Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…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 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
  • “…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
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, August 29, 2023

AI Summary. The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.

Darrell Duffie Federal Reserve Bank of Kansas City
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Since 2007, the ratio of Treasuries outstanding to primary dealer assets has increased by a factor of four. @DuffieDarrell argues that this will drive increasing illiquidity in the Treasury market.

Can market structure reforms keep Treasury trading capacity growing with debt?

Core argument: Treasuries outstanding will keep growing rapidly relative to the market's intermediation capacity, driven by large and persistent US fiscal deficits and the limited flexibility of dealer balance sheets, absent significant improvements in market structure.

The total amount of Treasuries outstanding will continue to grow rapidly relative to the intermediation capacity of the market because of large and persistent US fiscal deficits and the limited flexibility of dealer balance sheets, unless there are significant improvements in market structure. Broad central clearing and all-to-all trade have the potential to add importantly to market capacity and resilience. Additional improvements in intermediation capacity can likely be achieved with real-time post-trade transaction reporting and improvements in the form of capital regulation, especially the Supplementary Leverage Ratio. Backstopping the liquidity of this market with transparent official-sector purchase programs will further buttress market resilience.

Takeaways by Macro Roundup® AI

  1. Treasuries outstanding will keep growing rapidly relative to the market's intermediation capacity, driven by large and persistent US fiscal deficits and the limited flexibility of dealer balance sheets, absent significant improvements in market structure.
  2. Broad central clearing and all-to-all trading have the potential to add importantly to Treasury market capacity and resilience.
  3. Real-time post-trade transaction reporting and improvements in capital regulation, especially the Supplementary Leverage Ratio, can likely add intermediation capacity, while transparent official-sector purchase programs backstopping liquidity would further buttress Treasury market resilience.

Related Articles:

  • JPMorgan Says Treasuries Coping Amid Worst Liquidity Since 2020 — Strategists at JPMorgan Chase argue that deteriorated liquidity in the US Treasury market is not a financial stability concern and need not deter the Federal Reserve from continuing rate hikes. They note the price impact of each trade remains below crisis levels, with the largest dislocations in Treasuries maturing in 7 to 10 years.
  • Raising Anchor — The Bank of Japan's low interest rate policy anchors global bond yields, and that anchor is set to move higher, making U.S. Treasury bonds less attractive to Japanese investors. With this marginal source of demand fading as Treasury supply is set to increase, U.S. yields are likely to drift higher.

AI Summary. Wage growth of about 2.5% would be consistent with 2% inflation given low recent-trend productivity growth, but wage growth is running near 4.5%. On this view inflation is more likely to level out at its current rate than keep falling, pushing the Federal Reserve toward further tightening through rate rises or holding rates high.

Bob Prince and Aaron Goone Bridgewater Associates
Date Posted:

Noting high nominal wage growth, Bridgewater argues that inflation is likely leveling out at its current rate which implies downside risk to asset prices.

Does wage growth signal inflation will stall above target?

Core argument: Wage growth of about 2.5% would be consistent with 2% inflation today, given low recent-trend productivity growth and more neutral income from assets and deficit-financed government transfers, but wage growth is running near 4.5%.

Today, about 2.5% wage growth would be consistent with 2% inflation, as recent-trend productivity growth has been low and other sources of income (from assets and government-deficit-financed transfers) are more neutral. With wage growth currently running at around 4.5%, we’re far away from this level. We’re more likely to see inflation level out at its current rate rather than continue to decline like it has over the past year. This would push the Fed to continue tightening and, with a short pause and return toward easing being priced in, could come through the form of either rate rises or holding rates at high levels. This makes assets especially vulnerable to another round of tighter policy.

Takeaways by Macro Roundup® AI

  1. Wage growth of about 2.5% would be consistent with 2% inflation today, given low recent-trend productivity growth and more neutral income from assets and deficit-financed government transfers, but wage growth is running near 4.5%.
  2. Inflation is more likely to level out at its present rate than to keep declining as it has over the past year, which would push the Federal Reserve to continue tightening through rate rises or holding rates at high levels.
  3. With a short pause and a return toward easing priced in, assets are especially vulnerable to another round of tighter policy.

