The above saying emphasizes the distinction between reported profits, which can be kneaded/ engineered/ fudged, while actual cash flow, is more tangible and harder to manipulate. It reflects a company's real financial health. Three charts from Apollo Global Management related to the Magnificent 7 illustrate the point (click to enlarge).
Mag 7 Profit Margins
The consumer price index rose 3.8% year over year in April 2026, up from 3.3% in March, according to the Bureau of Labor Statistics. The inflation rate is now at a three-year high. The main driver was surging energy prices driven by the war in Iran. In particular, gasoline prices jumped over 28% y-o-y! The chart below shows all the components of CPI and their changes annual % change.
Polls show rising bipartisan frustration with the rising cost of living and deep dissatisfaction with President Trump's policies. 70% of Americans now disapprove of his handling of the economy, which is significant given that Trump’s 2024 victory rested heavily on a promise he could better manage the U.S. economy than Biden/Harris, particularly with respect to the cost of living. But President doesn't seem to have gotten the message yet:
According to AAA, the national average for the price of a gallon of gasoline in the U.S. was $4.55 on May 7, 2026, up 25 cents for the second week in a row. Tensions in the Middle East and the closure of the Straits of Hormuz continue to drive prices up. Pump prices are now $1.40 higher than they were a year ago and at their highest level since 2022, when a combination of a supply shock from Russia's invasion of Ukraine and a demand surge in the form revenge travel among Americans caused gasoline prices to briefly hit $5 a gallon during peak driving season.
The chart below compares gas prices over the past few years. While we're still a little way yet from the $5.00 a gallon milestone, prices were also higher coming into 2022 at $3.28 a gallon. So, by June of that year when prices hit $5 a gallon, the cost of gasoline had risen by 53%. Coming into 2026 gas prices were substantially lower at $2.81 a gallon. That means the cost of gasoline has risen over 60% YTD, even before we get into the peak driving season (June-August). Yikes!
So, what contributes to gas prices? The Naked Capitalism blog had good piece by energy economist Robert Harris that breaks down the components of gas prices and their drivers. As shown below, just over half of the cost of a gallon of gas/diesel is driven by the price of crude oil, which can fluctuate substantially. Oil is a global commodity, so when prices rise in one place, they rise everywhere--even if the U.S. produces most its own oil today. The rest of the costs (refining, marketing, and taxes) are more stable.
From Harris: "Because the price of crude oil is the largest element, most of the price at the pump is derived from the global oil market. Usually, big swings in crude prices come mainly from shifts in global demand...But what is happening [today] with the war in Iran is one of the exceptions: a classic supply shock. Severe disruptions to shipping through the Strait of Hormuz and attacks on Middle East oil infrastructure have taken millions of barrels a day off the global market..."
Since most people can’t quickly reduce how much they drive or how much gas they use when prices change, gasoline demand doesn’t change much in the short run. That means a jump in crude costs tends to result in people paying more rather than driving less...
For the past few months, Wall Street has been fretting about artificial intelligence--the force behind the powerful three-year rally in stocks. Since OpenAI launched ChatGPT on November 30, 2022, the NASDAQ Composite had rallied more than 106% on the promise of huge productivity gains for businesses. But lately, financial analysts had begun to worry about the impact AI could have on the business models of Software-as-a-Service ("SaaS") companies that make up nearly a third of the U.S. stock market. These fears spiked in early February when Anthropic released a legal GenAI tool that could "do document reviews, flag risk, and even compliance work." AI went from being revolutionary for businesses to being an existential threat for many of them. Through March 6, the S&P 500 Software Industry Index is now down over 30% from its peak.
Anthropic didn't stop there. A few days ago, it released a white paper mapping out which jobs AI could potentially replace. And it's not pretty...particularly for college educated white-color workers. The radar chart below (click to enlarge) shows what % of jobs in a particular industry can be done by AI (blue shade) versus what is % is actually done by AI currently (red shade).
Source: Anthropic. Massenkoff and McCrory (March 5, 2026)
What Anthropic is predicting is that AI will soon take over nearly all the jobs in management, finance, computer science, engineering, life sciences, legal, and office administration! Conversely, AI will not really touch traditional blue-collar work: farming, construction, plumbing, food & serving, security, driving (Waymo?). That begs the question is a $300,000 college education really worth it in tomorrow's job market? Perhaps?
