In this episode of Talks at GS, Goldman Sachs Research’s Peter Oppenheimer discusses his new book, The Long Good Buy: Analyzing Cycles in the Markets, his assessment of the current market cycle, and his views on how the policy response to COVID-19 will impact the future of the markets.
On thinking about the markets in terms of cycles: “I think the interesting thing is that when you look over history and even over the period that I've been working, the last 35 years, you've seen tremendous changes in macro variables… And yet despite all of those things, cycles continue to repeat themselves in actually relatively similar ways. And if we understand the triggers that drive them, it can help us very much as investors to find the best entry points to make the best investments, and also to tone down risk when it looks as if the cycle is maturing. So understanding that context I think is very helpful.”
On the long-term implications of the policy response to COVID-19: “High debt will have a cost. Now, in some ways, when you're building up debt, you're borrowing from the future to support demand today, and that makes good sense given the threats that we've been facing. But it probably means lower longer term growth. There's also this theory of so-called ‘Ricardian equivalence.’ That when governments build up a lot of debt, the private sector—so households and companies – tend to save more because they think in the end there'll be some payback—perhaps higher taxes or lower long-term benefits. And then there's also risk that when you've increased debt so much and at the same time reduced interest rates to the zero bound, in the event of another shock, it becomes much more difficult to find new tools to really stimulate growth again. So I think there are some risks there over the longer run."