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Monday, July 31, 2023

Elon Musk’s Latest Mission: Rev Up the Electricity Industry

Tim Higgins Wall Street Journal

Date Posted:: July 31, 2023

.@elonmusk predicts US electricity consumption will triple by 2045. PG&E forecast electrical demand will be up 70% over next 20 years, while McKinsey expects demand will double by 2050.

Elon Musk is predicting U.S. consumption of electricity will triple by around 2045. “I can’t emphasize enough: we need more electricity however much electricity you think you need, more than that is needed.” He anticipates an electricity shortage in two years that could stunt the energy-hungry development of artificial intelligence. For the past 20 years, U.S. electricity demand has grown at an average rate of 1% each year, according to a Deloitte study. PG&E expects electricity demand will rise 70% in the next 20 years, which, the California company notes, would be unprecedented. Similarly, McKinsey expects U.S. demand will double by 2050. Deloitte estimates the largest U.S. electric companies together will spend as much as $1.8 trillion by 2030.

Takeaways by Macro Roundup^® AI

Elon Musk predicts U.S. electricity consumption will triple by around 2045 and anticipates a shortage within two years that could stunt the energy-hungry development of artificial intelligence.
U.S. electricity demand has grown at an average of 1% a year over the past 20 years, according to a Deloitte study, while McKinsey expects demand to double by 2050.
PG&E expects electricity demand to rise 70% over the next 20 years, which the California company notes would be unprecedented, and Deloitte estimates the largest U.S. electric companies together will spend as much as $1.8 trillion by 2030.

Sticking the Soft Landing

Joseph Politano Apricitas Economics

Date Posted:: July 31, 2023

.@JosephPolitano notes that real per-capita consumption briefly caught up with the pre-crisis trend, and argues the post-crisis period of persistent underinvestment, low employment, and sluggish growth is over.

Not only has real per-capita consumption recovered to pre-COVID levels, but it has actually broadly returned to its pre-COVID trend at the fastest pace of any modern recession—in stark contrast to the permanent scars on consumption left by the 2008 recession. In fact, growth in real consumption of durable goods has not only vastly exceeded the pre-pandemic trend but briefly caught up with the pre-Great Recession trend, and remains high even as it hasn’t grown in several years. The 2010s saw durable goods’ share of spending sink by roughly 3% in 3 years and barely recover afterward. Not until the pandemic did durable goods consumption spending climb back to its pre-recession share of household budgets. That meant more than a decade of, effectively, household underinvestment in some of the most-important big-ticket items that provide long-term welfare and enhance people’s economic productivity—and that is being partially undone today.

Takeaways by Macro Roundup^® AI

U.S. real per-capita consumption has returned not just to pre-COVID levels but broadly to its pre-COVID trend, at the fastest pace of any modern recession, in contrast to the permanent consumption scars left by the 2008 recession.
Real consumption of durable goods has vastly exceeded its pre-pandemic trend and briefly caught up with the pre-Great Recession trend, remaining high even though it has not grown in several years.
Durable goods' share of spending fell roughly 3% in three years during the 2010s and barely recovered until the pandemic, amounting to more than a decade of household underinvestment in big-ticket items that is now being partially undone.

The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet)

Matt Klein The Overshoot

Date Posted:: July 31, 2023

.@M_C_Klein notes strong nominal wage growth and increased demand for investment aren’t consistent with a deflationary process and notes the “neutral” rate of interest may have risen relative to pre-pandemic levels.

The overall picture is that occupations where pay rose the fastest in 2021-2022 have since seen pay growth normalize, while jobs in the rest of the economy are still experiencing persistently faster pay growth. There has been some deceleration relative to the peak at the beginning of 2022, but it has been very modest. One good reason to think that the “neutral” policy rate has gone up is that the post-2000 investment drought is finally ending thanks in no small part to the U.S. government’s subsidies. In this environment, short-term interest rates of 5.5%—which is what the U.S. endured in the second half of the 1990s without problems when inflation was slower—do not seem particularly high. If that is correct, then 4% yields on 10-year Treasury notes could be too low, which could also have implications for the appropriate discount rates for stocks.

