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Your Hopalong Cassidy Collectibles Are a Bad Investment

Your Hopalong Cassidy Collectibles Are a Bad Investment
Photo Credit (CC 2.0 license): Dennis Amith

I was recently a guest on Harry Rinker’s antique-themed radio talk show “Whatcha Got?”  We had an animated discussion about a range of antique-related topics, and I encourage you to listen to the archived show if you haven’t already.

Unfortunately, I felt that Harry and I sometimes talked past one another due to our different perspectives on the industry.  Harry is one of the venerable old guard, having been in the industry since the 1970s.  My background is a unique fusion of traditional financial services professional, precious metal historian and antique collector.  It isn’t surprising that Harry Rinker and I have differing viewpoints on the antiques industry.

To me the antiques market breaks down into two major categories: investment grade pieces and everything else, which I generally refer to as collectibles.  To Harry, every individual antique category (glassware, furniture, etc.) is sovereign, with a low-end, mid-range and high-end all to itself.

During our talk, Harry made one statement related to these implicit beliefs that stood out to me in retrospect.  It was about Hopalong Cassidy, a heroic cowboy character whose adventures in novels, movies, television and radio made him wildly popular with children from the 1930s through the 1950s.  I will fully quote Harry’s comment here for context:

I sold off my Hoppy [Hopalong Cassidy] collection way too late, but I could buy it back today for 10 cents on the dollar because people who collect Hopalong Cassidy stuff are gone.

Now, I don’t want anyone to think I am belittling or ridiculing Harry Rinker.  He was nothing but a gracious host to me during our talk.  And he has decades more experience on the dealer side of the antiques industry than I have (or probably ever will).

But believing, implicitly or otherwise, that your Hopalong Cassidy collectibles will appreciate in value over time is just bizarre to me.  In my opinion, there is no such thing as an investment grade Hopalong Cassidy collectible.  It is sort of like thinking your collection of 1980s Alf memorabilia or your modern-day shrine to Katy Perry are good investments.  You can certainly hold that opinion, but it is unlikely to be validated over time.

Does pop culture memorabilia occasionally appreciate in value?  Sure!  But it is generally driven by demographics and fads.  And, as Harry Rinker so perceptively noted, the people who grew up with Hopalong Cassidy are either dying off or not collecting anymore.  Unless that fading demographic trend gets an unexpected assist from an oddly specific mid-20th century children’s television hero revival, there will only be fewer Hopalong Cassidy fans in the future.

Alf collectibles and Katy Perry memorabilia are no different.  They will each have their day in the sun as kids who grew up with them reach middle age (Alf is there right now).  Then they will ride off into a long, slow metaphorical sunset.  In short, pop culture collectibles don’t make any sense as long-term investments!

As an aside, because the subject of Alf came up, I feel compelled to insert a Simpson’s quote here.  As Bart’s friend, Milhouse, stated so eloquently, “Remember Alf?  He’s back…in pog form.”  Now that I have that out of my system, we can go back to talking about serious adult things again!

We can objectively evaluate the desirability of Hopalong Cassidy collectibles in greater detail by referring to the Antique Sage’s 5 rules for investment grade antiques.  In order to be desirable, an antique must have portability, durability and scarcity, in addition to being high quality in both materials and craftsmanship.  Finally, it must also possess good zeitgeist, or cultural relevancy to the period in which it was created.

How do Hopalong Cassidy collectibles measure up?  Unsurprisingly, they fail the 5 rules of investment grade antiques.  First, primarily being children’s toys and accessories, they are almost universally poor quality, having been made from plastic, die cast, paper and other low-end materials.  Now, vintage Hopalong Cassidy memorabilia might be good quality relative to the junky Chinese toys that are foisted on us today, but the Antique Sage quality metric is an absolute standard, not a relative one.

As a consequence of their low quality materials and middling construction, Hopalong Cassidy collectibles have poor durability as well.  Another investment grade attribute, scarcity, is also lacking due to the mass produced nature of these children’s toys.  The overwhelming abundance of Hopalong Cassidy memorabilia is particularly apparent when compared to lackluster (and falling) demand.

We can check this assertion by performing a quick eBay search, which reveals over 4,600 Hopalong Cassidy collectibles available on the online platform as of the spring of 2018.  That hardly seems scarce to me!

