Uncertain But Not Uncharted

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Uncertain But Not Uncharted

Investment Strategy Group

January 2009

It’s hard not to accept that the current financial crisis and its economic repercussions are unprecedented when so many people now seem to characterize it that way. Last month alone, we counted about 4000 reports or articles describing some economic news as “unprecedented.” However, many of the events of the last year or so have, in fact, been with precedents within the span of many market participants’ careers. The level of volatility, the “seizing” of capital markets, the rapid and sizable downdraft in equities, the hit to high quality corporate bonds, the complexity of mortgage-backed derivative securities, the leverage in private equity, the drop in GDP – the list goes on.

What is unprecedented today is the scale and speed of monetary policy response by the Federal Reserve (a zero to 0.25% interest rate policy, 12 different liquidity facilities, and the expansion of the Federal Reserve balance sheet to about $2.3 trillion), and the scale of government action so far and in the coming months through the Troubled Asset Relief Program and an expected fiscal stimulus.

The Investment Strategy Group is a part of the Investment Management Division of Goldman Sachs and is not a part of the Goldman Sachs Global Investment Research (GIR) Department. The views and opinions expressed by the Investment Strategy Group may differ from the views and opinions expressed by GIR or other departments or divisions of Goldman Sachs.