« Exchanges at Goldman Sachs

Client Call: Market Volatility and Potential Economic Impacts

2020-04-01

In an effort to provide timely and valuable updates regarding ongoing market volatility and potential economic impacts, we’re sharing a “Market Update” call hosted by our Investment Banking Division. In the conversation, Goldman Sachs President and COO John Waldron provides an update on the current environment, alongside other senior leaders across the firm.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This Exchanges of Goldman Sachs will discuss developments. Curly shaping markets industries in the global economy objects. You would go ahead of corporate communications here at the firm, we're working to provide timely and viable updates around the covert nineteen epidemic and its impact on markets in the economy. To that end, today were sharing a market update, call that was hosted this morning by investment banking division. The speakers you'll hear or John Waldron Goldman Sachs present chief operating officer, yon heartiest our chief economist, Peter Oppenheimer, our chief, strategies and seizure and Denis Common who run the global financing group for our investment banking division, the conversation was moderated bar codes, investment, banking, Clyde Coverage, MAC, Gibson and Anthony Gutmann. Now over that discussion. I hope you find it informative good morning.
Good afternoon, tat run on the line with delighted blockades of today's mark that they call me and ask me got member alongside my kitchen. We want our global climate coverage for investment banking, at the thought that we stop saying that we hope that your family, your colleagues and, of course, you are sacred well to navigate its unprecedented prices. The positive this goal is to provide some perspective Do the town environment, the market dynamic potential scenario from here now, while we will I have all the answers. we are sure that, at a time when you're delusion, by setting this amount of information, research and data, we hope that this goal will at least help you shouldn't deciding what is incoherent thoughts and provide you with a What are your own proper planning and decision making is clearly essential? evolving rapidly and within a plan to provide you with further up. They cause, I'm awake, do without limiting it must be the liner we'll start with you Wolden Approach, president in and
runs the farm alongside the ear, guided Solomon and Austere first even share and he's tiny agreed to provide some perspective on. How told me humble encoded. Nineteen and what he's doing across regulated by governments and corporate remain turned. The unhappy Global economy working night and day and the last week provide revised views on the global economic impact that this party. He publishes recently last night with private downgrade: U S Global Gb Gdp, but with the forecasting strong recovery. Thereafter, the told you through digestion extending reflect on that should be looking for in terms of signs that the economy Peter Oppenheimer equity strategy is be based on Monday, will then be stressed and perspectives on the european economy and the actions of the Eu
He D and central banks, which will have some views on equity, market and appalled by nature, and there will then closed with seizure. Deronda financing businesses in investment backing Tuesday, will explain, what's happening across equity and get market. What that means the corporate, and with that, let me handle, became at getting thanks to happen. I welcome everyone unwelcome job. Thank you very much, push everybody's got the John. Why we get it off with a question. We got from alike violence, which the health of the global banking system? It feels good a different this time, verses in two thousand eight. What are your observations on that one? dictators: do you look for with respect to help at the system now? Should our clients think about this, I appreciate the question I gotta take a couple hangs at the outset. First We feel very good about the overall to of the banking system. I would observe this.
crisis, whirling and now is really. began it's more of a real economy crisis in almost a corporate crisis. Large and small businesses alike, our main street crisis, more than than the last time round, which is really kind of banking crisis, but blood into the real economy, This is really more about the man shock in the real economy and if the banking system, that think, is going to be used as day as a transmission mechanism to help he all the economy unfortunately, we came into this period. With a much healthier banking system than we did, you know last time around, so the other, with lots of incremental a regulation and liquidity buffers added, the banking system, in about the United States and globally, on the back of the financial crisis, and so, if you look at a capitalization level today and the ability to absorb lot is today, the industry extremely well capitalize right now, just to give you,
dimension that we ve increases in industry are clear. One capital, which is a key area, dilatory metric by which were all evaluated on a global basis by over seventy five percent. Senator requires levels eyes if we measure back to like the second quarter of two thousand and eight what about right around me, the beginning of the financial crisis, that your one capital for U S. Bags would have been about a trillion dollars in the fourth quarter of nineteen, to what you say before the advent of the corona virus in the? U S, that you're one capital would have been north of Troy and seven. So substantial increase in trafficking apple, just for the? U S backs alone, leverage ratios that would suggest a children's fifty billion dollar incremental access capital, capacity on leverage requirements across the industry. So when you look large. If you have banks, a total loss, absorbency has doubled. Really overrun the period from two thousand eight till today,
I think you're, looking at a banking industry at an exceptionally well capitalized deal with bad strategy. We that we have in front of us as an economy I would also say that were keenly aware of our role as a system that is at the banking industry to being the important part of the engine and get the economy back up and running as we get palpably over the the action of the crown of irish crisis, so get kind of back into thinking about how to get the economy back up and running. We're gonna play at an industry. A very important role and the things that we forget about a common factors that we then, alongside our brethren in the industry really working closely together in a coordinated fashion, to support the system, You may have seen that the term last week, we agreed to. to suspend our share buyback as an industry and we also announced a coordinated, difficult window draw from from the Afar reserve at an industry
both measures of showing real support and coordination at an industry for the system in our focus in the last couple weeks, has really been on the shorter term money markets. We have we been working closely together and as an industry and with our regulators in and working to get policy implemented to improve the c, p markets and, ultimately, the term credit markets. I'll make some comment I give later about this, but but have we seen, meaning improvement in a sleepy market, certainly not functioning exactly as normal, nor the way we want them to, but there are materially better this week and they would have been coming into last week. I you know where they were really not functioning of our well, it all and as a measure of the healing process in the financial markets, particularly in an term credit.
