I work for non-tech generating 100million+ in revenue. Cushy job, fully remote, good pay and full autonomy with flexible hours working as an IC.
I recently talked to a startup, similar pay, culture would be a better fit since it was mostly techies and I'm a nerd by nature.....but things just got awkward as soon as I asked about their revenue....they were bleeding money and I was told they were being acquired by a big corp. Also, the tone worried me, the confidence the CEO presented early in the call disappeared.
I also tried digging deeper into their business and what they were selling, as I have interest in that space due to my hobbies. I literally didn't see a need for their startup to exist. But I'm just an average developer what do I know.
Across every investment class there has been a trend of buyers needing to become more financially irresponsible in order to participate in the market.
Need to buy a house? bid 20% more than asking, if you don't - someone else will.. in cash.
Need to build a ride-hailing app? prepare to pay people to ride indefinitely.
Need to own a growth stock? prepare to pay upwards of 100x multiple on revenue.
All around, there have been too many dollars chasing too few assets. I suspect the pendulum is swinging now that housing got to the price point where employees demanded equivalent pay increases to housing cost increases.
This is also a central banking fail in so far that there's that much liquidity in the market that can't find a productive outlet.
There's a lot of money, but also not enough concentrated in one spot to do really useful ventures like large infrastructure projects. So instead the money is distorting everything.
Imagine if lending was less cheap for home owners but it was still cheap for governments or really large companies to be able to build train lines or advanced manufacturing or affordable medium density housing.
I see the problem as too much credit is able to be spent with too little focus. So silly stuff is being funded because the money is becoming meaningless.
The money can find a productive outlet, it’s just that for the last 5 years or so, speculative investments (that weren’t productive) had a much higher rate of return. Which is too bad as the productive investments like building a solar power plant really benefitted from the low interest rates that drove the non-productive speculative bubble.
non-productive Speculative investments tend to get punished at the end of the cycle by losing all value, thus punishing those invested in it and restoring order. But that often only happens when you increase interest rates above that which productive investments like solar power plants often need. And so you get contraction as even the productive investments are starved of funding. Oh well, at least the solar power plant hasn’t lost all its value.
> non-productive Speculative investments tend to get punished at the end of the cycle by losing all value, thus punishing those invested in it and restoring order.
To be precise, the investors who are left holding at the end of the cycle get punished. The early investors who got out make out like robbers.
We could allocate resources to productive assets by fiscal spending, but that is prevented by politics. Only when "the market" gets its cut can any infrastructure be built in the US. That's also true for much of the medical establishment and pension/retirement systems. If the market was efficient, we wouldn't be complaining about it. Unfortunately, a "free market" and an efficient market (and you could argue whether infrastructure or medicine or income insurance even make sense as markets) are not the same. Most markets that have many individual consumers require regulation to be even close to efficient. Like political and financial enforcement they are too easy to manipulate and the consequences of malfeasance are substantially less than the profits to be made.
What sucks is that fiscal policy, ie government spending, is also often not very efficient. Even when rampant corruption doesn’t destroy efficiency, crushing bureaucracy or just plain incompetence will. (Is the DMV a model of efficiency?)
So you need a smart balance. And you need competent, honest people in both business AND government.
I don’t think that government necessarily is inefficient. The DMV could be a very efficient place. The fact that it isn’t should cause at least some pause for those advocating more government spending (such as myself).
And the same is true for business. Comcast is terrible. But it doesn’t HAVE to be. Rent-seeking and anti-competitive behavior makes it terrible.
People keep using the DMV as an example of government inefficiency, but my state has made it run so painlessly I don't think I've spent more than 15 minutes in an office over the last 5 years. I think government can be efficient if you put technocrats in charge of implementation rather than elected officials who are subject to the electoral whims of the uninformed masses.
The problem with the above is it weakens democratic institutions by removing the exercise of power from the people the population select to lead.
Inefficiency to me can not possibly be more clearly demonstrated than by ape pictures losing hundreds of thousands of dollars for their purchasers. But we also have examples like Uber spending cash on hand to drive competitors under without having a plan to maintain their own services without heavy subsidy.
The DMV in my state requires you make an appointment 4-6 months out right now. Walk-in appointments are unavailable or only available during a few hours a few days a week, if they happen to have staff that day. Good luck if you have your drivers license stolen.
I sold a car of mine to Carvana in October. I returned the license plate to the DMV immediately, which is how they're notified that you no longer own the vehicle, waited 7 days, then cancelled my insurance policy on that car. A month later, I got a letter from the DMV that it is a crime to not carry insurance on my vehicle and I will have to reinstate the insurance and pay a $70 fine for letting it lapse. On the car I no longer own, that was now titled in another state and resold by Carvana already.
It took 2 more months and 3 different forms to get the DMV to accept that I no longer owned the car and to stop pursuing me for this "crime".
>The DMV in my state requires you make an appointment 4-6 months out right now. Walk-in appointments are unavailable or only available during a few hours a few days a week, if they happen to have staff that day. Good luck if you have your drivers license stolen.
Sounds like your state has a big problem.
In my state (New York), appointments are generally available within a week and walk-ins are welcome, but those with appointments get priority.
I've never spent more than 30 minutes or so at a NY DMV location and most transactions are available online, including replacement of lost/stolen licenses.
In fact, I decided on Wednesday (11 May 2022) that I wanted to trade in my license for an "Enhanced Driver's License"[0] (EDL) which, among other things, will be required for domestic air travel[1] in a year or so.
That's one of the few transactions that must be done in person. I went online to book an appointment and was presented with a whole bunch of appointment times next week. I chose Thursday (19 May 2022) as it worked best with my schedule, but I could have gone on the 16th if I'd wanted.
So, no. Not all DMVs are a pain or inefficient. Want to make that better in your state? Elect people who will work for you. Just a crazy thought.
>An EDL is not required to fly domestically, which is good because only 5 states offer the option. An EDL includes the Real ID benefits which includes domestic travel, but also acts as a passport when traveling by land or sea with Canada/Mexico/some Caribbean nations.
Yep. Which is why I said:
...I wanted to trade in my license for an "Enhanced
Driver's License"[0] (EDL) which, *among other things*,
will be required for domestic air travel[1] in a year or
so.
Upon reflection, I can see how that kind of puts the cart before the horse, but it isn't really incorrect as an EDL incorporates the RealID.
I suppose I could have clarified that the EDL provides RealID and additional functionality as you describe, but I figured that "among other things" and links describing both RealID and EDL, folks could find out for themselves what "among other things" meant.
Perhaps that overestimates the reading comprehension of some folks, but I prefer to give people the benefit of the doubt and not assume they're morons.
Perhaps that's a mistake, but if so, it isn't my first and won't be my last.
I thank you for clarifying and I'm sure the morons out there will thank you for your pedantry as well.
I'd further point out that this was just a real-life example of a service which must be provided in person and not online and my experience with scheduling an appointment. It could just as easily have been any of several different services which require actually going to the DMV, but that's the one that is relevant to my life at the moment.
As such, even if I'd claimed that an EDL gets me free blowjobs at Federal buildings, I still made the point I was attempting to make.
WTF? This must be because of willful political sabotage?
The license plate should follow the car and ownership should be changed online as part of the transaction. It sounds incredibly wasteful that every time a car changes ownership the seller must hand over the plates in person to the DMV. And is there no national registry of cars or data sharing between states? Strange that a car can be registered twice.
If your drivers license is stolen you should be able to just order a new one online and have it delivered in the mail. I have been inside the building of our DMV equivalent two times. One time when I did theoretical exam to be allowed a practical driving test, and once for the driving test. I got a temporary license when I passed and the proper license in the mail the next week. This was 20 years ago.
> WTF? This must be because of willful political sabotage?
It's not sabotage, it's the fact that the government wants a leash on you. I had an experience in the past with the CA DMV where simply forgetting to "de-register" a broken, non-functional motorcycle resulted in the state levying my bank account for hundreds of dollars in registration fees. The FTB had the money debited right out of my account, no different than if someone committed wire fraud.
I have to assume that you don't live in the US. The license plate can't always follow the car: each state has its own license plate(s) and DMV and rules, etc. e.g., I got a nastygram from New York state when I moved out of state and didn't turn in my plates. OTOH, in Minnesota, they tell you to do whatever you want with them: turn them in, throw them out in the recycling, etc. Some people have license plate collections on their garage walls.
If a license is stolen, You need to go into the DMV because they'll have to take a new photo. There was a temporary exception due to COVID, but I think that's no longer available since I had to go into the office when my license expired.
>The license plate should follow the car and ownership should be changed online as part of the transaction. It sounds incredibly wasteful that every time a car changes ownership the seller must hand over the plates in person to the DMV.
There's too many personalized plates and other exceptions in the US to make that viable.
The plates go with the vehicle in California most of the time. It just gets complicated when you sell to someone out of state because you have to turn the plates in yourself. If you a used car in CA, it's not unusual for the plates to be the same plates the car had since it was first registered in the state.
We bought our last family car from enterprise and one day this family walked by while my mom was waiting for me in the store parking lot. The kid recognized our car as a rental they had on a road trip once and got excited about it. Awkward. xD
Custom plates are weird. You can either give them to the new owner or transfer them to another vehicle or return them to the DMV.
Do you know how'd it'd work for plates like ham radio ones where you CAN'T transfer them to another another person, but it'd also make no sense to turn them in? Can you keep them to use on another car eventually?
This whole "turn in the plates or we'll go after you for not having insurance" seems completely insane. I've never turned in plates and no one's cared.
Except that’s exactly how it works in many states. If you want to keep your personalized plate, you have to jump through hoops, but it defaults to go with the car in the two states I’ve lived in.
Interesting, it's actually not allowed in the 3 states I've registered a car in. In NJ, they wouldn't even allow transferring a regular plate from our old volvo (registered in my dad's name) to our new town and country (registered in my mom's), because they were owned by different people as far as the state was concerned.
That's an awful setup. More states need to get DMV mostly online. I just go to their website when I sell my car and tell them I've sold it. No sending back plates (which is good, I keep my plates when I sell a car, because I like them).
What state is this? I always thought it was illegal to drive on public roads without insurance, not simply own an uninsured vehicle. From the farm, to the drag strip to the 4x4 trail, tons of people own uninsured vehicles that are not driven on public roads.
I have bought 3 used cars and gotten 2 teenagers thru permit and drivers test and license. Never had any appointments except for the driving test, and never had any long waits. All waits were much shorter than when I transferred my out of state license to CA in 2008 or 2009. Impressively well run bureaucracy, I'd say. And this with covid precautions to work around. Much better than the several east coast states I had prior experience with.
Now I do chose the office to visit with some care, and also (as an "elite WFH software engineer") time it so that the lines are likely to be shorter, so YMMV.
You definitely can return plates in California. They just don’t ask for them as a due course for any normal processes. But, you can choose to mail them in or turn them over to the clerk.
If they’re paying the highest price (and have the greatest convenience) to buy an asset I’m selling, they’re going to be the proud new owner. Same story if Blackrock wants to bid the most on my house.
If they have a better mousetrap, good for them. If they don’t and are just overpaying for cars, well, good for me.
Almost all DMV problems are due to understaffing, not any laziness or incompetence on the part of the people who work there.
In California the DMV experience was greatly improved by having appointments, and for walk in, you get a number and at least have an idea when you'll be called, so you can sit in a waiting area, not have to stand for hours.
COVID has reduced staffing so that makes appointments harder to get.
Also, imagining that corporate offices are models of efficiency is an error.
>Also, imagining that corporate offices are models of efficiency is an error.
Absolutely!
I used to work for a Fortune 50 company (that shall remain nameless here) and was moving various groups (mostly marketing and research) away from mainframe batch processing (this was the mid 1990s) toward distributed (Unix) systems.
The inefficiency and waste were just unbelievable. The corporation had tried to move their customer service reps off IBM 3270[0] terminals which were locked in to a single application (with significant retraining required for different apps) with X terminals (what they used to call thin clients) that scraped database queries and stored them in a local database and had a unified UI across all apps.
The app was complete, the roll out team purchased ~USD$300,000,000 worth of systems and infrastructure, and then realized that it would cost USD$150,000,000/year to support/maintain the environment.
So the project was canceled, with hundreds of millions of dollars in Unix boxen and related hardware sitting in warehouses, now without a clear purpose.
When moving folks off of the mainframe, we always pushed them to use the hardware already purchased (a sunk cost). All a group needed to to was put the capital depreciation for whatever equipment they used on their budget lines.
The vendor (again who will remain nameless) priced out equipment (on purpose, I'm sure) so it was cheaper (on the budget line) than the depreciation on the equipment the corporation already owned. In every single case, these groups chose to spend real money buying new equipment rather than taking on the depreciation of the equipment already purchased.
What's more, when evangelizing these changes, I was strongly cautioned to never use the phrase "increased productivity," as that (apparently) made the heads of these groups concerned about losing head count.
tl;dr: The corporation was so fractured and inefficient that group heads would waste corporate dollars in the millions just to maintain their budget and headcount.
I'd love to hear about something like that happening at the DMV or other government office. But I won't, because if folks in the public sector pulled shit like that, they'd be hounded out of their departments.
There are a lot of ways to compare these numbers, and I think "absolute dollar amount" is not particularly enlightening among them.
On a per-project percentage basis, the parent's story wasted ~100% of the project's budget. The same number for California's unemployment fraud is less than 2% (the program totaled about $110B).
$300M was wasted in an organization that serves (completely spitballing here) maybe ~500k people among all its customer organizations?
The California government serves ~40M California residents.
In any case, government waste is likely orders of magnitude more easily uncovered than even public companies' waste. And when we find out, we can lobby for change and vote for policies that adjust the process to hopefully result in less waste.
But when Coca-Cola overpays 10x for some highly-connected contracting firm to build them some shoddy CRUD software for an internal process we'll probably never heard about it due to a combination of lack of transparency and lack of reporting interest. If we do hear about it, there is no real avenue for lobbying for the change of Coca-Cola policy.
That's not even mentioning that Coca-Cola's entire existence could be (rightfully, in my mind) considered corporate waste because their products actively harm the world, which is a claim much more difficult to apply to the DMV or the California government as a whole.
That was during an unprecedented event, when March/April/May 2000 saw millions of UI claims filed in a very short period.
Eventually it was sorted out but at considerable human cost. As of Jan 1 2021 something like 1.5 million claimants had their benefits stopped until they had shown proof of identity. It took months to get it all straightened out, especially for people who didn't have drivers licenses, for example.
My dad worked at a public university where his department would charge for services provided to other departments at the university.
At the end of the year the department's surplus went to a general fund (and I think this was also a factor in deciding future budget allocations for the department).
So everyone in his department was incentivized to buy equipment they didn't actually need so that they didn't "lose" their money.
The old, perfectly working, hardware would be put out into hallways and get thrown away in the trash.
Granted a public university is a lot different from an actual government department.
My point wasn’t to say DMV is ALWAYS inefficient but just that the DMV is a good litmus test for efficiency. Sounds like in your state, the DMV is efficient and therefore perhaps fiscal policy would be well-spent!
> People keep using the DMV as an example of government inefficiency, but my state has made it run so painlessly I don't think I've spent more than 15 minutes in an office over the last 5 years.
It's totally baffling to me when there's 'the DMV' in US films/tv, because that's just not a place (nor anything equivalent) we have to go to, whether it's 'only fifteen minutes' or more.
(Sure, when my driving licence expires in 10y, or I change address, I'll need to spend a minute or so on an online form.)
That's why 'the DMV (groan)' is the meme it is in the US: it's one of the few interactions most upper-middle class individuals have with government services.
I've had other interactions with state/local government services over the past couple years, and they've all been pretty bad. It's like anything else: there are helpful, compassionate people you occasionally speak with, but it's easy to get buried in the complexity and ridiculous inefficacy.
Federal (and state for that matter) tax returns are a good example. Something that every citizen of working age technically has to deal with are incredibly complex.
Thirty years ago in Massachusetts, if you had DMV business, you just walked in, waited half an hour, and conducted your business. And we complained about that.
i think the OP's efficiency reference isn't talking about the user's efficiency in using the service, but the cost-based efficiency; aka, how much budget the DMV has, vs how much "work" they produce.
See I wish. The DMV near me has been merged with other offices (probably in some lazy attempt to “reduce spending”) and you better make your appointment a month or two out because there won’t be any availability otherwise.
Which state? DMV is my favorite example of government because everything they do is required and everything they do is done terribly. I’ll have to revise if I meet a DMV I like.
>Which state? DMV is my favorite example of government because everything they do is required and everything they do is done terribly. I’ll have to revise if I meet a DMV I like.
Move to New York. I recommend NYC, as the food is fabulous.
I think bureaucracies do tend to suck, but I also think there are often people who stand to gain from making a bureaucracy suck.
For that reason, I suspect it's good idea to leave interpretive space for the possibility that a given bureaucracy has been intentionally hamstrung, or is Kafkaesque by design.
I suspect calling Comcast is miserable because the process is designed to exhaust and manipulate you out of quitting, for example.
I suspect it's possible to build systems that enable you to ensure an ER visit will cost $500 instead of $10000--but our insurance companies may feel like the uncertainty deters people from seeking care.
I think by the time you're saying "my system depends on the people in it being honest and competent" you've kind of already lost. Some people are competent, most aren't. Many people are honest, but some aren't. You aren't going to change that so you have to be resilient to it.
Every system works better with honest and competent people. That’s my point!
Some systems are more resilient to dishonesty and incompetence than others. I suspect a mixed system is the most resilient. But we CAN change the behavior by choosing to reward competence and honesty by who we elect, who we hire, and who we do business with.
What's with the hate for DMVs? Maybe they're bad in some US states, but in mine (Massachusetts), I really can't imagine a better-run business, private or public, that accomplishes so much with so little investment.
You can do most things online with a much better UX than most commercial websites. No crappy ads or pop-ups. Plus when you do need to go in, you book a time slot at a DMV center online.
Recently I had to bring my daughter for a driving license to the one in Brockton, MA. When you go in, they give you a token number. The currently processing token number is shown on a huge LED display on the wall. Hundreds of customers are in there, many of them don't speak much English, etc., but things move pretty smoothly and fast. Very efficient.
The DMV outsourced it's service in some areas. Service improved. So it's possible to benefit from the benefits of public spending and private efficiencies. It's a pretty common method for governments to spend money.
I wonder if the DMV is a bit of a special case, not necessarily a good example of government bureaucracy. The customers are almost universally resentful, because they are paying the government money to let them drive. They're angry because it's slow, and it's slow because the process requires bringing in third-party paperwork (e.g. insurance, sales receipt, dealer paperwork, whatever) and there's a lot of opportunities to get it wrong. So it often involves more than one trip.
If I had to deal with customers at the DMV, I think I'd be grouchy too.
Another reason to try and get as much of it online as possible, which I think is most of it nowadays.
I know people reactively complain about Comcast, but in my area they do a great job. It's not cheap due to lack of competition, but no complaints about service.
Their prices are high and punitive to existing customers. Their customer service is laughably bad.
One of my requirements of a retirement destination is municipal broadband. No BS, just a fair price for a service that's actually treated like a utility.
This is due to tax policies reducing the revenue pool. This makes it easier to judge individual divisions of the total because there are necessarily fewer outlets, and since it's a smaller pool there's more reason to fight.
The idle rich who can't find anywhere worthwhile to play with their nearly-free money (until recently ZIRPish) are a bug in the system. Oh, but lets pretend we are captains of industry by saturating the world with sure-failures. "I wEnT tO GsB!"
And government is absolutely inefficient, which is a good thing actually. Despite the efforts of conservatives, government still has to account for many many corner cases and special needs. Ask any Agile TDD aficionado how this affects velocity.
I don’t think the government being inefficient is good. It gives ammo to those who are ideologically opposed to government doing things. We should strive to improve government efficiency, especially those of us who think the government should be taking on more tasks.
Ideological opposition to extensive government is because government is inefficient. See the Laffer Curve. Actual demonstrated inefficiency is the proof, not the justification.
You see the moral hazard of electing people to run government who have a vested interest in being proven right about government being inefficient, don’t you?
I am fine with people who are realistic about government being inefficient, but I insist that they nonetheless try their very best to improve that efficiency (fully considered efficiency, not just making life worse for government workers or people seeking government services). The problem is when you elect people who have an interest in making sure the government is inefficient because then they can use that as justification to enact their ideological goals of cutting government services.
When you buy/sell crypto - money changes hands. That money wasn't really "allocated" to crypto, beyond miner fees, just redistributed. That cash still exists.
The resources being allocated are graphics cards, human time, and electricity AFAICT.
The power usage of crypto is relatively small compared to other active human endeavors. It's power usage doesn't approach other arbitrary value stores like gold and government backed fiat markets. Could it go somewhere else? Yeah - but could we reasonably produce enough to offset it in a positive sum game - definitely. As long as renewables are cost efficient (read: truly competitive with non-renewables) and are net-zero on emissions this misallocation of resources would be allocated to renewable power production in an efficient market.
Graphics cards being misallocated... I'm not sure saying markets are inefficient because a financial market is outbidding video gamers is a compelling argument. Scientific use of graphics cards seems like a small part of the market, but I may be mistaken here.5
Those other endeavors scale significantly more efficiently and are a necessity.
Gold is a requirement for industrial purposes, for jewellry, for chemical processes for medication.
Visa/Mastercard perform many hundred of thousand transactions per second.
BTC is limited to 350k per day, and consumes the equivalent CO2 impact as Austria. It can't and won't ever scale, which leaves it open to market manipulation and centralization as transactions move off-chain.
It's not a small amount of energy wasted, and there are significantly more valuable uses for that energy, such as aluminum production or water desalination.
