[jeffreyq]

Can you further elaborate on "price discovery" and how monetary policy interfaces with the bond market? Also, curious to better understand how you interpret monetary policy and bond markets ultimately impacting high-end tech hiring in a more concrete example.

[benreesman]

The second slash third questions are easier. In the US at least (and many other modern monetary systems) the money supply (it can be measured lots of ways, in the US a number called M2 is usually a good default) is (mostly) manipulated/guided by what are called “open market operations”. When lay people say “The Fed” they usually mean the “The Federal Open Market Committee”. Open market operations are give or take buying or selling US sovereign debt (a privileged kind of bond) to push the price up or down and therefore the yield (interest rates) down or up. Almost all interest rates are directly or indirectly indexed to US sovereign debt (Treasurys, etc.) and because of the way that money enters and leaves the system via lending activity (which is a whole topic), that “benchmark” interest rate “target” roughly increases the availability of money to say hire people or build a factory, or decreases it because too much money is chasing too little productivity (AKA inflation).

From roughly 2009-2022, the “benchmark” target was ~0, a policy position called ZIRP (Zero Interest Rate Policy). This might have made a little sense to like, avoid a depression in the 2009 housing-originated (ha!) financial crisis, but it turned out that running the economy in this super whacky way drove asset bubbles in a bunch of stuff which is an effective wealth transfer from people without serious estates to people with them. This was very popular with the sort of people who decide stuff. There’s this other whole can of worms called “easing” (QE) that arguably made the target rate negative, also a whole other topic.

For reasons that I haven’t heard a persuasive explanation for, beginning in roughly March of 2022 the FOMC started cranking this target up (selling a ton of bonds) and is still doing it, the most recent increase in the target was 2 days ago.

This is going to slow economic activity and on paper inflation, but the effects will usually be felt first and most in what are called “growth” sectors, basically stuff where the value is perceived to be largely in the future rather than the present. With a healthy hand-wave, “software” is a “growth” sector, which is why 500k tech people can be fired in 6 months and the Wall St. Journal can still keep sort of a straight face that labor markets are strong. There is a roaring demand for gig workers who don’t get dental.

This is already too long, so if you want my personal opinion on price discovery in elite software talent markets, reply to indicate it and I’ll write a mother micro-blog :)

[jeffreyq]

I absolutely do want the follow up to price discovery in elite software talent markets. That said, if this is something better discussed over a beer I've gone ahead and sent you an email :+1:

[dr_monster]

Is following this kind of info a hobby of yours? I find it fascinating, but I can’t imagine how learning enough to have a truly informed opinion about these topics could be actually useful to me.

[benreesman]

Eh, I mean I guess ultimately I’m just kind of a nerd.

I will say that understanding a modicum of finance (I’m certainly no RenTech quant!) is basically a prerequisite for understanding politics, sociology, war, energy, technology, pretty much everything.

One doesn’t need a ton, but being able to give or take eyeball whether the market believes e.g. Powell is kinda table stakes.

And it’s just insane this isn’t taught broadly. I learned even just my modicum mostly by improbable random chance.