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20110109-sp500

VIEWS: 130 PAGES: 31

  • pg 1
									January 7, 2011




United States

US Equity Views
                                                                                                                                                        Portfolio Strategy Research

Raising EPS forecasts again; 19% return to our new target of 1500
We are raising both our 2011 and 2012 S&P 500 earnings estimates by $2 per share to $96 and
$106, reflecting annual growth of 14% and 11%, respectively. We boost our year-end 2011 target to
1500 representing a potential total return of 21% including the 2% dividend yield. Our 3- and 6-
month interim targets are 1325 and 1400, respectively. A re-accelerating US economy will drive 8%
sales growth and explains our pro-cyclical recommendations. Focus on stocks with high beta to
both the US economy and the stock market and firms with rising return on equity (ROE).

We expect 2011 EPS will reach a new high 5% above the prior peak
Goldman Sachs US GDP forecasts are above consensus for 2011 (3.4% vs.                                                                        David J. Kostin
                                                                                                                                             (212) 902-6781 david.kostin@gs.com
2.6%) and 2012 (3.8% vs. 3.1%). A 50 bp shift in GDP growth equals $2 per                                                                    Goldman Sachs & Co.
share in EPS and every 50 bp shift in profit margins equals $4 per share.
                                                                                                                                             Stuart Kaiser, CFA
Raising our S&P 500 year-end 2011 price-target to 1500                                                                                       (212) 357-6308 stuart.kaiser@gs.com
                                                                                                                                             Goldman Sachs & Co.
We forecast that at year-end 2011 the nominal size of the US economy will
be 5% larger than today, the level of forward EPS will be 11% higher, the                                                                    Amanda Sneider, CFA
P/E will have expanded by 8% or 1 point, and S&P 500 will be 19% higher.                                                                     (212) 357-9860 amanda.sneider@gs.com
                                                                                                                                             Goldman Sachs & Co.

Themes: Buy (1) Cyclicals; (2) High beta; and (3) ROE growth
                                                                                                                                             Yi Zhang
Our best ideas for 2011: (1) Long Cyclicals/short Defensives; (2) Stocks with                                                                (212) 357-6003 yi.g.zhang@gs.com
high beta to both the US economy and stock market; (3) Growth in return                                                                      Goldman Sachs & Co.
on equity; (4) High Sharpe ratios; (5) High dividend growth.

Goldman Sachs S&P 500 3-month, 6-month and 12-month price targets
1,700
1,600                                                                                                                     1500
                   S&P 500 Forecasts
1,500                                                                                                 1400
                                                                                           1325
1,400
                                                                                1258
1,300
                                                                                                                         12-Month
1,200                                                                                                                     (+19%)
                                                                                                 6-Month
1,100                                                                                     3-Month (+11%)
1,000                                                                                      (+5%)

  900
  800
  700
  600
                 Mar-09


                          Jun-09




                                                     Mar-10


                                                              Jun-10




                                                                                             Mar-11


                                                                                                       Jun-11




                                                                                                                                    Mar-12
        Dec-08




                                   Sep-09


                                            Dec-09




                                                                       Sep-10


                                                                                 Dec-10




                                                                                                                Sep-11


                                                                                                                           Dec-11




Source: IDC via Factset and Goldman Sachs Global ECS Research.

The Goldman Sachs Group, Inc. 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 a conflict 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, see the end of the text. Other important disclosures follow the Reg AC
certification, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates 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 Research
January 7, 2011                                                                                                                                                                        United States




2011 US equity market outlook: The road to 1500
                                  The US economy is 16% larger at the end of 2010 than it was five years ago ($14.7
                                  trillion versus $12.6 trillion). The forward EPS estimate for the S&P 500 has climbed by
                                  18% to our upwardly revised forecast of $96 compared to an NTM forecast of $81 at the
                                  end of 2005. However, the S&P 500 Index ended 2010 just 1% above the level at year-end
                                  2005. The forward P/E multiple has contracted by 15% to 13.1x from 15.4x.

                                  Looking ahead to the end of 2011, we forecast the S&P 500 Index will have rallied
                                  19% to our target of 1500 from 1258 at year-end 2010. Our economics research
                                  colleagues expect the US economy will be 5% larger in nominal terms than today ($15.3
                                  trillion vs. $14.7 trillion) and we expect the level of forward EPS will be 11% higher ($106 vs.
                                  $96). We implicitly forecast the forward P/E multiple will have expanded by 8% or one
                                  multiple point to 14.1x from the current 13.1x (see Exhibit 1).


                                  Exhibit 1: The economy and market at year-end 2005, 2010 and 2011E

                                                                                                 Year-end                        '05-'10                  Year-end     '10-'11
                                                                                               2005    2010                    Change (%)                2011 Target Change (%)
                                   Nominal GDP ($tn)                                         $12.6                $14.7                  16%                     $15.3                     5%
                                   S&P 500                                                     1248                1258                     1                        1500                19
                                   EPS (NTM)                                                       $81               $96                 18                          $106                11
                                   P/E (NTM)                                                  15.4x                13.1x              (15)                           14.1x                 8
                                   VIX                                                             12.1             17.8                 47                           N/A                N/A

                                  Source: BEA via Haver, IDC via FactSet, I/B/E/S and Goldman Sachs Global ECS Research.


                                  Our DDM implies a 12-month forward fair value of the S&P 500 of 1500. If realized, the
                                  19% full-year return would be 0.6 standard deviations above the 80-year average of 7% (see
                                  Exhibit 2). Our model implies that the price gain during the next 12 months will be a
                                  function of both earnings growth and a declining cost of equity, which leads to a forward
                                  P/E expansion as US economic growth continues above trend throughout 2011 and 2012.


                                  Exhibit 2: Our 2011 target of 1500 falls within 0.6 std. devs of the average return since 1928
                                                       3.5%
                                                                 Annual S&P 500 Return Distribution (since 1928)
                                                                                                                                                         2011 Year-end
                                                                                                                             Avg = +7%                Price Target of 1500
                                                       3.0%                                                                                      = +19% (0.6 Stdev above Avg)
                                                                                                                                       2010
                                                                                                                                      Return
                                                                                                                                      +13%
                                                       2.5%                                         -1 Stdev                                             +1 Stdev
                                                                                                     = -14%                                               = +28%
                                   % of observations




                                                                                                                                                        2009
                                                       2.0%                                                                                            Return
                                                                                                                                                       +23%

                                                       1.5%


                                                                      2008
                                                       1.0%
                                                                     Return
                                                                      -38%

                                                       0.5%



                                                       0.0%
                                                              (40)    (35)    (30)   (25)   (20)    (15)   (10)    (5)   0     5    10      15    20   25       30     35    40   45
                                                                                                                  Annual Price Return (%)

                                  Source: Bloomberg, FactSet, and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                 2
January 7, 2011                                                                                                                                                                                                                      United States




                                                                        We are raising our 2011 S&P 500 earnings estimate to $96 (from $94) and our 2012
                                                                        estimate to $106 (from $104). Our new estimates imply EPS growth of 14% in 2011 and
                                                                        11% in 2012. Faster economic growth drives our sales growth forecasts of 8% in 2011 and
                                                                        7% in 2012. We expect only slight margin expansion to 8.8% in 2011 and 9.0% in 2012.

                                                                        Earnings of $96 per share in 2011 would surpass the previous peak EPS of $91
                                                                        registered during the four quarters ending 2Q 2007 (see Exhibit 3). S&P 500 EPS
                                                                        rebounded from a low of $40 in 3Q 2009 to reach $79 during the four quarters ending 3Q
                                                                        2010. We expect full-year 2010 EPS will reach $84 equal to 92% of the previous peak.

                                                                        Our year-end 2011 S&P 500 price target of 1500 is roughly 4% below the previous
                                                                        S&P 500 peak of 1565 reached in October 2007. Our target implies a much faster index
                                                                        recovery than during the prior cycle when it took seven years to exceed the 2000 peak level.
                                                                        We forecast the S&P 500 will reach 1500 on higher earnings than previous occasions,
                                                                        offering more attractive valuation. Our 2012 EPS forecast of $106 implies a forward
                                                                        multiple of 14.1x. In May 2007, the market reached 1500 on a 15.5x forward multiple.

                                                                        We raise our 3-month price target to 1325 and our 6-month price target to 1400
                                                                        reflecting returns of 5% and 11% from current levels. Conditional return and options-
                                                                        implied distributions suggest a 30-40% likelihood of reaching our 3 month target.

Exhibit 3: We expect 2011 S&P 500 EPS will exceed its prior peak as the index level approaches the Oct 2007 peak
as of January 3, 2011
                1,700                                                                                                                                                                                            110
                                                                                                                            09-Oct-07
                                                       24-Mar-00                                                         New Peak = 1565             2011 EPS                                    $106
                                                      Peak = 1527                                                                                      above                                                     100
                                                                                                                                                                $96
                                                                                                                                                     prior peak
                1,500                                                                                                                                                                   1500 12-mo
                                                                                                                                                                                             Target
                                                                                                                                                                                                                 90
                                                                         S&P 500                                                                                              1400          6-mo
                                                                          Price                                                                              $84                           Target
                1,300                                                                                                                                                        1325                                80
                                                                                                                                                                                         3-mo
                                                                                                                                                                                        Target
S&P 500 Price




                                                                                                                     Jun-07
                                                                                                                 Peak EPS = $91                                              Current                             70    S&P 500 EPS
                                                                                                                                                                              SPX
                1,100                                                                                                                                                         1272
                                                       Sep-00
                                                   Peak EPS = $57                                                                                                                                                60
                                                                                                         Mar-04
                                                                                                      New Peak EPS

                 900                                                                                                                                                                                             50
                                                                                                                                                       S&P 500
                                                                                                                                                        EPS
                                                                                                                                                                                                                 40

                 700
                                                                                                                                                                   Goldman Sachs
                                                                                                                                    09-Mar-09                      Forecasts                                     30
                                                                                                                                    Low = 678

                 500                                                                                                                                                                                             20

                 30 x                                                                                  S&P 500 P/E
                 25 x

                                                                                                                                                                             P/E
                 20 x                        NTM Peak                                                                                                                       (LTM)
                                               26x
                 15 x
                                                                              P/E                                                                                             2011E Year-end
                 10 x                                                                                                                                                              14x
                                                                             (NTM)
                                                                                                                         NTM Trough
                                                                                                                             9x
                  5x
                        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-13




Source: FirstCall, Compustat, IDC via Factset, and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                               3
January 7, 2011                                                                                                         United States




Investment Recommendations: Our best ideas for 2011
                                    Our best ideas for 2011 emphasize economic growth and a rising stock market.
                                    Accordingly we favor investment ideas with cyclical exposure and beta to the market. Our
                                    thematic trade recommendations emphasize high beta, growth in return on equity, high
                                    risk-adjusted potential returns (Sharpe Ratio), and returning cash to shareholders.

                                    1. Long Cyclicals (GSSBCYCL) / Short Defensives (GSSBDEFS)
                                    We have two variations on how to implement a cyclical and pro-growth view. For mutual
                                    funds we recommend overweighting Information Technology, Financials, and Energy
                                    and underweighting Health Care, Consumer Staples, and Utilities. The business cycle
                                    (represented by ISM), the interest rate environment, and the growth differential between
                                    US and non-US economies suggest cyclical sectors should outperform. Such a tilt is
                                    consistent with our forecast that the US economy will re-accelerate during 2011 and 2012.

                                    For hedge funds we recommend implementation via buying <GSSBCYCL> and selling
                                    <GSSBDEFS>. These baskets divide the 24 S&P 500 industry groups based on their betas
                                    to the Wavefront US Growth basket (GSWBGDPA). Stocks within each industry group with
                                    an economic beta greater than the market comprise the Cyclicals basket and stocks within
                                    industry groups with economic betas less than that of the S&P 500 comprise the Defensive
                                    basket. The two baskets collectively account for 100% of the S&P 500 market capitalization.

                                    2. Dual Beta (Bloomberg ticker: GSTHBETA)
                                    The 50 stocks in this sector-neutral basket have the highest combined beta to both
                                    the US stock market and the US economy. We define sensitivity to the market in
                                    traditional terms as beta to the S&P 500 and sensitivity to the US economy in terms of beta
                                    to the Goldman Sachs Wavefront Growth basket. If consensus GDP growth prospects for
                                    2011 and 2012 are revised upwards from the current 2.6% and 3.1%, respectively, to the
                                    Goldman Sachs forecasts of 3.4% and 3.8%, and the overall stock market performs well,
                                    then this portfolio of high “dual beta” stocks should outperform.

                                    3. ROE Growth (GSTHGROE)
                                    Companies that generate superior growth in return on equity (ROE) have consistently
                                    outperformed the S&P 500. Our sector-neutral basket of 50 stocks is comprised of firms in
                                    each sector with the highest forecast ROE growth over the next 12 months. As evidence of
                                    the US economic expansion accumulates, we expect investors will focus on EPS growth
                                    and capital allocation in the stock selection process and this basket should outperform. The
                                    median stock in the basket trades at 3.4x price/book with expected 2011 ROE growth of
                                    31% (from 15% to 19%) versus 2.6x and 8% growth (14% to 15%) for the S&P 500 median.

                                    4. High Sharpe Ratio Stocks (GSTHSHRP)
                                    Our sector-neutral basket of 50 stocks contains firms with the highest risk-adjusted
                                    returns relative to the S&P 500. The basket has the same implied vol as median S&P 500
                                    stock, but 3.0x the expected return (18% vs. 6%). The average stock in the basket trades at
                                    an NTM P/E of 13.1x vs. 16.6x for the S&P 500 average. The basket returned 26.6% in 2010
                                    compared with 15.1% for the S&P 500 and the return per unit of vol was 1.3 and ranked
                                    near the top of a universe of 200 large-cap core mutual funds and above the S&P 500 (0.8).

                                    5. Dividend Growth (GSTHDIVG)
 Note: The ability to trade these
                                    Our Dividend Growth basket consists of 50 stocks that have a high 2012 cash-return-
 baskets will depend upon           on-cash-invested and strong dividend growth. This strategy should outperform given
 market conditions, including
                                    the scarcity of yield in the current capital markets. Our basket is expected to yield 3.2% in
 liquidity and borrow constraints
 at the time of trade.              2012 with 22% CAGR dividend growth in 2011-2012 versus 1.8% and 9% for the S&P 500.

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                   4
January 7, 2011                                                                                                                                                                                                                                                                                                                    United States




Exhibit 4: GS recommended sector weightings                                                                                                                                     Exhibit 5: S&P 500 Cyclicals vs. Defensives
pricing as of December 31, 2010                                                                                                                                                 as of December 31, 2010
                                                                                                          Sector Weightings
                                                                                                                                                                                  115
                                                         Total              Goldman Sachs                                 Current                         GS                                       CYCLICALS
                                                        Return              Recommended                                   S&P 500                     Overweight /                                Outperforming                                                                                     Relative Performance
Sectors                                                  2010              Sector Weightings                              Weight                      Underweight                                                                                                 Long GSSBCYCL /
                                                                                                                                                                                  110                                                           Baskets Initiated Short GSSBDEFS
Energy                                                   20 %                                                                  12 %                              200 bp
                                                                                                                                                                                                                                                   (April 26, 2010)
Financials                                               12                  Overweight                                        16                                200
Information Technology                                   10                                                                    19                                200
                                                                                                                                                                                  105
Consumer Discretionary                                   28                                                                    11                                   0
Industrials                                              27                                                                    11                                   0
                                                                                  Neutral
Materials                                                22                                                                         4                               0
                                                                                                                                                                                  100
Telecom Services                                         19                                                                         3                               0

Utilities                                                  5                                                                        3                       (100)                                                                                                                                                               DEFENSIVES
                                                                             Underweight                                                                                                                                                                                                                                        Outperforming
Consumer Staples                                         14                                                                    11                           (200)                  95




                                                                                                                                                                                                                         Mar-10
                                                                                                                                                                                         Dec-09




                                                                                                                                                                                                                                                                                                       Sep-10

                                                                                                                                                                                                                                                                                                                          Oct-10




                                                                                                                                                                                                                                                                                                                                                        Dec-10
                                                                                                                                                                                                                                                                                                                                      Nov-10
                                                                                                                                                                                                     Jan-10




                                                                                                                                                                                                                                     Apr-10




                                                                                                                                                                                                                                                                                                                                                                     Jan-11
                                                                                                                                                                                                              Feb-10




                                                                                                                                                                                                                                               May-10

                                                                                                                                                                                                                                                             Jun-10

                                                                                                                                                                                                                                                                         Jul-10

                                                                                                                                                                                                                                                                                           Aug-10
Health Care                                                3                                                                   11                           (300)

S&P 500                                                  15 %                                                               100 %                                   0 bp


                                                                                                                                                                                Source: FactSet and Goldman Sachs Global ECS Research.
Source: FactSet and Goldman Sachs Global ECS Research.

