5 ms·

>It makes no sense. Why is web software so easy to make money in? Why do we value hard engineering so little? Interest rate intervention (making them lower tha

by boppo1 4y ago

>It makes no sense. Why is web software so easy to make money in? Why do we value hard engineering so little? Interest rate intervention (making them lower than equilibrium) changed the DCF valuation that is the fundamental way of evaluating business (i.e. people working together on large endeavors) to one where promising massive returns in the future(20+ years) made low returns in the near term (x<20 years) acceptable. Investment dollars chased growth and VC and PE grew. Meanwhile, in order to compete for capital, all businesses focused on delivering value now had to adjust their income statements (try to grow revenue, or more likely cut expenses) as hard as possible to compete with businesses that aren't delivering on much now but seem like they will change everything in the future. Google "DCF Valuation" and model out 100 years in excel. Add a row that divides the PV of each year by the NPV so you can see the % it contributes to the NPV. Then setup a bar chart so you can visually get a vibe for the integral of different time periods. Once that is all setup, try a real simple assumption: 0 growth for CF and .5% for your Risk Free Rate. Then try it at 5%. If the Federal Reserve sticks to its guns and gets rates up, and keeps them there, it will be unsurprising to see "hard" engineering jobs be valuable again, while all the CSS people suddenly can't find two pennies to rub together.

_vdpp 4y ago
I’ve been wondering if SWE pay rates have been artificially high for a while due to easy lending - it will be interesting to see if your prediction comes true. Probably a lot of SW companies out there right now are dependent on discretionary income which puts them at risk in a tough market.
- beezlebroxxxxxx 4y ago
  SWE salaries are also very high because right now it's cheap as hell to run a software company leading to huge returns. Overheads are miniscule. The salaries can take a larger slice of the pie. A lot of people in the comments are talking about how EE work is comparatively much harder. But that's irrelevant. SWEs simply make businesses more money.
  - SoftTalker 4y ago
    But a large number of software businesses are not making any money at all.
    - Apocryphon 4y ago
      Which goes back to this subthread’s root post about investors focusing on companies “promising massive returns in the future.”
dougmany 4y ago
Ironically, the 6 hour Fundamentals of Engineering test that I took after earning my EE degree had a section on Discounted Cash Flow. It is funny that you are using it now to explain why taking that has given me no utility so far.
- deleted 4y ago
  [deleted]
lamontcg 4y ago
Same thing could be said in 2007. All of the goldbug quantity-theory-of-money folks were screaming about Greenspan holding rates artifically low for so long -- both before the tech bubble in 2001 and up until they started to delicately raise rates after 2003. Once the real crash starts to unfold it may get bad for awhile, but once the Billionaires start getting worried about it they'll hit the monetary gas pedal again. SWEs will mostly weather the storm, and even if it gets bad enough that a lot of them lose their jobs (particularly at the margins), it'll still all come back. Which is to stay that the Fed will definitely not stick to their guns once something significant pops. (And your analysis kind of shows that there will be significant pain because everything has been built up around the interest rate environment that we've had post-2009 and trying to create any kind of structural change there will definitely cause a crash -- And the Fed works for the Billionaires so once they start to feel the pain then policy will reverse)
- imtringued 4y ago
  >significant pain because everything has been built up around the interest rate environment that we've had post-2009 Permanent money is always in disequilibrium. It doesn't build up anything. It is always broken which forces constant interventions to reach equilibrium.
  - boppo1 4y ago
    What do you mean by 'permanent money'?
- boppo1 4y ago
  Greenspan is interesting to me because although he seems to have started this whole low-interest paradigm, he was once an ardent supporter of a gold standard in 1967. It's a short paper, worth looking up. So I wonder, how did he go from "fiat schemes exist only as a means for welfare statists to infringe on property rights" to being in charge of interest rate intervention?
golemarms 4y ago
> If the Federal Reserve sticks to its guns and gets rates up, and keeps them there, it will be unsurprising to see "hard" engineering jobs be valuable again, while all the CSS people suddenly can't find two pennies to rub together. I was under the impression that "hard" engineering isn't as financially attractive to investors due to the long payoff period as compared to web software. In that case, won't high interest rates actually hurt "hard" engineering due to a greater discount being applied to future cashflows?
- mjh2539 4y ago
  Precisely; electrical engineering as a field requires enormous amounts of capital. Software development also requires capital, but not nearly as much, and the returns are much higher.
  - naasking 4y ago
    The iPhone had some pretty huge returns for Apple. Maybe "most" EE doesn't have huge returns, but that's also true of most software.
JamesBarney 4y ago
This really seems like a stretch. I can maybe see how low interest rates could maybe increase software salaries. But I can't see anyway that would depress EE salaries.
- Apocryphon 4y ago
  Not enough hardware startups compared to purely software startups. EE as an industry is not benefiting from low interest rates to the same stratospheric extent as SW has, thus the individual engineers aren’t either.
imtringued 4y ago
>Interest rate intervention (making them lower than equilibrium) changed the DCF valuation that is the fundamental way of evaluating business According to the Friedman rule the optimal interest rate is 0%.
- Gibbon1 4y ago
  I'll add that to my long list of stuff he didn't understand cause he was a dummy.
yobbo 4y ago
A locked-in user has a long (or very long) economic lifecycle, whereas a widget has a short lifecycle. "Software engineering" is probably subsidized by borrowed money aimed at growing locked-in userbases and therefore valuations.