Related Articles:

  • The Unresolved Tension Between Prices and Incomes — Persistent per-worker income growth of about 5% a year is difficult to reconcile with forecasts of 2% inflation, since inflation reflects the gap between nominal spending growth and real production, and wages are the largest source of financing for consumer spending. Interest rates may therefore fall more slowly than market prices imply.
  • The Tightening Cycle Is Approaching Stage 3: Guideposts We’re Watching — The authors argue that corporate earnings must fall to trigger the layoffs needed to slow wage growth, a prerequisite for sustainably returning inflation to 2%, and they see odds favoring an economic downturn. Absent that downturn, they expect inflation to stay above central bank targets, keeping short-term interest rates higher than markets anticipate.
  • Rate Cuts — The Federal Reserve might refrain from cutting interest rates if inflation does not fall enough, or if economic growth runs above potential, unemployment pushes below its 50-year low, and financial conditions ease further. In that case, policymakers could argue the short-run neutral rate is higher than common estimates, making current policy less restrictive than assumed.

AI Summary. Market pricing of future inflation expectations and longer-dated real yields has been creeping up, potentially reflecting some probability of both a higher inflation target and a higher neutral interest rate. This implies today's higher nominal rates are here to stay and may trend higher.

Joseph Wang Fed Guy Blog
Date Posted:

Citing a rise in 5 and 10-year TIPS yields, @FedGuy12 notes some investors are pricing in a world with a higher r*.

Are markets pricing in higher inflation expectations and neutral rates?

Core argument: Market-based measures of longer-dated real yields and future inflation expectations have been creeping up, potentially pricing in some probability of both a higher inflation target and a higher neutral rate (r*).

One market based measure of longer dated real yields has steadily risen and appears to indicate such a possibility. Market pricing indicates that some investors have a clearer vision of the future. Market pricing of future inflation expectations and longer dated real rates have been creeping up, potentially pricing in some probability of both a higher inflation target and a higher r*. Together this implies that the higher nominal rates we see today are here to stay and may even trend higher as the future unfolds. The Fed is a conservative institution and would be hesitant to make any big changes to its approach to policy. If the future looks different from the past, the Fed will be among the last to know.

Takeaways by Macro Roundup® AI

  1. Market-based measures of longer-dated real yields and future inflation expectations have been creeping up, potentially pricing in some probability of both a higher inflation target and a higher neutral rate (r*).
  2. The rise in market pricing of real rates and inflation expectations implies that today's higher nominal rates are here to stay and may trend higher.
  3. The Federal Reserve is a conservative institution hesitant to make big changes to its policy approach, and if the future looks different from the past, the Fed will be among the last to know.

Related Articles:

  • Hitch Your Wagon to R-Star — The neutral interest rate is argued to be low because investment demand tracks expected growth, and U.S. growth prospects are held down by stalled working-age population growth and slow productivity gains. Larger budget deficits and an industrial-policy-driven manufacturing investment boom could have raised it, though manufacturing is a small share of overall investment.
  • Measuring the Natural Rate of Interest After COVID-19 — Model estimates for the United States, Canada, and the Euro Area place the natural rate of interest within a few tenths of a percentage point of pre-pandemic estimates, with the main longer-term consequence of the pandemic a reduction in the natural rate of output. The authors find no evidence that the era of historically low natural rates has ended.
  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.

AI Summary. The rise in US 10-year Treasury yields has occurred almost entirely during New York trading hours rather than Tokyo hours, suggesting the Bank of Japan's exit from yield curve control is not the driver. Likely drivers instead include the US sovereign downgrade, Federal Reserve balance-sheet runoff, the budget deficit, and larger Treasury auctions.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal argues that reduced Japanese demand for Treasuries is a minor factor in rising long-term interest rates.

Are Japanese policy changes driving US long-term interest rates higher?

Core argument: Since the Bank of Japan's yield curve control exit surprise in late July, the rise in US 10-year yields has occurred almost entirely during New York trading hours rather than Tokyo hours.

One way to better understand the impact of BoJ YCC exit on Japanese demand for US Treasuries is to look at how much of the recent increase in US long-term interest rates has happened during Tokyo trading hours. Since the BoJ YCC exit surprise in late July, the move higher in 10s has occurred almost entirely during New York trading hours. This suggests that US rates are not driven higher by Japanese investors during Tokyo trading hours. Hence, BoJ YCC exit doesn’t seem to be the reason long rates have increased over the past month. Instead, likely drivers of US rates over the past month are the US sovereign downgrade, fewer dollars for China to recycle in a falling exports environment, Fed QT, the significant budget deficit, the large stock of T-bills, and the Treasury’s intention to increase coupon auction sizes.

