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It's fascinating to trace the genesis of present crash to Fed's policies post 2008 crisis. The interest rates were kept artificially low to prevent another Grea

It's fascinating to trace the genesis of present crash to Fed's policies post 2008 crisis. The interest rates were kept artificially low to prevent another Great Depression. 2010s saw an unprecedented rally of tech/growth stocks, fuelled by cheap capital. Growth at all cost was the mantra, hoping companies will turn profitable at some point á la Amazon. Uber's CEO hit the nail on the head when he wrote "The average employee at Uber is barely over 30, which means you've spent your career in a long and unprecedented bull run". There were signs of rate hike in 2019 but COVID forced Fed to create trillions of $$. Which only added fuel to the fire; equities, housing, crypto saw unbelievable growth. However the signs of inflation were clear in early-mid 2021 they were hoping it to be transitory. But when the inflation data came in late 2021 it turned out to be multi-decade high leaving Fed with no choice but to raise interest rates for the first time in more than a decade. Which brings us back to growth companies. As Uber's CEO candidly stated "Channeling Jerry Maguire, we need to show them the money". 2020s will be all about cash flow and efficiency. On the other hand expect to see cool innovations as it requires genuine scarcity to look for out of the box solutions. While Amazon's stock soared in 2010s their core tech was being built in 2000s while they were relentlessly driving for efficiency.

juanjmanfredi 4y ago
Inflation metrics show that the economy post 2008 was in fact under stimulated, which is why the recovery from the financial crisis was so slow. The recent COVID-related stimuli are what went too far.
- shakezula 4y ago
  I don’t know if I disagree but we were also in a really bad position if we didn’t do it. The stimulus did a lot of good, I saw the first hand benefits of what it did for people who really needed it.
  - adam_arthur 4y ago
    False dichotomy. It should have been done, but to a much lesser magnitude. That is plainly obvious to any rational minded person. The Fed also should have considered velocity in employment gains. They basically waited until labor market was already overheated to do anything... which means many are likely to lose their jobs in the fight with inflation now. Unfortunately the basic law of economics and real productivity vs nominal currency units has continued to exist, despite it being 2022.
    - shakezula 4y ago
      > That is plainly obvious to any rational minded person No, it’s not. There was a real economic crisis, and hindsight alone allows you to take that position.
      - adam_arthur 4y ago
        There were 4 major bills passed, as well as many executive actions. This was not a one time piece of legislation that caused inflation. The latest major bill, $2T dollars worth, was passed 1 full year after Covid lockdowns started... at a time where markets were reaching bubble levels, housing was appreciating at a double digit rate, unemployment rate was already dropping .5-1% per month. Student loans are still in forbearance even today, despite being proven to be largely regressive and contributing to inflation (billions a month in spending power). Those who didn't go to college are footing the bill for this. It seems you're not a very rational minded individual... or simply misinformed of the timeline. Many people don't seem to understand that a labor market this tight is a death knell to the downtrodden. They will be laid off when unemployment spikes after the Fed achieves their inflation fighting goals. Defeating the entire purpose of the stimulus and effectively making that money wasted, while we're left with high inflation and worse wealth inequality than ever before. The feel good policy of spending excessively and avoiding inflation fighting has proven to fail many times in history. The 1970's in the US being the most relevant. Also worth noting, that Larry Summers, the treasury secretary under Clinton argued exactly that the ARP would be inflationary. There were many voices calling this out that were ignored
        4y ago
stjohnswarts 4y ago
The market is having issues now not because of inflation being kept low but because people panic when everything isn't going smoothly. The supply chain and WW3 have investors scared, and now they're panicking and leaving the markets and taking their profits with them. Others panick and get what cash they can. Some will buy low and it'll level off soon probably. I think this is more of a pull back than a recession. Generally the economy is in good shape it's just the speculators are bailing from the market.
- Foobar8568 4y ago
  Typically one can take a look at HOOD 13F, institutionals are enjoying free meals while retails are bleeding money by getting out.
- joe_the_user 4y ago
  By effectively guaranteeing the market, the Fed made stock and bond markets more "money like" and so it didn't even have to overtly print money to create a money -printing-like effect ("the wealth effect") even though they also did print money to prove they were serious. So effectively we've had inflation for a while but most of it was inflation of asset values. If the Fed talks the market down and people sell, it will have destroyed money without other harsh measures. That doesn't mean there won't be more pain other ways also.
- adam_arthur 4y ago
  It's almost entirely because of inflation. Persistent inflation raises the discount rate (10y treasury yield), and devalues all other assets. Why would you buy a 100x PE company (1% yield) when you can get 3% guaranteed today? Even growing at double digit rates, how many years just to match that return? Except many tech companies were 100x PS not even 100x PE. DDOG and NET are two examples. If the 10y runs to even 3.5-4%, and stays there, we're likely to see a 40-50% haircut in markets.
paulpauper 4y ago
2010s saw an unprecedented rally of tech/growth stocks, fueled by cheap capital. Correlation does not mean causation, as it's commonly said. Interest rates were high in the 80s and 90s yet tech stocks boomed. Tech stocks did so well because they make so much money. Facebook earned $40 billion in profits for 2021, 3x Walmart. Google makes even more. Also, market dominance and moat factors working to big tech's favor.
- adam_arthur 4y ago
  Which tech stock was valued at 100x sales in the 80s? I'm sure there are plenty of examples from 1999, though.
  - paulpauper 4y ago
    what were interest rates in 1998-1999?
    - adam_arthur 4y ago
      You implied the tech stock boom wasn't due to a low discount rate, yet the valuations today are far higher than tech stocks in the 80s, even at comparable growth rates. Which makes it plainly obvious that a lot of the valuation gains are, in fact, due to the discount rate, and not organic growth. 3x of Apple's market cap growth since 2018 is a change in valuation multiple, and nothing to do with actual growth of its revenue/profits, for example. Is it a boom if a majority of your gains are due to changing the valuation peg and leaving the rest the same? Sounds more like a bubble to me Though my point is more directed towards the 100x PS companies, which are a far more egregious example of overvaluation
joe_the_user 4y ago
It's fascinating to trace the genesis of present crash to Fed's policies post 2008 crisis. The interest rates were kept artificially low to prevent another Great Depression. I think 2008 and 2001 basically saw "cut some fat and reflate the bubble" as the standard approach. I expect the same approach this time though I can't predict if it will work. This is basically the method of Greenspan and Bernanke, explicitly said that the Great Depression didn't have to happen, that juggling interest rates could have solved it. The thing about these situation is that by just killing weaker players, the Fed allows the basic imbalances to remain and increase (income inequality, monopoly positions, speculative enterprises, etc). The Great Depression was the single biggest equalizer of income, I think in US history and certainly in the 20th and 21st centuries. Not that I'd be in favor of such a thing.
slickrick216 4y ago
"The average employee at Uber is barely over 30, which means you've spent your career in a long and unprecedented bull run" - quite an American experience this. Many across Europe and the rest of the world were in a recession until 2014-2015. It was difficult to find a job out of college even with masters degrees in comp sci from tier 1-2 unis.
- mkr-hn 4y ago
  It's also an American experience outside tech and finance.
  - strikelaserclaw 4y ago
    its an american experience outside silicon valley.

