Goldman sachs 12 11-2011

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  • 1. December 9, 2011United StatesUS Weekly Kickstart Portfolio Strategy ResearchClient response to our 2012 US equity outlookWe met with a range of investors this week to discuss our outlook for US equities in the coming year. We expect sub-trend economicgrowth, 3% growth in S&P 500 earnings (to $100), and flat valuation, leading to a year-end 2012 target of 1250. Most clients agreedwith our view, with pushback focused on margins and Europe. Bullish investors believe margins will grow from the current recordlevels and boost earnings. Others expect resolution in Europe will buoy investor confidence and that the S&P 500 could reach 1400.A small number of investors expect a collapse of the euro; we estimate the market could trade down to 900 in this scenario.Performance Sector views and performance David J. KostinThe S&P 500 fell 0.8% this week. Financials was Our recommended sector weightings gained 3 bp (212) 902-6781 david.kostin@gs.comthe best-performing sector (+0.8%) while Energy this week, and have generated -41 bp of alpha Goldman, Sachs & Co.was the worst-performing sector (-2.1%). We YTD.expect the S&P 500 will trade at 1150 in three Stuart Kaiser, CFAmonths (-7%) and 1250 in 12 months (+1%). (212) 357-6308 stuart.kaiser@gs.com US Portfolio Strategy Baskets Goldman, Sachs & Co. Our recommended trades vs. the SPX: HighS&P 500 Earnings Sharpe Ratio <GSTHSHRP> was up 0.2%, High Amanda Sneider, CFAOur top-down EPS forecasts of $100 and $106 for Quality <GSTHQUAL> was down 0.5%, with (212) 357-9860 amanda.sneider@gs.com2012 and 2013 reflect +3% and +7% growth, Defensives <GSSBDEFS> and Dividend Growth Goldman, Sachs & Co.respectively. Bottom-up consensus forecasts a <GSTHDIVG> trading flat. Peter Lewis10% increase in 2012 to $108, and a 10% increase (212) 902-9693 peter.lewis@gs.com Domestic Sales <GSTHAINT> vs. Internationalin 2013 to $119. Goldman, Sachs & Co. Sales <GSTHINTL> was up 0.3%.Valuation Ben Snider S&P 500 stock performance this week (212) 357-1744 ben.snider@gs.comTop-down, S&P 500 trades at an NTM P/E of Goldman, Sachs & Co. Leaders: GCI, MS, WDC, JPM, and DF.12.5X. Bottom-up, it trades at an NTM P/E of 11.8X Laggards: BHI, TSO, JNPR, BSX, and NFX.and an LTM P/B of 2.1X. Note: The ability to trade these baskets will depend upon market conditions, including liquidity and borrow constraints at the time of trade.Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have aconflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-USaffiliates are not registered/qualified as research analysts with FINRA in the U.S.The Goldman Sachs Group, Inc. Goldman Sachs Global Economics, Commodities and Strategy ResearchGoldman Sachs Global Economics, Commodities and Strategy Research 1
  • 2. December 9, 2011 United StatesConversations we are having with clients: Client response to our 2012 US equity outlookThis week we met with a wide range of investors to discuss the outlook recapitalization of European banks, and clarity in the region’s future willfor US equities in 2012. Roughly two thirds of the clients we met with cause a surge in investor confidence. Investors commonly quote 1400 as aagree with our base case view that the S&P 500 will deliver lackluster target S&P 500 price level in this “risk-on” scenario of multiple-expansion.returns next year. Among those that do not, Europe is the key factor with The divergence between this view and our own is the path to resolution.bulls outnumbering bears. Investors with global or cross-asset mandates Bulls expect clarity in the near term that will reassure investors. We expectbroadly see US equities as attractive in relative terms. Our outlook is based the situation to worsen before it gets better with market pressure necessaryon three central points: for progress. Our global equity forecasts point to 3- and 6-month downside1. Stagnant economy. Our US economics team expects a fifth straight year in Europe, Asia and the US before recovery in 2H 2012. Clients with global orof sub-trend economic growth with 1.6% GDP growth forecast in 2012 and cross-asset mandates broadly see equities as attractive relative to low bondthe environment persisting in 2013 with 2.2%. They expect unemployment yields and the US as appealing globally due to recent growth momentum.to remain elevated at 9%, fiscal drag from a divided Congress, and EU Summit demonstrates progress but lacked “regime change.”restrained capex in the face of political and economic uncertainty. Overall, policymakers are making progress and signaled a commitment to2. Modest earnings growth. We expect margins to peak in 2011 and fall address the twin sovereign and banking system crises. However, lack ofslightly in 2012. Combined with weak sales growth, this means S&P 500 clarity on the IMF’s role and no clear change in the ECB’s activities inearnings should grow only 3% to $100 in 2012. Consensus expects $108. sovereign debt markets will likely leave some investors disappointed.3. Stable valuation. P/E multiples tended to remain flat during 17 Others who disagree with our forecast argue that margins will continue“stagnation” periods of prolonged weak but positive economic growth in to expand as sales grow, even in a sub-trend economic environment.OECD countries since 1980. A flat P/E of roughly 12x is supported by our However, history shows that margins don’t always expand when sales grow.dividend discount model and uncertainty-based P/E model, although other During the last 40 years S&P 500 margins have hit cycle peaks andapproaches such as the Fed model and the historical ROE vs. price/book contracted six times, and in each period sales continued to grow. Rather,relationship suggest significant upside to fair value. Flat valuation along margins tend to contract in periods of positive but decelerating sales growth.with modest earnings growth translates into our S&P 500 year-end We expect significantly slower sales growth in 2012 than the 11% rate in2012 target of 1250, roughly unchanged from the current level. 