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A few weeks before the 2021 holidays I stopped over at my parent’s house on a mission.  My 17 year old niece is a fiction fanatic and I wanted to gift her a trilogy of paperback fantasy novels that I had read as a teenager.  However, after college I had opted to leave the books at my parent’s house as space was in short supply in my new (and very cramped) urban apartment.

Now my parents are borderline hoarders.  I’ve never known them to willingly get rid of anything that might prove to be even remotely useful in the future.  As my mom likes to say, “I’ll need it the minute I throw it out!”

So I thought my chances of finding that paperback trilogy for my niece were pretty good.

Then reality intervened.

It turned out that my parents had converted my old room into a makeshift storage warehouse.  It was packed nearly to the ceiling with archive boxes full of…well…stuff.  Think of the ending of Indiana Jones and the Raiders of the Lost Ark, except on a much smaller scale.

I dived in, ultimately spending hours picking through the debris.  I found everything from wicker baskets to a book on how to program computer graphics from the 1980s.  But the fiction trilogy I was looking for eluded my search.  I suspect that it was thrown out at some point.

It seems that although my parents like to save stuff, it is “their” stuff (and not anyone else’s) that is important in the grand scheme of the universe.

I had struck out.

However, just as I was about to call off the search I noticed something glinting in the dark corner of a partially opened archive box.  I reached down with anticipation and slowly pulled out a beautiful vintage Longines wristwatch housed in a solid 14 karat yellow gold case, circa 1950.

This was a surprising development for me, but not too surprising.  You see, I have a knack for finding valuable things – so much so that I have occasionally been called a “truffle pig”.  I’m the sort of guy who randomly pulls an old sterling silver spoon or gold thimble out of a junk drawer, provided any are there to be found of course.

I gave the newly found watch to my parents declaring, “It’s a Longines cased in 14 karat gold.  That’s a good old watch; hold onto it.”  After briefly examining the watch, my parents had an epiphany about it origins.  This Longines had a family story behind it – one that I’ll recount a little further on in this article.

But what a beauty this vintage Longines was!

Its solid 14 karat yellow gold case featured prominently flared lugs – a hallmark of 1940s to early 1950s Retro era design.  The completely original (albeit somewhat stained) dial sported applied gold Roman numeral markers along with a period appropriate Longines logo.  The sub-seconds – located at 6 o’clock – was absolutely typical for the time.  Popping off the back of the case, I found the movement was a manual-wind, 17-jewel Longines caliber 9LT.  The movement’s serial number (7958924) indicated that it was produced in the year 1950.

An updated version of the 1940s era caliber 9L, the 9LT is a really interesting watch movement.  Both calibers were workhorses of the Longines wristwatch lineup, yet hardly get a second look from most vintage watch enthusiasts today.  In fact, it is difficult to find out any information about these movements at all!

But what I did discover was compelling.

Like most vintage Longines movements, the 9L/9LT family was produced exclusively in-house with no components sourced externally.  These high grade movements were used in a wide range of Longines wristwatches, including those with stainless steel, gold-filled and solid karat gold cases.

I will quote an anonymous online vintage watch enthusiast on the charms of the 9L/9LT movement:

“I don’t have experience with the exact movement, but look at it.  It has solid gold chatons surrounding the ruby jewels.  [Editor’s Note: The chatons are undoubtedly only gold-plated, but still reflect a high quality finish.]  Burnished teeth on the gears.  All the plates are chamfered.  It’s Geneva Seal quality.  Far nicer than a Rolex or Omega of the period.”

In my opinion, the Longines caliber 9L/9LT is the equal of the classic IWC caliber 89 or the superb Hamilton 982M of the same period (the “M” stands for either “medallion” or “masterpiece”, depending on who you ask).  In contrast, Rolex movements of the era were generally considered sub-par in comparison.

A vintage Longines caliber 9LT

Photo Credit: Waha Watches

The family history behind my Longines watch find was no less interesting than its technical specifications.  According to my father, this Longines wristwatch originally belonged to his father (my paternal grandfather).  It was gifted to my grandfather when he “retired” from Koppers – a Pittsburgh, Pennsylvania-based chemical company where he worked as a chemist.  I put the word “retired” in quotation marks because my grandfather only left his job at Koppers when he was diagnosed with terminal lung cancer in the mid 1950s.

My grandfather died shortly after leaving Koppers and bequeathed his prized Longines watch to my father.  My father subsequently wore it during his high school years in the late 1950s/early 1960s until he carelessly broke the crystal once or twice.  He never wore it again after that.

