9 ms·

What’s unusual about this cycle though is that it’s the fear of a recession due to fed policy that is causing companies to cut back. In past cycles fed policy c

by dkrich 4y ago

What’s unusual about this cycle though is that it’s the fear of a recession due to fed policy that is causing companies to cut back. In past cycles fed policy caused a recession nobody predicted and companies suddenly found their earnings in the toilet and made enormous cuts in head count, R&D spending, etc. Something about this cycle and these cuts feels I dunno, manufacturered or something. Like are 7k high paying jobs at a salesforce indicative of an economy collapsing while the overall labor market is still extremely tight and you’re not hearing about similar layoffs throughout all industries? All of these cuts seem to be follow the leader because we’re worried and I would not be that surprised to see the reality in the overall economy be much better than feared and these same companies hiring again before year end. It probably doesn’t hurt from the c level perspective that Wall Street tends to welcome job cuts at least in the short term. Although it can certainly do lasting damage to morale within a company.

bushbaba 4y ago
There’s preliminary data that shows a recession is currently underway. This is reactionary. if the fed cuts rates and stop’s quantity tightening then sure, Amazon will likely u-turn. But that’s due to a situational change.
- dkrich 4y ago
  I think a great deal of this situation is narrative based. People are generally terrible at predicting earnings six months out as well as recessions and if we get a major recession it would easily be the most widely anticipated recession in history. First it starts with higher than expected CPI followed by hawkish fed policy. People learned their lesson last cycle and became worried that rate hikes as in past cycles would cause a deep recession and began adjusting immediately rather than wait for a recession. This is evidenced by the fact that the S&P peaked about four months before the Fed even hiked one time. That’s a very important point that I think many overlook. When you are completely ignorant of impending danger you are most susceptible to damage. When you’re terrified of getting punched in the face you’re going to take drastic measures to protect yourself and in the process likely not get punched at all. Meanwhile rates have moved very little in 3 months indicating (to me at least) that the bond market believes rate hikes are ending very soon.
  - WillPostForFood 4y ago
    When the fed commits to hiking rates to slow the economy, it almost always leads to recession. You'd have to be a hyper optimist to not plan for a recession, as an individual, or a business. https://www.politico.com/news/2022/03/29/federal-reserve-recession-inflation-rates-00021119 https://www.politico.com/news/2022/03/29/federal-reserve-rec...
    - lapcat 4y ago
      A lot of recessions are relatively short, and don't affect big tech companies much in the long run: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#Great_Depression_onward_(1929%E2%80%93present) https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... Someone tell Apple there was a "Great Recession". A little thing called iPhone made that irrelevant for them. I started my career during the Great Recession. Wasn't a problem for me. A recession is an aggregate, but during every economic condition there are both losers and winners. You don't want to overreact to every shift in the wind.
    - dkrich 4y ago
      They have very little credibility currently because of past miscues beginning in 2018. The fed has to talk tough because if they were to say “we probably aren’t going to hike much more” markets would likely rebound, easing liquidity and making their job of reducing inflation harder if not impossible. The problem is that it seems the bond market sees through this and isn’t buying the tough talk. I think most people believe the fed and buy into the popular narrative that taking rates from zero to 4.5% will decimate the economy (even though 4% is actually very normal historically and anything under 4 was considered quite low). Watch what happens with fed policy if CPI comes in well beneath expectations next Thursday.
      - fijiaarone 4y ago
        Going from zero to 4% is a lot harder that going from 8% to 4%
      - redtriumph 4y ago
colinmorelli 4y ago
Tech has been one of the most affected by the grow at all costs mentality that is untenable when capital is not essentially free. In other words, tech saw the largest and fastest inflationary valuation period in decades under loose fed policy. It’s now seeing a similarly fast contraction. The reason we’re not seeing similar cuts across the board (or at least as significant) is that they also didn’t grow as significantly in the years prior.
- dkrich 4y ago
  That’s true and a lot of enterprise customers are similarly cutting spending in anticipation of the recession which I’m sure is having impacts on these companies now. But again I believe that is based on fear as opposed to a strict need to cut spending.
nostrademons 4y ago
