Edward Conard

Top Ten New York Times Bestselling Author

  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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
  • “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
  • “…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
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, March 28, 2023

AI Summary. In an illustrative scenario, a California system with 20 GW of wind, 150 GW of solar and 75 GW of storage would provide only 50 GW of reliable capacity, since each added renewable unit contributes less to reliability. Levelized cost measures ignore this, so grid operators and utilities instead assess effective load-carrying capability.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest @jpmorgan argues that effective load carrying capacity (ELCC) is a better metric than the levelized cost of energy (LCOE) since this metric reflects the intermittent availability of wind and solar power.

Does levelized cost understate what renewables need to deliver reliable power?

Core argument: A hypothetical deeply decarbonized California system with 20 GW of wind, 150 GW of solar and 75 GW of storage — 245 GW of capacity — would deliver only 50 GW of reliable load-carrying capability, measured as effective load carrying capability (ELCC).

One example: assume that California builds a deeply decarbonized system with 20 GW of wind, 150 GW of solar and 75 GW of storage. This system would only have 50 GW of reliable load with which to meet demand (ELCC=50 GW). Alternatively stated: if this system needed 50 GW of reliable power and was designed with renewables only, it would need 245 GW of wind, solar and storage to make it work. The marginal ELCC of wind, solar and storage are at their highest when renewables are first added to the system; their contribution to system reliability falls rapidly after that. LCOE reflects none of these realities, which is why the ISOs and utilities shown in the text box look at ELCC instead.

Takeaways by Macro Roundup® AI

  1. A hypothetical deeply decarbonized California system with 20 GW of wind, 150 GW of solar and 75 GW of storage — 245 GW of capacity — would deliver only 50 GW of reliable load-carrying capability, measured as effective load carrying capability (ELCC).
  2. The marginal ELCC of wind, solar and storage is highest when renewables are first added to a system and falls rapidly thereafter.
  3. Levelized cost of energy reflects none of these reliability realities, which is why the independent system operators and utilities cited evaluate resources using ELCC instead.

AI Summary. The authors estimate that a 1 percentage point rise in mortgage rates driven by a monetary policy surprise is associated with house prices falling 1% immediately and settling 3% lower three weeks later, working through sellers' list prices within weeks rather than years.

Denis Gorea, Augustus Kmetz, et al Federal Reserve Bank of San Francisco
Date Posted:

Using data from 2000-2019, @sffed researchers conclude that after a 1% mortgage rate increase generated by a policy shock, there is an immediate 1% reduction in house prices and a 3% total reduction after three weeks.

How quickly do house prices respond to monetary policy surprises?

Core argument: A 1 percentage point increase in the mortgage rate generated by a monetary policy shock is associated with house prices falling 1% immediately and settling 3% lower three weeks after the announcement.

We examine how mortgage rates change in response to monetary policy shocks. We use data on 30-year fixed-rate mortgages from the Primary Mortgage Market Survey. We find that monetary policy surprises affect house prices far more quickly than commonly thought. Monetary policy impacts housing prices through list prices—the prices of properties for sale posted by sellers—within a matter of weeks instead of years. The response is driven largely by unanticipated policy changes to forward guidance and large-scale asset purchases. We find that a 1 percentage point increase in the mortgage rate generated by a monetary policy shock is associated with house prices falling immediately by 1%. Prices continue declining in the weeks following a monetary policy announcement and ultimately settle 3% lower three weeks after the shock.

Takeaways by Macro Roundup® AI

  1. A 1 percentage point increase in the mortgage rate generated by a monetary policy shock is associated with house prices falling 1% immediately and settling 3% lower three weeks after the announcement.
  2. Monetary policy transmits to house prices through sellers' list prices within weeks rather than years, far more quickly than commonly thought, based on 30-year fixed-rate mortgage data from the Primary Mortgage Market Survey.
  3. The house price response is driven largely by unanticipated policy changes to forward guidance and large-scale asset purchases.

AI Summary. The decline of more than eight percentage points in real interest rates over three decades cannot be attributed to central banks alone, since inflation would have surged if such low rates were incompatible with the economy's needs. Financial liberalisation, globalisation, China's entry into the world economy, rising inequality, and ageing populations generated large surplus savings.