That might be true but 46.64% of gold demand is for "investment", and a further 8.58% is for "central banks". In other words, most gold produced is hoarded and not used for anything productive. If you're against bitcoin because you think it's a non-productive use of energy, you should also be against investment/central bank use of gold.
Even if hoarded at the moment, energy spent mining the gold was not lost. Gold can be sold tomorrow for its practical uses. Energy powering Bitcoin transactions is gone. (Like the the energy powering bank servers)
A quick trip to Wikipedia's bitcoin page yields[1], which, among other comparisons, compares bitcoin's consumed energy to countries. At 145.9 TWh yearly, it's less than Egypt and Poland and greater than Ukraine and Norway. This is up from the 2021 estimates[2] of 121 TWh yearly, larger than the countries of Argentina and Netherlands.
Bitcoin is intentionally wasteful, and I say this as a technical admirer. Its genius is the extremely simple idea of making writes to a distributed database so unimaginably harder than reads, so that untrusted network peers behave themselves and don't invalidate the state of the shared ledger. The network literally just asks you to spend your time counting to N at the top of your lungs so you don't cheat, if that's not waste then I don't know what is waste.
This 'waste' is necessary when you don't trust your peers, you're buying trust with it, cold hard trust, as rock solid as P != NP. But look at the sheer hype crypto has amassed since 2017 and tell me with a straight face that all those "applications" need trustless distributed peers. NFTs literally store the actual data of the token on centralized servers that can go down or go wild with your data at any moment they goddamn please, the NFT on the blockchain is merely a thin reference.
The ideal path for distributed trustless blockchains would have been as a small niche, an "elite shock trooper" technique when distributed trust among trustless peers is absolutely necessary. Ideally, miners would understand the simple fact that it's of no use to keep bringing better and better silicon to the arena, as the network swallows all in its big mouth anyway, and the network would then grow naturally so that it's approximately the power of NETWORK_SIZE * CURRENT_PC_POWER at any current year, instead of a never ending race to the bottom of sacrificing more and more silicon to the God Of The Hash.
Alas, from the crooked timber of humanity no straight thing was ever made.
IIRC, the energy use for crypto as a whole is on par with the energy use of the fiat currency system, if not higher. I don't know how gold mining ranks, but it may be well below crypto mining in energy use or well above. Mining energy use depends a lot on asset price, and gold prices are comparatively low (compared to other asset classes).
Silicon and other electronic parts also get dumped into this market, when the capacity used to build those devices could be used for other things.
I meant total energy spend for both systems. Despite the transaction volume being minuscule, crypto likely burns a similar amount of energy to the energy consumption of the global finance industry today.
A good reference to compare bitcoin to gold mining (and other human endeavors like brewing tea): https://ccaf.io/cbeci/index
Gold mining and bitcoin are currently roughly on-par. But gold's energy usage isn't just mining. It's the entire supply chain from Cash 4 Gold stores, long term storage, smelting/recycling, etc. I don't have a good reference for the total cost of gold.
Oh, that is only for bitcoin mining. Is there a source for the entire crypto ecosystem since you want to compare bitcoin mining to the entire gold supply chain? I would suspect that if you include shipment and storage, you are still under bitcoin mining for the entire gold supply chain.
However, the point still stands. Datacenters in the US use total energy less than 2 bitcoins. How many of those datacenters are moving fiat around? Way less than half?
Things like brewing tea and heating houses take a ton of energy. Moving money around doesn't!
Crypto is a huge waste, and that site does not suggest otherwise.
> Most markets that have many individual consumers require regulation to be even close to efficient.
That is not true from what I see (modulo contract enforcement and policing of anti-social elements). There are many examples of smoothly functioning markets. With my economics geek hat on the things required for a market include:
* All participants must have choice, be able to enter and leave in the medium term.
* There must be clear information available about the properties of the goods and/or services
* There must be clear information about the prices.
The first condition (choice) can be rough on suppliers. The "choice" for a coffee shop is closing or bankruptcy. But for the supplier of electricity from a hydroelectric dam the choice is different. There are no clear boundaries.
For the consumer they can substitute potatoes for kumera but there is no substitute for food. Everybody must eat.
So: Reticulated water and electricity are bad things for markets. Vegetables (except during famine) and entertainment services are good
The government has heavy handed regulations distorting the market and spent the last years creating money out of thin air and killing small businesses.
The government propping the market up during the pandemic kept alive the myth that the market is always growing but also caused a terrible inflation.
Now that the market is going back to reality the government can't just print more money again - or inflation will kill the entire country.
The incoming crash will hopefully pop some of the bubbles the government created in the last 20 years. But it will be painful.
>"We could allocate resources to productive assets by fiscal spending, but that is prevented by politics. Only when "the market" gets its cut can any infrastructure be built in the US. That's also true for much of the medical establishment and pension/retirement systems"
I'm trying to follow this but not understanding it. What do you mean by " Only when "the market" gets its cut". A you referring to public/private partnerships here or pork barrel politics? Something else entirely?
We don't need solar, wind, nuclear, hydro, water reclamation, on shore chip foundries, manufacturing, battery chargers, non-crumbling bridges, manufacturing, paved raids, public transit, or working airports. We need more crud apps and adtech! More stock options and stock buybacks!
You're being sarcastic, but we probably don't need that stuff either. We're eventually going to run out of resources to make all that at some point (we're already starting to run out of sand[1], which we use in modern cement, for glass, and for the silicon in computer chips, for an example -- and before anyone goes 'deserts are full of sand!' they are, but it's the wrong type to make these things).
Probably should start putting some energy into getting ready for pre-industrial age living again.
Ah yes, that old study/book "The Limits to Growth" from 1972. How it haunts me still. Along with the first IPCC report I read 10 years ago. I do wonder what the future (present) holds. Of course, you're right about running out of sand. I hope our standard of living doesn't fall that much. In my lifetime. As was said by everyone for a century.
I believe we reached peak earth in the last two years. It's not just sand or food but also the logistics - people say it's the pandemic stupid or it's obviously the war - but these are all just catalysts.
Too many people just want too much shit. 7 billion people are really not that many - but 7 billion people who wants to live like Westerners that's a big problem.
All the while we are still living in the age of exploitation. We can build marvelous things now but our recycling is still stuck somewhere in the medieval ages...
This whole party can only last if the recycling of an iPhone becomes as financially sexy as building one...
What's wrong with CRUD apps? They may be boring to develop, but they tend to be the most useful.
Every single one of those industries uses multiple CRUD apps in the course of their business operations. The database is one of the most important technologies of our civilization.
I used to enjoy MMOs too. I stopped playing and took up gardening of all things :). I'm still not sure what the economic value of web2 is yet, but if you find out I'll attend your showHN.
Also, arguably the most socially productive outlets would have been public goods, like major infrastructure investments and public education and health initiatives. But that's evidently politically untenable.
Central bank intervention herded all investors into equities which obviously contributed to the post-2008 bull market, but also distorts price discovery.
But hey, at least the Fed hasn't started buying equities too, like the BOJ.
This was a really interesting thread. I see what you guys are talking about all around me, the mis-used liquidity or whatever you want to call it. I don't know anything about finance, so I don't know how to respond to the people, but I feel like saying all the time, "Hey you know someday you're gonna need that money."
Why can't we have preferential interest rates for certain class of projects (infrastructure, renewables) and those types of projects to be backed/insured by government. Like in some countries the first home loan is is backed by the government.
> Imagine if lending was less cheap for home owners but it was still cheap for governments or really large companies to be able to build train lines or advanced manufacturing or affordable medium density housing.
I see the problem as too much credit is able to be spent with too little focus. So silly stuff is being funded because the money is becoming meaningless
Jesus yes. Economists treat all spending like it is equal in value. Stupidity.
One thing I've been a long-time advocate for is States setting up their own banks akin to that of North Dakota's. If for no other reason than to have a way to leverage national monetary policy for regional aims, so that when the Federal government rushes to the aid of Wall Street (e.g. by flooding it with cheap liquidity) there's a way for State governments to more directly interact with those mechanisms themselves for their benefit.
I strongly suspect significant challenges in setting up effective and responsive governance and incentive structures to keep such things from not becoming their own instruments of abuse, but ever since watching 2008 unfold it's bothered me how easy it is to leave States twisting in the wind while the balance sheets of financial institutions are made whole by feeding at the Fed liquidity trough.
One of the basic premises of "States rights", as it were, is that it's supposed to offer lots of little "laboratories of democracy", but as it stands right now there's no good way to actually finance those laboratories to invest in ambitious things. So, what we mostly end up with instead is only the downside of using "States rights" in the only way that it's cheap to do so, which is usually by restricting or denying things. It's much harder to get the upside of investing in things without all the latitude that the Federal government enjoys financially.
Indeed, and since it is a privately owned entity [1] with a figurehead appointed by a politician to give the illusion of public accountability, the Fed has very little incentive to do anything but enrich its shareholders: private banks.
"Liberal Democracy" is all theatre, all the time. It is a plutocracy with an extremely advanced propaganda arm designed to fool even the most intelligent observer, as can be seen by the high degree of trust placed in the system by my esteemed colleagues here at HN.
Congress has the power to monitor and "regulate" The Fed. That is, The Fed is not - or isn't supposed to be - completely autonomous. It has oversight, or should.
The reality is, it does not. Congress lets The Fed run wild. That might be the status quo, but it's not how it legally needs to be.
So yes, Congress isn't doing their job. And no one (read: the media) is questioning that negligence.
Again, only in America. << That's not editorial. It's a statement of fact.
Not a down-voter and I agree with your positions, but why stop at congressional oversight? Why should a private company [1] be controlling a nation's money supply?
The fire him, Wall Street and the rest panics. They keep him and we get more insanity.
He was interviewed on Marketplace (NPR) this past week and he should be a politician. Tons of half answers and such. Another disconnected elite with zero affinity for accountability.
I can't speak for Europe, but Congress does have the power to put The Fed on a leash and they don't. The conflict of interest is blinding. We The People in the darkest dark. Again.
That's the scope of Only in. America, in this case.
This is mostly a central banking failure. Take a look around the world, for decades the only thing the central banks have been doing is printing money. If that is ever going to work, put swines in their seat would do their jobs perfectly.
To me printing money should only be used as emergency measure just like administering of adrenaline in emergency room and must be reviewed afterwards. Unfortunately such instrument has been abused for a prolonged period as central banks saw no inflations. Of course there was no inflations in central banks' eyes. The first thing was that the definition of CPI was biased and not considering assets.
Secondly in a global economy, inflation can happen elsewhere. So in the past decades, China actually absorbed lot of the actual inflations. And lastly and most importantly, the printed money went into the wrong hands. The extra printed money goes to the banks first, then goes to the rich in the form of loans. There is so much money in the market and it would be nice and easy to make money by bumping the assets prices up. So why would anyone put money into anywhere but virtual economies? That's pretty much what happened in recently decades, properties, shares etc. skyrockets but what really make their value changed so much? Nothing but too much money. For the poor, obviously they can hardly get any loans, so they only get their normal pay which would be diluted over time.
Crisis happens mostly because the poor doesn't have enough money to spend. Printing money obviously cannot resolve the problem, but it do be able to maintain the momentum a little bit longer by making it worse. The burst got delayed but eventually will come back harder, sooner or later.
What does it mean when inflation happens elsewhere? Isn't that kind of a good thing (if not hostile) - because we can buy stuff from "elsewhere" for cheaper?
This happened during the Asian financial crisis of the late 1980s, late 90s, and early to mid 2000s, depending on the country. Some people speculate that the currencies were manipulated to crash so that people could swoop in and buy assets for cheap in Asian countries. Samsung to this day has large foreign investor ownership for example.
It shouldn't have stopped them from maintenance though; they just didn't feel like doing maintenance. If a company wants to spend money on something they can always get a loan for it and consider issuing the shares out again later if needed.
The problem with a share buyback is if you do it and then the share price falls again.
>The problem with a share buyback is if you do it and then the share price falls again.
how's that a problem? I get it might seem like you're back to square one if you did a buyback early this year, and the recent market crash brought the share price to before the buyback, but you still permanently:
1. paid out money to the shareholders who sold
2. increased the ownership stake of the remaining shareholders
If it falls again, it's not value neutral anymore - it's a transfer to whoever sold. So then the complaint that you could've used the money on maintenance against poisoning babies becomes true.
> really useful ventures like large infrastructure projects
give me an example of large infrastructure projects like this. The only examples i can think of are things which gov't fund via tax payer money, and don't expect to be able to reap private profit off; things like roads, rail, electrification of the grid etc.
Wasn’t that the Soviet double ruble system? Whenever the Politburo wanted to find a mega project the money was wished into existence and things happened (just as it’s done today) yet it was illiquid and only usable in a sealed silo, separate from the normal exchange ruble.
That's not what the parent comment is talking about. Berezka stores were originally created to earn dollars by selling Soviet wares to tourists, and later gradually reoriented towards the few Soviet citizens who earned dollars and looked for some way to spend them. Not to be confused with other special stores unavailable to ordinary citizens that supplied party members.
What parent comment is talking about was the system of cash and cashless (безнал) roubles. Cashless roubles were used for industry purposes and couldn't be converted to the ordinary roubles available to the population. When USSR allowed cooperation (primitive private business) in the late 80s, it was used by many officials as a tool to convert the cashless roubles from the organization's they controlled into real currency in their private pockets. And a lot of oligarchs (including Khodorkovsky) got their fortunes that way.
It's ironic that now ordinary Russians blame the chaos and injustice of the 90s on capitalism and free market, whereas a lot of that was created by a state economy system and exploited by corrupt beurocracy of a communist party.
There would need to be some tight regs to make that work, or else large companies would buy up all the housing supply and force everyone to pay them rent.
I think individual home ownership is important, and thats not where I'd want to start cutting.
Credit for second homes being less cheap - totally onboard.
In my view, it's not a failure of any central bank. The additional liquidity is generated by other banks, in the form of overvaluations and financial constructions that allow loans without backing securities.
Governments as a whole have a lot of different hammers for monetary policy. It's just that every other one depends on the Congress understanding the problem and cooperating.
Technically they are (everybody who works for the Fed or the Bank of England gets a governmenT paycheck) and in a technical sense they aren’t, or try not to be (independent balance sheets).
But they are involved in policy decisions, being consulted and themselves asking. They do t have an independent mission the way, say, a trucking company does.
it's just as much government as the supreme court. senate confirmed presidential appointees. they have a dual mandate (price stability and low unemployment)
No they are not, though it's easy to understand the confusion. From the SF Feds website:
The Board of Governors—Located in Washington, D.C., Board members are appointed by the U.S. President and confirmed by the U.S. Senate. Board members and staff are civil service employees.
The 12 regional Reserve Banks—Located around the country, the 12 Federal Reserve Banks are chartered as private corporations. Employees are not civil service.
The Federal Open Market Committee (FOMC)—Composed of the Federal Reserve Governors and the Federal Reserve Bank presidents, the FOMC is charged with conducting monetary policy.
Yes, I'm aware of the legal fiction that they are not part of the government. But they are, as they are run by people appointed by the government, and therefore serve the government.
I rather think the fiction is that they serve the government, but I also have The Creature from Jekyll Island in the backseat for light reading so my perspective probably is heavily biased.
You aren't biased at all [1]. Our dear colleagues (along with the majority of the American populace) are just deeply ideologically committed to the idea of the Federal Reserve being a public institution, because they've been told this implicitly all their lives.
The truth, which is difficult to uncover and requires digging into some legislation, is of course unsettling, because it points to the nature of the American system and which institutions have power. Hint: if an institution is immune to bankruptcy or prosecution, it's probably the one in charge.
Right. It’s really up to businesses and governments. Businesses to make productive investments and governments to make the appropriate counter-cyclical investments (beyond just interest rates) to keep the productive investments more attractive than the non-productive speculative ones for businesses.
Simple: It is not the responsibility of the Fed to evaluate and empower or degrade certain markets according to what "smart investments" should be. This is ultimately up to the banks that receive the money and the people who come up with investment ideas.
Housing always lags, usually by 18-24 months. Real estate transactions are slow - they require a bunch of research, non-fungible goods in an illiquid market, physically scoping out properties, financing sources that are notoriously sluggish and thorough in their diligence, and a slow closing process. And the sellers don't need to sell - they can just hold onto their places and live in them or rent them out. That means that when money dries up in the housing market, liquidity dries up before prices drop: people just hold onto their houses and don't sell them rather than take the loss.
This also means that housing is pretty resilient to recessions that last < 1 year. Nationwide the '73, '80, '82, '91, and '01 recessions were barely blips to housing prices [1]. It takes a sustained downturn of > 4 years or so in a regional economy to make a serious dent in housing prices.
Hard to say, but it has always been like that. Housing prices are extremely sticky. With corrections most of the work ends up being done by inflation while prices stagnate. One peculiar advantage to the burst of inflation is that it could help the housing bubble correct itself relatively quickly.
Yes, you need some level of financial creativity to justify buying into one of the many bubbles. But that's where the timeless Buffett quote[0] on Ted Williams and batting comes in, there's no called strikes in securities markets. Mr. Market doesn't force you to do anything at all, we're all free to ignore the speculation and focus on proper cash flowing businesses at reasonable valuations. The more boring the better (tho there are opportunities even with exciting companies these days), but just wait for the right pitch, no need to force it. You'd need a gun to my head if you wanted me to hold a portfolio of cash burning (even generating for that matter) businesses with valuations based on 5-10 year outlooks.
>The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, ‘Swing, you bum!,’ ignore them.
Sitting in cash is not a defensive position, it's offensive and a highly risky one at that. When fiat, is losing 5-6% on average every single year, you can't afford to wait for the right moment to jump into equities. You have to be in it now, whether the valuation suits you or not. This of course exacerbates risk for everyone and forces everyone into risky positions because cash is now more risky than nearly all the other risky bubbles out there.
...or housing will drop as interest rates go up. And a non insignificant number of folks were over extended in leverage.
I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation.
I know of folks who bought homes using margin loans in their stock portfolio.
If housing stagnates, there will be margin calls, leading to supply shock, and price declines. Especially now that mortgage interest rates have nearly doubled year to date.
>I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation.
I know of folks who bought homes using margin loans in their stock portfolio.
If housing stagnates, there will be margin calls, leading to supply shock, and price declines. Especially now that mortgage interest rates have nearly doubled year to date.
I can't be alone in wishing that would happen. Yes, people would lose a lot of money (potentially everything), but they played stupid games.
Margin loans for house purchases isn't as insane as it might sound - assuming your financials are there. Margin interest is deductible against investment gains, house interest may not be for many earners.
But not refinancing afterwards into a low fixed rate may come back to bite them, and soon.
>> Margin loans for house purchases isn't as insane as it might sound
I understand the tax logic you are speaking about, but I think tax benefits are sometimes oversold to convince people to buy things (like homes and investments). You aren't a corporation, your liability isn't limited. Trying to shave a bit off taxes may have less benefit to you than the peace of mind of not having to juggle debt. You seem like you understand that when you talk about refinancing asap, so I think you know what you are talking about as well.
In the typical scenario, I could have sold my stocks and incurred a 20-39% tax on the gains.
The other option was to instead take a margin loan out at a hair over 1% blended which is tax deductible and incur no tax bill.
There was a bit of risk in this yes, but I came out way ahead despite there being a pretty sharp pullback right after I closed on my house. I wasn't leveraged to the hilt at all, I think I had a loan equivalent to about 25,maybe 30% of my portfolio when the market pulled back.
If you have significant assets this is something you should be considering. This is imho one of those "rich guy" things that's available at a relatively low level of wealth, and the risk associated with it is well worth it in most cases.
Rising interest rates don't typically signify lower home prices because rising interest rates are usually a biproduct of a hot economy that needs to be tempered. With the exception of 2008, home prices have almost never gone down. Now, it may be different this time. There is tons of speculation now and you are starting to see some sectors show big cracks. There was also a massive re-allocation of capital during the pandemic as people moved from high COL places to more reasonable locations(due to remote work), in turn making those new location high COL places.
My theory is that eventually the unemployment rate will start rising, and people who lose their jobs that just got a 600,000$ 2/1 will be in a pretty tight spot. It would lead to either cutting consumption in other parts of life, defaulting on the house, or selling for a loss. And so on and on...
>"I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation."
What's the strategy behind the "7/1 ARMs cash out refi" and the second homes?
It's curious that would people do an ARM when interest rates were at historic lows no? Were these second home as in part vacation home, part AirBnBs lets?
Rising interest rates are starting to slow the housing craziness, at least where I’m at. I was regularly seeing 20-27% over asking with limited to no inspections, new listings going in hours. Nuts.
All-cash is basically the new norm. Two years ago that was an issue for regular buyers, but it’s workable now since lenders have jumped into the mix, more and more offer an all-cash option - they make the purchase and transfer it to you under a traditional mortgage. You still have an appraisal gap to contend with, sine they’ll only pay what the place appraises for, but anyone who qualifies for a loan can probably qualify for the all-cash option.
Where I'm from (EU) experts say that prices will stagnate amd the market will slow down.
On one hand the high inflation pushes out lots of buyers -- they can't or don't want to pay the high interest rates. This lowers demand and prices.
On the other hand global supply chain issues (which got much worse with the war) lead to material shortages and rising material costs. This pushes up housing prices.
The net result is likely stagnation -- few houses are built and few exchange owners. But prices stay high.
Except if there will be a large recession causing people to loose their jobs and unable to pay their mortgages. This will crash the housing market, but looks unlikely now.
Definitely looks that way in the UK - I've been watching my local housing market like a hawk because I'm looking to buy soon. Houses are staying listed a lot longer, a fair few getting reduced, and newer listings are coming in at more reasonable prices (as much as over £100k is reasonable for a 1 bed flat miles into poverty stricken suburbia).
