global themes and risks - stanyabby joseph cohen, cfa goldman, sachs & co. 1-212-902-4095...

Abby Joseph Cohen, CFA Goldman, Sachs & Co. 1-212-902-4095 [email protected]

Rachel Siu Goldman, Sachs & Co. 1-212-357-0493 [email protected]

Global Themes and Risks

The Goldman Sachs Group, Inc.

April 2013

The Global Markets Institute is the public policy research unit of Goldman Sachs Global Investment Research. Its mission is to provide research and

high-level advisory services to policymakers, regulators and investors around the world. The Institute leverages the expertise of Research and other

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Goldman Sachs Research

Goldman Sachs Global Investment Research 2

Composition of US GDP, 2006-2014

Reduced government spending a drag on GDP growth

Source: Goldman Sachs Economics Research.

2006 2007 2008 2009 2010 2011

GDP 2.7 % 1.9 % (0.3) % (3.1) % 2.4 % 1.8 % 2.2 % 2.2 % 2.9 %

Domestic Final Demand 2.6 1.2 (1.5) (4.0) 2.8 1.7 2.1 2.0 3.0

Personal Consumption 2.9 2.3 (0.6) (1.9) 1.8 2.5 1.9 2.1 2.5

Residential Fixed Investment (7.3) (18.7) (23.9) (22.4) (3.7) (1.4) 12.1 15.1 15.0

Business Fixed Investment 8.0 6.5 (0.8) (18.1) 0.7 8.6 8.0 5.0 9.0

Government 2.1 1.3 7.2 6.1 4.5 (2.8) (2.2) (5.2) (5.9)

Exports 9.0 9.3 6.1 (9.1) 11.1 6.7 3.2 2.1 4.6

Imports 6.1 2.4 (2.7) (13.5) 12.5 4.8 2.4 2.1 4.6

2013(E)2012 2014(E)


Consumer debt service payments as a percentage

of DPI at lowest levels since mid-1990s

Source: Federal Reserve Board, Goldman Sachs Research.

10

11

12

13

14

15

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

De

bt s

erv

ice

pay

me

nts

as

% o

f d

isp

osa

ble

pe

rso

nal

inco

me

DSP as a % of DPI back to mid-1990s levels


Exports and business equipment lead all other GDP sectors

Private construction showing life; reduced government spending is a

drag on overall GDP and employment

Source: Bureau of Economic Analysis.

85

90

95

100

105

110

115

120

125

130

135

140

145

150

155

160

165

170

175

1Q 03 3Q 03 1Q 04 3Q 04 1Q 05 3Q 05 1Q 06 3Q 06 1Q 07 3Q 07 1Q 08 3Q 08 1Q 09 3Q 09 1Q 10 3Q 10 1Q 11 3Q11 1Q 12 3Q 12

Index: 2

003 Q

1=

100

Data from 2003 Q1 through 2012 Q4

Exports

Personal Consumption Expenditures

Government Expenditures

Business Structures

Business Equipment

and Sof tware


Total IT spending still a source of strength

Source: Goldman Sachs IT Spending Survey, February 2013.

24% 76%

Note: Due to rounding, totals may not add up to 100 percent.


Employment changes during selected

recessions and recoveries

Source: Brookings, Bureau of Labor Statistics, Goldman Sachs Global Markets Institute.

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

0 5 10 15 20 25 30 35 40 45 50 55 60 65

Perc

en

t Jo

b L

osses R

ela

tive t

o P

eak E

mp

loym

en

t

Months from Peak Employment

Current 2001 1958

The current weakness is linked to the combination of both

cyclical and structural factorsCyclical

Structural


Employment gap by education

Unemployment rates for adults, 25 years and over

Source: Bureau of Labor Statistics.

0

2

4

6

8

10

12

14

16

Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

Less than a high

school diploma

High school diploma

Some college or associate degree

Bachelor's degree and higher

Un

em

plo

ym

en

tra

te (

%)


Median household income, inflation adjusted

Trending lower since 2000

Source: Census Bureau.

44,000

46,000

48,000

50,000

52,000

54,000

56,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Infl

ati

on

-ad

juste

d d

oll

ars


Median household income by educational

attainment of head of household

Source: Census Bureau.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

No high school

Some high school

High school diploma

Some college Associate degree

Bachelor's degree and

higher

Infl

atio

n-a

dju

ste

d d

olla

rs

1995 2000 2005 2011


US productivity gains are driven by

investment in equipment and people

Source: Bureau of Labor Statistics.

0.6 0.6

1.21

1.2

0.4 0.5

0.2

0.2

0.4

0.50.5

1.3

1.40.4

0

0.5

1

1.5

2

2.5

3

1987-1990 1990-1995 1995-2000 2000-2007 2007-2011

Perc

ent

Capital intensity Labor composition Multifactor productivity

Percentage point contributions to growth in output per hour


Technology wages are higher and have

grown more quickly

Source: New York State Department of Labor, QCEW Data. Data for New York City.

