Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, October 24, 2023

AI Summary. Sustained higher mortgage rates are expected to weigh most on housing turnover, since nearly all borrowers hold rates below market levels, discouraging moves; the authors project existing home sales of 3.8mn, the fewest annual sales since the early 1990s. Housing starts are projected to fall 4% to 1.34mn.

Ronnie Walker Goldman Sachs
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According to @GoldmanSachs, 90% of mortgage borrowers have a rate 2pp below current market rates, and 60% have a rate 4pp below. However limited supply means housing starts have yet to be impacted; housing starts last month were 5% above 2019 levels.

How do sustained higher mortgage rates affect home sales and construction?

Core argument: Existing home sales are forecast at 3.8mn in 2024, the fewest annual sales since the early 1990s, as nearly all mortgage borrowers hold rates below current market rates, disincentivizing moving.

Sustained higher mortgage rates will have their most pronounced impact in 2024 on housing turnover. Nearly all mortgage borrowers have interest rates below current market rates, strongly disincentivizing them from moving. As a result, we expect the fewest annual existing home sales since the early 1990s at 3.8mn. Limited available housing supply has kept homebuilding resilient to higher interest rates: despite 3½pp higher mortgage rates today, housing starts were 5% above 2019 levels in September. While vacancy rates remain at historic lows, we expect housing starts to decline by 4% to 1.34mn in 2024, reflecting sharply fewer multifamily starts.

Takeaways by Macro Roundup® AI

  1. Existing home sales are forecast at 3.8mn in 2024, the fewest annual sales since the early 1990s, as nearly all mortgage borrowers hold rates below current market rates, disincentivizing moving.
  2. Despite mortgage rates 3½pp higher, housing starts in September stood 5% above 2019 levels, with limited available housing supply keeping homebuilding resilient to higher interest rates.
  3. Housing starts are projected to decline 4% to 1.34mn in 2024, reflecting sharply fewer multifamily starts, even as vacancy rates remain at historic lows.

Related Articles:

  • Have Rising Mortgage Rates Frozen the Housing Market? — 42% of American homeowners own their homes outright with no mortgage, and among those with mortgages the median housing debt is 52% of the home's value. Homeowners with large equity cushions should be less affected by "lock-in" from low pandemic-era mortgage rates.
  • The “New Normal” Mortgage Rate Range — Goldman Sachs economists expect the federal funds rate to eventually stabilize at 3–3.25%, above what the Federal Reserve currently projects for the neutral rate. With a funds rate near 3.25% and a 10-year Treasury yield of 4.45%, 30-year fixed mortgage rates would sit in the low-to-mid 6% range.
  • US Housing Market Crash Turns Not-So-Sweet 16 — The median existing-home sale price exceeds what a buyer spending 25% of gross household income with a 15% down payment and a 30-year fixed mortgage could afford, leaving affordability more strained than in 2004-07. With for-sale supply very low and most existing mortgages carrying below-market rates, the authors expect home prices to rise slowly.

AI Summary. Measures of typical and aggregate pay adjusted by personal consumption inflation have grown since 2019 and kept pace with or exceeded longer-term trends, while results are more mixed when deflated by the consumer price index, with average hourly earnings and total compensation below trend.

Chloe East, Wendy Edelberg, and Noadia Steinmetz-Silber Brookings Institution
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Lower-income workers have seen real wage gains since the pre-pandemic period; however, higher-wage workers have seen low or zero real growth depending on the measure. @ChloeNEast @WendyEdelberg

Has worker pay kept pace with inflation since 2019?

Core argument: Measures of typical and aggregate pay deflated by PCE inflation have grown since 2019 and kept pace with or exceeded longer-term trends.

Generally speaking, we find measures of typical and aggregate pay, adjusted by PCE inflation, have grown since 2019 and have kept pace with or exceeded longer-term trends. Results are more mixed when those measures are deflated by CPI; we still see gains since 2019, but Average Hourly Earnings and Total Compensation are below longer-term trend levels. In other words, nominal pay by these measures has done relatively well in keeping up with overall costs of living, measured by the PCE. In contrast, nominal pay has done less well in keeping up with increases in the costs of goods and services that are much more salient to consumers, measured by the CPI. For higher-wage workers, the ECI suggests that nominal pay has grown about in line with or more slowly than prices, while Average Hourly Earnings and Weekly Earnings show roughly no change or some small positive changes for higher-wage workers. Again, we see that deflating by CPI points to weaker pay growth across all groups.

Takeaways by Macro Roundup® AI

  1. Measures of typical and aggregate pay deflated by PCE inflation have grown since 2019 and kept pace with or exceeded longer-term trends.
  2. Deflated by CPI instead, pay results are more mixed: gains remain since 2019, but Average Hourly Earnings and Total Compensation sit below longer-term trend levels.
  3. For higher-wage workers, the Employment Cost Index suggests nominal pay has grown about in line with or more slowly than prices, while Average Hourly Earnings and Weekly Earnings show roughly no change or small positive changes.