Takeaways by Macro Roundup^® AI

Occupations with the fastest pay gains in 2021–2022 have seen wage growth normalize, while the rest of the economy still shows persistently faster pay growth, with only very modest deceleration from the early-2022 peak.
The end of the post-2000 investment drought, aided in no small part by U.S. government subsidies, is one reason to think the "neutral" policy rate has risen.
Short-term rates of 5.5% do not appear particularly high given that the U.S. endured that level without problems in the second half of the 1990s when inflation was slower, suggesting 4% yields on 10-year Treasury notes could be too low, with possible implications for stock discount rates.

Home Insurers Are Charging More and Insuring Less

Jean Eaglesham Wall Street Journal

Date Posted:: July 31, 2023

Since 2022, 31 states have approved double-digit home insurance rate increases as insurers seek to properly price risk.

Arizona, Texas, North Carolina, Oregon, Illinois and Utah had the biggest total of approved increases, ranging from 20% to 30%. In states such as California, some insurers are halting sales of new policies. Companies are also pulling back from some areas vulnerable to disasters. The escalating cost of catastrophes is reflected in a steep increase in premiums for the reinsurance coverage that home-insurance companies buy to pass on some of their risk. Depending on the state regulator, those higher premiums can feed directly through to the price charged to homeowners. Data shows reinsurance premiums were up on average 33% for June 1 renewals, which includes many Florida carriers, and 50% for renewals at the start of this year.

Takeaways by Macro Roundup^® AI

Arizona, Texas, North Carolina, Oregon, Illinois and Utah recorded the biggest totals of approved home-insurance rate increases, ranging from 20% to 30%.
Reinsurance premiums that home insurers buy to pass on risk rose an average of 33% for June 1 renewals, which include many Florida carriers, and 50% for renewals at the start of this year.
Some insurers in states such as California are halting sales of new policies and pulling back from areas vulnerable to disasters, and higher reinsurance premiums can feed through to homeowners depending on the state regulator.

Will There Be Enough Cables For The Clean Energy Transition?

Rachel Millard Financial Times

Date Posted:: July 31, 2023

Demand for high-voltage cables outside China is increasingly supply-constrained which will soon start to delay major renewable energy projects.

Sending electricity at very high voltage is more efficient, if more expensive, with losses potentially as low as 3% per 1,000km for direct current systems, which have less resistance. This is about 30-40% lower than for alternating current systems. “HVDC [high-voltage direct current] becomes economic at about the 60km mark” for subsea systems, says Ian Douglas, chief executive of cable company XLCC. Demand for high-voltage cables is booming, with the market climbing from a typical $3bn of new projects awarded per year between 2015-20 to $11bn in 2022. This year, the estimated value of new orders is likely to exceed $20bn before settling at $18bn-$20bn per year, according to Massimo Battaini, incoming chief executive of Prysmian. “We are fully booked until 2026/27,” he says.

Takeaways by Macro Roundup^® AI

High-voltage cable orders have risen from about $3bn of new projects awarded per year in 2015–20 to $11bn in 2022, with Prysmian's incoming chief executive Massimo Battaini estimating this year's new orders will likely exceed $20bn before settling at $18bn–$20bn per year.
High-voltage direct current transmission can lose as little as 3% per 1,000km owing to lower resistance, roughly 30–40% below losses for alternating current systems, though it is more expensive.
XLCC chief executive Ian Douglas says high-voltage direct current becomes economic at about the 60km mark for subsea systems, and Prysmian's Massimo Battaini says the company is fully booked until 2026/27.

First New US Nuclear Reactor In Three Decades May Be Its Last

Myles McCormick Financial Times

Date Posted:: July 31, 2023

The first new US nuclear facility in 30 years will start to deliver power this summer; however, cost overruns have led to diminished investor interest in future projects.

When Plant Vogtle unit 3 finally delivers commercial electricity to the Georgia power grid, it will be the first nuclear reactor the country has built from scratch in more than three decades. The 1,100-megawatt Vogtle unit 3 was initially supposed to enter service in 2016. Georgia Power, the utility driving the project, most recently said it would start commercial operations in July after the latest delay caused by a degraded seal in its main generator. The $14bn original cost of Vogtle units 3 and 4 has now ballooned to more than $30bn. The cost for Georgia Power, with a 45% share of the project, will be about $15bn.

