Edward Conard

Top Ten New York Times Bestselling Author

  • “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 should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, June 25, 2024

AI Summary. Using investor survey data and option prices, the authors decompose beliefs about stock market crashes into fundamental and subjective components, finding the subjective part is volatile and almost always positive. Investor sentiment, measured from survey narratives with a large language model, is correlated with this subjective component and with non-fundamental variation.

William Goetzmann, Dasol Kim and Robert Shiller National Bureau of Economic Research
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.@RobertJShiller and @WGoetzmann find that subjective assessments consistently overestimate the risk of stock market collapse, and that emotional response to non-fundamental shocks explains at least some of the variation.

Do investor emotions shape beliefs about stock market crashes?

Core argument: Using more than two decades of Shiller's Stock Market Confidence Survey and option prices, the authors decompose investor crash beliefs into fundamental and subjective components, finding the subjective component highly volatile, typically right-skewed, and nearly always positive.

Using more than two decades of Shiller’s Stock Market Confidence Survey we decompose crash beliefs into subjective and fundamental components based upon option prices, [which] reflect the time-varying beliefs and preferences of the marginal investor in these markets [who] take[s] into account fundamental factors and on average, rationally assess[es] crash probabilities. The subjective crash probability measure is highly volatile, typically right-skew, and nearly always positive. To better understand the subjective component in crash risk forecasts, we apply a large language model (LLM) to [survey response] narratives, to construct high-frequency measures of sentiment/emotion. The model is fine-tuned using rich data on human-derived emotion annotations to narratives. We find that investor sentiment is correlated with the subjective crash probability component and find strong evidence that it is related to non-fundamental variation. [Finally] we find that exposure and attention to news of rare, extreme events: i.e. nearby earthquakes, large lottery winnings, and excess COVID deaths is significantly associated with a higher or lower rare crash probability, depending on emotional valence.

Takeaways by Macro Roundup® AI

  1. Using more than two decades of Shiller's Stock Market Confidence Survey and option prices, the authors decompose investor crash beliefs into fundamental and subjective components, finding the subjective component highly volatile, typically right-skewed, and nearly always positive.
  2. Applying a large language model fine-tuned on human emotion annotations to survey response narratives, the authors construct high-frequency sentiment measures and find investor sentiment correlated with the subjective crash probability component and related to non-fundamental variation.
  3. Exposure and attention to news of rare, extreme events — nearby earthquakes, large lottery winnings, and excess COVID deaths — is significantly associated with a higher or lower rare crash probability, depending on emotional valence, according to the authors.

Related Articles:

  • Long-Term Expectations and Aggregate Fluctuations — When stock analysts' forecasts of long-term earnings growth for S&P 500 firms are high by historical standards, their forecasts of short- and long-term profits are systematically disappointed later, according to the authors. The authors estimate that a 1 standard deviation rise in these long-term forecasts is followed by an investment boom that reverses two years later.
  • The Expensive Stock Market — Falling interest rates reduced interest payments as a share of corporate profits, raising profits and stock market valuations. Measured against GDP, the US stock market is historically expensive, and since rates cannot fall as sharply as they have over the past four decades, expected future returns are low.
  • The Great Paradox of the U.S. Market! — The U.S. stock market's cyclically adjusted price-to-earnings ratio of 34 ranks in the top 1% of history while corporate profits sit near record levels, a combination the author argues means long-run return prospects are as poor as at almost any time in history. No sustained rally has begun from such valuations or from full employment.

AI Summary. Using Korean firm- and establishment-level data, the authors estimate that equipment and labor are complements (elasticity 0.6) while software and labor are substitutes (1.6). They find production reallocates toward software-intensive firms, which have higher markups and lower labor shares, raising the aggregate markup and reducing the aggregate labor share.

Sangmin Aum and Yongseok Shin National Bureau of Economic Research
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Analysis of firm and establishment-level data from Korea shows that software and labor are substitutes and that the rise of software accounts for two-thirds of the decline in Korean labor share of income between 1990 and 2018. @NBERpubs

Does software substitute for labor and lower the aggregate labor share?

Core argument: Using Korean firm- and establishment-level data, the authors estimate an elasticity of substitution of 0.6 between equipment and labor (complements) and 1.6 between software and labor (substitutes), a finding that helps reconcile the macro and micro elasticity discord.

