Comment by htormey | Hacker News Reader

Comment by htormey | Hacker News Reader

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All this panic about tech layoffs seems a little premature given we haven’t even begun to see the impact of rates hikes on quarterly earnings yet. Many companies still have open recs and budgets to keep hiring.

I work at a company that just laid off 18% of the workforce (Coinbase) including many people in engineering. The day this happened my email, LinkedIn, Twitter inboxes exploded with companies asking me if I knew of anyone looking for a job or if I myself had been impacted.

I reached out to many of my former colleagues who had been impacted to see if they needed help. All had multiple interviews in flight and were not having trouble finding jobs.

Aside from many crypto companies the inbound jobs were from many public and private companies and spanned many industries.

I expect tech layoffs to get worse and the white collar job market to tighten towards the end of this year and 2023.

I expect the main driver for this will be cost reduction at public and private companies in the lead up to earnings or quarterly reports. Main cost for a tech company obviously being labor.

The thing that seems so weird to me about the current state of the economy is that you have lots of "smart people" shouting pretty loudly "A recession is coming! Is going to be bad! We may already be in one!!" I don't remember any recession - not the early 90s recession, not the .com bust, not the Great Recession - having anywhere near so much foreshadowing. Sure, there were people during the .com boom saying "Umm, you know, 'eyeballs' don't pay the bills and at some point you need to actually make money" and during the 00s housing bubble "I'm not even sure lenders are using the 'can you fog a mirror' test anymore when making loans", but it wasn't particularly widespread, and large sections of the economic and policy elite actively downplayed the possibility of recession.

Now though, I see the exact opposite. Tech moguls, central bankers, VCs, etc. etc. have been warning "this is going to be really bad" now for months. But, in actuality, it's not that bad (yet). Yes, inflation is really bad, but unemployment was 3.6% in May. It still feels like many companies are having a very difficult time hiring and keeping workers.

So why the difference? I don't want to go into "conspiracy theory territory", but I do think it's pretty undeniable that there is a marked difference in "warning levels" between the current time and recessions in the past 40 years.

That's because this recession is going to be manufactured. Powell was clear, wages are rising too fast for the feds liking so they are going to crash the ship into the rocks.

https://mronline.org/2022/05/26/u-s-federal-reserve-says-its...

Lol. What a loaded piece-of-shit article.

> According to a transcript of the presser published by the Wall Street Journal, Powell blamed this inflation crisis, which is global, not on the proxy war in Ukraine [1] and Western sanctions on Russia [2], but rather on U.S. workers supposedly making too much money.

[1] https://multipolarista.com/2022/03/24/us-official-ukraine-na... [2] https://multipolarista.com/2022/03/24/us-official-ukraine-na...

This is basically Russian propaganda. The author and founder of that website has a history of sympathetic covarage of authoritarian regimes (https://en.wikipedia.org/wiki/The_Grayzone). It's also funny that these far-left journalists always cite their own previous articles. Powell mentions the war in Ukraine as contributing to inflation, but since he didn't call it a "proxy war" I guess it doesn't count.

> “Employers are having difficulties filling job openings, and wages are rising at the fastest pace in many years,” Powell complained.

LOL. Definitely sounds like a complaint to me. No editorializing here. That's why Powell said this later in the press conference:

> If you think about it, if you look at the last cycle, we had a very, very—longest expansion cycle in our recorded history, and in the last two, three years, you had the benefits of this tight labor market going to people in the lower quartiles and it was—you know, racial wealth and income—not wealth but income gaps were coming down, wage gaps. So it’s a really great thing. We’d all love to get back to that place, but to get back to anything like that place, you need price stability.

https://www.wsj.com/articles/transcript-fed-chief-powells-po...

People are obsessed with real estate prices going up because low interest rates result in full employment which means more people can afford to pay more for a house. The strange part is the argument that raising interest rates is going to somehow make housing more affordable. It doesn't solve the underlying problem of a lack of housing near job centres. An interest rate hike means less employment and that is ultimately what drives house prices down. It doesn't make housing more affordable, there isn't enough housing to begin with and now there won't be any jobs.

If you want to lower home prices you are going to need to stop land speculation and so far public land ownership has been the only way to do that e.g. in Singapore. The alternative is a land value tax.

This orthogonal problem needs orthogonal solutions. Money is about employment and trade, not about housing. Housing is a land allocation problem e.g. zoning.

It’s an old fashioned sports league lock out. Players salaries too high in fed’s opinion. Labor’s cut approaching 60%[1]. I think the owners prefer it at 50% if not lower.

