#38 – The Cyclist

Chapters

00:02 – Investing education and entertainment

07:50 – Equity market phases and patterns

19:43 – Impact of interest rates on investments

28:22 – Historical financial shocks and recoveries

39:37 – Market recovery and margin trends

51:53 – Active management opportunities in markets

01:11:27 – Patience and perseverance in investing

Transcript

STEPHEN CLAPHAM: Hi, welcome to the Behind the Balance Sheet podcast where we meet leading investors and commentators and educate ourselves about the world of investing and the world. Our mission is to remove some of the mystique around investing and improve our understanding of what makes a successful investment or indeed an unsuccessful one. Our goal is to inform, educate and entertain. We hope you enjoy this and every episode.

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STEPHEN CLAPHAM: If you read my substack, and honestly, you should, you’ll know I’m a keen student of financial history. In this episode, I’m joined by Peter Oppenheimer, Chief Global Equity Strategist, and head of Macro Research at Goldman Sachs in Europe. Amazingly, given his busy schedule as a Goldman’s partner, Peter has managed to write not one, but two really good books looking at cycles in markets.

STEPHEN CLAPHAM: In our discussion, Peter explains his characterization of the market as having four phases, despair, hope, growth, and optimism. He explains three types of bear markets, cyclical, event-driven and structural and he explains their different triggers, durations and impacts and most important how to spot them. We talk about market concentration, a topic on many investors minds today, but also back in the 1850s.

STEPHEN CLAPHAM: Peter slightly disagrees with my view that more companies are cheating and boosting their earnings using accounting manipulation and offers some other explanations and we discuss outlook for markets and why decarbonization and AI are not only two profound trends which will have a major impact on markets and on the world, but how the two are interconnected.

STEPHEN CLAPHAM: I really enjoyed our conversation and the books are great too. After you listen to the show, if you go to the show notes on my website behindthebalancesheet.com, we’ll organize a competition to win a copy of each, but you’ll need to listen carefully to answer that question.

STEPHEN CLAPHAM: So Peter, listen, I’ve been really looking forward to talking to you. And I always ask people the same question. You know, did you always want to become a partner at Goldman Sachs?

PETER OPPENHEIMER: Well, firstly, Steve, thank you for having me. It’s great to be here. No, I had no ambition to do that or even knew what a partner in Goldman Sachs was when I was younger or even when I was leaving university. I guess I got into this partly by circumstance and fate.

PETER OPPENHEIMER: I didn’t really know what I wanted to do when I left university. I wanted to write. I like research and I thought about going on to do… A master’s and a PhD, but I didn’t have the money to do that. And at the time, actually, this was in the mid-1980s, the city was really starting to grow.

PETER OPPENHEIMER: It was just before Big Bang. And, you know, people I knew were starting to look at that as an opportunity. And I discovered that you could actually go and do research in the city and you could get some money together, I thought, and maybe go back and do some studying. And that’s what I did. I kind of applied.

PETER OPPENHEIMER: Rather naively, actually, not knowing very much about finance at all, and amazingly got a job working in an economics department at a broking firm at the time, and postponed my studies. And, you know, the rest is history. I kind of got the bug and, you know, began to get much more interested in it.

STEPHEN CLAPHAM: And you still postponed your studies. I mean, you haven’t been back.

PETER OPPENHEIMER: It’s true.

STEPHEN CLAPHAM: But you’ve written two books. I mean… It’s like a really, really busy schedule doing your job and lots of travel. I mean, what made you write a book and want to write a book in the first place? And how did you find the time? How did you do it?

PETER OPPENHEIMER: What made me want to do it? Someone told me the only reason you write a book is ignorance, arrogance, or some combination of the two.

PETER OPPENHEIMER: Probably that was it. But I kind of felt that I’d been working as a research analyst.

PETER OPPENHEIMER: Since 1985 you know a long time and if i hadn’t sort of learned some things that might be useful to put down by now what was i really doing and so i kind of felt look there were some things that i was really interested in over long periods of time particularly around cycles and the interconnection between sort of economies and financial markets and it would be really a good thing to try and put down some of the frameworks and things that i thought i’d learned And that’s really what motivated me to do it.

PETER OPPENHEIMER: And I think I was a little bit ignorant about the process and how long it would take because, yeah, my job is pretty full time. And, you know, it’s just the discipline of trying to find extra bits of time to work on in evenings, weekends or whenever I had spare moment.

PETER OPPENHEIMER: But it was a real learning process, just sort of. The process of writing a book is very different from the process of writing research notes or whatever that I’ve been used to doing for so long.

PETER OPPENHEIMER: But I learned a lot from doing the first one. And then the second one, I felt there were some things that I still hadn’t touched on, particularly about sort of secular changes, maybe we’ll get onto this, that would also be interesting, perhaps to try and explore. And that’s what motivated me.

STEPHEN CLAPHAM: Well, I mean, the… The books are great. And we’re going to cover both books because I think they both, they fit very well together. And just this whole issue about cycle, I mean, I think it’s, you know, incredibly interesting. And you describe four phases of the market cycle, despair, hope, growth, and optimism. I thought you should have had optimism, then euphoria.

STEPHEN CLAPHAM: Because often the case you talk about when the best returns come they come they come when the data is weakest and starting to inflect and their book was the first book the long goodbye was full of useful data on this so can you talk a bit about these different phases when’s good when’s bad and perhaps more important is how do you know which phase you’re in because that’s really that’s a really tricky thing to do absolutely yeah no good question look i think.

PETER OPPENHEIMER: The first thing to say is that, you know, The Long Goodbye, my first book, was really about trying to understand what drives cycles, principally in financial markets. But there’s a very close connection between cycles in financial markets and in economies.

PETER OPPENHEIMER: You know, if you go back to the mid-1800s, for example, there’d been 30-odd recessions in the U. S. Economy, to give you a benchmark, maybe 35. And they’ve been broadly the same number of times when equity markets have fallen into a bear phase, you know, prices have fallen 30% or more.

PETER OPPENHEIMER: If you look at it since the Second World War, there’ve been, I think, 13 recessions and about the same number of bear markets. So there’s obviously a connection between these two things.

PETER OPPENHEIMER: And what’s interesting is you actually get repeated cycles. In quite different environments, you know, in periods where interest rates are very high and inflation is high. And you also get cycles in periods where inflation and interest rates are low. So there is a sense of things repeating themselves, obviously not in exactly the same way.

