Lyft to lay off about 700 employees in second round of job cuts
wsj.com
wsj.com
Remember, the big tech cos also increased their work force sizes dramatically during COVID, so a more aggressive reduction push is understandable.
The term was coined during the Obama era[0] and I've seen it shopped around by a few US dev shops recently. It's also called "near shoring" or "rural outsourcing."
[0]: https://obamawhitehouse.archives.gov/blog/2012/01/11/everyth...
Which is great, IMO. It's time we opened the doors to more talented developers across the country rather than requiring everyone to move to a few big cities to get the best jobs.
Yes, compensation will come down relative to those big cities, but it will still be coming up for those devs outside of major metro areas (otherwise they wouldn't be taking the jobs, obviously)
During Covid freshly printed money was raining from the sky fort big tech. Not so much now.
Now we're just seeing the good companies slimming down and bad ones failing.
This went on so long and with such fury that employees, candidates, and CS students began to view the orgy of overspending as the new normal.
Now a normalization of economic conditions throws the entire thing into reverse. Too many fresh-faced candidates showing up with resume in hand, too many workers on payrolls doing little to nothing for wages 3-10x what they should be, too little revenue to continue business as usual, and a stock market that pulled the rug out from public companies using shares as a form of self-printed currency.
By 2024, the steady drip of fresh CS graduates is going to turn into a flood.
An entire generation of teenagers saw the tech boom, the crypto boom, and the SPAC/IPO mani. Its going to color college major choices for years.
In short: downward pressure on programmer wages.
Entry level programmers maybe - lets see how many can actually stick around past first midterm
Even before the smartphone revolution brought computing to global masses of all income levels, most users were not makers.
https://thehill.com/policy/3658981-why-the-fed-is-pushing-un...
Not that interesting. With the Senate split 50/50 it only took one Democrat to kill that effort.
The way I see it (cynical take) is that there has been a push to get lots of people in this field just to have a bigger pool of workers and lower SWE/Dev Salaries. Heck, small companies can't compete on salary + benefits when trying to pouch SWEs/Devs. For these companies, this scenario will be a God send since they could offer lower salaries (45k ~ 70k) but with the added value of WFH. My prediction: We'll see everything ramping up again in 2024 (Prob. Q1). On the other side, tech companies will start lowering salaries, taking advantage of the uncertainty. Basically win-win for companies.
The market for the kinds of developers that command ~$350-500k is still incredibly tight. There's a reason that even though Stripe is reducing headcount by 14% engineers are mostly unaffected.
In the big picture, FAANG salaries are outliers. Boom and bust cycles come and go, and when it is booming again - circumstances can have changed.
I worked with people in oil and gas that never came back, probably making only 25%-50% of what did they did during their best years.
Finance, too. Lots of young bankers were forced out back in 08-09, and never returned.
(With that said, tech is a bit more flexible on hiring, and I don’t think a 350k engineer will have to take a 300k pay cut, finding a “normal” ~100k engineering job is very possible. Or even another FAANG job if you’re willing to keep going at it. Could take weeks, months, even years - depending on how bad the market is)
No, he didn’t [1].
He justified a rate rise in a faltering economy by pointing to the labor market’s strength. Were the labor market weaker we’d be in stagflation and monetary policy would have no room to manoeuvre.
[1] https://www.federalreserve.gov/mediacenter/files/FOMCprescon...
> The labor market continues to be out of balance, with demand for workers substantially exceeding the supply of available workers. The labor force participation rate showed a welcome uptick in August but is little changed since the beginning of the year. FOMC participants expect supply and demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages and prices. The median projection in the SEP for the unemployment rate rises to 4.4 percent at the end of next year, ½ percentage point higher than in the June projections
> We’re never going to say that there are too many people working, but the real point is this: Inflation—what we hear from people when we meet with them is that they really are suffering from inflation. And if we want to set ourselves up, really light the way to another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.
That is why the market goes down when low unemployment numbers are released. Powell will continue to raise rates until the labor market cools. He's not using the labor market to determine whether or not the economy can handle more rate increases. He's absolutely determined to increase unemployment via rate hikes.
He has not. I am open to being corrected with a credible source. But every time I see this conspiracy theory, it’s based on summaries of Fed statements unsupported by the statements themselves.
> is why the market goes down when low unemployment numbers are released
Because the market is anticipating rate hikes. When inflation is low strong employment boosts the market. We just went through a decade of that.
https://www.federalreserve.gov/mediacenter/files/FOMCprescon...