1. https://fred.stlouisfed.org/series/LABSHPUSA156NRUG

Seems like a weird theory considering the history of that graph over the last 70 years. Not really much variation considering how much the US economy has changed.

Let’s review in jan 2022 when this year’s numbers come out. I bet we are close to 65%.

I don’t get it? In the grandparent comment you said the number would be pushed lower. But now you’re claiming it will actually be higher. Or maybe that it just won’t change much?

Fed will want to push it back lower. Due to extremely low unemployment, it has been pushed up. they don’t update it often enough. Will probably show up in Jan 2022, then down in 23 / beyond if recesssion.

I think you're misremembering. The 2001 and 2007 crashes were very widely foretold. The current recession risk concensus seems pretty weak to me right now. That's just perception but the popular joke goes something like "economists have predicted 8 of the last 3 recessions".

The risk of an unexpected recession is much worse than a warning that doesn't come true so warnings are always pessimistic. Risk right now still feels 50/50. The next CPI report after the major Fed action will be watched very closely.

> I think you're misremembering. The 2001 and 2007 crashes were very widely foretold.

Hard disagree, at least by what I said in my comment about what "widely foretold" meant. I mean, the IMDB opening description of The Big Short starts with "When four outsiders saw what the big banks, media and government refused to..." Michael Burry, https://en.wikipedia.org/wiki/Michael_Burry, famously said he wasn't a super genius or anything, and was surprised that so few other folks saw the coming housing collapse like he did.

Again, my point is not that nobody could foresee that the recessions were coming, it's that the institutional "powers that be" - government, large corporations, VCs, etc. - actively downplayed the risk of recession. The exact opposite is happening now.

JP Morgan navigated the 2007 crisis and came out on top. They're saying recession risk is 50/50 and the S&P will end up positive for the year. There were definitely a lot of people in power and especially policy makers who put their own interests ahead of what the data tells them.

Burry is also a shameless self-promoter who has predicted a lot of disasters that haven't happened including WW3 a few years ago. There's like a dozen people who have made careers out of claiming to be the only ones that predicted the 2007 recession. If you keep predicting recessions you're bound to be right. In reality, it's just not possible to predict accurately. Here's Krugman in late 2006 presenting the data and putting the recession risk for 2007 at 2:1

https://www.nytimes.com/2006/12/01/opinion/01krugman.html

Right now there are several indicators flashing and a lot that aren't. Technical data like P/E ratios, volatility, yield curves are great at predicting things that happened in the past but they just can't be relied on as being infallible.

Burry's famous because he placed a bet on a carefully researched observation connected to the sub-prime crisis before it was remotely known, and he was disbelieved.

He might have made other wrong predictions but to gloss over the above fact is a big omission.

There are the economists and there are people with skin in the game, I think there's a big difference if you're a wealth manager versus a NYT editorialist. Incidentally Krugman seems like a proponent for whatever blue tie is in power (https://www.nytimes.com/2022/01/04/opinion/2021-economic-rec...). That's different than placing bets in the tens of millions.

I'm not sure what that link is supposed to prove. 2021 was a pretty great year. Krugman is usually very sanguine about not ascribing credit policy or presidents and he didn't in that article. He doesn't disclose his holdings because he doesn't give investment advice.

And Burry definitely wasn't a rogue genius. Lots of hedge funds bet on the crash. Goldman Sachs was specifically called out for betting heavily on a crash while they were still selling mortgage assets to customers.

2021 was a fake year for growth, that's the point, because we were relying on cheap and plentiful money being subsidized by borrowed time. We'll be paying the press for a long time for the spending and helicopter money that provided demand, while supply was still limited. For Krugman, a monetarist, printing money when there are fewer goods and services in an economy, wasn't registered as a problem. Ah, but he admitted recently that he was wrong in the party line of "transient inflation" (where every private economist outside of academia and the government knew it was not going to be transient and made moves at the end of the 2021).

I'll give a slightly different view. Many of us who lived through the early 90s, the dot com bubble, and the great recession are worried about this because recessions happen pretty frequently (every 4-6 years). However, the last big downturn for the US was 2009.

While there was the Covid downturn, in general, the economy has been on the upswing for 12 years. The US Federal Reserve has appeared to manipulate that due to the Great Recession.

So, many of us are worried that roosters are coming home to roost.

That doesn't mean it will happen, but our fear is mean-reversion.

>So, many of us are worried that roosters are coming home to roost.

According to Keynes a recession only happens when the interest rate on financial capital exceeds the maximum yield of physical capital. That implies that if the interest rate is set properly, then you would expect economic recessions to never happen. Economic cycles are equivalent to oscillations in control theory and those are usually a sign that you are doing something wrong.

