• sticky car prices

• public markets: anything but bubbly

• for pe, the song remains the same . . . selection effects drive the rest

• vc is doing fine where it matters (sort of)

• private credit narrative v. fundies

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1. Car prices are remarkably sticky

Random Walk has made this observation before, but when it comes to asset prices, there is perhaps no pithier example of how looks can deceive.

If you can believe it, the price of a new car rocketed up during the zero-interest rate period, and then just hit a plateau:

The average price of a new car has been remarkably stable at just under $50K.

Pretty wild how low interest rates can make the price go up, but high interest rates do not make the price go down, right? And all of that while disposable income ebbs and flows, and gas prices go up and down, and auto sales themselves have been pretty soft. It’s almost like the price is impervious to supply, demand, and most importantly, the customer’s ability to pay.

Well, it’s less wild when you appreciate that that’s not what happened, at all. Of course auto prices went down.

Cars are heavily financed assets, like houses and private equity, and when rates went up, prices most definitely tumbled . . . even if the auto dealers don’t want you to know:

The headline price stayed flat because rising discounts soaked up all the depreciation.

Autodealers surely know the psychology of auto-buyers better than Random Walk, so I’m sure they have very good reasons for staying anchored on a high watermark of headline prices. Maybe it has something to do with dealer financing lines, as well, I don’t really know.

Mostly, it’s just a brief intro into today’s theme: how are the asset prices, really? Is the price signal telling you what you need to know, or does something else lie beneath the surface?

ICYMI

2. Public markets are anything but bubbly

Say what you will about the state of the stock market, but there’s very little evidence of a “bubble,” at least not in the traditional sense.

Earnings led

If anything, the stock market has become substantially more cautious—multiples have contracted, and performance has been entirely profit-driven:

In comparison to the Dotcom boom/bust, when multiple-expansion accounted for 73% of the returns, it’s EPS doing all the work (especially for tech). And again, the prices paid for those earnings have declined pretty substantially, which is just a very weird thing for an earnings acceleration.

It’s somewhat less weird—and further evidence of the market’s “rationality,”—when you consider the narrowness of earnings growth. While it’s true that margin-expansion is expected to be pretty broad-based, the bulk of the earnings growth is concentrated in the AI buildout.

~60% of the S&P’s Q1 eps growth (15pp of 25pp total) is attributable to AI Capex mostly (plus some hyperscaler cloud acceleration).

In other words, profit growth is largely (but not entirely) a function of the largest companies ever spending north of a trillion dollars on traditionally cyclical hardware and services. But that’s still earnings growth—real profits, not just hoped-for profits.

Capexapalooza, but also caution

It’s actually a fun little exercise to think how big Capex could get.

Read more

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1. Job Growth, Starting From the Bottom (and Still There)

A big selloff today, but who cares. With all the caveats around reading too much into any one release, we got a “good” jobs print, with above-expectation hiring—nearly 2x above-expectation, in fact.

It turns out that the leading signals of warmer hiring were on to something. Perhaps the most ‘on-to-something’ signal was BofA’s transaction and account data:

BofA has been showing a pretty big uptick in hiring, particularly for lower-income workers, well-ahead of the field (although there were other positive leading signals, as well).

That’s pretty consistent with what jobs day showed as well: solid growth, but predominantly in lower-income types of service work, like food services, healthcare (obv), hospitality, and local government, interestingly enough. Financial activities lost some roles, and there wasn’t much movement one way or another in business services, or anything that one could really call White Collar.

In other words, the labor market is “turning the corner,” but in a very Random Walkian sense. The breakeven is still quite low, and the gains are mostly concentrated at the lower end of things.

Contra Random Walk, wage growth seems pretty mild, but I suspect that the BLS is a lagging indicator on that front:

BofA’s account data shows accelerating wage growth at the bottom-run of the ladder.

It would be kind of strange to see a pull in demand, without some lift to wages, but the push-me-pull-me of a tight labor market and wages, is more broadly what I would expect to see (and there’s some evidence that that’s what we’re seeing, but not all the evidence).

So, basically everything is going according to plan.

ICE is good or bad for US workers?

Here’s something that’s pretty interesting, though, and a bit mysterious, if not unexpected.

Apparently job-growth in the industries most exposed to LatAm non-citizens is pacing ahead of the field:

Since Q4 of last year, the top quintile of industries with “latam non-citizen exposure” has had upward job-growth, and is now more growy than all the other less-exposed quintiles.

Now, you could interpret this a few ways, vis-a-vis ICE:

• pure noise and/or correlation with the growth of lower-income service work more generally;

• deportations haven’t mattered much at all because “non-citizens from latam” are still getting hired;

• deportations have mattered a lot because now those industries are hiring again, but presumably tapping citizens, rather than non-citizens.

¯\_(ツ)_/¯

Who knows, for now. It’s certainly something to watch.

Men dropping out(?)

This too was a fun observation.

Random Walk has written variously about how a healthcare-driven labor market is also a “ladies first” labor market, inasmuch as healthcare is a very ladies-first sort of industry. That’s definitely true, and has been true for quite some time, as adding ladies to the [healthcare] workforce has been a major contributor to net-new workers for decades.

What’s, perhaps less true, is that having a ladies-first employment scene has ushered in a concomitant rise of down-on-their-luck-unemployed men.

There’s maybe some truth to that, but if so, it’s pretty slight:

Prime employment-population ratio has indeed flipped in favor of women, but men are still basically tracking where they were before the pandemic.

If lots of disaffected young men were now on the bench, then that’s most definitely not the ratio trend that you’d expect to see.

If there are disaffected men somewhere, it’s not the young ‘uns. To the contrary, the biggest male-female splits are occurring amongst the older folks:

Men 55+ and 65+ are dropping out of the workforce with increasing alacrity, while the opposite is happening recently, with older women.

This isn’t going to help the mechanic shortage one bit, no sir.

What to make of this? Idk, exactly, but healthcare, education, and local government hiring surely do favor older women relative to men.

What precisely is leading all these men to drop out of the labor force (other than age, of course)—and with quite so much urgency—is a bit of a mystery. Retirements, yes, but that should be a bit more linear (and should apply to women, as well). Of course, this is survey data and pretty noisy, so the “urgency,” may just be a data issue.

I keep saying it, but it keeps being true: idk what it means, but it’s something to watch.

ICYMI

2. Fade ‘Fade America’ (with a caveat)

Random Walk has never been persuaded by the “Fade America,” trade, and that skepticism has largely been justified, but perhaps not entirely.

As it pertains to UST, foreign demand remains—not strong as ever, but certainly pretty strong:

Net-flows of foreign holdings in UST have stayed pretty positive, even as valuation went negative-to-barely-positive.

So, treasuries are still very much considered a good place to pick some yield, deficit notwithstanding. Foreigners will take our credit, no problem.

China takes less of it, but the rest of the field is picking up the slack.

On the equities side, however, the picture is a little different:

For equities, nearly all of the positive net change in foreign holdings has been valuation-driven (and that’s apparently often been the case?).

In other words, while foreign flows into UST are solid, foreign flows into US equity markets, appear more neutral. As it happens, foreign investors are dip-buyers, of a sort:

Interestingly, the decomposition also reveals that foreign investors tend to increase purchases of U.S. equities following major price declines in 2000, 2007, and to a lesser extent 2015.

That is interesting.

3. Room For Big IPOs

Everyone knows that between the SpaceX IPO, and perhaps the Anthropic and OAI IPOs to follow, that there’s a whole lot of fresh issuance coming to the public markets.

SpaceX alone is going to be a chart-topper—at ~$700B in fresh issuance, that’s basically ~25 years worth of issuance, if you exclude the peaks.

It’s a lot. Random Walk doesn’t have much to offer on this front that’s different than what’s already been said, either here, or elsewhere.

This, however, was a bit surprising. Even with all that fresh float, net-issuance is still expected to favor demand over supply:

Buybacks have systematically outweighed issuance for decades now (much to the delight of shareholders), and even as Capex is eroding buybacks in the aggregate, equity retirements are still expected to be slightly ahead of fresh issuance.

Pretty wild, right? It’s easy to underestimate the sheer depth and size of US capital markets.

As a final IPO aside, since everyone is wondering whether the incoming biggest IPO is more than the market can handle, take comfort that, historically, big IPOs tend not to be market-toppers:

Of the past 25 largest IPOs, only 9 have preceded a negative one-year return.

In terms of what that means the answer is probably “nothing.” Past largest IPOs are nothing like future largest IPOs. If you wanted to squint at the chart and say something, you could probably say “when the largest IPOs come in quick succession, bad things tend to follow,” but even that’s a reach.

It was just a nice chart, is all.

4. Screen Time For Algernon (and supposedly fun things)

I know it’s the kids who are using screens too much, and glued to their phones, they have no time for socializing, can’t focus, and get hooked on wacky conspiracy theories and all sorts of anti-social behavior . . .

But it’s not just the kids who are glued to their phones:

According to Pew, 41% of US adults report being online “almost constantly.” Another 44% said “several times a day.”

I suppose “being online” isn’t the same thing as “being on the phone,” but it’s not that far off. Point being that everyone is hooked on the interwebs.

