Any Happy Returns

“Clear and well-written, and can be seen as a helpful primer on a wide range of issues independent of its main theses” – The Society of Professional Economists - Reading Room

“An invaluable read for economic history buffs, the book also offers hints on how to invest wisely that will appeal to other readers too.”– Financial Times

‘An in-depth but accessible analysis of the complex factors that impact structural changes in financial markets and investor opportunities.’

In Any Happy Returns: Structural Changes and Super Cycles in Markets, celebrated author Peter C. Oppenheimer delivers his much-anticipated follow-up to The Long Good Buy. The book discusses how structural changes in macroeconomic drivers, geopolitics, government policy and social attitudes all combine to drive secular super cycles that help to explain investor returns.

The author focuses on what he calls the Post-Modern Cycle, what it's likely to look like, how it will unfold and what investors should focus on. You'll also find:

• An introduction to the history of cycles and structural ‘Super Cycles’, and what has driven them.
• A detailed analysis of Super Cycles since 1945, including the Post-War Boom, the Great Moderation, the post Global Financial Crisis and Pandemic era.
• The specific drivers of the emerging Post-Modern Cycle amid a higher cost of capital, bigger governments, more proactive industrial policy, greater regulation, and less globalisation.
• Oppenheimer focuses on the developments in technology and AI, and on efforts to de-carbonise economies, and how these might impact financial market returns and opportunities.

An invaluable resource for students of economic and financial history, and for investors, Any Happy Returns is essential reading for anyone seeking insights into upcoming market conditions and returns.