I think people are feeling more risk adverse cost of living etc and want to hold onto money and stay put where they are.
> I was regularly seeing 20-27% over asking with limited to no inspections, new listings going in hours.
Another way say "20-27% over asking" is "an agent underpriced it by 20-27%". Surely good for their marketing materials, but it comes at the cost of withdrawn information from the seller.
Well, only if you ignore how we got there. Housing output took far too long to recover after 2008, and on top of that, many homeowners felt entitled to the gains they lost during the recession because that is what the American Dream promised.
We could also pull on the demographic weirdness of the moment as Baby Boomers only finally cede political power, skipping a generation. What have all are priorities concerned since they came of voting age? Should we be surprised our recent policies continued to favor older people who owned homes over young people deciding the shape of our next generation? And to be clear, I'm not blaming any motives. I'm saying much of this can be explained by an "accident" (or maybe "conclusion") of demographics.
The worst is if our incentives are for lazy capital returns (like rapidly rising residential real estate) for retirees the people who benefit in the younger generations are not going to be the people taking risks like starting businesses.
In the long term, housing should always return to the cost of building it plus the cost of land, that's the long term trend line. Now, why this trend line is increasing so fast is the real reason why housing is so expensive (something no one ever talks about), everything else is just incidental and or temporary effects.
> It’s paradoxical that all-cash became the norm in a period where mortgage rates were at all time lows…
Cash transactions have less friction and chance of falling through, so it makes sense that sellers prefer cash purchases. Consequently, you see cash offers because buyers know that sellers prefer - you essentially jump to the front of the line.
I guess my core question is: do they keep the cash in the house, or do they use cash just as a vehicle for the purchase, and then finance the cash out of it?
Because there was a concurrent trend to refinance houses at 2% loans and put the cash in the stock market, which is assumed to beat that 2% over the duration of the loan.
And just to make the connection explicit: if lots of buyers are making competitive offers because rates are low and money is cheap, then that's going to encourage the people who can afford to pay cash to make an all-cash offer where otherwise they might not have.
This was driven by extended 0-ish% interest for an entire recession cycle. Unable to get "safe" returns, money chased more dangerous classes of assets and inflated prices.
Inflation and a return to nonzero interest means capital gets to retreat to safer ground, pulling the rug out of stupid unprofitable startups that can only make money with head-in-the-clouds IPO valuation or FAANG acquisition.
That is illogical. Money-less economic models are unable to predict structural unemployment. In fact Say's law predicts that a theoretical barter economy is always at full employment.
Of course the modeling flaw is that money is saved as a goal in itself so it will cease to circulate at some point which is the real source of unemployment.
It's not irresponsible to bid 20% over asking. Asking is deliberately underpriced, because it is excellent advertising in a hot RE market.
It's irresponsible to bid 20% over what the house is worth (which has nothing to do with asking price), just because you got emotionally attached to the house, and started a bidding war with another person emotionally attached to the house.
It bears repeating that there is no "what the house is worth" in the abstract. If you somehow know that other bidders will pay at most $X for it, then of course you'd never bid $X * 1.2 -- you'd bid $(X+1). And if lots of people are (or can be made) emotionally attached to a house and pay an apparently unreasonable amount, that is what it's "worth."
It is basically true for sellers markets, because it gives more advantage to the seller. being a sellers market doesn't make it an irrational housing market.
During a buyers market, prices usually approach the list or go under.
This reflects the fact there is how much the house is worth to the seller, and how much it is worth to the buyer, and neither of these are the sale price.
It's not "emotionally attached", it's that it's been impossible to buy a house for a while if you're not willing to pay more than it will appraise for. You'll repeatedly lose to buyers who will do that, with cash offers to boot.
This has been true even in many cities that aren't trendy, and have been building housing like crazy for a decade.
Maybe you could think of it like a PE on a growth stock - people expect the house to go up due to inflation of cost of goods as well as all the money that was printed - they are willing to take a punt on the house value in the future, similar to many stocks.
There's also sunk cost in the effort of finding a house you want and reluctance to keep looking.
Boring Midwestern City that's not even a 3rd-tier tech hub. Other boring Southern city that's also not even a 3rd-tier tech hub. Buyers are having to take on the risk of having to cover any extra over appraisal in cash, consistently, while that used to be rare (and, yes, usually for "I am super invested, emotionally, in getting this particular house" reasons).
My unremarkable suburban house in a boring city that's been building housing constantly and extensively for the last 10 years, is up like 25% in value over the last 2 years. We thought, based on extensive experience in this market, that we were already paying a bubble-induced premium of 15-20% when we bought it (possibly no longer true—thanks inflation). WTF.
I think the appraiser is doing you a favor by not appraising it for the contract price in this case. Why would you want to overpay for a house and have to cover the financing shortfall yourself? Especially in a market that traditionally has slow RE price appreciation.
Let the cash buyers suffer the losses. You'll thank yourself later.
Not assuming that at all. I'm saying that if the appraisal doesn't go through, then the lender won't cover the remainder of the purchase price, and then the buyer will have to make up the difference out of his/her own pocket. At that point, I'd bail, because the appraiser is raising a red flag.
But since you mention it, in the slower market being discussed here, I would definitely not waive an appraisal contingency.
> At that point, I'd bail, because the appraiser is raising a red flag.
The point is, in a lot of markets, if you bailed on offers over this in the last couple years, you wouldn't be winning any bids in the first place, and wouldn't have been able to buy a house at all. The winning bids include guarantees that the buyer will cover the difference. If you won't do that, you'll lose to an all-cash offer from someone who will. If you're lucky, you won't be competing against superior offers that also waive all contingencies.
I have no idea where all these people are coming from with hundreds of thousands in cash and the ability to cover several thousand more on top of the appraisal value, but they seem to be involved in damn near every sale the last 2ish years. Given how many are OK waiving inspections and such, I have to assume they're institutional buyers who can spread that risk around, not individuals who could be ruined by that kind of thing.
Something seems a bit off, then, because if the market is appreciating, then the appraisers should be taking that into account. As another commenter said, they were certainly doing that in hot West Coast markets like SF and Seattle. Both houses I purchased (each in those locations) appraised at the contract price, and I bought them both within the last 7 years.
They do, but it lags. If prices are going up fast enough, given the way these things are determined, it can easily be the case that damn near every house isn't appraising at what it sells for.
The "solution" to this, in the run up to the '08 crisis, was for appraisers to "help out" by fudging their figure to make it match the sale price. I know this because a real estate agent whose husband was a loan officer, told me so. "I know they were just trying to help out with these new regulations, but it's had the unintended consequence that appraisers can't fudge their numbers slightly higher to match an offer that's only a couple percent above the natural appraisal, like they used to". LOL, yeah, the exact thing they were trying to accomplish was an "unintended consequence". Talk about not being able to understand something because your paycheck depends on it.
Possibly some appraisers in at least some markets have figured out ways around this, and are back to fudging numbers. I dunno.
It comes down to what the appraiser is really saying with their appraisal. Are they saying that in today's market this is what the house could go for or are they predicting the future value outside of a bubble
“Appraised at contract price” tells you how a bit about how grimy that process (that you’re paying for) is.
My appraiser (on a refi) was walking around the house with me and basically asked what I thought the place was worth. That was what it appraised for. (The contract price on an original sale has the same property: what the buyer thought it was worth.)
Ideally those are tethered, but the appraisals didn’t give me a great sense of independence.
If appraisals were arranged and paid for by lenders, I think appraisals would become a lot more honest. But most lenders these days will only perform due diligence to the extent Fannie Mae/Freddie Mac require (and they already have a lot of requirements, which is why the underwriting process is so maddening), so the onus is really on the backers to require appraisers have some sort of fiduciary duty to them.
Counterpoint: as home prices keep climbing, many of the kind of things that would be caught by a home inspection become less and less financially relevant. When you're buying a million dollar house, 20K for a new roof is in the noise
> It's irresponsible to bid 20% over what the house is worth . . . emotionally attached
If you are young it can be perfectly sensible to bid far more for a home you love. An “overpayment” is paid over many years of happy living, which can be a worthwhile trade.
Living in a cheap economically sensible shithole for too many years is a bad idea, unless you have no other choice financially. The problem is making sure you buy a home that makes you happy. Overcapitalisation is sensible if you can afford it, and if you truely do get valuable pleasure from living in your home.
Yes, do take care to avoid the mistake of buying a home and getting chained into a situation you end up hating.
Tell me you're in real estate without telling me you're in real estate.
I think most people are better off just renting until this madness blows over. God knows I am much better off for having rented and plowing my money into investments for about a decade before I bought my place.
Houses keep up with inflation over the long run, while stocks have returned ~ 7% after inflation. If housing is an investment, it's a poor one, and you should invest only what is absolutely required to have what you need not want.
I think you are committing the error I am trying to point out: don’t treat your living requirements 100% as an investment.
That said, your living choice always has an investment decision component, because most of us need one roof over our head. If renting, you are shorting the home ownership market (a renter owns zero bedrooms but needs one bedroom). Making the decision to rent is either (a) betting against the real estate market (shorting), or (b) betting that one can make better returns through other investments.
The deeper point is that we should try to optimise for our internal joy, and nobody should measure their success only in metric dollars.
No broker in their right mind is deliberately underpricing the homes they represent. Why would they? A homeowner talks to another broker and they say they can get 20% more than the first one. Who is the seller going to go with?
When we sold our house the broker put it at a fair price. Then along came a couple that’s been outbid a number of times and offered 30% over within 24 hours of listing.
Was the home underpriced? Maybe, but the housing market is such that it doesn’t have to appeal to hundreds of people. Just one.
Looking at the people going through the home most of them were using flyhomes.com (they operate as sort of a “we will pay cash for the house and then you pay us back”) and probably had no intention of living there.
"Price to Entice" is a very real thing where I live. It's basically a way of getting your listing seen by more people, and increasing the chances of a bidding war pushing up the final sales price.
They set the price well under market in order to generate interest and visits. Next, in the same time interval multiple people bid, and you get a bidding war. Alternatively, price it at what you want it, and let it sit however long it takes. For hot markets, the former is what is done, in the US at least
If you think the house will sell for $1.01M, you should absolutely list it just under $1M (so it hits the screens of shoppers who are only looking at $700K-1M houses).
Part of this is because bonds have been out of the picture. Bring bonds back as valid investment vehicles, which impacts many other parts of the economy, and we'll see more assets going to "useful" investment like roads, power lines, and so on.
Well, if you're in California and don't own a house, you move. It's not a great option if you were raised here, but a whole bunch of people can take a small pay cut (especially thinking about down equity and inflation) to move back to their hometowns right now. For me, a home (3/2, 1500sqft) in the neighborhood I'd move to in my hometown (US city; 1 mil metro area) is less than my household income, which we'll realistically keep 80+% of when we move. I'd wager a healthy segment of Bay Area mid-level, domestic-born engineers fit this profile. I'd wager that holds true in many metro areas, even those we don't consider tech hubs because it is all relative.
I wouldn't want to be a mid-level Bay Area manager in my 40's with a mortgage on the peninsula right now. Who is coming to buy that house? Who is going to train all the 22 year olds moving here?
EDIT: And I didn't even think about all the early retirees the major changes to the workplace will obviously prompt. Who wants to spend the last couple years of their career re-learning how to do a job you've done for decades and have been well-compensated for? I'd be at the beach.
Mid-level Bay Area manager in my 40s with a mortgage on the peninsula here. Why would I want to sell my house? We bought it because we have kids that we want to raise in the Bay Area.
There are plenty who would have chosen the Bay Area anyway, but for me who is younger and aware of how similar those suburbs are to any others in the country, I was dreading having to commit to the jobs a Bay Area mortgage require. I’m glad you’re already in your location of choice, but I’m sure you know most people move here for the jobs and would be elsewhere if the jobs moved.
I moved from the US to Canada, and got a new offer at a publicly-traded US company recently.
In the US, pay is around $215k total comp ($175k base, $40k RSUs). Because, I'm in the Toronto (which is more expensive than most of the US), they said my pay would get a circa $111k USD base ($145k CAD base).
Adjusted for inflation, I'm earning less than what I was making when I was 25 years old. Now, at age 32, I'm struggling to pay significant debts on this salary.
Yes, you're getting paid less, but you've moved from a broken democracy to a functioning one. You also happen to be in one of the few nations on earth that will net benefit from climate change.
Actionable advice? Get a remote position and get the heck out of Toronto to a more LCOL Canadian location with decent internet
Best explanation I've seen of this phenomenon, why it's bad for all involved parties, and knock him effects. It's focused on place making/urban development, but it lines up completely. https://podcast.strongtowns.org/e/strip-mall/
It would be very useful to have a one or two paragraph summary here. I think that very few people are going to listen to an hour long podcast without knowing something more about the ideas.
That's fair. Unfortunately I missed the edit window.
It talks about the phenomenon (relevant to places that don't seem to be thriving more than to hot cities) of a new strip mall bring built next to a mostly vacant strip mall that's fairly new itself. It explains that this is a developer cashing in on the glut of money chasing returns. He talks about how any business that pretends to be legitimate gets funded, and the competition to loan money to actual functioning enterprises becomes so intense that the eventual owners/lenders/etc. end up having something that looks like a malinvestment because they were the people who predicted the lowest risk and highest returns (in the context of all the other insane things being funded.)
I listen to between 300 and 500 podcasts annually and, despite having a backlog of 175 episodes of various things right now, this one was worth the re-listen (at 1.5x speed, of course.)
> All around, there have been too many dollars chasing too few assets.
You can thank the central banks for this. They seem to be too focused on propping up the wrong metrics. Meanwhile the real economy - and the real people in it - are limping like a three-legged dog.
Yet the top layer ignores the messages (e.g., in the USA, Trump being elected, and perhaps re-elected) and persists with the insanity. This cycle - and the associated level of denial - is not sustainable.
Saying that paying 20% more than asking is irresponsible depends on whether asking was a fair price. If someone was always willing to pay 20% more then it wasn’t a fair price in the first place, and really people are just under listing for some reason.
In cash meaning you don’t make the offer contingent on financing, and you can document the sources of payment (balance sheet, statement from bank or accountant, etc).
Even if you get the mortgage, it's the same as cash to the seller. The bank just cut's them a check right away. The mortgage is between the bank and the buyer.
>>Even if you get the mortgage, it's the same as cash to the seller.
Not really, pay in 'cash' and you can close in days, pay with a mortgage and it might take weeks to months. Sellers always prefer cash buyers if they are in a hurry to sell.
No. In the US standard housing purchase agreements are drawn up contingent on financing - and standard bank financing has a lot of hoops and procedure to go through - it usually takes at least a month and of course it may fall through. During that time the seller is basically sitting on their ass and can’t advertise the property.
An all cash deal means the seller does not have to wait once the parties have a mutual purchase agreement.
Sure if everything works out then the seller gets the same, but there are many more reasons a financed offer will fall through versus an all-cash offer.
I just bought a house in cash, the seller wasn't willing to accept any non-cash offers. With a cash offer the seller and buyer can close in a significantly shorter amount of time than with a mortgage.
The owner equivalent rent measure that the Fed uses in the US has been decoupled from Housing prices for a long time. House price increases or rent increases don't necessarily have an impact on inflation if few are paying the marginal rate, and they choose to eat the higher cost rather than asking for more money.
When a critical mass of individuals pay the marginal rate for housing, and they choose to demand more for their services to compensate - then it will show up in the inflation reports. I'd argue that it was a miss for the Fed to focus on owner equivalent rent rather than a broader measure of what consumers are paying for housing as the overall mix of housing has also been changing as the number of investment properties increases.
If your monthly payment stays the same and the interest rate is lowered you pay less interest to the bank which means the seller gets your money instead. The price increase literally doesn't matter to you.
This depends. Housing cost if you're considering the price of owning a home is not part of CPI for the same reason that stocks are not a part of CPI, that being they are considered assets.
If you talking about specifically renting housing, then correct(in US).
That depends. Here in NL, housing costs are explicitly excluded from the official inflation numbers, presumably because housing is still seen as an investment rather than a short.
And for these reasons I question the whole concept of money, working for it, and saving for whatever dream. Flood of money can be so easily created but you have to work for it? Then you have to max out on debt, speculate and risk your hard earned funds, otherwise you are falling behind. Central banks have stuffed this one up and I it is a much bigger problem than inflation.
The markets are efficient but they aren’t perfect. In any situation the markets will do the best to optimize but will always fall short of perfection . Since markets aren’t perfect that’s why you can make money by speculation.
> In any situation the markets will do the best to optimize but will always fall short of perfection
The problem with markets is a "market efficient" outcome can be catastrophic for social welfare.
During the Irish potato famine the markets allocated food away from Ireland because there were not many there who could afford it. They starved. The market functioned perfectly.
Markets find equilibriums. Total collapse is an equilibrium. Starvation can happen at equilibrium.
You can have 100_000 homeless people at market equalibrium
I'm actually saying the reverse and agreeing with you that there are market efficient outcomes that should have been considered or done . In the Irish Potato famine around 1-2 million people left the country. Instead of preserving the workforce they opted for a short term market equilibrium of selling the food to people that could pay and not performing some kind of tax that would feed the needy. The previous Tory government tried to do some charity but then the incoming government did a more of a hands off approach which is an incorrect response. So yes the Irish Potato famine was the result of a market efficient equilibrium that shouldn't have been allowed to occur.
Indeed. The "Free Market" can elevate a ruthless plutocracy of robber barons with private armies far longer than the little people can stay alive.
As the Bezos Battalion, the Zuckerberg Zealots and the Musk Machines close in around your hometown's lithium supply, you can of course die with pride knowing that you believed in the Constitution and lived as the Founders intended.
(plz no ban, I love Free Markets, I'm just working on my creative writing)
I don't think it's housing. It's just that the market had a boom during the bored pandemic times and now that that is over (except in china) the market is readjusting. The market is highly leveraged by psychology over the short term, but in the end even the most exuberant people have to face reality and tighten their belt. Housing will flat line or decrease now as well, since people realize the cost of mortgages is too damn high. Also with lumber and other prices falling that will help new home builds. If Russia ever stops the attempted genocide of Ukraine then markets will probably soar as gas prices come back down instead of increasing.
Tangential. But I work in corporate finance. I'm generally privy to a large amount of information about the companies I work for. If there's something I don't know, I ask for it and people share because of my role. If I'm interviewing, we discuss a lot more than most people would about the health of the company that I would be joining. It's normal.
That said. I'm obviously heavily biased but I have realized MOST non-finance employees know very little about the financial health of their employer or even how the business model operates, or even what is the current/future strategy of the company.
When something MAJOR is announced, M&A/leadership changes/etc, the questions the room typically ask are: 1) will we still get 401k match 2) will we get fired 3) will the office relocate. People don't really care too much about the company, they care about how it's volatility impacts them. I don't think it's such a bad thing, but just pointing it out. In startup land, volatility is huge and the highs and lows can occur with rapid frequency. You have to be an assessor of risk when changing any jobs and this is part of it.
I may be unusual but I've always found it prudent to ask my CEO about things like rate of corporate growth, funding and customer revenue generation, M&A, etc.
Because if I am a vesting or fully-vested employee, then that's my own future at stake. The 401(k) can be dwarfed by many times by a successful stock worth millions, or, in a badly run or positioned company, the stock could be worthless underwater paper shares and I become dependent exclusively on the 401(k) for my sunset days.
The financial literacy of many workers is low though. They don't understand what options are or what it means to really be a shareholder.
When I was at Cisco — I'm talking in the 1990s — we used to describe what we called "stockholder angry." This was when a fully-vested employee heard a VP or above talking about some idea so stupid it would literally cost the company a penny per share or more. That's when the old dogs would get "stockholder angry" and propose alternatives, or ask people to stop ideas that were retrograde for the sake of the company's valuation. Because we knew what a penny per share meant to each of us.
I believe it is valuable for employees at all levels to be able to know the state of their company's health, and then, with an informed mind, be able to voice their opinion on the fate of their organizations.
Definitely agree. In my role it effects my day to day work (sales cure all, etc). And it's definitely a little different when folks have stock. I mostly work in an industry where the average employee has no stock or options. They may be curious, but they don't really ask many questions unless there has been a sizable culture of that. Otherwise, it's like talking money is bad manners.
Options and the various schemes can be confusing. What's worse to me is many people in middle manager type roles that run a department/unit, are responsible for a budget, they can not read a basic income statement. They don't know how or what levers move the needle or in which direction. Some are very good, but many are very, very bad given their level of responsibility I've seen. I've been in many meetings even in my days as a junior analyst explaining to seasoned executives how volume doesn't cure an issue with unit economics. Separating out variable costs and explaining that if you can't cover those, you'll never cover the fixed costs... Those types of things. It's job security for me, but still shockingly common.
It’s funny as that was my experience interviewing with companies between 1998-2000. Just insane business models but brazen confidence in themselves.
I remember interviewing with a company in 2000 that had burned through like $40 in two years. This was New York and they hired IBM. I don’t remember their product but it was stupid. They had paid IBM to build their own custom app server for Java because their requirements were too specific for WebSphere that IBM made. They built their own internal Java app server from scratch.
So that was stupid.
Also the interview was on a Tuesday or something and they said that they were out of money on Friday but were confident they would get more money on Monday.
They wanted me to start immediately and when I turned them down because of the funding, they asked if I would start on Monday.
It was such a surreal experience that a whole organization could be so crazy.
> Also the interview was on a Tuesday or something and they said that they were out of money on Friday but were confident they would get more money on Monday.
> They wanted me to start immediately and when I turned them down because of the funding, they asked if I would start on Monday.
Is is straight out of a comedy sketch, I feel like you could take that to an open mic night and kill with it.
