Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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 28, 2025

AI Summary. The author argues that capital inflows to the US are driven more by conditions abroad than by US economic performance, since the US attracts capital and runs deficits in both good times and bad. China grew faster than the US yet exported capital, a result of capital controls, an undervalued currency, and government-managed credit.

Michael Pettis @michaelxpettis
Date Posted:

Responding to @paulkrugman @michaelxpettis notes that “foreign capital pours into the US not just when times are good, but also when times are bad. US deficits are almost permanent and they don’t reflect US economic conditions.”

Are capital inflows to the US driven by conditions abroad?

Core argument: Pettis argues capital flows into the US in both good times and bad and that US deficits are almost permanent, disputing Krugman's account that late-1990s and early-2000s US productivity gains attracted foreign investment.

We disagree on what drives capital inflows. Krugman argues that rising US productivity in the late 1990s and early 2000s attracted foreign investment, and this is how economics should work: the US economy does well, imports capital, and runs deficits. However, I disagree. Capital flows into the US not just in good times, but also in bad, and US deficits are almost permanent, not reflecting US economic conditions. Another issue is the role of Asia. While China’s economy grew faster than the US’s, it had no capital inflows and instead exported large amounts of capital, which contradicts economic theory. This was due to policy interventions in China, like capital controls, an undervalued currency, and government-managed credit allocation. These conditions forced China to export capital, mostly to the US, even as the US economy weakened by 2005-06. Thus, foreign capital inflows to the US were more about conditions abroad than US performance, including the post-Asian Crisis reserve accumulation by developing countries. The US economy still had to adjust to this imbalance.

Takeaways by Macro Roundup® AI

  1. Pettis argues capital flows into the US in both good times and bad and that US deficits are almost permanent, disputing Krugman's account that late-1990s and early-2000s US productivity gains attracted foreign investment.
  2. China's economy grew faster than the US economy yet exported large amounts of capital rather than importing it, which Pettis attributes to capital controls, an undervalued currency, and government-managed credit allocation.
  3. Pettis contends foreign capital inflows to the US, including post-Asian Crisis reserve accumulation by developing countries, reflected conditions abroad rather than US performance, with the US economy still having to adjust to the imbalance.

Related Articles:

  • Rethinking Trade Imbalances — The argument holds that large US trade deficits reflect capital flowing in to take advantage of high returns as the US pulled ahead in information technology, since the trade balance plus net foreign investment inflows must sum to zero. On this view the deficits represent international macroeconomics working as intended, though the US has de-industrialized.
  • China’s Very Bad, No Good Trillion-Dollar Trade Surplus — China's high investment rates face diminishing returns and the government is unwilling to promote higher consumer spending, so it compensates for weak domestic demand with large trade surpluses supported by a weaker currency. The author argues this attempt to export its policy failure will provoke a protectionist backlash from Europe, the UK, and others.
  • A User’s Guide to Restructuring the Global Trading System — During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.

AI Summary. President Trump has said he favors a universal tariff rate "much bigger" than the 2.5% global rate reportedly preferred by his incoming Treasury Secretary, and has pledged sector-specific tariffs on semiconductors, pharmaceuticals, steel, copper, and aluminum. He also suggested tariffs on automobiles from Canada and Mexico, which he has already threatened with 25% across-the-board tariffs.

Stephanie Lai, Billy House, and Josh Wingrove Bloomberg
Date Posted:

Responding to Scott Bessent’s reported advocacy of an initial universal tariff starting at 2.5%, Trump said he favored a “much bigger” rate and in a recent speech pledged tariffs on semiconductors, pharmaceuticals, steel, copper, and aluminum.

Will a universal tariff be set much higher than 2.5%?

Core argument: Trump said he did not think incoming Treasury Secretary Scott Bessent backed a reported plan to start a universal tariff at 2.5%, and that he would not favor it himself, wanting a rate "much bigger" than 2.5%.

