Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, September 29, 2025

AI Summary. Two AAA-rated Microsoft bonds trade at yields slightly below equivalent U.S. Treasurys, an unusual negative spread given that companies are more likely to default than a government able to tax and that corporate bonds are harder to sell. Demand for high-quality corporate debt has compressed the AAA corporate spread to 0.3 percentage point over Treasurys.

James Mackintosh Wall Street Journal
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Two AAA-rated MSFT bonds trade at lower yields than their Treasury equivalents. Mackintosh suggests that the “combination of more Treasurys and fewer top-grade corporate bonds has naturally squeezed the gap btw their yields.”

Can a top-rated company borrow more cheaply than the government?

Core argument: Two Microsoft bonds rated AAA trade at yields slightly below equivalent Treasurys, a negative spread that is unusual because companies are in principle more likely to default than a government that can tax.

Two pristine-rated bonds from Microsoft trade at lower yields than equivalent Treasurys. Among U.S. corporate bonds rated AAA, two in the main index currently trade a little below the equivalent yield on Treasurys, known as a negative spread. This is extremely unusual, both because companies are in principle much more likely to default than the government that can tax them, and because the corporate bonds are harder to trade, so should yield a little more to compensate buyers for the difficulty in selling them quickly. Yet, demand for high-quality corporate bonds has been so great that it’s driven the ICE B of A AAA U.S. Corporate index to a spread of only 0.3 percentage point over Treasurys, a tiny reward for the additional risks of holding company debt and far below the 2-plus points reached in the past two recessions. It’s small enough that some of the best bonds get pushed to yield less than the government.

Takeaways by Macro Roundup® AI

  1. Two Microsoft bonds rated AAA trade at yields slightly below equivalent Treasurys, a negative spread that is unusual because companies are in principle more likely to default than a government that can tax.
  2. The ICE BofA AAA U.S. Corporate index trades at a spread of only 0.3 percentage point over Treasurys, far below the 2-plus points reached in the past two recessions, amid strong demand for high-quality corporate bonds.
  3. Corporate bonds are harder to trade than Treasurys and in principle should yield a little more to compensate buyers for the difficulty of selling them quickly.

Related Articles:

  • What’s Driving the Surge in U.S. Corporate Profits? — U.S. corporate profits reached $4tn, 2.3 percentage points higher as a share of national income than before the COVID-19 pandemic, an increase driven by domestic nonfinancial industries and offset mainly by declines in net interest and miscellaneous asset payments and in income of unincorporated businesses. Employee compensation's share edged down, and higher profits mostly went to shareholders through dividends.
  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.
  • French Companies’ Borrowing Costs Fall Below Government’s As Debt Fears Intensify — Bond yields for French companies including L'Oréal, Airbus and Axa have fallen below those on French government debt of similar maturity, with 10 French firms trading at a negative spread to the sovereign — the most in data going back to 2006, according to Goldman Sachs. Sovereign yields typically set a baseline for corporate bonds.

AI Summary. A county's share of adults on Social Security Disability Insurance is a strong predictor of later growth in local drug death rates, a relationship the authors find is not primarily explained by local economic conditions or health-service access. They estimate drug mortality would have been 43% lower absent this divergence.

William Evans and Ethan Lieber National Bureau of Economic Research
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The fraction of a county’s adults on SSDI in 1990 predicts growth in its drug death rate after 2000 because it is a measure of the county’s pain level. Had opioid prescribing practices stayed at 1995 levels, drug deaths in 2015 would have been 43% lower.

Does local disability enrollment predict later growth in drug death rates?

Core argument: A back-of-the-envelope calculation suggests drug mortality would have been 43% lower in 2015 had pre-1996 differences in drug poisoning mortality across 1990 SSDI rates persisted after 1995.

A county’s fraction of adults in 1990 on Social Security Disability Insurance (SSDI) is a strong predictor of growth in local drug death rates after 2000. Our [county level regression] results suggest that the relationship between the 1990 SSDI rate and drug death rates is not primarily driven by local economic conditions, general access to health services, the decline of institutions, or the rise and marketing of OxyContin. We know that the rise in drug death rates is driven by the rise in opioid death rates and that opioids are used to treat chronic pain. In addition, as seen in Figure 5, higher 1990 SSDI rate counties saw much larger increases in prescription opioid use than lower 1990 SSDI rate counties. The evidence is consistent with the hypothesis that the part of the 1990 SSDI rate that is correlated with drug death rates is proxying for the amount of pain in the county. This, combined with the liberalization of opioid prescribing in the 1990s and 2000s that we document, could explain a significant portion of the rise in drug deaths between 1995 and 2015. A simple back of the envelope calculation suggests that if pre-1996 differences in drug poisoning mortality across 1990 SSDI rates had been maintained after 1995, drug mortality would have been 43% lower in 2015.

