Edward Conard

Top Ten New York Times Bestselling Author

  • “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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 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, January 7, 2025

AI Summary. The authors estimate that a 1% rise in a city's manufacturing productivity is associated with 1.5% higher long-run annual earnings, 1.5% higher rents and 2.5% higher home values, lifting purchasing power 0.6% for renters and 1.6% for homeowners. Direct gains favor less educated local workers, while spillovers to other cities disproportionately benefit college graduates.

Richard Hornbeck and Enrico Moretti Review of Economics and Statistics
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A 1% per year rise in a city’s manufacturing TFP in revenue terms between 1980-1990 boosted annual earnings growth by 1.5% per year over 1980-2000. Renters’ purchasing power grew by 0.6%/year, and homeowners’ by 1.6%/year.

Who gains from city productivity growth: renters, homeowners, or distant workers?

Core argument: A 1% rise in city-level manufacturing revenue-based TFP from 1980 to 1990 is associated with an average 1.5% long-run increase in annual earnings from 1980 to 2000, alongside a 4% rise in local employment driven by immigration.

We estimate that local growth in TFPR (TFP in revenue terms) increases the earnings of local workers. A 1% increase in city-level manufacturing TFPR from 1980 to 1990 is associated with an average long-run increase of 1.5% in annual earnings from 1980 to 2000. Local employment increases by 4%, driven by immigration, [and] demand for housing increases. A 1% increase in city level manufacturing TFPR is associated with a 1.5% increase in housing rents and a 2.5% increase in home values. For workers who rent their home, much of the increase in earnings is offset by increases in the local cost of living. For workers who had owned their home, the gains are much larger because they come through both higher wages and higher housing values. We find that a 1% increase in local TFPR increases the purchasing power of renters and homeowners by 0.6% and 1.6%, respectively. [Direct] gains are larger for local less educated workers, [and] productivity growth reduces local inequality, [but] indirect effects of local productivity growth on earnings and housing costs of workers in other cities are economically important and disproportionately benefit college-educated workers

Takeaways by Macro Roundup® AI

  1. A 1% rise in city-level manufacturing revenue-based TFP from 1980 to 1990 is associated with an average 1.5% long-run increase in annual earnings from 1980 to 2000, alongside a 4% rise in local employment driven by immigration.
  2. A 1% increase in local revenue-based TFP is associated with a 1.5% increase in housing rents and a 2.5% increase in home values, and raises the purchasing power of renters by 0.6% and of homeowners by 1.6%.
  3. Direct gains from local productivity growth are larger for less educated local workers and productivity growth reduces local inequality, while economically important indirect effects on earnings and housing costs in other cities disproportionately benefit college-educated workers.

Related Articles:

  • Where is Standard of Living the Highest? Local Prices and the Geography of Consumption — The authors estimate that geographical differences in cost of living are especially large for low-income US households, and that expensive cities offer college graduates a standard of living similar to affordable cities while offering less-educated households a lower one. A high school dropout household moving from the most affordable to the most expensive commuting zone would see consumption fall 18.5%.
  • The Economic Geography Of The 2024 Elections — Counties where government transfer programs such as Social Security, Medicare, Medicaid, and unemployment insurance make up at least a quarter of personal income gave Trump 63% of the vote, while counties where transfers account for less than 15% gave Harris 56%. Transfers supplied 18% of total US personal income.
  • The World’s Rust Belts: The Heterogeneous Effects of Deindustrialization on 1,993 Cities in Six Countries — A study of 1,993 cities in France, Germany, Italy, Japan, the UK and the US finds former manufacturing hubs lost employment on average after each country's manufacturing peak, though a large share fully recovered. After the peak, hubs with a higher initial share of college-educated workers grew significantly faster.

AI Summary. The Federal Reserve has cut its policy rate by 100 basis points while 10-year interest rates have risen by 100 basis points over the same stretch, a highly unusual divergence. Possible explanations include fiscal worries, weaker foreign demand for U.S. debt, or rate cuts that were not justified.

Torsten Sløk Apollo
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The Fed has cut the FFR 100 bps since September, and over the same period, the 10-year yield has risen 100 bps to ~ 4.6%. Torsten Sløk argues, “it is very important for investors to have a view on why long rates are going up when the Fed is cutting.”

Why are long-term rates rising while the Fed cuts?

