices are compliant with Sharia, meaning that “Excluded are companies engaged in the following lines of business: alcohol, tobacco, pork-related products, financial services, defense/weapons and entertainment. Also excluded are companies for which the following financial ratios are 33% or more: debt divided by trailing 12-month average market capitalization; cash plus interest-bearing securities divided by trailing 12-month average market capitalization; and accounts receivables divided by trailing 12-month average market capitalization.”

Here’s some other interesting information from Dow Jones:

The Dow Jones Islamic Market Indexes were introduced in 1999 as the first indexes intended to measure the global universe of investable equities that pass screens for Shari’ah compliance. With more than 100 indexes, the series is the most comprehensive family of Islamic market measures and includes regional, country, and industry indexes, all of which are subsets of the Dow Jones Islamic Market Index. An independent Shari’ah Supervisory Board counsels Dow Jones Indexes on matters related to the compliance of index-eligible companies.

There are currently more than 150 licensees with more than US$7 billion in assets benchmarked to the Dow Jones Islamic Market Indexes.

On another page, I found the list of the Shari’ah Supervisory Board members:

Shaykh Abdul Sattar Abu Ghuddah (Syria)

Dr. Abu Ghuddah is a senior Shari’ah Advisor to Albaraka Investment Co. of Saudi Arabia. He holds a PhD in Islamic Law. Dr. Abu Ghuddah has published many books on Islamic Financial transactions. He was an advisor for Islamic Law Encyclopeadia (Kuwait Awqaf Ministry). Dr. Abu Ghuddah is a member and chairman of several reputed Islamic Shari’ah Boards.

Shaykh Nizam Yaquby (Bahrain)

Mr. Yaquby is a member of the Islamic supervisory boards for several Islamic institutions, including the Arab Islamic Bank and the Abu Dhabi Islamic Bank. His work has appeared in the following publications: Risalah Fi al–Tawbah, Qurrat al–’Ainayn fi Fada il Birr al–Walidayn, Irshad al–’Uqala’ila Hukun al–Qira’h min al–Mushaf fi al–Salah, Tahqia al–Amal fi Ikhraj Zakat al–Fitr bi al–Mal.

Shaykh Dr. Mohamed A. Elgari (Saudi Arabia)

Dr. Elgari is an associate professor of Islamic Economics and the director of the Center for Research in Islamic Economics at King Abdulaziz University in Saudi Arabia. He is an expert at the Islamic Jurisprudence Academy (OIC), Economics. He is also an advisor to several Islamic financial instituitons worldwide and the author of many books on Islamic banking.

Shaykh Yusuf Talal DeLorenzo (United States)

Mr. DeLorenzo is considered a leading Islamic scholar in the United States. He has translated over twenty books from Arabic, Persian, and Urdu for publication in English and has been commissioned to prepare a new translation of the Qur’an. Mr. DeLorenzo compiled the first English translation of legal rulings issued by Shari’ah supervisory boards on the operations of Islamic banks. since 1989, Mr. DeLorenzo has served as secretary of the Figh Council of North America. He is also a Shari’ah consultant to several Islamic financial institutions and was an advisor on Islamic education to the government of Pakistan.

Shaykh Dr. Mohd Daud Bakar (Malaysia)

Dr. Bakar is currently a member of the Shari’ah Advisory Council of many financial institutions in Malaysia and around the world, including the Central Bank of Malaysia, Securities Commission of Malaysia, International Islamic Financial Market in Bahrain, Accounting and Auditing Organization for Islamic Financial Institutions in Bahrain and HSBC (Malaysia).

Are you kidding me? These guys are consultants to Dow Jones? Just a year ago, Dow Jones quietly removed one Sheik Muhammad Taqi Usmani from this Board. Apparently Usmani’s calls for Muslims to kill or enslave non-Muslims was inconvenient for Dow Jones’ brand image. The odds that one or more of the other Board members don’t have close ties to terrorist organizations borders on zero.