But, as usual, it is South Park that manages to capture the zeitgeist and provide some wonderful insights about where technology is taking society. Enjoy.
Forbes' Matt Durot recently wrote about Elon Musk's monster December paydays which, given their scale, almost doesn't feel like real money. Early in December, SpaceX launched a tender offer for insider shares that valued the satellite maker at around $800 billion, up from $400 billion in August (private markets be wild!). This new valuation made Elon's 42% stake in the company worth $336 billion and made him the first person ever worth $600 billion. It also meant SpaceX, not Telsa, was the biggest source of his wealth...Challenged accepted. Four days later the Delaware Supreme Court overturned a lower court ruling that in 2018 voided a Tesla options pay package worth $56 billion. That verdict was source of great consternation for Musk; so much so, he re-domiciled both Telsa and SpaceX in Texas which promised him more favorable treatment. So now, a chastened Delaware (possibly fearing other business may do the same) made things 'right.' That options package is now worth $139 billion after gains in Tesla stock, bringing the total value of Elon's holdings in Tesla to $338 billion and restoring balance to the Musk empire. It also made Elon the first person ever worth to be worth $700 billion (at least on an unadjusted basis).
So, what does that even mean? People have tried to make sense of this outrageous number by making comparisons. Here's one attempt by CNN: weighing Elon's estimated net worth against the economies of entire nations. It shows that (as of December 21) Elon's wealth exceeded the annual GDP of more than 170 countries (there officially 195 countries in the world, including Palestine and Vatican City).
Does this help to put Elon's wealth in context? Perhaps. Or do such comparisons just serve to further glorify and gamify staggering concentrations of wealth in society? Moreover, comparing an individual's wealth to a country's economic production is not exactly apples to apples for several reasons. First when it comes to wealth, there's cash and then there's paper valuation. Elon doesn't exactly have $749 billion of cash lying around in banks; what he does have is lots of shares of Tesla and SpaceX which are valued principally by investors based on what they see is the present value ("PV") of the future earnings of each company into perpetuity. Based on investors' sentiment of future growth that 'value' can fluctuate day-to-day; e.g., if investors wake up tomorrow and start to value Telsa more 'rationally' then Telsa's market valuation could drop from approximately $1.5 trillion to $200 billion (or, for the sake of argument, rise to $3.0 trillion) without any meaningful change in the company's actual operations. It really comes down to the story investors want to believe and Elon is an inspiring narrator. What it doesn't mean is that Elon is 'richer' than any of those 170 countries. Let's take the case of Belgium, one of the countries whose GDP lags Elon's net worth. Belgium's annual (nominal) GDP of $717 billion represents the sum total of all of its actual economic output (domestically) for the past 12 months (and not the PV of the country's expected economic growth forever into the future). It also doesn't mean Elon can pay for everyone in Belgium to take a year-long holiday. He just doesn't have that much money available; sure, Tesla is publicly traded...and he could probably sell billions worth of shares before its market price (and his wealth) starts to precipitously drop. Although Elon can, and does, regularly borrow against his shares, it would still be a drop in the bucket. So, the country comparison doesn't tell us much. So, Elon's not that wealthy? No, no...he's incredibly wealthy, just not (yet) 'richer' than entire nations based on how we are calculating value.
Is there a better way to depict Elon's staggering wealth and put it into context? Yes, there is, and it was posted by Senator Bernie recently when he railed against billionaires (as he is wont to do). It compares wealth against (shocking) wealth. Based on analyses by economists at Realtime Inequality Sanders' chart shows that the bottom 50% of Americans aged above 20 years (roughly 125 million people) hold approximately $1.2 trillion in total wealth (savings, stock, real estate, etc. which can fluctuate in value, particularly if more of it is in financial assets rather hard cash). That comes to an average wealth of about $9,600 per working American. I another words, on paper, one person--Elon--holds more wealth than 78+ million Americans!
