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Sterling Silverware – The Original Savings Account

Sterling Silverware - The Original Savings Account

Silver is a fascinating substance.  It is a highly reflective white metal that is wonderfully malleable and ductile.  It is also an excellent conductor of both heat and electricity.  In many ways, silver is the quintessential metal, possessing all the beneficial attributes common to metals without the undesirable propensity to oxide or corrode found in base metals.

So it isn’t surprising that silver has been used as money for thousands of years by mankind.  However, pure silver is too soft for coinage, silverware or jewelry.  Therefore, it is usually alloyed with other metals to improve its strength and hardness.  The most famous of these silver alloys is sterling silver, an alloy of 92.5% silver and 7.5% base metal – usually copper.

I’m going to use the term sterling silver in this article as a catchall for solid silver, even though other silver alloys have also been used.  In silverware, these other alloys have varied from German 12 loth silver, which is 75% fine, up to French 1st quality, an alloy of 95% silver that is purer than sterling.  In any case, the differences between these various silver alloys are largely academic.  They all look and behave very much alike in practice.

Although coins are the best known form of silver as money, sterling silverware gradually developed into a monetary alternative in medieval Europe.  For many centuries, sterling flatware and hollowware were effectively used as a primitive savings account.  This tradition began with the European aristocracy and was eventually adopted by the wealthy merchant class.

Sterling silverware was faithfully passed down from parent to child within rich households over successive generations.  As a secure, tangible form of wealth in a very uncertain world, it is no surprise the wealthy favored sterling silverware.  But it also served a very important second purpose.  Silver possesses bactericidal properties – the ability to kill many harmful microbes on contact – that made it ideal for tableware.

This is where sayings like “born with a silver spoon in his mouth” originated.  The wealthy and powerful naturally gravitated towards sterling silverware because it afforded a degree of protection against disease.  In contrast, the lower classes had to use cheaper wooden tableware that conferred no such benefit.

This European preference for sterling silverware was also passed down to their American colonists.  Most colonists in the 18th century considered a well-appointed silver cabinet to be an absolute necessity for a well-to-do household.  This was particularly the case because silver and gold coins were often in short supply in colonial America.  Consequently, sterling silverware was widely viewed as an alternative savings account.

Sterling silver’s reign as another form of savings persisted until the 1860s.  That is the decade when Nevada’s famous Comstock Lode was commercially exploited, flooding the global market with cheap silver.  As a result, most European governments reacted by officially demonetizing silver.  This meant an individual could no longer bring raw silver (or silverware) to a national mint and have it converted directly into money.

The final step in silver’s demonetization occurred about 100 years later, in the 1960s.  From the 1860s until the 1960s, many nations had continued to use silver in their fiduciary coinage.  Fiduciary coinage is when the bullion value of the metal used in a coin is less than its face value.  Fiduciary coinage is, in other words, token coinage.

As the spot price of silver began to rise in the 1960s, many countries found that the bullion value of their fiduciary silver coins began to exceed their stated face value, thus leading to widespread hoarding.  Most countries quickly removed silver from their coinage, replacing it with base metal.  For example, the U.S. changed over in 1964 while Switzerland and Canada followed suit in 1967.

This global demonetization had a devastating effect on sterling silverware.  Once considered a surrogate for money, silver soon became just another commodity.  This, in conjunction with changing lifestyles, led to a broad decline in the use of silver flatware.  Sterling silverware is now widely viewed as completely out of step with today’s informal living and appropriate only for formal occasions.  This is a complete falsehood, but it does grant intelligent collectors, investors and average people a rarely seen investment opportunity.

Right now it is possible to acquire fine antique sterling silverware for unbelievably low prices.  For example, I recently came across a beautiful set of six French silver-gilt teaspoons that were made in Paris during the Belle Époque era, circa 1900.  They are classically styled and eminently usable, even though they are more than a century old.

And the asking price is only $200, not much more than the average monthly cell phone or cable bill.  This heirloom quality sterling silverware will not only last for hundreds of years to come, but will almost certainly appreciate in value as well.  Sterling silverware, the original savings account, is still a great place to stash your extra cash.

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.

The Chinese Antiques Market and Japan’s Cautionary Lesson

The Chinese Antiques Market and Japan's Cautionary Lesson

The Chinese economy has been booming for the better part of 20 years now.  From ignominious beginnings in the 1980s, China has evolved into the manufacturing powerhouse of the world.  One consequence of this development is that a large number of consumer goods available in the West are made in China.  Another is that Chinese GDP has skyrocketed, increasing from about $1.2 trillion in 2000 to around $11.2 trillion in 2016.  As the Chinese economy has flourished, its stock, bond and property markets have also boomed.

For now, the money is flowing like water.  And one of the things wealthy Chinese love to spend their money on is fine art and antiques.  However, they tend to be fairly particular about the type of antiques they buy.  Specifically, they have gone on a spending spree for Chinese antiques.

