“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
China’s leadership is suspicious of growing household consumption as a % of GDP at the expense of building industrial capacity and “girding for potential conflict with the West.”
Xi and some of his lieutenants remain suspicious of U.S.-style consumption, which they see as wasteful at a time when China’s focus should be on bolstering its industrial capabilities and girding for potential conflict with the West, people with knowledge of Beijing’s decision-making say. The leadership also worries that empowering individuals to make more decisions over how they spend their money could undermine state authority, without generating the kind of growth Beijing desires.
Expected earnings for S&P 500 firms “fully explain observed stock market fluctuations from 1980-2022,” and help explain macroeconomic boom-bust cycles @NBERpubs
The present value of short and long term expected earnings for S&P 500 firms, computed using a constant required return, fully explains observed stock market fluctuations btw 1980-2022. When long term earning growth (LTG) is high relative to historical standards, analyst forecasts of short and long term profits are systematically disappointed in the future, inconsistent with rationality. High LTG also correlates with higher survey expectations of stock returns, in contrast with standard theories, in which investors expect low returns in good times. High LTG thus proxies for excess optimism: it points to investors being too bullish about future profits and stock return. This evidence offers additional support to the hypothesis that boom-bust dynamics in non-rational expectations about the long-term act as an important driver of the volatility of key asset prices. A one standard deviation increase in LTG fuels an investment boom. Crucially, the investment boom sharply reverts 2 years later, and that reversal is fully explained by the predictable disappointment of the initially high LTG.
.@nberpubs analysis finds that a 1% increase in the working age share of population raises per capita income by ~ 1% and forecasts a 0.4-0.8pp drop in growth of income per capita from population aging.
The results document that shifts in population age structure significantly affect economic growth. A 1% increase in the working-age share raises income per capita by about 1%. A 1% greater working-age share amplifies growth by 0.1–0.4% in subsequent periods. These patterns are stable for both OECD and non-OECD countries. We combine the empirical estimates with demographic predictions and project economic growth in 2020–2050. Without population aging, income per capita in OECD countries is projected to grow on average by 2.5% annually between 2020 and 2050. With population aging, growth is projected to slow by 0.8 pp if we measure working ages retrospectively but only by 0.4 pp if we measure [changes in age patterns of health]. In contrast, population aging is projected to spur average growth of income per capita in non-OECD countries.
As the American workforce shrinks relative to the economy @pkedrosky @defrag argue the number of workers is a limiting constraint on economic growth. He notes that the current generation of AI isn’t mature enough yet to offset this headwind.
If the labor force had continued to grow more or less in line with history and GDP, we’d have almost 5M more workers out there. But we don’t. The gap is shrinking—it was closer to 7M a year ago—but it is still a very large number, and, given retirements, skill mismatches, and aging, it seems unlikely we will close that gap quickly, if ever. Absent a wave of immigration, which creates its own problems, politically and otherwise, and doesn’t necessarily fill the observed skill gaps, something needs to change. Historically, when this has happened—labor became more expensive than capital—economies have responded with automation, so we should expect that again today. We think, contrary to hyperbole, we are already at the tail end of the current wave of AI. We need to look past the limits of current AI technology if we are to break free from the past few decades of tech—enabled automation, where there is high worker displacement without commensurate productivity gains impact—where minimal human flourishing is created.
The average home insurance cost for Floridians has tripled in the past five years. Homebuilders in California and Florida are reporting insurance costs are “somewhat slowing sales.”
Almost a third of house builders in Florida said buyers’ concerns about home insurance were “somewhat slowing sales.” The proportion in Southern California was very similar, at 29%, the survey by John Burns Research & Consulting found. That is much higher than the national figure of 9% of builders reporting sales affected by insurance concerns. The risks of disasters haven’t been fully priced into property markets, partly because of flaws in the way federal flood insurance was priced, researchers say. If flood risks were taken into account, U.S. residential properties would be worth at least $121 billion less, according to a study earlier this year by nonprofit the First Street Foundation, the Federal Reserve and others. In Florida alone, properties in flood zones are overvalued by more than $50 billion.
.@BankofAmerica reports that in Q2 ‘23 San Antonio, Dallas, and Orlando have the most constrained housing supplies as buoyant labor markets continue to attract people.
