Crypto: A New Asset Class?... What's Ahead for Inflation...John Waldron Interviews Economist Dr. Dambisa Moyo

[Goldman Sachs]( [BRIEFINGS] May 27, 2021 Top of Mind: Crypto – A New Asset Class? Should cryptocurrencies be considered an institutional asset class? That’s the question Goldman Sachs Research senior strategist Allison Nathan explores in the latest edition of Top of Mind. On the "yes" side of the ledger is the growing interest from credible investors and the new crypto products and services being offered by legacy financial institutions—like Goldman Sachs. But on the "no" side are the many regulatory, technological and security obstacles that remain. Nathan consults a wide range of experts—including Galaxy’s Michael Novogratz, NYU’s Nouriel Roubini, Grayscale’s Michael Sonnenshein and GS’s own Mathew McDermott—and if one thing’s clear, it’s that the debate won’t be over anytime soon. [Read report]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Top%20of%20Mind%3A%20Crypto%20%E2%80%93%20A%20New%20Asset%20Class%3F&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fpages%2Fcrypto-a-new-asset-class-f%2Freport.pdf) What’s Ahead for Inflation? Don’t get inflation jitters just yet, says David Mericle, chief U.S. economist for Goldman Sachs Research, on an episode of Exchanges at Goldman Sachs. April’s surprisingly strong Consumer Price Index report was largely driven by short-term factors, Mericle explains. “I don’t think that price rebounds in travel categories or temporary supply shortages or supply chain disruptions tell us a huge amount beyond this year,” he says. But he’s keeping an eye on wages, housing and inflation expectations. Meanwhile, as investors gravitate to inflation hedges such as commodities and Treasury Inflation-Protected Securities, “the market has clearly repriced itself to some degree,” says Joshua Schiffrin, co-head of U.S. and Global Interest Rate Products for Goldman Sachs Global Markets. Still, he adds, the macro economy could evolve in unexpected ways. [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=What%E2%80%99s%20Ahead%20for%20Inflation%3F&body=https%3A%2F%2Fyoutu.be%2FgmUXzoaAH_4) Talks at GS with Economist Dambisa Moyo Above (L to R): John Waldron of Goldman Sachs and economist Dr. Dambisa Moyo There’s definitely a rebound underway, says economist and bestselling author Dambisa Moyo, but it might be premature to call it a recovery. In a conversation with Goldman Sachs President John Waldron on a recent episode of Talks at GS, Dr. Moyo explains that the driving forces of inequality continue to hold the economy back, and in many ways COVID exacerbated these challenges. A member of the advisory council for Goldman Sachs’ One Million Black Women initiative, Dr. Moyo also discusses a top issue affecting Black women: a lack of access to capital. “A lot of people in the country, particularly in a capitalist society, just don't have much information about where to access loans,” she says. “Even if they do get that information and they submit an application for a loan with collateral, there might be some overhang or redlining...that might create structural challenges for them to raise capital.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%20with%20Economist%20Dambisa%20Moyo&body=https%3A%2F%2Fyoutu.be%2FF6uiHHsBV80) Europe’s Reopening: The EU Is Catching Up with the UK The European Union is catching up with the U.K. on the path to reopening, according to Goldman Sachs Research. The Goldman Sachs Europe reopening scale is now only 49% below the pre-COVID baseline. Good signs abound: More than 30% of Europeans have received their first vaccination dose. Road traffic is almost back to 2019 pre-pandemic levels in France and Spain, and flight searches have increased to more than 50% of pre-COVID levels in France, Germany and Spain. The outlook is increasingly positive as economic-activity patterns across countries converge, looking similar to those in Israel and the U.K. SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Europe%E2%80%99s%20Reopening%3A%20The%20EU%20Is%20Catching%20Up%20With%20the%20UK&body=) The Daily Check-In with Goldman Sachs Above (L to R): Evan Tylenda, Kate McShane and Daphne Robbins of Goldman Sachs In recent episodes of The Daily Check-In, experts from Goldman Sachs discuss the evolution in Europe’s ESG taxonomy, retail's expanded shipping solutions and consumers' shift to the great outdoors. Evan Tylenda of Goldman Sachs Research on how the European Sustainable Finance Disclosure Regulation (SFDR) is creating clearer standards for what is considered “sustainable”: “I would say prior to [SFDR], classifying ESG funds was a bit of a free-for-all in many ways, or a bit like the Wild West. And so with SFDR, the aim is really to rein that in and provide more structure around how asset managers make ESG disclosures available to the end investor.” [[Watch video]( Kate McShane of Goldman Sachs Research on how the pandemic has shaped the dynamics around “last mile shipping”: “During the pandemic you had two phenomena going on. You had customers who weren't really willing to leave their homes. And you had retailers that weren't deemed essential that were just closed. So there were two problems to solve...