Exhibit 6: High ROE Growth basket vs. S&P 500                                                                                                                                   Exhibit 7: Dual Beta basket vs. S&P 500
as of December 31, 2010                                                                                                                                                         as of December 31, 2010

 108                                                                                                                                                                             116

 106                                                                                                                                                                                                                                                                  Relative Performance
                                           Relative Performance                                                                                                                  112                                                                                  Long GSTHBETA /
                                           Long GSTHGROE /                                                                                                                                                                                                               Short SPX
 104                                          Short SPX
                                                                                                                                                                                 108
 102
                                                                                                                                                                                 104
 100

                                                                                                                                                                                 100
   98

                                                                                                                                                                                   96
   96
                                                                                                                                                                                                                                                                                                     Sep-10
                                                                                                                                                                                                    Jan-10




                                                                                                                                                                                                                                   Apr-10




                                                                                                                                                                                                                                                                                                                                   Nov-10



                                                                                                                                                                                                                                                                                                                                                                 Jan-11
                                                                                                                                                                                                                                                                       Jul-10
                                                                                                                                                                                                              Feb-10

                                                                                                                                                                                                                        Mar-10



                                                                                                                                                                                                                                              May-10

                                                                                                                                                                                                                                                           Jun-10



                                                                                                                                                                                                                                                                                       Aug-10
                                                                                                                                                                                         Dec-09




                                                                                                                                                                                                                                                                                                                       Oct-10



                                                                                                                                                                                                                                                                                                                                                     Dec-10
                                                                                               Jul-10
                                  Feb-10

                                           Mar-10



                                                                    May-10

                                                                             Jun-10



                                                                                                        Aug-10
          Dec-09




                                                                                                                 Sep-10

                                                                                                                                   Oct-10



                                                                                                                                                        Dec-10
                     Jan-10




                                                         Apr-10




                                                                                                                                            Nov-10



                                                                                                                                                                       Jan-11




Performance represents back-test based on GS estimates before 1-Dec-10.                                                                                                         Historical performance of current basket constituents shown before 1-Dec-10.

Source: FactSet, GS Research estimates and GS Global ECS Research.                                                                                                              Source: FactSet and Goldman Sachs Global ECS Research.


Exhibit 8: Dividend growth basket vs. S&P 500                                                                                                                                   Exhibit 9: High Sharpe Ratio basket vs. S&P 500
as of December 31, 2010                                                                                                                                                         as of December 31, 2010

   120                                                                                                                                                                             120


   115                                                                                                                                                                             115


   110                                                                                                                                                                             110


   105                                                                                                                                                                             105


   100                                                                                                                                                                             100
                                                                                                                 Relative Performance                                                                                                                                                                Relative Performance
     95                                                                                                          Long GSTHDIVG /                                                    95                                                                                                              Long GSTHSHRP /
                                                                                                                    Short SPX                                                                                                                                                                          Short SPX
     90                                                                                                                                                                             90
            Dec-06




                                               Dec-07




                                                                                      Dec-08




                                                                                                                          Dec-09




                                                                                                                                                                  Dec-10




                                                                                                                                                                                          Dec-09




                                                                                                                                                                                                                                                                                                              Oct-10




                                                                                                                                                                                                                                                                                                                                            Dec-10
                                                                                                                                                                                                                                  Apr-10
                              Jun-07




                                                                  Jun-08




                                                                                                        Jun-09




                                                                                                                                             Jun-10




                                                                                                                                                                                                               Feb-10




                                                                                                                                                                                                                                                        Jun-10




                                                                                                                                                                                                                                                                                  Aug-10




                                                                                                                                                                                                                                                                                                                                                                     Feb-11




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
January 7, 2011                                                                                                                                                                                              United States




US economic recovery to continue in 2011 and 2012
                                                                             US economic recovery prospects improved following the December 2010 compromise
                                                                             between Congress and the White House to extend the existing tax regime. In addition
                                                                             to extending the 2001/2003 tax cuts for two years and emergency unemployment benefits
                                                                             through the end of 2011 the agreement also reduced payroll taxes for 2011. Our economics
                                                                             research colleagues subsequently boosted their US real GDP growth forecasts by 70 bp to
                                                                             3.4% in 2011 and by 20 bp to 3.8% in 2012. Goldman Sachs US Economics forecasts now
                                                                             stand significantly above consensus for both years (see Exhibits 10-13).

                                                                             The US economic recovery is palpable on many levels. The ISM manufacturing survey
                                                                             just posted its 17th consecutive month of expansion with a reading of 57.0. Initial
                                                                             unemployment claims dropped below 400,000 in the end of December for the first time
                                                                             since July 2008. Private payrolls are rising, albeit not strongly enough to reduce the
                                                                             unemployment rate that has hovered between 9.5% and 10% since mid-2009. The savings
                                                                             rate has stopped increasing and appears to have stabilized around 6%. Our US economics
                                                                             research colleagues forecast personal consumption expenditures (PCE) – which account for
                                                                             roughly 70% of the US economy – will increase by 3.5% in 2011 (see Exhibits 14-19).

Exhibit 10: Goldman Sachs quarterly US GDP forecasts                                                                        Exhibit 11: Goldman Sachs US Economics forecast
as of January 5, 2011                                                                                                       as of January 5, 2011

                                 5.0 %
                                                                                                                                                                                            % Annual Change
                                                                                                    Goldman Sachs                                                                   2010E         2011E            2012E
                                 4.5 %
                                                                                                     Economics              Real GDP                                                 2.8%          3.4%             3.8%
 GDP Growth (qoq annualized %)




                                 4.0 %                                                                                        Consumer Spending                                     1.7           3.5              3.5
                                 3.5 %                                                                                        Total Fixed Investment                                3.6           6.2             10.0
                                                    Consensus
                                 3.0 %                                                                                           Business Fixed Investment                          5.3           6.4              8.7
                                 2.5 %                                                                                           Residential Investment                            (2.9)          5.1             15.5
                                                                                                                              Federal Government Spending                           5.0           3.7              2.5
                                 2.0 %                                       4.0   4.0     4.0    4.0
                                            3.7                        3.5                              3.5     3.5   3.5     Exports of Goods and Services                        11.5           5.8              7.8
                                 1.5 %                         3.0
                                                         2.6                                                                  Imports of Goods and Services                        13.5           6.0              9.2
                                 1.0 %                                                                                      Core CPI                                                1.0           0.7              0.5
                                                  1.7
                                 0.5 %                                                                                      Unemployment Rate                                       9.7           9.3              8.5
                                 0.0 %                                                                                      Fed Funds Rate                                          0.2           0.2              0.2
                                            Q1A Q2A Q3A Q4E Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E                                 2-year Treasury Rate                                    0.7           1.0              2.0
                                                                                                                            10-year Treasury Rate                                   2.8           3.8              4.3
                                                    2010                       2011                           2012

Source: Bloomberg and Goldman Sachs Global ECS Research.                                                                    Source: Goldman Sachs Global ECS Research.




Exhibit 12: Distribution of 2011 US GDP forecasts                                                                           Exhibit 13: Distribution of 2012 US GDP forecasts
consensus estimates as of December 10, 2010                                                                                 consensus estimates as of January 3, 2011
                                 10                                                                                                           10
                                                                                         2011 US GDP Forecasts                                         2012 US GDP Forecasts
                                                         Consensus                                n=51                                                          n=63
                                                           2.6%                                                                                                                        Consensus
                                 8                                                                                                                8                                      3.1%
Number of Forecasts




                                                                                                                            Number of Forecasts




                                 6                                                                                                                6
                                                                                                                                                                                                   Goldman
                                                                                                                                                                                                    Sachs
                                                                                                                                                                                                     3.8%
                                 4                                                                                                                4


                                                                                                 Goldman
                                 2                                                                Sachs                                           2
                                                                                                   3.4%


                                 0                                                                                                                0
                                      1.7               2.2               2.7          3.2                     3.7                                    1.5     2.0     2.5          3.0       3.5        4.0          4.5
                                                                     2011 GDP Growth (%)                                                                                    2012 GDP Growth (%)


Source: Blue Chip Economic Indicators and GS Global ECS Research.                                                           Source: Bloomberg and Goldman Sachs Global ECS Research.



Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                          6
January 7, 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                              United States




Exhibit 14: Personal consumption expenditures rebound                                                                                                                                                                                                           Exhibit 15: Personal saving rate hovers near 6%
as of January 5, 2011                                                                                                                                                                                                                                           as of January 5, 2011
                                                                    8                                                                                                                                                                                                                                            14

                                                                                                                                                                                                                      GS                                                                                                                            12%
                                                                                                                                                                                                                                                                                                                 12
                                                                    6                                                                                                                                                 Forecast                                                                                                                                                                                 US Personal Saving Rate
                                        Year/Year Growth (%)




                                                                                                                                                                                                                                                                                                                 10




                                                                                                                                                                                                                                                                 Personal Saving Rate (%)
                                                                    4
                                                                                                                                                                                                                                                                                                                           8
                                                                    2                                                                                                                                                                                                                                                                                                                                                                                                                                                 6%
                                                                                                                                                                                                                                                                                                                           6

                                                                    0
                                                                                                                                                                                                                                                                                                                           4

                                                                   (2)
                                                                               Personal Consumption Expenditures (PCE)
                                                                                       (70% of 2011E Real GDP)                                                                                                                                                                                                             2

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         1%
                                                                   (4)                                                                                                                                                                                                                                                     0




                                                                                                                                                                                                                                                                                                                                           Dec-80


                                                                                                                                                                                                                                                                                                                                                             Dec-83


                                                                                                                                                                                                                                                                                                                                                                               Dec-86


                                                                                                                                                                                                                                                                                                                                                                                         Dec-89


                                                                                                                                                                                                                                                                                                                                                                                                      Dec-92


                                                                                                                                                                                                                                                                                                                                                                                                                          Dec-95


                                                                                                                                                                                                                                                                                                                                                                                                                                            Dec-98


                                                                                                                                                                                                                                                                                                                                                                                                                                                                Dec-01


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Dec-04


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Dec-07


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Dec-10
                                                                              Jan-90

                                                                                                Jan-92

                                                                                                                   Jan-94

                                                                                                                                  Jan-96

                                                                                                                                                  Jan-98

                                                                                                                                                              Jan-00

                                                                                                                                                                         Jan-02

                                                                                                                                                                                   Jan-04

                                                                                                                                                                                            Jan-06

                                                                                                                                                                                                      Jan-08

                                                                                                                                                                                                                   Jan-10

                                                                                                                                                                                                                                   Jan-12

                                                                                                                                                                                                                                                 Jan-14


Source: BEA and Goldman Sachs Global ECS Research.                                                                                                                                                                                                              Source: BEA and Goldman Sachs Global ECS Research.


Exhibit 16: Initial jobless claims trending down                                                                                                                                                                                                                Exhibit 17: Private payrolls have continued to recover
as of January 6, 2011                                                                                                                                                                                                                                           as of January 5, 2011
                                            700.00                                                                                                                                                                                                                                                                                        500

                                            650.00
                                                                                                                                                                March 2009 Peak:                                                                                                                                                                                             Private Payrolls                                                                                              +1.2 Million
                                                                                                                                                                                                                                                                                 Change in Private Payrolls (Thousands)




                                                                                                                                                                    643,000                                                                                                                                                               300                                                                                                                                              Cumulative
   Initial Jobless Claims (Thousands)




                                            600.00
                                                                                                      Initial Jobless Claims                                                                                                                                                                                                              100
                                            550.00
                                                                                                    (4-Week Moving Average)
                                            500.00                                                                                                                                                                                                                                                                               (100)
                                            450.00
                                                                                                                                                                                                                                                                                                                                 (300)
                                            400.00
                                                                                                                                                                                                                             411,000
                                            350.00                                                                                                                                                                                                                                                                               (500)                                                                                                      -8.5 Million
                                                                                                   2001-2007                                                                                                                                                                                                                                                                                                                                Cumulative
                                            300.00                                              Average: 360,000                                                                                                                                                                                                                 (700)
                                            250.00
                                                                                                                                                                                                                                                                                                                                 (900)
                                            200.00
                                                                                                                                                                                                                                                                                                                                                    2000


                                                                                                                                                                                                                                                                                                                                                                      2001


                                                                                                                                                                                                                                                                                                                                                                                  2002


                                                                                                                                                                                                                                                                                                                                                                                         2003


                                                                                                                                                                                                                                                                                                                                                                                                   2004


                                                                                                                                                                                                                                                                                                                                                                                                                   2005


                                                                                                                                                                                                                                                                                                                                                                                                                                     2006


                                                                                                                                                                                                                                                                                                                                                                                                                                                     2007


                                                                                                                                                                                                                                                                                                                                                                                                                                                                  2008


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  2009


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               2010


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               2011


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               2012
                                                                         2000


                                                                                           2001


                                                                                                                  2002


                                                                                                                                  2003


                                                                                                                                                  2004


                                                                                                                                                              2005


                                                                                                                                                                          2006


                                                                                                                                                                                     2007


                                                                                                                                                                                               2008


                                                                                                                                                                                                          2009


                                                                                                                                                                                                                          2010


                                                                                                                                                                                                                                          2011




Source: Department of Labor and Goldman Sachs Global ECS Research.                                                                                                                                                                                              Source: Bureau of Labor Statistics and Goldman Sachs Global ECS Research.


Exhibit 18: ISM above 50 for 17 consecutive months                                                                                                                                                                                                              Exhibit 19: Bank loan growth turning positive
as of January 5, 2011                                                                                                                                                                                                                                           as of January 5, 2011
                                        100                                                                                                                                                                                               90                                                                                                  25
                                                                                                                                  ISM momentum
                                                                                                                                                                                                                                                                                                        C&I Loans (Year/Year Growth, %)




                                                                                                                                                                                                                                                                                                                                              20
                                                  75                                                                              (yoy change, lhs)                                                                                       80
                                                                                                                                                                                                                                                                                                                                              15
                                                                                                                                                                                                                                                                                                                                                                                                                                               C&I Loan Growth
US ISM yoy change




                                                  50                                                                                                                                                                                      70                                                                                                  10
                                                                                                                                                                                                                                                 US ISM level




                                                                                                                                                                                                                                                                                                                                                    5
                                                  25                                                                                                                                                                                      60
                                                                                                                                                                                                                                                                                                                                                    0

                                                                                                                                                                                                                                                                                                                                                (5)
                                                               0                                                                                                                                                                          50
                                                                                                                                                                                                                                                                                                                                           (10)
                                           (25)                                                                                                                          ISM level, rhs                                                   40                                                                                               (15)

                                                                                                                                                                                                                                                                                                                                           (20)
                                           (50)                                                                                                                                                                                           30
                                                                                                                                                                                                                                                                                                                                                                               Jul-07




                                                                                                                                                                                                                                                                                                                                                                                                          Jul-08




                                                                                                                                                                                                                                                                                                                                                                                                                                                       Jul-09




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Jul-10
                                                                                                                                                                                                                                                                                                                                                           Jan-07




                                                                                                                                                                                                                                                                                                                                                                                          Jan-08




                                                                                                                                                                                                                                                                                                                                                                                                                                   Jan-09




                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Jan-10




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Jan-11
                                                                                       Apr-08



                                                                                                                         Oct-08



                                                                                                                                                     Apr-09



                                                                                                                                                                          Oct-09



                                                                                                                                                                                            Apr-10



                                                                                                                                                                                                                 Oct-10
                                                                                                         Jul-08




                                                                                                                                                                Jul-09




                                                                                                                                                                                                      Jul-10
                                                                     Jan-08




                                                                                                                                         Jan-09




                                                                                                                                                                                   Jan-10




                                                                                                                                                                                                                                 Jan-11




Source: ISM and Goldman Sachs Global ECS Research.                                                                                                                                                                                                              Source: Federal Reserve and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                                                                                                                                                                                                                                                                                                                     7
January 7, 2011                                                                                                                    United States




                                  The improving set of macroeconomic data releases support the view that the US
                                  expansion is continuing. However, many investors question the durability of the recovery.
                                  Although few equity market participants we meet believe a “double-dip” is likely, investor
                                  concerns exist regarding how long the expansion may last and the ultimate magnitude of
                                  the recovery.

