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, 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
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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.

Related Articles:

  • 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
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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.

Related Articles:

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
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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.

Thursday, January 9, 2025

AI Summary. Resilient growth, persistent residual inflation, and Federal Reserve officials' greater comfort about employment risks explain the rebound in market-implied forward interest rates, rather than a shift in the term premium tied to fiscal, central-bank-independence, or constitutional concerns. The simultaneous rise in long-term rates and fall in short-term rates is normalizing a long-inverted yield curve.

Matt Klein The Overshoot
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.@M_C_Klein argues that the recent rise in Treasury yields reflects “correcting bets on growth that were overly pessimistic.” “After being deeply inverted for years, the yield curve is finally starting to look normal again.”

Are growth and inflation, not term premium, lifting bond yields?

Core argument: U.S. growth ran 3.0% annualized in 2024Q2 and 3.1% in Q3 and is currently running at 2.7% for Q4, while the last percentage point of excess inflation has proven remarkably persistent.

Growth has held up nicely (3.0% annualized in 2024Q2, 3.1% annualized in Q3, and currently running at 2.7% for Q4), the last percentage point of excess inflation has proven to be remarkably persistent, and Fed officials have—rightly or wrongly—become more sanguine about the risks to employment. It should not be surprising that a reversion of the growth and inflation outlook led to a reversion in market-implied forward interest rates—especially since traders had long been betting that short rates would be somewhere in the 3-5% range ever since mid-2022, without much of a trend over the past few years. From this perspective, the simultaneous uptick in long-term rates and decline in short-rates looks exactly like the recalibration that Fed officials have said that they want. After being deeply inverted for years, the yield curve is finally starting to look normal again. Changes in the “term premium”, perhaps driven by concerns about the fiscal situation, Fed independence, or the integrity of the constitutional order, could conceivably be affecting longer-term yields, but it is unlikely that this explains movements in nearer-term forward rates.

Takeaways by Macro Roundup® AI

  1. U.S. growth ran 3.0% annualized in 2024Q2 and 3.1% in Q3 and is currently running at 2.7% for Q4, while the last percentage point of excess inflation has proven remarkably persistent.
  2. The simultaneous rise in long-term rates and decline in short rates looks like the recalibration Fed officials have said they want, with the yield curve starting to look normal again after years of deep inversion.
  3. Term premium changes tied to the fiscal situation, Fed independence, or the integrity of the constitutional order could conceivably affect longer-term yields, but are unlikely to explain movements in nearer-term forward rates.

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.
  • Is There an Insanity Premium on Interest Rates? — 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.
  • 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. The estimated term premium on long-term U.S. Treasury bonds has swung from about -0.9 percentage points, when buyers sacrificed yield to lock in rates, to about +0.5 percentage points, where they demand extra compensation for giving up flexibility. The author argues this shift reflects market microstructure and investor positioning rather than bond vigilantes reacting to fiscal policy.

Brad DeLong Grasping Reality
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.@delong argues the increase in US yields is not driven by “bond vigilantes cleaning their weapons” but is likely a “market microstructure” story as investors seek to reduce exposure to duration risk.

Does the rising term premium reflect investor positioning rather than fiscal worries?

Core argument: The estimated U.S. Treasury term premium has swung from -0.9 percentage points in late spring 2023, when long-bond buyers gave up 0.9% per year to lock in yield, to +0.5 percentage points, with buyers now demanding an extra 0.5% per year.

In the late spring of 2023, the estimated term premium—the extra amount you needed to be paid to buy a long-term bond right now and so lose your ability to react when short-term rates changed—was -0.9%-points: buyers of the long Treasury Bond were willing to give up 0.9% per year in return to lock-in yield and avoid the fluctuations from the rollover strategy. Today the estimated term premium is +0.5%-points: buyers of the long Treasury Bond require an extra 0.5% per year in return to give up their freedom to react to changes in short-term interest rates. This smells to me much more like a “market microstructure” story than a “bond vigilantes cleaning their weapons at the advent of Trump 2.0” story. In the late spring of 2023 the marginal player and holder of long-term Treasuries was rehearsing the message “we locked in what looked like a very attractive yield”, while today the same guys are rehearsing the message “we preserved our freedom and avoided exposure to duration risk.”

Takeaways by Macro Roundup® AI

  1. The estimated U.S. Treasury term premium has swung from -0.9 percentage points in late spring 2023, when long-bond buyers gave up 0.9% per year to lock in yield, to +0.5 percentage points, with buyers now demanding an extra 0.5% per year.
  2. The term-premium swing resembles a market-microstructure story more than a case of bond vigilantes reacting to the advent of Trump 2.0.

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.
  • Is There an Insanity Premium on Interest Rates? — 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.
  • 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. Wildfires burning in the Santa Monica and Malibu areas are destroying some of the most expensive real estate in the US, where median home values exceed $2m. AccuWeather estimates the damage and economic loss at $52bn to $57bn, which would rank the disaster among the worst in US history.