Building a custom server does not sound so crazy. If you ever used Websphere you would probably think the same. I was at one of those crazy Internet startups you referred to and we ran a trial of Websphere for a while. It was some of the slowest, most resource-intensive software I've ever used. By the end we all referred to it as "the pig."
Interestingly, I've heard many instances where interviewees asked startups about their revenues and the startups just wouldn't tell them, saying that it's growing, or some other vague nonsense. Even in the case of inquiring about the amount of equity one gets, many startups would not tell them the actual percentage of the company they'd get, instead opting to tell them the number of shares, without actually telling them the total number of shares. Well, 1000 shares out of 10k is very different than 1000 out of 10MM.
This is a huge red flag in my eyes, of not being open enough to see the books. It signals that something is quite wrong at the company, and even if it weren't, that they are not truly honest with their employees.
One time I had a CFO yell at me for asking questions like you mention. I obviously passed on the job. The hiring manager called me soon after and said he respected my professionalism and understood my decline of their offer. They were out of business < 6 months later.
It's a huge red flag, and it's a hugely common red flag.
A startup was peeved I valued their equity at zero when they wouldn't share. I got strong hints my equity was worth at least $100k in extra annual salary, but they wouldn't budge on disclosing anything I could hold them accountable to. I think they were being honest, but I didn't take the job.
I did take a previous job like that, and when the company sold, we were all surprised management was honest. Management gave a used-car-salesman vibe, which was just wrong. I think with transparency, people would have worked much harder.
I don't have insights as to the reason for the extreme opacity.
The reason for the opacity is obvious, they want you to think the equity is worth more than it is.
People constantly assume good faith in these things when they shouldn’t.
Obviously number of outstanding shares is a bare minimum, but things like cash reserves and cash flow should also be shared but they don’t want to share that information, often times because it’s not good, they just wasn’t people who believe in the “mission” or that it’s a rocketship or whatever.
The secondary reason is that there are still too many naive engineers who assume good faith, drink the startup koolaid, and take these offers . Sometimes even declining public RSU grants to do so. One company out of ten thousand have ISOs that are worth anything but those are the only company in the headlines so the mystique continues.
The only solution is education. ISO (Incentive Stock Options) are one of the biggest scams of all time and you’re financially illiterate if you value them more than zero. They are carefully designed by venture capitalists to screw employees. NFTs of monkey pictures are infinitely stronger financial assets than startup ISO - I mean, as least the monkey jpegs have liquidity and volume, and no liquidation preference coded in to screw you over.
That's the thing, though. It's not always a scam. You never know whether you're being scammed. I /didn't/ get scammed, but everyone working at my first company out of school thought we /would/ get scammed. We've all seen a lot of people get scammed.
> ISO (Incentive Stock Options) are one of the biggest scams of all time and you’re financially illiterate if you value them more than zero. They are carefully designed by venture capitalists to screw employees
Given the number of millionaires and billionaires who can credit ISOs for their current wealth, I think that's too broad a statement. At the end of the day, a well-run company that can eventually go public because they have a strong business can be worth joining and the ISOs can be worth something someday. Admittedly, many will not, but if you pick the right one, you could do well.
* If I had taken the offer, the stock would have been worth between 50k and 150k per year, depending on when I sold it. Their estimate of 100k per year was spot-on.
So they were being honest. Good to know! They were late enough stage when I was applying that they could do a fairly reasonable valuation. I think I would have been much more likely to take the offer if I had information like this in writing.
I still think I was right to value the equity much lower, since I had no way to know if they were being honest at the time.
The job I have now includes options. When the job offer was being negotiated, the recruiter called the options "monopoly money"- worthless and having no known value. Just 1000 pieces of nothing. I was frustrated at the time, and negotiated purely on salary.
Ultimately, I came to respect their opacity. They didn't try and deceive me into "millions that could be mine if only X happens"
I have been in this situation post-hire. I asked for outstanding shares and other documentation about my options. I never received anything. Just a single "You have X options" line on my pay summary.
Unsurprisingly, my options turned out to be the typical startup-style employee incentive options which were invalidated/worthless upon the company being acquired.
I was young and new to the industry so didn't know any better at the time.
Experienced basically this while working for a startup. Equity turned into shares, which turned into "incentive points" that could be revoked at any moment and for any reason and were otherwise worthless. Same deal, 15k "incentive points" out of some unknown number. We pressured them on that for a while, because it was completely unacceptable for the amount of work we'd done for them, but then the entire dev team left.
And what if that company with 5 million in revenue has a net profit margin of 20% and the company with 50 million in revenue has a negative profit margin?
There are a lot of what-ifs. The point is you can only decide on information you have access to, not on secret information you dont have access to. The best thing would be to know someone at the company who can share more details informally.
It also comes from feeling financially secure enough to be comfortable asking those questions. Early in my career I wouldn't have, but at this point I have enough money that I can afford to be more discerning.
Ultimate test of a good place though if you ask when young.
I asked for my first grad role. I asked a lot of probing questions. 3 years in I was running teams and setting up operations for the business in another country for them. I even told them I’d be leaving to start my own business after this job (and did). This resonated because I was speaking to their founder at the time and knew we’d be cut from the same clothe.
Holding yourself back at a young age can just stunt your career development. Asking such questions will appeal to the right employer.
Unsurprisingly this one went from 35 to 150 staff, profitably in the 3 years I worked there. I was 22 when setting up other parts of their business. I’d started at 19.
I wouldn’t advise folks to avoid such questions just because they’re young or “need the job”. Stand out! You’re even more likely to get the job.
As noted by others here: if they react poorly to this in the interview, you already won by dodging a bullet.
I think you missed my point, some (possibly most) literally can't afford to do what you're suggesting early in their life. It comes from a place of financial and psychological security.
I suppose it also depends on your country, but at least here in the USA, that's hard to come by (especially for the lower / middle class).
Being able to be discerning about a job is a privilege that not everyone has. As someone who finally can, I'm happy to acknowledge that rather than pretend other folks are doing something wrong.
I don't disagree that they'd be dodging a bullet, but some folks have to take a bullet to get health insurance, pay the bills, and god knows what else given their circumstances :)
Why? I work to exchange labor for money. They hired me because I generate more value than they are paying me. The company doesn’t “care” about me. It’s purely transactional.
If I got hit by a bus tomorrow, they would send flowers and “thoughts and prayers” to my wife and have an open req before my body got cold.
I agree. I've had a couple of stints as a manager, now as a CTO for a small startup, and it's giving me so much insight into thinking about engineering from a business perspective. As an IC it's hard to get that birds eye view, but it's possible.
1. A developers job is not to write code. You happen to write code as part of your job, but your core responsibility is to implement solutions to business problems. Sounds simple, but it's harder to realize in practice. Case in point was a recent freelance job I took on. This client had paid some devs for months of work on a Stripe integration. They had built all this custom code on the front-end and back-end. I came in, read the docs since I was new to Stripe, and quickly learned that a custom solution puts the company on the hook for 300+ security requirements for PCI compliance. I scrapped all the code and directed users to Stripe's own checkout page. Not as nice of a UX, but that company's customers are now much more secure, there is less code to maintain, and the client is happy.
2. Your managers aren't perfect people, but their livelihood is in your hands. It's incredibly stressful to be a manager, so try to have compassion and empathy for the position they're in. They have to explain to the executive team the progress you're making, and if no progress is being made, they take the blame.
3. If you can't connect the dots between what you're doing on a daily basis, and the overall trajectory of the company, then something's wrong. There's a broken connection somewhere, and no one other than you is going to realize it. Speak up if you don't think what you're doing is useful.
> . A developers job is not to write code. You happen to write code as part of your job, but your core responsibility is to implement solutions to business problems.
My job is to write code. Nobody is interested in my opinions about business problems.
I have to be aware, of course. I propose code to write some times, and I have to have some idea that it is a vaguely practical thing in business terms. I want to write code in groovy system A but mundane system B has a better chance of success then my desire for system A goes by the wayside.
Code is an expression of a business solution. The meat of any application is in the business rules it enables and enforces. In a very well oiled machine it might be possible to just receive some behavioral requirements and get to it, but in my experience that isn't the norm. To be an effective engineer, you need to have a solid understanding of how the code you're writing solves the needs of the company.
At some very high level that may be true. The person who makes the final decision on what code I work on (who happens to be the brother of the CEO, poor fellow!) may have to consider "business requirements", but only lightly. We implement what we are told to implement. I am a worker.
> The meat of any application is in the business rules it enables and enforces
No. That is crazy, and very high level. Where I work the "meat" is tight loops, memory allocation, network latency, data reliability....
> To be an effective engineer
I have not been to Engineering School. I am not an engineer. Engineers are people who have been to engineering school. I am a computer programmer working on low level iOS plumbing. "Engineer"? Huh! Putting on airs, I do not do that.
> To be an effective engineer, you need to have a solid understanding of how the code you're writing solves the needs of the company.
To be an effective computer programmer I have to understand the requirements that my firm has of the hardware. I can give very good advice about whether the hardware can be persuaded to do what they want. I cannot give (good or valuable) business advice about whether the things the firm wants are the correct things.
I understand a lot of people here really want to be successful "founders" and come at it from an engineering perspective. Very good. It is different for them than for me.
A lot of us (at least one of us...) here are workers who want to do a job, for a salary. Happy to work for one of those founders if the money is right. (I have to make a business decision about who I work for, in the best scenario. In my case I took what I could get, and got lucky - thank you universe!) I am not qualified (I am actually, another story) and am not employed to give business advice, or to care. I am more valuable to everybody if I stick to my knitting.
You’re not unpacking anything in what I said, you’re just disagreeing with each point, and each disagreement is mostly rooted in a misunderstanding of what I’m saying.
My point is that the code, and all it’s material constructs that you pointed out (loops, allocation etc), do not exist apart from the business, because it’s the only reason those things exist in the first place. I’m not sure how much experience you have, but if you have enough, you should know how easy it is for an engineering team to become disconnected with the goals of the company. I’ve seen devs waste literal months on things that, had the primary stakeholders known about it, they’d never have agreed to.
Now, you could look at that situation and envy the job security. Sure you could just see yourself as just a cog in the machine, with no responsibility whatsoever in wondering why the fuck you’re doing what you’re doing. But I certainly would not hire you.
> code, and all it’s material constructs that you pointed out (loops, allocation etc), do not exist apart from the business, because it’s the only reason those things exist in the first place. I
What else is that true for? All the way down. Biology, chemistry, physics, quantum physics.... All that we work on exists in those contexts too. Yet we just swim in the sea and ignore the water. The same is true of business matters. They are the ocean I swim in
> I’ve seen devs waste literal months on things that, had the primary stakeholders known about it, they’d never have agreed to.
That is poor communication. Communication is a necessary skill for all cooperative endeavours.
I am a cog in a machine. Unusually for some one in my position I actually have a good understanding of business (studied it for years) and I prefer computer programming. Having computer programmers stick their oar in over financial matters, unasked, is not good. So I do not do it. I know my place, I like my place.
Do you honestly think I’m being so literal when I use the term “business” that I’m talking about devs getting involved in financial matters? I’m talking about developers approaching their job with the understanding that they work for a business, and that their output is intended to drive business results. If they don’t understand how their work affects the business, there is an issue.
> That is poor communication.
…yes…as I said, there needs to be a tight chain of command with clear directives at each layer, in other words, good communication. When there is a break in the communication chain, the only thing you can rely on is an individual developers judgement.
> Sure you could just see yourself as just a cog in the machine, with no responsibility whatsoever in wondering why the fuck you’re doing what you’re doing. But I certainly would not hire you.
But there are lots, and LOTS of people who would, and want EXACTLY THAT. They want people to be told what to do, and do it, and not question why.
Yep, and maybe I was being too harsh in how I said it. It's an understandable sentiment; I've just never seen it work in practice. Inevitably, the team (over time) begins to move orthogonally to the company. Like I said above, you'd need a very well-oiled machine, ala a super tight chain of command with clear directives at each layer.
I see it in the same way I see security. A company is only as secure as its most vulnerable employee, so everyone must be vigilant about their own personal security practices. Same goes for "product security" - ensuring that the micro-actions taken by each IC reflect the company's objectives. It's an all-hands-on-deck practice.
If you're going to be paid in equity and not asking those questions, unless it's a publicly traded company (where you have these answers ahead of time) or you are getting compensated well above average in cash equivalents, it would be just plain irresponsible to not ask those questions.
Even if you are getting paid an extremely good salary, who wants to start working for a company that's potentially months or a year from becoming insolvent? The fact that this might not be standard due diligence as suggested by your comment is mind boggling to me.
I'm average and have always asked these questions :) When I got my CS undergrad I almost had a minor in business, so that side has been an interest from the start.
How the company is doing, what is their core business, and how will my position fit in that business have always been key questions for me when interviewing a company.
I don't really "care" about the business, not in any sense similar to the founder or CEO at the very least, but as a contractor who usually works long-term for one client, I always make it a point to ask what their runway is during the interview process as that will pretty clearly tell me how long, in the worst case scenario, I will have this client for.
I feel like people are going to keep using FAANG for a good while just because 1) MAMAA is not as recognizable yet, and 2) FAANG has the generalized meaning of "big tech company" and most people get that
Same thing happened to me. There's a company in Dallas that had a website that basically presented users who were searching for a product type with a list of products along with their ratings. Apparently they were supposed to make money off of affiliate links. The website was buggy and slow, and also... Google does that already.
So they pivoted, and now they've aimed their engine at CBD reviews or something. I still don't see the point.
I wish people would just build solutions to actual problems they have that other people also confirm to have.
Not everyone is a visionary like Steve Jobs or whatever, and that’s okay. Just build something that solves your problem and helps others who also deal with it.
The desire is there, but the idea(s) aren't and it's not for lack of trying. I've been reading that "ideas are cheap" for over a decade now, but I can honestly say that I haven't once come up with an idea that would make any money.
> I've been reading that "ideas are cheap" for over a decade now, but I can honestly say that I haven't once come up with an idea that would make any money.
Ideas are cheap.
Good ideas are darned hard to find and even harder to recognize.
Idk either and I’m in the same situation trying to find something that will stick (I think they call it product market fit?) and people/businesses will pay for. I’m sure I’ll figure something out eventually.
One thing you can try is just talk to everyone. Literally everyone. I’m a super introvert and socially awkward, but if I’m standing at the bus stop or in a Starbucks I’ll talk to people and 9/10 times they will talk. Sometimes they’re people who run or work at companies in industries unfamiliar to me (construction materials, biologist, textile) and they complain about what sucks. Just keep an open ear and hopefully you can find something interesting and compelling that you can build for. Good luck!
Is there any growing startup that's not bleeding money? Isn't what the seed and Series A and maybe B funding is about? After series A funding I'd expect some revenue stream, but not enough to pay expenses, after B series, they should have a plan to profitability and some proven customers that show that they can actually get that revenue, and after C I'd expect them to be executing to that plan.
If bleeding money scares you, then a startup is probably not the right fit, a huge number of startups fail.
There are. It happens when you hit high level of product market fit with a lean team and don’t go on a massive hiring spree after but keep growing the team at a measured pace.
I think Github, Notion, Retool, Slack, probably Figma, hit revenues quite quickly as they launched and became profitable or at least close to breakeven.
You mention Slack, but they had losses of $140M/year prior to IPO:
Slack says it may not turn profitable; IPO filing reveals $139 million in losses, Microsoft primary competitor
The Slack IPO filing shows annual revenue of $400.5 million, up 60% from the prior year, with a net loss of $138.9 million, for the 12-month period that ended Jan. 31. Slack's actual fiscal year-end date has yet to be determined.
Actually the Slack I remember from when it first came out is more or less the same product they have now. I'm not really sure what all of those people were doing for all of those years.
Most people don't get to choose, in my case, it's our corporate IM system, so I have to use it whether I want to or not.
It's got a lot of enterprise features that companies like, like SSO integration, message retention policies, security certifications like HIPAA and FedRAMP, and more.
There are also a lot of pre-made apps for integrating with corporate apps like Jira, Gmail, Salesforce, etc.
It's fine, I haven't looked at a lot of other options, but it seems more usable than Google Hangouts (or messenger or whatever they call it now) or Microsoft Teams.
The big sells for Hangouts and Teams is that they have video. Slack doesn't so you have to find a video conference provider as well like Zoom. Also Teams integrates more easily with the existing Microsoft stack (office, outlook, etc.) that a ton of non-tech companies are on.
I think a lot of tech companies struggle to break into the non-tech world. Slack might be ubiquitous for SWEs but my SO who works in traffic engineering will probably never use it (they use Teams).
There was some technical evaluation done, but some features like retention policies and SSO were deemed requirements. Not sure what all of the criteria were or what all of the candidates were, it was a while ago.
You realize that there is a lot of stuff that goes on behind the scenes, right?
They need to scale their systems, maintain reliability, scale their processes, build internal tools, run experiments, work with 'legacy' code and within the existing architecture, etc.
It's not surprising product development has slowed down. In almost all cases it seems like the speed of product development is asymptotic.
Hiring too many people is still the number one thing that can kill your growing business. The communication costs alone eat a bunch of headcount so if you don't desperately need the people then you shouldn't hire them.
The problem generally starts when you hire a bunch of people without fixing broken processes first, these people then push back against fixing said processes, and the rot sets in.
You're right - it's pretty definitionally hard for businesses to be profitable early on. The problem is that this unprofitable period has been extended towards ludicrous ends.
It used to be that you spend your Series A and B figuring out the business, and from Series C forward you've got your unit economics dialed in and are just pushing the "growth" button as hard as you can.
Nowadays you get all the way to IPO without ever achieving positive unit economics: Uber, Lyft, DoorDash... You have companies raising (or trying to raise) Series E, F, G while they lose money on every transaction and make it up in volume.
I suspect OP is talking more about that phenomenon - companies that are way too far along to not have positive unit economics on their core business.
Yes I am sure a lot of companies are building things that aren't required. But there are so many things were indeed better solutions are required, and if they exist would be worth investing in.
Replies so far are responding to the startup path to profitability question, but just how good are the usual IT jobs in companies where that's a cost center??
In all the ones I've experienced or looked at, not hardly as good as tech companies pre-FAANG, your "cushy job, fully remote, good pay and full autonomy with flexible hours" strikes me as an uncommon situation.
I was in the same boat as you. I was about to accept an offer, then I had a chat with their CTO and I asked some hard questions about their strategy (compelling product - but their vision was becoming a "platform" as a lot of startups do). Think I threw them for a loop and didn't get a great answer. Ultimately changed my mind on joining.
Knew someone at a Startup with a product & storyline that would make for a comedy fiction show.
Their CTO called me, enjoyed a convo, and offered me some untitled job - no interviews, no game plans. But full on salary match, equity, whatever… (I make mid 6 figures)
But I’ve been so entrenched in real business that the whole thing just seemed completely off to me.
What profit does your company generate? I wouldn't call anything 'cushy' or stable until there's a reliable way to cover all expenses and investor expectations--especially given how badly company have exploited Goodhart's Law with respect to revenue.
Back in the day, there was an inherent understanding that a stock price is supposed to reflect "the fundamentals" - present value of the company + future earnings. And of course there was some amount of speculation around future earnings, but for the most part companies at least tried to be profitable.
But if you look at the share price of like, Tesla - it's completely insane. There is no way your slice of the company is worth that much. The stock market has been behaving like a pyramid scheme, where everyone assumed there will be more money entering than leaving any given stock.
Tech is a pretty egregious sector because of how many business models basically boil down to "we don't actually need to make money if we have a desirable stock". In the long run, I don't think we'll be worse off if the next generation of software companies actually focuses on making products people want to buy rather than play games with DAU and user acquisition and etc.
Tesla made more money last quarter than Ford, GM and Toyota. Toyota made 10x the number of cars as Tesla. Tesla is growing vehicle production 50% YoY, while growing profit even faster (having barely hit economies of scale yet). Tesla has a backlog of orders approaching a year in many regions. Everyone else is losing money on their EVs and can't make them in volume production, can't find the batteries for them, because they started 10 years too late. That's the reason for Tesla's valuation, it's pretty simple.
Whether you believe the competition will catch up, or Tesla will fail for some other reason is besides the point. I'm just trying to show that the current valuation is not "insane" given current trends, there's a very real logic to it and not (completely) FOMO.
Correction: Toyota's earnings were higher than Tesla, it was operating income that was higher (remembered it wrong).
I'm not sure where you are getting those numbers from. Ford had $37b in revenue Q4. Tesla had $16b.
Tesla is an impressive company that's managed to finally be profitable. But currently their market cap is higher than all other auto manufacturers combined.
> Everyone else is losing money on their EVs and can't make them in volume production, can't find the batteries for them, you do the math.
That's the thing, this space is getting incredibly crowded this year. Kia/Hyundai, Ford, and VW are all putting out very impressive mass-market EVs that are selling like hotcakes.
> I'm not sure where you are getting those numbers from. Ford had $37b in revenue Q4. Tesla had $16b.
Tesla makes a 27.4% gross margin on that revenue though, while Ford has a gross margin of 4.8%.
> Tesla is an impressive company that's managed to finally be profitable.
Although technically true, this is a little misleading as it implies that Tesla is barely profitable - in reality they have moved from 'finally becoming profitable' to now being the most profitable automaker (in terms of total profit).
Tesla pulls all sorts of accounting tricks to make gross margin appear higher than it actually is. Warranty repairs are apparently done by pixies for free, so is R&D, factory amortization, or service centers
A like-to-like comparison would have Tesla's gross margin at ~18%, which is decent, bu not all that unusual for a premium car brand. Ford and GM tend to have much lower gross margins than VW or Toyota. The latter two are usually in the mid-to-high-teens, while competing in a cutthroat mass-market
I'm not saying they are worth their valuation, I'm just saying you can't exactly claim/imply that they aren't very profitable compared to others in the market they are operating in.