So Lonely

Anyways, maybe all that screentime is making people feel lonely, and maybe they’re doing something about it:

Google search data is pretty low signal, but perhaps people are indeed asking the internet “how to meet people,” more frequently. They’re also spending more on irl experiences, like sports and live entertainment, which sounds pretty healthy.

A supposedly fun thing

Truthfully, I have no idea if there’s actually a relationship between screentime and loneliness and/or whether that relationship, such that it exists, has been a boon for concerts (and a bane for movies).

But, one thing I’m pretty confident about is that because flights and hotels have demonstrably less bang-for-the-buck, people are really digging cruises:

The value of cruises relative to “land-based” vacations has (almost) never been better.1

I’ve never been on a cruise, but it sounds like something worth trying. Cruises are a good way to meet people, right?

5. Margins, Margins, Margins

Random Walk (and everyone) have repeatedly made the point that part of what’s driving equity prices to record highs is some rather extraordinary profitability.

Companies were already getting pretty profitable—techcos, especially—but profitability has accelerated even more so, of late. And while it’s true that the AI supply-chain, and the rush for key components from gas turbines to chips to memory, is driving a lot of that newly discovered profitability, it’s not driving all of it.

Upward margin expansion is anticipated almost across the board:

Every sector but healthcare is expected to see at least some margin improvement over the next year.

That’s a good thing, obviously, and it also means that the market is not, by and large, priced to speculation. If companies are getting more profitable, that’s exactly the sort of thing that should make stock prices go up. Of course, any dent in that margin-story gets priced-in pretty quickly, as well, so there’s some downside risk there, too (because there always is).

And it’s funny, because with all those high prices (either demand-driven and/or hormuzian in nature), you’d think that the margin pressure would certainly be good for some firms, but that those high-prices would put equal and opposite pressure on other firms, too. And yet, the analysts are all pretty confident that profitability abounds.

Take this for what you will, but if you want to throw some cold water on that optimism, then consider the following:

When it comes to what companies are talking about on earnings calls, there’s been accelerating mentions of:

• cost pressures;

• input costs;

• higher wages;

• labor costs; and

• margin pressure.

On the other hand, mentions of “margin expansion,” are still quite high (~60%), but do not appear to be getting any higher.

To be clear, “margin expansion,” far outweighs anything else . . . but the rising wage pressure is (as per above) sort of what I’d expect, and the “input” and “cost” pressures are what I’d expect, as well.

All of that should put at least some hair on the margin expansion story, right? We’ll find out soon enough.

Previously, on Random Walk

Random Walk is an idea company dedicated to the discovery of idea alpha. Find differentiated data, perspectives and people, and keep your information mix lively. A foolish consistency is the hobgoblin of small minds. Fight the Great Idea Stagnation. Join Random Walk. Follow me on twitter. Follow me on substack:

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1

Real hotel spending is and remains below pre-pandemic trends, very likely because the price of hotels and airlines are way-above pre-pandemic trends:

Airlines did get a bit cheaper (as demand sloughed off), but pricing has taken off since early ‘25 (and most of the spending is coming from the higher-end).

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Oil Shock or Nah?

Even more bullishness abounds, as on-again, off-again “progress” vis-a-vis the Strait hijackers switches back to “on.”1

It is pretty remarkable how bullish everything has been despite the clear deterioration in supply of a (supposedly) non-substitutable global commodity:

Supply buffers are what they are, but it does seem reasonable to suppose that there’s an outer limit to how much of a supply-side disruption the world can actually withstand without some real pain.

It’s bothered investors somewhat for sure, but not nearly as much as perhaps it should.

I mean, oil shocks definitely don’t matter as much as they used to . . . but they still matter:

In a less “oil intensive” economy, oil shocks just don’t hit as hard—there’s some inflation, yes, but employment effects are . . . positive?

Still, the world does need oil, and if supplies are shrinking every day, then do we run out? That seems bad, right? Unlike dollars, “you can’t borrow oil out of the ground,” as the saying goes.

On the other hand—and the reason for all the hedgy language—is that it’s also a massive mistake to bet too hard against the ingenuity and resourcefulness of the invisible hand, especially as it pertains to a global commodity. The picture looks insurmountably grim, but just because you and I can’t see a path, doesn’t mean there is no path(s). Random Walk has learned this the hard way before.

For one thing, less energy over there, means more energy here (which then gets sent over there):

2025 was (another) record-breaking year in energy production . . . 2026 will surely reflect yet another upward inflection. The US continues to grow its role as a net-exporter of energy.

What’s that? Can’t ship oil through Hormuz?

No problem—build some more pipelines, and in the meantime, load up the jumbo jets:

Seaborne net exports of oil, etc. are ~50% higher than they were last year.

The point being that when the going gets tough, the tough do, in fact, get going. And that’s all the more true when there’s lots of money to be made, which there certainly is.

Still, impressive adaptability notwithstanding, it’s hard to escape the lurking fear that (a per above) there must be some limits to what can be done and in how much time:

A 14% supply-loss (and counting) is an all-timer for oil disruptions, and eventually storage has to hit the bottom of the literal barrel . . . right?

It’s all a bit strange. For all the apparent data pointing to an incoming shortage, oil prices (forget stock prices) seem pretty complacent. I mean, they’ve surely gotten higher, but not that high in the big scheme of things:

WTI is ~$95/barrel . . . basically the same price as it was for the first-half of the last decade, until the shale boom kicked-in.

Now, there’s of course elasticity in demand, which means at a certain price, people just stop buying oil, and so maybe that’s keeping prices in check. But I do wonder if the physical reality is just a bit more optimistic than what the data seems to show.

Anyways, puzzlement aside, oil prices weren’t really the point. The point was just a brief look at Iran’s biggest customer: China. More specifically, China’s Global Emporium to Sell Everything to Everyone (aka the “Beggar Thy Neighbor Trade”).

ICYMI

China and the ‘Beggar Thy Neighbor’ Trade (reprise)

One quick thing on oil, but specifically as it pertains to China.

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1. Retail Went On a Heater

Retail has been a very active participant in markets, of late.

And over the past 30 days, at least, they’ve had a very good month:

According to JPM analysis, retail is up 90% on its single-name trading since the beginning of the year, but really since April.

Retail beat all thematic baskets, and all the indexes. Who said stock-picking was hard?

The reality is the retail loves the momentum trade—perhaps retail is the momentum trade—and the momentum trade (especially in AI) has been the trade:

AI + Momentum has been the winning strategy of the year.

Well, good for retail. Let’s hope momentum only goes one way.

ICYMI

2. Of youth unemployment, Canada, and non-leading signals

Just to briefly revisit the topic of youth unemployment, I have stumbled on the perfect solution to the Home Healthcare Shortage Boondoggle:

Both the 65+ yos (especially men) and the youths are dropping out of the laborforce, en masse.

Maybe the olds and the youngs should, y’know . . . hang out?

Canadians, young and restless

But that’s really not the point I wanted to call attention to. It turns out that Canada is (still) having a bit of issue on the youth unemployment front, as well . . . and it bears some remarkable similarities (that may or may not be coincidence).

If you recall, a remarkable thing happened back in 2024, when Canada’s youth unemployment first skyrocketed, and a mainstream media outfit had the audacity to blame the phenomenon on immigration.

Canada’s experience was/is a sort of interesting test-case on the “saturation theory,” of rising unemployment, i.e. that demand for workers could only grow so quickly, and even if immigration might increase demand in the longer run, in the shorter run, there might be some hiccups.

Anyways, we’re hardly in the longer-run yet, so it’s still an open question, but Canada has actually slipped into a recession, and the employment picture for the youngs is absolutely no bueno.

Unemployment is up, especially for the youngest (as it is in the US):

• Employment rates are similarly depressed, especially amongst the teenagers, but not so much for the 20-24yos (again, very much like the US):

  

It’s interesting because the employment rate for 15-24 yos was actually looking pretty good heading into 2026 . . . and then it just fell-apart again.

Weakness is most prominent in the sectors that tend to employ teenagers, i.e. retail trade, food, and accommodations . . . same as it is in the US.

Why is this happening to Canadian youngs? Idk. The Fraser Institute blames a combination of high immigration and increases to minimum wages, which makes sense, I suppose. Can we extrapolate to the US? Again, idk. Canada is much smaller, and has a pretty different economy . . . but it sure is curious.

The good news: it’s middle-aged-and-restless that should trigger the alarm bells

For what it’s worth, historically, youthful unemployment is not that meaningful as a leading signal for a broader downturn (according to the Cleveland Fed):

When unemployment for 35-44 yos starts rising, then there’s some trackr ecord that suggests wider trouble is on the way.

But, fortunately, youthful unemployment has not, historically, been much of a leading signal. I do, of course, wonder whether this “jobless recovery” is a bit different than cycles past, and perhaps more like the previous “jobless recovery,” post-Dotcom, where the youths similarly struggled. We shall see.

In any event, 35-44 yo unemployment is the bad signal, and rest-assured, we don’t have that:

The middle-aged are just fine.

Full steam ahead!

3. Youths Don’t Move to Affordability (and some other migration oddities)

Staying on the youthful theme, this too was surprising, but makes sense when you think about it.

