State of the Market

[dsc]

[...]They will cut rates as low as they can, as near to zero as they can, once the inflation genie is back in the bottle.[...]

The issue is the second part of this sentence, keeping inflation low. Also I'm sure I've heard the ex head of BoE saying that from now on the gov will most likely keep interest rates at around 3-4% and won't go as low as in the past as it doesn't work well.

Companies will eventually have to go back to investing and spending, they can only pretend to be making profits by sacking people / increasing service costs for so long before tulip hits the fan one way or another.

[willendure]

As a fellow Java dev I have given Schumistars tailored advice on this thread more than once over the last twelve months.

Even to the point of pointing out what i thought was weak on his linked in profile.

In my last post i'm trying to give give him some idea and hope when the market overall might pick up.

Hi, what is this tech layoffs data for? I see https://layoffs.fyi but no labels on the graph. Is this the UK? USA? Worldwide?

Its certainly interesting that there were less layoffs in 2020, than the period 2022 to 2024, I somehow expected the covid spike to be massive. I mean it was massive, but perhaps just not in tech, since we all just went and worked from home and the story was different in other industries.

I recall in 2020 the PM and chancellor and many other commentators saying down the road we will have tough times when we have to pay for what is happening now. It certainly does seem to be playing out that way.

[BlueSharp]

There are some signs of recovery in the higher education space as there seem to be a few projects kicking off in October (HE end of year is September), also some large vendors are EOL their on-prem products over the next few years and going cloud only. Not the greatest pay but I will take it in this market.

[willendure]

It will end because governments are indebted to the tune of trillions. And paying record amounts in interest on that debt.

They will cut rates as low as they can, as near to zero as they can, once the inflation genie is back in the bottle.

The markets are predicting only small rate cuts over the next few years but in reality they will cut much faster as soon as they can get away with it.

A good estimate of where interest rates are headed can be found from the US 2 year rate - this is how the market is pricing rates over a 2 year horizon, rather than looking at what the Fed or BofE says. What they say must be carefully said so as not to spook markets or cause speculation or upset governments or banks and so on. What the market shows is taking information from a much wider range of points of view and is therefore actual salient information about future price movements and the state of the economy.

Anyway since May the 2 year has dropped from 5% to 3.5%. The Fed is at 5.25% making the spread to the 2 year 1.75%. That is an unusually high spread. What this indicates is that the Fed is not following the market, because they have diverged into a special program to fight inflation. At the same time the market is saying that inflation is about to fall drastically. What causes the price of the 2 year to fall? The flight to safety, which must currently be massive to create such a wide spread between the 2 year and fed funds rate. In other words, the market is telling us to expect a severe recession (deflationary event) relatively soon.

There is nothing good about cutting rates to zero, and it will only be done as an emergency measure. The idea that the economy will have a soft landing, and that inflation will just stick around 3-3.5% as the new normal is a bit like saying if I throw a stick in the air it will land on its end and perfectly balance. It could happen, but the dynamics around it mean this kind of equilibrium is highly unlikely to emerge in practice. The interest rate lever has an 18 month lag in its connection to the real economy. So the central bank pushes it up, then after a delay the economy crashes, it pushes it down, after a delay it surges. Imagine trying to steer your car down a winding country lane but the steering wheel has a delay of 15 seconds on it, and now you see why these things tend to always have an oscilating movement.

QE and inflation will be needed to reduce government debt. In the UK we like to tax to cover our debts, but in the USA they never do, debts are always inflated away. There are those who say the Fed is holding rates higher for longer in order to deliberately engineer the conditions under which a sustained emergency cut to 0% can be achieved. This does not make much sense though, as under such conditions the debt itself will balloon as bailout programmes will be triggered - automatically in many cases.

Sadly Labour are about to hike taxes and crush us just ahead of a big recession. Rachel Reeves she studied economics at Oxford did she not? Yet still has no clue about the real world. Part of some left wing clique that live in a dangerous fantasy bubble in my opinion.

Warren Buffet has sold almost all of his shares and is sitting in the 2 year. If nothing else convinces you that a recession is coming, knowing that ought to.

[BlueSharp]

snip

Gold has hit a record high as well today.

[SussexSeagull]

I am absolutely sure the wider economy has an impact on recruitment on a macro level but beneath that there are a thousand and one variables including, but by no means limited to, how a sector is doing financially, new regulations in a sector leading to mandatory work, appetite for IR35 risk, etc, etc.

[SchumiStars]

I have no idea of what this financial mumbo jumbo means I am afraid. I am relatively simple minded

So are you saying it's still going to get worse or better? And the Keely question is when will I get a contract?

Had an interview on Mon, did well however another candidate with more sector experience was offered and I was left looking for my balls again.

In other news, I have switched the heating on. Looks like winter is on its way and I hate the cold.