                                  If the Goldman Sachs Economics 2011 and 2012 GDP forecasts materialize, then by
                                  year-end 2012 the US economy will have expanded for 42 months, much shorter than
                                  the length of the median expansion (52 months) and the average expansion (61 months)
                                  during the 10 economic cycles since 1949. Despite our forecast that the recovery will
                                  continue for at least two more years, by the end of 2012 the real size of the US economy is
                                  only projected to be 12% greater than at its trough in June 2009, making it one of the
                                  weakest expansions of the past 60 years. Both the average and median change in real GDP
                                  during past expansions equal about 25% or 2x the prospective economic growth from the
                                  recent trough through year-end 2012. The weakness of the current rebound is also notable
                                  because it follows the unusually long and deep 2008-09 recession (see Exhibit 20).

                                  Investor concerns about the sustainability of the current expansion reflect the
                                  “jobless recovery” nature of the rebound, echoing the patterns of 1991 and 2001.
                                  Exhibit 21 clearly illustrates this point. The unemployment rate remains near 10% and
                                  Goldman Sachs Economics forecasts it will fall to just 8.5% by year-end 2012. Core inflation
                                  should remain subdued for the next two years. The output gap remains large and should
                                  limit pricing power of most firms while capacity utilization (75%) remains below its long-
                                  term average of 81%. We expect Fed Funds will remain unchanged for an extended period.

                                  Goldman Sachs Economics forecasts the ten-year US Treasury yield will rise to 3.75%
                                  at the end of 2011 and 4.25% at the end of 2012. Combined with our inflation forecasts
                                  those levels equate to real bond yields in a 2.25% - 3.75% range relative to headline and
                                  core inflation for each of the next two years.


                                  Exhibit 20: Economic expansions and contractions and lead time to market peaks/troughs
                                  Peaks and troughs of economy and S&P 500

                                                                              Expansion                                  Contraction
                                                                                                              Peak to
                                                                  Trough       Change      Lead Time           Next      Change    Lead Time
                                                                  to Peak      in Real     of Market          Trough     in Real   of Market
                                   Trough         Peak            (Months)      GDP          Peak            (Months)     GDP       Trough
                                   Oct 1949       Jul 1953            45          28%         (10)                10       (2)%         8
                                   May 1954       Aug 1957            39          13           12                  8        (3)         5
                                   Apr 1958       Apr 1960            24          12          (10)                10        (0)         3
                                   Feb 1961       Dec 1969           106          51           12                 11         0          5
                                   Nov 1970       Nov 1973            36          17           10                 16        (4)         5
                                   Mar 1975       Jan 1980            58          26           (1)                 6        (4)         3
                                   Jul 1980       Jul 1981            12           5            7                 16        (3)         3
                                   Nov 1982       Jul 1990            92          38           (8)                 8        (2)         5
                                   Mar 1991       Mar 2001           120          42           11                  8         0        (11)
                                   Nov 2001       Dec 2007            73          19            2                 18        (5)         3
                                     Median                            52         23%             4               10        (3)%         4
                                     Average                           61         25              2               11        (2)          3
                                   Jun 2009 to Present                18            7
                                   Jun 2009 to Dec 2012               42          12

                                  Source: NBER, BEA, FactSet, Stock and Watson, and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                             8
January 7, 2011                                                                                                                                                                                                                                                                                                                        United States




                                                                                      Exhibit 21: Current cycle tracking jobless recoveries of past two recessions
                                                                                      as of January 5, 2011
                                                                                                                                12                                                                                                                                                                                                                          12

                                                                                                                                11            Recoveries:                                        1954 - 1982                                                  Nonfarm                                                                                       11

                                                                                                                                                                                                                                                             Employment
                                                                                       Change from end of reccesion (pct pts)
                                                                                                                                10                                                               1991                                                                                                                                                       10

                                                                                                                                 9                                                                                                                                                                                                                          9
                                                                                                                                                                                                 2001
                                                                                                                                 8                                                                                                                                                                                                                          8
                                                                                                                                                                                                 2009 Current Cycle
                                                                                                                                 7                                                                                                                                                                                                                          7

                                                                                                                                 6                                                                                                                                                                                                                          6

                                                                                                                                 5                                                     Last Fed Cut                                                                                                                                                         5
                                                                                                                                                                                                                                                                                                              First Fed
                                                                                                                                 4                                                     Current Cycle                                                                                                                                                        4
                                                                                                                                                                                                                                                                                                               Raise
                                                                                                                                 3                                                                                                                                 Last Fed Cut                                                                             3

                                                                                                                                 2                                                                                                                                                                                                                          2

                                                                                                                                 1                                                                                                                                                                                                                          1

                                                                                                                                 0                                                                                                                                                                                                                          0

                                                                                                                                (1)                                                                                                                                                                                                                         (1)

                                                                                                                                (2)                                                                                                                                                                                                                         (2)
                                                                                                                                      -12              -8                -4              0          +4                          +8              +12              +16              +20              +24              +28              +32              +36
                                                                                                                                                                                                   Months from End of Recession

                                                                                      Source: Federal Reserve, Department of Labor, and Goldman Sachs Global ECS Research.

                                                                                      Two economic concerns with potential market impact relate to budget issues at the
                                                                                      state and local as well as federal levels. Fiscal imbalances at the state and local level
                                                                                      mean significant budget cuts are likely. State and local spending account for 11% of
                                                                                      expected 2011 US GDP (see Exhibit 22).

                                                                                      In terms of the Federal budget impact on the equity market, volatility may rise in the
                                                                                      spring as federal borrowing approaches the current debt ceiling of $14.3 trillion.
                                                                                      Outstanding federal debt currently totals $14.0 trillion. New rules adopted under Speaker
                                                                                      John Boehner require a vote to raise the federal debt ceiling that is separate from any
                                                                                      budgetary votes. The “tea party” wing of the Republican majority is likely to make lifting
                                                                                      the federal debt ceiling a major issue. Volatility jumped in late 1995 when Congress and
                                                                                      President Clinton could not agree on a budget and government temporarily shut down.

Exhibit 22: Federal, state, and local government spending                                                                                                                                               Exhibit 23: Federal debt nears the debt ceiling
as of January 5, 2011                                                                                                                                                                                   as of January 5, 2011
                        12                                                                                                                                                                                                      15
                                                         Federal Government Expenditures                                                                                                                                                                                                           Federal Debt Ceiling = $14.3 tn
                                                                                                                                                                    GS
                        10                                   (8% of 2011E Real GDP)                                                                                 Forecast                                                    14
                         8
 Year/Year Growth (%)




                                                                                                                                                                                                                                13
                                                                                                                                                                                                          Federal Debt ($ Tn)




                         6
                                                                                                                                                                                                                                                                                                                     Current Public Debt
                         4                                                                                                                                                                                                                                                                                               = $14.0 tn
                                                                                                                                                                                                                                12
                         2
                                                                                                                                                                                                                                11
                         0

                        (2)                                                                                                                                                                                                     10                                Outstanding US Public Debt

                        (4)                                    State and Local Government Expenditures
                                                                       (11% of 2011E Real GDP)                                                                                                                                   9
                        (6)
                              Jan-90

                                       Jan-92

                                                Jan-94

                                                           Jan-96

                                                                    Jan-98

                                                                             Jan-00

                                                                                             Jan-02

                                                                                                                                     Jan-04

                                                                                                                                              Jan-06

                                                                                                                                                       Jan-08

                                                                                                                                                                Jan-10

                                                                                                                                                                              Jan-12

                                                                                                                                                                                        Jan-14




                                                                                                                                                                                                                                 8
                                                                                                                                                                                                                                     1-Jan-08



                                                                                                                                                                                                                                                      1-Jul-08



                                                                                                                                                                                                                                                                       1-Jan-09



                                                                                                                                                                                                                                                                                        1-Jul-09



                                                                                                                                                                                                                                                                                                         1-Jan-10



                                                                                                                                                                                                                                                                                                                          1-Jul-10



                                                                                                                                                                                                                                                                                                                                           1-Jan-11



                                                                                                                                                                                                                                                                                                                                                                1-Jul-11




Source: BEA and Goldman Sachs Global ECS Research.                                                                                                                                                      Source: US Treasury and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                                                                                                                                                    9
January 7, 2011                                                                                                                                                                                                                                                                                                                               United States




S&P 500 earnings will reach a new high in 2011 at $96
                                                                                                                                      We raise our 2011 S&P 500 earnings estimate to $96 (from $94) and 2012 estimate to
                                                                                                                                      $106 (from $104). These changes are consistent with our earnings sensitivity matrix
                                                                                                                                      published in our 2011 Outlook: Easy money, hard market (December 1, 2010).

                                                                                                                                      Our regression-based model of sales and net margins for each sector drives our
                                                                                                                                      earnings forecasts for individual sectors and for the overall S&P 500. Variables
                                                                                                                                      included in our sales and margin models encompass US GDP, world GDP, 2-year and 10-
                                                                                                                                      year Treasury rates, oil, inflation, and the trade-weighted Dollar.

                                                                                                                                      The level of sales is highly correlated with economic growth. Goldman Sachs
                                                                                                                                      Economics forecasts that by year-end 2011 nominal GDP will equal 107% of the previous
                                                                                                                                      peak reached in 3Q 2008. Our model projects that S&P 500 sales (ex-Financials and Utilities)
                                                                                                                                      in 2011 will be 96% of the previous peak reached in 3Q 2008. We forecast crude oil will
                                                                                                                                      average $100 per barrel in 2011, 30% below the peak level of $147/barrel in summer 2008.
                                                                                                                                      By year-end 2012 the nominal size of the US economy will reach $16 trillion, 112% of prior
                                                                                                                                      peak and sales for the S&P 500 will be 103% of prior peak (see Exhibit 24).

Exhibit 24: Level of S&P 500 Sales and US Nominal GDP                                                                                                                                                                                            Exhibit 25: S&P 500 net profit margins
realized date as of January 3, 2011                                                                                                                                                                                                              as of January 3, 2011
                                $1,000                                                                                                                                                                           $17
                                                                                                                                                                           4Q 2012                                                                11%
                                                                                                                                                                         112% of prior
 Trailing Sales per Share (ex-Financials and Utilities)




                                                                                                                                                                          peak GDP                                                                                                                              Bottom-up Consensus                            2012
                                                                                                                                                                                                                 $16
                                                                                                                                               Sales Peak                                                                                         10%                S&P 500 Net Profit Margin                        Forecast                                  9.6
                                                          $900                                                                                  3Q 2008
                                                                                                                Nominal GDP Peak                                                                                 $15                                  9%                                                                                                        9.0
                                                                                                                    3Q 2008
                                                                                                                                                                                                                       US Nominal GDP ($Tr)




                                                          $800
                                                                                                                                                                                      4Q 2012     $14                                                 8%                                                                                                 8.3
                                                                                                                                                                                    103% of prior
                                                                                                                                                                                     peak sales
                                                                           US Nominal GDP                                                                                                                        $13                                  7%
                                                                                            (RHS)
                                                          $700                                                                                         Sales Trough                                                                                   6%                                                                                                5.9
                                                                                                                                                         4Q 2009                                                 $12

                                                                                                                                                                                                                                                      5%                                                                                 Goldman Sachs
                                                                                                                                                                                                                 $11
                                                                                                                                                                                                                                                                                                                                        Portfolio Strategy
                                                          $600                                                                     S&P 500 Sales per Share                                                                                                                                                               4.7
                                                                                                                                                                                                                                                      4%                                                                                    Forecast
                                                                                                                                    ex-Financials and Utilities                                                                                                                                  4.1
                                                                                                                                                                                                                 $10
                                                                                                                                             (LHS)
                                                                                                                                                                                                                                                      3%
                                                                                                                                                                                                                                                           Dec-79



                                                                                                                                                                                                                                                                         Dec-84



                                                                                                                                                                                                                                                                                        Dec-89



                                                                                                                                                                                                                                                                                                       Dec-94



                                                                                                                                                                                                                                                                                                                Dec-99



                                                                                                                                                                                                                                                                                                                               Dec-04



                                                                                                                                                                                                                                                                                                                                               Dec-09



                                                                                                                                                                                                                                                                                                                                                                Dec-14
                                                          $500                                                                                                                                                   $9
                                                                 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-13




Source: BEA via Haver, Compustat and Goldman Sachs Global ECS Research.                                                                                                                                                                          Source: Compustat, First Call, I/B/E/S, and GS Global ECS Research.

                                                                                                                                      Exhibit 26: S&P 500 sales, earnings, and margins, as of January 3, 2011
                                                                                                                                                                              Top-down                                                                                                                Bottom-Up
                                                                                                                                                                            GS Forecast                                                                                                               Consensus
                                                                                                                                                                    2010E 2011E 2012E                                                                                                            2010E 2011E 2012E
                                                                                                                                          S&P 500 ex-Financials and Utilities
                                                                                                                                           Sales Per Share           $783        $846   $907                                                                                                      $780            $831                  $881
                                                                                                                                           Y/Y growth                 6.1%       8.1%   7.2%                                                                                                      5.6%            6.6%                  6.0%

                                                                                                                                              Profit Margin                                                                                    8.5%          8.8%                 9.0%             8.5%             9.0%                 9.6%
                                                                                                                                              EPS                                                                                               $66      $75                       $81             $66            $75                 $84
                                                                                                                                              Y/Y growth                                                                                      32.0%    12.6%                      8.7%           31.4%          13.6%               12.4%

                                                                                                                                          Utilities EPS                                                                                         $3                  $3             $3                     $3             $3                 $3
                                                                                                                                          Financials EPS                                                                                        14                  18             21                     14             17                 21
                                                                                                                                          S&P 500 EPS                                                                                           $84      $96                 $106                  $84            $96                $108
                                                                                                                                          Y/Y growth                                                                                          47.5%    14.5%                10.5%                46.9%          14.7%               13.0%
                                                                                                                                      Source: Compustat, First Call, I/B/E/S, and Goldman Sachs Global ECS Research.



Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                                                                                                                                                  10
January 7, 2011                                                                                                                                                   United States




                                            Margins are a key reason earnings have rebounded so quickly. Net margins for the S&P
                                            500 (ex-Financials and Utilities) troughed at 4.1% during the recession of 1990, bottomed at
                                            4.7% in 2002, but hit a low of just 5.9% in 2009. We forecast that by 2011 net margins will
                                            have reached 105% of previous peak while consensus forecasts 109% (see Exhibit 25).

                                            Domestic GDP growth is the most important input in our earnings model. Exhibit 27
                                            shows the sensitivity of our EPS model to various US GDP growth rate assumptions.
                                            For example, our base case growth rate in 2011 equals 3.4%. However, a 50 bp shift in 2011
                                            GDP growth translates into a $2 per share swing in EPS (see Exhibit 27). The sensitivity of
                                            our 2012 EPS estimates to various GDP growth rate assumptions is similar. As discussed
                                            previously, Goldman Sachs Economics has US GDP forecasts above consensus for both
                                            2011 (3.4% vs. 2.6%) and 2012 (3.8% vs. 3.1%).