Martin Wolf Financial Times
Date Posted:

.@martinwolf_ notes that, while extremely low interest rates have had some unfortunate consequences, it is not correct to place the blame entirely on central banks; demographics, the rise of China, and a global savings glut were major factors.

Are central banks alone responsible for decades of falling real interest rates?

Core argument: Real interest rates fell by more than eight percentage points over three decades, a decline the author argues central banks alone could not have delivered, however demented their policies may have been.

Central banks alone, however demented they may have been, could not deliver a decline of more than eight percentage points in real interest rates over three decades. If this huge fall in real interest rates were incompatible with the needs of the economy, one would surely have seen surging inflation. So, what was going on? The big background changes were financial liberalisation, globalisation and the entry of China into the world economy. The latter two not only lowered inflation. They also introduced a country with colossal surplus savings into the world economy. In addition, rising inequality within high-income countries, combined with ageing populations, created huge surplus savings in some of them, too, notably Germany.

Takeaways by Macro Roundup® AI

  1. Real interest rates fell by more than eight percentage points over three decades, a decline the author argues central banks alone could not have delivered, however demented their policies may have been.
  2. The author reasons that if the fall in real interest rates had been incompatible with the economy's needs, surging inflation would have followed, and points instead to financial liberalisation, globalisation and China's entry into the world economy.
  3. Rising inequality within high-income countries, combined with ageing populations, created huge surplus savings in some of them, notably Germany, alongside the colossal surplus savings China brought into the world economy.

AI Summary. Unrealized securities losses at recently failed banks reflect the risk of borrowing short and lending long, echoing thrifts that became insolvent as the Federal Reserve raised rates; between 1980 and 1994, 1,617 banks and 1,295 thrifts closed or received government assistance. Uninsured depositors fled fast enough to limit losses, illustrating market discipline.

Charles Calomiris and Phil Gramm Wall Street Journal
Date Posted:

Phil Gramm and @cwcalomiris draw a parallel btw the current instability in the banking system and the Savings and Loans crisis which also played out against a hiking cycle.

Phil Gramm and @cwcalomiris draw a parallel btw the current instability in the banking system and the Savings and Loans...

Does limiting deposit insurance impose useful discipline on risky banks?

Core argument: Between 1980 and 1994, 1,617 banks and 1,295 thrifts were closed or received government assistance, a wave the author attributes to borrowing short and lending long and to the government's decision to ignore losses in the early 1980s.

The 1980s offer a better perspective on our current banking instability. Losses on securities at Silicon Valley Bank, Signature Bank and many others still waiting to be addressed reflect the risk from borrowing short and lending long—reminiscent of thrift strategies of the 1970s and the government’s decision to ignore losses from pursuing those strategies in the early 1980s. Between 1980 and 1994, 1,617 banks and 1,295 thrifts either were closed or received government assistance. For thrifts, the story began with a government mandate forcing them to specialize in long-term mortgage loans funded with deposits. As the Federal Reserve raised rates, funding costs rose and many thrifts became insolvent.  The difference today, in contrast with the 1980s, is that SVB and Signature Bank relied largely on uninsured deposits, whereas thrifts and banks then had relatively few such deposits. As their risk of failure grew, uninsured depositors (who were slow to respond) still responded fast enough to prevent the banks from becoming deeply insolvent. If those deposits had been insured ex ante, we might now be quietly experiencing resurrection risk-taking from SVB and Signature Bank, with much larger losses to come in those banks and throughout the banking system. The failures of SVB and Signature illustrate the usefulness of what remains of market discipline, which comes from limiting deposit insurance. Regulation failed, but the market didn’t.

Takeaways by Macro Roundup® AI

  1. Between 1980 and 1994, 1,617 banks and 1,295 thrifts were closed or received government assistance, a wave the author attributes to borrowing short and lending long and to the government's decision to ignore losses in the early 1980s.
  2. Thrift insolvencies followed a government mandate forcing specialization in long-term mortgage loans funded with deposits, as funding costs rose when the Federal Reserve raised rates, a pattern the author sees echoed in unaddressed securities losses at Silicon Valley Bank, Signature Bank and others.
  3. Silicon Valley Bank and Signature Bank relied largely on uninsured deposits, unlike the thrifts and banks of the 1980s, and the author argues those depositors responded fast enough to prevent deep insolvency, illustrating the usefulness of market discipline from limited deposit insurance.