$40

$50

$60

$70

$80

$90

$100

$110

$120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Annual w

ag

es (

in t

ho

usand

s U

SD

)

Total Private High Tech

Annual Average Wages Sector Growth since 2000Total Private 32.8%High Tech 42.3


$137,455

$120,825

$107,670

$93,816$87,674 $85,867 $85,489

$82,029

$68,560$61,070 $58,093

$41,002

$59,590

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

Employment and annual average wages by

tech occupation

Source: US Bureau of Labor Statistics, Occupational Employment Statistics.

Note: Only tech-related occupations are included in each category.

New York City, 2010


Shale technology is driving a resurgence in US

oil and gas production, creating a competitive

advantage

Source: IEA, Goldman Sachs Global ECS Research.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1918 1927 1936 1945 1954 1963 1972 1981 1990 1999 2008 2017

Th

ou

sa

nd

b/d

US NGL production

US conventional crude oil production

US biofuel and oxygenates production

US non-conventional crude oil production


The US outspends the rest of the world

Source: Haver Analytics, Goldman Sachs Global ECS Research.

Global energy production in volume and value and capex (2011)

CountryTotal Liquids

(thousands of barrels

per day)

Natural Gas (billion cubic feet)

Thermal Coal (million tons)

Market Value($ billions)

E&P Capex ($ billions)

US 10,107 23,000 1,094 $696 $138

China 4,303 3,629 3,829 663 35

Russia 10,229 23,647 372 617 10

Saudi Arabia 11,153 3,504 0 475 5

Iran 4,234 5,161 1 206 n/a


Global growth outlook

Global GDP projected at 3.3% in 2013, with recession in Europe

Source: Goldman Sachs Economics Research.

($ Billions)

US 15,076 (0.3) % (3.1) % 2.4 % 1.8 % 2.2 % 2.2 % 2.9 %

Eurozone 12,993 0.3 (4.3) 1.9 1.5 (0.5) (0.5) 0.8

Germany 3,572 0.8 (5.1) 4.0 3.1 0.9 0.7 1.9

France 2,753 (0.2) (3.1) 1.6 1.7 0.0 (0.7) 0.4

Italy 2,181 (1.2) (5.5) 1.8 0.6 (2.2) (1.2) 0.5

Japan 5,788 (1.0) (5.5) 4.7 (0.6) 2.0 1.2 1.5

United Kingdom 2,393 (1.0) (4.0) 1.8 0.9 0.3 1.3 2.0

China 7,318 9.6 9.2 10.4 9.3 7.8 8.2 8.4

Canada 1,736 0.7 (2.8) 3.2 2.4 1.9 2.2 2.5

Brazil 2,426 5.2 (0.3) 7.5 2.7 0.9 3.3 4.4

Mexico 1,159 1.2 (6.0) 5.3 3.9 3.9 3.6 3.8

Korea 1,116 2.3 0.3 6.3 3.6 2.1 3.1 3.9

Australia 1,484 2.5 1.4 2.6 2.4 3.6 2.4 2.8

2014(E)2013(E)

Growth Rates

2012(E)2011 GDP 20112008 2009 2010


Share of US foreign trade

February 2012 through January 2013

Source: Goldman Sachs Global Markets Institute, US Department of Commerce.

US Exports to US Imports from

$Billions % Share $Billions % Share

North America $510.6 32.9 % $603.1 26.5 %

Canada 293.6 18.9 330.1 14.5

Mexico 217.0 14.0 280.1 12.3

European Union 264.3 17.0 380.1 16.7

Japan 69.6 4.5 145.8 6.4

Central/South America 185.3 11.9 171.6 7.5

Brazil 43.8 2.8 32.4 1.4

Argentina 10.1 0.7 4.5 0.2

China 111.6 7.2 428.4 18.8

Korea 42.3 2.7 59.6 2.6

Total $1,552.4 $2,276.9

Aggregate trade deficit of $724.5 billion.


Selected foreign exchange rates

The Chinese yuan has been rising

Source: Federal Reserve Board, Goldman Sachs Global Markets Institute.

70

80

90

100

110

120

130

01/07 07/07 01/08 07/08 01/09 07/09 01/10 07/10 01/11 07/11 01/12 07/12

Ind

ex: J

anuary

2007 =

100

Canadian Dollar

Chinese Yuan

Mexican Peso

Euro


S&P 500 performance: Staircase pattern

June 1995 – March 2013

Source: Standard & Poor’s, FactSet, Goldman Sachs Global Markets Institute.

