Europe's Energy Crisis is at a Tipping Point

--------------------------------------------------------------- We are saddened by the loss of Her Majesty Queen Elizabeth II and send our condolences to the Royal Family, citizens across the U.K. and those in mourning around the world. Below are some of the top insights from Goldman Sachs. How deep is [Europe's energy crisis]( Is the [real estate investment landscape]( changing for good? Are [TikTok-style short-form videos]( taking over the internet in China? [Take our weekly quiz here](. (Was this newsletter forwarded to you? [Sign up now.]( --------------------------------------------------------------- Europe's Energy Crisis is at a Tipping Point Russia's shutdown of the Nord Stream 1 gas pipeline threatens to further squeeze the disposable income of Europeans. A typical family in the EU could face energy bills of €500 per month by early next year without the introduction of price caps, [according to Goldman Sachs Research]( – up 200% from 2021. Samantha Dart, a senior energy strategist at Goldman Sachs, answers some of the[big questions surrounding Europe's unprecedented energy crisis](. Some of the key points are below: - “Ordinary people haven't even felt the full brunt of this situation,” Dart says. - The situation has contributed to unprecedented European natural gas prices. ten-year-average natural gas prices have jumped above €200 per megawatt hour — ten times the level they were at before the crisis. - The depth of this energy crisis for Europeans might depend on the severity of this year's winter. “If things get particularly cold, that's when rationing becomes a bigger risk,” Dart says. - Europe does have some clear solutions to navigate this crisis more effectively: Natural gas storage is above expected levels already in several countries and greater government intervention to tamp down consumer energy demand and consumption has been discussed. - Sourcing and investing in Liquified Natural Gas is crucial in strengthening Europe's energy security away from Russia, according to Dart. - Europe's current energy crisis is unlikely to be short-lived. “It's going to take a little bit longer for Europe to come out of this crisis,” Dart concludes. Liquefied Natural Gas could be crucial for Europe's future energy security. To get more insights on Europe's complicated energy crisis, [read the full Q&A](. --------------------------------------------------------------- A Home Truth: Real Estate Investing Is Getting More Complicated The real estate market has been a near-surefire investment in recent years, but that's about to change against a backdrop of higher interest rates, rising inflation and recession risks. In the [latest episode of Exchanges at Goldman Sachs]( Goldman Sachs Asset Management's Jeff Fine, Global Head of Real Estate Client Solutions & Product Strategy, and Nora Creedon, an investor in our Private Real Estate business, discuss the evolving opportunities and challenges facing real estate investors in a post-pandemic environment. Where is the best inflation hedge? “Real estate, historically, is the epicenter of the hedge against inflation discussion because…we've seen inflation translate to higher rental growth,” Fine tells Exchanges' host Allison Nathan. “What we're seeing unique to the current landscape though is that it's not necessarily going to translate evenly across sectors…I think we're going to see supply-demand fundamentals within markets and within sectors really be much more nuanced.” Which properties are poised to outperform in a slowing economy? “We would expect that residential should do better if we go through a more recessionary period than many other types of real estate,” Creedon says. “But again, it's going to be nuanced. We think there are going to be markets that are going to perform better than other markets — where people are moving that are favorable to live in and to work in. And we think the rental versus ownership dynamic is also going to evolve with higher interest rates.” Investing in real estate will require a more tactical approach. “We're going to have to be really nimble, really opportunistic,” Fine says. “We're not just going out and buying everything in a particular sector and a particular geography. And there are some geographical differences right now that we should spend a little bit of time on as well because I do think the world moved in lockstep in certain ways on a lot of these trends that we've talked about. And we're seeing it move a little bit less in lockstep as we go into this new period.” Subscribe wherever you get your podcasts [Spotify]( | [Apple]( | [Google]( | [Stitcher]( --------------------------------------------------------------- TikTok-Style Videos Have Overtaken Other Social Media in China TikTok-style short videos are booming in China. More than 1 billion people are using apps like Douyin (part of ByteDance, which also operates TikTok), Kuaishou, and/or Tencent Video