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The Great Reset: A Framework for Investing After COVID-19

2020-06-02

Steve Strongin, a senior advisor for Goldman Sachs, discusses a new framework for investing after COVID-19.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is exchanged. Goldman Sachs were discussed developments, curly, shaping markets, industries in the global economy, objects, seaward, Colbert of Corporate communication sneered. The fur today were joined by Steve, strong and one of the firms senior advisers in the former head of Goldman Sachs Research to drop at the investing landscape and all the volatility of the past few months, Stephen his team was put out. A new report called the great reset a framework for invest after carbon nineteen, which will be diving into today the problem see about them back to the programme bank Jake, it's pleasure to bigger sixty one of the core he's of this report is that the new economy post covered should look very different. Then economy that we saw coming into the crisis and that capitalism in all its glory will lead the way by reallocating capital? Why
you view and it's not everyone's view? What have you covered? Nineteen as a real rule, changing event for investing? Well there's a couple: thanks. First work in a sea of for a number of a business failures, a lot of terror, business bottles will fall and that will reshaped landscape, but you people have also learned an incredible things in this process that they were put to work afterwards? We refer to it, we'll talk about this later sticky learning, but we learn how to do so. We ve all learn how to use telemedicine. We ball learns backs. A lot of people learn how to cook better news to me at all as things are gonna reshaped, forward choices. The thing is a lot of business. Bottles are gonna, be a hard to utilise exactly the way they were in the past. Restaurants get a lot of attention, but particularly at major cities. If we end up with social distancing as a permanent part landscape, that's gonna change the way. Restaurants restructured digital stores are going to change the way we works. We want
You're gonna see a major acceleration of changes that might have taken twenty years, dick to its tempting wants. Amplify the applications extrapolate from today's trends in two into longer term themes, caution against that approach. What's the issue with that approach in had a year team think about setting up a framework that will guide, investing in the post covered, eighteen Arab, why The key thing at a framework is standing the difference between the circumstances of the moment and the forces that have been unleashed. He changed the economy. You know it Why would I call phases which are set up the way wanted just to change and themes? saw the fundamental drivers that are going to determine how things are really shape: Oh, let's get into the themes. You talk about four different posed covered. Nineteen themes, resilience, sticky learned which you talked about briefly? Risk based market Fragmentation, that's a mouthful and regulatory resets. Let's take a look at
We are indeed us start with resilience. What do you mean by resides as an investment thing? Don't resides will crumble, maybe the thing that most changes, the economy may be released, a parent sue, the average consumer. A lot of things failed in the last three months. Supply chains fail, Computer systems failed the ability, business is to adjust and work from home systems fail everyone's. Learn from our successes and failures, and the core of that is Europe looking at systems and diving systems that operate well under stress verses. maybe saving a penny or a dime about allowing your supply lines to be stretched and fragile, and so I think a lot ugh changes, we're gonna see are gonna have to do with making sure the system can take it and keep operating. You know the simplest most public example of this is what happened in hospitals. Weeping closing hospitals for the last thirty years under the guise of efficiency. Now
The sudden we needed more hospital beds at that efficiency, big. It became a public health problem, and so I think I- like the electricity system, where we demand access to capacity, much like the oil and gas systems where we demanded excess capacity. Maybe we'll get away look at medical care to make sure there is excess capacity in the system to deal with emergencies in ways we didn't think about before we ve seen equivalent things like in the food supply chain. Are you know we ve all got used to having every vegetable and every food available twelve months, but in some He says that bad, incredibly complicated, incredibly fragile supply lines, Everything was coming from one place everywhere in the world and that causes sort of terrible snarls- and this is the right word to less going down all of a sudden caused it to be difficult to get a hamburger in Nebraska. Those kinds of things are gonna cost people. We think there are supply lines into more resilient structures. The other thing which I think
is one of the more complex aspects. This is resiliency versus control. There is, naturally you an inclination when things fail to want to take control of well, they failed me I can do back, but what thanks. A lot of people are here. While you are actually a lot better off. If you had specially firms. Doing things affirm that was trying to write its payroll from inside it's out offices from we fail to deliver apparel one. There was using a global payroll bender, probably six. didn't getting their people back, you are using a global logistics company, had abilities to adjust around the problems. If you were running your own trucks, you probably failed. And so that those global with what I said say local everywhere. Global farms really prove to have an advantage because they are the ones who can adjust their operations to deal with the local disturbances, regardless of where they work
