Learning from a Century of US Recessions...China’s VC and Tech Scene...Glossier CEO Emily Weiss on Rethinking the Beauty Industry

Insights on markets, industries and the global economy [Goldman Sachs]( [BRIEFINGS] February 04, 2019 The Scene from China: VC and Tech Reach New Scale Venture capital investment in China surpassed North American totals for the first time in 2018, bringing Chinese business models to a stage and scale to which "the entire world needs to pay attention," says Goldman Sachs Research's Piyush Mubayi. Propelling the market forward are China's big tech names, differing from the Western model where deals are generally led by more traditional venture capital firms. "What [corporate venture capital investment in China] means is that capital raising tends to get concentrated around the larger companies...and that's what makes it so different," Mubayi explains on the latest episode of the firm's podcast, Exchanges at Goldman Sachs. These companies are making domestic investments than can help facilitate horizontal and vertical integration for their core businesses, and they're also looking to Southeast and South Asia -- a move Mubayi sees bringing significant capital into newer markets. [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Scene%20from%20China%3a%20VC%20and%20Tech%20Reach%20New%20Scale&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpodcasts%2fepisodes%2f02-04-2019-piyush-mubayi.html) The Long & Short of It: Insurance Industry Shake-Up Technological innovation is disrupting the way consumers and small and midsized businesses purchase insurance, with a shift to a digital-first experience that's shaking up the industry. In the latest episode of our video series, The Long & Short of It, Kelly Galanis from the Goldman Sachs Investment Banking Division explains key trends pushing the industry to adapt, including the use of telematics to provide behavior-based pricing and highly specialized, on-demand policies. "If I'm going skiing and I want to insure my skis on the slopes, I can turn on the insurance of the skis while I'm on the slopes and turn off the insurance after I'm done skiing," Galanis says. As emerging insurance technology companies find new ways to engage with customers and improve their overall experience, large-scale carriers are also investing, partnering, and in some cases pivoting to compete head-to-head. [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Long%20%26%20Short%20of%20It%3a%20Insurance%20Industry%20Shake-Up&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpages%2finsurance-industry-shakeup.html) Talks at GS: Glossier's Emily Weiss on Rethinking the Business of Beauty Above (L to R): Kathy Elsesser of Goldman Sachs and Emily Weiss of Glossier Glossier founder and CEO Emily Weiss is rewriting the rules of the $500 billion beauty industry by putting her customers in the driver's seat -- or more specifically, in the company's Instagram feed. "I've always been...fascinated by the power of personal narratives, and through which platforms are conduits...for people to tell their story," she said during a recent episode of Talks at GS. Weiss discussed founding beauty blog Into the Gloss in 2010 and rethinking the top-down way the industry has traditionally interacted with its consumers. "It was really about democratizing beauty and about saying that every single person on an individual level is an expert," she said of the blog's ethos, which ultimately became the foundation for Glossier, the direct-to-consumer beauty company that Weiss founded five years ago. "That's a 180 from this huge industry that has been built on the back of telling you that you don't have a clue," she said. [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%3a%20Glossier%27s%20Emily%20Weiss%20on%20Rethinking%20the%20Business%20of%20Beauty%20%0a&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2ftalks-at-gs%2femily-weiss.html) Briefly...on Learning from a Century of US Recessions The realities of growth deceleration, higher rates, and significantly tighter financial conditions have markets on heightened recession watch. But recession risks look modest according to GS Research economists Jan Hatzius and David Mericle, [whose study of 100 years of US recessions]( suggests the prospects for a "soft landing" are better than widely thought. Jan, your read on recession risk remains more positive than markets. How would you sum up your reasoning? Jan Hatzius: It comes down to understanding the factors that have moved the needle on recession risk historically, and feeling that we've seen sufficient policy and structural changes in those areas to make the economy less recession-prone. David and I just wrapped up a study of the last century of recessions in the US, and we found that they can be boiled down to five major causes: industrial shocks, oil supply shocks, inflationary overheating followed by aggressive Fed tightening, private sector financial imbalances, and fiscal tightening. We'd argue that several of these "usual suspects" have become structurally less threatening over the last 30 years, and the financial risks that are still important triggers today are not flashing red as they did before the 2007 crisis. Which triggers look less relevant today? David Mericle: The first three Jan mentioned -- industrial shocks, oil supply shocks, and inflationary overheating. The reality is that the most cyclical industries now comprise a much smaller share of US GDP than they once did, and modern technology and supply chain management techniques have greatly reduced the inventory cycles and production volatility that used to weigh heavily on the economy. There's a similar story playing out in oil. US energy intensity as a share of GDP has declined, and the growth of the US shale industry means that price shocks now have a more balanced effect on US GDP, lowering consumption but boosting energy investment. But the most important structural change in our view is the shift we've seen in inflation dynamics. Inflation has become less sensitive to labor market slack, and inflation expectations have become better anchored on the Fed's target. As a result, inflation now rises more modestly in response to falling unemployment, and doesn't accelerate the way it did in the 1960s and 1970s. This allows the Fed to be more patient -- they don't have to counter today's unemployment lows with aggressive hikes to ward off an inflation spike. Instead they can be more measured with normalization and take into account softer growth data, as we saw last week. Could fiscal policy cause a recession? Jan Hatzius: When you look at the recessions where fiscal tightening played a contributing role, they've coincided with major post-war demobilizations and spending pullbacks on a scale we haven't seen since the Korean War. That said, with rising political polarization and uncertainty, broader fiscal policy could evolve into a risk that at the very least makes a future recession worse. By the time the next downturn rolls around, political dysfunction coupled with years of rising deficits might make fiscal policy less effective in spurring economic recovery. Of the historical causes, that leaves private sector financial imbalances. Are you seeing shades of 2007 here in terms of households or corporates spending beyond their means? David Mericle: No -- in fact the private sector is actually running a financial surplus, and to a degree that's unusually benign this deep into an expansion. This is a sharp contrast with conditions before the last two recessions, and it's comforting because the private sector financial balance has been a very good predictor of financial crises. So while we don't think financial risk has declined over time -- if anything, financial globalization could present new risks -- at the moment we're not overly worried about financial stability from a recession risk standpoint. So what recession forecast do you come away with? Jan Hatzius: We think current concerns about recession risk are overdone, and the prospects for a soft landing are better than widely thought. While new risks could emerge, none of the main sources of recent recessions -- oil shocks, inflationary overheating, and financial imbalances -- seem too concerning for now. For more, read Hatzius and Mericle's ["Learning from a Century of US Recessions"]( study. 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