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Tech people will be hit much harder by this than they think. The STEM world is largely in denial because ultimately SV grew because of the last major recession.

Tech people will be hit much harder by this than they think. The STEM world is largely in denial because ultimately SV grew because of the last major recession. That won't be happening this time. Startups are having massive layoffs right now, and each week bring companies further and further down the chain lay people off. I strongly suspect we'll see more major layoffs next week. Most big tech companies are driven by either consumer spending and advertising. Before 2008 at lot of these companies still had not capture their full market share, so even in a recession there was room for growth. Now profits in these companies are based on market dominance. Even the big names will likely take a hit as the severity of this recession starts to take hold. Finally in the Bay Area there's the looming problem that huge amounts of everything is paid for in RSUs (restricted stock units). The more ridiculous those total compensation packages may seem to outsiders the more they are built up from RSUs. In theory you should just live off base salary and RSU are the (very thick) icing on the cake, but this is unrealistic in SV. This stock part of the compensation goes a long way to paying for the insane housing in that region. Stocks drop and instantly Bay area income does to. Tech will be effected, but a combination of naiveté and denial make conversations here seem like tech is safe.

tmaly 6y ago
Maybe Tech will in short term, but investors still will need to chaise yield in a zero interest rate environment. As soon as things pass, money should start to flow back into startups.
- kec 6y ago
  Funding doesn’t matter much if your customer base either doesn’t exist anymore (eg b2b sass companies trying to build a foothold via other startups) or has drastically shrunk (b2c companies targeting consumers with reduced buying power).
- adrianpike 6y ago
  > As soon as things pass This may not be soon.
lm28469 6y ago
> Startups The problem with a lot of startups is that they aren't making a profit when everything is going fine, let alone during a world wide pandemic, sometimes for years. I see it as a wake up call for tech. It will suck for many people but in the long run it might be positive for the industry.
guiomie 6y ago
100% agree. The housing market in the bay area will go down even more. The last year changes in tax rules such as lower deduction for mortgage interest and municipal taxes had already weakened the market. With RSUs going down, even less people will be able to buy housing, driving the price down. I think my house lost 8% in the last year, pre-COVID19. Sucks for me as a home owner, but I really believed the housing market was over-inflated. If we have layoffs, in FAANGs, I suspect a lot of folks will not be able to pay there mortgage.
- jldugger 6y ago
  > With RSUs going down, even less people will be able to buy housing, driving the price down. If we use the SP500 as a benchmark for RSU valuation, in 2020 those regressed, at their lows for the year, to mid 2017. They are currently at September of last year. In the past year, SP500 is up a quarter percent. I don't think tech workers were doomed in 2019, and nobody was buying a house on the assumption that RSUs would appreciate at 50 percent per annum. > If we have layoffs, in FAANGs, I suspect a lot of folks will not be able to pay their mortgage. Indeed million dollar mortgages are high stakes. If foreclosures actually become an issue I imagine the politicians will step in to bail someone out. Maybe the lenders, but probably homeowners directly since they vote. It's entirely possible we see a democratic congress throw out the SALT limits from the tax reforms.
  - qqqwerty 6y ago
    I wouldn't count on it. The mortgage market is divided between conventional and jumbo loans[1]. Any bail outs will likely focus on conventional mortgages. The current administration seems to relish in screwing over blue states, and the house of representatives has a long list of negotiating priorities. They might be able to negotiate the SALT limits, but I don't see jumbo loan bail outs making the cut. [1] https://www.washingtonpost.com/business/on-small-business/wealthy-mortgage-borrowers-face-cold-shoulder-from-lenders/2020/04/21/eb5a23bc-83e7-11ea-81a3-9690c9881111_story.html https://www.washingtonpost.com/business/on-small-business/we...
- dnate 6y ago
  wow, those poor bay area house owners.
james1071 6y ago
Yes - there seems to be an assumption that they have jobs until the money runs out.
redisman 6y ago
I also feel pretty strongly that many companies have been hoarding engineers/etc. because they've been so flush with cash from places like SoftBank and because there has been no expectation of making a profit for the last 10 years. Then they make them work on a VPs pet-projects with not much business value and those will be reviewed fairly soon.
oarabbus_ 6y ago
>Finally in the Bay Area there's the looming problem that huge amounts of everything is paid for in RSUs (restricted stock units). The FED and Treasury have "united" in some sense, and we have unlimited (trillions) QE flowing into equities. So unless the FED stops the money printing party, I'm not so confident this will happen.
wikawaka123 6y ago
>"The STEM world is largely in denial because ultimately SV grew because of the last major recession. That won't be happening this time." Says who? Are you really claiming knowledge of what the future portends? If you are certain of the future-- you would make a bit bet. Have you bet money on it? I doubt it. If you truly thought this was the case, you'd have purchased some options ;)

