Oppenheimer does not make waves

Chief Global Equities Strategist at Goldman Sachs has a strange piece out in the FT on the slowdown in Emerging Economies. He calls it the third and last wave of the crisis. His persuasion falls short. My comment on his article is as follows:

In a clever play of words, Mr. Oppenheimer writes the following:

“while the buying back of equity is a justified response to the mismatch between cheap debt and expensive equity.”

Cheap debt means overpriced bonds. So, if issuing debt when rates are low (bond prices are high) makes sense, then, symmetry requires that stock be not bought back when its is expensive. Companies sell shares when it is expensive and not the other way around.

Recent work by Research Affiliates featured in a Barry Ritholtz comment on Bloomberg Views tells us the reasons behind share buybacks. Mr. Oppenheimer would do well to read them.

If “The weakness in EM economies is a required adjustment to force the deleveraging”, then why are policymakers in advanced economies resisting weakness in their economies? They should be welcoming it, no?

Well, despite his inconsistencies and strange explanations, he may well be right on this:

“The EM wave is likely to be the final phase of the crisis, and will pass without dragging the global economy into a downturn.”

It could well be the ultra-loose monetary policies pursued for too long in advanced economies, the bubbles and the imbalances that they have spawned that would drag the global economy into a (prolonged) downturn.

If it is over, then Goldman Sachs should be trying to keep its BRICS Fund going, market it aggressively to the world again (if we are at the bottom) and not ‘walking away’ from it.


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