Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…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
  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, July 28, 2026

AI Summary. Analysts modeling six long-term macro scenarios project that equity returns fall below their long-run average in every case except one combining strong growth with an artificial intelligence boom and rising return on equity. Bond returns are also projected to run somewhat below average, offering little buffer in adverse, inflation-prone scenarios.

Christian Mueller-Glissmann, Andrea Ferrario, Alessandro Giglio, Giovanni Ferrannini, et al. Goldman Sachs
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Goldman models six scenarios, from AI best plus “Goldilocks” (steady growth, tame 2% inflation, rising profits) to stagflation. Equities beat their post-1950 average only in the best case; elsewhere they lag, and inflation risk blunts bonds’ protection.

Do long-term macro scenarios point to below-average equity and bond returns?

Core argument: Across six long-term scenarios derived from a macro-based return framework, equity returns fall below the long-run average in all but "Goldilocks + AI boom," which assumes continued return-on-equity expansion and strong GDP growth.

The outlook for balanced portfolios in the coming years is closely linked to the AI boom and risks from inflation. We derive new scenarios using our macro-based long-term return framework: (1) Goldilocks + AI boom, with continued ROE expansion and strong GDP growth, (2) Goldilocks, but with stable ROE, (3) Reflation, with strong nominal growth but lower ROE and (4) Goldilocks + AI bust, in which ROE declines and GDP growth weakens, (5) Stagnation, with weaker growth but ROE somewhat in-line with its 5-year average and (6) stagflation, similar to the 1970s. In all scenarios except 'Goldilocks + AI boom', equity returns are below the long-run average. Equity risk premia for both the 'normal' Goldilocks backdrop and for Reflation are near the long-run average. However, for the more negative scenarios equity returns and equity risk premia are much worse. But bond returns are also somewhat below average in most scenarios and unlikely to provide much of a large buffer in those adverse scenarios, especially those with inflation risk.

Takeaways by Macro Roundup® AI

  1. Across six long-term scenarios derived from a macro-based return framework, equity returns fall below the long-run average in all but "Goldilocks + AI boom," which assumes continued return-on-equity expansion and strong GDP growth.
  2. Equity risk premia sit near the long-run average in the "normal" Goldilocks and Reflation scenarios, but equity returns and risk premia are much worse in the more negative scenarios, including AI bust, stagnation, and 1970s-style stagflation.
  3. Bond returns are somewhat below average in most of the scenarios and are unlikely to provide much of a buffer in adverse outcomes, particularly those carrying inflation risk.

Related Articles:

  • The Global Balance Sheet 2026: Imbalance And Divergence — Only 20% of global household wealth growth came from net new investment in real assets such as machinery, housing, infrastructure and intellectual property, down from a 30% average over the prior quarter century. Nearly 60% came from asset prices rising faster than inflation and negative net worth in other sectors.
  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.
  • 2026 Outlook: Tech Tonic — A Broadening Bull Market — Most major equity markets have outperformed the US, with Europe, China and Asia generating almost double US total returns in dollar terms and gains of 54% in Italy, 73% in Spain and 71% in Korea. US returns have been driven by strong earnings, particularly in technology, while Europe's have come largely from rising valuations.

AI Summary. The cost of insuring debt against default for Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom, and Nvidia has reached record highs, with Oracle's five-year credit protection quoted at 215 basis points versus 144 earlier in the year. S&P Global Ratings cut Oracle to one notch above junk, citing an uncertain path to profitability amid massive AI investments.

Michelle Chan and Ramsay Hodgson Financial Times
Date Posted:

The cost of CDS contracts on corporate debt tied to the data center buildout has risen to record highs; five-year CDS on Oracle’s debt, which is now just above junk status, were quoted at ~215bps, up from 144bps at the start of the year.

Is the cost of insuring big tech debt hitting record highs?

Core argument: Oracle's five-year credit default swap was quoted at 215 basis points on Monday, up from 144 bps at the start of the year, meaning investors pay $215,000 annually to insure $10mn of debt against default, according to LSEG data.

