2016-2018: Era of Slow Growth and Its Effect on Biglaw Forum

[hangingtree]

Corporate profits down. Stock prices inflated? 2015 is a huge year for M&A, but what will 2016 look like with a non-zero fed funds rate? China slows. Brazil implodes. Emerging markets with unsustainable debt. Europe is a mess in so many ways.

America's GDP grows only 0.5% each of the next three years.

What does that mean for us corporate associates?

Intuitive to say life will be better for us with fewer yearly hours but no layoffs. To $190K, then a period of stagnation?

What will be our fate?

[jkpolk]

Corporate profits down. Stock prices inflated? 2015 is a huge year for M&A, but what will 2016 look like with a non-zero fed funds rate? China slows. Brazil implodes. Emerging markets with unsustainable debt. Europe is a mess in so many ways.

America's GDP grows only 0.5% each of the next three years.

What does that mean for us corporate associates?

Intuitive to say life will be better for us with fewer yearly hours but no layoffs. To $190K, then a period of stagnation?

What will be our fate?

Let me just gaze into my crystal ball for you Skippy

[hangingtree]

Let me just gaze into my crystal ball for you Skippy

Assume we know what the crystal balls says. What might the corporate law world look like under such a scenario?

[WillitBlend]

Corporate profits down. Stock prices inflated? 2015 is a huge year for M&A, but what will 2016 look like with a non-zero fed funds rate? China slows. Brazil implodes. Emerging markets with unsustainable debt. Europe is a mess in so many ways.

America's GDP grows only 0.5% each of the next three years.

What does that mean for us corporate associates?

Intuitive to say life will be better for us with fewer yearly hours but no layoffs. To $190K, then a period of stagnation?

What will be our fate?

so in other words, 2016-2018 will be business as usual

[UVAIce]

The whole "raising rates" shenanigans is overblown. There is just not a massive difference between 0 and 25 basis points - they are both essentially nothing. The real question is how high will rates go? Probably not high.

Oh, and interestingly enough, if it looks as if rates will be climbing up slowly over the next few years it could actually accelerate deal flow because it's better to lock in interest rate "X" then stick around and end up with interest rate "Y"

Things will shake out okay, this is a global recession but it't not 2008. Part of the problem at the moment is that for the younger crowd the only downside of the business cycle they have seen is 2008, which just distorts their perceptions.

Breathe in. Breathe out. It's going to be okay.

[84651846190]

As long as you stay healthy and don't have to get additional higher education, you'll be fine with more or less stagnant wages. Health care and higher education continue to suffer from retarded levels of inflation due to the government's inability to fix (or complicity in keeping broken) these two sectors.

So yeah, just try not to get sick. I guess your health insurance premiums will continue going up by 10% per year. Sorry bout that.

[Monochromatic Oeuvre]

The lesson of 2008 was that it's very difficult to predict economic conditions even a year from now, and even when the factors pointing in one direction or the other were very obvious in retrospect. We might do a lot better than 0.5% over the next three years, we might do a lot worse. Nobody knows, and anyone who claims to is going against a lot of evidence that suggests otherwise.

[mvp99]

Corporate profits down. Stock prices inflated? 2015 is a huge year for M&A, but what will 2016 look like with a non-zero fed funds rate? China slows. Brazil implodes. Emerging markets with unsustainable debt. Europe is a mess in so many ways.

America's GDP grows only 0.5% each of the next three years.

What does that mean for us corporate associates?

Intuitive to say life will be better for us with fewer yearly hours but no layoffs. To $190K, then a period of stagnation?

What will be our fate?

I'm not an economist but all I see there is opportunity. Europe has been a mess since forever but I would concede that people are starting to see now that more unification, at least at the same pace, might be a problem without addressing first major differences. Anyway, Europe is not the future, it will essentially remain flat for the next 50 years. Brazil is taking major austerity measures (normal people will take the hit), it has to address its corruption problem, the president will probably be ousted soon, and the barrel of oil won't stay at $40 forever since OPEC members are also taking a hit. China couldn't growth 10% each year forever and I it actually welcomes slower controlled growth. I agree with the poster above. Also, when one kind of finance becomes more expensive, companies move to another type of finance. Just because it gets more expensive doesn't mean businesses will think "Hey I'll rather make no money now than borrow and make more money off money that's not mine." Only a very uncertain future will make businesses hold back on those transactions that feed biglaw. Also, elite biglaw is not hit as hard as other firms during rough economic times.

[hangingtree]

The lesson of 2008 was that it's very difficult to predict economic conditions even a year from now, and even when the factors pointing in one direction or the other were very obvious in retrospect. We might do a lot better than 0.5% over the next three years, we might do a lot worse. Nobody knows, and anyone who claims to is going against a lot of evidence that suggests otherwise.

This point should be noted, but we also shouldn't run with it too far. The amount of risk that existed in the run-up to 2007 does not exist now. Before, for example, major financial institutions were allowed to rely on short-term funding to an absurd degree, predatory lending was rampant, and there was an unwavering belief that the housing market was not a bubble and would not burst. In the post-crisis world, we're not only managing these risks, but we've dispelled the notion that we can rely on certain things to always be true in the economy. Regulators are more prudent and smarter now and are preventing the perfect storm of 2008 from happening again. Our crisis in America was a financial one. Large banks engaged in risky behavior, as did mortgage lenders and borrowers. The amount of and the way debt was tied up in the financial system won't happen again.

