I’m a global macro investor who has been betting on what’s going to happen for over 50 years. I’ve been through all sorts of events and cycles in all sorts of places over a long time which led me to study how these events and cycles work. In the process, I learned that I needed to study history to understand what’s going on and what’s likely to happen.
Early in my career, I learned though a couple of painful mistakes that the biggest things that surprised me did so because they never happened in my lifetime but had happened many times in history. The first time that happened was on August 15, 1971 when I was clerking on the floor of the New York Stock exchange and the U.S. defaulted on its debt promise to allow people to turn in their paper dollars for gold. I thought that this was a big crisis that would send stock prices down but they went up a lot. I didn’t understand why because I’d never experienced a big currency devaluation before. When I looked back in history, I saw that the exact same thing happened on March 5, 1933 when Roosevelt defaulted on the U.S.’s promise to let people turn in their paper money for gold and stocks went up. That led me to study and learn why—which is that money could be created, and when it’s created, it goes down in value which makes things go up in price. That experience led me to study the rises and declines of markets, economies, and countries which I’ve done ever since. For example, my studying how the 1920s debt bubble turned into the 1929-33 financial collapse led me to anticipate and profit from the 2008 financial crisis. That’s how I learned that it’s critical to take a longer-term perspective and understand the mechanics behind why history rhymes.
A few years ago, I saw three big things happening that hadn’t happened in my lifetime but had happened in the 1930-45 period. These were:
- The largest amounts of debt, the fastest rates of debt growth, and the greatest amounts of central bank printing of money and buying debt since 1930-45.
- The biggest gaps in wealth, income, values, and the greatest amounts of populism since the 1930-45 period.
- The greatest international great powers conflict, most importantly between the U.S. and China, since 1930-45.
Seeing these three big things that never happened in these magnitudes in my lifetime led me to study the rises and declines of markets, economies, and countries over the last 500 years, as well as the rises and declines of China’s dynasties the last 2,100 years.
That examination showed me that these three big forces—i.e. the debt/money one, the internal conflict one, and the external conflict one—transpired in big cycles that reinforced each other to make up what I call the Big Cycle. These cycles were driven by logical cause-effect relationships Most importantly, this study of the last 500 years of history taught me that:
- The previously described financial conditions repeatedly proved to be leading indicators of big financial crises that led to big shifts in the financial order.
- The previously described levels of political and social gaps repeatedly proved to be leading indicators of great conflicts within countries that led to big changes in domestic orders.
- The previously described great powers’ conflicts repeatedly proved to be leading indicators of international conflicts that led to big changes in the world order.
Said differently, history shows that the painful seismic shifts part of the Big Cycle comes about when there is simultaneously 1) too much debt creation that leads to debt bubbles bursting and economic contractions which cause central banks to print a lot of money and buy debt, 2) big conflicts within countries due to big wealth and values conflicts made worse by the bad economic conditions, and 3) big international conflicts due to rising world powers challenging the existing world powers at a time of economic and internal political crises In doing this study, I also saw two other big forces that had big effects. They are:
- Acts of nature (droughts, floods, pandemics) including climate change.
- Learning leading to inventions of technologies that typically produced evolutionary advances in productivity and living standards —e.g., the First and Second Industrial Revolution, and computing/AI revolution.
