Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, November 7, 2019

AI Summary. Federal Reserve research estimates that the equilibrium real interest rate — the rate consistent with a balanced economy — declined from about 2% in the mid-1990s to about 0% in 2019 across 13 advanced economies, with global shocks playing a significant role. The authors find the US rate is likely negative and that single-country models may overestimate it.

Michael Kiley Federal Reserve Board
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New Fed research suggests the US equilibrium real interest rate is likely negative, driven by global economic factors, with estimates showing a decline from ~2% in the mid-1990s to ~0% in 2019.

Has the equilibrium real interest rate declined across advanced economies?

Core argument: Fed research estimates the median equilibrium real interest rate across 13 advanced economies fell from roughly 2% in the mid-1990s to about 0% in 2019, with global shocks playing a significant role.

Recent Fed research indicates that the equilibrium real interest rate (r*) in the US is likely negative, driven by global economic factors. Estimates show a decline in the median equilibrium rate from ~2% in the mid-1990s to ~0% in 2019, with global shocks playing a significant role. This trend is consistent across 13 advanced economies, suggesting that the US rate may be lower than previously thought. The analysis highlights the importance of integrating global trends into models, as individual-country approaches may overestimate US rates. Persistently low real interest rates over the past decade have led economists and policymakers to anticipate that these rates will remain low. The global approach underscores the need to better incorporate term-structure and macroeconomic models to understand these dynamics, reflecting the low interest rates among advanced economies compared to US levels.

Takeaways by Macro Roundup® AI

  1. Fed research estimates the median equilibrium real interest rate across 13 advanced economies fell from roughly 2% in the mid-1990s to about 0% in 2019, with global shocks playing a significant role.
  2. Fed research indicates the US equilibrium real interest rate (r*) is likely negative and driven by global economic factors, and lower than previously thought.
  3. The analysis argues that individual-country approaches may overestimate the US equilibrium rate, and that term-structure and macroeconomic models need to better incorporate global trends.

New Fed research suggests that equilibrium interest rates (r*) in the US is likely negative. new support your point fromUnintendedthat a globalized economic increase risk adverse savings and drive down real rates of return on safe assets"....Two takeaways are apparent. All approaches show a decline in the equilibrium real interest rate. In addition,the decline is more significant for the two approaches that take a global perspective and use the entire set of countries to inform the estimate of the equilibrium real interest rate.For example, the simple approach—which is applied country-by-country—yields a decline in the central tendency of estimates (the median) from about 2 percent in the mid-1990s to a bit below 1 percent in 2019. Both the term structure and simple macroeconomic model approach yield a decline in the median estimate of the equilibrium real interest rate from about 2 percent in the mid-1990s to about 0 percent in 2019. Examination of the contribution of the global shocks to the evolution of the equilibrium real interest rate illustrates further the importance of a global perspective.Figure 3 presents the short term real interest rate for the United States (solid blue line) along with the estimate of the equilibrium real interest rate (black-dashed line) and the contribution of the global shock to the equilibrium real interest rate (red-dashed-dotted line) for the past 25 years and for both the term structure model and the small macroeconomic model. It is immediately apparent that the decline in the in the equilibrium real interest rate owes primarily to the global component...Real interest rates have been persistently below historical norms over the past decade, leading economists and policymakers to view the equilibrium real interest rate as likely to be low for some time. Various definitions and approaches to estimating the equilibrium real interest rate are examined, including approaches based on the term-structure of interest rates and small macroeconomic models. The individual-country approaches common in the literature are extended to allow for global trend and cyclical factors. The analysisfinds that global factors dominate the downward trend in the equilibrium interest rate across 13 advanced economies. A corollary of this finding is that the U.S. equilibrium rate may be substantially lower than estimated in U.S.-only studies.The analysis also highlights how the common global trend confounds empirical assessments of the determinants of movements in the equilibrium rate and the need to better integrate term-structure and macroeconomic approaches.....The global approach also suggests that the equilibrium real interest rate in the United States may be lower than appreciated, reflecting the low level of interest rates among advanced economies relative to U.S. levels...."

The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges: Extended Excerpt Image 1


The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges: Extended Excerpt Image 2


The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges: Extended Excerpt Image 3


Michael Kiley, "The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges," Federal Reserve Board, 2019, https://www.federalreserve.gov/econres/feds/files/2019076pap.pdf

AI Summary. Only 38% of venture capital funds tracked over two decades delivered returns above the traditional 8% hurdle rate. Average holding periods lengthened, with funds raised from 1999 to 2012 backing companies an average of 5.7 years before exit, versus 3.6 years for 1992–1998 vintages.