Also remember that they almost tripled profit in the last year, so that PE ratio will be 1/3 if they manage to do that again. Again, I'm not claiming that it is possible, or that that would be a sensible P/E ratio, or that they aren't overvalued, but P/E can change quickly.
I would be shocked if they were able to maintain those margins.
They’ve faced relatively little competition in the EV space until this point and benefited from a shortage juicing prices. As demand eases and more entrants come into the EV space, they will have to lose margin, market share, or both.
> I would be shocked if they were able to maintain those margins.
I wouldn't be. They have fundamental and very broad patents on important things like:
* Pre-heating the battery on the way to a charging stop (enables the battery to accept faster charging without damage on road trips)
* Using motor waste heat for battery heating (increases range while use the above strategy)
* Dynamically adjusting charge rates due to real-time battery conditions (enables charging faster)
Those patents don't expire until the mid/late 2030's. That allows Tesla to force competitors to either pay a licensing fee or use more-expensive workarounds, like different battery chemistries, to match the battery range and charging rate. Either way, it means Tesla is likely to have larger margins than competitors.
I’m not intimately familiar with teslas patent strategy, but to my knowledge they aren’t enforcing any of those patents at all. Every single one of those features are present on competitor vehicles already.
Good. The fact that very specific mechanisms that anyone could have thought of for something everyone understands is beneficial (keeping your battery warm) is patentable to begin with is... not great.
Tesla as a product is a status symbol though. It's naturally going to be a high margin product but the cost means that the market is smaller. For example, the cheapest Tesla currently sells for $61,980 before tax in Canada. The number of people who can drop $62,000 on a car are a lot fewer than those than can spend $30,000.
I for one am very happy with the wider EV push, because I will never need to buy a Tesla. I am sure many other people have similar sentiments. Obviously they are valued for their batteries and solar as well, but their business model and product offerings there are far from a fit for everybody either. It all does not add up to current value, although it is hard to see where the mad dash to buy "the future^TM" runs out of cash to throw at it.
Solar is race to bottom, very low margin competition with Chinese manufactures. Batteries will follow as well. And if that was really going great why did SolarCity get bailed out by Tesla money? I would have expected it to be a massive company as well.
Also, I never really understood robotaxis as something magical high margin business. It is also race to bottom operating with very thing margins. And probably only after huge waste of VC capital.
The way i can see robotaxis getting out of the thin-margin category is to ensure they have proprietary AI etc for the nagivation and safety.
This way, there would be a huge barrier for entry to any competition, and they can keep the price high.
And thus, i would want to see the gov't set legislation to prevent this from happening - the AI and navigation software must be made open (ostensibly for audit purposes...but it would be something that is hard to prove you've copied it?). After all, the thin margins of such a business means benefits to society at large.
Don't confuse market cap and enterprise value, the amount of debt on non tesla manufacturers' books is staggering and strangling the business in other ways
Far exceeds? It is only 5% higher so that's a bit of a stretch ($22.4bn vs $21.4bn).
Plus Toyota had shrunk it's net income from 20/21 to 21/22, while it was a 116.86% increase for Tesla, so it would need an optimistic person to think that Tesla hasn't already overtaken in the last few months since 21/22 year end.
I was responding to a comment which was referencing Q1 2022. Not sure if you missed that or intentionally chose annual figures to shift the goalposts, but either way I agree Tesla is trending toward sector domination and has the potential to prove its valuation as valid. Alas, that has not happened yet, and the market is more complex than net income trajectories. If you firmly believe Tesla will be the EV king in 10 years then so be it, but don't hold your breath.
Gross income is just an intermediate-step in the way towards the bottom line (net and/or profits).
Its strange that the earlier poster wants to talk about gross instead of net on this point. You can almost always tell that someone is being a bit shady with their arguments when they say "income" or "profits" and then backtrack it to say "Oh, I meant gross income".
When you say "income" or "profits", everyone rightfully assumes you mean "net income", the bottom line. The most important number.
No worries, but I'm not sure what notion you're trying to craft with that stat. Toyota had far more revenue and profit. Operating income was lower... so what? Tells me Toyota has been spending money to carve a huge chunk out of the EV sector. Maybe they are late. Maybe Tesla will show that it's current valuation holds. I doubt it.
Looking at a single quarter is not a great way to compare large companies. Even looking at just a single year is not a great way, but for comparison, in 2021 Tesla had revenue of $54 billion and net income of $5.5 billion. In 2021 Ford had revenue of $136 billion and net income of $17.9 billion. Toyota had similar net income as Ford in 2021.
Yes, in the most recently reported quarter Ford lost money. And in previous years Ford has also lost money. But so has Tesla.
Looking at Tesla as a traditional automaker is not fair to Tesla. They don't want to be a traditional automaker, I get the impression they want to be more like General Electric was back 50-100 years ago, making all kinds of things and being rather innovative.
For Tesla it makes way more sense to use the annualized Q4 numbers vs Ford total 2021 because Tesla grows like crazy, that's the whole point. It doesn't matter that Tesla lost money in the past if they're printing it like there's no tomorrow now, with nothing stopping them (except lock downs). Traditional autos ICE sales have been decreasing and will continue to do so, and they're trying to replace it with EV sales they lose money on, and can't make fast enough to replace their lost ICE sales.
Either way, I get it that you can look at the same data and come to another conclusion, but clearly, for a lot of investors they look at the growth, the barrier to entry, the overall trends and that's why Tesla is valued as it is.
And maybe competition? The market is booming but other automakers are starting to have competitive lines.
I want to see what Tesla could have in their sleeve to ever become as desirable as they were the past years... I'm not sure if all this hope in eternal growth of Tesla will hold.
Tesla has nothing on the market for smaller, cheaper european markets, and smaller, cheaper cars like Renault Zoe are getting more and more common sight on the streets. There is no premium pricing on those, but the numbers of cars sold is quite huge.
All of those things can be true and Tesla's stock can also be over-valued. A rapidly growing and popular company doesn't justify any arbitrary valuation.
Indeed, which also begs the question; How much of that growth is driven by the over-valuation?
Particularly as Musk is no stranger to using creative accounting techniques, and sheer speculation, to make his companies suddenly look more profitable [0]
There's also him leveraging his other companies to create growth among each other. Like Starlink being a major customer for SpaceX.
Which could either be really smart, or the making of a really impressive house of cards.
It's not about revenue, it's about valuation. The revenue can be whatever you want, the valuation determines long run returns.
Tesla could be priced at 20x PE or 100x PE and be the same company. Your returns will be vastly different between the two scenarios.
OPs point, which is pretty obviously objectively true, is that valuations far exceeded future yields by any fundamental valuation metric. Tech has been valued as if every company will be a pseudo Monopoly like the FAANG companies, which is very unlikely to be true
Talk to a Tesla zealot and this is the story: Tesla masters self-driving and their robotaxis take over global transportation leading to complete and unending dominance.
It's almost as if none of them has ever run a business or even studied history. It's best not to try to reason with them at this point. Just smile and walk away. Over time they'll figure it out.
I mostly agree, I just feel the need that valuation metrics rely on past values, which aren't as useful depending on the company you're talking about. If a company has net income X, but a new high margin product launching next month that could easily double or triple that, their P/E will look ridiculous but , in fact, be quite reasonable.
The reason to use past values is because they're known. Anything anticipating the future is speculation, and relies on many assumptions. Check analyst earnings estimates for S&P companies for 2008 and you may be surprised what you find.
I fully believe Tesla can be the number one auto maker, and get self driving working to a sufficient extent to be marketable. But what's the upside? A few X at most. To me that risk/reward is pretty awful... many more attractive companies selling at 1x PS and fast growth/smaller market cap that can go up 10x easily over a few years
I don't know about Tesla production forecast and how its stock value can be interpreted but there is something interesting that Marques Brownlee said few days ago about pre ordering cars [1]. Basically, if people that put down the $250k for a Tesla Roadster founder edition to finance the company and for a product they still don't have into Tesla stock the would now have $4.5MM.
Not complaining about Tesla stock price as it has the price that people is willing to pay but to me this is definitely a redefinition on what people care when deciding where to invest.
That's just an extremely simplistic analysis, as if there is absolutely no change in the future. Tesla's forward P/E is currently 51. In a years time it might be 30-35. A year after that, well you can see where this is going. There are definitely a few years worth of growth baked in. But when you compare the valuation to the likes of GM, also consider the possibility that they will simply not survive the transition to EVs. They already went bankrupt once, and sales have declined every year since 2016, please have a look at this graph: https://www.statista.com/statistics/225326/amount-of-cars-so... For a great number of reasons, many traditional OEMs will find the next decade very difficult, and that's reflected in their current P/E.
Take this logic and compare AAPL and RIMM in 2009. This is why people are buying TSLA.
If you think that GM is going to successfully pivot to EVs and that Tesla will not continue to grow 50% a year, that is a fine opinion to have, but if you look at CNBC clips from 2009 you will see very similar comparisons being made around AAPL and RIMM, to what you are saying today.
Can you link a source for the Toyota vs Tesla claim? From what I saw on the reports it looks like Toyota had way more revenue and net income. Maybe I'm interpreting it incorrectly
Even if that all were true (it's not), Tesla could be the most important and revolutionary car company since Model-T era Ford and _still_ be insanely overvalued. Before their recent stock slide they were worth as much as every other major manufacturer _combined_. Their P/E ratio hovers around 300. Mercedes-Benz hovers around 5.
I admit Q2 will be lower than Q1, but Q4 this year will likely see an even lower forward P/E if price remains the same.
Sure, they could be overvalued, I'm just trying to explain why it's valued as it is for those that think it's "insane".
Mercedes hovers around 5 because many investors believe they could go bankrupt if they can't successfully transition to EVs. GM, for example, will very likely go bankrupt (again). Many others as well.
Tesla’s source of profit is mainly from 2 things:
- they’re selling cars that have quality of $25k cars for $60k
- they’re basically a first manufacturer that sells Chinese made cars to western world at scale (all their other operations are either not ramped up or unprofitable)
Power of their brand is insane. But they seem to be mainly raiding it and diminishing it. Music will likely stop one day.
If average Jane, who is not a raving Tesla fan, wants to spend circa $140K on an EV, and she has to choose between the Mercedes EQS 580 and the Tesla Model X, which one would you say is the no-brainer (better value for money)?
That is the future of Tesla. Increasing competition by better products offered by manufacturers with far more experience in manufacturing vehicles, and far superior dealership, service, and parts networks.
At both price points on the link the Tesla vehicle metrics are dominant over the Mercedes vehicle metrics. In fact, the $110k cost Tesla has better metrics than the $130k cost Mercedes: it is faster, accelerates faster, has higher horsepower, and has higher range. If the average Jane has $140k and wants the best value for money it is really hard to see why they would choose the objectively inferior car according to most metrics. They could save $30k and still have a better car.
I really don't understand, at all, how you can conclude that it is a no brainier to get a Mercedes? It seems like a really ridiculous conclusion?
Just clicking around on the site and trying to do the order shows you are wrong that Mercedes is far superior on non-car related things. The dealership model is famous for its failings. Car salesmen have a notorious reputation. The website for Tesla lets you put in a purchase order within three clicks, no interaction with a dealership. The Mercedes purchase workflow had more like seven clicks and it resulted in getting an interstitial telling me to talk to a dealer about how the car wasn't going to have all the features because of chip shortages, that the price would change as a consequence of that, and directed me to talk with a dealership.
How is that better? How is not giving me the listed price but making me go through a high pressure sales channel superior to just letting me buy car the now? I don't understand at all how you can say that dealership model is far superior. Is it right in your eyes that someone poor at negotiating should have to pay more than someone who is better at it? I don't get it. I don't understand at all how you can think Mercedes is providing the better experience.
“Range” is likely the only one of those metrics Jane will care about. This sounds like one of those rants we used to hear about “why would anyone buy a Mac when PCs have higher specs??”
Mercedes does cabin UX like Apple does software (and BMW is better still). Maybe Jane wants a button for her wing mirrors. And door handles that work. Actually comfortable suspension. An instrument cluster. A dealer to look after her from decision to delivery.
I've opened Tesla's doors, enjoyed the suspension of the Tesla finding it comfortable, and when I adjusted my mirrors I used buttons on the steering wheel. Usually I don't have to adjust the mirrors, because the car can automatically detect that it is me who is driving and it has memorized my mirror preferences.
Why are you lying?
Why not focus on the metrics? For example... Storage space. The Tesla? It has four times the storage space. Eighty eight cubic feet to twenty two cubic feet. The person you are defending didn't bother to announce that they created a different comparative context and no wonder - even the Tesla Model 3 beats Benz across pertinent metrics like range and storage space despite costing $50,000-$80,000 less depending on configuration choices.
Look, you can like Benz eight click and get told that you need to call the dealership and that the price listed isn't the actual price UX, but don't try and tell me that they are Apple. They aren't. Tesla lets you order in three clicks. Much cleaner. They also don't expect you to adjust your mirrors with buttons. Much much cleaner.
Oh, and who was it who removed the buttons from phones again? o.O Need to correct my worldview apparently. Thought it was Apple, but according to you they are the pro-buttons companies. Please, help darkens us with your ignorance. We need to unlearn the truth lest we make a good decision and save $80k getting a better car than Mercedes can provide.
“Lying” is a bit emotive, suggests you might be a bit too invested here to get the argument the GP was making.
Look, Tesla got early success in EVs by being considerably better where everyone else was weak (drivetrain, battery, software, charging network). That doesn’t mean it’s not weak where they are strong (QC, basic manfacturing competencies like panel gaps, dealer network, interaction switchgear refined over generations).
Yes, Tesla have also been innovative in attempting to turn those “bugs” into features - better online ordering, rapid response to QC fails, replacing complex switchgear with an tablet and a modally overloaded pair of dials).
Regardless, what matters is there are people who feel about Mercedes the way you clearly feel about Tesla. Emotion has always mattered with cars; you don’t win those people over with talk of cubic feet.
GP is betting there’s a huge market for “car like I always knew it from a manufacturer I love except with a battery” and I’ll bet they’re right.
> “Lying” is a bit emotive, suggests you might be a bit too invested here to get the argument the GP was making.
Emotion doesn't come into it. You built an argument upon a poor foundation. In strictly logical terms even if your argument structure was correct your argument would be invalid because its premises aren't correct.
You said several things that are objectively false. I know them to be false because I have first hand experience which shows me that they are false. Moreover, considering that Tesla has an industry leading satisfaction score, I know that my experience is not uncommon. What is uncommon, even vanishingly rare, is the veracity of the statements which you used when building the case against Tesla.
Perhaps I sound emotive because I referred to what you did as lying. The principle of charity isn't leaving me much room for you, because you are either wrong and informed or wrong and uninformed. You can take your pick, but whichever you choose don't cheapen the debate by appealing to me as being emotional.
> Look, Tesla got early success in EVs by being considerably better where everyone else was weak (drivetrain, battery, software, charging network). That doesn’t mean it’s not weak where they are strong (QC, basic manfacturing competencies like panel gaps, dealer network, interaction switchgear refined over generations).
This is a very different argument than the idea that it is a no brainer to go with Mercedes. You are moving the goal posts. It is a stronger argument too. Unfortunately, you don't support it well. For example, the argument for the dealer network being an advantage rather than a liability seems doubtful to me. Years back during the era Tesla was rising there were other EVs. Dealerships recognized that recurring revenue from maintenance wasn't as high for these vehicles. They intentionally sabotaged sales of EV vehicles, following perverse incentives, by doing things like giving test rides on vehicles which hadn't been charged and then using the resulting failure to persuade to other purchases. This is a liability, I think, but existing laws tend to protect dealerships as a model at the expense of car companies. So it isn't something that Mercedes and other car manufacturers can easily circumvent. Worse is that the experience at a dealership is much much worse than ordering things over the internet. Tesla just drives the car to your door after you order it. Dealerships expect someone else to drive you there and to go through high pressure sales channels. Tesla can pursue a three click and order model, but dealerships would be furious and go after automakers legally if they were cut out of the loop.
> Regardless, what matters is there are people who feel about Mercedes the way you clearly feel about Tesla.
Again, you are making a very different argument. We started with average Jane not devoted Mercedes fan. Trying to strawman my position by switching from average Jane to devoted Mercedes fan is not at all in keeping with the principle of charity. It also does a disservice to the OP you try to represent, because it contradicts their post, yet you act like you are speaking for them.
> GP is betting there’s a huge market for “car like I always knew it from a manufacturer I love except with a battery” and I’ll bet they’re right.
Which is reasonable, which lets you convince yourself you are right, but average Jane would rather pay $100k for four times as much space or save $50,000 to $80,000 and /still get more space and better range. And she might even like the Tesla aesthetic more than Mercedes: it is Tesla, after all, that has the majority of the EV market. Presumably if their aesthetic was strictly inferior to alternatives that wouldn't be the case. Regardless it doesn't really matter - taste is by its very nature subjective. It is the heart of qualia, not a criteria we can evaluate on behalf of others without knowing their preference set.
The principle of charity is to make the strongest possible version you can imagine of the opposing argument, and I also struggle with constructing yours. It appears to be “no electric car buyer with $140k to spend could ever rationally choose anything other than a Tesla”.
If that’s your position, as a Tesla owner who has invested an awful lot of effort across this post in battling Someones Wrong On The Internet, I’m going to say there’s emotion at play, yes.
If it’s merely “a Mercedes isn’t a slam dunk choice, Tesla still has something to offer”, well yes, that is true.
Regardless, and after reflecting on everything you said, I do now think Tesla is quite like Apple here. Just as with the first few years of the iPhone, they created the market and had it essentially to themselves. They offer a limited set of choices and highly opinionated take-it-or-leave design with fixed high prices.
Now the other manufacturers are arriving, just as the array of Androids did, with a variety of models, price points and customisability.
Now will follow years of mutual incomprehensibility and internet arguing over why one set of trade-offs are objectively better than another.
> It appears to be “no electric car buyer with $140k to spend could ever rationally choose anything other than a Tesla”.
My argument is that it isn't credible that buying the Mercedes is so obviously superior that is, and I quote the GP, "the no brainer" decision on account of it being "better value for money" because on every metric worthy of note the Tesla has superior statistics while lower cost except for qualities which are highly subjective. Moreover, the GP used a comparison with a vehicle that is in a different class - an SUV versus a sedan. Tesla has a sedan style vehicle - it crushes on the metrics much moreso than the SUV does while being at the same price point. Moreover, on pure value? They have comparable metrics for $80,000 less. I'm absolutely sure some people will prefer the aesthetic of Mercedes, but claiming value for money superiority let alone claiming it so much so that the purchase is a no brainer is objectively wrong whereas the accurate claim that they have a potential subjective appeal is a much lesser claim that I don't disagree with.
> Now the other manufacturers are arriving, just as the array of Androids did, with a variety of models, price points and customisability.
Yes, that is pretty much exactly what is happening. Complete with the death of the former type of phone and the threat to legacy business which that shift includes.
It is slow in happening because mass manufacture of cars isn't something that happens instantly - we don't even have the capacity in terms of minerals to meet the demand that the shift is creating, nor the volume of production at a high enough ramp to allow for the mass transition as we saw with phones. So a lot of people aren't noticing that it is like this, because the transition with phones was relatively fast. They are using the wrong mental model of transition speed. The better one is something more like the transition from horses to cars - fifty years after the ICE engine, horses finally got phased off farms, these transitions are playing out on a much larger time scale then our transition to smart phones, but they aren't actually so different.
Mercedes in this model isn't Apple, but Blackberry - great and in theory they should be able to survive, on the fundamentals of the current product, they have an advantage. Ergonomically, they execute better, but tragically they do so according to the old paradigms. The thing that a lot of people are anticipating is that the old paradigms are about to be destroyed by the smart car which in this case means the car that drives itself, not the car that runs on electricity provided by batteries. Thus, the Tesla valuations.
Ironically, auto makers like Mercedes-Benz are actually relying on BlackBerry QNX for some of the smart car war. So in a way we're seeing the BlackBerry versus Silicon Valley play out a second time. It is kind of shocking to me that they would go this route, since I figured the obvious partnerships would be with Google, not Blackberry, but I don't find their decision to be a strategic blunder. When I realized the strategic position that BlackBerry put itself in with regard to car companies, I switched to long BlackBerry. Apparently the market disagrees with me on this potential. It seems firmly convinced Tesla will win, but I suspect everyone will get to full self-driving sooner rather than later even if Tesla does get there first.
> They offer a limited set of choices and highly opinionated take-it-or-leave design with fixed high prices.
Tesla will not aim to be high priced; they'll aim to be the budget vehicle. It is a strategic imperative introduced by both climate change needing to be solved and also by the demand for vehicle telemetry to enable deep learning at a massive scale. So while this is true historically, it is a bad going forward prediction as to how Tesla will behave. You can already see this in their strategic decisions with the Model 3, which after factoring in ToC is actually a contender among budget cars, rather than the luxury segment. They don't want to be Apple; they want to be the future.
Just to clarify, since people seem to disagree with me that this person lied: my evaluation of his sentence paragraph has more than 50% of his statements as false, with only one statement being compelling.
(truth? "And door handles that work.") resolves to false, because the subclaim (truth? "Tesla door handles don't work.") is false.
(truth? "Maybe Jane wants a button for her wing mirrors.") resolves to false, because it includes the subclaim "Tesla doesn't allow adjusting of wing mirrors via buttons" which is a false claim.
(truth? "Actually comfortable suspension.") is a subjective claim, but I personally find the suspension to be comfortable. So at least from my perspective this is a false claim. Moreover, there are a multitude of Tesla options and they don't all share the same suspension style. So even if you didn't like one suspension style, you could still like another, negating the thrust of this point for a larger category than would otherwise be negated. Thus, it seems false to me in a more general way, despite the subjective nature.