2011, as does consensus.For clients who agree with our outlook, we recommend three strategies Margins are the key difference between our earnings forecast and theinvolving our thematic baskets. Buy: (1) High Quality Stocks (Bloomberg consensus view for 2012. We have similar expectations for sales growth inticker: <GSTHQUAL>) with safe balance sheets and a history of stable 2012 at 3.7% vs. 5.1% for consensus (ex-Financials and Utilities). However,growth; (2) Dividend Growth and Yield (<GSTHDIVG>) as investors navigate we expect margins to contract to 8.7% in 2012 from 8.9% in 2011 whilean environment of weak price returns and low yields; (3) stocks with high US consensus expects them to grow to 9.4%. Each 50 bp shift in margins equalssales exposure vs. firms with high international revenues (<GSTHAINT> vs. about $4 in S&P 500 EPS. The 70 bp gap between our margin forecast and<GSTHINTL>). These strategies have generally outperformed in 2011 and consensus explains 75% of the $8 difference in 2012 EPS estimates.should continue to work in 2012 given our outlook. Stocks that appear in at Fear of euro collapse frames more bearish views. A small minority ofleast two of these baskets include ACN, OXY, WAG, CTL, JPM, and WFC. investors expects a euro breakup and a deep recession in Europe. In thisBullish investors hold more positive outlooks for margins and Europe, case our uncertainty-based P/E model suggests the S&P 500 could fall byand argue that our target is too low. Some investors generally agree with roughly 25% to 900. Even if collapse is avoided, the continuation of “passiveour muted outlook for the economy and corporate earnings, but feel that an containment” and delay of resolution continues to raise the costs in bothagreement to end Europe’s debt crisis will inevitably be reached next year. financial and economic terms, creating a poor condition for equity markets.They argue that the stabilization of sovereign balance sheets,Goldman Sachs Global Economics, Commodities and Strategy Research 2
  • 3. The charts we are watching: Our 2012 US equity outlookExhibit 1: S&P 500 sales, margins and EPS forecasts vs. consensus Exhibit 2: Uncertainty-based P/E model points to possible downsideas of December 8, 2011 as of November 25, 2011 Top-down Bottom-Up 24 GS Forecast Consensus 22 2011E 2012E 2013E 2011E 2012E 2013E S&P 500 forward P/E estimate S&P 500 ex-Financials and Utilities 20 Sales Per Share $873 $905 $949 $871 $915 $961 Y/Y growth 11.2 % 3.7 % 4.9 % 11.0 % 5.1 % 5.0 % 18 Y/Y growth ex- Energy 8.0 2.3 4.3 8.3 4.9 4.8 16 Profit Margin 8.9% 8.7% 8.9% 9.0% 9.4% 10.0% 14 EPS $78 $79 $84 $79 $86 $96 Y/Y growth 16.6% 1.2% 6.9% 17.4% 9.8% 11.6% 12 12.0X 95% confidence range 10.1X Utilities EPS $3 $3 $3 $3 $3 $3 10 Financials EPS 16 17 18 16 18 19 Predicted P/E 8.2X 8 S&P 500 EPS $97 $100 $106 $98 $108 $119 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Y/Y growth 15.9% 2.7% 6.6% 16.5% 10.4% 10.5%Source: Compustat, FirstCall, I/B/E/S, and Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.Exhibit 3: Margins often contract when sales growth is positive but slowing Exhibit 4: Each 50 bp shift in margins equals roughly $4 in 2012 S&P 500 EPSas of December 8, 2011 as of December 8, 2011 40 Sensitivity of 2012 EPS forecast to S&P 500 (Ex-Financials & Utilities) 30 sales growth and margin Sales 20 growth 2012 Profit Margin 7.7 % 8.2 % 8.7 % 9.2 % 9.7 % Y/Y Change (%) 10 0 5.7 % 92 97 101 106 111 2012 Sales Growth (10) 4.7 91 96 101 105 110 Margin (20) growth 3.7 91 95 100 104 109 (30) Margins fall while sales 2.7 90 95 99 103 108 growth remains positive (40) 1.7 89 94 98 103 107 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015Source: Compustat and Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 3
  • 4. December 9, 2011 United States S&P 500 PerformanceExhibit 5: S&P 500 sector performance over the last week Exhibit 6: S&P 500 price return and daily trading volumeas of December 8, 2011 as of December 8, 2011 1,400 7 Financials 0.8 S&P 500 daily price level (lhs) Cons Discretionary (0.1) 1,300 6 Shares traded (billions) Information Tech (0.4) S&P 500 Price Level 5 Telecom Services (0.4) 1,200 4 Consumer Staples (0.4) S&P 500 1,100 200-day moving average S&P 500 (0.8) 3 Industrials (1.3) 1,000 2 Utilities (1.6) 900 S&P 500 daily trading volume (rhs) 1 Health Care (1.7) Materials (1.9) 800 0 8-Dec-09 8-Sep-10 8-Dec-10 8-Sep-11 8-Dec-11 8-Jun-10 8-Jun-11 8-Mar-10 8-Mar-11 Energy (2.1) (3.0) (2.0) (1.0) 0.0 1.0 1-week Total Return (%)Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Exhibit 7: S&P 500 sector performance over time Exhibit 8: BEST and WORST performing S&P 500 STOCKS BY SECTORas of December 8, 2011 as of December 8, 2011 Total Return Percentage Change (%) BEST STOCKS WORST STOCKS 1-Week 1-Month 3-Month 6-Month YTD 12-Month Return (%) Return (%) Utilities (2)% (2)% 4% 6% 14 % 17 % Sector Ticker 1-week YTD Ticker 1-week YTD Cons Discr GCI 14 % (14)% DRI (9)% (4)% Consumer Staples (0) 0 4 3 10 12 Consumer Staples DF 6 21 ADM (5) (2) Health Care (2) (2) 2 (4) 8 10 Energy HP 2 22 BHI (11) (13) Cons Discretionary (0) (2) 7 2 5 5 Financials MS 9 (41) CBG (9) (26) Information Tech (0) (3) 8 4 4 4 Health Care LLY 3 17 BSX (10) (30) Energy (2) (5) 4 (6) 3 7 Industrials RHI 4 (8) TXT (7) (24) Telecom Services (0) (2) 4 (2) 1 6 Info Tech WDC 8 (7) JNPR (10) (46) Industrials (1) (2) 8 (6) (3) (0) Materials PX 2 10 ATI (5) (14) Materials (2) (6) (1) (8) (10) (5) Telecom Services VZ 0 11 S (10) (42) Financials 1 (6) 2 (12) (19) (16) Utilities NEE 2 13 NRG (5) (5) S&P 500 (1)% (3)% 5% (2)% 0% 3% S&P 500 GCI 14 % (14)% BHI (11)% (13)%Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 4
  • 5. December 9, 2011 United StatesS&P 500 Performance (cont’d)Exhibit 9: TOP 10 performing SUB-SECTORS over the last week Exhibit 10: BOTTOM 10 performing SUB-SECTORS over the last weekas of December 8, 2011 as of December 8, 2011 Investment Banking & Brokerage 5 Health Care Technology (5) Human Resource & Employment… 4 Life Sciences Tools & Services (5) Other Diversified Financial Services 4 Agricultural Products (5) Homefurnishing Retail 3 Electronic Equipment & Instruments (5) Home Improvement Retail 2 Health Care Facilities (5) Homebuilding 2 Oil & Gas Equipment & Services (5) Brewers 2 Casinos & Gaming (6) Auto Parts & Equipment 2 Coal & Consumable Fuels (7) Industrial REITs 2 Home Entertainment Software (8) Semiconductor Equipment 2 Real Estate Services (9) 0 2 4 6 (10) (9) (8) (7) (6) (5) (4) (3) (2) (1) 0 1-week Total Return (%) 1-week Total Return (%)Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Exhibit 11: TOP 10 performing S&P 500 STOCKS over the last week Exhibit 12: BOTTOM 10 performing S&P 500 STOCKS over the last weekas of December 8, 2011 as of December 8, 2011 Return (%) Return (%) Company Name Ticker Sector 1-week YTD Company Name Ticker Sector 1-week YTD Gannett Inc. GCI Cons Discr 14 (14) Baker Hughes BHI Energy (11) (13) Morgan Stanley MS Financials 9 (41) Tesoro Corp. TSO Energy (11) 17 Western Digital WDC Info Tech 8 (7) Juniper Networks JNPR Info Tech (10) (46) JPMorgan Chase JPM Financials 6 (22) Boston Scientific BSX Health Care (10) (30) Dean Foods Co. DF Consumer Staples 6 21 Newfield Exploration NFX Energy (10) (43) Northern Trust NTRS Financials 5 (28) Sprint Nextel Corp. S Telecom Services (10) (42) CarMax Inc. KMX Cons Discr 5 (4) Darden Restaurants DRI Cons Discr (9) (4) eBay Inc. EBAY Info Tech 5 11 Halliburton HAL Energy (9) (18) Lowes Cos. LOW Cons Discr 4 1 Agilent Technologies A Health Care (9) (17) Tellabs Inc. TLAB Info Tech 4 (39) CBRE Group Inc CBG Financials (9) (26) S&P 500 Average (1) (1) S&P 500 Average (1) (1)Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 5