Takeaways by Macro Roundup® AI

  1. Since the Bank of Japan's yield curve control exit surprise in late July, the rise in US 10-year yields has occurred almost entirely during New York trading hours rather than Tokyo hours.
  2. The concentration of the US long-rate move in New York hours suggests Japanese investors are not driving US rates higher, and that the BoJ's yield curve control exit is not the reason long rates rose over the past month.
  3. Likely drivers of US rates over the past month include the US sovereign downgrade, fewer dollars for China to recycle as exports fall, Fed quantitative tightening, the large budget deficit, the big stock of T-bills, and the Treasury's intention to increase coupon auction sizes.

Related Articles:

  • Raising Anchor — The Bank of Japan's low interest rate policy anchors global bond yields, and that anchor is set to move higher, making U.S. Treasury bonds less attractive to Japanese investors. With this marginal source of demand fading as Treasury supply is set to increase, U.S. yields are likely to drift higher.
  • China Isn’t Selling Treasuries — US data on foreign holdings of Treasury securities does not reliably identify the true owners, since several of the largest reported holders — including Belgium, the Cayman Islands, Luxembourg, and Ireland — are financial and custodial centers rather than real holders. Adjusting for Belgian accounts, China's visible holdings of US bonds have held near $1.6tn.
  • American Gothic — US tax increases since 1950 of 2% of GDP or more occurred when overall tax receipts were a much smaller share of GDP than today. Restoring the ratio of entitlement to non-defense discretionary spending to its earlier level of 2.2x would require tax increases larger than those historical precedents.

AI Summary. The authors estimate that a 100bps monetary tightening reduces investment in intellectual property by about 1%, research and development spending at public firms by about 3%, venture capital investment by up to 25%, and patenting in important technologies by up to 9%.

Yueran Ma and Kaspar Zimmermann Federal Reserve Bank of Kansas City
Date Posted:
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Historically monetary tightening has had an impact on risk capital: 100bps of tightening is associated with a 1-3pp decline in R&D spending and a 25% decline in VC investment over the following 1-3 year period.

Does monetary tightening reduce research, venture capital, and patenting?

Core argument: A 100bps monetary tightening shock lowers investment in intellectual property products in the national accounts by about 1%, a magnitude comparable to the decline in traditional physical investment, and cuts R&D spending among Compustat public firms by about 3%.

We normalize the shock to tightening by 100bps. Investment in intellectual property products (IPP) in the national accounts (NIPA) declines by about 1%. The magnitude is comparable to the decline in traditional investment in physical assets. R&D spending in Compustat data for public firms declines by about 3%. VC investment is more volatile, and declines by as much as 25% at a horizon of 1 to 3 years after the monetary policy shock. Patenting in important technologies declines by up to 9% 2 to 4 years after the shock. An aggregate innovation index constructed using estimates of the economic value of patents also declines by up to 9%. Based on estimates of the output and total factor productivity (TFP) sensitivity to the aggregate innovation index, a 9% decline in the index can contribute to 1% lower real output and 0.5% lower TFP 5 years later.

Takeaways by Macro Roundup® AI

  1. A 100bps monetary tightening shock lowers investment in intellectual property products in the national accounts by about 1%, a magnitude comparable to the decline in traditional physical investment, and cuts R&D spending among Compustat public firms by about 3%.
  2. Venture capital investment is more volatile, declining by as much as 25% one to three years after a 100bps tightening shock, while patenting in important technologies falls by up to 9% two to four years after.
  3. An aggregate innovation index built from estimates of the economic value of patents declines by up to 9%, which, based on estimated output and TFP sensitivities, can contribute to 1% lower real output and 0.5% lower total factor productivity five years later.

Related Articles:

  • Data Update 2 for 2023: A Rocky Year for Equities — The implied equity risk premium on the S&P 500 rose from 4.24% to 5.94% over the course of 2022, placing it near the top of its range since 1960, while the expected return on stocks of 9.82% is its highest since 1995. Whether the market is fairly valued turns on whether that risk premium is too high or too low.