These 20th century children’s accessories do better on the final two traits, portability and zeitgeist.  I would say that Hopalong Cassidy collectibles maybe score a 3 or 4 out of 5 on the zeitgeist scale.  This is good, but not perfect.  For example, I think vintage baseball cards from the same time period (the 1930s through the 1950s) have better zeitgeist.

As for portability, Hopalong Cassidy collectibles tend to be compact and, therefore, score fairly well here.  Of course, this is cold comfort to any Hopalong Cassidy fans who might have had visions of selling off their extensive collections in order to fund a cruise around the world.

My conclusion is straightforward.  In order to be considered investment grade, an antique should ideally score well on all five of the Antique Sage’s requirements.  As a concession to reality, however, I do allow for a mediocre score on any one attribute.  Unfortunately, Hopalong Cassidy collectibles falls well short of these requirements.

 

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Antique Scarcity in the Internet Age

Antique Scarcity in the Internet Age

The world of antiques can be divided into two time periods: the pre-internet age – anytime before about 1996 – and our current internet age. At first glance, it might not be apparent exactly why this event would dramatically impact the notoriously traditional antiques trade. After all, antiques are an entire industry built around buying, selling, collecting and investing in items from the past – oftentimes the distant past. Antiques couldn’t be more antithetical to high tech innovations like the internet.

But that didn’t stop the internet age from absolutely eviscerating large swaths of the antiques industry. How did it do this? Quite simply, the internet revealed that many, many types of collectibles that were previously believed to be scarce were actually rather common.

In the pre-internet age, if you wanted a specific kind of antique, you had to go on a physical expedition to find it. This meant jumping in your car or taking public transportation to a physical antique store, an antiques mall or maybe a flea market. But this was always a very limited method that relied heavily on random luck to discover the antique you wanted.

There are a finite number of physical antique dealers within any geographical area. In addition, even an ambitious shopper will find there is a hard limit on the number of antique stores that can reasonably be explored in a day – probably on the order of 4 to 6 locations.

Of course, an antique collector operating in the pre-internet age was also constrained by the inventory the dealers near him chose to carry. This might be influenced by industry trends and regional tastes. In short, in the pre-internet age there was a lot less antique inventory to choose from and luck-of-the-draw was either your best friend or your worst enemy.

The dawning of the internet age changed all of that. The rise of platforms like eBay and Ruby Lane suddenly made massive numbers of antiques available to collectors, connoisseurs and decorators. This was a major step forward for the antiques industry.

However, the advent of the internet age also had a dark side. It revealed that dozens of different categories of antiques and collectibles previously believed to be scarce were, in reality, common – sometimes very common! Vintage toys, glassware, memorabilia and china are just a few of the antique categories that were revealed to be far more prevalent than previously thought.

Some specific sub-categories, such as Roseville Pottery, carnival glass and Hummel figurines, had their market prices absolutely decimated by this revelation. This antiques message board with a thread titled “What has happened to the pottery market?” paints a sobering picture of the current marketplace for pottery, but the concepts are equally applicable to many other collectible categories. It is hard to get excited about a collectible when it is possible to surf over to eBay and bring up 10,000 similar results with just a simple search.

Not everything is doom and gloom in the world of antiques, though. The rise of the internet age has created a little-appreciated silver lining for antique aficionados. If you search the major online platforms – the eBays, Ruby Lanes and Etsys of the world – for an antique and can only come up with a few dozen examples, then that is a good indicator that the piece in question is fairly scarce.

This might seem like a self-evident observation, but I can assure you that the antiques market hasn’t quite caught up with the philosophical implications of this epiphany yet. You can think of the major online antique platforms as a giant international flea market. Absolutely every antique imaginable is represented on these websites.

They are effectively the aggregated antique inventory of the entire world. Yes, there are undoubtedly additional specimens hiding in attics and basements across the globe, but the antiques currently available online still number in the millions, if not tens of millions!

This means that the term “rare” before the late 1990s referred to a piece that might or might not have actually been rare, depending on local collector or dealer preferences and regional availability. In contrast, in our current internet age rare means that an antique is really, truly, exceptional rare. Seriously, if you have trouble finding more than a handful of examples of an item today with the considerable power of Google at your fingertips, it is highly unlikely the situation will dramatically change in the future.

This phenomenon isn’t strictly limited to antiques either. We live in an age of mass production, but if you’re willing to look for them, there are some beautifully handmade items out there that I refer to as “future antiques“. These are objects that were made recently, but have been made to the highest standards by skilled craftsmen using the best quality materials available.