Our analysis suggests that in 2Q, San Antonio, Dallas, and Orlando have the most constrained housing supply as buoyant labor markets continue to attract people. St. Louis, Detroit, and Miami seem to have the highest housing stock relative to their population. The good news is that cities with lower housing supply are already seeing higher construction trends but if the current population dynamics are maintained there will continue to be a strong housing need in the growing parts of the country. Looking more broadly at population flow, Bank of America internal data suggests that in 2Q, 13 out of the 27 Metropolitan Statistical Areas (MSAs) we track continue to see positive year-over-year growth in population with Jacksonville and Columbus leading the gain. Charlotte, Nashville, and Las Vegas saw accelerating pace of increase in residents than in 1Q. Related: A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South and What’s the Matter With Miami? and Young Families Have Not Returned to Large Cities Post-Pandemic
.@AswathDamodaran argues that central banks are rate takers, not rate makers. Rates, in his view, are ultimately set by inflation and real growth. He notes, “The fundamentals will win.”
There is no better way to show the emptiness of "the Fed did it" argument than to plot out the US treasury bond rate each year against a crude version of the fundamental risk-free rate, computed by adding the actual inflation in a year to the real GDP growth rate that year. No one (including central banks) cannot fight fundamentals: Central banks and governments that think that they have the power to raise or lower interest rates by edict, and the investors who invest on that basis, are being delusional. While they can nudge rates at the margin, they cannot fight fundamentals (inflation and real growth), and when they do, the fundamentals will win. Related: The Fed and the Secular Decline in Interest Rates and What Have We Learned About the Neutral Rate? and The Evolution of Short-Run r* After the Pandemic
Analysts at @sffed argue that as of June households have spent 90% of $2.1T in excess savings accumulated during the pandemic. They estimate that excess savings will be fully depleted by the end of Q3 2023.
The United Auto Workers are coming closer to a strike in September. Their demands would cost carmakers $80 billion over the four years of the deal.
The leader of the United Auto Workers union on Tuesday asked members to grant him the ability to call a strike, arguing contract talks with the three major Detroit carmakers are moving too slowly. Earlier this year, the UAW gave each carmaker a list of demands that included pay raises of more than 40%, inflation protection, better treatment of temporary workers, and improved perks for retirees. The UAW also wants all workers paid the same wage, regardless of the job they do or whether they work on electric vehicles. If the union got everything it demanded it would cost carmakers $80 billion over the four years of the deal, Bloomberg has reported. Related: The ‘Summer of Strikes’ Isn’t Living Up to the Hype and Unions’ Inflation Warning? and Everyone Wants to Work at UPS After Teamsters Deal
Over the last year, FDI flows into China have turned negative, as foreign multinationals have repatriated Chinese earnings they had previously reinvested. @jnordvig @EtraAlex @martin_lynge
Net FDI into China has been negative for four consecutive quarters (from Q3 2022 to Q2 2023). The bottom line is that foreign investors have shifted in recent quarters from reinvesting their earnings on their Chinese operations to repatriating those earnings. Whether this simply reflects cash management and carry considerations or is a harbinger of a slowdown in future foreign direct investment in China is too soon to say. If the recent trend to repatriate earnings is a signal about future investment intentions, it could have implications for future Chinese production and export capacity and economic growth. Either way, the repatriation of foreign investors’ profits from their Chinese operations is negative for the CNY. Related: The Mysterious $300 Billion Flow Out of China and NYC Becomes One Billionaire Family’s Haven From China Property Crash and Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom
Chris Satterthwaite notes the overperformance of the top-5 market cap stocks is historically unusual and speculates that technological advances ranging from AI and superconductors will likely drive significant churn over the next decade.
The phenomenon of the largest stocks delivering the best returns is new, in our opinion. In fact, from 1994 to 2013, an annually rebalanced portfolio of the largest 5 stocks (“Big 5”) in the US had a comparable return to the entire S&P 500. But both portfolios significantly lagged a large-cap value portfolio (per Ken French). The last 10 years have seen a concentration of returns to the tech sector and to a few companies within that sector. This is both notable and unusual. With the advent of exciting new technologies like AI and superconductors, we think it’s plausible that the top 5 largest companies 10 years from now may look quite different from the top 5 today. In which case, a diversified portfolio would likely serve investors better than a highly concentrated size-defined portfolio. Related: Birth, Death, and Wealth Creation and Mr. Toad's Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs and The Economics of Inequality in High-Wage Economies
Treasury’s new buyback program will allow the Treasury to “add and remove duration into the market,” an ability previously only held by the Fed. @FedGuy12
Treasury plans to issue a bit more debt at each auction with the understanding a portion of the proceeds would be used to purchase old debt. In effect, the composition of Treasuries outstanding would be tilted towards the more liquid new issues. The program could one day be deployed to influence monetary conditions. For example, Treasury could effectively ease financial conditions by issuing short dated debt to purchase longer dated debt. There is no indication of this today, but treasuries and the central banks do not always have the same goal, and conflicts between the two are common in history.