Youths like it pricey

The youths certainly complain about affordability, but when they move, they tend to pick more expensive places to live (unlike the older folks):

GenX and Boomer moves tend to favor lower cost MSA (with an r^2 of 0.26), while Gen Z and Millennials do not…or if they do, then cost explains only a tiny bit of the variance.

Truthfully, no one is really moving, so query how meaningful this is, but it does kind of make sense, especially given the current employment situation.

Younger folks are moving to opportunity, have fewer dependents, and care relatively less about costs. Older folks have more job security (or no job at all), and have either families to support, and/or retirement income to preserve . . . so, for them, lower cost MSAs make sense.

Going to the Midwest

In terms of where people are moving (such that they are), the Midwest is a standout winner:

And, the usual suspects are the standout losers:

Memphis and Orlando are somewhat unusual for the “loser-board,” as is Houston. Actually, Orlando has been losing some people for a bit now . . . quite possibly because people are getting priced-out(!).

Bluegrass in the Red

One final very odd thing.

Kentucky home prices are cratering:

Home prices in Kentucky are negative yoy basically state-wide.

Why? I’ve got no idea. Maybe it’s just giving back some ZIRP gains, like lots of other places. Maybe it’s the auto industry doldrums—Toyota and Ford are both big employers.

It’s a striking picture, though.

Of course, there is no housing shortage, and never was one, so there’s that too. Just for fun, the WSJ’s “related” housing stories:

For a housing shortage, life sure appears to be rough for the folks with the houses.

4. A Funny Thing Happened On the Way to the Access-A-Ride [fraud]

Many moons ago, Random Walk ‘predicted’ that full return to office would never happen, and that office occupancy would resolve at something close to ~65% of prior.

Well, it appears as though I was nearly all the way right, but not quite:

Office visits are ~70% of what they once were, nationally, give or take ~10pp.

Off by ~5pp, but well within the margin of error. So, pretty darn close. But yeah, hybrid remote work, which is good and healthy, has remained pretty sticky, and some major metros haven’t really recovered from all their dysfunction, which has pushed some action out to the ‘burbs.

New York, for its part, is basically as back-to-the-office as one supposes it will ever be:

New York is a mere 10% off its pre-pandemic level, which considering all the headwinds, is pretty darn good.

But, RTO wasn’t really the point. Transit volume was the point. And it’s definitely a bit different than before:

Interestingly, the only NYC transit that has really returned to normal is commuter traffic: bridges and tunnels, and the LIRR (although Metro-North is still a little behind).

By contrast, subways and busses have much less ridership than they used to . . . and even more strangely, Access-A-Ride is ~40% more popular than it was in 2019, and it’s been climbing steadily since 2022.

Before diving into Access-A-Rides, just a brief observation about the Subway:

Weekday ridership has recovered less than weekend ridership, which is consistent with the RTO story (maybe)?

But on weekends, there is a major outlier:

Bronx subways are way under-utilized on the weekend.

I do wonder why that is, and I genuinely can’t think of any good reason . . . did some tourist attraction disappear, or maybe did the Bronx-native tourists (such that it had many) go somewhere else? Idk. Fare evasion might also be a factor—the MTA noted that the Bronx was the worst offender for Bus-fare evasion, so it could be that.1

But back to Access-A-Ride.

Call me callous, but it’s hard not to notice yet another reimbursable service requiring a special, albeit somewhat squishy, medical designation, with substantially above-trend utilization. Rider pays a $3 subway fare, while the transit authority bills taxpayers ~$40/ride (per the MTA’s own estimates). Oh, and back in ‘22, the city started allowing Uber and Taxi drivers to provide access-a-rides.

I mean, is it possible there are more disabled people in NY than before? Sure. Is it also possible that there were too few access-a-rides and now there’s some appropriate right-sizing? I suppose that could be.

But . . . by far, the most likely explanation for the majority of the variance is that city leaders are once again plundering the already-strained fisc to hand out benefits to their constituents, under the cover of feel-good, sanitized headlines like “High Paratransit Customer Satisfaction.” I mean, if I was getting $3 uber rides all over the city, I’d be pretty satisfied too, I think.

Is that definitely what’s happening? Of course, I can’t say for sure, but the only on-the-record explanations I can find are some versions of “The MTA is proud to say we’re making Access-a-Rides way more accessible,” and so they have.

5. SaaS Strikes Back

It’s been a bad year, but a good week, for software companies:

(a big software ETF) has kept pace with (a big semis ETF) for the month, and in the last day, has actually outperformed.

Software > Semis certainly wasn’t on anyone’s bingo card a month ago, and of course, a good week does not a trend-reversal make, but hey, let software have its victory lap.

There were actually a few software pleasant surprises, recently. nCino, one of the banking software companies that Random Walk flagged a little while back, did a little beat and raise. Snowflake (which isn’t really SaaS) had a dynamite release, as well.

More broadly, the share of software companies on the upswing . . . is on the upswing:

More than 60% of the $IGV’s constituent software stocks are trading above their 50-day moving averages.

Who knows? Maybe now that the model providers are beginning to pass through more of their costs to customers, investors are beginning to doubt whether everything can, in fact, be vibe-coded quite so easily? Honestly, it’s silly to speculate about what others might be speculating.

What’s not speculation, however, is some actual data from Stripe on revenue volume from the top 100 SaaSCos on Stripe:

December had a big scary dip . . . and by April, “pay-in volume,” was not only back on trend, but slightly above it.

No SaaSpocalypse in Stripe’s data. Not yet, at least.

On a somewhat related note, it’s still under-appreciated the extent to which companies became lean-mean-profit-generating machines, when rates went up:

More than half of Enterprise Unicorns are now profitable (up from ~10%).

Of course, these techcos became profitable, largely at the expense of growth—more than 35% of them are growing less than 10%/year . . . but at least 2/3rds of them are profitable (and climbing).

There are really three observations to be made here:

• SaaS may not be dead in Stripe’s Top 100 . . . but nigh on 40% of enterprise tech unicorns growing less than 10%/year (and rising) is hardly a bangup story.

• these are clearly valuable companies, insofar as they are profitable and growing, but they are surely not as [paper] valuable as they were before. What exactly happens to these companies, remains an interesting question.

• this, more than anything, explains the downturn in youthful tech hiring (and tech hiring more broadly): companies have made a deliberate effort to get lean, and those efforts are ongoing

That’s it. Neither Saas nor Saasicorns are dead . . . but it’s not all roses, either. Definitely some roses, tho, so that’s good.

Previously, on Random Walk

Random Walk is an idea company dedicated to the discovery of idea alpha. Find differentiated data, perspectives and people, and keep your information mix lively. A foolish consistency is the hobgoblin of small minds. Fight the Great Idea Stagnation. Join Random Walk. Follow me on twitter. Follow me on substack:

Get more from Moses Sternstein in the Substack app

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Why Isn’t the On-Ramp Working?

One of the things that makes me uneasy about the present state affairs is the “broken onramp” to the labor market.

Mostly, things seem just fine—not great, but fine—but some things are a bit off.

If the working age population isn’t growing much (and it’s not), and retirements are beginning to accelerate again (and they are), then why are young folks still having a relatively difficult time getting hired? If workers are riding off into the sunset, and there’s a relatively scarce pool of replacements, then you’d expect new entrants to be in hot demand . . . but they’re not.1

Unemployment for the 20-24yos got steadily worse, and then better, and then slightly worse again.

Perhaps, of course, that’s just noise, and youthful unemployment will revert to its recent positive trend . . . but even so, there’s still some trouble lurking beneath the surface of that recovery.

Take tech, for example. Employment rates did recover for the young ex-tech peeps, but the recovery wasn’t in tech:

Young folks became employed again, but their employment must have come from some other part of the economy . . . where, I’m not entirely sure, yet.

Why is the “broken on-ramp,” so troubling?

Well, partly because it speaks to the narrowness of labor-demand, but more broadly because it’s a bad sign for the best-case-scenario of our aging-shrinking-workforce. Mostly, though, things are just different now, and when it’s different, it’s hard to read the tea leaves.

ICYMI

The data that explains the most about most things

To recap, behold, a selection of the scariest charts in the world (that also explain more about the present than probably any other charts).

For Developed Markets, the demographic picture is grim:

The working-age ratio (i.e. the ratio of 65+ yos to the rest of the workforce, aka the “dependency ratio”) has been trending the wrong way since the GFC, and not coincidentally, working age population growth is approaching zero-soon-to-negative.

Man, the GFC really was a killer.

Or rather, whatever happened ~15 years before the GFC that led working-age-pop-growth to fall off a cliff was a real killer . . . big surprise we ended up with a little ‘ole housing surplus, right?

But more to the point, at no point this century is the working-age population expected to grow in developed markets. Let that sink in. It’s a remarkable shift from the century prior, and truly, uncharted waters.

And while it’s true that people are working longer, retirements are not slowing down:

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Chart Dive on Private Credit, PE/VC

A two-part chart-dive on all things private credit, and PE/VC.

Before we begin in earnest, just one point that often gets lost in the discourse: what’s happening in these asset classes is not entirely unique (even if there are plenty of esoteric think-boy takes on the specific features of their own special strategies and cultures).

Reality is that it’s tough out there for pretty much everyone (with some exceptions, of course):

Fundraising has been tough-sledding across the board.

