5 ms·

Last time the stock market was surging, everyone was hiring. This time it's different

by seydor 3y ago

bostonsre 3y ago
Is it all due to inflation and the interest rates? Shouldn't these companies be able to issue stock to get some cheap capital to continue growth/hiring? Or anyone know why this is happening?
- tyree731 3y ago
  > Shouldn't these companies be able to issue stock to get some cheap capital to continue growth/hiring? Yes, but then the stock price would go down, which obviously isn't allowed.
  - FrustratedMonky 3y ago
    ? Not allowed. It is done all the time. Companies can issue new stock. or? are you being sarcastic about c-suit not wanting 'stock price to go down'? which could be a consequence of issuing new stock?
    - gtirloni 3y ago
      The latter for sure.
    - deleted 3y ago
      [deleted]
  - fsckboy 3y ago
    issuing stock and selling it into the market doesn't make the stock price go down. Raising money for this activity on a large scale is why the stock market exists. The value of the existing company "before" remains the same, and the sale of the new shares brings cash into the company at the selling price, so those new cash assets exactly balance out the dilution of ownership. If anything it might increase the value of the company if shareholders believe that the same "profit multiplier"/ROE will be applied to the new cash, for example if a profitable restaurant chain sells new shares to get the cash to open and operate new restaurants in new locations. Of course, changes to the share price are due to changing expectations so that will occur as information about the pending transaction is incorporated into the hive mind and not necessarily at the moment of share sales.
    - rsanek 3y ago
      this doesn't require any advanced analysis, it's simple supply and demand. offer up more shares to a market without changing demand and the price per share must go down. think about it the other way -- why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? there's a reason buybacks are considered essentially the same as dividends.
      - bostonsre 3y ago
        > why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? Buy low/sell high maybe? They buy their stock when the price is low and they think it is undervalued so that they can sell it later when the price more accurately reflects the value or even better when the price is overvaluing their stock.
      - diogocp 3y ago
        > offer up more shares to a market without changing demand But demand does change, because the company is expanding its balance sheet. You end up with more slices of a bigger pie. Compare to a stock split, which keeps the pie size constant.
      - jallen_dot_dev 3y ago
        No, the company becomes more valuable after the raise. It's more slices of a bigger pie == each slice is the same size as before. > why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? The company used its cash to buy its own stock. Fewer slices of the same pie == each slice is bigger than before.
        ImPostingOnHN 3y ago
        The company is worth what it's worth, according to investors, no matter how many slices you piece it up in. If you issue more shares, people will be willing to pay less for each one. Yes, adding cash to the balance sheet increases the book value, but the only way to add that cash is to sell the new shares, and the only way to sell the new shares is to offer them for cheaper than the current asking price. Put another way, if prospective investors wanted to buy more shares at the current asking price, they could, from an existing owner. The people who want shares but haven't bought, demand a lower price for them.
- andsoitis 3y ago
  There are many ways to increase profits. Diluting existing shareholders by increasing outstanding shares should not be a bandaid for inefficient application of capital, which would juts cause a vicious cycle.
- oldpersonintx 3y ago
  [dead]
- adrianmonk 3y ago
  One view is that it's related to labor hoarding. A lot of people exited the labor market (disabled or killed by COVID, pulled the trigger on retiring, etc.). Unemployment was very low and it was very difficult to hire. And companies had opportunities for growth, but taking advantage of those opportunities required workers, which were hard to get. So companies responded by hiring whenever possible and keeping more employees around than they normally would. If there was less work to do, they'd reduce hours instead of letting employees go. Better to pay more labor costs now than to be stuck unable to get employees later. You pay a cost (larger payrolls) to reduce a risk. Hoarding can be kind of self-reinforcing because as everybody grabs what is available (job seekers), it becomes more scarce, so people want to grab up even more. But hoarding tends to stop eventually. Companies don't want to pay more for payroll if they don't have to. Once they feel the risk is gone, they'll aim to adjust things back to normal. Once layoffs start, they could have a domino effect on labor hoarding. If a bunch of companies do layoffs, then other companies think, "Well, if we did need to hire, we could get some of those laid off workers." And then they reevaluate their own situation. If this is what's happening, then it will take some time for it to play out. Eventually all the hoarding-related layoffs will have been done.
- yterdy 3y ago
  Stock issue dilutes ownership and lowers share price. Why would people paid in stock do that when they can just offload labor? Also, they'd be competing with market makers, winkwinknudgenudge.
e40 3y ago
Interest rates and fear of recession. Big tech fuels R&D via very low-interest loans. This is what everyone in the financial community has been saying for a long time.
