17 ms·

A lot of people hating on LNKD here, but this isn't really company-specific. This is a macro shift. LNKD being down by 40% by only guiding down 8% below estim

A lot of people hating on LNKD here, but this isn't really company-specific. This is a macro shift. LNKD being down by 40% by only guiding down 8% below estimates is a big warning of how the market is about to treat all bloated growth stocks. In 2013, if they reported the same results, the stock would have been flat or slightly down. It's a major shift in investor sentiment. Bubble bursts always start in the public markets. Next, VC-backed "unicorns" with ludicrous multiples will soon find themselves unable to raise cash at even half their previous valuations. Then those companies will have to tighten their spending which means layoffs and smaller revenue growth which is a vicious cycle towards even lower valuations, bankruptcies and ultimately a much worse job market for tech workers. I'm expecting a 30-40% decline in S&P 500, 30% decline in bay area real estate values, 30% of bay area "well-funded" startups going bust, and 25% reduction in market rate pay for software engineers over the next 2 years. Hopefully that will turn out to be a gloomy forecast, but it's best to prepare for the worst.

kuschku 11y ago
It’s probably even a too optimistic forecast. The readjustment of the market to reality is going to be a big issue, especially when one looks at just how many companies are operating at huge losses. Most people already know that it can’t continue like this. The good thing is, real estate values will decrease like the pay, so people can rent at cheaper rates in the bay areas. The bad thing is, those who have bought a house are f~~~~~d. We’ll probably see a lot of tech giants like Twitter (no income? really?) tumble, and others take a small hit (like Google).
- pfarnsworth 11y ago
  Except the last time the markets dropped, real estate prices went up. If there is a problem, the Fed will drop interest rates, maybe even go negative, and that will cause bond rates and conceivably mortgage rates to drop as well. The Fed wants inflation, and most importantly home price inflation. They will do whatever it takes to stop deflation, they've already said this. Bernanke said he would drop bags of money out of helicopters, obviously an exaggeration, but basically this is how critical the Fed views the fight against deflation.
  - dia80 11y ago
    That works until it doesn't, see Japan.
    - grillvogel 11y ago
      what about japan
      - pm90 11y ago
        I'm assuming this was an offhand remark, but if you are looking for a serious answer: the Japanese Govt. has been trying a similar thing for over a decade to kick the economy into growth and has failed rather spectacularly and persistently in doing this. [0]: https://en.wikipedia.org/wiki/Lost_Decade_%28Japan%29 https://en.wikipedia.org/wiki/Lost_Decade_%28Japan%29
  - deleted 11y ago
    [deleted]
  - jonknee 11y ago
    > If there is a problem, the Fed will drop interest rates, maybe even go negative, and that will cause bond rates and conceivably mortgage rates to drop as well. The Fed has very little room to drop interest rates and won't do so to prop up the NASDAQ while the economy continues to grow and add jobs.
    - pfarnsworth 11y ago
      It's not to prop up the Nasdaq. In the doomsday scenario referred to above, housing prices dropping 30%, salaries went down 25%, etc. This is unacceptable to the Fed and they will do whatever it takes to counter this, including dropping as much money as possible. And they can go negative interest rates which would be crazy, but it's happened before, and currently going on in Japan.
      - mitochondrion 11y ago
- IndianAstronaut 11y ago
  >The good thing is, real estate values will decrease like the pay, so people can rent at cheaper rates in the bay areas. The bad thing is, those who have bought a house are f~~~~~d. This needs to happen. We need to see housing as more a consumption item than an investment item. The more people see it as an investment, the more the NIMBY policies we see to increase home values to levels which price young and low earners out of the market.
- manigandham 11y ago
  > We’ll probably see a lot of tech giants like Twitter (no income? really?) tumble, and others take a small hit (like Google). What do you mean by no income? Twitter makes billions in revenue...
  - kuschku 11y ago
    The relationship valuation/income is vastly off with twitter, and I’m not sure how long the investors are going to wait.
- ryanSrich 11y ago
  I don't see TWTR dying. They make too much money. What I do see is a major correction in their head count. I could see them operating with 100-200 employees.
nashashmi 11y ago
I am getting giddy at the opportunity to making dumb stupid money again. It will be like 2008 with 30% returns per month. Oh how I miss those days!
- song 11y ago
  I'm curious, what do you mean?
  - winterchil 11y ago
    he means he shorts the stock market... although it can be difficult to get the borrow when everything is tanking.
    - e40 11y ago
      I took it as waiting for the bottom and investing his cash, and seeing a big upswing. The real trick is starting at the bottom.
      - song 11y ago
        Yeah, that's what I wasn't sure about. Shorting is fine but it's also difficult to time right. And yeah guessing when it's the actual bottom is also not that self evident (at least for me). So I'm kind of curious to hear any anecdotes from users here profiting in 2008...
        e40 11y ago
        Timing is very difficult, I've been told over and over again. I personally think it's easier to time the top rather than the bottom. The reason: the fall is always preceded by lots and lots of people forecasting doom and gloom. I got out of Sun Microsystems stock (and some others) at the end of 1999 for that reason. Sold at $150+. Months later it was at $5. Now, I'm no prognosticator. I was looking to buy a house in the future and knew I needed to convert to cash at some point. So, I was sort of hyper aware of what was going on and at the end of 1999 I just couldn't take it anymore. I'd love to hear how people timed the upswing from 2008.
bkeroack 11y ago
Salaries tend to be sticky. A more likely outcome is the bottom ~25% of engineers being laid off or moved to contract status.
- _yosefk 11y ago
