The economy is entering a new ‘Super Cycle’ says Goldman Sachs guru

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The economy is entering a new ‘Super Cycle’ says Goldman Sachs guru

Investment analyst and author of a new book Peter Oppenheimer says decarbonisation and AI will have a significant impact on the financial markets which are sitting at the edge of change

Talking to Peter Oppenheimer feels a bit like uncovering a secret recipe or being privy to a fortune-teller’s insights.

Dubbed ‘the godfather of stocks’, Oppenheimer, who serves as Goldman Sachs’ chief global equity strategist and head of macro research in Europe, is an expert on financial market cycles and what they mean for investors.

He believes we can learn a lot about long-term investment and returns by exploring the history of economic cycles and patterns.

Peter Oppenheimer, Goldman Sachs chief global equity strategist and head of macro research in Europe

“When we think about long-term investment, knowing the cycles is important because you see repeated patterns throughout history under different circumstances,” explains Oppenheimer. “If you look at economic cycles from growth/expansion and contraction/recession, these tend to repeat themselves in periods of high or low inflation and around them you get financial market cycles as well. There’s a great deal of reward from trying to understand where you may be in a cycle and when a turning point may be close at hand.”

Oppenheimer explains all of this and more in his latest book, Any Happy Returns, which focuses on the complex interconnections between major inflection points in financial markets and economic factors while also being shaped by policy, institutions, politics, geopolitics, demographics and technology for example.

He argues that we are about to enter a new “supercycle” – the “post-modern cycle” – which although shows some similarities to previous cycles will be significantly different to many of the ones we have seen before.

Oppenheimer picks out several super cycles in history since the Second World War, such as one that began in the early 1980s. This was characterised by interest rates and inflation peaking, before a long period of falling capital costs, inflation and rates, as well as economic policies such as deregulation and privatisation, he explains. Meanwhile, geopolitical risks eased and globalisation grew stronger.

But clearly not all of these factors are set to continue in this way.

“We’re seeing the end of cheap money, and are still in an era of higher interest rates and higher cost of capital. We are seeing tight labour markets, unemployment is lower – pushing up wage costs and dampening profitability – and there’s a shift away from globalisation and world trade towards more regionalisation and local production, partly driven by geopolitical tensions, supply issues, which is putting up costs and there are new fashions for more protectionism, increased regulation and higher tariffs.

“This is very different to what we have seen in the past 20 years.”

All of this, notes Oppenheimer, means lower returns for investors, “but it doesn’t mean that there won’t be opportunities.” In his book, which follows the success of his previous one The Long Good Buy, he focuses on the significant economic impact that both decarbonisation and artificial intelligence (AI) specifically will have.

“People are worried about AI in terms of job displacement, but new goods, services and jobs will be created, which will boost productivity and efficiency in the longer term and be good for growth. And this is coming at a very exciting time when we have labour markets struggling to find people in an era of aging demographics.” Goldman Sachs Research economists estimate there could be a boost of around 1.5 per cent per annum over the next decade. “These could be very meaningful indeed.”

Oppenheimer says that to fulfil the potential of AI, “we need vast amounts of energy, and decarbonisation is all about transforming our economies to renewables.

The current issue with decarbonisation is the immense complexity and cost of it. According to the United Nations, this could be around $100 trillion through to 2040. “These are massive bills but if we can allocate the costs appropriately and get it right, there is the potential for energy costs to fall towards zero, which would have a huge long-term boost to growth.

“We are moving to a world that is generating more uncertainty and constraints on financial returns compared to what we have seen but some of these big shocks (decarbonisation and AI) will reshape our economy and could create some very good opportunities.”

Oppenheimer joined Goldman Sachs in 2002 as European and global strategist. He became managing director in 2003 and partner in 2006. Prior to Goldman Sachs, he was managing director and chief investment strategist at HSBC and was previously head of European strategy at James Capel, and chief economic strategist at Hambros Bank.

Outside of work, he is a trustee of The Anna Freud National Centre for Children and Families, a children’s charity dedicated to providing training and support for child mental health services and a trustee of the National Institute of Economic and Social Research (NIESR), and is also on the investment committee of the Wolfson Foundation and the Motability Foundation. Oppenheimer is a member of South Hampstead Synagogue.

What advice would he offer investors at the moment?

“This time last year there was high expectation that because of rising inflation and interest rates, we would see a recession but actually, I think things have turned out to be better than people feared. We are likely to see a softer economic landing, with inflation coming down quite quickly and are getting close to cuts in interest rates, which are likely to come down cyclically over next year.

“However, financial markets have already priced in a lot of that good news – we have seen strong rises recently and valuations have gone up – so we should be a little cautious about that. I would emphasise the importance of taking a longer-term view, rather than relying on short wins from rising valuations, and also the importance of diversification across assets to reduce the risks.”

He adds: “People should be focusing on the developments of technology and the move towards a decarbonised economy. This combination will create losers but many more winners.”

Peter Oppenheimer is the author of Any Happy Returns Structural Changes and Super Cycles in Markets, published by Wiley




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