Asked about a report that incoming Treasury Secretary Scott Bessent favored starting with a global rate of 2.5%, Trump said he didn’t think Bessent supported that and wouldn’t favor it himself. He said he wanted a rate “much bigger” than 2.5%. Trump spoke aboard Air Force One while he flew back to Washington from a Florida speech where he pledged tariffs on specific sectors, including semiconductors, pharmaceuticals, steel, copper, and aluminum. He also strongly suggested he could also impose them on automobiles from Canada and Mexico, countries he’s already threatened with 25% across-the board tariffs as soon as Feb. 1.

Takeaways by Macro Roundup® AI

  1. Trump said he did not think incoming Treasury Secretary Scott Bessent backed a reported plan to start a universal tariff at 2.5%, and that he would not favor it himself, wanting a rate "much bigger" than 2.5%.
  2. In a Florida speech, Trump pledged tariffs on specific sectors, including semiconductors, pharmaceuticals, steel, copper, and aluminum.
  3. Trump suggested he could impose tariffs on automobiles from Canada and Mexico, countries he has already threatened with 25% across-the-board tariffs as soon as Feb. 1.

Related Articles:

  • Trump Pushes for Early Renegotiation of U.S. Trade Deal With Mexico, Canada — The U.S.-Mexico-Canada trade agreement governs roughly $2tn of trade and was approved with the broadest congressional support of any U.S. trade deal, with more than 200 Democrats backing it over added labor and environmental standards. Mexico and Canada have since supplanted China as the leading U.S. trading partners.
  • A User’s Guide to Restructuring the Global Trading System — During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.

AI Summary. Since MSCI data began in 1970, US stocks have outperformed European stocks by an average of 0.8 percentage points per year, with $1 invested in 1970 growing to $268 in the US versus $141 in Europe over 55 years. Before the financial crisis the ranking was reversed, with the US gain equal to 57% of the European gain.

Jesper Rangvid Rangvid's Blog
Date Posted:
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Once at par with Europe’s American equity markets pulled away since ~ 2015. One dollar invested in the MSCI US index in 1970 would be worth $268 in 2025, vs. $141 for a dollar invested in the 1970 MSCI Europe index.

Have US stocks consistently outperformed European stocks over five decades?

Core argument: Since MSCI data collection began in 1970, US stocks have outperformed European stocks by an average of just 0.8 percentage points per year.

We often hear about the strength of the US stock market, which is widely perceived to have vastly outperformed its European counterpart. However, since MSCI data collection began in 1970, the difference in performance is relatively modest, averaging just 0.8 percentage points per year. A one-dollar investment in the US in 1970 would have grown to USD 47.8 by 2007, while the same investment in Europe would have reached USD 83.9. This means that the gain from a US investment would have been just 57% of the gain from a European investment. That said, a significant shift occurred around the time of the financial crisis. One dollar invested in the US stock market index in 1970 would have grown to USD 268 by 2025. Over the long term—55 years, 1970-2025—the US stock market has outperformed the European: if you had invested one dollar in the European stock market, it would have grown to only half as much as the US stock market—USD 141.

Takeaways by Macro Roundup® AI

  1. Since MSCI data collection began in 1970, US stocks have outperformed European stocks by an average of just 0.8 percentage points per year.
  2. One dollar invested in US stocks in 1970 would have grown to USD 47.8 by 2007, versus USD 83.9 in Europe, leaving the US gain at 57% of the European gain.
  3. Over 1970 to 2025, one dollar invested in the US stock market index would have grown to USD 268, while the same dollar in European stocks reached USD 141, about half as much.

