Thursday, February 27, 2020

Notations From the Grid (Special Thursday Edition): A Window Into the Future

We hereby present the following on the future:

Investment Outlook 2020
As the bull market closes in on a record 11 years this March, investors in US equities might think there’s little upside left in their portfolios. But Sharmin Mossavar-Rahmani, chief investment officer of Goldman Sachs Wealth Management, counsels otherwise. In the latest episode of Exchanges at Goldman Sachs, she talks about her 2020 Investment Outlook and why she and her team are taking a “stay invested” position. “There’s still a lot of upside left if we are still a ways away from a recession,” Mossavar-Rahmani says, and “the probability of a recession [in 2020] in our view is actually quite low. We’re at about 20 to 25 percent probability, maybe a little bit closer to 20.” The Investment Outlook cites data showing a high likelihood (87%) of positive returns when an economy is in an expansion. Even when a recession is lurking around the corner, there’s still time for the market to do well—historically, there have been attractive S&P returns (8-9%) in the six to 18 months prior to a contraction. “That suggests we should stay invested,” Mossavar-Rahmani says, “because the likelihood of positive returns—and strong positive returns—is quite high.”
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Investing in Climate Change
Climate change is such a complex, global problem that meaningful action can seem daunting. But the experts Allison Nathan interviews in the latest episode of our Top of Mind at Goldman Sachs podcast agree on a place to start: setting a price on carbon. “A lot of the current rules and regulations focus on the source of the carbon—the utility, the car, or the oil,” Goldman Sachs’ head of research Steve Strongin said. “With a carbon price, other people can make the investment and solve the problem, so that you get specialization by who’s best at solving the problem, as opposed to specialization based on who’s causing the problem.” But there’s debate about the best way to establish a carbon price–via carbon taxes, which effectively assign a price for carbon; or via cap-and-trade programs, which set a limit on emissions and enable participants to trade emissions allowances under the cap. The Environmental Defense Fund’s Nat Keohane told Nathan he favors the latter because it ensures progress towards the ultimate goal of reducing emissions: “I always say we need a limit and a price on greenhouse gas emissions. The advantage of cap and trade is that it integrates the limit and the price directly into the policy design. The cap provides a limit on emissions and the trading gives rise to the price.” Michael Greenstone, director of the Energy Policy Institute at the University of Chicago, is relatively agnostic between the two approaches, recognizing the trade-offs inherent in both: “The primary advantage of a cap-and-trade program is that you have certainty on emissions and the primary advantage of a carbon tax is that you have certainty on price. You can't have both—that's the problem.”
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Talks at GS: David Katz, Founder and CEO of The Plastic Bank
Above (L to R): Dermot McDonogh of Goldman Sachs and David Katz of The Plastic Bank
When he established the Plastic Bank in 2013, David Katz wanted to combat two issues he sees as going hand-in-hand: poverty and plastic pollution in the world’s oceans. To do that, Katz created a novel way of aiding the poor while cleaning up the planet: “We’ve created a monetary system that uses plastic as an input,” he said during a recent episode of Talks at GS. The bank offers school tuition, medical insurance, pharmaceuticals and other goods and services in exchange for plastic waste that people collect around the world. “The Plastic Bank is best exemplified as a chain of stores for the world’s poor where everything can be purchased using plastic garbage,” Katz said. The Plastic Bank’s first operation was in Haiti, the poorest country in the Western Hemisphere. “Within Haiti, having schools as collection locations [for plastic waste] allows a family to return the household material to the school to pay for the tuition, because now the plastic is not just plastic. It’s $20 a month that pays for the tuition,” Katz said. “But for the family, it’s the end of poverty -- and that’s priceless.”

Click here for the latest round of highlights from Talks at GS, and be sure to stream new episodes on Hulu, Amazon Prime Video, YouTube, Apple Podcasts, Spotify, iHeartRadio, and Soundcloud.
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February 18, 2020
San Francisco, a real place, is the cultural and commercial heart of Silicon Valley, a made-up place. The former is a mess, even as the latter churns out unprecedented profits and scares the world with its concentration of power. Their ills are inextricably linked: Vast tech wealth has collided with political dysfunction to produce a horrifying state of affairs on the streets of a great American city.

I spent the last couple months stepping outside my lane as a business and technology journalist to investigate how things got so bad and what might be done about it. My article, “ Can San Francisco be saved?” appears in the current issue of Fortunealongside other looks at cities around the world.

It’s tough to summarize what’s wrong, but a few things are obvious. San Francisco hasn’t built enough homes to house the people who’ve come to fill all the jobs it has created. Because there isn’t enough housing, prices have skyrocketed, which is fine for most tech-industry workers and not so good for everyone else. Because it’s tough for working people to find a place to live, it’s really difficult for the working poor, the non-working poor, and those afflicted with mental health and other ailments.

There are solutions to these problems, such as building more housing and spending even more money on the least fortunate among us. But these solutions need political leadership and compromise, two things historically in short supply in San Francisco. Political factions squabble in this city dominated by what elsewhere in the country would be called left-wing liberals as much as Democrats and Republicans do on the national stage.

Since I finished this article, the mayor of San Francisco, London Breed, said she took a gift from the powerful former head of public works, a longtime bureaucrat who has been charged with corruption by the U.S. Attorney in San Francisco. (He paid more than $5,000 for the repair of her 18-year-old car.) Breed is a pro-business centrist by San Francisco standards, and her left-of-the-left, anti-development opponents already have pounced.

Also since my story went to press, I picked up, with serendipitous timing, a new book, “Golden Gates: Fighting for Housing in America,” by the New York Times economics reporter Conor Dougherty. I interviewed several of the people he writes about in this outstanding book. It is highly readable (a true feat for a book about housing policy). I’m a slow reader, and I read this book in a few days. I recommend it to anyone who wants to go deeper on this important topic.

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