"It's a recession when your neighbor loses their job. It's a depression when you lose yours." I think this is just availability bias. Ordinary people - the ones who aren't glued to CNBC or the WSJ - tend to measure the strength of the economy by the job market for their friends and neighbors. The job market, right now, is pretty strong for ordinary people. Hence it "feels" like boom times, and that all the chicken littles are nuts. Here in Silicon Valley, working for a FAANG, it's definitely recession time. And interestingly, it seems like the higher you get up the corporate ladder, the more you're worried. The ordinary employees basically just do their jobs and gripe about how bonuses are smaller this year, holiday parties are wimpier, and travel budgets have been cut. Managers complain about how we have to stack-rank employees and fret about whether we'll eventually have to execute a layoff. Directors worry about how their headcount and budgets have been cut. Our CEO seems visibly anxious. I've learned that it's a bad sign when the people with the most information are the most worried. My cue to stock up on toilet paper pre-COVID was when I heard a leak that the CDC had told all their own employees to make sure they had at least a 3 month stock of everything. I realized the Ukraine war was serious when Biden snapped "We're trying to avoid WW3 here" while the official party line was that this was a regional conflict that would be over in a couple weeks. I'm a bit worried about this Bay Area storm going on right now because the meteorologists seem more freaked out than the general public. Similarly, it's worrying when CEOs are more anxious than their employees about economic conditions. The popular narrative is that these are just a bunch of bloated tech companies laying off surplus employees that don't do anything useful. I don't buy that. I think the American populace has no idea what's about to hit them, and the economy's going to go straight off a cliff in 2023H1.
- A4ET8a8uTh0 4y ago
  I agree with the rationale overall ( people at helm being worried as a signal ). I try to look for similar clues. Still, as far as tech goes, for some companies that relied on cheap money, the ride may well be over ( I think of weird products like Peleton, which is a niche product, but was scaled as if it was going to become a thing in every house ). I am not sure it translates to everything going out with a bang. Today's news were that job market[1] is still fine despite clear attempts to make it employer's market again. [1]https://www.cnbc.com/2023/01/04/jolts-report-november-2022.html https://www.cnbc.com/2023/01/04/jolts-report-november-2022.h...
slantedview 4y ago
> Something about this cycle and these cuts feels I dunno, manufactured or something. It's absolutely manufactured to the extent that the Fed is intentionally trying to slow demand (aka: cause a recession) in order to stop inflation. The problem is, a large portion of inflation (some indicators are half) is simple price gouging, which Fed measures won't impact, and another large portion is simple ongoing supply chain problems, which the Fed also can't really fix. All they can do is force a recession.
- nervlord 4y ago
  [dead]
- dkrich 4y ago
  What I mean is that in past cycles companies suddenly found themselves in distress they did not expect. This time however, everyone is calling for a recession so are battening down the hatches while earnings are still very strong. It’s unprecedented and shows how societies adapt as they learn and focus on new factors. When the yield curve and the relationship between fed policy and the economy was little known and ignored and instead most people focused on trends in earnings or real estate or whatever the hot thing of the day was, the significance of fed policy and rates was huge. Now everyone is laser focused on the fed which changes behavior which changes outcomes. The worst recessions blindside virtually everyone and are so severe precisely because people are taking the most risk when things are most dire. Think the lead up to 1929, 2000, 2008, the Florida real estate boom of the 1920’s, etc.
- mensetmanusman 4y ago
  Price gouging is another word for a supply shock due to far fewer workers and a strong subsidized demand.
jackcosgrove 4y ago
The Fed is trying to trigger a recession, although they'll never come out and say it, because they want to increase the unemployment rate. Increased unemployment will put a stop to both price and wage inflation. At this point the Fed is trying to prevent a wage price spiral and a resetting of expectations among the public towards more inflation.
- sangnoir 4y ago
  > The Fed is trying to trigger a recession, although they'll never come out and say it Oh, they are not shy about it, it's just a little obfuscated by the jargon they use. One of the Fed's explicit goal is to lower "consumer demand", i.e. make people buy less stuff. Employment numbers are a function of demand, and the Fed has no means of directly tweaking employment numbers, but they can nudge demand (indirectly) by raising or lowering interest rates.
- dkrich 4y ago
  Nah it’s more complicated than that. The fed is saying that because it’s currently a populist view. However their will to actually cause widespread distress and a severe recession will be tested when the populist view shifts back which we are likely not far from. If you look at this fed from 2018 on it’s readily apparent that everything they do is to appease the popular narrative. Economy needs rescuing from covid? Okay let’s take rates to zero and pump in liquidity until we’re told to stop. Fast forward to end of 2021- okay stop stop stop! Inflation is getting out of control! Sure, no problem we will raise rates until you tell us to stop, just signal to us before each meeting exactly how much to do. That sounds silly but does nobody find it at all odd that every fomc rate decision is entirely arbitrary whether they go 25, 50, 75 or more and yet cnbc predicts the exact rate decision every time? Believe this fed has a modicum of independence at your own peril. Besides, the Fed’s actions don’t align- if they really wanted a recession why the gradual hikes from 25 when inflation was spiking? Why not a sudden move to say, 7%? It’s been almost a year since the first hike and over a year since they first announced they would be hiking and we’re still sub 5%. The rate hikes they’re doing are way overblown in terms of driving the economy into recession given the tailwind of liquidity we had. Most companies aren’t cutting back because their short term borrowing costs went up 100 bps in six months.