  Sticky for people already employed, perhaps, but probably not for new hires, I'd guess. Also, anecdotally, in 2008 some of those fired were expensive new hires. "The bottom 25%" might be defined as those fired but otherwise I don't think there is a definition of "bottom" those who get fired all fit. Say, if a project or a department is terminated, often everyone is let go, instead of trying to keep "the best" and replacing "worse" people elsewhere with them, etc.
- es09 11y ago
  Even more likely - hiring comes to a screeching halt. That's what brings the rental market down. There are a lot of new apartments being added to the market and bam, oversupply of rental units if the hiring slows down or stops.
  - draw_down 11y ago
    Just clarifying, are you speaking of SF, or the US more generally...?
    - gogopuppygogo 11y ago
      It's likely to spread throughout the country.
      - pm90 11y ago
        That is highly overestimating the amount of tech jobs in the rest of the country. For SF, yes, I agree.
cpprototypes 11y ago
For the bay area, I think compensation drop will be far worse. The base salary of bay area companies has never been that impressive. Even the big tech companies like Google and Facebook, base salary is not much more than other regions. The impressive compensation numbers are always because of bonus+RSU. These will probably be massively reduced or even eliminated completely if the tech downturn gets bad enough.
- ryanSrich 11y ago
  Tech employees making $200k+ are the only ones who can afford a $4k per month apartment in SF. If salaries drop then rent drops. I don't see this being a bad thing.
  - twblalock 11y ago
    Two engineers with average compensation could split at apartment at that price, and many do. So do married couples with dual incomes.
    - alanh 11y ago
      You may be missing the point. Say most tech engineers double up (as if they aren’t often doing this already). Guess what? You just significantly reduced demand for high-rent apartments
    - nly 11y ago
      Yeah, at the cost of increased volatility. If two engineers, each with a 10% chance of losing their job in the next 2 years, do this then they both are much more likely (19% chance) to face uncertainty in that time.
      - calinet6 11y ago
        They're all young. They don't think like that.
    - nascentmind 11y ago
jhulla 11y ago
Stop scaring the kiddos with your ghost stories. At least let them enjoy their weekend. The problem is shrinking global liquidity. Losses in the Chinese financial system and in the global energy sector are forcing governments, central banks and sovereign wealth funds to sell assets around the world. These are some of the biggest asset managers in the world. It is unclear to me how this will end. When the mortgage market melted down and destroyed the balance sheets of banks, the Federal Reserve liquified their illiquid assets using QE. For better or worse, QE restarted the jammed shut credit engine. At the moment, outside of wholly energy dependent countries (Middle East, Latin America, Nigeria, etc.), there does not appear to me a 2008-like financial system shutdown. Coming back to tech. IMHO, big tech companies with inflated multiples (as benchmarked against the FCF generating engines at GOOG and AAPL) now have a target on their backs. Unicorns that aren't cashflow positive are going to learn how to negotiate down rounds. Real estate values are sticky and will hold up longer than people think. Engineer salaries are not going to drop a whole lot. The number of people employed might.
- dageshi 11y ago
  In terms of property, I wonder how much is being sold to foreign investors. This article came up recently about London http://www.constructionenquirer.com/2016/02/04/opinion-is-the-london-luxury-resi-boom-over/ http://www.constructionenquirer.com/2016/02/04/opinion-is-th... I give it more credence than the usual "property market correction incoming" because certain fundamentals have actually changed, oil is dirt cheap, China as you say is volatile having blown multiple bubbles and now dealing with the consequences. Perhaps those who previously bought for investment purposes may need to liquidate?
  - caoilte 11y ago
    Hard to know, because High end London property is pretty weird. It's basically a piggy bank, a tax dodge, a money laundering vehicle and a fashion accoutrement all tied up in one dirt cheap currency.
  - ramykhuffash 11y ago
    London is a weird spot for property. I see it as more inline with the gold market. A "safe" investment for people who need to invest. That makes your last point more likely if anything I'm saying is true, but what happens when in London is unlikely to reflect the properly market in general, which is based somehat on fundamentals.
Riod 11y ago
The biggest risk is actually China devaluing the yuan. They are reporting their forex reserves on Sunday. If the yuan gets devalued this year this means China starts to export deflation. One or 10 stocks losing 50% in value is not a big deal. The Fed needing to cut rates in the face of slowing growth would be an issue.
- jhulla 11y ago
  Both energy and China are the big risks. It'll be interesting to see how much of their foreign reserves were used up in January. To some extent, it is easier for the Chinese to defend the on-shore yuan market (CNY) through capital controls. It is harder to defend in the off-shore yuan market (CNH). Great discussion from a few days ago here: https://news.ycombinator.com/item?id=11008872 https://news.ycombinator.com/item?id=11008872 I personally have tremendous admiration and respect for managers of the Chinese economy and I think betting against the Chinese government is just a money-losing, dumb idea. IMHO, the big threat continues to be oil. Cheap dollar funding has pumped up global supply to well past demand. This is crushing the economies of oil-exporting nations through currency devaluation. Ruble, CAD$, Nigerian Naira, Krone, Bolivar, etc. have gotten crushed. Developed Market banks and investors have poured a lot of money in emerging markets in the past decade. Some of that investment is going to be lost. It is an open question whether we are working up to an event that is similar to the 1997 Asian financial crisis, 1998 Russian default, the 2012 European debt crisis, the 2008 Global financial crisis, or something milder, or something much worse.
- ChuckMcM 11y ago