So our family’s elegant Longines watch became a sleeping beauty, tucked away in a stuffy archive box for 60 odd years until its recent rediscovery.

Likewise, the Longines watch brand is an incredible bargain hiding in the dark corners of the world of vintage timepieces, waiting to be found and loved again.

Like nearly all good watchmakers, Longines’ origins lay nestled deep in the 19th century Swiss alpine countryside.  It was in the year 1832 that Auguste Agassiz and his partners founded the company in the town of Saint-Imier.  At first the firm assembled parts from other manufacturers into finished pocket watches.  But in 1867, Longines built a dedicated factory and started producing its own in-house movements.  It would continue making its own movements until the late 1970s.

After experiencing tremendous commercial growth during the last few decades of the 19th century, Longines moved to safeguard its brand from unscrupulous competitors.  The company filed its celebrated logo, a winged hourglass, as intellectual property with the Swiss authorities in 1889.  This copyright protection was extended in 1893 when the Longines name and hourglass logo were registered with the United International Bureaux for the Protection of Intellectual Property.  As a result, Longines has one of the oldest business logos in continuous use in the world today.

The firm’s golden age began in the 1920s and ran through the 1960s.  It was during this period that many iconic Longines wristwatches were introduced.  These include the military aviator Weems chronograph (1927), the pilot-focused Lindbergh Hour Angle (1931) and the classic minimalist Flagship (1957).  These models are very popular with vintage watch aficionados today and usually command strong prices.

Longines was also renowned for the superlative styling of its Art Deco/Retro era dress watches.  Knotted, flared or stepped lugs complemented other venerable hallmarks of the age, including hourglass cases, pie-pan dials and applied Breguet Arabic numerals.  These luxury watches were often housed in solid white or yellow karat gold cases, sometimes studded with diamonds.

My grandfather’s 1950 Longines Retro era watch featuring a 17-jewel 9LT movement.

The Longines brand only began to decline in the public consciousness during the 1970s.  This was the time of the Quartz Crisis in the Swiss watch industry, when cheap and super-accurate quartz watches largely displaced traditional mechanical movement watches.  Many traditional Swiss watchmakers (and all the major American watchmakers) either went bankrupt or were sold during this time.  Although Longines held out longer than most, it was eventually forced to merge with the Swatch Group in 1983.

This event was both a blessing and a curse.

On the one hand it allowed Longines to live on when it probably would have gone bankrupt and liquidated otherwise.  But it also meant that Longines was no longer an independent company.  Swatch eventually determined that Longines would no longer develop or produce its own movements, but would instead use ETA movements.  Although ETA makes robust calibers that are used by many different Swiss watchmakers, they do not have the same cachet and recognition that in-house movements do.

Another side effect of the Swatch acquisition is that Longines now found itself fighting with other Swatch brands for market share.  In order to prevent its brands from cannibalizing each other, Swatch assigned each in-house brand its own “tier” within the organization.

For example, the Swatch brand is the lowest tier.  These are quartz fashion watches with bold styling, bright colors and copious use of plastic.  The price point of Swatch watches is typically between $50 and $100.  The next tier up is Tissot, another Swatch Group brand.  Then comes Hamilton, a once great American watch company that fell on hard times in the 1970s and was sold to Swatch.

Longines is next in line.  It is positioned as a mid-tier brand within the Swatch Group – not super expensive, but not cheap either.  This is a tremendous change from its heady days as an independent company when Longines was considered a luxury brand par excellence.  But today both Omega and Blancpain sit above Longines in the Swatch Group hierarchy.

The storied history and outstanding quality of vintage Longines watches provide the collector of older timepieces with a unique opportunity.  Because of its modern-day circumstances as a “mid-tier” watch brand, high quality vintage Longines wristwatches are surprisingly affordable.  This is especially the case when their prices are compared to other peer or near-peer vintage watch manufacturers.  In effect, antique Longines watches are great bargains relative to vintage Piagets, IWCs and Vacheron Constantins, among others.

For example, it is possible to pick up a freshly serviced 1960s era Longines Conquest or Flagship automatic cased in stainless steel for under $1,000 today.  Meanwhile, a rather run-of-the-mill vintage Rolex Oyster Perpetual in stainless steel will generally run you anywhere from $3,000 to $5,000.  As you can see, vintage Longines watches represent a compelling value proposition.