Core argument: The Federal Reserve has cut interest rates by 100 basis points since September while 10-year interest rates have risen 100 basis points over the same period, a highly unusual divergence.

The Fed has cut interest rates by 100 basis points since September, and over the same period, 10-year interest rates are up 100 basis points. This is highly unusual. Is it fiscal worries? Is it less demand from abroad? Or maybe Fed cuts were not justified? The market is telling us something, and it is very important for investors to have a view on why long rates are going up when the Fed is cutting.

Takeaways by Macro Roundup® AI

  1. The Federal Reserve has cut interest rates by 100 basis points since September while 10-year interest rates have risen 100 basis points over the same period, a highly unusual divergence.
  2. Possible explanations for long rates rising as the Federal Reserve cuts include fiscal worries, less demand from abroad, or rate cuts that were not justified.
  3. Investors need a view on why long rates are rising while the Federal Reserve cuts, as the market is conveying something important.

Related Articles:

  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.
  • Fiscal Policy Under Trump II: The Role of Scott Bessent and Basic Budget Math — US federal debt has risen from 105% to 123% of GDP, the budget deficit has doubled from 3.1% to more than 6%, and government interest expense has grown from 1.3% to about 3.1% of GDP. The author argues this makes expansive fiscal policy harder to pursue than in the past.
  • 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. Spending on software, technology hardware, industrial equipment and data center structures tied to the artificial intelligence boom amounts to nearly 6% of US GDP and is likely to rise further. At close to 7% of the economy, such spending would exceed the peak share reached by the late-1990s tech, industrial and telecom boom and rival housing investment's peak share.

Skanda Amarnath Bloomberg
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In Q3 of 2024, expenditures for software, technology hardware, industrial equipment, and data center structures were almost 6% of GDP. @IrvingSwisher argues that the AI boom may be larger than the tech-industrial-telecom boom of the late 1990s.

How large is AI-related spending as a share of GDP?

Core argument: Expenditures on software, technology hardware, industrial equipment and data center structures central to the AI boom reached nearly 6% of US GDP in the third quarter of 2024, a share likely to rise further.

If you focus on the expenditures for software, technology hardware, industrial equipment and data center structures at the heart of the AI boom, you’re looking at nearly 6% of US GDP as of the third quarter of 2024. That number is likely to rise further in the coming quarters. If so, we would surpass the share of GDP that the tech-industrial-telecom boom of the late 1990s reached at its peak back in 2000. At something close to 7% of the US economy at the end of 2025, it’s plausible and arguably even likely, that the AI boom would be on a par with the share of the US economy housing investment represented at its 2005 peak.

Takeaways by Macro Roundup® AI

  1. Expenditures on software, technology hardware, industrial equipment and data center structures central to the AI boom reached nearly 6% of US GDP in the third quarter of 2024, a share likely to rise further.
  2. Continued growth in AI-related spending would push it past the share of GDP reached at the peak of the late-1990s tech-industrial-telecom boom in 2000.
  3. At something close to 7% of the US economy at the end of 2025, the AI boom would plausibly be on a par with the share of GDP that housing investment represented at its 2005 peak.

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.
  • The Alchemists — NVIDIA's share of all US capital spending is projected to approach two 20th-century peaks by 2026, and large cloud providers would need $400–500bn in new revenue to earn their traditional 50% gross margin on roughly $250bn of annual data center spending. After the dot-com collapse, Corning's fiber optic revenues did not surpass 2000 levels until 2018 in nominal terms.
  • A Severe Case of COVIDIA: Prognosis For An AI-Driven US Equity Market — Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.

AI Summary. Overseas residents hold over $60t of U.S. assets—including roughly $13t in fixed income and $13t in equities—while U.S. residents hold $38t of foreign assets, with these positions financed in part by dollars acquired through trade. A more balanced trade relationship would reduce net dollar outflows through trade and redirect them toward U.S. manufacturers and households.

Joseph Wang Fed Guy Blog
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.@FedGuy12 argues that a trade war cutting US trade deficits may push yields higher as overseas investors have fewer dollars to invest in fixed-income assets.

Would more balanced trade redirect dollar flows to U.S. manufacturers and households?

Core argument: Overseas residents hold over $60t of U.S. assets while U.S. residents hold $38t of foreign assets, with the overseas holdings financed in part by dollars acquired through trade.

