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If you look at the 2-10 year spread US treasury bond rates, there is a massive yield curve inversion. Historically, this inversion has been a very consistent me

If you look at the 2-10 year spread US treasury bond rates, there is a massive yield curve inversion. Historically, this inversion has been a very consistent metric for predicting incoming recessions. https://fred.stlouisfed.org/series/T10Y2Y https://fred.stlouisfed.org/series/T10Y2Y The current inversion hasn't been since the early 2000s and ensuing recession, which was characterized by the bursting of the dotcom bubble and the attacks of September 11th. The dotcom bubble is attributed to venture capital funding, and the crash took out a lot of companies and hit others like Amazon pretty hard. Economic crisis is inevitable, it's built into the business cycle. Following this logic, the next companies on the chopping block would be tech once again. This time, likely the "unicorns" that are the darlings of VC investors. Additionally, it's kind of an open secret that FAANG stock valuations are a bit disconnected from reality. When you are on the edge of consumer tech, a lot of stock investors don't even understand how your business model functions and what gives it such a high valuation, and they don't really care as long as the price goes up. It's a darker side of the culture, as the trend is to splurge with VC millions and cash out at the zenith then move on to the next thing. History shows it's not sustainable.

nugget 4y ago
I'm just old enough to remember the dot com bubble. Very few companies back then had much revenue, let alone any profit. Public tech companies in 2022 have enormous revenue and profit streams. Alphabet/Google is trading around 20 times earnings and Meta/Facebook is around 10 times earnings. The S&P 500 overall is in the high teens. I'm not sure I'd call that disconnected from reality. Within the startup ecosystem there are embryonic products that if nurtured can develop into existential threats to most of the current Fortune 500 companies. Incumbents eventually have to pay up to survive, eg. Adobe acquiring Figma. This dynamic supports startup valuations broadly. Startups represent the future and the future is usually priced at a premium.
- Zanfa 4y ago
  > Public tech companies in 2022 have enormous revenue and profit streams. Alphabet/Google is trading around 20 times earnings and Meta/Facebook is around 10 times earnings. While this is true for the largest of ad companies like Google and FB, the same isn't true for the vast majority of recent tech IPOs like Robinhood, Duolingo, Couchbase, Monday not to mention literally all of the ridesharing and food delivery companies to name just a few. In a way, excessive acquisition valuations are likely also a side-effect of too much money floating around that might change radically with increasing interest rates.
  - deleted 4y ago
    [deleted]
- benj111 4y ago
  Ad spending is one of the first things to get chopped come a recession. So expect these numbers to go down. So then the question becomes what's the profit margins? Can they absorb, say, a halving of revenue short term? If they can't then they're going to start layoffs, and the first to go will be the ones that don't generate revenue, so the experience gets worse for users, and the pipeline of new products dwindles, and you've released a bunch of potential competitors that know your business into the labour pool. This also removes the price support for those existing startups.
- caeril 4y ago
  One problem is that in 2022, most of these companies have very fragile revenue in a contracting or even a steady-state broader economy. In a time of genuine hardship, particularly of the energy/food constraint kind, there are a million consumer priorities before a new iphone (Apple), consumer electronics (Amazon), fast fashion, vacation travel, and the enormous adtech ecosystem (Google, Facebook) that is supported by such business, as well as the toolmakers (Adobe) for them.
geysersam 4y ago
> and the attacks of September 11th Were they predicted by the yield curve inversion? Amazing. Those bond traders really know what they're doing.
- angrycontrarian 4y ago
  Believe it or not, the bond market predicted covid months in advance with another yield curve inversion.
  - geysersam 4y ago
    How do we know there's a casual connection? Sure, the yield cure was inverted, but if you asked an economist about that in late 2019 they could have given you plenty of reasons for that, but Covid would not have been one of them.
- BigBubbleButt 4y ago
  Believe it or not, there were some traders that seemed to predict 9/11. https://www.jstor.org/stable/10.1086/503645#metadata_info_tab_contents https://www.jstor.org/stable/10.1086/503645#metadata_info_ta...
  - geysersam 4y ago
    I believe they seemed to predict 9/11.
    - BigBubbleButt 4y ago
      The point of the paper is they had inside information, so they did predict it.
      - geysersam 4y ago
        Bin Ladin might have traded before the attack, it's possible. But that has nothing to do with the yield curve inversion as indicator of approchong economic downturn.

nugget 4y ago

I'm just old enough to remember the dot com bubble. Very few companies back then had much revenue, let alone any profit. Public tech companies in 2022 have enormous revenue and profit streams. Alphabet/Google is trading around 20 times earnings and Meta/Facebook is around 10 times earnings. The S&P 500 overall is in the high teens. I'm not sure I'd call that disconnected from reality. Within the startup ecosystem there are embryonic products that if nurtured can develop into existential threats to most of the current Fortune 500 companies. Incumbents eventually have to pay up to survive, eg. Adobe acquiring Figma. This dynamic supports startup valuations broadly. Startups represent the future and the future is usually priced at a premium.

Zanfa 4y ago
> Public tech companies in 2022 have enormous revenue and profit streams. Alphabet/Google is trading around 20 times earnings and Meta/Facebook is around 10 times earnings. While this is true for the largest of ad companies like Google and FB, the same isn't true for the vast majority of recent tech IPOs like Robinhood, Duolingo, Couchbase, Monday not to mention literally all of the ridesharing and food delivery companies to name just a few. In a way, excessive acquisition valuations are likely also a side-effect of too much money floating around that might change radically with increasing interest rates.
- deleted 4y ago
  [deleted]
benj111 4y ago
Ad spending is one of the first things to get chopped come a recession. So expect these numbers to go down. So then the question becomes what's the profit margins? Can they absorb, say, a halving of revenue short term? If they can't then they're going to start layoffs, and the first to go will be the ones that don't generate revenue, so the experience gets worse for users, and the pipeline of new products dwindles, and you've released a bunch of potential competitors that know your business into the labour pool. This also removes the price support for those existing startups.
caeril 4y ago
One problem is that in 2022, most of these companies have very fragile revenue in a contracting or even a steady-state broader economy. In a time of genuine hardship, particularly of the energy/food constraint kind, there are a million consumer priorities before a new iphone (Apple), consumer electronics (Amazon), fast fashion, vacation travel, and the enormous adtech ecosystem (Google, Facebook) that is supported by such business, as well as the toolmakers (Adobe) for them.

geysersam 4y ago

> and the attacks of September 11th Were they predicted by the yield curve inversion? Amazing. Those bond traders really know what they're doing.

angrycontrarian 4y ago
Believe it or not, the bond market predicted covid months in advance with another yield curve inversion.
- geysersam 4y ago
  How do we know there's a casual connection? Sure, the yield cure was inverted, but if you asked an economist about that in late 2019 they could have given you plenty of reasons for that, but Covid would not have been one of them.
BigBubbleButt 4y ago
Believe it or not, there were some traders that seemed to predict 9/11. https://www.jstor.org/stable/10.1086/503645#metadata_info_tab_contents https://www.jstor.org/stable/10.1086/503645#metadata_info_ta...
- geysersam 4y ago
  I believe they seemed to predict 9/11.
  - BigBubbleButt 4y ago
    The point of the paper is they had inside information, so they did predict it.
    - geysersam 4y ago
      Bin Ladin might have traded before the attack, it's possible. But that has nothing to do with the yield curve inversion as indicator of approchong economic downturn.