AI Summary. Dollar deposits in U.S. banks are de facto fully protected by the U.S. government, but that protection does not extend to the trillions of dollar deposits held at foreign banks, which are supervised by home-country regulators that typically cannot insure dollar deposits. Even U.S. branches of foreign banks tend to lack federal deposit insurance.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 notes that there are several trillion in uninsured dollar deposits abroad that aren’t FDIC insured. If these depositors shift their money to the American banking system, it could create contagion risk.

Are dollar deposits at foreign banks protected like domestic ones?

Core argument: Trillions of dollars of deposits sit in foreign banks outside the purview and protection of U.S. regulators, even as dollar deposits in U.S. banks are de facto fully protected by the U.S. government.

Dollar deposits in U.S. banks are now de facto fully protected by the U.S. government, but that protection does not extend to the trillions of dollar deposits in foreign banks. The dollar is unique in that there is an extensive network of foreign banks that offer dollar banking services throughout the world. These banks take dollar deposits and make dollar loans but are outside the purview and protection of U.S. regulators. They are supervised by their home country regulators, who usually do not and cannot offer insurance on dollar deposits. Note that even the U.S. branches of foreign banks tend to be uninsured by the FDIC. Concerns over large foreign banks could easily spark a realization that dollars can only be safe within the U.S. That would be a crisis that could not be easily papered over.

Takeaways by Macro Roundup® AI

  1. Trillions of dollars of deposits sit in foreign banks outside the purview and protection of U.S. regulators, even as dollar deposits in U.S. banks are de facto fully protected by the U.S. government.
  2. Foreign banks take dollar deposits and make dollar loans under home-country supervision, and those regulators usually do not and cannot offer insurance on dollar deposits.
  3. Concerns over large foreign banks could spark a realization that dollars are safe only within the U.S., a crisis that could not be easily papered over; even U.S. branches of foreign banks tend to be uninsured by the FDIC.

AI Summary. Across mostly rich OECD countries, the ratio of people aged 65 and older to those aged 20–64 is expected to rise from one in five in 1990 to one in two by 2050. Men retired at 66 with 12 further years of life expectancy in 1970, versus 64 with 20 years in 2020.

Economist Staff The Economist
Date Posted:

The length of time people spend in retirement has grown across the rich world. In 1970 in OECD countries men retired at 66 and had 12 years life expectancy. By 2020 they retired at 64 and could expect to live another 20 years. @TheEconomist

How much longer do people in rich countries spend retired?

Core argument: The OECD's old-age dependency ratio—people 65 and older relative to those aged 20–64—is expected to rise from one in five in 1990 to one in two by 2050, reflecting fewer births and longer lives.

The combination of fewer births and longer lives means that the old-age dependency ratio—the proportion of people aged 65 and older to those aged between 20 and 64—is expected to rise from one in five in 1990 to one in two by 2050 across the OECD, a club of mostly rich countries. And the time people spend in retirement has shot up in the past 50 years. In 1970 men, on average, retired at 66 and could expect to live another 12 years. In 2020 they retired at 64 and had 20 years ahead of them. French men, in particular, have some of the lengthiest retirements—some 25 years on average, double that of the previous generation (see chart). By contrast, although their life expectancy at retirement has also doubled over the same period, Mexican men today spend 16 years in retirement.

Takeaways by Macro Roundup® AI

  1. The OECD's old-age dependency ratio—people 65 and older relative to those aged 20–64—is expected to rise from one in five in 1990 to one in two by 2050, reflecting fewer births and longer lives.
  2. Men retired at 66 on average in 1970 and could expect to live another 12 years, while in 2020 they retired at 64 with 20 years ahead of them.
  3. French men average some 25 years in retirement, double that of the previous generation, while Mexican men spend 16 years, though their life expectancy at retirement also doubled over the same period.

AI Summary. France's government passed pension reform without a parliamentary vote by invoking a constitutional provision, and the move has been followed by daily clashes between protesters and police, severe transport disruption, uncollected rubbish in Paris, and roughly 15% of petrol stations without fuel due to refinery strikes.

Wolfgang Munchau Euro Intelligence
Date Posted:

.@EuroBriefing argues that if French protests continue, they are likely to intensify, risking France becoming “ungovernable.”