  This is going to be the most interesting question. China worked pretty hard to get the Yuan in the reserve currency basket, and they worked even harder to reassure the world after they pulled the devaluing stunt in August. From the WP article: "But the Chinese central bank argued on Tuesday that its goals were more mundane than spurring exports and growth. Rather, the bank said that the change was a one-time event to allow it to set exchange rates in line with free market practices. And in their initial responses, many analysts agreed." If they do it again then they lose all credibility with the rest of the world. And how the world responded would change China's trajectory. So its interesting to see what they do. [1] https://www.washingtonpost.com/news/wonk/wp/2015/08/11/china/ https://www.washingtonpost.com/news/wonk/wp/2015/08/11/china...
CamperBob2 11y ago
I'm expecting a 30-40% decline in S&P 500, 30% decline in bay area real estate values, 30% of bay area "well-funded" startups going bust, and 25% reduction in market rate pay for software engineers over the next 2 years And by expecting, you mean investing accordingly? Hopefully that will turn out to be a gloomy forecast, but it's best to prepare for the worst. Actually, it's not. Being right at the wrong time is arguably the worst kind of "wrong" you can be. It doesn't pay to be the only sane guy in the asylum.
- PakG1 11y ago
  As a wise economist once said, the market has ability to stay irrational longer than your ability to stay solvent.
sciencesama 11y ago
thats fuked up can some one do something ? should it be stopped or should it be fueled ?
sinzone 11y ago
> 30% decline in bay area real estate values. that won't happen. During the 2008 big burst everywhere in USA was felling apart but in SF real-estate was just down 5%-10%. SF can't expand easily since it's water 3/4 all around. Demand still high and supply very low. That won't change dramatically, with or without a collapse in the public market.
- jrowley 11y ago
  Exactly. Property values might not continue to grow at such a high rate but they aren't going to decrease by 30%. That's ludicrous.
  - rsync 11y ago
    It just happened! Not more than 7-8 years ago! It happened in many, many markets across the US and the world. We just saw it happen!
    - toomuchtodo 11y ago
      How quickly people forget :)
    - alexqgb 11y ago
      That was part of a massive, global housing bubble popping. A better point of reference is the dot.com crash (the worst of which was a local event) and the worst you saw, at least in decent areas, were valuations that stopped climbing.
- lubos 11y ago
  > SF can't expand easily since it's water 3/4 all around. Demand still high and supply very low. That might easily change. If average salaries go down, people won't be able to afford pay rent they once used to. There will be less people living on their own and more people sharing with others. This will create oversupply of rental properties which means rent prices will go down. If rent prices go down, property prices will go down too as property investors won't be able to justify holding a relatively expensive property yielding low rental returns. So they might as well put the property on the market creating more supply of properties for sale. Thus bursting the bubble.
deleted 11y ago
[deleted]
barnabee 11y ago
There are many macro risks that can be applied, and people here are right to highlight the bigger issues but LinkedIn's troubles are of their own making. It's a poor business founded on poor assumptions A strange game.. the only way to win is not to play...
jthol 11y ago
When you are trading at a P:E ratio of 50 you are expecting some phenomenal growth and at LinkedIn's size that growth is pretty hard to get. Scaling it back to 25 seems pretty damned reasonable honestly.
tryitnow 11y ago
Gloomy, but likely correct. A lot of these current valuation numbers just don't make sense. The implied growth rates in many tech stocks is unrealistically high. The Bay Area's long-term employment prospects simply cannot support current home values or rental rates. Once public and private equity valuations drop a lot of software development projects are going to get cut and with them the jobs of many software engineers. Engineers who keep their jobs probably won't experience pay cuts, but new hires are going to be expected to take much lower pay packages. Why? Because the talent is going to be available at lower pay rates. So why pay more? This is not necessarily a bad thing. There's a lot of irrationality in the tech business now and it's crowding out the rational participants. There needs to be a weeding out process. It is good that it has begun. Remember to think long-term. Technology and the Bay Area are here to stay. Let's get the creative destruction process over with as quickly and painlessly as possible so that we can get on with making real innovations.
- sounds 11y ago
  So what if you're one of those new hires (or hope to be one)? I'd say keep polishing your resume. If you dropped out of school, look for a school with low tuition that isn't University of Phoenix but finish your degree. Stay on your toes: work your way through to graduation, get internships each September (as much as you can). And though the retire-as-a-millionaire thing might have vanished, you'll land on your feet.
  - epa 11y ago
    Build your own product now that generates revenue and profit. Make your own job.
    - deleted 11y ago
      [deleted]
    - astazangasta 11y ago
      What will you eat, old newspaper clippings? If we could all do this, VCs would not exist in the first place.
neelborooah 11y ago
As an engineer working at a "well-funded" startup, how can I prepare for the worst?
- teen 11y ago
  be good at programming?
  - neelborooah 11y ago
    Hahah.
  - angelbob 11y ago
    Being good at programming is useful, but planning what happens if random changes in the business screw you is still useful. I've been a software engineer for going on 20 years now. Have a plan, just in case, even if you're good at programming (I am.)
  - jfb 11y ago
    Not necessary, still less sufficient.
- toomuchtodo 11y ago
  Have 6-12 months in an emergency fund and be prepared to move out of SF if you'll burn through all of that fund.
- lmm 11y ago
