The funny thing is that the presentation was completely wrong. The "good times" were only about to begin. Within a couple of years, tech went on probably its greatest stock market streak in history. If you look at tech from 2010 until 2021, the gains are so outsized that it caused things like massive income inequality in the Bay Area because the gap between tech workers and non-tech workers was humongous.
AAPL went from $8 in 2010 to $180, not including the 28:1 split during that period. Google went from $300 to $3000, not including a 2:1 split. Amazon went from $100 to $3500, with no splits. Startups like Uber and Airbnb were about to be founded. Twitter was created only a couple of years previous. A tremendous amount of multi-millionaires and billionaires were minted during that time.
Wow it seems like back then there was a much higher concentration of founders/vc people on here. Just goes to show how big tech has gotten over the last 14 years.
In 2008 it had only recently changed names from 'Startup News', and YC was giving startup founders $6,000 each (+ $6,000) to do the program - this week I read about someone doing a pre-seed raise of $1.2 million!
Chill out, talk to a friend not in tech, their business is probably doing great right now. Unemployment is unprecedently low. Things are actually pretty good right now
Unemployment is low because companies have had access to really cheap money, and have been hiring people in an attempt to grow their business.
This is the point of low interest rates, but it has caused inflation, and it has caused a potential "bomb" now that rates are hiking.
Those employees were hired in the hopes of fulfilling tasks which were also being fueled by cheap money. When the money dries up (which it has), it's only a matter of time before those jobs get cut.
I think unemployment, at least for developers and real engineers, is low because a lot of people basically retired or semi-retired during or after the pandemic.
Depends on which lens you look at. Is the world about to blow up? Most likely not. (Russia. unseen asteroid). Are things going to be more challenging over the next 3-5 years compared to the last 3-5 years (less pandemic) yes. To your point, hopefully if we are out of the acute phase of the pandemic then in comparison things might be better than that last two years though we aren't going back to the 2010s era.
If you work at a large corporation - probably stay on cruise control. As a founder / investor I would certainly be stretching out time lines and lowering expectations on favorable exits and if you are at a company without revenue I would be concerned. Macro environments have deteriorated rapidly - outside the fed stepping in (which would be even more concerning) unlikely to have great exits for awhile. Investors have also lost a lot of money recently so aren't likely to step in. Flight to quality ensues..
But yes agree, everyone does need to chill out in these uncertain times. The sun will rise tomorrow just like it did today.
It might not be the drunken night out that puts you in hospital, but the long term damage. We're going to be dealing with the consequences of the pandemic alone for the next decade. It's possible some things might turn out more positively than expected, but it seems sage to predict that it'll be bumpy even if so.
That and right before the pandemic we had a been in a very long bull market (frothy on cheap money) that bad companies were getting funded on huge rounds/due diligence was an afterthought.
I wouldn't be surprised if we look back on crypto and are like, oh yeah the reason crypto took off and became way too snake oily was because there was too much money looking for returns over the last decade.
True, but productivity in the US had the biggest decline since 1947, and IIRC the percentage of people of working age who are currently in work is relatively low (not the same as the US unemployment stat)
Foreign Policy's "Ones and Tooze" podcast had a recent episode "Why Low Unemployment Isn't Better News" recently, which was interesting on the topic and has much more detail than I can recall.
Labour economists traditionally used a "three stock" model of working age adults: there are the employed, the unemployed, and those not in the labour force (NILF).
Lately (in the last 30 years or so) NILF has been split up into "discouraged workers", people not officially unemployed but who would like work if they could find suitable work, and those doing something else: raising kids, studying, etc.
There are a lot more "discouraged workers" these days.
As well as places with people but no jobs (with the people unable to move elsewhere) and people on disability, there are now many people reluctant to expose themselves to disease or to insufferable behaviour by customers or bosses, and some who have been deprogrammed from the daily grind.
(Also, immigration has been declining from 3.7 per 1000 residents in 2004 to 2.8 today, but that is negligible.)
Heh, seeing retail salaries advertised around, I wouldn’t be worried. I’d be worried if I’m someone who employs skilled/semi-skilled laborers.
When I was visiting family over the holidays, we passed at McDonald’s offering $25/h. Later on TV, some local factory was trying to hire moderately specialized positions for over $6/h less.
Its still higher than anything pre-covid though. If you look at the charts for S&P, dow, russel, nasdaq since 2008, there's a clear "bubble" around covid times, and the current values look approximately where I would expect them if there wasn't the covid bump.
I'm just surprised how quickly things are going badly. My company is trying to get a round of funding. If you asked me 8 weeks ago how it was going, I would've said "We're in a very strong position, hiring like crazy, tons of growth upcoming. We're going to get a ton of money." Now, it's "Bad. Who knows."
We're still going to get money, but it's likely 75% less than we were thinking 8 weeks ago. And we're a real company with a real product and demand, not web3 or whatever. I can't imagine how those companies are going to fare.
Things turn around like this because the truth is that everyone (including and especially VCs) knew that things were overheated, and had been for well over year. But you still want to cut deals in a market that's overheated because if you don't someone else will, and there's a lot of money still being made.
But once it turns over, the game is up. They know it's not coming back for another cycle for the same reason they knew that existing funding and valuation numbers were unsustainable.
Recessions are for the economy what workouts are for humans and what forest fires are for the soil.
They are essential , matter of fact fundamental for the long term stability of the economy.
We should welcome them like we welcome hard workouts, instead we are wussies unfortunately.
People are already calling for Jay Powell to rescue markets by ignoring inflation and cut interest rates once again, just to make their favorite meme stock rally again...
Are any VCs willing to post their investment take on this? How bad is the Series A/B/C crunch going to be this time around? What are you telling your LPs and what are you telling your portfolio companies?
I lived through '08 crisis, and have to say a lot of big players got started right after. Uber was just starting out back then; so if you get laid off, maybe go join a flying car start up.