He goes on to say that supply and demand for workers needs to be brought into balance. The goal of raising interest rates is to reduce demand for labor. He says that directly. This isn't a conspiracy theory.
None of your quotes say that.
> The labor market continues to be out of balance, with demand for workers substantially exceeding the supply of available workers. The labor force participation rate showed a welcome uptick in August but is little changed since the beginning of the year. FOMC participants expect supply and demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages and prices. The median projection in the SEP for the unemployment rate rises to 4.4 percent at the end of next year, ½ percentage point higher than in the June projections
He's expecting the act of raising interest rates to increase unemployment to 4.4%. He's doing this to bring balance to supply and demand for labor, to ease upward pressure on prices.
He is also asked directly when he will know when to stop:
> So I will answer—I will answer your question directly, but I want to start here today by saying that my main message has not changed at all since Jackson Hole. The FOMC is strongly resolved to bring inflation down to 2 percent, and we will keep at it until the job is done. So the way we’re thinking about this is, the overarching focus of the Committee is getting inflation back down to 2 percent. To accomplish that, we think we’ll need to do two things, in particular: to achieve a period of growth below trend; and also some softening in labor market conditions to foster a better balance between demand and supply in the labor market.
He directly says he's waiting to see softening of the labor market before stopping the rate hikes.
> He directly says he's waiting to see softening of the labor market before stopping the rate hikes
Yes, because we don’t want to ruin the labor market. Right now, rates can be raised without spiking unemployment. The Fed is trying to estimate when that stops happening.
A clear signal that the limit has been reached is the labor market actually softening. That doesn’t mean the Fed is trying to raise unemployment. It’s trying to lower inflation, and thinks unemployment may rise as a result of that, though to date it has not.
> So I will answer—I will answer your question directly, but I want to start here today by saying that my main message has not changed at all since Jackson Hole. The FOMC is strongly resolved to bring inflation down to 2 percent, and we will keep at it until the job is done. So the way we’re thinking about this is, the overarching focus of the Committee is getting inflation back down to 2 percent. To accomplish that, we think we’ll need to do two things, in particular: to achieve a period of growth below trend; and also some softening in labor market conditions to foster a better balance between demand and supply in the labor market.
Powell says (paraphrasing slightly): "In order to get inflation under 2%, we need to do two things. 1. achieve a period of low growth, and 2. soften the labor market." Low growth and higher unemployment aren't simply side-effects of Powell's policy. These two things are explicitly stated goals.
Let's say I have a goal of running a marathon, so I decide to start jogging every day. Is my daily jogging a side-effect of my goal to run a marathon? I wouldn't say so. Rather, jogging every day is an explicit course I've set out on with the hopes of achieving my main goal. Daily jogging is a sub-goal of the main goal, if you will. This logic can be applied to the Fed. The main goal is to lower inflation, and the chosen course of action (i.e. the sub goals) are to lower economic growth and to increase unemployment.
A side-effect would be something akin to knee pain. I can't jog without hurting my knees, but having pain in my knees isn't something I explicitly set out to do.
A side-effect of Fed policy would be something like the gilt crises in the UK. Higher US rates increase yields on UK bonds indirectly. But that isn't something the Fed is actively setting out to do.
You can't run a marathon without your daily jogs. Inflation can be lowered without spiking unemployment. It's unlikely. Hence the Fed's messaging. But until recently the Fed forecasted a soft landing, i.e. growth and low unemployment amidst rising rates and falling inflation.
Better analogy: engine temperature. You're driving and keeping an eye on the thermometer. You see the temperature is low and so feel comfortable accelerating. The goal is getting to your destination faster. The low temperature lets you accelerate, which in turn raises the temperature. But raising the engine temperature wasn't the point. It reverses cause and effect to say your goal was to raise engine temperature. It wasn't. Engine temperature was simply a limiting factor you were paying attention to.
The relationship is sufficiently complex to permit e.g. falling unemployment, falling (not negative) wage growth, falling (including negative) growth and falling inflation. It's not a deterministic system.
> in a sense increase combustion is a goal
No, it's not, because the goal--reaching the destination quickly--would be accomplished equally well in an electric car with no combustion. That's the difference between a goal and an effect.
I think you’re falling for the no true Scotsman fallacy. We started this conversation talking about whether or not the Fed’s goal is higher unemployment. I presented an argument, in the Fed’s own words, that they plan on lowering inflation by weakening the labor pool. And your response is “that’s not really a goal.” I disagree and, and I don’t see a productive way forward for this conversation. At the very least, you should accept that this is a valid interpretation of the Fed’s own words, and not just some conspiracy theory being peddled.