When explaining the declining labor income share in advanced economies, the macro literature finds that the elasticity of substitution between capital and labor is greater than one. However, the vast majority of micro-level estimates shows that capital and labor are complements (elasticity less than one). Using firm- and establishment-level data from Korea, we divide capital into equipment and software, as they may interact with labor in different ways. Our estimation shows that equipment and labor are complements (elasticity 0.6), consistent with other micro-level estimates, but software and labor are substitutes (1.6), a novel finding that helps reconcile the macro vs. micro-literature elasticity discord. In addition, production reallocates toward firms that use software more intensively, as they become effectively more productive. Because in the data these firms have higher markups and lower labor shares, the reallocation further raises the aggregate markup and reduces the aggregate labor share.

Takeaways by Macro Roundup® AI

  1. Using Korean firm- and establishment-level data, the authors estimate an elasticity of substitution of 0.6 between equipment and labor (complements) and 1.6 between software and labor (substitutes), a finding that helps reconcile the macro and micro elasticity discord.
  2. Macro studies of the declining labor income share in advanced economies find a capital-labor elasticity of substitution greater than one, while the vast majority of micro-level estimates find capital and labor are complements, with elasticity below one.
  3. Production reallocates toward firms that use software more intensively as they become effectively more productive, and because those firms have higher markups and lower labor shares, the reallocation raises the aggregate markup and reduces the aggregate labor share.

Related Articles:

  • Perspectives on the Labor Share — The share of US income going to labor reached its lowest level since the Great Depression, falling roughly 5 percentage points between 1929 and 2022 across most industries, alongside a worldwide decline of about 6 percentage points since 1980. The author argues the most plausible causes are technological, including capital-augmenting technology.
  • Automation and Rent Dissipation: Implications for Wages, Inequality, and Productivity — The authors argue firms inefficiently automate jobs where wages exceed workers' opportunity cost, so new automation technologies that deliver small cost savings can reduce productivity, average real wages, and aggregate consumption. They estimate workers earned an average wage premium of 35% in jobs automated between 1980 and 2016.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — The authors estimate that post-pandemic labor market tightness compressed the US wage distribution, reducing the college wage premium and offsetting roughly one-quarter of the four-decade rise in 90-10 wage inequality. They attribute this in part to greater labor supply elasticity facing firms in low-wage markets, which reduced employer market power as young non-college workers moved to higher-paying jobs.

AI Summary. Inflation-adjusted hourly wages for the median U.S. worker grew 35.9% from 1980 to 2023, and weekly compensation including benefits grew roughly 45%. Gains were uneven by sex: women's real hourly wages rose 59.9% over that period while men's rose 15.6%.

Adam Ozimek, John Lettieri and Benjamin Glasner Economic Innovation Group
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Strong growth since 1994 leaves US real median hourly wages up 36% since 1980. @BenGlasner @LettieriDC @ModeledBehavior

Have real wages for the typical American worker risen since 1980?

Core argument: Real hourly wages for the median U.S. worker grew 35.9% from 1980 to 2023 when adjusted for inflation using PCE, with weekly wages showing a similar gain.

The typical (median) U.S. worker is substantially better off than ever before. From 1980 to 2023, hourly wages for the median worker grew by 35.9% after accounting for inflation [as measured by PCE.]. Weekly wages tell a similar story. Progress becomes even more impressive when we expand the scope to include wages plus benefits, with weekly compensation growth of roughly 45% for the typical worker. The difference in wage growth between men and women is stark. Thanks to a 59.9% increase in real hourly wage since 1980, women have continued to enjoy the kind of boom that all workers experienced in the decades immediately following the Second World War. Meanwhile, menʼs wages have increased by only 15.6%. From 1994 to 2023, menʼs wages shot up 31.3%—almost perfectly reversing the previous rate of decline from -0.87% into positive annualized growth of 0.9%.