  Diversify. Put money in things that are uncorrelated with tech money. Keep your CV up to date and work on transferrable skills - e.g. see if you can get your job title changed to one that implies some level of management responsibility.
- base698 11y ago
  Don't sign a new lease or buy a house or a new car.
cplease 11y ago
You really don't know what you're talking about. LNKD was not in S&P 500, "only" 8% off consensus earnings is not a small number, P/E multiples are nowhere what they were in 2000, there's been relatively little IPO activity. It's a different world. It may be a tough market but there's no basis for (most of) the numbers you are throwing around. I could definitely see a decline in engineer salary, which could be significant in certain markets. But who knows.
- deleted 11y ago
  [deleted]
swingbridge 11y ago
The current tech bubble has some fundamental differences to the last one. Specifically, while some of the pain will hit public markets the vast majority of people left holding bags of burning crap this time around are the VC firms and other private investors. The SF Bay region is going to have an implosion but the impact on the broader stock market and US economy will be quite limited. In short, if you just bought a big chunk of San Francisco real estate on the basis that you pay it off in a few years when you cash out the options in your hyped up tech startup... well good luck with that.
- infinite8s 11y ago
  A lot of that private money/VC funds are institutional money chasing alternative asset class returns.
blahblah3 11y ago
The markets have been pricing in a higher risk of recession in the past few months. Financials have been hit very hard which is one signal of this
mcv 11y ago
Man, you can say that again. I bought some Netflix stock last year, because they seemed to be doing a lot of things right. It's been a roller coaster, and the last couple of weeks have been a steep drop.
floppydisk 11y ago
I think what we're seeing is institutional money moving around. Mutual funds, pension plans, and other such entities need to retain a certain ROI to ensure their primary objectives get completed--i.e. making pension payments every month. We need to look at the downturn on the public markets in the context of the public markets and who is doing the selling. If institutions are selling across the board, that's going to depress everything. A lot of it depends on the valuation model and how the companies generate revenue. The problem with tech companies, especially ones that aren't "essential" is that in an economic contraction the value they provide is negligible. If LinkedIn disappeared tomorrow, the job market would go on much like it always has. The only people who would have a more difficult job are recruiters and even then platforms like ZipRecruiter and Indeed.com make it possible for them to do their jobs. On the other hand, if FB / Google disappears tomorrow, there'd be a gaping hole in the internet. The primary social media platform vanishes, all the cat pictures disappear, and we go back to mailing(!!!) grandma pictures of the kids. Similarly, if Google dies, a lot of people's concepts of search go with it. Google has become a verb. Ergo, I think investors know this and move the money accordingly. In boom times, people are flush with cash and can spend it on "non-essential" goods and services. When contractions start, things that aren't essential begin getting reprioritized and the company revenues start falling - and investors will move their money to places more likely to survive an extended downturn. With regards to VCs and Unicorn investing, we really only saw institutional money get serious about investing in tech startups after 07/08 when the markets shifted and traditional asset classes didn't return as much as they used to. It's easy to look at startups, see the ones that survive and their high ROI and think it's a great place to invest without seeing all the other ones that morph into lifestyle businesses and don't go anywhere or flame out. Throwing near limitless amounts of institutional money into a very noisy market leads to the rise of cheap capital and the ability for anyone to get funding regardless of the extent of their business plan. I think we will see a retraction of available capital which will lead to an increase in bootstrapping and an increase in vetting by serious VCs who need to improve the hit/miss ratio since capital will be tighter. I need to drum up more capital to invest. Best time to buy and hold is in a major downswing. You get durable assets for cheap!
- morenoh149 11y ago
  what are some durable assets? I was just planning on buying index funds
mathattack 11y ago
I'm expecting a 30-40% decline in S&P 500, 30% decline in bay area real estate values, 30% of bay area "well-funded" startups going bust, and 25% reduction in market rate pay for software engineers over the next 2 years. Hopefully that will turn out to be a gloomy forecast, but it's best to prepare for the worst. I don't dispute your gloom, but I challenge your %s. - "Well Funded Startups" have a >1 correlation to the overall stock market. (Market moves 10%, they move higher than 10%) So if we see a several year 30-40% decline in the S&P, this will cause more than 30% of the "well-funded" startups to go bust. Anyone who can't switch to cash flow positive would have a high likelihood of going under. - Real Estate values tend to move slower than stock market prices. (People can ride the market out, and just not sell the house) It would take a very sustained market hit to cut real estate by 30%. Also, much of the money fleeing China is coming to the Bay Area. (This isn't to say that it couldn't happen, but you'd need to see 5+ years of a depressed stock market) The reason it tanked so much in 2008 was that the bubble was in the financing mechanism. - I think if you count equity, the market rate pay for engineers would get hit worse. Options that on-paper are worth 500K can quickly go to zero in a down round. Other variable comp will get hit too. Not sure about base salaries. Even in an enormous down market, most of the world will still be short engineers. In 2001 the folks who got crushed were the Marketing majors posing as Web Engineers. You didn't mention my big hope though... A 30-50% reduction in Bay Area commute times! :-) One bright side to a crash - it is better to start a company where good talent is plentiful and cash is scarce, than the other way around.