Christine Idzelis eFront
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Only 38% of VC funds tracked over two decades achieved returns exceeding the traditional 8% hurdle, highlighting challenges in the sector.

Do most venture capital funds clear their traditional hurdle rate?

Core argument: Only 38% of venture capital funds tracked over two decades returned more than the traditional 8% hurdle rate, which is typically calculated as a time-sensitive internal rate of return.

Only 38% of VC [Venture Capital] funds tracked over two decades achieved returns exceeding the traditional 8% hurdle, highlighting challenges in the sector. The hurdle rate, often calculated as an internal rate of return, is time-sensitive and reflects the performance expectations for investors. Average holding periods in VC have increased, with funds from 1999 to 2012 backing companies for an average of 5.7 years before exit, compared to 3.6 years for vintages from 1992 to 1998. This extended duration may impact the ability of funds to meet or exceed the hurdle rate, as longer holding periods can delay returns and increase risk exposure. The data suggests that despite the potential for high returns, a significant portion of VC funds struggle to deliver gains that surpass traditional benchmarks, posing questions about the efficiency and timing of investments in this asset class.

Takeaways by Macro Roundup® AI

  1. Only 38% of venture capital funds tracked over two decades returned more than the traditional 8% hurdle rate, which is typically calculated as a time-sensitive internal rate of return.
  2. Venture funds from vintages 1999–2012 held portfolio companies for an average of 5.7 years before exit, up from 3.6 years for 1992–1998 vintages.
  3. Longer holding periods may impair venture funds' ability to meet or exceed the 8% hurdle, since delayed exits push back returns and extend risk exposure.

"...Only 38 percent of VC funds tracked over two decades produced gains exceeding the traditional 8 percent hurdle, according to a statement Monday from the alternative-assets data provider. Hurdle rates are time sensitive as they’re typically calculated as an internal rate of return....The average holding periods in venture capital have risen, according to eFront. Funds created from 1999 to 2012 backed companies for an average 5.7 years before an exit, up from 3.6 years for vintages tracked from 1992 to 1998, the firm found...."
Christine Idzelis, "Venture Capital Struggles to Meet Hurdle Rate,"Institutional Investor, July 15, 2019, https://www.institutionalinvestor.com/article/b1g92ldh2p8k2r/Venture-Capital-Struggles-to-Meet-Hurdle-Rate

AI Summary. Over the past decade, 51% of capital invested in venture-funded firms resulted in losses, and fewer than 4% of those investments returned 10x or more. Measured by number of financings rather than dollars, nearly two-thirds failed to generate profits for investors.

David Coats Medium
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51% of all capital invested into VC-funded firms lost money; <4% generated a 10x or greater return.

How often do venture capital investments lose money?

Core argument: Over the past decade, 51% of capital invested in venture-funded firms resulted in losses, and less than 4% of those investments achieved a 10X or greater return.

Over the past decade, 51% of capital invested in venture-funded firms resulted in losses, highlighting the high-risk nature of VC investments. Despite the allure of substantial returns, less than 4% of these investments achieved a 10X or greater return. When assessed by the number of financings rather than dollar amounts, the situation appears even more skewed, with nearly two-thirds of financings failing to generate profits for investors. This data underscores the competitive and unpredictable landscape of venture capital, where the "hit rate"—the percentage of invested dollars yielding significant returns—has been largely eroded as VC became a mainstream asset class post-dot-com bubble. The analysis of exit years since 1990 reveals a persistent challenge in achieving consistent high returns, emphasizing the need for strategic investment approaches in this volatile sector.

Takeaways by Macro Roundup® AI

  1. Over the past decade, 51% of capital invested in venture-funded firms resulted in losses, and less than 4% of those investments achieved a 10X or greater return.
  2. Measured by number of financings rather than dollars invested, nearly two-thirds of venture financings failed to generate profits for investors.
  3. The "hit rate," the share of invested dollars yielding significant returns, has been largely eroded as venture capital became a mainstream asset class after the dot-com bubble, according to an analysis of exit years since 1990.

