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IMO the folks at the All In podcast nailed this - at work so I don't have time to find the exact clip but basically their synopsis went like this: When money w

IMO the folks at the All In podcast nailed this - at work so I don't have time to find the exact clip but basically their synopsis went like this: When money was cheap to borrow, borrowing against stock and increasing headcount was seen as a metric that could pump stock price. Hence, hire as much as possible (especially engineers since they drive the most value at many of these huge tech orgs). Problem is, money is no longer cheap to borrow and real revenue is king now - having excess headcount that isn't resulting in clear value (something these companies are exceedingly good at measuring) means layoffs to reach the prior equilibrium of "real revenue" generated per engineer.

MuffinFlavored 4y ago
> Problem is, money is no longer cheap to borrow and real revenue is king now Real revenue and no profit or real revenue that leads to profit? The narrative seems to be that the day of awakening for "dump money with no expected ROI" style projects/companies is here when https://www.investing.com/economic-calendar/interest-rate-decision-168 https://www.investing.com/economic-calendar/interest-rate-de... is 4.5-5%
onlyrealcuzzo 4y ago
This notion that money isn't cheap doesn't make sense to me. If interest rates are 2% and inflation is 2% - borrowing money is free. If interest rates are 10% and inflation is 80% - you get paid to borrow money - which seems cheaper than free. We're obviously not in that situation - but we had interest rates at 2% with inflation at 10% - this was the cheapest money was in a long, long time. Now we have (short term) interest rates at 4% - and inflation is >4%. I get that it's not as cheap as 2021 - which would be necessary to maintain the asset bubble. But we still have negative real interest rates (at least short term). So money is still cheap, right?
- KptMarchewa 4y ago
  >If interest rates are 10% and inflation is 80% - you get paid to borrow money - which seems cheaper than free. You still have to generate that 10% return.
  - Aperocky 4y ago
    yes, in this situation the economy is literally self combusting, funnily enough this number is actually real just a few months ago in a significant sized economy.
- sam0x17 4y ago
  We also have a bunch of young people who have never seen a recession in these positions now, something to consider. FUD
  - rybosworld 4y ago
    Which young people have never seen recession? Early 2020 there was a covid recession 2007/2008 there was a severe "recession" (depression)
    - TecoAndJix 4y ago
      Compared to 2001 & 2008, the 2020 recession was a blip on the radar. I graduated high school in 2009. My entire adult life to this point has been in a prosperous economy. COVID felt "different" (it was a pandemic, 100 year event kind of thing) to now. These layoffs have me worried for my family and what it could mean for our future.
      - onlyrealcuzzo 4y ago
        2009 was not a prosperous economy. The economy was quite bad until late 2011. You started off your adult life in a pretty bad recession. Maybe college insulated you from that. 2020 was shorter than 2001 - but MUCH worse. 2001 wasn't very bad unless you worked in tech in The Bay or invested your life savings in Internet meme stocks.
      - lamontcg 4y ago