Today (July 13), marks the 40th anniversary of that historic event--a bold audacious musical spectacle to raise funds for a "biblical" famine in Ethiopia that would kill 1.2 million people. Conceived and organized by Irish rockstar Bob Geldof, Live Aid "was two epic concerts held in London and Philadelphia" on the same day. Geldof persuaded "many of the world’s most top artists at the time to play for free, including Queen, David Bowie, Madonna, the Who, Elton John, Tina Turner and Paul McCartney." The two shows were seen by over 160,000 people live and by 1.5 billion people on TV in over 150 countries (~a third of the world's population at the time), raising more than $140 million (the government of the UAE, incidentally, was the single biggest donor).
While the horror of that devastating famine is thankfully behind us, Live Aid remains a cultural touchstone. In all 70 artists performed live over 16 hours at Wembley and JFK Stadium. The complete set list for both venues is here. While there were many great performances, by consensus three stand out:
3. David Bowie: Following Queen (see below) at 7:20pm in the evening his set included energetic renditions of TVC-15, Rebel/ Rebel, Modern Love, and a memorable version of Heroes, which became the event's anthem of sorts. Bowie was supposed to play five songs but agreed to cut one "so that his time could be used to show documentary footage of the famine in Ethiopia instead." Bowie quietly introduces the clip (set to the Car's Drive) after Heroes and asks people to send their money in. It was a somber reminder to everyone watching about the gravity of the situation. Apparently, that's when the donations came flooding in.
Venture investing is hard: 3 out 4 start ups fail with investors losing much not if not all of their money when those 75% of firms liquidate assets. While VCs are always on the lookout for the next big thing, no one can really say whether today's startup will be tomorrow's industry behemoth that makes investors very rich. To improve their odds, VCs will invest in many businesses in a number of markets with the understanding that statistically only a few of their bets will (hopefully) generate big returns.
It's not surprising then that VCs don't like to advertise their losses. They'd much plaster their websites and marketing materials with their successes. And they certainly don't want to remind you of their great misses...companies they passed on that eventually became household names (whose success in hindsight is so blinding obvious, it might give prospective investors pause to hand you any of their money).
Bessemer Venture Partners ("BVP") is refreshingly different. BVP is one of America's oldest venture capital and private equity firms, founded in 1911. Whether because of humility, or the firm's track record, or simply because they think it's clever marketing...BVP maintains a list of (ex-post) game-changing companies they evaluated but decided not to invest in for one reason or another. As BVP quips: "Whatever the reason, we would like to honor these companies —our “anti-portfolio”—whose phenomenal success inspires us in our ongoing endeavors to build growing businesses. Or, to put it another way: if we had invested in any of these companies, we might not still be working."
And the list is (drum roll, please)...
These 16 companies, which include four Magnificent 7 members, had a collective market capitalization of more than $8.5 trillion, as of June 6, 2025, or roughly 1/6 of the value of the entire U.S. stock market.
Thanks for keeping it real BVP.
Bidenomics is the President's signature economic plan, meant to grow the economy from the middle out and bottom up. It is a rejection of the Republican party's core policies of "trick-down economics" and is expected to be financed in part by greater taxes on the wealthy and corporations. And it seems to be working: (i) 13 million jobs added since Biden's inauguration (January 2021)--including 800K of those elusive manufacturing jobs, (ii) unemployment at less than 4%, and (iii) the strongest growth since the pandemic of any major economy. Yes, inflation reached a 40-year high in June of last year with a yoy increase of 9.1% but thanks to the Fed's aggressive rate hikes and supply chain normalization, CPI has steadily declined (though still elevated at 3.7%). If the conventional wisdom about elections is true, that "it's the economy, stupid", then Biden should be sitting pretty.
Yet, despite robust job growth, rising wages, and falling inequality the electorate is anxious about the state of affairs, very anxious; an NBC poll at the end of June found 74% of Americans feel the country is heading in the wrong direction. Huh? Why is Biden not getting credit for the economy?
Inflation is certainly a part of it. A September Harris poll for the Guardian newspaper found that "two-thirds of respondents (68%) reported it’s difficult to be happy about positive economic news when they feel financially squeezed each month (Republicans: 69%, Democrats: 68%)." And there is hard data to support such disquiet. While most measures show real wages are up since prior to the pandemic, Jason Furman (Harvard economist and chair of the Council of Economic Advisers under President Obama) calculates that [they] are still 3-5% below their immediate pre-pandemic trajectory. In other words, things were already improving under Trump then the pandemic hit, followed by nearly double-digit not transitory inflation causing real wages to plummet. Workers' real incomes are now back up to Q1 2020 levels, but still below the trajectory they were on in the waning years of the Trump administration. Simply put, Americans feel real wages should be higher.
