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Metal Detecting – The Last Hope of the Antiquities Trade

Metal Detecting - The Last Hope of the Antiquities Trade

The antiquities trade has a problem.  At its inception in the 16th and 17th centuries, only the very wealthiest members of society could afford to collect and enjoy ancient artifacts.  However, as the modern age dawned and discretionary income increased, the antiquities trade became ever more democratized.  Now medieval and ancient artifacts are avidly acquired by people ranging from the thoroughly middle class to the obscenely rich, with more new collectors coming on board every day.

This trend has caused a supply and demand imbalance.  Demand for these historical and beautiful objects from the distant past has risen inexorably.  Unfortunately, the new supply of medieval and ancient artifacts coming to market has not kept pace.  This combination of robust demand and insufficient quantity produces rising prices.

The limited supply of high quality medieval and ancient artifacts has also been exacerbated by politics in the archeological community.  Some archeologists would selfishly prefer to enforce a complete monopoly on the excavation and ownership of antiquities.  In its most virulent form, this abuse of international antiquities law encourages the worst ultra-nationalist impulses of certain nations.

As daunting as the situation is for the antiquities trade, there is a white knight on the horizon – metal detecting.  Metal detecting enthusiasts are single-handedly responsible for discovering the vast majority of fresh antiquities that make it to market today.  They routinely discover items that traditional archeologists could never hope to locate – mostly isolated finds not associated with pre-existing ancient or medieval sites.

The archeological profession, on the other hand, unearths relatively few medieval and ancient artifacts.  And those few objects that archeologists do uncover usually end up archived in the basement of a museum, never to be seen by the public.  These museum hoards are only rarely put up for sale, even though the vast majority of them are common artifacts.

It is difficult to overstate the impact that metal detecting has had on the availability of antiquities in the private market.  Every year, large numbers of ancient and medieval coin hoards are discovered in the fields, pastures and forests of Europe.  Vast quantities of pre-17th century buttons, jewelry, coins and votive offerings, as well as military paraphernalia like muskets balls, sword fragments and arrowheads, are discovered on a regular basis.  These everyday ancient and medieval items form the backbone of the modern antiquities trade.

Among the European countries, Great Britain is one of the most fruitful locations for metal detecting.  The island nation’s important standing in the field is enhanced by the fact that its history stretches more than two millennia into the past.  Metal detecting fans in the United Kingdom regularly find Celtic, Roman, Anglo-Saxon and medieval artifacts in substantial numbers.

Interestingly, British metal detecting enthusiasts make late Roman finds more frequently than Anglo-Saxon ones.  This undoubtedly reflects the relative material abundance of the Roman Empire in contrast to the Spartan existence of the early medieval period.  In any case, many of these metal detecting finds eventually make their way into the antiquities trade, improving the precarious supply situation.

Of course, metal detecting has its limitations.  As the name implies, a metal detector can only find objects made of metal.  Items made of bone, wood, horn, stone or any other non-metallic substance will go undiscovered unless metal items are associated with them.  In addition, the more corroded a metal item is, the harder it will be for a metal detector to locate.  Finally, metal detectors can only find items that are relatively close to the surface.  Any metal object buried more than 2 feet deep will go undiscovered, regardless of how massive it might be.

One of the reasons metal detecting has boomed in Great Britain is because of its well-crafted 1996 Treasure Act legislation.  This law defines treasure as:

  • Two or more coins found together that contain at least 10% precious metal and are over 300 years old
  • Ten coins or more found together that contain less than 10% precious metal and are over 300 years old
  • Two or more prehistoric items found together, regardless of material
  • Any non-coin object more than 300 years old that is at least 10% precious metal
  • Anything less than 300 years old that is made substantially of gold or silver that has been intentionally hidden and whose owner is unknown
  • Any object, regardless of material, that is found with another item considered treasure, as defined above

Treasure found in Great Britain must be declared to the county coroner within 14 days.  A coroner’s inquest then determines whether the items are treasure according to the law.  If so, British museums get the right of first refusal – the ability to purchase some or all of the items at full market value before anyone else.  This means that truly rare or exceptional medieval or ancient artifacts are not irresponsibly sold into the private market, but instead retained by museums as national heritage.