PETER OPPENHEIMER: Now, the phases that you talk about really reflect the evidence that I’ve looked at of the process through which equity markets tend to evolve as they go from a bear market, what we call a despair phase, into a period of recovery, into a sort of strong bull market, and then back again.

PETER OPPENHEIMER: Now, the despair phase is just that. It’s a period where prices are falling. Usually, that is in anticipation of a recession, because obviously, if you get a recession, company profits fall. And investors try to avoid that. And you usually get valuations coming down. Now, the first phase of a recovery is what I call a hope phase.

PETER OPPENHEIMER: And the reason I call it hope is because, as you say, that inflection point nearly always happens when data is still really bad, when conditions are weak, when all the news is gloomy, when you’re in recession, when profits are still contracting. But something triggers this sense that maybe things are getting to the worst point in the cycle, maybe starting to get slightly less bad, the second derivative starts to improve.

PETER OPPENHEIMER: Maybe it’s a function of the beginnings of interest rates coming down, for example. And that phase, that hope phase, tends to be relatively short, usually less than a year, but very strong. And nearly all of the gains in equities, for example, are driven by valuations going up. Because profits are still depressed. So it’s very expectational.

STEPHEN CLAPHAM: And it’s really difficult to spot that. I mean, I think.

PETER OPPENHEIMER: It is.

STEPHEN CLAPHAM: I think.

PETER OPPENHEIMER: Yes. And by the way, you make a very good point because usually in a bear market, prices don’t fall just consistently in one direction. You often find what we call bear market rallies. Yeah. And the difficulty in real time is to determine whether it’s a sort of fake, a bear market rally, just an adjustment upwards before another fall in prices, or is it indeed the real inflection into a hope phase?

PETER OPPENHEIMER: It’s very difficult in real time to know. Of course, everything is much easier to understand in retrospect when you have the data. But I think there are certain things that we would look at as indicators and frameworks that I try to identify in the book.

PETER OPPENHEIMER: The next phase is the longest. What I call the growth phase, because that actually is the period where economies are growing. And usually, companies are making profits, they’re paying out dividends. But it’s not usually the strongest phase, because some of the returns have already been pre-paid for, if you like, in that hope phase.

PETER OPPENHEIMER: But nearly always in an equity cycle, you get a period of increasing confidence or optimism towards the end. As investors sort of get, if you like, sucked into this almost forced sense of security that things can carry on being really good for a very long time. And very often, not always, that gets into a sort of period of exuberance, almost irrational exuberance or a bubble.

PETER OPPENHEIMER: And that determines whether the next down phase is moderate or very, very deep. So that’s a sort of broad description, really. And these different phases sometimes are driven by valuations going up, particularly the hope phase. Sometimes they’re driven by underlying fundamental growth. And they reflect and anticipate other macro factors like changes in interest rates and the cost of capital.

STEPHEN CLAPHAM: Just putting the book together with your day job. I mean, your day job is to figure out, well, we’re now in the optimism phase. When is it going to end? I mean, how do you… How do you approach that practically, you know, when you’re talking to clients and that’s the one thing that they’re interested in? Yes. How do you go about doing that? I mean, what’s your process?

PETER OPPENHEIMER: Well, we do have lots of different indicators, some of them proprietary that we built up looking at measures of sentiment and confidence. So we look at different risk premia, or to put it another way, the sort of reflections of risk appetite. Across different asset classes, whether it be equities or credit, bonds, commodities and so on.

PETER OPPENHEIMER: We have ways of trying to measure the extent to which confidence is increasing by positioning and also the way that these spreads or valuations in markets are moving. And, you know, when you get to a point where there’s huge confidence reflected in markets late in an economic cycle and valuations are going up a lot, that is not a certainty that you’re moving into a period where things are going to get less good.

PETER OPPENHEIMER: But it’s certainly… Providing warning signals. And that suggests that there are things that you ought to at least be starting to look at, more diversification, more hedging, for example. And those are the sorts of things we try to look at.

STEPHEN CLAPHAM: I mean, it must be really difficult just now because you’ve got sort of this bifurcated market. You’ve got the Magnificent Seven, with the exception of Tesla, going up a lot. And you’ve got the rest of the market. When there’s… Quite a lot of bargains around.

PETER OPPENHEIMER: And that’s very true. I mean, I think, you know, the sort of environment we’re in at the moment, and indeed, this has been true for some time, is quite unusual.

PETER OPPENHEIMER: And it is important to emphasize that while cycles and patterns do tend to repeat themselves, and this is true in society and history and politics and so many things, obviously, things can also dramatically change. Nonetheless, one of the things we have seen is increased concentration in markets, which is creating its own challenges for investors.

PETER OPPENHEIMER: And just briefly, I guess there’s sort of three ways in which this has been manifested, I think, in the recent past. One of them is the market or geographical level. And that is because the US has become very preeminent.

PETER OPPENHEIMER: You know, the stock market in the US has become much bigger. And has outperformed other stock markets. This has been true really since the financial crisis from around 2010. And it’s now 65% of the global market or so.

PETER OPPENHEIMER: The second form of concentration is at the sort of industry level. Because technology has become a big driver of growth and returns in the last decade or so in particular, that sector has grown. Relative to other mature sectors, which have become less prominent, less big. And then, of course, as you say, there’s been a lot of increased stock concentration.

PETER OPPENHEIMER: That is to say, super large companies have become increasingly dominant in the US in particular, but in other markets as well. What is often nowadays referred to the Magnificent Seven, basically seven super large technology companies in the US.

PETER OPPENHEIMER: At the time we’re recording this, make up about a third of the value of the 500 biggest companies in the US, the S&P 500. And that is very unusual. We’ve got the highest concentration of companies in the US really for about 100 years. It’s not unique to the US, by the way. If we look at Europe, we find that the biggest 10 or 11 companies that we…

PETER OPPENHEIMER: Often referred to as the granolas because that name is made up of the starting letters of the biggest companies. These are also now about a quarter of the value of the 600 biggest companies in Europe. So the big are getting bigger.

PETER OPPENHEIMER: Now, it is important to say that the increased geographical concentration, the US outperforming the sector concentration with technology doing better in these companies. Is not actually, I think, a reflection of irrational behavior or exuberance. It has actually reflected fundamentals because in the last decade or so, the U. S. Economy and corporate sector have outgrown significantly those of other parts of the world.