Related Articles:

  • Why the U.S. Economy Is Trouncing Europe’s — Only about 12% of Americans score at the highest levels on international academic tests versus 34% at the lowest, yet the U.S. has created nearly 250 companies worth over $10bn ($30tn in value) against Europe's 14, and median U.S. disposable household income is 25% above Germany's. The author argues expanding high-skilled immigration is the fastest way to accelerate growth.
  • Data Update 2 for 2025: The Party Continues (for US Equities)! — Applying an internal-rate-of-return approach to the S&P 500 using consensus earnings and payout estimates implies an expected stock return of 8.91% and an equity risk premium of 4.33%. Assuming the premium reverts to 4.5% yields an index value about 12% below current levels, with an estimated 80% chance stocks are overvalued.
  • 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. DeepSeek appears to have trained its models about 45x more efficiently than other leading-edge models, combining existing techniques—activating only 37bn of 671bn parameters at a time, a smaller memory cache, lower-precision training, and multi-token prediction—alongside self-reinforcement learning. Training cost $5.6m, and its interface charges $0.14 per million tokens versus OpenAI's $7.50.

Michael Cembalest J.P. Morgan
Date Posted:

DeepSeek’s V3 model, the basis for their R1 release, may have been trained 45x more efficiently than other leading-edge models. DeepSeek provides API access at $0.14 per million tokens while OpenAI charges $7.50 per million tokens.

How did one model achieve far greater training efficiency?

Core argument: DeepSeek appears to have trained its models 45x more efficiently than other leading-edge models, at a cost of $5.6M for 2.7M GPU hours, while Llama 3.1 405B used roughly 10x more GPU hours.

DeepSeek appears to have trained its models 45x more efficiently than other leading-edge models. To be clear, most of DeepSeek’s approaches already existed. Its greatest accomplishment: deploying them all at once in the face of a chip ban, and introducing self-reinforcement learning. GPT-3.5 uses its entire model for training/inference despite only needing small parts. GPT-4 and DeepSeek are a mixture of expert (MoE) models activating only necessary parts. DeepSeek V3 has 671B parameters, but just 37B are active at any time.MLA refers to “multi-head latent attention,” jargon for how DeepSeek runs with a smaller memory cache. Other efficiency approaches: parameters stored with BF16/FP32 are reduced to FP8 during training. Multi-token prediction (MTP) reduces accuracy ~10% but doubles inference speed. Training cost $5.6M for 2.7M GPU hours; Llama 3.1 405B used ~10x more GPU hours. DeepSeek API: $0.14/million tokens vs. OpenAI’s $7.50. Performance rivals OpenAI 4o and Anthropic’s Sonnet-3.5, better than Llama’s biggest model.

Takeaways by Macro Roundup® AI

  1. DeepSeek appears to have trained its models 45x more efficiently than other leading-edge models, at a cost of $5.6M for 2.7M GPU hours, while Llama 3.1 405B used roughly 10x more GPU hours.
  2. DeepSeek V3 holds 671B parameters but activates only 37B at any time as a mixture-of-experts model, alongside multi-head latent attention for a smaller memory cache, FP8 training precision, and multi-token prediction that cuts accuracy about 10% while doubling inference speed.
  3. DeepSeek's API charges $0.14 per million tokens against OpenAI's $7.50, with performance rivaling OpenAI 4o and Anthropic's Sonnet-3.5 and bettering Llama's biggest model, though most of its approaches already existed, its accomplishment being deploying them at once under a chip ban and introducing self-reinforcement learning.

Related Articles:

  • DeepSeek FAQ — Consumers and businesses stand to gain most from a future of effectively free AI products, along with big consumer tech companies, since a world of free AI makes product and distribution the decisive advantages they already hold. China also benefits, and the United States faces a choice between expanding chip export restrictions and permission-based regulation or allowing itself to compete.
  • The Year-End Wake-Up: The ‘Chinese Sputnik’ That Demands Our Attention — Chinese AI company DeepSeek trained its Version 3 large language model for roughly $5.6m, about 100x cheaper than Meta's Llama 3, with performance comparable to Claude 3.5 Sonnet and interface access costing 12x less than Anthropic's. The author argues US chip export controls backfired by spurring leaner engineering, and that the gap between open-source and closed-source models is narrowing rapidly.
  • 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. An analysis of more than 1,400 life narratives of older Americans, combining human readings with large language models, finds sources of life meaning are more varied than previous research suggested, with work and community contributions alongside family and close relationships. Women were significantly more likely than men to cite family, community, resilience, and religion.