and the sort of stretched out supply lines, whether they were within the United States or within Europe, or stretched all the way to China generally failed. Sprightly, It was the ones that work should have had redundancy then do them had succeeded, and so I think, as people we work at their supply systems. We look at their computer systems we look at their payroll systems, their economy sure they have words that sort of its eight local problems and still operates. That's really get home Local vendors answered of white typically are called platform vendors people who, specialized in one thing: do it well, do it for us, out of people from a lot of places and therefore have the scale to be able to build our did CNN still be efficient? Ok,
its resilience and in many ways one instead, they held a pretty well in this crisis was the financial sector which, since two thousand nine has had detest itself resilience on a regular basis, so maybe there's a lesson to be learned there. Let's talk about sticky learning, which I think my kids would like that name, what do you mean by that? we heard a lot of pigs in this period. We probably would not have chosen to learn but we won't be able to forget that where the sticky comes from Typically, learning is a process that slows things down, because learning is expensive. It takes time it takes a lot of human capital at its very risky. This case we learned wants to things that no one would have ever chosen to live. Are. You mentioned the resilience of finance A part of the resilience of finance was bright depending on the firm. Have three quarters were ninety April.
And other people could work from out. No one would have tried that six months ago, right if you suggested a twenty five percent work from home experimental programme and a major financial institution, they would have laughed at, but under these circumstances they had ninety eight percent or ninety nine percent. We operated entire transaction systems. Remotely lots of people found themselves migrating. the clouds very high percentages of their operations in ways they would not have been willing to take the risk to give people a lot of people son, learn how to do tell a better said to do. Follow up medical treatments to do physical therapy right. They would not necessarily have chosen to do that. Neither the guy didn't want the patients. Having learned to do it, it's now part of landscape. Now that doesnt me everything we ve done in the last three months were going to do for up some of these learning worked so they didn't know what I mean by. That is telemedicine too great example. Now are we use it for a lot of things were going to go back and look at,
which things telemedicine was a very good or maybe superior substitute. The guy Eddie opts for a follow. A visit to determine whether to renew a prescription. Probably is an example where telemedicine- maybe a perfectly fine subsidies, to adopt this rural health check again. Will progress invited? the medicine stick in rural health care. I ever had there's also medical care where telemedicine isn't really gonna work right now there is probably a darker switched to doing things by remote right, physical, is not probably something were: most physical therapy can be done about the efficient and so that stuff will move back into the yard. but it does mean will know Gonna change a lot of things. I wanted thinks that this problem to be really important. A lot of offices, his teller work, how we ve seen it work really well for some things we ve seen it work really badly for other things. brought this, probably not a company in the world that it has learned things about people working from home. They ever would have chosen to learn without visible, and so probably every
nobody in the world is going to end up with a. a percentage of people working from home and they would have in the past. That's gonna change office patterns, it's gonna change firing patterns, he's, gonna change. The demand for real estate he's gonna change. This structure. and the design of offices themselves. Ok, so at least favoured title, but maybe explain me: what's important risk based market Segmentation, what I leave you mean by that and our work on a better name hopefully have won by the end of podcast. I dont think you welcome hardware workshops, lady there is. This is actually an ugly thoughts This is one of those places where people I think that the tenant Fiji reach for easy answer, is very tempting. Everyone's gonna be more risk averse everyone to be more frightened of interaction, everyone's gonna be socially distant for the rest, the time all sorts of simple summaries at how we are going to change the way we lived most of them based in fear. Would you
So we get to see we ve seen this with other events of this sort. Is people are gonna sort themselves between a kind of life is too short response. The crisis and a true risky versions and the people who get more risk averse argotic demand services that allow them to be more socially distant and allow them to feel safer. Other people are gonna crowd back in the restaurants, they're gonna crowd back. Innovations, they're gonna, demand life experiences. What one of the observations I bet a lot in the last month is an activist irish, influenza. Right, if you was to people, do it. Like history? It sounds like the next thing was a great depression. Now more than a decade later. What happened between was the judge. Life is too short and prohibition, we need to change the way we live, something it's less risky to pay for our sins probably get to see that same kind of dichotomy develop now worrying to see people embracing life ever see. People embracing their fears.
