Edward Quince's Wisdom Bites: Stay

 

In January 2025, jobless claims hit 11-month lows. The takeaway making the rounds was familiar and comforting: the labor market is strong.

But that conclusion may be missing the point.

Welcome to what might be better described as The Great Stay.

Stability Isn’t the Same as Strength

Unlike the “Great Resignation,” today’s labor market is defined by inertia. Workers aren’t quitting. Employers aren’t firing. Hiring is cautious. Mobility is low.

Everyone is staying put.

At first glance, this looks healthy. Low layoffs usually mean confidence. But under the surface, it may signal something else entirely: risk aversion.

Workers are afraid to move because opportunities feel scarce. Employers hoard labor because they fear they won’t be able to rehire later. The result is a labor market that appears tight but behaves brittle.

Why Churn Matters

Healthy labor markets require friction. Movement allows:

• Skills to reallocate
  
  

• Wages to adjust
  
  

• Productivity to improve
  
  

• Capital to flow where it’s most efficient
  
  

A labor market where no one moves is not dynamic — it’s defensive.

This has implications for inflation. When companies cling to workers, wages become sticky. Costs don’t fall easily. And inflation pressures persist even as growth slows.

Investment Implications

For investors, “The Great Stay” complicates the macro narrative:

• Low layoffs don’t guarantee strong growth
  
  

• Wage inflation may remain elevated
  
  

• Productivity gains may disappoint
  
  

• Corporate margins face quiet pressure
  
  

This is not a boom. It’s a holding pattern.

The Financial Takeaway

Do not confuse stability with vitality. A labor market frozen in place may be masking fear rather than confidence.

For portfolios, this argues for realism: slower growth, sticky costs, and a premium on businesses that can thrive without relying on abundant labor churn.

XTOD:
"Jobless claims at 11-month lows show you still can’t get fired... The term I find most endearing to the current job market is one I heard called ‘the great stay’."

Edward Quince's Wisdom Bites: Housing

 

In late January 2024, Senator Elizabeth Warren sent a letter to Chair Powell urging rate cuts to improve housing affordability. The logic sounds impeccable: lower rates mean lower mortgage payments, which should help buyers.

But economics is rarely that cooperative.

Housing is not a demand problem — it’s a supply problem wearing a monetary costume.

The Lock-In Effect: Monetary Policy Meets Reality

The U.S. housing market is frozen, not broken. Millions of homeowners are sitting on sub-3% mortgages — financial golden handcuffs they have no incentive to remove. Selling means giving up cheap debt and taking on a much higher monthly payment.

The result?

• Listings collapse
  
  

• Turnover dries up
  
  

• Supply becomes inelastic
  
  

High rates make buying painful. But cutting rates doesn’t magically create houses. It just changes who can bid.

The Perverse Outcome of Rate Cuts

If rates fall meaningfully:

• Demand surges
  
  

• Supply barely moves
  
  

• Prices rise
  
  

This is the cruel irony of housing policy. Efforts designed to improve affordability often inflate prices instead, transferring wealth to existing owners while leaving first-time buyers no better off.

We’ve seen this play out repeatedly over the past decade. Monetary stimulus pushed asset prices higher faster than incomes, turning housing into a generational divide rather than a social equalizer.

Lower rates might help transaction volume. They might help builders — eventually. But as a short-term affordability fix? They are blunt, leaky, and prone to backfiring.

Why This Matters for Investors

For real estate investors, the lesson is clear:
stop anchoring on the Fed Funds rate.

Long-term housing value is driven by:

• Zoning and regulation
  
  

• Demographics
  
  

• Construction costs
  
  

• Labor availability
  
  

• Geographic constraints
  
  

Monetary policy can influence the timing of transactions, but it cannot fix structural shortages. Betting on rate cuts as a housing thesis is like betting on aspirin to fix a broken leg.

The Financial Takeaway

“The solution to every problem is to cut rates” is a dangerous heuristic. Monetary policy cannot substitute for supply-side reform.

Investors should resist the temptation to trade housing purely as a rates story. The real risks — and opportunities — lie in understanding structural scarcity, not central bank signaling.

XTOD:
"Maybe Elizabeth Warren can fix China's property sector?

Edward Quince's Wisdom Bites: The Other PC

 

Private credit is having a moment. Depending on who you ask, it’s either the smartest corner of modern finance or the place where risk goes to put on makeup. In late January 2024, we flagged a piece by Laurence Siegel asking the uncomfortable but necessary question: is private credit a “golden moment,” or is it just the latest incarnation of volatility laundering?

The sales pitch is elegant. Private credit promises equity-like yields with bond-like stability. Returns arrive steadily. Drawdowns are rare. Correlations appear low. And best of all, prices don’t move around much. What’s not to like?

Well… reality.