Mobile apps were just emerging in 2008 and stimulated VC interest. I think it's unlikely that this current downturn in the business cycle will get saved by the same magnitude of technology entrant.
Inflation is high, labor is tight, trade is falling - I'd be willing to take a bet on industrial automation and robotics powered by modern AI and 3-d printing.
I don’t think you’d say the same thing in 2008. Sure, you probably wouldn’t be able to predict the magnitude of VC interest or even the timing, but I think that in 2008 smartphones were pretty clearly the hot new emerging product and you didn’t have to be a tech person to see it. Is there something like that now? Maybe electric cars?
In 2008 social networking, casual gaming, and Web 2.0 were the hot new emerging product category. That's what everyone (me included) was founding and funding. Hell, Hacker News dates from that wave.
Mobile was an interesting curiosity that had piqued a lot of interest, but people didn't really know what to make of it. Same with cloud, which had just started with AWS. I remember folding up my casual game-creation startup (think Roblox on the web) in 2008 and thinking of my next move, and briefly thinking "Maybe I'll just go learn Android or iPhone development. Nah, I'd have to completely retool my skillset and I still don't see how something with such a small screen could be useful."
Electric cars are almost certainly not the equivalent today - everybody knows how and why you'd use an electric car, there's billions in capital going into the space, and all the major incumbents have electric car plans.
I'd bet on something like drones, 3D-printing, DeFi, multi-device ecosystems, robotics, or hardware. Look for something that people (particularly kids) are interested in; recently gotten cheap enough for hobbyists to play with it; there are lots of players in the market and few incumbents; limited regulatory barriers; and we don't really know what it's for yet.
Electric cars is a good one. So is electric transportation in general. There's been this explosion in diversity of personalized travel in the last few years: e-scooters, e-bikes, e-bike kits, hoverboards, weird electric unicycles. It's like I rarely see the same form of locomotion more than once, and I'm not even in a major metropolitan area.
It’s the other way around: LPs are telling VCs not to expect the allocations they might have expected. I hear 66% reduction from institutions, anecdotally. For several years going forward.
If an institution had 1:1 allocation public:private and public drops 80% then rebalancing will take a while.
If every startup and fund simultaneously took a 80% haircut, things would be smoother, quicker.
Unicorns don’t want to be marked at $200m and $10m preseed don’t want to be the $2m that is far more accurate value.
This dynamic will take a few years… private slowly coming to realize the new reality, public stopping the bleed, and allocations moving more public for several years.
Does this crash feel uniquely frustrating? Or is that the nature of these things. I was in high school in 2008 so I’m not sure if I’m ignorant here or not.
Lived through the first dot-com crash, the 2008 crash, and now this.
The current reality, today, is nowhere near either one -- speculative bubble tech has crashed, but the rest of the market is around February 2021 prices. The S&P500 is only just now entering "correction" territory.
The only thing similar is that we have a ton of drama from people claiming that the end is near. But in 2008, the financial system really was close to systemic collapse. Banks were having runs and being rescued by the FDIC. Money market accounts were dropping below a dollar. That was crazy. Seeing Terra break the buck is...not the same.
Yes, inflation is high and that's concerning, but what's fundamentally driving a lot of the panic are the "high" interest rates (i.e. rates that haven't been "this high" since...spring of 2020). This too shall pass. Parts of the market that were wildly irrational will gain sanity, or they will go away. Fake wealth will be lost. It will be painful for the few who dove head-first into the froth, but to me, right now, this doesn't look like a moment for panic. For contrast, I was genuinely freaked out by what was happening in 2008.
I agree, but it's also worth noting that the 2008 crisis took a couple years to go from a problem to a full blown catastrophe. At the end of 2006 it was evident there were problems with the sub-prime mortgage market. 2007 was interesting, as most people went along with their lives but you kept hearing about this growing problem that wouldn't go away. In 2008 people realized there was a lot of trouble but it was hard knowing exactly how much. The Fed bailed out Bear Stearns in March. It was in September of that year that they decided not to save the Lehman Brothers, which lead to the entire financial system melting down. At that point - two years later - it started to become clear to most people just how bad things were going to get (worth noting that this "RIP Good Times" presentation is from the end of 2008).
To compare it to COVID - 2006 was like January 2020, 2007 was like February, 2008 was like March.
So I agree with you that I don't _think_ we're anywhere close to the 2008 collapse. But catastrophes like that usually don't seem that way until you're at the point of no return.
That crisis took years because it had to work its way through mortgage defaults, to the bonds, to CDOs. Each step takes a while to unfold.
This is not the same mechanism at all. Rates have gone up and we're seeing a nearly instant reaction in the bond and stock markets. Speculation about a crash started essentially immediately after rates went up. There will certainly be overhang due to debt and VC and whatnot, but this is not the same as 2008. I think there's a better comparison to the dot-com crash, but even that analogy fails.
The thing is, most people had no clue about what the financial system had done in 2007. At the time it seemed like the housing market was going down (as housing markets do), and that there was a large amount of sub-prime foreclosures (which is why people were referring to it as the sub-prime crisis at the beginning), but there wasn't the sense that the entire financial system was about to fall apart. After the collapse there was a lot of talk about what the financial sector had been doing with things like mortgage backed securities and credit default swaps, but the average person wasn't aware of these things even as the crisis was unfolding.
Again, I'm not saying that I think this is what we're facing at the moment. The point is that it can be hard to know when a big crash is happening, because there are often a lot of problems people are only aware of in hindsight.
> what's fundamentally driving a lot of the panic are the "high" interest rates
A lot of crazy stuff that wouldn't pencil out without 0% (or near) rates went on for the last couple of years - and to some extent even prior to 2019. When you take away the punchbowl, as Buffett likes to say "we'll find out who's been swimming naked".
> Yes, inflation is high and that's concerning... This too shall pass.
