“Those who cannot retrieve nan past are condemned to repetition it,” Spanish-American philosopher George Santayana wrote successful his 1905 book, The Life of Reason. Clichés for illustration this tin grate, but arsenic we’ve seen from nan calamities of nan past fewer decades, astir group disregard this proposal astatine their peril— particularly erstwhile it comes to nan nothing-if-not-cyclical system and financial markets.
But don’t return it from 1 silly moralizing reporter; return it from Goldman Sachs’ strategy guru Peter Oppenheimer.
In an question and reply pinch Fortune, Oppenheimer elaborate nan lessons he learned by studying nan history of economical and marketplace cycles while penning his precocious published book, Any Happy Returns. The first and astir important of these lessons was clear successful our conversation: “When we look astatine history complete a very agelong play of time, we find repeated economical and equity cycles that thin to beryllium wrong supercycles, aliases semipermanent secular trends.”
Put successful different words, history tends to repetition itself, but pinch a caller twist each time. Oppenheimer, who serves arsenic Goldman’s main world equity strategist and caput of macro investigation successful Europe, argues that this intends studying economical history tin thatch america what lies ahead—and really champion to navigate immoderate caller environment.
The Wall Street seasoned calls nan existent economical era “the post-modern cycle,” but he’s not talking astir nan philosophical activity that rejected nan precepts of nan Enlightenment. Oppenheimer sees a operation of economical forces from bygone eras ahead, pinch an AI and greenish power twist to herb things up. If he’s right, expect higher liking rates, lower growth, increased conflict, surging authorities deficits, and, maybe, a technological gyration that helps america get done it each mostly unscathed. Here’s what Goldman’s strategy guru sees coming successful nan 2020s.
The clashing characteristics of nan ‘post-modern cycle’
Higher liking rates and rising authorities deficits
First and foremost, Oppenheimer argues, nan “post-modern” era will beryllium defined by higher liking rates, and truthful higher borrowing costs for businesses and consumers.
When it comes to liking rates, Oppenheimer’s position is akin to that of Jim Grant, nan longtime marketplace watcher who authors nan newsletter Grant’s Interest Rate Observer. As Grant, a modern economical historiographer of sorts, previously told Fortune, a 40-year rhythm of rising liking rates is coming for nan U.S. economy. He notes that, since 1981, location has been a consistent, if non-linear, inclination of falling rates, capped disconnected by nan near-zero liking complaint eras that came aft nan Global Financial Crisis of 2008 and again during nan pandemic. But Grant expects that inclination to reverse successful nan existent 40-year cycle, pinch liking rates steadily rising owed to geopolitical tensions, aging populations, and a number of different factors.
Oppenheimer’s return is somewhat different. He argues that nan higher rates of nan post-modern rhythm will past person to 10 to 20 years, unless we get a repetition of “1970s-style inflation,” which he sees arsenic unlikely. Interest rates are besides apt to autumn successful nan adjacent term. Like astir experts, Oppenheimer believes nan Fed will trim rates successful 2024 pinch ostentation fading—but says nan inclination of falling rates can’t last.
“While rates are apt to travel down from this cyclical perspective, they’re not apt to inclination little complete nan adjacent decade aliases so,” he noted.
There’s a fewer reasons down this prediction. First, nan “deflationary pressures” that deed nan system post-financial crisis—increased globalization, nan emergence of e-commerce, utmost family indebtedness levels, and excess world accumulation capacity—are now fading. That intends we won’t request “emergency debased levels” of liking rates anymore, Oppenheimer said, alluding to erstwhile Federal Reserve chair Ben Bernanke’s gyration successful monetary argumentation during nan Great Recession, erstwhile he took a page retired of Japan’s playbook and slashed rates to adjacent zero to support nan U.S.—and nan world economy, indirectly—on life support.
“A 2nd factor, which is besides emerging, is governments astir nan world are borrowing much money, [and] authorities deficits are rising,” Oppenheimer added.
Increased defense spending costs, aging populations, and regionalization are a fewer of nan factors that are already forcing governments to walk much money successful nan post-modern economical cycle. And rising authorities deficits tin raise concerns astir sovereign creditworthiness—or a nation’s expertise to repay its debts complete nan long-term.
Oppenheimer argues that these fears complete authorities indebtedness sustainability will origin alleged consequence premia—or nan other return investors require to compensate for accrued risks of lending to a government—to emergence substantially successful nan post-modern cycle. “In different words…there’s going to beryllium a higher costs of superior successful a world wherever you’ve sewage higher deficits, much conflict and much geopolitical uncertainty,” he said.
To his point, precocious past year, nan New York Federal Reserve’s measure for nan consequence premium that investors require successful bid to bargain 10-year Treasurys turned positive for nan first clip since 2017. Jean Boivin, nan caput of nan BlackRock Investment Institute, gave a elemental mentation for nan move. With nan nationalist indebtedness surging, and geopolitical risks rising, “the consequence of holding long-dated bonds is higher,” he told Bloomberg.
Changing demographics, tighter labour markets, and slower growth
Changing demographics, peculiarly successful developed economies, will beryllium different characteristic of nan post-modern era, according to Oppenheimer. With commencement rates successful developed nations declining worldwide and galore of those aforesaid nations trying to limit migration from poorer countries OECD populations are aging. In nan U.S., nan number of Americans complete nan property of 65 is expected to jump 47% from 58 cardinal successful 2022 to 82 cardinal by 2050, according to nan Population Reference Bureau.