David Lagakos, Stelios Michalopoulos and Hans-Joachim Voth National Bureau of Economic Research
Date Posted:

.@JoachimVoth @LagakosDavid reviewed oral histories of 1,400 older Depression-era Americans on life satisfaction and found that work and community contributions are on par with family in living a meaningful life for both men and women.

What do older Americans say gives their lives meaning?

Core argument: Drawing on over 1,400 life narratives of older Americans combining human readings with large language models, the authors find sources of life meaning more varied than prior research suggested, with work and community contributions alongside family and close relationships.

We exploit a unique corpus of over 1,400 life narratives of older Americans. We combine detailed human readings with large language models (LLMs) to extract systematic information on critical junctures, sources of meaning, and overall life satisfaction. Sources of life meaning are more varied than previous research suggested, underlining the importance of work and community contributions in addition to family and close relationships. The central importance of work among our narrators contrasts with the famous Harvard Study of Adult Development which emphasizes the paramount importance of relationships with other people. Sharp differences emerge when comparing what brings happiness and meaning across sub-groups of narrators. These appear in Figure 7, panel (b), which presents odds ratios by sub-group. Family and community were significantly more likely to be mentioned as a source of meaning by women, consistent with widely-held wisdom about gender roles in the late 19th and early 20th century. Resilience and religion were also markedly more common uplifting themes for women than for men.

Takeaways by Macro Roundup® AI

  1. Drawing on over 1,400 life narratives of older Americans combining human readings with large language models, the authors find sources of life meaning more varied than prior research suggested, with work and community contributions alongside family and close relationships.
  2. The central importance of work among the narrators contrasts with the Harvard Study of Adult Development, which emphasizes relationships with other people as paramount.
  3. Odds ratios by sub-group show family and community were significantly more likely to be mentioned as sources of meaning by women, and resilience and religion were markedly more common uplifting themes for women than for men.

Related Articles:

  • The Employment Effects of a Guaranteed Income: Experimental Evidence from Two U.S. States — In a randomized experiment, 1,000 low-income individuals received $1,000/month unconditionally for three years while a control group of 2,000 received $50/month, and the transfers reduced individual income excluding transfers by about $1,500/year. The authors find no significant effects on human capital investment and conclude the transfers produced a moderate labor supply reduction not offset by other productive activities.
  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • The Anti-Social Century — 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%.

AI Summary. US nuclear fusion start-up Helion has raised over $1bn at a $5.4bn valuation, including a $425mn round. The company says it will spend the funds expanding US manufacturing of large-scale pulse capacitors, which account for about a third of the cost of its Polaris reactor and were previously built overseas.

Malcolm Moore Financial Times
Date Posted:

Helion, a fusion startup with a contract to supply Microsoft with electricity by 2028, just raised $425M. The CEO says this funding keeps them “on course” to achieve that goal.

Will new funding help a fusion start-up bring reactor component manufacturing onshore?

Core argument: Helion, backed by Sam Altman and Peter Thiel, raised $425mn in a round that lifts its total funding above $1bn and values the nuclear fusion start-up at $5.4bn.

Helion has now raised more than $1bn and has a valuation of $5.4bn, including the latest fundraising round. The new funds would put it “on course” to achieve the goal, said CEO David Kirtley. Kirtley said the money would be spent on manufacturing pulse capacitors, an important component of its Polaris reactor in the US. “The capacitor is where about a third of the cost of the whole system goes, and about 85% of Polaris’ capacitors were built overseas. We bought them and waited several years to get them in-house,” he said. “We are now the first US manufacturer of large-scale pulse capacitors in decades, and we are going to expand that. So rather than waiting three years, we could get them in a year or less.”

Takeaways by Macro Roundup® AI

  1. Helion, backed by Sam Altman and Peter Thiel, raised $425mn in a round that lifts its total funding above $1bn and values the nuclear fusion start-up at $5.4bn.
  2. CEO David Kirtley said pulse capacitors account for about a third of the cost of Helion's entire system, and about 85% of the capacitors for its Polaris reactor were built overseas, arriving only after a multi-year wait.
  3. Kirtley said Helion is the first US manufacturer of large-scale pulse capacitors in decades and plans to expand that capacity to cut waits from three years to a year or less.

