Economy Looks Like It's Picking Up Which Could Mean a Slowdown in Tech Investing | Hacker News Reader

Economy Looks Like It's Picking Up Which Could Mean a Slowdown in Tech Investing

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36 pointsrudimental40 comments

I'm wondering if the issue here is not 'the economy is picking up, let's invest elsewhere', but rather that investors don't have investment vehicles to put their money into other areas of the economy that need it most. The public markets are booming, and so is the tech sector, which I am guessing has a greater chance of a liquidity event than businesses in most other industries. While these two areas are doing fine, the small business sector, which is the largest portion of our economy, continues to struggle to get access to capital. Many of these small businesses could generate 20-30% returns, but investors have no way to easily get their money back out of the business - they'll never IPO, and a private acquisition is rare. This lack of liquidity in one of the largest asset classes of our economy seems to be the major bottleneck we're facing right now.

EDIT: I should add....the JOBS act and Crowdfunding are giving small businesses and entrepreneurs more options for finding funding, but getting a return on that investment still remains a question. In addition, crowdfunding as an industry is somewhere maybe in the billions, whereas the financial services sector is in the trillions, so the impact is still relatively small, although growing fast.

Why not just pay a dividend?

Not entirely sure, but I am guessing it's for the same reason debt isn't a super desirable form of financing for small businesses - cash flow is hard to manage.

In Europe, we should not forget that the situation of Greece has not yet been resolved and the country has resorted to shuffling every internal bank account in order to pay the IMF.

The next final demand notice arrives on June 5. http://www.telegraph.co.uk/finance/economics/11617208/Greek-...

I think the premise the economy will 'pick up' is highly questionable. Furthermore I think we will see very low interest rates in the US and Europe for a long long time.

What would make you say that?

I've seen other reports saying that unemployment rate have gone down and also companies hiring is low. Which is pretty bad imo.

But I'm curious to see if there are any other indicators that the economy is not going to pick up any time soon.

Unemployment rates are hard to interpret without context : some countries consider a 4-hour/week job as 'employed' ( US? ).

In The Netherlands the unemployment rate fell not because there are more jobs, but because people are exiting the labor force ( retirees, baby-boom ).

edit: typo

The UK has done something similar with pushing a large number of people into "self-employment" where their hours are not verifiable.

But what's the the alternative? MANY people consult and freelance. They are not unemployed. Moreover, their income does not necessarily tie to hours worked.

Sure, but surveys suggest that many self employed people would like to get more work, and that they have significantly lower incomes than when they were employed.

The best data is from the RSA https://www.thersa.org/discover/publications-and-articles/re...

Many of these people are forced into self-employment because : no jobs. See also : http://en.wikipedia.org/wiki/Precariat

Oh god... basic income... AGAIN in the HN comments. It becomes VERY difficult to believe this is not sponsored propaganda. It's in pretty much every thread now.

Don't put words into my mouth : I didn't mention basic income, I pointed to the 'precariat'.

Which is very real in my perception.

Those people are considered unemployed in the U6 measure.

http://www.bls.gov/news.release/empsit.t15.htm

This is subtly different. It's also not well-documented, but there have been some investigations: http://watchinga4e.blogspot.co.uk/2013/02/radio-5-live-inves...

From a longer blog post: http://www.harrowell.org.uk/blog/2013/03/03/the-transition-t... - note the detail that people on "work programme" placements are not counted as unemployed. See https://welfaretales.wordpress.com/category/work-program-2/

The "sharing economy" is another factor in this. If someone signs up for e.g. Taskrabbit and does a few hours a week, they're then "self-employed" and no longer count against the unemployment statistics, they can claim tax credit (especially if they have a child, you get quite a lot) and housing benefit to cover for the fact that the 'work' pays nowhere near enough to live on.

>If someone signs up for e.g. Taskrabbit and does a few hours a week, they're then "self-employed" and no longer count against the unemployment statistics

Are you implying that this is having a significant effect on the US unemployment statistics? And that, in the context of the article and discussion, there is no economic recovery?