The expectation that when things are too good then something bad must eventually happen is completely misguided and can at best be explained by having a medium of exchange that is incapable of conducting in some transactions that humans would like to engage in and are currently engaging in.

Barter is unable to represent a lot of useful transactions. Money without credit is unable to represent a lot of useful transactions. Money with credit is unable to represent a lot of transactions. The next stage is money with credit and inflation is able to represent more transactions than without inflation and so on.

This means that if anyone tells you to go back and adopt a system that allows less transactions they mistakenly believe that the transactions you have conducted are somehow sinful/immoral or simply shouldn't happen and hence adopting their system will require undoing a lot of transactions which they consider akin to divine punishment for going against the laws of their preferred money system.

It is particularly common with Austrian economists who insist on going back to gold currency. However, because gold is unable to conduct a lot of transactions that we today take for granted, all the growth that happened because we abandoned gold shouldn't have happened according to them and we must now pay for going against the gold standard.

It is complete nonsense. If demurrage currency sits at the apex of representing the most transactions then it is entirely plausible that this economic cycle and crisis crap was pointless and inefficient nonsense to begin with and that booms and busts should only ever occur due to the real business cycle theory which as it stands only explains a subset of all recessions and not most of them because it is about external economic shocks in e.g. oil and gas prices for example.

The expectation is that interest rates will be increased to reduce inflation however this increase will also be expected to cause a recession. The hope would be that this recession would be smaller than the later recession that might be expected later from the high inflation. The theory was the same in the ’70s between Carter and Reagan. This time around, some think that raising rates won’t work in the same way to curb inflation due to differing theories about its cause. Needless to say, these things are hard to predict.

People knew there were dotcom stock bubbles (dotcom bubble) and real estate bubbles (GFC). People knew during the gas crisis that the supply shock sent inflation skyrocketing (70s). People knew that wildcat banking would cause insolvency and runs (tons of recessions and panics in the 19th century), people knew that unrestricted lending would cause the mother of all long squeezes (Great Depression).

In this case people knew that overly dovish monetary and fiscal policy would overstimulate demand. That leads to inflation, and the Fed’s job is to balance inflation with employment, and since the unemployment rates they look at very low, that means it’s time for them to raise rates to curb inflation by reducing aggregate demand. This has a knock-on effect of cooling asset prices since credit becomes more expensive and harder to get, so the market deleverages.

One difference is that expectations are set but interest rates/the money “printed” due to overly dovish policy are still in the process of being changed. So stocks are sold off and people are planning for a recession, but layoffs and the actual economic cooling haven’t happened yet.

It’s entirely possible that the fed is able to cool inflation easily (it could also resolve itself if Russia stops fighting or China stops trying to do zero-COVID) without that much of a recession, but raising rates lowers demand, so since rates may go much higher than they are, a recession is likely. In terms of assets, rising rates and subsequent recession involving lowered rates are already priced in

I've had 3 folks respond now that "hey, people knew these bubbles were coming", so apologies that my original point wasn't clear.

I wholeheartedly agree that some people saw the crashes coming, and honestly, I don't even think they were that hard to spot. I'm a pretty big fan of Jeremy Grantham, who considers himself a "bubble historian", who points out that while the timing of when bubbles pop is almost impossible to determine, the fact that one sector is in a bubble is not.

But that said, my point is that the institutional powers that be were very quiet, or in many cases actively argued against the possibility of a recession, in both the .com and Great Recession cases. In the present day the exact opposite appears to be happening. The seats of institutional power (central bankers, execs of large corporations, rich VCs, etc.) have been talking about the sky falling for a while now. That is what is really different.

> I don't remember any recession having anywhere near so much foreshadowing.

The 2008 downturn had tons of warnings, everyone I knew who had any visibility into product shipping and future orders was talking about the big slowdown in orders, across all kinds of industries.

Yeah it was the tail end of a boom in Ireland, and I remember being in a hotel during the week and every conference was public sector, zero private companies. That's when I knew things were gonna be bad.

Republicans want a recession so they can blame the Biden administration. Pretty simple.

Republicans wish they had that much power. The US isn't the center of the world

> All this panic about tech layoffs seems a little premature given we haven’t even begun to see the impact of rates hikes on quarterly earnings yet. Many companies still have open recs and budgets to keep hiring.

I think that's the main point. Tech is going nowhere, it's crucial for the future for most countries around the globe.

Didn’t Coinbase cut its marketing budget? Advertising companies are going to feel that trend immediately, even if the quarterly numbers aren’t out yet.

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