Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, October 19, 2020

AI Summary. The S&P 500's rebound has been driven by expectations for dividends far in the future, while futures on dividends due within five years remain well below pre-pandemic levels in both the US and abroad. The authors argue this pattern indicates a pessimistic market view of near-term economic conditions.

Andrew Chen, Markus Ibert and Francisco Vazquez-Grande Federal Reserve Board
Date Posted:
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US corporate dividend futures for the next 5 years remain significantly below pre-pandemic levels, indicating a bearish outlook for near-term economic conditions.

Does the stock market rebound reflect optimism about the near-term economy?

Core argument: The S&P 500's rebound is driven largely by long-term dividend expectations, while dividend futures for horizons up to five years remain significantly below pre-pandemic levels.

Analysis reveals a significant disconnect between stock market recovery and real economic conditions, particularly in the context of corporate dividends. While the S&P 500 has rebounded, this recovery is largely driven by long-term dividend expectations, with short-term (up to 5 years) dividend futures remaining significantly below pre-pandemic levels. This suggests a bearish outlook for near-term economic conditions, as the market values of dividends expected in the next five years are depressed both in the US and internationally. The divergence highlights that the stock market's gains are not reflective of immediate economic recovery, but rather of far-dated dividend claims, indicating a more cautious stance on the near-term economic outlook.

Takeaways by Macro Roundup® AI

  1. The S&P 500's rebound is driven largely by long-term dividend expectations, while dividend futures for horizons up to five years remain significantly below pre-pandemic levels.
  2. Market values of dividends expected over the next five years are depressed in both the US and international markets, which the analysis reads as a bearish outlook for near-term economic conditions.
  3. The gap between stock market gains and real economic conditions reflects the pricing of far-dated dividend claims rather than an immediate economic recovery.

The Stock Market-Real Economy "Disconnect": A Closer Look: Extended Excerpt Image 1


Andrew Chen, Markus Ibert and Francisco Vazquez-Grande, "The Stock Market-Real Economy "Disconnect": A Closer Look," Federal Reserve Board, October 14, https://www.federalreserve.gov/econres/notes/feds-notes/the-stock-market-real-economy-disconnect-a-closer-look-20201014.htm

They also adjust for tech, “….They also adjust for Figure 3 divides the S&P 500 stocks into information technology plus FAANG (Facebook, Amazon, Apple, Netflix, and Google)stocks versus ex-info tech and ex-FAANG stocks. The figure mirrors the previous results: Info tech and FAANG firms, which are expected to pay the lion's share of their dividends at distant dates, have recovered all of their losses and more between March and April. The portfolio of remaining stocks, which is more closely tied to the near and medium term, is still below its pre-pandemic level on September 1….”

Research from Fed decompresses equity prices into short and long term duration assets and finds that dividend future prices are depressed at a five year horizon both in US and overseas. Suggesting the recovery in equity prices btw March and September has been driven by far-dated dividend claims and Mr. Market is still bearish on the near term (<5 years out) outlook. “….S&P 500 dividend futures are contracts that require two parties to exchange, on a specific future date, the dividends that the S&P 500 index paid over the year preceding that date and a predetermined cash amount (the futures price). We use these contracts to create portfolios that decompose the S&P 500 index into the value of S&P 500 dividends that will be paid over different time periods. The market prices of these portfolios are shown in Figure 1…we construct assets that are more comparable to near and medium term economic conditions using data on domestic and international dividend futures and the cross section of U.S. stock returns. We find that the disconnect is driven by gains in the market value of long-term (beyond five years) dividends. In contrast, the value of corporate dividends for the next five years remains far below pre-pandemic levels…our results from dividend futures prices suggest a more pessimistic near and medium term outlook (up to 5 years) compared with the relatively quick recovery in earnings implied by Wall Street analysts' earnings forecasts…”

Wednesday, October 21, 2020

AI Summary. Intangible assets such as intellectual property, brand value, and technological innovation held by S&P 500 companies exceeded $21tn, more than double the 2005 level, and accounted for 84% of the index's market value — the highest share recorded.

Sarah Ponczek Bloomberg
Date Posted:
Is Database:
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The S&P 500 has seen a significant increase in intangible assets, reaching $21tn by 2018, more than double the amount in 2005.

Do intangible assets now drive most of the stock market's value?

Core argument: Intangible assets at S&P 500 companies exceeded $21tn by the end of 2018, more than double their 2005 level.

S&P 500 companies have seen a significant increase in intangible assets, reaching over $21tn by the end of 2018, more than double the amount in 2005. These intangibles now account for 84% of the S&P 500's market value, marking the highest proportion ever recorded. This shift underscores the growing importance of non-physical assets such as intellectual property, brand value, and technological innovation in driving corporate valuations and market performance. The reliance on intangible assets reflects a broader economic trend where traditional measures of value, likepp&E [Property, Plant, and Equipment], are increasingly supplemented by assets that are less tangible but crucial for future growth. This evolution in asset composition highlights the need for investors and policymakers to adapt their strategies and frameworks to better assess and leverage these invisible drivers of economic success.

Takeaways by Macro Roundup® AI

  1. Intangible assets at S&P 500 companies exceeded $21tn by the end of 2018, more than double their 2005 level.
  2. Intangibles account for 84% of the S&P 500's market value, the highest proportion ever recorded.
  3. Assets such as intellectual property, brand value, and technological innovation increasingly supplement traditional measures like property, plant, and equipment in driving corporate valuations, pointing to a need for investors and policymakers to adapt their assessment frameworks.

Bloomberg, “…. As a result of those gains, S&P 500 members held more than $21 trillion in intangibles at the end of 2018, more than double 2005, according to a report by research center Ponemon Institute and Aon Plc, a professional services firm that provides risk and insurance consulting. That’s 84% of the S&P 500’s market value, the most ever….”

Sarah Ponczek, "Epic S&P 500 Rally Is Powered by Assets You Can’t See or Touch," Bloomberg, October 21, 2020, https://www.bloomberg.com/news/articles/2020-10-21/epic-s-p-500-rally-is-powered-by-assets-you-can-t-see-or-touch

Bloomberg’s version

Here is their chart which Bloomberg highlights

The factoid comes from areport(attached) that is usesPP&Eas a proxy fortangible assetsand anaccounting standard for intangibles(Recognition criteria: IAS 38 requires an entity to recognize an intangible asset, whether purchased or self-created (at cost), if and only if it is probable that the future economic benefits that are attributable to the asset will flow to the entity, and the cost of the asset can be measured reliably. The likelihood of economic benefits must be based on reasonable/supportable assumptions about conditions that will exist over the life of the asset. The probability recognition criterion is considered to be satisfied for intangible assets that are acquired separately or in a business combination.)