Vintage Longines Automatic Watches for Sale on eBay

(This is an affiliate link for which I may be compensated)

Of course, if you care about the resale value of a vintage watch you are looking to buy, then brand matters.  A strong brand equates to more demand and higher prices – just look at Rolex!  But one of the great mistakes that watch enthusiasts make is to assume that brand is static – that today’s leading brand must also be tomorrow’s dominant brand.  The fact is that none of us knows which watch companies and brands will be highly esteemed 40 or 50 years from now.

This leaves the watch investor with a fundamental dilemma.

Do we purchase a vintage watch based solely on the quality of its movement, attention to detail and overall workmanship or do we buy based primarily on brand image?  Given that we don’t know which brands will be in vogue decades hence, I tend to lean toward the former strategy rather than the latter.  I find it satisfying to know that the vintage watch I hold is a miniature work of art – a marvel of technical engineering shrunk into a movement the size of a couple coins stacked on top of each other.

Although I do think quality ultimately wins this debate, one must always keep an eye on the brand in order to have a balanced perspective.

Happily, the vintage watch aficionado sacrifices very little when buying a fine old Longines.

The company’s vintage movements were all designed and manufactured in-house.  The fit and finish of its pre-1975 watches are universally excellent.  Every style of Longines can be found – from formal dress watches to sporty tool watches.  The history of the firm, setting aside its unfortunate post Quartz Crisis fall from grace, is impeccable.

Longines dress watches from the 1930s to the 1960s in solid karat gold cases offer exceptional value for money at the moment.  These watches can be readily found in a dizzying array of case styles with either sub/center seconds or without them – the choice is yours.  A wide range of stylistic choices are available in the $500 to $1,200 range.  Solid karat gold Longines dress watches are criminally undervalued right now – a situation that can’t persist forever as supply inexorably dwindles due to the demographic trends inherent to the estate industry.

Another solid investment choice is World War II era Longines Weems pilot watches.  These are still available in reasonable states of preservation in the vintage watch marketplace for less than $5,000.  Although the Weems design was widely licensed and produced by many different manufacturers of the era, the Longines version still offers excellent value for the money.  This is remarkable considering that the Weems is the progenitor of today’s ubiquitous sports watch styling.  In fact, I believe there is more than a passing resemblance between the Weems and that most hallowed of sport watches: the Rolex Submariner.

The stylistic similarities between this first year of issue 1953 Rolex Submariner (ref. 6204) and this 1940 Longines Weems are striking. Most of the differences are superficial in nature, such as the Rolex’s use of black enamel on the bezel or markers in place of numerals on the dial. Many of these altered visual cues can be purely attributed to translating an aviator watch into a dive watch.

Photo Credit: Bob’s Watches & The Spring Bar

My final investment pick is Longines automatics from the 1950s and 1960s.  Notable automatic models of the period include the Conquest, Flagship, Admiral and high frequency Ultra-Chron.  Pre-1970 Longines automatics offer classic Mid-Century styling combined with standout movements (such as the illustrious Longines caliber 30L and 430 families).  As an added bonus, some models offer date functionality.  $800 to $2,000 will get you the pick of the litter in your choice of either a stainless steel or solid karat gold case.

Please note that not all of the Longines models listed above exclusively used automatic movements, so some discretion is necessary when shopping.

I would steer clear of any vintage watch (including vintage Longines) with a gold-filled or gold-plated case.  The plating always wears through eventually, leaving an impaired watch that is difficult to sell for good money on the secondary market.  Exceptions can be made for rare or otherwise exceptional watches (like an original Weems), but those are few and far between.

As always though, buy what you like.  Just keep in mind that depending on your tastes, some vintage watch purchases may not be investments in the strictest sense of the term.

I will leave you with this excerpt from the website of a respected British vintage watch dealer that concisely sums up the Longines value proposition:

“For how long vintage Longines watches will remain such good value is anybody’s guess.  They have risen steadily in worth over the last twenty years, but for no explainable reason have still retained their undervalued position in relation to the other major brands.  A decade ago, the most informed London dealers were saying that pre-1960 Longines material just had to soar in price in the internet age, but it hasn’t happened.  At the moment, experienced early Longines collectors live in a sort of smug parallel universe, where the most astonishing levels of quality can be obtained for a few hundred, or, in the very best cases, just a few thousand pounds and we have a feeling that’s exactly how they want things to stay.  If the market ever wakes up to just how exceptional these vintage Longines watches are, we’ll all see auction results that are triple, or more, what these pieces command today.  For the moment, for the thinking man who wants the ultimate in sharp aesthetic design and technical refinement without paying the high premiums associated with antique Rolex items, Longines is the perfect choice and cannot be recommended more wholeheartedly.”

