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| ▲ | nostrademons 2 days ago | parent | next [-] | | The issue was interest rates. Money was free in Feb 2022; the interest rate was literally 0%, and so any cash-generating investment at all is profitable. Fed started raising rates in Apr 2022, at which point leaders started freaking out because they know what higher rates mean, and by Jun 2022 the Fed was raising them in 0.75% increments, which was unheard of in modern economics. By Jan 2023 the rate was 4.5%, which meant that every investment that generates an internal rate of return between 0% and 4.5% is unprofitable. That is the vast majority of investment in today's economy. (We also haven't yet seen this hit fully - a large number of stocks have earnings yields that are lower than what you can get on a savings account, which implies that holding these stocks over cash is unprofitable unless you expect their earnings to grow faster than the interest rate drops, which doesn't seem all that likely in today's environment.) https://fred.stlouisfed.org/series/FEDFUNDS Now, you'd have a point if you complained about how centralization of government and economic power with the President and Fed chair, respectively, is a problem. That is the root cause that allows the economy to change faster than any leader can adapt. There used to be a time when people would complain about centralization of executive power on HN, but for some reason that moment seems to have passed. | | |
| ▲ | saghm 2 days ago | parent | next [-] | | > The issue was interest rates. Money was free in Feb 2022; the interest rate was literally 0%, and so any cash-generating investment at all is profitable. Fed started raising rates in Apr 2022, at which point leaders started freaking out because they know what higher rates mean, and by Jun 2022 the Fed was raising them in 0.75% increments, which was unheard of in modern economics. By Jan 2023 the rate was 4.5%, which meant that every investment that generates an internal rate of return between 0% and 4.5% is unprofitable. "Unheard of in modern economics" is carrying quite a lot of weight there. The last time the rates were increased by 0.75% was 1994, and while that's not recent, it's pretty silly to imply that CEOs should be making long-term investments assuming that it would be literally unprecedented for that to happen. Interest rates have changed only a few dozen times _at all_ since then, so yes, they haven't been increased by that much recently, but there's never going to be enough of a sample size over a period of a couple decades that it would be reasonable to assume a precedent that will never be broken. The crux of your argument seems to be that because the interest rates happen to be set a certain way at a certain time, it would be irrational not to make decisions based on how profitable they'd be at that exact moment in time. The problem with this line of thinking is that plenty of investments are only realized over long enough period of time that by your own admission, people can't possibly react fast enough to avoid those turning into a loss. My question is, why put yourself in a position where you can't adapt fast enough in the first place? The way interest rates are set should not be news to the people making these decisions in companies, so it's not crazy to expect that maybe the people who are betting their company's success on something from less than three decades before being "unprecedented in modern economics" could think at least _a little_ longer term than "literally anything is profitable in this exact moment, so there's no need to think about what might come next". | | |
| ▲ | nostrademons a day ago | parent [-] | | Because they are publicly traded and subject to lots and lots of checks on corporate governance. The CEO actually didn't want to lay people off (and did a shit-poor job of it when he did). He was getting pressure from the board, who in turn was getting pressure from a lot of activist hedge funds. Small-fry who operate secretly are able to take the long view and enrich themselves off the masses' stupidity. CEOs of a multi-trillion-$ company that is ~10% of the retirement portfolio of every American are not. At that level you have to go with the market consensus, because you will be ousted and deemed not a fit steward of the enterprise that you are entrusted with otherwise. | | |
| ▲ | saghm 21 hours ago | parent [-] | | > Small-fry who operate secretly are able to take the long view and enrich themselves off the masses' stupidity. CEOs of a multi-trillion-$ company that is ~10% of the retirement portfolio of every American are not. From my math, you're off by several orders of magnitude, unless somehow we're not talking about Automattic anymore. | | |
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| ▲ | foolswisdom a day ago | parent | prev | next [-] | | > Fed started raising rates in Apr 2022, at which point leaders started freaking out because they know what higher rates mean, and by Jun 2022 the Fed was raising them in 0.75% increments, which was unheard of in modern economics. You're basically making the case that it happened fast, and went up high, but everyone who paid attention to interest rates understood it was only a matter of time till it had to at least revert back to pre-covid rates (whether you think that's 1.5 or 2.3 or something, depending on how you measure), and that obviously there would need to be real layoffs after. The excuse is really saying "it turned out more extreme than we thought", but was the behavior take responsible assuming non-extreme rate changes? | |
| ▲ | nilamo a day ago | parent | prev [-] | | Why does the interest rate matter? Unless you have no cash on hand and are operating soley off debt?? | | |
| ▲ | PeterFBell a day ago | parent | next [-] | | If you're venture based and were expecting another round sometime soon. With higher interest rates there were more compelling alternatives for LPs than to invest in Venture, causing a trickle down chilling of the fund raising environment for venture backed companies and requiring them to come up with accelerated plans to reach profitability - including cutting staff and optimizing for survival over growth. | |
| ▲ | halfcat a day ago | parent | prev [-] | | > Unless you have no cash on hand and are operating soley off debt?? Bingo | | |
| ▲ | nostrademons a day ago | parent [-] | | My employer actually has roughly $100B of cash on hand. The issue is that they're a publicly-traded company, with a fiduciary responsibility to shareholders. If they're investing in an internal product that will make back 1% of the money invested in it over the next couple years, but they could have been investing in Treasury Bills that make back 4.5%, they are committing financial malpractice and will be sued accordingly. | | |
| ▲ | maeil 12 hours ago | parent | next [-] | | I'd have hoped someone at Google would know this is a myth. The idea that choosing a 1% strategic internal investment over a 4.5% T-bill constitutes actionable "financial malpractice" or a breach of fiduciary duty leading to successful lawsuits is incorrect. Courts recognize that running a business requires strategic choices and risk-taking, not just maximizing immediate, risk-free yield. A lawsuit would fail unless plaintiffs could show the decision was tainted by disloyalty, bad faith, or gross negligence in the decision-making process, none of which are implied by simply choosing a lower-yield strategic project. Hence why no one ever gets sued for this. It doesn't happen. It lives in the minds of HNers and Redditors to provide a very convenient excuse for their employers, or in general companies, making abhorrent decisions purely based on feels and short-term next-quarter profits/stock price, regardless of the negative externalities they inflict on soeciety. | |
| ▲ | nilamo 8 hours ago | parent | prev [-] | | If that were true, Research and Development couldn't exist. |
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| ▲ | mathattack a day ago | parent | prev | next [-] | | I’ve seen many companies have this problem. They base hiring against planned revenue instead of current revenue. In a sense you have to - if you’re planning on growing 100% for several years on the back of new products and a big sales team you must hire in advance. It’s what the VC model is founded on. The downside is when you miss the revenue, you have to cut deep. And it’s usually worse because your hiring standards dropped in hyper growth. | |
| ▲ | _DeadFred_ a day ago | parent | prev [-] | | “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” If you are the CEO saying 'we are planning for bad things in the future' while every other CEO is saying 'the arrow only goes up' guess which company the stock market punishes and who gets removed by the board versus who's options become worth more? |
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