2.41 - Layoff the AI
2.41 - Layoff the AI
"If you're only taught to use a hammer, all your problems will look like nails." - Abraham Maslow
News and Numbers
Markets this Week:
S&P 500 is down 0.5%.
NASDAQ 100 is trading flat.
Bitcoin-USD is up 10%.
Ethereum-USD is up 8%.
Headlines from this Week:
U.S. inflation for January came in at +6.4% YoY; CPI came in +0.5% MoM.
YouTube appoints new ‘web3 friendly’ CEO Neal Mohan, following Susan Wojcicki’s departure.
CSIS documents reveal CCP strategy to influence Canada’s 2021 election.
Finance
By Keyann
Make it make sense.
My CEO said something funny the other day - he said, “it’s crazy how on the news they publish these stories about inflation, layoffs, and recession fears, but then I go to the mall and I can’t find parking. It’s literally packed, like no one’s affected by inflation or interest rates”.
We then looked at the graph of consumer credit debt, noting how it dipped during the pandemic but has now reached new all-time high, which suggest, despite soaring prices, people are taking on a lot of debt to continue spending rather than help slow the economy down. We then went on to discuss and speculate the possibility of a credit card debt bubble.
For those that don’t know what any of this means - for the last year, the federal reserve has raised interest rates in attempt to manage some of the highest inflation in decades.
In a nutshell, inflation in economics means prices are ‘inflating’, or increasing, such that purchasing power is decreasing. For example, if you have $1000 and inflation is 10%, then you would technically need $1,100 to purchase the same basket of goods the following year.
Inflation can occur for a variety of reasons, such as when the government prints money (like we did during the pandemic), or when energy prices soar. Whereas interest rates are set by the federal reserve.
The federal reserves main goal is to grow the economy while keeping inflation at 2%. To manage the economy, the federal reserve has two tools at its disposal: quantitative easing (printing money) and setting interest rates (the fee to borrow money). When the economy is slow and inflation is low, the government can stimulate it by lowering interest rates and printing money. When inflation is high, the government stops printing money and increases the lending rate.
Historically, this worked, because people would spend less when the interest on their mortgage increased. But what if people aren’t getting mortgages as much as before? Mortgage debt today is pretty high but that doesn’t mean more people are getting loans, it just means more loans have been given out. And since housing prices are soaring quicker than median income then less people would be able to take on mortgages right?
I couldn’t find too much data on this, but according to statista, way more young adults are living with their parents over the last decade when compared to 60s-90s.
Housing Bubble of ‘08
To get a sense of how debt catalyzes a recession, let’s look at the size of the mortgage debt market leading up to the housing crisis and recession of 2008. At the time, mortgage debt was $14.7 trillion, and represented over 70% of the U.S. GDP at time.
Credit card debt today though is around $1 trillion, and represents less than 5% of the US GDP today.
Final conclusion: people today aren’t as affected by interest rates as they were in previous decades because they’re more burdened by credit card debt than mortgage debt, but there is still an important impact on homeowners who may be stuck with a variable rate mortgage (or looking to refinance in this environment). As a result of lower home ownership though, people still seem to have some disposable income to continue spending. While credit card debt is a growing problem, there’s a long road ahead before we can definitely say whether it poses the same risk and would be as impactful as the 2008 housing bubble. And until then, only time will tell whether interest rates alone will be enough to return inflation to the benchmark of 2%.
This is not financial advice and you should always do your own research before investing in any securities or cryptocurrencies. The trading strategies mentioned above are only my opinion. I am not a public equities analyst, and you're following these tips at your own risk.
Sci-Tech
By Keyann Al-Kheder, Software Engineer
Layoff Sensationalism
This past year, tech layoffs have been a trendy topic, making continuous headlines in the news. Amidst inflation and recession fears, layoffs have portrayed a very fearful outlook for the labour market, which in turn can affect sentiment on the stock market.
But are the layoffs an accurate representation of the labour market or is this just news sensationalism?
I saw a disturbing post from Yahoo Finance not too long ago regarding layoffs, and they employed (no pun intended) the most basic example of rhetoric 101 that you’re taught to catch in a statistics or critical thinking class.
This is the post:
Notice how they put percentage equivalent of layoffs under the total amount of layoffs for every company, except Amazon? Why might that be?
A quick Google search would reveal that Amazon has well over 1 million employees, so 18,000 is barely 1% of their workforce. But obviously, laying off 1% your workforce doesn’t provoke the same reaction as 18,000.
In addition to Yahoo’s poor journalism, the labour statistics came in for January, and unemployment has is down year-over-year from Jan 2022, from 4% to 3.4%. So there’s been more hires than layoffs this past year, and more job openings than people to fill. Which is pretty contrary to the narrative that the news has been pushing this past year…
So it begs the question, why is the news sensationalizing layoffs?
If I had to guess, I wouldn’t say this is part of some big media conspiracy, so much as the news generates more engagement from fear-based, sensationalist content, which in turn makes them more money.
What I have learned, though, is to be very weary of how I form my views and decisions from the news. If I had sold my tech stocks every time I got FUD from one of these articles, I’d have missed a massive rally, and would be down bad on my investments.