we have now seen and irrational grade issuing a hundred and ten billion dollars of issuance last week, thirty six billion dollars in issuance on Monday and likely another ten or so billion dollars today, and two hundred and fifty billion dollars in the last month, all effectively record levels. The term Chris Markets are starting deal themselves, which is gonna, be important. Indicator of getting credit flowing back into the economy and in the banking sector will be important transmission mechanism, then I am in fact him out. and so John just pick it up on that theme of the financial markets feeling obviously been a very turbulent three weeks for clients in them, It's as you mentioned better town this week, what your clients, watch for as the markets deal. the coming week, you talk about commercial bank paper which even a huge
guess, investment great high, yield to touch on equity and ip oaths and how that would normally be he'll itself and come back over time. Shore while I would, I would highlight at the outset a couple things, one of which is, if you at any of us, could we run the financial market system with ninety five percent of our people with the major banks, the major stock exchanges, the major in other counterparties and the system working from home? We probably would have all had a fair bit of scepticism about that, adding one of the things that will be a bright light around. What can otherwise fairly dark period for us is the fact that the markets are functioning really well and things are arriving in our working generally speaking and a pretty high level in which obviously very stressful period, with a bunch of people working from home where the
technology knock on wood is its functioning driver effectively. You may not like what you see on your screen in terms of after prices, but the actual functioning of markets and the provision of liquidity is still very effective, which I think a number of us were quite concerned about when they began a few weeks ago. That's about the important thing to keep enough to keep in mind and to take stock of into feel good about. The second thing I would say is the real stress points were in the short term I markets and in the credit markets. I highlighted the sleepy market any idea and it s what great markets are starting to yell themselves that still have quality by it so and C P, a one p, one raided issuers. Are, you know, getting some duration of getting back to reasonable pricing at eight
few people still shorter duration, wider pricing, then what have been the case and more normalize markets? There were still thing a quality by it, even in the short term, money markets, despite the feds intervention and then, when you get into term credit investment, great unblown, asthma, great similar phenomenon, where higher rate of product and not surprisingly, getting back to reasonable pricing lower rated product. Still, you know still struggling and so just to give you some dimension on that investment. Great market too. Weeks ago, when we can have started trying to give them new issuance price. The new issue concessions for high quality product, the kind of single rated doubly rated. What had been sixty to seventy five basis, point of new issue concession today that sort of zero to twenty basis points. So we ve seen a pretty material change. a new issue concessions and in some cases, as you know, the
The concessions are really negligible when you get in to lower rated product, were still things really helping concessions, but importantly secondary training levels after the new issue has been absorbed, have been pretty strong, which is what you'd like to see. So, I would say the market is really in the investment great sides trying to repair it health pretty pretty quickly. You know you mention equities mad, I would say in equities, be the out flows from equities were pretty significant last week with a twenty six billion dollar outflow, weak the largest since the summer of two thousand and ten, which is only the last time we had a significant hiccup in the markets denied
The US and pay volatility is banned as bank I popping for people, we saw both the biggest one day drop, ten nineteen, eighty, seven it down twelve percent and the biggest one day surge and two thousand eight plus nine point four percent. So a tremendous amount of volatility and think what you're saying right now in equities is in a little bit of a rally on the back of obviously for significant drop in enough at prices, but also some technical. bye power in the context of pension fund, rebalancing, which typically happens at the end of every month, so at the end of the term of the month of March, obviously, and their die in an asset managers and hedge funds, there are positive perspectives around. They might have. We balance activity that will come in to the market from pension funds and there's some buying ahead of that flow, so more cautious about what we see in equities right now and I'm sure yeah, I'm Peter. I will comment on this, but
Ben. It's got a good recovery, but I think if you look at your screen- and you see the NASDAQ down the toilet Personally, I can the down nineteen twenty percent on the back of it were saying for real economy standpoint. It feels like a pretty a pretty quick recovery got the research work out in a minute here and it's out, obviously pretty dramatic in terms of what can happen near term, and so erratic were a little cautious on equity market here, given that the quickness and recover ethic and have some technical aspects to it, terms of of other markets and leverage lending and leverage to markets is a place to be focused on in our think, be? The concern we would have is the level of the fault that could be out of us in the context of a real economy, demands shock data that will come in the coming weeks and months. I had so worried about that. That's a marketplace! It has less.