  • 6. December 9, 2011 United StatesEarnings and SalesExhibit 13: EARNINGS GROWTH: S&P 500 bottom-up consensus estimates Exhibit 14: SALES GROWTH: S&P 500 bottom-up consensus estimatesas of December 8, 2011 as of December 8, 2011 2011E Earnings Per Share Growth Annual 2011E Sales Per Share Growth Annual 1QA 2QA 3QE 4QE 2011E 2012E 1QA 2QA 3QE 4QE 2011E 2012E Energy 30 42 68 34 43 2 Energy 18 29 32 19 24 6 Materials 53 50 22 (2) 31 12 Materials 14 13 13 10 13 8 Information Technology 27 23 9 15 18 16 Information Technology 14 13 11 12 12 9 Industrials 25 24 17 4 17 13 S&P 500 10 13 13 9 11 5 S&P 500 16 19 18 13 17 10 Industrials 12 13 10 8 10 6 Financials 8 11 20 25 16 16 Consumer Discretionary 12 13 13 1 9 8 Consumer Staples 8 10 11 6 9 3 Health Care 8 13 3 11 9 10 Health Care 5 7 9 5 6 1 Consumer Staples 8 8 6 3 6 8 Consumer Discretionary 4 6 6 4 5 5 Utilities (10) 5 1 11 1 0 Telecom Services (1) 3 1 4 2 4 Telecom Services (0) (10) 6 (7) (3) 9 S&P 500 (ex-Energy) 14 16 11 10 13 12Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Exhibit 15: TOP-DOWN vs. BOTTOM-UP: Goldman Sachs vs. Consensus Exhibit 16: TOP-DOWN vs. BOTTOM-UP: Sales and Marginsas of December 8, 2011 as of December 8, 2011 11% Contribution to EPS Annual earnings growth rates Bottom-up Consensus 10% Forecast GS Top-Down EPS Bottom-up GS Top-Down Bottom-Up S&P 500 Net Profit Margin 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 9% (trailing four quarters) 8.9 Telecom Services $3 $3 $2 $3 16 % 5% 9% 15 % 8% Information Technology 19 21 21 23 6 8 16 12 7% Energy 15 17 15 17 5 12 2 11 6% 5.9 Health Care 12 13 13 14 3 3 10 8 5% Goldman Sachs Consumer Staples 9 10 10 11 1 3 8 10 Portfolio 4.7 4% Strategy Utilities 3 3 3 3 (1) 6 0 4 3.9 Forecast 3% Industrials 9 10 11 12 (2) 3 13 12 1979 1984 1989 1994 1999 2004 2009 2014 Consumer Discretionary 8 9 10 11 (7) 5 8 16 Materials 2 3 4 5 (27) 22 12 14 Goldman Sachs Consensus Portfolio Strategy Bottom-UpS&P 500 ex-Financials 82 88 90 100 1 7 9 11 2012E 2013E 2012E 2013E Financials 17 18 18 19 11 5 16 6 Sales Growth 3.7 % 4.9 % 5.1 % 5.0 % Margin Level 8.7 % 8.9 % 9.4 % 10.0 %S&P 500 Operating EPS $100 $106 $108 $119 3% 7% 10 % 10 % Margin Change (%) Y/Y (2) 2 5 6 Margin Change (bp) Y/Y (22) 17 41 59Source: FactSet and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 6
  • 7. December 9, 2011 United StatesRevisionsExhibit 17: EARNINGS and SALES REVISIONS Exhibit 18: Stocks with the most POSITIVE and NEGATIVE EPS REVISIONSAggregate dollars % change, as of December 8, 2011 as of December 8, 2011 EPS REVISIONS SALES REVISIONS POSITIVE 2012 EPS REVISIONS NEGATIVE 2012 EPS REVISIONS 1 month 3 month 1 month 3 month 1 month 3 month 1 month 3 month 12E 13E 12E 13E 12E 13E 12E 13E Ticker Revis. Return Revis. Return Ticker Revis. Return Revis. Return Consumer Staples 0.1 % 0.1 % (1.3)% (1.7)% 0.4 % 0.4 % 0.0 % 0.1 % WDC 186 % 13 % 4% 11 % SHLD (112)% (25)% (127)% 7% Industrials 0.0 (0.3) (3.0) (3.7) (0.4) (0.3) (1.1) (1.6) DE 10 2 7 (0) NFLX (53) (23) (86) (67) Consumer Discretionary (0.1) (0.2) (2.1) (2.3) (0.4) (0.4) (1.0) (1.0) SUN 9 2 8 1 MU (18) (2) (61) (7) Utilities (0.1) (0.4) (0.7) (0.6) NM NM NM NM Health Care (0.1) (0.2) (0.6) (0.5) (0.7) 0.1 (0.7) (0.1) PHM 7 2 39 35 AMAT (18) (14) (18) 1 Energy (0.2) 0.5 (5.6) 1.5 (1.0) 4.2 (9.3) 1.3 DNR 7 (8) (9) 8 TLAB (14) (9) NM 0 S&P 500 (0.3) (0.2) (3.6) (2.7) (0.4) 0.7 (2.4) (0.2) CTL 7 (5) 28 6 MPC (14) (11) (11) (10) Information Technology (0.4) 0.1 (0.6) (0.5) (0.4) (0.4) (1.1) (0.6) RAI 5 4 5 8 ADI (13) (6) (15) 6 Telecommunication Services (0.6) 0.2 (7.1) (8.2) 0.1 0.6 0.3 1.2 DHI 5 2 0 25 WY (13) (4) (36) (3) Materials (0.7) (0.4) (9.1) (5.0) 0.4 0.6 0.0 0.1 TSN 5 3 5 18 CSC (12) (24) (15) (12) Financials (0.7) (1.1) (8.2) (8.8) NM NM NM NM AKS 4 (9) (34) (3) HPQ (11) (1) (14) 16 S&P 500 (0)% (3)% (4)% 5% (0)% (3)% (4)% 5%Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research. Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.Exhibit 19: S&P 500 1-Month EPS Revision Sentiment vs. 1-Month Return Exhibit 20: 1-Month Earnings Revision Sentiment by SECTORas of December 7, 2011 as of December 7, 2011 60% 30 % 4% 2% S&P 500 1-Month FY2 EPS Revision Sentiment (lhs) 40% [(# pos. revisions - # neg. revisions)/ total revisions] 20 % 0% 1-Month Revision Sentiment S&P 500 Monthly % Return (2)% Earnings Sentiment (4)% 20% 10 % (6)% (8)% (0)% 0% (10)% (12)% 1-Month Earnings Revision Sentiment by Sector (20)% (10)% (14)% [(# pos. revisions - # neg. revisions)/ total revisions] Price Performance (rhs) (16)% (40)% (20)% Energy Health Care Consumer Discr S&P 500 Materials Info Tech Industrials Consumer Staples Utilities Financials Telecom Services (60)% (30)% Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research. Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 7
  • 8. December 9, 2011 United StatesValuationExhibit 21: Aggregate valuation metrics for S&P 500 and sectors Exhibit 22: Standard deviation vs. 10-year history (Z-Score)bottom-up consensus valuation, as of December 8, 2011 bottom-up consensus, as of December 8, 2011 EV/ EV/ Price/ FCF PEG NTM EV/ EV/ Price/ FCF PEG Median Sales EBITDA Book Yield Ratio P/E Sales EBITDA Book Yield P/E Ratio Z-Score S&P 500 1.3x 7.1x 2.1x 6.5 % 1.0x 11.8x S&P 500 (1.0) (1.7) (1.4) (1.2) (1.7) (1.9) (1.6) Telecommunication Services 1.8 5.9 1.8 9.7 2.7 16.9 Financials NM NM (1.7) NM (1.0) (1.2) (1.2) Consumer Staples 1.2 9.4 3.5 5.5 1.6 14.4 Health Care (1.3) (1.0) (0.9) (2.2) (0.5) 2.6 (0.9) Consumer Discretionary 1.3 7.2 2.9 6.4 1.0 14.0 Information Technology (0.5) (1.0) 0.9 (1.4) (1.1) (0.6) (0.8) Utilities NM 7.5 1.5 1.9 3.9 13.9 Energy (0.6) (0.5) 0.0 1.0 0.6 (0.7) (0.2) Industrials 1.5 8.6 2.5 6.5 0.8 12.3 Materials 0.2 (0.4) 0.8 (0.1) 0.1 (0.5) 0.0 Information Technology 2.0 7.7 3.4 8.0 0.9 12.0 Consumer Discretionary 2.5 0.8 2.4 (0.2) 0.0 (0.2) 0.4 Materials 1.3 6.6 2.4 6.4 0.9 11.8 Industrials (1.1) 0.2 1.3 1.3 0.6 (1.4) 0.4 Health Care 1.1 7.1 2.4 9.5 1.3 11.1 Telecommunication Services (0.2) 1.8 