Fed Chair Jay Powell's Jackson Hole speech yesterday was just 8-minutes long, but it packed quite a punch. After hiking Fed Funds rate by 75 bps in June and July, Powell tried to mollify investors with some unscripted soothing comments when he said, "the central bank had already reached a “neutral” setting -- where it’s neither stoking nor restraining consumer prices." Mind you the Fed Funds rate was only up to 2.25% while inflation was running at 8.5%. Larry Summers for one, called the comments "indefensible." But the markets loved Powell's words and interpreted it as a "pivot" to more dovish rate moves (i.e., reinstatement of the Fed put), extending a ferocious rally. Between June 16th and August 15th, the S&P 500 and NASDAQ gained 17.2% and 23.3%, respectively.
However, Powell seemed to put an end to that nonsense this afternoon, when he reiterated that restoring price stability was Fed' #1 priority and that "will likely require maintaining a restrictive policy stance for some time.” And just for good measure, if there was any doubt, he pointedly reminded investors that “the historical record cautions strongly against prematurely loosening policy.” Summers approved.
Okay, so how did the markets react? As you might expect, with the S&P and NASDAQ down 3.4% and 3.9%, respectively. It also meant that it was an expensive day for America's richest, especially tech billionaires. Bloomberg helpfully calculated that Powell's short speech cost America's billionaires $78 billion. Elon Musk lost $5.5bn, while pal(?) Sergey Brin lost $4.7bn. But at least rival Jeff Bezos lost even more $6.8bn, right?
These numbers are absurd. According to the U.S. Bureau of Labor Statistics, the median annual personal income in the U.S. was around $51,500. Roughly speaking, it would take the median American over 106,000 years to make what Musk lost in just one day!
Yet, these numbers are still essentially a drop in the bucket to the fortunes of America's richest. According to wealth porn site Forbes, which runs the Real-Time Billionaire List, Musk was worth $257 bn at close of business yesterday and Bezos $155 bn. Wealth tax anyone?
As we wrote yesterday, CPI was up 8.6% year-on-year ("YoY") in May---the fastest pace in 40 years. A significant driver of headline inflation was record gas prices, though core CPI (excluding volatile food and energy components) was also worse than expected, rising 6.0% YoY. While core CPI may be a better measure for policy making, food and energy prices impact people more urgently and intensely. Energy costs are 34.6% higher compared to a year ago, driven by a nearly 50% jump in gas prices. As a result, the typical US household is spending about $460 more every month than they did last year to purchase the same basket of goods and services. AAA's tracking of gas prices shows the price of a gallon of regular gas nationwide was over $5.00 for the first time on June 12, 2022. (Click chart to enlarge)
California had the highest average gas prices at $6.43/gallon, while Georgia had the lowest at $4.48/gallon. Nearly half the states average gas prices of $5.00/gallon or more. Higher fuel costs are making travel, food and other products more expensive across the economy.
Higher energy prices are supposed to reduce demand, but there's no sign yet of the so-called "demand destruction." Road travel in the busy summer season has remained relatively strong, just a couple of percentage points below pre-pandemic levels. That just means inflation, which was supposed to have peaked in April, will likely continue to go up.
When people think of the Indian Subcontinent, they think of, well, India, and secondarily Pakistan, two rival nuclear powers. Often lost in the mix is another populous country with a long, shared, and bloody history: Bangladesh.
The end of British colonialism in India was associated with a rushed and botched partition of the country by Viceroy Mountbatten (better known to Americans as Prince Charles' ambitious uncle in Netflix's The Crown). In any case, at the stroke of midnight on August 15, 1947, two countries were born: Hindu-majority India, and Muslim-majority Pakistan. Pakistan itself was divided into two parts, East and West, separated by over a thousand miles (the two green sections, as shown below). In 1971, Bangladesh declared its independence from the richer and more powerful (West) Pakistan.