These future antiques will assuredly age into incredibly fine and desirable antiques after a few decades have passed. In addition, they are often unique specimens – an element of supreme importance when you consider that we live in a world overrun by mass produced, made in China junk. For example, I recently featured an artisan carved contemporary nephrite jade pendant in the Spotlight section of my website. Another great future antique I highlighted was a contemporary drypoint print by the artist Mariko Kuzumi.

But the best part about the fact that the antiques community hasn’t figured out how rarity works in the internet age is the prices! You can currently snatch up really great items for unbelievably low prices – oftentimes just a few hundred dollars or even less. But one day the antiques market will figure out the way the new scarcity game works, so don’t wait to make your move!

 

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The Sad Demise of Physical Paper Assets

The Sad Demise of Physical Paper Assets
Photo Credit (CC 2.0 license): Wystan

The decline of physical paper assets has been one of the more troubling trends in the financial industry over the last couple of decades.  And that is saying a lot, because there have been a number of alarming trends in the financial markets over that time.  Now, when I talk about physical paper assets in this context, what I’m referring to are certificates indicating the ownership of financial assets – things like stock and bond certificates.  But before I continue, I think some historical background and definitions are in order.

Although often taken for granted in the modern age, physical wealth has been the bedrock of Western society for hundreds of years.  Farmland, houses, jewelry and bullion were just a few of the physical assets that traditionally underpinned middle class society from the Middle Ages to the 18th century.  However, as the 19th century progressed and financial markets evolved, new types of financial institutions were created, along with the physical paper assets to match.

Corporations, in particular, were a major step forward in the development of modern economies.  These large businesses raised substantial sums of money in order to channel huge amounts of labor and commodities into profitable ventures.  As corporations came to dominate the business landscape, there naturally developed a need to keep track of who owned what.

Thus, the most fundamental of physical paper assets was born: the stock certificate.  These certificates were often brightly colored and beautifully decorated with engravings in order to make them both visually pleasing and difficult to counterfeit.  Although the holder of a stock certificate did not automatically gain ownership of those shares (that prerogative rested with a company’s stock transfer agent), a stock certificate was still an important symbol and confirmation of equity participation in a company.

The stock certificate was inevitably joined by its financial twin, the bearer bond.  Bearer bonds were debt obligations issued by a government or corporation that made interest and principal payments to whoever had physical possession of the instrument.  Unlike stock certificates, bearer bonds functioned exactly like cash.  If you held a physical bearer bond, you were happy (and rich).  If it was stolen or lost, you were exceedingly unhappy (and poor).

Now that the historical primers are out of the way, it is time for the crux of this article.  For the last 150 years, American households have enjoyed access to four major types of physical paper assets based on the modern economy: stock certificates, bearer bonds, U.S. savings bonds and physical cash.  These physical paper assets were perfect complements to more traditional physical assets like real estate, jewelry, antiques and bullion.

Our access to these time honored physical paper assets, however, is rapidly coming to an end.  In fact, they are being systematically eliminated by the powers that be.

Bearer bonds were the first on the chopping block.  These securities had the advantages of being both readily negotiable and having high face values.  According to the government, this made them perfect for organized crime and tax evasion.  Of course, it also made them perfect for honest citizens who wanted financial discretion.  Predictably, the government didn’t like the idea of regular people being able to easily stuff a million dollars worth of bearer bonds into a suitcase.  That sort of thing should be reserved for members of Congress!

As a result, the U.S. government banned the issuance of new bearer bonds in 1982.  Existing bearer bonds were not redeemed, however, and remained outstanding until their original maturity dates passed.  By now though, in the year 2018, pretty much all U.S. corporate or government bearer bonds have matured.  These physical paper assets are effectively extinct today.

Physical stock certificates were the next to go.  Between 2006 and 2010, a series of obscure changes in back-office operations dealing with stock settlement and registration slowly discouraged the issuance of physical stock certificates.  This culminated in 2009, when the Depository Trust Company (DTC) – the centralized New York City clearinghouse for stock settlements – instituted a prohibitively expensive $500 fee for every new paper stock certificate issued.

Over the next few years, most brokerage firms, including Scottrade, Charles Schwab and eTrade, either passed on this exorbitant fee to their customers or ceased issuing physical stock certificates altogether.  In 2013, the pace of change quickened when the Depository Trust & Clearing Corporation (DTCC) – the parent company of the DTC – proposed the elimination of all physical stock certificates.  To make the proposed change sound less offensive to a reluctant public, the DTTC euphemistically refers to this draconian policy as “dematerialization”, claiming it will lower costs.