Related Articles:

  • China Outspends the U.S. on Fusion in the Race for Energy’s Holy Grail — Scientists familiar with China's fusion facilities estimate that at its current pace of spending and development, China will surpass U.S. and European magnetic fusion capabilities within three or four years. Much U.S. fusion spending goes to legacy programs, while China's roughly $1.5bn is largely directed at building systems that would compete with leading private U.S. fusion firms.
  • Microsoft Bets That Fusion Power Is Closer Than Many Think — Microsoft has agreed to buy fusion-generated electricity from startup Helion Energy in what is believed to be the first commercial fusion power agreement, even as many experts view fusion as decades away. Helion committed to begin producing fusion electricity within about five years and to supply at least 50 megawatts or pay penalties.
  • Fusion Start-Up Plans to Build Its First Power Plant in Virginia — Commonwealth Fusion Systems, the best-funded of the fusion start-ups, plans to build a fusion power plant in Virginia with a peak capacity of 400 megawatts, which the company says could power about 150,000 homes but would most likely serve large industrial customers. The company is first building a pilot machine in Massachusetts intended to demonstrate the technology's feasibility.

Wednesday, January 29, 2025

AI Summary. Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.

Aswath Damodaran Musings on Markets
Date Posted:
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Aswath Damodaran defines an “intrinsic risk-free rate,” the sum of real GDP growth and inflation, which he finds is more predictive of 10-year yields than the FFR. He argues, “Interest rates ultimately are driven by macro fundamentals.”

Do macroeconomic fundamentals, rather than central banks, drive interest rates?

Core argument: Damodaran defines an intrinsic risk-free rate as the sum of the inflation rate and the real GDP growth rate in a period, and argues interest rates are ultimately driven by macro fundamentals rather than set by central banks.

Over the last two decades we have come to accept the notion that central banks set interest rates. [I] argue that interest rates ultimately are driven by macro fundamentals, and that the power of central banks comes from preferential access to data about these fundamentals, their capacity to alter those fundamentals (in good and bad ways) and the credibility that they have to stay the course. [I define] Intrinsic risk-free rate = Inflation rate in period t + Real GDP growth rate in period t. In the chart, I compare my estimates of the intrinsic risk-free rate to the observed ten-year treasury bond rate each year. While the match is not perfect, the link between the two is undeniable, and the intrinsic risk-free rate calculations yield results that help counter the stories about how it is the Fed that kept rates low between 2008 and 2021, and caused them to spike in 2022. I am not suggesting that central banks don't matter or that they do not affect interest rates, because that would be an overreach.

Takeaways by Macro Roundup® AI

  1. Damodaran defines an intrinsic risk-free rate as the sum of the inflation rate and the real GDP growth rate in a period, and argues interest rates are ultimately driven by macro fundamentals rather than set by central banks.
  2. Comparing estimated intrinsic risk-free rates with observed ten-year Treasury bond rates each year, Damodaran finds the match imperfect but the link undeniable, countering claims that the Fed kept rates low between 2008 and 2021 and caused the 2022 spike.
  3. Damodaran attributes central banks' power to preferential access to data on macro fundamentals, their capacity to alter those fundamentals in good and bad ways, and their credibility to stay the course, while acknowledging they do affect interest rates.

Related Articles:

  • The Fed and the Secular Decline in Interest Rates — The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.
  • 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.

AI Summary. The authors argue the equity market decline is a correction rather than the start of a sustained bear market, with valuations having reached very high levels, particularly in the US, where stocks remain expensive relative to history even excluding large-cap technology. They contend US market and technology-sector dominance reflects superior fundamentals rather than a bubble built on irrational exuberance.