1.0 0.2 3.4 2.6 1.4 Energy 1.0 4.8 2.0 2.8 0.7 10.1 Utilities NM 1.4 0.6 0.0 1.7 3.8 1.4 Financials NM NM 0.9 NM 0.8 9.5 Consumer Staples 2.4 2.8 0.0 1.3 2.0 2.7 2.2Source: Compustat, FirstCall, via FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FirstCall via FactSet, and Goldman Sachs Global ECS Research.Exhibit 23: Historical NTM P/E and LTM P/B values for the S&P 500 Exhibit 24: Top stocks by fastest 2012E earnings growth and lowest NTM P/Eaggregate bottom-up consensus valuation, as of December 8, 2011 by sector, as of December 8, 2011 30 GROWTH VALUE 25 Fastest EPS Growth (%) Lowest P/E (x) P/E Sector Ticker 2012E 2013E Ticker NTM Rel to SPX NTM P/E (x) 20 15 Cons Discr AMZN 67 83 GCI 5.9 0.5 10 Consumer Staples DF 24 25 SVU 5.7 0.5 11.8 5 10-yr rolling avg Energy NBR 54 17 VLO 4.8 0.4 0 1/76 1/79 1/82 1/85 1/88 1/91 1/94 1/97 1/00 1/03 1/06 1/09 1/12 Financials ZION 75 26 LNC 5.1 0.4 Health Care EW 39 28 CI 7.8 0.7 6 Industrials LUV 97 33 RRD 7.4 0.6 5 P/B LTM P/B (x) 4 Info Tech MU 81 NM FSLR 5.5 0.5 3 Materials ATI 49 31 CLF 5.7 0.5 2 10-yr rolling avg Telecom Services AMT 68 26 PCS 10.1 0.9 1 2.1 0 Utilities NRG 25 (20) AES 8.8 0.7 1/76 1/79 1/82 1/85 1/88 1/91 1/94 1/97 1/00 1/03 1/06 1/09 1/12Source: Compustat, FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 8
  • 9. December 9, 2011 United StatesS&P 500 Factor PerformanceExhibit 25: S&P 500 factor return ranking for the week ended December 8, 2011 (a) Last Week Spread (%) Performance Spread of Top Quintile Less Bottom Quintile (%) Last Last Five Trading Days Last Last Growth Metrics (b) (2) (1) 0 1 2 Week 2-Dec 5-Dec 6-Dec 7-Dec 8-Dec Month Quarter EPS Growth (0.5) 0.4 0.4 (0.2) (0.4) (0.8) (0.6) 3.2 GROWTH (1.3) 0.2 0.4 (0.2) (0.7) (1.0) (1.4) 1.3 EBITDA Growth (1.3) 0.1 0.2 (0.1) (0.9) (0.6) (0.8) 2.3 Sales Growth (1.9) (0.3) 0.3 (0.5) (0.6) (0.8) (1.7) (0.2) (b) Value Metrics EV/DACF 1.5 0.0 (0.3) 0.7 0.3 0.9 2.5 5.2 P/B 1.4 0.0 (0.2) 0.2 (0.2) 1.5 3.3 10.0 EV/EBITDA 1.2 (0.0) (0.2) 0.5 0.1 0.7 1.3 5.0 VALUATION 0.8 0.3 (0.2) 0.3 (0.2) 0.6 1.5 7.4 EV/FCF 0.6 0.5 (0.1) 0.5 (0.2) (0.1) 0.3 1.5 P/E 0.6 0.3 (0.1) (0.0) (0.0) 0.4 1.3 8.2 P/Div (1.1) (0.1) 0.1 (0.4) (0.3) (0.5) (1.3) 2.9 (b) Profitability Metrics ROE 0.3 (0.1) (0.4) (0.1) (0.4) 1.3 3.6 5.1 ROCE 0.1 (0.3) (0.3) (0.1) (0.2) 1.0 2.0 6.5 CROCI (0.0) (0.1) 0.3 (0.6) (0.3) 0.6 1.1 6.4 PROFITABILITY (0.1) (0.2) (0.1) (0.3) (0.6) 1.0 2.5 7.3 Other Metrics(c) Short Interest Level 0.1 0.3 1.3 (0.5) 0.3 (1.2) (2.9) (4.2) Equity Capitalization 0.6 (0.1) (0.9) 0.5 0.1 0.9 3.6 4.6(a) Factor return analysis uses S&P 500 companies included in the Goldman Sachs Americas coverage universe with stock prices greater than $5 at the time of publication.(b) Growth, Value and Profitability analysis is based on Goldman Sachs Investment Profile scores (“IP Scores”). Growth, value and profitability metrics are indexed based on composites of several methodologies todetermine the stocks percentile ranking within the region’s coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:Growth is a composite of next year’s estimate over current year’s estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE.Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book.(c) “Other metric” analysis based on current market prices and data sourced from NASDAQ and NYSE via FactSet.Source: NASDAQ and NYSE via FactSet, IDC, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 9
  • 10. December 9, 2011 United StatesStyle and SizeExhibit 26: Total return by style and size over time Exhibit 27: Total return by SECTOR for S&P 500 vs. Russell 2000as of December 8, 2011 as of December 8, 2011 Total Return Percentage Change (%) Weight (%) 1-Week (% Return) YTD (% Return) 1-Week 1-Month 3-Month 6-Month YTD Sector SP500 R2000 SP500 R2000 ∆ (bps) SP500 R2000 ∆ (bps) Materials 4 5 (2) (3) 113 (10) (13) 336 Large Cap vs. Small Cap Financials 13 22 1 (0) 113 (19) (9) (996) S&P 500 (1) (3) 5 (2) 0 Energy 12 7 (2) (3) 98 3 (8) 1,110 Russell 2000 (1) (4) 4 (8) (7) Consumer Staples 11 4 (0) (1) 97 10 4 647 Large vs. Small (bps) 31 116 30 517 679 Health Care 12 13 (2) (3) 79 8 (1) 923 Utilities 4 4 (2) (2) 66 14 10 345 Growth vs. Value Telecom Services 3 1 (0) (1) 12 1 (9) 1,006 Russell 1000 Growth (1) (3) 4 (1) 2 Industrials 11 16 (1) (1) 12 (3) (9) 561 Cons Discretionary 11 13 (0) 0 (36) 5 (8) 1,282 Russell 1000 Value (0) (3) 5 (5) (2) Information Tech 20 17 (0) (0) (37) 4 (7) 1,054 Growth vs. Value (bps) (85) (25) (107) 363 414 Index 100 100 (1) (1) 31 0 (7) 679Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Exhibit 28: GROWTH vs. VALUE relative performance over time Exhibit 29: LARGE CAP vs. SMALL CAP relative performance over timeRussell 1000 Growth vs. Value, as of December 8, 2011 S&P 500 vs. Russell 2000, as of December 8, 2011 110 105 S&P 500 outperforming Value outperforming 105 100 100 95 95 90 90 85 Growth outperforming Russell 2000 outperforming 80 85 Apr-09 Apr-10 Apr-11 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Oct-09 Oct-10 Oct-11 Apr-09 Apr-10 Apr-11 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Oct-09 Oct-10 Oct-11Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 10
  • 11. December 9, 2011 United StatesGlobal Equity Market and Mutual Fund PerformanceExhibit 30: GLOBAL EQUITY MARKET performance over the past week Exhibit 31: US EQUITY MUTUAL FUND performance vs. benchmarkas of December 8, 2011 as of December 8, 2011 Avg. Total Return (%) No. of AUM Australia (ASX 200) 1 Japan (Nikkei) 1 Lipper Indices 1-week YTD Funds $ bil China (MSCI China) (0) Large-Cap Core Funds (1.1) (1.8) 30 468 UK (FTSE 100) (0) Benchmark: S&P 500 (0.8) 0.1 Mexico (Bolsa) (0) Large-Cap Growth Funds (1.6) (2.6) 30 255 Korea (KOSPI) (1) Spain (IBEX 35) (1) Benchmark: Russell 1000 Growth (1.3) 1.7 U.S. (S&P 500) (1) Large-Cap Value Funds (0.8) (4.6) 30 192Europe (DJ Stoxx 600) (1) Benchmark: Russell 1000 Value (0.5) (2.5) Brazil (Bovespa) (2) France (CAC 40) (2) Small-Cap Core Funds (1.9) (5.7) 30 139 Germany (Dax) (4) Benchmark: Russell 2000 (1.1) (6.7) (5) (4) (3) (2) (1) 0 1 2 % Weekly price changeSource: FactSet and Goldman Sachs Global ECS Research. Source: Lipper, FactSet, and Goldman Sachs Global ECS Research.Exhibit 32: GLOBAL EQUITY MARKET performance over time Exhibit 33: International and other MUTUAL FUND performanceas of December 8, 2011 as of December 8, 2011 Price Return (%) USD Avg. Total Return (%) Stdev No. of AUM 1-Week 1-Month 3-Month 2011 YTD 2010 Lipper Indices 1-week YTD 1-week YTD Funds $ bil U.S. (S&P 500) (1) (3) 4 (2) 13 International Equity Korea (KOSPI) (1) (0) (2) (6) 25 Global Funds (1) (9) 0.5 5.9 30 161 UK (FTSE 100) (0) (4) (0) (7) 6 International Funds (2) (14) 0.6 4.6 30 394 Australia (ASX 200) 1 (2) (2) (10) 11 European Funds (2) (14) 0.4 4.7 10 11 Japan (Nikkei) 1 0 (2) (11) 11 Emerging Market Funds (2) (17) 0.6 3.5 30 121 Mexico (Bolsa) (0) (4) (4) (14) 27 Europe (DJ Stoxx 600) (1) (5) (2) (14) 2 Real Estate and Natural Resources Spain (IBEX 35) (1) (4) (3) (15) (23) Real Estate (0) 2 0.3 3.5 30 50 China (MSCI China) (0) (2) (3) (15) 5 Natural Resource (3) (8) 0.3 1.7 10 7 Germany (Dax) (4) (5) 3 (16) 9 Fixed Income France (CAC 40) (2) (5) (5) (19) (10) General U.S. Government Funds Index 1 8 0.5 7.7 30 NA Brazil (Bovespa) (2) (6) (9) (24) 6 A Rated Bond Funds Index 1 7 0.5 3.3 30 NA BBB Rated Funds Index 1 7 0.5 8.5 30 NA Average (1) (3) (2) (13) 7Source: FactSet and Goldman Sachs Global ECS Research. Source: Lipper, FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 11
