Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, October 23, 2024

AI Summary. Income-based poverty measures show a large decline followed by a large increase, while consumption-based poverty declines steadily; the authors attribute the gap to low-income households saving, then dissaving and borrowing. They estimate that expanded child tax credits, stimulus payments, and pandemic unemployment benefits each played similar or larger roles in reducing poverty.

Bruce Meyer, Jeehoon Han, and James Sullivan National Bureau of Economic Research
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CPS disposable income data indicate a large poverty decline in 2021 and a large increase in 2022, while consumption poverty steadily declined over 2021-2022, partly explained by savings from 2021 unemployment and COVID-era cash transfers. @AEIecon

Why do income and consumption measures of poverty tell different stories?

Core argument: Income-based poverty measured from Current Population Survey data with imputed taxes and credits fell sharply in 2021 and rose sharply in 2022, while consumption-based poverty from the Consumer Expenditure Survey declined steadily.

Poverty calculated using CPS income data with imputed taxes and tax credits indicate a large poverty decline in 2021 and a large increase in 2022, [while] consumption-based poverty calculated from the CEX show a steady decline in poverty. Spending data from the Fed’s SHED data also suggest consumption [of the poor] grew more than income in 2022. The puzzle is at least partially resolved by a pronounced increase in saving in 2021 followed by dissaving in 2022 by those with low income or consumption, and an increase in borrowing in 2022. This consumption smoothing behavior sharply contrasts with past evidence of hand to mouth consumption at the bottom of the income distribution and shows that the permanent income model has surprising applicability to the poor in certain circumstances.We estimate income poverty under counterfactual policy scenarios that exclude the enacted programs or the extension of discontinued programs. These indicate [that] while the expanded Child Tax Credit led to a significant decline in poverty, other policies including the stimulus payments and Pandemic unemployment benefits, played a similar or even larger role.

Takeaways by Macro Roundup® AI

  1. Income-based poverty measured from Current Population Survey data with imputed taxes and credits fell sharply in 2021 and rose sharply in 2022, while consumption-based poverty from the Consumer Expenditure Survey declined steadily.
  2. The divergence is at least partially resolved by low-income households saving more in 2021, then dissaving and borrowing more in 2022, consumption smoothing that contrasts with past evidence of hand-to-mouth behavior at the bottom of the distribution.
  3. Counterfactual policy estimates indicate that while the expanded Child Tax Credit led to a significant poverty decline, stimulus payments and pandemic unemployment benefits played a similar or larger role.

Related Articles:

AI Summary. The author argues that negative net national savings means the United States is consuming capital rather than accumulating it, largely by selling capital stock to foreigners and spending the proceeds and by not replacing aging capital. With a negative net international investment position, the author contends U.S. spending depends on continued foreign inflows and that potential growth is declining.

Andrew Lees MacroStrategy Partnership
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Andrew Lees @MacrostrategyP argues that the US current account deficit is being funded in part by the flight of capital from Europe, which cannot continue indefinitely.

Is the US consuming capital and relying on foreign inflows?

Core argument: The author argues the U.S. net national savings deficit means the country is consuming capital rather than accumulating it, largely by selling capital stock to foreigners and spending the proceeds, and partly by not replacing aging capital stock.

With a negative net national savings deficit, rather than the U.S. accumulating capital, it is consuming it. Most of this is from selling capital stock to foreigners and consuming the proceeds, and some is more directly, from not replacing aging capital stock. Either way, without restructuring the economy, the cost of servicing the outstanding stock of debt and unproductive government spending exceeds the capacity of the domestic economy to generate savings, and with a negative net international investment position, is reliant on the generosity of foreigners to fund its spending. Without the recent questionable upward revision to the U.S. personal savings rate, the net national savings deficit would be even more substantial. Through the consumption of capital, the U.S. potential GDP growth rate is declining rapidly, dependent not on productivity but this continuous flow of funds which will eventually exhaust. Whilst this flow of funds has obviously helped drive the relative growth of the U.S. and its market performance, it has been at the expense of world growth which has continued to trend lower, meaning it is not a sustainable position.

