A Golden Year

Tomorrow will be first trading day of 2026. So, it's a good time to look back at how different asset classes performed in the past year. 

Equities continued to surge ahead in 2025, once again powered by AI. The S&P 500 and NASDAQ Composite gained 18.7% and 21.1%, respectively continuing a run that began in November 2022 after OpenAI debuted ChatGPT. The two U.S. indices have now cumulatively returned 87.5% and 127.0%, respectively, over the past three years led by the likes of NVIDIA, Alphabet, Microsoft, and Meta. International stocks did even better last year, with the Europe's STOXX 600 Index rising 36.8% and the MSCI Emerging Markets index up 33.4%. Yet, for all the strong showing among equities, 2025 was really gold's year to shine. The yellow metal, long thought of as safe haven asset and inflation-hedge, soared 62.2%--its strongest annual performance in over four decades. Gold's powerful rally was driven by a number of factors, including a weakening dollar, aggressive central bank purchases, persistent inflation concerns, and geopolitical uncertainties. Livestock was another strong performer, as U.S. herd size shrank to its lowest level since 1951. 

On the other hand, oil and the U.S. Dollar weakened substantially in 2025. Oil's slide was primarily due to oversupply in the market after OPEC + increased production; U.S. shale boom and the emergence of new oil sources in Brazil, Guyana and Norway further contributed to the supply gut. The Dollar Index, which measures the greenback against a basket of foreign currencies, was down 9.4% last year largely as a result of President Trump's tariff policies and Fed rate cuts. Lastly, bitcoin stumbled after several years of strong performance...because? Well, who really knows--it's crypto! It was probably the usual mix of leverage and liquidations and perhaps investors' eagerness for gold, rather than crypto, to diversify away from traditional assets. In any case...here's summary of the winners and losers in 2025 (in USD):

Source: Bloomberg. As of December 31, 2025 (click to enlarge)

The asset class returns quilt below also shows how these same strategies performed over the past few years. Equities and crypto have generally been the consistent winners since 2020, but there have been some meaningful rotations into real assets, such as gold, oil, grains and cattle over the years (in USD).

Source: Bloomberg. As of December 31, 2025. (Click to enlarge)

Amar Mayor, Tomar Mayor!

At the stroke of midnight on January 1, 2026...Zohran Kwame Mamdani was sworn in as New York City's 112th mayor by New York Attorney General Letitia James inside the decommissioned Old City Hall subway station. It was a historic moment for NYC--by far America's largest city--on many levels: first Muslim, first South Asian, and first African-born person to hold the position. At 34, he is also the City's youngest mayor in over a century.

Funny enough, James, an early supporter of the new mayor couldn't still quite pronounce his name! (If she can't many others will struggle too!) Here's a TikTok tutorial.  

Wealth Porn: Elon's Monopoly Money

Forbes' Matt Durot recently wrote about Elon Musk's monster December paydays which, given their scale, almost doesn't feel like real money. Early in December, SpaceX launched a tender offer for insider shares that valued the satellite maker at around $800 billion, up from $400 billion in August (private markets be wild!). This new valuation made Elon's 42% stake in the company worth $336 billion and made him the first person ever worth $600 billion. It also meant SpaceX, not Telsa, was the biggest source of his wealth...Challenged accepted. Four days later the Delaware Supreme Court overturned a lower court ruling that in 2018 voided a Tesla options pay package worth $56 billion. That verdict was source of great consternation for Musk; so much so, he re-domiciled both Telsa and SpaceX in Texas which promised him more favorable treatment. So now, a chastened Delaware (possibly fearing other business may do the same) made things 'right.' That options package is now worth $139 billion after gains in Tesla stock, bringing the total value of Elon's holdings in Tesla to $338 billion and restoring balance to the Musk empire. It also made Elon the first person ever worth to be worth $700 billion (at least on an unadjusted basis). 

So, what does that even mean? People have tried to make sense of this outrageous number by making comparisons. Here's one attempt by CNN: weighing Elon's estimated net worth against the economies of entire nations. It shows that (as of December 21) Elon's wealth exceeded the annual GDP of more than 170 countries (there officially 195 countries in the world, including Palestine and Vatican City).