I’ll admit that was a poorly-worded statement. But it still doesn’t convey the Fed targeting a higher unemployment rate. It isn’t. It’s targeting lower price growth, and keeping an eye on the labor market to avoid overtightening.
> He's absolutely determined to increase unemployment via rate hikes.
Something something the measure becomes the means or something.
well you can also commit fiscal suicide like the recent has-been-a-PM of UK showed, but in that case the economy runs you quite explicitly.
This is entirely different from "complaining that the labor market is too tight." The Fed has nothing against a tight labor market so long as we don't have high inflation. Imagine you're a doctor and you're telling your patient that you're going to administer chemotherapy to a child until either the cancer goes away or they get too sick. Then you see protestors trying to convince laymen that you're complaining that a child is experiencing too much cell growth. That's exactly what GP is doing.
No, he has said nominal wage growth is driving inflation. Wages and unemployment are related but not the same thing.
"Excuse me, sir. The council is worried about the economy heating up. They wondered if it'd be possible to fire 500000. Maybe from one of the smaller companies where no one would notice..."
"Fire one million".
The labor market isn’t being targeted. We have had tight labor markets with low inflation before. The Fed doesn’t spike them for the sake of it.
What’s targeted for reduction is inflation. Labor market tightness permits the Fed to respond to it, which is why it’s constantly talked about. If you are on a road trip and decide you can take a detour because you have ample gas, it wouldn’t be correct to say you took the detour to burn gas.
Lower wages in tech, higher unemployment.
I hope my colleagues aren't reading this and looking at me.
Not entirely true, but I think most people can (if they're being honest) get 70% or more correct when guessing who will be laid off.
The only wildcard usually is when entire teams are let go, and sometimes those are predictable, sometimes surprising.
What happens when it's the managers themselves who are useless, overpaid, and can't evaluate the team for actual efficacy?
Honestly its funny reading threads like this with people beating their chest about useless coworkers. Instead of thinking of useless coworkers and colleagues, think about what percent of the entire industry that's working on things with no hard output, no interest in profitability, banking on free money that's drying up...
If you're working somewhere with so many incompetent colleagues you think 13% layoffs is not trimming anyone useful, odds are your entire unit is in trouble.
I feel there's a lot of this in crypto, where you have absolutely amazing developers doing amazing code for no point.
Unfortunately the useless and overpaid managers are often the best at brown nosing.
My problem is that I have an almost crippling sense of impostor syndrome and I undervalue my contributions constantly. I don't feel entirely useless, but I do feel like an under-performer - despite probably being an average developer in my cohort.
I bet the people who hired them get to keep their jobs despite failing to a) hire useful people or b) competent people that can work on useful projects and c) burning cash while d) not turning a profit because e) they are just a gambling mechanism for investors.
I suppose you could make the argument companies are both over-working their employees and over-hiring if you're willing to concede these companies are poorly managed... which I think has a kernel of truth to it.
If 10-20% of the employees in an org pretty much stop working completely, then it's pretty natural that the remaining 80-90% are going to feel overworked making up the slack. Also explains why companies are laying off the dead weight resuming hiring almost immediately (like Tesla).
Anyway, I would say if the Quiet Quitting hypothesis is true it definitely points to a business management failure. If an employee joined your organization highly motivated and a year later feels like going above and beyond is not worth it you did something wrong.
So you've also worked at Google?
Office Space came out in 1999 so this isn't anything new.
That's my only real motivation is not to be hassled, that and the fear of losing my job. But you know, Bob, that will only make someone work just hard enough not to get fired.
My current team has 6 people. 3 are delivering at normal levels, but the other 3 complete one task per week at most. And those are tasks that take a couple of hours at most. This is happening everywhere, and is a clear consequence of overhiring.
To me, it seems quite evident, they need to reduce the spending for any reason, so they reduce the workforce. Nothing to do with useless employees. You can be shit at your job or very good, they will have a metric threshold telling them you need to go. Same at Twitter, Meta, Google, whatever.
Stop putting that on the employee who spent 3 months to get a job just to be told they wasn't useful. That's 'bad' managing all the way down, nothing to do with the employee, at all.
Maybe they fired some after and evaluation process, and than number came out to be 13%. Or maybe they laid of department X and that department just happened to be 13% of the company.
Why are you so sure the 13% was the starting place of all their thought process?
But saying it has nothing to do with employee is also not correct. If someone is signing up for a company that does not manage its finance sustainably, they should expect this. And company would only overpay if they aren't focusing on cost at that moment. So for all the folks who managed to double their CTC in COVID period should be prepared for this case.
