Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “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
  • “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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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 far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, December 4, 2023

AI Summary. A US consumer price report showed core inflation held down by monthly declines in reopening-related items (used cars and trucks -0.8%, airfares -0.9%, hotels -2.9%), with commodities excluding used vehicles essentially flat. Services excluding housing, medical care, hotels, and airfares slowed to +0.39% monthly from +0.52%, which the author calls the report's most important signal.

Chris Marsh Money: Inside and Out
Date Posted:

The October CPI print supports an “immaculate disinflation” and likely means the policy rate has reached a local maximum. @GeneralTheorist

Is underlying services inflation slowing alongside falling reopening-related prices?

Core argument: U.S. super core services inflation excluding housing, medical care, hotels, and airfares slowed to +0.39% MoM in October from +0.52% in September, +0.57% in August, and +0.71% in July, the lowest monthly print since May.

The October CPI in the United States might be the most important in confirming the unlikely immaculate disinflation that central bankers will have dreamt of since the pandemic—certainly, the “market” took the number as a strong signal that the hiking cycle may have come to an end. The October inflation print was consequential for three reasons: First, core was once more supported by negative prints in re-opening related items (used cars and trucks, -0.8% MoM; airfares, -0.9% MoM and hotels, -2.9% MoM) though somewhat offset by a positive print in medical services (+0.3%MoM for the second month running). Second, commodities ex. used cars and trucks was essentially flat—and has averaged -0.04% MoM over the past 5 months. Third, super core services (ex. housing, medical care, hotels, and airfares) slowed meaningfully to +0.39% MoM from +0.52% MoM in Sept, +0.57% MoM in Aug. and 0.71% MoM in July. This is the lowest monthly print since May and only the fourth time this is printed below 0.4% MoM since Dec. 2021. This is the most important signal from the October reading.

Takeaways by Macro Roundup® AI

  1. U.S. super core services inflation excluding housing, medical care, hotels, and airfares slowed to +0.39% MoM in October from +0.52% in September, +0.57% in August, and +0.71% in July, the lowest monthly print since May.
  2. October core CPI was again supported by negative prints in re-opening related items—used cars and trucks -0.8% MoM, airfares -0.9% MoM, and hotels -2.9% MoM—partly offset by medical services at +0.3% MoM for a second month.
  3. U.S. commodities excluding used cars and trucks were essentially flat in October and have averaged -0.04% MoM over the past five months.

Related Articles:

  • The Grind Ahead — Higher short-term and long-term interest rates are flowing through to credit and interest costs, which the authors expect to produce "the grind" — a gradual decline in growth and in the health of corporate and household balance sheets — as a dominant driver of economies and markets over the next 12–18 months.
  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.
  • Inching Toward Equilibrium — With short-term interest rates far enough above zero, they are again the central bank's main lever for steering the economy toward equilibrium, a difficult task because policy changes affect spending, output, and inflation with lags that can span years. Equity yields have changed little while bond yields rose significantly, moving equity pricing further from equilibrium.

AI Summary. Large fiscal deficits paired with expected interest rate cuts are argued to drive strong demand for equities, as newly issued Treasury debt accumulates with a concentrated group of wealthy holders who may rebalance out of bonds as yields fall. Combined with a structural decline in equity supply, this points to upward price pressure.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 thinks that equity prices currently have a favorable backdrop given his view that ongoing Treasury issuance is not much different, in effect, from straight money printing.

Do large deficits and rate cuts push stock prices higher?

Core argument: Markets have priced in 125bps of rate cuts in 2024 after Governor Waller suggested cutting rates on moderating inflation, which reduces the attractiveness of Treasuries.

Large fiscal deficits combined with future rate cuts will likely lead to significant demand for equities. The wealth distribution of the U.S. is heavily concentrated, suggesting that newly printed Treasuries ultimately end up in the hands of a small group of people. At the same time, the attractiveness of Treasuries is decreasing with the expectation of rate cuts. The market has priced in 125bps of cuts in 2024 after hearing Governor Waller suggest cutting rates due to moderating inflation. This may encourage wealthy investors to rebalancing their rapidly growing portfolio out of bonds and into other assets like equities. The intersection of a structural decline in equity supply with a structural increase in demand suggests the potential for significant upward price pressure.

Takeaways by Macro Roundup® AI

  1. Markets have priced in 125bps of rate cuts in 2024 after Governor Waller suggested cutting rates on moderating inflation, which reduces the attractiveness of Treasuries.
  2. Large fiscal deficits issue Treasuries that, given heavily concentrated U.S. wealth, likely end up held by a small group of investors who may rebalance out of bonds and into assets such as equities.
  3. The intersection of a structural decline in equity supply with a structural increase in demand suggests potential for significant upward pressure on equity prices.