America's billionaires pay an effective tax of just 8%, according to the government, even though the highest income tax bracket, starting at around $524K, is 37%. How to do they manage that? By a nifty, and completely legal, strategy of buying, borrowing, and dying...Let Pro Publica explain:
Sometimes, there can be too much of a good thing. Since the start of the Covid-19 pandemic an already strong housing market has become super-charged, as unprecedented demand pushes home prices through the roof (pun intended). The Case-Shiller National Home Price Index has gained an astonishing 30% YoY, as shown below (click to enlarge). Makes the HPA of the 2000s look almost mild by comparison!
Last Wednesday the Federal Reserve wrapped up its two-day March FOMC meeting and announced a largely expected 25 bp rate hike, the first such action since December 2018. Back then the markets threw a tantrum, dropping 9% on the month, causing the Fed to back off any further actions, because, you know, the 'Fed put.' Beginning with Ayn Rand-devotee Alan Greenspan, Fed Chairpersons have, to a great extent, measured their job performance against the fortunes of the stock market, the most visible, though inaccurate, reflection of the broader economy. But for much of the post-GFC period inflation and economic growth had stayed stubbornly low, and after a while the Fed's highly accommodative policies primarily served to boost financial markets. The only real issue was asset inflation and historic inequality--but, almost by definition, that doesn't matter. Trickle down, right?
Well, things are a little different now, with inflation at a 40-year high, and potentially getting worse. The Fed is in the uncomfortable position of choosing between its favored measured of success, the stock market, and its actual mandate of price stability. But old habits die hard, and the Fed moved gingerly last week with a 0.25% hike and a lot of soothing talk. The markets ripped higher, almost as if laughing at the prospect of the Fed being more aggressive, led curiously by retail investors (?). But being aggressive--a lot more aggressive--may be what's needed, according to Harvard economist Larry Summers. Prior to the FOMC meeting last week, Summers wrote that the Fed needed to hike rates to at least 5% or risk bringing stagflation and recession on the US economy. Following the FOMC's relatively tepid rate move, Summers responded with a stinging Op-Ed in the Washington Post, saying: "The stock market responded positively Wednesday to the Federal Reserve’s move to raise interest rates...I wish I could share that enthusiasm. Instead, I fear, the economic projections of the Federal Open Market Committee (FOMC) represent a continuation of its wishful and delusional thinking of the recent past." Wishful and delusional; tell us what you really think Larry.
Summers' argument stems from what has been a central principle of anti-inflationary monetary policy for decades, namely that to reduce inflation it is necessary to raise real rates. He writes "yet, because of upward revisions in the inflation forecast, the Fed’s predicted real rates have actually declined in recent months. In other words, the FOMC’s plans do not even call for keeping up with the rising inflationary gap. It is hard to see how interest rates that even three years from now will be about 2 percentage points less than current rates of inflation can reasonably be regarded as providing sufficient restraint." He goes on to say "perhaps the FOMC members are wary of pessimistic forecasting. But why shouldn’t they forecast realistically...the credibility of the Federal Reserve is a precious asset. It should not be lightly sacrificed."
And yet, ironically, Summers may be part of the reason the Fed has been so cautious to begin with. Summers has been successful at reviving the idea of 'secular stagflation' in recent years, which is that demographics, global savings glut, and technology trends are reducing growth and inflation, and the imbalance between savings and investment is pulling down real interest rates. Buttressing the case is what we had seen over the past two dozen years in the U.S. and Europe and perhaps far longer in Japan, at least until the pandemic. Growth has been consistently below expectation, with chronically sluggish demand and low inflation, "just as one would expect in the presence of excess saving. Absent many good new investment opportunities, savings have tended to flow into existing assets, causing asset price inflation." The Fed seemed to buy into that thinking when they persistently described inflation as "transitory." Even after Summers had reversed course in 2021 and warned that continued large scale monetary and fiscal stimulus in response to the pandemic could lead to price instability, many still felt secular stagflation was the bigger risk. In fact, Paul Krugman, quoted Summers to Summers to make the convincing case more stimulus was warranted.