Prices for credit default swaps, popular tools to bet against corporate debt tied to Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom, and Nvidia, have risen to record highs in recent days, according to LSEG data. The moves have been most acute at Oracle, whose five-year CDS was quoted at 215 basis points on Monday, up from 144 bps at the start of the year, meaning that investors now need to pay $215,000 annually to insure $10mn of debt against default. The database group last month said it would invest $70bn in the coming year to finance its data centre build-out, prompting S&P Global Ratings to downgrade its credit rating to triple B minus, just one notch above junk status, citing an uncertain path to profitability amid massive AI investments. The concern is spreading beyond Oracle, with the cost of protecting Nvidia’s five-year debt also hitting a record of 79 bps.

Takeaways by Macro Roundup® AI

  1. Oracle's five-year credit default swap was quoted at 215 basis points on Monday, up from 144 bps at the start of the year, meaning investors pay $215,000 annually to insure $10mn of debt against default, according to LSEG data.
  2. S&P Global Ratings downgraded Oracle to triple B minus, one notch above junk status, citing an uncertain path to profitability amid massive AI investments, after Oracle said it would invest $70bn in the coming year to finance its data centre build-out.
  3. Credit default swap prices on debt tied to Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom and Nvidia have risen to record highs, with the cost of protecting Nvidia's five-year debt reaching a record 79 basis points.

Related Articles:

  • A Slower AI Payoff Would Be Everyone’s Problem — If artificial intelligence profits arrive later than expected, committed capital spending and depreciation would still hit on schedule, squeezing margins, stretching balance sheets toward more debt and possible ratings downgrades, and repricing equities. Because a handful of large technology firms dominate the indices, the author argues the damage would spread to chips, power, data centers and the broader market.
  • Alphabet Falls as $205 Billion Spending Plan Fuels AI Cost Fear — Alphabet raised its projected annual capital expenditures to $195bn–$205bn from a prior forecast of $190bn, and its shares fell amid concern over artificial intelligence costs. The Google parent reported negative free cash flow of $5.9bn in the quarter, its first negative quarterly cash flow since going public more than two decades ago.
  • Bond Traders Stunned as Losses on SpaceX’s New Debt Keep Growing — SpaceX's $25bn bond offering has weakened in secondary trading, with paper losses relative to Treasuries totaling roughly $305m. Traders attribute the selling to fast-money accounts seeking quick profits rather than buy-and-hold investors, though the company also won investment-grade ratings despite expectations of years of negative cash flow.

AI Summary. US growth in new-business applications is concentrated in professional services (up 25% over four years), retail (18%), and health care and social assistance (18%) rather than artificial-intelligence startups. The share of applications the Census Bureau deems likely to hire at least one employee has fallen to 30% from 38%.

Economist Staff The Economist
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New business formation in the US is back at its pre-pandemic level. The share of new-business applications deemed likely to employ someone other than the founder in the near future was 30% in 2025, down from 38% in 2019 perhaps suggesting AI is driving “solopreneurship.”

Is the surge in new-business applications driven by AI startups?

Core argument: New-business applications rose most in professional services (+25% between 2021 and 2025), retail (+18%), and health care and social assistance (+18%), with AI startups in Silicon Valley accounting for only a small part of the increase.

Buzzy artificial-intelligence startups in Silicon Valley account for only a small part of the increase. The industries witnessing the biggest flurry of applications are professional services (up 25% between 2021 and 2025), retail (18%), and health care and social assistance (18%). The share of new-business applications that the Census Bureau deems “high-propensity” (meaning they are likely to employ at least one person other than the founder in the near future) was only 30% last year, down from 38% in 2019. Aaron Terrazas, an economist at Gusto [a payroll platform] reckons that much of the value generated by AI could end up accruing not to corporate giants, but to Etsy sellers and small-town accountants.