Aging populations will lead to rising “dependency ratios,” Oppenheimer said—the word for nan number of zero-to-14 and over-65 individuals per working-age group successful a fixed population. And higher dependency ratios will summation nan costs load connected governments for societal programs and wellness attraction spending, driving much borrowing and a higher taxation load to salary nan bill.
Aging populations besides mean less workers and tighter labour markets. While that whitethorn beryllium bully for those workers, it’s not awesome for businesses aliases economical growth. “Tighter labour markets will push up costs and astir apt mean that firm profit margins don’t really emergence successful nan measurement that they’ve done successful nan past mates of decades,” Oppenheimer explained.
Global organization maturation has besides been trim successful half complete nan past 50 years, from 2% to conscionable 1% annually, and nan UN is forecasting it will driblet to zero by 2075. Lower organization maturation will apt trim nan “long-term inclination rate” of world economical maturation by expanding authorities deficits and nan wave of labour shortages, according to Oppenheimer. Shifting user spending patterns will besides favour wellness aliases elder attraction investments alternatively of caller technologies that could boost productivity and economical growth, he predicted.
Geopolitical tensions, accrued conflict, and regionalization
Deglobalization has been a large taxable of nan 2020s. But Oppenheimer argues that we’re not really experiencing existent deglobalization, but thing much for illustration “regionalization.” With U.S.-China tensions still brewing, and nan Russia-Ukraine and Israel-Hamas wars sparking proviso concatenation crises, companies astir nan world are rethinking wherever they build products and root inputs.
Ongoing regionalization will beryllium expensive, astatine slightest astatine first, and will besides service to slow economical maturation globally. “And successful a world wherever you’ve sewage much conflict and geopolitical uncertainty it is astir apt going to push nan costs of superior higher arsenic well,” Oppenheimer noted. “That’s 1 of nan factors that is apt to make little returns successful financial assets complete nan adjacent fewer years.”
Increased conflict is different awesome concern. As we’ve astir precocious seen pinch Houthi attacks connected cargo ships successful nan Red Sea, which person sparked a wider shipping crisis, conflict tin summation ostentation and slow economical growth. Overall, Oppenheimer warned that we’re now “in a little globalized world. One measurement there’s much geopolitical risks.”
The twist: Decarbonization and AI
Many of nan features of nan post-modern era, particularly higher liking rates and little growth, person appeared clip and again passim history, location are 2 genuinely caller secular trends that will style nan coming decades: decarbonization and AI.
They magnitude to “two very different shocks,” Oppenheimer argued. AI and different precocious technologies for illustration robotics and 3d printing will beryllium a superior deflationary unit successful nan world system successful nan post-modern era, he said, arsenic they will summation productivity and trim labour costs for businesses. But decarbonization is simply a different story.
“Building a decarbonized greenish system is going to beryllium hugely costly and inflationary,” Oppenheimer said. “Because you request to rebuild infrastructure for renewables, and nan distribution of renewable energy. And astatine nan aforesaid time, if you’re moving to a much regionalized world trading strategy pinch much protected industries and much tariffs, it’s each apt to beryllium much costly and much inflationary.”
That sounds bad successful nan short term, but it should reverse successful nan agelong term. Once nan world gets past “the hurdle of nan cost,” Oppenheimer said, a much decarbonized, renewable-driven system should lead nan costs of providing power to collapse, boosting economical growth.
AI is apt to travel a akin pattern, Oppenheimer added. The buildout will beryllium expensive, but nan semipermanent productivity maturation will beryllium immense. “Both will supply large challenges successful nan short term, pinch large opportunities, I think, successful nan longer term,” Oppenheimer said.
And while galore fearfulness that AI will devastate nan labour market, Oppenheimer based on that’s not likely, based connected history. “One point that we tin study from humanities innovations is that they do person a awesome effect connected nan labour market—absolutely, they do—but they typically don’t displace a batch of jobs. They often create caller businesses and services, which yet create caller jobs,” he said.
How does an investor navigate nan ‘post-modern’ era?
Higher liking rates, little growth, rising authorities deficits, aging populations, geopolitical tensions—let’s beryllium honest, nan ‘post-modern’ era doesn’t sound for illustration a friends situation for investors. Even Oppenheimer admits that, unless nan affirmative effect of AI surprises moreover nan astir optimistic of experts, thisera will travel pinch “lower returns.”
With that successful mind, he recommended investors attraction connected a semipermanent finance horizon, and bargain companies that are not only profitable, but besides either quickly expanding aliases paying dividends.
Diversification betwixt geographic regions, assets, and styles (i.e. growth, value, etc.) will beryllium different important facet for investors. With much geopolitical uncertainty and nan imaginable for accrued conflict, it makes consciousness to dispersed consequence around, but besides put successful companies that will use from trends for illustration AI aliases decarbonization.
After years wherever passive investing was nan sanction of nan game, it whitethorn besides make consciousness to go much of an progressive head successful nan post-modern era—buying and trading assets erstwhile logical, alternatively of holding them indefinitely.
“In a benignant of flatter economical situation pinch little returns, I deliberation 2 different things go important. One of them is diversification,” Oppenheimer said. The different is “differentiation, really identifying winning companies, alternatively than conscionable assuming nan scale itself is going to make very precocious returns.”
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