Takeaways by Macro Roundup® AI

  1. A back-of-the-envelope calculation suggests drug mortality would have been 43% lower in 2015 had pre-1996 differences in drug poisoning mortality across 1990 SSDI rates persisted after 1995.
  2. County-level regressions find a county's 1990 share of adults on Social Security Disability Insurance strongly predicts growth in local drug death rates after 2000, a relationship not primarily driven by local economic conditions, health services access, institutional decline, or OxyContin marketing.
  3. Counties with higher 1990 SSDI rates saw much larger increases in prescription opioid use, evidence consistent with the hypothesis that the 1990 SSDI rate proxies for the amount of pain in a county.

Related Articles:

  • Republican Support and Economic Hardship: Enduring Effects of the Opioid Epidemic — The authors estimate that geographic exposure to prescription-opioid marketing raised drug-related mortality and reliance on public transfer programs, and continuously increased the Republican vote share in House, presidential, and gubernatorial elections. They estimate a one-standard-deviation increase in exposure raised the Republican House vote share by 4.5 percentage points.
  • Democracy and the Opioid Epidemic — Using US commuting zone data and the concentration of early prescription opioid marketing in cancer pain markets, the authors estimate that exposure to the opioid epidemic substantially increased the Republican vote share in congressional and presidential elections, with a one standard deviation rise in initial cancer mortality corresponding to 13.8 percentage points.
  • The Rise in American Pain: The Importance of the Great Recession — The authors find that the rise in reported pain among Americans was almost entirely concentrated in the 2007–2010 recession period rather than following a smooth upward trend, with the disproportionate increase among the less educated also occurring primarily then. The authors state they find this jump difficult to explain.

AI Summary. Economists expect anemic payroll growth with unemployment holding at 4.3%, a relatively low rate that masks workers stuck in unwanted jobs or underemployed. Goldman Sachs economists say labor market churn—the flow into and out of jobs—has fallen well below pre-Covid levels, and unemployment among 16-to-24-year-olds reached 10.5%.

Michael Sasso, Augusta Saraiva, and Mark Niquette Bloomberg
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The US’s low jobless rate of 4.3% in August may mask some labor market deterioration; 25% of these workers have been out of work for 6m and the unemployment rate for workers 16–24 hit 10.5% in August, the highest level since 2016, excluding the pandemic.

Does a low unemployment rate hide workers stuck in unwanted jobs?

Core argument: Unemployment among US workers ages 16 to 24 jumped to 10.5% in August, the highest since 2016 when excluding the Covid era, leaving young Americans with one of the toughest job markets in nearly a decade.

Economists forecast that September’s employment report, expected to publish on Friday, will show another month of anemic payrolls growth. They see the jobless rate remaining at 4.3%, a level that is still relatively low but masks the reality of a growing number of people who feel stuck in jobs they don’t want or underemployed. The “churn” in the labor market — or the flow into and out of existing jobs — has fallen well below pre-Covid levels, according to Goldman Sachs Group Inc. economists. Young Americans face one of the toughest job markets in nearly a decade. The unemployment rate among workers ages 16 to 24 jumped to 10.5% in August, the highest since 2016 when excluding the Covid era.

Takeaways by Macro Roundup® AI

  1. Unemployment among US workers ages 16 to 24 jumped to 10.5% in August, the highest since 2016 when excluding the Covid era, leaving young Americans with one of the toughest job markets in nearly a decade.
  2. Economists expect September's employment report to show another month of anemic payrolls growth with the jobless rate holding at 4.3%, a level that masks a growing number of people stuck in jobs they don't want or underemployed.
  3. Goldman Sachs Group Inc. economists find that labor market churn — the flow into and out of existing jobs — has fallen well below pre-Covid levels.

Related Articles:

  • U.S. Job Market Still (Surprisingly?) Good. Inflation Risk Is Paramount — The employment rate for Americans aged 25–54 has held essentially unchanged at a multi-decade high of 80.7%, just below its recent peak of 80.9%, alongside robust growth in hours worked. Because overall unemployment has risen while prime-age employment stayed stable, job market weakness is concentrated among Americans under 25.
  • Canaries in the Coal Mine? Six Facts about the Recent Employment Effects of Artificial Intelligence — Using payroll records covering millions of US workers, the authors find employment for workers aged 22–25 in occupations most exposed to artificial intelligence, such as software developers and customer service representatives, declined 6%, while employment for older workers in those occupations rose 6–9%. Employment in less-exposed occupations grew comparably across age groups.
  • Shorting the AI Jobs Apocalypse — Employment for workers aged 22-25 and 26-30 has declined relative to its pre-ChatGPT trend and relative to older workers in the same occupation, but the age groups shown are not equally sized. The authors argue that combining all age groups shows software developer jobs have continued to grow overall.