Takeaways by Macro Roundup® AI

  1. Real hourly wages for the median U.S. worker grew 35.9% from 1980 to 2023 when adjusted for inflation using PCE, with weekly wages showing a similar gain.
  2. Including benefits, weekly compensation for the typical U.S. worker rose roughly 45%.
  3. Women's real hourly wages rose 59.9% since 1980 versus 15.6% for men, while men's wages climbed 31.3% from 1994 to 2023, reversing an annualized decline of -0.87% into 0.9% growth.

Related Articles:

  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.
  • Perspectives on the Labor Share — The share of US income going to labor reached its lowest level since the Great Depression, falling roughly 5 percentage points between 1929 and 2022 across most industries, alongside a worldwide decline of about 6 percentage points since 1980. The author argues the most plausible causes are technological, including capital-augmenting technology.
  • Are You Better Off Than You Were Four Years Ago? — Inflation-adjusted wages rose over the past four years, including when measured from just before the pandemic, at roughly the same pace as in the preceding years: about 3% cumulative growth adjusted by the consumer price index versus about 4% in 2015-2019, and about 5% growth adjusted by personal consumption prices.

AI Summary. Although inflation has largely receded from the 2021-23 shock, the price level remains elevated: the US consumer price index is about 20% above its level at the start of the Biden administration. A back-of-the-envelope estimate puts the aggregate price level roughly 15 percentage points higher than if inflation had continued on its 1.5% pre-COVID path.

Stephen Roach Project Syndicate
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Despite slowing inflation, @SRoach_econ notes that the May 2024 CPI is currently 20% above its January 2021 level, and 15pp higher than its pre-COVID trajectory of 1.5% annual inflation.

Does falling inflation leave the price level far above its pre-pandemic trend?

Core argument: Headline CPI in May stood 20% above its January 2021 level, when President Biden took office, despite disinflation following the 2021–23 inflation shock.

The near-complete recovery from the inflation shock of 2021-23 contrasts sharply with the still-elevated price level. Therein lies the political problem for Biden: notwithstanding recent disinflation, the headline CPI in May was still fully 20% above its level in January 2021, when he took office. A back-of-the-envelope estimate suggests that, as of May, the aggregate price level, measured by headline CPI, is fully 15 percentage points higher than it would have been had the CPI maintained its 1.5% pre-COVID trajectory.

Takeaways by Macro Roundup® AI

  1. Headline CPI in May stood 20% above its January 2021 level, when President Biden took office, despite disinflation following the 2021–23 inflation shock.
  2. A back-of-the-envelope estimate puts the May aggregate price level, measured by headline CPI, 15 percentage points higher than it would have been had CPI continued its 1.5% pre-COVID trajectory.
  3. The near-complete recovery from the 2021–23 inflation shock contrasts with the still-elevated price level, which poses the political problem for Biden.

Related Articles:

  • An Update About How Inflation Has Affected Households at Different Income Levels Since 2019 — The Congressional Budget Office estimates that income after transfers and taxes grew faster than consumption prices for all income groups, lowering the share of income needed to buy the same goods by 2% for the lowest-income fifth and 6.3% for the highest-income fifth.
  • Has Pay Kept Up With Inflation? — All four measures of typical and aggregate pay have grown since 2019 when adjusted using the personal consumption expenditures price index, but show smaller increases in three measures and a decline in one when adjusted using the consumer price index. This pattern of smaller gains under consumer price index adjustment holds across time periods.
  • The Fed Can Take Its Time Taming Inflation — Wage growth and price growth reinforce each other and both run 1 to 1.5 percentage points above pre-pandemic rates, with underlying inflation estimated at 2.5% to 3%. The author puts roughly a 1-in-3 chance that persistently strong demand keeps inflation above 3%, and argues strong job growth lets the Federal Reserve spend months assessing that risk.

AI Summary. Apple has reportedly directed managers to cut the number of workers on iPhone final assembly lines by as much as 50% over the next few years. The company has acquired firms including DarwinAI and Drishti, the latter analyzing assembly-line video to identify bottlenecks and production problems in real time.

Chance Miller 9to5mac
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Apple plans to automate more of the iPhone production process, reducing the number of workers on final assembly lines by as much as 50%. @9to5Mac

Is smartphone assembly work being replaced by automation?

Core argument: Apple has told managers to cut the number of workers on iPhone final assembly lines by as much as 50% over the next few years, according to a report from The Information.