  • 12. December 9, 2011 United StatesETF Analysis: Composition, Valuation, Growth and OwnershipExhibit 34: Selected ETF analysis for the week ended December 8, 2011 (a) (b) ETF Description Composition Performance (%) Valuation Growth (%) Ownership Market Top Stocks as Valuation Short Median Cap No. of % of ETF Price Change (a) P/E P/B Div Sales Growth Earnings Growth Interest Hedge Fund Sector / sub-sector Index ETF $ mil Stocks 1 5 10 1 Wk YTD NTM LTM Yield 2012 2013 2012 2013 Days Own (%) (c) S&P 500 SPX SPY 91,821 500 3 12 20 (1) (2) 12 2.0 2.2 3 5 10 12 2.2 3.3 S&P 100 OEX OEF 2,948 100 5 19 31 (0) (1) 11 2.0 2.4 3 5 9 11 1.8 2.0 Nasdaq-100 NDX QQQ 24,836 100 14 40 56 (1) 3 13 3.3 1.0 10 9 13 13 1.8 3.6 Consumer Discretionary IXY XLY 2,141 77 8 30 46 (0) 3 14 2.7 1.7 6 6 12 16 2.6 4.5 Homebuilders SPHOME XHB 798 33 5 21 40 0 (4) 23 1.7 1.2 7 8 97 46 3.3 7.4 Retail IRH RTH 142 18 19 59 84 (0) 5 14 2.9 1.9 5 5 12 14 2.4 3.2 Retail SPSIRETR XRT 755 94 2 8 14 (0) 5 15 2.2 1.0 4 4 21 19 3.4 7.5 Consumer Staples IXR XLP 5,520 42 14 45 66 (1) 7 14 3.4 3.1 5 4 8 10 2.5 2.0 Energy IXE XLE 7,319 42 18 50 64 (3) 0 11 1.9 1.8 (5) 8 4 13 2.2 4.7 Clean Energy ECO PBW 215 57 3 15 28 (4) (49) NM 0.9 0.6 1 19 411 NM 5.3 4.2 Natural Resources SPGSSINR IGE 1,820 154 9 32 44 (3) (8) 11 1.8 1.7 (0) 8 12 16 2.3 6.2 Oil & Gas E&P SPSIOP XOP 970 73 2 9 18 (4) 1 15 1.8 0.6 0 14 22 42 2.7 6.2 Oil Services OXH OIH 1,922 14 20 65 92 (5) (16) 11 1.6 1.6 17 10 42 20 2.0 6.0 Financials IXM XLF 5,003 80 9 35 50 1 (20) 9 0.8 2.0 NM NM 23 13 2.3 2.6 Banks BKX KBE 1,043 38 3 15 29 1 (27) 11 0.8 2.4 NM NM 31 16 1.7 2.7 Broker-Dealers DJSINV IAI 53 24 8 35 60 0 (27) 11 1.1 1.8 NM NM 28 17 1.9 3.7 Insurance KIX KIE 117 41 3 14 27 (0) (16) 9 0.8 2.3 NM NM 58 9 2.4 3.3 Real Estate DJUSRE IYR 3,012 80 9 26 43 (0) (3) 14 2.1 4.8 NM NM 6 7 5.5 1.8 Regional Banks KRX KRE 547 69 2 11 21 (1) (12) 12 0.9 2.1 NM NM 26 18 4.4 3.5 REITs RMZ VNQ 8,730 110 10 29 47 (0) (1) 15 2.2 4.0 NM NM 9 7 6.3 2.1 Health Care IXV XLV 3,623 51 13 44 60 (2) 5 11 2.4 2.4 2 3 5 8 2.5 3.3 Biotech SPSIBI XBI 395 44 5 21 38 (4) 0 NM 5.6 0.1 14 20 NM NM 4.0 8.4 Pharmaceuticals IPH PPH 532 14 24 79 97 (0) 7 11 2.5 3.4 (4) (0) 1 5 2.3 2.0 Industrials IXI XLI 2,941 61 10 31 49 (2) (5) 12 2.6 2.4 7 6 13 14 2.6 1.8 Transportation TRAN IYT 386 20 12 45 74 (1) (5) 14 2.4 1.6 6 6 30 20 2.8 3.8 Information Technology IXT XLK 7,352 83 14 43 64 (0) 1 13 3.0 1.8 7 6 10 12 1.6 3.8 Semiconductors SOXXIV SOXX 218 30 10 40 63 (1) (10) 14 2.3 1.6 2 10 (2) 21 2.0 4.0 Semiconductors XSH SMH 564 17 24 69 90 (1) (6) 13 2.7 2.3 1 9 (2) 16 2.0 3.6 Software SPGSTISO IGV 529 54 10 36 57 (1) (2) 16 3.7 0.5 10 8 12 13 2.3 3.9 Telecom Services DJSTELT IYZ 497 29 19 56 75 (2) (13) 30 1.8 3.8 4 2 28 46 2.9 6.2 Materials IXB XLB 1,692 31 11 45 66 (2) (13) 12 2.5 2.2 7 5 11 15 2.4 3.5 Gold Miners GDM GDX 9,488 29 17 53 76 (5) (7) 12 2.3 1.1 24 4 41 6 1.3 3.5 Metals & Mining SPSIMM XME 828 40 4 18 33 (4) (25) 13 1.5 1.3 7 6 43 33 2.1 6.2 Steel STEEL SLX 187 26 12 44 68 (3) (33) 8 1.1 2.4 5 6 6 23 2.5 3.0 Utilities IXU XLU 7,074 33 9 35 56 (2) 9 14 1.5 4.2 NM NM (2) 4 3.0 1.9(a) Performance of the underlying index.(b) Valuation, growth and ownership metrics are bottom-up aggregations of consensus forecasts, except where noted.(c) Hedge Fund ownership data based on 3Q 2011 13-F filings.Source: Compustat, First Call, Lionshare via FactSet, IDC, and Goldman Sachs Global ECS Research. See our Goldman Sachs ETF Bloomberg page <GETFG> or contact the desk at 1-888-ETF-DESK for more information.Goldman Sachs Global Economics, Commodities and Strategy Research 12
  • 13. December 9, 2011 United StatesFund FlowsExhibit 35: Domestic equity mutual fund flows, 4-week moving average Exhibit 36: US EQUITY MUTUAL FUND performance vs. benchmarkweek ended December 7, 2011 week ended December 7, 2011; excluding ETFs 5.0 Lipper Weekly Mutual Fund Flows, ex-ETFs ($ billions) Total Lipper Weekly Flows 1-Week Flow Inflow/(Outflow) Assets 4-Week Avg This week % of Assets (Cons. Weeks) 3.0 Domestic Equities, 4-week moving avg All Equity 1,866 (2.3) (4.8) (0.3)% (5) 1.0 U.S. Equity 1,415 (2.0) (4.4) (0.3) (5) Intl Equity 398 (0.3) (0.3) (0.1) (2) $ billions (1.0) Global 53 (0.0) (0.1) (0.2) (6) (3.0) Equity Income 94 0.3 0.4 0.4 30 Gold & Nat Res 40 (0.0) (0.0) (0.1) (2) (5.0) Money Market 2,399 8.1 25.3 1.1 2 (7.0) All Taxable Bond 1,111 1.4 3.4 0.3 1 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Govt Treas 29 0.2 0.1 0.4 5Source: Lipper and Goldman Sachs Global ECS Research. Source: Lipper and Goldman Sachs Global ECS Research.Exhibit 37: Average daily TRADING TURNOVER over the last week Exhibit 38: Top ten S&P 500 STOCKS by daily average trading turnoverby sector, as of December 8, 2011 as of December 8, 2011 Avg Daily 1-Week Materials 1.2 Trading Total Cons Discr 1.1 Company Ticker Sector Turnover (%) Return (%) Financials 1.0 Netflix Inc. NFLX Consumer Discretionary 14.8 3 Info Tech 0.9 United States Steel X Materials 9.0 (2) S&P 500 0.8 AK Steel Holding AKS Materials 7.4 2 Health Care 0.8 Darden Restaurants DRI Consumer Discretionary 4.4 (9) Energy 0.8 Tesoro Corp. TSO Energy 4.1 (11) Industrials 0.8 Alpha Natural Resources ANR Energy 4.0 (6) Utilities 0.7 Big Lots Inc. BIG Consumer Discretionary 3.9 (7) Telecom Services 0.6 Lennar Corp. LEN Consumer Discretionary 3.9 3 Cons Staples 0.5 MEMC Electronic Materials WFR Information Technology 3.8 1 Gannett Inc. GCI Consumer Discretionary 3.8 14 0.0 1.0 2.0 % Daily Avg Trading Turnover S&P 500 Average 1.2 (1)Daily average turnover = daily avg. trading value / avg. market cap (over the past 5 trading days). Daily average turnover = daily avg. trading value / avg. market cap (over the past 5 trading days).Source: Compustat, FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 13