Yes, it might be argued that someone will do the business if DJ doesn’t, but even a dyed-in-the-wool capitalist must consider whether helping people who have sworn to kill you make money and spread their philosophy is wise.

It has been argued – and it makes sense to me – that Sharia finance is the jihadists’ nose into the tent of the world economy. Usmani’s participation is just one piece of evidence to bolster that reasonable assumption. Or HERE is one thing the Shariah-compliant profits might be buying. (Make sure you click on that link!)

There’s a very interesting (and not short at 62 minutes) presentation entitled “Sharia-complaint Finance: Benign? or Beligerent?” which I strongly recommend to anyone really interested in the subject. You can find it HERE.

I will research contact information for the CEO of Dow Jones & Company and update this note with that information when I have it. I will encourage you to contact him, as I will, to let him know that his company’s actions are aiding and abetting the most dangerous enemy this world has seen since Hitler – and possibly more dangerous than that. One would think that since the well-known conservative, Rupert Murdoch, now owns Dow Jones after its purchase by Murdoch’s News Corp., there should be at least a few sympathetic ears in the corporation. That said, I suffer no illusion that any amount of public outcry, much less the little that I can help muster, will cause them to get out of the Shariah-compliant finance business. All I can do is to avoid Dow Jones products as much as I can (difficult, given the importance of the Wall Street Journal) until they stop helping our sworn enemies.

If there is a bright side to all this, it’s that only $7 billion is so far indexed to these Dow Jones travesties. Let’s all do what we can to keep that number from getting bigger…not that we can do very much.

Support Clear the Bench

by Ari Armstrong | 11:51 pm, July 1, 2009

A couple days ago I gave Clear the Bench Colorado a little hell for defending Amendment 54. I want to emphasize here that this is a minor disagreement with the organization (as the issue, while important, is only tangentially related to its activities), and I support Clear the Bench.

Moreover, I recognize that Matt Arnold took on the project on his own initiative, and he is preparing to work doggedly on this issue for many months. He faces a difficult and often thankless uphill battle.

We have the ability in Colorado to vote for judges’ retention. Next year four of Colorado’s Supreme Court justices face a retention vote. Because of their prejudicial decisions, they deserve to be thrown off the court by Colorado voters. Clear the Bench is working to educate voters in order to make that happen. If you support judicial integrity, support Clear the Bench.

(Also, while I’m praising organizations, I’ll point out that the Independence Institute hosted the wonderfully inspiring Daniel Hannan and posted his talk in four parts. Hannan, an English parliamentarian, sounds more like an American than most American politicians.)

Beltway Buzz Growing over “Part Obama, Part Reagan” Ryan Frazier

by Ben DeGrow | 6:19 pm, July 1, 2009

The Ryan Frazier for U.S. Senate campaign is drawing more attention inside the Beltway — this time as noted on the “Washington Whispers” blog of U.S. News and World Report’s Paul Bedard:
We’re hearing lots of buzz about another Republican who plans to challenge Colorado Sen. Michael Bennet, named just this year to replace Ken Salazar, [...]

Aurora Republicans Host Top Candidates

by Ari Armstrong | 2:57 pm, July 1, 2009

Micah Marmaro, president of the Aurora Republican Forum, did an outstanding job gathering top Republican candidates and elected officials at a barbeque June 27 at General’s Park. Here I’ll review what they had to say — which in some cases was surprisingly little. (I, on the other hand, said too much, but I’ll review my talk in a subsequent post.) I’ll intersperse my comments with related photographs.

While I have previously criticized Congressman Mike Coffman on grounds of economic and personal freedom, Coffman gave by far the best speech at the Aurora event.

Coffman, who served in Iraq, offered an overview of the situation there. He said, “I think there’s going to be an uptick in violence as we pull out of the urban areas.” He added, “I’m confident we can stay on schedule” with a “phased withdrawal.” He worried that President Obama is “not committing adequate resources to the war” in Afghanistan, risking unnecessary casualties. He also complained about Democratic pressure to “reduce funding for missile defense.”