A new report from The Information details Apple’s efforts to automate more of the iPhone production process. The report explains that Apple has told managers to “reduce the number of workers on iPhone final assembly lines by as much as 50% over the next few years.” According to the report, this edict was handed down by Sabih Khan, Apple’s senior vice president of operations. The decision was reportedly made shortly after violent clashes between iPhone workers and police outside of Foxconn’s primary assembly plant in November 2022. The Information also points to a pair of acquisitions that have helped Apple’s supply chain automation efforts, including DarwinAI. Apple also reportedly acquired a company called Drishti last year, which analyzes video footage of assembly lines to “identify bottlenecks and production problems in real-time.

Takeaways by Macro Roundup® AI

  1. Apple has told managers to cut the number of workers on iPhone final assembly lines by as much as 50% over the next few years, according to a report from The Information.
  2. The Information reports that the edict came from Sabih Khan, Apple's senior vice president of operations, and that the decision was made shortly after violent clashes between iPhone workers and police outside Foxconn's primary assembly plant in November 2022.
  3. Apple's supply chain automation efforts have been aided by two acquisitions, DarwinAI and Drishti, the latter analyzing assembly line video footage to identify bottlenecks and production problems in real time, according to The Information.

Related Articles:

  • Does Worker Scarcity Spur Investment, Automation and Productivity? Evidence from Earnings Calls — The authors estimate that a one-unit increase in a firm's labor issues, as measured by earnings calls, raises its investment by 28 basis points, implying roughly $55bn in additional US investment attributable to tighter labor markets. The effect is concentrated in industries relying heavily on routine manual tasks, such as manufacturing assembly and warehouse packaging.
  • Automation and Rent Dissipation: Implications for Wages, Inequality, and Productivity — The authors argue firms inefficiently automate jobs where wages exceed workers' opportunity cost, so new automation technologies that deliver small cost savings can reduce productivity, average real wages, and aggregate consumption. They estimate workers earned an average wage premium of 35% in jobs automated between 1980 and 2016.
  • Apple’s India iPhone Output Hits $14 Billion in China Shift — Apple assembled $14bn of iPhones in India in its last fiscal year, doubling output there to roughly 14%, or about 1 in 7, of its iPhones. China remains Apple's largest iPhone-making hub and biggest overseas market, though its revenue there is falling amid competition from rivals such as Huawei.

AI Summary. China became the first country to return soil samples from the far side of the moon, retrieved by the China National Space Administration's Chang'e-6 lander. China's subsequent missions target the lunar south pole to search for water and other resources, with crewed lunar missions planned by 2030 and an eventual international base.

Katrina Miller New York Times
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China’s Chang’e-6 successfully retrieved rocks from the dark side of the moon. @NYTScience

Is China advancing its lunar exploration capabilities?

Core argument: China became the first country to retrieve rocks from the moon's far side, with the China National Space Administration's Chang'e-6 lander returning a lunar soil capsule to Earth after a 53-day mission.

China brought a capsule full of lunar soil from the far side of the moon down to Earth on Tuesday, achieving the latest success in an ambitious schedule to explore the moon and other parts of the solar system. The sample, retrieved by the China National Space Administration’s Chang’e-6 lander after a 53-day mission, highlights China’s growing capabilities in space and notches another win in a series of lunar missions that started in 2007 and have so far been executed almost without flaw. For the future, China has its eyes set on the lunar south pole, where Chang’e-7 and 8 will explore the environment and search for water and other resources. It hopes to send crewed missions to the moon by 2030. Eventually, China plans to build an international base at the south pole. NASA’s Artemis campaign is also shooting for the lunar south pole. Bill Nelson, the space agency’s administrator, has previously referred to the parallel programs as a race between the United States and China.

Takeaways by Macro Roundup® AI

  1. China became the first country to retrieve rocks from the moon's far side, with the China National Space Administration's Chang'e-6 lander returning a lunar soil capsule to Earth after a 53-day mission.
  2. China's lunar missions, which began in 2007, have been executed almost without flaw, and the Chang'e-7 and 8 missions will explore the lunar south pole and search for water and other resources.
  3. China aims to send crewed missions to the moon by 2030 and eventually build an international base at the lunar south pole, also the target of NASA's Artemis campaign, which administrator Bill Nelson has described as a U.S.–China race.

