Outside the Box

The Big Picture

February 12, 2016

I’ve been a bit slow in bringing good friend Neil Howe’s predictions for 2016 to your attention, but over the last couple weeks I have turned back to them more than once as Neil’s take on the year ahead has begun to look very prescient indeed.

In this New Year’s interview that Neil did with his firm, Saeculum Research, he wastes no time in telling us that he thinks expectations of several more Fed rate raises this year are “delusional,” because “The global economy is in no condition to take this medicine. My very safe prediction is that the Fed will either stall or back down.”

Bingo: after scaring the pants off everybody in the world last year with their hawkish talk of a persistently isolationist monetary policy, the Big Dogs of the FOMC have been yapping like toy fox terriers the past couple weeks, making sure everybody hears the message that “… we are closely monitoring global economic and financial developments and assessing their implications for the labor market and inflation, and for the balance of risks to the outlook” (Board of Governors Vice-Chairman Stanley Fischer, Feb. 1, 2016).

Neil doesn’t stop there. He reminds us that the world geopolitical situation is deteriorating, particularly in the Middle East, and that the US presidential race is a complete crapshoot. At this point, the interviewer chirps in with “You sound a bit more downbeat than most.” Well, says Neil,

If I’m coming in beneath the consensus forecast, it’s because – over the last decade – reality has been coming in beneath the consensus forecast….

[T]here do arise periods lasting ten years or more when the consensus forecast can veer consistently too high or too low. And over the last decade, it has veered too high. Each year since about 2005, forecasters have been predicting a rise in corporate earnings, in GDP, in inflation, in interest rates—in basically all of the vital growth metrics – that is substantially higher than what subsequently occurred. And I’m talking about every forecaster: the IMF, World Bank, Fed, ECB, OECD, and CBO, along with surveys of business economists….

Systematic overshooting by international institutions is leading some observers to talk about “an in-built ‘optimism bias.’”

Which leads the interviewer to quip, “I guess we can’t call it the dismal science anymore,” and to wonder at the reasons for the chronic boosterism.

“Oh, I know why it’s happening, says Neil,

The world has fundamentally shifted over the last decade, especially since we’ve emerged from the Great Recession. We are seeing slower demographic growth, overleveraging, a productivity slowdown, institutional distrust, policy gridlock, and geopolitical drift. But the professional class has been very slow to understand what is going on, not just quantitatively but qualitatively in a new generational configuration that I call the Fourth Turning. They don’t accept the new normal. They keep insisting, just two or three years out there on the horizon, that the old normal will return – in GDP growth, in housing starts, in global trade.

But it doesn’t return.

And with that, I think I’d better turn you over to Neil for the straight scoop on what is shaping up to be a watershed year. His message here is a very fundamental, very important one. I should also mention that in addition to his newsletters and research at his website, he is now available on the larger services at Hedgeye.com. He recently joined them as managing director to lead the investing research firm’s work in the demography sector. If you’d like to know how to access Neil and Hedgeye’s institutional research, you can email them at sales@hedgeye.com.

Oh, and for those of you who have registered for the upcoming Strategic Investment Conference, don’t forget that Neil will be with us. For the first time ever, he’ll be previewing his upcoming work, The First Turning. His book The Fourth Turning, published back in 1997, is familiar to many of my readers as one of the most significant books written in the past 25 years.

I was actually somewhat surprised that the conference sold out almost four months before it opens. I’ve never had that happen before. For those who didn’t jump on the registration bandwagon in time, we may possibly have a few slots open up, as there are always a few people who have to cancel at the last minute. You can go to the SIC 2016 website and register to be placed on our waiting list.)

Now, let’s take a look at Neil’s “Big Picture.”

Your thinking about fundamental shifts analyst,

John Mauldin, Editor
Outside the Box

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The Big Picture

January 2016 Report

All signs point to 2016 being a momentous year on every front, from the shuddering global economy to the stormy upcoming election season. How will the world look by year’s end? BP interviewed Saeculum Research Founder and President Neil Howe to get his take on what’s ahead. (This is an expanded version of the interview we published as a Social Intelligence report on January 6, 2016.)…

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Dallas Kennedy

Feb. 12, 1:30 p.m.

A great article this week (not that they aren’t all great :).

Obama is a Boomer, by the usual definition (1946-1964). He is a late Boomer, but his narcissism and self-absorption are telltale generational markers.

The Millennials probably won’t start having a significant economic impact until the next decade, for a variety of reasons. What kind of political impact they’ll have is an interesting question. Voter participation rises in proportion with age, so the Boomer and Gen-X-er impact will continue for some time, although Gen-X is of course smaller.