VC returns (though this isn't risk adjusted) interesting point on the "hit rate" (% of invested dollars generating a 10X or greater return) seems it basically was competed away as VC became an asset class in the aftermath of the.com bubble bursting

Venture Capital - No, We're Not Normal: Extended Excerpt Image 1


Venture Capital - No, We're Not Normal: Extended Excerpt Image 2


"...About half (51%) of all of the capital invested into venture-funded companies exiting over the last decade lost money, whileless than 4% generated a 10X or greater multiple.When calculated as a percent of financings, rather than by dollars, the distribution is even more skewed: almost two thirds of financings lost money for investors....We were curious as to how the “hit rate” — which we defined as the percent of invested dollars generating a 10X or greater return — has changed over time, and how closely this tracks overall industry returns. The graph below plots the hit rate versus mean dollar-weighted realized multiple for the U.S. venture industry for each exit year since 1990..."
David Coats, "Venture Capital - No, We're Not Normal," Medium, September 11, 2019, https://medium.com/correlation-ventures/venture-capital-no-were-not-normal-32a26edea7c7

AI Summary. The authors estimate that venture capital investments in start-ups earn substantial positive risk-adjusted returns while venture capital funds' risk-adjusted returns are near zero. The systematic part of these payoffs resembles the negatively skewed returns from selling index put options; including those in the pricing model turns fund returns negative.

Arthur Korteweg andStefan Nagel National Bureau of Economic Research
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Research by @ArthurKorteweg and @StefanNagel finds VC start-up investments yield substantial positive abnormal returns, while VC fund returns are near zero when risk-adjusted.

Do venture capital funds deliver positive risk-adjusted returns to investors?

Core argument: Using adapted stochastic discount factor methods, the authors estimate that venture capital start-up investments yield substantial positive abnormal returns while VC fund abnormal returns are near zero, suggesting start-up investments outperform funds on a risk-adjusted basis.

Evaluating VC [Venture Capital] payoffs is complex due to infrequent, skewed returns realized over varying time horizons. Using adapted stochastic discount factor methods, we find that VC start-up investments yield substantial positive abnormal returns, while VC fund abnormal returns are near zero. This suggests that start-up investments outperform traditional VC funds when risk-adjusted. The systematic component of these payoffs resembles the negatively skewed returns from selling index put options, contrasting with the positive skewness of idiosyncratic payoffs. Incorporating index put option returns into the SDF results in negative abnormal returns for VC funds, yet start-up investments maintain large positive returns, highlighting their superior performance in risk-adjusted terms.

Takeaways by Macro Roundup® AI

  1. Using adapted stochastic discount factor methods, the authors estimate that venture capital start-up investments yield substantial positive abnormal returns while VC fund abnormal returns are near zero, suggesting start-up investments outperform funds on a risk-adjusted basis.
  2. The systematic component of venture capital payoffs resembles the negatively skewed returns from selling index put options, in contrast to the positive skewness of the idiosyncratic payoffs.
  3. Incorporating index put option returns into the stochastic discount factor turns venture capital fund abnormal returns negative, while start-up investments retain large positive abnormal returns.

“….Performance evaluation of venture-capital (VC) payoffs is challenging because payoffs are infrequent, skewed, realized over endogenously varying time horizons, and cross- sectionally dependent. We show that standard stochastic discount factor (SDF) methods can be adapted to handle these issues. Our approach generalizes the Public Market Equivalent (PME) measure commonly used in the private-equity literature.We find that the abnormal returns from both VC funds and VC start-up investments are robust to relaxing the strong distributional assumptions and implicit SDF restrictions from the prior literature: VC start-up investments earn substantial positive abnormal returns, and VC fund abnormal returns are close to zero.We further show that the systematic component of start-up company and VC fund payoffs resembles the negatively skewed payoffs from selling index put options, which contrasts with the call option-like positive skewness of the idiosyncratic payoffs. Motivated by this finding, we explore an SDF that includes index put option returns. This results in negative abnormal returns to VC funds, while the abnormal returns to start-up investments remain large and positive….”

Risk-Adjusting the Returns to Venture Capital: Extended Excerpt Image 1

Arthur Korteweg andStefan Nagel, “Risk-Adjusting the Returns to Venture Capital,” National Bureau of Economic Research, August 2013, https://www.nber.org/papers/w19347

AI Summary. The US and Israel lead in venture capital investment at over 0.4% of GDP, while many European countries report levels below 0.1%. Venture capital as a share of GDP serves as an indicator of entrepreneurial activity, and the gap reflects differing levels of support and infrastructure for startups.

OECD Staff OECD
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The US and Israel led with venture capital investments exceeding 0.4% of GDP in 2018, while many European nations reported figures below 0.1%.

How much more venture capital do the US and Israel attract?

Core argument: The United States and Israel led venture capital investment in 2018 at more than 0.4% of GDP, while many European countries reported levels below 0.1%.