Oh government intervention, and so that a build up, an area that I think is gonna, go out of of focus a boat in terms of of regular way. I yield a leverage market, but also small business markets, where there's lots of lending has been directly injected into companies that are smaller and more leverage on them are more exposed to economic shock and setting up an area that will continue to to taken learned about black common I'd. Make any equity markets is a gross exposures have come down an enormous amount to weather. Exposure in the institutional market, with what I find out that managers, insurance companies, pension fund, etc. Those exposures are well off, but also retail exposure is, is it heavily reduced? So how exposure way way down no directly enter mutual fund ownership and so united fifteen people take a lotta risk off, which is which is probably helpful in the context of the outer potential Bob
it's on the sidelines right now, IP market the obviously God this is not the time for IP owes in other observe those are riskier asset classes, and I think we will likely see the markets repair themselves the opportunity for companies to start coming public again. We will likely see some more equity issuance ahead of us, but that'll be a market. It'll come back slower and I think I am a side. You know we're actually encouraged by the amount of dialogue we see in anime the only emanate environment, not as much be all activity. Obviously, given the volatility but were encouraged by the amount of activity we see in terms of conversations, people drawing up of companies allows its they're interested in and looking at assisting settle down a little bed, and so I think, if we were to get some more normal, the markets flight that more confidence that the economic recovery could be
sooner rather than later. I did you start to see a pick up a remedy, as people start looking at the outer prices as attractive and where they obviously saw them in our mother took up the time that was it, there was a great walk through the various markets, one issue give me a little, but I know spend a lot of time talking a management team around the world and one of the topics that has come up What is how supply chains made sure as a result of what happened with coded nineteen, so What would be all overall observation on that, based on the conversation with you, videos and ask a couple of months, I would say two things here really. What one is? I think the combination of the China Trade Dynamic. But we ve been through last colony, tainer so month. the coded. The crisis, I think, is really put a queer spotlight for most of the camp
it implies that I speak with directly on the excessive concentration and many of their supply chains in a weather at China Specific or otherwise the idea that, if there is an increasing realisation of supply chains in the name of efficiency and cost and outsourcing have become a bit more concentrated a bit less focused on maybe the United States or markets, where you feel that more measure of control and a little bit more of an ability to create stability and I think that the combination to meet the virus, coupled with the trot the China Trade Dynamic, I think, is really change people's perspective, and so we see and hear a lot of incremental thinking and the case is adjusting
diversified supply chain in aware, where possible, and I expect that the continuing and accelerate in, I think increasingly why aspects. It all emerge. I think, out of this crisis die which again ethical be amplified by the virus as much as it was by the trade dynamics it we ve seen in oh, maybe U S lead is the the element of national security. and whether you know supply chains become a bit more. I want to say nationalized as a matter of policy, but a bit more that it in the things that are more national security, oriented and there's more pressure from governments to be more thoughtful about that, as it relates to you now kind national strategy, as opposed to just the just those baker. Tell those be my my thoughts on that topic. John, that's great! The toppled is just a shifting a little bit towards what you'd seen with the regular
As we know, you ve been spending a huge amount of time with the bad and with others, be great to get your perspectives on the stimulus bill that would just come out and how you think in practice gonna be executed in the next few days and weeks While I would say that the four five then and we ve been a common sacks very impressed with the speed and particularly of the monetary policy response you, I think the Good NEWS about having been through the financial crisis is the monetary policy apparatus around the world. You know had things on the shelf that were playbook element of the playbook. There were the point in two thousand and nine.
