"It very well might be a bubble – who knows – but then again, more people are interested in collectible watches than ever before, so maybe it's just the beginning?"

Interesting editorial on Hodinkee today:
Something To Consider: The Average Lot In Christie's Post-War Art Sale Was Double The Value Of The Top Lot In Its Watch Sale

 

I bet the average lot price in this weeks "Okie Boys Summer blowout livestock auction" will be ten fold lower than the average price on the Christies watch auction...... Maybe I should write an "editorial" about this....

 

I'll just go ahead and admit that I have little to no knowledge of fine art...however the one thing I'm somewhat sure of is the fact that most of the time isn't there only one copy of the original painting, sculpture, etc? The extreme rarity and Allure of owning the only piece ever made has a bit to do with the price of art. I know a few watches might be extremely rare in their own right but aren't those the ones already going for millions? I would assume there are simply too many examples available of most references to drive the entire category into the same stratosphere as fine art.

 

In the realm of anything that doesn't have an intrinsic monetary valuation (e.g. generates some estimated amount of cash flow), of which collectibles fall under, it's hard to call out something being a 'bubble' just because of the velocity of price increases. The price is what it is - a price. There is always a peak for historical prices - and unless that is the highest point forever, there will always be a next time when prices will exceed that previous peak.

So for this to be a 'bubble' - you implicitly expect that there will be a time where prices will decrease in rapid fashion, in the near future. Given that supply-to-market is generally constant to slightly decreasing (eg rate of collectors selling + new watches coming to market) - it must be that demand falls drastically. If I call this a bubble, I must have some belief that demand will fall drastically at some point in the near future. I find it hard to generate that belief, especially on 'vintage watches' as a whole (I do have some belief that there may be a drastic fall in demand in some specific brands or models as the incremental interested and able-to-pay collector goes away, e.g. on Nina Rindts or Claptons, but at the same time I don't foresee supply coming out into the market, so you probably wouldn't see a big price action) - ergo I don't think this is a bubble.

 

following this one

 

It is not easy to see from the inside

 

Yusaku Maezawa doesn't see one, he just splashed $110m on this Basquiat...

I wonder if he likes Speedies ?

 

Looking forward to seeing the Basquiat exhibition at the Barbican later this year... going to be intense.

 

Boom for real.... i'll see you there!

 

I could respond, but I'd basically be parroting this verbatim. Excellent response.

 

For simple people like me, @MSNWatch 's post related to 2013 bubbleworries still rings true.

"Huge Supply + Huge Demand + High Public Awareness + High Prices = Potential Bubble
Low Supply + Low Demand + Low Public Awareness + Low Prices = Diamond in the Rough
Low Supply + High Demand + High Public Awareness + High Prices = Polished Diamond"

 

With respect, the above is nonsense. To use just one of many possible illustrations of why, no one could seriously argue that the dot-com bubble which burst in 2000 was not a bubble because the NASDAQ is over 2000 points higher today. Similarly, no one could seriously argue that the property bubble which burst in 2008 was not a bubble because some values are higher today. To use a commonly accepted definition of a bubble:

It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate.

I disagree completely with your conclusion, the main reason being that you fail completely to factor in the broader economic environment.

We are living in a unprecedented period of economic experimentation, and danger. I don't want to go too far off on a tangent, but the world is at the tail-end of the biggest credit/debt bubble in history, and by a spectacularly large margin. Unless you believe that a debt crisis can somehow be resolved creating mountains of new debt (spoiler: it can't), there is no way to avoid the awful consequences of the arguably criminal economic policy in which Central Banks around the world have been engaged.

Crippled further by significant demographic headwinds, there is no possibility that the massive debts accrued by the major Central Banks around the world can ever be repaid, except through hyperinflation.

Is anyone on this forum aware of the fact that the Swiss National Bank owns over $80b (that's billion) dollars worth of American stocks? More importantly, are you aware of how they pay for those purchases? They create "money" on a keyboard. Or, put another way, they create it out of thin air.

Now, one shouldn't have to be a business school graduate to understand how such purchases distort true – and crucial – price discovery beyond all recognition.

So, when I think about the current vintage watch market, I think well beyond how many Nina Rindts may be on the market, and imagine what kind of demand there is likely to be when the world faces yet another, major economic crisis. And while it is true that the best examples of sought-after models will likely retain more of their value than lesser examples/models over a long time-frame, in the near-term, none will likely be impervious to a severe shock to the economic system.

 

For some, individuals and corporations, art is a form of alternative asset class; like bonds, gold, equities. Some nefarious folks use it as a way to "launder" money and transport across borders etc. but with the emergence of crypto currencies, we could very well see the bubble for high priced art pop. But at least art is tangible.

 

Fantastic. My responses.

I am not arguing that because the price of something is higher today, any previous run up in price is not a bubble (which is your point about the NASDAQ). I am arguing that you cannot conclude something is a bubble simply because the price has run up with some accelerating velocity. In other words, increasing prices is a necessary but not a sufficient condition for a 'bubble'.