The exit-backlog is ubiquitous. Repricing, especially off of pandemania peaks, is ubiquitous. Concentration is ubiquitous. Zombie-funds (and zombie-assets) are ubiquitous. The new cycle is not like the old cycle, and that’s ok.

What worked before, just doesn’t work now:

Just using PE as an example, revenue (and earnings) growth is now ~2x the value driver that it was. Multiple expansion, by contrast, plays far less of a role—and this chart ends in 2025—in 2026, (contracting) multiples are almost certainly a headwind to enterprise value.

It’s not bad or good, but it is definitely different, and as per always, the only way forward is through!

ICYMI

Credit Check in the Discount BDC Aisle

Rightly or wrongly, private credit (and especially software-backed loans), continue to get hammered by investors:

~70%+ of Publicly traded BDCs are trading at a discount.

It’s mostly a software story, as software loans comprise the lion’s share of “distressed” loans, i.e. those trading at 70 cents or less on the dollar. It’s also mostly a ‘21-’22 era software loans story, as those were the ones made at peak pandemania, when revenue growth was ripping and credit was close to free.

Credit performance looks . . . fine?

The strange thing, however, is that credit performance is generally fine (if not improving). There also appears to be very little discernment within software loans (except perhaps on the degree of leverage):

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“ICE has not improved labor markets(?)”

Tyler Cowen, the GOAT of generalist infovore internet-writing, surfaced a paper on the “the labor impacts of ICE,” with (his own) provocative header “ICE has not improved US labor markets.”

The gist of the paper is that deportations negatively impacted US workers, who had smaller employment and wage gains, relative to US workers in low-deportations areas.

From an econ 101 standpoint, it’s an expected result. Immigration is generally considered a positive-sum game: new arrivals get to work, which boosts productivity, and more productivity is good for native- and foreign-born alike.

There have been exceptions, of course. During the great labor-market catch-up, the trad 101 model was flipped on its head (at least in the near-term): pandemic retirees left a gaping hole in the labor market, which caused wages and prices to soar, and that hole was largely filled by migrants, which brought wages and inflation to heel. As Random Walk, and later Goldman Sachs, offered at the time: the standard 101 model of immigration’s impact on the labor force may not apply during periods of an acute supply shock. In that case, a migrant surge was deflationary.

True enough, but the supply shock is basically gone.1

That being the case, then it’s not unreasonable to think that the 101 expectation would hold, i.e. that deportations would hurt, rather than benefit, US workers. And a W for Econ 101 is what the paper purports to show

Obviously, from a MAGA politics standpoint, the result is disappointing: booting migrants is supposed to benefit American workers, not hurt them.

So does that mean that MAGA lost the day?

Well, maybe, but you wouldn’t know it from the research cited by the good Professor Cowen—at least, not when you dig under the hood (and I say that even though I’m inclined towards the 101 expectation).2

Non-college male construction workers effected

The primary finding of the research is that deportations had negative effects on native born employment and wages. But not everywhere and not for everyone.

It’s non-college male/construction that’s doing all the paper’s work:

Negative effects for predominantly male construction, whereas, effects on women and/or other sectors were null and/or positive.

The researchers (fairly) lean on the negative impacts to non-college male construction work to make their point because it’s a segment of the labor market that has a lot of illegal immigrants.

True enough.

ICYMI

Here’s the other thing, though, about construction, especially residential construction: there’s been a pretty substantial industry slowdown, having very little to do with immigration.

That’s a big-time confounding effect.3

In other words, the crown-jewel discovery of the research—that employment conditions for male construction workers declined—is pretty easily explained by cyclical demand (and not deportations).4 Somewhat surprisingly, that fairly obvious and substantial confounding factor does not appear to have played any role in the study (other than the general comparison to the “control,” i.e. zip-codes with fewer deportations).5

So, it’s not exactly 1 point for MAGA, but it’s not exactly 1 point for Econ 101, either.

But ICE is good for healthcare?

That cyclical demand (as opposed to deportations) is the prime mover is consistent with the paper’s other finding: null and/or positive effects for women and their sector of choice, i.e. healthcare.

Healthcare employment (and wages for men) improved following the surge in ICE arrests.

As Random Walk has offered countless times, there is no stopping the healthcare demand train, and the Rotation to the National Nursing Home, continues apace. As a result, it’s a been very much a “women’s world” out there, and has been for some time:

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1. A New Bull Rises

Once again with feeling, expectations for earnings growth are very bullish:

The upward revision to EPS estimates is an incredible thing to behold.

If we were coming out of a recession or something then maybe you could see expectations shift like that, but earnings were already pretty strong to begin with. It’s wild.

As for stock market prices themselves, well, it continues to be a tale of diverging fortunes, but semis (and memory) are having quite a run:

In terms of historic bullruns (unadjusted), semis are approaching Nikkei (in the 80s), Dotcom Nasdaq and post-WTO BRICs, in terms of scale.

As Random Walk has said many times in the past, eventually some of that spending on chips, etc. will have to flow through to the users of those chips, otherwise they will not keep spending quite so much money on chips.

But, for now, AI adoption is creating so much demand for chips, memory, and now CPUs, that the biggest spenders cannot get enough, and everyone knows it. And that’s how you get unprecedented upward revisions to earnings.

ICYMI

2. Bull market, but not for everyone (especially non-AI Tech)

Of course, if you’re not somehow in the AI infra supply-chain, you’re not doing bad—you might even be doing pretty well—but the market mostly doesn’t care.

Every sector, but Industrials and Staples, has underperformed the price action implied by its results.

Public software hammered

And no one has been having a harder time impressing the market than tech. For SaaSCos, especially, the bloodbath just continues apace.

• Hubspot beat earnings and raised guidance:

  

• And as a reward it got absolutely hammered:

  

Hubspot wasn’t alone.

Plenty of software companies met, exceeded and even raised guidance, but still got beat-up:

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5 Idea Friday

Some quick-ish hitters for your weekend reading pleasure.

1. Durable Goods, Ain’t What They Used to Be

One big, but still under-appreciated change to the economy is that it’s much less dependent on big durable goods, like houses, than it was before.

It used to be that a downturn in residential housing investment was a sure-fire predictor of recessions:

Residential investment historically drags in the lead-up to recessions, while non-residential investment actually tends to increase its relative GDP contribution.

The exception was Dotcom, a tech-driven cycle.

Well, now that everything is a tech-driven cycle, it should come as no surprise that this hasn’t been a bigger deal:

Housing’s share of GDP has been in steady decline, and has now retreated slightly below the pre-pandemic level.

An economy no-longer primed to people-growth, is also no-longer primed to homebuyer growth.

Back out the series farther, and you can see the straw that now stirs the stuff-making drink is of a different variety:

Private Capex as a % of GDP has climbed, while residential investment has really been flat-to-down for a while.

And, of course, as of this moment, it’s just any private capex, it’s one particular kind of capex that makes the world go round:

Tech-related Capex is the Captain Now.

That manufacturing boom-let? It’s definitely real (contra what some pundits would have you believe), but once again, AI is doing all the work:

Manufacturing production has surged, but it’s all AI & Data Centers, all the time.

Durable goods orders, blowing out wide?

Sure. But again, it’s really just one thing:

New orders for computers & electronic products went vertical.

But, unless a hot new iphone dropped that I’m not aware of, it can mean only one thing: AI is the Capex Cycle, Now (ad infinitum).

Let’s keep it up, and hope reinforcements arrive soon.

ICYMI

2. Price Check on Terminal Value (reprise)

Earlier today, Random Walk made the following assertion about stock prices:

Bigger picture, though, if you want to be skeptical about stock prices, that’s fine, but your skepticism isn’t about present-day fundamentals. Present-day fundamentals are all screaming the same story: this train is becoming a full-bore rocketship. There is no dark fiber, and there are no empty houses rotting in the sun belt.¹

Any skepticism has to be rooted in some claim about the future. The train is hurtling forward as quickly as market prices are saying it is—perhaps even more quickly. If you want to be bearish, you have to believe that something will stop (or at least slow) this train.

In other words, the current rate n’ pace of fundamentals support current valuations (and, arguably, a bit more). If you want to make an argument that prices are too high, you need to make an argument that the current rate n’ pace of fundamentals won’t last.

One can make that argument, and Random Walk has variously gestured at it in the past, but that’s not really my point. This is really just a somewhat clunky segue to a related, but different, point.

One way to think about the fraction of a company’s share price that is not priced-to-fundamentals is the perceived “terminal value.” If some part of the valuation is the net-present-value of, say, 10-years’ worth of future earnings, dividends and buybacks, then what’s left is the “terminal value” beyond that period.

Recently, Goldman took a stab at estimating what percent of the index is attributable to that “terminal” tail. It turns out, a lot:

Terminal value comprises ~75% of the S&P’s total price.

At 75%, the terminal share is nearing the Pandemania Peak, but is still well-below Dotcom.

Of course, part of why the terminal share is quite so high is that the index is rife with techcos, which tend to be high-growth companies, which tend to be the sort of companies that are assigned a higher terminal value:

Tech stands alone in the “high-growth” upper-right quadrant of rapid sales and high margins, and “high growth” stocks have an ~84% terminal value share.