Coffman attacked directly the Democratic argument that “cap-and-trade” energy restrictions will help the U.S. become energy independent. “The fact is that we’re dependent on imported oil because they’ve done everything they can to block our ability to do energy development, to do drilling of natural gas and oil,” Coffman said.

What cap-and-trade “will do,” Coffman continued, “is it will drive up the cost of energy. What it will do is drive jobs outside the United States… What manufacturing base we have left in America will push over to China.”

Coffman said the political pace in Washington, DC, “has been incredible” because “this president has an agenda that is very aggressive… It is not a president of the general election, it is a president of the primary. He is a liberal through and through… This is far-left stuff.”

Coffman said that the rapid pace of legislation is cutting short Congressional debate as well as public scrutiny, “so right behind cap-and-trade… we will be debating health care reform, and right on the heels of that we’ll be debating immigration reform” (where I imagine I align closer with Obama’s policies than with Coffman’s, given that I support an employer’s right to hire willing workers). Coffman also said he expects to see another move to push “card check,” empowering unions by wiping out secret ballots for unionization.

However, given the close vote for cap-and-trade, Coffman said “I think it will have a difficult time in the Senate.”

Coffman complained also that the $787 billion “stimulus” bill got minimal Congressional review before passage.

On health care, Coffman called the “public option” a “bait and switch for socialized medicine,” a “single-payer system” that “will continue to drive the deficit.”

Coffman said, “We have a deficit this year of $1.7 trillion. We will have a deficit for as far as I can see, at about a trillion dollars and rising. That’s unsustainable… It got so bad that the Chinese publicly stated that they were worried about the U.S economy” in terms of inflation and interest rates.

Answering a question, Coffman said, “It’s truly a European-style welfare state that this president and Congressional leadership are seeing.” He noted that various Europeans are trying to get of such systems.

Coffman said 2010 will be a referendum “that will define the direction of America. It will define whether or not we are a European-style welfare state. It will define whether America is simply a country of large labor organizations, big business like Chrysler and GM where government has a stake in them or ownership in them — big government, big business, and big labor. Or are we a country based on individual rights and responsibility, and anybody being able to start a small business with that entrepreneurial effort.”

I also respected Coffman’s answer regarding bringing military jobs to Colorado: “I like the fact that defense dollars come to Colorado, as long as we’re competitive for those defense dollars. I will not lift a finger to compromise the ability of our military by forcing them into Colorado. And so what I want to do… is make sure… that they have the right tools to succeed in Colorado.”

Concluding, Coffman said the central choice is “whether we have a free market economy or whether we have an economy that’s managed by the government for its own interests.”

All day (aside from my speech), Coffman’s discussion of individual rights and a free market economy was the clearest expression of a guiding political philosophy.

Shown above from left to right: Mike Morison (volunteer with Bob LeGare), Adam Eidelberg (volunteer for Dan Maes and Bruce Peterson), Andrew Goad (candidate for state house district 32), and Brian Cambell (candidate for the Seventh Congressional). (Thanks also to Micah for filling in some of these names.)

Bruce Peterson is running for Arapahoe county commissioner.

Loraine Buck, Ken Buck (candidate for U.S. Senate), and Micah Marmaro.

Check back — more to come!

Fees: 560 million more reasons for transparency

by Amy Oliver | 2:20 pm, July 1, 2009

Technically the Taxpayer’s Bill of Rights prevents lawmakers from raising taxes without a vote of the people.  They can raise fees but fees are supposed to cover the cost of services provided only.  And the Tooth Fairy and Easter Bunny are real.
Natalie Menten and Face the State cooperated to show us just how much the General [...]