We'll see how long this lasts. The stagflation that took hold in the 70s was difficult to get out of - it lasted for several years and was only finally killed with extremely high interest rates. I think the markets are afraid of this kind of scenario and it's a bit self fulfilling as companies pull back.
Yes, this is a different kind of beast than we faced in '08, but some of it is because we kicked the can down the road back then. Add in the Ukraine war and the effects that will have on global food and energy prices as well as current political instability in many parts of the world - this isn't something we faced in '08. It has some hallmarks of the 70s stagflation (middle east oil embargos kind of analogous to some of what we're seeing now) as well as the .com crash (tech companies were on a tear during the pandemic) and some aspects of '08 (housing bubble). It all seems to add up to a nasty recession. Probably not as bad as the '08 recession, but probably worse than the .com crash recession which wasn't much felt outside of tech - tech is a bigger part of the economy now so tech companies pulling back will be more widely felt.
My understanding is that the huge amount of corporate and household debt makes genuinely high interest rates quite untenable. Although I've just heard this, I don't have the expertise to make that claim myself.
To add to this. In 2008, I had a small but genuine fear that society itself would start collapsing. You'd see headlines about bankrupt municipalities turning off their 911 service because they ran out of cash. There were genuine bank runs on major consumer banks where grandmas kept their checking accounts. Things felt close to the brink.
A lot of people forget that, because the recovery turned on so quickly in 2009. But nobody knew things would be so easy in the thick of November 2008.
We had interest rate, inflation, and QE wiggle room in 2008. We have nothing left to prop the ponzi up anymore. We’ve reached the end and I am genuinely worried about what comes next.
How do you think it will impact startups that essentially grew by incentivizing users and never achieved unit profitability? A funding crunch can’t be good for their survival
This is where I worry. My recollection of how the dot com crash unfolded was that first the bogus startups folded as expected. But they're part of a larger food chain. There were other b2b companies who had them as customers. And now they're out of money so they fold. Which affects other companies. And so on.
I often wonder which companies are Sun and Oracle this time around. Sun was doing a ton of revenue to companies with extremely marginal future prospects as the dotcom took off.
Amazon perhaps, though they have successfully penetrated enterprises.
I think we have to be careful with some of this narrative being a bit too neat.
I suspect Sun was walking dead long before the crash, and wouldn't have survived without an existential shift that it's not clear they were capable of making.
The silly money in the dot-com run up just dragged the process out a bit by masking/hiding the crisis, but I don't think it's correct to say the crash is what killed them.
Yeah probably not Amazon. Sun already seemed a bit on the outside looking in at that point. It could potentially be Oracle. Sure they're in a stronger position than Sun was at that point but there's a similar aspect of having lost mindshare in terms of the go to product in their class.
In an era of belt-tightening, it's reasonable to expect that companies that can't even achieve a profit, including companies like Uber, will have to make changes and the people who have created lifestyles based on VC subsidies will have to face reality as well.
here in India, a bunch of 10-minute grocery delivery startups have raised literally billions over the last few months. All operations are extremely capex heavy - they have to create hundreds of dark stores in every city to service a 2-3km area.
Growth has been stellar, but what the numbers don't tell you is that the growth is simply achieved by subsidizing users. Delivery is completely free, prices are discounted, and they'll deliver any amount. I know people who will order half a dozen times a day for something as small as a pack of potato chips and a coke (order value: $1). Because why not if you're getting it for free?
What happens to these startups if funding dries up and free delivery is off the table is anyone's guess.
I think the other thread from YC on what it means for startups is on point.
"Survival of startups", plural, is not the metric of relevance. The strong will survive. The ones who were/are running on fumes are gonna have a bad time.
I disagree. I think what’s shaking up the markets is a fear that the fed will not return to QE - i.e. the QE experiment has failed and will be shutting down.
If however they do resume QE, expect markets to fly to new heights.
I'm only in my early 40s but as a young trader I sat next to people who traded the 1987 crash, Asia, Russia (90s), and the dotcom crash plus 9/11.
Hindsight changes a lot of things. For one the market recovered from all previous crashes, with one major exception.
I traded through 2008. It felt apocalyptic. I got a text message from a guy at Lehman on the Monday, surprised he was now out of a job. There was a queue of people at Northern Rock.
We knew that a lot of bad things were about to come out, basically things that had been papered over to fix dotcom. The whole subprime thing was predictable, I went to a lunch at Goldman's where they basically just said it out loud, the subprime market is gonna explode and maybe take some other things with it.
But what we have now feels like it's sweeping even that under the rug. Growth didn't bounce back hugely afterwards, it's been mild. But interest rates have hit a low nobody that imagined. The whole period since 2008 has been exceptional. A lot of things that seemed like frothy excess went on for a long time. A lot of stuff that should have died in 2008 got to live.
So yeah it feels really big, but no climax thus far. No Lehman yet, and no Madoff. A couple of things sort of felt like maybe they would cascade, but didn't, eg Bill Huang's fund going down. For the GFC we had the two Bear Stearns funds going down as a preshock. Not sure if Luna really qualifies, given the amount of crazy things that happen in crypto.
I know what I'm about to say will seem perverse, but frankly I'm looking forward to shit really hitting the fan. I'm talking 1930s Depression era fuckery.
The modern world needs it. We've created ridiculous systems that - wrongly - believe they're beyond specific forces of both human nature and market economics, and I can't wait for the shit to hit the fan and the music to stop. A sharp, harsh, painful, miserable, unbearable correction needs to happen to remind wealthy, middle-class, and poor people that fundamental economics cannot be ignored.
The more painful it is for every group, the better. Trauma is the best teacher.
The 1930's certainly contributed to some rather nasty events which came in the 40's - I'm not sure trauma is the best teacher at all. It's a teacher, but the lessons learned might be horrible and ultimately counterproductive.
Has it not dawned on you that after countless examples of fraud, speculation, scheming, and profiteering...that nothing ever changes, and no one learns? I would love for you to get dropped into the 1930s and go have a good time.