  • 14. December 9, 2011 United StatesCorrelation and RiskExhibit 39: S&P 500 stock and sector average correlation Exhibit 40: Credit Default Swaps, 5-Year On-the-Run Spreadsas of December 8, 2011 as of December 8, 2011 200 1,000 1.0 0.9 Average sector correlation 0.89 175 900 Investment Grade CDX (bps) 0.8 800 High Yield CDX (bps) 150 Average Correlation 0.7 0.65 700 0.6 125 0.5 600 CDX (IG) (lhs) 0.4 100 500 0.3 75 400 CDX (HY) (rhs) 0.2 0.1 50 300 Average stock correlation Mar-10 May-10 Mar-11 May-11 Jan-10 Jul-10 Sep-10 Nov-10 Jan-11 Jul-11 Sep-11 Nov-11 Jan-12 0.0 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13Source: Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.Exhibit 41: S&P 500 Cost of Equity = ERP + 10 Year Treasury Yield Exhibit 42: Risk Barometer and S&P 500 VIX Volatility Index, as of 8-Dec-11as of December 8, 2011 Risk Barometer index is number of standard deviations from the average * 100 300 50 10.0 9.0 8.8 % 250 45 Cost of Risk Aversion 8.0 200 S&P 500 VIX (RHS) 8-Dec-11 40 Equity Increasing 7.0 150 35 6.8 % 88 Risk Barometer S&P 500 VIX 6.0 ERP 100 30 31 5.0 50 25 4.0 0 20 3.0 (50) 15 2.0 % 2.0 (100) Risk Aversion 10 10 Year Risk Barometer (LHS) Decreasing 1.0 US Treas. (150) 5 Yield 0.0 (200) 0 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Jun-10 Jun-11 Mar-10 Mar-11 Mar-12 Dec-09 Sep-10 Dec-10 Sep-11 Dec-11We estimate the equity risk premium (ERP) using our DDM framework to model expected future cash Note: Metrics included are implied option volatility (S&P 500 and NASDAQ 100), normalized skew, highflows. We solve for the cost of equity that implies the market is at ‘fair value’ and then deduct the 10-year yield credit spreads, credit derivative swap spreads, mutual fund net flows, and cash levels.US treasury.Source: IDC via FactSet, and Goldman Sachs Global ECS Research. Source: IDC via FactSet, Lipper, ICI, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 14
  • 15. December 9, 2011 United StatesGoldman Sachs Recommendations and ForecastsExhibit 43: Goldman Sachs Recommended Sector Weightings (a) Exhibit 44: Goldman Sachs US Economics quarterly GDP forecastsas of December 8, 2011 as of December 8, 2011 Sector Weightings 4.0 % Total Goldman Sachs Current GS GS Return Recommended S&P 500 Overweight / Alpha 3.5 % GDP Growth (qoq annualized %) Sectors YTD Sector Weightings Weight Underweight YTD Information Technology 4% 20 % 200 bp (3)bp Goldman Sachs 3.0 % Economics Consensus Consumer Staples 10 Overweight 11 200 5 Telecom Services 1 3 100 (2) 2.5 % Financials (19) 13 0 (5) 2.0 % Energy 3 12 0 6 Neutral Health Care 8 12 0 (10) 1.5 % Utilities 14 4 0 (23) 2.5 2.5 2.5 2.5 1.0 % 2.0 2.0 2.0 2.0 Materials (10) 4 (100) 4 1.3 1.5 Industrials (3) Underweight 11 (200) (5) 0.5 % Consumer Discretionary 5 11 (200) (7) 0.5 0.4 0.0 % S&P 500 0% 100 % 0 bp (41)bp Q1A Q2A Q3A Q4E Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E(a) Sector weightings last rebalanced on September 14, 2011. 2011 2012 2013Source: FactSet and Goldman Sachs Global ECS Research. Source: Bloomberg and Goldman Sachs Global ECS Research.Exhibit 45: Goldman Sachs 3-, 6-, and 12-month forecasts Exhibit 46: Goldman Sachs US Economics forecastsas of December 8, 2011 as of December 8, 2011 Forecasts % Annual Change units Current 3m 6m 12m 2011E 2012E 2013E Equities Real GDP 1.7% 1.6% 2.2% S&P 500 level 1234 1150 1200 1250 DJStoxx 600 level 238 195 225 250 Consumer Spending 2.3 1.5 1.9 Asia Pac Ex-Japan level 408 340 375 445 Total Fixed Investment 6.7 5.5 7.5 TOPIX level 745 700 725 800 Business Fixed Investment 8.8 5.7 6.9 Ten Year Rates Residential Investment (1.6) 4.5 10.3 US % 2.0 2.0 2.3 2.5 Federal Government Spending (1.6) (0.9) (2.1) Euroland % 2.1 2.5 2.8 2.8 Exports of Goods and Services 6.7 1.7 5.4 Japan % 1.1 1.0 1.1 1.3 Imports of Goods and Services 4.7 1.2 5.5 Currencies Euro / US Dollar EUR/$ 1.33 1.33 1.38 1.45 Inflation Sterling / US Dollar £/$ 1.56 1.48 1.53 1.73 Producer Price Index 6.2 3.3 2.6 US Dollar / Yen $/¥ 78 77 76 74 Headline CPI 3.2 2.2 1.6 Energy Core CPI 1.7 1.7 1.3 Brent Crude Oil $/bbl 108 118 120 128 Core PCE 1.5 1.5 1.2 NYMEX Nat. Gas $/mmBtu 3.46 4.00 3.80 3.75 Unemployment Rate 9.0 8.9 9.0 Metals COMEX Gold $/troy oz 1713 1785 1840 1940 Fed Funds Rate 0.1 0.1 0.1 LME Copper $/mt 7710 8000 9000 9500 2-year Treasury Rate 0.3 0.5 1.0 10-year Treasury Rate 2.0 2.5 3.3Source: FactSet and Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 15
  • 16. December 9, 2011 United StatesGoldman Sachs Strategy BasketsUS Portfolio Strategy baskets are designed to provide portfolio managers with vehicles to monitor and implement thematic views in the U.S. equity markets. Ourbaskets may be found on Bloomberg by typing <GSTH>. The Bloomberg page provides real-time basket performance and current basket constituents. To obtainaccess to our baskets on Bloomberg, please contact your Goldman Sachs salesperson.Exhibit 47: Strategy basket performance and average valuation data Exhibit 48: Strategy basket total return performance over the last weekas of December 8, 2011 last week % total return, as of December 8, 2011 Bloomberg Total Return % P/E P/B Div Yld Domestic Cyclicals <GSSBDCYC> 0.1 Ticker 1 wk 1 mo YTD NTM LTM (%) Low HF Conc <GSTHHFSL> (0.1)Macroeconomic Baskets Global Defensives <GSSBGDEF> (0.4) High Sharpe Ratio <GSTHSHRP> (0.6)US Sales GSTHAINT (2)% (3)% 2% 15x 2.7x 2.0 % S&P 500 (0.8) Dividend Growth <GSTHDIVG> (0.8)International Sales GSTHINTL (2) (5) (7) 14 4.2 1.6 High HF Conc <GSTHHFHI> (1.1)Cyc. Attractive Risk-Reward GSTHCARR (1) 16 4.0 1.6 Domestic Defensives <GSSBDDEF> (1.3)Western Europe Sales GSTHWEUR (3) (5) 0 14 3.7 1.1 High Quality <GSTHQUAL> (1.3) Global Cyclicals <GSSBGCYC> (1.4)BRICs Sales GSTHBRIC (1) (5) (8) 13 3.6 1.4 BRIC Sales <GSTHBRIC> (1.5)Dual Beta GSTHBETA (3) (7) (18) 14 2.1 1.1 Hedge Fund VIP <GSTHHVIP> (1.5) US Sales <GSTHAINT> (1.5)Fundamental Baskets ROE Growth <GSTHGROE> (1.7) Weak B/S <GSTHWBAL> (1.8)High Quality GSTHQUAL (1)% (4)% 14x 4.5x 2.0 % High Op Leverage <GSTHOPHI> (1.8)ROE Growth GSTHGROE (2) (5) (7) 13 2.9 1.8 Intl Sales <GSTHINTL> (1.8) Revenue Growth <GSTHREVG> (1.9)Revenue Growth GSTHREVG (2) (5) 19 4.2 1.1 Strong B/S <GSTHSBAL> (1.9)High Op Leverage GSTHOPHI (2) (4) 1 14 2.5 1.6 GARP <GSTHGARP> (2.0) Low Op Leverage <GSTHOPLO> (2.1)Low Op Leverage GSTHOPLO (2) (2) 6 15 4.4 1.5 Dual Beta <GSTHBETA> (2.6)Strong Balance Sheet GSTHSBAL (2) (4) 3 19 5.5 0.8 Western Europe Sales <GSTHWEUR> (2.7)Weak Balance Sheet GSTHWBAL (2) (4) (8) 14 2.2 1.9 (4) (3) (2) (1) 0 1Uses of Cash Baskets Source: FactSet and Goldman Sachs Global ECS Research.Dividend Growth GSTHDIVG (1)% (2)% 2% 12x 2.4x 3.0 % Exhibit 49: US Portfolio Strategy thematic trade recommendationsHedge Fund Baskets as of December 8, 2011High HF Concentration GSTHHFHI (1)% (6)% (2)% 15x 3.5x 1.0 % Thematic Trade RecommendationsLow HF Concentration GSTHHFSL (0) (2) 1 15 3.3 2.8 Initiation WeeklyHedge Fund VIP GSTHHVIP (1) (4) (4) 15 4.1 1.3 Date Return ReturnValuation Baskets BUY Domestic Sales Basket (GSTHAINT); SELL International Sales Basket (GSTHINTL) See 2012 Outlook: Strategies for stagnation (30-Nov-11) 30-Nov-11 (0.0)% 0.3 %GARP GSTHGARP (2)% (5)% (1)% 13x 3.0x 1.3 % BUY High Quality Basket (GSTHQUAL); SELL S&P 500High Sharpe Ratio GSTHSHRP (1) (4) (3) 12 2.5 1.5 See US Equity Views (4-Oct-11) 4-Oct-11 0.2 % (0.5)% BUY Defensives Basket (GSSBDEFS); SELL S&P 500Sector Baskets See US Equity Views (4-Oct-11) 4-Oct-11 (3.7)% 0.0 %Global Cyclicals GSSBGCYC (1)% (4)% (0)% 14x 2.8x 1.6 % BUY Dividend Growth Basket (GSTHDIVG); SELL S&P 500Global Defensives GSSBGDEF (0) (1) 9 15 5.1 1.7 See US Equity Views (5-Aug-11) 5-Aug-11 (0.0)% (0.0)%Domestic Cyclicals GSSBDCYC 0 (4) (12) 12 1.9 2.3 BUY High Sharpe Ratio Basket (GSTHSHRP); SELL S&P 500 See 2010 Outlook: Cyclical start; defensive finish (7-Dec-09) 7-Dec-09 11.6 % 0.2 %Domestic Defensives GSSBDDEF (1) (2) 6 14 2.9 2.5S&P 500 (1)% (3)% 0% 12x 2.1x 2.2 % Results presented should not and cannot be viewed as an indicator of future performance. FurtherS&P 500 Average 14 3.1 2.0 details on performance calculations can be provided upon request.S&P 500 Median 13 2.2 1.8Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 16
  • 17. December 9, 2011 United StatesConstituents of our Domestic Sales Basket <GSTHAINT>Exhibit 50: Domestic Sales Basket, as of December 8, 2011 Market Cap Non- Market Cap Non- Company Ticker ($ bil) US Sales Company Ticker ($ bil) US Sales Consumer Discretionary (10% of the Basket) Industrials (11% of the Basket) Target Corp. TGT $ 36 0% Southwest Airlines Co. LUV $7 0% Lowes Cos. LOW 31 0 CSX Corp. CSX 23 0 Comcast Corp. Cl A CMCSA 62 0 Norfolk Southern Corp. NSC 25 0 Time Warner Cable Inc. TWC 20 0 Republic Services Inc. RSG 10 0 Kohls Corp. KSS 14 0 Waste Management Inc. WM 14 6 Quanta Services Inc. PWR 4 7 Basket Median 0% Sector Median 22 Basket Median 0% Sector Median 32 Consumer Staples (11% of the Basket) CVS Caremark Corp. CVS $ 51 0% Information Technology (16% of the Basket) Kroger Co. KR 14 0 Paychex Inc. PAYX $ 11 0% Walgreen Co. WAG 31 0 SAIC Inc. SAI 4 1 Altria Group Inc. MO 59 0 Intuit Inc. INTU 16 5 Reynolds American Inc. RAI 24 0 Harris Corp. HRS 4 6 Fiserv Inc. FISV 8 6 Basket Median 0% Fidelity National Information Services Inc. FIS 8 17 Sector Median 24 Automatic Data Processing Inc. ADP 25 19 Cognizant Technology Solutions Corp. CTSH 20 22 Energy (16% of the Basket) Akamai Technologies Inc. AKAM 5 28 Chesapeake Energy Corp. CHK $ 16 0% Southwestern Energy Co. SWN 12 0 Basket Median 6% QEP Resources Inc. QEP 6 0 Sector Median 53 Denbury Resources Inc. DNR 6 0 EQT Corp. EQT 8 0 Materials (3% of the Basket) Range Resources Corp. RRC 11 0 Nucor Corp. NUE $ 13 0% Cabot Oil & Gas Corp. COG 8 0 Vulcan Materials Co. VMC 4 1 Basket Median 0% Basket Median 0% Sector Median 24 Sector Median 49 Financials (15% of the Basket) Wells Fargo & Co. WFC $ 138 0% Telecommunication Services (2% of the Basket) U.S. Bancorp USB 49 0 CenturyLink Inc. CTL $ 22 0% PNC Financial Services Group Inc. PNC 29 0 BB&T Corp. BBT 16 0 Basket Median 0% Charles Schwab Corp. SCHW 15 0 Sector Median 0 Simon Property Group Inc. SPG 36 0 CME Group Inc. Cl A CME 16 0 Utilities (3% of the Basket) T. Rowe Price Group Inc. TROW 15 0 Southern Co. SO $ 38 0% Basket Median 0% Basket Median 0% Sector Median 5 Sector Median 0 Health Care (13% of the Basket) UnitedHealth Group Inc. UNH $ 52 0% Medco Health Solutions Inc. MHS 22 0 WellPoint Inc. WLP 24 0 Aetna Inc. AET 15 0 Humana Inc. HUM 14 0 DaVita Inc. DVA 7 0 Basket Median 0% Domestic Sales <GSTHAINT> Median 0% Sector Median 35 S&P 500 Median 28Source: Company filings, FactSet and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 17
  • 18. December 9, 2011 United StatesRecent US Portfolio Strategy Publications Please contact your Goldman Sachs salesperson for access to additional research or if you wish to be added to the US Portfolio Strategy research distribution list.Exhibit 51: Recent research from US Portfolio Strategy Latest Market Research Publication Date US Thematic Views: GARP Update December 1, 2011 2012 US equity outlook: Strategies for stagnation November 30, 2011 US Thematic Views: S&P 500 ROE: Negative impact from Financials and lower leverage October 25, 2011 US Thematic Views: Introducing our High “Quality” Stock Basket <GSTHQUAL> October 13, 2011 US Equity Views: 3Q Earnings Preview: Peak earnings despite slow economic growth October 12, 2011 US Equity Views: S&P 500 earnings in 2012: $98 per share is more likely than $80 October 4, 2011 US Sector Views: Shift Defensive on slower growth and low bond yields September 14, 2011 Recent US Weekly Kickstart: "Conversations we are having with clients" Publication Date 2012 Global Equity Outlook: downside for 3 and 6 months but upside for the full year December 2, 2011 10 conclusions from our latest Hedge Fund Trend Monitor November 25, 2011 Investing in a politicized environment: Watch what they do, not what they say November 18, 2011 Investors uncertain about lower uncertainty; overwrite to enhance limited returns November 11, 2011 Takeaways from 3Q 2011 earnings season: New EPS peak reached, but negative revisions November 4, 2011 Stocks stage a powerful rally following the EU summit but uncertainty remains high October 31, 2011 S&P 500 earnings reach a new high but investors are underwhelmed by how we got there October 21, 2011 Franchise Research Publication Date The multiple mystery: P/E based on uncertainty metrics August 9, 2011 Rebalancing our strong and weak Balance Sheet baskets July 29, 2011 Portfolio Strategy: The anatomy of ROE: Part 3: S&P 500 Stocks July 12, 2011 Portfolio Passport: US stocks for a growth market world April 12, 2011 Portfolio Strategy: GOAL: Global Opportunity Asset Locator October 6, 2011 Periodical Research Description Frequency Timing / Recent Release Hedge Fund Trend Monitor Analysis of hedge fund holdings and positioning Quarterly November 21, 2011 Global Dividend Swap Monitor Summary of global dividend swap market and forecasts Monthly December 6, 2011 S&P 500 Beige Book Qualitative assessment of S&P 500 quarterly earnings reports Quarterly November 10, 2011 Strategy Baskets Overview of US Portfolio Strategy thematic baskets Quarterly September 8, 2011 US Monthly Chartbook Monthly report on where to invest in the S&P 500 Monthly December 6, 2011 US Weekly Kickstart Five minute guide to the US equity market Weekly Friday PM Where to Invest Now Marketing presentation highlighting recent research and best trade ideas Monthly December 1, 2011Source: Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 18