I couldn’t have said it better myself.

Vintage Solid Karat Gold Longines Watches for Sale on eBay

(This is an affiliate link for which I may be compensated)

Post Script:

Much to my surprise and delight, my parents presented me with my grandfather’s Longines as a Christmas gift a few weeks after I found it.  A family heirloom had made its way into my hands.

Best.  Gift.  Ever.

I intend to have it serviced, cleaned and returned to working order.  I feel it is important to preserve and cherish these keepsakes from our past.  If we do not save them, then one day they will be gone – and our memories with them.

Read more thought-provoking Antique Sage editorial articles here.

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Read in-depth Antique Sage investment guides here.

Gonzo investing means buying alternative assets like this 124.9 gram off-white, Siberian nephrite jade river cobble.

We live in a weird, weird investment world.

And as famous gonzo journalist Hunter S. Thompson once wrote, “When the going gets weird, the weird turn pro.”

For those of you unfamiliar with it, gonzo journalism is an iconoclast form of reporting where the reporter eschews objectivity and throws himself headlong into a news story, often becoming a part of its narrative.  Now I have no strong opinions about gonzo journalism.  But I do think we can apply its radical outlines to investing.

That’s right.  I’m advocating for gonzo investing.

Welcome to the funhouse of mirrors that is our 21st century capital markets.  If the Federal Reserve insists on debasing the currency in order to prop up our Potemkin stock market, then why can’t you and I invest in the most esoteric, unappreciated assets we can find?  Enter gonzo investing.

But what exactly is gonzo investing?

I would define it as purchasing alternative assets that are currently ignored or outright hated by the financial establishment.  The premise behind gonzo investing is that you want to be where “they” aren’t.  You want to zig when “they” zag.  You want to be so far ahead of the curve that you’re falling toward the horizon, not running to catch up in a rigged financial game you can never win.

And right now “they” (Wall Street dealmakers and the big banks) love SPACs, private equity funds, passive ETFs, Bitcoin, FAANG stocks and anything with a lot of beta (a measure of sensitivity to broad market movements).

Therefore, according to the rules of gonzo investing we should pursue assets that have been left behind – things like precious metals, antiques, gemstones, fine art and other tangible assets.

As an aside, I’m going to leave it up to the reader whether to include crypto-currencies in their own personal gonzo investing universe.  But I will say this: Bitcoin can’t be a gonzo investment.  It is the subject of intense Wall Street interest and admiration.  It has futures contracts trading on it, for God’s sake!

Bitcoin is crypto-currency 1.0 – the least technologically advanced of all the cryptos (with the exception of its clones).  Even Litecoin (a near copy) is significantly more capable than Bitcoin!  Bitcoin’s first-mover advantage is the only reason it has captured the demented imagination of Wall Street…for now.

What I’m saying is that if you intend to indulge in gonzo investing with cryptos, please stick to altcoins.

Anyway, I went “pro” (read: weird) with my own gonzo investing about a week ago by purchasing a water-worn Siberian nephrite jade cobble from a vendor on Etsy.  Jade is a wonder material – a substance that is somehow both eminently tangible and mysteriously ethereal all at once.  Venerated for thousands of years by the Chinese, Maori and ancient Meso-American peoples, jade has been sacred to every culture that had the good fortune to develop in geographical proximity to high quality deposits of the stuff.

The gem quality nephrite jade cobble I bought is a phenomenal specimen.  The soft, waxy luster of the 125 gram off-white river cobble is breathtakingly seductive.  The piece is such a fine example of a river jade that it is probably worth more as a mineralogical specimen than it could ever be as jewelry.

A pure white, known as mutton fat, is the most desirable and expensive type of nephrite jade in the world.  True mutton fat jade can sell for more than $50,000 a kilo.  The stone I acquired is off-white in color – most decidedly not mutton fat – but then again I only paid around $900 a kilo for it.  So I have no complaints.

But let’s face it: using Etsy as a substitute for a brokerage account is a strange experience.  This is definitely gonzo investing at its finest.

Gone are the days when you could mindlessly dump your money into an S&P 500 Index fund or corporate debt ETF and expect non-negative future returns.  Savings accounts pay next to no interest.  Real estate is a minefield due to COVID-related rent moratoriums and the related collapse in demand for corporate office space.

What are we left with?