Takeaways by Macro Roundup® AI

  1. The author argues the U.S. net national savings deficit means the country is consuming capital rather than accumulating it, largely by selling capital stock to foreigners and spending the proceeds, and partly by not replacing aging capital stock.
  2. With a negative net international investment position, the U.S. relies on foreign inflows to fund debt service and unproductive government spending, which the author argues exceed the domestic economy's capacity to generate savings.
  3. The author contends U.S. potential GDP growth is declining rapidly because it depends on a continuous flow of foreign funds rather than productivity, and that this flow has come at the expense of world growth, leaving the position unsustainable.

Related Articles:

  • United States’ Changing Net IIP — The United States' net international investment position deficit—the gap between foreign-owned US assets and US-owned foreign assets—is the largest on record and has turned negative across all major asset categories. Because much of the liability is equity, the author argues rebalancing could come through a correction in US equity values rather than a weaker dollar.
  • The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States — The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. The International Monetary Fund projects U.S. gross fixed capital formation, a broad measure of investment, to grow 4.5% this year, more than triple the rate for advanced economies as a group, while German investment spending falls 2.7%. Over 2016-2025, U.S. investment is estimated to have grown 3.3% a year versus 2.3% across advanced economies.

Josh Mitchell Wall Street Journal
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According to the IMF, US gross fixed capital formation will rise 4.5% y/y in 2024 – well above the 2006-15 US mean of 1.2% and more than 3 times the rate for all advanced economies, several of which are expected to experience a fall.

Is U.S. investment growth outpacing other advanced economies?

Core argument: The IMF projects U.S. gross fixed capital formation, a broad measure of investment, will rise 4.5% this year from 2023, more than triple the rate for all advanced economies.

According to the IMF, U.S. gross fixed capital formation—a broad measure of investment—will rise 4.5% this year from 2023, more than triple the rate for all advanced economies. From 2016-2025, the IMF estimates U.S. investment will have grown an average 3.3% a year, versus 2.3% for all advanced economies. By comparison, investment spending is projected to fall 2.7% this year in Germany, previously the juggernaut of Europe, after falling 1.2% last year. This is a big shift. In the prior decade, from 2006-2015, U.S. investment spending grew an average 1.2% a year, roughly in line with the advanced-economy average.

Takeaways by Macro Roundup® AI

  1. The IMF projects U.S. gross fixed capital formation, a broad measure of investment, will rise 4.5% this year from 2023, more than triple the rate for all advanced economies.
  2. The IMF estimates U.S. investment will have grown an average 3.3% a year from 2016-2025, versus 2.3% for all advanced economies, up from 1.2% a year in 2006-2015, when the U.S. tracked the advanced-economy average.
  3. German investment spending is projected to fall 2.7% this year after declining 1.2% last year.

Related Articles:

  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.
  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
  • U.S. Business Investment in the Post-COVID Expansion — Business fixed investment has held at roughly the same share of U.S. GDP as before COVID, a better outcome than after every other recession since 1980, when investment typically fell as a share of GDP and contributed less well into the recovery. American businesses invested $430bn more than if investment had followed its usual historical pattern.

AI Summary. SpaceX's reusable Falcon rockets can send a tonne into space at about a tenth of the cost of a decade ago, according to a Citigroup estimate. Analysis from BryceTech shows the company launched almost 7x as much mass into orbit as all private and national rivals combined in a quarter.

Economist Staff The Economist
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SpaceX can launch a ton of cargo into space “at about a tenth of the cost that prevailed a decade ago.” In Q1 of 2024, the firm put into orbit seven times the combined tonnage of all of its global governmental and private sector rivals.

Have reusable rockets transformed launch costs and market share?

Core argument: Citigroup estimates SpaceX's Falcon rockets can send a tonne into space at about a tenth of the cost that prevailed a decade ago, aided by lower stages that can be recovered and flown again.

