Returns are no longer the actual goal. The actual goal is the perception of far reaching future returns. The perception of those returns is much more valuable than the actual returns. Because the wealthy don't want profits and dividends that get taxed. They want ever increasing stock prices so they can continuously grow their asset base to borrow against so they can never sell said assets this triggering capital gains taxes.

I think you're almost right

I suspect its more a structural issue

e.g. because of Big VC (a16z, other firms with dozens or hundreds of investing staff), VCs don't stick around firms long enough for real returns (cash distributed) to matter. If you're at a place and your stuff is marked up 10x after 4 years, you just hop to become a GP and try to ride the next markup wave. Even if these people exit VC after 10 years that is still 10 years of deals that all flopped.

This might not even be the individual VC's fault -- there may just be too many venture dollars chasing too few power law returns, so you get a surge of startups circa 2019-2022 that all disappear

> This might not even be the individual VC's fault -- there may just be too many venture dollars chasing too few power law returns, so you get a surge of startups circa 2019-2022 that all disappear

This feels right to me: the common trend between the dotcom bubble, mortgage bubble, tech bubble, blockchain bubble, and now the AI bubble has been big investors very high returns to make up for previous losses, like a gambler trying to win back, and it’s destroyed a lot of companies which had an idea which could have been a sustainable medium-size business but were funded and tried to grow as the next Google/Facebook without apparent recognition of how unusual advertising is for the ability to grow profits rapidly without scaling costs at the same rate.

Companies with actual profits can, and do, simply buy back their own stock. Inflating market expectation of future cashflows is not the only way to realize asset appreciation.

The 10% interest they would have to pay on the loans is almost as much as the capital gains would be.

If capital gains tax is 15% that 5% on let’s say $1mil is $50k that is not „almost as much” if you can pay 10%.

You are not getting rich by throwing $50k to trash.

10% compounded which means it gets much closer to 15%

Not going to argue back and forth - as I don’t have any knowledge on those deals.

But I don’t believe they get 10% more like 2-3% and most likely they pay back any amount as soon as their stock value goes up to cover the loan not to accumulate compounding.

They have deals normal people don’t get. For banks those are free and sure money deals as well.

An ordinary person with decent credit would not pay 10% on a loan.

A reasonably rich person with good credit is paying nowhere near that.

And a very rich person with great credit and who will put their assets up as collateral is paying low single digits in interest, if even.

The feds interest rate is still 4.5% right now. And a lot of companies are preparing for a headwind (which also means very rich people don't want to put assets up). Despite people trying to pretend otherwise, we're not in a very flowing economy right now.

But yes. If you're very ambitious and very rich, you can probably find a decent loan for your idea. This odd economic situation is ripe for uncontested disruption, but has an extremely high cost of entry (hence, being unconstested).

Investing for distant future returns is not bad and favours long-term thinking over short-term profit. It is closer to the best (though abstract) metric, net positive value created, which naturally translates to ROI in an ideal world.

The problem is that in this non-ideal world value creation can become completely detached from returns: when instead of investing into people creating value, or distant future returns, or even medium term returns, it becomes about investing into other people investing in it—not too different from a pyramid scheme and various pump-and-dumps.

Too bad that business model ended with the collapse of ZIRP economy...

This reasonably explains ghost jobs by companies willing to make themselves show like they're constantly growing for positive signal.

Almost every company that announced layoffs said, "We're 're-organizing' to focus on AI", but not "We're over-productive because of AI."

I don't think this is FRED but rather Gergely making the implications but yes

FRED is just a descriptive tool: https://www.nytimes.com/2024/12/06/business/economy/fred-eco...

And add to that many companies moving their IT department to low cost countries.

> FRED wants the implication to be AI related,

Where is there any indication that FRED wants this?

Wants is maybe too strong, but I've seen this chart in a couple of different substacks / editorials, which I assumed is the fed's press office shopping this story around because "AI taking jobs" is zeitgeist-y right now.

It's more likely that it became popular to use in commentary because this chart from FRED (both the software dev postings on Indeed chart, and, in the comments, the comparison to the overall job postings on Indeed chart) got attention on a certain orange-tinted site that is popular with people in and around and commenting on the software development field a few months ago.

https://news.ycombinator.com/item?id=41409006

Does FRED editorialize? Do you have any links?

Tax changes in Section 174 (both advantageous years ago, and terrible recently) also play a huge part.

That interest rates started to rise right when the tax changes to make it less advantageous happened? 1-2 punch.

Article covers that, 174 is US, changes are worldwide.

The US is the largest software dev market by far, and these changes ripple out. Outsourced dev costs still get the same tax treatment for US companies, so while reducing the costs reduces the problem for US companies, it doesn’t change that the problem exists.

This impacts all other markets.