Daniel Hannan, Conservative MEP Denver Appearance

by Jon Caldara | 1:44 pm, July 1, 2009

The star of this wildly popular speech made in British Parliament, Daniel Hannan, made an appearance here in Denver last week, and we were lucky enough to host him for a cocktail hour over at the Grant-Humphreys Mansion. We had a great turnout with some high profile guests. Several of Colorado’s most esteemed [...]

Help Keep it Going!

by Jon Caldara | 9:41 am, July 1, 2009

Our short 60 second Obama Care video starring one of my minions seems to be lighting the YouTube world on fire.  It’s coming up on 20,000 views in just one week!  We’ve been featured on some very A-list blogs and websites recently: MichelleMalkin.com, HotAir.com, Reason.tv, Cato’s Blog, and our good buddy Radley Balko’s blog – [...]

5 myths of socialized medicine – BUSTED

by Mr. Bob | 9:31 am, July 1, 2009

#tcot #hhrs
CLICK HERE for a must read from Cato (pdf)

Obama Quote of the Morning

by Mr. Bob | 8:39 am, July 1, 2009

“I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes” “you will not see any of your taxes increase one single dime.” (September 12, 2008, Dover, NH)

Obama tax pledge up in smoke

If Cap and Trade Passes the Senate;

The Wall Street Journal reports:

The Congressional Budget Office… estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That’s about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Cap and trade is the ideal policy for every Beltway analyst who thinks the tax code is too progressive (all 5 of them).

Then there is the cost of socialized medicine (which has a much better chance of becoming law than cap and tax).

Washington politicians are pushing us toward more socialized medicine at an estimated minimum cost of $1.17 trillion over the next 10 years – more than $100 million a year for 10 years. Remember, this is the minimum estimate. When is the last time a government project was completed with the amount of money originally estimated?

Another way to look at it is that it will cost $326 for every man, woman, and child in the country – over $1,300 a year for a family of four. READ THE REST at the Democrat

Tweet Quote of the morning;

“Can someone open a window? The fetid odor of Hope and Change is really starting to stink up the joint.“ http://is.gd/1k5Pd

Casey Research: A 20-Year Bear Market?

by Rossputin | 1:36 am, July 1, 2009

One of the most prolific (and one of my favorite) writers about economics and markets is John Mauldin. All the more remarkable is how much of his work is available for free (check out investorsinsight.com and frontlinethoughts.com.) In his “Outside the Box” letter, John generally passes along an article by someone else which he finds particularly interesting (and he’s usually right.)

This week’s “Outside the Box” is very appropriate material for my blog, fitting in well to the issues of political economy which are important to me (and I hope to my readers.)

Here’s the letter…and again I encourage you to check out John’s other offerings….

A 20-Year Bear Market?

By David Galland, Casey Research

In November of 1997, my partner and co-editor of The Casey Report, Doug Casey, wrote an article titled “Foundations of Crisis,” which leaned heavily on the research of Neil Howe and the late William Strauss.

Howe and Strauss have written many books on how generations determine the course of history and how they will shape America’s future. Their forecasts on a wide variety of indicators have turned out to be amazingly accurate. They were among the first to predict (back in the late 1980s) the rise of Boomer-driven culture wars and the simultaneous rise of Gen-X-driven free agency and distrust of government. And they were completely alone back then in predicting, for the post-X “Millennial Generation” (a label they coined), a decline in youth crime and risk taking and an increase in youth civic engagement that would first become apparent around the year 2000. Guess what? For the last ten years, everyone has been noticing exactly these trends among teens and 20somethings.

Howe and Strauss also made extensive predictions, based on generational aging, on how America’s entire social mood would likely change, in dramatic fashion, during our current 2000-2010 decade. To quote Doug’s prescient 1997 article, which was reprinted in Outside the Box late last year…

“… an excellent case can be made the U.S. is approaching another time of secular crisis, a Fourth Turning, with an expected due date of 2005 – seven years from now – plus or minus a few years in either direction.

