Feb. 4, 2024 Weekly Recap & Good Reads
Last week in Random Walk+Good Reads, all in one email
Good evening, and welcome to a refurbished weekly recap. I’m still tinkering with some new formats to keep the “short and daily” crowd happy, and the “long and weekly” crowd happy. Also, another reminder that you can sign up for the Weekly Recap only, if you don’t want me in your inbox every day.
Random Walk Writes
Big Stories of the week
Big earnings at BigCos
Microsoft, Google, Meta, Apple, and Amazon keep on earning. It’s not an exaggeration to say that the fate of the stock market depends entirely on the so called Magnificent 7. Yes, the market is “up,” but really it’s just those companies that are up. It’s a very good thing then, that those companies are awesome companies that generate huge amounts of profit, each in their own way. Is the market still “overvalued”? Perhaps, but these are real businesses with real wind in their sales. [Here, here, here, here, ]
No rate cuts. For whatever reason, the market was reasonably optimistic that the Fed would announce rate cuts. Presumably, it has to do with stabilizing headline inflation, which obviates the need for higher rates (so the theory goes). Of course, from the Fed’s perspective, if the economy is “booming,” then why cut—that’s all risk (reinflation) and no reward (recession-avoidance)? And if you think that higher rates brought inflation down, then presumably you think that lower rates will bring it back up, so why would you want rates to come down (let alone think that the Fed would risk it)? Anyways, the Fed said “not yet,” but none of the theorizing made sense in the first place. Or rather, it only makes sense when you realize that the “market” doesn’t “think” anything. Prices are a composite signal of many different thinks often pointing in different directions. [Here]
Analysis & Ideas
Macro & Markets
Crossing the Event Horizon on Labor and Wages. Good summary, with lots of charts and data, of boomers, aging out of the working part of the economy. It’s an enormously consequential change—the end of an historic demographic tailwind—but it’s been coming for so long that people have become inured to it. Cue David Foster Wallace and “what the hell is water?” As per the author, “investors seem to acknowledge that demographics matter in the long run, but the rate of change is so slow that the subject nearly always ends up as an afterthought.” It’s kind of the inverse of Byrne Hobart’s observation about what makes tech and finance so fun to write about: the time cycles are very quick. One implication is that slow moving phenomena may be a bit of blindspot for markets.
Answering the NYCB Questions. Detailed and thoughtful look at New York Bancorp, including how it got here and how did investors miss it. It’s a good lesson that much (all?) financial engineering depends on assumptions about the future, which themselves gain strength from some combination of real world events, arbitrary cut offs, and “consensus” (however determined). It’s a witches brew, with more underlying complexity than we’d like to think, and small changes to the ingredients can cause big changes to the model.
New VC in town: MANG. A nice summary of the venture investing activity of some of the BigCos. As Random Walk proffered a while back, venture-style bets on AI are a better fit for BigCos than venture capitalists. That’s how it’s playing out thus far. It’s either a sound way to stay on the bleeding edge of how customers are using LLMs (and the ancillary services, especially compute), or it’s a bubble hoisted by its own petard. Or both.
Who is still investing in Real Estate tech? Self-explanatory.
Real Estate, Migration
RXR’s new fund. Scott Rechsler has been warning about the coming CRE storm for a while. He’s been pretty upfront about the “new normal,” including the fact that some office assets just aren’t worth the concrete they’re made of (and RXR has been handing lenders the keys to distressed assets, wherever appropriate). Now Rechsler is raising a fund to scoop up distressed assets. Amazing.
Ohio’s Rustbelt turns into a magnet for chip fabs. Some more context around the great Columbus, OH, boom (something that Random Walk has observed long before it was cool). Query whether all these fabs will ever get built and on what timeline, but the good thing is that—if it works—this is the sort of manufacturing that attracts talent density for the longer run.
People & Culture
Information that would get your attention. Morgan Housel nails the plainspoken style, as well as anyone, and this one certainly strikes close to home. At what point does becoming informed detract from productivity? Plus, keeping in mind the “iceberg phenomenon,” i.e. that whatever we think we see and observe, there is always orders of magnitude more that we don’t.
Negative beliefs about daycare are predictive of low fertility rates. Some evidence that more traditional notions of childcare combined with the demands of a liberalized workforce depress fertility rates. More simply, women expect to enter the workforce, but also don’t trust daycare with their children, so they feel compelled to choose one over the other. As a parent of more than one child, I can assure you that parents make less difference than you think. Daycare is fine. Better than fine.
A bronze trade theory for the origins of cities. Good long read on a (hypothetical) origin of cities. Complex metallurgy requires a mix of goods and service inputs. Cities “agglomerate” talent to lower the transaction costs of “specialization and trade” (ala)
EU threatens to sabotage Hungary over Ukraine funding. Back when I was in law school, international legal scholars liked to make a big deal about how the EU in its inception took the notion of member state sovereignty seriously. Good or bad, it’s extraordinary how quickly that notion fell by the wayside.
Inside the competition for the world’s richest shoppers. When the upwardly mobile become less upwardly mobile, you can other move down market or upmarket. Luxury, unsurprisingly, is moving upmarket.
Incredible shrinking podcast industry. On the one hand, this is a story about how a settings change suddenly made podcasts a lot less popular than people thought. On the other hand, this also a story about how the “Creator Economy” experienced explosive growth during the lockdown, and now, a lot of creatives are reaching for yield.
How big is youtube? Big. Youtube is becoming the most watched thing in the universe. There are lots and lots of videos on youtube. Plus, the author used a pretty clever API hack to guesstimate the number.
Data and Decks
Decarbonization: Stocks and flows, abundance and scarcity, net zero. Nat Bullard’s annual presentation on the state of decarbonization. It’s 200 slides, and I haven’t looked at it closely yet, but it’s full of charts and stuff. My initial read is that I can’t tell when it’s cheer-leading, and when it’s rigorous, which is a pervasive problem when it comes to data around the energy transition.
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