Yup - this is it. Society doesn't learn. It's not the same people. Look at banking/finance - over and over again we have similar crazy things happen, often about 20-30 years apart. The people who learned from the last one retired...
People have been saying this a long time. "Fundamental economics" isn't even a real thing, it's made up theory with almost zero predictive value.
At a very basic level if people get up in the morning and go to work, and continue to want cars and tvs and houses and vacations, it's hard to see the economy really going to hell. We've had many scares over the last 100 years and we keep chugging along with a bump here and there, because people keep going to work and keep buying cars and tvs and houses and vacations. We just went through a global pandemic and are basically fine.
It feels pretty resilient.... unless we make a hard turn into communism, which appears to be a sure fire way to destroy an economy.
I mostly agree, there's a huge amount of crap that shouldn't exist.
However I doubt it will be like the 30s. Back then it was really slow to transmit the information of who needs what stuff, and which firm is looking for people. With modern communications the shock should be less.
I don't know if this is just the start of a bigger thing, but this is nothing like 2008 for sure; in 2000 I was around but didn't work in tech directly so it affected me less. 2008 was a complete panic, people thought it was literally the end of the financial world as we know it, the market collapse was just the tip of the iceberg.
In 2008 I was working at a start-up that had plenty of cash, but pretty crappy investors who panicked and decided they want their money back, and through the board forced the company to basically shut down, didn't even pay us our last paycheck or the severance required by law in my country. So I found myself unemployed (with a baby BTW), my wife was also laid off, we pretty quickly had to withdraw money from our not-that-big savings, my company was car gone and I needed a new car, and no company around even thinking of hiring. It was extremely scary. I did some freelance work for a couple of months, then found a job at a pre-seed start-up that managed to scrape a couple hundred K somehow, and got by for a bit. After a year things started to turn around and things went great up until now. But it was really traumatic.
I obviously don’t know where the bottom is but I do see multiple simultaneous contributing problems (war -> food problems; supply and transport problems exacerbated by Covid; artificially (“profiteering”) high prices; a tardy (but firm) response from the fed — though it is the nature of such responses is that they have to be tardy).
Ironically the multiple causes is a positive sign: they can start to turn upwards independently. While the 2008 crash was a secular failure of a singular asset class, or perhaps more correctly two coupled asset classes (mortgages and CDOs). That was hard to work it’s way out of the system, though unorthodox actual by the fed and other central banks helped cushion the shock…at a cost.
So for example the crypto collapse is high profile but minor, even trivial, in the scheme of things.
The most fascinating part to me is how not like 2008 at all this one will be.
I'm talking to every Boomer and gray beard I can - and even they can only go far so back. We have elements of every great financial, social, and demographic downfall in our midst right now, and a political class that seems desperate to start WW3. I cannot help but remember how a Japanese Boomer once described the situation leading to WW2 in Japan: "it was like everybody lost their mind for a very long time".
The very scary part is how utterly incapable current Western leaders are. Sure, occasionally a good law or policy sneaks through, but by and large the best way to emulate their actions is by asking "what would a saboteur do?". It has been flawless and continues to be as seen by this morning's US bill about making price increases in fuel illegal.
Then there's how utterly over-financialized our system has become and it's everywhere, from housing to sovereign debt. If anything, it's scarier because while the consumer balance sheet is not-that-awful, the sovereign ones that matter are catastrophic. That confluence of incompetent decision makers + desperation + big stages usually ends in catastrophe.
If we're exceedingly lucky this would be a 2008, but I suspect we're still years away from any sort of "bottom" in either finance, demographics, or societal well-being.
I am not a boomer but am a graybeard Xer with a history degree and things don’t look anywhere as grim to me as they do to you.
Nobody is an expert so I am not replying to try to change your mind, just give you my perspective.
In particular this comment stuck out: “political class that seems desperate to start WW3.” They seem desperate to try and thread the needle to avoid two possible paths to WW3. The aggressor is a very weak and poverty-stricken country and the calculus is that it is better stopped now before it can grow stronger. You can of course disagree (there are plenty of good arguments against that position) but it draw upon perhaps a century of learning.
Ignore the popular press; the biggest political analogy for the US is 1930s France, not Germany, and people are actively defending against that.
I think you are correct to fear the large amount of disinformation and gratuitous (not principled) dissent, but the US and the West has recently faced far worse (USA: 1930s, 1950s), Europe (1870s, 1910s) and come out stronger; and when I look at some of the worst revanchist efforts they seem be a counter response to the “good guys” winning, often noisily and destructively slamming the barn door (gay rights, interracial marriage). I know what it’s like to be a child of an interracial marriage when it was explicitly against the law and believe me it was far worse than today.
Things were far worse in the 1950s under a veneer of gentility. There is no prelapsarian past when the people in government were any better than the folks today.
So yes, worry and work for a better world, but don’t despair. Which are the two things you should be doing anyway, even when things are going swimmingly.
> a political class that seems desperate to start WW3
Well, Putin is the one desperate to start WW3 by replaying the Anschluss and occupation of the Sudetenland in Ukraine.
Our political class are doing everything in their power to frustrate him while not turning it into WW3. It’s hardly the appeasement of Chamberlain, more like a mobilization of soft power, the civil society and the arms industry.
The appetite for boots on the ground action is nowhere, except for from the Ukrainians which is understandable. But they got this, and I’ll be happy to help them rebuild their free, peaceful country with my investments, hopefully soon. They will need Western expertise in medical tech (prostheses) and mental healthcare in the aftermath of the war for sure. Possibly a jolt to their agricultural sector too.
> Japanese Boomer once described the situation leading to WW2 in Japan: "it was like everybody lost their mind for a very long time".
Point of information: "boomer" usually refers to people born in the US postwar baby boom, so by definition boomers will not remember that era directly.