Venture capital investments as a % of GDP provide a crucial indicator of entrepreneurial activity and economic dynamism. In 2018, countries like the US and Israel led with venture capital investments exceeding 0.4% of GDP, highlighting their robust startup ecosystems. In contrast, many European nations reported figures below 0.1%, indicating potential areas for policy intervention to stimulate innovation. The disparity underscores the varying levels of support and infrastructure available for startups across different regions. This data suggests that higher venture capital investment correlates with increased entrepreneurial activity, which can drive economic growth and job creation. Policymakers can leverage these insights to enhance their countries' competitiveness by fostering environments conducive to venture capital and entrepreneurship. As global competition intensifies, understanding these dynamics becomes essential for sustaining long-term economic development.

Takeaways by Macro Roundup® AI

  1. The United States and Israel led venture capital investment in 2018 at more than 0.4% of GDP, while many European countries reported levels below 0.1%.
  2. Higher venture capital investment correlates with increased entrepreneurial activity, which can drive economic growth and job creation.
  3. The gap in venture capital as a share of GDP reflects differing levels of support and infrastructure for startups across regions.

OECD, "Entrepreneurship at a Glance Highlights 2018," Organisation for Economic Co-operation and Development," October 10, 2018, https://www.oecd.org/sdd/business-stats/EAG-2018-Highlights.pdf

AI Summary. The US produces only about 15 startups a year with significant growth potential, despite lower costs of starting a firm. Over the past 30 years just 7% of venture capital investments returned 10x or more, yet those deals generated 65% of the industry's profits.

Economist Staff The Economist
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7% of VC investments yielded a 10x return, accounting for 65% of the industry’s profits, highlighting the high-risk, high-reward nature of VC funding.

Do a small number of startups drive venture capital profits?

Core argument: Over the past 30 years, only 7% of venture capital investments have returned tenfold, yet those deals accounted for 65% of the industry's profits.

Despite the lower costs of starting a firm today, the number of startups with significant growth potential in the US remains limited to about 15 annually. Over the past 30 years, only 7% of VC [Venture Capital] investments have yielded a tenfold return, yet these successful investments have been crucial, accounting for 65% of the industry's profits. This highlights the disproportionate impact of a small fraction of investments on overall profitability, underscoring the high-risk, high-reward nature of VC funding. The data suggests that while many startups may emerge, only a select few drive substantial economic gains, emphasizing the importance of strategic investment decisions in the VC landscape.

Takeaways by Macro Roundup® AI

  1. Over the past 30 years, only 7% of venture capital investments have returned tenfold, yet those deals accounted for 65% of the industry's profits.
  2. The number of US startups with significant growth potential remains limited to about 15 a year, despite the lower costs of starting a firm today.

"....It may be cheaper to start a firm today, but in America the startups with a chance of making it really big each year still number around 15. Over 30 years, just 7% of the industry’s investments brought a tenfold return, and these accounted for 65% of the industry’s profits, reckons Fred Giuffrida of Horsley Bridge Partners, a “fund of funds” that spreads its bets across many VC firms...."
Economist Staff, "Disrupters disrupted,"The Economist, May 14, 2015, https://www.economist.com/finance-and-economics/2015/05/14/disrupters-disrupted

AI Summary. The market capitalization of listed domestic companies as a share of GDP rose from 48% to 149% in the US between 1980 and 2018, from 34% to 107% in Japan, from 8% to 85% in France, and from 8% to 44% in Germany. The data exclude investment funds and companies that solely hold shares of other listed firms.

Steve Market The World Bank
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Market capitalization of listed domestic companies as a % of GDP has shown significant growth across major economies since 1980. US rose from 48% in 1980 to 149% by 2018.

How much has stock market value grown relative to GDP?

Core argument: US market capitalization of listed domestic companies rose from 48% of GDP in 1980 to 149% at the end of 2018, according to World Federation of Exchanges data.

The market capitalization of listed domestic companies as a % of GDP has shown significant growth across major economies since 1980. In the US, this figure rose from 48% in 1980 to 149% by the end of 2018, reflecting substantial market expansion. Japan experienced a similar trend, with market capitalization increasing from 34% to 107% over the same period. France saw an even more dramatic rise from 8% to 85%, while Germany's market capitalization grew from 8% to 44%. These changes highlight the increasing importance of equity markets in national economies, driven by factors such as financial market development and investor confidence. The data, sourced from the World Federation of Exchanges, excludes investment funds and companies solely holding shares of other listed firms, providing a focused view on domestic company performance. This trend underscores the growing role of stock markets in economic growth and capital allocation.