PETER OPPENHEIMER: The technology sector has been much more successful than other industries. And those dominant companies are very, very profitable. They have very strong balance sheets. They’re reinvesting at a very high rate. So although they’ve become very big, I don’t think they actually are in a bubble. But it does suggest that investors need to look at ways of diversifying risks. And that’s another kind of thing that we’re focused on.

STEPHEN CLAPHAM: I was reading the UBS Global Returns Yearbook, you know, the thing that used to be the Credit Suisse Returns Yearbook. And the railroad industry got to over 50, might even have been 70% of the market in the 1850s, 1860s.

PETER OPPENHEIMER: Yes.

STEPHEN CLAPHAM: So I hope we’re not. Heading back there.

PETER OPPENHEIMER: Well, it is interesting, actually, you mentioned that, because if you look at the long-term history of markets, and again, the US has good long-term data, there haven’t been that many industries that have actually dominated. Or been the biggest industry over time. And each time there’s a shift, it really reflects the industry that’s the main driver of economic growth.

PETER OPPENHEIMER: You mentioned railroads, and they were the dominant sector for about 50 years. We saw it with the auto sector, if you went back to the 50s, you know, the biggest stock in the US were car companies, because that’s really where a lot of the growth was.

PETER OPPENHEIMER: You then had oil companies being dominant during the period of, you know, electrification and so on. And then, of course, mainframes with technology companies. For a brief period, we actually had banks being the biggest sector, but that was before the financial crisis, which was a bubble. And since then, it’s really been technology.

STEPHEN CLAPHAM: Let’s go back to the books. We talk about these things for a long time, but I do want to cover some of the stuff in the book. I think it’s very, very interesting, very, very helpful. So one of the things you do very well is you explain sometimes confusing relationships very well.

STEPHEN CLAPHAM: So one of these is a correlation between bond yields and equities. And sometimes it’s positive, sometimes it’s negative. Can you explain why that is and how should we think about the 60-40 portfolio going forward? I must say, I mean, I have had a 100-0 portfolio for almost all my existence.

STEPHEN CLAPHAM: And I now have, I don’t know what it is. It was probably 95.5 or 90.10 because I bought the zero-coupon guilt because obviously it’s a tax benefit in the UK. But can you talk a bit about this relationship and 60-40? Is it going to endure? I mean, it hasn’t been.

PETER OPPENHEIMER: It’s a really important point, I think. If you look, and in fact, there’s some data in the book that goes through this. If you look at the relationship between equities and bonds, and you… Look in particular at the correlation between bond yields and equity prices over the very long term, if we go back to the 1900s, for example, that tends to be negative.

PETER OPPENHEIMER: What does that mean? That means basically that if bond yields are going up, that tends to be bad for equity prices and vice versa. There are exceptions to this, and often the exceptions are in periods where you have crises.

PETER OPPENHEIMER: It happened in the 1930s, it happened in the 1970s. But actually, if you look at the period in the last 20 years, really since the start of this century, we’ve had a very unusual environment in which the correlation between bond yields and equity prices has been a positive one.

PETER OPPENHEIMER: That means that, you know, you’ve had a very fertile environment for what’s… Generally called 60-40 benchmark, so sort of 60% equities, 40% bonds, because what’s broadly happened since the start of this century is that interest rates have continued to fall to very, very low levels. And generally, that has meant that the valuation of both bonds and equities have gone up. So both bonds and equities have done well together.

PETER OPPENHEIMER: But in times when we’ve had a problem or a crisis, and we’ve had a fair market, number of them over that 20-year period, what’s tended to happen is that bond yields have fallen, equity prices have fallen, but bonds prices have gone up as equity prices have fallen. So they’ve been a really, really good hedge.

PETER OPPENHEIMER: So 60-40 has worked extremely well. Now, it’s a complicated relationship, but the correlation that we’ve been describing is a function also of the level of interest rates. And the last 20 years has been an environment of very, very low levels of interest rates.

PETER OPPENHEIMER: We find that when you get bond yields, for example, up to around 4-ish percent or more, really where we are now, that correlation tends to normalize or go back to its sort of negative relationship, which has been the dominant relationship over many, many, many decades.

PETER OPPENHEIMER: So that sort of suggests that we’re… Back to a world now at these sorts of levels of interest rates where rises in interest rates will be bad for equities and indeed falls in interest rates, which investors are hoping to see in the near term will be good.

PETER OPPENHEIMER: So I think these relationships are not constant over time. Again, they do tend to go through regime shifts. I think we’re going back into a more normalized world. As the level of interest rates and the cost of capital do get back to more sort of long-term average levels, having been extraordinarily low really for a very long time.

STEPHEN CLAPHAM: You said in the book you’re better to sell early in the bear market than on the way up. You lose as much in the first three months of the bear as you make in the final months of the bull. Yeah. Can you talk a bit more about that? You just touched on it in the book. You didn’t have any diagrams or you didn’t talk much about it, but I thought it was quite an important takeaway.

STEPHEN CLAPHAM: Is that, I mean, are you confident about that? Is that something that we should just wait until things start to go down?

PETER OPPENHEIMER: Yes, I think that’s generally right. Look, over the long run, you’ve tended to be in risk assets. And as long as you’re owning them for a long, long period of time, that’s actually why I call my first book The Long Goodbye, B-U-I, you’re better off actually being in risk assets and equities.

PETER OPPENHEIMER: Because if you try and constantly time moving in and out of them, and certainly there are periods where prices fall a lot, if you get that timing wrong, you’re better off just sort of sticking with.

STEPHEN CLAPHAM: In my case, it was just because I don’t know, I don’t understand bonds.

PETER OPPENHEIMER: But if you are lucky enough or clever enough to time these things, you’re probably better to wait for prices to fall before you sell, to be confident that you are in a down phase than try to anticipate it. Exactly.

STEPHEN CLAPHAM: And you talk about the… The three triggers of bear market, rising rates and or inflation, an exogenous shock, and the bursting of a bubble. Can you talk a bit about that? And then let’s talk about how you classify the bear markets. We’ll go through them one by one.

PETER OPPENHEIMER: Yeah. And again, what I’m trying to sort of describe here is that if you look at long-term history, you get these repeated cycles. And most cycles end with a bear market, but actually not all bear markets are equal, because they have different cycles. Factors that drive them.

PETER OPPENHEIMER: And the most common, what I would call cyclical bear markets, are the type that are triggered by usually rising interest rates late in an economic cycle, perhaps because inflation is starting to go up.