kuschku 11y ago

It’s probably even a too optimistic forecast. The readjustment of the market to reality is going to be a big issue, especially when one looks at just how many companies are operating at huge losses. Most people already know that it can’t continue like this. The good thing is, real estate values will decrease like the pay, so people can rent at cheaper rates in the bay areas. The bad thing is, those who have bought a house are f~~~~~d. We’ll probably see a lot of tech giants like Twitter (no income? really?) tumble, and others take a small hit (like Google).

pfarnsworth 11y ago
Except the last time the markets dropped, real estate prices went up. If there is a problem, the Fed will drop interest rates, maybe even go negative, and that will cause bond rates and conceivably mortgage rates to drop as well. The Fed wants inflation, and most importantly home price inflation. They will do whatever it takes to stop deflation, they've already said this. Bernanke said he would drop bags of money out of helicopters, obviously an exaggeration, but basically this is how critical the Fed views the fight against deflation.
- dia80 11y ago
  That works until it doesn't, see Japan.
  - grillvogel 11y ago
    what about japan
    - pm90 11y ago
      I'm assuming this was an offhand remark, but if you are looking for a serious answer: the Japanese Govt. has been trying a similar thing for over a decade to kick the economy into growth and has failed rather spectacularly and persistently in doing this. [0]: https://en.wikipedia.org/wiki/Lost_Decade_%28Japan%29 https://en.wikipedia.org/wiki/Lost_Decade_%28Japan%29
- deleted 11y ago
  [deleted]
- jonknee 11y ago
  > If there is a problem, the Fed will drop interest rates, maybe even go negative, and that will cause bond rates and conceivably mortgage rates to drop as well. The Fed has very little room to drop interest rates and won't do so to prop up the NASDAQ while the economy continues to grow and add jobs.
  - pfarnsworth 11y ago
    It's not to prop up the Nasdaq. In the doomsday scenario referred to above, housing prices dropping 30%, salaries went down 25%, etc. This is unacceptable to the Fed and they will do whatever it takes to counter this, including dropping as much money as possible. And they can go negative interest rates which would be crazy, but it's happened before, and currently going on in Japan.
    - mitochondrion 11y ago
IndianAstronaut 11y ago
>The good thing is, real estate values will decrease like the pay, so people can rent at cheaper rates in the bay areas. The bad thing is, those who have bought a house are f~~~~~d. This needs to happen. We need to see housing as more a consumption item than an investment item. The more people see it as an investment, the more the NIMBY policies we see to increase home values to levels which price young and low earners out of the market.
manigandham 11y ago
> We’ll probably see a lot of tech giants like Twitter (no income? really?) tumble, and others take a small hit (like Google). What do you mean by no income? Twitter makes billions in revenue...
- kuschku 11y ago
  The relationship valuation/income is vastly off with twitter, and I’m not sure how long the investors are going to wait.
ryanSrich 11y ago
I don't see TWTR dying. They make too much money. What I do see is a major correction in their head count. I could see them operating with 100-200 employees.

nashashmi 11y ago

I am getting giddy at the opportunity to making dumb stupid money again. It will be like 2008 with 30% returns per month. Oh how I miss those days!

song 11y ago
I'm curious, what do you mean?
- winterchil 11y ago
  he means he shorts the stock market... although it can be difficult to get the borrow when everything is tanking.
  - e40 11y ago
    I took it as waiting for the bottom and investing his cash, and seeing a big upswing. The real trick is starting at the bottom.
    - song 11y ago
      Yeah, that's what I wasn't sure about. Shorting is fine but it's also difficult to time right. And yeah guessing when it's the actual bottom is also not that self evident (at least for me). So I'm kind of curious to hear any anecdotes from users here profiting in 2008...
      - e40 11y ago
        Timing is very difficult, I've been told over and over again. I personally think it's easier to time the top rather than the bottom. The reason: the fall is always preceded by lots and lots of people forecasting doom and gloom. I got out of Sun Microsystems stock (and some others) at the end of 1999 for that reason. Sold at $150+. Months later it was at $5. Now, I'm no prognosticator. I was looking to buy a house in the future and knew I needed to convert to cash at some point. So, I was sort of hyper aware of what was going on and at the end of 1999 I just couldn't take it anymore. I'd love to hear how people timed the upswing from 2008.

bkeroack 11y ago

Salaries tend to be sticky. A more likely outcome is the bottom ~25% of engineers being laid off or moved to contract status.