(truth? "Mercedes does cabin UX like Apple does software") is a subjective claim. but I heavily disagreed with its veracity. Since then the person I'm quoting has changed their mind on the basis of reflection. While not a lie, this sentence now resolves to false according to their stated worldview.
(truth? "An instrument cluster.") resolves to true. It is a compelling reason that someone might choose not to get a Tesla. If we're not going to give them the benefit of the doubt there are models of Tesla that do come with this panel. We'll give it to them anyway. We'll give it to them even though the very car that we're discussing has a display above the steering wheel. We'll give it to them even though it is a different car than was used for the comparison which didn't have this instrument cluster.
(truth? "A dealer to look after her from decision to delivery.") could be true, but it is a highly subjective situation. Moreover, I don't find it to be well founded that the average person would prefer a dealership environment rather than an online order.
So 4 false, 1 true, 1 true but not particularly convincing.
At what point does stating falsehood transition from being ignorant to being lying? Because I feel they have went well past a reasonable number of errors. This isn't a case of the majority of their words being true. The majority isn't true. They are majority false and arguably all of them are false. At the same time that they are majority false they were derisive: I posted facts, but they dismissed me as someone who was ranting.
Or maybe Jane just wants to say "fold the wing mirrors" and then she doesn't need a button.
BTW thanks. I rarely need to fold the wing mirrors manually in my Tesla so I only tried doing it by voice today in response to your comment and it worked. What were you saying about the cabin UX?
It is indeed a no-brainer. The Tesla wins hands down.
I've owned many very good German cars for the last 30 years and loved them, but my Model Y makes them all seem quaint and obsolete.
--Electric cars don't need dealers. I want to be able to buy a car online without spending an hour kicking gravel and haggling with some commissioned salesperson over the price.
--Electric cars don't need as much service as ICE cars, and it doesn't need to be done at a dealer's high-profit service bay. When my Tesla needed its rear seat coat hook replaced, a technician drove to my house and replaced it. For free.
--Electric cars need very good batteries. Tesla has a 10-year, several-billion dollar lead over every other car manufacturer on battery technology. Everybody else is playing catch-up. Ditto for motors and single-piece castings.
--Electric cars need very good UI software. The Germans make the second-worst automotive UI software of anybody (only the Japanese do an even worse job). Tesla's UI has elements I don't like, but every other car's software experience is so bad it's not even worthy of criticism.
Mercedes, Porsche, and Audi are all offering electric cars with specs inferior to Tesla at much higher prices. This will be unsustainable after they stop coasting on their reputations and the supply of German car snobs who refuse to try a Tesla dries up.
I'm sure the Germans will eventually catch up; Mercedes invented the ICE car after all. But Tesla invented the modern electric car and it's a whole different beast.
It’s not snobbery, as a luxury car a Tesla is unimpressive. The styling and interior quality is comparable to a Mazda, not a Mercedes. I’m not a fan of the giant tablet for controls unless the car genuinely drives itself, even a generation old BMW’s iDrive 6 paired with carplay is preferable for me. They’re really different categories of product, IMO a Chevy Bolt is closer in spirit to a model 3 than a 3 series is.
Current price on your link is ~$100k not $140k. It was much more confusing to use the first site, but click through I found something that was also about $100k when you chose the budget options. Meanwhile, for all numbers that both Tesla and Mercedes list publicly the Model X has better numbers. For example, in horsepower and 0-60 the Tesla does better. For some numbers, the Tesla lists the number - like range - but the Mercedes doesn't.
Declaring my bias: I think this is because they are much worse in range. Now looking up the numbers: 340 mile range for Mercedes. 350 for the Tesla. I was wrong. Tesla was only better, not much better.
Clicking through to order takes several clicks for Mercedes. Along the way of the happy path toward immediate purchase an interstitial pops up and warns me that the price will be changed if I try to order because they don't have the supplies to service the order. Tesla by contrast just lets me order the car with a delivery date in January of next year.
To say your post is deeply misleading as to who is obviously the no-brainer in value for money is an understatement.
Opened the Mercedes site again to check some more. Tesla allows escalation to ordering in two clicks. After more like seven clicks Mercedes was ready to let me 'save my build' rather than letting me order. They also still continually warn me:
> Due to a worldwide shortage, semiconductor chips that are typically present in our vehicles are limited in supply. This has changed the availability of certain features. Vehicle pricing will vary and depends on the availability of certain features. Please verify with your dealer whether any feature is available in a particular vehicle. To learn more, please see your dealer.
Whereas Tesla just lets me put in the order with delivery in January.
Lets move away from the ordering experience. My experience with Tesla service is that I notice an issue, then with my phone, I put in a service request. They come to my house while I'm sleeping and fix the issue. Super easy. Painless. By contrast car dealership salesmen and auto mechanics have an infamous reputation.
I find Tesla to be superior. Maybe others won't, but personally - I find them extremely superior. Driving to a dealership sounds pretty lame to me. Especially if I'm having car trouble. Tends to be the kind of thing that makes driving to the dealership a bit annoying, you know?
I'm not any kind of stock valuation expert, but I figure a big part of Tesla's share price (and GME's for that matter) is just the natural market consequence of too many short positions and someone calling their bluff. The current valuation might not be rational, but that's beside the point. A lot of money was invested betting that Tesla would fail (or at least, the stock value would fall), and the consequence of them losing the bet is that they have to buy stock at whatever the price happens to be, thus driving it higher. I see it as just the market correcting itself, not some inherent bug in the system. (There's an argument that maybe allowing people to short stock in the first place is a regulatory bug.)
> But if you look at the share price of like, Tesla - it's completely insane.
So was the stock prices of amazon, google, etc. You don't expect companies that are opening new industries/businesses to trade like AT&T. You don't expect these companies to pay dividends.
> Tech is a pretty egregious sector because of how many business models basically boil down to "we don't actually need to make money if we have a desirable stock".
Tech companies are some of the most profitable companies in the world. Apple, google, amazon, facebook, etc print money. These companies make more cash profit that your companies with "fundamentals" make in revenue in a decade.
> I don't think we'll be worse off if the next generation of software companies actually focuses on making products people want to buy rather than play games with DAU and user acquisition and etc.
That happens in all industries. From finance to hospital equipment to real estate.
If the bubble is popping, it isn't a tech bubble that's popping, it's an asset bubble that's popping.
Back in the day, there was an inherent understanding that a stock price is supposed to reflect "the fundamentals" - present value of the company + future earnings. And of course there was some amount of speculation around future earnings, but for the most part companies at least tried to be profitable.
Yes. And after each crash, people have to re-learn that.
First off, it isn't irrational to allocate an excessive amount of capital to sustainability. The meme that this level of provision is short-sighted is myopic to the extreme, because obviously over the long term it is failure to be sustainable, not being sustainable, which is myopic. Perhaps it is overvalued, but calling it completely insane goes a bit too far.
Second, you are obviously right that the present value of their assets doesn't justify their current price, but it is hubris to try and claim that their is no future in which their revenues can justify their increased valuation. Think ahead to the future while skipping the steps to get there and we are obviously incredibly likely to exist in a world in which AI and automated labor is commonplace, in which energy is provided through renewable means, and in which transport from point to point is handled by electric vehicles. It is not __completely insane__ to think Tesla might play a large role in this future. It is quite reasonable to expect they would. Their present course has them explicitly targeting playing a very large role in that sort of future. They have been making progress and inroads in playing that role. They are on track to play that role and can play it if they execute successfully. Whether they do, that is another question, but whether the potential exists? It certainly seems to exist.
A lot of times people point at automakers when they try to justify calling Tesla overvalued. The idea that Tesla wouldn't be larger than that industry is silly. That industry spent billions on building out manufacturing capabilities. They took on debt in order to create products which the market doesn't believe will be viable in the future. The projected value of those companies has to account for that and obviously they aren't going to be valued as highly as they might be if they weren't burdened with those liabilities. Perhaps you don't know this, but a few years back legacy automakers were struggling with dealers who would intentionally sabotage the ability to sell electric vehicles by giving test drives in vehicles which were intentionally left without charge. Perhaps you don't know this, but dealers have laws in place to protect them from car companies which force legacy car companies to use them despite the way the perverse incentives could spell the death of the ICE auto industry. There are real structural reasons to value these companies as being less able than Tesla to flourish. Thinking this is the case isn't completely insane.
The standard explanation is that the market tends to price in future gains, and Tesla is seen as having far greater growth and market domination potential than the other brands with small P/E.
Over a long enough time frame the stock market and even the whole economy behaves like a pyramid scheme as it is dependent on new generations to be more people than the previous one.
This is not true. The stock market is usually valued after the dividends it can pay over a certain number of years, somewhat between 10 and 20. It’s not infinite. If no further grow comes that’s it and the stock keeps it value and will keep paying dividends for the foreseeable time, and has for already 100 years. Sure investors ask for growth in their communication, but the actual thing they are asking for is a better performance than the rest of the market. You could say this bottoms out at 0 but recent event have shown that low negative interests are possible, because stashing cash has a physical cost.
Many economies can still work well without population growth, other fail despite population growth. If that was the case that population dictates GDP, then investment choices would be very easy.
That really only seems to be true when you allow unchecked mergers and acquisitions, because once you've eliminated competition continuing to grow the market through innovation is almost impossible.
I'm not convinced this is some natural "tech" bubble. This feels like an M&A bubble to me.
I think you're right but I don't think it has to be that way.
Like others, up until a few years ago, I was a Keynesian. But then I realized that if you allow inflation you're not just "rewarding investment", but you're taking non-participation off the table -- and that's a big problem. Because then people participate in markets not based on value but because they have no choice. That means that you go from value investing to "growth investing" -- which is another name for pyramid scheme and people unironically saying that "the market always goes up."
Not how I understand it. That just means you're willing to tolerate a higher P/E for that stock. You still expect earnings will eventually cover the price.
When you have 401(k) plans which essentially say, "Put your money in the 'market' and it will go up to beat inflation," or you outright say (as many do) that "the market will always go up over time," that's growth investing, and it's straight up a Ponzi scheme. You don't care about the earnings, you just expect to sell for a higher amount than you bought.
Why not? Do you think the society will soon stop inventing new things? They are clear indicators that evolved societies are disconnecting their growth from the energy usage, and especially carbon emissions. With that new heights are possible.
But besides this, yes, slow growth back like for most of humanity is also an option and probably not a bad one in the longer term. It’s a very bad option until we are depending on fossil fuels, because we need the money for the transition.
There is still an element of optimization which involves compressing the problem space. This might be why we see thin vertical segments, but they are way over-valued for the optimization they provide.
I think VCs' expectations misalign with reality. They are the ones incentivising infinite growth.
That isn't true. Otherwise when the wheels come off (recession/depression) then the market would never recover as it's "just a Ponzi scheme". there is real value in the market and until some communist or anarchist can provide a reasonable solution that doesn't depend on the general human being altruistic 100% of the time I'll just keep going with the market and count on avarice. I'll trust in the general sense of fairness that most humans seem to have even if they aren't altruistic.
I don’t understand finance. But with tech I can often see from a mile if something might happen, I don’t have ideas, but I understand „this solves a problem“ or „this is high quality“ versus „this is made up“ or „someone else will do this better“.
In my opinion the issue with the stock market is that it is often finance driven and too drawn away from the actual work that is being done and the actual needs and problems potential buyers have. And this problem is specifically worse in tech.
I wouldn't even call it an `understanding` more just a `reality`. Markets can stay irrational longer than you can stay solvent and the last 10 years have been an amazing case in point, but they can't stay irrational literally forever.
There's a gravity to it. At some point whatever is inflating the values artificially is going to hit some kind of force against it and people are going to want the underlying cash flow. It would be the equivalent of a sort of financial perpetual motion machine if this never happened. I'd argue that's not an probability but something more like a law of physics and is actually literally constrained by the laws of physics (it requires continual population growth, consumption growth, and growth of energy use to keep some of these valuations rising)
I find it funny that crypto supporters will cite the fact that the stock market is acting like a pyramid scheme these days to justify the fact that crypto is no different.
Yeah, that's not the defense of crypto that you think it is...
just want to add point that Tesla is not just the car company, they are into energy (battery, panels etc), AI, robotaxi etc areas as well, that could be one of the factor in higher valuation.
They never showed the fundamentals. There are famous money losses throughout the 20th century. [You can google the charts, or check Graham's book or the biography of Buffett, where he went around avoiding such traps or buying failing companies on the cheap and turning them around by cash infusion.] And of course the infamous example of the Tulip Bulb in 17th century.
Companies need to take risk to innovate. A lot as you indicate, and I totally agree, take it too much and doom themselves by never figuring out how to be profitable.
These days simply everything that innovates is "Tech." (Now it's turning similarly to sustainability.) How is Tesla "Tech?" It brands itself as that. By that thinking a lot of other automakers should -- and the autopilot doesn't cut it -- just people don't want to see Toyota stock as "Tech."
The other thing with "Tech" is that if you don't keep pouring your revenue to take more risks until you dominate over others you will die. So fundamentally, all "Tech" stocks strive towards domination via innovation and growth. Amazon (book seller I know) spend the first part of this century with a pretty bad stock and getting tax credits by investing everything in itself and being cheap extremely aggressively. A lot of "Amazons" did not make it.
P.S. If they gave me a 10 year put on Tesla on a sane price I would take it. Alas nobody is taking that bet on the cheap.
P.S.2. The funny thing is it is a self full-filled prophesy. Tesla has the market capital to control debt to try a bunch of stuff until it makes it.
P.S.3. Fundamentals can be used to increase dividends or do buybacks s.t. the stock price will stay/go up. That is the correlation.
P.S.4/tl;dr: The stock market and any commodity market are pyramid schemes -- people get in to make money.
Tell me you know nothing about investing without telling me you know nothing about investing. Tesla is very undervalued ATM. Just look at their P/E, growth rate and PEG. Trailing is already below 100 and they are growing profits close to 100% annually.
It's fascinating to trace the genesis of present crash to Fed's policies post 2008 crisis. The interest rates were kept artificially low to prevent another Great Depression. 2010s saw an unprecedented rally of tech/growth stocks, fuelled by cheap capital. Growth at all cost was the mantra, hoping companies will turn profitable at some point á la Amazon. Uber's CEO hit the nail on the head when he wrote "The average employee at Uber is barely over 30, which means you've spent your career in a long and unprecedented bull run".
There were signs of rate hike in 2019 but COVID forced Fed to create trillions of $$. Which only added fuel to the fire; equities, housing, crypto saw unbelievable growth.
However the signs of inflation were clear in early-mid 2021 they were hoping it to be transitory. But when the inflation data came in late 2021 it turned out to be multi-decade high leaving Fed with no choice but to raise interest rates for the first time in more than a decade.
Which brings us back to growth companies. As Uber's CEO candidly stated "Channeling Jerry Maguire, we need to show them the money". 2020s will be all about cash flow and efficiency.
On the other hand expect to see cool innovations as it requires genuine scarcity to look for out of the box solutions. While Amazon's stock soared in 2010s their core tech was being built in 2000s while they were relentlessly driving for efficiency.
It's fascinating to trace the genesis of present crash to Fed's policies post 2008 crisis. The interest rates were kept artificially low to prevent another Great Depression.
I think 2008 and 2001 basically saw "cut some fat and reflate the bubble" as the standard approach. I expect the same approach this time though I can't predict if it will work. This is basically the method of Greenspan and Bernanke, explicitly said that the Great Depression didn't have to happen, that juggling interest rates could have solved it.
The thing about these situation is that by just killing weaker players, the Fed allows the basic imbalances to remain and increase (income inequality, monopoly positions, speculative enterprises, etc). The Great Depression was the single biggest equalizer of income, I think in US history and certainly in the 20th and 21st centuries. Not that I'd be in favor of such a thing.
"The average employee at Uber is barely over 30, which means you've spent your career in a long and unprecedented bull run" - quite an American experience this. Many across Europe and the rest of the world were in a recession until 2014-2015. It was difficult to find a job out of college even with masters degrees in comp sci from tier 1-2 unis.
Inflation metrics show that the economy post 2008 was in fact under stimulated, which is why the recovery from the financial crisis was so slow. The recent COVID-related stimuli are what went too far.
I don’t know if I disagree but we were also in a really bad position if we didn’t do it. The stimulus did a lot of good, I saw the first hand benefits of what it did for people who really needed it.
False dichotomy. It should have been done, but to a much lesser magnitude. That is plainly obvious to any rational minded person.
The Fed also should have considered velocity in employment gains. They basically waited until labor market was already overheated to do anything... which means many are likely to lose their jobs in the fight with inflation now.
Unfortunately the basic law of economics and real productivity vs nominal currency units has continued to exist, despite it being 2022.
There were 4 major bills passed, as well as many executive actions. This was not a one time piece of legislation that caused inflation.
The latest major bill, $2T dollars worth, was passed 1 full year after Covid lockdowns started... at a time where markets were reaching bubble levels, housing was appreciating at a double digit rate, unemployment rate was already dropping .5-1% per month.
Student loans are still in forbearance even today, despite being proven to be largely regressive and contributing to inflation (billions a month in spending power). Those who didn't go to college are footing the bill for this. It seems you're not a very rational minded individual... or simply misinformed of the timeline.
Many people don't seem to understand that a labor market this tight is a death knell to the downtrodden. They will be laid off when unemployment spikes after the Fed achieves their inflation fighting goals. Defeating the entire purpose of the stimulus and effectively making that money wasted, while we're left with high inflation and worse wealth inequality than ever before.
The feel good policy of spending excessively and avoiding inflation fighting has proven to fail many times in history. The 1970's in the US being the most relevant.
Also worth noting, that Larry Summers, the treasury secretary under Clinton argued exactly that the ARP would be inflationary. There were many voices calling this out that were ignored
And there were a ton of voices saying the exact opposite. That we must do everything we can to avoid another 2008.
There will always be the voices on both sides, the problem is that it's not always easy to know who to listen to at the time.
> The feel good policy of spending excessively and avoiding inflation fighting has proven to fail many times in history
There are many examples of the opposite.
The question isn't whether we spend or not, it's how much. That's the difficult part to get, especially in a democracy (doubly so in the US political system where you try to get as much done in the half a year that you can actually govern).
It's basic math. Society lost x in purchasing power through lost wages via unemployment, and you inject 10x in stimulus, what do you think is going to happen?
This was Larry Summers' argument, backed with real numbers. Nobody passing these bills ever considered whether it was too much. You have the two top economists for both Clinton and Obama saying it was too much and being outspoken about the issues with how the bill was constructed. I don't know where current politicians lost all economic sense along the way, but it was the zeitgeist of the moment to spend as recklessly as possible
All they had to do was replace lost income for unemployed, and leave pretty much everything else untouched and things would have been fine. No need for debt forbearance, because you've supported income for those who lost their jobs. But needs to be structured such that incentive to return to work.
Now most of the impact of the stimulus will be destroyed by inflation
You've made some really great points in all your comments thus far that I 100% agree with, especially with current politicians losing all economic sense. Even the once budget stubborn Republicans signed away. I have no citations, but my theory about this is that the American society as a whole is foaming at the mouth for instant gratification. It feels as though we're thinking of the weekend instead of years ahead... That, combined with a high percentage of economically uneducated politicians that seem more like social media influencers than actual lawmakers = not well thought out economic decisions.
The market is having issues now not because of inflation being kept low but because people panic when everything isn't going smoothly. The supply chain and WW3 have investors scared, and now they're panicking and leaving the markets and taking their profits with them. Others panick and get what cash they can. Some will buy low and it'll level off soon probably. I think this is more of a pull back than a recession. Generally the economy is in good shape it's just the speculators are bailing from the market.
By effectively guaranteeing the market, the Fed made stock and bond markets more "money like" and so it didn't even have to overtly print money to create a money -printing-like effect ("the wealth effect") even though they also did print money to prove they were serious. So effectively we've had inflation for a while but most of it was inflation of asset values.
If the Fed talks the market down and people sell, it will have destroyed money without other harsh measures. That doesn't mean there won't be more pain other ways also.
It's almost entirely because of inflation. Persistent inflation raises the discount rate (10y treasury yield), and devalues all other assets.
Why would you buy a 100x PE company (1% yield) when you can get 3% guaranteed today? Even growing at double digit rates, how many years just to match that return? Except many tech companies were 100x PS not even 100x PE. DDOG and NET are two examples.
If the 10y runs to even 3.5-4%, and stays there, we're likely to see a 40-50% haircut in markets.
2010s saw an unprecedented rally of tech/growth stocks, fueled by cheap capital.
Correlation does not mean causation, as it's commonly said. Interest rates were high in the 80s and 90s yet tech stocks boomed. Tech stocks did so well because they make so much money. Facebook earned $40 billion in profits for 2021, 3x Walmart. Google makes even more. Also, market dominance and moat factors working to big tech's favor.
You implied the tech stock boom wasn't due to a low discount rate, yet the valuations today are far higher than tech stocks in the 80s, even at comparable growth rates.
Which makes it plainly obvious that a lot of the valuation gains are, in fact, due to the discount rate, and not organic growth.
3x of Apple's market cap growth since 2018 is a change in valuation multiple, and nothing to do with actual growth of its revenue/profits, for example. Is it a boom if a majority of your gains are due to changing the valuation peg and leaving the rest the same? Sounds more like a bubble to me
Though my point is more directed towards the 100x PS companies, which are a far more egregious example of overvaluation
People said this was the "best time ever to get funding" for a startup. I disagree. In my view, it was the best time ever if you played a particular game and had the right connections.