Takeaways by Macro Roundup® AI

  1. US market capitalization of listed domestic companies rose from 48% of GDP in 1980 to 149% at the end of 2018, according to World Federation of Exchanges data.
  2. Japan's market capitalization climbed from 34% to 107% of GDP between 1980 and 2018, while France's rose from 8% to 85% and Germany's from 8% to 44%.
  3. The World Federation of Exchanges data exclude investment funds and companies that solely hold shares of other listed firms.

Ed, The World Bank has a series, market capitalization of domestic firms as a % of GDP going back to 1975 (1980 for US). Note the data is annualized to the end of the year so that's why you see those swings (ie reflects the sellout in December of 2018, but not 2019 performances). In 1980 the US market as a percentage of GDP was 48%, as of the end of 2018 that's 149%. Over that same time period Japan went from 34% to 107%. France went from 8% to 85%. Germany went from 8% to 44%. This is what it captures, "...Market capitalization (also known as market value) is the share price times the number of shares outstanding (including their several classes) for listed domestic companies. Investment funds, unit trusts, and companies whose only business goal is to hold shares of other listed companies are excluded. Data are end of year values...."The data is from the World Federation of Exchanges. Steve

Market capitalization of listed domestic companies (% of GDP): Extended Excerpt Image 1


Market capitalization of listed domestic companies (% of GDP)," The World Bank, Accessed November 4, 2019, https://data.worldbank.org/indicator/cm.mkt.lcap.gd.zs

Friday, November 8, 2019

AI Summary. The U.S. share of the Global Top 100 companies by market value rose from 45% in 2009 to 63% in 2019, driven by growth in the U.S. technology sector. Over the same period European firms' combined market value fell from nearly $4tn to $3.2tn, with their Top 100 count dropping from 30 to 20.

Statista Statista
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U.S. companies now account for 63% of the Global Top 100 firms, driven by the growth of the U.S. tech sector. Microsoft surpassed Apple in market cap, reaching $905bn in March 2019.

Are U.S. companies pulling ahead of other regions in market value?

Core argument: U.S. companies' share of the Global Top 100 firms by market cap rose from 45% in 2009 to 63% in 2019, driven by growth in the U.S. tech sector.

In 2009, U.S. companies accounted for 45% of the Global Top 100 firms, but by 2019, this figure rose to 63%, driven by the robust growth of the U.S. tech sector. Notably, Microsoft surpassed Apple in market cap, reaching $905bn in March 2019, largely due to its thriving cloud business. In contrast, European companies saw a decline in market cap from nearly $4tn in 2014 to $3.2tn in 2019, with their representation in the Global Top 100 dropping from 30 to 20 firms. Meanwhile, China's market cap has grown to match Europe's, although it experienced a 5% year-over-year decline due to the U.S.-China trade war. This data underscores the dominance of U.S. firms in the global market, highlighting significant regional shifts in economic power over the past decade.

Takeaways by Macro Roundup® AI

  1. U.S. companies' share of the Global Top 100 firms by market cap rose from 45% in 2009 to 63% in 2019, driven by growth in the U.S. tech sector.
  2. European companies' market cap fell from nearly $4tn in 2014 to $3.2tn in 2019, with their representation in the Global Top 100 dropping from 30 firms to 20.
  3. Microsoft surpassed Apple in market cap, reaching $905bn in March 2019, largely on its cloud business, while China's market cap matched Europe's despite a 5% year-over-year decline attributed to the U.S.-China trade war.

"Market Cap for U.S. Companies Outpaces Other Regions," Statista, August 30, 2019, https://www.statista.com/chart/19182/market-capitalization-by-region/

Market Cap for U.S. Companies Outpaces Other Regions

In 2009, U.S. companies made up 45 percent of the Global Top 100 companies, according to PwC and Bloomberg. A decade later, U.S. firms now comprise 63 percent of organizations on the Global Top 100.

This advancement is partly due to growth in the United States tech sector. The tech sector has the most representation on the Global Top 100. As a testament to the booming industry, Microsoft topped Apple in terms of market cap for the first time in a decade. Apple was eclipsed by Microsoft for the highest market cap, reaching $905 billion in March 2019, largely fueled by Microsoft’s booming cloud business.

The market cap for European companies in the Global Top 100 has shrunk between 2014 and 2019, moving from nearly $4.0 trillion to $3.2 trillion over that time period. This is partly fueled by the actual number of European companies on the Global Top 100. Five years ago, 30 European organizations were in the Global Top 100, falling to just 20 in 2019.

China’s market cap has steadily rose and is now on-par with European countries on the list. Though, year-over-year China’s market cap fell by 5 percent, due to contractions from the U.S.-China trade war.