AI Summary. New foreign direct investment into China has fallen sharply, while new inflows to the rest of the emerging markets have remained stable. Reinvested earnings of foreign subsidiaries in China, historically strongly positive, have turned negative, a sign those subsidiaries may be making losses.

Robin Brooks Robin Brooks Substack
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FDI flows into China have decreased, while flows into other emerging markets remain steady. Robin Brooks suggests “China’s status as an export hub for the world looks increasingly challenged over the medium term.”

Is foreign direct investment shifting away from China toward other emerging markets?

Core argument: Genuine new foreign direct investment into China has fallen sharply, a trend that has picked up in recent years.

The left chart above shows non-resident FDI into China (black line), breaking this down into genuine new FDI investment (blue bars) and reinvested earnings (red bars), which reflect retained profits of foreign subsidiaries in China. The latter have in the past been strongly positive, as foreign subsidiaries found it difficult to repatriate earnings back to their home countries. More recently, these reinvested earnings have gone negative, a sign that foreign subsidiaries in China may be making losses. The more interesting development is the sharp fall in genuine new FDI flows into China, a trend that’s picked up in recent years. The right chart shows that this drop-off in genuine new FDI stands in stark contrast to the rest of EM, where new FDI inflows are stable.

Takeaways by Macro Roundup® AI

  1. Genuine new foreign direct investment into China has fallen sharply, a trend that has picked up in recent years.
  2. Reinvested earnings of foreign subsidiaries in China have turned negative after long being strongly positive, which may indicate that those subsidiaries are making losses.
  3. New FDI inflows to the rest of emerging markets remain stable, in contrast to the drop-off in genuine new FDI into China.

Related Articles:

  • US Share of Global Foreign Direct Investment Surges to Record — The US share of newly announced global greenfield foreign direct investment projects rose to 14.3% from 11.6%, with the estimated value of new US projects up by more than $100bn to $227bn. Over the same period China secured just under 400 new projects, close to a record low, while Germany's fell to 470, an 18-year low.
  • The Rise & Fall of Foreign Direct Investment in China — Net foreign direct investment into China has been negative for four consecutive quarters, as foreign investors shifted from reinvesting earnings from their Chinese operations to repatriating them. Whether this reflects cash management or signals a future slowdown in foreign direct investment is unclear, but the repatriation of profits is negative for China's currency.
  • Globalization and Growth In A Bipolar World — Trade and investment flows between the US and China have declined, with protectionist measures prompting some reshoring alongside rerouting of trade and investment through third countries such as Vietnam and Mexico. The result is a loosening of US-China economic links rather than an end to globalization.

AI Summary. China has opened an investigation into Mexico's tariffs and trade restrictions on Chinese exports, including a proposed 50% tariff on Chinese cars and levies on about 1,400 products from countries lacking a trade deal with Mexico. China's commerce ministry says the measures would seriously damage Chinese companies' trade and investment interests.

Joe Leahy and Christine Murray Financial Times
Date Posted:

China is planning to retaliate against Mexican tariffs on Chinese automotive exports. The effort is one of the highest-profile actions by Beijing to deter third countries from working with the US to enact barriers to Chinese trade.

Is China retaliating against countries that restrict Chinese exports?

Core argument: China has opened an investigation into Mexico's trade restrictions, after Mexico announced a 50% tariff on Chinese cars as part of a bill proposing levies on about 1,400 products, from textiles to steel, applying to countries lacking a trade deal with Mexico.

China has launched a sweeping probe into Mexico’s imposition of tariffs and other trade restrictions on its exports. Mexico this month announced that it would slap a 50% tariff on Chinese cars, part of a bill that proposed levies on about 1,400 products, from textiles to steel, that will apply to all countries with which Mexico does not have a trade deal. The investigation, which was accompanied by an anti-dumping probe into Mexican pecan nut exports to China, marked one of Beijing’s most significant actions to deter third countries from co-operating with Washington’s efforts to curb Chinese trade. China’s commerce ministry said a Mexican proposal to “increase import tariffs on products from non-free trade partners such as China…will seriously damage the trade and investment interests of Chinese companies”. It said Mexico’s tariffs would be investigated under a Chinese law aimed at maintaining the “foreign trade order”. Beijing has limited direct leverage on Mexico through trade. Mexico exported $5.7bn worth of goods to China last year, compared with $115bn of imports from China.