Bizarre, strange stuff, that’s what.

The investment landscape is so distorted that we need to be willing to invest in things we might never have considered under more financially stable circumstances.

As a result, gonzo investing is the new black.  Not because we want it to be, but because the central bankers of the world have left us no choice in the matter.

When I was browsing on Etsy recently, I came across this gonzo worthy investment: a lot of eleven vintage fountain/ballpoint pens selling for a grand total of just $125.  Highlights of the group include a circa 1960s to 1980s Parker fountain and ballpoint pen set, a higher-end vintage Waterman pen (according to the seller; the pictures aren’t clear enough for me to tell which one it is), and a 1930s or 1940s Sheaffer fountain pen with its original desktop stand and solid 14 karat gold nib.

A lot of 11 vintage fountain/ballpoint pens listed for sale on Etsy.

Photo Credit: OtherPeoplesStuf

There is more than enough in this lot to keep a vintage pen aficionado happy for quite some time.  I also have a sneaking suspicion that several of the pens may have solid karat gold nibs (beyond the one I verified).  This means you could potentially recover most of the purchase price in intrinsic gold value!  Of course, any vintage fountain pen collector worth his salt would instantly offer you 2 or 3 times melt value for any old gold nibs if you were inclined to sell.

Regardless, most of these pens would be worth much more restored to their former glory than they would be parted-out (provided they are in any kind of reasonable condition).

Now some people may hold the opinion that vintage fountain pens aren’t much of an investment, but consider this.  They represent the romance of a time gone by that we all yearn for.  More and more people are becoming interested in reclaiming the small joys of the analog past in a world increasingly dominated by sterile digital interactions.

The supply of vintage fountain pens is also strictly limited.  They sure aren’t making any more!

Although originally produced in sizable quantities, attrition has steadily eroded the population until only a small remnant survives today.  And as we all know, limited supply and high demand equals rising prices.  Buying vintage fountain pens is definitely gonzo investing at its weirdest – and I mean that in the best possible way.

Another slightly unhinged gonzo investment that I made earlier this year was the purchase of a 2021 Saint-Gaudens “$100 Union” silver fantasy coin in proof-like condition by Daniel Carr.  Although dazzling in its own right, the piece bears a striking resemblance to the famous Saint-Gaudens gold double eagle $20 gold coin that was struck by the U.S. Mint from 1907 to 1933 – a series widely regarded as one of the most beautiful U.S. coins ever struck.  This is because Carr’s unique winged Liberty design was derived from an early sketch concept of American artist Augustus Saint-Gaudens’ namesake double eagle gold coin.

Daniel Carr’s $100 “Union” silver fantasy coin side-by-side with its inspiration: the Saint-Gaudens $20 gold double eagle.

Photo Credits: Wikimedia Commons and The Moonlight Mint

As a fantasy issue, the silver $100 Union’s face value is strictly symbolic; it is in no way legal tender.  But if anyone ever offers to trade you one of these magnificent pieces of exonumia for a crisp C-note, take them up on it!  The massive coin weighs in at an astounding 100 grams of .999 fine silver and has a diameter of 50 mm (much larger than either a U.S. silver dollar or a gold double eagle).  To add to its allure the $100 Union is struck in gloriously ultra high relief; in effect it dances on the border between coin and sculpture.

I ordered this fantasy masterpiece directly from Daniel Carr’s Moonlight Mint website at a cost of $240 (plus $10 shipping).  That translates into a price of almost $80 an ounce – fully 3x the spot price of silver bullion at the time of purchase.  Although it seems like an outrageously high premium to pay over melt value, there is a lot to like about these coins.

Daniel Carr struck the silver $100 Union fantasy piece for a limited three year run: 2019, 2020 and 2021.  Each of those years had a mintage of only around 100 pieces.  If you had purchased all three at Mr. Carr’s original issue price it would have cost you $625 in total (plus shipping).  Due to the fact that only about 100 sets could ever be completed, it is easy for me to envision a time 25 or 30 years in the future when a complete set of these unique coins sells for 10 or 20 times the original issue price.

This is gonzo investing par excellence.

Unfortunately, Carr’s silver $100 Union silver fantasy coins are sold out in his shop and therefore only available in the secondary market through venues like eBay.  If you are interested in reading more about Daniel Carr and his Moonlight Mint fantasy coins, I wrote an in-depth investment guide on the topic recently.