Takeaways by Macro Roundup® AI

  1. New-business applications rose most in professional services (+25% between 2021 and 2025), retail (+18%), and health care and social assistance (+18%), with AI startups in Silicon Valley accounting for only a small part of the increase.
  2. The share of U.S. new-business applications the Census Bureau deems "high-propensity," meaning likely to employ at least one person besides the founder soon, was 30% last year, down from 38% in 2019.
  3. Aaron Terrazas, an economist at the payroll platform Gusto, reckons much of the value generated by AI could accrue to Etsy sellers and small-town accountants rather than corporate giants.

Related Articles:

  • The Age Of The Solopreneur — A surge in US business formation is being driven by solo entrepreneurs, with growth in AI tool usage and in solopreneur activity in high-AI-adoption sectors suggesting artificial intelligence accounts for a meaningful portion of the increase. The authors argue AI is lowering barriers to starting and growing a business by expanding what one-person firms can do.
  • Which Entrepreneurs Boost Productivity? — The authors find that a minority of entrepreneurs are "transformative" — generating disproportionate productivity gains, scoring high on IQ tests, being well-educated, and hiring research and development workers. They argue that economies with more such entrepreneurs and R&D workers sustain higher long-run productivity growth.
  • Continued Rise in Business Formation — The gap between growth-oriented and value-oriented new business applications is widening, a divergence likely driven by a proliferation of startups built around artificial intelligence. Large language models are lowering the barriers to starting a business.

AI Summary. Using new price indexes for child- and adult-specific goods, the authors estimate that real spending per child and per parent each rose by about half from 1990 to 2023, indicating a broad rise in household consumption rather than a child-specific one. The share of household spending going to children was stable, near 30% for one child and 40% for two.

Christina Patterson and Heather Sarsons National Bureau of Economic Research
Date Posted:
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A Child Cost Index newly created by Patters and Sarsons finds little rise in costs per child relative to adult consumption (not counting parental leisure time). Higher child costs are thus unlikely to be the main explanation for falling fertility.

Has spending on children risen faster than spending on parents?

Core argument: Real spending per child and real spending per parent each rose by roughly one-half between 1990 and 2023, deflated by the authors' new child and adult cost indices, and moved closely together over the medium run.

Figure 6 shows that real spending on children has increased substantially. Panel (a) plots real spending per child, deflated [by the authors’ new] child cost index, together with real spending per parent, deflated by [their adult cost index.] Both series rise by roughly one-half between 1990 and 2023 and move closely together over the medium run. Thus, households devote more real resources to children today than in 1990, but this increase appears to be part of a broader rise in household consumption rather than a child-specific expansion in required market inputs. Panel (b) reinforces this interpretation by plotting the share of total household spending allocated to children, separately by family size. Children absorb a large share of household resources in every year of the sample, but that share is strikingly stable over time within family size. Households with one child allocate just under 30% of total spending to that child in both 1990 and 2023. The sacrifice of adult consumption associated with children is therefore large, but it is not a recent development. Panel (b) also reveals clear economies of scale in child-rearing. Moving from one to two children raises the child share of household spending from roughly 30% to roughly 40%, far less than a doubling, and the incremental spending share falls further for larger families.

Takeaways by Macro Roundup® AI

  1. Real spending per child and real spending per parent each rose by roughly one-half between 1990 and 2023, deflated by the authors' new child and adult cost indices, and moved closely together over the medium run.
  2. Households with one child allocated just under 30% of total spending to that child in both 1990 and 2023, a share that is stable over time within family size.
  3. Moving from one child to two raises the child share of household spending from roughly 30% to roughly 40%, far less than a doubling, with the incremental share falling further for larger families.