- eek2121 3y ago
  It blows my mind that people aren't hiring like mad with high interest rates. It seems like just parking a bunch of money somewhere and letting it accumulate interest would pay for salaries. Shoot, for 10 million dollars you could pay the entire salary of 2 developers without touching a dime of the actual money. Of course I know the economy doesn't work that way, but it is fun to think about.
  - maerF0x0 3y ago
    the cost of borrowing that $10M has gone from 0.25 to 5.5 a 2100% increase. If inflation is above 4-5% then sitting on the money will lose purchasing power. Fear of depr/rec-ession means the products you build might see 0 traction as the economy contracts and the funding to survive dries up.
    - indymike 3y ago
      The's another factor: you now have to deal with getting 20% of the tax benefit from an engineering salary since R&D expenses are now amortized over five years.
      - maerF0x0 3y ago
        Agreed, this has a really interesting effect on smaller businesses which may not exist in 5 years. Sure the S&P500 it's unlikely many or any of them go bankrupt in the next 5 years, so they at least know they can _eventually_ write it off. Meanwhile a company may hit bankruptcy in yr 3 despite lingering credits. This can happen when they have profit on paper, but negative cashflow.
        3y ago
cchance 3y ago
Ya this time they realized instead they can just pocket even more profits, theres a reason inflation is 50+% due to corporate profits when normally inflation surges are ~11% from corporate profits.
- dpflan 3y ago
  Right, reduce headcount, adjust balance sheets, extract profits with fewer people.
eek2121 3y ago
I'm pretty old, and I've NEVER had issues finding a job. I've been unemployed for 6 months now. Thinking about getting out of software development TBH. It isn't that I'm a bad developer, I've almost always gotten good to great performance reviews, but nobody is hiring. The positions that do open up are swamped with tons of people. The culture also is pretty toxic, especially in the startup world, and with AI now entering the scene? Then again, I don't know what I would pivot to. I thought about building a startup. However it is not a good time to be doing that either.
- vhiremath4 3y ago
  Coming from both a place of kindness and a place of selfishness: 1. Please keep at it. We need more people with experience staying in software. I don’t know your financial situation, but software is huge and something will land! 2. Based on this comment, I highly recommend likely not ever starting a company. It’s fucking hard, and it’s not glamorous. And even though it’s hard times in the macro, it’s actually way harder for many compounding reasons that are not obvious until you do it. Again, coming from a place of love.
  - kirse 3y ago
    It’s fucking hard, and it’s not glamorous "Fucking hard" compared to what? Things I'd qualify under the category of "fucking hard": - Agricultural Farming - Lifetime debilitating disease / health issue - Being enslaved or a POW - Living in a 3rd world country - Moving West in the 1800s - Fighting in the American Revolutionary or Civil War This narrative that starting a company is "fucking hard" is all part of the SV/SF mythos that needs a smooth stone straight to the forehead.
    - jannes 3y ago
      That violent metaphor wasn’t necessary to make your point.
    - jallen_dot_dev 3y ago
      Compared to a 9-5 in tech? Which is what they're suggesting instead. What is the point of moralizing?
honkycat 3y ago
Check out section 174. Due to some GREAT legislation you can no longer write off engineers as an expense... it makes SWEs a tax liability instead of a write-off. https://blog.pragmaticengineer.com/section-174/ https://blog.pragmaticengineer.com/section-174/
- latchkey 3y ago
  Due to some GREAT legislation " In 2017, then-President, Donald Trump, signed the 2017 Tax Cuts & Jobs act, which overhauled tax codes and reduced tax – for example, it reduced the top tax bracket from 39.6% to 37%. To make the bill pass strict budgetary rules, the Senate used a process called reconciliation: adding in tax code changes that delayed tax increases. These delayed increases “balanced out” the tax reduction. One of these changes was Section 174, set to come into effect 5 years later, in 2022. These parts deliver the blow by making it clear that software development costs need to be amortized over 5-15 years. Most experts expected Congress to push back the Section 174 amendment to a later date, or simply remove it. But Congressional negotiations to repeal the changes fell apart at the last minute in December 2022, meaning it became law. "
  - honkycat 3y ago
    To be clear, that is sarcastic.
coryfklein 3y ago
Saying the stock market is surging is a bit of an oversimplification. If you compare trough (Oct '22) to peak (Jan '24) you get a 65% annualized rate of increase. But if you compare peak (Nov '21) to peak (Jan '24) we're essentially flat at 1.4% annualized. If a business accustomed to double digit growth every year instead saw 1.4% growth annualized over 2 years then the numbers simply can't work out to keep doing what they've always done. The fact that equity valuations are WAY better than they were in Oct '22 doesn't really help because nobody was raising money during the down turn in the first place! Everyone is priced in on pre-pandemic valuations, which for the most part are unchanged. Note: I used the NASDAQ-100 Technology Sector, ticker NDXT to calculate these numbers [0]. [0] https://www.tradingview.com/chart/34OYpFIv https://www.tradingview.com/chart/34OYpFIv