Related Articles:

  • U.S. Incomes Fall for Third Straight Year — The Census Bureau reported that US inflation-adjusted median household income fell 2.3% to $74,580, a 4.7% decline from its peak. Wage growth for the typical worker subsequently outstripped inflation, with inflation-adjusted wages rising about 3%, according to Atlanta Federal Reserve and Labor Department data.
  • The Unexpected Compression: Competition at Work in the Low Wage Economy — Wage inequality is falling for the first time in four decades as pay rises at the bottom, with real wages increasing among young high school graduates and workers in the lowest quartile. The authors argue this reflects intensified employer competition for workers rather than simply a tight labor market, implying wages better reflect productivity and higher aggregate productivity.
  • Jason Furman On Employment Cost Index — The Employment Cost Index shows private wages and compensation rising at annual rates of roughly 4.7%–5.1%, higher than any point in the previous cycle, supporting the argument that wage growth is not slowing and that the measured slowdown in average hourly earnings reflected shifts in workforce composition. Real wages and salaries remain 5% below their pre-pandemic trend.

AI Summary. The International Monetary Fund projects combined eurozone government deficits will fall to 3.4% of GDP from 3.6%, and to 2.7% the following year. Greece and Portugal are forecast to post deficits below 2% of GDP and Ireland a surplus, while Italy and France remain near 5%.

Paul Hannon Wall Street Journal
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According to IMF estimates, eurozone cumulative deficits will fall to 3.4% of GDP in 2023, relative to 6.3% in the US. Aside from Italy, the crisis-era PIGS are running even lower deficits, ranging from 1.6% in Greece to 0.2% in Portugal.

Are eurozone budget deficits shrinking?

Core argument: The IMF expects combined eurozone government deficits to fall to 3.4% of GDP this year from 3.6% in 2022, and further to 2.7% in 2024.

The IMF expects combined deficits of eurozone governments will fall to 3.4% of GDP this year from 3.6% in 2022, and further to 2.7% in 2024. Those countries that were in crisis a decade ago are expected to have much smaller budget gaps. In Greece, the deficit is forecast to fall to 1.6% of GDP from 2.3% last year, while Portugal’s is expected to fall to 0.2% of GDP from 0.4%. Ireland is forecast to have a budget surplus for the second straight year. Italy and France, among others, continue to have deficits of roughly 5% of GDP.

Takeaways by Macro Roundup® AI

  1. The IMF expects combined eurozone government deficits to fall to 3.4% of GDP this year from 3.6% in 2022, and further to 2.7% in 2024.
  2. Countries at the center of the eurozone crisis a decade ago are forecast to post much smaller budget gaps, with Greece's deficit falling to 1.6% of GDP from 2.3% and Portugal's to 0.2% from 0.4%.
  3. Ireland is forecast to run a budget surplus for a second straight year, while Italy and France continue to have deficits of roughly 5% of GDP.

Related Articles:

  • US Fiscal Alarm Bells Are Drowning Out a Deeper Problem — The Congressional Budget Office projects US federal debt held by the public at 98% of national income, within 7.6 percentage points of its 1946 wartime peak and on track to exceed it by 2028. International Monetary Fund forecasts show US debt surpassing Italy's by 2028 and Greece's by the end of the decade.
  • France Ready to Accelerate Spending Cuts as it Battles Persistent Deficits — France's proposed budget implies a deficit of 4.4% of national output, above the European Union's 3% target, with the government expecting to fall below that level only by 2027 — among the last EU countries to comply. The government estimates debt-servicing costs will reach about €75bn a year by then, exceeding spending on education or defense.
  • 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.

AI Summary. The authors estimate that each $878,000 in federal assistance to state and local governments created or preserved one state or local job-year, with about a third of the effect driven by spillovers from other states. Their confidence intervals rule out a cost below $428,000 per job-year, implying weaker employment support than during the global financial crisis.

Stan Veuger, Beatrice Lee, Jeffrey Clemens, and John Kearns Spatial Economic Analysis
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Accounting for spillovers from other states, @stanveuger and @jeffreypclemens find that $900B federal pandemic aid translated to $878,000 of spending to create or preserve one state or local job for one year. @AEIecon

Accounting for spillovers from other states, @stanveuger and @jeffreypclemens find that $900B federal pandemic aid...

How much federal aid to states did each government job-year cost?

Core argument: The authors estimate that each $878,000 of pandemic-era federal aid to state and local governments created or preserved one state or local government job-year, a fairly small jobs multiplier.

Federal assistance generated fairly small (jobs) multipliers.  We found that each $878,000 in federal assistance created or preserved one state or local job-year. About a third of the effect size is driven by spillovers from other states. More important than the point estimate itself, however, are the values we can rule out on the basis of our estimates’ confidence intervals. We can rule out an estimate that federal fiscal assistance saved a state or local government job-year at a cost of less than $428,000, making fiscal assistance far less effective at supporting employment during the pandemic than during the global financial crisis.

Takeaways by Macro Roundup® AI

  1. The authors estimate that each $878,000 of pandemic-era federal aid to state and local governments created or preserved one state or local government job-year, a fairly small jobs multiplier.
  2. About one-third of the estimated employment effect of federal assistance is driven by spillovers from other states, according to the authors.
  3. The authors' confidence intervals rule out a cost below $428,000 per state or local government job-year, which they argue makes pandemic fiscal assistance far less effective at supporting employment than during the global financial crisis.