        It really is amusing to see how much HN thinks that times are tough right now and the talk of the current economic conditions as a recession. It seems like the majority of HN weren't graduated from college in 2008 yet or else they've somehow managed to forget what that was like or just weren't paying enough attention. And the ones that just found it hard to get a job out of college probably weren't watching the stock market closely and don't seem to remember how bad things got after the Bush administration let Lehman collapse and when we nearly "broke the buck" and Congress had to act to prevent a total financial collapse. We have 3.5% unemployment right now, not 6% and rising 0.4% every month. At the same time nobody seems to be paying attention to how rapidly the Fed raised rates this time compared to the build-up to 2006-2008, and while everyone talks about low rates for over a decade caused malinvestment nobody seems to be doing the very obvious math of what is going to happen when higher rates destroy it all.
- nverno 4y ago
  The higher they go, the riskier it gets, though. You wouldn't want to take a loan out at the peak and be left holding the bag.
- deleted 4y ago
  [deleted]
- quickthrower2 4y ago
  Inflation doesn’t pay you. Revenue does.
  - onlyrealcuzzo 4y ago
    If inflation really would continue at 80% for the year - and you can't pay back a ~10% loan - it means your business is going down by ~70% per year... There's always risk - but I don't think it's as risky as you might think. Even if times are bad because inflation is high and your business drops by ~50% - you'll still come out ahead.
    - quickthrower2 4y ago
      Inflation is a measure of how certain products and services go up in price, but not all, your product might be out of demand as people’s stagnant wages are consumed by rent and food increases. And then there is the issue of costs going up! That said: There will be opportunities if you can borrow at 10% and stay solvent to invest in something well through in this extreme case.
- phpisthebest 4y ago
  The risk with these business loans is they are short term, and often are just rolled over and over again at newer rates So with the fed indicating they will keep raising rates in order to invert that statistic it would not be a good idea to incur massive amounts of debt you can not pay off when rate go more than inflation, which they will have to do
- dylan604 4y ago
  If you depend on sales to consumers, then that 80% inflation might have a very negative impact on those sales to consumers so that 10% interest is unobtainable.
- SpicyLemonZest 4y ago
  Businesses don't transact in inflation-adjusted dollars, so this analysis doesn't work with respect to the practical decisions they face. When you go to get a loan at 4% (plus whatever spread), the interest you're paying on that loan doesn't "adjust against" any price increases you charge to your customers or have to pay to your suppliers. This is especially true because those price changes are 4% only on average; your costs might go up 10% rather than 4% and your customers might not accept any increase.
deleted 4y ago
[deleted]
nfRfqX5n 4y ago
you have to be careful listening to those guys because they are all VCs who can benefit greatly from pushing the narrative of companies needing to cut costs
- infamouscow 4y ago
  This is analogous to being suspicious of a "drink water and stay hydrated in hot weather" sign next to someone selling water bottles on the street. VCs and investors are not charities, they want to turn a profit on their investment. You only make a profit if the founder(s) succeed. Cutting costs increases the probability of success by giving a longer runway.
  - biohax2015 4y ago
    The point is that they are not impartial judges of the situation.
    - infamouscow 4y ago
      I understood the point, but to argue the motive in this case doesn't even make sense. If you're on the board of directors, there are much easier ways to get founders to cut costs than talking about it on a weekly podcast.