Does this help to put Elon's wealth in context? Perhaps. Or do such comparisons just serve to further glorify and gamify staggering concentrations of wealth in society? Moreover, comparing an individual's wealth to a country's economic production is not exactly apples to apples for several reasons. First when it comes to wealth, there's cash and then there's paper valuation. Elon doesn't exactly have $749 billion of cash lying around in banks; what he does have is lots of shares of Tesla and SpaceX which are valued principally by investors based on what they see is the present value ("PV") of the future earnings of each company into perpetuity. Based on investors' sentiment of future growth that 'value' can fluctuate day-to-day; e.g., if investors wake up tomorrow and start to value Telsa more 'rationally' then Telsa's market valuation could drop from approximately $1.5 trillion to $200 billion (or, for the sake of argument, rise to $3.0 trillion) without any meaningful change in the company's actual operations. It really comes down to the story investors want to believe and Elon is an inspiring narrator. What is doesn't mean is that Elon is 'richer' than any of the 170 countries. Let's take the case of Belgium, one of the countries whose GDP lags Elon's net worth. Belgium's annual (nominal) GDP of $717 billion represents the sum total of all of its actual economic output (domestically) for the past 12 months (and not the PV of the country's expected economic growth forever into the future). It also doesn't mean Elon can pay for everyone in Belgium to take a year-long holiday. He just doesn't have that much money available; sure, Tesla is publicly traded...and he could probably sell billions worth of shares before its market price (and his wealth) starts to precipitously drop. Although Elon can, and does, regularly borrow against his shares, it would still be a drop in the bucket. So, the country comparison doesn't tell us much. So, Elon's not that wealthy? No, no...he's incredibly wealthy, just not (yet) 'richer' than entire nations based on how we are calculating value. 

Is there a better way to depict Elon's staggering wealth and put it into context? Yes, there is, and it was posted by Senator Bernie recently when he railed against billionaires (as he is wont to do). It's compares wealth against (shocking) wealth. Based on analyses by economists at Realtime Inequality Sanders' chart shows that the bottom 50% of Americans aged above 20 years (roughly 125 million people) hold approximately $1.2 trillion in total wealth (savings, stock, real estate, etc. which can fluctuate in value, particularly if more of it is in financial assets rather hard cash). That comes to an average wealth of about $9,600 per working American. I another words, on paper, one person--Elon--holds more wealth than 78+ million Americans! 

Wealth inequality is a natural part of society and may even be inevitable...but Elon level of inequality can be both dangerous both socially and financially. Studies show the concentration of wealth today is the highest since the 1920, right before the Great Depression. There are no easy solutions (and that's a whole new post); particularly when society's/civilization's (?) definition of success is so closely intertwined wealth accumulation. So, we all play the game and wait in anticipation for when Elon's net wealth crosses the $1 trillion mark, like casually moving to the next level in the Legend of Zelda. And we may not have to wait long. As Durrot notes--in centi-billionaire speak--Elon is  "roughly one Larry Page away from achieving that milestone." 

NY State of Mind: Mamdani Edition

With just over a day to go before Zohran Mamdani is inaugurated as NYC's first Muslim mayor, CNN's chief data analyst Harry Enten has some good news for the Mayor-elect. First, new polling shows that his net favorability rating among NYC residents has rocketed from +14 in Sep to +38 now! That's the highest for an incoming mayor ever? 

Further, if Republicans were hoping to use him a boogeyman to bring Democrats down statewide...well it seems Donald is the problem not Zohran; Mamdani's net favorability rating statewide is +15 versus -30 for the President. And lastly, all the talk of NYC's vaunted billionaires leaving the city to escape marginal tax increase...seems to be just talk for now. The Kalshi prediction markets (which is basically truth for the billionaire class) has the odds of the city's richest residents decamping to tax-friendly havens at just 21%! In fact, if you believe the old adage "money talks, bullshit walks" then the opposite is already happening with the city's luxury apartment market surging a month after Mamdani's win, including residences on famed Billionaire's Row.

Of course, every politician has their honeymoon period. And these numbers are likely change over the next three months. For now though, it represents a lot of optimism among New Yorkers for a new era of politics and government--where America's most iconic city and its bastion of free market capitalism is run by an Ugadan-Indian-American Democratic Socialist.    

Yes, Chef: Restaurant Economics of The Bear

Running a restaurant is hard. It can be chaotic, stressful, high-pressure work. We know this from watching the hit FX/Hulu series The Bear. It's also a business with very challenging economics. In fact, a poignant adage about the food business is: “Best way to make a small fortune in restaurants? Start with a big one.”

A few years ago, JPMorgan did an analysis on nearly 600,000 small business it lent to, including almost 25,000 restaurants. The median daily cash inflows for restaurants was $968 while median outflow was $957. Those are thin margins; a bad weather day and you could easily slip into the red, needing to dip into your cash balance to keep this going. But the typical small restaurant had a cash buffer of just 16 days (where cash buffer is the number of days of cash outflows a business could pay out of its cash balance were its inflows to stop).

Things have only gotten harder with inflation, even for the type of high-end restaurant that chef Berzatto dreams of turning The Bear into one day. The WSJ recently published a story on 'Why a $500 Steak Dinner Only Yields a Profit of $25' and breaks down where the costs go (as shown below).   