Every time unemployment statistics are brought up, anywhere on the internet, these edge cases get presented. Read how the BLS measures are calculated. Yes, the unemployment rate is based off of surveys and statistical inference, so isn't a 100% accurate representation of the real world. Yes, the dynamics of the labor force change over time, and it isn't necessarily stable over decades or centuries.

But the U6 measure, which includes "discouraged workers" who are no longer looking for work, as well as those forced to work part-time for "economic reasons" has fallen from a peak of 16.7% in 2010 to 11.3% today. That sort of move just isn't explained by people signing up for TaskRabbit, or anything like it.

I think part of the reason people deny a recovery is occurring is that they conflate it with boom times. Recovery doesn't mean everything is running at capacity; it doesn't even mean we've recovered yet. It means the trend is up. Looking back to 2009, that's hard to deny.

I think it's had a significant effect on the UK unemployment statistics. I'm not familiar enough with the US system.

It's important to remember that the US Government's Bureau of Labor Statistics counts six separate unemployment rates, there isn't just one:

U1: Percentage of labor force unemployed 15 weeks or longer.

U2: Percentage of labor force who lost jobs or completed temporary work.

U3: Official unemployment rate per the ILO definition occurs when people are without jobs and they have actively looked for work within the past four weeks.

U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.

U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.

U6: U5 + Part-time workers who want to work full-time, but cannot due to economic reasons (underemployment).

Well Q1 GDP was 0.2% and that could well be revised into negative territory. (http://www.bea.gov/newsreleases/glance.htm) The two data points the article cites does not a robust economy make.

In the United States I am questioning the need to keep the federal interest rate so low. Yes, it might have brought us out of depression?(I still wonder what the outcome would have been if Bush let the banks go bankrupt?)

Back to these low interest rates. At this point in the recovery, I am just seeing rich people playing with essentially free money--taking some big risks, but I don't see it trickling down to the middle class and poor--in most cases.

I see this essentially free money being funneled into the stock market, because there's no where else to put the money, except real estate, and speculative VC investments. That's fine and dandy, but the poor and middle class are having a hell of a time getting loans. They are essentially locked out of the party? Yes, the middle class is greatful their Company retirement plan is soaring, but it will drop.

Many of us(poor, middle class) speculate in CD's, and in my case I am getting .1 percent per year-- on my meager account. I can't afford to speculate. I don't think I am alone. I counted on the interest I used to make. It's gone. I now pay the bank more in fees than I get in interest. In my case, I have a negative rate of return on my money.

My point is I don't see this essentially free money the rich are getting trickling down, with the exception of the tech industry. You guys seem to be doing great, and you guys deserve it. And yes, their are hot spots like the Bay Area where houses are way up in value, but so are rents. Rents have gone up so high long term residents are being forced to relocate.

What I am trying to convey--poorly--is I don't think the economy is doing that great. Food stamp usage is at an all time high? The unemployment number is beyond skewed because they stop including you in that figure once that check stops--I believe? Student loans are at an all time high. Small and medium sized business are having a hard time securing those low interest loans. I see so many Homeless. I my county, section 8 housing is closed, and there's a three year waiting list. I honestly don't see the variety of jobs like I did before the ression. People are so desperate for work they are buying newer(2008) four door cars in order to work for Uber. Non profits are closing--some deserve to close, but some of the better ones are not getting the donations like in years past. I can go on, but getting tired.

My major point is so many of us are losing net value in this low interest rate economy. The renters who rely of cd's to hold their money are hurting. I don't blame anyone politically. I'm glad medically uninsurable home owners don't need to risk losing their home in a medical judgement attachment thanks to Obama, and a Supreme Court justice.(forget his name, but he is a kind man, and a Rebublican!)

I see another ression coming real quick. I hope families stick together, and pool their resources--and don't blame the wrong people when the chit hits. I'm usually 180 degrees wrong when it come to money--so I'll dummy up. Sorry--just venting!

Total unemployment rate supposedly counts workers who stopped looking. The government includes it in U6 column. I can't even conceive how they calculate U5 and U6. I think they it must involve guesstimating? Here's the link. I didn't know they are claiming to calculate that part of the unemployment rate. So I'm reading the total unemployment rate between 10-11 percent--which still seems overly optimistic?