juanjmanfredi 4y ago

Inflation metrics show that the economy post 2008 was in fact under stimulated, which is why the recovery from the financial crisis was so slow. The recent COVID-related stimuli are what went too far.

shakezula 4y ago
I don’t know if I disagree but we were also in a really bad position if we didn’t do it. The stimulus did a lot of good, I saw the first hand benefits of what it did for people who really needed it.
- adam_arthur 4y ago
  False dichotomy. It should have been done, but to a much lesser magnitude. That is plainly obvious to any rational minded person. The Fed also should have considered velocity in employment gains. They basically waited until labor market was already overheated to do anything... which means many are likely to lose their jobs in the fight with inflation now. Unfortunately the basic law of economics and real productivity vs nominal currency units has continued to exist, despite it being 2022.
  - shakezula 4y ago
    > That is plainly obvious to any rational minded person No, it’s not. There was a real economic crisis, and hindsight alone allows you to take that position.
    - adam_arthur 4y ago
      There were 4 major bills passed, as well as many executive actions. This was not a one time piece of legislation that caused inflation. The latest major bill, $2T dollars worth, was passed 1 full year after Covid lockdowns started... at a time where markets were reaching bubble levels, housing was appreciating at a double digit rate, unemployment rate was already dropping .5-1% per month. Student loans are still in forbearance even today, despite being proven to be largely regressive and contributing to inflation (billions a month in spending power). Those who didn't go to college are footing the bill for this. It seems you're not a very rational minded individual... or simply misinformed of the timeline. Many people don't seem to understand that a labor market this tight is a death knell to the downtrodden. They will be laid off when unemployment spikes after the Fed achieves their inflation fighting goals. Defeating the entire purpose of the stimulus and effectively making that money wasted, while we're left with high inflation and worse wealth inequality than ever before. The feel good policy of spending excessively and avoiding inflation fighting has proven to fail many times in history. The 1970's in the US being the most relevant. Also worth noting, that Larry Summers, the treasury secretary under Clinton argued exactly that the ARP would be inflationary. There were many voices calling this out that were ignored
      - 4y ago