AI Summary. Roughly one-third of children from the very richest families scored 1300 or higher on the SAT, compared with under 5% of middle-class students, according to researchers who matched SAT and ACT scores with parents' federal income tax records. Among the poorest families, only about one in five students took the test at all.

Claire Cain Miller New York Times
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.@OppInsights data shows that 31% of the children of the top 1% of income score 1300 or above on the SAT, as compared to 2.4% of children of the bottom 20%.

How closely do SAT scores track family income?

Core argument: One-third of children from the very richest families scored 1300 or higher on the SAT, compared with under 5 percent of middle-class students, according to Opportunity Insights economists at Harvard.

One-third of the children of the very richest families scored a 1300 or higher on the SAT, while less than 5 percent of middle-class students did, according to the data, from economists at Opportunity Insights, based at Harvard. Relatively few children in the poorest families scored that high; just one in five took the test at all. The researchers matched all students’ SAT and ACT scores for 2011, 2013 and 2015 with their parents’ federal income tax records for the prior six years.

Takeaways by Macro Roundup® AI

  1. One-third of children from the very richest families scored 1300 or higher on the SAT, compared with under 5 percent of middle-class students, according to Opportunity Insights economists at Harvard.
  2. Relatively few children in the poorest families scored 1300 or higher on the SAT, and just one in five of them took the test at all, according to the Opportunity Insights data.
  3. The Opportunity Insights researchers matched students' SAT and ACT scores for 2011, 2013 and 2015 with their parents' federal income tax records for the prior six years.

Related Articles:

  • Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges — Children from top-1% families are more than 2x as likely as middle-class students with comparable SAT/ACT scores to attend an Ivy-Plus college, with two-thirds of the gap attributable to higher admissions rates. The authors attribute this advantage to legacy preferences, weight on non-academic credentials, and athlete recruitment.
  • 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.
  • Multidimensional Human Capital and the Wage Structure — The wage return to cognitive skills has declined, from about 10% higher hourly wages per standard deviation of test score in the 1980s and early 1990s to 4.5% in the 2000s and early 2010s, while returns to a bachelor's degree rose. Social skill-intensive occupations grew as a share of US jobs, with faster real wage growth.

AI Summary. General Social Survey data show that increases among young American adults appear in same-sex sexual behavior as well as in identification, with 20% reporting a same-sex partner versus 18.5% identifying as lesbian, gay, or bisexual. The increases are larger among 27- to 41-year-olds.

Jean Twenge Generation Tech
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Jean Twenge notes that the increase in young Americans identifying as gay or bisexual is matched by self-reported behavior from the General Social Survey, with 20% of young Americans 18-26 reporting having had sex with a same-sex partner.

Do rising gay identification rates among young adults match actual behavior?

Core argument: In the General Social Survey, 20% of American young adults report having had sex with a same-sex partner, slightly exceeding the 18.5% who identify as gay, lesbian, or bisexual.

Some reports have suggested that increases appear primarily in LGB identification, but not much in behavior. In other words, more young adults identify as LGB, but they are not necessarily acting on it. At least in the data from the General Social Survey, that does not appear to be true: There has also been a significant increase in young adults having homosexual sex (men with men and women with women). In fact, slightly more American young adults have had sex with a same-sex partner — 20% (see Figure 4) than identify as gay, lesbian, or bisexual — 18.5% (see Figure 2). The increases are even larger for 27- to 41-year-olds (the next older age group), perhaps because they have had more time to accumulate sexual partners since age 18.

Takeaways by Macro Roundup® AI

  1. In the General Social Survey, 20% of American young adults report having had sex with a same-sex partner, slightly exceeding the 18.5% who identify as gay, lesbian, or bisexual.
  2. General Social Survey data counter reports that rising LGB identification is not matched by behavior, showing a significant increase in young adults having same-sex sex, among both men and women.
  3. Increases in same-sex sexual behavior are larger among 27- to 41-year-olds than among younger adults, perhaps because the older group has had more time to accumulate sexual partners since age 18.

Related Articles:

  • Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past — Pew Research Center analysis of Census Bureau data finds 21-year-olds in the US are less likely than their counterparts four decades earlier to have a full-time job, be financially independent, live on their own, be married, or have a child. Among 21-year-olds, 39% worked full time versus 64% four decades earlier, and a quarter were financially independent versus 42%.
  • Is the Surge to the Left Among Young Voters a Trump Blip or the Real Deal? — Data from the Cooperative Election Study show millennials and Gen Z have voted increasingly for Democratic House candidates over time, contrary to the adage that voters grow more conservative as they age. One political scientist notes such generational shifts translate slowly into vote share and can be offset by Republican gains elsewhere.

AI Summary. Government data show border agents made 2.05m arrests in a single federal fiscal year, the second consecutive year above 2m, after figures never previously exceeded 1.7m or stayed elevated for as long. A growing share of migrants are families with children, who are difficult to deport to their home countries, rather than single adults from Mexico seeking work.

Andrew Mollica, Alicia Caldwell, Michelle Hackman and Santiago Pérez Wall Street Journal
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A composition shift in illegal immigration over the past two years, from single men to family units, is putting stress on the border control system as they are harder to deport.

Are border arrests at record levels with harder-to-deport migrants?

Core argument: Border agents made 2.05 million arrests in the federal fiscal year that ended in September, the second consecutive year above two million, according to new government data.