Source: WSJ. (Click to enlarge)

Food and alcohol make up the largest share of costs at 40%. For steakhouses, in particular, which rely on beef to bring in customers, costs have ballooned. Beef is more expensive than ever, rising 60% since the pandemic. The WSJ article provides an example involving the Gibsons Restaurant Group (based in Chicago, where else?). Gibsons currently pays $25 for a 13-ounce NY strip steak and charges customers $70 for it. In 2016, the same steak cost $16. The Group says that to keep the same margins as then, it would need to charge $89 for it today. WSJ notes that a Chicago steakhouse needs to keep cost of ingredients to around 35% of what customers pay and so has to balance out higher beef costs with lower cost items that are more profitable, such as sides, pastas, and deserts. But still, "beef regularly breaks the 35% target. For prime steaks, it is around 50%...one error in the kitchen, and $50 ends up in the trash." 

Labor takes up another 37% of costs followed by overhead at 23%. Labor has become more expensive since the pandemic (but so has the cost of living for those same employees) and fine-dining restaurants need to pay servers and cooks able to handle $100 dishes. So, why do it for a measly 5% profit margin? Because it's a calling...as Ritchie said "the kitchen is where we find our truth." Here, let Will Hunting explain.  

Where's the Beef?

The stock market has been roaring since OpenAI introduced ChatGPT in November 2022. AI-mania has powered the S&P 500 to gains of more than 20% annually over the past three years. But something decidedly less hi-tech has performed even better: beef. The CME Cattle Feeder Index, which tracks the price of steers sold in the U.S., has gained 21.5% annually over the same period. The outperformance is even bigger over 5 years. Business is good for cattle ranchers and livestock speculators! 

Source: CME and Mantabye. (Click to enlarge)

Such gains may not be a surprise to most Americans, who consume a lot of beef (83 lbs per capita per annum). And many don't like it! Newspapers and television have screamed about runaway beefs prices. According to the St. Louis Fed, ground beef prices touched $6.63/lb in August 2025, up from an average of $4.23/lb pre-pandemic. Yes, while the latest 'bull' market in stocks started in late 2022, the literal bull market took off after the pandemic. Per the WSJ, cattlemen are now making a record profit of "more than $700 per animal, up from $2 five years ago."

And it comes down to basic supply and demand. Ranchers across U.S. had started selling off their herd several years ago as chronic drought, costs, and debt pressured the business. Losses peaked during Covid-19 when many meat processors and restaurants shutdown, backing up livestock inventory and driving down cattle prices. While beef demand is strong, many ranchers have held back from increasing the size of their herds. As a result, U.S. cattle inventory totaled ~87 million as of January 1, 2025, the lowest since 1951. Back then, the U.S. population was 153 million; today it's 343 million. You do the math.

Source: WSJ and Agriculture Department. (Click to enlarge)

As shown above (and below), the U.S. cattle industry began herd liquidation in 2019 when inventory reached 95 million head. According to Beef Magazine, liquidating inventories is one phase of the cattle cycle that typically extends for 10-12 years with "expanding and contracting cattle numbers driven by changes in producer profitability and worsened by drought." While strong prices suggest "there are incentives (for ranchers) to begin rebuilding (their stock)...signals for expansion remain muted at this point." The WSJ article noted many ranchers are looking to pay off longstanding debt and upgrade equipment with their profits rather than growing their herd; they are also wary of inflation that makes livestock feed more expensive.

Source: WSJ and Agriculture Department. *Estimates are for January of each year. (Click to enlarge)

Industry analysts are unsure how long this 'bull' market will last, but it appears the livestock trade still has some ways to go. Tyson Foods and JBS, two of the world's largest meat companies, estimate cattle supplies could edge up in 2027 or 2028. Beef Magazine feels "structural constraints, input costs, and financial considerations will likely delay a rapid recovery in beef cow numbers." Moreover, they estimate that the herd rebuild this cycle "will be slower than the last rebuild that began in 2014...(which) is likely to mean relatively tight supplies and support for cattle prices for the next few years." So, the trade for 2026 is to still be bullish on beef!

Good Job, Will Hunting...

Remember back in 1997 when Will Hunting spectacularly schooled a few obnoxious (typical?) Hahvid grad students? Where is that guy now? Last we saw he was driving to Palo Alto, CA to "go see about a girl."

This clip has resurfaced again recently (originally from 2013), showing an older Will, with his teacher mom, schooling a couple of obnoxious (typical?) reports on the devolution of education policy in the post, post, post-revolutionary period. What Will says seems spot on as a survey by We are Teachers found that in the U.S. a "majority of teachers (75%) entered the profession because they love teaching, and only a quarter of those surveyed say they entered the field because of factors like job stability and benefits." 

Professor Lambeau and the MIT faculty would approve, despite past tensions.