The Stamp Acts catalyzed the American Revolution, the election of Lincoln catalyzed the Civil War, the Crash of ‘29 catalyzed the Depression/WW II era. What might precipitate the elements now floating in solution? The answer is practically any random event that’s sufficiently traumatic. Any of the theses of current disaster/action novels and movies will do nicely. Perhaps the accidental or intentional release of a super plague vector. The crashing of an airliner into the Capitol during a joint session. An all-out assault on the IRS computers by an armed group – or perhaps the computers just melting down due to the Year 2000 Problem. Perhaps a financial disaster that cascades into the Greater Depression. In any of these, or a hundred other scenarios, the federal government would almost certainly act precipitously and with a heavy hand, which would bring on a whole other set of consequences.

There’s no way of telling where the Crisis will lead, or how it will end. That’s going to depend not only on exactly who’s in control, but what they do, who they’re up against, and a hundred other variables we can’t even anticipate.

One thing that seems certain is that real crisis brings out strong leadership. Because of its age and size, it will come from the Boomer generation, and it will be in the mold of Roosevelt or Lincoln – both very dangerous precedents. The boomers in elderhood will be dogmatic, harsh, puritanical, and quite willing to burn down the barn in order to destroy whatever rats they see. Admix that attitude to a time resembling the Revolution, the Civil War, or WW II, overlain with today’s ethnic strife, urbanization, financial overextension, and powerful, compact new weaponry in the hands of foreign fanatics out to teach the Great Satan a lesson and it’s a real witch’s brew.

As eye-opening as Doug’s predictions were, they brought us only to the onset of the current crisis. Consequently, we thought it both timely and important to check back with the source of much of the research he relied on. And so it was that I spent several hours talking with Neil Howe, co-author of the seminal work on generational cycles, The Fourth Turning, and, just recently, the subject of the DVD “The Winter of History.” Howe is not just an historian, but also a Washington DC-based economist and demographer. While our conversation covered a great many topics, the overriding focus was on how things are likely to unfold from here.

Many bullish readers won’t be thrilled to hear Howe’s latest findings about the future, but given his predictive track record, dismissing them out of hand could be a costly mistake.

The summary outlook, according to Howe, is that we are in the very early stages of a 20-year period of economic and institutional upheaval – an era denominated by a crisis during which we’ll likely witness the tearing down and reconstruction of many aspects of society as we know it.

As individuals, understanding Howe’s views and taking some reasonable precautions makes a lot of sense. As investors, those views also have the potential to make us a lot of money.

Following is my high-level recap of my long conversation with Neil Howe, along with some general thoughts on the investment implications of a 20-year bear market.

Remember the Sixties?

If you’re old enough – or possess even a rudimentary sense of history – think back to the 1950s, with roller-skating waitresses, crew cuts, and nuclear families of the sort represented by the iconic Leave it to Beaver. Fathers worked, while many mothers stayed home. Life had a certain predictable quality and, as far as anyone knew, would continue along the same lines for time immemorial.

But then something happened… the 1960s. Literally no one saw it coming. It was as if someone had flipped a switch that electrified America and, quickly, the world. Most everything changed, and a society accustomed to conformity was blown away with a fierce individualism expressed with long hair, sex, drugs, and rock and roll, topped off with civil disobedience and bloody riots in the streets.

What happened?

According to Neil Howe, in the mid-1960s, generational change pushed society around a dramatic corner as idealistic, individualistic young Baby Boomers (born 1943 to 1960) rebelled against the midlife leadership of their G.I. Generation parents (born 1901 to 1924).

These periods of transitions are part of a larger cyclical pattern made up of four distinct eras, or “Turnings,” each lasting approximately 20 years. It can be helpful to think of the four turnings as you might think of the four seasons, repeating predictably in their own natural rhythm. A full cycle of turnings takes place over a period of about 80 to 90 years – roughly the span of a long human life. A new turning begins as a new youth generation comes of age, bringing a new social ethic that compensates for the excesses of the midlife generation then in power.