Overseas investors hold enormous amounts of U.S. assets that are in part financed by dollars acquired through trade. While U.S. residents hold $38t of foreign assets, overseas residents hold over $60t of U.S. assets. As of 2023, overseas investors hold around $13t in fixed income and $13t in equities, though the latter appears largely due to the price appreciation from the recent bull market where the S&P 500 has appreciated by over 20% for two consecutive years. A more balanced trade relationship would decrease the net dollar outflows through trade and re-allocate them to entities like U.S. manufacturers and households.

Takeaways by Macro Roundup® AI

  1. Overseas residents hold over $60t of U.S. assets while U.S. residents hold $38t of foreign assets, with the overseas holdings financed in part by dollars acquired through trade.
  2. As of 2023, overseas investors held roughly $13t in U.S. fixed income and $13t in U.S. equities, with the equity total appearing to stem largely from price appreciation as the S&P 500 rose over 20% in two consecutive years.
  3. A more balanced trade relationship would decrease net dollar outflows through trade and re-allocate them to entities such as U.S. manufacturers and households.

Related Articles:

  • Can Trump Reduce the Trade Deficit? — A world of widespread tariffs would also shrink international capital flows, and because the US trade deficit is the counterpart of large capital inflows, reduced capital mobility would narrow that deficit. The author argues this would occur largely by reducing overall investment in the US economy.
  • 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.

AI Summary. The top 10 companies in the S&P 500 index account for 37.3% of its value, a modern-day record, and just 26 stocks make up half the index's total value — the fewest since at least 1980. US stocks represent 66.6% of the $78tn MSCI All-Country World Index, with Apple, Nvidia and Microsoft alone at 13%.

Robin Wigglesworth Financial Times
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Citing Howard Silverblatt, @RobinWigg notes that only 26 stocks now account for half the entire value of the S&P 500 index, the lowest number since at least 1980.

How concentrated has the US stock market become?

Core argument: Just 26 stocks account for half the entire value of the S&P 500, down from 36 at the end of 2023 and the lowest number since at least 1980, according to S&P Dow Jones Indices' Howard Silverblatt.

There are a multitude of ways to show interlocking facets of concentration. The most popular one is simply to calculate how much of the S&P 500 index the top 10 members account for. At the moment that stands at a modern-day record of 37.3%. The most arresting stat — via S&P Dow Jones Indices’ Howard Silverblatt — is that just 26 stocks now account for half the entire value of the S&P 500 index. That’s down from an already-low 36 at the end of 2023, and is the lowest number since at least 1980. In fact, it is probably the lowest ever since the benchmark’s creation in 1957, though we’ve struggled to find historical data on its composition going back that far. US stocks now account for a whopping 66.6% of the MSCI All-Country World Index (fittingly, the number of the beast). Apple, Nvidia and Microsoft alone make up 13% of the $78tn index.

Takeaways by Macro Roundup® AI

  1. Just 26 stocks account for half the entire value of the S&P 500, down from 36 at the end of 2023 and the lowest number since at least 1980, according to S&P Dow Jones Indices' Howard Silverblatt.
  2. The top 10 members of the S&P 500 account for 37.3% of the index, a modern-day record.
  3. US stocks make up 66.6% of the $78tn MSCI All-Country World Index, with Apple, Nvidia and Microsoft alone accounting for 13% of it.

Related Articles:

  • 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.
  • 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.

AI Summary. A patient in Louisiana who was over 65 and had underlying medical conditions died after contracting H5N1 bird flu following exposure to a non-commercial backyard flock and wild birds, the first US fatality linked to the virus. Most US human bird flu infections have occurred in farm workers exposed to infected animals and caused mainly mild symptoms.

Gerry Smith Bloomberg
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The US has had the first domestic death related to bird flu; the patient was over 65 and had underlying medical conditions.

Has bird flu caused its first death in the US?

Core argument: A Louisiana patient over 65 with underlying medical conditions has died of H5N1 bird flu, the first US fatality linked to the virus, according to the Louisiana Department of Health.

A patient in Louisiana who tested positive for bird flu has died, marking the first US fatality linked to the respiratory virus. The patient was over 65 and had underlying medical conditions, according to a statement from the Louisiana Department of Health. The patient contracted H5N1 after exposure to a non-commercial backyard flock and wild birds, the state agency said. The resident was hospitalized in December with the first severe human case of avian influenza in the US. Most human bird flu infections have occurred in farm workers exposed to infected animals, causing mainly mild symptoms. There have been 66 confirmed human cases in the US so far, according to the Centers for Disease Control and Prevention.