AI Summary. The college wage premium is largest for Asian workers, whose college graduates earn more than twice what high school graduates earn — about a 120% premium versus roughly 70–80% for Black, Hispanic, and White workers. The premium has edged down slightly for all groups except Hispanic workers since the pandemic recession.

Leila Bengali, Marcus Sander, Robert G. Valletta and Cindy Zhao Federal Reserve Bank of San Francisco
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The decline in the college wage premium has been driven by faster wage growth for high school workers rather than slower wage growth for college graduates. @sffed

Does the college wage premium differ by race and ethnicity?

Core argument: The college wage premium for Asian workers is about 120%, with college graduates earning more than twice what high school graduates earn, compared with about 70–80% for Black, Hispanic, and White workers.

The college wage premium is especially large for Asian workers, with college graduates earning more than twice what high school graduates earn. This reflects about a 120% premium, compared with about a 70–80% premium for the other three racial/ethnic groups. The college wage gap is also somewhat larger for Black workers than for Hispanic and White workers, although the premiums for those groups have largely converged in recent years. All four groups saw gains through at least the early part of the recovery from the 2007–09 recession. While the premium continued to rise for Asian workers, the premium flattened for White workers in the latter half of the recovery and fell for Hispanic and Black workers. Moreover, since the 2020 pandemic recession, the college wage premium edged down slightly for all groups except Hispanic workers.

Takeaways by Macro Roundup® AI

  1. The college wage premium for Asian workers is about 120%, with college graduates earning more than twice what high school graduates earn, compared with about 70–80% for Black, Hispanic, and White workers.
  2. The college wage premium is somewhat larger for Black workers than for Hispanic and White workers, though the premiums for those groups have largely converged.
  3. All four racial and ethnic groups gained through at least the early part of the recovery from the 2007–09 recession, after which the premium kept rising for Asian workers, flattened for White workers, and fell for Hispanic and Black workers.

Related Articles:

  • Why Do Wages Grow Faster for Educated Workers? — College graduates sort into professional, non-routine occupations where wages rise much more with job tenure, and the author estimates this occupational sorting explains at least half of the life-cycle growth in the college wage premium. That premium is estimated at 22% at age 26, 49% at age 40, and 56% at age 60.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — The authors estimate that post-pandemic labor market tightness compressed the US wage distribution, reducing the college wage premium and offsetting roughly one-quarter of the four-decade rise in 90-10 wage inequality. They attribute this in part to greater labor supply elasticity facing firms in low-wage markets, which reduced employer market power as young non-college workers moved to higher-paying jobs.

AI Summary. Sub-Saharan Africa is projected to account for half of global population growth through 2050 and to hold a third of the world's people by the end of the century, up from 14%. Its population is growing 3x faster than the rest of the world, concentrating rapid growth in countries where nearly half have gross national income per person below $1,135.

Ashley Ahn Foreign Policy
Date Posted:

According to current UN projections half of global population growth btw 2022 and 2050 will take place in sub-Saharan Africa. Current UN estimates project sub-Saharan Africa to have 33% of the global population by 2100 relative to 14% in 2019. @ashleyahn88

Is future global population growth concentrated in the world's poorest countries?

Core argument: Sub-Saharan Africa will account for half of global population growth from 2022 to 2050, and the region's population is growing three times faster than the rest of the world.

Half of the global population growth from 2022 to 2050 will occur in sub-Saharan Africa. The region’s population is currently growing three times faster than the rest of the world, and by the end of the century, it will be home to a third of all people in the world, compared to only 14% in 2019. This means that the burden of rapid population growth will fall on some of the poorest countries in the world, with nearly half of the region having a gross national income per capita below $1,135, and in places that are among the most vulnerable to climate change.

Takeaways by Macro Roundup® AI

  1. Sub-Saharan Africa will account for half of global population growth from 2022 to 2050, and the region's population is growing three times faster than the rest of the world.
  2. Sub-Saharan Africa will be home to a third of the world's people by the end of the century, up from 14% in 2019.
  3. Nearly half of sub-Saharan Africa has a gross national income per capita below $1,135, leaving the burden of rapid population growth on some of the world's poorest countries and places most vulnerable to climate change.