Although many investors have enjoyed the convenience of digital registration of stock ownership, it is not without drawbacks.  Any stock you have in a brokerage account is always held in “street name”.  Street name means that the legally recorded owner of the security is your broker, not you.  This means that in some situations your broker can legally pledge these securities as collateral to a third party.

Under normal circumstances, securities held in street name by your broker are not a problem.  But when the financial system is under duress and bankruptcies are commonplace, this practice transfers considerable risks to account holders.  Yes, your assets would theoretically be covered under the Securities Investor Protection Corporation (SIPC), but I wouldn’t want to be forced to rely on government promises in such a situation.

Even staid U.S. savings bonds have not avoided the digital carnage waged on physical paper assets.  These time-honored investments have been a fundamental building block of U.S. middle class wealth since the Great Depression.  Available in denominations as small as $25, U.S. savings bonds have provided generations of Americans with a safe place to park their extra money.

U.S. savings bonds were traditionally issued in physical form.  Much like physical stock certificates, U.S. savings bonds did not represent direct ownership.  Instead, the U.S. government registered ownership upon issuing a savings bond.  Physical savings bond certificates not only confirmed ownership, but also provided a tangible token of the act of saving that doesn’t exist with a regular bank account.

Or they used to, at least.  The U.S. government discontinued the issuance of physical savings bonds back in 2012, claiming it would save the American people a paltry $70 million over five years.  In my opinion, this act was the death knell of an already wounded U.S. savings bond program.

Even that final bastion of physical paper assets – paper money – is under widespread assault.  Former U.S. Treasury Secretary Larry Summers has publicly come out in favor of discontinuing the $100 bill.  The European Union recently followed his questionable advice by getting rid of their highest denomination bill, the €500 note, in 2016.

The argument in favor of removing high denomination bills from circulation is that they purportedly help fund organized crime and corruption.  However, such a move also has the (fully intended) side effect of moving all financial transactions firmly under the watchful eye of less than benevolent governments.  As credit cards, PayPal, wire transfers and other digital means of moving money become more ubiquitous, it is not so far-fetched to imagine a dystopian future where governments consider completely eliminating cash.

Maybe the demise of physical paper assets was inevitable.  Maybe a fancily embossed sheet of paper that unequivocally states you own an asset is an unnecessary anachronism in a computer driven, digitally-connected world.  But I have had too many experiences in my life where the unsympathetic voice on the other end of the phone flatly declares, “I’m sorry sir, but we have no record of that in our systems.”  Without physical certificates to prove ownership, such a situation could quickly escalate from an annoyance to a disaster.

The rise of digital wealth in modern society may be inescapable at this point, but that does not necessarily mean it is a wholly positive development.  I believe the slow, irreversible death of physical paper asset is both a warning and an opportunity for the average person.  It underscores the importance of those tangible assets that remain available to us – fine art, antiques, gemstones and bullion – while prompting us to ask ourselves how much of our personal financial information we want to expose to monopolistic corporations and power-hungry governments.

 

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Beware the Crypto-Currency Carnage

Beware the Crypto-Currency Carnage
Photo Credit: Cryptocurrency Market Capitalizations

The crypto-currency complex had a magnificent 2017. Bitcoin jumped in value by a factor of 14 over that period. Ethereum skyrocketed 92 times in price in the same timeframe. Litecoin multiplied in value by 51 times. Ripple soared to 361 times its value at the beginning of the year.

And yet, all is not well in crypto-currency land today. Since the beginning of 2018, a crypto-currency carnage has gripped the markets, sending nearly all crypto-coins plummeting in value. Bitcoin is down -61% since its peak near the start of 2018. Ethereum is off -71% over the same period. Litecoin plummeted -60% over a few short months. Ripple is the big loser among the top crypto-currencies, with a harrowing -85% decline since the beginning of the year.

Now, the true believers out there won’t be nonplussed by this crypto-currency carnage. They will (correctly) point out that crypto-currencies have always been subject to massive and abrupt swings in value. For these devotees, a 100% gain or 50% loss within a few days time is simply the price one pays for being at the cutting edge of money and technology.

But crypto-currency enthusiasts would do well to tread with caution here. I’ve have seen this story before, and the ending is never pretty. I’ve written about crypto-currencies before, but given the speed and magnitude of recent market developments there is an exigent need to reexamine the crypto-asset landscape.