He took a VHS camcorder in one day, and recorded the guy flipping a piece of metal over on a table a couple times, then moving the piece of metal to a new table. Repeating this over and over throughout a 10/12 hour day.
It is just that, he never produced anything. I worked with him twice. They moved him between teams and both times he got absurd amount of benefit of doubt (one of the companies was firing people quickly, but not him). Anyway based on what I heard, he did nothing whole his career.
But like, he was definitely not a norm.
If your business model wasn’t profitable enough to handle all your engineers having over 250k tc it’s been a bit of a difficult market to hire and retain people in the past few years
The costs to explore a startup are pretty low these days. You can live anywhere (move somewhere with relative low COL), you can develop just about anything cheaply (open source, plus easy frameworks). You can work with like-minded people all over the world easily (remote work for '20-'21 made big inroads in that department).
And we may suddenly have a few tens of thousands of talented developers looking for work- maybe they'll make a startup, or maybe they'll join one where they get paid mostly in equity.
Interest rates are high, which means that investors into startups will want a bigger cut, but still have their money that they want to invest.
Overall, it sounds to me like a great time to be investing in startups.
Yup, most people who lost their jobs and are wondering how to feed their families will definitely pick to to not be paid for even longer...
I suspect a lot of underqualified people were able to get jobs at high salary in the past 1 year.
I know this has caused grief and concerns for more tenured employees doing the same job (and better)
People who actually get work done will be fine
If the Department of Defense & Amazon & Walmart start laying off 10-20% of staff - that would mean something. All of these tech layoffs don't even represent 1% of tech jobs so far. Let alone anything meaningful for the overall US economy.
I think once the layoffs started companies began to follow suit. There's a serious herd mentality that's hard to avoid.
On the other hand, big companies do this all the time and get a little bad press and then move on with their lives.
It’s funny how people on a technology forum discount other normal humans also using technology
I mean Musk’s Twitter texts just revealed they do exactly that.
With all the massive scaleups, companies were becoming bloated as hell. They also became fairly sloppy with their money.
Time to pay the piper.
But unlike some bubbles, there's a real industry, here (like in the 'oughts). It's a return to a [still pretty decent] baseline, as opposed to an implosion to nothing.
In the early Web days, the money started to become silly, and people were thronging to the industry, despite having no qualifications, and no passion for the tech. They just wanted money.
Basically, they were expensive, and they sucked (sound familiar?). Most were Web developers, or around the process of creating and maintaining Web presence.
Also, some people were very, very good, and some marvelous tools came of it.
This is like the Late Devonian extinction. The table needed to be cleared off, to give rise to the new.
The company that I worked for, had survived being fire-bombed during the war, a major depression, and multiple recessions. They were absolute tightwads.
At one point, they started making a whole lot of money, and got silly.
Piper, meet company.
They have basically contracted back to what they were. Everyone is writing them off, but I'll bet they come out of the scrum, OK.
Same with the tech industry.
Cause this "crash" is surely like that – it has to be the most "expected and talked about" one in modern times...
The crisis with the housing criss wasn't that housing collapsed, it's that the world economy went along with it.
TV is TV, but that was genuinely happening. The market was just completely broken.
I was young(ish) at the time, but I imagine some knew housing wasn't sustainable. I'm not sure there were many outside the stars of The Big Short quite knew how vulnerable the entire banking system was because of housing before it all came down.
2008 crash was different. Literally everyone was over-leveraged and swimming debt.
This feels more like the 2001 crash coming than the 2008 crash. Most of the economy will trundle along while those running on VC money will fade away.
Offers were withdrawn, tons of companies went under, even the big firms like Cisco had massive layoffs.
The dot-com crash was in the Spring of 2000.
I was c/o 2003. There was a lot of slack in the entry-level pipeline as companies were recovering but didn't need to seek new graduates because there was a 3 year backlog.
This one is more of a general "Hey this market is too high", but nothing as concrete that's completely out of whack imo.
I feel like the elephant in the room here is crypto? There was some frothiness between 2009 and now, particularly around businesses with intensely negative unit economics (see: Uber, WeWork) and their sustainability. A lot of the prognostications around a crash then was specifically skepticism about these companies commanding sky-high valuations without line of sight to profitability, but at least there was some fundamental value there.
Then we started going even frothier and abandoning even the pretense of fundamentals with the crypto and NFT fad. That was a lot harder of a bubble to keep going.
My read is that the crypto bubble burst (as it very well had to) and it (along with rate hikes) triggered a general re-evaluation of tech that included all of the perennially unprofitable companies, and taking them down several pegs.