I pitched an idea to a VC, which I had a prototype for, looking for $100k. He liked it but wouldn't fund because I didn't have a solid business plan. Fair enough, I need to find a business partner. But then he told me something about how I have to imagine that it's $100k of my money. I need to respect it properly and ask myself: would I give someone this money so easily? Meanwhile he had his hands in various bullshit crypto (not hating on crypto, just the projects) defi startups.
I thought it was absurd, of course I don't respect your money: VC firms throw $250k+ around like candy to people who happen to give a specific quasi-Silicon Valley impression or are in crypto. You're telling me you can't spare $100k? Also, I haven't seen a single "promising" startup actually be profitable, except those ones made without major funding.
This has all been some kind of weird ass circus for years, I'm glad the bubbles are bursting.
That's not how it works. You're not the only person asking this VC for $100k. A thousand other people are, too. A policy where he spares it for (what he considers) a bad investment like yours means sparing it for all the other bad investments, too. That would cost a lot more than just one check.
I'm saying that he was already neck deep in bad investments, which he happily funded. That's the main point I'm talking about. I'm not saying my idea deserved investment, just that this whole industry has been full of bullshit for years.
Maybe you think the investments he made are bad, but obviously he doesn't think so. However, you think your company is good enough to pitch to him to get investment, and he doesn't think so. There's nothing wrong with either side, it's just a difference of opinion. That doesn't necessarily make the "entire industry [...] full of bullshit."
But, it is full of bullshit. Just because it happens to align with my ego doesn't mean I'm wrong to say it. I would say the same thing even if I did get funded.
> Again, that is your specific opinion that is not shared by everyone.
Well, the market agreed with you up until few months ago, now it really does seem like we had quite a few bullshit companies. Not all of them of course, but lots.
Often the company is the product. The customer is big tech companies acquiring small startup companies. The company itself in that scenario might just be some smart people working on an idea but no idea how it will make money.
I hate SV culture, so not one to WK or make excuses for it, but when you have as much money to throw around as he does, you don't have time to deal with requests for pocket change.
Look at your own investment portfolio. Are you investing $1 at a time in fractional shares of a million different stocks, or investing $1000 at a time on a smaller number of stocks/funds you expect to have solid returns? (You think his crypto bids are misguided. Maybe you're right. Not your money though.)
If you're certain about your product, you don't need an investor. You need a small business loan.
The former strategy is actually the better one in the long run. There are a bunch of economics papers showing that on average the vast majority of active fund managers loose out to precisely the strategy you describe (although the instrument used to hold the shares is not usually owning fractional shared personally but rather shares in a mutual fund or an ETF)
What's your project? $100k seems like an odd amount of money to ask for, to me. You can't staff up very much with that, but it seems like a lot of money to pay for AWS/hosting-type bills when you're just starting out ($10-30k should be more than enough). It only makes sense (again, to me) if what you really want is access to the VC and their network. But again, I don't know shit about VC and angel investing.
It was odd, but my envisioned development window was about 3-4 months (planning for 6) and I had potentially high upkeep after launch ($500-$1000pm for production ready servers). I could have found a co-founder or two and funded them for that period as well. So it would have been just enough + a buffer. At least in my mind. I realize you need more runway than to just get to launch and survive 2-3 months now.
The idea is a service that could open the black box of online video content. Right now you search for something and get the whole video as a result; if it's a 3 hour long podcast you're going to be doing a lot of seeking for specific information. I want to index and enable deep visualized search through video libraries and in videos. Basically splitting videos into linguistically salient topics, keywords and entities. That would allow you to analyze and visualize content (YouTube channels, videos, etc.) to find interesting information. Good for researchers and people looking for something specific, or people wanting to find new content (relationship graphs).
That sounds like a moonshot rather than a $100k, unless you already have a working prototype that simply needs to be refined for commercialization. (Meaning: an actual working prototype, not a demo created solely to show off the concept.) What you've suggested is a job that would take a team of developers a few months. I'm not surprised the investor was skeptical that a 1-man team could do it in 6.
And what are your plans for revenue? How do you plan to make money? You'll be dealing with a lot of legal questions related to IP licensing, and the legal fees alone would eat your $100k in a month or two, even before the licensing costs for the videos.
All-in-all, I can't fault the investor for turning you down. You haven't put enough thought into the business aspects of your idea for him to entrust his money to you.
And don't bring up this crypto bullshit. It's irrelevant that he's investing in crypto companies; he already knows he's gambling with those and he's not treating those like real investments. Given crypto's history, he just needs to bail at the right time to come out ahead.
> I want to index and enable deep visualized search through video libraries and in videos
Sounds very interesting. I was thinking about this the other day in the context of golf. Thanks to Youtube, I can learn from watching the swing of any player in the world/history. But while a golf swing takes only 2 seconds or so, they're all "locked up" in lengthy videos. And forget about searching for one person's swing vs another.
I think Google/YouTube is already doing this. For example when you Google search "how to reset a Macbook", the top result is a video that jumps to a particular highlighted section that answers the question.
This isn't the best example of this feature, but it sure has saved me a lot of time in other queries that I can't recall at the moment.
Exactly. Google does this through the video transcripts, and finds the query location in the video for you. The problem is that this isn't part of the video player itself (or YouTube search). It's also very basic, being just a transcript search - I want more data mined insights to be available.
I think there is some notion that VCs are these rational, brilliant people who are making money hand over fist investing in the best projects. The reality is that many VCs do not make money and invest in tons of bad projects all the time.
Why would they invest in bad projects? Because they are humans who happens to have a crap ton of money. As humans, they're susceptible to FOMO and hype. They are susceptible to things like first impressions, a good slide deck, a good sales person, etc.
All this to say is that it might be the VC, it might you, or it might be your project. Who knows. This is why many founders end up pitching to 30-40 VCs because sometimes it's a numbers game.
The whole VC funding thing is a game that you have to learn about and crack. The easiest way to crack it is to show you have growing revenue. The next best thing is to show you have growing users. If you do not have growth, then you'll just have to hustle and put on your best sales game.
The idea that you should treat VC money with the same level of
frugality as as your own personal savings is preposterous. Sounds like a petty, inexperienced VC.
Yes, exactly this. And since you aren't chummy with the VC, even if you had a business model, you would be rejected "because you don't have revenue" yet. Fuck that noise. The V in venture is supposed to mean you're supposed to take risks.
SV has lost its soul. A VC that respected tech nerds would see your technical idea, (maybe) discount the investment, and then get on the phone and help you find a business partner that will take you all the way (and give you first right of refusal on assholes).
All of those things are your job as a founder. VCs don’t have enough time to help everyone who asks them for $100k, nor do they really have time to write $100k checks in general. They should be writing $2-50M checks and hoping for a 20-100x return on one or two companies per fund. That’s the nature of the game they play.
I don't think we need the latest Cloud/AI/ML/Crypto/Web3.0 bullshit to spin up fuckedcompany.com again.
I remember thinking in ~2015 going to conferences that this shit was never going to last. Then around 2018 driving (sitting) on 101 listening to advertisements for "C3 IoT AI" on NPR thinking, could a company jam more meaningless buzzwords into a single company name? For shits, looked up their stock just and its down 85%[1] since it's IPO. ofc.
To anyone who hasn't lived through a .com explosion, hold on to your butts.
Any time I ask on some financial forum about moving a chunk of investments to cash I get told that would be stupid, don't try to time the market, and just keep buying.
I would have saved myself a bunch of losses if I had done it when I was thinking about it.
When you have invested in something, did you do your DD or did you do it because everyone else did it?
I would recommend a book called "the intelligent investor". I also recommend low fee mutual funds that track the market as the default thing to invest. Once you educate yourself more you can make more sophisticated investments.
I also don't have anything against speculative investments. Just don't call it investing. It's gambling and it's fine as long as you know what you are doing and are okay with basically losing most (everything) you put in.
“Don’t time the market” is stupid advice. The problem with that advice is that virtually every action you may or may not take is a form of timing the market. People going all in “now as opposed to later” are timing the market. Dollar cost averaging is timing the market. Staying in the market instead of selling is timing the market. People encouraging you to stay in the market because if you sell, that’s “timing the market,” are bullying you into adopting their own strategy for timing the market.
That definition is incomplete. It makes it sound like you have to be constantly moving funds around to time the market, vs "buy and hold".
But you can certainly time the market using "buy and hold", by waiting for the right moment to buy. And even if you buy "asap", you're still employing a market-timing strategy, that "buying asap is better than buying later".
Dollar-cost averaging is a form of timing the market, because you're effectively reasoning that fixed-interval purchase will fare better than lump sump or other strategies. You're still predicting market behavior.
> you can certainly time the market using "buy and hold", by waiting for the right moment to buy.
Yes that is timing the market because you wait for a certain time point, as opposed to just buy once you have enough liquidity.
> Dollar-cost averaging is a form of timing the market
No it’s not. It’s like saying passive is a form of active investment because some group of people pick the stocks that come into an index. Timing the market is betting on a given change, while dollar cost averaging is based on empirical analysis and is independent of the events the investor thinks will happen.
I mean the difference is actually simple and clear. One investor is telling “I bet something will happen soon“, the other “I have no idea what will happen”. It could hardly be more clear cut.
There’s a contradiction in your analysis: you have no idea what will happen, yet make decisions guided by empirical analysis. You’re literally making a bet that the future is likely to behave in patterns according to the empirical analysis. How is that not a form of timing?
I think the confusion arises when we split hairs, that timing is predicting explicit events, or on a short time scale. But I want to zoom out: making decisions based on large scale patterns and trends, including “the s&p always goes up over a long time”, or “the future tends to behave like the past”, (things that are absolutely not guaranteed to happen, and require belief and betting), is a form of timing.
The caveat to "just keep buying" is that you shouldn't be buying individual stocks. As a retail investor, the best you can do is get lucky and confirmation bias yourself. Acknowledging you don't know what you're doing is the first step to success.
It was just something exacerbated the feeling I had at the time that the market was turning downwards. Not anything to do with Netflix necessarily, there were other tech stocks turning downwards at the same time. But that first big Netflix drop had a different feeling to it.
Not to mention, the insane stock price gains in tech in general had all but stopped, NFT scams were at there height, and it just looked like things were going south to me. Turned out my feeling was right.
Same. In December I had the urge to sell a bunch of stocks for the sake of cash and peace of mind because the whole market seemed wildly unsustainable. But the "don't time the market" kept being shoved in my face by friends and family. Who could've known /s
> I would have saved myself a bunch of losses if I had done it when I was thinking about it.
Or, alternatively, you might have cashed out when you thought you should, then completely missed the bottom trying to time it, then sat on cash for years, watching it lose value to inflation anyway.
I sold off a large pile of stocks for tax reasons just before the end of the UK tax year. That also turned out to be roughly the top of the market. So maybe you can time the market, but only if you're not trying to time the market?
Keeping your money as cash is also an investment. It's not a guaranteed value preserver, inflation can eat it. So in the end it comes down to trying to predict the future, just like everyone else is trying to do. There is no guarantee, cashing out can make you lose or make you win.
I remember thinking in ~2015 going to conferences that this shit was never going to last
it's still going on. Facebook & Google are still worth a lot more than they were in 2015. The difference nowadays is that the largest of tech companies are much more profitable and dominant.
I almost got offer from DoorDash, with obviously RSU as one of the compensation. Eventually didn't get the offer because they said I didn't pass leadership interview. Apparently I was interviewing at one level above I thought I was interviewing (the recruiter messed up).
Anyway, I accepted an offer from a hedge fund, comparatively similar, but all cash.
Now I feel that I am glad I accepted the hedge fund offer.
I don't have a property, not looking to get one due to HCOL high property prices and high interest rate.
My assets are mostly crypto and total stock market index. I think I'm good with my crypto investment for now (already filled my goals) so I am thinking to get more stocks.
As someone with just cash compensation, what can I do in this downturn to make a lot of money in the stock market? Maybe I just stick with the old boring Apple.
Since you work at a hedge fund and are getting all cash compensation just put part of your paycheck into some ETFs every month. Someone else recommended the bogleheads forum which is good advice. If you were able to time the market you wouldn't be asking on HN for advice so just assume you can't time it and invest a set amount from every paycheck. You'll miss the bottom but you'll probably come out ahead of any other strategy you'd choose.
Seriously. Unless you're looking to gamble, open a Vanguard account and pick an index fund targeting your retirement age or go with one that tracks S&P (VOO).
Vanguard's fees for index funds (esp Admiral shares) are absurdly low, to boot.
Yeah this would be my first question too. Even beyond that, many (most?) hedge funds have an employee investment scheme where employees have a special vehicle via which they can invest into the fund performance without having to meet the often egregious criteria (e.g. not everyone has $100mln lying around in cash to meet minimum investment thresholds).
I just left a hedge fund to join aws. Even the aws is famous for its worst WLB and toxic culture, it is much better than the hedge fund I worked for. Knowing many friends switched from finance to tech, I found no one regretted.
Plus the TC is still much more than HF even after the 40% drop.
Eventually didn't get the offer because they said I didn't pass leadership interview. Apparently I was interviewing at one level above I thought I was interviewing (the recruiter messed up).
That sounds very encouraging. Need to tell all my friends to invest hours and hours of their time in this company's careful and considered hiring process.
Doordash has compensation ideas where they will top you up if your comp falls under some percentage of grant price (80-90%). Many companies are moving to this model to ensure that stock prices don't impact TC too highly.
Another way to look at it is that people were all too happy to accept the status quo until now.
Same as any other time... build an intra-sector long/short beta-hedged portfolio with minimal net exposure. Overall market and sector movements don't affect this. You can do cross-sector trades for even more profit at the cost of assuming sector risk.
> As someone with just cash compensation, what can I do in this downturn to make a lot of money in the stock market? Maybe I just stick with the old boring Apple.
Depends on your risk. You can buy TQQQ or do HFEA as examples.
The problem I have with the Economist these days - they've changed a lot recently as has the Financial Times - is that they are one of the big cheerleaders for creating bubbles out of tech they clearly don't understand. This starves the startups that have compelling and reachable business models and goals because the funding goes to (quite possibly financially scammy) moonshots with vague goals somewhere over the horizon.
But because the scam worked and they managed to get publicly listed (how did that happen?! Publications like the Economist should have provided more cautions...) the gravy train rolls on.
The sooner we get back to a 'Web 2.0' era like 2008> on the sooner genuine innovation will be funded again.
Searching for "uber" in the Economist archive, I would not classify their coverage as "cheerleading" or even positive. Most articles seem either neutral or negative, including headlines like "Can Uber ever make money?"
I would also be interested to see examples of the problem you're describing.
I don't think Uber qualifies as "tech they clearly don't understand". Uber is certainly a company with issues, but it's a clear problem they are solving, adding automation to an industry that's very old.
Sure. I'm not arguing that it's a good business, but it's a simple business, no matter what tech they have backing them. Today's bubble is marked by a lot of Defi/Web 3.0 silliness.
Yeah problem is pretty clear. And they did provide something.
Real question just like with food delivery is that is there margin there for an big player to exist? Or an expensive player? Paying people to offer singular service is not cheap. And then you have cost of vehicles as well...
Can you explain to me why these two articles represent Economists being the big cheerleaders for creating bubbles? I read both articles and I'm not sure what I am missing.
The Economist was of the few publications to investigate “what if” before Brexit while almost all others dismissed that scenario. They might not be perfect but they try and they investigate.
This may be the end of meme investments. Low-end crypto products are collapsing. Some now have a lot of zeroes after the decimal point.
* LUNA coin, the backing of UST, dropped from $183 to $0.0001178. UST itself is no longer tradeable. Its blockchain has been turned off. (Apparently that can happen.)
* SLP coin, the currency of Axie Infinity's play to earn game, dropped from $0.30 or so to $0.005607. Remember when Axie was being touted as the future of play to earn, the way NFTs were going to make poor people in the Philippines rich? That was last year.
Now I have serious question. Which big stable coins could just stop being on chain? That is stop all transactions, that aren't just some database entries?
There's no "stopping being on chain" (not sure exactly what you mean by that).
But as for stopping all transactions:
None of the other major ones have their own blockchain but are smart contracts on other chains. However, at least both USDC and USDT have mechanisms in their smart contracts to freeze accounts and transactions. I have not looked up TrueUSD, not sure how that works.
If you've gotten used to paying $20 for a beer at Whole Foods, $5 may seem cheap until you realize the corner shop sells the same beer for $2.
Applying this analogy to our high inflation environment, those stocks seemed worth paying that high price per dollar of earnings, until the base interest rate started rising. Then you realized you can get the same return that your dividend yield provides by investing in a zero risk CD with no risk of losing the principle. Suddenly those stocks seem way too expensive for each dollar of earnings, and their price keep crashing until that price earnings ratio is something closer to the alternatives that the stock is now competing with.
If you're doing any fundamental analysis, you're going to end up doing one form or another of a DCF model. The expected rate of growth has a very big influence on your final estimated valuation, and it's normal for companies with a higher expected rate of growth to be valued at higher multiples.
Whether the rate of growth will be as high as expected, that is the real question, and it is not a simple one or one you can easily wave off.
This has been what has been confusing me about the market for the past quite-a-while with regard to the tech stocks. Were some of them doing well? Sure. Were some of them basically money fountains that needed just a slight turn to prioritizing profits over growth to make lots of money? Sure.
But a lot of the tech giants were priced as if they had not already expanded into well over half the market, but as if they still had 99% of their market still in front of them and no competition in sight.
As of this time last year, it is not plausible that Facebook is extremely likely to continue growth like crazy and increase their revenues per customer by a factor of 10 or 50 or something. Sure, their whole VR play may pay off hugely, but I couldn't say it's extremely likely the way their stock said. Netflix was not going to grow their subscription base by 10x and/or charge their customers 10-50x more. Etc.
I mean, I guess it's within the range of possibilities for these companies, but these stocks were priced like it was all but guaranteed that these companies were going to see smooth sailing to levels of revenue I couldn't even remotely guess how they were ever going get to. How is Facebook, at this point, going to pivot into making $500/user/year from their current ~$20/user/year? And whatever your answer, what is the probability of that just smoothly working with no hiccups within the dollar-cost-value window it would have to take place in?
In the last couple of months, I've been getting my answer to this question, and my confusion has been resolving.
The devil is certainly in the details, and valuations are often overly optimistic...
But similarly, I believe there are a few really strong companies that are dramatically under-valued today, partly because they (purposefully and strategically) don't turn a profit yet, or because they trade at a very high multiple.
Facebook is not one of the companies I spend a lot of time researching (but don't interpret this as me having a negative view of the stock-- I just have "no view").
Taking the time to read filings, as well as any investor materials these companies put out (with a critical and open mind, of course) goes a really long way.
I don’t know where they are going but they were trading around ten times earnings less than one decade ago. A PE ratio below 15 may look at some point even more reasonable than the current PE ratio over 25.
I think there's some panic, yea, but the P/E doesn't tell the whole story. Take Facebook or maybe Google (just to pick on, others like Apple have their own headwinds to face) - how does advertising fair in a recession? Maybe the P/Es have retracted to look appealing, but here in about 2 years when ad revenue is down 30% those same P/Es look expensive.
Personally I think if you are investing with a longer-term horizon the next few years don't matter and if you like to buy individual stocks now is as good of a time as any.
What about a recession would cause FB or Google to leave the advertising business, and not have some the largest advertising revenue whenever the recession is over? It is more of a choice can your money be invested somewhere better in the short-term and then hop back on to FB and Google before they get too expensive.
It is probably the same for all large tech companies. I don't see any titans falling in the next few years.
> What about a recession would cause FB or Google to leave the advertising business, and not have some the largest advertising revenue whenever the recession is over?
I'm not suggesting they would leave the advertising business, I'm suggesting revenues could be lower as advertisers cut their spend, which would drop Google/FB revenue and make the current 12 PE more like a 25 during a recession. I guess, you can't just look at P/E ratios. They don't tell you too much.
> I don't see any titans falling in the next few years.
Well, they've fallen quite a bit since January. Haven't they?
I don't see anyone going bankrupt or anything, so if that's what you mean then yea sure I agree - hence I think they're attractive to buy now as well.
They wouldn’t leave the as industry, but their revenue would suffer greatly.
A decent percentage of Google ad spend is waste/useless/whatever. So during a recession companies are probably tightening their ad spend and getting more precise.
25 for a huge tech company is insane, unless there is reason to expect burgeoning profits.
The implication is that if you bought them outright, they are going to generate the present level of profits for 25 years before you pay off your investment.
How many tech companies have lasted 25 years? How many will last 25 more?
25 makes sense for a startup with potential for explosive growth, not for an established company.
Fair, but they are vulnerable to having the rug innovated from out under them like the holy-grail-of-investment railroad companies of yore. I wouldn't bet my retirement on the current crop of big tech companies lasting 20-30 years.
My intuition is that those are 3 of the select few companies that are not in a bubble. I would add Google and Amazon to that list too.
They make insane amounts of money and continue growing at a steady pace. Apart from Facebook, they have all shown the capability to expand into other verticals and successfully end up as major player on a consistent basis. This sets a high ceiling on growth despite being country sized already.
To me, most other big tech companies are inflated by the promise of ending up like these money printers and not because they have the money to show it. Uber, Doordash, Zillow, Airbnb, Netflix all have valuations that are completely disconnected with an 'average case outcome '. Don't even get me started on literal gambles like Lucid or Rivian which have 100b valuations. Stripe and Elon Musk Inc. might be the only recent ones to show successful ability to scale horizontally.
At the end of the day, the real way to make money is to provide real tangible value over the long term. Making money on the margins for someone else's labor is all well and good, but that runs into hard scaling limits fast. Even Google and Facebook know that the content creators are their value, and the customers are advertisers.