Any proceeds are usually split 50-50 between the finder (often a metal detecting enthusiast) and the landowner.  If no museum wishes to purchase the items, then the items can be kept or sold by the finder and landowner at their discretion.  This progressive scheme has incentivized responsible metal detecting in Great Britain, providing antiquities collectors with a steady supply of ethically sourced material.

Metal detecting hobbyists in Great Britain have made some truly amazing finds.  In 2014, a hoard of over 5,000 Anglo-Saxon silver pennies from the late 10th century was found in a field near Lenborough in Buckinghamshire.  It was one of the largest coin hoards ever found in Great Britain and was conservatively valued at a staggering $1.8 million dollars.

In 2016, an impressive Celtic gold hoard was unearthed by a pair of metal detecting enthusiasts in Staffordshire, England.  This collection of four Celtic gold torcs, three necklaces and one bracelet dates to between 400 and 250 BC and could be the earliest extant Iron Age gold work ever found in Great Britain.  The exceptional trove is tentatively valued at several hundred thousand dollars.

Of course, most items found by metal detecting hobbyists are far more modest.  Bronze, lead and iron artifacts dominate, with silver objects only occasional discovered.  Gold is very rarely found.

In addition, almost all items are found in isolation, as single pieces that were accidentally lost.  Even when hoards are discovered, they usually only consist of 10 to 20 pieces.  A hoard of hundreds of items is considered incredibly exceptional.  However, despite its many hardships, the lure of buried treasure keeps people coming back to metal detecting.  And that is a great thing for the antiquities trade.

Tangible Investments and the Global Bubble Economy

Tangible Investments and the Global Bubble Economy

Bubbles are dangerous things.  They are slippery, amorphous entities – difficult to diagnose and even harder to avoid once discovered.  They burrow their way into the public psyche, slowly driving otherwise reasonable people mad with both greed and pride.

Perhaps the only thing more financially destructive than a bubble is an entire bubble economy.  Of course, such an unusual phenomenon is incredibly rare, perhaps occurring only once every century at best.  Alas, we do not live in financially normal times at the present.

Instead we labor under the burden of central banks who, rather disturbingly, believe bubbles are a wonderful way to sustainably grow an economy.  This absurd tenet of modern central banking is akin to an irrational, cult-like faith.  In fact, actively striving for a bubble economy is so bizarre that for a long time I couldn’t figure out what the hell the world’s central bankers were thinking.

After all, throughout history, every major financial bubble has been followed by an inevitable economic bust.  And the pain from those devastating economic busts was always commensurate with the magnitude of the preceding bubble.  Simply put, the bigger the bubble, the bigger the bust.  So what central banker is his right mind would want to create a bubble economy?

Then I read an article on the Financial Times’ website titled “The Importance of Bubbles That Did Not Burst” (warning: this article is behind a paywall).  This article posits that while some bubbles burst with disastrous results, there are many that don’t.  This shocking assertion comes via a Yale School of Management professor named William Goetzmann.

A self-proclaimed expert on stocks, hedge funds, real estate and art, Mr. Goetzmann conducted a study that defined a bubble as a doubling of the stock market within a one year period.  This is, of course, a terrible way to define bubbles.  There are many, many instances other than bubbles where stock markets double.  For example, recessions often cause equity markets to overshoot on the downside.  The stock market doubling from such depressed levels is normal and cannot be considered a bubble by any stretch of the imagination.

Predictably, both Mr. Goetzmann and the Financial Times article based on his study conclude that some bubbles are good.  You just have to make sure your bubble doesn’t burst, at which point you are golden!  In light of this terrifyingly naive conclusion, which would probably garner the average elementary school child no better than a C-, the Federal Reserve’s determination to give us a 100% bubble economy makes more sense.

Once we stop laughing (or crying) at the intellectual inadequacy of the unfortunate Mr. Goetzmann, we should cut him some slack.  After all, he’s a finance professor at Yale who has probably never had to change his car’s oil or mow his own lawn.  Like most ivory-tower academics, he is utterly disconnected from reality, including the calamitous after effects of large-scale asset bubbles.

