The Unstoppable Housing Boom...How COVID Changed the Options Market...The End of Transitory

[Goldman Sachs]( [BRIEFINGS] February 10, 2022 Is Housing at an Inflection Point? Above (L to R): Terry Hagerty of Goldman Sachs and Doug Yearley of Toll Brothers Will rising rates put an end to the white-hot housing market? Mortgage rates are already moving higher as the Federal Reserve looks to cool inflation, but many of the supply-and-demand imbalances that created a “perfect storm” in the housing market aren’t likely to ease anytime soon, says Doug Yearley, CEO of Toll Brothers, on the latest episode of Exchanges at Goldman Sachs. “Right now, there is so much more demand than there is available supply — available homes to buy, whether [that’s] resale homes or new homes — that this is going to be very different than other cycles,” Yearley tells host Allison Nathan, a senior strategist in Goldman Sachs Research. “It's going to take longer, it’s going to take higher rates, it's going to take more price increases, I think, until we feel the affordability pressure,” he adds. At the same time, the boom in the housing market is fueling strategic activity — including equity issuance, IPOs and M&A — from companies across the home building and building products sectors, says Terry Hagerty, co-head of home building and building products in Goldman Sachs’ Investment Banking Division. “Management teams across the sector [are] experiencing record demand,” he says, “and more importantly, feeling very good about investor interest in increasing their exposure to the housing sector.” [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Is%20Housing%20at%20an%20Inflection%20Point%3F&body=https%3A%2F%2Fyoutu.be%2FE4hNxvoff1s) The Options Boom Shows How the Stock Market Has Changed Since COVID-19 Options trading is booming, especially when it comes to stock indexes and exchange-traded funds. The volume of these contracts recently hit a record $1.3 trillion, giving traders the right to potentially buy or sell the equivalent of 3% of the U.S. equity market, says Rocky Fishman, an options strategist in Goldman Sachs Research. While there are multiple trends at work — including a wave of retail investors taking leveraged positions in single-stock options — the main reason for the surge in index-options trading is demand for protection. Investors were scarred by the stock gyrations brought about by the COVID-19 pandemic and remain wary. “The biggest use of index and ETF options is hedging,” Fishman says. “It’s a long process of healing after you get a real shock to markets like they had in March 2020.” SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Options%20Boom%20Shows%20How%20the%20Stock%20Market%20Has%20Changed%20Since%20COVID-19&body=) Twilio CEO: Software Mindset Crucial to Problem Solving Above (L to R): George Lee of Goldman Sachs and Jeff Lawson of Twilio On a recent episode of Talks at GS, Jeff Lawson, CEO of Twilio and author of Ask Your Developer: How to Harness the Power of Software Developers and Win in the 21st Century, discusses his insights on entrepreneurship, the transformative power of software and how “experimentation is the prerequisite to innovation.” On how all companies need to adopt a software mindset: “The software mindset is really one where you see a problem — whether it’s a business problem, a global problem, a societal problem, whatever it is — and your instinct says users can actually get their hands on this data and computers can help us solve this problem.” On the role software developers play in troubleshooting problems: “The software people are the people who wake up every day and they see some problem in the world. And what their mind jumps to very quickly is ‘how can software help solve this problem?’ And that is not a skill set, it’s a mindset." [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Software%20Mindset%20Crucial%20to%20Problem%20Solving%2C%20Twilio%20CEO%20Says&body=https%3A%2F%2Fyoutu.be%2FCy9MF4ISbcU) February QuickPoll: The End of Transitory For investors, 2022 is shaping up to be a complicated trading environment as inflation, central banks and tightening financial conditions take hold. Key findings from the latest Marquee QuickPoll survey of 805 clients include: The end of transitory: Investors have re-rated their inflation expectations higher. As the chart above shows, a majority now expect U.S. core inflation to be above 3% by the end of this year. Behind the curve: One of the key differences of this cycle is that developed market central banks appear to be starting this cycle behind the curve. This means increasing uncertainty around the path and an inability for policymakers to manage financial conditions and, as a result, asset prices. In particular, this is translating into a high volatility paradigm in markets. China and emerging markets comeback: The picture isn’t bleak across the board. In particular, many emerging market countries have already gone through a tightening cycle and are now much better positioned, says Oscar Ostlund, head of content for Marquee, the digital platform for the Global Markets Division. In particular, there has been a marked turn in sentiment in China, with investors voting for the MSCI China Index as their favorite equity index — only the third time since the QuickPoll launched in 2016. For more information about QuickPoll and Marquee, [reach out to the team](mailto:gs-marquee-sales@ny.email.gs.com?subject=BRIEFINGS%20Follow-Up%3A%20Interested%20in%20Learning%20More%20About%20Marquee&body=BRIEFINGS%20Follow-Up%3A%20Interested%20in%20Learning%20More%20About%20Marquee). [Learn more]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=February%20QuickPoll%3A%20The%20End%20of%20Transitory&body=https%3A%2F%2Fwww.goldmansachs.com%2Fwhat-we-do%2Fglobal-markets%2Findex.html) ‘The Biggest Hurdle Is Being Let in the Room:’ How One