Editorial

There’s an old British financial saying: “safe as houses”.  It means that a financial endeavor is risk free, or nearly so.  Of course, anyone who lived through the 2008-2009 housing crisis in the U.S. might take issue with this wisdom.  Before that debacle, U.S. housing prices hadn’t declined on a nationwide basis since the Great Depression in the 1930s.

It sort of makes it tough to take the adage seriously.

But maybe we don’t need to abandon the maxim, so much as update it for the modern age.  After all, houses are tangible assets, and I strongly suspect that assets you can touch, hold and keep in your physical possession will do surprisingly well in the years to come.  But if houses, which have shown vulnerability in the face of widespread property bubbles, aren’t the tangible asset to own, then what is?

Here’s my working theory.  Maybe vintage watches are the place to stow a bit of your hard-earned money instead of a stodgy old savings account.

Many people might be surprised by this bit of unconventional investment wisdom.  After all, a savings account has traditionally been one of the safest places a person can keep his excess cash.  So why in the world would I think that vintage watches would be better?

Well, financial risk can come in many different dimensions.  For example, with a savings account there is the risk that your bank will go bust and be unable to pay back your deposit.  In these instances, a national bank insurance fund (like the FDIC in the U.S.) will usually pick up the slack, making good on deposits up until a predetermined monetary limit.

So no, I don’t expect many people to lose money in failing banks.  After the 2008-2009 financial crisis, regulators demanded that banks in the U.S. maintain far higher reserve levels than they had previously.  So even in another financial crisis, I find it unlikely that many U.S. banks would fail.

No promises if you live in Europe, though, where your banks are levered to the moon!  In this instance, you might well find yourself relying on the tender mercies of your financial regulators or politicians to ensure that you are made whole.

However, there is another major risk when you place your money in a savings account – inflation.  Inflation gradually erodes the purchasing power of any cash or deposits, including savings accounts.  Now under most circumstances, your bank will pay you interest to offset this inflationary loss, along with just a little bit more so that your account gains value in real (inflation-adjusted) terms.

Unfortunately, we don’t live in normal times.  Instead, we live in an era of financial repression, where bank regulators use depositors as a tool to recapitalize the national banking system.  This comes in the form of bank deposit rates on your savings account that are below the prevailing rate of inflation.

Every month your money stays on deposit in your savings account, you lose just a little bit of purchasing power.  This lost purchasing power is happily vacuumed up by your local bank so that it can keep on doing whatever it is that banks do (which seems to be crashing the global economy about once every ten years, as far as I can tell).

But vintage wristwatches give you a safe, tangible asset that you can hold in your hands (or wear on your wrist)!  The market for vintage watches has been going from strength to strength over the past decade, and I believe this trend is likely to continue.  The possibility of loss is very low, assuming you choose high quality watches and pay a fair price for them.

So the question then becomes: can carefully selected vintage wristwatches outperform the return you expect to get on your savings account?

Now, I will admit I am a bit of a pessimist when it comes to bank deposit rates.  In most developed nations, short-term interest rates (like the kind banks pay on deposits) are embarrassingly low right now.

For instance, the European Central Bank is keeping short-term rates pegged at 0.25%, the Bank of England is holding them at 0.75% and the Bank of Japan is satisfied with a miserly -0.1%.  Only the U.S. Federal Reserve has managed to decisively move off the zero bound with a current range of 2.25% to 2.50%.

These rates are unlikely to get too much higher before we enter another synchronized global recession.  Central banks will react to this development by driving short-term interest rates down to zero (or possibly below).  At that point, even a lowly 1.0% annual interest rate on your savings account will seem like a sweet, distant dream.

But let’s generously assume, for the sake of argument, that you can score an average 1.0% return on your savings account over the next 10 years.  This means that if you park $10,000 in your bank today, it would grow to $11,046 over the next decade.

I’m going to be blunt here.  The vintage watches I list below will almost certainly beat this return, and most likely handily.  I think these 3 categories of vintage watches could easily achieve an annual appreciation of 2.5% to 5.0% over the same timeframe.  This would transmute your $10,000 stash into anywhere between $12,801 and $16,289 over 10 years – an increase over our theoretical low-interest savings account of $1,395 to $4,883.

And who couldn’t use an extra $2,000 or $3,000?

So what are these magical, better than savings account watches?  I have a few unusual choices in mind.

1) Vintage Rolex Oysterquartz Watches

Everyone has heard of Rolex watches – even people who don’t know anything about vintage wristwatches.  Rolex makes beautiful, robust and thoroughly desirable luxury watches.

But did you know that there is a Rolex watch that nobody talks about?  Yes, it’s true!  Shockingly, there is a type of vintage Rolex that is completely overlooked in today’s secondary market.  I’m speaking about the Rolex Oysterquartz series, which was produced from 1977 until 2001.

Many collectors ignore these horological treasures because, as the name implies, they have quartz movements.  But an Oysterquartz is no ordinary quartz movement.  It is an in-house, high-end, super-accurate quartz movement that Rolex laboriously developed over many years of research and testing.  Better yet, it is estimated that only 25,000 of these unique quartz movements were ever created, making them far rarer than many other Rolex calibers.