Related Articles:

  • Saudi Forces Accused of Killing Hundreds of Ethiopian Migrants — Human Rights Watch alleges in a 73-page report that Saudi border forces killed hundreds of Ethiopian migrants attempting to cross into the kingdom from Yemen, firing explosive weapons at them and in some cases asking migrants which limb they would prefer to be shot. Saudi Arabia hosts hundreds of thousands of Ethiopian workers.
  • How a Vast Demographic Shift Will Reshape the World — In East Asia and Europe, growing numbers of retirees will depend on a shrinking working-age population, and some Asian countries are aging before becoming rich — China hit its peak working-age population at 20% of US income levels at the same point, Vietnam at 14%.

Wednesday, August 30, 2023

AI Summary. Data point to a reallocation rather than deglobalization of US supply chains: direct US sourcing from China has declined while import shares from low-wage Vietnam and nearby Mexico have risen. China's import share in the EU, Mexico, and Vietnam has increased, and Chinese firms are expanding investment and production there.

Laura Alfaro and Davin Chor Federal Reserve Bank of Kansas City
Date Posted:

A “Great Reallocation” of US supply chain activity is underway with Vietnam and Mexico being the largest beneficiaries. @lalfaro

Are US supply chains reallocating rather than moving away from China?

Core argument: US direct sourcing from China has declined while import share has risen from low-wage locations, chiefly Vietnam, and regional trade areas, particularly Mexico, which hints at a "great reallocation" of supply chains rather than deglobalization.

Rather than signaling a trend towards deglobalization, the available data hints at a looming “great reallocation” of US supply chain activity. This shift is marked by a decline in direct US sourcing from China, with a corresponding rise in import share from low-wage locations, chiefly Vietnam, and regional trade areas, particularly Mexico. Recent policy efforts may ultimately not succeed in their objective to reduce US dependence on supply chains tied to China. Despite a decrease in US direct reliance on China, there has been an increase in China’s import share in “friendly” nations, including the EU, Mexico, and Vietnam. Chinese firms are stepping up FDI and production facilities in Vietnam and Mexico in critical sectors, albeit from a low base. This suggests that plants in which China is the ultimate owner may continue to play a significant role in US value chains.

Takeaways by Macro Roundup® AI

  1. US direct sourcing from China has declined while import share has risen from low-wage locations, chiefly Vietnam, and regional trade areas, particularly Mexico, which hints at a "great reallocation" of supply chains rather than deglobalization.
  2. China's import share has increased in "friendly" nations including the EU, Mexico, and Vietnam even as US direct reliance on China has fallen, and policy efforts to cut dependence on China-linked supply chains may ultimately not succeed.
  3. Chinese firms are stepping up foreign direct investment and production facilities in Vietnam and Mexico in critical sectors, albeit from a low base, suggesting plants ultimately owned by China may continue to play a significant role in US value chains.

Related Articles:

  • How America Is Failing To Break Up With China — Research finds that countries with the strongest existing trade ties to China in a given industry have gained the most as direct Chinese exports to the US are redirected, suggesting Chinese supply chains remain central to American imports even in advanced-manufacturing goods officials most want to shield from China.
  • Setser On Rumors Of Decoupling — Chinese data show US imports from China as a share of GDP slightly higher than before the trade war, and G-7 imports from China have boomed, indicating little shift of global supply chains out of China. Decoupling is a forecast rather than a current reality.
  • Global Firms Are Eyeing Asian Alternatives to Chinese Manufacturing — Chinese manufacturing wages doubled between 2013 and 2022 to an average of $8.27 an hour, while hourly manufacturing wages in India, Malaysia, the Philippines, Thailand, and Vietnam remain below $3. This alternative Asian supply chain has a combined working-age population of 1.4bn versus China's 980m, and 154m tertiary-educated people aged 25–54 versus China's 145m.

AI Summary. The International Monetary Fund projects Germany will be the only major economy to contract this year, while even sanctioned Russia grows. German exports long depended on a rapidly industrializing China buying its capital goods, but Chinese growth and import demand have faltered, and German industry still faces higher energy costs than U.S. and Asian competitors.

Bojan Pancevski, Paul Hannon and William Boston Wall Street Journal
Date Posted:
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The German economic model is under increasing stress due to higher energy costs, China’s import substitution strategy, and competition from American and Chinese electric car makers.

Why is Germany's economy contracting while other major economies grow?

Core argument: The International Monetary Fund projects Germany will be the world's only major economy to contract in 2023, with even sanctioned Russia registering growth.