  • 19. December 9, 2011 United StatesEquity basket disclosure The Securities Division of the firm may have been consulted as to the various components of the baskets of securities discussed in this report prior to their launch; however, none of this research, the conclusions expressed herein, nor the timing of this report was shared with the Securities Division.Goldman Sachs Global Economics, Commodities and Strategy Research 19
  • 20. December 9, 2011 United StatesReg ACWe, David J. Kostin, Stuart Kaiser, CFA, Amanda Sneider, CFA, Peter Lewis and Ben Snider, hereby certify that all of the views expressed in this report accurately reflect our personal views about thesubject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or viewsexpressed in this report.DisclosuresDistribution of ratings/investment banking relationshipsGoldman Sachs Investment Research global coverage universe Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 31% 55% 14% 50% 43% 36%As of October 1, 2011, Goldman Sachs Global Investment Research had investment ratings on 3,198 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional InvestmentLists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See Ratings, Coveragegroups and views and related definitions below.Disclosures required by United States laws and regulationsSee company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% orother ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; for equity securities, market making and/orspecialist role. Goldman Sachs usually makes a market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities.The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of theirhouseholds from owning securities of any company in the analysts area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includesinvestment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer,director, advisory board member or employee of any company in the analysts area of coverage. 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Where applicable, the Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 16 of CVMInstruction 483, is the first author named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: Goldman, Sachs & Co. has approved of, and agreed to takeresponsibility for, this research in Canada if and to the extent it relates to equity securities of Canadian issuers. Analysts may conduct site visits but are prohibited from accepting payment orreimbursement by the company of travel expenses for such visits. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request fromGoldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited;Japan: See below. Korea: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. Russia: Researchreports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are information and analysis not having product promotion as their main purpose and do notprovide appraisal within the meaning of the Russian legislation on appraisal activity. Singapore: Further information on the covered companies referred to in this research may be obtained fromGoldman Sachs (Singapore) Pte. (Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider theirown investment risk. Investment results are the responsibility of the individual investor. 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  • 21. December 9, 2011 United StatesJapan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer under the Financial Instrument and Exchange Law, registered with the Kanto Financial Bureau (Registration No. 69), and is amember of Japan Securities Dealers Association (JSDA) and Financial Futures Association of Japan (FFAJ). Sales and purchase of equities are subject to commission pre-determined with clients plusconsumption tax. See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese SecuritiesFinance Company.Ratings, coverage groups and views and related definitionsBuy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by astocks return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment ReviewCommittee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particularcoverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of thepotential return or the likelihood of the realization of the return.Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required forall covered stocks. 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The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategictransaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target for this stock, becausethere is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating andprice target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC).Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). 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  • 22. December 9, 2011 United StatesThis research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personalrecommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in thisresearch is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the incomefrom them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could haveadverse effects on the value or price of, or income derived from, certain investments.Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current optionsdisclosure documents which are available from Goldman Sachs sales representatives or at http://www.theocc.com/about/publications/character-risks.jsp. Transactions cost may be significant in optionstrategies calling for multiple purchase and sales of options such as spreads. Supporting documentation will be supplied upon request.All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients oravailable to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our research by third party aggregators. For all research available on a particular stock, please contactyour sales representative or go to http://360.gs.com.Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY 10282.Copyright 2011 Goldman Sachs.No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman SachsGroup, Inc.Goldman Sachs Global Economics, Commodities and Strategy Research 22