Border agents made 2.05 million arrests in the federal fiscal year that ended in September, new government data show, the second year in a row that figure has exceeded two million. In the past, the numbers have risen and fallen based on significant economic and policy changes like recessions and pandemic-era border restrictions. But they never exceeded 1.7 million and never stayed at an elevated level as long as they have the past few years. In the past, most migrants were single adults from Mexico looking for work. If caught by the Border Patrol, they could easily and quickly be deported. Now, a fast-growing share are families with children, who are difficult to deport to their home countries. The change started around 2014 and has exploded in the past two years.

Takeaways by Macro Roundup® AI

  1. Border agents made 2.05 million arrests in the federal fiscal year that ended in September, the second consecutive year above two million, according to new government data.
  2. Border arrests had never exceeded 1.7 million before and never stayed elevated as long as they have in the past few years, having previously risen and fallen with recessions and pandemic-era border restrictions.
  3. Most migrants were once single adults from Mexico seeking work who could be deported quickly, while a fast-growing share are now families with children who are difficult to deport, a shift that began around 2014.

Related Articles:

  • Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 — U.S. labor force data show immigrants accounted for 49% of labor force growth over roughly the past three decades and their children another 21%, together about 70% of an increase of nearly 32.8m workers. Immigrants rose from about 10% to 18% of the labor force, and immigrants plus their children from 18% to 29%.
  • Rebound in Immigration Comes to Economy’s Aid — Goldman Sachs analysis found average monthly growth in the US foreign-born labor force is about 65,000 higher than in 2022, with that labor force nearing 32m people. Foreign-born workers' share of the labor force reached a record 18% in 2022 and has averaged 18.5% this year.
  • U.S. Will Build Stretch of Border Wall and Begin Deportations to Venezuela — The U.S. said it would build an additional stretch of wall on the Mexican border in the Rio Grande Valley, using funds Congress appropriated for wall construction, and begin deporting thousands of Venezuelans. Venezuelans are the second-largest nationality group crossing the southern border, after Mexicans.

AI Summary. Immigration has not been the dominant cause of wage stagnation since the 1970s, as the regions attracting the most immigrants are not those with the worst wage stagnation. The same evidence suggests immigration has played a meaningful but secondary role in holding wages down, since the availability of immigrant workers lets employers offer lower wages.

David Leonhardt The Atlantic
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Citing Christopher Jencks, @DLeonhardt notes the cost of America’s current immigration policy is disproportionately borne by low-skilled American workers.

Is immigration the main cause of wage stagnation?

Core argument: Immigration has not been the dominant cause of wage stagnation since the 1970s, as the regions attracting the largest numbers of immigrants are not those suffering the worst wage stagnation.

Immigration has not been the dominant cause of post-1970s wage stagnation, despite the suspicious timing. You do not need to be able to read peer-reviewed articles in an academic journal to grasp this conclusion, although those articles support it. You simply need to notice that the regions attracting the largest number of immigrants are not the ones suffering the worst wage stagnation. But the story does not end here. The same evidence suggests that immigration has played a meaningful, if secondary, role in holding down wages. People sometimes claim that immigrants work in jobs that native-born Americans do not want. But Christopher Jencks, a social-policy professor at Harvard University, has pointed out that this statement is incomplete: Immigrants typically work in jobs that native-born Americans do not want at the wages that employers are offering. One reason that employers can offer such wages, Jencks adds, is the availability of so many immigrant workers.

Takeaways by Macro Roundup® AI

  1. Immigration has not been the dominant cause of wage stagnation since the 1970s, as the regions attracting the largest numbers of immigrants are not those suffering the worst wage stagnation.
  2. The same regional evidence suggests immigration has played a meaningful, if secondary, role in holding down wages.
  3. Harvard social-policy professor Christopher Jencks argues that immigrants take jobs native-born Americans do not want at the wages employers offer, and that the availability of immigrant workers is one reason employers can offer such wages.

Related Articles:

  • Why Immigration Is an Urban Phenomenon — Because many immigrants send remittances home or plan to return, part of their spending occurs in their origin country rather than where they work, so local prices apply to only part of their budget. The authors argue this makes immigrants less deterred by high local costs, concentrating them in expensive cities.
  • Monopsony, Efficiency, and the Regularization of Undocumented Immigrants — A study of France's amnesty program, which regularized undocumented workers making up 2.0% of workers in Paris and nearly 1% nationwide, finds positive effects on employment and wages, particularly for male, low-skill workers. The authors argue regularization reduces employers' wage-setting power in the undocumented labor market, and estimate a rise in total French GDP of around 1%.
  • Immigration and U.S. Labor Market Tightness: Is There a Link? — The U.S. was missing an average of about 1.39m foreign workers relative to the pre-pandemic trend, a shortfall that has since recovered. Across industries and states, the authors find no statistically significant relationship between the number of missing foreign workers as a share of employment and changes in job vacancy rates.

Wednesday, October 25, 2023

AI Summary. The S&P 500 delivered an annualized total shareholder return of 16.6% over a ten-year period, composed of 14.3% price appreciation and 2.3% from dividends and dividend reinvestment. Earnings-per-share growth contributed 44% of the total, price-to-earnings multiple expansion 42%, and dividends 14%.