Whether it was the market's response, Summers' comments, or whatever, by Monday the Fed took a much harder tone on rates, with Chair Powell stating, "the labor market is very strong, and inflation is much too high," and that the Fed was open to multiple 50 bps rate hikes and, perhaps, even reducing the Fed balance sheet at the same time. Okay...
Many people get the Sunday-night blues...as they wonder where the weekend went and contemplate the upcoming week's work. One way for companies to reduce employees' anxiety may be to allow them to ease into the work week. In fact, they may have to. The Advanced Workplace Associates surveyed nearly 10,000 people working in finance, technology, energy sectors around world and found that 86% of workers want to want to work from home at least two days a week, preferably Monday and Friday. With companies struggling to find workers amid the Great Resignation flexibility and hybrid work are fast becoming a recruiting and retention tool. And we're pretty sure employees will appreciate it.
The post-Global Financial Crisis ("GFC") environment has long been plagued by low growth and deflationary pressures. Supported by by ultra-low interest rates, growth hungry investors have for years piled into risky assets like cryptocurrency and companies with questionable "growth-at-all costs" business model. Profits? What's that?...Investors merrily did so because of the justified belief that the Federal Reserve had their backs. The stock market is, of course, not a part of the Fed's dual mandate of stable prices and maximum employment. However, successive Fed regimes have been wary of any negative feedback loop a declining stock market might have on the real economy and typically responded to market volatility with injections of liquidity. The Fed's obsession with the so-called "wealth effect" has contributed to growing economic inequality, even by the Fed's own admission. But suddenly, some would say predictably, inflation is back after four decades (admittedly, this blog was firmly in the transitory camp). The Consumer Price Index rose to a 39-year high of 7.1% in December, well above the 3.2% average over the past 42 years and the 1.8% per annum since the GFC.
In an earlier post we looked at Japan's boom & bust cycle. But just as Japan's economy was starting to falter, another Asian economy was taking its place. According to the World Bank the size of the Chinese economy in 1990 was just $847 billion, by the end of the century it was $2.2 trillion, and at the end of 2020 it was $11.8 trillion, the second biggest economy in the world after the U.S. Between 2000 and 2020, China's economy increased over 5.3x. Over the same period the U.S. economy grew just 2.0x. Yet the CSI 300 and its U.S. equivalent the S&P 500 had the same overall returns over that period, as shown below:
So, labor took in a larger share of corporate profits in China than in the U.S., where the lion's share of gains accrued to shareholders. So despite significantly higher growth in China, returns to equity were the same in both countries. Is it more complicated than that? Of course, but it is an interesting argument. Marx's revenge?
Note, the above chart ended in 2008. It may very well be that China has moved closer to point B now more than a decade later. In which case, future equity returns could be better even as growth slows as the same labor-capital dynamics play out. But that's probably what the Communist Party is at pains to avoid.
Monday the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2021 was awarded one half to David Card "for his empirical contributions to labour economics", and the other half jointly to Joshua D. Angrist and Guido W. Imbens "for their methodological contributions to the analysis of causal relationships"
Big Tech believes the future of work is the "metaverse," first described in Neal Stephenson's classic sci-fi novel Snow Crash (1992). Or at least a less dystopian enterprise version, where employees will put on headsets and inhabit virtual offices. A surprisingly large number of Fortune 500 companies appear to be already using it. Jo Anna Stern of the WSJ shows how it works with the Spatial app, a leading firm in the space.
I suppose in the future it'll come with the choice of either a subscription model or the usual "you are the product" model--free, but replete with background ads and ways to monetize your information.
A new story from the WSJ highlights one of the peculiarities of this pandemic...that economically it has left most Americans better off, at least in the short run. Despite a near complete shutdown of the U.S. economy and over 20 million of job losses in early 2020, households added $13.5 trillion in wealth last year, according to the Federal Reserve. Thanks to trillions spent by the Federal government on stimulus checks and unemployment benefits Americans broadly were able to save more, pay off credit-card debt, and refinance into cheaper mortgages. The results are in striking contrast to the Global Financial Crisis in 2008, when U.S. households lost $8 trillion of wealth (click chart to enlarge).
An imperious defense and dazzling passing helped La Roja to win the World Cup Fewest Goal Conceded in World Cup: 1 Golden Ball (Best Playe...