.@EuroBriefing argues that if French protests continue, they are likely to intensify, risking France becoming...

Does passing pension reform without a parliamentary vote trigger widespread unrest?

Core argument: About 15% of French petrol stations are without fuel due to refinery strikes, while rubbish piles up in Paris after bin collectors and workers at a nearby incineration plant stopped working.

Since Emmanuel Macron triggered Art. 49.3 to pass the pension reform without a vote in parliament, there is not one day without some clashes between violent protesters and the police. Today, another general mobilisation will test how far this showdown can go. Transport will be severely interrupted, while rubbish continues to pile up in Paris as bin collectors and workers at an incineration plant close to Paris stopped working. About 15% of petrol stations are now without fuel due to strikes at refineries. A vast contingent of police has been mobilised today, with a show of force likely to be tested by black-hooded protesters. According to the interior minister, there were about 1500 of those ready to use violence last week. Marianne looked at their profile and found that while those black-hooded protesters were classically precarious intellectuals, they also increasingly include young working-class people. What will happen today will be a precursor to how protests evolve. So here we are, a necessary reform that all of a sudden has turned explosive, all reason and proportionality lost.

Takeaways by Macro Roundup® AI

  1. About 15% of French petrol stations are without fuel due to refinery strikes, while rubbish piles up in Paris after bin collectors and workers at a nearby incineration plant stopped working.
  2. Since Emmanuel Macron invoked Article 49.3 to pass the pension reform without a parliamentary vote, clashes between violent protesters and police have occurred daily, with another general mobilisation testing how far the showdown can go.
  3. France's interior minister put the number of black-hooded protesters ready to use violence last week at about 1,500, and Marianne found their profile, classically precarious intellectuals, increasingly includes young working-class people.

AI Summary. A widely cited survey showing dramatically different results on patriotism and community values across waves changed collection methods, from telephone interviews to a high-quality online panel. Respondents speaking to a human interviewer by phone are more likely to answer values questions in ways that make them look like upstanding citizens.

Patrick Ruffini The Intersection
Date Posted:

.@PatrickRuffini argues that Wall Street Journal/NORC recent poll results likely overstate the degree of change due to a shift in methodology to an online survey for 2023 vs. phone surveys in prior years.

Does switching from phone to online surveys change reported patriotism?

Core argument: The dramatically different results between the 2019 and 2023 Wall Street Journal/NORC surveys stem from a change in how the data was collected, not from bad data released by the Journal and NORC.

The point here is not that the Wall Street Journal and NORC released bad data. The dramatically different results we see from 2019 and 2023 are because the data was collected differently. The March 2023 survey was collected via NORC’s Amerispeak, an extremely high-quality online panel. In the fine print below the chart, we can see that data from previous waves was collected via telephone survey. Surveying the exact same types of respondents online and over the phone will yield different results. And it matters most for exactly the kinds of values questions that the Journal asked in its survey. The basic idea is this: if I’m speaking to another human being over the phone, I am much more likely to answer in ways that make me look like an upstanding citizen, one who is patriotic and values community involvement.

Takeaways by Macro Roundup® AI

  1. The dramatically different results between the 2019 and 2023 Wall Street Journal/NORC surveys stem from a change in how the data was collected, not from bad data released by the Journal and NORC.
  2. The March 2023 Wall Street Journal/NORC survey was collected through NORC's Amerispeak online panel, while earlier waves, as noted in the chart's fine print, were collected by telephone.
  3. Respondents speaking to another human being by phone are more likely to answer in ways that make them look like upstanding, patriotic, community-minded citizens, which matters most for the kinds of values questions the Journal asked.

AI Summary. Using the first comprehensive dataset of China's overseas bailouts, the authors find China has extended over $170bn in central bank swap line liquidity to distressed countries plus $70bn in rescue loans from state-owned banks and enterprises, equal to more than 20% of International Monetary Fund lending over the past decade.

Sebastian Horn, Bradley Parks, et al Kiel Working Paper
Date Posted:

As Belt and Road borrowers have come under increasing financial stress China is serving as a lender of last resort providing at least $240B of emergency financing, including at least $40.5B since 2021 @Ch_Trebesch @carmenmreinhart

How large has China's rescue lending to distressed countries become?