PwC and Bloomberg report on the ranks of the largest public companies based on their market capitalization in U.S. dollars. The analysis compares values between March of each year and exclude Exchange Traded funds and closed end funds.

AI Summary. The technology sector's share of the S&P 500 rose from 6% to over 20%, while the energy sector's weighting fell from 29% to less than 5%. Financials peaked at 22% before declining after the financial crisis.

Siblis Research Staff Siblis Research
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The tech sector surged from 6% in 1979 to over 20% by 2019, while energy declined from 29% in 1980 to less than 5% in 2019.

How have stock market sector weightings shifted over recent decades?

Core argument: The technology sector's share of the S&P 500 rose from 6% in 1979 to over 20% by 2019, attributed to rapid innovation and digitalization.

From 1979 to 2019, the S&P 500 sector weightings underwent significant shifts, reflecting broader economic transformations. The technology sector's share surged from 6% in 1979 to over 20% by 2019, driven by rapid innovation and digitalization. Conversely, the energy sector's weighting declined from 29% in 1980 to less than 5% in 2019, influenced by fluctuating oil prices and a shift towards renewable energy. Financials also saw a rise, peaking at 22% in 2006 before the financial crisis led to a reduction. These changes highlight the evolving landscape of the U.S. economy, with implications for investors and policymakers as they navigate sector-specific risks and opportunities. The data underscores the importance of diversification and adaptability in investment strategies to align with macroeconomic trends.

Takeaways by Macro Roundup® AI

  1. The technology sector's share of the S&P 500 rose from 6% in 1979 to over 20% by 2019, attributed to rapid innovation and digitalization.
  2. The energy sector's S&P 500 weighting fell from 29% in 1980 to under 5% in 2019, influenced by fluctuating oil prices and a shift toward renewable energy.
  3. Financials' S&P 500 weighting peaked at 22% in 2006, after which the financial crisis led to a reduction.

“U.S. Stock Market Sector Weighting,” Siblis Research, December 31, 2019, https://siblisresearch.com/data/sp-500-sector-weightings/

AI Summary. Comparing Congressional Budget Office forecasts made before and after the 2016 election, unemployment is now expected at 3.7% versus a projected 4.8%, with 157m Americans employed — 3m more than anticipated — and nominal GDP above the earlier estimate. The author argues deregulation and tax cuts raised household real incomes and provide a buffer against recession.

Kevin Hassett CNN
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@KevinHassett According To Side By Side Of August 2016 CBO # 2019 CBO Forcast There Has Been A “Trump Bump”.

Have deregulation and tax cuts outperformed pre-election economic forecasts?

Core argument: The 2019 unemployment rate is expected to be 3.7%, versus the 4.8% the Congressional Budget Office projected for 2019 in its August 2016 forecast, a comparison the former White House chief economist calls the "Trump Bump.".

The "Trump Bump" is evident when comparing the August 2016 CBO [Congressional Budget Office] forecast with the 2019 outlook, highlighting significant economic improvements. The unemployment rate, initially projected at 4.8% for 2019, is now expected to be 3.7%. Employment figures have surpassed expectations, with 157m Americans employed, 3m more than anticipated. Nominal GDP is projected at $21.4bn, $800m higher than the 2016 estimate. These figures underscore the positive impact of policies such as deregulation and tax cuts, which have increased real incomes by $3,100 per household over a decade and boosted real disposable personal income by $5,205 per household. Despite global economic slowdowns and trade tensions, these policies provide a buffer against recession, challenging earlier pessimistic forecasts.

Takeaways by Macro Roundup® AI

  1. The 2019 unemployment rate is expected to be 3.7%, versus the 4.8% the Congressional Budget Office projected for 2019 in its August 2016 forecast, a comparison the former White House chief economist calls the "Trump Bump.".
  2. Employment reached 157m Americans, 3m more than anticipated in the 2016 Congressional Budget Office forecast, while nominal GDP is projected at $21.4bn, $800m above the 2016 estimate.
  3. The former White House chief economist credits deregulation and tax cuts with raising real incomes by $3,100 per household over a decade and real disposable personal income by $5,205 per household, arguing they buffer against recession amid global slowdowns and trade tensions.

“A nice way to summarize the current state of the economy and quantify the positive impact of the president's policies is to compare the latest Congressional Budget Office economic outlook to the one it published in August of 2016. In 2016, the CBO thought that the unemployment rate for 2019 would be 4.8%. It now thinks it will be 3.7%. The CBO thought that nearly 154 million Americans would have jobs this year; it now puts the number at 157 million — roughly 3 million jobs higher. It estimated in 2016 that nominal GDP this year would be $20.6 billion; it now places it at $21.4 billion, $800 million more GDP than expected. To put the scale of these numbers in perspective, if a recession did arise, imposing job losses comparable to those that occurred in the 2001 recessions, American workers would still be better off than the CBO thought they would be looking ahead from 2016.”