.@paulkrugman argues that at the current interest rate of inflation-protected 10-year U.S. bonds of 1.83%, economic growth makes a runaway debt spiral unlikely.
You can get a debt spiral if r is significantly larger than g; in that case rising debt leads to faster accumulation of debt, and we’re off to the races. Even after the rate surge of the past few days, the interest rate on inflation-protected 10-year U.S. bonds was 1.83%, which is close to most estimates of the economy’s sustainable growth rate. If you take the low end of such estimates, we could possibly face a debt spiral, but it would be a very slow-motion spiral. Put it this way: If r is 1.8, while g is only 1.6, stabilizing the debt ratio with debt at 100% of G.D.P. would require a primary surplus of 2% of G.D.P.; increase debt to 150%, and that required surplus would increase only to 3%. Related: Summers and Blanchard Debate the Future of Interest Rates and Interest Costs Will Grow the Fastest Over the Next 30 Years and US Fiscal Alarm Bells Are Drowning Out a Deeper Problem
A model from the @sffed forecasts “year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024.”
The dashed line presents our baseline forecast of year-over-year shelter inflation over the next 18 months based on the average of cumulative shelter inflation forecasts at the CBSA level. Blue shading shows the area in which 95% of the model’s out-of-sample forecast errors fall, indicating the range of confidence regarding the accuracy of our model estimates. The solid line plots actual year-over-year shelter inflation. Our baseline forecast suggests that year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024. This would represent a sharp turnaround in shelter inflation, with important implications for the behavior of overall inflation. The deflationary component of this forecast would be the most severe contraction in shelter inflation since the Global Financial Crisis of 2007-09. Related: Rangvid On Housing Inflation and New Tenant Repeat Rent Index
Since the start of the pandemic major urban counties’ federal tax base has declined by at least $68B, with large declines in San Francisco and New York City. @cojobrien
The country’s large urban areas were hit hard by the pandemic and subsequent economic recovery on a number of fronts. Between 2020 and 2021, IRS data shows that net migration subtracted more than $68 billion (Adjusted Gross Income, or AGI) from large urban counties’ aggregate taxable income. Meanwhile migration added to taxable income in all other types of counties, even smaller urban peers. The scale of decline in large urban areas was equivalent to nearly two percent of total taxable incomes in such counties. In contrast, newcomers to rural counties have added more than 1.5% to taxable income in each of 2020 and 2021. Manhattan alone lost more than $16 billion in federally-taxable income (spread across more than 37,000 returns) through net migration, equivalent to more than 13% of remaining residents’ combined taxable incomes. Net migration out of San Francisco left that city’s federal income tax base more than $8 billion—or 20% —smaller between 2020 and 2021 alone. Related: Young Families Have Not Returned to Large Cities Post-Pandemic and Sunbelt Cities Nashville and Austin Are Nation’s Hottest Job Markets and Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy
The American semiconductor industry trade association reports the industry is facing a likely shortfall of 60% of the 115,000 new positions they will need through 2030. @markets
Chipmakers are on course to add about 115,000 jobs by 2030 [according to] Semiconductor Industry Association (SIA). Based on a study of current degree completion rates, though, about 58% of those projected positions could remain unfilled. Not enough Americans are studying science, engineering, math and technology-related subjects, according to the SIA. And people from other countries who are acquiring those skills are leaving, the group said. At US colleges and universities, more than 50% of master’s engineering graduates and 60% of those with a Ph.D. in engineering are citizens of other countries. About 80% of those master’s graduates and 25% of those who earn doctorates depart the US — either by choice or because immigration policy doesn’t allow them to stay. Related: The Extreme Shortage of High IQ Workers and TSMC To Send Hundreds More Workers To Speed U.S. Plant Construction
.@BobbyJindal argues that simple reforms in Medicare billing could save patients and taxpayers somewhere between $346B and $672B over the next 10 years.
Currently, Medicare pays hospital-owned facilities two to three times as much as independent physician offices for the same service, according to the Alliance for Site Neutral Payment Reform. This creates an enormous incentive for large hospital chains to acquire outpatient practices. A report by the Physician Advocacy Institute found that the share of hospital-owned physician practices more than doubled, from 14% to 31%, between 2012 and 2018. By 2020 more than half of physicians worked directly for a hospital or at a physician practice owned by a hospital, according to the American Medical Association. Removing these perverse incentives could save patients and taxpayers between $346 billion and $672 billion over the next decade.