Preface xvii

Acknowledgements xxi

About the Author xxv

Chapter 1: An Introduction to Cycles and Secular Trends 1

Repeating Cycles 3

The Social and Political Cycle 4

The Business Cycle 8

Super Cycles in Financial Markets 9

Psychology and Financial Market Super Cycles 11

Part I: Structural Trends and Market Super Cycles 19

Chapter 2: Equity Cycles and Their Drivers 21

The Four Phases of the Equity Cycle 22

1. Despair 23

2. Hope 23

3. Growth 24

4. Optimism 24

The Drivers of the Four Phases 24

The Cycle and Bear Markets 28

Identifying the Transition from Bear Market to Bull Market 30

Valuations and the Market Inflection 30

Growth and the Market Inflection 32

Combining Growth and Valuation as a Signal 36

Inflation, Interest Rates and the Market Inflection 37

Combining Growth and Interest Rates 39

Chapter 3: Super Cycles and Their Drivers 41

Super Cycles in Economic Activity 42

The Modern Era: Growth from the 1820s 47

Super Cycles in Inflation 50

Super Cycles in Interest Rates 53

Super Cycles and Government Debt 55

Super Cycles in Inequality 56

Super Cycles in Financial Markets 59

Super Cycles in Equities 63

Structural upswings

1. 1949–1968: Post-World War II Boom 66

2. 1982–2000: The Modern Cycle 66

3. 2009–2020: The Post-Financial-Crisis Cycle and Zero Interest Rates 67

‘Fat and Flat’ super cycles

1. 1968–1982: Inflation and Low Returns 68

2. 2000–2009: Bubbles and Troubles 68

Part II: Analysing Post-war Super Cycles 71

Chapter 4: 1949–1968: Post-World War II Boom 73

International Agreements and Falling Risk Premia 75

Strong Economic Growth 76

Technological Innovation 79

Low and Stable Real Interest Rates 81

A Boom in World Trade 83

A Baby Boom 83

The Consumer and Credit Boom 85

All-Consuming Consumerism 87

Chapter 5: 1968–1982: Inflation and Low Returns 91

A Lost Decade for Investors 92

The Bubble Before the Bust 93

High Interest Rates and Low Growth 95

The Collapse of Bretton Woods 96

Social Unrest and Strikes 100

Collapsing Trade, Increased Protectionism and Regulation 104

Increased Public Spending, Lower Margins 105

The End of the Downturn 107

Chapter 6: 1982–2000: The Modern Cycle 109

1. The Great Moderation 110

2. Disinflation and a Lower Cost of Capital 112

European Interest Rate Convergence 112

Monetary Policy and the ‘Fed Put’ 114

3. Supply-Side Reforms (Including Deregulation and Privatisation) 117

Tax Reforms 118

Deregulation and Privatisation 121

4. The End of the Soviet Union (Lower Geopolitical Risk) 123

5. Globalisation and Cooperation 124

Technology and the Labour Market 128

6. The Impact of China and India 128

7. Bubbles and Financial Innovation 129

The Japan Bubble and the Tech Bubble 130

Chapter 7: 2000–2009: Bubbles and Troubles 133

The Bursting of the Technology Bubble 135

The Financial Crisis of 2007–2009 138

Leverage and Financial Innovation 140

The Decline in Long-Term Growth Expectations 147

The Rise in the Equity Risk Premium 148

The Negative Correlation Between Bonds and Equities 150

Chapter 8: 2009–2020: The Post- Financial- Crisis Cycle and Zero Interest Rates 153