PETER OPPENHEIMER: And as interest rates go up, investors start to fear that consumption will slow, investment will slow, you’ll get a downturn in the economy, you’ll get a downturn in profits. Most of these sorts of bear markets, on average, historically, over 100 years or so, would see equity prices fall around 30%.

PETER OPPENHEIMER: And that would take place over a period of sort of three to six months, and eventually you get a recovery.

PETER OPPENHEIMER: The event-driven ones, as you describe it, are not about… The normal cycle economically, but a bear market that’s triggered by an exogenous shock, something just happens that’s not anticipated, maybe a big rise in commodity prices or a conflict somewhere that raises uncertainty.

PETER OPPENHEIMER: These kinds of event-triggered adjustments in prices tend to also, on average, cause quite violent moves, falls of about 30%. But Usually they’re much shorter lived and the recovery is much more rapid.

STEPHEN CLAPHAM: Yeah.

PETER OPPENHEIMER: And then the third type, what I would call structural bear markets, are fortunately more rare, but they’re much more severe. The falls that you see on average are about 60%. And it usually unwinds over quite a long period. It can take five or even 10 years to really get back to where you started. Now, Why and how do you define these structural bear markets?

PETER OPPENHEIMER: Well, these are the ones that are nearly all preceded by bubbles in valuations, usually triggering, triggered, ultimately the bubble is triggered by rising interest rates. You nearly always have a banking crisis, often also related to real estate crisis, because there’s a lot of leverage in property and real estate.

PETER OPPENHEIMER: And some good examples of that, of course, historically were, you know, 1929, Japan in 1989, 1990, where you had huge valuations in a massive bubble in housing market, which led to a big banking crisis. And of course, the financial crisis itself in 2007-8 was very, very similar. And it led to a very big fall in equity prices, a very deep and…

PETER OPPENHEIMER: Difficult recession as the private sector de-levered. And that’s really what triggered the most recent era of unconventional policy easing. Pushing interest rates down to zero, if not negative in some cases in Europe, and then starting this process of quantitative easing or printing money to try and boost demand and investment.

STEPHEN CLAPHAM: Do you think we’re better at handling these things now? Because, I mean, there’s quite a bit of history to look at. I mean, I’m torn between this thing because we’ve got, actually, Although we’ve got 150 years of history, we don’t have that many bear markets to study.

STEPHEN CLAPHAM: And, you know, always the most dangerous words are, it could be different this time. Do you think that we’re in a very unusual sort of environment now? We’ve been through a crazy environment. I mean, how do you think about that? And how do you think about the way the authorities handle these?

PETER OPPENHEIMER: Well, I think that Look, there has been a lot of institution building and a greater sense of the importance that policy can play in helping to offset the effects of these sort of financial shocks. And we should be clear, actually, that, you know, we have seen an enormous number of shocks hitting over a relatively short space of time.

PETER OPPENHEIMER: You know, if you think about this century, It started in financial circumstances anyway with, you know, the collapse of the technology bubble at the, you know, 1999-2000, where you really did have extraordinarily high valuations and optimism really around the innovations of the internet.

PETER OPPENHEIMER: And that led to a massive collapse in equity prices when it burst and a recession and investors, you know, central banks. Were worried about the effects of it and started to cut rates. And shortly after that, of course, we had 9-11 and the beginnings of some really major conflicts and the uncertainty around that.

PETER OPPENHEIMER: And then, of course, you had the financial crisis. You had COVID. You had, unfortunately, you know, the war in Ukraine and the… Massive rise in energy prices that triggered particularly across Europe. And you think about the scale of these shocks and the frequency of them.

PETER OPPENHEIMER: Actually, it’s remarkable how well economies and indeed financial markets because of that have behaved. But importantly, there’s been massive amounts of policy support. Yeah. Principally, through monetary easing, you know, getting interest rates down to zero. And that is not normal.

STEPHEN CLAPHAM: No, no.

PETER OPPENHEIMER: And certainly getting interest rates into negative territory and starting what was originally referred to as unconventional policy easing, printing money. It was expected to be a short-lived emergency tool after the financial crisis, but then became quite relied on in the following 10 years.

PETER OPPENHEIMER: And then, of course, more recently, we’ve seen big rises in fiscal policy as well. Largely around interventions to support the economies during the pandemic. And then again, in Europe, as a result of, you know, energy subsidies to prevent the shock or soften the shock of sharply rising energy prices.

PETER OPPENHEIMER: So I think over time, you know, central banks and governments have worked out that they can and must, in many ways, intervene to prevent. The worst parts of this systemic fallout from these sorts of shocks. And I think they’ve done a pretty good job at doing that.

STEPHEN CLAPHAM: But are we kind of reliant on them now?

PETER OPPENHEIMER: Well, this, of course, is the danger. Take the medicine away. Yeah. You know, we got used to, and I think there were distortions as a result of, you know, a long period of the cost of capital or interest rates being too low. Yeah. They got to zero in Europe. Policy rates went negative. In fact, only three years ago, perhaps four years ago, about a quarter of all government debt had a negative yield.

PETER OPPENHEIMER: You know, investors were literally paying for the privilege of lending money to governments over, say, a 10-year period, knowing that they would get a negative return in nominal terms at the end of it. That was extremely unusual. And I think that it did cause distortions. And it did cause some… Bubbles in parts of the markets.

PETER OPPENHEIMER: And indeed, since the shock of COVID, we’ve rightly seen massive intervention from governments in borrowing money to support businesses and households to soften the blow. But there is a risk, I think, that we just got too used to the idea that central banks will always be there to cut rates, to try and support financial markets, or indeed governments will always bail out whenever.

PETER OPPENHEIMER: There is, or support or bailout, you know, anybody who gets into trouble or any shock that we face. And that is, I think, you know, one of the reasons why risk premier that you can measure in bond markets or equity markets probably got too low.

STEPHEN CLAPHAM: You did a very detailed study looking at, you know, possible indicators of bear markets. And I can’t remember, there were 20 or 30 of them, I think, and you concluded you couldn’t predict them. But the most useful indicators are unemployment and valuation.

STEPHEN CLAPHAM: And you suggest looking for a combination of deteriorating growth momentum and tightening policy when valuations are high. Can you talk about the parameters you looked at and why these seem to be the best things to watch?

STEPHEN CLAPHAM: And talk also.

STEPHEN CLAPHAM: When’s it best to take your foot off the gas? When we talked about you’re better off waiting until the prices go down.

