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Now for the really hard part.

Goldman Sachs left its rivals standing in 2007, as other Wall Street firms were shaken to the core by credit market turmoil. It rubbed in the outperformance on Tuesday, using the word “record” nine times on the first page alone, as it reported earnings per share up by a quarter for the year. But that is now the past. For the future, on which the investment bank’s valuation is based, it is going to be very tough to conjure up a repeat performance. Of course, the outlook is murky for all Wall Street. Credit markets continue to behave very erratically. The chances of a US recession, already decent, will increase as long as markets remain so dislocated. Even if that worse-case scenario is avoided, global growth looks set to slow in 2008.

That could mean tougher conditions across most of Goldman’s businesses. There will be a specific gap left in mortgages, private equity-related activities and securitisation, relative to 2007. And having made its legendary bet against the housing market this year and avoided the huge writedowns that unseated two Wall Street chief executives, Goldman has particularly tough earnings comparisons heading into 2008. Not least, registering strong growth next year will require the company to repeat its strong merchant banking gains of recent years.

Goldman’s business is enviably well-positioned across products and geographies. It has demonstrated its prowess as a trader during the recent turmoil and this year has played in a different league when it comes to return on equity. But it cannot defy gravity forever.

The bank operates in broadly the same businesses as its peers, but trades on 2.5-times book value, compared with about 1.5-times for its nearest rival. That is simply too big a premium to be sustainable given the vagaries of its business. The gap looks set to narrow in 2008.

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