While it’s always a bit hazardous to extrapolate future growth-rates from present ones, one of the great investing mistakes of the last ~20 years or so was to discount that extrapolation. Tech grew bigger and faster than any sector ever had before, and the more you doubted that possibility-cum-reality, the more you missed out on the upside.

Of course, that doesn’t mean that this time will be like that last time—it could be worse or it could be better—but it does mean, once again, that whether you are bullish or bearish about current asset-values depends on whether you think techcos can keep this up (and for how long).

Fundamentals support the high-premium to terminal value, but if growth were to slow a bit, the discount would be substantial:

A 1pp decline in long-term growth rates would correspond to a 29% decline in high-growth share prices, in Goldman’s Terminal Value model.

Considering that the market is rife with speculation about AI’s potential negative impact on the terminal value of high growth companies, then this might give you pause. Of course, considering that the market is also rife with speculation about AI’s potential positive impact on pretty much all companies, then you might conclude terminal value isn’t high enough.

Investing is hard.

3. Economies of Scale in Energy

All things being equal, you’d think that declining demand would correspond to declining prices, but when it comes to energy, that’s not always the case.

In fact, in many parts of the world, the opposite is true: more demand leads to lower prices:

Across Europe and the US, electricity prices have tended to increase with a collapse in demand (and vice versa). Ireland is a weird outlier that has more expensive energy and more demand. Too bad for Ireland, I guess.

The reason price and demand are inversely correlated is a function of grid economies of scale: more demand spreads the costs of fixed assets across a wider universe of consumption.

It’s part of why the “a solar panel in every pot” has failed as an energy policy. The grid was built for a few large sources of relatively invariable energy, which efficiently distribute distribution costs across a massive grid. Many, small and variable power sources do the opposite of that. The transmission costs alone often make the juice-not-worth-the-squeeze.

Speaking of transmission, don’t expect it anytime soon:

The bottleneck for new transmission lines has blown all the way out past 2030.

That too could put a damper on AI-related growth, I suppose, i.e. demand overwhelms supply. Of course, that would drive prices even higher and the balance is self-regulating, but it’s a thought.

4. Uncharted Waters, Previously Charted

Random Walk writes and thinks a lot about Entering Uncharted Waters, Blissfully Unaware.

The very short of it is that we’re losing a century-old demographic tailwind that’s so powerful, but also so constant, that we’ve forgotten it’s there, and we’re surely going to miss it when it’s gone.

It’s not entirely true that the waters are uncharted, though. They’re uncharted for us, but perhaps not for some other countries like China, and Japan.

At the risk of drawing spurious correlations from chart-peeping, please proceed to draw some correlations by peeping at the following charts:

• Japan’s working age population:

  

• Japan’s corporate profits as a share of GDP:

  

So, you’re saying that Japanese corporate profits started a relentless upward climb the moment that Japan’s working age population rolled-over?

Yes, glad you noticed, too.

And hang on, US corporate profits have more recently started a similar structural climb (and “labor’s share” of those profits a structural descent)?

That’s the gist of it.

I guess when we run out of people to hire . . . we just stop hiring, but keep finding ways to sell (maybe)? Idk. Could just be a coincidence, but it’s hard to unsee.

5. Hidden Healthcare Taxes

Last week, Random Walk wondered what non-fraud explanation could possibly explain the massive disparity in home health workers per senior in New York, but also CA, DC, and MN.

So far, I’m yet to come across anything that isn’t “well, it may not be deliberate fraud, so much as those states made it really easy to commit fraud, and pretended not to notice.”

Fine. Judge that however you see fit.

This week, I would suggest that perhaps there are some very tangible consequences of that fraud-not-fraud. And it’s actually something Random Walk has observed many times before: ‘Someone else pay for my healthcare’ is probably the worst idea ever.

Once again, the cost of healthcare is rising, and while people are paying for it, they probably have no idea because the bill is handled by their employer:

The employer-cost of healthcare is growing much more quickly than wages.

What that means is that healthcare costs are “crowding out” wage growth, and the impact is regressive, in that it doesn’t scale with incomes—the less money you make, the higher the “healthcare tax” is, as a percent of your income.

OK, but what does that have to do with home healthcare aids in New York?

I’m so glad you asked.

Well, part of why employer-based healthcare costs are rising is because of the terminally higher cost of services. Another part of why they’re “rising,” is that the Obamacare subsidies have expired, which is to say that costs aren’t rising, but now the bill is somewhat less-attenuated.

Yet another reason costs are rising, and this is the one that matters for today, is cross-subsidies.

You see, our “free” national healthcare system doesn’t fully reimburse providers for what they charge. Hospital systems et al eat some of the shortfall (which can be quite large), but the rest they foist on the private market insurers . . . who then pass those costs on to employees (unbeknownst to them) via higher employer-paid premiums, as per above.

In other words, when public health consumption increases, taxes go up to pay for it, but we don’t call them “taxes,” we call them “[some fraction of] employer sponsored health insurance premiums.”

That being the case, if, for example, you were a state with a high influx of illegal immigrants, and you wanted to create “jobs” and “growth,” by making it easy for them to get access to public healthcare . . . then you could do that, and at least some large portion of the bill would get redirected to “private” market employees. And not only would they likely not even notice—hooray for you, elected officials—those private citizens would probably blame the insurance companies for your largesse.

It’s the perfect crime.

Is that definitely what’s going on? Idk. It’s a theory though, and my guess is that it’s got legs.

Previously, on Random Walk

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Price Check on Terminal Value

Last week, Random Walk mused about the weirdness in public equity valuations.

Yes, the stock market is clipping all-time-highs, and yet, you could argue that it’s not high enough . . . profits are accelerating, while the price of those profits compress. It just doesn’t happen very often (and nor would one expect it to).

High-growth companies are still not being rewarded commensurate with their growth:

Price performance for even high-growth companies has substantially lagged forecast profit-growth since late last year.

A great wall of profits

But, it’s not just high-growth companies putting on a show.

I mean, there’s a great wall of profits, and it keeps on climbing:

Every single sector in the S&P is appears to be prepping for a Walter Payton summer training program.

Since then, the market melt-up has mostly continued, and even then, it’s still weird . . . because on the other hand, whatever you think of profit-growth, isn’t there some kind of massive oil shortage that’s going to crush demand and supply chains the world over?

There’s some evidence that demand-destruction has already started:

Air-Freight prices go up, Air-Freight volumes go down.

That, of course, could be the discount weighing on those impressive earnings—the bullishness of the AI trade has mostly outweighed the bearishness of Hormuz, but “mostly” is not the same as “entirely.”

Fair enough.

ICYMI

AI Keeps Cooking

What we do know, however, is that the AI trade is showing no signs of slowing down. Whatever oil, fertilizer, resin, helium, etc. shortage we’ve got coming, it’s got nothing on the apparent shortage of available compute.

Why do the hyperscalers keep pouring historic amounts of money into data centers and chips? Well, earlier this week, they gave us a clue:

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5 Idea Friday

Some quick-ish hitters for your weekend reading pleasure.

1. Uncharted Waters, Still Unawares

Just briefly revisiting Uncharted Waters, Blissfully Unawares.

First, a nice illustration of just how unusual it is to have such a yawning gap between GDP growth and employment growth:

GDP and employment growth tend to run together, except (1) now; and (2) in the lead-up to the Dotcom Bubble.

Interestingly, the Dotcom bubble was followed by a “jobless recovery,” until a rate-driven real estate cycle kicked-in, which helped drive employment up (for a bit). Draw your own conclusions.

Here too, is another look at current weirdness of “growth without growing:”

Private sector payrolls showing steadily declining growth, accompanied by a huge jump in profits.

It’s a very odd thing, and without the AI Capex boom, it’s really hard to imagine where the economy would sit right now. All that cash would have to go somewhere, perhaps in the form of even more buybacks, but man alive, all chips are on . . . chips.

Second, while I stand by the descriptor “blissfully unawares,” Nick Eberstadt of AEI published a 63 page paper Can a Depopulating America Still Flourish? and I thought perhaps “unawares,” was not entirely fair.

I did, however, settle-in to read the whole thing, and while it’s not bad, per se, it’s mostly . . . besides the point?

Read it yourself, but the gist of it is:

• we defeated Malthusian predictions before because see, e.g. the extraordinary productivity gains of industrial farming, in which fewer people produced much more food;

• the problem though is that too many people are out of the workforce, we’re too old, we spend too much on healthcare, and the deficit is unsustainable.

I mean, sure, but . . . that still doesn’t answer the question of whether or how we grow without growing?

At the outset, it’s very odd to begin with a heart-warming resolution to a Malthusian doomscape for an inverse-Malthusian problem. Yes, we have lots of precedent of producing more with less . . . which precipitated a massive population boom, which led to massive growth. What we’re now wondering is if we can produce ‘more with less’ to keep economic growth humming along without a population boom.1

Eberstadt doesn’t even address the core relationship between people-growth and economic growth, in any meaningful way.2 Nor does he look at any of the attributes of the current cycle, e.g. supercore inflation, tech-driven earnings, healthcare’s share of the labor market, etc. It’s mostly just, “well, not to worry, we’ll be able to create enough stuff to feed and supply everyone, but mind the deficit” and it’s like, “thanks, dude, no one was really worried about that, but glad to hear it.”