And businesses are gonna, have to adjust the both of those and reshape themselves. To those extremes. You know If you give you gonna China today and you go into a restaurant, if that restaurant his you seemed odds, it is like more crowded than it was Before- cover episode of one of those today all peoples, rights France, it may not even have reopened and we're going to see that in the? U S fascinating leave this article on the party in going on at the lake, the ozarks, so all these kids, when they try to big party and a bunch of interviews. I gather we go home well, like will hide for two weeks. They sure waited gets us get wet I believe, that speech or not, but it does go to get going to go, still have our fine and will manage the consequences of that it. Otherwise, and that's part of why the notion of market segmentation, those two groups are gonna split and the markets can add to split up. Nobody, but one of the interesting things were going to see this fall is colleges and icicles most students
in the low risk population. Right, probably me, life is too short category. You only live once a lot of the faculty maybe in the other categories, and so the universities are currently faced with trying to figure out what to do with the work rules for the faculty and the students, and so we may see a lot of classes with very clouded classrooms with imported faculty. I'm and untruths and very Elsie these grains special way of keeping the faculty said the socially distant faculty, baby, very distance, frightened and that's the kind of thing I think we're going to see everybody just do is this deep split on the system between people who need more safety and people who doubt and the medical answers aren't gonna make that necessarily bad different right. So vaccines are one of the big hopes really don't work that well and older people? They work a lot better I'd younger people so that a further split, the difference between those two groups has weighed ended up being
pay segmentation, we're not gonna, go one way, we're gonna go in many ways. This probably gonna depend on income job type, medical, vulnerability and just attitude toward life and that attitude toward life aspect of this What is go generate a lot of land in this in the items businesses are gonna, be forced to a common Ok, having listened to you are going to cod risky business, an honor with it. Backed by the way a lot of college students. We perfectly happy with the campus with no faculty, and just and just students off regulatory be said. I get what that means, but explain why you think that's important in this context. What zone were obviously gonna see all your events generate a legislative and regulatory response. The first wave of that he's, gonna, be aimed at things that were received is failing, so I used in example, earlier on hospital capacity. Isis We're gonna, see a lot of blue ribbon commissions. Looking at hospital capacity in coming to a close,
and there we didn't have enough and creative military structures that look a lot like electrical utility structures where capacity requirements will be set. right were also probably look at drug development and come to the conclusion we were too risky One of the reasons we didn't have about drugs to deal with this is that various dry, agencies were too worried about the dangers of testing, not taking account of the dangers of not having the droughts, and so, I think, we'll see both risk. embracing regulatory changes and risk, avoiding once in medicine in infrastructure that I think will see similar changes where you'll see if various failures that occurred in the food supply chain, we'll get reviewed by regulators and caused changes in the rules that will have to adjust it most of that well well suited to benefit the people who are good at this and create real cost structures for the people,
words, because essentially will figure out what standards were necessary to evaluate it covered and will make more people live up to them and whether that you know spacing in restaurants or excess capacity in hospitals or logistics systems for moving people within hospital systems or negative pressure rooms or whatever the requirements are ventilation in office buildings. All of those things are going to look that then, I think will see it now. A version of this later on, where the SK in a lead to significant solid asian phases, will probably talk, but it all back and that will probably set up second regulatory way of regular. It's not like what happened with the first group regulations after the financial crisis. he made bank safer generated a lot of consolidation in bank it. Then you saw rules that were aimed at reducing consolidation and back We saw rules that reduced access
given the visuals bank services that we saw rules obeyed backup so there's a natural kind, a pendulum swing that operates within these regulatory processes. So steep you also. pointed something that gets a lot of attention in the press and in commentary empty spaces. You say that not a theme. What do you mean by that chop somewhat, things that were already talking about is not an empty storefront that you know how many businesses are going to add the implications of that consolidation. In various business and we are going to see that the problem with For us, it is a theme, is a lot of those. Have these spaces are places there? We're gonna fail anyway, and a lot of every refilled by new businesses that are created. That would have been a natural consequence of any set of changes. France turn over on a very regular basis. Small retail turns over pretty regular basis, small business in general is a high