                                            Another key variable in our EPS model is net profit margin. Exhibit 28 shows the
                                            sensitivity of our 2011 and 2012 EPS forecasts to various margin assumptions. For example,
                                            our 2011 EPS estimate of $96 per share corresponds with an 8.8% net margin. A 50 bp
                                            swing in 2011 margins represents roughly $4 per share in EPS. The sensitivity of our 2012
                                            EPS estimates to shifts in margins is of a similar magnitude.
Exhibit 27: Sensitivity of EPS estimates to GDP growth forecasts
as of January 3, 2011


               Sensitivity of 2011 EPS forecast to                                                   Sensitivity of 2012 EPS forecast to
                         US GDP growth                                                                         US GDP growth
                               2011                 2011 EPS                                                                       2012 US GDP
                              US GDP            Level     Growth
                                                                                                                        2.8 %    3.3 %      3.8 %       4.3 %     4.8 %
                                                  96%        14%                                                         (1)%     (1)%             0%     1%        1%
                                   4.9 %           102      22 %                                            4.9 %        104      106        109         112       114
                                                                          2011 US GDP




                                   4.4             100      20                                              4.4          103      106        108         111       113
                                   3.9              98      17                                              3.9          102      105        107         110       112
 Base Case:                        3.4              96       14                                             3.4          101      104        106         109       111
                                   2.9              94      12                                                                               105
                                                                                                            2.9          100      103                    107       110
                                   2.4              92        9
                                                                                                            2.4            99     102        104         106       109
                                   1.9              90        7
                                                                                                            1.9            98     100        103         105       107

Source: Goldman Sachs Global ECS Research.

Exhibit 28: Sensitivity of EPS estimates to sales growth and margins
as of January 3, 2011

                     Sensitivity of 2011 EPS forecast to                                                       Sensitivity of 2012 EPS forecast to
                         sales growth and margin                                                                   sales growth and margin
                                       2011 Profit Margin                                                                          2012 Profit Margin
                              7.8 %    8.3 %        8.8 %   9.3 %   9.8 %                                                  8.0 %    8.5 %      9.0 %      9.5 %    10.0 %


                     10.1 %   89           93       97      102     106                                         9.2 %       98     103        108         112       117
 2011 Sales Growth




                                                                                        2012 Sales Growth




                      9.1     88           92       97      101     105                                         8.2         98     102        107         111       116

                      8.1     88           92       96      100     104                                         7.2         97     102        106         111       115

                      7.1     87           91       95      100     104                                         6.2         96     101        105         110       114

                      6.1     86           90       95      99      103                                         5.2         96     100        105         109       113

Source: Goldman Sachs Global ECS Research.


Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                           11
January 7, 2011                                                                                                                                                                             United States




                                           Exhibit 29 compares the results of our top-down sector-level sales, margin, and
                                           earnings models with the bottom-up consensus estimates. Exhibit 30 shows the
                                           historical contribution to net income by sector since 1974.


Exhibit 29: Decomposition of S&P 500 earnings estimates
as of January 3, 2011
                                                                    Contribution to EPS                                                              Annual earnings growth rates
                                                 GS Top-Down EPS                                      Bottom-up                                      GS Top-Down                    Bottom-Up
                                         2010E           2011E           2012E               2010           2011E           2012E                   2011E       2012E            2011E        2012E
    Information Technology                 $15             $17                $20            $15            $17             $19                       12 %            14 %         16 %          11 %
    Energy                                       10            13             14              10             12              14                       24              10           14            19
    Health Care                                  11            12             13              11             12              13                       11                  6        13              6
    Consumer Staples                              9             9             10               9              9              10                        7                  6          9           10
    Industrials                                   8             9             10               8              9              11                       12              12           16            17
    Consumer Discretionary                        8             9              9               8              9              10                        6                  5        11            14
    Utilities                                     3             3              3               3              3                  3                    (1)                 (1)       (2)           (2)
    Materials                                     3             3              3               3              3                  4                    15                  5        27            14
    Telecom Services                              2             3              3               2              2                  3                    14                  (0)        9           14
 S&P 500 ex-Financials                           70            78             85              69             78              88                       12                  8        13            12
    Financials                                   14            18             21              14             17              21                       27              20           24            18
 S&P 500 Operating EPS                     $84             $96          $106                 $84            $96            $108                       14 %            11 %         15 %          13 %
Note: Numbers may not add due to rounding.

Source: First Call, Compustat, and Goldman Sachs Global ECS Research.



Exhibit 30: Net Income contribution by sector to S&P 500, 1974-2010 (a)
as of December 31, 2010

 100%
                                                                                                                                                                          Financials 15%
   90%                                                                                                                                    Financials
                                                                                                                                           Bubble
   80%                                                                                                                                       31%                          Health Care 12%


   70%
                                                                                                                                                                          Info Tech 19%
                                                                                                                        Tech
   60%                                                                                                                 Bubble
                                                                                                                           16%
   50%                                                                                                                                                                    Consumer Staples 12%

   40%
                                                                                                                                                                          Consumer Discretionary 10%

   30%
                                                                                                                                                                          Industrials 10%
   20%                                                                                                                                                                    Telecom Services 3%
                               Energy                                                                                                                                     Utilities 4%
                               Bubble                                                                                                                                     Materials 3%
   10%                          26%
                                                                                                                                                                          Energy 12%
    0%
         Dec-74



                  Dec-77



                            Dec-80



                                        Dec-83



                                                      Dec-86



                                                                     Dec-89



                                                                                    Dec-92



                                                                                                   Dec-95



                                                                                                                  Dec-98



                                                                                                                                 Dec-01



                                                                                                                                           Dec-04



                                                                                                                                                       Dec-07



                                                                                                                                                                 Dec-10




(a) Net Income defined as earnings before extraordinary items available to common shareholders. Only positive data points are included.
Source: Compustat and Goldman Sachs Global ECS Research.



Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                       12
January 7, 2011                                                                                                                                                                              United States




Increasing our 3-, 6-, and 12-month S&P 500 price targets
                                                            We have increased our year-end 2011 S&P 500 price target to 1500 (from 1450)
                                                            representing a potential price return of 19%. Our price target revision stems almost
                                                            entirely from our higher earnings estimate. We still expect a year-end 2011 P/E multiple of
                                                            roughly 14x based on our 2012 EPS forecast of $106. Our 19% return is split evenly
                                                            between earnings growth and multiple expansion.

                                                            Higher real interest rates provide upside risk to valuation multiples. Forward P/E
                                                            multiples have shifted considerably over time, ranging from 5x to 25x over the past 35
                                                            years. The P/E multiple may be considered a crude DCF or DDM model because it implicitly
                                                            reflects some assumption regarding future growth discounted at an appropriate rate.
                                                            Accordingly, we find P/E multiples vary considerably depending on inflation and interest
                                                            rates (see Exhibits 31 and 32). Goldman Sachs Economics forecasts ten-year US Treasury
                                                            yield will rise to 3.75% at the end of 2011 and an additional 50 bp to 4.25% at the end of
                                                            2012. However, we expect inflation to remain low implying a modest shift higher in real
                                                            interest rates that historically has been supportive of higher P/E multiple valuation (see
                                                            Exhibits 31-32).

                                                            We also raise our 3-month S&P 500 target to 1325 from 1250 and our 6-month price
                                                            target to 1400 from 1325. Our interim forecasts reflect our view of the likely path toward
                                                            our 12-month DDM-based estimate of fair value. Our framework for short-term price
                                                            targets relies heavily on conditional return distributions and options-implied returns. A 3-
                                                            month return of 5% would rank in the 62nd percentile of 3-month returns since 1950,
                                                            conditional on a trailing 1-month return in the +5% to +10% range that we have just
                                                            experienced. These approaches assign a 30-40% likelihood that the S&P 500 will reach our
                                                            3-month price target.




Exhibit 31: Average S&P 500 NTM P/E by Inflation Bands                                                   Exhibit 32: Avg S&P 500 NTM P/E by Real 10 Yr Bands
as of January 3, 2011                                                                                    as of January 3, 2011

                   20x                                                                                                      20x
                                                           Average S&P 500 Forward P/E by                                                                           Average S&P 500 Forward P/E by
                                         17.2x               Core CPI Bands, 1976-2010                                                                              Real 10 Yr Rate Bands, 1976-2010
                                 16.4x                                                                                                              16.3x
                   16x                                                                                                      16x                             14.9x
                         13.7x
                                                                                                          Average NTM P/E




                                                 12.7x
 Average NTM P/E




                                                                                                                                          12.1x                      12.4x
                   12x                                                                                                      12x
                                                         10.2x
                                                                 9.1x
                                                                         8.2x                                                                                                8.3x
                   8x                                                                                                             7.5x                                               7.7x    7.6x    7.3x
                                                                                 6.7x                                       8x
                                                                                         6.2x    6.4x

                          21      43     145      48      72       24     28       5      8       37
                   4x     mo                                                                                                4x    37       64       108      98       59      15      17      11      6
                                                                                                                                  mo


                   0x                                                                                                       0x
                         1% &    1% to   2% to   3% to   4% to   5% to   6% to   7% to   8% to    9% &
                                                                                                                                  1% &    1% to     2% to   3% to    4% to   5% to   6% to   7% to   8% to
                         below    2%      3%      4%      5%      6%      7%      8%      9%     above
                                                                                                                                  below    2%        3%      4%       5%      6%      7%      8%      9%
                                                   Core CPI Band
                                                                                                                                                  US Ten Year Yield minus Core CPI Band


Source: Haver Analytics, I/B/E/S, FactSet, and GS Global ECS Research.                                   Source: Haver Analytics, I/B/E/S, FactSet, and GS Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                         13
January 7, 2011                                                                                                                                                                        United States




                                           Dividend Discount Model, Cost of Equity and Equity Risk Premium
                                           Our year-end 2011 target of 1500 reflects the future value of our DDM and a potential return
                                           of 19% over the year. In our DDM, two input adjustments cause the 50 point valuation
                                           increase from our previous 12-month target of 1450:

                                                1.       Our future cash flow expectations increased as a result of higher S&P 500 earnings
                                                         estimates; and

                                                2.       We expect a larger decline in the cost of equity by year-end 2011. The cost of
                                                         equity declines when investors are more willing to carry risk, and stronger
                                                         economic growth in 2011 should reduce macro concerns currently priced into the
                                                         market.

                                           We divide the cost of equity into two parts: risk-free return and equity risk premium
                                           (ERP). We use the return on 10-year US government bonds as a proxy for the risk-free rate.
                                           The cost of equity spikes during times of uncertainty when investors are less willing to
                                           carry risk and recedes when the economic and financial environment is more stable.
                                           Exhibit 33: 3-month, 6-month and 12-month (year-end 2011) fair value estimate of S&P 500
                                                                                                                                           31-Dec-10      3 Month        6 Month        12 Month
                                           Assumptions
                                           Assumed long-term EPS growth rate
                                            Real growth rate                                                                                   2.5%             2.5%        2.5%              2.5%
                                            Nominal growth rate                                                                                2.1              2.1         2.1               2.0
                                           10 year US Treasury                                                                                 3.3              3.3         3.5               3.8
                                           Equity risk premium                                                                                 5.0              4.9         4.5               4.1
                                           Cost of Equity (risk free rate + ERP)                                                               8.3%             8.2%        8.0%              7.8%

                                           Calculation of DCF value
                                           Terminal year multiple                                                                              16.2 x           16.5 x      16.9 x            17.3 x
                                           PV of terminal year value                                                                            874              930         993              1072
                                           PV of dividends years 1-20                                                                           384              395         407               428
                                           PV of terminal year value + PV of dividends                                                         1258             1325        1400              1500

                                           S&P 500 DDM Fair Value                                                                                               1325        1400              1500
                                           Current S&P 500 Price                                                                               1258
                                            Premium / (Discount) to Current                                                                                      5%             11%           19%
                                           Source: Goldman Sachs Global ECS Research.


Exhibit 34: S&P 500 cost of equity = ERP + 10-year Treasury yield
as of January 3, 2011
18
                                                                                                                                           2011 Year-end Forward P/E
16                                                                    Forecast
                                                                                                                                           2011 Year-end Forward Cost of Equity
14                                                                                                                            14   7.5 %     7.6 %      7.7 %    7.8 %    7.9 %       8.0 %    8.1 %
                                                                                                                        1.4 %      13.3      12.9      12.6      12.2    11.9      11.6       11.3
12
                                                                                                                        1.5        13.6      13.2      12.9      12.5    12.2      11.9       11.6
                                                                                             Long-term core inflation




10                                                                                                                      1.6        13.9      13.5      13.2      12.8    12.5      12.2       11.9
                                                                                                                        1.7        14.3      13.9      13.5      13.1    12.8      12.4       12.1
                                                                          Cost of
 8                                                                                                                      1.8        14.6      14.2      13.8      13.5    13.1      12.7       12.4
                                                                          Equity
                                                                                                                        1.9        15.0      14.6      14.2      13.8    13.4      13.1       12.7
 6                                                                       ERP                                            2.0        15.4      15.0      14.5      14.1    13.7      13.4       13.0
 4                                                                                                                      2.1        15.8      15.4      14.9      14.5    14.1      13.7       13.3
                                                                       10 Year                                          2.2        16.2      15.8      15.3      14.9    14.5      14.0       13.7
 2                                                                   US Treasury                                        2.3        16.7      16.2      15.7      15.3    14.8      14.4       14.0
                                                                        Yield
                                                                                                                        2.4        17.2      16.6      16.1      15.7    15.2      14.8       14.4
 0
                                                                                                                        2.5        17.7      17.1      16.6      16.1    15.6      15.2       14.7
     Dec-81




              Dec-86




                        Dec-91




                                  Dec-96




                                                Dec-01




                                                            Dec-06




                                                                     Dec-11




                                                                                    Dec-16




                                                                                                                        2.6        18.2      17.6      17.1      16.5    16.0      15.6       15.1


Note: We estimate the equity risk premium (ERP) using our DDM framework to model expected future cash flows. We solve for the cost of equity that implies the
market is at ‘fair value’ and then deduct the 10-year US Treasury.

Source: IDC via FactSet and Goldman Sachs Global ECS Research.



Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                 14
January 7, 2011                                                                                                                              United States




Our best investment ideas for 2011: 1. Cyclicals vs. Defensives
                                         We created two baskets – Cyclicals and Defensives – by sorting 24 S&P 500 industry
                                         groups on the basis of their respective betas to the Wavefront US Growth basket.
                                         These betas serve as a measure of the relative economic cyclicality for each industry group.

                                         The stocks within each industry group with a beta greater than that of the S&P 500
                                         comprise the Cyclical Basket <GSSBCYCL>. Stocks within the industry groups with betas
                                         less than that of the S&P 500 comprise the Defensive Basket <GSSBDEFS>. These two
                                         baskets collectively account for 100% of the S&P 500 market capitalization.

                                         The S&P 500 industry groups provide greater granularity and precision in identifying
                                         cyclical and non-US exposures compared with the 10 S&P 500 sectors. We constructed
                                         our sector baskets on the basis of the 24 S&P 500 industry groups in order to differentiate
                                         within sectors that are often varied in composition. In some instances, all parts of a
                                         particular sector are contained within a given sector basket. For example, the Energy and
                                         Materials sectors are entirely contained within the Cyclicals basket. Other sectors, such as
                                         Information Technology and Consumer Discretionary, are broken up across baskets. In
                                         almost every instance, our industry group classifications are consistent with the economic
                                         sensitivities in our Wavefront models.