While we don’t have the space here to go into the full details of Howe’s research, it’s important to the topic at hand that we quickly recap the Four Turnings.

The First Turning is referred to by Howe as a High. As this follows a period of crisis, one of the hallmarks of a First Turning is a heightened sense of community and collective optimism, driven in part by the fact that the society has just come through a difficult and challenging time. Consequently, during First Turnings, societal institutions tend to be strong while individualism is weak. The post-World War II “High” of the mid-1940s through early ’60s is the most recent example of a First Turning.

The Second Turning, called an Awakening, typically starts out feeling like the high tide of a High, with signs of progress and prosperity everywhere. But just as everything seems to be going along swimmingly, large swaths of society begin to chaff under the social conformity of the High, beginning to gravitate to more individualistic pursuits and demanding that their personal interests come first. You may recognize the “Consciousness Revolution” of the mid-1960s through early 1980s, correctly, as the Second Turning.

Next up, the Third Turning, which Howe calls an Unraveling, is much the opposite of a High. To wit, individualism dominates, while institutions are increasingly weak and discredited. Quoting Howe on the Unraveling…

“This is a time when social authority feels inconsequential, the culture feels exhausted, and people feel bewildered by the number of options available to them. It is a time of celebrity circuses and a tremendous amount of freedom and creativity in our personal lives, but very little sense of public purpose.

The most recent Third Turning began in the mid-’80s with Morning in America, and continued through the ’90s. Previous periods of Unraveling in American history were also decades of cynicism and bad manners. Think of the 1920s, the 1850s, the 1760s. And history teaches us that the Third Turnings inevitably end in Fourth Turnings.

Finally, there is the Fourth Turning, called a Crisis. The recent Third Turning appears to be winding down, and we are currently on the cusp of a Fourth Turning. This is a time of great turmoil, when society’s basic institutions are torn down and rebuilt, and seemingly insurmountable problems are addressed. During Fourth Turnings, America engages in a struggle for its very survival and redefines its identity as a nation. Large wars are often a part of this process. The American Revolution, Civil War, Great Depression, and World War II were all features of past Fourth Turnings.

In sum, Howe’s research has shown that, with remarkable predictability, history is not a straight line extending toward a better and brighter (or increasingly awful) future, but rather a repeating cycle of the four distinct social eras. These four turnings have recurred with remarkable consistency throughout Anglo-American history, as Neil Howe outlines at length in Generations and The Fourth Turning. It is therefore no accident that America has experienced great cataclysms or “Crises” about every 80 years. Travel back eighty years from Pearl Harbor Day, and you land in the middle of the Civil War. Eighty years before that takes you to the Revolutionary War. If the rhythms of history hold, America is now poised to enter another Fourth Turning.

Bad News, Potentially Good News

You don’t need me to tell you that the United States and in fact the world are now facing a plethora of intractable problems. The world’s former powerhouse economy, the U.S., is now the world’s largest debtor nation – and by a wide margin. The nation has trillions in unpayable liabilities coming due on Social Security and Medicare, to name just two of many broken government programs weighing on the country. And our much vaunted democracy is increasingly dysfunctional – rotten to the core, truth be known – thanks largely to entrenched special interests and a voting public clamoring for their own piece of the pie, while trying to hand the bill off to somebody else.

Meanwhile, the economy – despite rigorous jawboning by the government and its many friends in the large banking institutions – is in serious trouble, with the housing market buffeted by tsunami-like waves of defaults, foreclosures, overvaluations, historic levels of personal debt, and tight credit that has left the U.S. government as the sole lender in many markets.

Bernanke and his ilk may see green shoots, but what they’re really seeing is the deep, green sea rising up once again to bury the economy.

That’s the bad news.

The potentially good news, if you credit Howe’s research, is that the Crisis we’re now entering will change pretty much everything. While this change will entail a great deal of pain and a reduced standard of living for a large number of people, by the time the Crisis subsides, society will have pretty much remade itself in ways that no one can predict at this point.