Americans aged 25-54 are employed or looking for jobs at rates not seen in two decades, helping counter the exodus of older baby boomers from the workforce.
American prime age 25-54 labor force participation is at a two decade high of 83.5% as an uptick in prime age female LFP has offset a decline in male prime age LFP since 2000. In the first months of the pandemic, nearly four million prime-age workers left the labor market, pushing participation in early 2020 to the lowest level since 1983—before women had become as much of a force in the workplace. Prime-age workers now exceed prepandemic levels by almost 2.2 million. The resurgence of midcareer workers is driven by women taking jobs. The labor-force participation rate for prime-age women was the highest on record, 77.8% in June. That is well up from 73.5% in April 2020. Related: The Labor Supply Rebound from the Pandemic and Where Are the Missing Gen Z Workers
Michael Cembalest @jpmorgan notes the 2020/20221 IPO class has performed extremely poorly relative to the overall equity market. IPO returns since 2010 were highly skewed; if the top 5% were removed, returns were strongly negative vs the market.
Since 40%-60% of IPOs generate negative returns even in good times, their value proposition is whether a small subset of winners offsets all the losers. A highly skewed investment universe is characterized by average returns that are much higher than median. As shown below, IPOs are an example of that; in many years, average net returns were positive while median net returns were close to zero. But these positive average returns are highly skewed: look how quickly they decline when excluding the best 3%, 5%, and 7% of IPOs. Even when only excluding the top 3%, average net returns become negative, and average absolute returns fall by more than half. In other words, long-term IPO survival odds are low and skewed to a small number of mega-winners.
.@joshrauh & Gregory Kearney of @HooverInst argue academic research suffers from a feedback loop that encourages economists to produce left-leaning research to achieve widespread coverage in the mainstream media.
Social sciences researchers hoping to become public influencers have one clear path: through the mainstream media. Unfortunately, journalists aren’t unbiased arbiters. For more than a decade, the media has praised economists Saez, Zucman and Piketty. Their data purport to show the income share of the top 1% of [US] earners climbed to 21% in 2019 from 9% in 1970. In a recent paper that has received far less attention, Auten of the U.S. Treasury and Splinter of Congress’s Joint Committee on Taxation find the income share of the top 1% climbed to 13.7% in 2019 from 9.2% in 1970. and, incorporating increases in redistributive government policy, the income share of the top 1% only increased to 8.8% in 2019 from 6.8% in 1970. In 2017, [Harvard’s Raj Chetty] published findings that U.S. trends in the likelihood of children achieving a higher income status than their parents has grown progressively worse, a point that received intense media coverage. Research published by Scott Winship of the American Enterprise Institute shows the fall in mobility was a direct consequence, not of inequality, but of slowing economic growth that began in the 1970s. Journalists’ propensity to ignore research that refutes their beliefs encourages academics to pander to the liberal tilt of mainstream news organizations, leading to the general public’s misunderstanding of important policy issues.
George Borjas finds that a 1981 French program giving legal status to undocumented workers who represented about 1% of all workers resulted in increased employment and wages for low-skill native and immigrant men and raised GDP 1%.
This paper documents the economic consequences of a large amnesty program implemented in France. In July 1981, the newly elected government of President François Mitterrand proposed to regularize all undocumented workers. The regularized workers were predominantly male, low-skill, and lived disproportionately in the Paris region. The regularized immigrants composed 2.0% of workers in Paris and nearly 1% of all workers in France. In short, by reducing monopsony power in the undocumented labor market, a regularization program improves labor market efficiency and can generate a substantial increase in output, a “regularization surplus.” Our empirical analysis of employment, wage, and output data in the French labor market confirms that the regularization program indeed had positive effects on the employment and wages of many groups, and particularly for male, low-skill workers. Moreover, there was a sizable jump in the growth rate of per-capita GDP in the affected region, suggesting an increase in total French GDP of around 1%. Related: Immigration to Drive All US Population Growth Within Two Decades and Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995
.@_seulakim documents the importance of the 50 largest US firms in generating novel patents that combine technical components in new ways.