tmaly 6y ago

Maybe Tech will in short term, but investors still will need to chaise yield in a zero interest rate environment. As soon as things pass, money should start to flow back into startups.

kec 6y ago
Funding doesn’t matter much if your customer base either doesn’t exist anymore (eg b2b sass companies trying to build a foothold via other startups) or has drastically shrunk (b2c companies targeting consumers with reduced buying power).
adrianpike 6y ago
> As soon as things pass This may not be soon.

lm28469 6y ago

> Startups The problem with a lot of startups is that they aren't making a profit when everything is going fine, let alone during a world wide pandemic, sometimes for years. I see it as a wake up call for tech. It will suck for many people but in the long run it might be positive for the industry.

guiomie 6y ago

100% agree. The housing market in the bay area will go down even more. The last year changes in tax rules such as lower deduction for mortgage interest and municipal taxes had already weakened the market. With RSUs going down, even less people will be able to buy housing, driving the price down. I think my house lost 8% in the last year, pre-COVID19. Sucks for me as a home owner, but I really believed the housing market was over-inflated. If we have layoffs, in FAANGs, I suspect a lot of folks will not be able to pay there mortgage.

jldugger 6y ago
> With RSUs going down, even less people will be able to buy housing, driving the price down. If we use the SP500 as a benchmark for RSU valuation, in 2020 those regressed, at their lows for the year, to mid 2017. They are currently at September of last year. In the past year, SP500 is up a quarter percent. I don't think tech workers were doomed in 2019, and nobody was buying a house on the assumption that RSUs would appreciate at 50 percent per annum. > If we have layoffs, in FAANGs, I suspect a lot of folks will not be able to pay their mortgage. Indeed million dollar mortgages are high stakes. If foreclosures actually become an issue I imagine the politicians will step in to bail someone out. Maybe the lenders, but probably homeowners directly since they vote. It's entirely possible we see a democratic congress throw out the SALT limits from the tax reforms.
- qqqwerty 6y ago
  I wouldn't count on it. The mortgage market is divided between conventional and jumbo loans[1]. Any bail outs will likely focus on conventional mortgages. The current administration seems to relish in screwing over blue states, and the house of representatives has a long list of negotiating priorities. They might be able to negotiate the SALT limits, but I don't see jumbo loan bail outs making the cut. [1] https://www.washingtonpost.com/business/on-small-business/wealthy-mortgage-borrowers-face-cold-shoulder-from-lenders/2020/04/21/eb5a23bc-83e7-11ea-81a3-9690c9881111_story.html https://www.washingtonpost.com/business/on-small-business/we...
dnate 6y ago
wow, those poor bay area house owners.

james1071 6y ago

Yes - there seems to be an assumption that they have jobs until the money runs out.

redisman 6y ago

I also feel pretty strongly that many companies have been hoarding engineers/etc. because they've been so flush with cash from places like SoftBank and because there has been no expectation of making a profit for the last 10 years. Then they make them work on a VPs pet-projects with not much business value and those will be reviewed fairly soon.

oarabbus_ 6y ago

>Finally in the Bay Area there's the looming problem that huge amounts of everything is paid for in RSUs (restricted stock units). The FED and Treasury have "united" in some sense, and we have unlimited (trillions) QE flowing into equities. So unless the FED stops the money printing party, I'm not so confident this will happen.

wikawaka123 6y ago

>"The STEM world is largely in denial because ultimately SV grew because of the last major recession. That won't be happening this time." Says who? Are you really claiming knowledge of what the future portends? If you are certain of the future-- you would make a bit bet. Have you bet money on it? I doubt it. If you truly thought this was the case, you'd have purchased some options ;)