What we’re reading (1/3)
“2035: An Allocator Looks Back Over The Last 10 Years” (Cliff Asness). “…it turns out that investing in U.S. equities at a CAPE in the high 30s yet again turned out to be a disappointing exercise. Today the CAPE is down to around 20…It turned out that, just as we thought, the U.S. really did have the best companies (most profitable, most innovative, fastest growing) and this indeed continued in this last decade. But it also turned out that paying an epic multiple for the U.S. compared to the rest of the world mattered somewhat more than we thought, and international diversification, as we knew it would one day, did eventually work…we had hoped for much more protection from this volatility from our extensive (like half the portfolio at the peak) allocation to privates. Alas, sadly, and totally unforeseeably, it turned out that levered equities are still equities even if you only occasionally tell your investors their prices (and when you do, you do not really move prices that much). Disappointing, but PE acting like equities would have been tolerable if they had actually outperformed public markets, but they underperformed! It seems that eventually, and a 10-year disappointing market counts as ‘eventually,’ even privates have to be (mostly) marked-to-market.”
“The Fed Has Two Bad Options In 2025: Accept Higher Inflation Or Risk A Recession” (Mohamed El-Erian). “Absent a major policy reset, my baseline scenario for the U.S. includes a somewhat lower immediate growth rate, even as the economy outperforms its peers, and sticky inflation. This will present the Fed with a choice: accept above-target inflation or attempt to bring it down and risk tipping the economy into recession.”
“Biden Blocks Sale of U.S. Steel to Nippon Steel” (Wall Street Journal). “Biden’s decision comes after the Committee on Foreign Investment in the U.S., a federal interagency panel, spent months reviewing the $14.1 billion deal for potential national-security risks. In an order Friday, the White House required the companies to abandon the deal within 30 days unless Cfius agrees to extend the timeline.”
“When Did Growth Begin? New Estimates Of Productivity Growth In England From 1250 To 1870” (Bouscase, et al.). “We estimate productivity growth in England from 1250 to 1870. Real wages over this period were heavily influenced by plague-induced swings in the population. Our estimates account for these Malthusian dynamics. We find that productivity growth was zero prior to 1600. Productivity growth began in 1600—almost a century before the Glorious Revolution. Thus, the onset of productivity growth preceded the bourgeois institutional reforms of 17th century England. We estimate productivity growth of 2% per decade between 1600 and 1800, increasing to 5% per decade between 1810 and 1860. Much of the increase in output growth during the Industrial Revolution is explained by structural change—the falling importance of land in production—rather than faster productivity growth. Stagnant real wages in the 18th and early 19th centuries—’Engels’ Pause’—is explained by rapid population growth putting downward pressure on real wages. Yet, feedback from population growth to real wages is sufficiently weak to permit sustained deviations from the ‘iron law of wages’ prior to the Industrial Revolution.”
“Who Could Win And Lose After The Surgeon General’s Alcohol-Cancer Link Warning” (Business Insider). “Stocks of some of the biggest alcohol companies in the world were down Friday after the surgeon general released his advisory. Shares of Budweiser-maker Anheuser-Busch InBev closed down 2.8% in Belgium. In London, shares of Diageo, the company behind Captain Morgan rum and Ketel One vodka, closed nearly 4% lower. Still, there's reason to doubt that the surgeon general's advisory will lead to a lot less drinking and fewer sales for the big booze makers, Kate Bernot, lead analyst at Sightlines, which researches the alcohol space, told Business Insider.”