Takeaways by Macro Roundup® AI

  1. China has opened an investigation into Mexico's trade restrictions, after Mexico announced a 50% tariff on Chinese cars as part of a bill proposing levies on about 1,400 products, from textiles to steel, applying to countries lacking a trade deal with Mexico.
  2. China's commerce ministry said Mexico's proposal to raise import tariffs on products from non-free trade partners such as China would "seriously damage the trade and investment interests of Chinese companies," and would be investigated under a law aimed at maintaining the "foreign trade order.".
  3. Mexico exported $5.7bn of goods to China last year against $115bn of imports from China, leaving Beijing limited direct leverage on Mexico through trade; the probe was accompanied by an anti-dumping investigation into Mexican pecan nut exports.

Related Articles:

  • China Floods the World With Cheap Exports After Trump’s Tariffs — China's trade surplus, nearly $1tn, is on track for a record $1.2tn as exports continue despite steep US tariffs, according to Bloomberg calculations. With US access curtailed, Chinese manufacturers have redirected shipments to India, Africa and Southeast Asia, prompting alarm among governments weighing damage to domestic industries against antagonizing Beijing.
  • Beijing Warns Mexico Against Tariffs That Could Harm Chinese Goods — Mexico has proposed raising tariffs on imports from countries it lacks trade agreements with, covering roughly $52bn of goods including autos, steel, textiles, toys, home appliances and footwear, to bolster domestic production and substitute Asian imports. China has warned it would retaliate, saying countries must not sacrifice third parties' interests under coercion.
  • China Delays Approval of BYD’s Mexico Plant Amid Fears Tech Could Leak to US — China's commerce ministry has withheld the approval that domestic automakers need to manufacture abroad, holding up BYD's planned Mexican car plant, which the company said would create 10,000 jobs and build 150,000 vehicles a year. Officials are concerned that Mexico's proximity to the US could give Mexico, and possibly the US, access to BYD's advanced technology and knowhow.

AI Summary. The Pentagon is pressing weapons makers to detail how they could raise output of 12 priority munitions for a potential conflict with China to 2.5x current volumes, and to describe how they might attract private capital or license technology to third-party manufacturers. Patriot interceptors are a particular priority, with the goal of roughly 2,000 per year.

Drew FitzGerald and Lara Seligman Wall Street Journal
Date Posted:

DoD is mobilizing US missile manufacturers “to double or even quadruple production rates on a breakneck schedule.” While the Big Beautiful Bill allocated $25B over the next 5 years, additional money will be required to hit DoD’s production goals.

Can weapons makers multiply munitions output for a potential China conflict?

Core argument: The Pentagon's acceleration council is targeting 12 weapons it wants on hand for a potential conflict with China, and an early request for information asked makers at a June roundtable how they could reach 2.5 times current volumes over the following six, 18 and 24 months.

The new acceleration council is focused on 12 weapons that the Pentagon wants on hand for a potential conflict with China. [The] Patriot is a particular priority because Lockheed has struggled to keep pace with surging global demand. An early request for information asked weapons makers at the June roundtable to detail how they could increase production to 2.5 times current volumes through steps taken over the following six, 18 and 24 months, according to documents reviewed by the Journal. The military also asked suppliers to describe how they might attract new private capital and potentially license their technology to third-party manufacturers. The Army in September awarded Lockheed almost $10 billion to make nearly 2,000 PAC-3 missiles from fiscal year 2024 to 2026. The Pentagon wants suppliers to eventually pump out that same number of Patriots each year—nearly four times the current production rate, according to some of the people familiar with the matter.

Takeaways by Macro Roundup® AI

  1. The Pentagon's acceleration council is targeting 12 weapons it wants on hand for a potential conflict with China, and an early request for information asked makers at a June roundtable how they could reach 2.5 times current volumes over the following six, 18 and 24 months.
  2. The Army awarded Lockheed almost $10 billion in September for nearly 2,000 PAC-3 missiles from fiscal year 2024 to 2026, and the Pentagon wants suppliers to eventually produce that same number of Patriots each year, nearly four times the current rate, according to some people familiar with the matter.
  3. Patriot is a particular priority because Lockheed has struggled to keep pace with surging global demand, and the military asked suppliers to describe how they might attract new private capital and potentially license their technology to third-party manufacturers.

Related Articles:

  • Israel’s 12-Day War Revealed Alarming Gap in America’s Missile Stockpile — US THAAD missile-defense operators fired more than 150 interceptors against Iranian ballistic missiles, nearly a quarter of the roughly 650 the Pentagon has purchased at about $13m each. Replenishing that stock would likely take over a year and cost $1.5bn–$2bn, according to a defense-procurement researcher's estimate, while the manufacturer says it can make about 100 interceptors this year.
  • The West’s Insatiable Demand for Missiles Is Boosting U.S. Weapons Makers — U.S. weapons makers are reporting rising missile sales, with Lockheed Martin's missiles and fire control division up 11% and RTX's Raytheon unit up 8%, and Raytheon's order backlog reaching $63.5bn. The U.S. Army asked Lockheed to quadruple PAC-3 missile output, while Northrop Grumman expects to produce 25,000 solid rocket motors annually by 2029, up from 13,000.
  • Japan, U.S. Form Working Group For Joint Missile Production — Japan and the United States agreed to create working groups on joint missile production, ship and aircraft repair, and supply chain resiliency as part of a defense industry cooperation forum. U.S. officials say Japan's engineering, industrial, and manufacturing capacity is a significant addition for the U.S. defense industrial base.