Takeaways by Macro Roundup^® AI

Costs for Plant Vogtle units 3 and 4 have risen from an original $14bn to more than $30bn, with Georgia Power's 45% share running about $15bn.
The 1,100-megawatt Vogtle unit 3 was originally scheduled to enter service in 2016, and Georgia Power most recently said commercial operations would begin in July after a delay caused by a degraded seal in its main generator.
Vogtle unit 3 will be the first nuclear reactor built from scratch in the United States in more than three decades when it delivers commercial electricity to the Georgia power grid.

The Death of Summer

Niall Ferguson Bloomberg

Date Posted:: July 31, 2023

Citing the rise in the frequency of extreme heat globally, @nfergus argues investors should “short shores, long hills” as changes in temperature increasingly impact financial markets and politics.

Global warming no longer needs to be a theory; it’s a reality. Extreme heat is significantly more common in major cities these days (2019-23) than it was in the early 1950s. To be precise, there are 2.7 times as many days with mid-afternoon temperatures above 30 C in Athens; 3.7 times in Barcelona; 8.1 times in Paris; and an amazing 10.4 times in London. The mountains are seeing temperatures rise roughly as much as the beaches. The effects on snow cover in the Alps are all too familiar to European skiers. Short shores, long hills may not turn out to be the trade of the century. But short shores, long hills feels right.

Takeaways by Macro Roundup^® AI

London recorded 10.4 times as many days with mid-afternoon temperatures above 30°C in 2019–23 as in the early 1950s, alongside 8.1 times in Paris, 3.7 times in Barcelona, and 2.7 times in Athens.
Mountain temperatures are rising roughly as much as those at the beaches, with effects on Alpine snow cover familiar to European skiers.
Going short shores and long hills feels right, though it may not turn out to be the trade of the century.

U.S. Hunts Chinese Malware That Could Disrupt American Military Operations

David Sanger and Julian Barnes New York Times

Date Posted:: July 31, 2023

Chinese hackers have hidden malicious computer code in US computer networks that control power grids and water supplies to military bases globally. The code is not designed for intelligence gathering but for offensive operations.

The investigations so far show the Chinese effort appears more widespread — in the United States and at American facilities abroad — than they had initially realized. But officials acknowledge that they do not know the full extent of the code’s presence in networks around the world, partly because it is so well hidden. There is a debate inside the administration over whether the goal of the operation is primarily aimed at disrupting the military, or at civilian life more broadly in the event of a conflict.

Takeaways by Macro Roundup^® AI

U.S. investigations into Chinese malware indicate the effort is more widespread across the United States and at American facilities abroad than officials had initially realized.
U.S. officials acknowledge they do not know the full extent of the Chinese code's presence in networks around the world, partly because the malware is so well hidden.
Administration officials are divided over whether the Chinese operation is aimed primarily at disrupting the military or at civilian life more broadly in the event of a conflict.

US To Provide Taiwan With Weapons From Its Stockpiles For First Time

Demetri Sevastopulo Financial Times

Date Posted:: July 31, 2023

Using the same “presidential drawdown authority” used to send arms to Ukraine, the Pentagon is directly providing weapons to Taiwan for the first time. Last year Congress approved a $1 billion of drawdown support to Taiwan.

The US will provide Taiwan with $345mn in weapons, marking the first time the Pentagon will send arms directly to the country. The White House on Friday announced its plan to provide weapons from US stockpiles in the first tranche of an annual $1bn “presidential drawdown authority” (PDA) Congress approved last year to support Taiwan. Successive US administrations have approved the sale of weapons to Taiwan. But this is the first time the arms have been directly provided under the PDA — the same authority that the Biden administration has been using to send weapons to Ukraine.