Last time the stock market was surging, everyone was hiring. This time it's different

by seydor 3y ago

Last time the stock market was surging, everyone was hiring. This time it's different

Is it all due to inflation and the interest rates? Shouldn't these companies be able to issue stock to get some cheap capital to continue growth/hiring? Or anyone know why this is happening?

tyree731 3y ago
> Shouldn't these companies be able to issue stock to get some cheap capital to continue growth/hiring? Yes, but then the stock price would go down, which obviously isn't allowed.
- FrustratedMonky 3y ago
  ? Not allowed. It is done all the time. Companies can issue new stock. or? are you being sarcastic about c-suit not wanting 'stock price to go down'? which could be a consequence of issuing new stock?
  - gtirloni 3y ago
    The latter for sure.
  - deleted 3y ago
    [deleted]
- fsckboy 3y ago
  issuing stock and selling it into the market doesn't make the stock price go down. Raising money for this activity on a large scale is why the stock market exists. The value of the existing company "before" remains the same, and the sale of the new shares brings cash into the company at the selling price, so those new cash assets exactly balance out the dilution of ownership. If anything it might increase the value of the company if shareholders believe that the same "profit multiplier"/ROE will be applied to the new cash, for example if a profitable restaurant chain sells new shares to get the cash to open and operate new restaurants in new locations. Of course, changes to the share price are due to changing expectations so that will occur as information about the pending transaction is incorporated into the hive mind and not necessarily at the moment of share sales.
  - rsanek 3y ago
    this doesn't require any advanced analysis, it's simple supply and demand. offer up more shares to a market without changing demand and the price per share must go down. think about it the other way -- why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? there's a reason buybacks are considered essentially the same as dividends.
    - bostonsre 3y ago
      > why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? Buy low/sell high maybe? They buy their stock when the price is low and they think it is undervalued so that they can sell it later when the price more accurately reflects the value or even better when the price is overvaluing their stock.
    - diogocp 3y ago
      > offer up more shares to a market without changing demand But demand does change, because the company is expanding its balance sheet. You end up with more slices of a bigger pie. Compare to a stock split, which keeps the pie size constant.
    - jallen_dot_dev 3y ago
      No, the company becomes more valuable after the raise. It's more slices of a bigger pie == each slice is the same size as before. > why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? The company used its cash to buy its own stock. Fewer slices of the same pie == each slice is bigger than before.
      - ImPostingOnHN 3y ago
        The company is worth what it's worth, according to investors, no matter how many slices you piece it up in. If you issue more shares, people will be willing to pay less for each one. Yes, adding cash to the balance sheet increases the book value, but the only way to add that cash is to sell the new shares, and the only way to sell the new shares is to offer them for cheaper than the current asking price. Put another way, if prospective investors wanted to buy more shares at the current asking price, they could, from an existing owner. The people who want shares but haven't bought, demand a lower price for them.
andsoitis 3y ago
There are many ways to increase profits. Diluting existing shareholders by increasing outstanding shares should not be a bandaid for inefficient application of capital, which would juts cause a vicious cycle.
oldpersonintx 3y ago
[dead]
adrianmonk 3y ago
One view is that it's related to labor hoarding. A lot of people exited the labor market (disabled or killed by COVID, pulled the trigger on retiring, etc.). Unemployment was very low and it was very difficult to hire. And companies had opportunities for growth, but taking advantage of those opportunities required workers, which were hard to get. So companies responded by hiring whenever possible and keeping more employees around than they normally would. If there was less work to do, they'd reduce hours instead of letting employees go. Better to pay more labor costs now than to be stuck unable to get employees later. You pay a cost (larger payrolls) to reduce a risk. Hoarding can be kind of self-reinforcing because as everybody grabs what is available (job seekers), it becomes more scarce, so people want to grab up even more. But hoarding tends to stop eventually. Companies don't want to pay more for payroll if they don't have to. Once they feel the risk is gone, they'll aim to adjust things back to normal. Once layoffs start, they could have a domino effect on labor hoarding. If a bunch of companies do layoffs, then other companies think, "Well, if we did need to hire, we could get some of those laid off workers." And then they reevaluate their own situation. If this is what's happening, then it will take some time for it to play out. Eventually all the hoarding-related layoffs will have been done.
yterdy 3y ago
Stock issue dilutes ownership and lowers share price. Why would people paid in stock do that when they can just offload labor? Also, they'd be competing with market makers, winkwinknudgenudge.

e40 3y ago

Interest rates and fear of recession. Big tech fuels R&D via very low-interest loans. This is what everyone in the financial community has been saying for a long time.