It took them a long time to develop into doubt an eight nine. They were able to deploy that much quicker this time. Given that experience, we have had an enormously important impact on financial markets, and I think we have an important impact on the ultimate recovery. Fiscal policy obviously lags that for a lot of good reasons, including just politics, in various components of of each country, to respond, but again I'd I'd, I'd, observe in our pre favourable and quick response on the back of some governments from a fiscal standpoint. You know in a crisis period here not all of the perfect, of course, but but I think you have to at least commend the speed and in many cases the side of the response in the. U S, you look at the two, please try and dollar bill that was passed
on twenty one or so try and our economy. It's a big it. The big move, the! I think our observation, I'm sure your address this as well or observation. Is it it? It may end up being a down payment on what needs to be a bigger move in a context, the economic impact of this wide, but but at the big move you know a large chunk of it hopefully spent in twenty twenty, although some of ethical spill into twenty twenty one very targeted towards specific industries that are adding more of an impact verses. Others just pick through the math, which many do seen three hundred eighty billion dollars towards small business, mostly executed through the SBA facilities. Some about will be executed through the banking system. I think that is gonna be a complex rubric of execution for the government in order. I think it will take some time to get through. I think it'll be an overwhelming application
by small businesses to the system. You know, I think, we're a little concerned about how the system will absorb that. My guess is that the place where, if you're, looking for more in the face for package that could be a place with I going to have to come with more money for small business protection to five hundred billion dollars. That's really executed through, what's called the emergency stabilization fund or or the esf is really oriented for the for the Treasury to find them for the Fedex acute You know back stopping, money into the more into their markets and corporations. Some of it, he remarked, really fur distract industries, wrote airlines out loud and other industries that are more have been caught up in the front line of the early private distress. Others more focus on getting my out into the economy lever you now through fed them.
through said gap at all, and I think the idea that still to be determined to loud actually gets affected, but I think it'll be powerful and then the direct payments to individuals which children fifty billion dollars tormented dollars per adult five dollars per child? You know up to seventy five thousand dollars of income and then significant expansion, unemployment insurance of tonnage. Fifty billion dollars was eight states, you know in hospitals, otherwise, so it's a pretty powerful overall package, which I think will be you know incredibly effective died at the big question is: how fast can I get it? Can I get it implemented in our working very closely as much as we can with five with the euro, for me to see what a Wall Goldman Sachs in the banking system can play in helping effect. This is out as humanly possible. I think that's a big the question which I am sure you will have some views on in terms of the transmission mechanism in the economy?
one. Final question: Batman Logo, John, just one final question before before you close You touched a bed at the beginning of your discussion on what you ve seen in terms of the bed, actions to help the financial market With the benefit that, having seen the last seven days, what do you think The most meaningful actions items are really getting things going again. having undoubtedly it's what they did for the c p market in terms of putting together both a primary and secondary facility for commercial. paper which effectively aloud for the prime funds you're the traditional buyers of commercial, paper out there in the marketplace, had it been allowed them to to effectively stem the outflows
Well, you know what we're gonna said backstop if you will allowing them to kind of maintain their their ram liquidity metrics in a better place where they didn't need to put up gates and shut down the outflows, which was really no car, the equivalent of the break, the bark phenomenon we saw two thousand in a too far reserve was, was quick and adapt and making sure that that didn't happen this time and that had a huge impact on the functioning of those markets, which is really what allowed the cp market to start to heal itself, which would allow the retrograde market great market to start to open up to that powerful. A powerful, combined impact of the c p facilities couple with three d, you know their their extension of quantitative easing, which was effectively the notion that that the FED, in the end, the treasure what the treasuries help with by would buy it s our great paper and mortgages in Austin,