Related Articles:

  • 2024 US Equity Outlook: “All You Had To Do Was Stay” — The seven largest US mega-cap technology stocks are projected to outperform the rest of the S&P 500, supported by faster expected sales growth, higher margins, greater reinvestment, and stronger balance sheets. Analysts expect these companies to grow sales at an 11% annual rate versus 3% for the other 493 companies, with net margins twice as high.
  • R versus G and the National Debt — National debt is considered sustainable when it grows more slowly than gross domestic product, so when the average interest rate on government debt (R) is below the economy's growth rate (G), debt can be sustainable even if non-interest spending exceeds revenue. R has been below G over the past 15 years.

AI Summary. Declining quality in the US small-cap universe is attributed mainly to an influx of unprofitable new listings, which account for 57% of a 2,750-stock universe and are concentrated in biotech, financials, and health care. Companies exiting the universe have tended to be higher quality than those remaining.

Chris Satterthwaite Verdad
Date Posted:
Is Database:
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Chris Satterthwaite @verdadcap argues the decline in US small-cap gross profit/assets has been driven by the recent IPOs of unprofitable firms during the SPAC boom of 2021.

Why has the quality of small-cap stocks declined?

Core argument: Companies that have gone public since 2013, net of de-listings, account for 57% of a US small-cap universe of 2,750 stocks, and the steep decline in quality among these new entrants has contributed to broad deterioration of quality.

At a high level, while there has been some decline in core profitability, most of the decrease in quality has come from an influx of unprofitable companies, which, after three years, enter the core cohort and contribute to deteriorating quality. In fact, the companies that have gone public since 2013, net of de-listings, currently account for 57% of our small-cap US universe of 2,750 stocks. Given the steep decline in quality since 2013 among new entrants, this significant influx has contributed to a broad deterioration of quality. To make matters worse, the exits from the small-cap universe have tended to be of higher quality than the core cohort. The new entrants to the US small-cap universe, on a market cap-weighted basis, have been heavily concentrated in biotech, financials, and health care. The SPAC boom of 2021 comprised a large portion of the financial entrants, but the biotech and health care overweights are notable.

Takeaways by Macro Roundup® AI

  1. Companies that have gone public since 2013, net of de-listings, account for 57% of a US small-cap universe of 2,750 stocks, and the steep decline in quality among these new entrants has contributed to broad deterioration of quality.
  2. Most of the decline in small-cap quality comes from an influx of unprofitable companies that enter the core cohort after three years, rather than from the decline in core profitability.
  3. New entrants to the US small-cap universe are heavily concentrated, on a market cap-weighted basis, in biotech, financials, and health care, with the 2021 SPAC boom comprising a large portion of the financial entrants, while exits have tended to be of higher quality than the core cohort.

Related Articles:

  • The Death of Small Cap Equities? — An analysis of gross profit relative to assets for US small-cap companies, defined as $400m–$4bn in market cap, finds a broad-based decline in quality from the early 2010s, with information technology, consumer discretionary, and industrials most affected. Health care was excluded because unprofitable pharmaceutical and biotech stocks rose from 5% to 16% of small stocks.
  • 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.
  • 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. Responses to US consumer sentiment surveys increasingly diverge along partisan lines, a pattern consistent with people giving answers that signal political affiliation rather than their actual economic views. Spending patterns offer a better read: US consumers have returned to their pre-pandemic trendline and are buying more than ever, unlike more cautious Europeans.

John Burn-Murdoch Financial Times
Date Posted:

American consumer sentiment has significantly diverged from its projected level based on economic indicators in a way that it has not for other advanced economies. @jburnmurdoch speculates political polarization is the source of the divergence.

Do consumer sentiment surveys reflect what Americans actually think about the economy?

Core argument: Democrats' responses to the Michigan survey's question on whether it is a good time to buy big household items turned favorable shortly after Joe Biden won the presidency, while Covid-19 still raged; Republicans' did not.

One question from the Michigan survey asks whether people think now is a good time to buy big household items. When the pandemic hit, Democrats and Republicans alike moved sharply towards “not a good time to buy”. But just months later, when Joe Biden won the presidential election — while Covid-19 still raged — Democrats suddenly declared conditions ripe for purchases of new fridge-freezers. Republicans did not. It seems US consumer sentiment is becoming the latest victim of expressive responding, where people give incorrect answers to questions to signal wider tribal political or social affiliations. My advice: if you want to know what Americans really think of economic conditions, look at their spending patterns. Unlike cautious Europeans, US consumers are back on the pre-pandemic trendline and buying more stuff than ever.

Takeaways by Macro Roundup® AI

  1. Democrats' responses to the Michigan survey's question on whether it is a good time to buy big household items turned favorable shortly after Joe Biden won the presidency, while Covid-19 still raged; Republicans' did not.
  2. US consumer sentiment appears to be becoming a victim of expressive responding, in which people give incorrect survey answers to signal wider tribal political or social affiliations.
  3. US consumer spending has returned to its pre-pandemic trendline, with Americans buying more than ever, unlike more cautious European consumers.