Germany will be the world’s only major economy to contract in 2023, with even sanctioned Russia experiencing growth, according to the International Monetary Fund. China was for years a major driver of Germany’s export boom. A rapidly industrializing China bought up all the capital goods that Germany could make. But China’s investment-heavy growth model has been approaching its limits for years. Growth and demand for imports have faltered. Energy prices in Europe have declined from last year’s peak as EU countries scrambled to replace Russian gas, but German industry still faces higher costs than competitors in the U.S. and Asia.

Takeaways by Macro Roundup® AI

  1. The International Monetary Fund projects Germany will be the world's only major economy to contract in 2023, with even sanctioned Russia registering growth.
  2. China, which for years drove Germany's export boom by buying the capital goods German industry could make, has an investment-heavy growth model approaching its limits, with growth and import demand faltering.
  3. European energy prices have fallen from last year's peak as EU countries scrambled to replace Russian gas, but German industry still faces higher costs than competitors in the U.S. and Asia.

Related Articles:

  • Germany’s Industrial Slowdown — German output remains barely above pre-pandemic levels, with cumulative GDP growth of less than 0.5% over roughly five years. German industrial investment has not recovered to pre-pandemic levels, and real fixed investment in equipment remains below its 2018 level, even as the US devotes record resources to factory construction and equipment purchases.
  • Europe’s Imbalances in Pandemic and War — Europe's trade surplus that emerged after the euro crisis has returned, with its distribution shifted as Germany's investment slump and flat consumption were offset by building booms in Spain, Greece, and central and eastern Europe. Since 1999, net fixed investment in Spain has exceeded Germany's despite Spain having half Germany's population.
  • Can Volkswagen Win Back China? — Volkswagen relies on China for at least half its annual profits, but its flagship VW brand has been displaced as China's best-selling car by BYD and holds just 2% of the electric vehicle market, ninth place, versus nearly 40% for BYD and over 10% for Tesla.

AI Summary. The combined market value of the S&P 500's 500 companies rose $5tn, or 15.3%, while the 493 stocks outside the "Magnificent Seven" — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — returned only 4.5%. Those seven stocks accounted for about 71% of the index's return.

Jesper Rangvid Rangvid's Blog
Date Posted:

Jesper Rangvid notes that, so far this year, seven stocks generated 70% of the S&P 500 return; they now constitute 27.5% of the S&P 500.

How much of the S&P 500's return came from seven stocks?

Core argument: The "Magnificent Seven" — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — generated 10.8 percentage points of the S&P 500's 15.3% gain in 2023, or 71% of the index's return.

In this analysis, I look at the performance of stocks referred to by some as the “Magnificent Seven” (Mag7). These are: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. The combined market value of all 500 stocks in the S&P 500 has increased by $5 trillion or 15.3% in 2023, as mentioned. Leaving Mag7 out of the equation, the value of the remaining 493 shares has risen from $26 trillion to $27 trillion today, a return of only 4.5%. Consequently, Mag7 stocks have provided a 10.8% increase in the S&P 500. This means that only 7 out of 500 stocks generated 10.8%/15.3% = 71% of the return of the S&P 500 in 2023. The remaining 493 stocks delivered the remaining 29%. One can only speculate whether these shares are bubbles. The spectacular performance of Nvidia, for example, is reminiscent of the performance of hyped stocks during the dot.com bubble at the turn of the millennium.

Takeaways by Macro Roundup® AI

  1. The "Magnificent Seven" — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — generated 10.8 percentage points of the S&P 500's 15.3% gain in 2023, or 71% of the index's return.
  2. The other 493 S&P 500 stocks rose from $26 trillion to $27 trillion in market value in 2023, a return of 4.5%, accounting for 29% of the index's return.
  3. The combined market value of the S&P 500 increased by $5 trillion, or 15.3%, in 2023, with Nvidia's performance likened to that of hyped stocks during the dot-com bubble.

Related Articles:

  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.
  • Mr. Toad’s Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs — Between 40% and 60% of US initial public offerings generate negative returns even in favorable periods, so average IPO returns far exceed median returns and depend on a small set of large winners. Excluding just the top 3% of IPOs turns average net returns negative and cuts average absolute returns by more than half.
  • Long Term Expectations and Aggregate Fluctuations — Analyst long-term earnings growth forecasts for S&P 500 firms, when high by historical standards, are systematically disappointed and coincide with higher expected stock returns in surveys, which the authors interpret as excess optimism. A one standard deviation rise in these forecasts is associated with an investment boom that reverses two years later.