The share of mega firms in novel patent applications had been declining for almost two decades but there has been a turnaround since the early-mid 2000s. By the mid-2010s, the share of mega-firms was the highest since 1980 when our sample starts. We show that mega firms are more likely to apply for novel patents even after controlling for various firm characteristics including size, industry, and the total number of patents. This finding also holds within firms––firms produce more novel patents than before as they become mega firms. This suggests that closing on market leadership is associated with more, not less new combinations. We also examine the opposite side of the spectrum, the not-yet-public VC-backed startups, and find that those also play a disproportionately large role in generating novel patents, especially “hit” novel patents, so that successful novel patents appear to be produced in a bi-modal pattern, both by super large mega firms and relatively small startups. Related: The Economics of Inequality in High-Wage Economies and Where Have All the "Creative Talents" Gone? Employment Dynamics of US Inventors
New @NBERpubs paper finds that there is no empirical evidence that government spending related to the space race contributed to broader economic growth on the national level.
Figure 1 shows that the ambitious mission to send a manned crew to the Moon led to a massive expansion of federal investment in R&D – NASA received over 0.7 percent of GDP at the peak of the Space Race. Space Race spending was economically large so we might expect local effects through a fiscal multiplier channel even without technological spillovers. We compare the fiscal multiplier for NASA contractor spending implied by our estimates to the literature to get a sense of this. We find that R&D contractor spending on the Space Race had a similar impact as typical government expenditures. There is no credible empirical estimate of the space mission’s contribution to economic growth. The magnitudes of the estimated effects seem to align with those of other non-R&D types of government expenditures.
The American current account deficit is mainly financed via portfolio debt flows, a change from the pre-GFC period when the deficit was funded by reserve accumulation. @IMFNews data shows a declining role for China.
The US current account deficit, the largest deficit of all, is mainly financed via portfolio debt flows. Geographically, the financing of the US current account deficit has become increasingly mediated by financial centers in recent years. This contrasts with the pre-GFC period, when the US current account deficit was financed largely through reserve accumulation from surplus countries. Balance-of-payments data show a declining role for China. Related: Brad Sester On The Balance Of Payments and How Was the U.S. Current Account Deficit Financed In 2022?
.@FedGuy12 argues slowing employment growth is consistent with an American economy that is at full employment and running out of workers. This works against Fed aims, as higher wages are needed to attract marginal workers into the labor force.
The pandemic was a significant negative labor supply shock because it led to a wave of early retirements. This sudden labor shortage led to a spike in wages, which appeared to draw in people who were otherwise not looking for a job. The prime-age labor force participation rate has risen to multi-year highs and is not too far from all-time highs last seen in the 1990s. This suggests that there is very little slack in the labor market and additional workers will be increasingly difficult and expensive to find. While that shock has been digested, workers continue to retire and place increasing demand on a stagnant worker pool. In this scenario, moderating employment growth reflects labor scarcity and would be accompanied by reacceleration of wages similar to that seen in the most recent non-farm payroll report. Related: “The Great Retirement Boom”: The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation and Unions’ Inflation Warning?
Peder Beck-Friis and Richard Clarida @PIMCO argue that fiscal policy has been a key driver of the current temporary inflationary episode, consistent with @JohnHCochrane fiscal theory of the price level.
In advanced economies, there’s a significant positive relationship between core inflation and sovereign debt growth since the start of the pandemic. The fiscal expansions delivered this decade will likely lead to price levels adjusting permanently higher. But this is not the same thing as permanently higher inflation: Our base case is that as temporary pandemic-related deficits gradually normalize, inflation is likely to diminish – and today’s restrictive monetary policies aim to accelerate this process. And unlike in the 1970s, monetary policy credibility appears intact, with medium-term inflation expectations still anchored around central bank targets. Related: The Second Great Experiment Update, Inflation and Debt Across Countries and Waining Inflation, Supply and Demand
.@TheEconomist argues that policymakers are overestimating the importance of manufacturing. In recent years, there has been no significant relationship between economic growth and manufacturing’s share of the economy in OECD countries.
New York state’s foray into industrial policy was a white elephant; $1 billion investment in a Tesla facility earned 0.54 cents on the dollar. External auditors have written down nearly all of New York’s investment.
New York state paid to build a quarter-mile-long facility with 1.2 million square feet of industrial space, which it now owns and leases to Tesla for $1 a year. It bought $240 million worth of solar-panel manufacturing equipment. Musk had said that by 2020 the Buffalo plant each week would churn out enough solar-panel shingles to cover 1,000 roofs. A state comptroller’s audit found just 54 cents of economic benefit for every subsidy dollar spent on the factory, which rose on the site of an old steel mill. External auditors have written down nearly all of New York’s investment. Related: Making Manufacturing Great Again and Why Laws Meant To Create Jobs Can Be So Destructive For Our Cities
While China’s overall unemployment rate is stable at 5.2% in May, but youth unemployment at nearly 21% is above now even higher than Italy. China’s civil service exam had twice as many applicants as in 2019.
