[Week 30, 2025] Stars and Stocks

Welcome back to Price and Prejudice with a few musings from Week 30 of 2025.

Five-Star Bathrooms

This WSJ piece profiles a company trying to fix the U.S. public restroom crisis by treating bathrooms like scooters: networked, rentable, and subject to user ratings. (Here's a different hypothetical proposal that is also interesting). The idea is that if you can verify users, track usage, and lightly nudge behavior—“Bathroom as a Service,” they call it—then maybe the facilities don’t instantly devolve into post-apocalyptic gas station horror scenes. In fact, ratings are a surprisingly conventional tool for regulating behavior: drivers on Uber stay polite to avoid getting deactivated, Airbnb guests clean up after themselves to preserve their host eligibility, and Yelp stars can make or break a brunch spot. In fact eBay figured this out in the ’90s—just let everyone rate everyone else, and reputations handle the enforcement.

One obvious downside to rating is that it flattens intent: when you reduce behavior to stars, you lose the why behind the what. In Throne's case, a perfectly clean bathroom trashed in frustration would be scored the same as one wrecked through negligence. Applying the system to other dimensions of human behavior ultimately results in a world where surface-level compliance replaces actual norms where people act “good enough” not out of ethics, but to preserve access. People will behave, but only because they’re being watched by the invisible hand of the five-star economy.

Explaining the Unexplainable

This article is about one of the great traditions of finance: confidently explaining something no one really understands. Stocks are up this year—despite tariffs, recession fears, and declining earnings estimates—and market strategists have tied themselves in knots trying to rationalize it. The satire writes itself (and in 1998, The Weekly Standard did just that), but the real issue is simpler: cause and effect in markets often exists only in hindsight, and sometimes not even then. You'd imagine that the increasingly sophisticated tools and abundant data would make it easy, but it turns out to be much more complicated than people thought.

There are two frameworks that are useful for understanding why price of the stock or a market index went up. In the first, price is high today either because investors now expect higher future cash flows (e.g. corporate earnings will surprise to the upside) or because expected returns have fallen (e.g. investors are suddenly less risk-averse and more willing to pay a higher price for the same cash flows.). These two sound similar, but they reflect opposite beliefs: in one case, the world got better; in the other, investors just got more chill.

In the second framework, we can think of asset markets in classic economics terms: supply and demand. The supply of financial assets is basically fixed in the short run. So if prices rise, demand must have increased. But whose demand? Retail traders? Sovereign wealth funds? AI-driven ETFs hallucinating a soft landing? Usually when markets rally on no news, it looks like someone, somewhere, just decided they really wanted to own more stocks.