PETER OPPENHEIMER: That’s true. Look, I mean, rising interest rates are generally bad for financial markets because, you know, the price of bonds is inversely correlated to interest rates. So rising interest rates mean bond values fall.

PETER OPPENHEIMER: But also, of course, typically, and we talked about this correlation earlier, typically, if you get rising bond yields or interest rates, because it raises the cost of capital and softens consumption investment, that tends to be bad for equity prices as well. So There are always warning signs when interest rates are rising.

PETER OPPENHEIMER: It doesn’t always mean that you’re going to get bad returns, but that’s certainly something to be cognizant of, particularly if it’s combined with a period where valuations are extremely high. Valuations are not a very good indicator of short-term returns. Things can stay cheap for a very long time. They can stay expensive for a very long time.

PETER OPPENHEIMER: But it does tell us something about the likely returns over long periods. Yeah. 10 years and beyond. So when you’re buying markets that are very expensive by historical standards, the likelihood is that you’re going to get low returns over the following, say, decade. And there are some warning signals, I think, there for us to look at now.

PETER OPPENHEIMER: Unemployment is important because, you know, when you have periods of very low unemployment, and we do have that, in many economies at the moment, that’s a good thing. But if unemployment rises from a very low level, it’s very often true that you get recessions that follow.

PETER OPPENHEIMER: So we have to be very focused on really the inflection points in the labor market. And then, you know, we also look at things like private sector balances, what kind of savings there are, how healthy are the private sector. That means both households, corporate sector and banks.

PETER OPPENHEIMER: Because when you have a lot of leverage in the private sector and you get rising cost of capital, the risks that that triggers a deleveraging cycle, which then becomes a sort of vicious cycle of people selling assets, prices falling, confidence declining and less investment. You know, that’s a much more worrying situation.

PETER OPPENHEIMER: Now, interestingly, going into this recent phase of rising interest rates that really started in 2022, one of the reasons why we were more confident about the economic outcomes than I think a lot of people is that we put a lot of emphasis on these private sector balance sheets, which were fortunately quite healthy in 2022.

PETER OPPENHEIMER: Remember, households had built up a lot of savings during the pandemic. There were sort of forced savings. People couldn’t really spend money on much stuff. And they got some support from governments. Generally, corporate sector balance sheets were quite healthy.

PETER OPPENHEIMER: But very importantly, so were banks’balance sheets because the regulatory changes that happened in the aftermath of the financial crisis forced banks to de-lever, hold much more capital, and therefore their balance sheets were much more resilient in the last couple of years to rising interest rates. Than they’ve often been in the past and that’s a reason why we look at these sorts of things as well.

STEPHEN CLAPHAM: But there’s a sort of elephant in the room here because private markets have become much much bigger. Yes. And that data is much more difficult, almost impossible to capture. So the banks have got, are in better shape, but the riskier loans have just been shifted into private credit. Yeah. It’s growing like an incredible pace.

STEPHEN CLAPHAM: An amount of assets in private markets has gone through the roof. And, I mean, it seems to me that there’s a pressure cooker building because, of course, the valuations available in the stock market haven’t been high enough for the private equity to realize the sales.

STEPHEN CLAPHAM: The allocators have got, some of the allocators have got huge allocations to private equity, huge commitments, but they’ve not been getting the cash distributions back because the sales haven’t been happening. And meantime, the riskier loans are going into private credit to fund the portfolio companies. How do you think about all of that? And it’s difficult to get the data, isn’t it?

PETER OPPENHEIMER: It is difficult to get the data. And it’s not regulated, of course, in the same way that public markets are. And the histories are much shorter of any of the data that you get, because these are much more recent markets that have, at least in the scale and size that they’ve become, you know, this just hasn’t been true through longer term.

PETER OPPENHEIMER: History. So I think these are things to be very cognizant of. And I think the central banks and policymakers are doing their best to really try to sort of monitor these things.

PETER OPPENHEIMER: We’ve seen some of the risks spill out through the recent period of weakening in particular commercial real estate in the US, and the exposure to that in some of the private markets and indeed in regional banks. And so far…

PETER OPPENHEIMER: And because there has been a lot of cash that’s built up also in investor portfolios, you know, these haven’t turned into big losses or, and we haven’t seen any, really any dramatic systemic effects from it. The hope, of course, is that, you know, interest rates will start to come down quickly enough that when these private companies…

PETER OPPENHEIMER: Need to refinance their loans, they’ll be doing it into a period of a lower cost of capital gain. But I don’t think we’re completely out of the woods because if interest rates do stay higher for longer, once companies or private assets need to refinance their loans and interest rates and the cost of capital are much higher, I think there will be some losses still to come through.

PETER OPPENHEIMER: So that’s something again that… I think we should be very, very focused on, notwithstanding the difficulty of getting good data on some of these markets.

STEPHEN CLAPHAM: It seems to me, if we’re going to have a crisis anytime soon, that’s where it’s going to be. I don’t know what triggers it. They may well manage to muddle through because if the IPO markets are okay, then… The pressure in the system starts to be…

PETER OPPENHEIMER: Yeah, and there are some positive signs that those markets are starting to recover. They slowed down a lot, really, since 2022, as interest rates rose from these very, very low levels and confidence started to evaporate because of the fears of recession. But we’re starting to see confidence coming back and these markets opening up again, and that will help to alleviate some of the pressure.

STEPHEN CLAPHAM: If you’re a professional investor, we run a forensic accounting course for institutional clients and soon a cohort-based course for serious amateurs. Email us at info at behindthebalancesheet.com.

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STEPHEN CLAPHAM: There was a chart in the book of the U. S. Profit share of GDP versus the S&P’s net income margin, and the two have gone in sharply opposite directions in the last 10 years. And I’ll put that. Chart in the show notes for the listeners.

STEPHEN CLAPHAM: It’s a bit frustrating doing an audio podcast when there’s so much good stuff to look at. But you attribute this partly to tax cuts benefiting international companies more and also the S&P having a higher proportion of high margin tech. And absolutely, those are both correct. But I also think a large element of this is quoted companies cheating, Goosing their earnings. And I think there’s been a huge amount of that going on. And we look at the NEPA margins versus the S&P margins to illustrate that. And I’ll also put that chart in the show notes. And I mean, you know, you get this sort of bifurcation, you can see the chart there, where there’s, you know, the NEPA margins going down and S&P margins.