Related Articles:

  • The Pandemic Has Broken a Closely Followed Survey of Sentiment — A statistical model using 13 economic variables including inflation, unemployment, and petrol prices explained 86% of the variation in the monthly US consumer-sentiment index between 1980 and 2016, but the correlation between sentiment and both current and future spending has vanished since the pandemic began. The same variables retain their power to forecast consumer spending.
  • The Economy Is Great. Why Are Americans in Such a Rotten Mood? — Consumer sentiment has been more depressed than historic correlations with the "misery index"—the sum of inflation and unemployment—would predict, even as consumer-price inflation fell from a 9.1% peak to 3.7%. The author argues much of this pessimism is "referred pain," reflecting dissatisfaction with the country as a whole rather than the economy.
  • Why Less Engaged Voters Are Biden’s Biggest Problem — Times/Siena survey data indicate that Democrats and Biden voters were somewhat more likely than Republicans and Trump voters to skip the midterm election, implying the presidential electorate was more Democratic. Yet the same data indicate higher turnout would not help Biden now, even though it would bring more Democratic and Biden voters to the polls.

AI Summary. Payments to the US Department of Education, mostly student loans, returned to their pre-pandemic pace of more than $75bn annualized from lows under $13bn, as required payments resumed on $1.5tn of federal student debt. Real retail spending by 25-34 year olds fell 1.5% while rising 2.5%-4.2% for all other age groups.

Joseph Politano Apricitas Economics
Date Posted:

The resumption of student loan payments has coincided with a 1.5% drop in real retail spending for 25-34-year-olds, vs. growth of 2.5-4.2% for other age groups. @JosephPolitano.

Do resumed student loan payments reduce spending by young households?

Core argument: Real retail spending by Americans aged 25–34 has fallen 1.5% since the start of September, while spending rose 2.5%–4.2% for all other age groups as student loan payments resumed.

This October, for the first time in more than 3 years, Americans were once again required to make payments on their $1.5T of outstanding Federal student debt. Starting in August, payments to the US Department of Education, most of which represent student loans, surged back to about their pre-pandemic rate of more than $75B annualized, up from the extreme lows of less than $13B annualized seen just months prior. Perhaps most importantly for the broader economy, America’s youngest households have made a substantial cutback in their consumption as student loan payments resume. Since the start of September, real retail spending by those 25-34 years old has fallen by 1.5% at the same time it has risen by between 2.5%-4.2% for all other age groups. However, this recent effect was concentrated among the young with the broader population of all former college attendees regardless of age not seeing a commensurate decrease in spending.

Takeaways by Macro Roundup® AI

  1. Real retail spending by Americans aged 25–34 has fallen 1.5% since the start of September, while spending rose 2.5%–4.2% for all other age groups as student loan payments resumed.
  2. Payments to the US Department of Education, most of which represent student loans, rebounded starting in August to roughly their pre-pandemic pace of more than $75bn annualized, up from under $13bn annualized months earlier.
  3. Americans resumed required payments on $1.5tn of outstanding federal student debt in October for the first time in more than 3 years, and the spending pullback was concentrated among the young rather than among all former college attendees.

Related Articles:

  • Debt Moratoria: Evidence from Student Loan Forbearance — The authors estimate that borrowers whose student loan payments were frozen ended with about $1,500 more in student loan balances and $1,200 (3%) more in other household debt, including mortgage, auto, and credit card borrowing, than borrowers without a payment stoppage. The findings suggest the pause raised short-term consumption and overall leverage, with effects concentrated among borrowers never previously delinquent.
  • The Economic Impact of the Student Loan Restart — 46m Americans owe student loan debt to the Department of Education, with three-quarters owing less than $40k and half owing under $20k. Borrowers with balances above $60k make up 16% of borrowers but hold the majority of outstanding student loan debt.
  • Credit Card Delinquencies Continue to Rise—Who Is Missing Payments? — Delinquency rates have risen from historic lows across most credit products, with auto loan and credit card delinquencies exceeding pre-pandemic levels while mortgage transitions into delinquency remain below them. The increase is broad-based across income groups and regions but disproportionately driven by Millennials, borrowers with auto or student loans, and those with relatively higher credit card balances.

AI Summary. Saudi Arabia and Russia are cutting oil output by 1m and 300,000 barrels a day respectively, with the rest of the OPEC+ group contributing another 3.7m b/d in cuts. Falling oil prices reflect expectations of slowing global demand tied to concerns about China's economy, reduced geopolitical risk, and higher output from the US, Brazil, and Guyana.

Economist Staff The Economist
Date Posted:

OPEC+ production cuts have yet to stabilize the price of oil which has fallen over 15% since the cuts. The market does not seem to believe that a newly expanded OPEC can credibly enforce cuts.