Idk. Maybe I’m being unfair, but “blissfully unawares,” remains apt and correct, imo.

ICYMI

2. Almighty Consumer Doing Gas and E-Comm

On the Almighty Consumer, it’s been a gas and ecomm story of late:

Transit, Gas, and e-comm (and I suppose lodging), are the only categories comfortably in the green.

Higher gas prices are clearly effecting other categories of consumption.

Unsurprisingly, discounters have been having a run, lately, as well:

Average transaction values at discount stores has been growing at a healthy clip since the middle of 2025.

The implication is (perhaps) that people are doing more of their shopping at the discounters.

In general, on an inflation-adjusted basis, there’s been something of a slowdown:

Real retail and food-services sales are flat-to-down since October.

Income growth has lagged inflation for a bit longer than is comfortable, as well:

Real wage growth has been negative for ~half a year, although I suspect the gap has closed somewhat recently (especially, accounting for fuel costs).

Anyways, it’s not a great look, and I’m not really sure what to make of it all, but things have held up, and a temporary energy shock isn’t the worst thing in the world. Plus, there’s been recent evidence of an uptick in hiring and wage growth, so some of this might be a bit lagged.

Probably tax refunds have helped somewhat:

Tax refunds are running ahead of years prior, and other stimulants may be helping the Almighty Consumer along.

But, bigger picture, as long as everyone stays employed (and they have), I don’t worry too much about the Almighty Consumer.

3. Healthcare[-Fraud] Domestic Product?

While on the subject of consumption, and particularly the growing importance of healthcare to consumption (and thereby, job-growth), this too was a striking chart:

Non-healthcare consumption as a % of GDP is actually lower than it was in the 1960s, and it’s been getting steadily lower (with the exception of Pandemania and Dotcom).

Put another way, without healthcare, we’ve been doing less and less personal consuming (as a share of GDP) for almost 70 years!

That’s pretty wild. It’s not an understatement to say we’ve been taking our wealth and plowing it straight into healthcare, and we’ve been doing it for an awfully long time. And, of course, given how unsustainable all that debt-financed spending actually is, it presents quite the pickle.

Random Walk has written at-length—and well-before it cycled into the mainstream—about how Healthcare Makes All the Jobs. Home health aids, specifically, have been the “private sector” jobs engine, especially in places like New York (but really everywhere). It’s part of what I’ve called the Rotation to the National Nursing Home and/or Healthcare Domestic Product.

That dynamic has helped disguise some underlying structural weakness in the economy because (a) healthcare isn’t really “growth” (let alone a pro-cycle);3 and (b) we’re paying for it with borrowed money that we can’t afford.

Even Random Walk, however, may have under-estimated the extent to which the home health hiring bonanza was disguising structural weaknesses.

I mean, how does one explain this chart with reasons that don’t sound in “fraud”:

New York has ~3X the number of Home Health Aids per senior than the US average (which includes New York)!

I’m taking the math at face-value, but assuming it’s right (and I haven’t seen anything to suggest otherwise), what innocent explanation could there possibly be for such an incredible discrepancy?

I mean, yes, New York made it dramatically easier to sign-up for “Consumer Directed Personal Assistance,” (i.e. relatives getting paid to provide elder care), which perhaps makes fraud extremely easy, but opening-up a self-checkout grocery store and pretending not to notice that the shelves are bare and the till is empty, isn’t really an excuse.

This is just staggering:

New York spends 85% more per resident in Medicaid than the national average.

And for an already-cash-strapped state (and city), the economic picture would have been even grimmer without letting healthcare go brrrr:

New York’s Medicaid spending per resident is already the highest in the country at $4,942 as of 2024, nearly $1,000 more than the next highest state. We estimate that if New York’s per resident Medicaid spending was the same as the U.S. average, they would have spent nearly $43 billion less in 2024. While it is a state program, it is a matter of federal concern as the federal government bears 57 percent of the cost.

New York unleashed a ~$43B stimulus in 2024 alone by lavishly spending taxpayer money on healthcare.

I know it’s partisan-coded, but it doesn’t make it any less-true: chase-out your productive, tax-paying residents and cover the shortfall with federally-funded medicaid fraud just isn’t a sustainable model.4

4. AI Lawyers for me, but not for thee

On the subject of AI-lawyering, this too, was hilarious.

AI-drafted pleadings have apparently exploded in recent years:

The share of filed complaints with “detected AI text,” is approaching 20% (and looks to be doubling every year).

Lawyers are very concerned about non-lawyers using AI for the “unauthorized practice of law,” but there is very little hesitation about super-charging their own outputs with LLMs.

Truthfully, this is probably a good thing. Well, not this specifically, because this finding is focused on complaints, and the last thing we need is to lower the cost of filing complaints below what it already is.

But let’s assume that this is true of the broader universe of pleadings (because I suspect that it is). In that case, my actual view is that AI isn’t going to displace lawyers (with or without regs), but it will increase their throughput (and perhaps automate and/or simplify some of the less-fun stuff). If AI is drafting a lot of the boilerplate recitations that lawyers require (by their own conventions) then there’s an element on ongoing absurdity, but at least it’s less strenuous and expensive.

This, however, is a less-promising (but unsurprising) development on the AI-generated text front:

“AI-Assisted” text on the internet is (supposedly) going parabolic.

So, it’s not exactly Slop-to-Table output, but it’s Slop-to-Table with a human-in-the-loop.

Let’s hope this is all some collection of necessary-but-boring text summarization that wasn’t all that high value in the first place, but I’m ever-reminded of this quip:

Obviously a lot has changed since March ‘22, but “the more summaries you consume in your life the stupider you become,” still rings true.

5. Long but not short

And, to wrap this up, an observation that probably means something, but what, I can’t really say.

Long-term interest rates have separated from short-term rates:

Short-term and long-term rates are still moving together, but they’re just dancing farther apart . . . and it all seemed to start with Trump’s election, or thereabouts.

I’m not really sure how to interpret this. Really, feel free to let me know what you think, because I’ve got only bad guesses.

I’ve long wondered whether higher long-term rates are just a thing, and the Fed can’t do anything about it (because long-term rates are driven by supply-and-demand, and the marginal buyer of US debt is looking at the deficit and demanding yield). In other words, the Fed can lower short-term rates, but long-term rates are whatever the market demands.

Idk if that’s what’s happening, or why it should specifically have started in Dec. ‘24 . . . maybe the market just decided that Trump was going to run the deficit structurally higher for ever? Again, idk. I just thought it was an odd thing.

Previously, on Random Walk

Random Walk is an idea company dedicated to the discovery of idea alpha. Find differentiated data, perspectives and people, and keep your information mix lively. A foolish consistency is the hobgoblin of small minds. Fight the Great Idea Stagnation. Join Random Walk. Follow me on twitter. Follow me on substack:

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2

As an aside (to an aside), I found this result on AI productivity and hiring to be somewhat surprising:

Mining is a standout for AI adoption (with above-trend productivity), but has done little in the way of extra hiring (in fact, hiring is below-trend). Mostly, the point of the research is to show no-correlation between AI Adoption and Hiring (for better or for worse) because AI is a Job Maker, Not a Job Taker, but if you want to be gloomy, well the miners are going to be SOL.

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The marks aren’t high enough?

Ruminating briefly on equity values, public and private.

Tech is cheap?

Random Walk has alluded to this before, but the stock market has been a little odd lately.

It’s somewhat less-true recently after the big ceasefire(ish) melt-up, but it’s pretty rare to see earnings expectations skyrocket, while share performance scuffles. The only way that happens is if valuations collapse, given that share price is simply the product of earnings x the price of those earnings.

Unsurprisingly, valuations and earnings expectations tend to rise (and fall) together: if earnings go up, valuations rise (and vice versa). What’s happened recently, however, is the opposite of that—earnings are going up, but valuations are plummeting.

And really, it’s a tech story:

Forward earnings multiples for software have lost almost the entirety of their premium (relative to the rest of market), just as earnings expectations continue to grow—and not just grow, but grow at 2x the pace of the field.

Robust profits, with declining multiples, leads to weird observations about market performance, like this one:

Multiples on tech have dropped ~28%, while tech share performance fell only ~2%, leading to an unprecedented divergence in the series.

In other words, when the light blue line falls (multiples), the dark blue line (performance) usually falls too: multiples contract on relatively poor earnings results, and so share price falls accordingly . . . but if only multiples contract (while profits stay strong), then the blue lines separate.

And, as you can see, multiples and performance generally don’t diverge like that—post-GFC is the only period that comes roughly close.

Which is to say that someone is probably wrong. Either earnings will not, in fact, continue to grow (and share prices are too high), or earnings will grow (and share prices are too low).1

As it happens, post-GFC, the bears were definitely wrong:

If you were chastened to the sidelines by the stock market collapse in 2008, you would have to admit, with the benefit of hindsight, that there was no “collapse” at all.

So, the lesson here is “buy, buy, buy,” right? Perhaps.

ICYMI

Software terminally less-impressive(?)

It’s of course not necessarily the case that “someone is wrong.”

Read more

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5 Idea Friday

Some quick-ish hitters for your weekend reading pleasure.

1. The Smashing Success of DOGE

The consensus treats it as a foregone conclusion that “DOGE Failed.” This was shortly after consensus was sure DOGE was causing a recession, lol.