Unclear where we go from here - but IMO the skeptics from 2009 were right on their merits (even if spectacularly off on the timing), and it took an even dumber, even bigger bubble built on top of it to cause the industry to fall over.
[1] The market can stay irrational longer than you can stay solvent.
Kozmo was the GOAT in the dead pool.
Blows my mind that Kozma's failed business model is back and bigger than ever, but with the same fundamental profitability problems.
The idea was fine but they didn’t understand they were in a low-margin industry. That pattern showed up a lot, especially where things like shipping were key chokepoints. Cement.com memorably failed but you can easily order building supplies in many places because the real value is proximity and there wasn’t a high-margin business as a middleman.
Maybe someone will try and fail again in 10 or 15 years.
1. What did it feel like day to day as a person working in the industry during that time, and did it differ from the "bubble" period prior or more "normal" period immediately following?
2. How long after the bottom before the recovery felt "real" to you, and did you see companies / people change their behavior?
1. It felt like a nuclear winter for tech jobs between 2000/2001 and 2004/2005. Jobs were available but it was way more competitive to get them and you were a lot less likely to get that dream job. You either settled for a crappier job or you changed directions. Many younger people just went back to school (get the master, law degree, etc.) as an alternative.
It felt like the party was over. All the great company perks disappeared. Traffic on freeways disappeared. The mood was very flat. It wasn't sexy being in tech like it is today. Nowadays people just talk about TC or stock. That kind of talk disappears.
2. Like I mentioned above, it was about a 3-5 year period. Again, not all situations are the same. But whenever you have large macroeconomic problems, they take time to sort out. It also depends on how quickly the downside factors resolve themselves. The longer it takes to solve those, the longer a recovery is dragged out.
It also depends on what the growth engine is for pulling things back up. Back then, there was a resurgence in internet business starting around 2005 when "web 2.0" got popular and many new businesses came on the scene. This includes social networking, ecommerce, web publishing.
My company made imaging peripherals, and were very conservative, so they weren't on a bandwagon. Our jobs were OK.
I feel like the .com crash was pretty telegraphed. People who could spell "HTTP" were being hired as Chief In Charge Of Everything Web Gods, and they were spending company money like candy.
It cleared the way for companies like Google and MySpace (which met its end, not long after).
My company got fat on consumer cameras, which were destroyed in about 2010, after the smartphone revolution started to really get going. The next seven years were kind of a mad scramble for market share, while the managers kept doing everything but admitting that they really screwed the pooch, by not anticipating the rise of cellphone cameras.
Come to think of it, there is a lot of that "Nobody saw it coming" language, here, as well.
I am very fiscally conservative, and my indicator of a coming reckoning, was watching all the Scrooge McDucks, diving into their piles of money. That doesn't end well (see: 1929).
In early 2000 within a few months the traffic on 680 south over the Sunol Grade(main road to the SV from points NE) went from dead stopped at 4:30am, to no traffic at all at 7:30am. It was breathtaking.
I managed to hole up in a consulting gig in manufacturing. We had our rates shaved 20% and felt lucky. Everyone who had left for greener pastures called up looking for work over the next year. I mean everyone. It was sad.
As described above, there were no jobs to had.
I recall a new building put up around the 580/680 interchange. I used it as my canary, when it was occupied I would call the recovery happening. It was empty from 2000-2003.
2008 was bad for other sectors, tech had issues, but nothing like 2000.
What's going on now isn't the same. There are specific pullbacks. Twitter is about the Elon buyout. In other places there is money. And in my manufacturing universe I'm having trouble finding people.
I did get pretty good at Web stuff, but as a volunteer side gig. I've actually been designing Web sites since the mid-'90s, but I never made it a full-time vocation.
2. I think it was about five years, before the next bubble began to form, as Google started getting big. 2007, was when smartphones showed up (the iPhone). That changed everything, but it took a few years, to really become ubiquitous.
Layoffs leading to more layoffs leading to the entire economy slowing down ?
If you see cloudy skies, and the weather reports suggest "maybe hurricane, maybe not", and your neighbors are boarding up their windows, you might be driven to action as well.
So, internal numbers are probably showing a downwards trend too, if so many companies are laying off workers.
Both the bubble and the crash are almost purely psychological. It's greed and fear coming in waves. There can be technical fundamentals, but to take the example of Bitcoin, you don't need any technical fundamentals. Humans can create and destroy value on top of a very complex random number generator.
Or 1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down.