SpaceX’s Falcon rockets have already slashed the cost of space flight, partly thanks to the fact that their lower stages, unlike those of almost any other rocket, can be recovered and flown again. According to an estimate by Citigroup, a bank, the Falcons can send a tonne into space at about a tenth of the cost that prevailed a decade ago. Figures from BryceTech, a firm of analysts, show that in the first quarter of this year the firm shot almost seven times as much into orbit as all its rivals put together, be they private firms or national space programmes.

Takeaways by Macro Roundup® AI

  1. Citigroup estimates SpaceX's Falcon rockets can send a tonne into space at about a tenth of the cost that prevailed a decade ago, aided by lower stages that can be recovered and flown again.
  2. BryceTech figures show SpaceX shot almost seven times as much into orbit in the first quarter of this year as all its rivals put together, private firms and national space programmes alike.

Related Articles:

  • SpaceX Captures Booster Rocket in Step Toward Musk’s Mars Dream — SpaceX's Starship launch system, the largest and most powerful ever developed, returned its Super Heavy booster to its launch site, where arms on the launch tower caught it after its engines reignited to slow the descent. SpaceX aims to fully reuse both the booster and spacecraft to enable multiple flights per day and lower launch costs.
  • It’s Not a Space Race, It’s the Space Olympics — The US operates 81% of commercial satellites in orbit and 86% of global effective launch capacity, with NATO allies second in satellites at 11% and China second in launch capacity at 9%. China is pursuing mega satellite constellations and reusable rockets, in many cases copying approaches already proven by US companies.
  • 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.

AI Summary. An analysis of all known U.S. abortion providers found that the number of women receiving abortions rose in nearly every state with a ban, including 10 of 13 states with near-total bans, as women traveled to states where abortion is legal or ordered pills by mail.

Claire Cain Miller and Margot Sanger-Katz New York Times
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A survey of abortion providers finds in the 13 states that have enacted near-total abortion bans, the number of women receiving abortions increased in all but three. Nationwide, there were 587,000 abortions in the first half of 2024, up 12% y/y.

Have abortion bans reduced the number of women obtaining abortions?

Core argument: WeCount counted roughly 587,000 abortions in the United States in the first half of this year, an increase of more than 12% from the same period in 2023.

A WeCount analysis includes counts of abortions from all known abortion providers in the United States since April 2022. It also uses clinic survey data from the Guttmacher Institute on the number of women traveling between states for abortion care, and comparison data from 2020. In nearly every state that has banned abortion, the number of women receiving abortions increased between 2020 and the end of 2023. In the 13 states that enacted near-total abortion bans, the number of women receiving abortions increased in all but three. Some women traveled to clinics in states where abortions were legal. Others ordered abortion pills from U.S. doctors online, after doctors in other states started writing prescriptions under shield laws that protect them when they provide mail-order pills to patients in states with bans. The only states with bans where abortion fell during this period were Texas, where the decrease was small; Idaho, where it was larger; and Oklahoma, where the data showed an unusually large number of abortions in 2020. Nationwide, the study found that abortions have continued to rise. There were roughly 587,000 abortions in the first half of this year, an increase of more than 12% from the same period in 2023.

Takeaways by Macro Roundup® AI

  1. WeCount counted roughly 587,000 abortions in the United States in the first half of this year, an increase of more than 12% from the same period in 2023.
  2. In 10 of the 13 states with near-total abortion bans, the number of women receiving abortions rose between 2020 and the end of 2023, with declines only in Texas, Idaho and Oklahoma.
  3. Some women in states with bans traveled to clinics where abortion is legal, while others ordered abortion pills online from doctors prescribing under shield laws that protect them when they mail pills to patients in ban states.