Are oil production cuts failing to lift prices?

Core argument: Saudi Arabia is cutting 1m barrels a day and Russia 300,000 b/d, with the rest of OPEC+ together contributing another 3.7m b/d in cuts.

Saudi Arabia and Russia are leading the way, with cuts of 1m barrels a day and 300,000 b/d respectively; the rest of OPEC+ is together contributing another 3.7m b/d in cuts. Recent oil-price drops reflect both expectations of slowing global demand, influenced by concerns over China’s economy, and the fact that geopolitical risk has fallen: few now expect the war in Gaza to turn into a broader regional conflict. At the same time, other producers, including America, Brazil, and Guyana, have increased output, making up for OPEC+ cuts.

Takeaways by Macro Roundup® AI

  1. Saudi Arabia is cutting 1m barrels a day and Russia 300,000 b/d, with the rest of OPEC+ together contributing another 3.7m b/d in cuts.
  2. Oil-price declines reflect expectations of slowing global demand tied to concerns over China's economy, alongside falling geopolitical risk as few expect the war in Gaza to widen into a regional conflict.
  3. Output increases from producers including America, Brazil, and Guyana have made up for the OPEC+ cuts.

Related Articles:

  • US Shale: The Marginal Supplier Matures — The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.
  • The Changing Nexus Between Commodity Prices and the Dollar: Causes and Implications — The shale boom turned the United States into a net exporter of natural gas and of oil, altering how commodity prices relate to US trade. Where higher oil prices were historically associated with a deterioration in US terms of trade, they now correspond to an improvement.
  • U.S. Oil Boom Blunts OPEC’s Pricing Power — U.S. shale drilling and fracking costs have fallen 36% since 2014 even as recovered oil volumes have risen, according to J.P. Morgan. One major producer can now earn as much from $42-a-barrel oil as it once did at $86, while Saudi Arabia's budget is estimated to require $81 a barrel.

AI Summary. As an arithmetic matter, the greying of societies is driven much more by smaller families than by longer lives, which the author attributes to a withering away of the family. Demographic simulations project that by 2040 couples in their 60s in China will likely have at least one living parent to care for, and many will have two or three.

Nicholas Eberstadt American Enterprise Institute
Date Posted:

Nicholas Eberstadt @AEIecon notes humans are social animals and global aging and population decline likely will be a threat to the family, the basic unit of human life.

Is population aging driven more by smaller families than longer lives?

Core argument: Demographic simulations suggest that by 2040 sixtysomething couples in China will likely have at least one living parent to look after, with many having two or three.

And the heart of the problem here is that global aging and population decline are mainly driven by a withering away of the family— the basic unit of human life up to this point. And therein lies the problem. As an arithmetic matter, the greying of societies is driven much more by smaller families than longer lives. But longer lives also mean that middle aged and even elderly children will increasingly be responsible for ancient living parents. Consider the outlook for China. Demographic simulations by Ashton Verdery and myself suggest the dilemmas that may face middle aged people in China in less than a generation: By 2040 it is likely that Sixtysomething couples in China will have at least one living parent to look after; many will have two or three to think about. But those prospective elders are elders with descendants. With the rise in (voluntary) childlessness around the world, growing numbers of elders will have no relatives—or no close relatives—to count on.

Takeaways by Macro Roundup® AI

  1. Demographic simulations suggest that by 2040 sixtysomething couples in China will likely have at least one living parent to look after, with many having two or three.
  2. Global aging and population decline are driven mainly by smaller families rather than longer lives, amounting to a withering away of the family as the basic unit of human life.
  3. Rising voluntary childlessness worldwide means growing numbers of elders will have no relatives, or no close relatives, to count on.

Related Articles:

  • A Revolution Is Coming for China’s Families — Prolonged below-replacement fertility in China is projected to produce a "kin crash" in which rising generations have fewer living relatives than ever before in Chinese history. The authors argue this shrinking of extended family networks will erode the Chinese family's role in protecting people from adversity and helping them seize opportunity.
  • Millennials Aren’t Having Kids. Here Are The Reasons Why — Childlessness rose first among women in their early 20s and then at successively older ages, tracking the millennial generation as it aged; sources consulted pointed to the broader economic climate. Much of the rise could be erased if women follow through on delayed family plans, but time for a reversal may be running out.
  • Why Americans Are Having Fewer Babies — Sociologists find that US women born in the late 1980s had, on average, about one child fewer by their early 30s than they had intended, roughly double the shortfall for women born two decades earlier. The median age at which women give birth is 30, three years older than in 1990.

AI Summary. Mexico became the United States' largest trading partner, ahead of Canada, as it won a bigger share of ground lost by China, and investors identify it as among the countries best placed to benefit from geopolitical shifts. Skeptics note that record foreign direct investment of $32.9bn over nine months mostly reflects reinvested profits rather than new projects.