Core argument: The People's Bank of China has extended more than USD 170 billion in liquidity support to crisis countries through its global swap line network, including repeated rollovers of maturing swaps, according to a dataset covering 2000–2021.

This paper shows that China has launched a new global system for cross-border rescue lending to countries in debt distress. We build the first comprehensive dataset on China’s overseas bailouts between 2000 and 2021 and provide new insights into China’s growing role in the global financial system. A key finding is that the global swap line network put in place by the People’s Bank of China is increasingly used as a financial rescue mechanism, with more than USD 170 billion in liquidity support extended to crisis countries, including repeated rollovers of swaps coming due. The swaps bolster gross reserves and are mostly drawn by distressed countries with low liquidity ratios. In addition, we show that Chinese state-owned banks and enterprises have given out an additional USD 70 billion in rescue loans for balance of payments support. Taken together, China’s overseas bailouts correspond to more than 20 percent of total IMF lending over the past decade and bailout amounts are growing fast. However, China’s rescue loans differ from those of established international lenders of last resort in that they (i) are opaque, (ii) carry relatively high interest rates, and (iii) are almost exclusively targeted to debtors of China's Belt and Road Initiative. These findings have implications for the international financial and monetary architecture, which is becoming more multipolar, less institutionalized, and less transparent.

Takeaways by Macro Roundup® AI

  1. The People's Bank of China has extended more than USD 170 billion in liquidity support to crisis countries through its global swap line network, including repeated rollovers of maturing swaps, according to a dataset covering 2000–2021.
  2. Chinese state-owned banks and enterprises provided an additional USD 70 billion in rescue loans for balance of payments support, bringing China's overseas bailouts to more than 20 percent of total IMF lending over the past decade.
  3. China's rescue loans differ from those of established international lenders of last resort in being opaque, carrying relatively high interest rates, and going almost exclusively to debtors of the Belt and Road Initiative.

Wednesday, March 29, 2023

AI Summary. Goldman Sachs estimates generative AI productivity gains based on how easily the technology applies to each occupation rather than where the largest untapped economic opportunities lie. The author argues gains in producing documents and emails are overstated, while gains in software production are far larger than Goldman anticipates.

Paul Kedrosky and Eric Norlin Irregular Ideas
Date Posted:

.@pkedrosky argues that Goldman’s new AI report understates potential for productivity-enhancing software development that was previously too expensive to develop, which implies lots of “low-hanging economic fruit.”

Are AI productivity gains misjudged by focusing on ease of application?

Core argument: Goldman's AI report scales prospective productivity gains to the ease of applying generative AI rather than to the availability of low-hanging economic fruit.

We caution that Goldman’s approach is fairly traditional, in that it treats the prospective productivity gains across various disciplines as a function of the ease of applying these generative AI technologies, as opposed to the availability of low-hanging economic fruit. We think the gains from making it easier to produce presentations and documents and emails are much less than touted. On other hand, we stand by our argument that the gains of generative AI in other occupations are large and larger than Goldman anticipates in this report. Again, and more specifically, we think that the gains from producing software are very large, given that, as we’ve argued, we have underproduced for decades, and software sits in the sweet spot with respect to its combination of a clean grammar and logical structure, and given that it has been too costly to produce for most of its existence, hence why it’s been so slow to “eat the world,” as has sometimes been said is happening.

Takeaways by Macro Roundup® AI

  1. Goldman's AI report scales prospective productivity gains to the ease of applying generative AI rather than to the availability of low-hanging economic fruit.
  2. Gains from using generative AI to produce presentations, documents, and emails are smaller than touted, while gains in other occupations are larger than Goldman's report anticipates.
  3. Software production likely offers very large generative AI gains, given decades of underproduction, software's combination of clean grammar and logical structure, and its high cost of production for most of its existence.

AI Summary. Banks' main vulnerability lies in their liabilities rather than their assets, as fiscal and monetary stimulus swelled deposits and pushed the bank loan-to-deposit ratio to a 50-year low of about 60%, according to Moody's. Social media and smartphone banking apps have made uninsured deposits less sticky, potentially pressuring small and midsize banks.

Greg Ip Wall Street Journal
Date Posted:

.@greg_ip argues that small and medium sized banks could face a “prolonged period of pressure on their deposits” that could reduce the supply of credit to the economy.