For most of the 19th and early 20th centuries, China was under the influence (or occupation) of the great Western powers.  This era is referred to as the “Century of Humiliation” in China.  It spanned the period from the start of the First Opium War against the British in 1839 to the final defeat of the occupying Japanese forces at the end of World War II in 1945.  Many Chinese are deeply sensitive about the indignities suffered under foreign imperialism during this time.

One side effect of the Century of Humiliation is that large quantities of fine Chinese antiques and art were exported wholesale from the country.  The British, French, Germans, Americans and Japanese all variously looted or purchased some of China’s finest art works during this time.  These included superb Chinese ceramics, bronzes, jade carvings and lacquerware from the Tang, Song, Ming and Qing dynasties, among others.

Now that the Chinese economy is the second largest on the globe, rich Chinese are reclaiming their national heritage by buying back many of these Chinese antiques from abroad.  For instance, a 17th century Chinese porcelain moonflask sold at Christie’s auction house in 2011 for a stunning $2.65 million.  In the same year a Chinese scroll painting looted from the Forbidden City during the Boxer Rebellion sold at auction for a jaw-dropping $31 million.  An unassuming late 15th century Ming dynasty ceramic cup decorated with chickens sold at Sotheby’s in 2014 for an almost unbelievable $36.2 million dollars.  All of these works were repatriated back to a resurgent China.

Demand for fine Chinese antiques is even more frenetic than it would have been otherwise because of China’s Cultural Revolution between 1966 and 1976.  During this dark time in Chinese history, Mao’s communist government attempted to stamp out traditional Chinese values, philosophy and culture, especially anything connected to the pre-1911 imperial era.  Not only was collecting antiques impossible for Chinese during the Cultural Revolution, but innumerable pieces were mercilessly burned, defaced, shattered or otherwise destroyed during this shameful period in Chinese history.  As a result, modern Chinese antique collectors are desperately buying the only traditional Chinese art that survived the Cultural Revolution unscathed – art from abroad.

Demand for Chinese antiques from the nation’s nouveau riche is so high that China recently surpassed the U.S. to become the world’s largest antiques market.  Right now China appears to be an unstoppable art juggernaut.  But while it might be fashionable to predict eternal Chinese dominance in both the economic and antiques sphere, the sad saga of Japan sounds a cautionary note for those willing to listen.

In the 1980s, Japan experienced its own economic miracle.  At that time, the island nation was a major global exporter, delivering massive volumes of advanced consumer electronics and vehicles to countries all over the world.  By the mid 1980s, this corporate success had morphed into a bubble of epic proportions.

The Nikkei stock index more than quintupled between 1980 and 1990.  Japanese real estate also skyrocketed in value.  The grounds of the Imperial Palace in Tokyo were reputedly worth more than the entire state of California.  A high denomination, 10,000 yen banknote laid on the sidewalk in Tokyo’s posh Ginza neighborhood was worth less than the ground it covered.

Japan quickly became legendary as a land of financial excess.  Rich Japanese housewives drank tea infused with gold leaf.  Japanese salarymen spent lavish sums of money on food, alcohol and entertainment in Tokyo’s most exclusive nightclubs.  Japan’s corporate titans used their great wealth to purchase trophy properties abroad, like Pebble Beach golf course in California and Rockefeller Center in New York City.

They didn’t limit themselves to just buying high profile foreign real estate, however.  The Japanese also indulged their taste for expensive Western art.  A Japanese insurance company bought a version of Vincent Van Gogh’s famous “Sunflowers” painting for $40 million in 1987.  They were later outshone by a Japanese billionaire who paid $82.5 million for another Van Gogh painting.  The sums of money involved were both surreal and utterly detached from reality.

And, predictably, the domestic Japanese antiques market also experienced a boom during the 1980s.  How could it not?  Both the stock market and real estate market were relentlessly rising.  Money was meant to be spent and the future looked bright.

Then the unthinkable happened; the Japanese bubble burst.  The economic malaise that followed is sometimes called “The Lost Decade”.  This is an odd epithet because Japan’s economy has been limping along for over 25 years now, which is substantially longer than just a decade.  Perhaps the Japanese engaged in wishful thinking when they originally named their economic disaster.

If Japan’s bubble experience in the 1980s sounds hauntingly familiar, it should.  Japan’s bubble is almost a carbon copy of the Chinese experience today.  While few people can spot the economic parallels between present day China and 1980s Japan, the similarities are glaringly obvious to those willing to look.  Unfortunately, none of this implies good things about the future direction of the Chinese stock, property, or antique market.

In Japan’s case, all three of those markets collapsed and then stagnated for decades.  As a result, Japanese antiques are currently some of the best values in the entire asset class.  I highly recommend you snatch up some of these bargains if you have the means and inclination.  However, while the situation has been great for bargain hunters that fancy Japanese antiques, it hasn’t been so great for people who bought Japanese antiques in the 1980s.

China, unfortunately, faces a very similar economic trajectory to post-bubble Japan.  Those multi-million dollar auction results for Chinese antiques today will eventually look just as excessive as Japan’s art buying spree of the 1980s.  Yes, the money is flowing like water right now in China.  But reality always catches up with a bubble. Of course, the good news is that you’ll be able to pick up some great Chinese antiques for cheap in about 20 years.