Related Articles:

  • Building an Enduring Advantage in the Third Space Age — The United States and China each logged their highest-ever annual launch rates, at 103 and 66 launches, while Russia fell to 19 and Europe recorded three. The US accounted for roughly half of global launches but 81% of effective launch capacity, since Falcon 9 and Falcon Heavy comprised 93% of US launches.
  • US Lands on Moon in Historic Feat for Private Spacecraft — An American-made lander became the first private spacecraft to reach the lunar surface intact, the first US lander on the moon since the Apollo era. The mission supports Intuitive Machines' aim of building a business ferrying payloads and experiments to the moon, and it holds NASA contracts to deliver two additional landers.
  • Indian Spacecraft Makes Historic Landing At Moon’s South Pole — India landed an uncrewed probe near the Moon's unexplored South Pole, a milestone in its effort to become an international power in space exploration, while a Russian attempt to land in the same region ended with its spacecraft crashing into the surface. Scientists say the region may contain water, making it crucial to any ambitions to inhabit the Moon.

Wednesday, June 26, 2024

AI Summary. The authors find the entire decline in the gender pay gap comes from newer cohorts entering with smaller-than-average gaps and older cohorts exiting with larger ones, with entry convergence driven by younger men's positional losses in the wage distribution, especially at higher-paying firms. They find labor-market exit became the sole contributor, implying no full convergence ahead.

Jaime Arellano-Bover, Nicola Bianchi, Salvatore Lattanzio et al. National Bureau of Economic Research
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The decrease in the gender pay gap in the US originates from the exit of age cohorts with high gender pay gaps, and the entry of recent cohorts with much lower pay gaps, due to declining opportunities for younger men, not large gains for younger women.

Does the shrinking gender pay gap come from cohort turnover?

Core argument: The entire decline in the gender pay gap originates from newer cohorts entering the labor market with smaller-than-average gaps and older cohorts exiting with higher-than-average gaps, the authors find.

The whole decline in the [gender pay] gap originates from (i) newer worker cohorts who enter the labor market with smaller-than-average gender pay gaps and (ii) older worker cohorts who exit with higher-than-average gender pay gaps. The gender pay convergence at labor-market entry stems from younger men's larger positional losses in the wage distribution. Younger men experience the largest positional losses within higher-paying firms, in which they become less represented over time at a faster rate than younger women. Finally, we document that labor-market exit is the sole contributor to the decline in the gender pay gap after the mid-1990s, which implies no full gender pay convergence for the foreseeable future. Consistent with our framework, we find evidence that most of the remaining gender pay gap at entry depends on predetermined educational choices.

Takeaways by Macro Roundup® AI

  1. The entire decline in the gender pay gap originates from newer cohorts entering the labor market with smaller-than-average gaps and older cohorts exiting with higher-than-average gaps, the authors find.
  2. Gender pay convergence at labor-market entry stems from younger men's larger positional losses in the wage distribution, with the largest losses inside higher-paying firms, where younger men become less represented over time faster than younger women.
  3. Labor-market exit is the sole contributor to the decline in the gender pay gap after the mid-1990s, which the authors argue implies no full gender pay convergence for the foreseeable future, with most of the remaining entry gap depending on predetermined educational choices.

Related Articles:

  • Countries for Old Men: An Analysis of the Age Pay Gap — Administrative data on 38mm Italian and German workers show wages of older workers grew much faster than those of younger workers, a widening age pay gap the authors also find in fourteen other high-income countries. The authors argue workforce aging leaves fewer top hierarchy slots for younger workers, slowing promotions.
  • The ‘Gender Pay Gap’ Is a Myth That Won’t Go Away — The commonly cited figure that women earn 84% of men's pay compares average annual earnings of full-time, year-round workers, a category defined broadly enough to obscure differences in hours, experience, and occupation. Women over 40 average three fewer years of experience than men the same age, which the author says explains about a third of the gap.
  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.

AI Summary. The 10 largest US companies make up almost one-third of US equity market capitalization, a concentration not seen in decades. Historically, about half of each decade's largest companies underperform the market and drop out of the top 15 within a decade or two, and nearly all are eventually displaced.