by dkrich 4y ago

bushbaba 4y ago

There’s preliminary data that shows a recession is currently underway. This is reactionary. if the fed cuts rates and stop’s quantity tightening then sure, Amazon will likely u-turn. But that’s due to a situational change.

dkrich 4y ago
I think a great deal of this situation is narrative based. People are generally terrible at predicting earnings six months out as well as recessions and if we get a major recession it would easily be the most widely anticipated recession in history. First it starts with higher than expected CPI followed by hawkish fed policy. People learned their lesson last cycle and became worried that rate hikes as in past cycles would cause a deep recession and began adjusting immediately rather than wait for a recession. This is evidenced by the fact that the S&P peaked about four months before the Fed even hiked one time. That’s a very important point that I think many overlook. When you are completely ignorant of impending danger you are most susceptible to damage. When you’re terrified of getting punched in the face you’re going to take drastic measures to protect yourself and in the process likely not get punched at all. Meanwhile rates have moved very little in 3 months indicating (to me at least) that the bond market believes rate hikes are ending very soon.
- WillPostForFood 4y ago
  When the fed commits to hiking rates to slow the economy, it almost always leads to recession. You'd have to be a hyper optimist to not plan for a recession, as an individual, or a business. https://www.politico.com/news/2022/03/29/federal-reserve-recession-inflation-rates-00021119 https://www.politico.com/news/2022/03/29/federal-reserve-rec...
  - lapcat 4y ago
    A lot of recessions are relatively short, and don't affect big tech companies much in the long run: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#Great_Depression_onward_(1929%E2%80%93present) https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... Someone tell Apple there was a "Great Recession". A little thing called iPhone made that irrelevant for them. I started my career during the Great Recession. Wasn't a problem for me. A recession is an aggregate, but during every economic condition there are both losers and winners. You don't want to overreact to every shift in the wind.
  - dkrich 4y ago
    They have very little credibility currently because of past miscues beginning in 2018. The fed has to talk tough because if they were to say “we probably aren’t going to hike much more” markets would likely rebound, easing liquidity and making their job of reducing inflation harder if not impossible. The problem is that it seems the bond market sees through this and isn’t buying the tough talk. I think most people believe the fed and buy into the popular narrative that taking rates from zero to 4.5% will decimate the economy (even though 4% is actually very normal historically and anything under 4 was considered quite low). Watch what happens with fed policy if CPI comes in well beneath expectations next Thursday.
    - fijiaarone 4y ago
      Going from zero to 4% is a lot harder that going from 8% to 4%
    - redtriumph 4y ago

colinmorelli 4y ago

Tech has been one of the most affected by the grow at all costs mentality that is untenable when capital is not essentially free. In other words, tech saw the largest and fastest inflationary valuation period in decades under loose fed policy. It’s now seeing a similarly fast contraction. The reason we’re not seeing similar cuts across the board (or at least as significant) is that they also didn’t grow as significantly in the years prior.

dkrich 4y ago
That’s true and a lot of enterprise customers are similarly cutting spending in anticipation of the recession which I’m sure is having impacts on these companies now. But again I believe that is based on fear as opposed to a strict need to cut spending.

nostrademons 4y ago

"It's a recession when your neighbor loses their job. It's a depression when you lose yours." I think this is just availability bias. Ordinary people - the ones who aren't glued to CNBC or the WSJ - tend to measure the strength of the economy by the job market for their friends and neighbors. The job market, right now, is pretty strong for ordinary people. Hence it "feels" like boom times, and that all the chicken littles are nuts. Here in Silicon Valley, working for a FAANG, it's definitely recession time. And interestingly, it seems like the higher you get up the corporate ladder, the more you're worried. The ordinary employees basically just do their jobs and gripe about how bonuses are smaller this year, holiday parties are wimpier, and travel budgets have been cut. Managers complain about how we have to stack-rank employees and fret about whether we'll eventually have to execute a layoff. Directors worry about how their headcount and budgets have been cut. Our CEO seems visibly anxious. I've learned that it's a bad sign when the people with the most information are the most worried. My cue to stock up on toilet paper pre-COVID was when I heard a leak that the CDC had told all their own employees to make sure they had at least a 3 month stock of everything. I realized the Ukraine war was serious when Biden snapped "We're trying to avoid WW3 here" while the official party line was that this was a regional conflict that would be over in a couple weeks. I'm a bit worried about this Bay Area storm going on right now because the meteorologists seem more freaked out than the general public. Similarly, it's worrying when CEOs are more anxious than their employees about economic conditions. The popular narrative is that these are just a bunch of bloated tech companies laying off surplus employees that don't do anything useful. I don't buy that. I think the American populace has no idea what's about to hit them, and the economy's going to go straight off a cliff in 2023H1.

