5 ms·

>I am not sure what precipitated this whole layoff trend Money no longer being almost-free to borrow.

by ac2u 3y ago

jrockway 3y ago
But all these companies doing layoffs have like 50 billion dollars in cash sitting in their treasuries. Are they routinely borrowing money at the multi-year timescale? My only thought is that they figure they can make more with low-risk investments than they can hiring employees. That CD will always yield 5%; who knows what hiring another person for the Foo team will yield.
- f6v 3y ago
  I think it’s a precautionary measure. It’ll be easier to raise more money in future if you’re lean.
  - mywittyname 3y ago
    But when companies have 50-to-infinity years of runway, does that even matter? If anything, these massive companies will benefit when they can pick up struggling startups with great tech for a 1/1000th of their peak private valuation.
  - jrockway 3y ago
    I totally get why startups would want to be lean during high interest rate times; the next round of funding is never assured, and when money costs 7% a year, it's almost assured to NOT happen. You have to fight for you life under those circumstances. (The startup I work at got bought at a very good price for the acquirer as a result of the wider economic situation. It's nice to have a job though, so I can't complain.) But, Microsoft, Meta, Google, etc. are not raising money on the open market; they have treasuries and revenue. I really think there's a lot of complexity going on here; interest rates going up didn't cut consumer spending by that much, so discretionary purchases didn't decrease, which meant that people were still buying ads and funding these companies. (I guess Microsoft doesn't make any money off of ads, but Google and Meta do.) I am guessing that people didn't expect the discretionary purchases to remain steady; in the past, interest rate increase = unemployment increase = nobody buying anything, but that appears to not be happening this time. Additionally, on the tech side of things, hype about AI is giving investors a serious fear of missing out, so there is definitely a bit of investment happening. So all in all, I think these are very weird times, and it's hard for anyone to plan. You can guess, you can hope, but at the end of the day, we don't really know. We know what caused recessions in the past, but we don't know what the 10 year horizon looks like for "there is a deadly disease, everyone work from home and buy as much stuff from China as possible, oops they are all sick so only the highest bidder gets their thing, and oh btw you don't have to pay off your student loans anymore so bid away!" It made the $ worth a lot less. That's about it.
- hn_throwaway_99 3y ago
  > My only thought is that they figure they can make more with low-risk investments than they can hiring employees. That is exactly what is going on. A lot of people don't understand that if your risky business can't make as much return as the "risk free return rate" (i.e. the rate of return on US Treasuries), the only logical thing to do (as a business owner) is close up shop, as all your hard work is earning LESS money than just dumping it in CDs. When the risk-free rate was essentially zero, or in some cases negative, people would throw around money all over the place in hopes of getting some positive return. The bar has just been raised so that is no longer the case.
  - flashback2199 3y ago
    That doesn't make sense because tech companies are not sticking cash in ~4-5% annual return treasuries, it would make sense if this were the 70s with double digits interest rates.
    - ProfessorLayton 3y ago
      But it does make sense in the broader tech context, especially for companies that need funding, which is a large portion of the companies that have conducted layoffs this year. VCs for example need to raise their own cash to invest, and investors are less likely to take a huge risk with VCs when the risk-free rate is so high.
      - flashback2199 3y ago
        You're right, I just think there have been more layoffs than can be explained by a couple percent increase alone. HBR also agrees with this view.
        hn_throwaway_99 3y ago
        > I just think there have been more layoffs than can be explained by a couple percent increase alone. Sure, of course. There was also massive over-hiring during the pandemic in anticipation of some sort of "new normal" that didn't pan out. My comment was more in response to the idea of "why should interest rates affect company hiring for companies that have a ton of cash on hand and are profitable?"

>I am not sure what precipitated this whole layoff trend Money no longer being almost-free to borrow.

by ac2u 3y ago

>I am not sure what precipitated this whole layoff trend Money no longer being almost-free to borrow.

But all these companies doing layoffs have like 50 billion dollars in cash sitting in their treasuries. Are they routinely borrowing money at the multi-year timescale? My only thought is that they figure they can make more with low-risk investments than they can hiring employees. That CD will always yield 5%; who knows what hiring another person for the Foo team will yield.

f6v 3y ago
I think it’s a precautionary measure. It’ll be easier to raise more money in future if you’re lean.
- mywittyname 3y ago
  But when companies have 50-to-infinity years of runway, does that even matter? If anything, these massive companies will benefit when they can pick up struggling startups with great tech for a 1/1000th of their peak private valuation.
- jrockway 3y ago
  I totally get why startups would want to be lean during high interest rate times; the next round of funding is never assured, and when money costs 7% a year, it's almost assured to NOT happen. You have to fight for you life under those circumstances. (The startup I work at got bought at a very good price for the acquirer as a result of the wider economic situation. It's nice to have a job though, so I can't complain.) But, Microsoft, Meta, Google, etc. are not raising money on the open market; they have treasuries and revenue. I really think there's a lot of complexity going on here; interest rates going up didn't cut consumer spending by that much, so discretionary purchases didn't decrease, which meant that people were still buying ads and funding these companies. (I guess Microsoft doesn't make any money off of ads, but Google and Meta do.) I am guessing that people didn't expect the discretionary purchases to remain steady; in the past, interest rate increase = unemployment increase = nobody buying anything, but that appears to not be happening this time. Additionally, on the tech side of things, hype about AI is giving investors a serious fear of missing out, so there is definitely a bit of investment happening. So all in all, I think these are very weird times, and it's hard for anyone to plan. You can guess, you can hope, but at the end of the day, we don't really know. We know what caused recessions in the past, but we don't know what the 10 year horizon looks like for "there is a deadly disease, everyone work from home and buy as much stuff from China as possible, oops they are all sick so only the highest bidder gets their thing, and oh btw you don't have to pay off your student loans anymore so bid away!" It made the $ worth a lot less. That's about it.
hn_throwaway_99 3y ago
> My only thought is that they figure they can make more with low-risk investments than they can hiring employees. That is exactly what is going on. A lot of people don't understand that if your risky business can't make as much return as the "risk free return rate" (i.e. the rate of return on US Treasuries), the only logical thing to do (as a business owner) is close up shop, as all your hard work is earning LESS money than just dumping it in CDs. When the risk-free rate was essentially zero, or in some cases negative, people would throw around money all over the place in hopes of getting some positive return. The bar has just been raised so that is no longer the case.
- flashback2199 3y ago
  That doesn't make sense because tech companies are not sticking cash in ~4-5% annual return treasuries, it would make sense if this were the 70s with double digits interest rates.
  - ProfessorLayton 3y ago
    But it does make sense in the broader tech context, especially for companies that need funding, which is a large portion of the companies that have conducted layoffs this year. VCs for example need to raise their own cash to invest, and investors are less likely to take a huge risk with VCs when the risk-free rate is so high.
    - flashback2199 3y ago
      You're right, I just think there have been more layoffs than can be explained by a couple percent increase alone. HBR also agrees with this view.
      - hn_throwaway_99 3y ago
        > I just think there have been more layoffs than can be explained by a couple percent increase alone. Sure, of course. There was also massive over-hiring during the pandemic in anticipation of some sort of "new normal" that didn't pan out. My comment was more in response to the idea of "why should interest rates affect company hiring for companies that have a ton of cash on hand and are profitable?"