Brian Sullivan and Yasufumi Saito Bloomberg
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The ongoing Los Angeles wildfires will cost somewhere between $52-57B, according to a preliminary estimate by AccuWeather.

How costly are wildfires burning through high-value urban real estate?

Core argument: AccuWeather estimates the Los Angeles wildfires will cause $52 billion to $57 billion in damage and economic loss, a total that would rank the blazes among the worst US disasters.

Blazes burning around Santa Monica and Malibu are consuming some of the most pricey real estate in the US, affecting areas where the median home value is more than $2 million, according to AccuWeather. The disaster will likely cause between $52 billion to $57 billion in damage and economic loss, the company said.

Takeaways by Macro Roundup® AI

  1. AccuWeather estimates the Los Angeles wildfires will cause $52 billion to $57 billion in damage and economic loss, a total that would rank the blazes among the worst US disasters.
  2. The fires burning around Santa Monica and Malibu are consuming some of the most expensive real estate in the US, in areas where AccuWeather puts the median home value above $2 million.

Related Articles:

  • The Uninsurable World: What Climate Change Is Costing Homeowners — Global insurance losses from natural catastrophes have topped $100bn for four straight years, a level once considered the mark of an exceptionally bad year, and US insurers have repriced risk with significant premium increases. Reinsurer Swiss Re predicts a growing number of areas where buying insurance becomes uneconomical.
  • As Insurers Around the U.S. Bleed Cash From Climate Shocks, Homeowners Lose — Insurers lost money on homeowners coverage in 18 states, up from 12 states five years earlier and eight a decade earlier, according to a New York Times analysis of financial data. In response, insurers are raising premiums by as much as 50% or more, cutting coverage, or exiting entire states.
  • The 30-Year Mortgage Wasn’t Designed For Climate Chaos — Economists warn that annual home insurance policies cannot always be reconciled with 30-year mortgages, noting that reinsurance costs rose more than 100% from 2017 to 2023 and insurers passed those costs to homeowners. The Insurance Information Institute reports insurers paid $1.11 in claims per dollar of premiums in 2023, with a fifth straight year of underwriting losses expected.

AI Summary. California's largest property insurer declined to renew 72,000 home and apartment policies statewide, including 69% of policies in one Pacific Palisades ZIP code, pushing homeowners toward the state's FAIR Plan insurer of last resort, which listed $458bn in exposure against about $2.5bn in reinsurance and $200m in surplus cash.

Leslie Kaufman Bloomberg
Date Posted:

LA fires represent an “existential test” for FAIR, California’s insurer of last resort, with an estimated $5.9B in exposure to Pacific Palisades alone. FAIR has $2.5B in reinsurance and $200mm cash.

Can a state insurer of last resort cover $458bn exposure?

Core argument: California's FAIR Plan listed exposure of $458 billion in September, up 61% from the previous year, against roughly $2.5 billion in reinsurance and $200 million in surplus cash reported in testimony last year.

State Farm California’s largest property insurer, announced in March that it would not renew 72,000 home and apartment policies statewide. Pacific Palisades was hit particularly hard. The agency canceled 69% of its policies in the neighborhood’s 90272 ZIP code. When Californians can’t find a traditional insurer to sell them a policy, they can turn to the FAIR Plan. In September, FAIR listed its exposure as $458 billion, up 61% from the previous year. In testimony last year, the FAIR plan reported it had only about $2.5 billion in reinsurance and $200 million in surplus cash. California Insurance Commissioner Ricardo Lara outlined a plan for such an emergency. At first, uncovered costs would be split between insurers and policy holders through additional assessments. Such assessments would have to be approved first by the commissioner, but they could be on any property or casualty policy, including auto.

Takeaways by Macro Roundup® AI

  1. California's FAIR Plan listed exposure of $458 billion in September, up 61% from the previous year, against roughly $2.5 billion in reinsurance and $200 million in surplus cash reported in testimony last year.
  2. State Farm, California's largest property insurer, announced in March it would not renew 72,000 home and apartment policies statewide, including 69% of its policies in the Pacific Palisades 90272 ZIP code.
  3. California Insurance Commissioner Ricardo Lara outlined an emergency plan under which uncovered costs would first be split between insurers and policyholders through assessments requiring his approval and applicable to any property or casualty policy, including auto.

Related Articles:

  • Allstate Approved to Raise Home Insurance Rates by 34% in Wildfire-Prone California — California regulators approved an average 34.1% home insurance rate increase for Allstate affecting about 350,000 policyholders, with some premiums rising as much as 650% and others falling by as much as 57%. Major insurers including State Farm and Farmers have pulled back from the state, citing wildfire costs and regulations that capped rate increases.
  • Wildfires and Real Estate Values in California — California recorded over 300,000 fire episodes between 1987 and 2022, with the size, intensity, and estimated costs of these episodes increasing in recent years. Proximity to past wildfires has been associated with larger adverse effects on property values in recent years, and the authors find insurance does little to offset those effects.
  • Growing Costs of Natural Disasters are Stressing Property Insurance Markets — U.S. home insurers posted $15.2bn in net underwriting losses, their worst performance since at least 2000, and are responding by raising premiums and withdrawing coverage. State "last-resort" public insurance plans, backed by a state's policyholders or taxpayers, reached a record of just over $1.3tn in exposure, signaling growing unavailability of private coverage.