Point definitely still stands though. Anything can happen, from catastrophes to causes - like in the 2008 financial crisis - that seem extremely obvious in retrospect.

[lonerider]

Corporate profits down. Stock prices inflated? 2015 is a huge year for M&A, but what will 2016 look like with a non-zero fed funds rate? China slows. Brazil implodes. Emerging markets with unsustainable debt. Europe is a mess in so many ways.

America's GDP grows only 0.5% each of the next three years.

What does that mean for us corporate associates?

Intuitive to say life will be better for us with fewer yearly hours but no layoffs. To $190K, then a period of stagnation?

What will be our fate?

Look at what people were predicting three years ago, and see who actually got it right. Then take those two or three people, and listen to their predictions for the next two years. They will get it wrong.

Not two years ago people bought oil futures at $120+ a barrel because it was never going down. Oil is now below $50/barrel. In 2005 the markets were never going to crash. In 2008 the markets were going to implode and we wouldn't recover (unemployment is about 5% now).

Nate Silver has a great way of testing people's confidence in their predictions. Look to see who is putting their money where their mouth is. If you are really confident GDP only grows 0.5% for the next three years, that emerging markets have unsustainable debt, Brazil implodes, then you can devise an investing strategy to make money from it. Anyone can. If talking heads on cable make predictions like that, without putting any money at risk, then you know they have no confidence in what they're saying.

[orangecup]

Corporate profits down. Stock prices inflated? 2015 is a huge year for M&A, but what will 2016 look like with a non-zero fed funds rate? China slows. Brazil implodes. Emerging markets with unsustainable debt. Europe is a mess in so many ways.

America's GDP grows only 0.5% each of the next three years.

What does that mean for us corporate associates?

Intuitive to say life will be better for us with fewer yearly hours but no layoffs. To $190K, then a period of stagnation?

What will be our fate?

Look at what people were predicting three years ago, and see who actually got it right. Then take those two or three people, and listen to their predictions for the next two years. They will get it wrong.

Not two years ago people bought oil futures at $120+ a barrel because it was never going down. Oil is now below $50/barrel. In 2005 the markets were never going to crash. In 2008 the markets were going to implode and we wouldn't recover (unemployment is about 5% now).

Nate Silver has a great way of testing people's confidence in their predictions. Look to see who is putting their money where their mouth is. If you are really confident GDP only grows 0.5% for the next three years, that emerging markets have unsustainable debt, Brazil implodes, then you can devise an investing strategy to make money from it. Anyone can. If talking heads on cable make predictions like that, without putting any money at risk, then you know they have no confidence in what they're saying.

He also talked about the uncertainty of economic predictions in an article a couple months ago, noting that GDP predictions a year in advance have a margin of error of +/- 4.6%.

[mvp99]

Corporate profits down. Stock prices inflated? 2015 is a huge year for M&A, but what will 2016 look like with a non-zero fed funds rate? China slows. Brazil implodes. Emerging markets with unsustainable debt. Europe is a mess in so many ways.

America's GDP grows only 0.5% each of the next three years.

What does that mean for us corporate associates?

Intuitive to say life will be better for us with fewer yearly hours but no layoffs. To $190K, then a period of stagnation?

What will be our fate?

Look at what people were predicting three years ago, and see who actually got it right. Then take those two or three people, and listen to their predictions for the next two years. They will get it wrong.

Not two years ago people bought oil futures at $120+ a barrel because it was never going down. Oil is now below $50/barrel. In 2005 the markets were never going to crash. In 2008 the markets were going to implode and we wouldn't recover (unemployment is about 5% now).

Nate Silver has a great way of testing people's confidence in their predictions. Look to see who is putting their money where their mouth is. If you are really confident GDP only grows 0.5% for the next three years, that emerging markets have unsustainable debt, Brazil implodes, then you can devise an investing strategy to make money from it. Anyone can. If talking heads on cable make predictions like that, without putting any money at risk, then you know they have no confidence in what they're saying.

He also talked about the uncertainty of economic predictions in an article a couple months ago, noting that GDP predictions a year in advance have a margin of error of +/- 4.6%.

are you somehow suggesting that we can't predict whether salaries for first years will go up this year? the prediction based on micro and macro economics and nyc to 190k is certainly happening this year.

[hangingtree]

I should have laid out the point to this thread more clearly. This isn't my prediction, instead a gloomy but realistic scenario (imo). Any thoughts on the nature of the next downturn would be great, but I'm looking for people's assessment of what effect a low-growth American economy would do to biglaw corporate work.

For example, I read (see below) that many companies are financing their acquisitions with cash or stock instead of debt. So, does that mean, once interest rates go up and they can't take advantage of cheap debt, will we see more capital markets/finance work?

http://www.forbes.com/sites/mattporzio/ ... -means-ma/

Sorry about that. I cshould have been more clear as no one seems to have understood where I was going.