Michael Mauboussin and Dan Callahan Morgan Stanley
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Between 2012-21, the total shareholder return for the S&P 500 was 16.6%, with 44% of the return driven by earnings per share growth, and multiple expansion contributing 42%. @mjmauboussin

What drives total shareholder returns for large U.S. stocks?

Core argument: The S&P 500 delivered an annualized total shareholder return of 16.6% from 2012 through 2021, composed of 14.3% price appreciation plus 2.3% from dividends and dividend reinvestment.

Exhibit 2 shows the total shareholder return (TSR) for the S&P 500, an index that tracks the results of the stocks of the 500 largest companies listed in the U.S., on an annualized basis from 2012 through 2021. The annual TSR over that period was 16.6%. We can see how the drivers contribute to the total. Net income growth was 6.7% and the reduction in shares outstanding was 0.7%, leading to EPS growth of 7.4%. The P/E multiple expanded during this period, adding 6.9pp. The combination of EPS growth and multiple expansion led to price appreciation of 14.3%. The dividend yield averaged 2.0% and reinvesting the dividend chipped in an additional 0.3pp. The sum of 14.3 percent from price appreciation and 2.3% from dividends and dividend reinvestment is 16.6%. The right column in Exhibit 2 shows the percentage contributions of each of the drivers. Earnings per share growth was 44%, multiple expansion 42%, and dividends and dividend reinvestment 14%.

Takeaways by Macro Roundup® AI

  1. The S&P 500 delivered an annualized total shareholder return of 16.6% from 2012 through 2021, composed of 14.3% price appreciation plus 2.3% from dividends and dividend reinvestment.
  2. EPS growth of 7.4% over 2012–2021 came from 6.7% net income growth plus 0.7% from the reduction in shares outstanding, while P/E multiple expansion added 6.9 percentage points.
  3. EPS growth contributed 44% of the S&P 500's total shareholder return over 2012–2021, multiple expansion 42%, and dividends with dividend reinvestment 14%.

Related Articles:

  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.
  • 7 or 493 Stocks: What Matters for the S&P 500? — 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.
  • 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.

AI Summary. The average monthly new mortgage payment is 52% higher than the average apartment rent, the widest gap since at least 1996, according to CBRE analysis, versus rough parity from 1996 to mid-2003. The ownership premium reflects 30-year mortgage rates reaching 8% alongside high house prices.

Carol Ryan Wall Street Journal
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Carol Ryan @wsj reports that the cost of homeownership exceeds the cost of renting by 52%, as compared to 33% in the second quarter of 2006.

How much more does buying a home cost than renting?

Core argument: The average monthly new mortgage payment is 52% higher than the average apartment rent, according to CBRE analysis, the most extreme buy-versus-rent gap since at least 1996.

The cost of buying a home versus renting one is at its most extreme since at least 1996. The average monthly new mortgage payment is 52% higher than the average apartment rent, according to CBRE analysis. In theory, buying and renting costs should be roughly matched, according to Matt Vance, head of multifamily research at CBRE. Although owners benefit when house prices go up, they also put more cash into their homes than tenants for things such as repairs and refurbishments. From 1996 to mid-2003, the average cost to buy or rent did indeed work out more or less equal. The current hefty ownership premium reflects the surging cost of debt, as rates on a 30-year mortgage reach 8%, as well as high house prices since pandemic lockdowns raised the value of domestic space.

Takeaways by Macro Roundup® AI

  1. The average monthly new mortgage payment is 52% higher than the average apartment rent, according to CBRE analysis, the most extreme buy-versus-rent gap since at least 1996.
  2. The ownership premium reflects the surging cost of debt, with rates on a 30-year mortgage reaching 8%, as well as high house prices since pandemic lockdowns raised the value of domestic space.
  3. From 1996 to mid-2003 the average cost to buy or rent worked out more or less equal, matching the theory cited by Matt Vance, head of multifamily research at CBRE, that buying and renting costs should be roughly matched.

Related Articles:

  • The “New Normal” Mortgage Rate Range — Goldman Sachs economists expect the federal funds rate to eventually stabilize at 3–3.25%, above what the Federal Reserve currently projects for the neutral rate. With a funds rate near 3.25% and a 10-year Treasury yield of 4.45%, 30-year fixed mortgage rates would sit in the low-to-mid 6% range.
  • Higher For Longer and The 2024 Housing Outlook — Sustained higher mortgage rates are expected to weigh most on housing turnover, since nearly all borrowers hold rates below market levels, discouraging moves; the authors project existing home sales of 3.8mn, the fewest annual sales since the early 1990s. Housing starts are projected to fall 4% to 1.34mn.
  • US Housing Market Crash Turns Not-So-Sweet 16 — The median existing-home sale price exceeds what a buyer spending 25% of gross household income with a 15% down payment and a 30-year fixed mortgage could afford, leaving affordability more strained than in 2004-07. With for-sale supply very low and most existing mortgages carrying below-market rates, the authors expect home prices to rise slowly.

AI Summary. Retail sales at stores, bars, and restaurants rose 0.7% in a month, equivalent to a 9% yearly rate, with 7% average yearly growth over six months. A decline in risk premiums on assets relative to cash has more than offset higher default-free discount rates, keeping borrowing near pre-pandemic norms.