Nvidia, Unity, Cloudflare and similar companies with products with tangible value will survive most downturns. Non-ads based companies that extract value on the margin will struggle in this bear market.
> Nvidia, Unity, Cloudflare and similar companies with products with tangible value will survive most downturns. Non-ads based companies that extract value on the margin will struggle in this bear market.
Yes. Cloudflare was a very good buy signal 2 days ago. [0] Now it has gone up again. Most likely a short term upwards side, but I wanted to tell everyone about it, but I was downvoted to hell and beaten up for my correct Cloudflare signals. [0]
They should have listened, but instead they held all the way at the top. [1]
I hate downvoters and hiveminds and sheep as much as anyone, but your comments had no substance whatsoever
For all I know, you kicked off 100 sock puppet accounts saying stuff like "Is this a buy signal?" "This looks like a sell signal. Thoughts?" about various companies at random, then picked a winner afterward and use it as proof that you're an investment genius
Maybe it'd be a different story if you said "I just threw $100k (50% of my portfolio) into Cloudflare shares, since this shows that they're a whatever, poised to blah blah blah"
I love cloudflare. I see them becoming as big as AWS/Azure/GCP etc. They are moving fairly quickly but extremely deliberately and I agree with you that them being down recently has been a great time to buy.
They do, but the biggest way this happens is investors shifting their asset allocations into bonds. So if bonds pay 10% per year a company with a p/e of 30 looks less attractive than if bonds pay 3% per year.
> They do, but the biggest way this happens is investors shifting their asset allocations into bonds.
The opposite is true actually, when rates go up there is a sell-off in bonds which is exactly what is happening right now where bond prices are down 10%-20%
You're saying if interest rates increased and stock price P/E remained the same most funds would allocate less money to bonds?
I don't understand why that would be. If the expected future cash flow of one asset increases (bonds), and remains the same for another (stocks) why would you allocate more money to stocks and away from bonds?
The future cash flow of existing bonds is fixed and it does not increase. If you have a bond that pays a 2% annual coupon you will see it's value drop when interest rates increase. The reason is that you can now get a newly issued bond that pays a higher (say 3%) fixed coupon so your's is worth less.
Your bond's price will drop to say 90% of the notional amount while the new bond will trade at 100% so they will effectively have the same "yield" of 3%.
The future cash flow of any given bond stays the same. But from an asset allocators point of view the cost of the future cash flow from a band decreased, making it a more attractive investment.
You're describing the same thing from different perspectives.
Bond prices are down, this means yields grow, and thus become more attractive investments than high P/E stocks.
I think the reason this sounds unintuitive is because the bond market isn't exactly a "free market" in the general sense. The Fed is manipulating the money market to set bond yields, so from a causative point of view, the yields rise first, which cause a drop in bond prices, which make buying bonds attractive for investors, who then, as a result, shift assets from stocks to bonds.
(disclaimer: just speaking from knowledge gleaned from, among all things, youtube videos :D definitely not an economist !)
Out of those I think Microsoft is the only one that isn’t sort of inflated. If Facebook disappears the world will hardly notice. If Apple does it’ll be hard to find a good laptop that can keep battery for 9 million years and it’ll be hard to find a “tech works out of the box so well that if you buy your grandmother/mother an iPad you’ll never need to do tech support again”, but still, it’s just a luxury brand.
If Microsoft disappeared the entire European public sector and most Enterprise companies in the world would cease to function. That being said, I would be some what comfortable owning Apple stock through the coming crash because they are likely to bounce back. I wouldn’t buy them at current market prices, but that goes for Microsoft as well. But I mainly put my investments into green energy on long term plans that tend to 4-6x the money over 7-10 years. Which isn’t where people who’d risk it with things like tech company stock are likely to gamble.
All three companies make healthy money though, as you point out, and that makes them pretty solid as far as this topic goes. I don’t even think Facebook/Meta is “inflated” in the bubble sense, I just don’t think it has a good future because legislation is coming after them big time; and unlike Microsoft and Apple, Facebook isn’t very diversified in its business models.
It completely depends on the expected rate of growth of the company. Even 100x can be fair for a very high growth company. For companies that don't have such great prospects, <5 may even be appropriate.
"PE should be close to X or between A and B" was always an extremely rough and imprecise heuristic, and it is no substitute for a real analysis with a DCF model.
Depends on the interest rates and bond yields. 20PE is like 5% profit, which is better than most bonds in the past ~10 years if the business is stable. When yields rise it will become closer to 10-15.
5 is definitely an undervalued company unless the business is risky or expected to decline in profits.
With an engineer on the helm, rehiring big names in the field, opening more fabs, and having access to TSMC's newest node over AMD[1].. it seems unlikely.
Intel has to do next 4 years what it failed to do for the past 8 years and the complexity of execution in the space is getting harder and hander. Also, they are fighting on multiple fronts, upstarts in GPU, write-offs on AI hardware, Losing share of x86 with ARM et al. Losing share in x86 to AMD, having to rely on TSMC for advanced chips. Also, some bright spots where, they are opening up their foundries for design firms etc.
Over all, Intel has to do perfect execution and we did not fully talk about Apple, Amazon, Microsoft designing their own chips and using Intel's competition for fabbing them. They are in a tough spot, but if any company can come out of it winning, its Intel. They have done it before.
Intel has been a crappy company to work for and doing a crappy job for a long time, but I'm willing to bet they still have enough highly-experienced geniuses on hand to pull through
If you know something the market doesn't know, and you're confident that you're right, then put all your eggs in that basket: that's how one beats the market.
(Don't follow this advice, I'm just a dude on the internet, this is not financial advice and my background is biochem + software, not finance)
They’ve got plenty of cash, and they’re still the strong leader in the server space. AMD is eating away at their consumer grade cpus I concede.
I would be shocked if we had an intel “implosion” they have a sustainable and successful business model and there’s no world where we need fewer processors.
"Implosion" is probably an exaggeration, but with AMD strong, and competitive ARM offerings (Apple silicon for end user devices, and Amazon with their own ARM processors on server), most people are speculating that they will eat into Intel's profit. The fact that Intel can't produce a competitive GPU in an environment where the GPU is becoming more and more important (for various reasons) is also something against them.
Intel has most of its (cpu) market right now so not exactly a growth stock. The market doesn’t believe in the new growth potentials (gpu, fabs). Intel also pays 3.3% dividend right now, not exactly a growth strategy. Also, the market may stay irrational for a while. Also, many investments are in the form of funds, etfs etc. so stocks will tend to move together, esp if in the same sector.
The issue is that when tech companies look reasonable, everyone and their mother buys in until they look unreasonable.
There is nothing else to believe in. We have one growth industry in this world and it’s tech. It’s not a bubble, it’s the economy running on one lung. You can deflate it and hold your breath, but once you need oxygen, you are going to fill it up rapidly from holding your breath that long.
The same is true for housing. We need other viable industries.
"Then there are rising interest rates. Besides possibly triggering a downturn, they reduce the present value of tech companies’ profits, most of which lie far in the future."
This is key. If you have a 10 year horizon for your startup investments, hoping that one in 100 will become the next Amazon or Google, you're going to discount those future cashflows into todays dollars by applying an interest rate connected to current reality. If the base interest rates have skyrocketed, then the net present value of that future cashflow is way less. It's mentioned briefly in the article, but I wanted to unpack it here because it's a key reason that high inflation makes investment in startups far less attractive.
"It would be wrong to compare the current tech slump to the bursting of the dotcom bubble two decades ago. Back then companies had neither healthy balance-sheets nor promising business models."
I disagree with this. I'm not going to call out specific public companies, but there are many with no Price/Earnings to speak of because they are running at a massive loss. These companies are highly speculative investments and have yet to prove that they can turn a profit. It's not hard to generate revenue growth of 30% per year while running at a 20% loss. Creating a truly profitable company is hard, and much of the reason why these companies are listed on public markets is because early investors wanted to cash out by selling their stock to the public, rather than bear the risk of finding out whether the business can turn a profit.
Many of these never-been-profitable companies have eye-wateringly high valuations based on multiple of revenue. We've seen 10x to 25x revenue in the past few years, while losing money hand over fist and never having proven they can ever turn a profit and become self sustainable. Just like the dot-com era, these folks are world class at creating the right optics and making the right noises on quarterly investor calls. But at the end of the day, creating a business that makes more money than it spends is what it's all about, and that is very difficult to do. These never-profitable businesses have been benefiting from the era of free money, and as that time ends, so will they.
> "... at the end of the day, creating a business that makes more money than it spends is what it's all about, and that is very difficult to do. These never-profitable businesses have been benefiting from the era of free money, and as that time ends, so will they."
Indeed. You cannot cheat the fundamentals -- you can avoid/delay them, but they'll eventually catch up with you.
I'm really hoping a16z's crypto scams collapse too. I don't know how to put it succinctly, but I would get a strong dose of schadenfreude from it. Their buzzword driven business plan and throwing money at actual nonsense is so frustrating. I can't imagine being one of their investors.
Great time to build a startup then, as by the time you have product market fit you'll either be living in a bunker eating canned food or things will have come around.
Thank God. It has been so tiring listening to all the people playing the Greater Fool game of trying to get to an acquisition or IPO or SPAC. Maybe people can go back to build real actual useful products and services.
This is an area where Warren Buffett and Nassim Taleb agree in opposition to the efficient market hypothesis. Speculative investments are occasionally culled, and when that happens, some investors are injured, while others are completely wiped out.
These moments of extreme plain make a fully diversified or even an anti-fragile strategy effective in the long run. Value investors don't get wiped out, they live to fight another day. This lesson was forced into me by my father during the dot com era, and it's been shown painfully true. The value trap is a concern, but market fundamentals are the only way to sleep at night. The biggest issue in markets is, due to the lack of need and cost of most public offerings, most companies with fundamentals are now out of reach of non-accredited investors and are completely funded by private equity.
And no evidence inflation is under control + future rates increases are anticipated as well.
I'd love to get a flash poll of the finance industry and see how much people believe 1-8% interest rates are possible over the next 5 years. I bet a lot in the market think 3% interest rates are just not gonna happen.
Won’t get that high. Just what’s the max interest rate we see over say the next 5 years? I imagine there’s still a lot of denial interspersed with the fear.
Know that parents comment is /s but in truth, it really feels like interpretations of body language and text to indicate hawkishness/dovishness actually seems to matter.
Yeah, just to clarify, my own "/s" tag in this case didn't mean I wasn't serious, it just meant that I believed the market placed too much emphasis on purely subjective interpretations of things left unsaid.
It's good to try and get all all the data you can, but inferring how someone feels based on extra-textual elements is not a particularly scientific affair. Judges and lawyers commonly say "you can't possibly know how this other person felt" or "you can't possibly know what this other person thought", even when appearances are highly suggestive... for good reason.
That's not a fair statement though. There is also the war in Europe, and the covid pandemic is not a solved problem, especially in China.
There are many more serious factors than simply a rate increase, each of which alone could lead to a recession, all of which come close to guaranteeing one.
There is a nonzero chance that all of the "growth" that we've seen over the past 14 years was just fueled by cheap credit. If we can't avoid a recession after raising rates by 100bps then we've had a false economy the entire time. Hope you got to ride the wave while you could.
Despite my handle I'd wager that it all comes down to a very risk averse society as shown by pretty much every metric ranging from low birth rate to drinking to smoking to drug usage etc.
Back in the days when interest rates went down, people started new businesses or expanded those they already owned at a huge pace. I mean the population as a whole not the businesses in the S&P500.
When the Fed rolled rates to zero and did QE post 2008 and super QE in 2020-2021 the population just invested in the stock and housing market. No initiative just buying "proven assets" .
Investing in the stock market with a financial advisor essentially buying the S&P or some other mutual fund..that's way less risky than starting your own business.
Now the Fed is raising rates and people (and financial advisors) aren't even sure about stocks anymore, they are selling in droves and go straight to US bonds which are even more risk averse (it's essentially the stuff that Insurance companies are required to hold by law to secure their premiums because the risk of default of US Federal govt is essentially zero)
Of course there is crypto that is a casino, still it could be argued that investing in an asset with a marketcap of 1T dollar however new and unproven is still more risk averse than starting your own business.
> Back in the days when interest rates went down, people started new businesses or expanded those they already owned at a huge pace. I mean the population as a whole not the businesses in the S&P500.
Did you miss the startup boom + bubble of the past decade or something
> Investing in the stock market with a financial advisor essentially buying the S&P or some other mutual fund..that's way less risky than starting your own business.
Increases in the cost of healthcare, housing, education, etc. probably has something to do with the growing precariousness of the population and less willingness to engage in risky ventures like starting businesses. Can't blame people for wanting to mitigating risk when the stakes are so high these days.
This market is so wild. The big techs are making so much money yet the market is in turmoil if you simply remove the big four (Apple, Google, Microsoft and Amazon). There are some great “value” if you look hard enough. People are quick to draw parallel to dotcom, but this one is quite different in so many ways.
I remember people were talking about Coinbase doted out $750K package to engineers with less than 2 years of experience (or new grad? I can't remember exactly). I had to wonder: what can a newly minted engineer do to generate so much value to Coinbase?
I've grown anxious the past few years watching salaries skyrocket while I've played it safe, remaining at my company with years of seniority, but average pay that has been eaten away by COL and inflation increases, though in a very stable industry related to defense.
Every time I got the urge to hit Leetcode and start interviewing for a new gig with a 50% pay increase, I remember 2007-2009 and getting laid off from 3 different companies as the economy imploded. And it's hard to remember now, but things never really felt truly safe, even with in-demand tech skills, until 2016 or so, when suddenly recruiter email started really exploding with competitive offers.
Watching the market cool down leads me to believe we're going into another downturn, and I'm becoming more confident I made a good bet by not jumping ship in the last year or two.
> Watching the market cool down leads me to believe we're going into another downturn, and I'm becoming more confident I made a good bet by not jumping ship in the last year or two.
It just seems like you're afraid of making a change, and now you've found a new justification to keep avoiding discomfort.
The reality is, there are tons of good companies out there and they will pay $350-400k for senior engineers even in this current market. But go ahead and tell yourself that you made the right decision to do nothing.
There are companies that are arguably what I’d consider recession proof, offering 400-600k for fully remote senior / staff roles with very reasonable WLB. Including GOOG / MSFT / AMZN. They’re not laying people off / nor are they going anywhere for the foreseeable future.
Something that's funny right now is there are a lot of bears gloating about what they think is going to happen in the market and cryptocurrencies the next 2 years without it even having happened yet. They've been waiting literally years for this moment and they think it's finally arrived and can't wait to dance.
The market as of last year couldn’t be divided by bulls and bears. It was more like “mega bears, bears, bulls, mega bulls”.
You’re talking about mega bears and they’re gloating because the mega bulls talked so much shit in the last 3 years.
But most people are just regular bears and bulls. We don’t comment on the market. We understand the cyclical nature of it. Some of us may have rebalanced portfolios according to our beliefs. That’s about it.
I think companies with Schiller P/E price to earnings greater than 15 will get hit. Exponential growth till hit a linear reality and higher interest rates.
I realise this is a highly subjective claim, but what frustrates me to no end is not that tech is getting money, but the choices that are being made around capital allocation.
Its understandable that tech is currently seen as a bubble. There's a lot of dubious products sucking up funding. But there are legitimate tech advances right now that do not receive enough funding and labour to be efficiently produced, and they do not receive that funding IN PART because other company pitches do.
Here is a list of tech initiatives which I believe should be funded or supported MUCH more aggressively. It is non exhaustive.
Tech / business side:
- Low power CMOS alternatives
- Linux and other core FOSS maintenance
- Organising a stable ABI for rust
- molten salt battery tech
- Nationalising more key infrastructure
- Nationalising food production
- Machine learning for chemistry, mining, and metallurgy to improve efficiency and reduce emissions
Consumer/citizen side:
- tools to visualise and manage data privacy
- better data privacy laws
- improved government website UI
- a non google browser
While again, I am just a single data point, I suspect there are many others who are fatigued by the detachment that some of the tech sphere has to material effects in their community.
Getting funding isn't a lottery, in which everyone's odds are the same. The funding you receive and the terms of that funding are related to the current market and how good your business/idea is.
When times are tough, VCs are still investing, but they're only investing in better ideas, more likely successes. Why take a chance on your long shot when a government bond is a sure thing at a reasonable percentage?
We should expect that those companies that got funding during a downtime are better companies based on the fact that they got funding at all.
It's rather that founders with a proper vision build companies regardless of market swings. During a boom cycle there's abundant founding, even for trash projects. Markets aren't as efficient as many assume, especially not in the short term. Now we're at the end of a boom cycle and everything gets battered but that's just the valuation changing, nothing else. It's speculation. In the public eye quality projects will emerge again a couple of years down the line when they're starting to get really big and no one except those actually interested in the tech will have paid attention to how they were working hard the entire time.
Posted a few comments here re fundamentals. Wanted to add this excellent recent interview with Jamie Dimon discussing the realities of our current environment to help you get a sense of our current environment. https://www.youtube.com/watch?v=Q-5US4J03Wo
Edit: There are incredible little nuggets of fundamental financial wisdom in this conversation. Responding to whether crypto is a hedge against inflation: "The higher inflation goes, the higher the cost of holding an asset that doesn't produce anything."
Yes. The causes are different but the effects will be similar.
Already open positions are being quietly withdrawn, people leaving are not backfilled, big projects are delayed or cancelled.
Then as customers start pulling back or failing themselves, layoffs begin. It's terrible for the people impacted and those left behind who are often called on to take up the slack.
My advice for anyone in the position of having to lay off staff: Be decent, help people move on, and do it early and do it all at once, not in uncertain "maybe things will turn around next quarter" waves which destroys trust.
Also, if things follow the same pattern as I remember from the 90s and 00s, each RIF will be associated with a rise in stock price. So it's not all bad, depending on where you sit relative to the action.
>It's different from layoffs. RIF comes with the implication that the reduction is permanent.
Academically, yes you're right. Practically, they are the same. No one can afford to sit around and wait a year or two to get rehired after layoffs, if that ever happens; and anytime a RIF happens, the positions are usually refilled once finances are better.
RIF is an industry standard term with a long history. The problem isn’t others speaking unclearly. It’s assuming others are in the wrong rather than being happy to learn something new.
Using industry jargon is usually not a good idea outside of the industry. Readers are happy to learn, but you have to teach them first. This is why most newspapers at least provide the unabbreviated phrase on first usage, and give the abbreviation in parentheses, i.e. "Reduction in Force (RIF)". It's not safe to just assume everyone already knows everything you know.
I know. It was a joke. I thought someone with the username compiler-guy might appreciate it but I guess not.
Edit: otoh I've been a bit grumpy myself this week so who am I to judge. It wasn't a very good joke. I'll tell you the "youthful porpoise" one next time
So, given this... I have a product idea, along with another technical co-founder. I have a few months savings to feed my family, so I could feasibly work on it fulltime. ... Let's say I came up with a demo, a pitch deck, etc. Would people say the chances of getting seed capital is significantly reduced now? Or do we just not know yet?
If your capital cost is low, you can buy growth (sell below cost) and use that to distract investors for a long time. Capital costs are not going to be low anymore. A lot of investors are going to blow up and be more skeptical/disciplined.
22 years ago, info-tech was an industry for which its bubble can pop. Now, it is a foundational element of civilization. Much like bronze to the bronze age or iron to the iron age. The tech bubble popping means civilization popping. The basic rules of supply and demand apply differently to needs like tech as opposed to wants like tech in the dot-com bubble era.
Not that I have high hopes for civilization but we are talking about different variables altogether. From the whitehouse relying on it to communicate with masses to the beggar in China that is forced to use an app for begging, tech is civilization as we know it now.
Not sure that’s the fully correct take. It only had time to fall 30 percent before the FED announced QE infinity which turned it around (FED solved liquidity issues). If that didn’t happen it would have likely fallen further.
Now we are having similar liquidity issues / dollar strength but the FED is not rushing to the rescue.
Oddly enough, the best time to bootstrap a brand new startup is just at the tail end of a crunch. I see a bunch of early startups popping up by the end of October.
Will be great if anyone familiar with the tech start up market can chime in here.
There are a lot of companies still calling themselves startups but are almost a decade or more old that didn't go public. I wonder what happens to them. Instacart comes to mind.
Then there are actual startups that appeared really promising like Tide, Sivo etc. Am curious how they fare as well.
Is there a noticeable change in available startup funding?
Yup, I DCA regularly, but thinking about whether this is a good opportunity to throw extra into an index fund like VTSAX or maybe solid individual stocks.
Extra would be coming from an account that I keep cash in for unforeseen opportunities.
As a rule of thumb, it's better to buy when the market's in the red than when it's doing well. As Warren Buffet said, "keep buying it through thick and thin, and especially through thin." (He was referring to an S&P 500 index fund.)
In a bull market you get things for cheap, with the expectation that the bull market will end long enough before your retirement that those assets will increase in value. You basically bought those assets at a discount. Bonus!
Closer to retirement, you wouldn't want to take on that much risk, so you'd move (over time, as you get closer to retirement) to more stable investments. Target-date mutual funds[0] do this automatically.
You always do it so you don’t have to question the timing. If you do it during a bill, you’re waiting until the price is going up. Doing it during a bear gets you when the price is going down. Buy low sell high and all that jazz.
Tech? like technology? What does it mean? Because surely companies that apply scientific knowledge for practical purposes aren't 'bursting' all over the place, right? Does it refer to specifically these huge companies quoted on the article?
You know exactly what it means. There is no way that you think tech in this context means "applying scientific knowledge for practical purposes" unless you have - and I truly, deeply mean this with zero disrespect whatsoever - weapons-grade autism.
When did it become the cool thing to pretend to not know anything about the context in which a particular discussion happens? It's maddening, but also completely exhausting.