Takeaways by Macro Roundup® AI

  1. A Louisiana patient over 65 with underlying medical conditions has died of H5N1 bird flu, the first US fatality linked to the virus, according to the Louisiana Department of Health.
  2. The Louisiana patient contracted H5N1 after exposure to a non-commercial backyard flock and wild birds and was hospitalized in December with the first severe human case of avian influenza in the US.
  3. The Centers for Disease Control and Prevention has confirmed 66 human bird flu cases in the US, with most infections occurring in farm workers exposed to infected animals and causing mainly mild symptoms.

Related Articles:

AI Summary. More than 80% of venture and private equity deals in China contain redemption clauses requiring companies, and often founders personally, to buy back investors' shares with interest if targets such as an initial public offering timeline or revenue goals are missed, according to estimates by law firm Lifeng Partners.

Ryan McMorrow, Wenjie Ding, and Nian Liu Financial Times
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Chinese investors are targeting the personal assets of failed entrepreneurs to recover losses, deepening the startup funding crisis, with entrepreneurship becoming a “game of unlimited liability.”

Do most Chinese venture deals make founders personally repay investors?

Core argument: More than 80% of venture and private equity deals in China contain redemption provisions, which are relatively rare in US venture investing, according to estimates by Shanghai-based law firm Lifeng Partners.

The hard-nosed tactics by risk capital providers have been facilitated by clauses known as redemption rights, included in nearly all the financing deals struck during China’s boom times. While they are relatively rare in US venture investing, more than 80% of venture and private equity deals in China contain redemption provisions, according to Shanghai-based law firm Lifeng Partners estimates. They typically require companies, and often their founders as well, to buy back investors’ shares plus interest if certain targets such as an initial public offering timeline, valuation goals or revenue metrics are not met. With Chinese funds and VC firms now struggling to return capital to their outside investors, a growing number have turned to redemption clauses to recoup as much money as possible. Lifeng estimates that 20% of all investor exits in 2021 and 2022 came from companies repurchasing their investors’ shares and that more than 10,000 VC or private equity-backed Chinese groups face redemption issues.

Takeaways by Macro Roundup® AI

  1. More than 80% of venture and private equity deals in China contain redemption provisions, which are relatively rare in US venture investing, according to estimates by Shanghai-based law firm Lifeng Partners.
  2. Chinese redemption clauses typically require companies, and often their founders as well, to buy back investors' shares plus interest if targets such as an IPO timeline, valuation goals or revenue metrics are not met.
  3. Lifeng Partners estimates that 20% of all investor exits in 2021 and 2022 came from companies repurchasing investors' shares and that more than 10,000 VC or private equity-backed Chinese groups face redemption issues.

Related Articles:

  • How China Has ‘Throttled’ Its Private Sector — China's private sector difficulties reflect the country's economic slowdown, the withdrawal of most US-based investors amid bilateral tensions, and political decisions that have changed the environment for private business, including a crackdown on technology companies seen as monopolistic or misaligned with Communist Party values and a continuing anti-corruption campaign.
  • 2023 Letter — Rising numbers of Chinese nationals are being apprehended at the US-Mexico border, with US officers encountering around 1,000 in one month early in the year and nearly 5,000 by November. Most Chinese emigrants leave through legal means, going primarily to Singapore, Japan, and Thailand.
  • 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.

Wednesday, January 8, 2025

AI Summary. Selloffs in global bond markets are pushing government borrowing costs higher amid worries about elevated inflation, turbulent politics and swelling government debt. The US 10-year Treasury yield reached 4.73%, the UK equivalent hit 4.82%, its highest in over 16 years, and Japan's rose above 1%, its highest in more than a decade.

Sydney Maki and Alice Gledhill Bloomberg
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Bond market selloffs are driving yields toward key thresholds amid concerns over inflation, volatile politics, and rising government debts, with the US 20-year Treasury breaching 5% and the UK hitting a 15-year high.

Are government borrowing costs rising worldwide on inflation and debt worries?

Core argument: The US 10-year Treasury yield rose as high as 4.73% Wednesday before pulling back, moving toward the 5% peak hit in October 2023.