Matt Klein The Overshoot
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.@M_C_Klein writes that the economy is remarkably buoyant despite tight monetary policy, and sees little reason to expect the Fed to loosen policy imminently.

How are consumer spending and borrowing holding up despite higher interest rates?

Core argument: U.S. retail sales rose 0.7% in September from August on a seasonally-adjusted basis, equivalent to a 9% annual growth rate, following monthly gains of 0.6% in July and 0.8% in August.

The uptick in default-free discount rates has been more than offset by a substantial decline in the risk premiums available on assets relative to cash. This helps explain why consumer and corporate borrowing is still roughly in line with pre-pandemic norms. It is certainly possible that the recent run of rapid growth is a one-off that will peter out on its own. It is difficult to overstate the (apparent) strength of consumer spending in the retail sales data. While these numbers may be revised in the future, the current reading is that total spending at stores, bars, and restaurants in September was 0.7% higher than in August on a seasonally-adjusted basis, which is equivalent to a yearly growth rate of 9%. Moreover, monthly growth rates in July and August were 0.6% and 0.8%. Over the past 6 months, retail sales have been growing at a yearly average rate of 7%.

Takeaways by Macro Roundup® AI

  1. U.S. retail sales rose 0.7% in September from August on a seasonally-adjusted basis, equivalent to a 9% annual growth rate, following monthly gains of 0.6% in July and 0.8% in August.
  2. Total spending at stores, bars, and restaurants has grown at a yearly average rate of 7% over the past six months, though these readings are subject to future revision.
  3. The rise in default-free discount rates has been more than offset by a substantial decline in risk premiums on assets relative to cash, helping explain why consumer and corporate borrowing remains roughly in line with pre-pandemic norms.

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  • Soft Landing Summer — The estimated 12-month US recession probability has been cut to 15%, matching the postwar unconditional average implied by a recession occurring roughly once every seven years, and far below the 60% Bloomberg consensus. The authors expect interest rates to fluctuate in a higher range than in the post-2008 period.
  • Why No Recession (Yet)? — Real interest rates have risen by almost 10 percentage points, compared with 4 points during the 2004–2006 tightening, yet activity has held up because households entered the episode with large savings accumulated during the pandemic. As those surplus savings are used up and borrowers refinance at higher rates, the full impact of tightening has not yet been felt.

AI Summary. Japanese corporate ordinary profits as a share of GDP have roughly doubled compared with the "lost decades," with rising dividends and a further decline in household saving each accounting for about 40% of the improvement. The analysis attributes the fall in household saving to corporate deleveraging, which reduced firms' interest payments and thus household interest income.

James Montier GMO
Date Posted:

James Montier @GMOInsights notes a decline in household savings rates has improved Japanese firms’ profitability.

What drove the doubling of Japanese corporate profits relative to GDP?

Core argument: Japanese ordinary profits as a share of GDP have nearly doubled relative to the lost decades, according to the author's measure.

We see a near doubling of profits (ordinary, as defined above, as a percent of GDP). The key drivers of this increase (compared to the lost decades) were a rise in dividends and a further decline in household savings (each accounting for roughly 40% of the difference in profits performance). The decline in household savings is perfectly consistent with the argument used previously (that deleveraging has reduced the interest expense for Japanese corporates). Recall that interest expenses are paid to someone – ultimately a household as a form of income. Hence, given a fall in income (due to lower interest expenses paid by firms), to keep consumption levels unchanged, a fall in household savings would be required. So once again we see the very clear impact of the role of deleveraging in improving Japanese profitability.

Takeaways by Macro Roundup® AI

  1. Japanese ordinary profits as a share of GDP have nearly doubled relative to the lost decades, according to the author's measure.
  2. A rise in dividends and a further decline in household savings each account for roughly 40% of the improvement in Japanese profits performance.
  3. The author argues corporate deleveraging cut Japanese firms' interest expenses, which reduced household interest income and required lower household savings to sustain consumption, improving corporate profitability.

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  • Slow Burn Minsky Moments (And What To Do About Them) — The author describes "slow burn Minsky moments" as unsustainable processes or systemic vulnerabilities that accumulate during good times and either collapse of their own accord or amplify external shocks. A private-sector-debt-to-GDP ratio above 150% has been proposed as an important threshold, and the US has been at or above that level for most of the past 20 years.
  • Japan Demographic Woes Deepen as Birthrate Hits Record Low — Japan's fertility rate fell for a seventh consecutive year to a record low of about 1.26 children per woman, far below the 2.07 rate considered necessary to maintain a stable population. Births fell 5% to 770,747, a record low, while deaths rose 9% to a record 1.57m.

AI Summary. Toyota says it is close to producing next-generation solid-state batteries at the same rate as existing electric-vehicle batteries, which would allow mass production by 2027 or 2028. The carmaker expects solid-state-powered cars to travel 1,200km on a charge, more than twice its current electric vehicles, and charge in 10 minutes or less.

Kana Inagaki Financial Times
Date Posted:

Toyota plans to mass-produce solid-state batteries by 2027, allowing EVs to charge in 10 minutes or less and have ranges of up to 750 miles.

Toyota plans to mass-produce solid-state batteries by 2027, allowing EVs to charge in 10 minutes or less and have ranges of...