Takeaways by Macro Roundup^® AI

The White House announced $345mn in weapons for Taiwan drawn from US stockpiles, the first time the Pentagon will send arms directly to Taiwan rather than through approved sales.
The $345mn package is the first tranche of an annual $1bn presidential drawdown authority for Taiwan that Congress approved last year.
The presidential drawdown authority used for Taiwan is the same authority the Biden administration has been using to send weapons to Ukraine.

Tuesday, August 1, 2023

Raising Anchor

Joseph Wang Fed Guy Blog

Date Posted:: August 1, 2023

.@FedGuy12 argues that “Treasury yields will continue to drift higher,” as higher Japanese yields will move the marginal Japanese buyer out of the Treasury market just as Treasury issuance is increasing.

The BOJ’s low interest policy remains an anchor of global bond yields, but that anchor will soon be set at a higher level. U.S. bonds will appear even more unattractive to Japanese investors, whose exit from the market would allow U.S. bond yields to drift higher. The eventual Fed rate cuts would reduce FX hedging costs and potentially bring back some Japanese investors, but until then it looks like one more marginal source of demand is evaporating even as Treasury supply is set to increase. This suggests that Treasury yields will continue to drift higher.

Takeaways by Macro Roundup^® AI

The Bank of Japan's low interest rate policy anchors global bond yields, and that anchor is set higher soon, leaving U.S. bonds even less attractive to Japanese investors whose exit would allow U.S. yields to drift higher.
Japanese demand for Treasuries looks like one more marginal source of demand evaporating even as Treasury supply is set to increase, suggesting Treasury yields will continue to drift higher.
Eventual Federal Reserve rate cuts would reduce FX hedging costs and potentially bring back some Japanese investors to the U.S. bond market.

War, AI and Climate Change Shake Up $32 Trillion in Global Trade

Bloomberg Staff Bloomberg

Date Posted:: August 1, 2023

Bloomberg’s @TomOrlik writes that Mexico and Vietnam have been the biggest beneficiaries of the realignment of global supply chains, a process that he thinks “has barely begun.”

Bloomberg calculates that US imports of tariffed goods from China are down about $150 billion from where they’d otherwise be. Mexico is filling much of the gap. The share of manufacturing in India’s gross domestic product stands at 13%, well below Modi’s 25% goal. China outperforms India in making sophisticated technology—the so-called value-add that leads consumers to pay more for items such as electronics. Chinese manufacturers’ value-add is currently 49%, compared with 20% for India’s, the government says.

Takeaways by Macro Roundup^® AI

Bloomberg calculates that US imports of tariffed goods from China are running about $150 billion below where they would otherwise be, with Mexico filling much of the gap.
Manufacturing accounts for 13% of India's gross domestic product, well below Prime Minister Modi's 25% goal.
Chinese manufacturers' value-add stands at 49% against 20% for India's, according to the government, with China outperforming India in making sophisticated technology such as electronics.

The Benefit of Owning Stocks Over Bonds Keeps Shrinking

Sam Goldfarb Wall Street Journal

Date Posted:: August 1, 2023

The equity risk premium is at its lowest level since 2002.

The extra reward for holding stocks instead of bonds has fallen to its lowest level in 20 years, threatening a recent hot streak for major indexes. One method for gauging the value of stocks is to compare their earnings yield—calculated by dividing a company’s expected earnings over the next year by its stock price—to the yield on government bonds, considered the closest thing to a risk-free return. The gap between the earnings yield of the S&P 500 and the yield on the 10-year U.S. government bond dropped to around 1.1pp last week, its narrowest since 2002. The spread to the yield on the 10-year Treasury inflation-protected security, seen by some analysts as the better benchmark because corporate earnings tend to adjust with inflation, has similarly fallen to its lowest level since 2003, at around 3.5pp.

Takeaways by Macro Roundup^® AI

The gap between the S&P 500's earnings yield and the 10-year Treasury yield fell to about 1.1pp last week, its narrowest since 2002, threatening a recent hot streak for major indexes.
The spread between the S&P 500 earnings yield and the 10-year Treasury inflation-protected security yield fell to roughly 3.5pp, its lowest since 2003, a benchmark some analysts prefer because corporate earnings tend to adjust with inflation.
One method for gauging the value of stocks compares their earnings yield—expected earnings over the next year divided by stock price—with government bond yields, considered the closest thing to a risk-free return.

