Betting The Farm On Moonshots

Authored by MN Gordon via EconomicPrism.com,

Ashley Revell of London had a mad itch he needed to scratch.

The year was 2004.  The initial tickle came from a casual drinking conversation with a friend.  Revell couldn’t let it go.

The idea, in short, required Revell to liquidate all his possessions, travel to Las Vegas, and ‘bet it all’ on one spin of the roulette wheel.  The idea was sheer lunacy.  Yet Revell was just crazy enough to go through with it.

Revell sold off all his possessions over a six month period and traveled to the Plaza Hotel and Casino in Las Vegas.  Then, one Sunday morning in April 2004, with his mom and dad standing behind him, along with a film crew, Revell placed $135,300 on red.

What happened next?  Here’s Revell’s account:

“That spin was the most amazing moment of my life.  It is a cliché but time did stand still.  It was just complete calm because I had done all the hard work.

“Everything had all been sold.  I had no possessions.  I had decided whether to go red or black.  There were no more decisions to make – it was a complete feeling of freedom.

“The ball sort of bobbled around and then landed in what I thought was red but it disappeared slightly from view.  I looked around and, as the wheel spun back into view, there it was resting in number seven.  Red.

“There were a few people watching and they erupted.  They cheered and I just cheered.  Somebody ran on with a bottle of champagne and everyone was celebrating.  My friends and family were there going wild.  I had won £153,680 [$270,600].  It was just a crazy time of complete happiness.”

Revell, no doubt, was extraordinarily lucky.  He could just have easily lost it all on this high stakes wager.  Then what would he have been?

He would have been an instant fool without a dollar to his name.

Art Fart

Speculative manias always gain momentum through the expansion of money and credit.  A look back at past manias tells this story with familiar rhythm.

For example, the mania for tulips in Holland in 1636 and 1637 was intensified by personal credit.  At the peak, sellers had no bulbs…yet buyers, lacking cash, made down payments in personal possessions or commodities.

John Law’s Mississippi Bubble from 1718 to 1720 was puffed up by paper notes issued by his Banque Générale, later the Banque Royale.  The mania for residential real estate from 2003 to 2007, much like today, was made possible by low interest rates and the expansion of credit through mortgage backed securities.

Objects of speculation – from canals, to railroads, to IPOs, to electric vehicles – may change.  But the mania follows a similar boom to bust trajectory.  One perennial object of speculation, which produces some of the more entertaining episodes, is art.

In 2006, for instance, at a time when cheap credit was abundant, there was the “$40 million elbow” incident.  That was the approximate cost incurred by casino magnet Steve Wynn when he inadvertently stuck his elbow through the canvas of Picasso’s “Le Rêve.”  After the distinct ripping sound Wynn muttered, “I can’t believe I just did that.”

Now cheap credit has delivered something called digital NFT art.  The NFT, pronounced ‘nifty’, stands for non-fungible token.  And they’re all the rage.

The “WarNymph” NFT collection by Grimes, of Elon Musk fame, recently sold for $5.8 million.  And a group of crypto evangelists just live streamed the burning of a print of Banksy’s “Morons”.  Then they created a NFT, called “Burnt Banksy”, to represent the artwork – the recorded burning – on the Ethereum-based OpenSea market place.

The individual who delivered the flame explained the rationale:

“The reason behind this is because if we had the NFT and the physical piece, the value would be primarily in the physical piece.  By removing the physical piece from existence and only having the NFT, it makes sure the NFT due to the smart contract on the blockchain will ensure that no one can alter the piece, and it is the true piece that exists in the world.

“By doing this the value of the physical piece will be moved onto the NFT and being the only way you can have this piece anymore.  The goal here is to inspire, we want to inspire technology enthusiasts and we want to inspire artists.  We want to explore a new medium of artistic expression.”

Are you inspired?

At the time of this writing, the auction for “Burnt Banksy” is still open.  We put the over/under at a million bucks.  What side of the wager do you take?

Betting The Farm On Moonshots

Betting your life savings on the turn of a roulette wheel – or digital NFT art – is remarkably dumb.  Yet after a decade long bull market that has now inflated into a real McCoy bubble, anything is possible.

Millions of Americans are taking similar risks to what Revell took.  Only they’re using their retirement savings.  Moreover, they’re betting they can do much better than just double their money.  And they don’t even have to go to Las Vegas.

Presently, thanks to a seemingly endless supply of cheap credit courtesy of the Federal Reserve, speculation is rampant. What’s more, there are countless vehicles for speculation that one can access from the comfort of their own home.

Technology stocks, small-cap stocks, bitcoin, special purpose acquisition companies (SPAC), digital NFT art – you name it.  Indeed, the late stages of a credit expansion compels people to do insane things.

The current spirit of the moment is not to just double your money.  A mere double is weak.  Today’s speculators expect much bigger returns.  They’re after moonshots.  They’re after overnight 10x and even 100x returns.

People have watched their friends and neighbors quickly 10x their money in cryptos and technology stock moonshots – like Tesla.  They want moonshots too.

But what’s this?  After hitting $900 on January 25, shares of Tesla have dropped over 30 percent.

Is this just a short bear market for Tesla before Congress’s new stimmy checks inflate shares to new highs?

Time will tell.  But we wouldn’t bet the farm on it.