Bob Prince, Khia Kurtenbach, Thomas Maisonneuve Bridgewater Associates
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The 10 largest firms currently constitute 1/3 of US equities market cap, and close to 20% of MSCI global market cap–the highest in over 50 years. Historically, about half of the market champions underperform the market over the next 10-20 years.

Do the largest companies keep their market dominance over time?

Core argument: The 10 largest US companies account for almost one-third of total US equity market capitalization, a degree of concentration not seen in decades.

One of the defining characteristics of the current market environment is the extent to which a few companies are dominating the top of the stack. The 10 largest US companies account for almost one-third of the US equities market cap—a degree of concentration we haven’t seen in decades. The chart illustrates the rise and fall of the largest companies by market cap across different decades (each gray line represents the market cap share of the champions at the start of each decade). Starting from the beginning of each decade, we show the change in market share for each cohort of champions in the years ahead. Over a subsequent decade or two, about half of the market champions underperform the market and fall out of the top 15 champions group. And over long periods of time, almost all champions are dethroned.

Takeaways by Macro Roundup® AI

  1. The 10 largest US companies account for almost one-third of total US equity market capitalization, a degree of concentration not seen in decades.
  2. About half of each decade's cohort of market champions underperform the market and drop out of the top 15 champions group within the following decade or two.
  3. Over long periods, almost all market champions are dethroned.

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.
  • Stock Market Concentration — Over 2014–2023 the 10 largest U.S. stocks averaged 19% of market capitalization while generating 47% of total economic profit, and by 2023 they were 27% of market capitalization and 69% of economic profit. The S&P 500 returned above its average when concentration was rising and below it when concentration was falling.
  • The Concentration Conundrum; What To Do About Market Dominance — The largest US stocks make up a bigger share of the equity market than during the 2000 technology bubble, yet their valuations are lower than in earlier bubble episodes including the Nifty 50 of the early 1970s and Japan's late-1980s bubble. Today's dominant companies are also more profitable with stronger balance sheets.

AI Summary. A liquidity gauge for US government debt measures the average gap between quoted yields and values implied by fitted yield curves across Treasury notes and bonds with at least one year to maturity, and it indicates deteriorating liquidity. Small average yield errors signal favorable conditions, as mispricings are corrected quickly.

Torsten Sløk Apollo
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Torsten Sløk @apolloglobal argues that rising average yield-to-maturity error relative to yield curve expectations suggests deteriorating liquidity in Treasury markets.

Is liquidity deteriorating in Treasury markets?

Core argument: Liquidity in Treasury markets is deteriorating, according to an index of average yield errors across government notes and bonds with remaining maturity of one year or greater.

The index displays the average yield error [the difference between quoted yield-to-maturity and the expected value based on aggregate yield curves] across the universe of government notes and bonds with remaining maturity of one year or greater, based on the intra-day Bloomberg relative value curve fitter. When liquidity conditions are favorable, the average yield errors are small as any dislocations from fair values are normalized within a short time frame.

Takeaways by Macro Roundup® AI

  1. Liquidity in Treasury markets is deteriorating, according to an index of average yield errors across government notes and bonds with remaining maturity of one year or greater.
  2. The index measures the difference between quoted yield-to-maturity and the expected value based on aggregate yield curves, drawn from the intra-day Bloomberg relative value curve fitter.
  3. When liquidity conditions are favorable, average yield errors are small, as dislocations from fair values are normalized within a short time frame.

Related Articles:

  • CBO Releases June 2024 Baseline Update — The Congressional Budget Office projects federal spending of $84.9tn (24.1% of GDP) over the next decade against revenue of $62.8tn (17.8% of GDP), compared with 50-year averages of 21% and 17.3%. Interest costs are projected to reach $892bn, more than defense or Medicare, and grow to $1.7tn (4.1% of GDP).
  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.
  • How Has Treasury Market Liquidity Evolved in 2023? — Treasury market liquidity has tracked its historical relationship with interest rate volatility, indicating liquidity has not been unusually poor given the level of rate volatility, though the two-year note shows somewhat higher-than-expected price impact. The market's capacity to smoothly handle large trading flows remains a concern for policymakers and market participants.