Exhibit 35: S&P 500 industry group international exposure, cyclicality and performance (market-cap weighted);
as of January 5, 2011
                                                                    Selection Criteria

                                                                  Non-U.S.  Beta to  Beta to   Weight in    2010     Sales growth    P/E
    Industry Group                       Sector                    Sales   WF Growth S&P 500   S&P 500     Return   2011      2012   NTM

 All Cyclicals <GSSBCYCL>                                           39 %          1.2    1.2     57 %        20 %   10 %      7%     13.8x

 Global Cyclicals <GSSBGCYC>
      Automobiles & Components           Consumer Discretionary     55 %          1.7    1.5        1%       53 %    7%       (0)%   10.5x
      Materials                          Materials                  48            1.4    1.4        4        22      6         6     15.5
      Semis & Semi Equipment             Information Technology     82            1.1    1.2        2        11      5         5     12.4
      Capital Goods                      Industrials                42            1.1    1.1        8        27      6         7     15.5
      Energy                             Energy                     46            1.1    1.2       12        20     17         9     13.4
      Consumer Durables & Apparel        Consumer Discretionary     43            1.0    1.1        1        31      6         8     16.9
      Tech Hardware & Equip              Information Technology     58            0.8    1.1        7        12      8         7     14.1
      Global Cyclicals Total                                        48 %          1.1    1.2       36 %      22 %   10        7      14.1

 Domestic Cyclicals <GSSBDCYC>
      Real Estate                        Financials                  7%           1.8    1.4        2%       32 %   NM      NM       18.9x
      Banks                              Financials                  0            1.8    1.2        3        20     NM      NM       14.5
      Diversified Financials             Financials                 29            1.5    1.4        8         5     NM      NM       11.8
      Insurance                          Financials                 25            1.3    1.1        4        16     NM      NM       11.7
      Transportation                     Industrials                18            1.1    1.1        2        32      9       7       17.0
      Media                              Consumer Discretionary     22            1.0    1.1        3        23      5       5       14.9
      Domestic Cyclicals Total                                      22 %          1.4    1.3       22 %      16 %    6        6      13.3

 All Defensives <GSSBDEFS>                                          20 %          0.4    0.8     43 %        11 %    5%       4%     13.9x

 Global Defensives <GSSBGDEF>
      Software & Services                Information Technology     42 %          0.7    0.9        9%        7%     8%        7%    14.7x
      Consumer Services                  Consumer Discretionary     37            0.6    0.9        2        29      5         6     17.2
      Household & Personal Products      Consumer Staples           61            0.3    0.5        2         8      4         5     15.6
      Food, Beverage & Tobacco           Consumer Staples           40            0.3    0.6        6        19      7         4     14.4
      Pharm, Biotech & Life Sciences     Health Care                48            0.2    0.7        7         2      3        (0)    10.9
      Global Defensives Total                                       45 %          0.4    0.7       26 %       9%     6        4      13.5

 Domestic Defensives <GSSBDDEF>
      Commercial & Professional Srvcs    Industrials                20 %          0.7    0.9        1%       12 %    5%      5%      16.1x
      Retailing                          Consumer Discretionary     12            0.7    0.9        4        25      6       6       17.2
      Utilities                          Utilities                   5            0.4    0.8        3         5     NM      NM       12.7
      Telecom Services                   Telecom Services            3            0.4    0.9        3        19      2       2       17.1
      Health Care Equipment & Services   Health Care                 6            0.3    0.9        4         4      4       4       13.0
      Food & Staples Retailing           Consumer Staples           15            0.2    0.6        2         9      5       5       13.7
      Domestic Defensives Total                                     10 %          0.4    0.8       17 %      12 %    5        4      14.6
 S&P 500                                                            30 %          0.8    1.0      100 %      15 %    7%       6%     13.8x
Source: FactSet, Compustat, Company 10-K filings, and Goldman Sachs Global ECS Research.



Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                      15
January 7, 2011                                                                                                                                                                                                            United States




GSSBCYCL – Cyclicals Basket

Exhibit 36: Stocks that are leveraged to US growth (Bloomberg ticker: <GSSBCYCL>)
We recommend investors BUY our Cyclicals basket and SELL our Defensives basket. The Cyclicals basket was introduced
in April 2010 and contains all S&P industry groups with a beta to the Wavefront US Growth basket <GSWBGDPA> higher
than the S&P 500’s beta to the Wavefront US Growth basket. Fifteen of the 24 industry groups, spanning seven of the ten
S&P sectors, are included in the Cyclicals basket with a weighted-average beta of 1.2 to the Wavefront US Growth basket
(S&P 500 beta to Wavefront US Growth is 0.8).

See our US Sector Views: Overweight Global Cyclicals; Underweight Domestic Defensives report (April 26, 2010).
                                Modeled Relative performance                                                                                                               Constituent attributes
   106                                                                                                                                                 x    Key Criteria: Industry groups with a beta to the
                                                                                                                                                            Wavefront US Growth basket higher than the S&P
                                                                                                                                                            500’s beta to the Wavefront US Growth basket.
   104
                                                                                                                                                       x    Growth: In aggregate, the basket is expected to grow
                                                                                                                                                            sales 10% and earnings 17% in 2011 vs. 7% and 15%
   102
                                                                                                                                                            for the S&P 500 aggregate.
                                                                                              Relative Performance
                                                                                                                                                       x    Valuation: The P/E of the basket trades in-line with
   100
                                                                                              Long GSSBCYCL /
                                                                                                 Short SPX                                                  the S&P 500 (13.8x vs. 13.8x).
                                                                                                                                                       x    Sector Exposure: Largest sectors include Financials
    98                                                                                                                                                      (26%) and Energy (21%).
                                       Mar-10
         Dec-09




                                                                                               Sep-10

                                                                                                          Oct-10




                                                                                                                            Dec-10
                                                                                                                   Nov-10
                   Jan-10




                                                 Apr-10




                                                                                                                                     Jan-11
                            Feb-10




                                                          May-10

                                                                   Jun-10

                                                                            Jul-10

                                                                                     Aug-10




                                                                                                                                              Feb-11




                                                                                                                                                       x    Performance: +4.0% since inception vs. +4.8% for the
                                                                                                                                                            S&P 500.

Source: FactSet and Goldman Sachs Global ECS Research.



Exhibit 37: Cyclical Basket Composition <GSSBCYCL>
as of December 31, 2010

                                                                        CYCLICALS Basket Composition <GSSBCYCL>
                                                          By Sector                                                                                                                By Industry Group
                                                                                                                                                                                 Cons Durables Autos &
                                                Materials          Health Care                                                                                                      & Apparel Components
                                                                       0%                                                                                               Real Estate    2%                Pharm, Biotech
                   Consumer                       6%                                                                                                        Software &                           2%
                                                                                                                                                                            3%                           & Life Sciences
                  Discretionary                                                                                                                              Services
                                                                                                  Financials                                                                                                    0%
                       9%                                                                                                                                       3%
                                                                                                     26%                                                   Transportation                                         Energy
                                                                                                                                                                 4%                                                 21%
                                                                                                                                                            Semis & Semi
                                                                                                                                                              Equpmt
                                                                                                                                                                 4%

     Industrials                                                                                                                                               Banks
        18%                                                                                                                                                     5%

                                                                                                                                                               Media
                                                                                                                                                                6%                                                      Capital Goods
                                                                                                                                                                                                                             14%
                                                                                                                                                                 Materials
                                                                                                                                                                   6%
                                                                                                        Energy
                                                                                                         21%
                                                                                                                                                                       Insurance
                                     Info Tech
                                                                                                                                                                          6%                                Tech HW &
                                        20%
                                                                                                                                                                                    Diversified              Equpmt
                                                                                                                                                                                    Financials                 13%
                                                                                                                                                                                       11%


Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                       16
January 7, 2011                                                                                                                                                                                                       United States




GSSBDEFS – Defensives Basket

Exhibit 38: Stocks that are less sensitive to US Growth (Bloomberg ticker: <GSSBDEFS>)
We recommend investors SELL our Defensives basket and BUY our Cyclicals basket. The Defensives basket was
introduced in April 2010 and contains all S&P industry groups with a beta to the Wavefront US Growth basket
<GSWBGDPA> lower than the S&P 500’s beta to the Wavefront US Growth basket. Thirteen of the 24 industry groups,
spanning nine of the ten S&P sectors, are included in the Defensives basket with a weighted-average beta of 0.4 to the
Wavefront US Growth basket (S&P 500 beta to Wavefront US Growth is 0.8).

See our US Sector Views: Overweight Global Cyclicals; Underweight Domestic Defensives report (April 26, 2010).
                                 Modeled Relative performance                                                                                                           Constituent attributes
   102                                                                                                                                            x      Key Criteria: Industry groups with a beta to the
                                      Relative Performance                                                                                               Wavefront US Growth basket lower than the S&P
   101
                                      Long GSSBDEFS /                                                                                                    500’s beta to the Wavefront US Growth basket.
   100                                   Short SPX
                                                                                                                                                  x      Growth: In aggregate, the basket is expected to grow
    99                                                                                                                                                   sales 5% and earnings 9% in 2011 vs. 7% and 15% for
    98                                                                                                                                                   the S&P 500 aggregate.

    97
                                                                                                                                                  x      Valuation: The P/E of the basket trades in-line with
                                                                                                                                                         the S&P 500 (13.9x vs. 13.8x).
    96
                                                                                                                                                  x      Sector Exposure: Largest sectors include Consumer
    95                                                                                                                                                   Staples (26%) and Health Care (26%).
                                      Mar-10
         Dec-09




                                                                                            Sep-10

                                                                                                     Oct-10




                                                                                                                       Dec-10
                  Jan-10




                                               Apr-10




                                                                                                              Nov-10




                                                                                                                                Jan-11
                             Feb-10




                                                        May-10

                                                                 Jun-10

                                                                          Jul-10

                                                                                   Aug-10




                                                                                                                                         Feb-11




                                                                                                                                                  x      Performance: +5.7% since inception vs. +4.8% for the
                                                                                                                                                         S&P 500.

Source: FactSet and Goldman Sachs Global ECS Research.



Exhibit 39: Defensive Basket Composition <GSSBDEFS>
as of December 31, 2010

                                                                  DEFENSIVES Basket Composition <GSSBDEFS>
                                                        By Sector                                                                                                               By Industry Group
                                                                                                                                                                                  Commercial &   Materials
                                                                                                                                                                      Consumer
                                                                                                                                                                                   Prof Srvcs      0%
                                         Industrials Materials                                                                                                         Services                          Energy
                                                                                                                                                                                      2%
                                             2%        0%                               Energy                                                             Household &   4%                                0%
                                 Telecom                                                                                                                    Personal
                             Services                                                    0%                                                                                                                 Pharm, Biotech
                                                                                                                                                            Products
                                8%                                                              Consumer                                                       6%                                           & Life Sciences
                                                                                                                                                                                                                  18%
                       Utilities                                                                 Staples
                         8%                                                                       26%                                                 Food & Staples
                                                                                                                                                        Retailing
                                                                                                                                                           6%

                                                                                                                                                          Telecom
    Consumer                                                                                                                                              Services
                                                                                                                                                             7%                                                    Software &
   Discretionary                                                                                                                                                                                                    Services
       13%                                                                                                                                                                                                            17%
                                                                                                                                                              Utilities
                                                                                                                                                                8%



                                                                                                                                                                  Health Care
                                                                                            Health Care                                                            Equpmt &
                           Info Tech                                                                                                                               Services                             Food, Beverage
                                                                                               26%
                              17%                                                                                                                                     9%          Retailing               & Tobacco
                                                                                                                                                                                    9%                       14%



Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                               17
January 7, 2011                                                                                                                       United States




Exhibit 40: Top 20 stocks in the Cyclicals Basket (Bloomberg ticker: <GSSBCYCL>)
as of December 31, 2010

                                    Top 20 Stocks in the Cyclicals Basket <GSSBCYCL>

                                                                                                                                       Basket
 Company                           Ticker    Sector                   Industry Group                                     GS Rating    Weight (%)
 Exxon Mobil Corp.                 XOM       Energy                   Energy                                             Neutral          5.8
 Apple Computer                    AAPL      Information Technology   Technology Hardware & Equipment                    Buy*             4.5
 General Electric                  GE        Industrials              Capital Goods                                      Buy              3.0
 International Bus. Machines       IBM       Information Technology   Software & Services                                Neutral          2.9
 Chevron Corp.                     CVX       Energy                   Energy                                             Neutral          2.8
 JPMorgan Chase & Co.              JPM       Financials               Diversified Financials                             Buy*             2.6
 Wells Fargo                       WFC       Financials               Banks                                              Neutral          2.5
 Bank of America Corp.             BAC       Financials               Diversified Financials                             Buy              2.1
 Berkshire Hathaway Inc.           BRK.B     Financials               Insurance                                          NC               2.0
 Intel Corp.                       INTC      Information Technology   Semiconductors & Semiconductor Equipment           Neutral          1.8
 Cisco Systems                     CSCO      Information Technology   Technology Hardware & Equipment                    Neutral          1.8
 Schlumberger Ltd.                 SLB       Energy                   Energy                                             Buy              1.8
 ConocoPhillips                    COP       Energy                   Energy                                             Neutral          1.6
 Hewlett-Packard                   HPQ       Information Technology   Technology Hardware & Equipment                    Sell             1.5
 Citigroup Inc.                    C         Financials               Diversified Financials                             Buy*             1.4
 QUALCOMM Inc.                     QCOM      Information Technology   Technology Hardware & Equipment                    Buy*             1.3
 Occidental Petroleum              OXY       Energy                   Energy                                             Buy*             1.2
 United Technologies               UTX       Industrials              Capital Goods                                      Buy              1.1
 Walt Disney Co.                   DIS       Consumer Discretionary   Media                                              Buy              1.1
 United Parcel Service             UPS       Industrials              Transportation                                     Buy*             1.1
   Total                                                                                                                                 44.0
Asterisk denotes Conviction List

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.



Exhibit 41: Top 20 stocks in the Defensive Basket (Bloomberg ticker: <GSSBDEFS>)
as of December 31, 2010

                                    Top 20 Stocks in the Defensives Basket <GSSBDEFS>

                                                                                                                                       Basket
 Company                           Ticker   Sector                       Industry Group                                   GS Rating   Weight (%)
 Microsoft Corp.                   MSFT     Information Technology       Software & Services                              Neutral         4.5
 Procter & Gamble                  PG       Consumer Staples             Household & Personal Products                    Buy             3.9
 AT & T Inc.                       T        Telecommunication Services   Telecommunication Services                       Buy             3.6
 Johnson & Johnson                 JNJ      Health Care                  Pharmaceuticals Biotechnology & Life Sciences    Neutral         3.6
 Coca-Cola Co.                     KO       Consumer Staples             Food Beverage & Tobacco                          Buy             3.2
 Google Inc.                       GOOG     Information Technology       Software & Services                              Buy             3.0
 Pfizer, Inc.                      PFE      Health Care                  Pharmaceuticals Biotechnology & Life Sciences    Buy             3.0
 Oracle Corp.                      ORCL     Information Technology       Software & Services                              Buy*            2.6
 Wal-Mart Stores                   WMT      Consumer Staples             Food & Staples Retailing                         Buy             2.4
 Merck & Co.                       MRK      Health Care                  Pharmaceuticals Biotechnology & Life Sciences    Neutral         2.4
 Philip Morris Intl                PM       Consumer Staples             Food Beverage & Tobacco                          Buy             2.3
 PepsiCo Inc.                      PEP      Consumer Staples             Food Beverage & Tobacco                          Buy             2.2
 Verizon Communications            VZ       Telecommunication Services   Telecommunication Services                       Neutral         2.1
 McDonald's Corp.                  MCD      Consumer Discretionary       Consumer Services                                Neutral         1.7
 Abbott Labs                       ABT      Health Care                  Pharmaceuticals Biotechnology & Life Sciences    Neutral         1.6
 Amazon.com                        AMZN     Consumer Discretionary       Retailing                                        Buy             1.3
 Home Depot                        HD       Consumer Discretionary       Retailing                                        Neutral         1.3
 Kraft Foods                       KFT      Consumer Staples             Food Beverage & Tobacco                          Neutral         1.1
 Amgen                             AMGN     Health Care                  Pharmaceuticals Biotechnology & Life Sciences    Sell            1.1
 Altria Group, Inc.                MO       Consumer Staples             Food Beverage & Tobacco                          Neutral         1.1
   Total                                                                                                                                  47.9
Asterisk denotes Conviction List

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.


Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                18
January 7, 2011                                                                                                                                                                                                                                                         United States




2. GSTHBETA – Dual Beta Basket

Exhibit 42: Stocks with highest combined beta to both US economy and US stock market (Bloomberg:<GSTHBETA>)
We recommend investors BUY our Dual Beta basket, introduced in December 2010, a sector-neutral basket containing 50
stocks with the highest combined beta to both the US economy and the US stock market. We define sensitivity to the US
economy in terms of beta to the Wavefront Growth basket <GSWBGDPA> and sensitivity to the stock market in
traditional terms as beta to the S&P 500. This “dual high beta” basket will outperform if our expectations of economic
growth and a stock market rally are realized. The dual beta basket has an average dual beta of 1.7 and the S&P 500
average has a dual beta of 1.1.

See our report 2011 US equity outlook: Easy Money, hard market (December 1, 2010) for more details.
                                          Modeled Relative performance                                                                                                                                                         Constituent attributes
 116                                                                                                                                                                                                       x    Key Criteria: S&P 500 stocks with the highest average
                                                                                                                                                                                                                beta to the index itself and the Wavefront US Growth
                                                                                                                Relative Performance
 112                                                                                                            Long GSTHBETA /                                                                                 basket <GSWBGDPA>.
                                                                                                                   Short SPX                                                                               x    Growth: Dual Beta basket is expected to grow 2011
 108                                                                                                                                                                                                            sales by 11% and earnings by 23% on average. The
                                                                                                                                                                                                                S&P 500 is expected to have lower average sales
 104                                                                                                                                                                                                            growth (8%) and earnings growth (14%).
                                                                                                                                                                                                           x    Valuation: The average P/E of the basket trades at a
 100
                                                                                                                                                                                                                premium multiple of 19.1x vs. 16.6x for the S&P 500
                                                                                                                                                                                                                average.
  96
                                                                                                                                                                                                           x    Sector Exposure: Largest sectors include Info Tech
                                                                                                                                             Sep-10
                        Jan-10




                                                                          Apr-10




                                                                                                                                                                      Nov-10



                                                                                                                                                                                                  Jan-11
                                                                                                                 Jul-10
                                      Feb-10

                                                        Mar-10



                                                                                           May-10

                                                                                                       Jun-10



                                                                                                                               Aug-10
               Dec-09




                                                                                                                                                             Oct-10



                                                                                                                                                                                    Dec-10




                                                                                                                                                                                                                (20%) and Financials (17%).
                                                                                                                                                                                                           x    Performance: +10.9% since inception vs. +4.4% for the
                                                                                                                                                                                                                S&P 500.

Source: FactSet and Goldman Sachs Global ECS Research.
Exhibit 43: Median dual beta by sector for the basket                                                                                                                                                      Exhibit 44: Sector composition of GSTHBETA Basket

               3.0                                                                                                                                                                                                                           Telecom
                                                                                                                                                                                                                                   Utilities Services
                                                                                           GSTHBETA                                                                                                                                   4%        2%
                                                                                    Median Dual Beta by Sector                                                                                                               Materials
               2.5                                                                                                                                                                                                             4%                        Info Tech
                                                                                                                                                                                                                                                            20%
                                                                                                                                                                                                                    Consumer
                                                                                                                                                                                                                     Staples
                                                                                                                                                                                                                       9%
               2.0
   Dual Beta




               1.5                                                                                                                                                                                             Industrials
                                                                                                                                                                                                                  10%
                                                                                                                                                                                                                                                                      Financials
                                                                                                                                                                                                                                                                         17%
               1.0


                                                                                                                                                                                                                 Consumer
               0.5                                                                                                                                                                                              Discretionary
                                           Financials


                                                                 Energy
                          Materials




                                                                                                                 Industrials




                                                                                                                                                 Utilities




                                                                                                                                                                               Consumer
                                                                                                                                                                Services
                                                                                   Discretionary
                                                                                                    Dual Beta




                                                                                                                                 Info Tech




                                                                                                                                                                                             Health Care
                                                                                                                                                                Telecom




                                                                                                                                                                                                                    10%
                                                                                                                                                                                Staples
                                                                                    Consumer



                                                                                                     Basket




                                                                                                                                                                                                                                                        Health Care
                                                                                                                                                                                                                                 Energy
                                                                                                                                                                                                                                                           12%
                                                                                                                                                                                                                                  12%



Source: FactSet and Goldman Sachs Global ECS Research.                                                                                                                                                     Source: FactSet and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                                                                  19
January 7, 2011                                                                                                                               United States




GSTHBETA: Dual Beta Basket Constituents

Exhibit 45: Dual Beta Basket Constituents (Bloomberg ticker: <GSTHBETA>)
as of December 31, 2010

                                         2010                   2010-11                                                2010               2010-11
                                         Total Market   NTM     Earnings   Dual                                        Total Market   NTM Earnings   Dual
  Company Name                 Ticker   Return Cap      P/E      Growth    Beta    Company Name              Ticker   Return Cap      P/E  Growth    Beta
Information Technology                                                            Consumer Staples
  MEMC Electronic Materials    WFR       (17)% $ 2.6     11.2      NM       1.9    Whole Foods Market Inc.   WFMI       84 % $ 8.7    29.6    17 %    1.0
  Monster Worldwide            MWW        36     3.1      NM       NM       1.9    Estee Lauder              EL         69    15.8    24.3    17      1.0
  Teradyne Inc.                TER        31     2.5     12.3      (34)     1.8    Avon Products             AVP        (5)   12.5    14.0    14      1.0
  Jabil Circuit                JBL        18     4.4      8.9       33      1.8    Supervalu Inc.            SVU       (22)    2.0     6.5    (3)     0.9
  JDS Uniphase Corp            JDSU       76     3.2     19.4       40      1.7    Constellation Brands      STZ        39     4.7    12.3     8      0.8
  Advanced Micro Devices       AMD       (15)    5.6     23.0       (9)     1.7
  SanDisk Corp.                SNDK       72    11.7     13.3      (11)     1.6     Basket Average                           $ 8.8    17.3    11 %    0.9
  NVIDIA Corp.                 NVDA      (18)    8.9     23.0       24      1.5
  First Solar Inc.             FSLR       (4)   11.2     17.6       20      1.4   Industrials
  KLA-Tencor Corp.             KLAC       10     6.5      9.6       43      1.4     Masco Corp.              MAS       (6)% $ 4.5     33.3    84 %    2.0
                                                                                    Textron Inc.             TXT       26     6.5     22.5    69      1.8
  Basket Average                               $ 6.0     15.4       13 %    1.7     Cummins Inc.             CMI      143    21.8     16.6    38      1.8
                                                                                    Flowserve Corp.          FLS       28     6.7     15.5    17      1.7
Financials                                                                          Caterpillar Inc.         CAT       69    59.4     17.2    47      1.6
  Cb Richard Ellis Group Inc   CBG        51 % $ 6.6     22.5       35 %    2.4
  Marshall & Ilsley Corp.      MI         28     3.7      NM       NM       2.2     Basket Average                           $ 19.8   21.0    51 %    1.8
  Genworth Financial Inc.      GNW        16     6.4     11.8       86      2.2
  Zions Bancorp                ZION       89     4.3      NM       NM       2.2   Consumer Discretionary
  ProLogis                     PLD        11     8.2     21.7       19      2.1    Goodyear Tire & Rubber    GT        (16)% $ 2.9    10.0   NM       2.1
  Host Hotels & Resorts Inc.   HST        54    11.9     20.5       38      2.1    Office Depot              ODP       (16)    1.5     NM    NM       2.0
  Janus Capital Group          JNS        (3)    2.4     15.6       18      2.1    Lennar Corp               LEN        48     3.5    65.8    78      2.0
  Regions Financial Corp.      RF         33     8.8      NM       NM       2.0    Gannett Co.               GCI         3     3.6     6.6    (9)     2.0
                                                                                   Wynn Resorts              WYNN       93    12.9    47.0    46      2.0
  Basket Average                               $ 6.5     18.4       39 %    2.2
                                                                                    Basket Average                           $ 4.9    32.4    39 %    2.0
Energy
 Massey Energy Co.             MEE        29 % $ 5.5     20.2      NM       2.6   Materials
 Consol Energy Inc.            CNX        (1)   11.0     17.3       25      2.1    AK Steel                  AKS       (22)% $ 1.8     NM    NM       2.6
 Nabors Industries Ltd.        NBR         7     6.7     15.5       59      2.0    Cliffs Natural            CLF        71    10.6     9.5    36      2.5
 Peabody Energy Corp.          BTU        42    17.3     14.1       48      1.9
 Rowan Cos.                    RDC        54     4.4     19.4       (7)     1.9     Basket Average                           $ 6.2     9.5    36 %    2.5
 Pioneer Natural               PXD        80    10.1     36.3       63      1.8
                                                                                  Utilities
  Basket Average                               $ 9.2     20.5       37 %    2.1     AES Corp.                AES        (8)% $ 9.6     9.8    16 %    1.6
                                                                                    NRG Energy               NRG       (17)    4.8    13.8   (60)     1.1
Health Care
 Tenet Healthcare Corp.        THC        24 % $ 3.2     21.6      (10)%    1.5     Basket Average                           $ 7.2    11.8   (22)%    1.4
 Intuitive Surgical            ISRG      (15)   10.1     26.6       18      1.1
 PerkinElmer                   PKI        27     3.0     16.8       23      0.9   Telecommunication Services
 King Pharmaceutical           KG         15     3.5     21.0        2      0.9     Sprint Nextel Corp.      S         16 % $ 12.6     NM    NM       1.3
 Boston Scientific             BSX       (16)   11.5     18.5       16      0.8
 Coventry Health Care          CVH         9     3.9      9.3      (21)     0.7
                                                                                  Dual Beta Basket Average                   $ 8.2    19.1   23 %      1.7
  Basket Average                               $ 5.9     19.0        5%     1.0   S&P 500 Average                             23.9    16.6   14        1.1

Source: Compustat, First Call, FactSet and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                           20
January 7, 2011                                                                                                                                                                   United States




3. GSTHGROE – ROE Growth basket

Exhibit 46: Stocks with the best ROE growth outlook (Bloomberg ticker: <GSTHGROE>)

We recommend investors BUY our ROE Growth basket, introduced in December 2010, that consists of 50 S&P 500 stocks
with the best 2011 ROE growth on a sector-neutral basis. Stocks are selected based on Goldman Sachs equity analysts’
forecasts for earnings and book value growth. This strategy has outperformed the S&P 500 in 64% of quarters since 2005
by 43 bp per quarter on average. Our methodology was developed in a 30-year study using perfect information and then
tested with forward-looking analyst estimates over the past five years (22 quarters). To be eligible for the basket, we
applied a number of filters: (1) ROE growth between +50% and -50%; (2) LTM ROE greater than 1.0; (3) P/B between 0 and
25X (LTM); and (4) forecast ROE level between +100% and -100%. We expect companies that generate the highest ROE to
also experience P/B expansion.

See our report 2011 US equity outlook: Easy money, hard market (December 1, 2010) for more details.

                             Modeled Relative Performance                                                                                            Constituent attributes
 108                                                                                                                                 x Key Criteria: Screen S&P 500 stocks with highest ROE
                                                                                                                                        growth based on GS analysts’ estimates for the
 106                                                                                                                                    subsequent 12-month period.
                                  Relative Performance
                                  Long GSTHGROE /                                                                                    x Growth: The basket is expected to grow 2011 sales
 104                                 Short SPX
                                                                                                                                        by 10% and earnings by 20% on average. The S&P
 102                                                                                                                                    500 is expected to have lower average sales growth
                                                                                                                                        and earnings growth (8% and 14%).
 100
                                                                                                                                     x Valuation: The average P/E of the basket trades at a
                                                                                                                                        premium to the S&P 500 average (17.5x vs. 16.6x).
  98
                                                                                                                                     x Sector Exposure: The largest sectors include Info
  96                                                                                                                                    Tech (19%) and Financials (17%).
                                                                      Jul-10
                         Feb-10

                                  Mar-10



                                                    May-10

                                                             Jun-10



                                                                               Aug-10
       Dec-09




                                                                                        Sep-10

                                                                                                 Oct-10



                                                                                                                   Dec-10
                Jan-10




                                           Apr-10




                                                                                                          Nov-10



                                                                                                                            Jan-11




                                                                                                                                     x Performance: +3.4% since inception vs. +4.4% for the
                                                                                                                                        S&P 500.

Source: FactSet and Goldman Sachs Global ECS Research.

Exhibit 47: Sector composition of GSTHGROE Basket
as of December 31, 2010
                                                                                                                          Telecom
                                                                                                                Utilities Services
                                                                                                                   4%        2%
                                                                                                          Materials
                                                                                                            4%                               Info Tech
                                                                                                                                                19%
                                                                                Consumer
                                                                               Discretionary
                                                                                   10%



                                                                         Consumer
                                                                          Staples
                                                                           10%                                                                           Financials
                                                                                                                                                            17%



                                                                               Industrials
                                                                                  10%

                                                                                                                                            Energy
                                                                                                          Health Care                        12%
                                                                                                             12%

Source: FactSet, and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                           21
January 7, 2011                                                                                                                                            United States




GSTHGROE: ROE Growth Basket Constituents

Exhibit 48: Constituents of the Goldman Sachs ROE Growth basket (Bloomberg ticker: <GSTHGROE>)
as of December 31, 2010
                                         2010                       GS Estimates                                               2010                      GS Estimates
                                         Total Price to   ROE     Forward ROE                                                  Total Price to   ROE    Forward   ROE
  Company Name                 Ticker   Return Book       LTM      ROE     Growth      Company Name                 Ticker    Return Book       LTM     ROE     Growth
Information Technology                                                                Consumer Discretionary
  Autodesk, Inc.               ADSK       50 %     5.7     13 %     19 %     45 %      Hasbro Inc.                  HAS         51 %     4.1    27 %     36 %     36 %
  Juniper Networks Inc.        JNPR       38       3.2      7        9       28        Family Dollar Stores         FDO         81       4.4    25       33       32
  Intuit, Inc.                 INTU       60       5.8     20       26       28        Time Warner Cable            TWC         64       2.6    14       18       31
  Akamai Technologies Inc.     AKAM       86       4.6      8       11       28        Priceline.com                PCLN        83      13.9    33       43       29
  Red Hat Inc                  RHT        48       7.6      8       11       27        Fortune Brands, Inc.         FO          42       1.7     8       10       29
  Oracle Corp.                 ORCL       29       5.0     22       27       27
  Symantec Corp.               SYMC       (6)      2.9     17       22       25         Basket Median                                    4.1    25 %     33 %     31 %
  Broadcom Corporation         BRCM       40       5.1     20       24       22         Sector Median                                    2.9    16       18       12
  QUALCOMM Inc.                QCOM        9       3.9     16       18       18
  Visa Inc                     V         (19)      2.1     12       14       15       Consumer Staples
                                                                                       Estee Lauder                 EL          69 %     7.8    26 %     34 %     30 %
  Basket Median                                    4.8     14 %     19 %     27 %      Procter & Gamble             PG           9       2.8    17       21       27
  Sector Median                                    3.2     19       19       (1)       Campbell Soup                CPB          6      11.3    79       98       24
                                                                                       Coca-Cola Co.                KO          19       5.9    29       34       14
Financials                                                                             The Hershey Company          HSY         36      14.3    67       71        6
  Legg Mason Inc               LM         21 %     1.0      4%       6%      50 %
  NASDAQ OMX Group             NDAQ       20       0.8      6        8       39         Basket Median                                    7.8    29 %     34 %     24 %
  Cb Richard Ellis Group Inc   CBG        51      10.0     24       33       38         Sector Median                                    3.9    21       22        7
  Plum Creek Timber Co.        PCL         4       4.2     12       16       32
  Ameriprise Financial         AMP        51       1.4     10       13       26       Materials
  U.S. Bancorp                 USB        21       2.0     12       14       23        Monsanto Co.                 MON        (13)%     3.6    11 %     15 %     44 %
  JPMorgan Chase & Co.         JPM         2       1.0      9       12       23        Bemis Company                BMS         14       2.0    10       14       41
  Public Storage               PSA        29       3.2      7        9       21
                                                                                        Basket Median                                    2.8    10 %     15 %     43 %
  Basket Median                                    1.7     10 %     12 %     29 %       Sector Median                                    3.3    12       16       13
  Sector Median                                    1.3      7        9       12
                                                                                      Utilities
Energy                                                                                  Duke Energy                 DUK         10 %     1.1     6%       7%      32 %
 Sunoco., Inc.                 SUN        57 %     1.8      6%       9%      50 %       Sempra Energy               SRE         (3)      1.4     8       11       32
 Peabody Energy Corp.          BTU        42       4.3     17       25       50
 Halliburton Co.               HAL        37       4.0     15       23       48         Basket Median                                    1.2     7%       9%      32 %
 Murphy Oil                    MUR        40       1.9     12       18       45         Sector Median                                    1.5    11       11        2
 Chesapeake Energy Corp.       CHK         1       1.5      8       10       25
 Noble Energy                  NBL        22       2.3     11       13       25       Telecommunication Services
                                                                                        MetroPCS Communications PCS             66 %     1.9     9%      12 %     34 %
  Basket Median                                    2.1     11 %     16 %     46 %
  Sector Median                                    2.3     12       11       12         Sector Median                                            9       12       17