[MCFC]

Which firm will be best positioned as people race to buy gold?

[enibs]

Corporate profits down. Stock prices inflated? 2015 is a huge year for M&A, but what will 2016 look like with a non-zero fed funds rate? China slows. Brazil implodes. Emerging markets with unsustainable debt. Europe is a mess in so many ways.

America's GDP grows only 0.5% each of the next three years.

What does that mean for us corporate associates?

Intuitive to say life will be better for us with fewer yearly hours but no layoffs. To $190K, then a period of stagnation?

What will be our fate?

Okay, I'll play. Assuming the outlook you posit: (1) Base salaries will be stagnant and bonuses will be cut (I can't see base salaries going to $190K this year because, despite the explosion of deals and the resulting increase in firm profits, there's still a fear factor in the air and firms are worried about your outlook coming to pass); (2) hiring will be down, (3) there will be layoffs, stealth or otherwise, (4) firms will cut back on making new partners (though it's become ever harder to make partner anyway, so this is not likely to affect that many associates) and (5) it will be harder to find an in-house or other good legal job once you're told to leave your firm. Is that enough doom and gloom for you? Here's hoping your outlook is not correct.

[hangingtree]

Okay, I'll play. Assuming the outlook you posit: (1) Base salaries will be stagnant and bonuses will be cut (I can't see base salaries going to $190K this year because, despite the explosion of deals and the resulting increase in firm profits, there's still a fear factor in the air and firms are worried about your outlook coming to pass); (2) hiring will be down, (3) there will be layoffs, stealth or otherwise, (4) firms will cut back on making new partners (though it's become ever harder to make partner anyway, so this is not likely to affect that many associates) and (5) it will be harder to find an in-house or other good legal job once you're told to leave your firm. Is that enough doom and gloom for you? Here's hoping your outlook is not correct.

But all this with .5% yearly growth over three years? Presumably the outlook for 2019 would be rosier with all the corrections over the three years. Not fighting the hypo we're working with, I just don't see this sort of downturn affecting hiring/compensation all that much. I think it would look like 2012/2013 when we still didn't really see an end to expansionary measures. There weren't massive layoffs, hiring and comp decisions were just cautious. With the stock market corrected, major economies starting to get their act together, and us settling in to the new world of a less booming China and not-so-promising emerging markets, the outlook would have to be pretty strong (assuming nothing else goes wrong, of course).

Anywho, I'm also wondering what corporate law might look like during this period. Will M&A slow? Does restructuring take off? Which capital markets groups will be hottest: equity, investment grade, or high yield?

Again, this isn't a gloom and doom post. I just wanted to get some thoughts on what our world may look like in a few years under an adverse scenario.

[Anonymous User]

All the profits moving away from big banks (10% capital requirement via dodd frank) and into hedge funds and asset management firms(pension funds, etc)


new collapse in 2018, 5% growth once again in 2020.

[enibs]

Presumably the outlook for 2019 would be rosier with all the corrections over the three years.

Now you're changing the hypothetical. I don't see why you think the outlook for 2019 would be rosier after three years of 0.5% annual GDP growth. Recognize what 0.5% annual GDP growth for three years really means. GDP growth in 2008 was negative (-0.92) and was barely positive (0.11) in 2009. Annual GDP growth since then has been above 3% every year. A drop to 0.5% annually for three years would feel like we're back in a significant recession. It would not be 2011-2015 status quo.

[smaug]

Which firm will be best positioned as people race to buy gold?

i've heard that david boies is secretly a goldbug

[hangingtree]

Presumably the outlook for 2019 would be rosier with all the corrections over the three years.

Now you're changing the hypothetical. I don't see why you think the outlook for 2019 would be rosier after three years of 0.5% annual GDP growth. Recognize what 0.5% annual GDP growth for three years really means. GDP growth in 2008 was negative (-0.92) and was barely positive (0.11) in 2009. Annual GDP growth since then has been above 3% every year. A drop to 0.5% annually for three years would feel like we're back in a significant recession. It would not be 2011-2015 status quo.

Those statistics are very wrong and I'm shocked you actually think there has been over 3% growth since 2010. Please regroup.

Point taken though, that level of growth over three years would be worse than I have made it out to be. And I suppose I add to the hypothetical a bit. I just figured it was obvious that things would be looking up in 2019 in this scenario, since a four-year period of very little growth doesn't happen unless something goes horribly wrong, which I've made clear isn't what we're talking about.

[sinfiery]

Those statistics are very wrong and I'm shocked you actually think there has been over 3% growth since 2010. Please regroup.

brazen ignorance or tinfoil man?

[LawyerNever]

Yikes hangingtree man you sound so confused

[LawyerNever]

Also moving the goalposts and just asking questions, hitting all the shitposting bingo squares

[Anonymous User]

When does anyone ever talking about GDP growth rates actually mean GDP growth rates without adjusting for inflation. Yes, I meant its real GDP growth rate, and I could have said so, but I'm not used to needing to add the "real" before.

[hangingtree]

The above anon was me (as was obvious), sorry about that.