Related Articles:

  • Abortions Have Become 6% Rarer Since the End of Roe V Wade — A report from the non-profit Society of Family Planning estimates there were 31,180 fewer abortions than prior rates would suggest over a six-month period, a 6% decline, even as abortions administered by virtual clinics rose. Abortions fell 63% across the 22 states that enacted new restrictions and rose 12% in more permissive states.
  • The Politics of Progress and Privilege: How America’s Gender Gap Is Reshaping the 2024 Election — Survey data show 35% of Americans say the term "feminist" describes them somewhat or very well, down from 51% earlier. Women are more likely than men to identify as feminist (42% vs 27%), with the widest gap among those age 18–29, where 55% of women but 31% of men claim the label.
  • The Data is Clear: People Are Having Less Sex — Survey data show every age group now reports less frequent sexual activity than counterparts in earlier decades, with roughly an 8 percentage point decline across age groups. Among people around age 25, the share reporting sex at least monthly fell from over 80% to 72%, while the peak years remain ages 30 to 40.

AI Summary. China caps individual foreign-exchange purchases at $50,000 a year and punishes violators with fines or prison, yet an estimated $254bn may have left the country illicitly over four quarters — more in dollar terms than during an earlier property-downturn episode, though smaller relative to China's now-larger economy.

Jason Douglas and Rebecca Feng Wall Street Journal
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The WSJ estimates that ~ $250B left China illegally in the four quarters through the end of June.

Are strict capital controls stopping money from leaving China?

Core argument: A Wall Street Journal data analysis suggests as much as $254 billion may have left China illicitly in the four quarters through the end of June, exceeding the 2015–2016 outflows in dollar terms.

Moving fortunes out of China is hard: The country imposes strict capital controls that cap individual purchases of foreign exchange at $50,000 a year. Violators can receive big fines, or even prison sentences, if they break the law. Nevertheless, the stampede for the exit in the past few years appears to dwarf the outflows that occurred in 2015 and 2016, when an earlier property downturn propelled what at the time was the biggest episode of capital flight from China, in dollar terms, according to economists and a Wall Street Journal data analysis. The Journal’s tally suggests as much as $254 billion might have left China illicitly in the four quarters through the end of June. That is a larger sum than fled the country almost a decade ago, when outflows raised fears of a possible financial crisis. However, estimates of such outflows are inherently imprecise and overall capital flight appears to be smaller today as a share of China’s overall economy, which is now much larger.

Takeaways by Macro Roundup® AI

  1. A Wall Street Journal data analysis suggests as much as $254 billion may have left China illicitly in the four quarters through the end of June, exceeding the 2015–2016 outflows in dollar terms.
  2. China caps individual purchases of foreign exchange at $50,000 a year, and violators can face big fines or prison sentences.
  3. Estimates of Chinese capital flight are inherently imprecise, and overall outflows appear smaller as a share of China's now much larger economy than during the 2015–2016 episode that raised fears of a financial crisis.

Related Articles:

  • Anatomy of Capital Fight in China… — Unaccounted capital outflows from China show up not only in the balance of payments' net errors and omissions category but also in net other investment and in the gap between customs-reported and foreign-exchange-reported goods trade balances. This combined residual averaged roughly $100bn per quarter, and about twice that during periods of heavier outflow pressure.
  • China’s Unremitted Export Earnings — A substantial share of China's net export proceeds is never repatriated and cannot be accounted for; the authors attribute this to offshore holdings by private Chinese firms, overseas accumulation by state-owned entities, and reduced reinvestment by foreign exporters. They argue state-linked funds could be repatriated in a crisis, while lower foreign reinvestment is more structural.
  • Mapping Chinese Capital Flight via the Sinaloa Cartel — China’s official balance-of-payments data show a large gap between its customs and foreign-exchange agencies’ estimates of the goods trade balance, and reported returns on Chinese foreign assets have broken from their historical relationship with the 5-year US Treasury yield despite central banks raising interest rates. The author argues both anomalies are consistent with unrecorded capital flight.

Thursday, October 24, 2024

AI Summary. Tight monetary policy paired with relatively loose fiscal policy, especially in the United States, may be a key factor behind dollar appreciation, but the baseline outlook assumes a rotation in that policy mix. Necessary fiscal consolidation in many economies is expected to slow growth and calls for looser monetary policy, which should make deficit reduction easier.