by boppo1 4y ago

_vdpp 4y ago

I’ve been wondering if SWE pay rates have been artificially high for a while due to easy lending - it will be interesting to see if your prediction comes true. Probably a lot of SW companies out there right now are dependent on discretionary income which puts them at risk in a tough market.

beezlebroxxxxxx 4y ago
SWE salaries are also very high because right now it's cheap as hell to run a software company leading to huge returns. Overheads are miniscule. The salaries can take a larger slice of the pie. A lot of people in the comments are talking about how EE work is comparatively much harder. But that's irrelevant. SWEs simply make businesses more money.
- SoftTalker 4y ago
  But a large number of software businesses are not making any money at all.
  - Apocryphon 4y ago
    Which goes back to this subthread’s root post about investors focusing on companies “promising massive returns in the future.”

dougmany 4y ago

Ironically, the 6 hour Fundamentals of Engineering test that I took after earning my EE degree had a section on Discounted Cash Flow. It is funny that you are using it now to explain why taking that has given me no utility so far.

deleted 4y ago
[deleted]

lamontcg 4y ago

Same thing could be said in 2007. All of the goldbug quantity-theory-of-money folks were screaming about Greenspan holding rates artifically low for so long -- both before the tech bubble in 2001 and up until they started to delicately raise rates after 2003. Once the real crash starts to unfold it may get bad for awhile, but once the Billionaires start getting worried about it they'll hit the monetary gas pedal again. SWEs will mostly weather the storm, and even if it gets bad enough that a lot of them lose their jobs (particularly at the margins), it'll still all come back. Which is to stay that the Fed will definitely not stick to their guns once something significant pops. (And your analysis kind of shows that there will be significant pain because everything has been built up around the interest rate environment that we've had post-2009 and trying to create any kind of structural change there will definitely cause a crash -- And the Fed works for the Billionaires so once they start to feel the pain then policy will reverse)

imtringued 4y ago
>significant pain because everything has been built up around the interest rate environment that we've had post-2009 Permanent money is always in disequilibrium. It doesn't build up anything. It is always broken which forces constant interventions to reach equilibrium.
- boppo1 4y ago
  What do you mean by 'permanent money'?
boppo1 4y ago
Greenspan is interesting to me because although he seems to have started this whole low-interest paradigm, he was once an ardent supporter of a gold standard in 1967. It's a short paper, worth looking up. So I wonder, how did he go from "fiat schemes exist only as a means for welfare statists to infringe on property rights" to being in charge of interest rate intervention?

golemarms 4y ago

> If the Federal Reserve sticks to its guns and gets rates up, and keeps them there, it will be unsurprising to see "hard" engineering jobs be valuable again, while all the CSS people suddenly can't find two pennies to rub together. I was under the impression that "hard" engineering isn't as financially attractive to investors due to the long payoff period as compared to web software. In that case, won't high interest rates actually hurt "hard" engineering due to a greater discount being applied to future cashflows?

mjh2539 4y ago
Precisely; electrical engineering as a field requires enormous amounts of capital. Software development also requires capital, but not nearly as much, and the returns are much higher.
- naasking 4y ago
  The iPhone had some pretty huge returns for Apple. Maybe "most" EE doesn't have huge returns, but that's also true of most software.

JamesBarney 4y ago

This really seems like a stretch. I can maybe see how low interest rates could maybe increase software salaries. But I can't see anyway that would depress EE salaries.

Apocryphon 4y ago
Not enough hardware startups compared to purely software startups. EE as an industry is not benefiting from low interest rates to the same stratospheric extent as SW has, thus the individual engineers aren’t either.

imtringued 4y ago

>Interest rate intervention (making them lower than equilibrium) changed the DCF valuation that is the fundamental way of evaluating business According to the Friedman rule the optimal interest rate is 0%.

Gibbon1 4y ago
I'll add that to my long list of stuff he didn't understand cause he was a dummy.

yobbo 4y ago

A locked-in user has a long (or very long) economic lifecycle, whereas a widget has a short lifecycle. "Software engineering" is probably subsidized by borrowed money aimed at growing locked-in userbases and therefore valuations.