[willendure]

I have no idea of what this financial mumbo jumbo means I am afraid. I am relatively simple minded

So are you saying it's still going to get worse or better? And the Keely question is when will I get a contract?

Had an interview on Mon, did well however another candidate with more sector experience was offered and I was left looking for my balls again.

In other news, I have switched the heating on. Looks like winter is on its way and I hate the cold.

It is going to get worse. As they say, "when the USA sneezes the rest of the world catches a cold". Uk has done very badly since Brexit + Covid, which makes it seem like we just had a recession so "things can only get better, right?". But the real recession is just about to get started in the USA and you can be sure it will hit the rest of the world at least as hard.

It is impossible to say exactly when a crash will happen and how deep and long it will be. However, looking at previous interest rate inversions there does seem to be a strong correlation between size of the inversion and size of the recession that follows. That would suggest a 1929 type scenario may be about to unfold. That said, it depends on how quickly and how much stimulus is applied - and we know that after 2008 there are large stimulus plans ready to go on autopilot. Confirmed by 2020 crash which saw them unleashed.

Yes - the macro economic outlook has a very significant impact the availability of work for us contractors.

[dsc]

[...]
Its certainly interesting that there were less layoffs in 2020, than the period 2022 to 2024, I somehow expected the covid spike to be massive. I mean it was massive, but perhaps just not in tech, since we all just went and worked from home and the story was different in other industries.[...]

In tech it went the other way in covid, loads of companies hired like crazy for some reason and overhired in effect. Corrections are seen now, coupled with lay offs due to lack of projects / investment etc.

[Smartie]

Sorry, but a lot of this is just rubbish.

The Fed rate is a zero year (today) rate, not a 2 year rate. They are about to reduce rates imminently and could easily get to the 2 year rate in a fairly short period of time (changing up to 8 times per year). Nothing unusual about this at all.

There is not a 'massive flight to safety' - if you have evidence of that, let's see it. There is more going into defensive stocks and bonds but these have been unloved (and therefore relatively cheap) for years and bonds are much better value after the recent crash. Tech stocks look relatively pricey, but people are still buying.
The stock market is pretty buoyant, but somewhat volatile. Unsurprising given the uncertainties around the US election in particular.

The bond yield curve was inverted for the past two years - usually a good predictor of a recession. That didn't happen and it's no longer inverted.

A lot of the below feels a bit conspiracy theory and I guess there are websites that you read that push this kind of view.

Finally, Buffet's Berkshire Hathaway is sitting on 17.5% cash - about the long term average.
If you have alternative information about him having 'sold almost all his shares' then let's see it.

A good estimate of where interest rates are headed can be found from the US 2 year rate - this is how the market is pricing rates over a 2 year horizon, rather than looking at what the Fed or BofE says. What they say must be carefully said so as not to spook markets or cause speculation or upset governments or banks and so on. What the market shows is taking information from a much wider range of points of view and is therefore actual salient information about future price movements and the state of the economy.

Anyway since May the 2 year has dropped from 5% to 3.5%. The Fed is at 5.25% making the spread to the 2 year 1.75%. That is an unusually high spread. What this indicates is that the Fed is not following the market, because they have diverged into a special program to fight inflation. At the same time the market is saying that inflation is about to fall drastically. What causes the price of the 2 year to fall? The flight to safety, which must currently be massive to create such a wide spread between the 2 year and fed funds rate. In other words, the market is telling us to expect a severe recession (deflationary event) relatively soon.

There is nothing good about cutting rates to zero, and it will only be done as an emergency measure. The idea that the economy will have a soft landing, and that inflation will just stick around 3-3.5% as the new normal is a bit like saying if I throw a stick in the air it will land on its end and perfectly balance. It could happen, but the dynamics around it mean this kind of equilibrium is highly unlikely to emerge in practice. The interest rate lever has an 18 month lag in its connection to the real economy. So the central bank pushes it up, then after a delay the economy crashes, it pushes it down, after a delay it surges. Imagine trying to steer your car down a winding country lane but the steering wheel has a delay of 15 seconds on it, and now you see why these things tend to always have an oscilating movement.

QE and inflation will be needed to reduce government debt. In the UK we like to tax to cover our debts, but in the USA they never do, debts are always inflated away. There are those who say the Fed is holding rates higher for longer in order to deliberately engineer the conditions under which a sustained emergency cut to 0% can be achieved. This does not make much sense though, as under such conditions the debt itself will balloon as bailout programmes will be triggered - automatically in many cases.

Sadly Labour are about to hike taxes and crush us just ahead of a big recession. Rachel Reeves she studied economics at Oxford did she not? Yet still has no clue about the real world. Part of some left wing clique that live in a dangerous fantasy bubble in my opinion.

Warren Buffet has sold almost all of his shares and is sitting in the 2 year. If nothing else convinces you that a recession is coming, knowing that ought to.