AI Summary. Remote work has reduced office utilization but not yet office occupancy, because most firms are locked into long-duration leases. Baseline estimates suggest remote work will exert 0.8 percentage points of upward pressure on the office vacancy rate near-term, 2.3 more over the following five years, and 1.8 thereafter.

Jan Hatzius and Others Goldman Sachs
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.@GoldmanSachs finds that 20-25% of US workers are working from home at least part of the week, well above the pre-pandemic average of 2.6%. This exerts upward pressure on office vacancy rates, partially offset by a decline in new office construction.

How much will remote work raise office vacancy rates over time?

Core argument: Baseline estimates suggest remote work will exert 0.8pp of upward pressure on the office vacancy rate by 2024, an additional 2.3pp over 2025–2029, and another 1.8pp in 2030 and beyond, likely partially offset by a decline in new construction.

Work from home has reduced office utilization rates but has not yet led to substantial declines in office occupancy rates because most firms are locked in long-duration leases. Going forward, 17% of all office leases are scheduled to expire by the end of 2024, 47% between 2024-2029, and the rest after 2030. Our baseline estimates suggest that remote work will likely exert 0.8pp of upward pressure on the office vacancy rate by 2024, an additional 2.3pp over 2025-2029, and another 1.8pp in 2030 and beyond, though this is likely to be partially offset by a decline in new construction. The share of employees working remotely remains remarkably elevated in industries like information that require less face-to-face interaction, while it is much lower in contact-heavy sectors like retail and hospitality.

Takeaways by Macro Roundup® AI

  1. Baseline estimates suggest remote work will exert 0.8pp of upward pressure on the office vacancy rate by 2024, an additional 2.3pp over 2025–2029, and another 1.8pp in 2030 and beyond, likely partially offset by a decline in new construction.
  2. Work from home has reduced office utilization rates without yet producing substantial declines in office occupancy rates, because most firms are locked into long-duration leases.
  3. Some 17% of all office leases are scheduled to expire by the end of 2024 and 47% between 2024 and 2029, with the remainder expiring after 2030.

Related Articles:

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AI Summary. An analysis of 84,544 groundwater monitoring wells across the United States found that nearly half declined significantly over the past 40 years as more water was pumped out than nature replenished. Four of every 10 sites hit all-time lows in the past decade.

Mira Rojanasakul, Christopher Flavelle, Blacki Migliozzi and Eli Murray New York Times
Date Posted:

Depletion of groundwater reserves is causing significant reductions in crop yields and puts at risk one-third of America’s total volume of drinking water that comes from groundwater.

Are America's groundwater levels declining faster than nature can replenish them?

Core argument: The New York Times analyzed 84,544 groundwater monitoring wells for trends since 1920 and found nearly half of sites declined significantly over the past 40 years as pumping outpaced natural replenishment.

A wealth of underground water helped create America, its vast cities and bountiful farmland. Now, Americans are squandering that inheritance. The Times analyzed water levels reported at tens of thousands of sites, revealing a crisis that threatens American prosperity - 84,544 monitoring wells examined for trends since 1920. Nearly half the sites have declined significantly over the past 40 years as more water has been pumped out than nature can replenish. In the past decade, four of every 10 sites hit all-time lows. And last year was the worst yet.

Takeaways by Macro Roundup® AI

  1. The New York Times analyzed 84,544 groundwater monitoring wells for trends since 1920 and found nearly half of sites declined significantly over the past 40 years as pumping outpaced natural replenishment.
  2. Four of every 10 monitored groundwater sites in the United States hit all-time lows over the past decade, with last year the worst yet.
  3. The New York Times characterizes the depletion of groundwater that supported American cities and farmland as a crisis threatening American prosperity.

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  • A Breakthrough Deal to Keep the Colorado River from Going Dry, for Now — Arizona, California, and Nevada agreed to cut their withdrawals from the drought-strained Colorado River by about 13% of total lower-basin water use, with the federal government paying roughly $1.2bn to irrigation districts, cities, and Native American tribes that temporarily use less. The reductions are likely to require significant residential and agricultural water restrictions.
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AI Summary. Sea surface temperatures in the Gulf of Mexico have warmed more than 3 degrees above the norm for the date, with temperatures near 88°F common down to depths of 165 feet. Though the Gulf as a whole has cooled slightly from record levels, it remains near all-time highs.