STEPHEN CLAPHAM: And that’s right. This was very prevalent in the 1990s. It’s exactly the same thing. I mean, I’m obviously interested in companies cheating because that’s kind of what I do, what I look at. But I mean, do you think there is an element of that?

PETER OPPENHEIMER: Well, I think there’s a couple of things to say. I don’t think cheating is really necessarily the right word. I mean, two things have probably happened that help to explain the quoted companies’rise in margins more recently. One of them is share buybacks, which has helped to boost the earnings per share. We’ve seen that. As being a very dominant factor in the US in the last decade or so.

PETER OPPENHEIMER: And interestingly, across Europe, that has started to become a very big feature as well, with companies both in the UK and the rest of Europe buying batch stock. I think the other factor is just the compositional one. So in the US in particular, because, as we were discussing earlier, you have a small number of super large companies.

PETER OPPENHEIMER: That dominate the market in terms of their valuation and their size, these companies do actually have very, very high margins. So they’re having a disproportionate effect on the aggregate index.

PETER OPPENHEIMER: If you look at the average or the median company, margins have not got up anywhere near as much. But I think there’s a third point here that’s probably worth just mentioning, and that is that the secularizing margins, which has been true in most major markets, has really been evident since the early 1990s.

PETER OPPENHEIMER: And I think there are some very important reasons why that happened.

PETER OPPENHEIMER: It’s a reflection, of course, partly of technology innovations, which have boosted margins for many companies, but also the effect of increased world trade.

PETER OPPENHEIMER: From the 1990s, globalization, a trend towards lower corporate tax rates, certainly lower interest charges, and a period through much of that, the decades from the 1990s, where you had very ample supplies of global labor, pushing down labor costs, and also very ample supplies of commodities, pushing down commodity costs.

PETER OPPENHEIMER: So all of these things contributed to very, very healthy profit margins for companies. The profit share of GDP, if you like, went up relative to, for example, the labor share of GDP.

PETER OPPENHEIMER: And more recently, I think, you’re starting to see a bit of an inflection here. Labor markets are much tighter. Wages are going up. The labor share of GDP is starting to improve.

PETER OPPENHEIMER: And other than a small number of very dominant global companies with proprietary technologies or brands, you’re starting to see some evidence of margins in the corporate sector moderating because of higher input costs, higher labor costs, higher commodity costs, less world trade growth, and sort of somewhat slower revenues.

STEPHEN CLAPHAM: So, I mean, does that mean slower markets? I mean, obviously…

PETER OPPENHEIMER: I think it does. You know, I think overall, you know, when we look at equities, certainly, you know, in a way… It really boils down to two things, the cost of capital, which affects the valuation or interest rates. And then on the other side, you know, markets or companies are really making a claim on nominal GDP.

PETER OPPENHEIMER: Now, I think, from a secular perspective, it’s not really realistic to expect interest rates to continue to trend downwards, as they’ve done, broadly speaking, in the last couple of decades. Because there’s not that much room for interest rates.

STEPHEN CLAPHAM: Yeah, it was starting points too long, yeah.

PETER OPPENHEIMER: And I don’t think it’s very realistic that we go back to the sort of emergency level of zero interest rates that really were a feature of the post-financial crisis era. So interest rates cyclically are probably going to come down a bit over the next year or two.

PETER OPPENHEIMER: But from a secular perspective, they’re probably not going to come down that much. So that should… Suggest to us that valuations are not going to continue to rise as they did both in bonds and equities really in the last 10-15 years. In terms of underlying growth in profits, I think you’re going to get more differentiation between and across different markets and sectors and companies.

PETER OPPENHEIMER: But overall, you know, nominal GDP is probably going to be positive but moderate. Actually, as inflation comes down, and I think it will, that’s going to actually moderate nominal GDP. So remember, that’s real GDP plus inflation.

PETER OPPENHEIMER: So I think you’re going to get positive economic growth. But with aging populations and the absence of interest rates continuing to fall, it’s going to be positive but more moderate. So I think overall, we should expect a longer period of… More moderate returns in financial assets, which makes diversification much more important as a sort of portfolio tool, if you like.

STEPHEN CLAPHAM: And is that diversification across asset classes or also diversification within, for example, equities?

PETER OPPENHEIMER: Both, I think. You know, what’s interesting, if you look at the period, again, since the financial crisis, since 2010, is that, you know, diversification didn’t really work. You know, people often think of, you know, the adage that diversification is the only free lunch in finance, because that’s what’s supposed to improve your risk adjusted returns over time.

PETER OPPENHEIMER: It didn’t work. We talked about this earlier, you know, in a multi asset sense, you really only needed a kind of 6040 equity bond split. If you added other complex markets or assets to that wouldn’t really have helped very much.

PETER OPPENHEIMER: And within equities, actually, it turned out that you didn’t want to diversify at all. All you really wanted was US equities and for that matter US technology. And you would have seen one of the best sharp ratios or risk-adjusted returns in history.

PETER OPPENHEIMER: I think a lot of that was a unique feature of that world of extremely low interest rates. And if you’re going to get a period of lower overall returns, I think an interest rate more broadly normalized.

PETER OPPENHEIMER: I think you’re going to be back into a world where diversification matters again. So adding different assets to a 60-40 portfolio and within equities diversifying a bit more geographically, so not just exposed to the US, but other markets as well.

PETER OPPENHEIMER: A little bit more sectorally, you know, I think technology is still going to be a very dominant sector and there’s lots to be excited about. But also some of the more mature sectors, which are much, much cheaper, are starting to see some quite good growth rates because they’re benefiting from other developments like decarbonization.

PETER OPPENHEIMER: And then finally, you know, stock concentration means that there’s a likelihood that being a little bit more diversified across markets and stocks probably will help to… Improve risk adjusted returns as well.

STEPHEN CLAPHAM: Yeah, I mean, it’s not an easy environment. No, it is. An equities manager, right?

PETER OPPENHEIMER: Yeah. One thing I would say, though, which is also possibly worth mentioning. Is that in the period where interest rate declines consistently, we’re a very major driver of financial market returns.

PETER OPPENHEIMER: That was an era in which what we call beta was very dominant. Things just went up. So if you were exposed to an index or you were exposed to an asset class, you probably did pretty well.

PETER OPPENHEIMER: Alpha did not generally become a very big part of returns. That’s sort of… Differentiation within markets.

PETER OPPENHEIMER: What we’ve noticed recently is actually correlations within markets stock by stock have fallen dramatically. And that means that dispersion or differentiation is becoming much bigger again, which suggests that at least the opportunity set for active managers and for Alpha generation should be a lot better, even if broader index returns are more moderate.