Tuesday, September 30, 2025

AI Summary. Bain estimates global AI computing needs could reach 200 gigawatts by 2030, with 100 gigawatts in the US, requiring about $500bn of annual capital investment in data centers. That spending corresponds to $2tn in annual revenue, and Bain's analysis finds plausible corporate IT and AI-driven savings would leave an $800bn shortfall.

David Crawford, Anne Hoecker, and Dana Aulanier Bain & Company
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Bain notes that anticipated capital investment in data centers is $500B annually. Bain’s analysis of sustainable ratios of capex to revenue for cloud service providers suggests that $500B of annual capex corresponds to $2T in annual revenue and cost savings, a number well short of their most optimistic scenario.

Can projected AI savings fund the data center investment required by 2030?

Core argument: Bain's analysis suggests global AI compute requirements could reach 200 gigawatts by 2030, with US demand alone reaching 100 gigawatts, adding electricity demand to a grid whose load has been relatively flat for 20 years.

Now, AI’s compute demand—that is, the number of computations that must be performed to support evolving models—has grown at twice that rate over the past decade. With continued growth of these models and more adoption of AI by enterprises, Bain’s analysis suggests that the total global compute requirements could reach 200 gigawatts by 2030. In the US alone, total demand could reach 100 gigawatts by that time, which would increase new electricity demand on a grid that has seen relatively flat load growth for the past 20 years. Bain’s research suggests that building the data centers with the computing power needed to meet anticipated demand would require about $500 billion of capital investment each year. Bain’s analysis of sustainable ratios of capex to revenue for cloud service providers suggests that $500 billion of annual capex corresponds to $2 trillion in annual revenue. What could fund this $2 trillion every year? If companies shifted all of their on-premise IT budgets to cloud and also reinvested the savings anticipated from applying AI in sales, marketing, customer support, and R&D (estimated at about 20% of those budgets) into capital spending on new data centers, the amount would still fall $800 billion short of the revenue needed to fund the full investment

Takeaways by Macro Roundup® AI

  1. Bain's analysis suggests global AI compute requirements could reach 200 gigawatts by 2030, with US demand alone reaching 100 gigawatts, adding electricity demand to a grid whose load has been relatively flat for 20 years.
  2. Bain estimates that building data centers to meet anticipated AI demand would require about $500 billion of capital investment each year, which its analysis of sustainable capex-to-revenue ratios for cloud service providers ties to $2 trillion in annual revenue.
  3. Bain's analysis indicates that even if companies shifted all on-premise IT budgets to cloud and reinvested AI savings in sales, marketing, customer support, and R&D—estimated at about 20% of those budgets—funding would fall $800 billion short of the revenue needed.

Related Articles:

  • The Blob: Capital, China, Chips, Chicago and Chilliwack — Data center construction spending has eclipsed office construction, and the specialized power rates most data centers pay fall short of covering the cost of a new natural gas plant, leaving other customers to bear part of the bill. In the PJM grid region, data center demand accounted for 70% of the increase in electricity costs over the past year.
  • The Kanye/Data Center Crossover — Data center capital spending differs from fiber and railroad investment because most of the cost sits in processors that are replaced every 3-4 years rather than in long-lived shells, power, and cooling connections. That short replacement cycle requires returns high enough to exceed a risk-adjusted cost of capital of 12-14% before the hardware must be replaced.
  • How A Power Shortage Could Short-Circuit Nvidia’s Rise — Analysts estimate Nvidia will sell roughly 6m Blackwell and 5.5m GB chips over a two-year span, and that if half are installed and run at capacity in America they would add 25GW to power demand. Bernstein projects a US shortfall of 17–62GW by 2030 depending on chip efficiency; Morgan Stanley puts the gap at 45GW by 2028.

AI Summary. Data center developers can earn 12–15% returns on new construction while stabilized hyperscale campuses trade at 4–5% capitalization rates, drawing capital into development. Because long, flat leases to Amazon, Microsoft and Google make finished assets behave like annuities, few buyers exist, so developers turn to securitization instead of selling.