But yes, nationalism can drive people to insane extremes. It was a huge mistake for Japan to attack the US and bring them into WW2, and it was a huge mistake for Russia to attempt to take Kyiv and bring Europe into its war with Ukraine.
Speaking as a farmer, it seems strange to credit the war. The price of the food products I sell started going sky high in 2020. And by fall of 2021 we were already growing quite concerned about fertilizer availability, which pushed prices even higher. The war wasn't on anyone's minds during those times.
The war hasn't helped, but we already had big food problems long before that.
You sweet summer child! First, this thing hasn't even started. My fellow vets of the dot com bust will remember that period in the summer of 2000 where we all called it "the correction": the sentiment was that some companies that never should have been funded in the first place would (obviously!) perish, but that those companies that "made picks and shovels" would endure. (A Gold Rush-era metaphor that I heard countless times.) At least in 2000, that optimism turned out to be misguided: when there are NO MINERS AT ALL there is little need for picks and shovels -- and the big tech companies all saw their businesses severely adversely affected by the end of 2000.
And of course, it took years to find a bottom: the bust went so deep that EVERY significant tech company in ~2000 went through layoff after layoff after layoff over the first half of the next decade, as documented by the HN of the day, fuckedcompany.com[0]. Yes, the housing bubble started to form mid-decade, but tech itself hadn't really meaningfully recovered when 2008 arrived (and this famous Sequoia memo!) -- and it was only from the embers of THAT bust (broadly deeper but much less acute in tech) that the next bubble began to form.
So in terms of now: it's hard to know where this thing is going, but there are more parallels (to me) to the Dot Com Bust than to the 2008 Recession. I expect this thing to run pretty deep in tech, and I think some sectors (ahem, web3) may well face extinction. If it does run that deep, you will only know that it's over in hindsight: it will take years to recover, and it's only when everyone stops thinking about it that the seeds of a true recovery will be planted. So, get comfortable: it may be a while.
One final note. Back in the depths of the bust (maybe 2003?), I saw a bumper sticker on the 101 that stuck with me: "Please God, Just One More Bubble." I remember thinking at that time that there would be no more bubbles forthcoming -- that nothing could possibly be as frothy as what I had lived through. I was wrong, of course, and I really hope the driver of that car cashed out on their NFT marketplace or whatever!
I was pretty young when that crash happened but lived in Palo Alto during that time period and knew a few unlucky souls that succumbed to layoffs that were everywhere. It was absolutley brutal to put it mildly, the exodus out of the bay area was so bad you could not even rent a uhaul truck as they had all been snatched up by people leaving. I remember stories of some people declaring bankruptcy on stock options that were worthless and owed the govt millions that they could never pay. Or other stories of engineers who at the time "foolishly cashed out"(why would you sell your shares when stocks keep going up!) and got lucky. For the survivors it left mental scars and a decent number of people left tech altogether as the experience was so bad. But it was mainly confined to tech so this drop seems similar, one huge difference was a majority of tech companies back then were not profitable and never would be, banking on "page views" as the golden metric which to rate a company, contrast this to today where many tech companies are printing cash and extremely profitable. So somewhat different and somewhat the same.
> one huge difference was a majority of tech companies back then were not profitable and never would be, banking on "page views" as the golden metric which to rate a company
Thanks for writing that up! I was still in high school during the 2000 crash but I still think some things are different today. There are miners (to use the shovel terminology). They are watching Netflix series, running businesses, drive electric bikes around, monitor airplane traffic and all sorts of things. The internet today is just fundamentally required for so much of the economy to function that tech companies are much less bound to crash than in 2000.
I don't even know how you can compare the recession of 2001 to now. Apple has literal hundreds of billions of cash reserves and is printing money. Pets.com had almost no revenue. These are not the same thing.
There are plenty of pets.coms running around right now. They have revenue but are structurally poor businesses with terrible unit economics which is why they constantly announce entry into new markets that will go nowhere. Uber, Lyft, … there are tons of these. Go look at the cash flow statements for many of the hype companies and realize they buying revenue isn’t the same as having a company.
What do you mean by frustrating? In my memory of 2008, there was a real sense of panic, far beyond anything we're seeing right now. Before it was evident things had gone really wrong, plenty of people had a sense that something had to give—housing was going crazy, and I remember making $37k and qualifying for mortgages on NYC apartments—but inflation was <3% and unemployment was low.
While I think we're headed for a whole new kind of disaster (albeit one I can't predict—unlike 2008, there's nothing fundamentally wrong with financing of housing, but I can't see how these prices are sustainable), I'm not sure it'll be 2008-level doom. The frustration, I think, comes from a real sense of the toll of inflation coupled with annoyance, sometimes unarticulated, that we could have put the breaks on by raising interest rates more aggressively long ago, circa 2015-2016, when the stock market started going crazy.
I think the hesitation was there was a minor economic slowdown around that time and inflation was still flat, so it is unclear raising rates would have been the right call.
Its easy to see there is a problem now, but I don't believe anyone knows what amount was caused by the pandemic. Despite gripes everywhere, I actually think Fed policy has been very reasonable given the circumstances. If not for the pandemic, steady rate hikes were already happening and set to continue.
I agree with this. Basically the fed 'rescued' the system in 2008 by injecting capital into the system.
However, this 'rescue' became the norm and they decided to continue easy money policy for the next 14-years. Now, here we are! This has been a concern for a long time now.
What is fundamentally concerning about a central bank injecting capital into the system? If anything, you could say the same thing about fiat currency and fractional reserve banking as a whole. Money comes from nowhere!
I lived through the Japan crash, which is the biggest crash in my lifetime, as well as the early 80s government layoffs (where my dad really thought he would be unemployed), 1992 (when I thought I would lose my job), the dotcom (where I knew good people who were out of work for a year or more), and 2008.
So far this is exceptionally mild. There are not mass layoffs - there are layoffs and hiring freezes, but nothing like 2001 - and there are not people taking pay cuts or worried that if they have to leave their job they will need to take one. We are far, far from 2008 and even farther from 2001.
