Friday, March 19, 2021

Felix Salmon: "GME, Doge, Supreme: How Getting Rich Went Full Internet"

 From WealthSimple Magazine, March 5:

The idea has always been that value — in stocks, art, precious metals, whatever — is inextricably tied to “fundamentals.” But it seems the internet changed that (hello, GME and Dogecoin!). Felix Salmon explains that if you want to understand finance now, you’d be better off studying Supreme than an annual report.

“This painting here, I bought it 10 years ago for $60,000,” the corporate raider says, standing before a massive canvas. “I could sell it today for $600,000. The illusion has become real, and the more real it becomes, the more desperately they want it.”

This particular raider is fictional — it is Gordon Gekko, in Oliver Stone’s 1987 movie “Wall Street.” The painting, however, is real: “Paysage,” by Joan MirĂ³, a canvas that sold at auction in 2001 for $503,000. Gekko’s line reflects an eternal investing ethos: find a scarce or unique object that others will covet, buy it, and then hold onto it as its value soars. But in 2021, that ethos seems to have been turned on its head. In the hyper-ironized Extremely Online world we live in, the less real something becomes, the more desperately people seem to want it.

Exhibit A: the Nyan Cat GIF. You know the one: an 8-bit cat with a body that’s a cherry pop tart, flying through outer space and leaving a rainbow trail. This GIF exists all over the internet, remixed into countless videos and memes. It also exists as a unique artwork, registered on the blockchain, and sold in an online auction on February 19 for 300 ETH. Which in dollars works out to around $600,000 — almost the same as the overly-aggressive price Gordon Gekko put on his MirĂ³.

So to the million-dollar question... is this dumb? Perhaps.

But understanding how Nyan Cat can sell for $600,000 is important because once you do that, a lot of other things start making sense, from GameStop to Dogecoin to the hypebeasts that have for years lined up around the block to buy $200 t-shirts at Supreme — a company that was itself recently bought by VF Corporation for $2.1 billion. Or 3,461 Nyan Cats.

"Getting rich slowly became much harder after 2008 because
the financial crisis effectively killed compound interest."

I think there’s a formula to understand what’s going on with all these things; I call it YOLO ZIRP SWAG.

Let’s start here: in the YOLO ZIRP SWAG world (I’ll explain the terms in a bit), enormous wealth can be created out of seemingly nothing. But there are three main rules of the game. Let’s call those rules Contingency, Irony, and Solidarity, in homage to the great philosophy text by Richard Rorty. 


The first concept to understand is Contingency — the idea that success is not preordained, but in large part simply a matter of luck. Duncan Watts, the theoretician of viral culture, calls this “cumulative advantage.” It’s impossible to predict what’s going to become popular, he says, because the main ingredient in determining whether you like a certain piece of popular culture is simply whether that thing is already popular. As a result, he writes, “tiny, random fluctuations can blow up, generating potentially enormous long-run differences among even indistinguishable competitors.” Success isn’t a function of anything intrinsic; instead, it’s unpredictable and contingent, reliant on factors outside any individual’s control....