Christine Murray Financial Times
Date Posted:
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Mexico has outpaced China and Canada as the US’s largest trading partner.

Is Mexico actually gaining new investment from shifting supply chains?

Core argument: Mexico's foreign direct investment rose to a record $32.9bn in the first nine months of the year, though sceptics note the total mostly reflects reinvestment of profits rather than new projects.

Mexico has been singled out by investors as one of the countries best placed to economically benefit from geopolitical changes. Referring to Mexico, JPMorgan’s chief executive Jamie Dimon told Bloomberg TV this month: “If you had to pick a country this might be the number one opportunity.” Mexico this year became the US’s largest trading partner, ahead of Canada, as it began to win a bigger share of the ground lost by China. Sceptics point out that foreign direct investment, which rose to a record $32.9 billion in the first nine months of this year, mostly reflects reinvestment of profits rather than new projects.

Takeaways by Macro Roundup® AI

  1. Mexico's foreign direct investment rose to a record $32.9bn in the first nine months of the year, though sceptics note the total mostly reflects reinvestment of profits rather than new projects.
  2. Mexico became the United States' largest trading partner, overtaking Canada, as it won a bigger share of the ground lost by China.
  3. JPMorgan chief executive Jamie Dimon told Bloomberg TV that if he had to pick a country, Mexico "might be the number one opportunity.".

Related Articles:

  • Mexico Seeks to Solidify Rank As Top U.S. Trade Partner, Push Further Past China — Mexico is the top U.S. trading partner, accounting for 15.4% of all U.S. goods trade versus 15.2% for Canada and 12.0% for China, with four-month bilateral trade of $263bn. Manufactured goods made up $234.2bn of that total, with $157bn of Mexican imports and $107bn of U.S. exports.
  • Pettis on “Friend-Shoring” — Shifting US production to countries with balanced or deficit trade, such as Mexico, is likely to raise US exports to those countries because wages and household income make up a higher share of their output. Relocating to large-surplus countries instead converts part of export revenues into savings, since workers there receive a smaller share of what they produce.
  • War, AI and Climate Change Shake Up $32 Trillion in Global Trade — US imports of tariffed goods from China are estimated to be about $150bn below where they would otherwise be, with Mexico filling much of the gap. Manufacturing accounts for 13% of India's gross domestic product, below the government's 25% goal, and Indian manufacturers' value-add is 20% versus 49% for China.

Tuesday, December 5, 2023

AI Summary. Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest @jpmorgan notes that reported returns by US venture capital are likely benefitting from stale valuations.

Are venture capital financing conditions tightening for startups?

Core argument: The incidence of venture capital "down rounds" rose from 8% in 2022 to nearly 20% in 2023, and down rounds in 2023 entailed post-money valuation declines of more than 50%.

The venture capital landscape is shifting. There is a rising median time between venture rounds. An increased number of startups terminated due to bankruptcy. There has been a large jump in “down rounds” between 2022 and 2023, and post-money valuations have declined (i.e., the company’s value after a new capital injection), particularly for Series C rounds. For example, from 2022 to 2023, the incidence of down rounds rose from 8% to almost 20%, and when down rounds occurred, in 2023 they entailed post-money valuation declines of more than 50% All of this is consistent with tightening financial conditions and a hangover from easy conditions prevailing in 2020 and 2021.

Takeaways by Macro Roundup® AI

  1. The incidence of venture capital "down rounds" rose from 8% in 2022 to nearly 20% in 2023, and down rounds in 2023 entailed post-money valuation declines of more than 50%.
  2. Median time between venture rounds is rising and more startups have terminated due to bankruptcy, with post-money valuations declining particularly for Series C rounds.
  3. The review reads the shifts in venture funding as consistent with tightening financial conditions and a hangover from the easy conditions that prevailed in 2020 and 2021.

Related Articles:

  • Private Equity Fundamentals — An analysis of North American private equity- and venture-backed companies with public stock or debt finds they trade at 22.4x adjusted earnings, in line with small-cap growth stocks, but at 33.4x on standard accounting measures with net debt of 8.8x earnings. The authors describe the group as heavily leveraged and mostly cash-flow negative.
  • The Grind Ahead — Higher short-term and long-term interest rates are flowing through to credit and interest costs, which the authors expect to produce "the grind" — a gradual decline in growth and in the health of corporate and household balance sheets — as a dominant driver of economies and markets over the next 12–18 months.
  • Market Bipolarity: Exuberance versus Exhaustion — The equity risk premium fell over the first half of the year and then held relatively steady, leaving the expected return on equities higher as risk-free rates rose. The author argues that quarterly moves in stock and corporate bond prices came largely from rising interest rates rather than a heightened fear of risk.