MuffinFlavored 4y ago

> Problem is, money is no longer cheap to borrow and real revenue is king now Real revenue and no profit or real revenue that leads to profit? The narrative seems to be that the day of awakening for "dump money with no expected ROI" style projects/companies is here when https://www.investing.com/economic-calendar/interest-rate-decision-168 https://www.investing.com/economic-calendar/interest-rate-de... is 4.5-5%

onlyrealcuzzo 4y ago

This notion that money isn't cheap doesn't make sense to me. If interest rates are 2% and inflation is 2% - borrowing money is free. If interest rates are 10% and inflation is 80% - you get paid to borrow money - which seems cheaper than free. We're obviously not in that situation - but we had interest rates at 2% with inflation at 10% - this was the cheapest money was in a long, long time. Now we have (short term) interest rates at 4% - and inflation is >4%. I get that it's not as cheap as 2021 - which would be necessary to maintain the asset bubble. But we still have negative real interest rates (at least short term). So money is still cheap, right?

KptMarchewa 4y ago
>If interest rates are 10% and inflation is 80% - you get paid to borrow money - which seems cheaper than free. You still have to generate that 10% return.
- Aperocky 4y ago
  yes, in this situation the economy is literally self combusting, funnily enough this number is actually real just a few months ago in a significant sized economy.
sam0x17 4y ago
We also have a bunch of young people who have never seen a recession in these positions now, something to consider. FUD
- rybosworld 4y ago
  Which young people have never seen recession? Early 2020 there was a covid recession 2007/2008 there was a severe "recession" (depression)
  - TecoAndJix 4y ago
    Compared to 2001 & 2008, the 2020 recession was a blip on the radar. I graduated high school in 2009. My entire adult life to this point has been in a prosperous economy. COVID felt "different" (it was a pandemic, 100 year event kind of thing) to now. These layoffs have me worried for my family and what it could mean for our future.
    - onlyrealcuzzo 4y ago
      2009 was not a prosperous economy. The economy was quite bad until late 2011. You started off your adult life in a pretty bad recession. Maybe college insulated you from that. 2020 was shorter than 2001 - but MUCH worse. 2001 wasn't very bad unless you worked in tech in The Bay or invested your life savings in Internet meme stocks.
    - lamontcg 4y ago
      It really is amusing to see how much HN thinks that times are tough right now and the talk of the current economic conditions as a recession. It seems like the majority of HN weren't graduated from college in 2008 yet or else they've somehow managed to forget what that was like or just weren't paying enough attention. And the ones that just found it hard to get a job out of college probably weren't watching the stock market closely and don't seem to remember how bad things got after the Bush administration let Lehman collapse and when we nearly "broke the buck" and Congress had to act to prevent a total financial collapse. We have 3.5% unemployment right now, not 6% and rising 0.4% every month. At the same time nobody seems to be paying attention to how rapidly the Fed raised rates this time compared to the build-up to 2006-2008, and while everyone talks about low rates for over a decade caused malinvestment nobody seems to be doing the very obvious math of what is going to happen when higher rates destroy it all.
nverno 4y ago
The higher they go, the riskier it gets, though. You wouldn't want to take a loan out at the peak and be left holding the bag.
deleted 4y ago
[deleted]
quickthrower2 4y ago
Inflation doesn’t pay you. Revenue does.
- onlyrealcuzzo 4y ago
  If inflation really would continue at 80% for the year - and you can't pay back a ~10% loan - it means your business is going down by ~70% per year... There's always risk - but I don't think it's as risky as you might think. Even if times are bad because inflation is high and your business drops by ~50% - you'll still come out ahead.
  - quickthrower2 4y ago
    Inflation is a measure of how certain products and services go up in price, but not all, your product might be out of demand as people’s stagnant wages are consumed by rent and food increases. And then there is the issue of costs going up! That said: There will be opportunities if you can borrow at 10% and stay solvent to invest in something well through in this extreme case.
phpisthebest 4y ago
The risk with these business loans is they are short term, and often are just rolled over and over again at newer rates So with the fed indicating they will keep raising rates in order to invert that statistic it would not be a good idea to incur massive amounts of debt you can not pay off when rate go more than inflation, which they will have to do
dylan604 4y ago
If you depend on sales to consumers, then that 80% inflation might have a very negative impact on those sales to consumers so that 10% interest is unobtainable.
SpicyLemonZest 4y ago
Businesses don't transact in inflation-adjusted dollars, so this analysis doesn't work with respect to the practical decisions they face. When you go to get a loan at 4% (plus whatever spread), the interest you're paying on that loan doesn't "adjust against" any price increases you charge to your customers or have to pay to your suppliers. This is especially true because those price changes are 4% only on average; your costs might go up 10% rather than 4% and your customers might not accept any increase.

deleted 4y ago

[deleted]

nfRfqX5n 4y ago

you have to be careful listening to those guys because they are all VCs who can benefit greatly from pushing the narrative of companies needing to cut costs

infamouscow 4y ago
This is analogous to being suspicious of a "drink water and stay hydrated in hot weather" sign next to someone selling water bottles on the street. VCs and investors are not charities, they want to turn a profit on their investment. You only make a profit if the founder(s) succeed. Cutting costs increases the probability of success by giving a longer runway.
- biohax2015 4y ago
  The point is that they are not impartial judges of the situation.
  - infamouscow 4y ago
    I understood the point, but to argue the motive in this case doesn't even make sense. If you're on the board of directors, there are much easier ways to get founders to cut costs than talking about it on a weekly podcast.