Are solid-state batteries nearing mass production for electric vehicles?

Core argument: Toyota says it is close to manufacturing solid-state batteries at the same rate as existing EV batteries, which would allow mass production by 2027 or 2028.

Toyota says it is close to being able to manufacture next-generation solid-state batteries at the same rate as existing batteries for electric vehicles, marking a milestone in the global race to commercialise the technology. Its headway in manufacturing technology follows a “breakthrough” in battery materials recently claimed by the world’s largest carmaker by vehicles sold. It would allow Toyota to mass-produce solid-state batteries by 2027 or 2028. Solid-state batteries have long been heralded by industry experts as a potential “game-changer” that could address EV battery concerns such as charging time, capacity, and the risk of catching fire. If successful, Toyota expects its electric cars powered by solid-state batteries to have a range of 1,200km — more than twice the range of its current EVs — and a charging time of 10 minutes or less.

Takeaways by Macro Roundup® AI

  1. Toyota says it is close to manufacturing solid-state batteries at the same rate as existing EV batteries, which would allow mass production by 2027 or 2028.
  2. Toyota expects electric cars powered by its solid-state batteries to have a range of 1,200km, more than twice the range of its current EVs, and a charging time of 10 minutes or less.
  3. Toyota's manufacturing headway follows a "breakthrough" in battery materials claimed by the company, the world's largest carmaker by vehicles sold, in a technology industry experts call a potential "game-changer" for EV charging time, capacity and fire risk.

Related Articles:

  • Toyota Says Solid-State Battery Breakthrough Can Halve Cost And Size — Toyota says it has achieved a technological breakthrough resolving durability issues in solid-state batteries, enabling an electric vehicle range of 1,200km (746 miles) and charging times of 10 minutes or less. The company says cutting the number of processes needed to make battery materials could bring solid-state battery costs to levels similar to or below liquid-based lithium-ion batteries.
  • Your Next Electric Vehicle Could Be Made in China — China has overtaken Japan as the world's largest auto exporter, shipping 1.07m vehicles in a quarter, a 58% year-over-year increase, versus Japan's 950,000. China is also the largest exporter of electric vehicles, accounting for about 35% of global electric vehicle exports, up from 25% two years earlier.
  • China Set to Overtake Japan as World’s Biggest Car Exporter — China is set to overtake Japan as the world's biggest car exporter, driven in part by a mismatch between factory output and domestic demand. Analysts attribute the overcapacity to misjudged forecasts of declining internal combustion engine sales, surging electric vehicle demand, and reduced need for privately owned cars as shared mobility grows.

AI Summary. The International Monetary Fund projects Germany's nominal gross domestic product at $4.43tn versus Japan's $4.23tn, which would make Germany the third-largest economy behind the United States and China. Germany's projected output per person is $52,824 compared with $33,950 in Japan, with the yen near multi-decade lows against the dollar and euro.

Yoshiaki Nohara Bloomberg
Date Posted:

According to the IMF, Germany will likely pass Japan as the third largest economy this year. Primary drivers have been sluggish Japanese growth and a weak yen.

Does a weak currency change which country ranks as third-largest economy?

Core argument: The IMF projects Germany's nominal GDP at $4.43 trillion this year versus Japan's $4.23 trillion, which would leave Germany behind only the United States and China in economic size.

The International Monetary Fund’s latest projections estimate Germany’s nominal gross domestic product at $4.43 trillion this year, compared with $4.23 trillion for Japan. That would leave Germany lagging only the United States and China in terms of economic size. The projections come as the yen teeters close to the 160 mark against the euro and remains within striking distance of the 33-year low against the dollar that sparked a second round of currency intervention in October last year. The euro last reached 160 yen in August 2008. The IMF figures show that Germans are likely feeling a lot better off than Japanese, too. Average gross domestic product per person in Germany is projected at $52,824 compared with $33,950 in Japan.

Takeaways by Macro Roundup® AI

  1. The IMF projects Germany's nominal GDP at $4.43 trillion this year versus Japan's $4.23 trillion, which would leave Germany behind only the United States and China in economic size.
  2. The yen sits near 160 to the euro, a level last reached in August 2008, and remains within striking distance of the 33-year low against the dollar that sparked a second round of currency intervention in October last year.
  3. IMF projections put average GDP per person at $52,824 in Germany against $33,950 in Japan.

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.
  • Germany Is Losing Its Mojo. Finding It Again Won’t Be Easy — 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.
  • Japan Demographic Woes Deepen as Birthrate Hits Record Low — Japan's fertility rate fell for a seventh consecutive year to a record low of about 1.26 children per woman, far below the 2.07 rate considered necessary to maintain a stable population. Births fell 5% to 770,747, a record low, while deaths rose 9% to a record 1.57m.

AI Summary. China's State Administration of Foreign Exchange reported a net outflow of $53.9bn in monthly international financial transactions handled by domestic banks for businesses and households, the largest since a $55.8bn outflow tied to a sudden yuan devaluation. Outflows linked to direct investment, such as building manufacturing plants, were notable.

Iori Kawate Nikkei Asia
Date Posted:

Net outflows of investment capital from China hit a 7-year high in September as foreign firms scaled back operations and rich Chinese shifted assets abroad.