AI Summary. Growth in the number of households making mortgage escrow payments ran higher among Millennials than Baby Boomers and widened further when record low mortgage rates made buying more affordable. As affordability fell with rising interest rates, Millennial growth converged with that of Generation X and Baby Boomers, with the largest pullback among those aged 35-45.

Anna Zhou Bank of America
Date Posted:

There has been a decline in escrow payments for home purchases, according to @BankofAmerica internal data. The decline has been more significant for older millennials (35-45), who are slowing home purchases faster than other buyers.

Has falling housing affordability hit older millennial homebuying hardest?

Core argument: Older Millennials aged 35–45 saw the biggest pullback in year-over-year growth of households with an escrow payment as home affordability plummeted with rapidly rising interest rates in 2022.

We break down the data by generation and make three observations. First, prior to the pandemic, the % YoY growth in the number of households with an escrow payment among both younger and older Millennials was consistently higher than that of Baby Boomers (Exhibit 4). This makes sense given that Millennials were entering prime home-buying age in 2019. Second, this gap widened rapidly in 2020 and 2021 as record low mortgage rates made home buying more affordable, which allowed an uptick in homeownership, especially among younger generations. Third, as we entered 2022, and home affordability started to plummet with the rapid increase in interest rates, the % YoY growth rate of escrow payments among Millennials converged to that of Gen X and Baby Boomers, with older Millennials (age 35-45) seeing the biggest pullback.

Takeaways by Macro Roundup® AI

  1. Older Millennials aged 35–45 saw the biggest pullback in year-over-year growth of households with an escrow payment as home affordability plummeted with rapidly rising interest rates in 2022.
  2. Before the pandemic, year-over-year growth in households with an escrow payment was consistently higher among both younger and older Millennials than among Baby Boomers, consistent with Millennials entering prime home-buying age in 2019.
  3. The generational gap widened rapidly in 2020 and 2021 as record low mortgage rates made home buying more affordable and lifted homeownership among younger generations, before Millennial growth converged to that of Gen X and Baby Boomers.

Related Articles:

  • Inflation Adjusted House Prices 3.0% Below Peak — Inflation-adjusted US house prices are 3.0% below their peak, while housing affordability is the worst since 1982, when 30-year mortgage rates exceeded 14%. With mortgage rates at 7.20%, the principal-and-interest payment on a $500,000 house with 20% down is 16% higher than a year earlier and 88% higher than two years earlier.
  • 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.
  • With Housing, Millennials Have Much to Complain About — The Census Bureau's customary homeownership rate is measured by household, showing 52.7% of 25-to-34-year-old household heads own homes, but only 32.6% of all Americans in that age group do — down 20 percentage points from the late 1970s and nearly 10 points since the mid-2000s. Young-adult homeownership has seen a modest resurgence since 2016.

AI Summary. In international testing of 15-year-olds, U.S. students scored below peers in the United Kingdom, Australia, and Germany and well behind Singapore, South Korea, and Estonia, continuing a math underperformance that predated the pandemic. Globally, students lost the equivalent of three-quarters of a year of math learning, with larger declines where schools stayed closed longer.

Sarah Mervosh New York Times
Date Posted:

In the first PISA results since the pandemic, US students lost ground in math but held steady in reading and science. Just 7% of US students scored at the highest level in math, compared with 41% of students in Singapore.

In the first PISA results since the pandemic, US students lost ground in math but held steady in reading and science. Just...

Do U.S. students still trail other countries in math?

Core argument: Students globally lost the equivalent of three-quarters of a year of learning in math on the 2022 PISA test, the first administered since the coronavirus pandemic.

In the first Program for International Student Assessment (PISA) results since the coronavirus pandemic, 15-year-olds in the United States scored below students in similar industrialized democracies like the United Kingdom, Australia, and Germany, and well behind students in the highest-performing countries such as Singapore, South Korea, and Estonia — continuing an underperformance in math that predated the pandemic. Globally, students lost the equivalent of three-quarters of a year of learning in math, which was the primary focus of the 2022 test. And only a few countries — Singapore, Japan, South Korea, Switzerland, and Australia — maintained high levels of math performance through the pandemic. Countries that kept schools closed longer generally saw bigger declines. Even with its declines in math, the United States lost less ground than some European countries that prioritized opening schools more quickly.

Takeaways by Macro Roundup® AI

  1. Students globally lost the equivalent of three-quarters of a year of learning in math on the 2022 PISA test, the first administered since the coronavirus pandemic.
  2. U.S. 15-year-olds scored below peers in the United Kingdom, Australia, and Germany, and well behind Singapore, South Korea, and Estonia, continuing a math underperformance that predated the pandemic.
  3. Countries that kept schools closed longer generally saw bigger PISA math declines, though the United States lost less ground than some European countries that prioritized reopening schools more quickly.