1. Weak Growth but High Equity Returns 154

The Aftershock of the Financial Crisis 157

2. The Era of Free Money 160

The Collapse in Government Bond Yields 162

3. Low Volatility 166

4. Rising Equity Valuations 168

5. Technology and the Outperformance of Growth versus Value 171

The Extraordinary Gap between Growth and Value 172

6. The Outperformance of the United States Over the Rest of the World 176

Zero Rates and the Demand for Risk Assets 179

Chapter 9: The Pandemic and the Return of ‘Fat and Flat’ 183

Pandemic Pandemonium 183

The Pandemic Shock 184

Another Tech Bubble 189

The Medicine Worked 193

The Pandemic and Inflation 196

From Disinflation to Reflation 197

Getting Real – The Shift Higher in the Real Cost of Capital 200

The Golden Rules Resurface 202

Sector Leadership and the Rotation Towards Value 202

Part III: the Post-modern Cycle 207

Chapter 10: The Post-Modern Cycle 209

Structural Shifts and Opportunities 210

Differences from the Modern Cycle 212

1. A Rise in the Cost of Capital 213

The Re-emergence of Inflation 215

2. A Slowdown in Trend Growth 218

3. A Shift from Globalisation to Regionalisation 220

4. A Rise in the Cost of Labour and Commodities 225

Post-Pandemic Reversal 229

The Consequences and Investment Implications 230

AI and the Labour Market 232

5. An Increase in Government Spending and Debt 234

The Rise in Regulation and Industrial Policy 237

Energy Transition Spending to Increase 239

6. A Rise in Capital and Infrastructure Spending 242

7. Changing Demographics 245

Ageing Populations and Deficits 246

Ageing Populations and New Markets 247

8. An Increase in Geopolitical Tensions and the Multipolar World 249

Chapter 11: The Post-Modern Cycle and Technology 251

Why Technology Wins 254

Characteristics of Technology Revolutions 255

Exuberance, Speculation and Bubbles 256

The Dominance Effects 259

The Emergence of Secondary Technologies 260

Can Technology Remain the Biggest Sector? 262

Can the Current Group of Dominant Technology Companies Remain Leaders? 264

Why Newer Technologies May Enhance Productivity 268

Weak Productivity in the Internet World 271

From ‘Nice to Have’ to ‘Need to Have’ 271

Productivity and the Impact of AI 272

The PEARLs Framework for AI and Technology 274

The Pioneers 275

The Enablers 275

The Adaptors 277

The Reformers 278

The Laggards 279

Chapter 12: The Post- Modern Cycle: Opportunities in the ‘Old Economy’ 285

Opportunities in the ‘Old Economy’ 286

Defence Spending 289

Infrastructure Spending 291

Green Spending 292

Government Policy and Spending 294

Commodities Spending 298

How Investment Markets Can Help Fund the Capex Boom 300

The Future of Jobs 301

Don’t Forget the Power of Nostalgia 303

On Your Bike 305

Chapter 13: Summary and Conclusions 309

Cycles 309

Super Cycles 311

The Post-Modern Cycle 313

References 315

Suggested Reading 335

Index 343

PETER C. OPPENHEIMER has nearly 40 years of experience working as a macro research analyst. He is Chief Global Equity Strategist and Head of Macro Research in Europe within Global Investment Research at Goldman Sachs. Prior to working at Goldman Sachs, he worked as chief investment strategist at HSBC and in a variety of other research roles at James Capel, Hambros Bank and Greenwells, where he started his career in 1985. Peter is a trustee at both the Development Committee for the National Institute of Economic & Social Research and The Anna Freud National Centre for Children and Families. He enjoys cycling and painting.

In Any Happy Returns: Structural Changes and Super Cycles in Markets, the Chief Global Equity Strategist at Goldman Sachs and “the godfather of stocks”, Peter Oppenheimer, delivers his long-awaited follow-up to the popular The Long Good Buy. In this book, you’ll learn about how structural changes in macro drivers – including growth, inflation, and interest rates – combine with geopolitics and social change to impact long-term trends in markets (or “Super Cycles”).

The author offers an insight into the different drivers of short-term market cycles and the longer-term secular trends within which these operate. He focuses on the next secular trend, the “Post-Modern Cycle”, and describes its likely characteristics, as well as what investors should be focused on. He discusses the interplay between the coming Post-Modern Cycle and the technological innovation and de-carbonisation that will shape it.

Any Happy Returns discusses the history and drivers of past Super Cycles, such as the Post-War Boom, the inflation of the 1970s and the long period of disinflation that followed, the impact of globalisation and the policy impact of post financial crisis cycle. The Post-Modern Cycle may reflect elements of these previous cycles, but in a world being re-shaped by changing geopolitical conditions, climate change and fast-moving technological development, it is likely to have unique characteristics offering a different set of challenges and opportunities.

Any Happy Returns is an indispensable new resource for anyone interested in market cycles. It offers new and deep insights into recent economic history and what the future holds for financial markets.

PRAISE FOR ANY HAPPY RETURNS

“Peter Oppenheimer is a distinguished practitioner of the art and science of stock market analysis. This volume instills his wisdom in cogent and clear terms. I don’t know how well anyone can explain markets or even explain respectively their movements, but no one should even try without mastering this volume’s important lessons.”
—Lawrence Summers, former United States Secretary of the Treasury.

“Following his excellent The Long Good Buy, Peter Oppenheimer, in this new and very stimulating book continues and deepens his brilliant analysis of the financial market cycles, linking these with major trends but also with the geopolitical, technological, and other business and societal transformations. The author signals and identifies the emergence of the “Post-Modern Cycle” and its potential far reaching effects.”
—José Manuel Barroso, former president of the European Commission and prime minister of Portugal.

“Business and financial cycles matter. Peter Oppenheimer understands them well. But there are times when a combination of social, economic, political and technological factors makes the past a particularly unreliable guide. Peter introduces the idea of the post-modern cycle, reflecting some deep structural changes in our world. This book is an opportunity for us to liberate ourselves from the tyranny of the present, to think big and long term, and to reap the rewards.”
—Sir Alexander William Younger, former Chief of MI6.

“By skilfully interweaving the future and the past and incorporating history, culture and politics into his economic analysis, Peter Oppenheimer has written a book that is thought-provoking, insightful, and original.”
—Professor Noreena Hertz, Institute for Global Prosperity, University College London.

“Peter Oppenheimer has written a thoughtful and insightful book. He draws our attention to the role that cycles play in helping us not only understand where we are in them, but also to forecast what is likely to follow.”
—Kofi Adjepong-Boateng CBE, Research Associate, Centre for Financial History, University of Cambridge.

“Peter’s comprehensive analysis of Financial Market Super Cycles (longer-term trends), within which many cycles evolve, provides many new and invaluable insights. It is an eloquently written book that uses data-driven evidence, charts, and trends to succinctly convey and reinforce the underlying message. A must read for financial market investors, practitioners, academics, and regulators.”
—Narayan Naik, Professor of Finance at the London Business School.