I have tried to explain what the dotcom was like to young people and the usual response has been: "What is the big deal? I would just find a new job and probably get a pay bump as well."
I am not saying this to pick on young people in technology but rather to help illustrate how far from reality they are when they talk about how unfortunate they've been graduating into tech in the aftermath of 2008. 2008 was barely a blip on the tech scene. A real down market is something most of them have never experienced and not one that they are internalizing. There has been a ton of "we graduated into the worst job market ever!" propaganda pointed at millennials who have internalized it. It isn't true unless you were in finance or real estate.
> There has been a ton of "we graduated into the worst job market ever!" propaganda pointed at millennials who have internalized it. It isn't true unless you were in finance or real estate.
It was true for a lot of us who weren’t in tech at the time. I graduated in December 2008. I was unemployed for a year, eventually finding a job as a bank teller. I applied for literally hundreds of jobs from waiting tables to retail to grant writing to substitute teaching.
I was either “too qualified” because I had a degree or I was “too inexperienced” because a lot of folks who had recently retired were going back to work because they just became upside down on their house.
When you’re freshly graduated and broke, a year is a long time. Worst ever of all time? Nah. But it was pretty traumatizing.
It is admittedly very difficult to imagine a world where suddenly there would be no job opportunities for software engineers. It's a lot easier to imagine the inverse, where there are no job opportunities except for software developers.
2008-2009 was bad world wide, except for Tech. Tech had a hiring freeze for late 2008-2009 and then things rebounded fast. Most large companies had minor layoffs (Except Apple and Facebook). Even Microsoft had layoffs, and Google (stealth shut down of products). Some smaller startups couldn't raise money and had to shut down. But things picked up full steam by 2009 again.
What saved tech? It was mobile. 2008 was the first year when you could write apps for the iPhone, and they were a hit. Same with Android later in 2008 early 2009. It started a boom of new companies, and then competition for talent. Also Google and Facebook got into a bidding war for engineers, which started driving up salaries.
Also, a lot of the large tech companies today, were started or took off around that area (AirBnb, DropBox, Uber, Lyft, etc).
Is this going to be another small bump 2008 for tech (a correction, hiring freeze, and then upwards), or a long drawn 2001 style bust?
My bet it is going to be a 2008-2009 style of correction for tech (job market at least), with the 2001 style of correction for stocks. Why?
1. Stock were way overhauled, and coming back to pre-pandemic levels (almost half off for many companies).
2. Most large companies are still very profitable right now and have healthy margins.
3. Some will try to rein in costs, and have minor layoffs or hiring freezes, but no near 2001 style of busts
4. Tech is in a long term upswing trend that will last at least another 50 years.
After 2009, long term risk free rates continued their secular decline which culminated in March 2020 at an all time low of 0.54% for the 10 year Treasury yield.
This was a major factor in the tech story. Rather than valuation being focused on current profits, as is the case for most industrial stocks, valuation for tech is based on expectations of future profits, i.e. growth. When long term interest rates are very low, these future cash flows are not discounted very much. Therefore, good growth numbers for tech in a low interest rate environment resulted in face-melting performance as all of that expected future profit is basically just assigned to the current value of the equity.
That era is clearly ending. Long term interest rates hit the all time low and are rebounding in a way that is very distinct from 2009. I would not be surprised if tech stocks fundamentally reprice and never completely recover.
What do you mean "too early"? Core inflation has been above 6% since January. The headline number is even higher.
The Fed will be raising rates. The question is how far they have to go before inflation subsides, but it is monumentally obvious that long-term interest rates have to lift off. The days of zero-interest overnight rates are over.
The Fed needs to raise rates to about 13% to get inflation under control, assuming current inflation of 8%, a 2% inflation target, and that we're already at full output.
Problem is that it's very likely that the Fed can't raise rates to 13% without very serious negative consequences like the government defaulting and the people revolting. My prediction is that they get to 3-4%, the economy breaks, and then they flinch and drop to 0 again. Meanwhile, inflation will continue to accelerate, as real interest rates remain negative.
When the currency has depreciated by a factor of 5 or so, total debt levels will become manageable again, and then we might see the Fed persistently raise rates to 20-25% and choke off the inflation. At 20% inflation, it'll take about 9 years to get there, at 8% more than 20 years. If inflation gets to 20% it's very likely to get past 20%, though.
Do you feel that we’ve reached the peak of the smartphone enabled businesses that emerged after 2008? Like apps like Uber that relied on smartphones to unlock entirely new markets and possibilities?
All we have today are optimizations on these earlier models. Nothing new that truly leverages any unique feature of the smartphone.
This feels extremely cathartic for me. Like we've all returned to our senses and are no longer pretending it's possible to have 100% YoY growth indefinitely for every vaguely tech related company.
I remember the 2008 crash and it was panic. Banks collapsing, large layoffs, hiring freezes, and a quick downturn.
Hell the pandemic downturn in spring 2020 felt worse than this. Unemployment went way up, banks were pulling back, people were being laid off. That was an artificial crash with a fairly defined end time. A normal crash does not have that.
Tech has crashed, and is very much in a recession, while the rest of the economy has been operating (decently) smoothly. This said, other parts of the economy are starting to feel knock-on effects of inflation, higher rates, and supply issues.
Things could certainly get a lot worse. 2008 was brutal, though.
Yeah this is not even remotely a crash. Even laggards who bought anything in late 2020 are still in profit. Anyone who bought anything pre 2020 is wildly in profit.