Miami Sees Its First Population Drop in Decades

Konrad Putzier and Deborah Acosta Wall Street Journal

Date Posted:: August 1, 2023

Miami-Dade County’s population shrank between 2019 -2022, the first decrease since the 1970s. The number of employed workers in May was just under 2019 levels.

Miami-Dade lost 79,535 people through net migration to other parts of Florida or other states between 2020 and 2022, according to an analysis of U.S. Census Bureau data by the Brookings Institution. Although foreign immigration offset some of the loss and helped the county’s population rise slightly last year, Miami-Dade County’s population still shrank between 2019 and 2022—its first population loss over a multiyear period since at least 1970, according to the Federal Reserve Bank of St. Louis. Home prices in Miami have soared 53% since June 2020, according to online listing site Zillow, the second most out of the top 50 metropolitan housing markets after Tampa.

Takeaways by Macro Roundup^® AI

Miami-Dade County lost 79,535 people through net migration to other parts of Florida or other states between 2020 and 2022, according to a Brookings Institution analysis of U.S. Census Bureau data.
Miami-Dade's population shrank between 2019 and 2022 despite foreign immigration offsetting some of the loss, its first multiyear population decline since at least 1970, according to the Federal Reserve Bank of St. Louis.
Miami home prices have risen 53% since June 2020, the second largest increase among the top 50 U.S. metropolitan housing markets after Tampa, according to Zillow.

Origin Of Correlated Isolated Flat Bands In Copper-Substituted Lead Phosphate Apatite

Sinead Griffin Lawrence Berkeley National Lab

Date Posted:: August 1, 2023

Research from Lawrence Berkeley National Lab @sineatrix suggests that the potential superconductivity breakthrough announced by South Korean researchers is plausible.

A recent report of room temperature superconductivity at ambient pressure in Cu-substituted apatite (‘LK99’) has invigorated interest in the understanding of what materials and mechanisms can allow for high-temperature superconductivity. Here I perform density functional theory calculations on Cu-substituted lead phosphate apatite, identifying correlated isolated flat bands at the Fermi level, a common signature of high transition temperatures in already established families of superconductors. I elucidate the origins of these isolated bands as arising from a structural distortion induced by the Cu ions and a chiral charge density wave from the Pb lone pairs. These results suggest that a minimal two-band model can encompass much of the low-energy physics in this system.

Takeaways by Macro Roundup^® AI

Density functional theory calculations on Cu-substituted lead phosphate apatite ("LK99") identify correlated isolated flat bands at the Fermi level, a signature common to established families of superconductors with high transition temperatures.
The isolated flat bands in Cu-substituted lead phosphate apatite are attributed to a structural distortion induced by the Cu ions together with a chiral charge density wave from the Pb lone pairs.
The calculations suggest a minimal two-band model can encompass much of the low-energy physics of Cu-substituted lead phosphate apatite, reported to show room temperature superconductivity at ambient pressure.

Climate Change Hasn’t Set the World on Fire

Bjorn Lomborg Wall Street Journal

Date Posted:: August 1, 2023

.@BjornLomborg argues that the narrative around forest fires has been distorted by the media. He notes that the percentage of the globe that burns each year has been declining since 2001.

For more than two decades, satellites have recorded fires across the planet’s surface. The data are unequivocal: Since the early 2000s, when 3% of the world’s land caught fire, the area burned annually has trended downward. In 2022, the last year for which there are complete data, the world hit a new record-low of 2.2% burned area. While the complete data aren’t in for 2023, global tracking up to July 29 by the Global Wildfire Information System shows that more land has burned in the Americas than usual. But much of the rest of the world has seen lower burning—Africa and especially Europe. Globally, the GWIS shows that burned area is slightly below the average between 2012 and 2022, a period that already saw some of the lowest rates of burned area.