eek2121 3y ago
It blows my mind that people aren't hiring like mad with high interest rates. It seems like just parking a bunch of money somewhere and letting it accumulate interest would pay for salaries. Shoot, for 10 million dollars you could pay the entire salary of 2 developers without touching a dime of the actual money. Of course I know the economy doesn't work that way, but it is fun to think about.
- maerF0x0 3y ago
  the cost of borrowing that $10M has gone from 0.25 to 5.5 a 2100% increase. If inflation is above 4-5% then sitting on the money will lose purchasing power. Fear of depr/rec-ession means the products you build might see 0 traction as the economy contracts and the funding to survive dries up.
  - indymike 3y ago
    The's another factor: you now have to deal with getting 20% of the tax benefit from an engineering salary since R&D expenses are now amortized over five years.
    - maerF0x0 3y ago
      Agreed, this has a really interesting effect on smaller businesses which may not exist in 5 years. Sure the S&P500 it's unlikely many or any of them go bankrupt in the next 5 years, so they at least know they can _eventually_ write it off. Meanwhile a company may hit bankruptcy in yr 3 despite lingering credits. This can happen when they have profit on paper, but negative cashflow.
      - 3y ago

cchance 3y ago

Ya this time they realized instead they can just pocket even more profits, theres a reason inflation is 50+% due to corporate profits when normally inflation surges are ~11% from corporate profits.

dpflan 3y ago
Right, reduce headcount, adjust balance sheets, extract profits with fewer people.

eek2121 3y ago

I'm pretty old, and I've NEVER had issues finding a job. I've been unemployed for 6 months now. Thinking about getting out of software development TBH. It isn't that I'm a bad developer, I've almost always gotten good to great performance reviews, but nobody is hiring. The positions that do open up are swamped with tons of people. The culture also is pretty toxic, especially in the startup world, and with AI now entering the scene? Then again, I don't know what I would pivot to. I thought about building a startup. However it is not a good time to be doing that either.

vhiremath4 3y ago
Coming from both a place of kindness and a place of selfishness: 1. Please keep at it. We need more people with experience staying in software. I don’t know your financial situation, but software is huge and something will land! 2. Based on this comment, I highly recommend likely not ever starting a company. It’s fucking hard, and it’s not glamorous. And even though it’s hard times in the macro, it’s actually way harder for many compounding reasons that are not obvious until you do it. Again, coming from a place of love.
- kirse 3y ago
  It’s fucking hard, and it’s not glamorous "Fucking hard" compared to what? Things I'd qualify under the category of "fucking hard": - Agricultural Farming - Lifetime debilitating disease / health issue - Being enslaved or a POW - Living in a 3rd world country - Moving West in the 1800s - Fighting in the American Revolutionary or Civil War This narrative that starting a company is "fucking hard" is all part of the SV/SF mythos that needs a smooth stone straight to the forehead.
  - jannes 3y ago
    That violent metaphor wasn’t necessary to make your point.
  - jallen_dot_dev 3y ago
    Compared to a 9-5 in tech? Which is what they're suggesting instead. What is the point of moralizing?

honkycat 3y ago

Check out section 174. Due to some GREAT legislation you can no longer write off engineers as an expense... it makes SWEs a tax liability instead of a write-off. https://blog.pragmaticengineer.com/section-174/ https://blog.pragmaticengineer.com/section-174/

latchkey 3y ago
Due to some GREAT legislation " In 2017, then-President, Donald Trump, signed the 2017 Tax Cuts & Jobs act, which overhauled tax codes and reduced tax – for example, it reduced the top tax bracket from 39.6% to 37%. To make the bill pass strict budgetary rules, the Senate used a process called reconciliation: adding in tax code changes that delayed tax increases. These delayed increases “balanced out” the tax reduction. One of these changes was Section 174, set to come into effect 5 years later, in 2022. These parts deliver the blow by making it clear that software development costs need to be amortized over 5-15 years. Most experts expected Congress to push back the Section 174 amendment to a later date, or simply remove it. But Congressional negotiations to repeal the changes fell apart at the last minute in December 2022, meaning it became law. "
- honkycat 3y ago
  To be clear, that is sarcastic.

coryfklein 3y ago

Saying the stock market is surging is a bit of an oversimplification. If you compare trough (Oct '22) to peak (Jan '24) you get a 65% annualized rate of increase. But if you compare peak (Nov '21) to peak (Jan '24) we're essentially flat at 1.4% annualized. If a business accustomed to double digit growth every year instead saw 1.4% growth annualized over 2 years then the numbers simply can't work out to keep doing what they've always done. The fact that equity valuations are WAY better than they were in Oct '22 doesn't really help because nobody was raising money during the down turn in the first place! Everyone is priced in on pre-pandemic valuations, which for the most part are unchanged. Note: I used the NASDAQ-100 Technology Sector, ticker NDXT to calculate these numbers [0]. [0] https://www.tradingview.com/chart/34OYpFIv https://www.tradingview.com/chart/34OYpFIv