.@Brad_Setser argues that net interest payments will top their pre-crisis level of 1.5% of GDP.
The US is the world's big net debtor -- with net external debt of around 50% of its GDP. The US is now getting 4% on average on its loans, while only paying 3% on its borrowing (mostly bonds) the implied net interest rate on US external debt works out to be 2.4% -- well below any current US interest rate. And as a result, net interest payments as a share of US GDP are only up 15 bps of US GDP or so (not much really). These predictable dynamics slow the adjustment in the U.S. balance of payments to higher interest rates, but they don't eliminate it. Net interest payments have a lot further to rise. They certainly will top their pre-GFC peak as a share of US GDP (1.5% or so). Related: Interest Costs Will Grow The Fastest Over The Next 30 Years and American Gothic
Higher child care costs do not explain the labor force participation sluggishness. @stlouisfed @oksana_leukhina
During the first half of 2022, the LFP rate of partnered women with children increased by 1.06 percentage points. Our results suggest that had it not been for rising child care worker wages, we would have likely seen an even stronger LFP rate of partnered women with children today. One reason why this group dramatically increased their market work, despite the rising child care prices, may be related to the rise in the prevalence of telecommuting jobs for which this particular group has a high preference. Related: How Child Care Impacts Parents’ Labor Force Participation
Evidence from CA shows that between 2002-2016 Asian immigration is associated with a decline in white student enrollment in public schools. @leah_boustan
We find substantial white flight from Asian students entering high-socioeconomic status suburban districts: on average, the arrival of one Asian student in a suburban school district leads to the departure of 1.5 white students, a rate of white flight that is somewhat lower but not too dissimilar from flight from Black/Hispanic We find substantial white flight from Asian students entering high-socioeconomic status suburban districts: on average, the arrival of one Asian student in a suburban school district leads to the departure of 1.5 white students, a rate of white flight that is somewhat lower but not too dissimilar from flight from Black/Hispanic populations documented in different settings. Academic performance also rises with Asian entry to high-SES suburban districts. After ruling out correlated patterns of Black/Hispanic entry and direct racial animus, and confirming that housing market dynamics cannot account for the observed departure rate, we suggest that white flight from high-SES districts may be due to parental concerns about academic competition, particularly in a state like CA where entry to public colleges and universities is determined in part by relative high school performance. This pattern is consistent with qualitative sociological evidence about white-Asian encounters in suburban settings. Related: Can Democrats Survive the Looming Crisis in New York City’s Outer Boroughs? and Where New York’s Asian Neighborhoods Shifted to the Right
Torsten Sløk notes that low-interest mortgages constrain housing inventory: 23% of mortgages outstanding have an interest rate of less than 3% and 38% are at 3-4%. @apolloglobal
23% percent of all mortgages outstanding have an interest rate below 3%, 38% are between 3% and 4%, and only 9% of all mortgages outstanding were originated with an interest rate above 6%. The bottom line is that homeowners across America do not have any incentive to move and get a new mortgage with mortgage rates currently at 7.25%. This is a key reason why the supply in the housing market continues to be so low. Related: Inflation Adjusted House Prices 3.8% Below Peak and The Great Pandemic Mortgage Refinance Boom
.@verdadcap Minje Kwun and Lila Alloula argue that there is little evidence to support the claim that the private equity industry as a whole engineers operational improvements.
For EBITDA margins, we notice that PE firms tend to target companies outperforming their industries: EBITDA margin is on average 0.5% above industry standard in the three years before the deal. In the year the transaction is completed, the metric drop sharply. We hypothesize that major LBO transactions are distracting to management and lead to suboptimal outcomes from a sales and margin perspective during the deal year. Once the deal has been completed, growth and margins recover, but do not on average return to pre-deal levels. EBITDA margin averages out to exactly the industry standard, 50bps lower than pre-acquisition. While PE firms are typically praised for their efficiency and cost-control, the graph on EBITDA margins shows a negligible difference in actual profitability. The supposed efficiency and cost-cutting isn’t showing up in the numbers. Instead, PE firms appear to be buying slightly higher-performing companies that then experience some mean reversion post-acquisition. Related: Private Equity Fundamentals