Here are some things I think I am thinking about.

1) The Rise of Socialism.

The knives are out in the NYC Mayoral election. The surprising surge in popularity of Zohran Mamdani has everyone around the country focused on NYC and the rise of its potential new leader, who is a vocal Democratic Socialist. I need to be careful here because a Democratic Socialist isn’t the same thing as a Stalin Socialist. But it’s still interesting to see the rising popularity of politicians like Bernie Sanders, AOC and Mamdani. This trend has been especially clear in younger Americans who view the Capitalist system in the USA as having failed them.

This one’s intriguing to me in the broader scope of things because I view American Capitalism as having been a smashing success in recent decades compared to the rest of the world. I discussed a lot of this during the tariff kerfuffle, but these stats are incredible:

  • US Household net worth at record highs
  • US households spend less on necessities than ever. This is the surest sign of increasing living standards as our basket of “necessities” evolves into items that the average American couldn’t fathom 100 years ago. While the basket of “necessities” was once considered shelter, clothing and food we now consider things like college and healthcare to be necessities. Even though these items are difficult to obtain the fact that they’re now considered necessities is a good thing, not a bad thing.
  • Inflation adjusted median income is up 50% since 1975.
  • The misery index is low by historical standards.
  • Real GDP is at all-time highs.
  • Median net worth of over $200,000 places the median American in the top 10% of global net worth.
  • Global life expectancy is improving dramatically.
  • Child mortality has collapsed.
  • We are experiencing exponential growth in technological advancements.
  • The share of the world living in extreme poverty has collapsed.
  • America owns 33% of all global wealth. When you exclude the UK, France, Germany, Japan, India and China we own 50% of all global wealth.
  • The USA is #1 in GDP per capita within the G20 developed nations.

Are there problems in the USA? Of course. There always have been and always will be. And Capitalism has solved a lot of those problems and exacerbated others. But when we compare the USA to the rest of the world I don’t think our economic system is the place where a lot of social strife can be targeted.

It’s weird because I am pretty convinced that young people would feel a whole lot better about the economy if one item alone, housing, was affordable. And why isn’t housing affordable? Well, a big part of it is because we’ve made it so hard to build housing in the most desirable places that there’s no supply in those locations. And that, ironically, isn’t a Capitalism problem. It’s a Democratic Socialism problem and big time rent control advocates like Zohran Mamdani will not solve that issue because rent control notoriously makes affordability worse.

2) 60/40 vs 50/30/20

I dedicated a chapter in my new book to the 60/40 stock/bond portfolio. Speaking of which, we have an official cover (see below). So that’s pretty exciting. But I thought the 60/40 chapter was a lot more interesting than expected mainly because no one knows where it came from and I kind of pieced the puzzle together dating back to the Great Depression. 60/40 is arguably the most important portfolio in the world so I thought it was pretty interesting that its history is somewhat unknown. But 60/40 is especially interesting now because so many people are declaring it dead and the portfolio that’s replacing it is something generally resembling a 50/30/20. That’s 50% stocks, 30% bonds and 20% alternatives. Alternatives fall under a big umbrella including things like gold, bitcoin, private equity, managed futures, hedge funds, etc.

Throughout my career I’ve generally defaulted to “keep it simple and low cost” and using only stocks and bonds is just a very simple way to build portfolios without overanalyzing alternatives and incurring the higher fees that typically come with them. But as I’ve developed the Defined Duration strategy I’ve also increasingly come to appreciate the temporal risks of owning only stocks and bonds. In other words, stocks and bonds don’t always protect you across all time horizons because they’re not always inversely correlated. So, when you find yourself in a year like 2022 where stocks and bonds both go down a lot you find yourself in a behavioral bind where you don’t feel diversified because you aren’t really diversified over time.

Now, I’d argue that’s easily solved these days because T-Bills yield 4%+. In other words, if you’re sensitive to short-term price changes then take your 60/40 and turn it into a 60/20/20 of stocks/bonds/T-Bills. But that also introduces another risk – reinvestment of t-bills. And that’s where I can see a stronger case for alternatives. But it’s all very, very personal. The whole premise of my book is that there is no perfect portfolio in the aggregate. There is only a perfect portfolio for you at a highly customized and personalized level. So, we talk in these generalizations, but your perfect portfolio can’t be some cookie cutter allocation. It has to be perfectly matched to your personal needs.

3) AI and Happy Cats.

Speaking of living standards – I heard a great metaphor for what AI is likely to do to us all. The “Happy Cat metaphor” describes how cats are always happy because they have everything provided for them automatically. There are all these technologies and automated processes that take care of things without them having to move a paw. Their house is comfortable, predator free and their food and water just magically appears at different times. Their human caretakers are like robots who provide things for them automatically. The cat doesn’t realize how or why any of this happens. It just knows that it happens. But is the cat happy? I guess we don’t really know, but it’s obviously content and carefree. But the cat has no relative comparison or understanding of a counterfactual so it could be grumpy just because it doesn’t know what it’s like to live like a feral cat.

Living standards are always difficult to talk about because they’re highly subjective. You can’t quantify the happiness of people and we have no basis upon which to judge our relative living standards compared to past generations. Am I happier than a caveman? Am I happier than my parents were at my age? I have no idea. I actually think being a caveman might have been pretty fun, but I also like sleeping on a cloud mattress knowing that a bear won’t maul me in the middle of the night. Then again, we’re talking about varying degrees of difficulty. Human life is always difficult. But is modern day human life as difficult as the caveman life or even life 100 years ago? I guess it depends. We’ve solved a lot of problems, but created others. Still, I tend to be a glass half full person and I strongly believe the best time to be born into our species is right now.

But I especially like the cat metaphor because cats are stereotypically grumpy. But what do cats have to be grumpy about? Nothing. And modern day human beings aren’t actually that different. We don’t have to go out and hunt for our food or build our own shelter like we did 1,000s of years ago. Most of this stuff is done for us and we obtain it by trading money for those things that are being done. Farmers make the food, construction workers build the houses and we perform some other specialized task in exchange for money. We traded barter for a money system.

In the case of our relationship with the cat it’s a pure barter system where the cat is providing companionship to the human and the human provides them with all the stuff. Modern day humans just replaced the barter with the money. The cat obviously has it better than someone working a stressful 9-5, but we’re still light years better off than we were when we were each building the homes and killing the food with our own bare hands.

The thing about AI is that all of this is about to make us a lot more similar to the cat in the future. In 100 years we’ll all have a robot who does the most mundane tasks for us. The robot will make our food, fetch us a glass of water and it will probably do most of our work for us as well. These robots will operate in much the same way that modern day humans act on behalf of their cats. And my guess is that the humans, much like the cats, will still find things to be grumpy about because most of the humans living at that time will have no relative counterfactual to compare their lives to.

NB – I hope you all have a wonderful 4th of July. Despite all the problems this country has it’s still a fantastic place to live.