Silicon Valley: They’re Gonna Need A Bigger Towel

In October of 2015, I made the case for why “crying towels” were the next big investment opportunity coming to Silicon Valley. This argument was met with derision and ridicule from many I refer to as: the Silicon Valley aficionado set.

After-all, it was they which implied they “knew” better about anything concerning the business of tech than anyone else on the planet. And if you wanted proof of that – just ask them.

Getting them to stop telling you may be another matter entirely, but I digress.

In the above mentioned article I proposed the following. To wit:

And this brings on a whole host of other meme shattering, break out the “crying towels” type arguments. For if it can happen there – guess where else it’s going to begin happening? Is ________________ next? Just fill in your current favorite high-flying Non-GAAP social darling on that line – for it’s going to happen at all of them very soon in my opinion. Much sooner than many now even think or ever thought possible.

“Coders” will gladly live in some single bed shared between 8 others apartment somewhere near the Valley. Heck. they’re now reporting stories how one can live in a shipping container on the cheap in San Francisco. Sounds fantastic right? Well, it is. As long as the dreams (and expectations) of landing the dream job in a start-up or similar where riches based in stock options and more are forthcoming or, dangled like carrots in front of wide-eyed dreamers.

‘Crying Towels’: Silicon Valley’s Next Big Investment Op

Let’s put aside the once professed IPO or Tech “gonna be rich!” delusions of a Lamborghini® in every garage and McMansions aplenty to park them in. And bring in the very, very, very (did I say very?) real reality of stench and lunacy that currently is San Francisco.

Hint: Got your human feces notification app ready and updated? You’re gonna need it.

San Francisco’s median house price is continuing to fall. The “Silicon Valley” area (e.g., San Mateo, Santa Clara counties) are doing the same. The problem here is, these are not suppose to be falling when the “markets” are at all time highs and the so-called “Deca-corns” are being released from their IPO stables. Unless… (rhymes with “glue factory”)

Uber™ has since IPO’d – and the subsequent response for valuation appears eerily similar to that of what’s basking on the sidewalks of San Fransisco in both odor, as well as appearance. While others (think Slack™ et al.) appear to be mimicking this same offensive reaction.

Unlike what you need to avoid getting “San Fran” on your shoe. All one needs to do is look at a recent chart of the latest “price droppings” of these once lauded unicorns to be reminded that when they drop, it’s not going to be anything similar to the images of rainbow colored ice cream one conjured after viewing the slide-deck.

No, to ensure the same doesn’t happen in one’s portfolio as what happens to one’s shoe in California, you don’t need an app, all you need is to go back to using common sense while viewing a recent chart of these “great investment opportunities!” and know, whats on the walkways of San Francisco has more in-common with their valuations, than the delusions pitched at any road show.

And if you are one of the unfortunate many that suddenly realized were advised and you now have a bunch of this utter horse crap “growth stocks to protect against inflation” in your portfolio? You have my condolences.

Remember Uber’s $120 Billion narrative, anyone? Bueller?

However, since 2015 most, if not all, of the prior arguments I’ve been making to the screams and hollers of the “aficionado set” have been playing out. The only thing that has been masking the effects and timing is that the Fed. had first jawboned their intention to cave, then completely caved and reversed course.

If they had not? Let’s just say “The Valley” would be in far worse shape than it is currently. Yet, I think it’s all been just a “pause.”

Here’s a bit more from the aforementioned article to bolster my point, again, to wit:

“Coders” will gladly live in some single bed shared between 8 others apartment somewhere near the Valley. Heck. they’re now reporting stories how one can live in a shipping container on the cheap in San Francisco. Sounds fantastic right? Well, it is. As long as the dreams (and expectations) of landing the dream job in a start-up or similar where riches based in stock options and more are forthcoming or, dangled like carrots in front of wide-eyed dreamers.

There’s nothing wrong with lumping it out with the hope of future pay offs. I did similar things when I was young. It’s a risk reward thing and I champion those willing to take the chance.

However, you know what changes everything? When the meme of “Gonna stay here till I cash-in and then I’ll buy me a McMansion!” turns into the underlying realization that quite possibly – you’re going to end up living in a shipping container! Possibly forever if things don’t change.

Suddenly Mom and Dad’s basement looks like paradise, and the thought of leaving “The Valley” becomes more, and more front of mind with every passing IPO failure or failure to launch.

Today’s reality…

Welcome To “Pod People” Screen grab (Image source via ZH)
Screen Grab – (Image source via ZH)

The above pictures make living in a shipping container look down right upscale, no? And to those that keep buying into the idea of “my next dig is a McMansion as soon as this thing IPO’s?” Hint: You’re now settling for a “dig” that makes those shipping containers the McMansion equivalent.

There’s an old saying that may just apply here, as in: The first step to getting out of a hole you’ve dug – is to stop digging. But then again, what do I know, for “It’s different this time” right? Right?

The illusion, or better yet, delusion, that the metrics for riches and business could be arrived at by believing 1+1 = (what ever you want) and could survive in perpetuity, without decending to the same results as any Ponzi scheme, implores how beyond lunacy its all been. Think of it this way…

The arguments now being made, along with what has already played out since central banks, and in particular the Fed, have perpetrated against the fundamentals of free markets and capitalism in particular: Bernie Madoff’s only crime would be – that he panicked too early.

For if he would have continued to “fake it” like most of these what I deem as “fake businesses parading as legitimate ones.” do quarterly. He would have suddenly found that in all but one or two years the Fed would not just “allow” but enable his scheme to even higher heights.