Have digital banking and social media made bank deposits less stable?

Core argument: The ratio of bank loans to deposits fell to a 50-year low of about 60% in September 2021, according to a Moody's Investors Service report, as pandemic-era Fed bond purchases and Treasury relief payments to household accounts ballooned deposits.

Compared with the past, the bigger problem for banks isn’t the asset side of their balance sheets but the liability side. That is in part due to the fiscal and monetary-policy response to the pandemic. The Federal Reserve restarted purchases of bonds, and the Treasury sent big stimulus and other relief payments directly to household bank accounts. As a result, deposits ballooned. The ratio of bank loans to deposits fell to a 50-year low of around 60% in September 2021, Moody’s Investors Service said in a report.  While a growing share of banks’ deposits were uninsured, they were assumed to be relatively “sticky,” or less prone to flee than other types of wholesale funding. But social media and smartphone banking apps seem to have changed that. Small and medium-size banks could be in for a prolonged period of pressure on their deposits, which could in turn force them to be acquired, or limit their lending.

Takeaways by Macro Roundup® AI

  1. The ratio of bank loans to deposits fell to a 50-year low of about 60% in September 2021, according to a Moody's Investors Service report, as pandemic-era Fed bond purchases and Treasury relief payments to household accounts ballooned deposits.
  2. Banks' larger problem lies on the liability rather than the asset side of their balance sheets, as social media and smartphone banking apps appear to have undermined the assumption that uninsured deposits are "sticky.".
  3. Small and medium-size banks could face a prolonged period of pressure on their deposits, which could force them to be acquired or limit their lending.

AI Summary. Commercial real estate valuations look stretched, but distress remains rare: regional banks' commercial real estate loans carry an average loan-to-value ratio near 66%, far below the dangerously high levels of the early-1990s bust. Outside offices, where vacancy rates are soaring, net operating income growth appears healthy.

Robert Armstrong and Ethan Wu Financial Times
Date Posted:

Commercial real estate (CRE) fundamentals are, outside of offices, “sturdy enough.” Loan-to-value ratios are relatively low, meaning that falling prices aren’t likely to translate into defaults. @rbrtrmstrng @EthanYWu

Do stretched commercial real estate valuations threaten widespread defaults?

Core argument: Regional banks' commercial real estate loans carry an average loan-to-value ratio of about 66 per cent, according to MSCI Real Assets, unlike the CRE bust of the early 1990s, when loan-to-value ratios were treacherously high.

Valuations look very stretched and a reversion to the mean suggests a harsh correction. Falling prices, however, are not nearly as worrisome as defaults. And outside of offices, fundamentals seem sturdy enough. Distress remains rare. Unlike in the CRE bust of the early 1990s, when loan-to-value ratios were treacherously high, regional banks’ CRE loans have an average LTV around 66 per cent, according to MSCI Real Assets. Offices’ soaring vacancy rates are not showing up elsewhere. With the possible exception of recession-exposed retail, net operating income growth looks healthy (though this is somewhat exaggerated by inflation).

Takeaways by Macro Roundup® AI

  1. Regional banks' commercial real estate loans carry an average loan-to-value ratio of about 66 per cent, according to MSCI Real Assets, unlike the CRE bust of the early 1990s, when loan-to-value ratios were treacherously high.
  2. Commercial real estate valuations look very stretched, and a reversion to the mean suggests a harsh correction, though falling prices are not nearly as worrisome as defaults, and distress remains rare.
  3. Soaring office vacancy rates are not appearing in other commercial real estate segments, where net operating income growth looks healthy, somewhat exaggerated by inflation, with the possible exception of recession-exposed retail.

AI Summary. Nationwide French protests against the government's plan to raise the retirement age drew smaller crowds than the previous union-led demonstration, with the CGT labour union counting 450,000 people in Paris versus 800,000 and police putting national turnout at 740,000 versus more than 1m. The government has rejected union mediation attempts and vowed to finalise the reform.

Leila Abboud, Sarah White, and Adrienne Klasa Financial Times
Date Posted:

Protests directed at Macron’s pension reform proposal were smaller Tuesday with the CGT labour union estimating 450,000 people protested in Paris down from 800,000 Thursday. @FinancialTimes

Protests directed at Macron’s pension reform proposal were smaller Tuesday with the CGT labour union estimating 450,000...

