[Week 46 of 2025] Caps, Consumption, and Collectibles

Welcome back to Price and Prejudice with a few musings from Week 46 of 2025.

AI Growth and Its Caps

Here's an interesting piece by Boaz Barak that walks through why AI capabilities might keep compounding even faster than we expect. The core idea is simple: data shows that the time-horizon of tasks LLMs can complete doubles roughly every six months. If that slope holds, the share of economically meaningful tasks still reserved for humans shrinks on a fixed schedule. Of course, the natural relevant question for the long term is: what actually caps this curve?

The first candidate is physical: robotics, manufacturing, and real-world data collection. Even when software can compound at near-frictionless speed, hardware still lives in factories, supply chains, and physics. In that world, the slope in “intelligence space” may stay exponential while the slope in “embodied execution” stays stubbornly sublinear.

The second cap is human institutions, and this one may be the more powerful brake. A frontier economy like the U.S. has delivered roughly 2% per-capita growth for 150 years, through technologies that should have radically bent the curve. One way to read that constancy is that growth isn’t "tech + institutions," but rather "min(tech progress, institutional capacity)." Political systems, legal constraints, organizational frictions—all of these move slowly, and they set the governing limit on how fast new capabilities turn into actual output. If AI accelerates the invention curve but institutions remain on a nineteenth-century adoption curve, realized growth will follow the slower line.

Stock Market Wealth Effect

This article digs into a paradox that unemployment has been creeping up for two years straight, yet consumers still swiping their cards like the economy is one giant Black Friday sale. The unifying theory is the "wealth effect" – the idea that when people feel richer because their portfolios and Zillow fantasies are going up, they behave as if their real incomes have risen too. And given the recent explosion in paper wealth, there’s real circumstantial evidence that asset markets, not labor markets, are pulling the economic wagon for once.

What's important to understand about this wealth-driven consumption is that it's not only about the level of wealth, but also the expected persistence of that wealth. Households don’t splurge because their 401(k) went up last quarter; they splurge if they think it will still be up next year. Consumption is a savings decision in disguise, and savings decisions are aggressively forward-looking. If asset-price gains look stable – because the Fed is dovish, or AI stocks are melting up, or real estate feels unbreakable – then households treat that as quasi-permanent income and loosen their wallets. If the gains look shaky, they sit on their hands. In that sense, the wealth effect is less “stocks went up” and more “stocks might stay up.”

Of Birkins and Betas

Forbes has a delightful piece on Luxus, a hedge fund whose entire mandate is…Hermès bags. The idea sounds niche, but the appeal is straightforward: over the past decade, secondary-market Hermès prices have appreciated steadily and with very little connection to public markets. In a year when equities, credit, and real estate often move together, a category whose pricing is shaped by scarcity, collectors, and auction dynamics can feel like a genuine source of diversification.

The low correlation isn’t magic; it comes from the fact that Hermès prices are driven by a different set of risks entirely. Instead of earnings, interest rates, or macro data, the key drivers are demand for luxury goods, brand prestige, social signaling, global wealth growth, and the stability of Hermès’ supply discipline. Investors are effectively betting that the social and cultural forces supporting the Birkin market will evolve more slowly — and differently — than the forces that drive financial markets.

Viewed through that lens, the fund isn’t betting on “bags” so much as on the persistence of a global luxury-collecting ecosystem. The premium is a bundle of exposures: continued demand from high-income consumers, the durability of Hermès’ brand power, the functioning of secondary markets, and the ability to authenticate reliably in a world of high-quality counterfeits. Those are real risks, but they are orthogonal to the usual cycle-sensitive drivers. That is what makes the idea interesting: it packages a familiar investment desire into an asset class whose underlying risks live entirely outside the standard financial narrative.