We live in interesting times. On the one hand, we have seen endless discussion about labor shortages all over including many we’ve written about here, here, and here. On the the other hand, tech companies are starting to layoff workers. Here is a list of cuts we’ve read so far:
Chime cuts 12%
Lyft cuts 13%
Stripe cuts 14%
Twitter plans 3700 cuts
Apple pauses hiring
So what’s going on?
Interestingly, we also have surplus of some goods and a shortage of other goods which complicates matters but how is it all tied together? The simple answer is the Fed. This week the Fed raised interest rates another 75 basis points on top of four other 75 point hikes which essentially means that the era of cheap borrowing and cheap debt is over.
“Only when the tide goes out do you discover who’s been swimming naked.” -Warren Buffett
What we are starting to witness in real-time is the tide starting to go out and companies like Chime, Lyft, Stripe, Twitter and others are starting to show a little skin. These companies thrived on cheap borrowed money to pay workers and maintain operations but that cheap money is no more.
We will keep an eye on these companies but past indications show that the first to be revealed as naked are the first to go down in flames, we’ve seen that happen during the Dot Com bust in ’01 and the Great Financial Recession in ’08 and here we are again.
What we are doing is holding cash in T-bills, I-Bonds, and other cash accounts waiting for the stock and housing markets correct. If we are patient enough, we are confident it will pay off in spades.
In the meantime stay tuned and stay solvent…