525

600

675

750

825

900

975

1050

1125

1200

1275

1350

1425

1500

1575

6/95 6/96 6/97 6/98 6/99 6/00 6/01 6/02 6/03 6/04 6/05 6/06 6/07 6/08 6/09 6/10 6/11 6/12

Dail

y c

losin

g p

rice

Daily closing price from 6/1/95 through 3/28/2013

Top of prior bull market

9/11 af termath

Accounting scandals and beginning of Iraq engagement

Higher volatilitybegins

Financial crisis worries reach climax - Q1 2009

2002 economic and market troughs

2009 economic and market troughs


Annual share price performance for major

indices

Source: FactSet.

S&P 500 13.6 % 3.5 % (38.5) % 23.5 % 12.8 % (0.0) % 13.4 % 10.0 %

Dow Jones EURO STOXX 50 15.1 6.8 (44.4) 21.1 (5.8) (17.1) 13.8 (0.5)

FTSE 100 10.7 3.8 (31.3) 22.1 9.0 (5.6) 5.8 8.7

Deutsche Aktien Xchange 30 22.0 22.3 (40.4) 23.8 16.1 (14.7) 29.1 2.4

Nikkei 225 6.9 (11.1) (42.1) 19.0 (3.0) (17.3) 22.9 18.7

KOSPI 200 34.2 39.3 (48.3) 52.0 5.3 (20.0) 10.3 (0.3)

Hang Seng Index 4.5 30.1 (39.3) 51.6 22.2 (12.2) 22.9 (1.6)

* As of 3/28/2013.

2013 YTD*2012201120102006 2007 2008 2009


Share price performance for major indices

Significant divergences have emerged

Source: FactSet.

30

50

70

90

110

130

150

170

190

210

230

Sep-05 Apr-06 Nov-06 Jun-07 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Sep-12

S&P 500

Dow Jones EURO STOXX 50

FTSE 100

Deutsche Aktien Xchange 30

Nikkei 225

Hang Seng Index

KOSPI 200

Ind

ex: S

ep

tem

ber

22,

2005 =

100

Nikkei 225

Heng Seng Index

KOSPI 200


S&P 500

FTSE 100



Realized volatility for major indices

Volatility sharply declined following Euro-zone worries in late

2011; may return as worries resume

Source: Goldman Sachs Options Research.

0

10

20

30

40

50

60

70

80S

ep-0

5

Dec-0

5

Mar-

06

Jun-0

6

Sep-0

6

Dec-0

6

Mar-

07

Jun-0

7

Sep-0

7

Dec-0

7

Mar-

08

Jun-0

8

Sep-0

8

Dec-0

8

Mar-

09

Jun-0

9

Sep-0

9

Dec-0

9

Mar-

10

Jun-1

0

Sep-1

0

Dec-1

0

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Ro

llin

g 3

-Mo

nth

Re

alize

d V

ola

tility

(%

)

S&P 500


FTSE 100


Nikkei 225

Hang Seng Index

KOSPI 200

S&P 500

Nikkei 225

KOSPI 200


FTSE 100

Hang Seng Index


Earthquake/Tsunami


Inflation and P/E multiples(a)

The S&P 500 now at 15.5X 2013 estimated median EPS

Source: Standard & Poor’s, Bureau of Labor Statistics, Goldman Sachs Global Markets Institute.

Inflation

Less than 2.5% 18.6 X

2.5% - 3.5% 17.6

3.5% - 4.5% 12.1

4.5% - 5.5% 14.2

5.5% - 6.5% 12.8

6.5% - 7.5% 10.0

Greater than 7.5% 8.6

(a) For the period 1950-2007

S&P 500 P/E

Average


Source: Goldman Sachs Portfolio Strategy Research, Standard & Poor’s.

GDP and profits are substantially higher than

at prior stock market peak

Nominal GDP, $ billions $9,709.50 $16,030.70 65.1 %

S&P 500 Operating Earnings, per share 54.18 108.00 99.3

S&P 500 Price 1,498.58 1,569.19 (a) 4.7

(a) Closing price as of 3/28/2013.

2000 Q1 2013 Q12000 Q1 - 2013 Q1

% Change

Disclosure Appendix

April 3, 2013


Disclosure Appendix

Disclosures

This report has been prepared by the Global Markets Institute, the public policy research unit of the Global Investment Research Division of The Goldman Sachs

Group, Inc. (“Goldman Sachs”). As public policy research, this report, while in preparation, may have been discussed with or reviewed by persons outside of the

Global Investment Research Division, both within and outside Goldman Sachs, and all or a portion of this report may have been written by policy experts not

employed by Goldman Sachs.

While this report may discuss implications of legislative, regulatory and economic policy developments for industry sectors, it does not attempt to distinguish

among the prospects or performance of, or provide analysis of, individual companies and does not recommend any individual security or an investment in any

individual company and should not be relied upon in making investment decisions with respect to individual companies or securities.

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global themes and risks - stanyabby joseph cohen, cfa goldman, sachs & co. 1-212-902-4095...

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