Put another way, today’s intractable problems will be solved… one way or another.

What’s Next

When discussing what’s likely to follow next, Neil Howe turns to his generational profiles and points out that the rising societal power today belongs to the generation he calls the Millennials, individuals born between 1982 and 2004. They are a “Hero” generation, just like the G.I. Generation that coped so well with the turmoil of the Great Depression and World War II – the last Fourth Turning. Coddled as children, the G.I.s were ultimately called upon to help society through a dark and dangerous period and rose to the occasion. Again, quoting Howe on the Millennials…

“These are today’s young people, who are just beginning to be well known to most Americans. They fill K-12 schools, colleges, graduate schools, and have recently begun entering the workplace. We associate them with dramatic improvements in youth behaviors, which are often underreported by the media. Since Millennials have come along, we’ve seen huge declines in violent crime, teen pregnancy, and the most damaging forms of drug abuse, as well as higher rates of community service and volunteering. This is a generation that reminds us in many respects of the young G.I.s nearly a century ago, back when they were the first boy scouts and girl scouts between 1910 and 1920.

Unlike the Baby Boomers, who are largely individualistic and anti-establishment, the Millennials are good team players. We hear a lot these days about working together for a common cause, volunteerism, and the need for stronger government institutions, largely because these are the new priorities of the Millennial Generation.

As you may recall, out of the devastation of World War II, a spate of transnational political and economic institutions were born, including the United Nations, the World Bank, the World Health Organization, and the International Monetary Fund. By the time the current Fourth Turning is over, expect more of the same – but probably even bigger and more ambitious.

What Does This Mean to You?

Most importantly, if Howe is right, this crisis is far from over. In fact, when I asked him where we are today on a scale from 1 to 10 – with 10 representing as bad as the crisis will get – he replied that we are at either 2 or 3. In other words, the worst is very much yet to come. And, per above, he expects this period of turmoil to take 20 years to play out. Thus, if nothing else, you may want to continue approaching matters of personal finance cautiously.

Secondly, if you’re the type of individual that tends to get steamed up by larger and more intrusive government programs, you may want to take a few deep breaths and resolve yourself to the fact that this phenomenon is likely to get far worse before we see a return to celebration of individual rights. (And the cycle shows that we will see such a return – about 40 to 50 years from now, when the next Second Turning comes around.)

If it is any consolation, the Millennial Generation places a great deal of weight on teamwork and the notion of doing things “smart.” That doesn’t mean, of course, that the various programs that are kicked off in an attempt to fix the many problems now confronting society will in fact turn out to be technically smart. But they will almost certainly be better thought out than some of the numbskull initiatives we’ve seen over the last 20 years.

You can also take some comfort in the fact that Millennials are builders, not destroyers. By contrast, the individualistic Boomers that dominate today’s aging political class are world-class dissenters, radio talk show aficionados always ready to scrap it out for their beliefs. Millennials want to skip the philosophical debate and get straight to fixing things.

Other insights about Fourth Turning periods gained from my conversation with Neil Howe…

* Government grows powerful, and sweeping new legislation is enacted. The old 1990s rule was: just compete and stay off the state’s radar screen. The new 2010s rule will be: better have a presence in Washington so you’re not dealt out of the “new” new deal. One political party tends to dominate. The Democrats under FDR during the last Fourth Turning offer a good example. While Neil Howe doesn’t think it will necessarily be the Democrats this time around, they are certainly in the pole position at this point.

* While public history speeds up, personal life slows down. Families will spend more time together, like in the old Frank Capra movies. Ever more households will be multi-generational, a trend now spurred by Boomers with large, empty McMansions and Millennials without jobs. There will be a blanding of the pop culture, with the entertainment of the young (put Miley Cyrus or “High School Musical” on fast forward) increasingly regarded as tamer than the entertainment of the old.