[One] option that's evolved is third-party delivery, and that is the opportunity to get your product the same day, but the customer has to pay for it....What is so attractive about the third-party fulfillment for the retailers, whether it's owned by them or not, is that it is more profitable to them to have this go to the customer than it is to do the two-day free shipping.” [[Watch video]( Daphne Robbins of Asset Management on the “shift to the great outdoors” and its implications for investors: “The pandemic really prompted a reallocation of consumer discretionary dollars away from traditional air travel and towards recreation closer to home...Our view is really that this dollar shift towards the outdoors should be more structural in nature particularly as the consumer exits the pandemic with a much greater appreciation for a balanced, flexible lifestyle.” [[Watch video]( [Watch videos]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Daily%20Check-In%20With%20Goldman%20Sachs&body=https%3A%2F%2Fwww.youtube.com%2Fplaylist%3Flist%3DPLIyiGQywEp65ogt2Bi3vTK7ngXDTM6wT9) Briefly…A Conversation with Elizabeth Burton, CIO of the Employees’ Retirement System of the State of Hawaii Elizabeth Burton is the chief investment officer of the Employees’ Retirement System of the State of Hawaii, a $20 billion plan that serves about 135,000 people—or roughly one out of every 10 people in the state. At a recent Goldman Sachs Asset Management Forum, she spoke with Katie Koch, co-head of the Fundamental Equity business, and Mike Swell, head of Global Portfolio Management within the Global Fixed Income team, about her views on inflation, asset allocation and the role of private assets. Katie Koch: Elizabeth, how are you thinking about the current economic environment and specifically, what's your outlook for inflation? This is an area that we’re also spending a lot of time on, as we’re starting to see aspects of inflation in some of our portfolio companies and in sectors such as materials and shipping—though we’re not yet seeing inflation reflected in wages. Elizabeth Burton: So in general, one of my biggest concerns is that we could see a spike in inflation. Even if investors broadly expect that inflation could hit 2% or 3%, there’s a larger confidence interval around those estimates than ever. Meanwhile, the amount of tax revenues coming into the government’s coffers is close to 75-year lows, even as the payouts are at all-time highs, so the growing budget deficit is certainly a growing concern. And when you look at three-year annualized returns across various sectors of the market, you can already see signs of higher prices. Agriculture prices, for example, have moved higher and you’re seeing higher prices across the commodities sector, given recent supply-chain disruptions. We think inflation is higher than what is currently priced in. Mike Swell: We would agree with you, Elizabeth, that the range of outcomes around inflation has widened, and certainly the real question may come down to the impact that 2021 has on 2022 returns. How does your view of higher inflation impact your asset allocation strategy? Elizabeth Burton: Currently, we prefer equities and are still in bonds, as there’s pretty strong evidence that bonds do better in lower-inflation environments. And because of where the markets have been and our own rebalancing requirements, we’ve had to keep rebalancing our equity holdings. So we’ve had to keep capital moving from equities into fixed income—such as long duration and TIPS—until we can invest more in private and real assets. We also think other regions, such as Europe—where, for example, the FTSE index is less weighted to tech—are looking more interesting, as are some value and quality assets, which also tend to hold up better in an inflationary environment. Mike Swell: And how do you think about the role of private assets in your plan? Elizabeth Burton: As a pension system, we’re long-term players and care more about the long-term trajectory than what’s happening day to day in the markets. I would say that we skew toward private-market assets. When I first got here in 2018, we had a roughly 8% allocation to private equity, and today it’s closer to 13%. In the Hawaii plan, we bucket our asset allocation into major risk factors, which has gotten us to thinking about investments in terms of beta and duration. Katie Koch: We spend a lot of time on our teams thinking about how to set up our portfolios for an operating environment where cyclical stocks are likely to outperform in the short term as the economy opens up, yet technological disruption is creating a long-term deflationary impact across various sub-sectors. What’s your view? Elizabeth Burton: In terms of innovation, I think many of the tech companies and innovations of the last 15 years are going to look very different going forward. I also think we’ll see innovations in different sectors, such as agriculture or in self-service consumer health. Overall, we have a low-risk equity book and we do have some funds that have more of a value tilt. As pressure to move into more ESG-oriented strategies mounts, many of those managers tend to have more of a value tilt embedded in them. [Read more Briefly Q&As]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly%E2%80%A6A%20Conversation%20with%20Elizabeth%20Burton%2C%20CIO%20of%20the%20Hawaii%20Employees%E2%80%99%20Retirement%20System&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Fbriefly%2Findex.html) Goldman Sachs Media Highlights Bloomberg - May 25 [Goldman's Kostin Sees 'Relatively Flat' Margins Ahead]( (3:00) Yahoo! Finance - May 24 [Goldman’s Jan Hatzius: We’re Still ‘Far From a Normal Economic Environment’]( (11:28) Bloomberg - May 21 [Goldman’s Minnis: The World of Big Leveraged Buyouts Is Back]( (7:45) The Wall Street Journal - May 20 [Goldman Sachs Wants to Charm Startups. 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