Wednesday, September 16, 2009

Surfing, Waves and Why This Decade is Very Different (Part One of a Very Interesting Series)

September 15, 2009. Back when I was doing a lot of retirement seminars, I was working in Manhattan Beach, California (I know, tough spot!). On a break day, I was watching the surfers in the surf, and decided to try my hand at it. I paddled out into the Pacific and attempted to catch some waves (surfing is quite hard, for a skier like me at least). I sat on the beach and couple of locals approached me: muscular, blonde, and clad in worn wet suits. “Dude, are you from Minnesota?” “No, Michigan” I answered. “Why, am I that lousy?” “No dude, you’re ok, but like you don’t have on a wet suit. You northern dudes are polar bears!”

We laughed and learned some things about surfing (and local bars). The surfers paddle out to look for the waves, and the good ones tend to come in patterns. True surfers will communicate on a network to find great waves and drive 400-500 miles down to Mexico to ride them. Sometimes, waves can converge, or meet. If the crest of a wave meets the trough of another one, they cancel out. If the crest of one wave meets the crest of another, hey converge and the height of the wave doubles. Waves tend to travel in triads, and the frequency of the wave is the distance between them. Since the frequency can vary, sometimes these packs of waves meet and either cancel or converge. Many waves of different frequencies can converge as well. They create ‘rogue wave’ or monsters. The guys I was hanging out with called them ‘Raouls’. “When there’s a Raoul, dude, the whole ocean seems small and this monster comes in and gives you a ride of your life!” This was peppered with surfer-speak and gestures of total excitement.

Physics confirm the Raoul theory, and you can see it for yourself by plopping yourself on a beach and watching the waves (while wearing sunscreen, of course). It’s easier to watch waves if you have a refreshing drink with local libations. An umbrella in the drink seems to help. I recommend this academic exercise.

Now, to finances. I’ve watched, studied and taught economics and finance since 1977. I’ve also been a student of history. In history, there are a series of documented waves of human activity. For example, in the great book The Fourth Turning, the authors (Neil Howe and William Strauss) very accurately render the 26 generations of Anglo-American culture into a series of archetypes. In general, we’re in what the book refers to as the Fourth Turning (Crisis). There are a variety of other waves as well including:
  • Waves of economic activity (Kondrotieff, Goldstein)
  • Waves of political control (Schlesinger, Burnham)
  • Waves of War (Toyenbee, Wright)
  • Waves of Religion (Wallace)
I’ll discuss these waves in a future blog. What is intriguing to me is that the waves are converging. Now, maybe history creates the waves , or the waves create history; I don’t know the cause and effect. But in the next blog, I’ll go over what happened in the past. After that, I have some ideas on what we can do to ride this Raoul.

The market just gave us the biggest 5 month gain since 1983. Look back in history: that was followed by another 1900% gain over the next 17 years. When the surf’s up, you get the big ride. And on the horizon, there’s something big…
Hang loose.


P.S. To check out my most current YouTube cast, please click here