Takeaways by Macro Roundup^® AI

Satellite records show global burned area hit a record low of 2.2% of the world's land in 2022, down from about 3% in the early 2000s, with the annual area burned trending downward since then.
Global Wildfire Information System tracking through July 29 shows more land burned than usual in the Americas, while Africa and especially Europe saw lower burning.
The Global Wildfire Information System shows global burned area slightly below the 2012–2022 average, a period that already included some of the lowest rates of burned area.

.@elonmusk predicts US electricity consumption will triple by 2045. PG&E forecast electrical demand will be up 70% over next 20 years, while McKinsey expects demand will double by 2050.

Is U.S. electricity demand growth set to accelerate sharply?

Takeaways by Macro Roundup® AI

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.@JosephPolitano notes that real per-capita consumption briefly caught up with the pre-crisis trend, and argues the post-crisis period of persistent underinvestment, low employment, and sluggish growth is over.

Has consumption returned to its pre-pandemic trend faster than after past recessions?

Takeaways by Macro Roundup® AI

.@M_C_Klein notes strong nominal wage growth and increased demand for investment aren’t consistent with a deflationary process and notes the “neutral” rate of interest may have risen relative to pre-pandemic levels.

Does persistent wage growth justify keeping interest rates higher for longer?

Takeaways by Macro Roundup® AI

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Since 2022, 31 states have approved double-digit home insurance rate increases as insurers seek to properly price risk.

Are home insurers raising rates and reducing coverage?

Takeaways by Macro Roundup® AI

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Demand for high-voltage cables outside China is increasingly supply-constrained which will soon start to delay major renewable energy projects.

Can cable supply keep up with surging high-voltage transmission demand?

Takeaways by Macro Roundup® AI

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The first new US nuclear facility in 30 years will start to deliver power this summer; however, cost overruns have led to diminished investor interest in future projects.

Are cost overruns and delays discouraging new US nuclear construction?

Takeaways by Macro Roundup® AI

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Citing the rise in the frequency of extreme heat globally, @nfergus argues investors should “short shores, long hills” as changes in temperature increasingly impact financial markets and politics.

How much more extreme heat do European cities record now?

Takeaways by Macro Roundup® AI

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Chinese hackers have hidden malicious computer code in US computer networks that control power grids and water supplies to military bases globally. The code is not designed for intelligence gathering but for offensive operations.

Is hidden foreign malware more widespread in American networks than realized?

Takeaways by Macro Roundup® AI

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Using the same “presidential drawdown authority” used to send arms to Ukraine, the Pentagon is directly providing weapons to Taiwan for the first time. Last year Congress approved a $1 billion of drawdown support to Taiwan.

Is the US sending Taiwan weapons directly from its own stockpiles?

Takeaways by Macro Roundup® AI

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.@FedGuy12 argues that “Treasury yields will continue to drift higher,” as higher Japanese yields will move the marginal Japanese buyer out of the Treasury market just as Treasury issuance is increasing.

Will higher Japanese interest rates push U.S. Treasury yields higher?

Takeaways by Macro Roundup® AI

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Bloomberg’s @TomOrlik writes that Mexico and Vietnam have been the biggest beneficiaries of the realignment of global supply chains, a process that he thinks “has barely begun.”

Are tariffs shifting US imports away from China toward other suppliers?

Takeaways by Macro Roundup® AI

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The equity risk premium is at its lowest level since 2002.

Is the extra yield from stocks over bonds shrinking?

Takeaways by Macro Roundup® AI

Related Articles:

Miami-Dade County’s population shrank between 2019 -2022, the first decrease since the 1970s. The number of employed workers in May was just under 2019 levels.

Are rising home prices driving residents out of Miami?

Takeaways by Macro Roundup® AI

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Research from Lawrence Berkeley National Lab @sineatrix suggests that the potential superconductivity breakthrough announced by South Korean researchers is plausible.

Does copper-substituted lead phosphate apatite show electronic signatures linked to high-temperature superconductivity?

Takeaways by Macro Roundup® AI

Related Articles:

.@BjornLomborg argues that the narrative around forest fires has been distorted by the media. He notes that the percentage of the globe that burns each year has been declining since 2001.

Is the share of global land burned by fire declining?

Takeaways by Macro Roundup® AI

Related Articles:

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