Although I don’t believe that most vintage quartz wristwatches make good investments, Rolex Oysterquartz watches are a clear exception to this rule.

I think it is inevitable that the long neglected Oysterquartz will one day be recognized for the gem it is, driving prices up.  But until then, you can get Rolex Oysterquartz wristwatches in stainless steel or two-tone cases for just $3,000 to $5,000.  This is substantially less than what similar Rolexes with mechanical movements go for.

2) 14K & 18K Solid Gold Dress Watches from the 1960s and 1970s

I also like vintage, solid 14 and 18 karat gold dress watches from the 1960 and 1970s.  These classic timepieces were produced by the leading Swiss watch companies of the time, such as Audemars Piguet, Omega, IWC, Longines and Vacheron Constantin.

Vintage gold dress watches simply drip with aesthetic flair and Mad Men zeitgeist.  And, of course, they all sport finely finished, fully jeweled mechanical movements that are works of art in their own right.

Yet prices are still unbelievably low for these enchanting vintage watches, probably because gold dress watches are out of style right now.  Some of the rarer models from the most esteemed makers might run you $3,000 or $4,000.  Slightly more common, but still desirable specimens can be found as low as $2,000, or even a bit less!  That represents a remarkably good alternative for your extra cash compared to parking it in a low-interest savings account.

I recently featured a stunning 18K gold IWC men’s watch from the 1960s in one of my Spotlight posts.  It was unbelievably inexpensive at only $1,720, and sold quite quickly.  But there are many other bargains to be had in this segment of the vintage watch market.

3) Vintage Must de Cartier Tank Watches

Cartier is famous for their iconic, rectangular tank wristwatches.  But the prices for these covetable luxury timepieces can be mind-numbingly high.

Luckily, Cartier produced a line of elegant, entry-level luxury tank watches between 1977 and the mid 2000s under the Must de Cartier nameplate.  They were made from vermeil, which is solid sterling silver coated in a generous, 20 micron thick layer of gold.  In addition, the discerning watch enthusiast can choose between high quality manual wind or quartz movements.

Stylish Must de Cartier tank wristwatches perfectly straddle the fine line between avant-garde fashion watch and traditional luxury timepiece.

But the best thing about these perennially popular watches is their price.  Specimens in good-to-mint condition can generally be found in the $800 to $1,800 range, meaning that even a horological aficionado with a beer budget can afford to own a genuine Cartier Tank.

Read more thought-provoking Antique Sage investing articles here.

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We are on the verge of a dollar shortage – a monstrous, massive global dollar shortage.  The kind of dollar shortage that goes down in history as a singular, unprecedented event.  And it represents a great opportunity to make money in the tangible asset space.

It has been apparent for some time now that financial conditions are tightening.  The Federal Reserve has been raising short term interest rates relentlessly since December 2016.  They have also been engaging in quantitative tightening – the slow, but persistent shrinking of the Fed balance sheet – since November 2017.

These developments are beginning to have an impact on global liquidity, especially against a backdrop of inflated bubble financial markets.  This means that the dollar is getting stronger versus just about every other currency out there:

The Brazilian Real declined from 3.3 to the dollar a year ago to 3.85 today, a -14% loss.

The Turkish Lira had a rough time, moving from 3.84 to the dollar to 5.38 at the end of 2018, a -29% drop.

The Iranian Rial’s black market rate plummeted from 41,000 in November 2017 to 117,000 in November 2018, a stomach churning -65% fall.

The Argentinean Peso hardly did any better, experiencing a -54% depreciation from 17 to the dollar at the beginning of the year to 37 at the end.

However, the worst of the lot was the Zimbabwean Zollar, a debt instrument issued by the African country’s central government that circulates like currency.  Each Zollar is supposed to be worth 1 US dollar.  But that didn’t stop the Zollar from collapsing from 1.4 to the dollar during the summer of 2018 to 10 to the dollar a mere six months later, an astounding -86% decline in purchasing power.

I won’t even bother mentioning Venezuela, which is currently experiencing a crippling hyperinflation.  Its currency is quite literally not worth the paper it is printed on.

The global dollar shortage isn’t just limited to basket case emerging market currencies though. Other financial markets are also starting to break down due to a lack of dollars.

The crypto-currency complex is a prime illustration.  The much hyped Bitcoin is down a breathtaking 72% for 2018, from $14,100 at the beginning of the year to less than $4,000 right now.

Lower-rated corporate debt is also feeling the heat of the dollar shortage.  Yield spreads on junk bonds are up over 100 basis points in just the last 2 to 3 months.

Even the poster children of our current Everything Bubble – the FANG stocks – have lost their sizzle due to the sudden dollar shortage.  The FANG stocks, consisting of Facebook, Amazon, Netflix and Google (now Alphabet), have dropped by a shocking -20% over the past 4 months.