He didn’t see the last financial crisis coming in 2008 and he won’t see the next one either.  When Yale gives you a paycheck no matter how outlandish your ideas are, you don’t need to be particularly bright.  Personally, I’d rather get my financial advice from a community college drop-out than an Ivy League professor.

So what recourse does the average person have?  It is obvious that we are currently living in a full blown global bubble economy.  The S&P 500 is trading near all time highs on several different valuation measures.  U.S. real estate prices are as high, or higher, than they were at the peak of the 2007 mortgage bubble.  Large corporations have been issuing record amounts of debt in order to pay out dividends and buy back shares.  Any of these circumstances is worthy of being called a bubble on its own.  Taken together, they indicate a bubble economy of unprecedented proportions.

In the end, I think tangible assets are one of the few reasonable alternatives in a world plagued by serial bubbles.  Bubbles, by their very nature, represent an economy that has made more promises than it can possibly keep.  Tangible investments that you have physical possession of – fine art, antiques and precious metals, among others – are an effective antidote to the false promises of the global bubble economy.

This is one of the reasons I started the Antique Sage website.  I want to show people that art and antiques are a viable alternative to the overvalued paper assets overrunning our dysfunctional bubble economy.  Our central bank overlords may improbably believe that they can inflate bubbles that won’t burst, but smart investors are making preparations for a very different outcome.

Quality – The Hallmark of Exceptional Antiques

Quality - The Hallmark of Exceptional Antiques

In the world of art and antiques, there are five attributes that determine desirability: portability, quality, durability, scarcity and stylistic zeitgeist.  These five elements are effectively universal.  That means art and antiques that possess all of these attributes are investment grade, while those that lack one or more aspects will never reach that peak.

Out of the five attributes that render an antique investable, quality is perhaps the most important.  Quality is what most of us notice first when examining exceptional antiques.  It speaks to us.  If you pick up a fine antique and handle it, its quality will immediately shine through.

Quality actually has two different dimensions: quality of materials and quality of construction.  These two attributes, although distinct, are very closely related.  Yet each is equally important.

Quality of materials simply refers to the rarity and desirability of the components used in a work of art.  For example, gold, silver, precious gemstones and exotic hardwoods are some of the luxury materials frequently encountered in exceptional antiques.  However, other, lesser known materials, like lacquer, enamel, horn or bone also fall into this category.

I personally find the more exotic luxury materials to be fascinating.  Irish bog oak, ancient mammoth ivory and guilloche enamel are just a few of the unusual high end materials that often find their way into exceptional antiques.  And yet, few people have ever heard of these materials, much less handled them.

Quality of construction is a slightly different concept.  It involves the skill or craftsmanship used to design, assemble and finish exceptional antiques.  It is uncommon for a well constructed antique to employ sub-par materials.  Few self-respecting master craftsmen would waste their valuable time and effort on mediocre materials.

Likewise, truly fine components are rarely haphazardly assembled by journeymen.  Instead, less skilled artisans typically work in less expensive materials, helping to keep costs down as they learn their craft.  As a result, high quality construction is almost always associated with high quality materials, while mediocre construction is usually accompanied by mid-range materials.

Quality is not only a vital concept for the fine art collector, but also the antique investor.  Quality is often the defining factor in how desirable and, by extension, expensive an item is.  In addition to this, quality is usually instrumental in determining the future investment performance of a work of art.  Exceptional antiques – those made from the finest components with the greatest care – usually appreciate at a fast pace.  Those of lesser quality, on the other hand, tend to lag in price.

Czarist Russia’s world famous Faberge eggs exemplify this truism.  These precious objets d’art were made from jade, gold, diamonds, platinum and enamel – some of the most valuable materials known to man.  And Carl Faberge recruited the very finest workmasters from the Russian empire to create these masterpieces.

Faberge eggs represent the quintessential marriage of quality materials and quality construction.  This perfect fusion of the two distinct facets of quality make Faberge eggs some of the most desirable works of art known to man.  Predictably, prices start in the millions of dollars and rise from there.

Of course, there are many exceptional antiques in the world other than Faberge eggs.  But the savvy antique collector or investor will take note of the attribute that make them all so coveted – quality.  The higher the material and construction quality of the antique you buy, the better your chances for future price appreciation.