_yosefk 11y ago
Sticky for people already employed, perhaps, but probably not for new hires, I'd guess. Also, anecdotally, in 2008 some of those fired were expensive new hires. "The bottom 25%" might be defined as those fired but otherwise I don't think there is a definition of "bottom" those who get fired all fit. Say, if a project or a department is terminated, often everyone is let go, instead of trying to keep "the best" and replacing "worse" people elsewhere with them, etc.
es09 11y ago
Even more likely - hiring comes to a screeching halt. That's what brings the rental market down. There are a lot of new apartments being added to the market and bam, oversupply of rental units if the hiring slows down or stops.
- draw_down 11y ago
  Just clarifying, are you speaking of SF, or the US more generally...?
  - gogopuppygogo 11y ago
    It's likely to spread throughout the country.
    - pm90 11y ago
      That is highly overestimating the amount of tech jobs in the rest of the country. For SF, yes, I agree.

cpprototypes 11y ago

For the bay area, I think compensation drop will be far worse. The base salary of bay area companies has never been that impressive. Even the big tech companies like Google and Facebook, base salary is not much more than other regions. The impressive compensation numbers are always because of bonus+RSU. These will probably be massively reduced or even eliminated completely if the tech downturn gets bad enough.

ryanSrich 11y ago
Tech employees making $200k+ are the only ones who can afford a $4k per month apartment in SF. If salaries drop then rent drops. I don't see this being a bad thing.
- twblalock 11y ago
  Two engineers with average compensation could split at apartment at that price, and many do. So do married couples with dual incomes.
  - alanh 11y ago
    You may be missing the point. Say most tech engineers double up (as if they aren’t often doing this already). Guess what? You just significantly reduced demand for high-rent apartments
  - nly 11y ago
    Yeah, at the cost of increased volatility. If two engineers, each with a 10% chance of losing their job in the next 2 years, do this then they both are much more likely (19% chance) to face uncertainty in that time.
    - calinet6 11y ago
      They're all young. They don't think like that.
  - nascentmind 11y ago

jhulla 11y ago

Stop scaring the kiddos with your ghost stories. At least let them enjoy their weekend. The problem is shrinking global liquidity. Losses in the Chinese financial system and in the global energy sector are forcing governments, central banks and sovereign wealth funds to sell assets around the world. These are some of the biggest asset managers in the world. It is unclear to me how this will end. When the mortgage market melted down and destroyed the balance sheets of banks, the Federal Reserve liquified their illiquid assets using QE. For better or worse, QE restarted the jammed shut credit engine. At the moment, outside of wholly energy dependent countries (Middle East, Latin America, Nigeria, etc.), there does not appear to me a 2008-like financial system shutdown. Coming back to tech. IMHO, big tech companies with inflated multiples (as benchmarked against the FCF generating engines at GOOG and AAPL) now have a target on their backs. Unicorns that aren't cashflow positive are going to learn how to negotiate down rounds. Real estate values are sticky and will hold up longer than people think. Engineer salaries are not going to drop a whole lot. The number of people employed might.

dageshi 11y ago
In terms of property, I wonder how much is being sold to foreign investors. This article came up recently about London http://www.constructionenquirer.com/2016/02/04/opinion-is-the-london-luxury-resi-boom-over/ http://www.constructionenquirer.com/2016/02/04/opinion-is-th... I give it more credence than the usual "property market correction incoming" because certain fundamentals have actually changed, oil is dirt cheap, China as you say is volatile having blown multiple bubbles and now dealing with the consequences. Perhaps those who previously bought for investment purposes may need to liquidate?
- caoilte 11y ago
  Hard to know, because High end London property is pretty weird. It's basically a piggy bank, a tax dodge, a money laundering vehicle and a fashion accoutrement all tied up in one dirt cheap currency.
- ramykhuffash 11y ago
  London is a weird spot for property. I see it as more inline with the gold market. A "safe" investment for people who need to invest. That makes your last point more likely if anything I'm saying is true, but what happens when in London is unlikely to reflect the properly market in general, which is based somehat on fundamentals.

Riod 11y ago

The biggest risk is actually China devaluing the yuan. They are reporting their forex reserves on Sunday. If the yuan gets devalued this year this means China starts to export deflation. One or 10 stocks losing 50% in value is not a big deal. The Fed needing to cut rates in the face of slowing growth would be an issue.

jhulla 11y ago
Both energy and China are the big risks. It'll be interesting to see how much of their foreign reserves were used up in January. To some extent, it is easier for the Chinese to defend the on-shore yuan market (CNY) through capital controls. It is harder to defend in the off-shore yuan market (CNH). Great discussion from a few days ago here: https://news.ycombinator.com/item?id=11008872 https://news.ycombinator.com/item?id=11008872 I personally have tremendous admiration and respect for managers of the Chinese economy and I think betting against the Chinese government is just a money-losing, dumb idea. IMHO, the big threat continues to be oil. Cheap dollar funding has pumped up global supply to well past demand. This is crushing the economies of oil-exporting nations through currency devaluation. Ruble, CAD$, Nigerian Naira, Krone, Bolivar, etc. have gotten crushed. Developed Market banks and investors have poured a lot of money in emerging markets in the past decade. Some of that investment is going to be lost. It is an open question whether we are working up to an event that is similar to the 1997 Asian financial crisis, 1998 Russian default, the 2012 European debt crisis, the 2008 Global financial crisis, or something milder, or something much worse.
ChuckMcM 11y ago
This is going to be the most interesting question. China worked pretty hard to get the Yuan in the reserve currency basket, and they worked even harder to reassure the world after they pulled the devaluing stunt in August. From the WP article: "But the Chinese central bank argued on Tuesday that its goals were more mundane than spurring exports and growth. Rather, the bank said that the change was a one-time event to allow it to set exchange rates in line with free market practices. And in their initial responses, many analysts agreed." If they do it again then they lose all credibility with the rest of the world. And how the world responded would change China's trajectory. So its interesting to see what they do. [1] https://www.washingtonpost.com/news/wonk/wp/2015/08/11/china/ https://www.washingtonpost.com/news/wonk/wp/2015/08/11/china...