put a little, but a salve on me on the distress, in particular our quality. No end in the marketplace, which I think is had a huge impact, and the other thing I would quote I would highlight would be the opening up of the discount windows for action for dealers and coordinated, drawing that you know that the banking system, as has as done together to you know, can it be stigmatized that that affect any get out a good impact on stabilizing the system as well slide. I like those two aspects that I said Balin she did call it. Gonna grow meaningfully from you know, from ear to the north of five trillion dollars and it's gonna containing get larger, and I think you know that will be of a fact of life for while as they as they support market. You know before marketing kind of get up and running on IRAN. Will John thanks
that that's been a quick walk around the world in the modern economy. In twenty minutes I know you wanted to say a few words as we enter the clients on on the phone yeah. I just want to highlight that you know we we want to wish everybody in safety and Alfred. You navigate the greatest and most were already talking about markets and answering questions on economy and at other important matters which you hear more from Peter and yawned, but but most importantly, one wish everybody safety in good Alfin. It's important to you now to stay, healthy and and and obviously look at your companies in your people. I'm sure, like I, like many of you, do like off your ear focused on Europe, your employees and the families associate with employees and that's that in the first and and important aspect of this side. This crisis- and so you know we just we just want to wish you all safety there and, if there's anything we can do in that regard. You know we're certainly here to help
We can- and we also just want to thank you for your part of asia- were here to serve you You know we can be of service to you in good market, and hopefully we are, but obviously, and in more distraction, challenging market. We hope the elite on us by were very healthy, were dragged every engaged in the markets right now. Our firm it in great shape were black with rich source of the content of the firm, and we want to make those available to everybody and deliver it to you in a mechanical way that we can. So it is one of the ILO to do things in that. I am a callback. Anthony amount will function thanks for taking the time and- and I think it will do now is- is shipped over to Ian who is Anthony said. Is our chief global economist? We've asked to spend about ten minutes or so one is outlook for the economy, which is misty evolving daily, given what's happening over you yeah
Ok, thank you. Madam welcome everybody. Dumb saw our forecasts as a deep but hopefully fairly short. Global recession globally were at minus one point: eight percent for real GDP into them twenty that the border one and a half to two profoundest point below the worth gear up the global financial crisis, which, from a GDP perspective of actually two thousand nine rather than two thousand eight, but act the term refreshing and a bit of a misnomer here, as the economies not receding across the many sectors but its basic becoming too Hoddan stop in sector if that involve a large amount of faith. Today's interaction, and obviously with knock on effects many of the factors that are closely linked to them and the sudden stop were Expecting court of GDP decline that I really unprecedented in post war. History of the: U S: four eggs,
we're looking for a minus, Thirty four percent quarter a court on quota analyzed growth in cue to an hour estimates for the other advanced economies the Euro area, the UK, Canada, Australia, are all in the same ballpark now. I should note that these forecasts really our based on a particularly extreme assumptions, What we saying is that the level of u s- GDP, for example, is going be down about thirteen percent in April from the January level that a big drop by a sort of down earth, but probably doesn't theme really all that over the aggressive. If you look at the effect of that happened disrupted here and then the If we take the second quarter in our average and then lifted
through a convention of analysing these quarterly numbers, basically multiplying them by four that give you the floor, forbidden decline. Then, observation, is that we already had a bit of a preview of the IMF. Act of the corona virus on the economy. Out of what happened in China in the fourth quarter. Right now try definitely starting to look better them. Kyoto should be quite strong, but our Asia Economist Estimate, that be key one number. There was probably already come over forty percent negative, a manual rate, and even that number looks a bit comes. I'm a dove based on of the higher frequency indicators of industrial and consume activity that might not show up volume in the quarterly GDP numbers? and then Sarge in terms of putting me forecast into contact
starting to get some useful data. Finally to do to help us gauge what what's going on specifically, I would highlight, claim for unemployment. Insurance both in the? U S and some other countries. Did you take long Greeks number for the? U S, emissions, with claims were Point three million, which is the biggest number on record by up by a factor of nearly five. The equal to two point. Three percent of the labour force this week will live it took three an even bigger number gum. A lot of the unemployment claims offices have been backed up, thought. This week were asked a little over five million, which would be another three and a half percent of of the workforce thought up today to be sixty percent of the workforce in just two weeks. and ultimately we think that the lay of numbers are going to stay elevate.