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  • Krugman’s Misleading Scandinavian Comparison — Krugman’s Misleading Scandinavian Comparison
  • ACT Scores Fell for Class of 2023, Sixth Consecutive Decline — The average ACT college admissions test score fell to 19.5 out of 36, a 30-year low and a sixth consecutive annual decline, with scores down across English, math, reading and science. The testing organization says the results indicate fewer high-school seniors are ready for college.
  • NAEP Long-Term Trend Assessment Results: Reading and Mathematics — U.S. national assessment scores for 13-year-olds declined 4 points in reading and 9 points in mathematics from the prior assessment, and 7 and 14 points respectively compared with a decade earlier. Mathematics declines were larger for lower-performing students (12–14 points) than for middle- and higher-performing students (6–8 points).

AI Summary. South Korea's finance minister nominee argues the country's aging population requires immediate preparation, noting efforts to raise the world's lowest fertility rate would take at least 30 years to yield benefits. A shrinking workforce is a major cause of South Korea's declining potential growth rate, with births per woman at 0.78.

Jaehyun Eom and Sam Kim Bloomberg
Date Posted:

South Korea’s finance minister compared the country’s record low fertility of 0.78 births per woman last year, to the Titanic: “It’s already too late. A ship like the Titanic has no choice but to crash by the time it discovers a reef.”

Does an aging population require immediate preparation despite decades-long payoffs?

Core argument: South Korea's fertility rate fell to 0.78 babies per woman last year, the world's lowest, according to data released by the country's statistics office.

South Korea’s nominee for finance minister compared challenges posed by the country’s aging demographics to the iceberg that sank the Titanic, calling for immediate steps to cope with the situation. “It’s already too late,” Choi Sang-mok told reporters on Tuesday. “A ship like the Titanic has no choice but to crash by the time it discovers a reef.” It would take 30 years at the earliest to see the benefits of efforts to raise the world’s lowest fertility rate, so South Korea should be patient and thoroughly prepare for the implications of current demographic trends, he said. A shrinking workforce is a major cause of Korea’s declining potential growth rate. The number of babies expected per woman fell to 0.78 last year, according to data released by the statistics office.

Takeaways by Macro Roundup® AI

  1. South Korea's fertility rate fell to 0.78 babies per woman last year, the world's lowest, according to data released by the country's statistics office.
  2. Finance minister nominee Choi Sang-mok said efforts to raise South Korea's fertility rate would take 30 years at the earliest to yield benefits, urging the country to prepare thoroughly for the implications of current demographic trends.
  3. Choi Sang-mok compared South Korea's aging demographics to the iceberg that sank the Titanic, saying "it's already too late" and calling for immediate steps, while a shrinking workforce remains a major cause of the country's declining potential growth rate.

Related Articles:

  • World’s Lowest Birthrate Sinks Further Despite Cash Payouts to Parents — South Korea's fertility rate fell to 0.78 from 0.81, the lowest among wealthy OECD countries where the average is 1.58, and no other OECD member is below 1. Its population has been declining as deaths exceed births, and military conscripts are expected to shrink by nearly half over two decades.
  • South Korea Again Smashes Own Record for World’s Lowest Fertility Rate in 2022 — South Korea's fertility rate fell to 0.78 babies per woman, the lowest among more than 260 nations tracked by the World Bank, with newborns declining to 249,000 against about 373,000 deaths. Statistics Korea projects the working-age population, which peaked at 37.3m, will fall by almost half by 2070.
  • 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%.

AI Summary. The US Commerce Department says its roughly $200m budget is inadequate to enforce semiconductor export controls aimed at limiting China's access to artificial intelligence chips, and has called for greater funding. It has warned that chips redesigned to fall just below existing thresholds will themselves be restricted, arguing national security outweighs chipmakers' short-term revenue.

Peter Martin Bloomberg
Date Posted:

Commerce Secretary Gina Raimondo expressed frustrations with Nvidia’s redesign of chips to in order to access the China market. She said, “If you redesign a chip around a particular cut line that enables them to do AI, I’m going to control it the very next day.”

Commerce Secretary Gina Raimondo expressed frustrations with Nvidia’s redesign of chips to in order to access the China...

Does enforcing semiconductor export controls require a bigger budget?

Core argument: Commerce Secretary Gina Raimondo said her department's $200 million budget for semiconductor export controls is "like the cost of a few fighter jets" and called for the operation to be funded as it needs to be funded.

Raimondo said American companies will need to adapt to US national security priorities, including export controls that her department has placed on semiconductor exports.“I know there are CEOs of chip companies in this audience who were a little cranky with me when I did that because you’re losing revenue,” she said. “Such is life. Protecting our national security matters more than short-term revenue.” Raimondo called out Nvidia Corp., which designed chips specifically for the Chinese market after the US imposed its initial round of curbs in October 2022. If you redesign a chip around a particular cut line that enables them to do AI, I’m going to control it the very next day,” Raimondo said. “I have a $200 million budget. That’s like the cost of a few fighter jets. Come on,” she said. “If we’re serious, let’s go fund this operation like it needs to be funded.”