I think this is just a self-fulfilling prophecy where business leaders convinced themselves a slowdown is coming, causing them to take actions that will result in a slowdown. A lot of what happens at the CxO level is looking around at your peer companies and imitating what they are doing.
Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. If the housing and stock markets didn't undergo catharsis every so often, new/beginning investors wouldn't be able to buy in.
The signs are usually telegraphed well in advance, but not by collusion or intent. A self-organizing conspiracy of sorts. It could be interpreted as "herd mentality" but I think that oversimplifies what's really going on, and why.
I wouldn’t call this a conspiracy theory at all. The founder of Bridgewater Associates, the largest hedge fund in the world, spent time and money to publish this idea in various forms. I learned about it from here:
There’s more to this idea—-the long term debt cycle—-but the premise is exactly what you stated. There are benefits to both the boom and bust phases of the economy.
I'm not saying I know that's what's happening. But I wouldn't be surprised.
As for high flying tech (cloud, etc) - yeah, probably too much speculation there.
Powell has been saying for months he wants people to save and pull cash out of the economy.
This is intentional because DC decided tech workers were undermining Washingtons of course most correct and immutable control over agency.
Why if all these people kept earning and could acquire more assets and live comfortable, politicians and uber rich would have no place in our society.
The fundamentals must be maintained. Fundamentals being we serve their goals, not the other way around.
If you want to go on a specific tangent involving dead men’s philosophy, be my guest. I was merely attempting to illustrate how apt the bank run analogy is.
Stocks are not the economy.
We literally have a cold war with China escalating, a hot war in Europe (which we aren't directly involved in..yet), all after years of loose monetary and fiscal policy, inflation is at generation highs, with rates rising and housing relating prices crashing, and on and on...
Maybe HN needs some more serious economic analyses posted if people think all of this is caused by a 15% fall in SPX.
1. Hype around new technologies is sometimes warranted. Electrification, for example. It wasn't clear how long it would take for these weird new internet companies to really start turning a buck, but after a few years spreadsheet parameters were updated and the whole financial industry saw the writing on the wall for most web companies.
2. Many profitable and completely unfunded web companies primarily received their funding from other web companies that were. This set off a cascading reaction of bankruptcies and massive layoffs. Advertisers, publishers, tool makers, and many others were in this second category of legit business that lost the vast majority of their customers.
One of the downsides of an inflating currency is that there is a general feeling of "well I have to invest my money somewhere!" that is hard to overcome and leads to bubbles until the sky starts falling, so I agree with you that psychology is a factor; but the fundamentals still dominate in the medium to long term.
...also HN today kind of looking like fuckedcompany[1] back in those days.
My take away is that we may have a mild recession, but the likelihood of a massive recession is a lot higher than it has been in decades.
Which companies go bankrupt now?
Then, it was because {value} = {idea} + {Internet}.
Except nobody knew how much value the {Internet} part added, because the Internet wasn't done solidifying in terms of capability (e.g. "AJAX? What's that?") or connectivity (PocketPC!).
Now, the Internet is a pretty well-known quantity.
So while Uber and Lyft and Masayoshi Son's portfolio might be massively overvaluing things, the fundamental nature is well understood.
Some stupid companies will die, but there are lots of companies making actual money doing actually useful things.
And the primary casualties of the dot-com bust are all so consolidated that the tools-impact will likely be lesser too. Amazon/MS/Google aren't going to go bankrupt over softer cloud demand.
So I don't see it as mass hysteria but instead. "We need to cut costs by 10% to avoid hitting the downward spiral of taking out loans".
More like a long overdue correction in tech.
Some of these businesses have been around for nearly 15 years and haven’t had a single year of consistent profits. It was about time that markets humbled them.
Every downturn is like all the others and every downturn is a unique snowflake.
Conversely, the government could raise taxes across the board to control demand and trickle that money back to individuals over time, but it is political suicide.
We're waking up from a a long night of heavy drinking (free money via zero interest rate, unrestrained QE, etc.), the bill is due and you're plugging your ears and yelling that the party must go on.
https://www.cnbc.com/2018/10/24/interest-rates-trump-attacks...
We deserve the world we have.
Was it not mass hysteria when FB, a company that everyone openly hates and who's main product is clearly dying was hiring by the thousands so they could "expand"?
High inflation → need to reduce demand → slower economy → layoffs.
There is a cascading effect, but it would be a mistake to attribute it all to a big psychological mistake. When demand goes down (in this case due to rising rates) there really is less money flowing into companies.
(it's not a bubble but housing might finally drop in price now that mortgages are so expensive)
Most companies are already making a shit ton of money. Firing people won't keep their stock prices from going down if a recession actually hits. It's moot.