the dynamic zone and the economy is constantly both creating and destroying jobs. That dynamism is essential to the overall economy, but is it really gonna beat hard it covered, but what's gonna happen right is the b? we're gonna see a lot of business is pale in a very short period of time. That part of this dynamism is gonna, get thought of as a covert b little. Then China just disappear over time back into the natural dynamism. The account of the fact that some the empty, doesn't mean it needs to be felt, but cases a well in some cases, We ve built by a large and drank in some cases, ITALY, well by new answer? There isn't gonna, be a logical, coherent structure to filling those empty spaces, so try to investing
is a theme is really gonna be individually. Any one of those empty spaces represents an investment possibility, but there's no overall guiding barbaric strikes. It will also make the point that an outcome is not a theme. Give us an example to make that point concrete shape. real estate, probably the place, we're going to see this most animal waste, happen in the real estate market is gonna, be this incredibly complicated, mixing of different things. you. You may have older individuals who are seeking safer territorial level you may have younger individuals relocating for new job opportunities having been dislocated from their prior you're gonna, see businesses that have a lot of people were them need space, those people out war. That's can increase the man, You're going to see businesses that have learned a lot from work from home were worked well, allow people to work more from home and asking to reduce them so you know it's some level. You'd have six months from now. That's will have changed
and in one way, twelve another way. Eighteen in two years and three years, we're going to see trends in realistic, they're gonna be the outgrowth of those deeper, underline things right, but that will stop people from lay Billina and created a faint. the recent urbanists of the economy. I've already heard that one right, because some people are gonna, move the suburbs Our tech companies are good up. You don't allow people to work from home, many fires, companies will grey people than it used to live in cities, and I got through the windows live on farms will figure that out over the next couple of years. History suggest that they'll probably end up back in the sense that cities have in the center of various disruptions. Since the recent cities, where it better right, disease, Robert cities riots have sounded sit These crimes and wars have all savage sittings. Yet they continue we re populated, get big surprise, you don't know I get bigger with the same people
probably will work out the same, but over how many years and with what will take time to figure. Ok, so, finally, what's one part of investing in the post pandemic age there, your frame suggests, is getting too much or not enough attention. But I think this way of summing up is talking about the phases we're goin early on in any kind of crisis like this. Almost all the attention goes to what I would call preservation activities, shoring up balance sheets, making sure of cash on hand. Just trying to survive until the rules are respected and that guess most of the mind share in the early days then you move on and so business bottles. It is clear failures and other people are true successes. Generates a lotta consolidation added markets very narrow, rather than the market, where the winners he pointed out, but butchers right now it in the place of a purchasing manager at a corporation three or four,
Your vendors were able to deliver consistently in the last three months and three or four in the morning You're gonna consolidate your business if it were the ones who worked well and that drive a lot consolidation across the right, and that in turn where we are now, where people trying to focus on some of the winners, and I think that Probably the thing right now. It's getting sort of the majority of the attention, probably too much in the following sense that some of the consolidation is gonna proved to be very temporary. You know it. urgent digital today is a super baggage, because the stores on open, but as well as for France, reopen that digital age will shrink back and then I think this is really critical element. We're gonna learn how to manage around covered and to cover a were also, but who have learned with systems in its resilience, well manage the risks station well managed the other themes. Well, that's good.
our whole do group of companies to retool at any rate and go after the winners. That's where virtuous innovation, facts and I think that That's me is where a lot of the really interesting investments are gonna end up being his those new innovators reward to learn from the companies who worked well now, but they didn't well now, because they would genius is about everything they just happened to him and well structured view. The current emergency other companies will take what we learned about crime. superior models resilience cheaper systems. and they will then fight for that market and I think those new company is that some of them may be all companies. That rate all are gonna, be so that the new winners- and, I think, that's probably the most- you seem space is going forward. The right now I get is getting out my students rights day. Well, there's a lot to do over the full report. The great reset a framework for investing after covered nineteen
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Transcript generated on 2021-07-02.