Are protests against raising the retirement age losing momentum?

Core argument: The CGT labour union estimated 450,000 protesters in Paris in France's tenth nationwide demonstration against raising the retirement age, down from 800,000 at the previous union-led protest, with declines also reported in Marseille, Rennes and Toulouse.

Smaller crowds turned out across France on Tuesday in the tenth nationwide protest held by labour unions against President Emmanuel Macron’s unpopular plan to raise the retirement age, while strikes disrupted transportation and shut down the Eiffel Tower and the palace of Versailles. The CGT labour union estimated that 450,000 people had turned out in Paris compared with 800,000 at the previous union-led demonstration on Thursday, with declines also reported in Marseille, Rennes and Toulouse. Police figures put the nationwide crowds at 740,000 people compared with more than a million last week. The lower turnout is a boost for Macron’s government, which has rejected union attempts at mediation to ease the crisis and vowed to hold firm on finalising the reform by mid-April once it has been reviewed by the constitutional court. But unions are also maintaining their position: another nationwide protest is set for April 6.

Takeaways by Macro Roundup® AI

  1. The CGT labour union estimated 450,000 protesters in Paris in France's tenth nationwide demonstration against raising the retirement age, down from 800,000 at the previous union-led protest, with declines also reported in Marseille, Rennes and Toulouse.
  2. Police put nationwide turnout at 740,000, compared with more than a million a week earlier, while strikes disrupted transportation and shut the Eiffel Tower and the palace of Versailles.
  3. Emmanuel Macron's government has rejected union mediation attempts and vowed to finalise the pension reform by mid-April after constitutional court review, while unions have called another nationwide protest for April 6.

AI Summary. Executive compensation remains overwhelmingly tied to shareholder value as measured by stock prices and financial performance, and while environmental and social metrics in pay have increased, the authors find the relationship small. Corporate statements of environmental, social, and governance goals are associated with supportive policies and programs but little evidence of improved measurable outcomes.

Raghuram Rajan, Pietro Ramella and Luigi Zingales National Bureau of Economic Research
Date Posted:

A review of shareholder letters from 1955 and 2020 finds that corporations “pick and choose the stakeholders they want to focus attention on, while emphasizing long-term shareholder value, especially in how they compensate.” @zingales

Do corporate social goals change executive pay and measurable outcomes?

Core argument: Executive compensation remains overwhelmingly tied to shareholder value as measured by stock prices and financial performance, despite the proliferation of stated corporate goals, according to the authors' analysis of letters to shareholders.

In spite of the proliferation of corporate goals, we find that executive compensation remains overwhelmingly focused on shareholder value, as measured by stock prices and financial performance. While we do observe an increase in the use of environmental and social metrics in compensation, especially by firms that announce such goals, the magnitude of this relationship is still small. We also find corporate statements of ESG goals are associated with policies and programs that favor those goals, but there is little evidence that it improves the firm’s measurable ESG outcomes. These findings cast doubt on the hope that self-regulation would suffice to undertake a green transition. Firms seem very responsive to the public mood in words and programs. Better outcomes? Not yet! There is no evidence that a focus on shareholder value is detrimental (or beneficial) to the long-term health of a corporation, whether that health is measured with profits, dividends, or stock market returns.

Takeaways by Macro Roundup® AI

  1. Executive compensation remains overwhelmingly tied to shareholder value as measured by stock prices and financial performance, despite the proliferation of stated corporate goals, according to the authors' analysis of letters to shareholders.
  2. Corporate statements of ESG goals are associated with policies and programs favoring those goals and with a small increase in the use of environmental and social metrics in pay, but the authors find little evidence of improved measurable ESG outcomes.
  3. The authors find no evidence that a focus on shareholder value is either detrimental or beneficial to a corporation's long-term health, whether measured by profits, dividends, or stock market returns.

AI Summary. China's leadership has emphasized war readiness, announcing a 7.2% increase in the defense budget—which has doubled over the past decade—and plans to reduce dependence on foreign grain imports. China has also opened National Defense Mobilization recruitment offices across the country, while cities in Fujian Province opposite Taiwan build or upgrade air-raid shelters.