Investing Simplicity Is the Wave of the Future

Investing Simplicity Is the Wave of the Future

I suspect that the concept of simplicity will become increasingly popular in the coming years.  This may take many forms, including simplicity in eating, working and living.  But one of the most important aspects of this trend will be investing simplicity.

As it stands now, most of the world’s investment vehicles are ridiculously byzantine.  Against a more benign economic backdrop, this financial complexity might not be a big drawback.  Unfortunately, we live in an era rife with excess, corruption and incompetence.  All of this means that investing complexity, a trend that has grown exponentially over the last four decades, is rapidly becoming a global headwind.  Your financial future will be much, much more secure if you get a head start on the trend toward investing simplicity.

Most of today’s popular financial vehicles, including mutual funds, ETFs and pensions, are not actually assets themselves.  Instead, they are best described as empty shells that are filled with assets – usually stocks, bonds or real estate.  Notice that most retail investors (that’s you and me) don’t own any assets directly, only these shell vehicles filled with assets.  This layout exposes average investors to a host of risks that are omnipresent, yet poorly recognized at the present.

Pensions, for example, are at the mercy of a board of trustees.  These board members may or may not know anything about investing.  They may also be motivated to approve or deny pension investments based on peer pressure, political leanings or even outright bribery.  This can cause pension funds to be stuffed with complex derivatives or illiquid, poorly vetted venture capital positions.

These situations can easily lead to rapid investment losses that can quickly drive a pension fund into insolvency.  Indeed, pension funds are so underfunded at the present that they are experiencing an existential crisis.  The Pension Benefit Guarantee Corporation, a Federal agency that insures corporate pensions, may go bankrupt within the next decade due to the number of insolvent corporate pensions it must bail out.

Unfortunately for pension holders, a pension’s board members all get to drive home in their German luxury cars to their gated communities regardless of how poor their decisions may have been.  Meanwhile, average people like you and me are left to pick up the pieces of our shattered retirement dreams.

“Actively managed” mutual funds are another financial vehicle in dire need of investing simplicity.  “Actively managed” simply means that a professional money manager makes the decisions about what individual securities will be held in a mutual fund.  It could range from shares of Proctor and Gamble to mortgage bonds to anything in between.

Now, you might be wondering what the problem is.  After all, the money managers making these decisions are “professionals”, right?  Unfortunately, most money managers are subject to a psychological force known as “performance anxiety”.  This is a fancy way of saying that they are under a lot of pressure to match the returns of their performance benchmark.  This is important because a money manager who underperforms his benchmark for a year or two is at great risk of being fired.

The major effect of performance anxiety on money managers is to force them to buy assets that are similar to those contained in their benchmark index.  This phenomenon is known as “closet indexing” and it is a bad thing.

Why?  Well, closet indexing is terrible because you are theoretically paying for the seasoned opinion of an experienced financial professional.  But what you are actually getting is the opinion of an index.  Even if your money manager thinks investing like the index is a bad idea, he really can’t deviate from it very far if he wants to keep his job.  And your money manager really, really wants to keep his job.

Of course, when the benchmark index inevitably plummets later in the economic cycle, your mutual fund will also plummet.  However, as the famous British economist John Maynard Keynes once wrote, “…it is better for reputation to fail conventionally than to succeed unconventionally.”  And your mutual fund’s money manager wholeheartedly agrees.

But perhaps the biggest reason to pursue investing simplicity is because all of these complex investment vehicles cost money.  Mutual funds, ETFs, 401-Ks and pensions all charge fees.  Worse than that, sometimes these investment shell vehicles hold other shell vehicles within them.  For instance, an actively managed mutual fund might hold some ETFs or a pension might hold a hedge fund.  In these cases, you will be charged double fees, usually without even knowing it!

I think the argument for investing simplicity is self-evident.  Complex corporate or investment structures are never created for the benefit of average investors.  Instead, they are always intended to either obfuscate risk or suck extra fees out of the unsuspecting.

This is one of the reasons I like precious metals, gemstones and fine art and antiques as investment vehicles.  They are items you take direct physical possession of.  And they are tangible, meaning they can’t be squandered by an inept board of directors or plundered by a self-interested money manager or lost in a market crash.  Art and antiques are the very embodiment of investing simplicity.  And that is something we desperately need more of today.