Health Care
 Express Scripts               ESRX       25 %     8.1     31 %     42 %     34 %
 Abbott Labs                   ABT        (8)      3.5     22       30       33
 Baxter International Inc.     BAX       (12)      4.5     24       32       31
 Cephalon Inc                  CEPH       (1)      2.0     18       24       31
 BIOGEN IDEC Inc.              BIIB       25       2.9     19       24       24
 Celgene Corp.                 CELG        6       5.8     19       23       19

  Basket Median                                    4.0     21 %     27 %     31 %
  Sector Median                                    2.9     19       19        2

Industrials
  Caterpillar Inc.             CAT        69 %     6.5     21 %     32 %     48 %
  Ingersoll Rand               IR         33       2.1      9       13       42
  Parker-Hannifin              PH         63       3.0     16       21       36
  Eaton Corp.                  ETN        64       2.5     13       17       35
  Honeywell Int'l Inc.         HON        39       4.5     22       29       33


  Basket Median                                    3.0     16 %     21 %     36 %     ROE Basket Median                                  3.4    15 %    19 %      31 %
  Sector Median                                    2.9     15       17       14       S&P 500 Median                                     2.6    14      15         8

Note: The ability to trade this basket will depend upon market conditions, including liquidity and borrow constraints at the time of trade.
Source: FactSet, Compustat, Goldman Sachs Research estimates and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                      22
January 7, 2011                                                                                                                                                                                                           United States




4. GSTHSHRP – High Sharpe Ratio Basket

Exhibit 49: Stocks with high risk-adjusted returns using consensus price targets and options implied volatility
We recommend investors BUY our High Sharpe Ratio basket, introduced in December 2009 and last rebalanced in
December 2010 that consists of a sector-neutral portfolio of 50 stocks with the highest prospective ratio of return to risk.
We measure return by using the price return to a stock’s mean consensus price target and risk by using the 6-month
options implied volatility. The inclusion of a risk component creates approximately a 20% differentiation between the
Sharpe Ratio selection strategy and a pure return to target selection strategy.

See our Using Sharpe Ratios to enhance fund returns (March 19, 2010) for details.
                                                                 Relative performance                                                                                                     Constituent attributes
 120                                                                                                                                                                  x    Key Criteria: Screen S&P 500 stocks with high risk-
                                                                                                                                                                           adjusted returns calculated as the ratio of return to
 115                                          Relative Performance                                                                                                         price target and 6-month implied volatility.
                                              Long GSTHSHRP /
                                                 Short SPX                                                                                                                 Rebalanced semi-annually.
 110                                                                                                                                                                  x    Growth: The basket is expected to grow sales 6%
                                                                                                                                                                           and earnings 8% on average in 2011, lower than
 105                                                                                                                                                                       expected sales and earnings growth for the S&P 500
                                                                                                                                                                           average (8% and 14%).
 100
                                                                                                                                                                      x    Valuation: The basket has an average P/E of 13.1x, a
                                                                                                                                                                           steep discount to the 16.6x for the S&P 500 average.
  95
                                                                                                                                                                           Sector Exposure: Largest sectors include Info Tech
                                                                                                              Sep-10
                                                                 Apr-10
                                     Jan-10




                                                                                            Jul-10




                                                                                                                                Nov-10



                                                                                                                                                   Jan-11
                                               Feb-10

                                                        Mar-10




                                                                                   Jun-10




                                                                                                                                                            Feb-11
                                                                          May-10




                                                                                                     Aug-10



                                                                                                                       Oct-10
                            Dec-09




                                                                                                                                         Dec-10




                                                                                                                                                                      x
                                                                                                                                                                           (19%) and Financials (17%).
                                                                                                                                                                      x    Performance: +32.6% since inception vs. +16.4% for
                                                                                                                                                                           S&P 500 and +26.6% YTD vs. +15.1% for S&P 500.

Source: FactSet and Goldman Sachs Global ECS Research.



Exhibit 50: GSTHSHRP has outperformed the S&P 500 on a risk-adjusted basis since inception
as of December 31, 2010

                             2.0
                                                                                                                                         Realized Risk Adjusted Return Ratio                          "Sharpe" Strategy
                                                                                                                                                                                                        <GSTHSHRP>
                                                                                                                                               (31-Dec-09 to 31-Dec-10)
                             1.5                                                                                                                                                                             1.3
  Return / Annualized Vol




                                                                                                                                  GSTHSHRP vs. Top 200 Large-Cap Core Mutual Funds
                                                                                                                                                                           S&P 500
                             1.0                                                                                                                                             0.8


                             0.5


                             0.0


                            (0.5)
                                                                          Lower Sharpe Ratio                                                                                                  Higher Sharpe Ratio
                            (1.0)
                                      0                          20                         40                         60                          80                100        120         140        160          180           200
                                                                                                                                                  Large-Cap Core Mutual Funds




Source: Compustat and Goldman Sachs Global ECS Research.




Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                   23
January 7, 2011                                                                                                                                     United States




GSTHSHRP: High Sharpe Ratio Basket Constituents

Exhibit 51: High Sharpe Ratio Basket Constituents (Bloomberg ticker: <GSTHSHRP>)
as of December 31, 2010

                                                                                                           EARNINGS            SALES            VALUATION

                                                             2010                 6-Mo      Expected     2010E - 2011E -   2010E - 2011E -     P/E        GS
                                                             Total    Expected   Implied     Return /     2011E 2012E       2011E 2012E       Ratio      Value
         Company Name              Ticker      Rating       Return     Return      Vol     Implied Vol     (%)     (%)       (%)     (%)      NTM       Monitor
Consumer Discretionary
News Corporation                   NWSA        Buy             8%        25 %      30 %          0.83       8%      13 %      3%        4%     13x        (0.6)
Time Warner Inc.                   TWX         Neutral        14         16        24            0.67      11       12        5         4      13         (0.7)
Apollo Group                       APOL        NC            (35)        26        41            0.64     (12)       6       (5)        3       9         (1.8)
Leggett & Platt                    LEG         NC             17         16        27            0.62      13       34        3         3      18          0.6
Pulte Homes, Inc.                  PHM         Neutral       (25)        11        44            0.24     NM       NM        (6)       19      NM         (0.0)

Consumer Staples
PepsiCo Inc.                       PEP         Buy           11          14        16            0.88       12 %   12 %       8%       6%      15x        (1.3)
Archer-Daniels-Midland             ADM         NC            (2)         23        28            0.81        2      9         7        4       10         (0.6)
Procter & Gamble                   PG          Buy            9          11        16            0.68        3     10         4        5       16          0.6
Tyson Foods                        TSN         Neutral       42          20        33            0.62      (11)    (1)        5        2        9         (0.5)
CVS Corp.                          CVS         Buy            9          13        25            0.52        8     14        11        4       12         (0.6)

Energy
Southwestern Energy                SWN         Neutral       (22)        20        34            0.60      (4)%    51 %      12 %      30 %    22x        (0.8)
Halliburton Co.                    HAL         Buy            37         19        36            0.52      38      20        14        11      16          0.4
Equitable Resources                EQT         NC              4         12        28            0.42      21      32        17        17      26          1.2
Devon Energy Corp.                 DVN         Buy             8          9        26            0.34      (3)     36        (6)       17      14          0.7
Chesapeake Energy Corp.            CHK         Neutral         1          9        32            0.29      (7)      4         9        (6)     10          0.1
Chevron Corp.                      CVX         Neutral        23          4        21            0.21       7      14        16        11       9         (0.1)

Financials
Bank of America Corp.              BAC         Buy           (11)        35        37            0.96      39 %     31 %    NM       NM        10x        (0.4)
JPMorgan Chase & Co.               JPM         Buy*            2         24        30            0.81      22       16      NM       NM        10         (0.2)
SLM Corporation                    SLM         NC             12         27        38            0.71     (13)      10      NM       NM         7         (1.4)
PNC Bank Corp.                     PNC         Neutral        16         17        30            0.58       1       11      NM       NM        11         (0.3)
Prudential Financial               PRU         Not Rated      21         18        31            0.57       7       18      NM       NM        10         (0.4)
MetLife Inc.                       MET         Neutral        28         16        31            0.49      17       11      NM       NM         9          0.3
Wells Fargo                        WFC         Neutral        16         15        33            0.45      27       25      NM       NM        12         (0.3)
Marshall & Ilsley Corp.            MI          NC             28          7        28            0.23     NM       NM       NM       NM        NM         (1.3)

Health Care
Abbott Labs                        ABT         Neutral       (8)         26        19            1.40       12 %    8%        8%        5%     10x        (2.0)
Pfizer, Inc.                       PFE         Buy            0          21        23            0.91        4     (3)       (2)       (5)      8         (0.6)
Merck & Co.                        MRK         Neutral        3          17        22            0.78       13      7        (1)       (2)     10         (1.0)
McKesson Corp.                     MCK         Not Rated     14          12        25            0.49       11     12         3         3      14         (0.7)
AmerisourceBergen Corp.            ABC         Buy*          32          10        26            0.37       11     14         3         3      14          0.5
Tenet Healthcare Corp.             THC         Neutral       24           1        29            0.02      (10)    18         4         3      22         (0.1)

Industrials
Donnelley (R.R.) & Sons            RRD         NC            (17)        49        30            1.65      12 %     7%        8%        2%     10x        (0.6)
Republic Services Inc              RSG         Buy             8         21        22            0.94      12      13         3         5      16         (0.0)
Rockwell Collins                   COL         Neutral         7         22        24            0.91      13      12         6         7      15          0.2
Boeing Company                     BA          Buy            24         25        29            0.86      13      24         8        13      15          0.0
General Electric                   GE          Buy            24         15        27            0.55      16      19        (4)        1      15         (0.5)

Information Technology
Visa Inc                           V           Buy           (19)        41        31            1.34       19 %   16 %      12 %      11 %    15x        (2.7)
Hewlett-Packard                    HPQ         Sell          (18)        28        27            1.01       13      9         5         4       8         (1.0)
Mastercard                         MA          Buy           (12)        28        33            0.84       19     19        11        11      14         (1.0)
Micron Technology                  MU          Neutral       (24)        37        46            0.80      (47)    18         7         5      12         (0.8)
Cisco Systems                      CSCO        Neutral       (15)        21        28            0.77        6     11        10         9      12         (1.2)
Microsoft Corp.                    MSFT        Neutral        (7)        17        25            0.68       13     11         8         7      11         (1.5)
Electronic Arts                    ERTS        NC             (8)        21        34            0.62       34     30         2         6      24         (0.5)
Adobe Systems                      ADBE        Buy           (16)        16        34            0.46       18     10        10        10      13         (1.2)
Corning Inc.                       GLW         Neutral         1         14        31            0.44       (7)     5        11         9      10         (0.8)
Flir Systems Inc                   FLIR        Neutral        (9)        12        30            0.42       13     14        22         9      17         (0.3)

Materials
International Paper                IP          Buy             3         25        35            0.70      36 %    26 %       3%       4%      10x        (0.3)
Alcoa Inc                          AA          Neutral        (4)        11        34            0.31     NM       17         8        7       16         (0.0)

Telecommunication Services
Sprint Nextel Corp.                S           Buy           16          27        43            0.63     NM       NM         1%       1%      NM         (0.1)

Utilities
AES Corp.                          AES         NC             (8)        30        31            0.96       16 %     6%     NM       NM        10x        (0.6)
NRG Energy                         NRG         Neutral       (17)        21        26            0.80      (60)     (1)     NM       NM        14         (0.9)

 GSTHSHRP Basket Median                                                 18 %      30 %       0.63           8%     15 %       6%       7%      13x        (0.5)
 S&P 500 Median                                                          6        28         0.24          14      15         8        7       17          0.1
Asterisk denotes Conviction List

Source: Compustat, First Call, I/B/E/S, IDC via FactSet and Goldman Sachs Global ECS Research.




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5. GSTHDIVG – Dividend Growth Basket

Exhibit 52: Stocks returning cash to shareholders through dividends (Bloomberg ticker: <GSTHDIVG>)
We recommend investors BUY our dividend growth basket, introduced in December 2006 and last rebalanced in
December 2010, that consists of 50 stocks expected to grow dividends by an average of 22% a year over the next two
years (vs. 9% dividend growth for the average S&P 500 stock). Currently, the basket has an estimated 2012 dividend yield
of 3.2% (vs. 1.8% for the S&P 500 on average). Investors should use this basket to identify stocks returning cash to
shareholders through strong dividend growth and high dividend yields.

See our report 2011 US equity outlook: Easy money, hard market (December 1, 2010) for more details.
                               Relative performance                                                                 Constituent attributes
   120                                                                                           x   Key Criteria: Companies expected to increase
                                                                                                     dividends over the next two years and a dividend
   115                                                                                               yield above that of the S&P 500 at rebalance.
                                                                                                 x   Growth: Average expected earnings growth in 2011
   110                                                                                               of 18% is higher than the average stock in the S&P
                                                                                                     500 (15%) but expected sales growth on average is
   105
                                                                                                     lower (6% vs. 8%).
                                                                                                 x   Valuation: Trades at a large discount on average
   100
                                                                  Relative Performance
                                                                                                     stock P/E (13.6x vs. 16.6x for S&P 500) with a higher
    95
                                                                  Long GSTHDIVG /                    average 2012 dividend yield (3.2% vs. 1.8%,
                                                                     Short SPX
                                                                                                     respectively).
    90                                                                                           x   Sector Exposure: Largest sectors include Info Tech
         Dec-06




                           Dec-07




                                             Dec-08




                                                                    Dec-09




                                                                                        Dec-10
                  Jun-07




                                    Jun-08




                                                         Jun-09




                                                                               Jun-10




                                                                                                     (20%) and Financials (17%).
                                                                                                 x   Performance: +9.7% since inception vs. -2.6% for S&P
                                                                                                     500 and +17.4% YTD vs. +15.1% for S&P 500.
Source: FactSet and Goldman Sachs Global ECS Research.



Exhibit 53: Sector composition of GSTHDIVG basket
as of December 31, 2010
                                                                                   Telecom
                                                                         Utilities Services
                                                                 Materials 4%
                                                                                      2%                    Info Tech
                                                                    4%
                                                                                                               20%
                                                       Consumer
                                                      Discretionary
                                                           9%




                                                  Consumer
                                                   Staples
                                                    10%
                                                                                                                        Financials
                                                                                                                           17%


                                                        Industrials
                                                           10%


                                                                                                         Energy
                                                                             Health Care                  12%
                                                                                12%


Source: FactSet and Goldman Sachs Global ECS Research.