The selloffs that keep flaring in the world’s bond markets are rapidly pushing yields toward key thresholds on escalating worries about elevated inflation, tempestuous politics and swelling government debts. In the US, the 10-year Treasury yield rose as high as 4.73% Wednesday, pushing it toward the 5% peak hit in October 2023, before pulling back down. In the UK, that yield hit as much as 4.82%, the highest since August 2008, in an echo of the selloff that ended Liz Truss’s brief stint as prime minister a little over two years ago. Even in Japan, which had once been the world’s major holdout as central banks tightened monetary policy, the 10-year rate on government bonds has pushed over 1% to the highest in over a decade.

Takeaways by Macro Roundup® AI

  1. The US 10-year Treasury yield rose as high as 4.73% Wednesday before pulling back, moving toward the 5% peak hit in October 2023.
  2. The UK 10-year yield hit as much as 4.82%, the highest since August 2008, echoing the selloff that ended Liz Truss's brief stint as prime minister.
  3. Japan's 10-year government bond rate pushed over 1% to the highest in more than a decade, after the country had been the world's major holdout as central banks tightened monetary policy.

Related Articles:

  • The Move in Long Rates Is Very Unusual — The Federal Reserve has cut its policy rate by 100 basis points while 10-year interest rates have risen by 100 basis points over the same stretch, a highly unusual divergence. Possible explanations include fiscal worries, weaker foreign demand for U.S. debt, or rate cuts that were not justified.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.
  • 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. Stock and bond markets can diverge because equity investors are more driven by sentiment, as seen in social-media-fueled meme stocks that have no bond-market equivalent. The recent rise in stocks is narrow and largely tied to artificial intelligence, with the Dow Jones Industrial Average having surrendered nearly all of its post-election gain.

Paul Krugman Krugman Wonks Out
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Noting the rise in 10-year yields @paulkrugman argues bond investors might be pricing in a more inflationary policy mix from the incoming administration “rising interest rates even as the Fed cuts may be an early sign of things to come.”

Why are stocks rising while bond investors grow more worried?

Core argument: Stocks can rise even as bond investors worry about Trump 2.0 because stock and bond investors differ, with equity buyers more "lizard-brained," evident in meme stocks, which have no bond equivalent.

You may ask, if bond investors are starting to worry about the madness of Trump 2.0, why are stocks up? I’d offer two possible answers. One is that stock and bond investors are different; the former are a lot more limbic, i.e., lizard-brained. Everyone knows about meme stocks, which soar because of frenzies on social media. I haven’t heard of any meme bonds. The other is that the recent rise in stocks is rather narrow. Arguably, it’s mainly about AI. The Dow, which can be seen as a proxy for the non-AI economy, has already given up almost all of the Trump bump. I don’t want to push this too far, in part because I don’t want to give in to motivated reasoning. Those of us horrified by Trump’s ascent would like to see him punished by the markets, but we shouldn’t expect instant gratification. It may well be years before the consequences of his economic delusions are really obvious.

Takeaways by Macro Roundup® AI

  1. Stocks can rise even as bond investors worry about Trump 2.0 because stock and bond investors differ, with equity buyers more "lizard-brained," evident in meme stocks, which have no bond equivalent.
  2. The rise in stocks is narrow and arguably driven mainly by AI, with the Dow — which can be seen as a proxy for the non-AI economy — having given up almost all of the Trump bump.
  3. Those horrified by Trump's ascent should guard against motivated reasoning and not expect instant gratification, since it may be years before the consequences of his economic delusions become obvious.

Related Articles:

  • The Move in Long Rates Is Very Unusual — The Federal Reserve has cut its policy rate by 100 basis points while 10-year interest rates have risen by 100 basis points over the same stretch, a highly unusual divergence. Possible explanations include fiscal worries, weaker foreign demand for U.S. debt, or rate cuts that were not justified.
  • Fiscal Policy Under Trump II: The Role of Scott Bessent and Basic Budget Math — US federal debt has risen from 105% to 123% of GDP, the budget deficit has doubled from 3.1% to more than 6%, and government interest expense has grown from 1.3% to about 3.1% of GDP. The author argues this makes expansive fiscal policy harder to pursue than in the past.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.