Related Articles:

  • America’s Big Cities Are Rapidly Losing Kids — An analysis of census data found the number of children under 18 in large U.S. cities fell 6% over a decade, versus 1% nationwide, with children under 5 down 15% in big cities versus 7% nationally. The number of children declined in about two-thirds of the 38 U.S. cities with more than 500,000 residents, including some cities gaining population overall.
  • City Parenting Has Become A Financial Flex — Census data show the under-18 population fell 22% in Chicago, 23% in Los Angeles and 12% in New York between 2010 and 2024, while wealthier white families defy the trend in central neighborhoods of the densest, richest cities. Brooklyn's white child population grew 13% over that period, rising from a third to more than two-fifths of the total.
  • The Demographic Outlook: 2026 to 2056 — The Congressional Budget Office projects the US population rises from 349m to 364m between 2026 and 2056, with annual growth slowing from 0.3% over the next decade to 0.1% thereafter before reaching zero and then shrinking. Declining fertility is projected to push deaths above births starting in 2030, increasingly offsetting net immigration.

AI Summary. China's manufacturing surplus excluding gold and semiconductors keeps rising. Excluding gold imports equal to 1.5 percentage points of GDP, China's goods surplus would be close to 7% of GDP.

Brad Setser Council On Foreign Relations
Date Posted:

Properly accounting for imports of gold and chips, China’s goods surplus grew $80B in H1 2026, Setser finds. China’s surplus expanded to ~7% of GDP in Q2, “an absolutely massive number for an economy as big as China.”

Is China's trade surplus actually shrinking?

Core argument: Excluding the 1.5 percentage points of GDP in gold imports in the second quarter, China's goods surplus would be close to 7% of GDP, a massive number for an economy of China's size.

The easiest way to see what is happening is just to focus on the manufacturing surplus without gold and chips. It keeps on rising. In fact, without the 1.5 pp of GDP in gold imports in q2, the goods surplus would be close to 7% of GDP -- an absolutely massive number for an economy as big as China.

Takeaways by Macro Roundup® AI

  1. Excluding the 1.5 percentage points of GDP in gold imports in the second quarter, China's goods surplus would be close to 7% of GDP, a massive number for an economy of China's size.
  2. China's manufacturing surplus excluding gold and chips keeps rising, offering the clearest view of what is happening to the country's external surplus.

Related Articles:

  • Who Will Win The War Of Neo-Mercantilists? — China's manufacturing export surplus is around 2% of world GDP, roughly twice the largest surplus Japan ever ran, while domestic demand has stalled. Unexplained negative net income of about $125bn on its $4tn in net foreign assets, versus an expected $100bn surplus, supports the argument that the renminbi is about 30% undervalued.
  • Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.
  • China’s Economy: Rightsizing 2025, Looking Ahead to 2026 — The authors argue China's official growth figures are inconsistent with ten consecutive quarters of deflation, estimating that real GDP is around 11% below official levels, with most of the adjustment in investment. That would imply a drop of roughly 9 percentage points in China's share of global investment, helping explain its export surge.

AI Summary. Air defense against Iranian missile attacks has achieved high but imperfect interception rates, and the interceptors expended have left Patriot inventories under 1,000 and THAAD inventories at about 250. Diminished stockpiles may force more risk-taking on interceptions and pose a near- to medium-term risk to U.S. readiness for a war with China in the western Pacific.

Mark Cancian and Chris Park Center for Strategic and International Studies
Date Posted:

CSIS estimates that US interceptor stocks are down significantly from pre-war levels; Patriot stocks are likely ~33–35% of pre-war levels and THAAD stocks ~52–62%. “There are no good alternatives to Patriot and THAAD for ballistic missile defense.”

How do depleted missile interceptor stockpiles affect US readiness?

Core argument: U.S. Patriot interceptor inventories have fallen below 1,000 and THAAD inventories to roughly 250 after extensive use in the Iran War air defense campaign, which achieved high though imperfect interception rates.

The [Iran War] air defense campaign has been largely successful with high—though not perfect—interception rates. While some Iranian attacks got past defenses, causing casualties and extensive base damage, these attacks have been unable to diminish U.S. and coalition operations. This has required extensive use of interceptors, with Patriot inventories now under 1,000 and THAAD inventories at about 250. Diminished stockpiles may force the United States and its coalition partners to take more risks with interceptions. There are no good alternatives to Patriot and THAAD for ballistic missile defense. Navy ships, with Standard Missiles that can intercept such threats, generally are too far away. Expended munitions create a near- to medium-term risk for U.S. readiness to fight a war against China in the western Pacific. The Trump administration’s munitions request of $95 billion in the FY 2027 defense budget and $21 billion in the war supplemental reflects this urgency.