Takeaways by Macro Roundup® AI

  1. Commerce Secretary Gina Raimondo said her department's $200 million budget for semiconductor export controls is "like the cost of a few fighter jets" and called for the operation to be funded as it needs to be funded.
  2. Raimondo said any chip redesigned around a control cut line in a way that enables AI would be controlled "the very next day," and called out Nvidia for designing chips for the Chinese market after the October 2022 curbs.
  3. Raimondo said American companies will need to adapt to US national security priorities, telling chip CEOs losing revenue from export controls that protecting national security matters more than short-term revenue.

Related Articles:

  • China AI & Semiconductors Rise: US Sanctions Have Failed — China's Kirin 9000S is a better-designed, leading-edge chip than the West realizes, developed without access to extreme ultraviolet lithography or cutting-edge US intellectual property, indicating existing export controls have not worked. The authors argue only decisive, full-scale measures—not half measures—could prevent China from mass-manufacturing chips needed for high-end military applications.
  • US Restricts Nvidia Made-for-China Chips in New Export Rules — The US is restricting sales of Nvidia's A800 and H800 chips, designed specifically for the Chinese market, and curbing exports to two Chinese artificial-intelligence chip firms. The export controls aim to block China's access to advanced semiconductor technology with military uses.
  • Chinese Scientists Create Chip That Can Perform AI Task 3,000 Times Faster Than Nvidia’s A100: Study — Chinese researchers report developing a chip that performs certain AI tasks, such as image recognition and autonomous driving, faster and more energy efficiently than current high-performance AI chips. The authors write that while it cannot replace chips in computers or smartphones, it may be used in wearable devices, electric cars, or smart factories.

AI Summary. China accounts for 18% of global GDP, 13% of global consumption, and 31% of global manufacturing. The author estimates that if China grew 4–5% annually for a decade while keeping manufacturing's role in its economy, its share of global manufacturing would reach 36–39%, requiring the rest of the world to let manufacturing's share of its output fall by 0.5–1.0pp.

Michael Pettis China Financial Markets
Date Posted:

Unless China rebalances towards domestic consumption, @michaelxpettis shows that 4 to 5% growth over the next decade would cause China’s share of global investment and global manufacturing to rise by 5pp of global GDP to 37-38%.

Can the rest of the world absorb a rising Chinese manufacturing share?

Core argument: China accounts for 18% of global GDP and 13% of global consumption but 31% of global manufacturing.

While China accounts for 18% of global GDP and only 13% of global consumption, it currently accounts for an extraordinary 31% of global manufacturing. If China maintained annual GDP growth rates of 4–5% while also maintaining the role of manufacturing in its economy, its share of global GDP would rise by less than 3pp in a decade, to 21%, even as its share of global manufacturing would rise by more than 5pp, to 36%. What’s more, if—as a result of the massive shift in investment from the property sector to the manufacturing sector—the GDP share of China’s manufacturing sector rose above its current 28% to, say, 30%, China’s share of global manufacturing would rise to 39%. To accommodate this and prevent a global overproduction crisis, the rest of the world would have to allow its manufacturing share of GDP to drop between 0.5 and 1.0pp.

Takeaways by Macro Roundup® AI

  1. China accounts for 18% of global GDP and 13% of global consumption but 31% of global manufacturing.
  2. Sustaining 4–5% annual GDP growth while preserving manufacturing's role in its economy would lift China's share of global GDP by under 3pp to 21% in a decade, while its global manufacturing share rose more than 5pp to 36%.
  3. If a shift in investment from property to manufacturing raised manufacturing from 28% to 30% of China's GDP, its global manufacturing share would reach 39%, requiring the rest of the world to let its manufacturing share of GDP fall 0.5–1.0pp to prevent a global overproduction crisis.

Related Articles:

  • The Global Constraints To Chinese Growth — China accounts for 18% of global GDP but 13% of global consumption and 32% of global investment, with each dollar of Chinese investment offset by only $1.3 of consumption versus $4.1 outside China. If China grew 4-5% annually for a decade while relying on investment, its share of global investment would rise to 37%.
  • EU To Launch Anti-Subsidy Probe into Chinese Electric Vehicles — The European Union is opening an anti-subsidy investigation into Chinese electric vehicles it says are distorting the EU market, one of its largest trade cases. Manufacturers found in breach of trade rules could face punitive tariffs, as the EU seeks to avoid a repeat of the insolvencies in its solar panel industry caused by cheap Chinese imports.
  • Managing Economic and Financial Entanglements With China — China's surplus in manufactured goods net of commodity imports has kept growing relative to trade partners' output and relative to China's own economic output, alongside weak consumer spending and falling homebuilding. U.S. federal spending financed largely by borrowing has supported private balance sheets and demand, muting attention to that surplus.