STEPHEN CLAPHAM: Although, if you don’t own Nvidia, you’re starting off at a big disadvantage. I think it’s quite difficult.

STEPHEN CLAPHAM: You talked in the first book about the… We all know that the iPhone of today is much more powerful than the one when it came out in 2007. And you suggested that these sorts of quality improvements, not just in iPhones, are badly measured by…

STEPHEN CLAPHAM: Gdp estimates, and therefore that GDP and productivity might be being understated. And that’s one reason why we’ve had slightly different cycles in the last 15 years. Can you just expand on that? And why is that got that outcome?

PETER OPPENHEIMER: Yeah, well, I mean, there is a bit of a conundrum because, you know, productivity is broadly measured has been actually pretty low in many economies in the last decade or so. Despite quite major transformations in technology, and there’s different sort of explanations of this.

PETER OPPENHEIMER: You know, one of them is that, as with other waves of technology in history, you know, canals and the steam train and the Industrial Revolution and railways and everything, it takes a long time to get the networking effects to a point where you start to see real improvements. In productivity.

PETER OPPENHEIMER: You know, it’s all very well having a steam train, but that alone is not going to boost growth in the economy until you’ve built factories by canals and you’ve networked or integrated economies in a way that can benefit from it. And that has been true of the internet and virtually every technology we’ve seen. So one explanation for low productivity is it’s just going to take some time.

PETER OPPENHEIMER: A second explanation, I guess, you know, really since the internet is that A lot of investment has gone into things that may not actually, in the end, be productivity enhancing, maybe the opposite. You know, you think of how much your inbox is flooded with emails and how long it takes to go through it, or social media is quite a time sink without an obvious output boost.

PETER OPPENHEIMER: The third explanation, and probably all of these are true to some extent, is that things are just not measured correctly because, you know, what you’re getting in technology today is much greater than an equivalent product, you know, 10 years ago, five years ago.

PETER OPPENHEIMER: And I think all of those are partly true. What I would also say is that as we see technology evolving into the next wave of products and services, particularly around AI, is that we do think there will be quite a big improvement in productivity and the networking effects should be…

PETER OPPENHEIMER: Less complicated because things like AI, the application of large language models, can be bolted on to existing infrastructure like the internet and utilized relatively quickly in a way that improves efficiency and productivity. So we’re quite hopeful there.

STEPHEN CLAPHAM: You’re quite optimistic on productivity.

PETER OPPENHEIMER: Yes.

STEPHEN CLAPHAM: And on AI, I mean, how are you using it?

PETER OPPENHEIMER: Well, How am I using it? How are we using it?

STEPHEN CLAPHAM: In the firm.

PETER OPPENHEIMER: Well, I think, look, it’s very early stages, certainly in terms of utilizing the most recent innovations around AI because actually AI is embedded in lots of things that we do and has been for quite some time. But the sort of excitement around large language models, for example, I think we’re still at the very early stages because there are…

PETER OPPENHEIMER: Significant complications about how you can apply these technologies because of data privacy issues, for example. You know, quizzing and adding information when you’re aggregating data that may be private to you as a company is a very difficult thing to do. So I think we’re not yet at a stage where we’re really utilizing these very significantly, but I think a lot of that will change over time.

PETER OPPENHEIMER: You know, and I think it’s true when it comes to things like we are seeing it in things like a aiding programming and programmers are becoming already much more productive because it’s speeding up the processes of development.

PETER OPPENHEIMER: So I think that, you know, we’ll be able to utilize these things just to speed up processes, the speed of analyzing data pretty, you know, I think we’ll be able to use those applications pretty quickly and that will be very, very helpful.

PETER OPPENHEIMER: And this will be true in a lot of industries, even outside of the technology space, in things like financial services, in things like medical care and health care, for example, speeding up drug discovery and being much more efficient in the investment process of drug discovery at a very early stage. I think those are quite exciting opportunities.

STEPHEN CLAPHAM: You know, I feel so…

STEPHEN CLAPHAM: Sort of old school because my principal use of chat gbt is to produce titles for my newsletter okay well there you go that’s one application it’s actually well i’ve got my you found some good ones yeah well it’s funny funny enough i i used it to generate some podcast questions for another guest and the questions were unbelievably good i mean If you were just a sort of generic interviewer that didn’t know anything about the subject, you could walk into the room and ask Peter Oppenheimer a set of questions that, you know, would be perfectly sensible and the guest would be perfectly able to take those and run off.

STEPHEN CLAPHAM: I kind of feel that, you know, that would be cheating. And it’s much better to understand what… You know, well, you’ve obviously written a book, but this other person hadn’t written a book. And I was quite shocked.

PETER OPPENHEIMER: Well, I think, you know, like lots of technologies, these are tools, but nothing’s going to ultimately, I think, replace the importance of human interaction and the nuances that you get around that with language and is still, I think, absolutely critical.

STEPHEN CLAPHAM: And look, the second book talks about longer term cycles and you talk of three secular bull markets and three fat… And flat markets since 1949. I love this term.

STEPHEN CLAPHAM: So when you start to zoom out and take that longer term perspective, the bear markets are just kind of pauses within these longer term super cycle bulls. Can you explain why it’s helpful to think about the longer term? And are we at the start of one of these longer term cycles now?

PETER OPPENHEIMER: Is this the… Yeah, I think what I’m really trying to describe in this second book, Any Happy Returns, is that the cycles that we’ve been discussing tend to evolve within quite different longer-term secular trends.

PETER OPPENHEIMER: And these secular trends can be very powerful periods of high growth and high returns. And they can also be long periods of pretty low growth and low returns, or what I call fat and flat, fat and flat meaning that…

PETER OPPENHEIMER: Point to point you’re not getting much of a return but you’re getting quite a wide trading range and it’s much more of a sort of trading type of environment but these things don’t happen by accident and what I was really trying to do in this book is identify some of the sorts of factors which have explained or driven the differences in these super cycles so just briefly I think if you take the first great super cycle after the Second World War you which really lasted through to the late 1960s, it was a very strong period of economic growth and market returns.

PETER OPPENHEIMER: And, of course, some of this came as a result of post-war economic reconstruction, the Marshall Plan and so on.

PETER OPPENHEIMER: So it was a recovery from a very low base.

