6 ms·

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 fina

by 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.
- monomyth 11y ago
  http://abc7news.com/realestate/chinas-elite-buy-bay-area-properties-at-record-rate/506609/ http://abc7news.com/realestate/chinas-elite-buy-bay-area-pro... http://www.sfchronicle.com/business/networth/article/How-do-Bay-Area-Realtors-lure-Chinese-buyers-Go-6601889.php http://www.sfchronicle.com/business/networth/article/How-do-... http://www.bizjournals.com/sanfrancisco/blog/real-estate/2015/01/bay-area-sf-real-estate-first-mission-china-invest.html http://www.bizjournals.com/sanfrancisco/blog/real-estate/201... and so on
roymurdock 11y ago
> 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. There's nothing stopping central banks from creating more liquidity through progressive rounds of QE, each of them buying in because they know their country will suffer in the short run if they do not follow suit. Of course this will lead to deflation and another recession in the long run with many losing faith in monetary policy/central banks altogether, but we're not quite there yet. We've still got another couple of years before we hit that phase.
- jbpetersen 11y ago
  I think at this point we're more likely to see NIRP than QE.
- jeffdavis 11y ago
  QE leads to deflation?
- redthrowaway 11y ago
  Could you explain how you see QE leading to deflation, when it's an explicitly inflationary policy?
  - roymurdock 11y ago
    Sure. QE pushes money into the supply side (banks) which goes primarily into rent seeking activities such as equity markets and real estate due to a lack of aggregate demand. This allows the economy to stay afloat as those with assets enjoy increases in nominal wealth as long as more and more liquidity is injected into the system. But it hurts the economy in the long run by distorting market signals (wage, unemployment, asset prices) that would take a major correction if the market was allowed to match supply and demand in these respective markets efficiently. Short summary: QE hurts aggregate demand in the long run through the misdirection of resources and the creation of rent seeking asset bubbles. Weak aggregate demand leads to deflation, regardless of how much liquidity we have on the bank side.
codesushi42 11y ago
> The number of people employed might. It will. > Engineer salaries are not going to drop a whole lot. Basic economics say that will follow. None of these events are isolated. They're interconnected and cascade. Everyone will be affected, even those who are flipping burgers in the Bay Area.
- LoSboccacc 11y ago
  > Everyone will be affected, even those who are flipping burgers in the Bay Area. hey sure there is a bubble there, but last time I checked BA wasn't caput mundi yet. Plenty non inflated startups do exist, even if not specifically there. Where the whole economy is sustained by VC money, well, there's gonna hit the hardest. But doesn't seem that the whole IT world is following that model.
  - codesushi42 11y ago
    That doesn't matter in the short term. Once the inflated startups tank, everything will take a dive. Remember 2000? Maybe not. Seems like many here are too young. I'm only in my early 30s and am already feeling deja vu. Life is strange.
    - dev360 11y ago
      I recall sending my resume to over 50-60 companies for junior web dev work @ $15/hr after college and only getting two answers back. It was pretty brutal.
    - alexqgb 11y ago
      When the dot.com economy crashed, Google and Apple weren't producing billions in quarterly profits. Facebook didn't even exist. Today, the local economy is a very different thing. There's a new layer of massive and massively profitable companies that are not relying on venture money to keep their doors open. Meanwhile, a number of truly fundamental breakthroughs in AI, A/VR, genetics (CRISPR), transportation, and energy are happening simultaneously. Any one of them could trigger another tech boom, especially when corporate balance sheets have ludicrous amounts of liquidity. All five at once indicates a world-historical event in the making (think Second Industrial Revolution). https://en.wikipedia.org/wiki/Second_Industrial_Revolution https://en.wikipedia.org/wiki/Second_Industrial_Revolution Accordingly, there's no reason to be investing in fluff like file sharing, app-based bike delivery, or "valuable" services like Shazam when there's real work to be done. In other words, the VC correction unfolding now is exactly that, a correction (long overdue, to my mind, and an unambiguously healthy thing). It will hurt a lot of overextended people to be sure, and unprofitable companies with dubious valuations that are laying people off now are wise to get ahead of the crunch. As the squeeze tightens, salaries will even out, the balance of power will shift to employers, traffic may improve (slightly), and rents may even stop climbing. But 20-30% declines in the overall housing market? Dream on. Prices here are a function of a massive shortage, off-the-charts desirability, and deeply-rooted peculiarities in the tax code (Prop. 13), not Florida-style speculation. All of these factors are far more impervious to temporary downturns in the employment market. Having lived through the dot.com crash, I can certainly hear echoes, but deja vu it isn't. The world is now a very different place.
rsync 11y ago
"Real estate values are sticky and will hold up longer than people think." This may be true in the general case, but there is a more relevant (IMO) general case here, and that is: demand outstripping supply causes prices to ramp up steeply ... but if that condition wavers at all they will drop. That is to say, if there is even a single marginal house for sale in the SFBA that can't clear, the whole market drops. Right now that doesn't exist. All (normal, conforming) homes in SF are clearing. If that changes - if there are even one or two marginal houses left unsold - the price plummets.
- sail 11y ago
  Can you say a bit more about this? How does a quantity of one affect supply so much?
- deleted 11y ago
  [deleted]
- marcell 11y ago
  What do you mean by "clear"? Is that a synonym for "sell"? If a house does not sell at a certain price, typically the owner can lower the sale price.