In 2008, SPX eventually crashed to 700ish - a level it had last seen in 1997. A whole decade of investor wealth was wiped out
Right now, we haven’t even seen the pandemic era wealth wiped out. This is honestly a paper cut compared to a proper 2008-like crash
I'm 50 and I've learned about every 5-15 years banks pull something that melts down the world economy. It's called "financial innovation". As others have mentioned, this episode is pretty painless and innocent so far, to the point that I personally am not sure we're actually in an episode yet. These little hiccups happen a lot more often than that, and we often forget about them a few months later. Actual meltdowns don't just make you feel worried and annoyed, they hurt a lot. Unless you're a bank.
If you're a bank, you make money before, during and after the meltdowns that you create. And if it looks like youre ever in trouble, you get bailed out by the same people whose money you gambled away. It's dark.
>When the Federal Reserve propped up A.I.G. in September 2008, unlike its approach with most of the big banks, it threw out the company’s chief executive and took control of 79.9 percent of the company, nearly wiping out many of its shareholders. Taxpayers got all of their money back, and then some, receiving a profit of more than $20 billion.
Enacted since then, Title II of the Dodd-Frank Act sets up bailouts to be “forcing shareholders and creditors to bear the losses of the failed financial company, removing management that was responsible for the financial condition of the company (…)”.
In reality, they get bailed out. So there is no downside? They can literally do whatever the they want, get small fines, and if it all falls apart, we just give them more. How many bonuses got paid out of the bailout money?
I am frustrated in that I have money but nowhere to put it, anxious over holding it because of inflation. Just kind of sitting around waiting, losing wealth.
Storing wealth for later is one of the hardest things to do. It is an unsolved problem, even after thousands of years. Capitalism has a strong claim to hint at a workable solution: it formulates a process in which savings can be converted into capital, capital being the lever to increase productivity, thus increasing wealth. Funnily enough, the accountants responded by starting to depreciate the capital assets, bringing it back full circle. It also necessitates capital being deployed productively. And that too is apparently not that easy either, as the current meltdown is showing.
Losing wealth to inflation might be preferable to losing it to equities in the coming months. Obviously nobody knows, but it seems long overdue. There are also positions that are very, very lucrative in bear markets, and I'll assume you know about these, or know how to find out about them.
Disclaimer: This is not financial advice. Consult a professional (or several), not some random muppet on HN.
One way to play it is to buy long-term bonds at about the peak of the interest rates. Bond prices are inversely correlated with interest rates; as rates drop, bond prices rise. The longer term gives you a longer lever for the interest rate move to raise the price.
Then, when rates bottom, sell the bonds and buy stocks. [Edit: Because that's the top for the bonds, and usually somewhere around the bottom for the stocks.]
The observant will note that this requires you to know when the interest rates are peaking, and when they are at bottom. There are some technical markers that can give you hints, but the reality is that there is no absolute way of determining these things. They turn out to be informed judgment calls.
Can anyone explain to me why VTIP and other TIPS/FRNs ETFs have declined over the past year when a basket of TIPs should presumably be more valuable as CPI increases? I’m missing something crucial.
Is looking at gold in terms of it's dollar value actually the point? I thought it was because it's a tangible asset that humans have always valued, i.e. a useful and rare metal, and that so long as people have food and water they'll probably still value it long past the point other assets have become worthless.
I mean my time frame was more like 50 years - assets you can pass onto your grandkids - but you’re fundamentally right if your time frame is 10-15 years
Most of the former crashes hit the financial sector first and than hit the real economy. This one hit the financial sector and will stay there. This is why you see wallstreet / vc panic, but the real economy cannot find employees.
Equity crash has been expected for awhile - the unsettling nature is how long will it go combined with the resurgence of inflation that we haven't since the 70s. Fed didn't manage that well and the 70s were tricky. The fed is a different animal now and so is the macro environment.
Agree with a lot of sentiment - glad to see some of the hot air escape - there's some terrible companies and shady businesses out there right now. Hope we don't go into some global recession though - thats my concern (if all central banks work in lockstep).
In 2008, I was 25 and in NYC. Seeing professionals with boxes full of work stuff, on their last days of work, was the norm. It felt like what I imagined the crash of 1929 and the dustbowl would be like.
2008 wasn't as bad as the 4-5 years of "echoes" it caused to roll through the economy here in the US. We had a long, major recession and people on unemployment for years without being able to find work. Actually, in a lot of ways 2008 felt very hopeful, like we could see the possibility for great changes and a road to a brighter future. Today, it feels like we're at peak cynicism and pushing higher, I don't know anyone that thinks things are going to get better.
2008 was called the Great Recession for a reason. This ain't that. Nowhere near as scary.
Now if we can stop this drumbeat for WWIII that would be nice. I feel bad for Ukraine and all that, but it's not worth starting a world war over. Assuming we come to our senses on that front, this is nothing.
We've also never seen credit be this cheap. So it makes sense that companies would take on lots of cheap debt. The profit to debt ratio is less important than the strings attached to that debt.
The US has done a masterful job at exporting high margin products. Apple, Google, all kinds of enterprise software, entertainment. And importing all kinds of low margin, competitive products like electronics and clothing. And, private equity is much bigger than it used to be. Buffett's point was about returns to labor v returns to capital. So the 0.7 doesn't work when the labor and capital and returns aren't dispersed the same way.
Fwiw, Buffett is putting a lot of money to work across a number of industries as we speak.
we all heard the same thing in 1999 and 2007: "the smart money is buying" maybe, maybe not, the smart money has no reason to tell us the truth, many reasons to hide what they are doing and access to investments that normies don't
no crystal ball here, but things look like they could get very bad
We are talking about the Buffett indicator... named after Buffett... who said at the time stocks were too expensive, and wasn't buying.
He is buying now and you don't have to take his word - Berkshire files a 13-f with the SEC. It shows lots of buying. If that filing is materially incorrect, he's going to jail along with a few of his guys - very unlikely.
last I looked he bought a bunch of energy stocks right before the govt. decided to freeze the second largest supplier out of the market, I think he'll be alright and probably won't be going to jail
we'll see, let's check in in six months, maybe this time its different
Lots of young kids surprised by the business cycle. Recessions and downturns happen like clockwork nearly every 10 years for the past 50 years. Get used to it. It's not different this time. Save cash, dollar cost average your investments and keep living. Life goes on.