IMF Staff International Monetary Fund
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The IMF notes that American interest payments relative to revenues are on par with the interest payments of low-income developing countries. Hat tip to @Brad_Setser.

Does the monetary-fiscal policy mix drive dollar appreciation?

Core argument: Tight monetary policy combined with relatively loose fiscal policy, particularly in the United States, may be one of the key factors behind dollar appreciation in 2024, a combination expected to change.

Tight monetary policy combined with relatively loose fiscal policy, particularly relevant in the United States, may be one of the key factors that has led to dollar appreciation in 2024. This is expected to change. With public-debt-servicing costs on an upward trend in emerging market and developing economies and a recent jump in the United States [AEs = advanced economies; EMMIEs = emerging market and middle-income economies; LIDCs = low-income developing countries] the baseline assumes a rotation of the policy mix. Necessary fiscal consolidation in many economies is expected to slow down growth and calls for looser monetary policy, which should in turn help governments trim deficits more easily.

Takeaways by Macro Roundup® AI

  1. Tight monetary policy combined with relatively loose fiscal policy, particularly in the United States, may be one of the key factors behind dollar appreciation in 2024, a combination expected to change.
  2. The World Economic Outlook baseline assumes a rotation of the policy mix, with public-debt-servicing costs trending upward in emerging market and developing economies and jumping recently in the United States.
  3. Necessary fiscal consolidation in many economies is expected to slow growth and calls for looser monetary policy, which should in turn help governments trim deficits more easily.

Related Articles:

  • US Interest Burden Hits 28-Year High, Escalating Political Risk — US Treasury net interest payments reached $882bn in a fiscal year, equal to 3.06% of gross domestic product — the highest ratio since 1996 — and about 18% of federal revenues. The net interest bill exceeded Defense Department spending on military programs for the first time.
  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.

AI Summary. The authors estimate the S&P 500 will deliver an annualized nominal total return of 3% over the next 10 years, roughly 1% in real terms, modeling long-term returns as a function of starting valuation, market concentration, frequency of economic contractions, corporate profitability, and interest rates. The index returned 13% annualized over the past decade, above its 11% long-term average.

David Kostin, Ben Snider, Ryan Hammond, et al. Goldman Sachs
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.@GoldmanSachs estimates that the S&P 500 will deliver an annualized nominal total return of 3% over the next decade, roughly 1% on a real basis. The 13% annualized return over the last decade exceeded the long-term mean of 11%.

How will high market concentration and valuations affect stock returns?

Core argument: The S&P 500 is estimated to deliver a 3% annualized nominal total return over the next 10 years — the 7th percentile since 1930 — and roughly 1% in real terms.

We estimate the S&P 500 will deliver an annualized nominal total return of 3% during the next 10 years (7th percentile since 1930) and roughly 1% on a real basis. We model prospective long-term equity returns as a function of five variables: starting absolute valuation, stock market concentration, economic contraction frequency, corporate profitability, and interest rates. The S&P 500 index during the past decade has posted an annualized total return of 13%. The annualized return translates into a cumulative 233% total return across the period. Dividends contributed 54 pp (roughly 1/4) of the total return. Of the remaining 178% of price gain, 127 pp (nearly 3/4) was attributable to increased earnings during the period and 52 pp (approximately 1/4) was attributable to valuation expansion. Increased sales, higher operating margins, and lower tax rates contributed to annualized earnings growth of 7% over the period while the forward P/E multiple expanded from 16x to 22x. The 13% annualized stock market return during the past ten years exceeded the long-term average of 11%.

Takeaways by Macro Roundup® AI

  1. The S&P 500 is estimated to deliver a 3% annualized nominal total return over the next 10 years — the 7th percentile since 1930 — and roughly 1% in real terms.
  2. The forecast models long-term equity returns as a function of five variables: starting absolute valuation, stock market concentration, economic contraction frequency, corporate profitability, and interest rates.
  3. The S&P 500 returned 13% annualized over the past decade, above the 11% long-term average, for a cumulative 233% total return, with dividends adding 54 pp, earnings growth 127 pp, and valuation expansion 52 pp as the forward P/E rose from 16x to 22x.