By the Fed doling out $Trillions, all his losses would now appear as just one big hiccup. Right in line with everyone else today. But it gets even more surreal if you want to take it out to its logical conclusion…

All those fake statements for wealth he had supplied would have not only been rectified, but would all be up somewhere north of 50% from the 2007 highs in only 10 years. Probably even more if he was able to partake on the IPO -VC racket. And he would no doubt be a requisite go-to fixture on every mainstream business/financial outlet to give “his take” at every hiccup that’s ensued since.

Heck, he may have even closed shop altogether thinking “Why should I continue to put out fake statements and risk going to jail, when all I have to do is invest in one of these unicorns and I can state legally my $million dollar “investment” is now worth $Billions?!”

Think about the above very carefully, for it truly is conceivable. And here’s why using none other than Uber, once again.

I made the arguments back in early 2017 that Uber was facing both a possible “Extinction Event” aka “Down Round,” as well as a possible “Theranos Moment.” Both of these (all my conjecture) have been mitigated (again, my conjecture) by only one thing: A VC (venture capital) outfit more brazen in its audacity to spin narrative of riches and business sustainability that made the founders of these money losing, cash burning fallacies of business envious. e.g., SoftBank™.

Here’s from that article, again, to wit:

If – and I do mean just that, Uber needs to go back to the “funding” rounds (and it’s easy to speculate it will need to with its self verified cash burn woes) with all the exposed dirty laundry, and excess baggage now exposed to the entire investing world and “Valley”, coupled with its extraordinary cash burning metrics and collapse in “growth ” story (i.e., China being just one) where the last funding round (June of 2016) was made via the Saudi Arabia’s Public Investment Fund.

Who’ll want to step in after it’s assumed that this company has now also burned through $3.5 Million of Saudi dollars – and now needs more?


“Unicorns Watch In Horror As Uber Careens Towards Extinction Event: A Down Round”

Bueller did not attend or raise his hand. But Masayoshi Son of SoftBank did. And had he not?

I was, and still am, of the opinion that Uber and all the others prancing about in the IPO stables would have experienced that “event” right then and there. For he also single-handedly saved the entire IPO case. That is – till now.

In regards to my earlier “Therano’s” equivivation argument, here’s a bit from that article. To wit:

Now to be fair Theranos™ was/is caught up in what has been deemed as fraud for their product offering, Uber is not. However, why I use the “moment” appraisal is this: Once it was shown that the whole “so worth it” valuation metric was no longer above reproach? The jumping-of-ship for those closest happened so fast even rats took notice.

Ms. Holmes publicly declared any, and all, accusations as false before finally having to recant in the form of pulling, or re-verifying prior testing results. But as she was doing that publicly, quietly many either working for, or involved in management were reported to be heading towards any and all exits. Then, precisely one year ago this week (yes, it’s the anniversary) Forbes™ revised, and declared Ms. Holmes net worth had gone from $4.5 BILLION – To Nothing. And just like that it was over almost as fast as it had began.

So exactly where is the equivocation argument? Good question, and it is this:

The revising of valuations and more came when suddenly everyone no-longer could justify the valuations based on “it’s different this time” arguments.

“Is This Uber’s ‘Theranos Moment’?”

May I remind you of just two numbers: whispered $120 Billion valuation, disastrous $45 IPO debut. The rest I’ll leave up to you.

So what does this have to do with today? Hint: Everything. Why? Hint: rhymes with WeWork™

WeWork is another of SoftBank’s VC latest investments that, much like Uber, came at what could only be deemed as a perilous time for these so-called “Deca-corns.” Because it appeared no one was willing to step or, or step in, only to find an ungodly amount of “San Fran” clinging to their shoes. But, once again, it was Mr. Son that did. And it’s unfolding into a pure disaster with every passing day.

Not only is the Uber investment not paying off as planned (reports have the “investment” now in the loss column over half a $Billion and climbing.) But the so-claimed proposal of WeWork being valued at nearly $50 Billion has fallen by near 80% if some reports are to be believed, and currently sits somewhere around a whisper number of only $10billion. And there are many more screaming it ain’t worth even that.

About that “screaming…”

Now enter none other than the clown prince of buzzer-banging investment advice: Jim Cramer.

So nervous of what this once lauded “Deca-corn” (yes, this is a real term because in the Valley, the term “unicorn” wouldn’t get the sycophantic media to cover your parties.) that he appears to have broken out into cold sweats when talking about it on CNBC™.

So worried is he that he is begging, yes begging, them not to IPO. Why? Because he thinks it will wreck the “market.”

This is being said when the “markets” are flirting with braking the all-time-record highs at any given moment. And now he’s concerned? Think about that!

You know who else is worried? Hint: Rhymes with SoftBank. Yes, that SoftBank.

So worried that this debacle will turn into an even more unmitigated disaster, they have now proposed the idea that if it does actually come to light, that they will buy some $750million of its stock at its launch to help shore it up.

Can you say: Desperation? For that’s not the way these things are suppose to work. It would appear SoftBank is running down the same rabbit-hole of logic to tech and investing that the “coders” still waiting to cash in, or cash out, are doing trading a shipping container not into a McMasion, but rather, a pod.

But then again, maybe this is a brilliant ploy for all concerned in the end. Why?

Because if the WeWork IPO doesn’t pan out as planned, and if that results into a funding crisis as has been reported about their proposed available “lines of credit” secured only if a certain IPO threshold is met. All that real-estate WeWork is on the hook for may suddenly be available as “work from home” rentals. i.e., Trade in those pods for a desk. Call it…

“It’s different this time – so let’s right size where we work, eat, sleep, bathe and more. After all, a desk today is so much more – and – it’s not your Mom’s basement, right?!”

I know, I know: here’s a towel. But as for your shoes?

You’re on your own.

© 2019 Mark St.Cyr