John Pomfret and Matt Pottinger Foreign Affairs
Date Posted:

Matt Pottinger and @JEPomfret note that Xi Jinping recently urged senior military leaders to “dare to fight.” China has also started building or upgrading air raid shelters and at least one “wartime emergency hospital.”

Is China preparing for war?

Core argument: China announced a 7.2 percent increase in its defense budget, which has doubled over the last decade, alongside plans to reduce the country's dependence on foreign grain imports.

Chinese leader Xi Jinping says he is preparing for war. At the annual meeting of China’s parliament and its top political advisory body in March, Xi wove the theme of war readiness through four separate speeches, in one instance telling his generals to “dare to fight.” His government also announced a 7.2 percent increase in China’s defense budget, which has doubled over the last decade, as well as plans to make the country less dependent on foreign grain imports. Since December, the Chinese government has also opened a slew of National Defense Mobilization offices—or recruitment centers—across the country, including in Beijing, Fujian, Hubei, Hunan, Inner Mongolia, Shandong, Shanghai, Sichuan, Tibet, and Wuhan. At the same time, cities in Fujian Province, across the strait from Taiwan, have begun building or upgrading air-raid shelters and at least one “wartime emergency hospital,” according to Chinese state media. In March, Fujian and several cities in the province began preventing overseas IP addresses from accessing government websites, possibly to impede tracking of China’s preparations for war.

Takeaways by Macro Roundup® AI

  1. China announced a 7.2 percent increase in its defense budget, which has doubled over the last decade, alongside plans to reduce the country's dependence on foreign grain imports.
  2. Xi Jinping wove war readiness through four separate speeches at the annual meeting of China's parliament and its top political advisory body, in one instance telling his generals to "dare to fight.".
  3. Since December, the Chinese government has opened National Defense Mobilization offices in Beijing, Fujian, Hubei, Hunan, Inner Mongolia, Shandong, Shanghai, Sichuan, Tibet, and Wuhan, while cities in Fujian have begun building or upgrading air-raid shelters, according to Chinese state media.

AI Summary. Deeper Western economic ties with China are unlikely because such co-dependence now carries large geopolitical risks, pushing the trend toward decoupling even though the process is neither easy nor welcome. China now aims to develop its own electric-vehicle industry rather than rely on foreign carmakers.

Orville Schell and Irena Grudzinska Gross Project Syndicate
Date Posted:

.@orvilleschell argues that business leaders in Europe and the United States are myopic not to move “ferociously in the direction of decoupling, even though that process is neither easy nor welcome” given the risk of war in the Western Pacific.

.@orvilleschell argues that business leaders in Europe and the United States are myopic not to move “ferociously in...

Are deeper Western economic ties with China still likely?

Core argument: The author argues that deeper economic ties with China are not in the offing because such co-dependence now carries huge geopolitical risks, even as many supply chains remain reliant on China.

My own view is that, whether you are from Blackstone or Morgan Stanley, you would have to be deluded not to see which way the wind is blowing. Despite ongoing reliance on China for many supply chains, deeper economic ties are not in the offing, because such co-dependence now comes with huge geopolitical risks. It is hard to imagine that even Elon Musk, who has made a fortune in China with his Tesla factory, will be able to maintain this success over the long term. China now wants to develop its own electric-vehicle industry, and it does not want to rely on Musk anymore. So, the wind is blowing more and more ferociously in the direction of decoupling, even though that process is neither easy nor welcome. Yes, some US and foreign companies – such as the stalwarts of Germany’s auto industry – have not yet reconciled themselves with the new reality. CEOs do not like to countenance gloomy and disruptive scenarios. But all they have to do is look at what has happened in Ukraine. If China were to move against Taiwan, it would make the fallout from the war in Eastern Europe look like child’s play.

Takeaways by Macro Roundup® AI

  1. The author argues that deeper economic ties with China are not in the offing because such co-dependence now carries huge geopolitical risks, even as many supply chains remain reliant on China.
  2. The author contends that Elon Musk is unlikely to sustain his Tesla success in China over the long term, since China wants to develop its own electric-vehicle industry rather than rely on him.
  3. The author holds that Chinese military action against Taiwan would make the fallout from the war in Ukraine look like child's play, a new reality some US and foreign companies, including Germany's automakers, have not yet accepted.