by jhulla 11y ago

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.
monomyth 11y ago
http://abc7news.com/realestate/chinas-elite-buy-bay-area-properties-at-record-rate/506609/ http://abc7news.com/realestate/chinas-elite-buy-bay-area-pro... http://www.sfchronicle.com/business/networth/article/How-do-Bay-Area-Realtors-lure-Chinese-buyers-Go-6601889.php http://www.sfchronicle.com/business/networth/article/How-do-... http://www.bizjournals.com/sanfrancisco/blog/real-estate/2015/01/bay-area-sf-real-estate-first-mission-china-invest.html http://www.bizjournals.com/sanfrancisco/blog/real-estate/201... and so on

roymurdock 11y ago

> 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. There's nothing stopping central banks from creating more liquidity through progressive rounds of QE, each of them buying in because they know their country will suffer in the short run if they do not follow suit. Of course this will lead to deflation and another recession in the long run with many losing faith in monetary policy/central banks altogether, but we're not quite there yet. We've still got another couple of years before we hit that phase.

jbpetersen 11y ago
I think at this point we're more likely to see NIRP than QE.
jeffdavis 11y ago
QE leads to deflation?
redthrowaway 11y ago
Could you explain how you see QE leading to deflation, when it's an explicitly inflationary policy?
- roymurdock 11y ago
  Sure. QE pushes money into the supply side (banks) which goes primarily into rent seeking activities such as equity markets and real estate due to a lack of aggregate demand. This allows the economy to stay afloat as those with assets enjoy increases in nominal wealth as long as more and more liquidity is injected into the system. But it hurts the economy in the long run by distorting market signals (wage, unemployment, asset prices) that would take a major correction if the market was allowed to match supply and demand in these respective markets efficiently. Short summary: QE hurts aggregate demand in the long run through the misdirection of resources and the creation of rent seeking asset bubbles. Weak aggregate demand leads to deflation, regardless of how much liquidity we have on the bank side.

codesushi42 11y ago

> The number of people employed might. It will. > Engineer salaries are not going to drop a whole lot. Basic economics say that will follow. None of these events are isolated. They're interconnected and cascade. Everyone will be affected, even those who are flipping burgers in the Bay Area.

LoSboccacc 11y ago
> Everyone will be affected, even those who are flipping burgers in the Bay Area. hey sure there is a bubble there, but last time I checked BA wasn't caput mundi yet. Plenty non inflated startups do exist, even if not specifically there. Where the whole economy is sustained by VC money, well, there's gonna hit the hardest. But doesn't seem that the whole IT world is following that model.
- codesushi42 11y ago
  That doesn't matter in the short term. Once the inflated startups tank, everything will take a dive. Remember 2000? Maybe not. Seems like many here are too young. I'm only in my early 30s and am already feeling deja vu. Life is strange.
  - dev360 11y ago
    I recall sending my resume to over 50-60 companies for junior web dev work @ $15/hr after college and only getting two answers back. It was pretty brutal.
  - alexqgb 11y ago
    When the dot.com economy crashed, Google and Apple weren't producing billions in quarterly profits. Facebook didn't even exist. Today, the local economy is a very different thing. There's a new layer of massive and massively profitable companies that are not relying on venture money to keep their doors open. Meanwhile, a number of truly fundamental breakthroughs in AI, A/VR, genetics (CRISPR), transportation, and energy are happening simultaneously. Any one of them could trigger another tech boom, especially when corporate balance sheets have ludicrous amounts of liquidity. All five at once indicates a world-historical event in the making (think Second Industrial Revolution). https://en.wikipedia.org/wiki/Second_Industrial_Revolution https://en.wikipedia.org/wiki/Second_Industrial_Revolution Accordingly, there's no reason to be investing in fluff like file sharing, app-based bike delivery, or "valuable" services like Shazam when there's real work to be done. In other words, the VC correction unfolding now is exactly that, a correction (long overdue, to my mind, and an unambiguously healthy thing). It will hurt a lot of overextended people to be sure, and unprofitable companies with dubious valuations that are laying people off now are wise to get ahead of the crunch. As the squeeze tightens, salaries will even out, the balance of power will shift to employers, traffic may improve (slightly), and rents may even stop climbing. But 20-30% declines in the overall housing market? Dream on. Prices here are a function of a massive shortage, off-the-charts desirability, and deeply-rooted peculiarities in the tax code (Prop. 13), not Florida-style speculation. All of these factors are far more impervious to temporary downturns in the employment market. Having lived through the dot.com crash, I can certainly hear echoes, but deja vu it isn't. The world is now a very different place.

rsync 11y ago

"Real estate values are sticky and will hold up longer than people think." This may be true in the general case, but there is a more relevant (IMO) general case here, and that is: demand outstripping supply causes prices to ramp up steeply ... but if that condition wavers at all they will drop. That is to say, if there is even a single marginal house for sale in the SFBA that can't clear, the whole market drops. Right now that doesn't exist. All (normal, conforming) homes in SF are clearing. If that changes - if there are even one or two marginal houses left unsold - the price plummets.

sail 11y ago
Can you say a bit more about this? How does a quantity of one affect supply so much?
deleted 11y ago
[deleted]
marcell 11y ago
What do you mean by "clear"? Is that a synonym for "sell"? If a house does not sell at a certain price, typically the owner can lower the sale price.