AI Summary. Inflation-adjusted US house prices stand 1.3% below their 2022 peak. An affordability index built from median income, national house prices, and 30-year fixed mortgage rates shows that over a three-year span, the monthly principal-and-interest payment on a $500,000 house with 20% down rose 75%, as prices rose 19% and mortgage rates went from 3.07% to 6.43%.

Bill McBride Calculated Risk
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Real house prices are 1.3% below the 2022 peak and 11% above the 2006 peak. Affordability remains at levels last seen in the early 1980s when 30-year mortgage rates were over 14%. @calculatedrisk

How much have rising prices and mortgage rates raised monthly payments?

Core argument: Inflation-adjusted U.S. house prices stand 1.3% below their 2022 peak, based on the Case-Shiller National Index, seasonally adjusted.

I’ve put together my own affordability index [using] median income from the Census Bureau, for house prices, I use the Case-Shiller National Index, Seasonally Adjusted (SA). For the down payment - there wasn’t a significant difference between 15% and 20%. For mortgage rates, I used the Freddie Mac PMMS (30-year fixed rates). Lower is more affordable. If we compare to three years ago, there is huge difference in monthly payments. In October 2021, the payment on a $500,000 house, with a 20% down payment and 3.07% 30-year mortgage rates, would be around $1,701 for principal and interest. The monthly payment for the same house, with house prices up 19% over three years and mortgage rates at 6.43% in October 2024, would be $2.977 - an increase of 75%!

Takeaways by Macro Roundup® AI

  1. Inflation-adjusted U.S. house prices stand 1.3% below their 2022 peak, based on the Case-Shiller National Index, seasonally adjusted.
  2. Monthly principal and interest on a $500,000 house with 20% down rose 75%, from about $1,701 in October 2021 at a 3.07% 30-year rate to $2,977 in October 2024 at 6.43%, with prices up 19% over three years.
  3. The affordability index combines Census Bureau median income, the Case-Shiller National Index, and Freddie Mac PMMS 30-year fixed rates, with no significant difference between 15% and 20% down payments.

Related Articles:

  • Housing Is the Sleeper Issue of the 2024 Campaign — Average home prices rose from $303,600 to $422,600 and mortgage rates from 2.8% to 6.5%, doubling the average new buyer's monthly payment to $2,671 from $1,247. Housing and rental affordability indexes have been pushed to 30-year lows, and lifetime payments on an average home rise to $961,560 from $448,920.
  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
  • The Price of Housing in the United States — Real housing price appreciation in the United States has varied widely across regions, with West Coast cities rising earlier while prices in other regions remained comparable in real terms to decades earlier. The authors find essentially no relationship between real price growth and zoning restrictiveness in the earliest period studied, and progressively steeper gradients in later periods.

AI Summary. Data from J.P. Morgan Asset Management covering monthly observations over a 27-year period show a strong relationship between the S&P 500's starting price-to-earnings ratio and its annualized return over the following ten years, with higher starting valuations consistently followed by lower returns. Purchases at a multiple near today's 22x were followed by ten-year returns between +2% and -2%.

Howard Marks Oaktree Capital
Date Posted:

Howard Marks highlights that between 1988 and 2014, S&P buyers who paid today’s P/E of 22 or above “always earned ten-year returns between plus 2% and minus 2%.”

Do high starting valuations predict low ten-year stock returns?

Core argument: In J.P. Morgan Asset Management data covering just under 324 monthly observations from 1988 through late 2014, buyers of the S&P 500 at a forward p/e near today's 22 always earned subsequent ten-year annualized returns between +2% and -2%.

The graph, from J.P. Morgan Asset Management, has a square for each month from 1988 through late 2014, meaning there are just short of 324 monthly observations (27 years x 12). Each square shows the forward p/e ratio on the S&P 500 at the time and the annualized return over the subsequent ten years. The graph gives rise to some important observations. There’s a strong relationship between starting valuations and subsequent annualized ten-year returns. Higher starting valuations consistently lead to lower returns, and vice versa. There are minor variations in the observations, but no serious exceptions. Today’s p/e ratio is clearly well into the top decile of observations. In that 27-year period, when people bought the S&P at p/e ratios in line with today’s multiple of 22, they always earned ten-year returns between plus 2% and minus 2%.