Peter Oppenheimer, Sharon Bell, Guillaume Jaisson and Lilia Peytavin Goldman Sachs
Date Posted:

A GS note argues volatility around the release of DeepSeek is a correction and not the start of a bear market. The US equity market “does not represent a bubble based on irrational exuberance but is rather a reflection of superior fundamentals.”

Is the stock market decline a correction rather than a bear market?

Core argument: News of the DeepSeek LLM model triggered the first decline of more than 3.5% in the Magnificent 7 since last Autumn, which the authors characterize as a correction rather than the start of a sustained bear market.

The equity markets' correction, triggered by news of the DeepSeek LLM model, has been the first fall of more than 3.5% of the Magnificent 7 since last Autumn. In our view this is a correction and not the start of a sustained bear market. Overall levels of valuation had reached very high levels, particularly in the US, and P/E multiples have increased meaningfully since Q4 2023. In the case of the US, while much of this reflects the largest technology companies, the equity market remains expensive relative to history even if we exclude large cap technology (the second column). Furthermore, while other equity markets around the world are much cheaper than the US, most are not particularly cheap relative to their own history. The main exception is China. The dominance of US equity market, technology sector, and dominant companies does not represent a bubble based on irrational exuberance but is rather a reflection of superior fundamentals.

Takeaways by Macro Roundup® AI

  1. News of the DeepSeek LLM model triggered the first decline of more than 3.5% in the Magnificent 7 since last Autumn, which the authors characterize as a correction rather than the start of a sustained bear market.
  2. Equity valuations had reached very high levels, particularly in the US, with P/E multiples up meaningfully since Q4 2023, and the authors judge the US market expensive relative to history even excluding large cap technology.
  3. Most equity markets outside the US are cheaper than the US but not particularly cheap relative to their own history, with China the main exception, and the authors attribute US, technology, and mega-cap dominance to superior fundamentals rather than irrational exuberance.

Related Articles:

  • 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: To Buy, Or Not To Buy, That Is The Question — Valuations of AI-related stocks remain well below levels seen in past bubbles, with the median price-to-earnings and enterprise-value-to-sales ratios of the 7 largest technology companies roughly half those of the dominant 7 at the 2000 technology peak. But leading AI firms are no longer capital-light, and a major capital-spending boom threatens the high returns current valuations imply will continue.
  • DeepSeek and the Sincerest Form of Flattery — DeepSeek appears to have trained its models about 45x more efficiently than other leading-edge models, combining existing techniques—activating only 37bn of 671bn parameters at a time, a smaller memory cache, lower-precision training, and multi-token prediction—alongside self-reinforcement learning. Training cost $5.6m, and its interface charges $0.14 per million tokens versus OpenAI's $7.50.

AI Summary. Falling fertility rates and aging populations shrink the share of working-age people, reducing tax revenues while pension and healthcare costs rise. S&P Global estimated that without sufficient policy action, fiscal deficits would widen from a global average of 2.4% of GDP to 9.1% by 2060, with global net government debt to GDP nearly tripling.

Eade Hemingway, Janina Conboye, and Richard Milne Financial Times
Date Posted:

S&P Global forecasts deficits to climb from a current global average of 2.4% of GDP to 9.1% by 2060. Two-thirds of the world lives in countries with below-replacement fertility rates and a high number of old-age dependants, driving fiscal deficits.

Do falling birth rates widen government deficits and debt?

Core argument: S&P Global analysts estimated in 2023 that without sufficient policy action, fiscal deficits would balloon by 2060 from a global average of 2.4% of GDP to 9.1%.

The decline in fertility rates threatens to lead to deep economic malaise. Fewer babies and more older residents lead to a lower proportion of people of working age, denting tax revenues at the same time as costs associated with aging societies, such as state pensions and healthcare, increase. Without sufficient policy action, analysts at rating agency S&P Global estimated in 2023 that fiscal deficits would balloon by 2060 from a global average now of 2.4% of GDP to 9.1%. The global net government debt to GDP level would very nearly triple.