Paul Kedrosky Applied Complexity
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Paul Kedrosky notes that, since August, GPU rental rates in the US have declined 4%. He writes that a flood of liquidity from a robust securitization market has driven “a flywheel of data center development disconnected from true demand.”

Why are data center developers securitizing instead of selling finished projects?

Core argument: Data center developers can lock in 12–15% internal rates of return on new builds while stabilized hyperscale campuses trade at 4–5% cap rates, a spread that draws money into development.

[Datacenter] developers can lock in 12–15% IRRs on new data centers, while stabilized hyperscale campuses trade like long bonds at 4–5% cap rates. That spread is irresistible, so money floods into development. But the imbalance is obvious. Once the centers are built and leased, relatively few buyers want them. The tenant credit is pristine (Amazon, Microsoft, Google), but that’s precisely the problem: the leases are too safe, too long, and too flat. Stabilized data center assets behave like annuities, not growth real estate. Only mega-pensions and sovereigns can absorb them, and even then only sparingly. Developers and private credit increasingly don’t care. They’ve already learned how to sidestep the exit problem. The answer is a familiar word: securitization.

Takeaways by Macro Roundup® AI

  1. Data center developers can lock in 12–15% internal rates of return on new builds while stabilized hyperscale campuses trade at 4–5% cap rates, a spread that draws money into development.
  2. Stabilized data center assets behave like annuities rather than growth real estate because leases to Amazon, Microsoft, and Google are too safe, too long, and too flat, leaving only mega-pensions and sovereigns able to absorb them, and only sparingly.
  3. Developers and private credit are sidestepping the shortage of buyers for completed, leased data centers through securitization.

Related Articles:

  • The Blob: Capital, China, Chips, Chicago and Chilliwack — Data center construction spending has eclipsed office construction, and the specialized power rates most data centers pay fall short of covering the cost of a new natural gas plant, leaving other customers to bear part of the bill. In the PJM grid region, data center demand accounted for 70% of the increase in electricity costs over the past year.
  • SPVs, Credit, and AI Datacenters — Companies funding AI data centers through jointly owned special purpose vehicles keep the borrowing off their own balance sheets while retaining shared control and use of the facilities. AI data center spending already exceeds telecom spending during the dot-com bubble, and weak returns would quickly wipe out the thin equity cushion above the vehicles' debtholders.
  • Honey, AI Capex is Eating the Economy — Capital spending on AI data centers is around 20% of railroads' peak spending as a share of GDP and is rising quickly, having already surpassed the dot-com era peak in telecom investment. Unlike long-lived rail infrastructure, data centers are short-lived assets requiring frequent hardware replacement, and the capital is being reallocated from other sectors.

AI Summary. The US homeownership rate rose 20 percentage points over two decades in the mid-20th century, the largest shift in the past century, but lower-income renters largely had incomes too low to buy. The authors argue this rapid, unequal transformation may have contributed to the rise of the middle class.

Carola Frydman, Raven Molloy, and Austin Palis Federal Reserve Board
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Given subsequent price appreciation and the “stability of homeownership post-1960,” purchasing a home btw 1940 and 1960 was an entree into the middle class that renters in the bottom income-tercile in 1955 largely missed out on.

Did a rapid but unequal rise in homeownership build the middle class?

Core argument: The US homeownership rate rose 20 percentage points from 1940 to 1960, the largest change in American homeownership over the past 100 years, and with homeownership relatively stable after 1960, the families who owned by 1960 benefited from subsequent house price appreciation.

The aggregate US homeownership rate increased by 20 pp from 1940 to 1960, the largest change in American homeownership in the past 100 years. Given the strong intergenerational persistence of housing wealth and relative stability of homeownership post-1960, it was the types of families that were homeowners by 1960 who were able to benefit from the subsequent house price appreciation. In 1955, the only year in our sample period when the SCF recorded first-time buyer status, about 3/4 of first-time buyers were age 25-44. Figure 5 shows the distribution of income among families with a head in this age range that purchased a home recently (in the current year or previous year). Figure 5 also shows the distributions of income for renters in the bottom and middle terciles of predicted income. Most of the renters in the bottom tercile had incomes substantially lower than the incomes of (likely) first-time homebuyers, suggesting that their income was too low for them to transition into homeownership. Given the significance of owning a home as a source of wealth accumulation for most households, our findings suggest that the rapid yet unequal transformation in homeownership from 1940 to 1960 may have contributed to the rise of the middle class in this period.

Takeaways by Macro Roundup® AI

  1. The US homeownership rate rose 20 percentage points from 1940 to 1960, the largest change in American homeownership over the past 100 years, and with homeownership relatively stable after 1960, the families who owned by 1960 benefited from subsequent house price appreciation.
  2. In 1955, the only sample year in which the Survey of Consumer Finances recorded first-time buyer status, about three-quarters of first-time buyers were aged 25–44.
  3. Most renters in the bottom tercile of predicted income had incomes substantially below those of likely first-time homebuyers, suggesting their income was too low to transition into homeownership, and that the unequal 1940–1960 homeownership shift may have contributed to the rise of the middle class.