They’re generally quite happy about that declaration, partly because of negative polarization around the guy(s) behind it (and the sometimes icky and braggadocios comms that came with it), partly because they are champions (or participants) of the largesse that DOGE undertook to unwind, and partly because it’s fun to be mean.

It’s obviously true to some extent that DOGE did “fail.” It did not cut trillions of dollars from the budget, it did not (but also did) uncover lots of fraud, and most of all, federal spending continues to grow.

Well, sort of:

If you net out interest expenses, federal outlays actually did flatten out a bit, for what it’s worth.

Well, that’s something, but it’s too bad DOGE never got the chance to do more.1

This too is something:

DOGE really did dramatically reduce the size of the federal government, in at least one sense.

Total federal employment dropped pretty dramatically. Fewer people to gum up the works, and that’s not nothing.

And hey, since output/headcount is considered “productivity,” then I guess the Federal Gov’t is more productive now, too (lol).

ICYMI

2. Luxury Woes

A few weeks ago, Random Walk laid-out the definitive take on the current state of cyclical affairs. Read the whole thing, it’s great, the best even. No need to read anything else.

But, even so, one part of my theory had some holes in it, especially with respect to luxury:

Random Walk is pretty bearish on luxury, but at the time, markets had put some wind in luxury’s sails.

Whatever. Their mistake.

Behold, luxury is doomed:

Luxury revenues have been trending flat-to-down off their peak, since ~2023.

OK, so not exactly doom (yet), but hardly an impressive picture.

My understanding is that luxury is following the airline and hospitality playbook: wring even more out of its price-insensitive wealthiest customers (while everyone else pulls back).

3. Manufacturing Boom-let

Lots of smart (and not-smart) people scoffed at the notion of “reindustrializing,” America.

We’d never bring back blue collar jobs (and who’d want ‘em anyways). Tariffs won’t make a difference—if anything, tariffs will hurt domestic manufacturing. This is all a pipedream romanticization of a bygone hard hat-era that wasn’t all that great to begin with.

There’s a lot of truth to all that, and I too share some of the skepticism.

And yet, despite all the recent turmoil (or perhaps because of it), Random Walk has some bad news for the cynics: there is, in fact, mounting evidence of something resembling a manufacturing and industrial revival.

In no particular order:

• Philly PMI showing more business activity, including new orders (and more hiring and higher prices):

  

• KC Fed Manufacturing Composite Index up-and-to-the-right:

  

• Chicago Fed Survey of Economic Conditions, with yay! for manufacturing, and meh for everything else:

  

• Chicago Business Barometer (which tracks the ISM fairly closely) with a big jump:

  

• Empire State manufacturing Survey, showing a big jump in new orders, employment, and prices paid:

  

• Logistics Manager Index onwards and upwards:

  

• ISM Survey, with rising deliveries, production, and again, prices:

  

• Core capital goods orders have been pretty steadily positive (while Durable Goods tread water)

  

I could go on, but I think you get the point.

The soft stuff and even some the semi-hard stuff all point the same direction: manufacturing and industrial activity is trending upwards.

The rising demand for blue collar stuff flowed through to the freight market, as well (via Freight Alley):

• Truckload volume for 2026 is trending well-above prior years:

  

  

• Tender rejection rates (where a high rejection rate is usually evidence of tight supply) has climbed significantly:

  

• Trucking rates are unsurprisingly up all over the country:

  

Again, you get the point: there is mounting evidence that domestic industrial activity is buzzing.

It’s flowing through to employment, as well.

• Outside of healthcare (of course), manufacturing and loading & docking are the only sectors with above-trend job postings:

  

• Construction and Manufacturing small businesses were the only small businesses paying more to hiring firms than they were in 2023:

  

• Data centers have created a massive run on the skilled trades (for the umpteenth time):

  

Even Jensen Huang recently noted that the real AI infra bottleneck isn’t chips, power or memory . . . it’s plumbers and electricians.

And, of course, with great hiring demand, comes great wage growth (sort of):

The Dallas Fed survey shows steady upward inflection of wage growth for manufacturing since the end of ‘25.

So, what’s going on?

Well, obviously the AI buildout surely has something to do with it. Tariffs might have something to do with it, too. There’s also probably some Hormuzian front-running, going on as well, plus some Hormuzian end-running for domestic energy.

But, also, as Random Walk has observed before, the decrease in manufacturing investment that began at the turn of the century is truly staggering, and even the slightest mean reversion—driven by labor shortages, automation, overdue glow-ups, the electrification of everything, whatever—would constitute an meaningful upward inflection in industrial activity.

In a recent earnings call, JB Hunt’s EVP of Sales (for one of the largest freight cos) took the real or temporary question head on, and he was pretty unequivocal that this isn’t temporary:

“All proof points of structural change.”

Now, JB Hunt is talking his book. Plus, a lot of the commentary is specific to the structural changes in freight—yes, there is an uptick in demand, but there are other reasons that freight supply has decreased.

But either way, sorry haters, it seems pretty clear that industrial activity is definitely bumping.

4. Exactly the right amount of housing

Just another installment in one of the longest running Random Walk series: there is no housing shortage.

Rather than some secular shortage of housing, it turns out that housing supply is remarkably responsive to demand.

I mean, how else would housing units per capita stay so darn stable since the late 80’s (and higher than ever before):

The total stock of housing per 1,000 people peaked around 430 units in 1989 and has stayed pretty much exactly that high until the present.

Definitely no shortage there. Collapsing household size? Yeah, we got that. But housing shortage? Not a chance.

Indeed, new housing gets completed as new households are formed:

Outside of a little pre-GFC overbuilding, followed by some under-building, completed housing units have tracked household formation pretty darn closely.

. . . well, except recently, where new housing supply ran ahead of household formation, but that’s probably fine.

But yes, builders tend to build where the bodies are adding up, and when they stop adding up, they stop building . . . until the bodies add up, and then they start. Again, to wit:

Single-family permitting is down everywhere (after a big run of building, and now soft demand), while multifamily perks up (after a lull in building, precipitated by stagnant rent-growth).

They’re even building MF in the Northeast, where supposedly it can’t be done!

I mean, Random Walk told you the Palmetto State was the place to be:

Single-family permitting goes to where the people growth is, and if you think causation is running the other way, well, idk what to say.

All hail Myrtle Beach!

Anyways, more evidence of well-functioning supply-demand in housing, perhaps a moderate housing glut, and nothing at all like a shortage.

5. The real threat of AI

Thomson Reuters asked a bunch of lawyers about “GenAI’s threat potential to the [legal] industry” and you’ll never believe what the lawyers said:

73% said the “unauthorized practice of law,” was somewhere between “major threat” and “somewhat,” but, in all events, the biggest threat.

The lawyers are civic-minded folks, you see, and they just don’t want the normies hurting themselves by practicing law without permission. Because it’s the bar association that keeps us safe from unscrupulous lawyers, and umm, without all those horn books and law school exams, how could anyone be a lawyer in real life?

As an ex-lawyer myself, I can say with a high degree of certainty: experience definitely helps, but law school (let alone the bar or CLE) most definitely do not. Not one whit. I mean, law school is fun and interesting, but it has basically zero-to-negative bearing on real life lawyering.

A long time ago Random Walk quipped that AI would never replace lawyers because lawyers would make it illegal to do so and . . . yeah. People really don’t hate regulation enough, and professional cartels are only the tip of the iceberg.

Previously, on Random Walk

Random Walk is an idea company dedicated to the discovery of idea alpha. Find differentiated data, perspectives and people, and keep your information mix lively. A foolish consistency is the hobgoblin of small minds. Fight the Great Idea Stagnation. Join Random Walk. Follow me on twitter. Follow me on substack:

Get more from Moses Sternstein in the Substack app

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Uncharted waters, blissfully unaware

Random Walk has demonstrated ad nauseam that the single most important theme going forward is “growth without growing.”

For the uninitiated, some context:

People-growth is hugely important to economic growth, but the ~80 year tailwind is coming to an end. For nearly a century, we’ve been able to drive growth by adding productive people to the mix: more output, more demand, more workers, more shoppers, etc. And when the domestic people-growth engine slowed, we fell back on immigration and globalization (and cheap credit), but still, more people, at-home and abroad.

But, people-growth is no-longer. The failure to babymake has aged the native born population, immigration has reached unsustainable (and zero-sum) levels, and international markets aren’t growing either.

From this point forward, growth is productivity-driven or bust. It’s uncharted waters, and no one really knows whether it can be done, but we’re sure as hell gonna find out.

And it’s funny, because the fact that we’re now growing slowly-to-not-all for the foreseeable future is the biggest economic change in over a century, and most people are barely aware it’s happening, let alone grok the significance.

I mean, sure, they’re starting to notice the side-effects:

• no job growth, but no unemployment? check;

• an AI “atoms-driven” industrial growth story? sure, that too—can’t have a durable goods, real estate, or retail story without more worker/shoppers/tenants;

• healthcare uber alles? yes, of course—old folks consume lots of healthcare;

• higher “supercore ex-housing” inflation? with labor in relatively short supply, the high-touch services will have to pay a premium . . . which makes services some combination of more expensive and/or worse (aka “service shrinkflation”).