Takeaways by Macro Roundup® AI

  1. In J.P. Morgan Asset Management data covering just under 324 monthly observations from 1988 through late 2014, buyers of the S&P 500 at a forward p/e near today's 22 always earned subsequent ten-year annualized returns between +2% and -2%.
  2. The J.P. Morgan graph shows a strong relationship between starting forward p/e ratios on the S&P 500 and subsequent annualized ten-year returns, with higher starting valuations consistently leading to lower returns and no serious exceptions.
  3. Today's S&P 500 forward p/e ratio of 22 sits well into the top decile of the 1988–2014 monthly observations.

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  • The Alchemists — NVIDIA's share of all US capital spending is projected to approach two 20th-century peaks by 2026, and large cloud providers would need $400–500bn in new revenue to earn their traditional 50% gross margin on roughly $250bn of annual data center spending. After the dot-com collapse, Corning's fiber optic revenues did not surpass 2000 levels until 2018 in nominal terms.
  • 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.
  • 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.

AI Summary. A US dockworkers' dispute centers on port operators' proposals to equip more American ports with semi-automated cranes; the operators' alliance says modern crane technology has nearly doubled both container throughput and the number of workers at ports using it. US venture capital investment in robotics rose from about $2bn in 2019 to over $3.5bn.

Taylor Nicole Rogers Financial Times
Date Posted:

Unions ranging from the Longshoremen to Las Vegas casino workers are resisting automation and seeking to add provisions to contracts that “focus on retaining jobs and compensating displaced workers in the event of automation.”

Does port automation increase both container throughput and dockworker employment?

Core argument: USMX, which represents port operators and container carriers, says modern crane technology has "nearly doubled" both container throughput and the number of workers at the US ports using it, and calls proposed automation bans "unworkable".

The union’s real issue is with automation — specifically proposals by the United States Maritime Alliance (USMX), which represents port operators and container carriers, to equip more US ports with semi-automated cranes. USMX describes calls to ban automation as “unworkable”, saying that modern crane technology has “nearly doubled” both the throughput of containers and the number of workers at the ports using it. US venture capital investment in robotics has risen from around $2bn in 2019 to more than $3.5bn last year, according to data from PitchBook. In the first nine months of 2024, there were 130 fundraising deals for robotics start-ups — more than across the entirety of 2019.

Takeaways by Macro Roundup® AI

  1. USMX, which represents port operators and container carriers, says modern crane technology has "nearly doubled" both container throughput and the number of workers at the US ports using it, and calls proposed automation bans "unworkable".
  2. US venture capital investment in robotics rose from about $2bn in 2019 to more than $3.5bn last year, according to PitchBook data.
  3. Robotics start-ups closed 130 fundraising deals in the first nine months of 2024, exceeding the total for all of 2019, according to PitchBook.

Related Articles:

  • Trump Backs US Dockworkers Poised to Strike Over Automation — The incoming US president voiced support for the dockworkers' union opposing port automation, arguing foreign-owned shipping companies accessing US markets should hire American workers rather than lay them off. A prior three-day strike closed major East and Gulf coast container ports and ended with a 61.5% raise over a six-year contract, leaving automation unresolved.
  • Labor Market Conflict and the Decline of the Rust Belt — The authors argue that persistent labor market conflict in the Rust Belt's main industries lowered investment and productivity growth, shifting employment to the rest of the country, and estimate it accounts for roughly half the decline in the region's share of US manufacturing employment. Rising foreign competition plays a more modest quantitative role.
  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.

AI Summary. Americans spend less time with other people than in any period with reliable data back to 1965, with in-person socializing down more than 20% from 2003 to 2023 according to the Bureau of Labor Statistics' American Time Use Survey. Among unmarried men and people under 25, the decline exceeded 35%.

Derek Thompson The Atlantic
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.@DKThomp reports on an “anti-social century:“ between 2003 and 2021 18-30-year-old Americans’ daily time spent alone increased 60%. He argues this raises “concerns about the impact on democracy, mental health, and societal cohesion.”

Are Americans spending less time with other people than ever recorded?

Core argument: In-person socializing among Americans fell by more than 20% from 2003 to 2023, according to the Bureau of Labor Statistics' American Time Use Survey, leaving time spent with other people lower than in any period with trustworthy data back to 1965.