Related Articles:

  • US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat — US companies need about 7% earnings-per-share growth to deliver a normal 4% equity risk premium above the risk-free rate, versus about 3% for other developed markets, with the highest expectations embedded in technology and the largest US tech firms. Chinese companies could generate a 4% risk premium over Chinese bonds with no earnings growth.
  • Which U.S. Stocks Generated the Highest Long-Term Returns? — Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.
  • and — Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.
  • 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.

AI Summary. US equity prices now imply that structural limits will be pushed back, with US market capitalization about as large a share of global indices as any single country has been and US stocks needing roughly 65 cents of every dollar flowing into equities to keep rising. An AI-driven productivity boom could extend that outperformance.

Bob Prince, Greg Jensen, and Karen Karniol-Tambour Bridgewater
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Bridgewater argues, “It would take almost a miracle for US assets to repeat the last decade.” To keep rising, US equities would need to attract ~65 cents of every dollar flowing into global stocks.

Have US stock prices reached the limits of global investor flows?

Core argument: US equities need to attract roughly 65 cents of every dollar flowing into stocks to keep rising, with US market cap now about as large a share of global indices as any single country has ever been.

While the US is relatively unconstrained by economic limits, it faces limits of pricing that mean it would take almost a miracle for US assets to repeat the last decade. US equity pricing now implies not just cyclical outperformance, but the pushing back of structural limits. One example is the limit of flows: US market cap is now roughly as large a share of global indices as one country has ever been. To keep rising, US equities need to attract ~65 cents of every dollar that flows into stocks. But the pricing doesn’t make those flows attractive: in 2010, US earnings were discounted to grow modestly and at a similar rate to the rest of the world. The US then had an exceptional decade because its companies were more dynamic, had more supportive governance for shareholders, and operated against a more favorable policy backdrop. An AI productivity miracle could push back the limits and extend US outperformance, so we are tracking this closely. AI will shape the environment directly, both near term (through capex, winners and losers, etc.) and more broadly over time (e.g., productivity growth expanding the limits).

Takeaways by Macro Roundup® AI

  1. US equities need to attract roughly 65 cents of every dollar flowing into stocks to keep rising, with US market cap now about as large a share of global indices as any single country has ever been.
  2. The CIOs argue that US equity pricing now implies not just cyclical outperformance but the pushing back of structural limits, making a repeat of the last decade nearly miraculous.
  3. In 2010, US earnings were discounted to grow modestly and at a rate similar to the rest of the world, and the US then outperformed on more dynamic companies, shareholder-supportive governance, and a more favorable policy backdrop.

Related Articles:

  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.
  • US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat — US companies need about 7% earnings-per-share growth to deliver a normal 4% equity risk premium above the risk-free rate, versus about 3% for other developed markets, with the highest expectations embedded in technology and the largest US tech firms. Chinese companies could generate a 4% risk premium over Chinese bonds with no earnings growth.
  • Global Strategy Paper Updating Our Long-Term Return Forecast For US Equities To Incorporate The Current High Level Of Market Concentration — The authors estimate the S&P 500 will deliver an annualized nominal total return of 3% over the next 10 years, roughly 1% in real terms, modeling long-term returns as a function of starting valuation, market concentration, frequency of economic contractions, corporate profitability, and interest rates. The index returned 13% annualized over the past decade, above its 11% long-term average.

AI Summary. International students on temporary visas received more than a third of US science and engineering doctorates, including 59% in computer science, with most coming from China and India, and 77% of Chinese doctoral recipients said they intended to stay in the US. The US hosts 15% of the world's international students, down from 23%.

