> In the world of high interest rates
It's worth pointing out that, historically speaking [0], we're not an in era of particularly high interest rates yet, just not absurdly low ones.
It's worth pointing out that, historically speaking [0], we're not an in era of particularly high interest rates yet, just not absurdly low ones.
As I was looking at the chart, I noticed there was a big bump from 1994 to 1995 (like from 3% to 6%). What happened then? Was it inflation? I recall rates were about 6ish since when I was in undergrad. I guess Greenspan/Y2K/dot com days.
Edited: found the answer and it is intriguing: https://markets.businessinsider.com/news/bonds/federal-reser....
The stock market craziness continued even with high rates .. wow .. didn't expect that.
I think it might also end up being important to remain competitive in a global market where the other economic superpower's government is willing to invest trillions into building whatever it wants and needs despite profitability[1].
Some things we want/need won't be immediately profitable, or even profitable in the long run. They might not even be things we realize we need until something unprofitable is researched and developed.
Not saying that Snap is something we need, but if the US is forced to strictly rely on market forces to compete, "free" capital via low/no interest rates is a way to kind of do it.
[1] https://tnsr.org/2022/12/chinas-brute-force-economics-waking...
In the old days, these investments were tiny compared to what is being currently spent on the chips act. I think for STEM a better approach would be a govt sponsored entrepreneurship thing .. imagine the same YC deal but we give this to any PhDs (or maybe even Masters) once in their career. I'm from Canada and when I see the cash wasted on other initiatives, I can't help but wonder why this is done. Not to say Masters or PhDs are geniuses. It is just the current system means only the well-to-do or well-pedigreed can get into places like YC (and maybe elite schools like Berkeley) while intelligence, grit and ambition are more widely distributed.
The million dollar compensations (when counting stock growth) and intensity/stress around interviews and promotions is what ZIRP wrought for the elite in tech.
Would be interested if people who were mid-career in the mid 90s can comment on their perspective.
Would that mean it was the era of "Why are manhole covers round?"
I don't want to sound like someone who supports leetcode (mostly because I don't), but it seems like it's at least an attempt at measuring something related to programming skills.
Leetcode is FizzBuzz on steroids, but IMHO is not on its own likely to be more predictive of success at a company than the old MSFT way.
"how many balloons can you fit under this table"
The question is what is the right level of interest rate in 2023 as compared to say 1960.
19060s were boom time with GI bills, lots of new industries started by veterans, a booming suburban household, booming number of children. People and companies of the time had very low debt aka there was room for them to take on more debt. All of this leads to rising credit, which requires a higher interest rates to keep inflation low.
2023 is an anomalous post-pandemic boom coming from trillions added to US government debt. There is no population boom, no business boom, no new tech boom (excluding the AI stuff going on now). Nobody can take on more debt as most people/companies are completely tapped out. This actually requires lower interest rates but we have high inflation so the FED is keeping interest rates artificially high.
This is to say, that companies like SNAP just cannot continue to exist in a higher interest rate environment. Neither can companies like Meta, Uber, Google, Microsoft without cutting costs somewhere or without letting the stock collapse.
A recession is the only way out because companies will NEVER let the stock collapse in favor of saving their employees.
Only as stock in this case is a useful proxy for the finances of the business. It would be better to say that, outside of ridiculously comfortable and easy financial environments, companies will prioritise investing in activities that make money (directly, such as making products, or indirectly, such as security) over activities that don't.
And these activities are designed to increase the stock price. Everything they do is for the price of stocks. That's how the system is.
All I said was their activities are designed to boost stock prices, given the prevailing economic conditions. Stock prices may be related to business value or financial engineering or whatever. Doesn't matter how they get there. Their goal is to just keep stock prices rising.
With this in mind, if it ever comes to choosing between employees, customers, product, or anything versus the stock price, they will choose the stock price.
And there are plenty of companies that aren't public companies with any stock to buy.
It just seems far too simplistic. You seem to be critiquing the times that some company use slightly dodgy financial engineering to boost their stock price. But that's not many companies, and not all the time - it's never a permanent fix. There's certainly no need to attach stock price reason to these layoffs, which are much more likely just cost-cutting measures designed to save the company a load of money it thinks is more valuable than the work of those people.
Since 2008, the interest rate was much lower and nobody _quite_ cared, now both inflation and interest rate are higher and the ECB widened the window they consider for their average substantially to straighten things out even though they're way about 2% now.
Still, there has been a shift in the finance world, and the target seems to be 2%. Having interest rates and/or inflation at twice that (or more!) seems to justify the label "high" to me.
So the central bank interest rate isn't targeted to be 2%, but it will be somewhere close to it: too high, and they drive inflation well above 2% all on their own. They can stay lower for quite a while (see the past ~15 years) but that was already considered an emergency situation.
Before 2008, the ECB moved between 1.5% and 3.75% (https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...) with at most 16 months at a time above 3% which was followed by a bump down to 1%.
We'll have to see where things go from now, but the recent shift of their language towards "2% in the _medium_ term" indicates to me that we'll stay in the higher end of the spectrum for a while instead of quickly trending down again.
Isn't it the reverse relationship? Increased rate decrease the velocity of money and decrease inflation?
(At the risk of causing a recession)
Central banks have been raising interests to fight inflation so far.
This was valued at nearly $10B at the peak.
I think they will stick around and go back to their previous volume. Grift-o-currency is a scam and I hope it dies soon.
and yes I realize the majority of SPACs were pre-product scams.
So the current hike shouldn’t have been surprising at all.