Americans are spending less time with other people than in any other period for which we have trustworthy data, going back to 1965. Between that year and the end of the 20th century, in-person socializing slowly declined. From 2003 to 2023, it plunged by more than 20%, according to the American Time Use Survey, an annual study conducted by the Bureau of Labor Statistics. Among unmarried men and people younger than 25, the decline was more than 35%. Eroding companionship can be seen in numerous odd and depressing facts of American life today. Men who watch television now spend seven hours in front of the TV for every hour they spend hanging out with somebody outside their home. The typical female pet owner spends more time actively engaged with her pet than she spends in face-to-face contact with friends of her own species.

Takeaways by Macro Roundup® AI

  1. In-person socializing among Americans fell by more than 20% from 2003 to 2023, according to the Bureau of Labor Statistics' American Time Use Survey, leaving time spent with other people lower than in any period with trustworthy data back to 1965.
  2. Among unmarried men and people younger than 25, the decline in in-person socializing exceeded 35% from 2003 to 2023, according to the American Time Use Survey.
  3. American men who watch television spend seven hours in front of the TV for every hour spent hanging out with somebody outside their home, and the typical female pet owner spends more time actively engaged with her pet than in face-to-face contact with human friends.

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AI Summary. Incumbents' vote share across the developed world fell by an average of seven percentage points, an all-time record and more than double the decline seen after the global financial crisis, with inflation the likely common driver. The largest gains went to rightwing populist parties in France, Austria, Britain and Portugal, though some radical leftwing parties also gained ground.

John Burn-Murdoch Financial Times
Date Posted:
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.@jburnmurdoch notes in 2024 the incumbent party lost vote share in every advanced economy, by an average of 7pp. The populist right was the largest beneficiary, while leftwing parties gained in countries with center-right incumbents like the UK.

Why did incumbent parties across the developed world lose record vote share?

Core argument: Incumbents' vote share across the developed world fell by an average of seven percentage points in 2024, an all-time record and more than double the decline suffered in the aftermath of the global financial crisis.

On average across the developed world, incumbents’ vote share fell by seven percentage points in 2024, an all-time record and more than double the decline as electorates punished elected officials in the aftermath of the global financial crisis. The range of countries producing similar results points to a common undercurrent, with inflation the obvious culprit. Although ultimately falling narrowly short of its hoped-for victory, the 15-point swing achieved by France’s Rassemblement National in parliamentary elections was the largest recorded by any party in any developed country this year. The second, third and fourth-biggest gains of the year were all by fellow rightwing populists in the form of Austria’s Freedom party, Britain’s Reform UK and Portugal’s Chega. But anti-establishment successes were not limited to the right. The Greens in the UK were one of a smattering of radical leftwing parties that also gained ground as voters disillusioned with a stale centre broke in both directions.

Takeaways by Macro Roundup® AI

  1. Incumbents' vote share across the developed world fell by an average of seven percentage points in 2024, an all-time record and more than double the decline suffered in the aftermath of the global financial crisis.
  2. France's Rassemblement National achieved a 15-point swing in parliamentary elections, the largest by any party in any developed country in 2024, though it fell narrowly short of victory; Austria's Freedom party, Britain's Reform UK and Portugal's Chega recorded the next three biggest gains.
  3. The range of countries producing similar results points to a common undercurrent, with inflation the obvious culprit, while radical leftwing parties such as the UK Greens also gained ground as voters disillusioned with a stale centre broke in both directions.

Related Articles:

  • Zero-Sum Thinking and the Roots of U.S. Political Divides — Zero-sum thinking — viewing gains for one group as losses for another — is associated with greater support for liberal economic policies, stronger alignment with the Democratic Party, and weaker alignment with the Republican Party. The authors also find it linked to believing the QAnon conspiracy theory holds some truth and to sympathy for the attack on the U.S. Capitol.
  • Democrats Join 2024’s Graveyard of Incumbents — Incumbent governing parties lost vote share in all 10 major countries tracked by the ParlGov research project that held national elections in the same year, the first such sweep in almost 120 years of records. The Democratic presidential ticket's popular-vote share fell nearly four percentage points, the steepest drop in Democratic support since 1980.
  • Migration To Rich Countries Hits Record High In 2023 — About 6.5mn people moved to the 38 member countries of the Organisation for Economic Co-operation and Development through permanent migration routes in a record year, nearly 10% above the prior record of 6mn, with the US receiving 1.2mn permanent legal immigrants. New asylum seekers in those countries rose 30% to a record 2.7mn.