Silicon Carbide Powers Electric Vehicles...What It’s Really Like to Start a Business...The Year Ahead for Financials

Insights on markets, industries and the global economy [Goldman Sachs]( [BRIEFINGS] January 07, 2019 Silicon Carbide: From Outer Space Into Electric Vehicles It's an age-old material making its way into the future. Silicon carbide, first discovered in meteorites older than the solar system, is now starting to help power electric vehicles and ease the use of solar technology. From an overall cost and performance perspective, silicon carbide-based power semiconductors are superior to alternatives, according to Goldman Sachs Research: they can withstand higher temperatures and preserve more energy, benefiting power sources like batteries. The result? The compound could ultimately slash the cost of manufacturing EVs and installing solar inverters -- savings set to outweigh its higher initial cost in the long run. To learn more, watch the latest episode of our video series, The Long & Short of It. [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Silicon%20Carbide%3a%20From%20Outer%20Space%20Into%20Electric%20Vehicles%20&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpages%2fsilicon-carbides-meteoric-rise.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) What It's Really Like to Start and Scale a Business Above (L to R): Dan Dees and Jake Siewert of Goldman Sachs, Josh Hoffman of Zymergen and Jen Rubio of Away The image of being an entrepreneur can seem "very glamorous," says Jen Rubio, co-founder of luggage company Away, but the reality is quite different. "Nobody wants to see social media posts of you, late at night at your desk, eating Chinese food for the tenth week in a row," Rubio says on the latest episode of our podcast, Exchanges at Goldman Sachs. "Or going to a pitch, and not having [it go well]...For every single article out there about someone raising millions and millions of dollars, there were a lot of no's and a lot of rejection." Rubio and fellow entrepreneur, Josh Hoffman of biotech startup Zymergen, joined Goldman Sachs' Dan Dees, co-head of the Investment Banking Division, at the 2018 Builders + Innovators Summit for a conversation with Jake Siewert on what it's really like to start and scale a business. Hoffman adds, "[As a founder] there is no stopping. The commitment is bottomless...and so it requires a level of emotional resilience and balance that is not the easiest thing to do." [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=What%20It%27s%20Really%20Like%20to%20Start%20and%20Scale%20a%20Business%20&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpodcasts%2fepisodes%2f12-20-2018-founders-spotlight.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) Talks at GS: Retired US Army General Stanley McChrystal Above (L to R): David Solomon of Goldman Sachs and Stanley McChrystal, retired US Army general Retired four-star general Stanley McChrystal, best known as former commander of US and international forces in Afghanistan and leader of Joint Special Operations Command, has spent his career studying the complexities of leadership, a theme he explores in his latest book, Leaders: Myth and Reality. During a recent Talks at GS episode moderated by Goldman Sachs CEO David Solomon, McChrystal discussed the complicated legacies of iconic leaders throughout history. "We expect leaders to be something they cannot possibly be and then we are frustrated when they don't live up to that," he said. "We've always looked at [leadership] through these mythologically tinged lenses and that causes us to look at the past incorrectly. More importantly, it causes us to look in the future incorrectly." [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%3a%20Retired%20US%20Army%20General%20Stanley%20McChrystal&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2ftalks-at-gs%2fstanley-mcchrystal.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) Briefly...on the Year Ahead for Financials 2019 started for Financial Services much like 2018 ended: with volatility and questions about potential vulnerabilities in the sector. We spoke to Goldman Sachs Research's Richard Ramsden on the heels of the firm's annual Financial Services Conference for his read on industry sentiment, the year-ahead outlook and pockets of risk. Coming off a year of market lows largely fueled by growth and rate concerns, what sense did you get from participants at the Financials Conference about the underlying macro backdrop for 2019? Richard Ramsden: The broad view was that the backdrop is still constructive, both from a corporate and consumer perspective. Banks reported strong consumer and small business confidence, with higher consumer spending and no notable shift toward saving in higher-yielding deposit accounts. The credit backdrop also looks relatively benign, with many participants at the conference reporting strength in both corporate and consumer loan growth. So all-in-all, the fundamentals for a solid year in the sector remain intact -- and that's consistent with our economists' call for continued business and consumer confidence and spending growth in 2019. What about the capital adequacy questions surrounding large banks -- do you see rising risk there? RR: It's minimal, in our view. Even in a "moderate" recession scenario -- which isn't our base case -- our analysis suggests that all the banks in our coverage would remain profitable and maintain their dividends and buybacks, albeit at slightly lower levels. They are better positioned for credit stress this cycle given operating margins are 500 basis points higher than they were heading into prior recessions and credit creation has been slower and more cautious, with a skew toward lower-risk products. What about the outlook for bread-and-butter financial services like IPOs and M&A? RR: Messaging from participants at the conference was more mixed. Some noted it could take up to six months for corporate sellers to adjust to recent volatility and equity devaluation, which would dampen M&A in what's now become a stronger buyers' market. Our own view is that it's a temporary setback. We think the M&A cycle -- while mature -- still has room to run given the high levels of cash on corporate balance sheets, accommodative financing terms, and the continuing threat of technological disruption that's prompting some companies to buy rather than develop their tech capability sets. But it will take some time for this demand to bounce back. As for IPOs, alternative asset managers broadly noted that recent equity volatility will likely lead to a more challenging backdrop for exits and that firms may look to increase exits via strategic or sponsor deals. Alternative managers also noted across the board that recent volatility could slow the pace of private capital deployment. Leveraged lending has received a lot of attention lately, most notably from the Fed, as a potential bubble and vulnerability for the cycle. What's your take? RR: That actually came up quite a bit at the conference in discussions of direct lending and growth in the private credit market, which now handles a decent share of this riskier lending once underwritten by investment banks. Generally speaking, attendees didn't see substantial risk in the private market relative to other areas of credit, and the Goldman Sachs Research view on leveraged lending is largely the same. We think the default risk on leveraged loans will remain moderate near-term, given still-healthy corporate earnings fundamentals, still-strong debt servicing capacity, and relatively low near-term recession risk. Banks also have fairly limited exposure here, given the skew I mentioned earlier toward lower-risk products -- their allocations to new leveraged loan deals in the primary market have fallen to roughly 5%, and their investments in collateralized loan obligations or "CLOs" are mainly concentrated in the most senior tranches -- so the risk of runs from leveraged loan-related losses looks manageable. SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly...on%20the%20Year%20Ahead%20for%20Financials&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpages%2ffrom_briefings_07-jan-2019.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) Goldman Sachs Media Highlights Bloomberg - January 7, 2019 [Goldman Bet on Women-Run Startups Takes Shape with $100 Million]( CNBC - January 4, 2019 [Goldman's Rod Hall Weighs in on Apple's Warning]( (6:39) The Glass Hammer - December 20, 2018 [Miriam Wheeler of Goldman Sachs on Getting Out of Your Comfort Zone]( [Subscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. 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