As harrowing as this flood of bad news might seem, we are at the very beginning of the global dollar shortage.  It will get much, much worse before it gets better.

All of this means that you’d better have some safe, liquid assets in your portfolio – things like U.S. Savings Bonds, U.S. Treasury securities, or an FDIC insured bank account/money market account.

Of course, the Fed won’t stand idly by while the financial world burns down around them.  They will leap into action, pumping unbelievably large amounts of dollars into the world’s financial system in an attempt to stem the global dollar shortage.

Unfortunately, the Fed is almost guaranteed to overreact to the financial panic by printing far more dollars than it should.  In the last financial crisis, the Fed increased the size of its balance sheet from about $900 billion to $4.5 trillion.  And honestly, that barely got the job done, spawning the most tepid recovery in U.S. post-war history.

This time around I expect the Fed to balloon its balance sheet to nothing less than an astounding $20 trillion dollars.  The sums involved are so large as to almost be beyond comprehension.

But suffice it to say that all this money printing is ultimately bad for the value of the dollar.  Every new dollar that gets created dilutes the existing supply of dollars.

This is why I recommend that everybody store a portion of their wealth in portable tangible assets – things like precious metals, fine art, antiques and gemstones.

Now here is the tricky part.

In the midst of this unprecedented dollar shortage, the Fed will be rapidly debasing the dollar by handing out fistfuls of them to foreign central banks and too-big-to-fail financial institutions.  But in spite of this massive debasement, the dollar will still temporarily strengthen for a period of time.  This is precisely the moment when you must be trading your dollars for tangible assets.

This is actually a lot harder to do in reality than it sounds.  You will need to be selling your dollars when everyone else is desperate to hoard them.  People have an inherent herding instinct, especially in financial markets.  From an emotional perspective, a contrarian stance will be incredibly difficult during this time.

But if you can pull it off, some of history’s greatest tangible assets bargains will be yours for the taking.  Precious metals, investment grade antiques and gemstones are all screaming bargains right now.  And I suspect they may get a little bit cheaper yet during the depths of the crisis.

But Rome wasn’t built in a day and neither is a solid tangible asset portfolio.  Slabbed coins, antique silver and vintage watches all take time to properly evaluate and acquire.  Even commodity physical assets like gold and silver might be difficult to acquire at reasonable prices on short notice during an intense financial crisis.

So the smart investor will leg into a tangible asset position.  The few dollars you might save trying to time the exact bottom of the market are likely to cost you a lot of lost profits.

I already suspect that we are seeing the lowest prices (on a valuation basis) in recorded human history for some segments of the antique market.

How cheap are antiques right now?

Right now (December 2018) you can buy a random date, PCGS certified MS-63 U.S. Liberty Head gold eagle ($10 coin) for $700 on eBay.  The bullion value of this piece (with spot at $1,234) is $597.  You are only paying $103, or 17.3%, in premium over the coin’s melt value.

Not only that, but these desirable pre-1933 gold coins are eBay Bucks eligible.  During one of eBay’s frequent promotional periods, it would be possible to get 8% to 10% of the gross purchase price back as an eBay Bucks voucher.  This would bring the effective premium over melt down to just $33, or 5.5%.

Think about it for a moment.  You can buy a beautiful and historic 100 year old U.S. gold coin in Mint-State for only $33 more than its scrap value.  That is simply mind-blowing to me.  It is undoubtedly the lowest percentage premium these coins have carried since the late 1930s/early 1940s.

That isn’t the only tangible asset deal out there either.

I recently stumbled upon a luscious 0.34 carat old mine cut diamond on Etsy for $375.  The old mine cut was used in the diamond trade from the 18th century until the end of the 19th century.  These vintage gems are a favorite of sophisticated gem connoisseurs because of their tremendous presence and charm.

As an added bonus, the seller recently marked the stone down by 10% to $337.50.  This comes out to only $10 a point, which is ridiculously cheap for a lightly-included, 19th century diamond of excellent color.  I remember seeing similar prices for antique cut diamonds back in the 2002/2003 recession, except that those stones weren’t as high quality.   $10 a point is less than 60% of the cost of a similar modern-cut stone, which is shocking when you consider that the old mine diamond is hand-cut and has 150 years of history behind it.

But the thing I love most about tangible investments is that they all possess optionality.  Optionality is any element of a financial instrument that you don’t pay much for right now, but might be worth a lot in the future.

Think of it as a lotto ticket.

The only difference is that when the drawing happens on Friday night and you don’t have the winning numbers, the average lotto ticket becomes instantly worthless.  But optionality on a tangible asset is like a perpetual lotto ticket.  There is a drawing every Friday night, and if you don’t win this Friday night, you can just hold onto the asset and wait for your winning number to come up on a future Friday night.

Right now tangible assets have substantial optionality.  And the looming global dollar shortage of 2019-2020 will be one of history’s best opportunities to accumulate these overlooked assets at deep discounts.  Don’t blow it.

Read more thought-provoking Antique Sage investing articles here.

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