For my first exhibit, I would like to direct your attention to the dot-com bubble of the late 1990s. This mania was driven by the realization that the internet could be used for commerce. Companies like Pets.com (now bankrupt), Yahoo, Kozmo.com (also bankrupt) and Juniper Networks all skyrocketed in value.

Hundreds of technology companies IPO’d with little more than an appropriately tech-oriented name and a vague business plan scribbled on the back of a napkin. Their stocks would often double (or more) on their first day of public trading.

The outcome was as predictable as it was sad. Yes, the internet had vast commercial potential, but precious few of the original dot-com companies lived to see it (Amazon being a notable exception). The tech heavy NASDAQ stock index peaked in March of 2000 and proceeded to plummet by almost 80% over the next 2 1/2 years. Many individual dot-com names went bankrupt, while others simply languished in price for more than a decade. Many surviving technology companies haven’t regained their price peak from those heady days.

In many ways, today’s situation with crypto-currencies is parallel to the dot-com bubble of 2000. Rather than IPOs (initial public offerings) we are seeing rampant ICOs (initial coin offerings) and their conceptual twin, the hard-fork. A hard-fork is when an existing crypto-currency is split into an original coin and a new variant that has slightly different technical aspects.

And, of course, you always see the most ICOs and hard-forks when the demand for new crypto-currencies is strongest (like during a bubble). Let’s use Bitcoin as an example because it is the best known and most liquid of the crypto-currencies.

In July 2017, Bitcoin Cash hard-forked from Bitcoin. In October 2017, Bitcoin Gold was spun off. In November 2017, it was Bitcoin Diamond’s turn. Super Bitcoin hit the virtual shelves in December 2017. And these are just a few of the major releases.

If you are noticing a trend here, you are not alone. Bitcoin hard-forks are being manufactured as fast as possible. And while the ostensible reason is to make needed technical changes to Bitcoin’s plumbing, the real reason is to cash in before the crypto-currency carnage escalates further.

Don’t believe me? Just take a look at this voluminous list of Bitcoin hard-forks and airdrops, almost all of which occurred in 2017 or later (after crypto-currency prices began skyrocketing).

Another way you can tell that the crypto-currency carnage is for real is by simply looking at almost any crypto-currency chart. They all look practically identical, with only minor variations.

The chart at the top of this article perfectly illustrates this point. It shows Bitcoin’s market cap from 2013 until March 30, 2018. There is a long, multi-year period of flat performance, followed by an exponential curve upward in 2017 and then the beginnings of a collapse in 2018.

Every time I have ever seen a chart like this in the stock market, commodities market, futures market or any other market, the outcome has always been the same – either bankruptcy or a return to the long-term trendline. And while crypto-currencies cannot technically go bankrupt, they can become defunct and cease to trade.

I am not so bold as to predict the end of major crypto-currencies such as Bitcoin, Ethereum, Litecoin or Ripple. But even so, a return to their long-term trendlines would be a devastating development for anybody holding them.

For instance, if Bitcoin’s price declined to its long-term trendline, it would imply a value well below $1,000 per Bitcoin – perhaps as low as a few hundred dollars (from over $8,000 right now). Ethereum might trade for $20 or $30 an Ether (down from $500). Litecoin could possibly go for only $5 per coin (versus today’s $131). Ripple might go back to a penny or two each (from $0.67 currently).

I know it seems ludicrous now, but yes, the incipient crypto-currency carnage could absolutely get that bad.

If you are a holder of crypto-currencies, my intention isn’t to scare you. Instead it is to give you a little bit of historical perspective. Crypto-currencies are new and exciting, but they are also thoroughly untested. In fact, since the crypto-currency complex sprang up, the United States and most other developed nations haven’t experienced a significant recession.

In such a scenario, people will desperately need dollars, pounds, euros or yen to pay for their groceries, student loans, utility bills, mortgages and car payments. And with few exceptions, crypto-currencies won’t be acceptable for those debts and obligations.

This is why I advocate using financial diversification to help you avoid the imminent crypto-currency carnage. If you hold a lot of crypto-currencies today, please consider selling a bit and moving the proceeds into cash, high quality bonds, precious metals or other hard assets. You can always reallocate these investments back into Bitcoin, Ethereum, Litecoin or Ripple at a later date – and probably at a significantly lower price, as well.

 

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