CamperBob2 11y ago

I'm expecting a 30-40% decline in S&P 500, 30% decline in bay area real estate values, 30% of bay area "well-funded" startups going bust, and 25% reduction in market rate pay for software engineers over the next 2 years And by expecting, you mean investing accordingly? Hopefully that will turn out to be a gloomy forecast, but it's best to prepare for the worst. Actually, it's not. Being right at the wrong time is arguably the worst kind of "wrong" you can be. It doesn't pay to be the only sane guy in the asylum.

PakG1 11y ago
As a wise economist once said, the market has ability to stay irrational longer than your ability to stay solvent.

sciencesama 11y ago

thats fuked up can some one do something ? should it be stopped or should it be fueled ?

sinzone 11y ago

> 30% decline in bay area real estate values. that won't happen. During the 2008 big burst everywhere in USA was felling apart but in SF real-estate was just down 5%-10%. SF can't expand easily since it's water 3/4 all around. Demand still high and supply very low. That won't change dramatically, with or without a collapse in the public market.

jrowley 11y ago
Exactly. Property values might not continue to grow at such a high rate but they aren't going to decrease by 30%. That's ludicrous.
- rsync 11y ago
  It just happened! Not more than 7-8 years ago! It happened in many, many markets across the US and the world. We just saw it happen!
  - toomuchtodo 11y ago
    How quickly people forget :)
  - alexqgb 11y ago
    That was part of a massive, global housing bubble popping. A better point of reference is the dot.com crash (the worst of which was a local event) and the worst you saw, at least in decent areas, were valuations that stopped climbing.
lubos 11y ago
> SF can't expand easily since it's water 3/4 all around. Demand still high and supply very low. That might easily change. If average salaries go down, people won't be able to afford pay rent they once used to. There will be less people living on their own and more people sharing with others. This will create oversupply of rental properties which means rent prices will go down. If rent prices go down, property prices will go down too as property investors won't be able to justify holding a relatively expensive property yielding low rental returns. So they might as well put the property on the market creating more supply of properties for sale. Thus bursting the bubble.

deleted 11y ago

[deleted]

barnabee 11y ago

There are many macro risks that can be applied, and people here are right to highlight the bigger issues but LinkedIn's troubles are of their own making. It's a poor business founded on poor assumptions A strange game.. the only way to win is not to play...

jthol 11y ago

When you are trading at a P:E ratio of 50 you are expecting some phenomenal growth and at LinkedIn's size that growth is pretty hard to get. Scaling it back to 25 seems pretty damned reasonable honestly.

tryitnow 11y ago

Gloomy, but likely correct. A lot of these current valuation numbers just don't make sense. The implied growth rates in many tech stocks is unrealistically high. The Bay Area's long-term employment prospects simply cannot support current home values or rental rates. Once public and private equity valuations drop a lot of software development projects are going to get cut and with them the jobs of many software engineers. Engineers who keep their jobs probably won't experience pay cuts, but new hires are going to be expected to take much lower pay packages. Why? Because the talent is going to be available at lower pay rates. So why pay more? This is not necessarily a bad thing. There's a lot of irrationality in the tech business now and it's crowding out the rational participants. There needs to be a weeding out process. It is good that it has begun. Remember to think long-term. Technology and the Bay Area are here to stay. Let's get the creative destruction process over with as quickly and painlessly as possible so that we can get on with making real innovations.

sounds 11y ago
So what if you're one of those new hires (or hope to be one)? I'd say keep polishing your resume. If you dropped out of school, look for a school with low tuition that isn't University of Phoenix but finish your degree. Stay on your toes: work your way through to graduation, get internships each September (as much as you can). And though the retire-as-a-millionaire thing might have vanished, you'll land on your feet.
- epa 11y ago
  Build your own product now that generates revenue and profit. Make your own job.
  - deleted 11y ago
    [deleted]
  - astazangasta 11y ago
    What will you eat, old newspaper clippings? If we could all do this, VCs would not exist in the first place.

neelborooah 11y ago

As an engineer working at a "well-funded" startup, how can I prepare for the worst?

teen 11y ago
be good at programming?
- neelborooah 11y ago
  Hahah.
- angelbob 11y ago
  Being good at programming is useful, but planning what happens if random changes in the business screw you is still useful. I've been a software engineer for going on 20 years now. Have a plan, just in case, even if you're good at programming (I am.)
- jfb 11y ago
  Not necessary, still less sufficient.
toomuchtodo 11y ago
Have 6-12 months in an emergency fund and be prepared to move out of SF if you'll burn through all of that fund.
lmm 11y ago
Diversify. Put money in things that are uncorrelated with tech money. Keep your CV up to date and work on transferrable skills - e.g. see if you can get your job title changed to one that implies some level of management responsibility.
base698 11y ago
Don't sign a new lease or buy a house or a new car.