I fail to see how all of that is relevant to the discussion at hand. Your point seems to be that the broader economic environment we're in is printing a ton of excess cash, which is driving up valuations of 'things' in general, and hence the prices of things we see today are dislocated from their 'true' values.

Here lies the crux of my original argument - that because these things like watches, art, have no intrinsic monetary values, it's very hard to form a belief that these things are 'overvalued'. You might argue a stock or company is overvalued if, say, it generates $100 of cash flow, and the stock price begins to reflect an increasingly higher and higher multiple, eg it used to be 10x, now it's 12x, 15x, 100x... that would give you some cause for belief that it's a bubble. But with watches, or art? Following your argument of 'too much money in the system', how do you call something 'overvalued' in monetary terms if that thing does not have a way to be valued in monetary metrics? Your only metric would be 'oh, this is so much more expensive than what it was in the past...', which I do not believe is sufficient for the definition of a bubble.

Finally, the fact that asset prices in general fall during a financial crisis has little to do with whether that asset is in a bubble or not. Rightfully or not, and this is up for some other debate (and of course this was not your original point, but I'm just leaving this out there for others), you need debt to drive the economy because it vastly increases the velocity and circulation of money via allocations - imagine if you couldn't borrow from a bank, who holds deposits from other people, to build a factory - the economy essentially loses a factory that would potentially have been built. Obviously if the incremental piece of debt is going into diamonds, art, gold, watches, etc - and doesn't generate economic profit, that's not great. But I hardly think we're seeing anything near that at this point in time - gold is still way below previous levels (This is obviously not a very convincing argument for the point I'm trying to make, but forgive me for the sake of expediency) the art market has only recently started to recover, and while I'm sure you can find some non-cash generating asset that has seen remarkable appreciation in price, I once again stand with what I said originally - it's a necessary but not sufficient condition for us to call this a 'bubble'.

 

To keep it simple…

All the various orchestras still seem to be playing enthusiastically

But, personally, I do get a sense of the music slowing...... just perceptibly

In other News……appears to be a sudden slew of DON bezels 'On Sale', recently…

 

All I have to add to this is

But a rube like myself does think there will be a market correction of some sort in the near future, and I do think it will tied to a global economic event.

At that point, the middle market (i.e. mediocre examples of top tier brands and top examples of tier second tier brands) will get gutted. The blue chips will weather the storm, with collector grade examples staying in demand.

The deep pocketed collectors will still spend, just not as much or frequently. Many, myself included, will be in the position of trading our best pieces as cash will be short...not as much buying and selling.

But who the hell knows...that is why we are in the game.

 

Provenance will be important.

Modern technology like laserwelding etc will become a problem.
Frankens/replica watches more availible.

My best guess is by 2020 its possible to get a 3rd party "certificate of authenticity" done by experts. This will be a huge market. And all watches lacking this will be "gutted"

people will be more and more afraid of frankens/fakes.

 

Yes. There always seem to be deep-pocketed folks around, even when there is an economic shit-storm. And rich people always like nice things, and will always buy nice things, and the nicer, the better. So unless there is Armageddon, those minty Speedmasters will continue to be in high demand.

 

Thanks for your thoughtful response.

The problem with that argument is that your are claiming that it is not possible to identify a bubble until after it has burst, and that strikes me as unsupportable. I don't claim to have any special insight into economic events, nor am I in a related business, but it was painfully obvious to me (and many others) that the dot-com bubble was a bubble, and that the subsequent property bubble was a bubble. We didn't need to wait for prices to fall dramatically to know that those were bubbles, underscoring that the essence of your above claim is false.

I do agree that other factors need to be considered, so in a vacuum the data point of rapidly rising prices would, as you assert, be insufficient to identify a bubble. But we aren't living in a vacuum.

It's actually more complex than that. Those who can currently afford to chase increasingly expensive models in the vintage market have been, and by a very wide margin, the main beneficiaries of warped political and Central Bank policies since the '08 crisis, and when the tide turns, you can bet that demand will slacken. I worked for a billionaire during the last crisis (yes, a very small sample), and his purse strings tightened considerably at the time. Furthermore, the impending crisis will not only hammer paper wealth such as stocks and bonds, but will also catalyze rapid debt deflation, a significant portion of which represents assets to the moneyed class.

I agree with this, as far as it goes. Your distinction is an important one, and furthermore, vintage watches are somewhat different than other, similar asset classes (e.g. Fine Art, automobiles) in that the genre was only embraced on a widespread basis since the advent of the internet.

Yes, it's better not to veer off too much into economics on this thread, though I'd be happy to do so over a beer sometime. And, as a final note which underscores the complexity of the matter, I sure as hell would rather have been holding some fine vintage watches than Venezuelan Bolivars over the past couple of years, but over the next year or two, I'll take gold bullion, and without hesitation.

Cheers,

Tony C.

 

I hope a bubble comes so I can buy nice pieces for reasonable prices again