Interview, Conference Presentation
Investing in a post-modern ‘super cycle’
- Peter Oppenheimer, Chief Global Strategist at Goldman Sachs, identifies the current market environment as a "postmodern cycle," driven by structural shifts rather than short-term cyclical factors like inflation or interest rates.
- The postmodern cycle is characterized by a higher cost of capital, as interest rates are unlikely to return to the near-zero levels seen in the post-financial crisis era.
- Global trade is shifting from a model of full globalization and deregulation toward regionalization, increased protectionism, higher tariffs, and more regulation.
- Government spending and deficits are rising due to increased defense spending, subsidies for decarbonization, and aging demographics in developed economies and China.
- Oppenheimer forecasts lower medium-term returns at the equity index level, as returns will rely more on underlying structural growth and profitability rather than valuation expansion.
- The new supercycle follows three prior historical phases:
- Post-WWII (late 1940s–1968): A period of institution building (Bretton Woods, IMF), European/Japanese rebuilding, low stable real interest rates, and a consumer boom driven by the baby boom.
- High Inflation Era (1968–1982): Marked by high inflation, low returns, the collapse of the gold standard, social unrest, oil embargoes, and rising geopolitical tensions.
- Modern Cycle (early 1980s–2000): Defined by the "Great Moderation," disinflation, supply-side reforms, the fall of the Soviet Union, and the establishment of the WTO (1995) and China's accession (2001).
- Investment strategy in the current cycle requires a shift from passive index investing to a focus on "alpha" (selectivity) and "beta" (market differentiation) to capture value in a lower-growth, fragmented environment.
- The "nostalgia economy" represents a counter-trend where technological advancement drives demand for "lost" industries, evidenced by:
- Revived demand for mechanical watches, vinyl records, and artisanal products.
- Approximately 50% of millennials shopping for secondhand or used clothing.
- Nostalgia being the most common internet search term in the fashion industry in 2018.
- Decarbonization requires massive infrastructure spending, with UN estimates placing the total bill through 2040 at approximately $100 trillion.
- While decarbonization involves high immediate costs, successful execution could lead to marginal energy units costing virtually nothing, providing a long-term growth boost.
- Generative AI is projected to displace an estimated 300 million full-time jobs globally, though historically displaced jobs are replaced by new roles in emerging industries.
- AI adoption could boost global productivity by approximately 1.5% per annum over the next decade, offsetting labor shortages caused by aging demographics.
- Investors are advised to lengthen time horizons to capture compounding returns through:
- Quality companies in growth industries capable of high-rate reinvestment.
- Deep value opportunities in mature industries generating cash flow for dividends.
- Diversification is expected to regain importance as a tool for boosting risk-adjusted returns, contrasting with the last decade where US tech equities were the primary driver of performance.
- Strategic investment opportunities lie in backing companies that drive AI-enabled productivity (e.g., healthcare and drug discovery) and those building physical infrastructure for decarbonization.