Les Start-Ups Get Stuck

Watch you don't drive into the mud...

"DAMN!" reports Bill Bonner in his Diary of a Rogue Economist.

Ramón had been so absorbed in laying out his plans for our new farm that he forgot to put the truck into 4-wheel drive.

When he finally realized he needed it, it was too late. The water was already up to the doors and the wheels were deep in the mud.

"No problem, Ramón," we kidded him. "I guess this is new to you."

Ramón has lived here in northwestern Argentina his entire life. It seems to have shaped him, the way the wind carves the mountains and the water wears down the stones. He is as big and colorful as the valley.

He was born in the house we're going to see and knows the Calchaquí River better than anyone. But he was distracted. He is advising us on how to clean up our new farm, fix the irrigation canals, and put the fields into production.

He had become so wrapped up in his plans – pointing to where we should put in fences, roads, and drainage ditches – the river surprised him.

The idea behind buying a new farm was simple enough. Our cattle don't have enough to eat. In a normal year, we get by. But when we have a dry year – which is about every other one – the cattle starve.

The new ranch is about 3,000 feet lower, on both sides of the Calchaquí River. We can irrigate the fields there year-round...and stock up the rollos of hay for when the cattle need them. When all the work is completed, we hope to have about 500 acres in alfalfa.

Then, rather than move the hay, we move the cattle. From our high ranch, it takes two days. It's an old-fashioned cattle drive, with gauchos (Argentine cowboys) moving the weak and hungry animals up over a mountain pass and down the other side, through the desert, to the lower ranch.

When they did this last year, seven cows died. But at least the others survived. Next time, we'll have the fields waiting for them; we'll move them earlier.

Meanwhile, investors get distracted too. The subject of greatest interest at the investment conference in London we attended last week was cryptocurrencies.

But when individual investors – even our own dear readers – are interested in a high-risk speculation, it is usually time to put on the 4×4...and get out.

More evidence comes via The Wall Street Journal:

"Companies have a long history of juicing their share prices – at least temporarily – by renaming themselves to reflect the latest investment fad. [American economist] Burton Malkiel writes of a company that sold records door-to-door during the height of the Kennedy bull market's fascination with the Space Race. Its shares rose sevenfold after it changed its name to Space Tone. And there was MIS International which briefly did even better after changing its name to Cosmoz.com in early 1999.

"Nasdaq-listed Bioptix, which previously had as its main business the development of a follicle-stimulating hormone for cows, horses, and pigs, took a page out of the same playbook by changing its name to Riot Blockchain. Cryptocurrencies are hot stuff and the company is even investing in a Canadian trading platform for them.

"Its shares went as high as $9.50 on Wednesday or more than double their price a week ago. Investors should make hay while the sun shines."

Investors seem to have great confidence in a future made bright by cryptocurrencies and other advances in technology. They expect breakthroughs tomorrow.

And they're ready to pay for them today...

Tesla, Snap, Uber – along with dozens more – lose billions of Dollars, year after year.

But investors see a corner...and they're sure these techies will turn it.

Netflix, for example, announced in April that it hoped to lose "only" about $2 billion this year.

Investors were satisfied. They bought all year – bidding the company up to $80 billion, twice as much as it was a year ago.

Some of these "new" technology companies are getting long in the tooth. Amazon.com, for example, has been around for more than 20 years.

Finally, it is making money. But investors in Amazon are paying 251 times each Dollar of earnings for the company's shares.

The normal price-to-earnings ratio for a retailer: about 12.

They must be expecting Amazon to turn one helluva corner. Or maybe an act of God that will make the shares worth so much money.

Our son Henry – who now writes a newsletter for our French readers – reports that tech investors seem to have lost their minds in France, too:

"French start-ups Criteo (online advertising), BlaBlaCar (ride-sharing app), and Vente-privee.com (online sales) are worth more than $1.2 billion.

"Leetchi started in 2009. It's a service that shares out group payments, such as those for tickets, meals, and birthday presents. In 2015, its creator, Céline Lazorthes, sold the company to Crédit Mutuel Arkéa, a cooperative bank, for €50 billion [$59 billion]."

"If new technology was such a success..." we asked investors in London, puckishly..."if it was so powerful that it will put us all out of work...and generate trillions of Dollars in profits for its owners...how come growth rates have been going down for the last three decades?

"If technology always makes things better, how come things seem to be getting worse?

"We've got more PhDs in the tech sector than ever in history...but we still don't make enough money to pay our current expenses...let alone our debts. How come?"

We have an answer. Technology doesn't always make our lives better. Sometimes it makes them worse. And we don't want to be owed money by someone who depends on a surprise breakthrough to pay his debts.

But the fad may be coming to an end. No obituary is more conclusive...no death certificate more final...and no investment trend more surely at its end than when the government wants to get in on it. Henry:

"French president Emmanuel Macron announced a €10 billion [$12 billion] program for 'les start-ups'..."

That's right: The French are proposing to invest taxpayers' money in politically correct start-ups that won't threaten existing jobs or crony businesses.

We hear the money gods chuckling...and bells ringing.