For several more weeks of look out, for example, the news yesterday that see the shoreline most of it one hundred twenty five thousand workers so, we think that's probably going to bring the unemployment rate up to about fifteen percent, which would easily be a bit. Post. War high That raises the question, of course, what can policymakers due to stem the downtrodden John already went through a number of both step? I mean just conceptually. I think the bad news is that they can really do much to stop the near term slide, I'm in the queue too. dont her on and driven really by the need for physical distance selling to stop the outbreak at least until we have better medical option. Thought is not really much that economic policy makers can can do about that. it can do end. Our trying
to do, and I gotta get doing a lot to address. Is data be two things one and that the job of Congress is to try to effectively replace the income and cash flow hit that households and firearms are taking. From these from these different measures and the impact on on output If they didn't do that, there be a risk of a are very significant. Second round effects and in the extreme, more of a downward spiral in there trying to to stem the flow of, for example, where the meeting that a number of areas where estimating that the virus hit is going through you? U S normal gdp by a little over a trillion dollars in two thousand and twenty absolute charms and by just under two trillion dollars relative to the long term trend a nominal gdp, so let's say the initial headforemost, also difficult thing measures
one and a half trillion dollars. the fact remains one afternoon and all of us now missing from income if nothing is done, that one Half a million dollar income. It is going to deal. Another blow to to spending through second round effects and that's going to reduce out but yet further, and that I think That's why I see the the the fiscal policy package come in come and that the most important part you know, maybe, apart from the money for the capability flat out, then I'll get to thought the how'd? How. alpine for this package, I think to the package. good job in addressing he's income have mostly, I think, focused on the right thing with
maybe half of the little over to join. Our total to income and cash strong support and John when, through these measures and in some detail- the main question about the package is whether it's quite large enough and probably relative to the numbers I just talked about the whole even being filled. thirdly, obviously, that's going to depend on of how large the had due to GDP as the map, something that we're all learning about Philip. I think that still remember TBD bottle at least on our forecasts. I think they're still a potential need to come back and do more and that one reason why were expecting a paid for package of summer honour billion dollars, probably going to be focused on some additional income support, including incomes.
Lord for states and municipalities. the other thing that policy makers can do is really to protect the financial system from systemic damage. Otherwise, you get a different form of negative second round effects Poland and credible creditworthy forearms would be able to find themselves go ahead rolled. Scott. You know a number of new facilities which again John when, through John But what am I just mentioned here, a b c p facilities, the money market facilities the primary and secondary market corporate bond fulfilled. give em a restart of to draw out the back securities lending facility, which is focused on the back securities. And I think the important development in the in the fiscal legislation really was the funding of
to four point: fifty four billion dollars additional funds that are going to be available in the Treasury Exchange Stabilization Fund, which the FED. To a large extent used to increase and increasingly facilities, and and potentially introduce new on now how successful has it been? I think I would definitely say credit where credit is due gum. The feds been extremely aggressive and extremely quick. And relative to a couple weeks ago, a lot of the theory of the applications that have developed in Maastricht, single market have diminished and at least for now the FED is doing a great job managing to keep the first and functional, and I have no doubt that they are going to continue to be on the front fought what does it mean for the economic outlook? I would say it
to us. It suggests that, while the mere form or look very negative, we have the most pessimistic view to forecast I think out there think be prospects, but will see a pretty strong recovery starting around Madeira are pretty good. Now that assumes that the infection numbers the to sharply over the next month. I think that, consistent with the expectations of experts and the experience we have had in in China in Korea and even obsolete to some degree, ITALY, more recently and our forecast assumes that people are going to gradually resume normal economic activity cautiously, but but nevertheless consistently after the lockdown and in our forecasts that result in Joel normalization of the level of GDP. If you take the- U S, for example from
eighteen percent below normal in April to about five percent below normal in December. That story well the more normal, but it does mean that second half growth, it's going to be in that forecast, quite strong, sequential basis by any standard, except be the car one, given the size of the drop previously. and we ve got third and fourth quarter, growth rates in ten to twenty percent annually range across the major advanced economies is in the. U S, for example, were Nineteen percent transport on quota realized in quarter, I would also say that looking again at China be apparently quite strong recovery that we see them in recent weeks. There also support the expectation that, after all, the shock like this, you can come back with the.
