Horological Meandering

One of the interesting results of the unprecedented, and profoundly stupid policies that were instituted after the previous crisis, is that much of the developed world is in a period of accelerating "biflation". That is to say that some things have risen dramatically in price (e.g. stock markets, high-end properties), while others (notably commodities) have dropped. While the economy is intrinsically very complex, there are some fairly simple, fundamental reasons why we are seeing this unusual period of biflation. 

As governments have created enormous amounts of "credit" or "liquidity" (i.e. money) out of thin air, and a very small percentage of those at the top of the wealth ladder have benefitted, prices of high-end property, fine art, vintage automobiles, etc., have reached record levels. Supply is limited, and demand has risen. As some readers may have noticed, the same dynamic has affected the top end of the vintage watch market, as well. 

These inflationary pressures were totally predictable, as the policies put in place after the last crash were largely designed to benefit the rich. One of the many problems facing governments and central banks today is that rather than stimulating the economies in meaningful, organic ways, they have instead done the opposite. Their policies have crushed the middle classes around the world, and forced them into more debt and/or risky assets through low (or zero, or negative!) interest rates. The practical impact of these policies, as they pertain to collectors markets, is that we are seeing the same type bifurcation resulting from biflation.

I have been collecting vintage watches for well over two decades, and have increasingly noticed this dynamic over the past couple of years. While the top end remains very strong, as those with money are doing very well, the middle market has softened considerably, as the pool of buyers, and what those remaining are willing to spend, continues to shrink. What makes this trend even more pronounced is the fact that there are currently more fresh watches coming to market then ever before. This is happening for yet another obvious, yet sad reason: more and more people are strapped for cash, and are being forced into selling personal items that would not be on the market otherwise. Supply has increased, while demand has fallen.

I expect that this dynamic will continue, and possibly even accelerate further, until the next crisis unfolds in earnest. From a strict business/investment standpoint, those buying high-end vintage watches are, in my view, playing the same dangerous game being played by property and fine art speculators. Or, to quote hedge fund manager Kyle Bass, they are "picking up nickels in front of a steam roller". 

Those shopping in the much softer middle market, however, are benefitting from a buyer's market, and are probably doing well, even though prices are virtually certain to drop further before any long term trend reversal occurs.

Of course I understand the cautious mantra that is often expressed on watch forums, along the lines of "One should never think of watches as investments.". But the truth is that almost all collectors think about the value that a watch represents before purchasing, and also imagine that it might retain a good portion of that value. My purpose for writing this post is not to give investment advice, but rather to point out that external economic factors can and do impact markets, and when extraordinary events occur, markets can be impacted dramatically. I believe that we are in such a period, and the resulting volatility has already produced, and will continue to produce both dangers and opportunities.

Regards,

Tony C.

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