(http://www.bls.gov/news.release/empsit.t15.htm)

Indeed, the US (and the EU) economy is being kept on life support through Quantitative Easing and artificially low interest rates. But the patient is already brain dead.

>artificially low interest rates

Interest rates are set in agreement between borrowers and lenders, and hence are always artificial.

As far as optimality, the "best" rate is one as low as possible without causing inflation.

I don't get any say on the interest rate my bank gives.

Well, yes you do. You get to option to take the loan or not take the loan.

I was referring to savings.

Interest rates are set by central banks in order to cause and increase inflation.

I'm not going to deny that much of what you describe is occurring. America is a harsh, dog eat dog place. I'll only comment that it isn't unique to this point in time, and isn't a result of Fed actions regarding the Great Recession (post hoc, ergo propter hoc).

But what does irk me a bit is:

"My major point is so many of us are losing net value in this low interest rate economy."

This is a weak form of Bastiat's broken window fallacy in action. You see the money you are losing, but don't consider what higher rates mean for others, like less discretionary money in the economy because more income is going towards car loans, student loans, credit cards, mortgages. There could even be less entrepreneurship occurring due to the higher hurdle rate. Have you included this in your net value calculation?

You don't "deserve" to earn more interest on your CD any more than I "deserve" to pay less interest on my mortgage.

The UK is pretty much copying the US with low interest rates. It was recently reported that since 2007, the richest thousand people in the UK have doubled their net worth, while normal people are suffering austerity.

My assumption is that they haven't worked twice as hard. And as the UK economy isn't really picking up, they clearly haven't added double the value to it.

Low interest rate are good thing for normal people. Normal people do not make significant amount of money from the interest of their savings, at least not enough to offset the cost of the money they need to borrow for their mortgage, car/student/credit car loans, ...

The only problem that may have caused in the UK is making the ISA account look less attractive, which could impact the rate people save. (the money you put on your ISA is 'locked away', which mean you are less likely to spend it)

> It was recently reported that since 2007, the richest thousand people in the UK have doubled their net worth.

Based on the rule of 72 (https://en.wikipedia.org/wiki/Rule_of_72) that sounds about right for that time frame. 72 divided by 8 years is 9% per year.

Keep in mind that wealth is probably mostly on paper and could disappear just as easily.

The question isn't if we'll have another crash, it's when.

We currently have bubbles in education, healthcare, housing, and many people would argue the tech industry as well. Which time bomb goes off first?

The simplest answer is that if the Fed starts jacking up interest rates, it will bankrupt the US government due to its inability to service its debt.

If you look closer at all the jobs being created, they're mostly part-time and for the elderly. The US government is lying. The economy is not recovering.

The FED can't raise rates without sending the economy back into recession. QE 4 will soon be here.

The US has added six million full-time jobs in four years.

Almost all job growth has been in full-time employment.

Source: BLS

http://i.imgur.com/AUkWSN9.png

It's not a question of if the economy has recovered. It has. The question is whether the gains can be kept and added to.

The number of jobs has gone up, its just that they'll all shit jobs. Your graph does a disservice by omitting the wages paid by those new jobs.

http://www.theatlantic.com/business/archive/2015/05/the-new-...

The problem with this analysis is that the VC's investing money in companies aren't choosing between various asset classes - they have funds committed to their investment thesis, so they aren't going to go invest somewhere else if returns start looking better in other sectors. It's the LPs who theoretically may allocate less money to the VC's if they see better yields elsewhere, but their fund commitments are long term and take a long time to change. Funds have a life of 7-10 years and lots of folks have just raised new funds, so there's a lot locked in that will keep going into startups for a while now.

Right, but where does VCs' money come from? The money gets to choose asset classes. VCs aren't the money, they just choose how to invest the money. All of which is not to say I agree with the analysis.

right, my point is just that the money is already committed to the VCs for the next 7-10 years so can't change that quickly.

the US economy is not doing well; As long as interest rates remain so low, ever more money will plow into VCs/startup investing to get better returns.

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