Accounts within WeChat. They're spending around two hours a day on them, making short videos the most popular single format for Chinese users on the internet. The clips are reshaping e-commerce in the world's second-largest economy, according to Goldman Sachs Research. - China's internet users spend about 30% of their time with short-video platforms, and more than half of these users are active each day. The clips last an average of about 30 seconds, which allows an opportunity to sell things using livestreaming sessions in between videos. - These ecosystems know more about their users each day, widening their advantage in providing recommendations versus other entertainment and shopping apps, according to Goldman Sachs Research. - Short-video platforms are now the largest advertising venues, and e-commerce is becoming the next big focus for these firms. While they started out focusing on livestreaming and mostly impulse shopping, short-video players are targeting a wider range of commerce from local services to recruitment and real estate. - Livestreaming accounted for about 3% of online retail in China in 2019, and it will grow to around 25% by 2025, according to the base-case forecast by Goldman Sachs Research. Apparel, cosmetics and food and beverage have been the top categories for livestreamed e-commerce, but that spectrum is forecast to become more diverse. [Read more about the success of short-form video platforms in China](. --------------------------------------------------------------- Ian Bremmer: Global Crises Can Give ‘Impetus' Above (L to R): Goldman Sachs' Sharmin Mossavar-Rahmani and Ian Bremmer of Eurasia Group. The world is facing several key threats, according to Ian Bremmer, the founder of Eurasia Group, one of the leading consultancy firms on geopolitical issues and risks. He identifies climate change, future pandemics, a new hot/cold war with Russia and the diffusion of disruptive technologies as some of the major threats to global order. But in a [recent episode of Talks at GS]( Bremmer outlines why certain global crises can give us “impetus and the opportunity” to reform and rebuild. Russia-Ukraine: Although Ukrainians have undoubtedly lost a lot, Russia will lose more from its invasion, Bremmer says. “The Russians are being forcibly decoupled from the West…we have entered a new cold war with elements of hot war between the West and Russia,” he says. “During the days of the Cold War, there was an Iron Curtain. And the Iron Curtain actually divided the world into two. The new Iron Curtain has united Europe. The only folks on the other side of the Iron Curtain [are] Russia, occupied territories in Ukraine, Belarus and maybe North Korea. That's it.” Climate change: While Russia's invasion has inspired a unified response, a similar global reaction has developed around the climate crisis. “For decades, we knew about it, we didn't do anything,” Bremmer says of climate change. “But now, of course, it's gotten to the point that everyone understands that we have 1.2 degrees of warming. 195 countries come together at the Intergovernmental Panel for Climate Change under the aegis of the U.N., and we all know this is a problem.” COVID-19: Bremmer is less confident about the lessons learned from COVID-19. “All you need to do is see how we're not handling monkeypox after two years plus of COVID.” China-U.S. tension: Bremmer doesn't believe that the U.S. is in a cold war with China and thinks it's unlikely that Beijing will suddenly engage in a massive military assault against Taiwan. “The level of economic interdependence between the United States and China is extraordinarily deep and broad,” Bremmer says, even if he is less optimistic about future relations. “I don't see the U.S. and China suddenly developing a relationship of trust in the next decade…the most important geopolitical relationship in the world is really dysfunctional.” [Get all of Bremmer's insights on geopolitical risk by watching the full interview.]( --------------------------------------------------------------- BRIEFINGS Brainteaser: Soaring European Energy Bills European families will soon have to pay €500 per month on their energy bills, according to a forecast by Goldman Sachs Research. For this week's BRIEFINGS Brainteaser, how much were they spending on average per month in 2021? A) €252 B) €217 C) €160 D) €125 [Check the answer here.]( --------------------------------------------------------------- ICYMI: In the Media [CNBC]( September 7 [Bear market rallies are not unusual, says Goldman Sachs' Peter Oppenheimer]( [CNBC]( September 6 [Oil prices do not adequately reflect the potential for gas to oil substitution, says Jeff Currie]( (5:08) [CNBC]( September 6 [It's no surprise that China is seeing weaker import numbers, says Goldman Sachs]( --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. 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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