Takeaways by Macro Roundup® AI

  1. U.S. Patriot interceptor inventories have fallen below 1,000 and THAAD inventories to roughly 250 after extensive use in the Iran War air defense campaign, which achieved high though imperfect interception rates.
  2. Expended munitions create a near- to medium-term risk for U.S. readiness to fight a war against China in the western Pacific, and the Trump administration has requested $95 billion for munitions in the FY 2027 defense budget and $21 billion in the war supplemental.

Related Articles:

  • Is the Industrial Base on a Wartime Footing? A Progress Report — About 10,000 new firms have entered the US defense market in two years, and nontraditional companies received over $120bn in contract obligations in fiscal 2025, while munitions contract obligations have risen 330% since fiscal 2010. The Defense Department is signing large-scale multiyear munitions agreements and backing a rare earth supply chain outside Chinese control.
  • Lockheed Seeks European Production for Cheaper Patriot Missile — Lockheed Martin plans to field a lower-cost Patriot missile, the PAC-3 Adapted Capability Effector, priced at less than half the roughly $4mn per-missile cost of its current PAC-3 MSE interceptors, developed and manufactured with US and European industry partners. The company cites soaring military demand for more cost-effective ways to counter drones.
  • Trump Invokes Cold War-Era Law to Boost Munitions Production — The U.S. has invoked the Defense Production Act to expand munitions output amid doubts that American weapons makers can meet increased demand. U.S. officials say more than 1,000 long-range Tomahawk missiles and 1,500–2,000 air-defense interceptors have been fired in the war with Iran, and replacing those stockpiles could take up to six years.

Wednesday, July 29, 2026

AI Summary. Regression evidence suggests governments can buy current account surpluses: raising the fiscal balance by $1 tends to raise the current account by about $0.30, while issuing $1 of domestic-currency debt to buy foreign-currency assets raises it by roughly $0.50-$0.60. Combining a fiscal surplus with foreign-currency investment, as Norway and Singapore do, yields about $0.80 per $1.

Joseph Gagnon and Nishtha Agrawal Peterson Institute For International Economics
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Using annual data for 146 countries from 1985 – 2024, Gagnon and Agrawal find that a $1 increase in a country’s cyclically adjusted fiscal deficit is associated with a 22–38¢ increase in its current-account deficit, with most of the estimates ~30¢.

Can governments buy current account surpluses with fiscal and currency policy?

Core argument: Regression results suggest that raising the fiscal balance by $1 tends to raise the current account by about $0.30.

Table 1 presents regression results. The evidence strongly suggests that governments can buy current account surpluses. Raising the fiscal balance by $1 tends to raise the current account by $0.30 [Table 1, first row]. Issuing $1 of domestic currency debt to buy foreign-currency assets (foreign exchange intervention) raises the current account anywhere from $0.20 to $1.00, with a value around $0.50 to $0.60 most plausible [Rows 2 though 5]. NOF is Net Official Flows, and NOS is the stock of net official foreign assets. The most powerful policy, as exemplified by Norway and Singapore, is to run a fiscal surplus and invest the proceeds in foreign-currency assets. In that case, $1 buys a current account surplus of around $0.80 or so. The results are supported by annual panel regressions of current accounts and cross-country stock regressions of cumulated current accounts or stocks of net foreign assets. The estimated effects in the panel regressions may be biased down slightly by incomplete modeling of lagged effects.