The Volatility You Don’t See Still Exists

Private credit’s defining feature is not lower risk — it’s infrequent price discovery. These assets are not marked to market daily like public bonds or equities. Their valuations are typically model-based, manager-determined, and updated quarterly — sometimes with a healthy dose of discretion.

This creates a dangerous illusion:

If the price doesn’t move, the risk must be low.

But that logic confuses accounting smoothness with economic safety.

As we’ve said before: when you can’t sell an asset, its price is theoretical until proven otherwise. The absence of volatility does not mean the absence of risk — it often means the risk is simply unobserved.

History is not kind to assets that advertise stability during periods of abundant liquidity. We’ve seen this movie before:

• AAA-rated mortgage tranches in 2006
  
  

• Auction-rate securities in 2007
  
  

• “Low-volatility” credit strategies in 2019
  
  

They all worked — right up until they didn’t.

Too Much Capital, Not Enough Discipline

Another warning sign: flows.

Private credit has absorbed enormous amounts of capital as investors, starved for yield, move “off the run” in search of income. But capital is not neutral. When too much money chases too few deals, underwriting standards don’t tighten — they relax.

Covenants weaken. Structures stretch. Sponsor-friendly terms proliferate. Risk migrates quietly from borrower to lender while reported returns remain placid.

This is Minsky in slow motion. Stability begets confidence. Confidence begets leverage. Leverage begets fragility.

Private credit is not inherently bad. In fact, it can play a legitimate role in diversified portfolios. But when the primary marketing feature of an asset class is how calm it looks — rather than how resilient it is under stress — caution is warranted.

Portfolio Construction Reality Check

Private credit should be treated like what it is:

• Illiquid
  
  

• Cyclical
  
  

• Sensitive to credit quality
  
  

• Dependent on manager skill
  
  

If it’s being used as a bond replacement, investors should ask:

Would I still like this if prices were marked honestly every day?

If the answer is no, the stability may be doing more psychological work than financial work.

The Financial Takeaway

Be skeptical of asset classes whose appeal rests on opacity rather than robustness. Stability that comes from illiquidity is not protection — it’s deferred volatility.

Private credit is not fool’s gold by default. But in late-cycle conditions, with capital flooding in and discipline eroding, it is precisely the kind of asset that looks safest just before it isn’t.

XTOD:
"Private Credit is Having a “Golden Moment” – Buy or Sell?

Edward Quince's Wisdom Bites: Tools

 

Every technological revolution begins with scarcity and ends with abundance.

AI is no different.

The revelation that models could be trained more efficiently challenged the idea of an eternal “compute tax.” That’s not bearish innovation—it’s how innovation works.

The Model: Capital Cycles Eat Excess Returns

• High margins attract capital
  
  

• Capital creates supply
  
  

• Supply compresses margins
  
  

Hardware is particularly vulnerable because efficiency is deflationary.

Portfolio Orientation

Differentiate toolmakers from tool users. History favors those who apply technology, not those who sell picks at peak mania prices.

XTOD

“Those who invent rarely capture the economics.”

Edward Quince's Wisdom Bites: Financial Gravity

 

The CAPE ratio is often misunderstood. Critics complain it doesn’t time markets. That’s true. And irrelevant.

CAPE is not a clock. It is a weather report.

Borrowing From the Future

High valuations do not cause crashes. They cause lower future returns. When you pay more today, you pull performance forward from tomorrow.

At elevated CAPE levels, optimism must be earned through exceptional growth—not assumed.

The Psychological Trap

Expensive markets feel safe. Momentum reassures. History fades. Investors extrapolate recent success and lower their required margin of safety.

That’s when gravity quietly builds.

The Lesson

Valuation doesn’t tell you when returns will disappoint. It tells you how much optimism is already priced in. Adjust expectations accordingly.

XTOD

“Price is what you pay. Value is what you get.” — Warren Buffett

Edward Quince's Wisdom Bites: Sharing

Nick Sleep’s insight was deceptively simple: some businesses become stronger by charging less, not more.

This runs directly against conventional finance logic, which assumes firms maximize profits wherever possible.

Deferred Gratification at Scale

Companies like Costco and Amazon deliberately suppress margins to:

• Lower prices
  
  

• Increase volume
  
  

• Build loyalty
  
  

• Widen moats
  
  

This creates a flywheel competitors struggle to match.

Importantly, this only works when culture, incentives, and capital discipline align. Most companies cannot resist the urge to harvest short-term profits.

Why This Matters for Investors

Scale Economies Shared delay gratification at the corporate level, allowing compounding to work uninterrupted for decades. This is not growth at any price—it is growth with restraint.

The Lesson

Look for businesses that could extract more but choose not to. That restraint is rare—and often invisible in quarterly results—but it is the fingerprint of enduring quality.

XTOD

“The big money is not in the buying and selling, but in the waiting.” — Charlie Munger