Related Articles:

  • Credit Drove 125 Years Of Homeownership Gains — Drawing on over 100 million household records, the authors trace US homeownership from 47% in 1900 to a 69% peak and 65% today, arguing the major gains came from making mortgages cheaper and more accessible rather than building more homes. Homes now cost nearly 6x median household income versus 3x in the 1990s.
  • 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.
  • Why Are Young Adults in the English-Speaking World So Unhappy? — The share of young adults regularly experiencing stress and anger has risen sharply in the US, Canada, UK, Ireland, Australia and New Zealand while remaining largely stable elsewhere in the West. Real house prices since 1995 are up 85% in the US and over 200% in the other five countries.

AI Summary. The US is redirecting allies' foreign reserves into designated domestic investments in exchange for lower tariffs, rather than asking them to buy long-dated Treasuries. The author argues this capital call would boost US domestic investment but put upward pressure on interest rates as foreign governments liquidate reserves to raise dollars.

Joseph Wang Fed Guy Blog
Date Posted:

Wang worries that White House efforts to induce surplus countries to liquidate dollar reserves and invest in US industrial projects in exchange for lower tariffs may raise interest rates and cause those nations “to seek to diversify their dependency.”

Does trading lower tariffs for allied investment raise US interest rates?

Core argument: Rather than asking allies to buy long-dated low-yielding Treasuries as in Miran's Mar-a-Lago Accord paper, the Administration is redirecting allies' foreign reserves into designated U.S. investments in exchange for lower tariffs.

The Mar-a-Lago Accord described in Miran’s paper looks to be taking shape in an unanticipated fashion. Instead of asking allies to buy long dated low yielding Treasuries, the Administration is redirecting their foreign reserves towards designated investments in the U.S. The Administration is likely to be successful in persuading countries to make substantial investments into the U.S. in exchange for lower tariffs. Over the decades a number of countries have run persistent trade surpluses with the U.S. and reinvested those surpluses into dollar financial assets. A U.S. “capital call” on allies will end up boosting domestic investment, but is also likely to place upward pressure on interest rates as foreign sovereigns raise dollars by liquidating their foreign reserves. This would [also] limit the country’s ability to deploy their reserves to manage their currency, but that could be mitigated with dollar swap lines. The expropriation of foreign reserves is a big move that takes advantage of the US’ dominant position and decades of built up good will. It is also possible that other countries will begin to look at the U.S. differently and seek to diversify their dependency. That would give them even more reasons to hold fewer dollar assets.

Takeaways by Macro Roundup® AI

  1. Rather than asking allies to buy long-dated low-yielding Treasuries as in Miran's Mar-a-Lago Accord paper, the Administration is redirecting allies' foreign reserves into designated U.S. investments in exchange for lower tariffs.
  2. A U.S. "capital call" on allies would likely boost domestic investment while placing upward pressure on interest rates as foreign sovereigns liquidate reserves to raise dollars, leaving less capacity to manage their currencies unless dollar swap lines mitigate it.
  3. The expropriation of foreign reserves draws on the U.S.' dominant position and decades of accumulated good will, and could lead other countries to diversify their dependency and hold fewer dollar assets.

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AI Summary. Boeing's aircraft-development programs have struggled, with two fatal 737 MAX crashes leading to a global grounding and delays to new variants, the cancellation of a planned midsize jet, and a 777 upgrade years behind schedule. Rival Airbus has become the world's biggest plane maker by deliveries and order backlog.

Benjamin Katz and Drew FitzGerald Wall Street Journal
Date Posted:

Boeing is planning on building a clean-sheet design aircraft to succeed the 737 MAX. It would be the first new commercial aircraft for Boeing since 2007’s 787 Dreamliner.

Has Boeing's troubled jet development let its rival take the lead?

Core argument: Boeing has begun work on a replacement for the 737 MAX, which entered commercial service in May 2017 before two deadly crashes led to a global grounding of the fleet in 2019 and delayed two new variants.

Boeing’s aircraft-development programs have struggled in recent years. The 737 MAX entered commercial service in May 2017. Two deadly crashes involving the jets resulted in a global grounding of the fleet in 2019 and delayed two new variants. The company later dropped plans to build a new midsize aircraft that it had been trumpeting. It is years behind on a new upgrade for its 777. As Boeing struggled, rival Airbus didn’t sit still. The European aircraft manufacturer has grown to be the world’s biggest plane maker by total deliveries and order backlog. Despite starting production roughly 20 years after its rival, Airbus deliveries of A320 narrow-body jets have caught up to Boeing’s deliveries of its 737s.