Kevin Hassett, "Former White House chief economist: The case for the Trump economy," CNN, August 27, 2019, https://www.cnn.com/2019/08/26/perspectives/kevin-hassett-trump-economy/index.html

Former White House chief economist: The case for the Trump economy

Kevin Hassett was formerly chairman of the Council of Economic Advisers under President Trump. He's vice president and managing director of the Lindsey Group, distinguished visiting fellow at the Hoover Institution and a CNN Economics Commentator. The opinions expressed in this commentary are his own.

Before President Donald Trump was elected in 2016, the US economy was inching along with 1.5% growth. Many economists were so convinced the stagnation was here to stay that they called it the "new normal." After the president took office and began pursuing his agenda's three pillars of deregulation, tax cuts and trade reform, the "new normal" crowd said it couldn't work.

Many of the same analysts now say we are headed for recession. There is, if nothing else, logical consistency in their position since they didn't believe Trump's economic plan would work in the first place.
To evaluate the odds of recession, however, it is essential to review the policy record's effects, which we should expect to continue. It's not surprising that policy pessimists are worried about a recession given their views of the impact of the president's policies. But their pessimism is misplaced given the evidence.

Indeed, for the most part, things are working exactly as planned.

Start with deregulation. President Trump revolutionized regulatory practice when he came into office, giving agencies a regulatory budget. If they wanted to increase regulatory costs with a new regulation, they had to find something else to cut. And the successes have been impressive. For example, the 2017 Drug Competition Action Plan and subsequent reforms have led the Food and Drug Administration to approve dramatically more generic drugs, which has increased competition and helped push prices for prescription drugs 1.2% lower during the 12 months through February 2019.

In June, my last month as the chairman of the President's Council of Economic Advisers, we published a detailed study of this and other deregulatory changes. We documented that reforms already enacted will raise real incomes by $3,100 per household over the next decade. Since deregulation continues, it is likely that the final benefit of this pillar of the administration's economic policy will be much larger. Momentum, indeed.

As for corporate tax reform, the White House used economic models that predicted they would spur significant growth. Firms would build new factories, hire more workers and bid up wages.

Each of these effects happened as expected. While capital spending growth has slowed, the level of investment jumped after the tax cuts and stayed high. That has pushed up the growth in the amount of capital per worker, which has driven up productivity and wages. The bottom line for workers has, if anything, improved faster than the administration's forecasts constructed during the tax debate. Since the tax cuts were passed, the typical household (of 2.5 people) has seen a $5,205 increase in real disposable personal income, according to calculations by the White House's Council of Economic Advisers.

The administration came into office with a mandate to reform America's trade deals to benefit our workers and our businesses. The status quo on trade left much room for improvement as President Trump took office. The president has already partially delivered on this promise. There is an improved U.S.-Korea Trade Agreement (KORUS) and an improved deal with our neighbors to the North and the South now in the hands of Congress. What is left is a major dispute with China, a dispute that seemed close to resolution in the spring, but now seems less so.

It may well be that the near-term costs of the dispute with China are a significant risk to the outlook, but the upside of successful reform is large as well. The rewards justify the risks. China's theft of US intellectual property alone imposes, by some credible estimates, hundreds of billions of dollars in damage to the US economy per year. To put that in perspective, the largest property heist in US history was the approximately $500 million robbery of the Isabella Stewart Gardner Museum in Boston in 1990. When President Trump took office, China's average take per day was about that much — between $225 billion and $600 billion annually, or about $500 million each day.

A nice way to summarize the current state of the economy and quantify the positive impact of the president's policies is to compare the latest Congressional Budget Office economic outlook to the one it published in August of 2016. In 2016, the CBO thought that the unemployment rate for 2019 would be 4.8%.

It now thinks it will be 3.7%. The CBO thought that nearly 154 million Americans would have jobs this year; it now puts the number at 157 million — roughly 3 million jobs higher. It estimated in 2016 that nominal GDP this year would be $20.6 billion; it now places it at $21.4 billion, $800 million more GDP than expected.

To put the scale of these numbers in perspective, if a recession did arise, imposing job losses comparable to those that occurred in the 2001 recessions, American workers would still be better off than the CBO thought they would be looking ahead from 2016. The CBO, like other forecasters that underestimated the positive impact of recent policy changes, is calling for slowing growth in the future, but there is no reason to expect them to be more right in the future than they have been since 2016, assuming the president's policies stay in place.