stjohnswarts 4y ago

The market is having issues now not because of inflation being kept low but because people panic when everything isn't going smoothly. The supply chain and WW3 have investors scared, and now they're panicking and leaving the markets and taking their profits with them. Others panick and get what cash they can. Some will buy low and it'll level off soon probably. I think this is more of a pull back than a recession. Generally the economy is in good shape it's just the speculators are bailing from the market.

Foobar8568 4y ago
Typically one can take a look at HOOD 13F, institutionals are enjoying free meals while retails are bleeding money by getting out.
joe_the_user 4y ago
By effectively guaranteeing the market, the Fed made stock and bond markets more "money like" and so it didn't even have to overtly print money to create a money -printing-like effect ("the wealth effect") even though they also did print money to prove they were serious. So effectively we've had inflation for a while but most of it was inflation of asset values. If the Fed talks the market down and people sell, it will have destroyed money without other harsh measures. That doesn't mean there won't be more pain other ways also.
adam_arthur 4y ago
It's almost entirely because of inflation. Persistent inflation raises the discount rate (10y treasury yield), and devalues all other assets. Why would you buy a 100x PE company (1% yield) when you can get 3% guaranteed today? Even growing at double digit rates, how many years just to match that return? Except many tech companies were 100x PS not even 100x PE. DDOG and NET are two examples. If the 10y runs to even 3.5-4%, and stays there, we're likely to see a 40-50% haircut in markets.

paulpauper 4y ago

2010s saw an unprecedented rally of tech/growth stocks, fueled by cheap capital. Correlation does not mean causation, as it's commonly said. Interest rates were high in the 80s and 90s yet tech stocks boomed. Tech stocks did so well because they make so much money. Facebook earned $40 billion in profits for 2021, 3x Walmart. Google makes even more. Also, market dominance and moat factors working to big tech's favor.

adam_arthur 4y ago
Which tech stock was valued at 100x sales in the 80s? I'm sure there are plenty of examples from 1999, though.
- paulpauper 4y ago
  what were interest rates in 1998-1999?
  - adam_arthur 4y ago
    You implied the tech stock boom wasn't due to a low discount rate, yet the valuations today are far higher than tech stocks in the 80s, even at comparable growth rates. Which makes it plainly obvious that a lot of the valuation gains are, in fact, due to the discount rate, and not organic growth. 3x of Apple's market cap growth since 2018 is a change in valuation multiple, and nothing to do with actual growth of its revenue/profits, for example. Is it a boom if a majority of your gains are due to changing the valuation peg and leaving the rest the same? Sounds more like a bubble to me Though my point is more directed towards the 100x PS companies, which are a far more egregious example of overvaluation

joe_the_user 4y ago

It's fascinating to trace the genesis of present crash to Fed's policies post 2008 crisis. The interest rates were kept artificially low to prevent another Great Depression. I think 2008 and 2001 basically saw "cut some fat and reflate the bubble" as the standard approach. I expect the same approach this time though I can't predict if it will work. This is basically the method of Greenspan and Bernanke, explicitly said that the Great Depression didn't have to happen, that juggling interest rates could have solved it. The thing about these situation is that by just killing weaker players, the Fed allows the basic imbalances to remain and increase (income inequality, monopoly positions, speculative enterprises, etc). The Great Depression was the single biggest equalizer of income, I think in US history and certainly in the 20th and 21st centuries. Not that I'd be in favor of such a thing.

slickrick216 4y ago

"The average employee at Uber is barely over 30, which means you've spent your career in a long and unprecedented bull run" - quite an American experience this. Many across Europe and the rest of the world were in a recession until 2014-2015. It was difficult to find a job out of college even with masters degrees in comp sci from tier 1-2 unis.

mkr-hn 4y ago
It's also an American experience outside tech and finance.
- strikelaserclaw 4y ago
  its an american experience outside silicon valley.