* Innovation tends to stagnate, while a few new technologies will be chosen to be adopted on a large scale. We will see the equivalent of canals or railroads or interstates being built across America. To borrow from Carlotta Perez’ four-stage description of technological revolutions, we are moving from the “innovation” to the “implementation” stage.

* New laws and regulations will do less to referee a free market and more to pursue one or another national priority. They will increasingly favor the large producer over the retail buyer, investment over consumption, planning over risk, debt over equity. Businesses will hustle to reposition themselves. Anti-trust legislation will weaken.

* The authority and obligations of community will strengthen at all levels, from local to national and possibly beyond (if our alliances prove durable). Personal reputation and membership will matter more. A “new localism” will reshape town and urban planning. A global slide toward national or regional protectionism will loom as a real danger.

* It is too early to tell whether the crisis will ultimately be inflationary or deflationary, though we at Casey Research come down on the side of inflation for the simple reason that the government possesses the means to inflate. Due to the gold standard, that was not the case early in the Great Depression.

* In the past, Fourth Turning periods have always resulted in the nation redefining who we are in some essential way. That was certainly the case during the American Revolution, when we transitioned from a British colony into a collection of independent states – and the Civil War, when those states were hammered into a single nation. And, again, after World War II, when the U.S. went from being a relatively isolated nation to a global empire. A wild card, for instance a terrorist nuke going off in a city anywhere on the planet, could similarly take the country, and the world, into unforeseeable new directions.

* Baby Boomers will continue to be respected for their cultural achievements (it’s not a fluke of history that Boomer music and other entertainments are still wildly popular among the young), but will be increasingly ignored in the political debate. The term “senior citizen,” already in decline, will disappear entirely. And if push comes to shove, Boomer’s financial interests – including Social Security – will be subjugated “for the greater good.”

* There will be a growing push to rebuild the middle class. The wealthy and the impoverished alike will both come under pressure thanks to new pro-middle class initiatives. If you are a high-income earner, it’s a certainty your taxes are going up, and likely by a lot. If you want to make a fortune, don’t pursue the niche or the “long tail.” Invent the next big brand that will appeal to Everyman.

Don’t Worry, Be Happy

That is, at best, a sketch of my long conversation with Neil Howe and doesn’t do justice to his research. If nothing else, however, I hope I’ve succeeded in giving you at least some sense of the man and his unique research and encouraged you to think outside the box about the nature of today’s crisis.

A couple of final observations.

First, Neil Howe is not a negative person, nor a professional doomsayer. Rather, he is a social scientist and historian with decades of experience in the social sciences. As you speak to him, you get the sense that he doesn’t view the world through any particular philosophical bias, but rather is simply reporting what his research is telling him about the current players on the global stage, and which act we are currently in.

Secondly, speaking as a Baby Boomer and someone with a lifelong distrust of government and its meddling institutions, talking to Neil left me feeling oddly relaxed – letting go, if you will, of some of the frustration that has been building within me as I watch the nanny state grow more and more bloated.

That is not to say we won’t continue to speak out against government waste and prolificacy. We will. But it seems increasingly clear that we’re now caught up in a powerful trend toward bigger, not smaller, societal institutions – and that these institutions will, over the period ahead, change the world as we know it.

Of course, being active investors, at the same time we raise our voices in protest, we’ll deal with the reality of the situation by strategically positioning our portfolios to profit from the coming changes.

And so, like the Rockefellers and J.P. Morgan during the Great Depression, we’ll make the trend – to matter how negative – our friend. You may want to consider doing so yourself.

Responses to Paul Krugman on economics of health insurance

by Brian Schwartz | 1:30 am, July 1, 2009

In a recent post on health care, Paul Krugman writes (in his typically obnoxious smug style):
Both George Will and Greg Mankiw basically argue that we don’t need a government role because we can trust the market to work — hey, we do it for groceries, right?
Um, economists have known for 45 years — ever since [...]

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