This is not financial advice and you should always do your own research before investing in any securities or cryptocurrencies. The trading strategies mentioned above are only my opinion. I am not a public equities analyst, and you're following these tips at your own risk.
Paradigm Shift
Layoff Reasons and Consequences
By Roman Kuittinen-Dhaoui, BBA (Hons.), CPHR Candidate
Over the past couple months, several companies have announced layoffs including Amazon, Google, Microsoft, Twitter, Cisco, IBM, SAP, Snap, etc. These tech and e-commerce organizations often mentioned increased interest rates, reduced ad revenue, slowed economic growth, overly aggresiving hiring/expansion plans, and more as reasons for the layoffs.
Definition & Reasons
Layoffs (aka downsizing or rightsizing) is the process of terminating employees through the elimination of positions or via organizational restructuring. As opposed to termination for cause, downsizing is typically not due to any misconduct on the part of the employee.
There are three major reasons why organizations layoff staff such as:
Reducing costs to create a more lean and efficient organizational structure.
Adopting new tech that reduces the need for employees (e.g., robots taking jobs previously done by humans).
Relocating the business (e.g., moving a factory from one country to another).
For example, Meta laid off 13% of its workforce in November and is now asking some Managers and Directors to move to different roles (i.e., individual contributors) or quit the company in a bid to improve efficiency and become more nimble. As Zuckerberg put it: “I don't think you want a management structure that's just managers managing managers, managing managers, managing managers, managing the people who are doing the work.” It seems like Zuckerberg want Meta’s talent actually doing the work, not just managing people doing the work.
Negative Consequences to Organizations
Mass layoffs are especially detrimental in industries with high growth and innovation. In many cases, firms end up having to replace the very people they fired, not realizing they were indispensable.
Many studies have shown how firms that downsize end up being less profitable than peers who find other ways to lower costs (e.g., unpaid leaves). For example, rather than layoff staff, a company can try to make company wide cuts to employee pay with senior positions taking the bigger hit (e.g., 5% reduction to wages for mid-level works, 10% reduction to wages for leaders, and 20% reduction to wages for executives).
Negative Consequences to People
In addition to bleeding talent, layoffs create workplace survivor syndrome which describes the emotional, psychological, and physical effects of employees who remain in the midst of company downsizing. These employees feel anxiety (i.e., will I lose my job next?), guilt (e.g., why did I keep my job but not my colleague?), and anger (i.e., why do I need to take on this additional work without extra pay?).
Opinion
Although you cannot guarantee that you’ll keep your job amidt organizational downsizing, there are a couple strategies that you can employ to prepare yourself. Firstly, you’ll want to ensure you’re a high performer and/or have indispensable skills/knowledge. By being a key resource, you’ll be less likely to lose your job. Secondly, you should always update your resume and be interviewing, this is to aid yourself in being employable should you need to find a new job. Thirdly, you’ll want to create an identity for yourself outside of work. Many people tie their self-worth to their professional status which leaves them embarrassed and lost if they find themselves without a job. At the end of the day, often a JOB stands for Just Over Broke...
TLDR: quiet quitting means doing your job, nothing more or less than necessary. Whether it’s a good approach for you depends on your situation and your goals.
(Head)Space
By Keyann
Negative Knowledge
When we try to make decisions and predict success, we often do so from the perspective of ‘what will make me successful’, as opposed to ‘what will not make me successful’.
The latter is what can be referred to as negative knowledge - that is, knowledge about what we know to be false or knowledge that rules out certain outcomes.
One of my favourite examples of this recently, comes from a reply to this post of a picture of Elon Musk in the early days of PayPal, with a caption about how he didn’t have much money so he slept on the couch at the office instead of renting an apartment. In response, someone made some sarcastic comment about how Elon’s parents had a diamond mine or something, alluding that Elon wasn’t poor and he owed his success to generational wealth.
Now, I’m not too familiar with Elon’s biography, but regardless of how much money his parents had, is it true generational wealth is a decisive factor in success?
From my experience in university, i’ve met plenty of wealthy ‘trust funds kids’, but most of them didn’t turn out as successful as Elon. Weirdly enough, most of them didn’t start disruptive fintech start ups, followed by revolutionary electric vehicle startups, and innovative aerospace companies, as well as AI companies.
If anything I’d say (and this is my opinion) money doesn’t drive success, as much as lack of money fuels your drive to be successful.
Again, I don’t know how much money Elon had when starting PayPal, but when we apply the rationality of negative knowledge, then we can deduce that money isn’t a decisive or relevant factor in that question.
I once read, ‘the best strategies are as much a plan of what not to do as they are what to do’. And I didn’t really understand what that meant, but I think I do now.
TLDR: If you want to succeed, focus on not doing the things that don’t make you successful.
Company of the Week
Consensys is a prominent Ethereum software company that provides a platform for developers, enterprises, and individuals globally to create cutting-edge applications, establish contemporary financial infrastructure, and access the decentralized web. Its suite of products, including Infura, Quorum, Truffle, Codefi, MetaMask, and Diligence, serves millions of users, supports billions of blockchain-based queries for clients, and has facilitated billions of dollars in digital assets. Ethereum, the largest programmable blockchain in the world, leads in business adoption, developer community, and DeFi activity, and Consensys is leveraging this trusted, open source foundation to create the digital economy of tomorrow.