Takeaways by Macro Roundup® AI

  1. S&P Global analysts estimated in 2023 that without sufficient policy action, fiscal deficits would balloon by 2060 from a global average of 2.4% of GDP to 9.1%.
  2. S&P Global also estimated that the global net government debt to GDP level would very nearly triple absent sufficient policy action.
  3. Falling fertility rates and aging populations reduce the share of people of working age, denting tax revenues while costs for state pensions and healthcare rise.

Related Articles:

  • 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.
  • 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.
  • Babies and the Macroeconomy — Fertility rates have fallen in nearly every country, but timing differed: some developed nations fell below the 2.1 replacement level as early as the 1970s, while others dropped to "lowest low" levels below 1.3. The author argues nations with rapid, discontinuous growth saw sharper declines as women's expectations outpaced tradition-bound men's willingness to share family time.

AI Summary. Family-care centers — daycares run in a provider's home — now charge $344 per week for one infant, up 50% from a year earlier, leaving their prices nearly identical to daycare centers, according to care-giving platform Care.com. Nanny costs for an infant are about $43,000 a year, up 8%.

Kelsey Butler Bloomberg
Date Posted:

A survey by Care.com finds US childcare costs have surged with the cost of a nanny for an infant and a toddler rising 8% and 14% y/y respectively to $43,000 and $44,600. Family care centers are nearly identical in cost to daycare centers.

Are lower-cost home daycares still cheaper than daycare centers?

Core argument: Family-care centers now charge $344 per week for one infant, up 50% year-over-year, according to Care.com, leaving their prices nearly identical to daycare centers after traditionally being the more affordable option.

Family-care centers now charge $344 per week for one infant, up 50% year-over-year, online care-giving platform Care.com said. These facilities — daycares within a provider’s home — have traditionally been a more affordable option than a daycare center, but now prices are nearly identical. The cost for a nanny for an infant is now about $43,000 annually, 8% higher than a year earlier, while for a toddler it jumped about 14% for a roughly $44,600 annual price tag. Daycare center costs also rose between 7% and 8% on the year.

Takeaways by Macro Roundup® AI

  1. Family-care centers now charge $344 per week for one infant, up 50% year-over-year, according to Care.com, leaving their prices nearly identical to daycare centers after traditionally being the more affordable option.
  2. Nanny care for an infant now costs about $43,000 annually, 8% higher than a year earlier, while toddler nanny care rose about 14% to roughly $44,600, Care.com said.
  3. Daycare center costs rose between 7% and 8% on the year, according to Care.com, compared with the 50% jump for family-care centers.

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AI Summary. Inflation-adjusted US house prices are 1.1% below their 2022 peak, based on the Case-Shiller National Index. An affordability measure combining median income, house prices, and 30-year fixed mortgage rates shows the monthly principal-and-interest payment on the same house rose about 80% over three years, as prices climbed 18% and mortgage rates went from roughly 3.07% to 6.81%.

Bill McBride Calculated Risk
Date Posted:

Real house prices are 1.1% below the 2022 peak and 12% 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 house payments risen as prices and rates climbed?

Core argument: Inflation-adjusted U.S. house prices stand 1.1% 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 November 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 18% over three years and mortgage rates at 6.81% in November 2024, would be $3,068 - an increase of 80%!

Takeaways by Macro Roundup® AI

  1. Inflation-adjusted U.S. house prices stand 1.1% below their 2022 peak, based on the Case-Shiller National Index, seasonally adjusted.
  2. The monthly principal-and-interest payment on a $500,000 house with 20% down rose 80%, from about $1,701 in November 2021 at a 3.07% 30-year rate to $3,068 in November 2024 at 6.81%.
  3. House prices rose 18% over the three years to November 2024, alongside an increase in Freddie Mac 30-year fixed mortgage rates from 3.07% to 6.81%.

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AI Summary. China directs $1–1.5bn a year in public funding to fusion research, exceeding the roughly $900m in total annual public funding across the rest of the world, while US private fusion funding has averaged $200–500m a year with sharp swings. China's state-led stability contrasts with America's fragmented, private-sector-driven approach.

