Any Happy Returns

Chapter 10The Post‐Modern Cycle

We live in the postmodern world, where everything is possible and almost nothing is certain.

—Vaclev Havel

I describe the super cycle from 1982 to 2020 as the Modern Cycle because it differed from most of the more traditional cycles that preceded it, in that it was unusually long and characterised by low macro volatility (economic activity and inflation) and a falling cost of capital.

There were crises over this period, of course, but mainly financial markets rebounded strongly from these as they responded to policy interventions, largely in the form of interest rate cuts. Investors became increasingly conditioned to expect policy support when faced with growth weakness or other exogenous shocks. At the time, investment returns across nearly all financial assets were heavily influenced by the trend to lower interest rates.

In the post‐financial‐crisis era of quantitative easing (QE), equity markets staged a powerful recovery, but selectivity mattered. Returns became increasingly bifurcated by ‘factors’ – the macro sensitivities of companies to the key drivers. In this case, what mattered was the impact of zero interest rates in an environment of low growth. So‐called Growth (or long‐duration) companies, with prospects of high growth into the longer‐term future, prospered, whereas companies in mature industries, often experiencing excess supply, generally underperformed.

Leadership and return profiles in equity markets shifted once again with ...