A4ET8a8uTh0 4y ago
I agree with the rationale overall ( people at helm being worried as a signal ). I try to look for similar clues. Still, as far as tech goes, for some companies that relied on cheap money, the ride may well be over ( I think of weird products like Peleton, which is a niche product, but was scaled as if it was going to become a thing in every house ). I am not sure it translates to everything going out with a bang. Today's news were that job market[1] is still fine despite clear attempts to make it employer's market again. [1]https://www.cnbc.com/2023/01/04/jolts-report-november-2022.html https://www.cnbc.com/2023/01/04/jolts-report-november-2022.h...

slantedview 4y ago

> Something about this cycle and these cuts feels I dunno, manufactured or something. It's absolutely manufactured to the extent that the Fed is intentionally trying to slow demand (aka: cause a recession) in order to stop inflation. The problem is, a large portion of inflation (some indicators are half) is simple price gouging, which Fed measures won't impact, and another large portion is simple ongoing supply chain problems, which the Fed also can't really fix. All they can do is force a recession.

nervlord 4y ago
[dead]
dkrich 4y ago
What I mean is that in past cycles companies suddenly found themselves in distress they did not expect. This time however, everyone is calling for a recession so are battening down the hatches while earnings are still very strong. It’s unprecedented and shows how societies adapt as they learn and focus on new factors. When the yield curve and the relationship between fed policy and the economy was little known and ignored and instead most people focused on trends in earnings or real estate or whatever the hot thing of the day was, the significance of fed policy and rates was huge. Now everyone is laser focused on the fed which changes behavior which changes outcomes. The worst recessions blindside virtually everyone and are so severe precisely because people are taking the most risk when things are most dire. Think the lead up to 1929, 2000, 2008, the Florida real estate boom of the 1920’s, etc.
mensetmanusman 4y ago
Price gouging is another word for a supply shock due to far fewer workers and a strong subsidized demand.

jackcosgrove 4y ago

The Fed is trying to trigger a recession, although they'll never come out and say it, because they want to increase the unemployment rate. Increased unemployment will put a stop to both price and wage inflation. At this point the Fed is trying to prevent a wage price spiral and a resetting of expectations among the public towards more inflation.

sangnoir 4y ago
> The Fed is trying to trigger a recession, although they'll never come out and say it Oh, they are not shy about it, it's just a little obfuscated by the jargon they use. One of the Fed's explicit goal is to lower "consumer demand", i.e. make people buy less stuff. Employment numbers are a function of demand, and the Fed has no means of directly tweaking employment numbers, but they can nudge demand (indirectly) by raising or lowering interest rates.
dkrich 4y ago
Nah it’s more complicated than that. The fed is saying that because it’s currently a populist view. However their will to actually cause widespread distress and a severe recession will be tested when the populist view shifts back which we are likely not far from. If you look at this fed from 2018 on it’s readily apparent that everything they do is to appease the popular narrative. Economy needs rescuing from covid? Okay let’s take rates to zero and pump in liquidity until we’re told to stop. Fast forward to end of 2021- okay stop stop stop! Inflation is getting out of control! Sure, no problem we will raise rates until you tell us to stop, just signal to us before each meeting exactly how much to do. That sounds silly but does nobody find it at all odd that every fomc rate decision is entirely arbitrary whether they go 25, 50, 75 or more and yet cnbc predicts the exact rate decision every time? Believe this fed has a modicum of independence at your own peril. Besides, the Fed’s actions don’t align- if they really wanted a recession why the gradual hikes from 25 when inflation was spiking? Why not a sudden move to say, 7%? It’s been almost a year since the first hike and over a year since they first announced they would be hiking and we’re still sub 5%. The rate hikes they’re doing are way overblown in terms of driving the economy into recession given the tailwind of liquidity we had. Most companies aren’t cutting back because their short term borrowing costs went up 100 bps in six months.