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Appendix A: US Portfolio Strategy baskets on Bloomberg
                                         Permission to our GS Portfolio Strategy Baskets
                                         To receive access to the Goldman Sachs US Portfolio Strategy <GSTH> Bloomberg page,
                                         please follow the directions below:

                                         1.    Please go to your Bloomberg terminal and type IAM <go>.

                                         2.    Take a screen shot of the page.

                                         3.    Send the attachment and an e-mail to your Goldman Sachs salesperson requesting
                                               access to the US Portfolio Strategy Bloomberg <GSTH> page.

Exhibit 54: Strategy baskets are listed on Bloomberg <GSTH>: Portfolio Strategy / Theme and Sector Baskets


Thematic Baskets                                                                                                                          Sector Baskets
                                                                                                                                            Bloomberg
      Bloomberg
      <GSTH1>                                                                                                                                <GSTH2>
                                                                                                                                              Cyclicals
     Macroeconomic                                                                                                                            GSSBCYCL
         GSTHBETA
          GSTHINTL                                                                                                                           Defensives
         GSTHAINT                                                                                                                             GSSBDEFS
         GSTHBRIC
         GSTHWEUR                                                                                                                               Global
                                                                                                                                              GSSBGLBL
       Fundamental
         GSTHGROE                                                                                                                             Domestic
         GSTHOPHI                                                                                                                            GSSBDOMS
         GSTHOPLO
         GSTHSBAL                                                                                                                          Global Cyclicals
         GSTHWBAL                                                                                                                             GSSBGCYC
        Hedge Fund                                                                                                                        Domestic Cyclical
          GSTHHVIP                                                                                                                            GSSBDCYC
          GSTHHFHI
          GSTHHFSL                                                                                                                         Global Defensive
                                                                                                                                              GSSBGDEF
        Use of Cash
          GSTHDIVG                                                                                                                        Domestic Defensive
                                                                                                                                              GSSBDDEF
          Valuation
         GSTHGARP
         GSTHSHRP


Note: The ability to trade baskets will depend upon market conditions, including liquidity and borrow constraints at the time of trade.

Source: Bloomberg and Goldman Sachs Global ECS Research.




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Appendix B: Growth & Valuation for Thematic and Sector Baskets

Exhibit 55: Average Growth & Valuation for Thematic and Sector Baskets
as of December 31, 2010

                                                                               EPS Growth           Sales Growth
                                                                   Beta     2010E - 2011E -       2010E - 2011E -   Profit   P/E     Expd. Dividend
                                      Bloomberg   Price             vs       2011E    2012E        2011E    2012E   Margin   Mult.   ROE     Yield
                                        Ticker  31-Dec-10         SP500       (%)      (%)          (%)      (%)     2011    NTM     NTM      (%)

 THEMATIC BASKETS
  ROE Growth                          GSTHGROE         103.36       1.1        20 %        16 %    10 %      7%      15 %    17.5x    24 %      1.4 %
  High Sharpe Ratio                   GSTHSHRP         132.61       1.2         8          15       6        7       14      13.1     17        1.4
  Dividend Growth                     GSTHDIVG         109.75       1.0        18          13       6        4       14      13.6     23        2.6
  Low Operating Leverage              GSTHOPLO         151.26       1.0        14          15       8        7       15      17.1     29        1.4
  High Operating Leverage             GSTHOPHI         175.34       1.2        16          16       9        6       10      17.2     18        1.2
 MACROECONOMIC BASKETS
  Dual Beta                           GSTHBETA         110.87       1.6        23 %        25 %    11 %      9%       9%     19.1x    16 %      0.6 %
  International Sales                 GSTHINTL         132.77       1.2        15          16      10        8       15      16.6     25        1.4
  Domestic Sales                      GSTHAINT          86.79       1.0        14          16       6        7       11      16.7     17        1.6
  BRICs Sales                         GSTHBRIC         177.81       1.3        18          14      14        8       15      16.0     19        0.9
  Western Europe Sales                GSTHWEUR         180.37       1.3        18          16      11        9       11      17.7     19        1.0
 HEDGE FUND BASKETS
  Very-Important-Position (VIP)       GSTHHVIP          93.56       1.1        19 %        19 %    13 %      8%      16 %    16.8x    23 %      1.0 %
  S&P 500 High Hedge Fund             GSTHHFHI          87.90       1.1        17          17       7        5       11      16.9     19        0.4
  S&P 500 Low Hedge Fund              GSTHHFSL         112.36       0.8         7           7       7        6       14      17.3     21        2.6
 SECTOR BASKETS
  Cyclicals                           GSSBCYCL         104.01       1.3        17 %        18 %     9%       8%      11 %    16.9x    18 %      1.4 %
  Defensives                          GSSBDEFS         105.70       0.9         9          11       7        5       12      16.0     22        2.0
  Global                              GSSBGLBL         106.53       1.2        15          16       8        7       13      17.1     23        1.4
  Domestic                            GSSBDOMS         101.83       1.1        12          13       6        5        8      15.8     16        1.9
  Global Cyclicals                    GSSBGCYC         107.35       1.3        17          19       9        8       12      17.5     21        1.3
  Global Defensives                   GSSBGDEF         105.31       0.8        11          12       7        5       17      16.5     27        1.6
  Domestic Cyclicals                  GSSBDCYC          98.25       1.3        17          17       6        5        9      15.9     14        1.6
  Domestic Defensives                 GSSBDDEF         106.26       0.9         8          10       7        5        8      15.6     18        2.2

  S&P 500                                               1,258       1.0        15 %        13 %     7%       6%       9 % 13.7x       17 %      1.9 %
  S&P 500 Median                                                    1.1        12          13       7        6       10      14.8     17        1.3
  S&P 500 Average                                                   1.1        14          15       8        7       12      16.6     20        1.6

Source: Compustat, FirstCall, I/B/E/S via FactSet and Goldman Sachs Global ECS Research.




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Equity basket disclosure
                                  The Equities Division of the firm has previously introduced the basket of securities
                                  discussed in this report. The Equity Analyst may have been consulted as to the
                                  composition of the basket prior to its launch. However, the views expressed in this
                                  research and its timing were not shared with the Equities Division.




Rating and pricing information
                                  Abbott Laboratories (N/N, $48.17), Adobe Systems Inc. (B/A, $32.27), Advanced Micro
                                  Devices, Inc. (S/N, $8.69), The AES Corp. (NC, $12.99), AK Steel Holding (S/N, $16.59),
                                  Akamai Technologies, Inc. (B/A, $48.45), ALCOA (N/N, $16.36), Altria Group, Inc. (N/N,
                                  $24.58), Amazon.com Inc. (B/A, $185.86), Ameriprise Financial, Inc. (N/A, $60.08),
                                  AmerisourceBergen Corp. (B/A, $34.86), Amgen Inc. (S/C, $56.55), Analog Devices, Inc. (N/N,
                                  $37.81), Apollo Group Inc. (NC, $39.47), Apple Inc. (B/N, $333.73), Archer-Daniels-Midland
                                  (NC, $31.69), AT&T Inc. (B/N, $29.15), Autodesk Inc. (B/A, $41.26), Automatic Data
                                  Processing Inc. (N/N, $48.00), Avon Products, Inc. (S/N, $30.14), Bank of America
                                  Corporation (B/A, $14.44), Baxter International, Inc. (B/N, $50.25), BB&T Corp. (NC, $26.89),
                                  Bemis Company, Inc. (N/N, $32.59), Biogen Idec, Inc. (S/C, $67.26), The Boeing Company
                                  (B/A, $68.80), Boston Scientific Corp. (S/N, $7.41), Broadcom Corporation (B/N, $44.86),
                                  Campbell Soup Co. (S/N, $34.62), Cardinal Health, Inc. (N/A, $39.35), Caterpillar, Inc. (NR,
                                  $93.54), CB Richard Ellis Group Inc. (B/N, $20.74), Celgene Corp. (N/C, $58.99), Cephalon,
                                  Inc. (N/N, $60.46), Chesapeake Energy Corp. (N/N, $26.67), Chevron Corp. (N/A, $90.69),
                                  Cisco Systems, Inc. (N/N, $20.95), Citigroup Inc. (B/A, $4.95), CMS Energy Corp. (NC,
                                  $18.71), The Coca-Cola Company (B/A, $63.03), ConocoPhillips (N/A, $66.97), Consol Energy
                                  Inc. (S/N, $50.43), Constellation Brands (N/A, $19.84), Corning Inc. (N/N, $19.51), Coventry
                                  Health Care, Inc. (N/A, $28.67), Cummins Inc. (B/N, $110.16), CVS Caremark Corp. (B/N,
                                  $35.03), Darden Restaurants, Inc. (NC, $46.43), Devon Energy Corp. (B/N, $78.23), The Walt
                                  Disney Company (B/A, $39.65), Dr Pepper Snapple Group (N/A, $36.58), Duke Energy
                                  Corporation (S/N, $17.74), Eaton Corp. (B/A, $102.59), Electronic Arts, Inc. (NC, $16.23),
                                  Equitable Resources Inc. (NC, $45.37), Express Scripts, Inc. (N/A, $57.01), Exxon Mobil Corp.
                                  (N/A, $75.18), Family Dollar Stores, Inc. (N/N, $44.39), First Solar, Inc. (B/N, $134.53), FLIR
                                  Systems, Inc. (N/C, $29.18), Flowserve Corp. (NC, $115.63), Fortune Brands, Inc. (N/A,
                                  $61.80), Freeport-McMoRan Copper & Gold (B/N, $116.08), Gannett Company, Inc. (NC,
                                  $15.23), General Electric Co. (B/A, $18.56), Genworth Financial, Inc. (NC, $14.21), Google Inc.
                                  (B/A, $613.50), Halliburton Company (B/N, $38.22), Harris Corporation (NC, $46.33), Hasbro,
                                  Inc. (B/A, $46.05), The Hershey Co. (S/N, $47.93), Hewlett-Packard Co. (S/N, $44.88), The
                                  Home Depot, Inc. (N/N, $34.42), Honeywell International Inc. (N/A, $54.36), Host Hotels &
                                  Resorts, Inc. (N/A, $18.32), Ingersoll-Rand PLC (N/A, $46.94), Intel Corp. (N/N, $20.77),
                                  International Business Machines (N/N, $148.66), International Paper Company (B/N, $27.89),
                                  Intuit, Inc. (N/A, $48.30), Intuitive Surgical, Inc. (S/N, $268.68), J.P. Morgan Chase & Co. (B/A,
                                  $44.48), Jabil Circuit, Inc. (B/A, $21.45), Janus Capital Group Inc. (N/A, $13.45), JDS
                                  Uniphase Corp. (NC, $16.04), Johnson & Johnson (N/N, $63.21), Johnson Controls, Inc.
                                  (N/A, $40.34), Juniper Networks, Inc. (B/N, $38.21), King Pharmaceuticals, Inc. (N/N, $14.10),
                                  KLA-Tencor (N/N, $38.20), Kraft Foods Inc. (N/N, $31.27), L-3 Communications Holdings Inc.
                                  (S/C, $74.03), The Estee Lauder Companies Inc. (N/N, $81.08), Legg Mason, Inc. (N/A,
                                  $35.58), Leggett & Platt, Inc. (NC, $23.02), Lennar Corp. (N/N, $19.14), Lorillard, Inc. (B/N,
                                  $80.98), Lowe's Companies, Inc. (B/N, $24.13), Marshall & Ilsley Corp. (NC, $7.03), Masco
                                  Corporation (S/N, $13.52), Massey Energy Co. (N/N, $54.65), Mastercard Inc. (B/N, $231.12),
                                  McDonald's Corp. (N/A, $74.21), McKesson Corp. (NR, $74.86), Medtronic, Inc. (N/N, $36.51),

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                28
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                                  MEMC Electronic Materials, Inc. (S/N, $11.35), Merck & Co., Inc. (N/N, $37.06), MetLife Inc.
                                  (N/A, $46.38), MetroPCS Communications, Inc. (N/N, $13.30), Micron Technology Inc. (N/N,
                                  $8.58), Microsoft Corp. (N/A, $28.82), Monsanto Co. (B/N, $70.79), Monster Worldwide, Inc.
                                  (S/N, $25.27), Morgan Stanley & Co. (N/A, $28.80), Murphy Oil Corp. (B/A, $74.03), Nabors
                                  Industries, Ltd. (B/N, $22.80), NASDAQ OMX Group Inc. (B/N, $23.55), National
                                  Semiconductor Corp. (S/N, $14.08), The News Corp. (A) (B/A, $14.81), Noble Energy (N/N,
                                  $82.63), Northeast Utilities (NR, $31.45), NRG Energy Inc. (N/N, $19.52), Nvidia Corp. (N/N,
                                  $19.33), Occidental Petroleum Corp. (B/A, $96.46), Office Depot (N/N, $6.01), Oracle Corp.
                                  (B/A, $31.17), Parker Hannifin Corp. (N/A, $85.91), Peabody Energy Corp. (B/N, $61.60),
                                  PepsiCo, Inc. (B/A, $66.84), PerkinElmer, Inc. (N/N, $25.77), Pfizer Inc. (B/N, $18.18), Philip
                                  Morris International Inc. (B/N, $57.72), Pioneer Natural Resources Co. (N/N, $87.98), Plum
                                  Creek Timber Co. Inc. (N/N, $39.17), PNC Financial Services (N/A, $62.28), Priceline.com
                                  Incorporated (B/N, $437.32), Procter & Gamble Company (B/N, $64.69), ProLogis (S/N,
                                  $14.50), Prudential Financial, Inc. (NR, $61.42), Public Storage, Inc. (N/N, $101.77),
                                  PulteGroup, Inc. (N/N, $8.23), QUALCOMM, Inc. (B/N, $52.67), R.R. Donnelley & Sons Co.
                                  (NC, $17.61), Raytheon Company (N/C, $48.72), Red Hat, Inc. (N/A, $46.25), Regions
                                  Financial Corp. (NC, $7.14), Republic Services, Inc. (B/N, $29.79), Rockwell Collins Corp.
                                  (N/A, $59.43), Rowan Companies, Inc. (N/N, $32.86), SanDisk Corporation (N/N, $52.73),
                                  Schlumberger, Ltd. (B/N, $80.53), Sempra Energy (B/C, $51.77), SLM Corp. (NC, $13.24),
                                  Southwestern Energy Co. (N/N, $37.75), Sprint Nextel Corp. (B/N, $4.65), Sunoco, Inc. (S/N,
                                  $40.75), SUPERVALU Inc. (NC, $9.20), Symantec Corp. (N/A, $17.69), Sysco Corp. (NC,
                                  $29.86), Tenet Healthcare Corp. (N/N, $6.87), Teradyne, Inc. (B/N, $13.52), Textron Inc. (B/A,
                                  $24.46), The Goodyear Tire & Rubber Co. (B/A, $12.27), Time Warner Cable Inc. (N/N,
                                  $66.54), Time Warner Inc. (N/A, $33.27), Tyson Foods, Inc. (N/N, $16.56), United Parcel
                                  Service, Inc. (B/A, $72.49), U.S. Bancorp (N/A, $26.29), United Technologies Corp. (B/A,
                                  $79.15), Verizon Communications (N/N, $36.23), Visa Inc. (B/N, $73.17), Wal-Mart Stores, Inc.
                                  (B/N, $53.96), Walgreen Company (B/N, $40.32), Wells Fargo & Company (N/A, $32.15),
                                  Weyerhaeuser Co. (N/N, $20.02), Whole Foods Market, Inc. (N/A, $48.10), Wynn Resorts,
                                  Limited (N/N, $114.67) and Zions Bancorporation (NC, $24.83).




Goldman Sachs Global Economics, Commodities and Strategy Research                                                              29
January 7, 2011                                                                                                                              United States




Reg AC
We, David J. Kostin, Stuart Kaiser, CFA, Amanda Sneider, CFA and Yi Zhang, hereby certify that all of the views expressed in this report accurately
reflect our personal views about the subject 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 views expressed in this report.




Disclosures

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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,
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following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.



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January 7, 2011                                                                                                                                United States




Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an
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