Simply put, the economy is not getting larger in a very literal sense. Soon there may even be fewer mouths to feed, but especially, wealthy and productive mouths to feed. And that’s a huge deal!

While everyone was banging around about tariffs and the AI-took-my-job nonsense, Random Walk told you the actual biggest thing was the closed border, and Random Walk was right.

The open border was a deflationary growth surge, and unsustainable as it was, once over, it meant that job-and-shopper growth would grind to a halt.

And so it has.

The breakeven is lower now

A lower employment “breakeven” is the new normal now, and people (aka Fed Researchers) are starting to notice (all at once, apparently).1

First, the Dallas Fed says, “uhh, without immigration, the employment breakeven just isn’t a thing anymore.”

Comparing our break-even estimates with actual payroll growth (Chart 2, blue bars) suggests that job growth over the recent three months—December 2025–February 2026—has slightly exceeded the break-even rate on average, consistent with the unemployment rate remaining stable despite softer headline payroll numbers.

Real-time data point to an important change in the U.S. labor market: The benchmark for evaluating payroll growth has moved significantly. As net outflows of unauthorized immigrants reduced employment growth in late 2025, payroll gains that might historically have signaled economic slack are now consistent with a balanced labor market.

At this point, slow job growth says very little about the economy, other than the fact that the economy is adding very little in the way of potential workers.

The “benchmark” for a ‘good’ jobs print has changed. It’s much, much, lower now.

Along similar lines, and slightly more recently, researchers from the Fed BoG are likewise estimating a labor market breakeven converging on close to zero:

As population growth stalls, and participation rates already near post-GFC highs, there simply aren’t (many) new bodies to add to the labor force, such that it needed them.

The employment breakeven is now lower than its been in the entire series (going back to the 1960s).

Yes, this time it really is different!

When someone sounds alarm bells about a “bad” jobs print because tariffs or AI or whatever, grab ‘em by the collar and holler “well, what the hell else would you expect?!”

Or, more politely:

One important implication of a near-zero breakeven pace is that, even if the output of the U.S. economy (GDP) is growing at the same pace as potential output (potential GDP), employment growth in any given month is almost as likely to be negative as it is to be positive.

Yes, exactly that. Regardless of what GDP does, job-growth will be little ups and little downs, because there really aren’t too many alternatives.

It will look like this:

“A record 11 months in a row of alternating jobs-up-jobs-down.”

That’s just how it’s going to be, unless old folks and the youngs start coming off the bench, en masse (or the border is opened again). There just isn’t any other way.

ICYMI

Growth is a productivity story, from here on out

And will it matter?

Read more

First, the Burry prelude.

And then, the post from the archives:

It’s the interest rates, stupid

• decline in home values is obvious, if you know where to look

• CRE values are down, rents are down . . . but owner-occupied single-family homes just go up? Puh-lease.

• St. Louis Fed confirms: Random Walk is right, it’s the interest rates, stupid

• Decline in existing home values is showing up in clearing prices

Read more

• a preface: the game done-changed for everyone

• show me the money (pretty please)

• when to cut bait and/or how do you know when a fund is what it is

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When to cut bait?

Let me preface with a caveat that this is not a dunk on Venture.

Most, if not all, of the “doomer” observations about VC are applicable to the capital markets, more generally.

• the game-done-changed for everyone—a dramatic shift in the cost of capital will have that sort of effect;

• the end of an 80-year demographic tailwind to growth, applies everywhere;

• a buy-high-sell-not-as-high bid-ask overhang, causing a pile-up of unsold assets, a deeper “j-curve,” and thereby a dry spell for liquidity, is every manager’s and allocator’s problem;

• that that dynamic has lead to increasingly concentrated capital in the largest of funds (who are making increasingly concentrated investments in the largest of companies), and correspondingly tough-sledding for smaller managers, is true in PE, Real Estate, Credit . . . the works.

There’s obviously some nuance there, but if you were to observe the underlying challenges in VC that are downstream of a major cyclical regime-change, and conclude “something is wrong specifically with VC,” then you’d be more wrong than right.

If anything, VC with its uniquely pareto-like distributions, and bias towards technology (which will certainly define the next cycle), makes it a relatively attractive buy-fear-sell-greed opportunity, in Random Walk’s humble opinion.

Show me the money (pretty please)

Throat-clearing out of the way, this is a very striking chart, as it pertains to the deepening of the j-curve, for VC in particular:

The only two categories of VC funds to have DPI > 1 (i.e. returned more cold-hard-cash than received) are top-decile funds from the 2017 and 2018 vintages.

That’s it. Every other LP is still waiting for their payday. The point being that allocators to even the very best of funds have gone an awfully long time without seeing their money back.

Read more

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Continuing to ignore the main story in the timeline to surface other interesting things, of note.

AI-Beneficiaries-in-Training

One of the many interesting puzzles about today’s market is that despite the near trillion dollars spent on AI infrastructure, investors are pricing-in almost no downstream benefits of AI.

All the returns are flowing to the picks n’ shovels making the transformational technology possible—a trillion dollars’ worth of invoices will have that effect—but for the transformees, the net-present-value of their future cashflows is either flat, or worth less than before.

The Goldman “AI Basket” is stumbling along with the rest of the Nasdaq100, while infrastructure runs away from the field.

And that’s strange.

Random Walk has made this observation before, but it bears repeating, because the zeitgeist doesn’t seem to get it yet: investors are making a massive bet on AI, while making basically no bets on AI.

Why might that be the case?

• One possibility of why that may be is some combination of uncertainty and opportunity cost. We don’t know who the transformed winners will be, but we do know who the transformers are, so investors are placing their chips accordingly. Who has time to speculate about two AI adopters in the bush, when you’ve got plenty of semis and turbines in the hand?

• Another possibility is that, in fact, the transformers are, and forever will be, the only winner, either because (a) the AI buildout is like an expensive meal that no one will eat, but still must be paid-for; or (b) the buildout is the new tollbooth for what will simply be a ubiquitous higher cost of doing business, going forward. Companies will be transformed, but the relative value-capture lives at the infra layer.

I’m sure one could come up with some other possibilities, but for present purposes, here’s the point: of these three possibilities, there’s really only alpha in one of them: option #1—there will be transformed winners, we just don’t know who they are yet.1

ICYMI

First you must believe

Markets have already priced-in accelerated growth for the buildout (although perhaps not enough, or perhaps too much), so, at this point, to be early in the AI trade, one has to anticipate some other acceleration, ideally before it shows up in earnings (or at least before those earnings are reported to the street).

It sounds obvious (because it surely is), and yet, for the most part, there really aren’t any companies trading on the promise of growth-to-come-but-not-yet-started.

And yes, one has to believe that AI/Tech will, in fact, lead to acceleration . . . because otherwise, why all the Capex, but also, because it does not seem that hard to believe:

Ramp’s spending data shows a very striking divergence between those spending on AI and those that are not: the former are growing much more quickly.

• There is definitely sample-bias here, and it’s not obvious which direction causation runs.

• It’s also possible that high-growth companies are simply passing through AI costs at negative gross-margin, too, which is a neat trick to generate topline revenue growth, but obviously not a signal of sustainable AI-driven expansion.

• Even more probably, it’s almost certainly the case that “AI companies” (who necessarily spend a lot on AI) are the high-growth companies because AI is the thing everyone wants to buy, but again, that doesn’t mean that “investing in AI makes you grow.”

Those are valid concerns, but for now, I’m going to accept the premise that AI does, in fact, have some properties of a wonder-drug.

So, it got me thinking: who is investing in AI today for benefits that will materialize sometime tomorrow. It’s an obvious question, that nonetheless, markets have left entirely unanswered.

Follow the R&D

That question too, lends itself to, at least, two categories of companies that might fit the bill:

Read more

Read more

• oil prices split into three

• no one knows what’s happening

• …except maybe this one guy, who has some astute observations about what’s happened before, and why this time may be different

• reasons for optimism, but also, there’s almost no way there’s at least some pain

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A tale of three prices (for oil)

While the general timeline toggles between “the war is total victory,” and “the war is total disaster,” Random Walk keeps a steady grip on “it’s too soon to tell, and we lack the information, anyway,” which is perhaps less viral, but nonetheless the most correct.

Cost of oil depends on who’s asking

That said, what’s going on in commodities right now, is pretty wild. I mean, the price of oil is . . . well, it depends on who you’re buying from:

Oman is selling crude at ~20% higher prices than Dubai (and now even higher) . . . while in the US, oil is wiggling around a lowly $100.

It seems hard to expect that a commodity would continue to trade like this, since it’s perhaps the core attribute of a commodity that it’s generally governed by global supply-and-demand. But, lol, wouldn’t that be a BRICS realignment backfire, if it turns out that the oil market fractures into two . . . Hormuzian oil:Expensive—US Oil:Cheap.

Not that this is a laughing matter, in the main.

Apparently, demand-destruction is already underway for Asian markets (where ~80% of Strait traffic is typically bound).

But, at the same time, short interest on oil is apparently quite high, as well?

Short interest on the is near its pandemic high.

From of all of this I conclude: no one knows what’s going on, but hold on to your butts!

ICYMI

Structural realignment, accelerate!

For a much smarter conclusion, however, I find inspiration elsewhere.

Read more