AI Summary. East Asia's total population has peaked and is projected to decline for at least a generation, with the pace of decline likely accelerating each decade, while US population is projected to keep growing for decades. The author argues such sustained divergence can shift the global balance of power.

Nicholas Eberstadt American Enterprise Institute
Date Posted:
Is Database:
Database

Over the next 25 years, China’s working-age population will fall by over 20%, while the US’s will continue to grow. “Exponential decay of population numbers over a long period of time can transform the international stage and shift the global balance.”

Will diverging population trends shift the global balance of power?

Core argument: East Asia's total population has peaked and is set on a course for decline extending as far as demographers can project, likely gaining speed with each coming decade for at least a generation.

East Asia’s total population has just peaked. Now it is set on a course for decline: a decline extending as far as the demographer’s eye can see—and likely gaining speed with each with each coming decade for at least a generation, perhaps longer. In America, by contrast, population increase is still the order of the day, and demographic projections suggest that the US population will continue growing for decades, if not generations. Exponential decay of population numbers over a long period of time can transform the international stage and shift the global balance, it looks as if the US and East Asia are witnessing one of these transformations now.

Takeaways by Macro Roundup® AI

  1. East Asia's total population has peaked and is set on a course for decline extending as far as demographers can project, likely gaining speed with each coming decade for at least a generation.
  2. The US population continues to grow, and demographic projections suggest that growth will persist for decades, if not generations.
  3. Exponential decay of population numbers over a long period can transform the international stage and shift the global balance, and the US and East Asia appear to be witnessing one of these transformations.

Related Articles:

  • World Depopulation: Prospects and Implications — The US is projected to account for a growing share of the rich world's labor force, youth, and highly educated talent, with continuing population and labor force growth and only moderate aging through 2050. Its fertility, though below replacement, exceeds that of East Asian and nearly all European countries, and sustained legal immigration is essential to this demographic advantage.
  • East Asia’s Coming Population Collapse — United Nations projections show China's population falling 8%, Japan's 18%, South Korea's 12%, and Taiwan's 8% between 2020 and 2050, while the US population rises 12%. Working-age people per person over 65 are projected to drop to about 1.8 in China and 1.2 in Japan and South Korea.
  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.

AI Summary. Private companies are staking claims to radio spectrum on or from the Moon, with more than 50 applications filed with the International Telecommunication Union and commercial filings outnumbering those from governments and space agencies for the first time. About half of the 450 lunar missions forecast over a decade are expected to be private.

Oliver Hawkins and Peggy Hollinger Financial Times
Date Posted:

In 2024, commercial filings for lunar telecommunications spectrum outpaced those from governments for the first time according to an FT analysis.

Are private companies now outpacing governments in claiming lunar radio spectrum?

Core argument: More than 50 applications have been filed with the International Telecommunication Union since 2010 to use radio spectrum on or from the Moon, according to Financial Times research.

Private companies are staking claims to radio spectrum on the Moon with the aim of exploiting an emerging lunar economy, Financial Times research has found. More than 50 applications have been filed with the International Telecommunication Union since 2010 to use spectrum, the invisible highway of electromagnetic waves that enable all wireless technology, on or from the Moon. Last year the number of commercial filings to the global co-ordinating body for lunar spectrum outstripped those from space agencies and governments for the first time, according to FT research. The filings cover satellite systems as well as missions to land on the lunar surface. Of the 450 lunar missions forecast in the decade to 2033, about half will be by private companies, said Analysys Mason. According to the space consultancy’s latest Lunar Market report, those missions are expected to generate revenues of about $151bn, with 75% still from government contracts,

Takeaways by Macro Roundup® AI

  1. More than 50 applications have been filed with the International Telecommunication Union since 2010 to use radio spectrum on or from the Moon, according to Financial Times research.
  2. Commercial filings for lunar spectrum to the International Telecommunication Union outstripped those from space agencies and governments for the first time, according to Financial Times research, with filings covering satellite systems and missions to land on the lunar surface.
  3. Analysys Mason forecasts 450 lunar missions in the decade to 2033, about half by private companies, expected to generate revenues of about $151bn, with 75% still from government contracts.

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.
  • 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.
  • Space: The Missing Element of Your Strategy — Private-sector funding of space-related companies has topped $10bn, close to a tenfold rise over the past decade, though the US government remains the largest source of space funding. If current momentum continues, commercial funding for space ventures could surpass government funding within 20 years.