Especially a company like Lyft that is likely losing money many months. I don’t know about today, but Uber and Lyft were famous for using venture capital to spend more than they took in every month. Eventually they run out of cash reserves, or they decide they can’t acquire more.
Would you rather own a more or less profitable company?
Ironically, you can generally have your financial house in order as a country or be globally manufacturing-competitive, but not both*.
* Exceptions Germany, Japan, et al., but as you go up the value chain you gain enough profit leeway to paper over the general rule.
Other countries figure it out. America cannot. Therefore, it's not possible. America!
For example, Japan's economy definitely is not feeling good at the moment, even if some particular metrics are performing at a top tier.
https://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS?end=2...
https://www.washingtonpost.com/news/worldviews/wp/2015/02/19...
As someone who has only taken Econ 101 in college, can you explain
1) why the demand shrinks when there's not enough new investments? Shouldn't demand at least be the same overall (I mean I can see that fewer new houses are built, so the demand for timber might shrink. But that only explains the housing sector. I'd imagine the demand might stay constant for some industry such as transportation)?
2) Related to #2, if demand does not shrink by much, shouldn't the same number of workers be kept employed to fulfill the demand for goods?
If it's true that the contraction of new investments causes shrinkage of demand, it means the economy is heavily reliant on industries/sectors which relies on new investments (aka growth)?
Thank you in advance for elaborating your answer!
It’s worth keeping in mind that money spent on new buildings and machines goes to wages of employees building them, which then goes to rents and food, and elsewhere throughout the economy.
For 2, yes and no. A lot of workers are employed doing things with low or speculative marginal ROI (example: Coca Cola starts funding R&D into a new line of beverages) because the cost of capital (taking a loan against cash flow or spending earnings on reinvestment instead of returning it to shareholders) is low. Increasing interest rates increases the cost of capital, the risk feee opportunity cost of spending money on more speculative pursuits like R&D. So now Coca Cola might instead choose to return that money to shareholders or not take out financing to start operations like that
The way I understand it: when interest rates increase, the ROI for any investment goes down, which makes many new investments risky or worthless. Thus investments in new projects go down, which reduces the demand. The investment could be a new shop, raw materials for new buildings, software projects, etc. When it's said the "demand" decreases, its not the want that goes away but the ability of people to realize the want that goes away.
> if demand does not shrink by much, shouldn't the same number of workers be kept employed to fulfill the demand for goods?
Depends. If the cost of doing business rises, the profit decreases. To maintain value, there could be a decrease in headcount increase or layoffs.
> it means the economy is heavily reliant on industries/sectors which relies on new investments (aka growth)
I think (and someone who is more aware can correct me), it boils down to the ROI. Why would any business investment in something with risk when the ROI doesn't make it worth it. If the risk-free interest rate 5%, any investment with a ROI of say 7% or below (higher for riskier investments) are out of the question. Any entity could make money by saving at the risk free rate.
Regarding your #2:
Companies cannot adjust headcount in real-time. Economics is a 'social science' as a result; you cannot create experiments in controlled environments with randomly selected populations like you can with the natural sciences. Experiments of this kind happen do happen, but for small-scale things like behavioural finance among neighborhoods, rather than between billion-dollar companies.
Layoffs are a human decision. As such, the logic behind them, and the timing of them, can't fully be explained by economic theory.
One reason why workers are sacked even when demand remains the same, can simply be because there is a surplus of labour available at that time, and the company is betting that they can fire them and rehire at lower wages.
Another reason is simply 'fitting in' with what everyone else is doing to meet Wall St expectations (or VC expectations). Look at the job cuts today: Stripe 14%, Lyft 13%, Mollie 15%. Why are they all the same? Because they are all in the 'tech' industry and valued by the same set of metrics.
for example, you might buy 2x the material and labor you need for today's demand, because you need them to meet tomorrows higher demand.
For example, my last 3 product jobs have been a business travel offering, an HR learning management tool, and a Predictive analytics tool for data scientists working in marketing. A lot of the users who paid the bills were some form of tech worker that were executing on projects that were future investments.
Investors have been handed a truly mind-boggling amount of cash since 2008, but there hasn't been a lot of stimulus to the actual day-to-day economy. Valuations had to go up to accommodate this cash, and without a corresponding increase in consumer spending there's really only one lever in the financial model that drastically impacts valuation without seriously changing the core business: year-on-year growth.