None of what you described is new or "not normal". Japan has been this way for nearly 3 decades and they are hanging around just fine. Sure it's not a growing behemoth but they are far from doomed.
"It's different this time" they said for the 10th time.
Sure be worried if 90% of your net worth is tied up in FAANG stock which everyone has known have been overvalued for 5+ years or if you work for some unprofitable unicorn then yes a reckoning is coming. There is nothing to indicate structural instability like in 2008.
When lots of people feel poor (ie, lost a lot of money on their house), it's real world. When lots of people's retirement savings flush down the toilet, it's real world. When millions lose their job, real world.
The idea that 2008 wasn't real world is nonsensical.
I lived through the 2008 meltdown. The goddamn crisis was more than real. In front of my eyes, people lost their jobs including my own colleagues. No one had money. Even those with jobs came to work fearing it was their last day. I just hope such a day never comes again. September to December 2008 and even Q1 2009 was really bad.
Just because it will probably be worse now doesn't mean it wasn't bad then. Then I lost my house and struggled to scrape through financially. We learned from that experience and are better prepared to weather this round. It may be a blessing for many that 2008 was so recent, and this recession has trumpeted its approach for a while: maybe they've used the time to prepare.
It was bad on Main Street, but 2008 brought the App Store boom, so us developers, of which HN is biased towards, saw stupid money being thrown at us with everyone rushing to become the next "Fart App" millionaire. For tech, 2008 was a golden age. This time tech is the one getting hit.
Food shortage has nearly nothing to do with climate change and nearly everything to do with sanctions against Russia, resulting in skyrocketing prices of potash, nitrogen and ultimately fertilizer. Combine that with the fact that Ukraine and Russia are also major wheat exporters. Aside from China, most of the countries are running very lean food reserves, resulting in added pressure.
> An unusually early, record-shattering heat wave in India has reduced wheat yields [...] Climate change has made India's heat wave hotter, said Friederike Otto, a climate scientist at the Imperial College of London [...] "But now it is a much more common event—we can expect such high temperatures about once in every four years," she said.
> India's vulnerability to extreme heat increased 15% from 1990 to 2019, according to a 2021 report by the medical journal The Lancet.
Energy is the key behind inflation. The West moved towards no more oil and gas and it's coming back to haunt it. That's an inflation component the Fed can't control.
It will take years to get some new nuclear plants and oil/gas rigs. And between the ESG nonsense and $0 prices in a lockdown, those are risky enterprises. Also there are price controls (in UK several energy companies collapsed last year [1]). Would you risk your money making a nuclear plant, an oil rig, a gas pipeline, that might get shut down or could become worthless? [2]
The US just passed 1,000,000 dead. It's not over. Declaring a victory and going home doesn't work. Did that last summer, remember? US case rate has tripled since April 1. Deaths lag that by about a month.
I don't know which engineers you work with, but my experience is that engineers will prematurely optimize just about anything they can measure and put in a promotion packet. Or heck, just for fun. I'm no exception either.
I think system theorists probably would have the best shot of helping anticipate the negative feedback loops we're experiencing.
Never? Of course not. But they do a much better job. I don't know the current stats, but I recall hearing something like 70% of china's ruling party have engineering degrees. Whereas the overwhelming majority of ours are lawyers.
I think that plays a part in why China's infrastructure is so good, and why they've been kicking our ass the last 30 years in terms of growth.
Pointing to China isn't convincing. China has been growing off a small base. Let's see how their GDP growth goes off a base like the US. US is 5-6x larger per capita.
It has nothing to do with letting a certain specialization run the show, but having people in leadership that have fewer conflicts of interests, a deeper understanding of things other than just politics, and a willingness to work in/on a team.
That’s reduction in worldwide food production for export, which is not that much. Food production itself is fine; India would’ve had issues as they import the most from Ukraine/Russia, but they have an unusually large domestic supply this year.
I’d encourage you to read Taber with a grain of salt. As someone with some on-the-ground experience with production agriculture, I find her takes sometimes distorted and one-sided. They do feed a narrative that clearly resonates with folks without that background, though.
This doesn’t look promising. Economic activity has a direct correlation with energy prices. If things cost more and there are fewer youre talking inflation.
At the same time, they dumped a bunch of money into the market AND by seizing Russian assets a lot of countries are going to diversify AND there are less market for USD.
We’ve increased the circulating dollars, raised energy costs, and reduced food supplies.
I saw this the first time around. Times are different. I do recall one VP wandering the halls loudly opining that "no start-up will ever go public again." In 2008.
This is more of a generational cashout. Social security will see the same effects at some point. You can see it from the ludicrous vanguard distributions from 2021. Turns out the stock market was just a ponzi scheme after all.
In recent days, products that greatly impact inflation, such as oil, have recorded historic highs in prices. A barrel of Brent reached US$ 135.
Another factor that also has an impact is that of food, which may have its fertilizer supplier affected, Russia is a major export market. On wheat, which both countries are major producers, there has also been an impact. That is a major driver of social unrest.
The mid-2022 forecast from the UN Department of Economic and Social Affairs said that the reduction in growth prospects is broad-based, including both the world's largest economies (the United States, China and, most significantly, the European Union) and most other developed and developing countries.
The economy is like a software stack thrown together out of random chaotic components and now and again it blue-screens and people squint at the hex error message and pretend they know the bug that caused it but really they don't. And the important thing is to keep backups
AAPL went from $8 in 2010 to $180, not including the 28:1 split during that period. Google went from $300 to $3000, not including a 2:1 split. Amazon went from $100 to $3500, with no splits. Startups like Uber and Airbnb were about to be founded. Twitter was created only a couple of years previous. A tremendous amount of multi-millionaires and billionaires were minted during that time.