significantly stronger growth, although it also caution that the Red Cross is imperfect, given how much more government controlled industry forecast that economy is relative to foreign. both. Are you out? I don't think it's going to be as quick as in the USA and China, but China. Very, very quick. Indeed, If you look at some of the industrial indicator of in particular media, Leave what should we watch to see whether the forecast of a very sharp decline in cue to followed by a pretty good recovery imbue treaty for plays out, I would in all three types of information first and foremost, of course, The medical information are very important, obviously not our area of expertise, but something that a moratorium focused on the interaction of me to come down. Who played on. in order to set the stage for recovery
Secondly, the indicator of market functioning. I'm stress which jammed talked about Maybe if I add to the list, would be somebody non. You have indicators that dumb include, for example, across country basis spread which have been I've got some more but not to remain wide. Despite the defence, flop, lines and most report ability to morning italian foreign spread would be another one on my dashboard, those that they remain remain significantly wider and actually moved back out alone that again in recent days, after a period of improvement after the easy. He became more aggressive and then I think, in terms of the economic indicator of the devil. More premium, the normal on indicators that are one timely and too,
Dont, don't incorporate a lot of assumptions by the certificate authorities ought already GDP number, for example. I think I'm not going to be particularly useful, they quite lagged they incorporate a lot of assumptions and they probably going to understate the act. You'll have to put up with being top of my left would be I of claims indicator of every Thursday at eight thirty there are very, very timely, five days after the week to which they refer. And debate on incorporate any assumptions that Japan that administrative count and their problem The single most important economic data relief for at least than ever that the next several weeks, thank you down by people Gray run through will now hand over to open I'm Peter. You could take us from every great
yeah thanks. So much will I thought I'd done, despite the reference, mainly what the markets to doing what we think is gonna happen to corporate profits in the protocol from here. Given the comment that John and Young have made, the first thing to say is that if we look at the decline in the markets around the world. Five b in the last week, or so, the news has been generally, in line with the average, means that we state in their markets over the last hundred years or so, but most likely market spell. The trough bore the most recent trough by about thirty or forty five, ten, as pretty much the average of what you said, you stay in their markets in history. What has really been remarkable about despair market is two things. Firstly, the speed
and John mentioned in his remarks- the volatility. If you look at me, you did but almost a difficult thing to do the cold now, but the new effective market with no time high just around five weeks ago, and the first declines, twenty percent- that's it you didn't see- was typically thought up his bare market territory. really took place in record time, just explain, trading days to forty four, which was the last record that nineteen, twenty nine Meanwhile, the volatility has been record levels we had just the week before last three consecutive days. It moves to hustle minus nine percent, postpone the first such theories of nineteen, twenty nine and then last week we saw at least in the U S and eight
The day Robbie Globalized goes around fifteen percent again. This is something we haven't seen for viable, I'm back the newest nineteen. Thirty three pages. They emphasise I will go down not been unusual in Malaysia. Their market. Around recession, What has been very unusual is the speed and volatility. now join in his remarks that were not confident backing up it's a breech loader is, I think, the valley, the fifteen of the last week, or so is part of that volatility and does not reflect the brain, encouraging support that we began to stay, in policy terms by smallest monetary policy, which has gone a long way. The wedding ring fence the stand at in the financial system, which were becoming
bullets hall in an open last week or two, but has now come down lot and secondly, the fiscal support which is currently in the face, of course, becoming an historical large decline. in the given the number of countries that are in, but I want to emphasise that the corporate profits it the were expecting given them. Eyes at the unjust, describes very large and enlarge you're. Really then, the Consensus- and indeed I think the markets are now pricing-
just to give them the non numbers on this we're looking for asking people pit buildings the shared goal by thirty three percent this year. The column ought not censuses minds. One across here, for example, looking at a thirty five percent in any future, the car was not consensus, deadlines for and we're looking at big things across Asia as well, and asking the consensus that there is still some broken earnings. Now I don't Think the markets themselves are reflecting those consensus estimates, but with a rally, the weeds beaten, don't think that they're pulling reflecting the scale of the boys but were expecting a mom I also look at best. It revaluation in the evaluation methods given the recent past- and it is not really looking at stressful pebbles- that we would typically state
at about their market low, just give you examples here in the european region, the board be based on consensus, estimates which we think it too optimistic is currently around twelve times. That's the stock six hundred companies here when you the two thousand and eight low, or in two thousand and eleven around the sovereign debt crisis that multiple came down sea between six times in eight times, unlisted observation that we find across other markets as well. It is true,
was that done valuation that looking very attractive in particular dividend you too high in relation to such Lou bond yields and interest rates. But again, I think we should be cautious about the prospects for this year. Are you a strategy? Team are expecting dividends in the? U S: decline by thirty eight sends out the next nine months. I've found a full year basis. Dividend will be twenty five. Then the level of two thousand and nineteen and MRS Zimmer resting dividends in Europe. At the french government, for example, has argued that companies in which the government has state should not pay them, a government will vote against them during asiatic while no way is required financially to stop paying dividends and the German It also goes about imposing restrict
he's on pay out state- bear in mind that the Euro stocks companies do have governed state than we would expect the difference, I'm down it doesnt downside with evaluations before we get a market chop. Having said that, I do think it's important size in line with your comments about the din shake down, he's very much with what we're looking for any active market as well. We looking at it so earnest the chair to be rising over fifty percent next year from the top level is that I described I'm good fully expect Hackney markets in other risk, acid and kissed the page. The recovery in the economies which talks about one final point about the rally that we see no last week or so many people said that this reflects the mule turning in optimism,
I certainly agree that some of the necessary conditions for recovery when I started in place in particular the policy support, but I talked about that's true. I think in Europe as well. Having said that rallies markets are not unusual at all Yet I can look at the last four or five major markets, you do get railways the average around fifteen percent over around thirty days before going back to previous flows and if we look at the big their markets in two thousand after the technology Bobby first and in two thousand I note the financial crisis. In both cases there was thick rallies of ten percent more or thereabouts before the market. back in and made a final load, the link it to make a final comment.
