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🎶 Vibin'
No particular theme this week. I’m just vibin’ to a mellow, bluesy tune called When Did You Leave Heaven? by Johnny Hoy and the Bluefish from their In Action album. I hope you enjoy it.
💭 Quote(s) of the Week
“Judge a man by his questions rather than his answers.”
– Voltaire
"Experience is the worst teacher. It gives the test before giving the lesson."
I saw an interesting quote from Tier1Alpha this week and was reminded of the ever present adversarial relationship, at least in perception if not in reality, between financial capital and human capital, i.e. “labor”:
Welcome to Wyoming, the "Equality State", where Central Bankers are engaged in lively discussions about how they can most effectively give risk-free raises to those with surplus assets in order to lower the return on human capital (wages) for those without ready access to funds.
In early 2022, I wrote a piece that frames the relationship more in terms of asset allocation. There’s a link to it in the first Drive-By article below.
The Chart of the Week shows a meaningful increase in the number of U.S. workers on strike. If these persist and/or accelerate, pressure on profit margins, particularly in the most labor intensive service industries will likely be a major concern for equity market investors in the next year or perhaps longer.
🚙 Interesting Drive-By's
This week we have articles on asset allocation, the Maker economy, bond yields, and 3D printing:
The relative value of human capital versus financial capital is really just a function of long term supply and demand. Currently, financial assets are overvalued relative to human capital, i.e. the value that we create with our labor, but that will change over the coming years. [link]
We are living in an era ripe for makers. While large, established players dominated technological progress in recent decades, the next big thing is much more likely to come from a tinkerer’s garage—thanks to generative AI’s accessibility, speed of prototyping, and massive market opportunities. My intuition is that it’s a historic moment on par with the birth of the Internet—or perhaps even more significant than that.
So it seemed like a good time to ponder what makes for a maker. Who is suited to the task of novel invention? What technological and societal circumstances do makers thrive in? And why is generative AI such fertile ground for maker magic? [link]
Note: A seemingly contrarian take on bond investing. Given that the real yield on bonds has risen to 15 year highs, I’m somewhat sympathetic to Michael’s argument.
“China, Japan, inflation, deficits, and QT, oh my!” – The chant of bond traders watching yields creep higher.
Despite the highest yields in 15 years, some bearish bond traders think they can go much higher. In their minds, China, Japan, burgeoning fiscal deficits, inflation, and QT, are tailwinds for much higher yields.
I have written several articles explaining why entrenched long-term economic growth trends and low inflation, coupled with high and increasing leverage, all but ensure lower interest rates. This article defends my thesis and helps us better appreciate the bearish concerns weighing on bond traders.
As the quote below from Peter Atwater states, the "easiest explanation" is usually the most popular, but that doesn't make it correct. The concerns I cited make for good headlines and may temporarily affect bond yields, but are they worthy of much higher yields? [link]
3D printing is becoming more popular as a construction method, with multiple companies building entire 3D-printed neighborhoods in various parts of the world. But the technique has come under scrutiny, with critics saying it’s not nearly as cost-effective nor environmentally friendly as advocates claim. A Japanese company called Serendix is hoping to be a case to the contrary; the company is 3D printing tiny homes that cost just $37,600. [link]
👋🏼 Parting Thought
Good penmanship isn’t exactly a strength that doctors generally exhibit. 😊
If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em at me.
Please note that the content in The Sunday Drive is intended for informational purposes only, and is in no way intended to be financial, legal, tax, marital, or even cooking advice. Consult your own professionals as needed.
I hope you have a relaxing weekend and a great week ahead. See you next Sunday...
Your faithful financial provocateur,
-Mike
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