PETER OPPENHEIMER: But a lot of it also reflected a new era of institution building. After all, the whole architecture of the global economy and trading system. And indeed geopolitics was really built in that period. Things like the World Trade Organization, the United Nations, the World Bank and so on. And this created the environment for increasing world trade.

PETER OPPENHEIMER: We also had a baby boom. And that led to, by the 1950s and 60s, a big consumer boom supported by other innovations. Things like credit cards started to become available, so credit growth. It came to an end really with rising inflation and interest rates in the late 1960s, partly associated with increased US government debt to fund the Vietnam War.

PETER OPPENHEIMER: And then we entered a period in the 1970s of very, very poor returns, high inflation. We had two… Huge energy shocks, one in 1973 and one in 1979. That kept inflation and interest rates very high through the decade. It was a period of increased protectionism, less economic growth and world trade growth.

PETER OPPENHEIMER: Returns across financial markets were very poor. It was a difficult and bad decade in many ways.

PETER OPPENHEIMER: Not for everything. Music was fantastic. Good music. But Not great for financial returns. Now, the next phase, which was really, really strong, really started in the early 1980s when inflation and interest rate peaked in many countries in the mid-teens. And it lasted through to the end of the century with the bursting of the technology bubble.

PETER OPPENHEIMER: And it was a period really defined by consistent disinflation, lower interest rates. We also had big supply-side reforms in the 1980s, around the… Reagan and Thatcher revolution that was reflected and repeated in other parts of the world.

PETER OPPENHEIMER: That led to privatization, deregulation, tax reforms. But importantly, we also had a shift in the geopolitical environment when the Berlin Wall collapsed. And then, you know, a little more than a year later, the whole Soviet Union had unraveled. And that led to a peace dividend, government spent much less on defense.

PETER OPPENHEIMER: World trade growth started to accelerate. We really entered the modern era of globalization, which peaked with China entering the WTO in 2001. The period after that, we discussed it earlier, really for the decade from 2000 through to 2010, was fat and flat. You had big crises and big recoveries. You had the technology bubble bursting.

PETER OPPENHEIMER: Then rates falling, a recovery that led to the bubble in the US housing market, and then the huge collapse with the financial crisis. And then the year really since then has been the one that we’ve been describing, the era of ultra low interest rates, QE, consistently rising valuations across bond markets, equities, private, public markets.

PETER OPPENHEIMER: And that’s really sort of got us to where we are today. I think we are starting an inflection point into a new super cycle because some of these characteristics that I’ve described are shifting. You know, we’re in a world of greater geopolitical tension.

PETER OPPENHEIMER: We’re in an environment where globalization is being contested. We’re getting more regionalization. We’re getting higher tariffs. The US has imposed very significant trade restricted practices and tariffs, and it’s proposing more. We’re seeing the populism of government policies or industrial policies to pick and choose and support certain industries, very popular in the 60s and 70s, not really since then.

STEPHEN CLAPHAM: No, and never been successful.

PETER OPPENHEIMER: At least historically, it’s not been, generally. And we’re seeing an environment where government deficits are rising dramatically. Which is probably going to keep longer-term interest rates, bond yields higher, and tighter labor markets, tighter commodity markets.

PETER OPPENHEIMER: We discussed some of that earlier on. So I think some of these structural changes are likely to lead to lower returns, lower profit margins, something we touched on earlier. But all of this is also happening at a time when the world is being shaken by two massive…

PETER OPPENHEIMER: Additional economic innovations, one of them around AI, but the other one around energy transformation or transition towards greater electrification, decarbonization.

PETER OPPENHEIMER: And these are two huge shocks, which are going to have both negative and positive effects. The interesting thing is that there’s a symmetry that we’re discovering between these two things, because while technology in the last 20 years has all been about moving to a more virtual world and that is true of course at some level with AI.

PETER OPPENHEIMER: We’re recognizing that AI to fulfill its potential will only be able to do that with massive amounts of electricity because the energy required to generate these tools is just huge. And therefore, you’re going to need a lot of physical infrastructure built.

PETER OPPENHEIMER: And that is really what is required to move towards net zero, to decarbonize economies, to electrify, to build more renewables. And so I think these two things together are going to be quite transformational. Certainly, they’re going to provide their issues and problems, who and how you’re going to pay for all this stuff. But I think they hold out some big opportunities.

PETER OPPENHEIMER: We talked about the potential for AI to boost productivity. I think that’s real. And with decarbonization, if we can get it right, not only do we end up with a more… Sustainable world but also an environment where the cost of the marginal cost of energy collapses close towards zero which would be a great boost to economic activity yeah it’d be a transformation listen it’s.

STEPHEN CLAPHAM: Been fantastic going through i mean we’ve gone through yeah 150 years i mean it’s i could carry on talking but i know you’ve got other more important things to do I normally ask people to recommend a book, but we’re not going to ask you that because you’ve got two great books that people should read. But have you got any advice for a young person thinking of getting into the asset management industry?

PETER OPPENHEIMER: Well, I think with the benefit of having worked in this industry a long time, you know, taking a long view, perseverance and patience are really important. But no, don’t be in too much of a hurry because, you know.

PETER OPPENHEIMER: Careers, whether in this industry or any other, don’t like markets go in a straight line. You get periods where things are working well, times when you get knockbacks. I think you should learn from those and really invest for the long term by working hard and really learning from both the successes and the failures.

PETER OPPENHEIMER: So be patient because it’s a very exciting industry. It reflects and responds to all of the sort of changes in economic environments, technology, geopolitics, society. And just being able to watch as these things evolve and change and try to understand them is a sort of challenge, but a great privilege.

STEPHEN CLAPHAM: Peter, thank you so much for coming.

PETER OPPENHEIMER: Thank you, Steve. I appreciate it. Thanks for your time.

STEPHEN CLAPHAM: You can tell how Peter made it to become the only partner in the research department in Goldman’s in Europe.

STEPHEN CLAPHAM: He’s very measured with his answers.

STEPHEN CLAPHAM: And he’s got an amazing recall of these market cycles he’s written about, both the shorter-term cycles and the longer-term secular trends. I had lunch with a seasoned investor a few weeks ago, and he said, you just need to know which phase of the market you’re in, and then it’s straightforward.

STEPHEN CLAPHAM: I think Peter’s books can really help you understand that. I hope you enjoyed our conversation and as ever thank you for listening. I appreciate your support and don’t forget to subscribe wherever you get your podcasts.

STEPHEN CLAPHAM: Thank you.