What's going on using so far about this ban market is rooted in the bullets in the tea, which reflects some technical factors and the respective nature the downturn we do expect a big hit the pockets intimidating this year. We do think that the final those who have been made, but we are confident that we will get an astronomer, agree about in a market Alan profitability from allows the Falcons discipline. would be economically bounded. Yon talked about thanks Peter, for that I'll, bring assessment, but obviously good to hear we are expecting a recovery later in the year. Once things become a little bit more clear, and we thought we had fought finish up. This call is by having Susie sure whose global had of capital markets a Goldman Sachs. Then a few minutes on watch he's doing real time across her various markets.
and give you a central how the markets have healed here in the last week or two susie over. You thanks man these two following John and yet on and Peter I breathe Britain my entire script about five times as they said so much. But what I'll try it? with an aside all together and leave you with a couple of thought. First, him Oh yeah, I run the debt and equity capital markets does this globally, but I grew up in the debt business an interesting observation from our discussion of the last ito. Twenty two minutes, or so, is that in it the boy market, the deck eyes or negative or warriors, and the equity guys are positive, but what you just heard sort of upside down World war, the equity geyser negative and the debt guys at least an investment. Great debt markets are positive and I guess Pooh Bear market. The opposite is true. One thing: that's different about this market and dip
From the global financial crisis is the thing that John Waldron spent so much time talking about, and it is incredible opening and perform a man in the investment great debt market, which is one of the biggest most liquid markets in the world and stood on the past a couple more things, but the needed just just like the advice to ban in the graduate was was one word plastic, my advice to you all, and in the middle of this Crisis is one word that liquidity and what I think Why? Of the functioning of the best bread markets is not just about embezzled. Willing to buy bonds, but it's about issuers being willing to sell Bob
and the reason we had the biggest month ever in the in the month of March. The end today in the investment, great market and the biggest week every last week and the biggest quarter ever is because, unlike other financial crises, this crisis is an economic crisis. Its also. local health crisis with a bottom that isn't known, so investors have access the committee and a willingness to take on equality and What I started to say was in times of financial duress is that it Debbie equity market, I'm really values liquidity. And so you know, I think, what's going on in the market and the important
take away on. That is one that the market is, is reopening other markets for reopening, but also the back story is the open markets aren't just about. You know less lever companies with access to the biggest market in the world, but the public market will open for companies taking liquidity, and we can be very, very creative and thinking about how to act. That those market, though, announced. I dreamt that my If I go out again, I'm all thank you for your time. I wish you and your family's well, and hopefully we get the chance to talk again soon out of the primary market in in the World Bank's. Please thank you and and thank you on behalf of man myself to all the speakers and thank you to all of you who have joined us today on the school. I'm We said at the outset that the cool with pointed out to you more of these over the coming days and weeks, if you happy back as to how can we can correct the content
We welcome that do that. On that note, we wish you all well and we continue to navigate challenges. Well, thank you. That concludes this episode of exchanges. The Goldman Sachs thanks for listening and if you enjoyed it, we hope you subscribe and Apple podcast CAS and leave a rating. Our comments and pleased to infer a weekly markets update Friday morning, where leaders around the firm provide their quick taken. What's going on markets and the volatility we seen recently this park ass, was recorded on March thirty. First, two thousand twenty all price references and market forecasts correspond to the date of this recording. This podcast should not be copied, distributed, published or reproduced in whole or in part. The information contained in this box ass does not constitute research or recommendation from any Goldman Sachs Entity to them. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast and any law.
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Transcript generated on 2021-07-02.