Ian Livingston Washington Post
Date Posted:

The Gulf of Mexico is 3 degrees warmer than the mean with temperatures of nearly 88° becoming common at depths of 165 feet. A University of Miami hurricane scientist described the ocean heat as “other-worldly.”

Are Gulf of Mexico waters near their highest recorded temperatures?

Core argument: Gulf Coast temperatures have surged to the highest levels ever observed, with sea surface temperatures more than 3 degrees above the norm for the date.

The sea surface temperatures of the gulf have cooked, warming more than 3 degrees above the norm for the date. The water has also heated up far beneath the surface. In fact, temperatures of nearly 88° are common to depths of 165 feet below the surface, according to data from Kim Wood, a professor of meteorology at Mississippi State University. University of Miami hurricane scientist Andy Hazelton called the ocean heat “other-worldly.” While the Gulf of Mexico as a whole has cooled slightly compared with earlier this month, when it shattered records, it remains near all-time highs.

Takeaways by Macro Roundup® AI

  1. Gulf Coast temperatures have surged to the highest levels ever observed, with sea surface temperatures more than 3 degrees above the norm for the date.
  2. Temperatures of nearly 88 degrees are common down to depths of 165 feet below the surface, according to data from Kim Wood, a meteorology professor at Mississippi State University.
  3. The Gulf of Mexico as a whole has cooled slightly from earlier in the month, when it shattered records, but remains near all-time highs, with University of Miami hurricane scientist Andy Hazelton calling the ocean heat "other-worldly.".

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  • What This Year’s ‘Astonishing’ Ocean Heat Means for the Planet — The planet's average sea surface temperature reached a record high and the ocean has stayed exceptionally warm, with North Atlantic readings running more than 2°F above typical levels and one buoy recording 101.1°F, possibly a world record. Scientists expect warm ocean conditions to continue as El Niño intensifies.
  • The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View — Unusual wind and wave patterns are a leading short-term explanation for the loss of Antarctic sea ice, which holds the continent's coastal ice shelves in place. If those shelves collapsed, continental ice could flow rapidly into the oceans; the West Antarctic ice sheet alone holds enough water to raise global sea level by 11 feet.

AI Summary. Analog in-memory computing chips, which perform matrix–vector multiplications in parallel on memory tiles, offer better energy efficiency than conventional graphics or central processing units for large artificial intelligence models. The authors demonstrate software-equivalent accuracy on a small keyword-spotting network and near-software-equivalent accuracy on a much larger speech-transcription network.

Ambrogio, S., Narayanan, P., Okazaki, A. et al. Nature
Date Posted:

IBM researchers demonstrate a new technology that is 14 times as energy efficient as conventional chips at speech recognition, with potential for other AI applications.

Can analog in-memory chips match software accuracy on speech models?

Core argument: An analog in-memory computing chip achieves fully end-to-end software-equivalent accuracy on a small keyword-spotting network and near-software-equivalent accuracy on the much larger MLPerf recurrent neural-network transducer.

Models of artificial intelligence (AI) that have billions of parameters can achieve high accuracy across a range of tasks but they exacerbate the poor energy efficiency of conventional general-purpose processors, such as graphics processing units or central processing units. Analog in-memory computing (analog-AI) can provide better energy efficiency by performing matrix–vector multiplications in parallel on ‘memory tiles’. However, analog-AI has yet to demonstrate software-equivalent (SWeq) accuracy on models that require many such tiles and efficient communication of neural-network activations between the tiles. We demonstrate fully end-to-end SWeq accuracy for a small keyword-spotting network and near-SWeq accuracy on the much larger MLPerf8 recurrent neural-network transducer (RNNT.)

Takeaways by Macro Roundup® AI

  1. An analog in-memory computing chip achieves fully end-to-end software-equivalent accuracy on a small keyword-spotting network and near-software-equivalent accuracy on the much larger MLPerf recurrent neural-network transducer.
  2. Analog in-memory computing can offer better energy efficiency than conventional general-purpose processors such as graphics or central processing units by performing matrix–vector multiplications in parallel on memory tiles.
  3. Analog-AI had not yet demonstrated software-equivalent accuracy on models that require many memory tiles and efficient communication of neural-network activations between them.

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