Takeaways by Macro Roundup® AI

  1. Regression results suggest that raising the fiscal balance by $1 tends to raise the current account by about $0.30.
  2. Issuing $1 of domestic currency debt to buy foreign-currency assets is estimated to raise the current account by $0.20 to $1.00, with $0.50 to $0.60 most plausible.
  3. Combining a fiscal surplus with investment of the proceeds in foreign-currency assets, as Norway and Singapore do, is estimated to buy a current account surplus of around $0.80 per $1.

Related Articles:

  • Understanding Global Imbalances — The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
  • The U.S. Trade Deficit: Myths and Realities — Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.
  • The Dangerous Triumph Of Neo-Mercantilism — Neo-mercantilism is thriving in both China, which pairs infant-industry promotion with large trade surpluses, and in a United States focused on external deficits and protecting domestic markets. The author argues this will likely fracture the world economy, and that a new multilateral treaty could include a mechanism to combat large structural trade surpluses.

AI Summary. Companies have steadily "de-equitized" through buybacks and cash-funded mergers, supporting share prices, but Barclays projects equity supply could rise for the first time in decades as large cloud computing firms fund capital spending. Their high valuation multiples make equity cheaper than debt, and that re-equitization would weigh on share prices.

John Authers Bloomberg
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Citing Barclays’ research that suggests 2026 will be the first time since 2002-2003, when net US equity issuance will be positive, John Authers argues “re-equitization” will likely weigh on stock prices.

Will rising equity supply from tech capital spending weigh on share prices?

Core argument: Barclays Equities Tactical Strategies projects that 2026 could be the first year in decades when equity supply rises, reversing the "de-equitization" from buybacks and cash-funded mergers and acquisitions that has buoyed the stock market.

The Nasdaq's most recent peak overlapped almost perfectly with the IPO by Elon Musk’s Space Exploration Technologies Inc., the biggest in history. When companies go public, the fear is that the insiders have reason to believe it’s time to sell. By raising the supply of equity, they will tend to bring down share prices. Companies have steadily “de-equitized,” buying back stock and conducting mergers and acquisitions with cash. That has buoyed the stock market. But as Barclays Equities Tactical Strategies shows, 2026 could be the first year in decades when equity supply rises. The hyperscalers need money to fund their capital expenditures, and as Barclays shows, the generous multiples at which their stocks trade make it cheaper to get their financing by raising equity, not debt. That suggests re-equitization, which will make it harder for their share prices to prosper.

Takeaways by Macro Roundup® AI

  1. Barclays Equities Tactical Strategies projects that 2026 could be the first year in decades when equity supply rises, reversing the "de-equitization" from buybacks and cash-funded mergers and acquisitions that has buoyed the stock market.
  2. The Nasdaq's most recent peak overlapped almost perfectly with the initial public offering by Elon Musk's Space Exploration Technologies Inc., the biggest in history, and added equity supply tends to bring down share prices.
  3. Barclays argues that the generous multiples at which hyperscaler stocks trade make equity cheaper than debt for funding their capital expenditures, suggesting re-equitization that will make it harder for their share prices to prosper.

Related Articles:

  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
  • Capital Allocation — Internal financing has been the main source of capital for U.S. corporations, with steady new debt issuance except in recession years, consistent with a stable capital structure. Companies have retired equity on average, and net equity issuance remains negative even after accounting for stock-based compensation.
  • SpaceX and OpenAI Are Ending Wall Street’s Era of Stock Scarcity — JPMorgan projects that share sales will add roughly $1.5tn of stock to the US equity market over the next two years even after buybacks, which would be the strongest net equity issuance since at least the late 1990s. Equity has grown cheaper relative to debt as a funding source.

AI Summary. Markets are weighing whether the trillions committed upfront to AI data centers, chips, and power will generate returns above the cost of capital before those assets depreciate. With the buildout increasingly funded by debt rather than internal cash flow and borrowing spreads widening, financing costs could rise until new data-center spending no longer clears its return hurdle.

Torsten Sløk Apollo
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Noting CDS spreads widening for top AI firms, Sløk comments “the question is whether the all-in yield climbs to a level where the marginal data-center dollar no longer clears its return hurdle, forcing the capex cycle to self-throttle.”