Net outflows of investment capital from China hit a 7-year high in September as foreign firms scaled back operations and...

Are funds flowing out of China at the fastest pace in years?

Core argument: China's net outflow of funds reached $53.9 billion in September, the largest since January 2016's $55.8 billion outflow, according to China's State Administration of Foreign Exchange, which tracks monthly international financial transactions by domestic banks for businesses and households.

According to China's State Administration of Foreign Exchange, which tracks monthly international financial transactions by domestic banks on behalf of businesses and households, the net outflow reached $53.9 billion in September. This is the largest amount since January 2016, when China logged a net outflow of $55.8 billion triggered by a sudden devaluation of the yuan called the "renminbi shock," among other factors. The exodus of funds related to direct investment, such as construction of manufacturing plants, was noticeable in the September figures. Wealthy Chinese are also shifting their assets abroad out of concern over the future of China, according to many analysts.

Takeaways by Macro Roundup® AI

  1. China's net outflow of funds reached $53.9 billion in September, the largest since January 2016's $55.8 billion outflow, according to China's State Administration of Foreign Exchange, which tracks monthly international financial transactions by domestic banks for businesses and households.
  2. The January 2016 net outflow of $55.8 billion was triggered by a sudden devaluation of the yuan known as the "renminbi shock," among other factors.
  3. Outflows tied to direct investment, such as construction of manufacturing plants, were noticeable in China's September figures, and many analysts say wealthy Chinese are shifting assets abroad out of concern over China's future.

Related Articles:

  • Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom — Singapore's central bank has asked major banks to minimize public discussion of the origins of large inflows of money into the city-state, much of it from wealthy Chinese, an issue that has become politically sensitive domestically. Lawyers and industry groups estimate Singapore hosts roughly 1,500 family offices, a large share of them Chinese.
  • The Rise & Fall of Foreign Direct Investment in China — Net foreign direct investment into China has been negative for four consecutive quarters, as foreign investors shifted from reinvesting earnings from their Chinese operations to repatriating them. Whether this reflects cash management or signals a future slowdown in foreign direct investment is unclear, but the repatriation of profits is negative for China's currency.
  • The Mysterious $300 Billion Flow Out of China — Unexplained financial flows in China's balance of payments, which generally correspond to capital flight and other surreptitious efforts to move money abroad, have been relatively low in recent years, but that may be an illusion created by official reporting. Corresponding flows are hard to locate elsewhere, though the UK has experienced a surge in such unexplained flows.

AI Summary. More than 300,000 Chinese people emigrated in a single year, more than double the pace of a decade earlier, with some traveling overland through a half-dozen countries to reach the US. US authorities at the southern border recorded 17,894 encounters with Chinese migrants over ten months, a thirteenfold increase from the prior year.

Evan Osnos The New Yorker
Date Posted:

Reporting from Beijing, @eosnos found a changed country, in which cultural innovation has ground to a standstill, the young are not motivated to work or have kids, and there is a strong desire among the wealthy to leave.

Is emigration from China rising sharply?

Core argument: More than 300,000 Chinese emigrated last year, more than double the pace of migration a decade earlier, with some traveling arduous routes through a half-dozen countries in hope of reaching the U.S.

More than three hundred thousand Chinese moved away last year, more than double the pace of migration a decade ago. Some are resorting to extraordinary measures. In August, a man rode a Jet Ski, loaded with extra fuel, nearly two hundred miles to South Korea. According to rights activists, he had served time in prison for wearing a T-shirt that called China’s leader “Xitler.” Others have followed arduous routes through a half-dozen countries, in the hope of reaching the U.S. This summer, authorities at America’s southern border reported a record 17,894 encounters with Chinese migrants in the previous ten months—a thirteenfold increase from a year earlier.

Takeaways by Macro Roundup® AI

  1. More than 300,000 Chinese emigrated last year, more than double the pace of migration a decade earlier, with some traveling arduous routes through a half-dozen countries in hope of reaching the U.S.
  2. U.S. authorities reported a record 17,894 encounters with Chinese migrants at the southern border over a ten-month period, a thirteenfold increase from a year earlier.
  3. A man rode a Jet Ski loaded with extra fuel nearly 200 miles from China to South Korea, having served prison time, according to rights activists, for wearing a T-shirt calling China's leader "Xitler.".

Related Articles:

  • China’s Brain Drain Threatens Its Future — United Nations data show net emigration from China has risen from a low of about 125,000 a year to more than 300,000. Private data on individuals with over $1m in assets show a similar pattern, with net outflows of the wealthy climbing from around 9,000 a year to over 15,000.
  • Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom — Singapore's central bank has asked major banks to minimize public discussion of the origins of large inflows of money into the city-state, much of it from wealthy Chinese, an issue that has become politically sensitive domestically. Lawyers and industry groups estimate Singapore hosts roughly 1,500 family offices, a large share of them Chinese.
  • The Mysterious $300 Billion Flow Out of China — Unexplained financial flows in China's balance of payments, which generally correspond to capital flight and other surreptitious efforts to move money abroad, have been relatively low in recent years, but that may be an illusion created by official reporting. Corresponding flows are hard to locate elsewhere, though the UK has experienced a surge in such unexplained flows.