Takeaways by Macro Roundup® AI

  1. Boeing has begun work on a replacement for the 737 MAX, which entered commercial service in May 2017 before two deadly crashes led to a global grounding of the fleet in 2019 and delayed two new variants.
  2. Airbus has become the world's biggest plane maker by total deliveries and order backlog, and its A320 narrow-body deliveries have caught up to Boeing's 737 deliveries despite starting production roughly 20 years later.
  3. Boeing dropped plans for a new midsize aircraft it had been trumpeting and is years behind on an upgrade to its 777.

Related Articles:

  • How Long Can Airbus Keep Its Edge Over Boeing? — Airbus's A320 family of single-aisle jets is poised to overtake Boeing's 737 as the most-delivered commercial aircraft in history, with 12,153 delivered since launch, according to aviation consultants Cirium. After years of a roughly even split, Airbus holds 61% of the single-aisle market by order backlog and 72% by deliveries, while Boeing leads in wide-body aircraft.
  • Boeing Battles Brain Drain As Engineers Chase the Allure of Space — The average tenure of a Boeing engineer has fallen from 16.4 years to 12.6 years, according to data from the union representing 12,000 Boeing engineers, with tenure shortening in almost every age bracket. Analysts, recruiters and union officials describe this "brain drain" as a drag on operations that could make launching a new plane harder.
  • Crises at Boeing and Intel Are a National Emergency — Intel and Boeing, once benchmarks for high-quality, demanding manufacturing, declined because of their own mistakes rather than cheap foreign competition. Because leading U.S. tech firms' software and devices depend on advanced semiconductors fabricated under contract, especially by Taiwan Semiconductor Manufacturing Co., Chinese subjugation of Taiwan could leave the U.S. tech sector at Beijing's mercy.

AI Summary. Illegal crossings into the European Union totalled 112,000 over an eight-month period, down 21% year on year and 52% from 231,000 two years earlier. The EU and its member states have struck agreements offering aid and investment to transit countries — including €7.4bn ($8.1bn) promised to Egypt and €1bn to Tunisia — to intercept migrants before they reach Europe.

Economist Staff Economist
Date Posted:

There has been a 21% drop y/y in illegal immigration into the EU so far this year. The EU’s border control strategy of paying countries like Tunisia and Egypt to control illegal immigration may be paying off.

Are aid deals with transit countries reducing illegal migration into Europe?

Core argument: Illegal crossings into Europe fell to 112,000 in the first eight months of this year, down 21% from a year earlier and 52% from the 231,000 recorded in the comparable period of 2023.

The EU is showing that harsh policies far from its beaches are keeping migrants out. In the first eight months of this year 112,000 people crossed illegally into Europe, down 21% from a year earlier. The drop is an even more impressive 52% from the comparable period in 2023, when 231,000 people landed on its shores or jumped its borders. The EU’s strategy has in effect been to build a big, invisible wall far from its own borders where migrants can be intercepted and turned back well before they have a chance to set foot on European soil and lodge a claim for asylum. This has been done through a complex patchwork of agreements signed by the EU and separately by its member states with countries through which migrants try to pass. In exchange for cutting migration, transit countries get large sums of aid and investment. Egypt was promised €7.4bn ($8.1bn); Tunisia €1bn. In addition, the EU or its members train and fund their coastguards, border officials and police forces.

Takeaways by Macro Roundup® AI

  1. Illegal crossings into Europe fell to 112,000 in the first eight months of this year, down 21% from a year earlier and 52% from the 231,000 recorded in the comparable period of 2023.
  2. The EU's strategy has in effect been to build a big, invisible wall far from its own borders, where migrants can be intercepted and turned back before setting foot on European soil and lodging asylum claims.
  3. The EU and its member states have signed a patchwork of agreements with transit countries that receive aid and investment for cutting migration, with Egypt promised €7.4bn ($8.1bn) and Tunisia €1bn, alongside training and funding for coastguards, border officials and police.

Related Articles:

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  • Europe Hopes Barbed Wire Will Keep Migrants Out. It Won’t — The total length of border fences in the European Union grew from 315km to 2,163km over roughly a decade, yet unauthorised crossings made up just 0.13% of all external crossings into the EU. Most migrants arrive via the Mediterranean rather than the Balkans or the eastern land border.
  • Germany Opened Its Doors to Migrants. Now It’s Struggling to Cope — Germany recorded 6.43m more arrivals than departures over a decade, the largest inflow of any country outside the US, with migrants at 18.8% of the population versus 15.3% in the US. Noncitizens, 15% of the population, accounted for 41% of crimes, up from 28.7%, according to police statistics.