Entrepreneur Defied the Odds to Become a Private Equity Success Story Above (L to R): Katie Koch of Goldman Sachs and Tracy Graham of Graham Allen Partners What does it take to be an entrepreneurial success story? In the case of Tracy Graham, founding partner and managing principal of private equity firm Graham Allen Partners, quite a lot. Graham’s life story involved an upward struggle out of poverty in Chicago; being recruited by famed coach Lou Holtz to play football at the University of Notre Dame; and launching a successful career in the private equity industry. At a recent Goldman Sachs Asset Management Forum event, he sat down with Goldman Sachs’ Katie Koch, CIO of the Asset Management Division’s Public Equity business, and Sean Legister, managing director in Alternatives Capital Markets & Strategy, to talk about his journey. Katie Koch: At Goldman Sachs Asset Management, we’re big believers that the diversity of one’s life experiences can bring valuable lessons to their workplace as well as to the investing process. You grew up in the Englewood neighborhood of Chicago. Can you tell us what that was like? Tracy Graham: When I was growing up, the Englewood neighborhood was known as the murder capital of Chicago. It still is today. Getting out of that community is a very difficult thing. Of approximately 100 young men who grew up with me in that neighborhood at the time, not one graduated from college. Today, the overwhelming majority have either a police record or are serving time. Many don't make it past high school. Katie Koch: What impact did this have on you, and how did you succeed? Tracy Graham: Growing up in this environment was central to helping me use intuition to read people — to know what’s right and wrong. If you were unable to do that in our community, you would end up in trouble. I was extremely lucky. Part of my story is a bit of luck, a lot of hard work and in my case, a great mom. It seems like nothing to most people but she gave me $20 to take an entrance exam to go to a private school in Chicago, St. Rita High School, and it changed my life forever. The most important thing she ever did was just to instill in me the idea that I could be successful and that I was put on earth to do something special. It makes me grateful and thankful for being in the position that I’m in, which is why I’ve focused my business and personal life around doing great things for others. Katie Koch: The power of having someone believe in you is obviously extraordinary — and it’s certainly important for raising our own kids and leading our teams. There’s certainly a narrative in the U.S. that you can do anything if you put your mind to it. But there’s also a strong counternarrative that speaks to the tremendous odds stacked against people, such as your stat that only 1 in 100 people typically make it out of your neighborhood. How do you reconcile those views? Tracy Graham: While the American dream is true, you are going to have to persevere, and things are going to be tough. The biggest hurdle is being let in the room, and I still deal with that today. I am 48 years old. I have sold four or five companies. Some of my mentors are some of the best business people in the world. For me, Notre Dame got me into the room. But many of the things we talk about — about being able to pull yourself up — aren’t true for 99.9% of the people who look like me. We have to be able to take very talented people and let them into the room. It’s a challenge and it’s hard to solve, but I do believe one little thing that we can do as mentors and sponsors is to tell people they can do it. I know it sounds simple but many of them doubt it’s possible for them. I believe I’m in a unique position because I look like a lot of those people who are not in the room and I can let them in and I have an obligation to do that. We have to give people an opportunity. Sean Legister: You mentioned Notre Dame as a catalyst for opening doors for you and credited coach Lou Holtz with being able to recruit you and get you there. Can you tell us how that went? Tracy Graham: There were two key moments I remembered from that time. The first was that when Lou Holtz came to our house and our community, he sent the signal that he was at home. Almost every other person who came to our neighborhood would have felt out of place. But he did not. He connected with me and my mom. The second thing he did was that he didn’t promise me a career in the NFL. In fact, he told me it was likely I would never get to play in the NFL. Instead, he told me: ‘If you give Notre Dame four years of your life, Notre Dame will give you 40 years back.’ And that became true. I also played with Jerome Bettis [former running back who played in the NFL] and he was literally the first investor in my first business, and we have a very tight relationship. To learn more about how Tracy Graham found success in investing, [read the full Q&A](. [Read more Briefly Q&As]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=%E2%80%98The%20Biggest%20Hurdle%20is%20Being%20Let%20in%20the%20Room.%E2%80%99%20How%20This%20Entrepreneur%20Defied%20the%20Odds%20to%20Become%20a%20Private%20Equity%20Success%20Story&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Fbriefly%2Findex.html) Goldman Sachs Media Highlights CNBC - February 8 [Earnings Remain ‘Key Story’ We’re Focusing On, Says Goldman Sachs’ David Kostin]( (3:35) Bloomberg - February 7 [I've Never Seen Commodity Markets Like This: Goldman's Currie]( (1:48) CNBC - February 4 [Goldman’s Ramsden Says Banks Forced to Respond to Competition From Fintech and Payment Companies]( (4:22) Fortune - February 4 [4 Surprising Tech Stocks to Buy as the Sector Sells Off, According to a Top Goldman Sachs Portfolio Manager]( [Subscribe]( [Unsubscribe]( 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. 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