cplease 11y ago

You really don't know what you're talking about. LNKD was not in S&P 500, "only" 8% off consensus earnings is not a small number, P/E multiples are nowhere what they were in 2000, there's been relatively little IPO activity. It's a different world. It may be a tough market but there's no basis for (most of) the numbers you are throwing around. I could definitely see a decline in engineer salary, which could be significant in certain markets. But who knows.

deleted 11y ago
[deleted]

swingbridge 11y ago

The current tech bubble has some fundamental differences to the last one. Specifically, while some of the pain will hit public markets the vast majority of people left holding bags of burning crap this time around are the VC firms and other private investors. The SF Bay region is going to have an implosion but the impact on the broader stock market and US economy will be quite limited. In short, if you just bought a big chunk of San Francisco real estate on the basis that you pay it off in a few years when you cash out the options in your hyped up tech startup... well good luck with that.

infinite8s 11y ago
A lot of that private money/VC funds are institutional money chasing alternative asset class returns.

blahblah3 11y ago

The markets have been pricing in a higher risk of recession in the past few months. Financials have been hit very hard which is one signal of this

mcv 11y ago

Man, you can say that again. I bought some Netflix stock last year, because they seemed to be doing a lot of things right. It's been a roller coaster, and the last couple of weeks have been a steep drop.

floppydisk 11y ago

I think what we're seeing is institutional money moving around. Mutual funds, pension plans, and other such entities need to retain a certain ROI to ensure their primary objectives get completed--i.e. making pension payments every month. We need to look at the downturn on the public markets in the context of the public markets and who is doing the selling. If institutions are selling across the board, that's going to depress everything. A lot of it depends on the valuation model and how the companies generate revenue. The problem with tech companies, especially ones that aren't "essential" is that in an economic contraction the value they provide is negligible. If LinkedIn disappeared tomorrow, the job market would go on much like it always has. The only people who would have a more difficult job are recruiters and even then platforms like ZipRecruiter and Indeed.com make it possible for them to do their jobs. On the other hand, if FB / Google disappears tomorrow, there'd be a gaping hole in the internet. The primary social media platform vanishes, all the cat pictures disappear, and we go back to mailing(!!!) grandma pictures of the kids. Similarly, if Google dies, a lot of people's concepts of search go with it. Google has become a verb. Ergo, I think investors know this and move the money accordingly. In boom times, people are flush with cash and can spend it on "non-essential" goods and services. When contractions start, things that aren't essential begin getting reprioritized and the company revenues start falling - and investors will move their money to places more likely to survive an extended downturn. With regards to VCs and Unicorn investing, we really only saw institutional money get serious about investing in tech startups after 07/08 when the markets shifted and traditional asset classes didn't return as much as they used to. It's easy to look at startups, see the ones that survive and their high ROI and think it's a great place to invest without seeing all the other ones that morph into lifestyle businesses and don't go anywhere or flame out. Throwing near limitless amounts of institutional money into a very noisy market leads to the rise of cheap capital and the ability for anyone to get funding regardless of the extent of their business plan. I think we will see a retraction of available capital which will lead to an increase in bootstrapping and an increase in vetting by serious VCs who need to improve the hit/miss ratio since capital will be tighter. I need to drum up more capital to invest. Best time to buy and hold is in a major downswing. You get durable assets for cheap!

morenoh149 11y ago
what are some durable assets? I was just planning on buying index funds

mathattack 11y ago

I'm expecting a 30-40% decline in S&P 500, 30% decline in bay area real estate values, 30% of bay area "well-funded" startups going bust, and 25% reduction in market rate pay for software engineers over the next 2 years. Hopefully that will turn out to be a gloomy forecast, but it's best to prepare for the worst. I don't dispute your gloom, but I challenge your %s. - "Well Funded Startups" have a >1 correlation to the overall stock market. (Market moves 10%, they move higher than 10%) So if we see a several year 30-40% decline in the S&P, this will cause more than 30% of the "well-funded" startups to go bust. Anyone who can't switch to cash flow positive would have a high likelihood of going under. - Real Estate values tend to move slower than stock market prices. (People can ride the market out, and just not sell the house) It would take a very sustained market hit to cut real estate by 30%. Also, much of the money fleeing China is coming to the Bay Area. (This isn't to say that it couldn't happen, but you'd need to see 5+ years of a depressed stock market) The reason it tanked so much in 2008 was that the bubble was in the financing mechanism. - I think if you count equity, the market rate pay for engineers would get hit worse. Options that on-paper are worth 500K can quickly go to zero in a down round. Other variable comp will get hit too. Not sure about base salaries. Even in an enormous down market, most of the world will still be short engineers. In 2001 the folks who got crushed were the Marketing majors posing as Web Engineers. You didn't mention my big hope though... A 30-50% reduction in Bay Area commute times! :-) One bright side to a crash - it is better to start a company where good talent is plentiful and cash is scarce, than the other way around.