Most growth stories are laughably improbable, and the investors need plausibility to play the game. Fundraising turned into a story-telling competition of who could spin the most plausible growth story that is hard to verify and hasn't been disproved. That story is some form of "we will completely dominate market X, by building software that enables hyper-scaling with minimal unit costs, and that also includes AI/ML/Optimization (to be developed) that solves the inherently hard problems in this industry."
That story is used for both VC-style external fundraising and internal project pitches, and it has crowded out most other approaches. A side-effect of that story has been a massive bubble in the jobs that can deliver on it - software engineers, designers, data scientists, product managers, etc. The game at most firms has been to keep kicking the outcomes down the road and claim that the hockey stick growth is right around the corner.
That worked until interest rates went up and far-future cash became much less valuable. The CFO and the Fund now need to show results in the very near term, and the knives are being sharpened for departments and companies who can't deliver on that. Those departments and companies remove demand when they fold, and there isn't a clear immediate activity that returns quick cash to replace them.
When interest rates were held low, the planning horizon was very long and we got a huge expansion in future-looking projects. Now that horizon is shrinking and disproportionately impacting the jobs that are associated with future investments rather than ongoing operations.
If you think of a company’s market capitalization as a rough measure of its future cash flows, that valuation is gonna be a lot higher when those future cash flows don’t have to fight much future interest.
Higher future valuations means it’s worth paying more NOW to capture a slice of that valuation.
No one really leads with a low-level analyst's DCF model in real life, it's backfitted to justify an investment that feels right at the multiple that has comps.
I think this is going to be less about the academic economics, and more of a baseball card bubble bursting around software products that promised free growth at 100% unit margins. The cash is still there, and still wants to be invested, but everyone's a little timid and doesn't want to look irresponsible.
Rates are rising because of inflation. Inflation is rising because people are spending.
Why are people spending all at once? It could be because of the pandemic restrictions lifting, but also because of mass psychology ("OMG! everything is getting more expensive! I must buy while I can").
If people resisted the bandwagon effect, and bought when stuff is cheap, while saving when stuff is expensive, they'd be much better off.
"The time to buy is when there's blood in the streets." - Baron Rothschild
If you have a whole economy ignoring signs and pretending growth goes forever you get bigger, harder crashes.
We can hope that this downturn is going to be a short wave just in response to the post covid overhype. But really there are still big problems with real estate valuation with lots of things going to be literally under water in decades and everything overpriced as a result of bad policy with low interest and too many people having enormous loans for most of their working lives.
Housing as investment needs to be drug out into the street and shot, but there isn’t really any way to do that which doesn’t cause a huge economic shock.
What we're seeing are the natural consequences of the fed's mandate to prevent inflation. This is always at the cost of demand for labor, bu design.
The regulation supplied by the fed preserves the interests of capital at expense of the interests of labor. The dual mandate is essentially meaningless.
I do live in Europe and not in the States, though, maybe things are different there.
Psychology is a clear factor which acts as a positive feedback loop, but raising the cost of money/credit is very, very real to a lot of businesses. The immediate effect it has on the cost of loan service for cars and houses will start to affect those markets pretty quickly, which spills over into homebuilders. And companies at the margins that have been surviving by cheap debt service will get pushed over into insolvency.
Then those closures and layoffs affect demand, that affects every other company in the economy. Those people couldn't afford houses and cars at any interest rate, and they're not buying computers or anything else as well, they're probably trying to sell their used cars for some cash. Since everyone's spending is someone else's demand then as spending contracts demand destruction ripples through the economy.
The psychological effect is another positive feedback loop, though, and it will cause the correction to overshoot to the downside.
At the same time, though, this means that assets are on a fire sale, and the rich people who have cash on the sidelines can step in and buy up even more of the country, which does put a floor under the crash.
(Thought stolen from Alan Watts)
This is because the boss imagined getting more inches in future and made a leveraged bet. A downturn is a great opportunity for someone enterprising to become a boss and take everything in the construction site, hire people and build it themselves.
The workers will be fired because the boss has run out of societal-effort credits.
The only "illusion" is the collective understanding that these "made-up" credits can be redeemed with other counterparties for human effort in the future. So long as we all approximately believe that idea, it works.
UPD. One more link was located[1]
[0] https://startup.jobs/backend-engineer-all-teams-minsk-lyft-1...
Hoping it doesn't get uglier than 2020.
Pressing X to doubt. Many of these companies did layoffs during the pandemic (like Lyft) - which in many cases were just an excuse to cull low performers - then just continued to grow at insane paces. Even these layoffs just put them back at pandemic-level figures.
Call me when companies are smaller than they were even before the pandemic, let alone crashing and burning.