Will AI capital spending earn returns above its cost of capital?

Core argument: With trillions committed up front to data centers, chips, and power, the central market question is whether AI monetization ramps fast enough to clear the cost of capital before those assets depreciate.

The market is asking three fundamental questions: 1) Will the AI capex pay off, and how quickly? With trillions committed to data centers, chips, and power up front, the question is whether AI monetization ramps fast enough to clear the cost of capital before the assets depreciate, or whether it's an overbuild whose ROIC never catches up to its WACC on a massive, front-loaded outlay. 2) How is all of this being financed, and at what spread? Hyperscaler spreads are widening as the buildout is increasingly funded with debt rather than organic free cash flow, and as issuance surges, the question is whether the all-in yield climbs to a level where the marginal data-center dollar no longer clears its return hurdle, forcing the capex cycle to self-throttle. 3) Will there be unlimited demand for compute, or will compute demand peak? The bull case assumes demand is effectively insatiable as inference workloads, agentic systems, and new model generations compound, but the risk is that efficiency gains, model commoditization, or slower-than-expected enterprise adoption cause demand to plateau well below the capacity now being built, leaving the industry with a glut of expensive, rapidly depreciating infrastructure.

Takeaways by Macro Roundup® AI

  1. With trillions committed up front to data centers, chips, and power, the central market question is whether AI monetization ramps fast enough to clear the cost of capital before those assets depreciate.
  2. Hyperscaler spreads are widening as the AI buildout is increasingly funded with debt rather than organic free cash flow, raising the question of whether all-in yields climb until the marginal data-center dollar no longer clears its return hurdle.
  3. The bull case treats compute demand as effectively insatiable across inference workloads, agentic systems, and new model generations, while the risk is that efficiency gains, model commoditization, or slower enterprise adoption leave a glut of rapidly depreciating infrastructure.

Related Articles:

  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.
  • One Hundred Years in the U.S. Stock Markets — Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.
  • Competitive Advantage Period: The Neglected Value Driver — Data indicate persistence in returns on invested capital has increased since 2000, with large companies the main beneficiaries; the information technology sector's aggregate return was 19% versus a 10.8% median from 1970 to 2024. Of about 13,800 U.S. public firms listing from 1976 to 2019, 18% survived.

AI Summary. Chinese satellite operators Guowang and Thousand Sails each plan to deploy more than 10,000 satellites, competing with SpaceX's Starlink as China builds low Earth orbit broadband networks with both civilian and military applications. China's automated satellite "gigafactories" have an estimated production capacity of 4,100–5,000 satellites a year, up from 500.

Demetri Sevastopulo and Eva Xiao Financial Times
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A commercial space sector is emerging in China with commercial satellites now making up almost half of China’s launches. Two firms are each planning on deploying constellations to compete with SpaceX’s Starlink.

Does China's satellite manufacturing buildout challenge US dominance in orbit?

Core argument: China's estimated satellite production capacity stands at 4,100–5,000 units a year, up from an annual rate of 500 three years ago, supported by large automated "gigafactories" for satellite manufacturing.

Two companies — Guowang and Thousand Sails — are each planning to deploy more than 10,000 satellites in space, putting them in direct competition with SpaceX’s Starlink constellation. This comes as China is pushing to build low Earth orbit broadband networks with dual civilian and military applications. The country is also creating huge automated “gigafactories” to build satellites and has an estimated capacity for the production of 4,100–5,000 satellites a year, compared to an annual rate of 500 three years ago.

Takeaways by Macro Roundup® AI

  1. China's estimated satellite production capacity stands at 4,100–5,000 units a year, up from an annual rate of 500 three years ago, supported by large automated "gigafactories" for satellite manufacturing.
  2. Two Chinese constellations, Guowang and Thousand Sails, each plan to deploy more than 10,000 satellites, placing them in direct competition with SpaceX's Starlink.
  3. China is pushing to build low Earth orbit broadband networks with dual civilian and military applications.

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