The world economy is slowing sharply, and the demand for US exports is a major negative for the outlook compared to a year ago. But the positive momentum from ongoing deregulation and the continuing impact of the tax cuts provide an insurance policy against recession, and President Trump's policies have bought us that insurance policy.

AI Summary. More than 40% of California residents are cost-burdened, spending over 30% of their income on housing. McKinsey & Co. estimated the state needs 3.5m additional homes within a decade, a target that may not be reached until 2050, as home prices nationally rise faster than incomes.

Noah Buhayar Bloomberg
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40% of CA residents spend more than 30% of their income on shelter.

Are housing costs outpacing incomes and leaving residents cost-burdened?

Core argument: Over 40% of California residents are cost-burdened, spending more than 30% of their income on shelter, with even high-income earners stretching budgets to afford housing.

California's housing crisis is underscored by the fact that over 40% of its residents are cost-burdened, spending more than 30% of their income on shelter. This issue affects even high-income earners who find themselves stretching budgets to afford housing. In 2016, McKinsey & Co. estimated a need for 3.5m additional homes by the next decade, a target that may not be met until 2050. This shortfall is part of a broader national trend where housing construction has lagged during the longest economic expansion on record, exacerbating affordability issues as home prices rise faster than incomes. As California grapples with these challenges, it serves as a cautionary tale for the rest of the U.S., which is increasingly mirroring its housing market dynamics.

Takeaways by Macro Roundup® AI

  1. Over 40% of California residents are cost-burdened, spending more than 30% of their income on shelter, with even high-income earners stretching budgets to afford housing.
  2. McKinsey & Co. estimated in 2016 that California needed 3.5m additional homes within a decade, a target that may not be reached until 2050.
  3. U.S. housing construction lagged during the longest economic expansion on record, with home prices rising faster than incomes.

great chart

"...In a state where more than40% of residents are considered cost burdened for housing—paying more than 30% of their income toward shelter—even people in high income brackets are often stretching their budgets.....McKinsey & Co. estimated in 2016 that California needed some 3.5 million more homes by the middle of next decade—a figure that Governor Gavin Newsom made a central part of his administration’s goals. A more Analysis suggests it may take the state until 2050 to meet the target. As severe as this sounds, the rest of the country is becoming more—not less—like California. During the longest economic expansion on record, the U.S. has been building far fewer houses than it usually does, pushing prices further out of reach for a vast portion of the population that has barely seen incomes rise....."
Noah Buhayar and Christopher Cannon, "How California Became America’s Housing Market Nightmare," Bloomberg, November 6, 2019, https://www.bloomberg.com/graphics/2019-california-housing-crisis/

AI Summary. The share of prime-age men who are employed has returned to its pre-recession level, marking the end of the "mancession," even as more people in that age group are out of the labor force due to schooling and early retirement.

Justin Fox Bloomberg
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The male prime age employment-population ratio has returned to pre-recession levels, signaling the end of the “mancession.” @JustinFox

Has prime-age male employment recovered to pre-recession levels?

Core argument: The prime-age male employment-population ratio has returned to its pre-recession level, marking the end of the "mancession.".

The male prime age employment-population ratio has returned to pre-recession levels, signaling the end of the "mancession." This recovery is notable despite an increase in the number of individuals out of the labor force due to schooling and early retirement. The employment-population ratio, a key indicator of labor market health, suggests that the economic conditions have improved sufficiently to absorb more prime-age men into employment. However, questions remain about the demographic composition of those who are classified as "retired" within this age group. This trend reflects broader macroeconomic stability and could influence future policy decisions regarding labor force participation and retirement planning.

Takeaways by Macro Roundup® AI

  1. The prime-age male employment-population ratio has returned to its pre-recession level, marking the end of the "mancession.".
  2. The recovery in prime-age male employment occurred despite a rise in the number of men out of the labor force because of schooling and early retirement.
  3. Questions remain about the demographic composition of prime-age men classified as "retired.".

male prime age employment-population ratio ~ back to pre-recession levels. but for increase # of people out of labor force in school and "retired." wonder who these prime-age "retirees" are?

The Mancession Is Finally Over: Extended Excerpt Image 1


The Mancession Is Finally Over: Extended Excerpt Image 2

Justin Fox, "The Mancession Is Finally Over," Bloomberg, November 7, 2019, https://www.bloomberg.com/opinion/articles/2019-11-07/the-low-unemployment-rate-is-hiding-millions-of-jobless-men