Amy Ouyang Macro Polo
Date Posted:

China spends $1-$1.5B annually on fusion research from stable public funds, with state-owned firms managing supply chains. In contrast, US private fusion funding “has fluctuated significantly, averaging $200–500mm per year.” @Hanyue_Ouyang

Is China outspending the rest of the world on fusion research?

Core argument: China's public funding for fusion R&D has run $1–$1.5 billion annually in recent years, exceeding the $900 million in total annual public fusion funding for the rest of the world.

China’s public funding has flowed to fusion R&D to the tune of $1-$1.5 billion annually in recent years. While that may not be a massive aggregate sum, it far exceeds the $900 million in total annual public funding for the rest of the world. In contrast, US private funding towards fusion has fluctuated significantly, averaging $200–$500 million per year, with a one-off spike to above $2.5 billion in 2021. That this Chinese public funding is relatively stable helps to insulate fusion R&D from market pressures and short-term volatility like budget cuts. Commercializing fusion—which requires highly skilled talent, advanced materials engineering, and scalable infrastructure—takes coordination and delegation. In China, the state will be the conductor and first chair of this strategic symphony. Though fusion is no less strategic for the United States, its private-sector driven and fragmented approach brings its own set of bottlenecks.

Takeaways by Macro Roundup® AI

  1. China's public funding for fusion R&D has run $1–$1.5 billion annually in recent years, exceeding the $900 million in total annual public fusion funding for the rest of the world.
  2. US private fusion funding has averaged $200–$500 million per year with a one-off spike above $2.5 billion in 2021, while China's relatively stable public funding helps insulate its fusion R&D from budget cuts and short-term volatility.
  3. Commercializing fusion requires highly skilled talent, advanced materials engineering, and scalable infrastructure, with the Chinese state serving as coordinator while the fragmented, private-sector-driven US approach brings its own bottlenecks.

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AI Summary. Boom Supersonic's XB-1 test aircraft exceeded Mach 1, about 770 miles per hour, at an altitude of 34,000 feet, potentially opening the way for a return of supersonic commercial travel. The XB-1 is about one-third the size of Boom's planned Overture passenger jet, which would carry 64–80 passengers and cost about $200mn.

Sylvia Pfeifer, Ian Bott and Philip Georgiadis Financial Times
Date Posted:

Boom Supersonic’s XB-1 exceeded Mach 1 in a test flight, signaling a potential return to supersonic commercial travel. Boom has 130 aircraft pre-orders from United, American, and Japan Airlines.

Is supersonic commercial air travel moving closer to a return?

Core argument: Boom Supersonic's XB-1 test aircraft exceeded Mach 1, about 770 miles per hour, at an altitude of 34,000 feet above California's Mojave desert, breaking the sound barrier for the first time more than 20 years after Concorde's final flight.

A test aircraft built by a US start-up has broken the sound barrier for the first time during a flight, potentially paving the way for the return of supersonic commercial travel more than 20 years since Concorde’s final flight. Boom Supersonic’s XB-1 successfully exceeded Mach 1, about 770 miles per hour, after reaching an altitude of 34,000 feet above the Mojave desert in California on Tuesday. The XB-1 is about one-third the size of the Overture jet that Boom hopes to use for passenger flights. Designed to carry 64 to 80 passengers, the plane would be smaller than the average commercial airliner today and would cost about $200mn. The company has already secured orders and pre-orders from United Airlines, American Airlines, and Japan Airlines to purchase 130 aircraft.

Takeaways by Macro Roundup® AI

  1. Boom Supersonic's XB-1 test aircraft exceeded Mach 1, about 770 miles per hour, at an altitude of 34,000 feet above California's Mojave desert, breaking the sound barrier for the first time more than 20 years after Concorde's final flight.
  2. Boom's planned Overture passenger jet, about three times the size of the XB-1, would carry 64 to 80 passengers, making it smaller than the average commercial airliner today, and would cost about $200mn.
  3. United Airlines, American Airlines and Japan Airlines have placed orders and pre-orders for 130 of Boom Supersonic's aircraft.

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