This is pretty spot on. We in the SFBA don't think about rates much but in a past life it was all I did. The moment the markets price in a long term expectation of rates rising, a lot of the current behavior we are seeing (eye popping salaries/valuations/home prices/rents) will correct themselves. It won't mean the businesses are bad - just that they're priced less richly. Until then, they are making hay while the sun shines and they're probably wise to do so.
I think Fred is not telling the entire story with this bubble question/explanation. From a macro perspective I personally don't think there is a bubble, part of the rationale is explained in Fred's post.
What I think Fred is avoiding is the company-specific micro-view. In that case, I think "yes", many late stage startups seem to be over valued, just by applying Fred's yield logic (and growth-risk accounted for). Zynga was one of those companies (and obviously) we never heard how overpriced this was at IPO from Fred.
The valuation of these over valued startups seem to be driven by (i) increase in capital/competition from funds, (ii) eagerness by public markets to jump on the tech/startup bandwagon, and (iii) unrealistic "believe" that double-digit growth is sustainable for years to come.
Aren't a lot of those levels "sticky"? I could certainly see rate of increase going to zero very quickly, but actual decreases in salaries, leveraged assets like homes, etc. are a much bigger step.
I agree it's unusual that an employer will cut someone's salary - but there's another way to decrease average salaries.
If the cost of money rises, companies that are only viable while the cost of money is low go out of business, and their employees' salaries drop to zero.
I don't know about SF, but it certainly didn't stick in London (UK) post the dotcom bubble. Many people ended up either with no work in tech or taking voluntary pay cuts, and the hourly rates for contractors dropped dramatically only to get back to previous levels in GBP terms 10 years later. Many tech workers left London because they couldn't afford to live there any more. New properly developments around certain parts of London didn't find tenants, rents dropped making it more attractive to buy a few years later.
They are sticky, but part of the rate of change is driven by people moving between companies and getting raises and such. That will just happen less and attrition over time will do the rest.