Jeff Tollefson and Richard Van Noorden Nature
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Over the past 5 years, the US has won more science Nobels than the rest of the world combined. The US science workforce is highly reliant on non-native talent: 43% of doctorate-holders in the US STEM workforce are foreign-born.

Does US science leadership depend on foreign doctoral students?

Core argument: More than one-third of US science and engineering PhDs last year went to international students on temporary visas, with the share reaching 59% in computer science, and most of those students coming from China and India.

More than 1/3 of science and engineering PhDs granted [in the US] last year went to international students (those on temporary visas), with the share at 59% in computer science. Most of these students come from China and India. And when asked, 77% of Chinese students who earned doctoral degrees in the United States said that they intended to stay in the country, according to 2022 data, a proportion that has dipped only slightly over the previous five years. More generally, the United States remains the world’s top venue for international students, according to data from the Organisation for Economic Co-operation and Development, hosting 15% of all students worldwide in 2020, the latest comparative figures available. But there are signs that the United States might be losing its edge. Its share of international students is declining, down from 23% in 20005. And although enrolment numbers have recovered to an all-time high after a brief pandemic dip there remains a question about whether top talent from China continues to view the United States as an attractive destination.

Takeaways by Macro Roundup® AI

  1. More than one-third of US science and engineering PhDs last year went to international students on temporary visas, with the share reaching 59% in computer science, and most of those students coming from China and India.
  2. 77% of Chinese students who earned US doctorates said they intended to stay in the country, according to 2022 data, a proportion that dipped only slightly over the previous five years.

Related Articles:

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AI Summary. Boeing factory workers rejected a labor contract that would have raised wages 35% over four years, with 64% of voting union members opposed. The strike by 33,000 workers has halted 737, 767 and 777 production at Boeing's Seattle-area hub, weighing on finances and prompting credit-rating firms to weigh a downgrade to junk.

Julie Johnsson and Spencer Soper Bloomberg
Date Posted:

The Machinists and Aerospace Workers rejected Boeing’s offer of a 35% wage increase over four years; the almost 40-day strike is costing Boeing at least $100mm a day and its debt is facing a downgrade to junk status.

Does a rejected wage contract prolong a strike halting aircraft production?

Core argument: 64% of voting Boeing machinists rejected a tentative contract that would have raised wages 35% over four years, according to the International Association of Machinists and Aerospace Workers district representing the 33,000 striking workers.

Boeing CEO Kelly Ortberg’s quest to stabilize the struggling US planemaker suffered a stinging setback after factory workers rejected a new labor contract that would have increased their wages by 35% over four years. Some 64% of the union members who cast ballots on Wednesday voted against the tentative agreement, according to the International Association of Machinists and Aerospace Workers district representing the 33,000 striking workers. While the opposition this time was smaller than the overwhelming 94% vote to reject the company’s initial offer in September, the result is a setback to Boeing’s efforts to get operations back on track. The planemaker has been forced to suspend work on its 737 and larger 767 and 777 airliner models at its Seattle-area manufacturing hub for more than a month, weighing on its finances and putting credit-rating companies on alert for a possible downgrade to junk status.

Takeaways by Macro Roundup® AI

  1. 64% of voting Boeing machinists rejected a tentative contract that would have raised wages 35% over four years, according to the International Association of Machinists and Aerospace Workers district representing the 33,000 striking workers.
  2. Opposition narrowed from the 94% vote rejecting Boeing's initial offer in September, but the rejection sets back CEO Kelly Ortberg's effort to stabilize the planemaker.
  3. Boeing has suspended work on its 737, 767 and 777 models at its Seattle-area manufacturing hub for more than a month, weighing on its finances and putting credit-rating companies on alert for a possible downgrade to junk status.

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  • Trends in Real Wage Growth among Union, Nonunion Workers — Wage changes for union and nonunion workers tend to move similarly over time, with union workers' nominal wage changes less volatile, and since 2002 both groups' wages increased at the same rate. When consumer prices grew faster than wages, real wage growth turned negative despite a strong labor market, then turned positive as inflation fell.
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