AI Summary. U.S. energy production rose 4% to nearly 103 quadrillion British thermal units while consumption fell 1% to 94, leaving production exceeding consumption by 9 quadrillion British thermal units, the widest gap in records dating to 1949. Dry natural gas, crude oil, natural gas plant liquids, and renewables all reached record output.

Brett Marohl Energy Information Administration
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US energy production hit a new record last year, driving a record surplus. Natural gas production was up 58% from 2013, and crude oil was up 69%. Renewables represented less than 8% of total 2023 US energy production. @eiagov

Is U.S. energy production outpacing consumption by a record margin?

Core argument: U.S. energy production rose 4% to nearly 103 quadrillion Btu in 2023 while consumption fell 1% to 94 quads, leaving production above consumption by 9 quads, the widest gap in records dating to 1949.

In 2023, energy production in the United States rose 4% to nearly 103 quadrillion British thermal units (quads), a record. Energy consumption in the United States fell 1% to 94 quads during the same period. Production exceeded consumption by 9 quads, more than at any other time in our records, which date to 1949. Dry natural gas production grew 4% to a record 39 quads in 2023, growing 58% since 2013. Crude oil production grew 9% from 2022 and reached a record of 27 quads in 2023, a 69% increase since 2013. Production of natural gas plant liquids, a byproduct of natural gas production, increased by 8% from 2022 to 8 quads in 2023. Natural gas plant liquids production has increased by 143% since 2013. Energy production from renewable sources increased 1% from 2022 to a record 8 quads in 2023, a 28% increase since 2013. U.S. energy consumption declined slightly in 2023.

Takeaways by Macro Roundup® AI

  1. U.S. energy production rose 4% to nearly 103 quadrillion Btu in 2023 while consumption fell 1% to 94 quads, leaving production above consumption by 9 quads, the widest gap in records dating to 1949.
  2. U.S. crude oil production grew 9% from 2022 to a record 27 quads in 2023, up 69% since 2013, while dry natural gas production grew 4% to a record 39 quads, up 58% since 2013.
  3. U.S. natural gas plant liquids production rose 8% from 2022 to 8 quads in 2023, up 143% since 2013, and renewable energy production rose 1% to a record 8 quads, up 28% since 2013.

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  • Electravision — The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.
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AI Summary. Over half of the world's 1.6bn air conditioners are in just two countries, China with 570m units and the United States with 375m, and nearly 70% of all units globally are in residential buildings. Household ownership ranges from about 4% in India and under 10% in Europe to over 90% in the United States and Japan.

International Energy Agency Brian Dean, John Dulac, Trevor Morgan and Uwe Remme
Date Posted:
Is Database:
Database

As of 2016, 90% of US and Japanese households are equipped with air conditioning, compared with 60% in China, 10% in Europe, and 4% in India. @iea

How concentrated is global air conditioner ownership across countries?

Core argument: Of the 1.6 billion air conditioners in use worldwide at the end of 2016, over half were in China (570 million units) and the United States (375 million units).

Of the 1.6 billion ACs in use throughout the world at the end of 2016, over half were in just two countries: China, which has 570 million units, and the United States, where there are 375 million. Other countries with more than 20 million units include Japan, with 150 million, Korea (60 million), Brazil and India (both nearly 30 million). The remaining ACs are mostly in the European Union, where there are nearly 100 million units, and the Middle East (around 50 million units). Nearly 70% of all the ACs globally is in residential buildings. Household ownership of ACs varies enormously across countries, from around 4% in India and less than 10% in Europe, to over 90% in the United States and Japan, and close to 100% in a few Middle Eastern countries. In China, nearly 60% of households now have at least one AC.

Takeaways by Macro Roundup® AI

  1. Of the 1.6 billion air conditioners in use worldwide at the end of 2016, over half were in China (570 million units) and the United States (375 million units).
  2. Household air conditioner ownership ranges from around 4% in India and under 10% in Europe to over 90% in the United States and Japan and close to 100% in a few Middle Eastern countries, with nearly 60% of Chinese households owning at least one.
  3. Nearly 70% of air conditioners globally are in residential buildings, and other sizable stocks include Japan (150 million units), the European Union (nearly 100 million), Korea (60 million), and the Middle East (around 50 million).

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  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.