Daniel Carr Fantasy Coins & Overstrikes for Sale on eBay

(This is an affiliate link for which I may be compensated)

Long-time readers of my site may have noticed my budding obsession with jade.  In true gonzo investment style, I have been building myself a rough jade portfolio over the last couple of years.  I will happily admit that this is a very unusual investment position to be taking.

But there is sound logic behind it.

Our financial system is swirling around the toilet bowl of history at present.  We don’t know when the flushing will truly commence, but it is coming.  This will not only permanently restructure our monetary and corporate systems, but also our global supply chains.  In other words, the world will become much less connected by trade than it currently is.

Deglobalization is coming.

Much of the nephrite jade I’ve been accumulating originates from Siberia.  Most of these deposits are found to either the northeast of Lake Baikal in the Stanovoy Range or to the southwest of the lake in the Sayan Mountains.  This is incredibly remote backcountry.

Nephrite gradually weathers out of its host rock in the mountains over the course of countless millennia.  These newly freed jade nodules then wash into mountain streams and rivers where they are subjected to relentless wear and polishing from constantly flowing water.  Lesser materials are pounded into clay and sand – indeed almost all foreign matter associated with the jade is stripped away.  What is left are tough, compact water-worn cobbles of the highest quality Siberian nephrite.

Then some intrepid Russian jade prospector has to hike deep into the wilderness looking for that one in a million jade pebble sitting in an ice cold mountain stream.  He can do this for perhaps three months during the summer before the onset of colder fall weather puts a stop to his efforts.  Assuming he isn’t rich enough to rent a helicopter (and he probably isn’t), he must haul all those kilos of jade cobbles back to civilization using nothing but his legs.  This part of Siberia has few roads and little infrastructure of any kind.

Finally, if you pay him a pittance (usually just a few hundred dollars, give or take), he will happily ship a beautiful, satiny jade pebble straight to your door.

This is what I’m after – all of the treasure with none of the fuss.  Welcome to the world of gonzo investing.

However, it isn’t hard to see how this mutually beneficial arrangement will all come to a screeching halt one day in the not so distant future.  First, there is a well-established pattern in jade mining where secondary deposits (usually alluvial – river – in nature) are mercilessly exploited until no more can be found.  This has already occurred in Wyoming, British Columbia, western China and Burma.  Siberia and Guatemala are currently in the process of being mined out.

Siberian Nephrite Jade River Cobbles for Sale on Etsy

(These are affiliate links for which I may be compensated)

Siberian Jade River Cobble

 

$330 USD

Siberian White River Jade Cobble

 

$290 USD

Siberian Off White Jade River Cobble

 

$105 USD

GIANT Siberian Jade River Boulder

 

$6000 USD

Siberian River Jade Rough

 

$130 USD

Siberian Celadon Jade River Cobble

 

$1250 USD

Siberian Celadon Jade River Cobble

 

$140 USD

Siberian Jade River Cobble

 

$170 USD

Siberian Celadon Jade River Cobble

 

$320 USD

Siberian White River Jade Pebble

 

$185 USD

Of course, once the secondary deposits are gone, prospectors can still mine the primary (hard rock) deposits.  But this is a very expensive proposition.  It requires massive amounts of mechanized equipment and well trained crews.  In addition, the jade extracted will often be of lower quality because the less-desirable material won’t have been eroded away by nature yet.

The next problem is one of international trade.  COVID has shown us that our Gold Rubergesque, just-in-time global supply chain was a ticking time bomb.  Although it will be a painful and slow process, I’m certain that supply lines will inevitably become more regional in the future (probably continent-wide versus our current worldwide).  So one day the parcels full of wonderful treasures straight out of the Siberian wilds will probably cease to arrive at my local post office.

But until that day comes, I will continue to be a gonzo investor.  And you should be one too.

Read more thought-provoking Antique Sage editorial articles here.

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Read in-depth Antique Sage investment guides here.

Photo Credit: Orange County Archives

We are currently living through the largest financial bubble in the history of mankind.  Stocks, bonds, real estate, private equity, crypto-currencies, and even some collectible categories are all grossly inflated in value.  Our current financial mania is broader in scope and larger in magnitude than the 1990s Dotcom bubble, the 1720s South Seas bubble, the 1980s Japanese Nikkei bubble, the 1920s Dow Jones bubble or the 1630s Dutch Tulipmania.

It is the perfect setup for a devastating market crash.

Now I understand full well that making predictions about the financial markets is a quick way to become a liar.  They are so unpredictable that you can simply never say never.  And indeed, what reasonable person would have thought that the U.S. stock market would exit the 2008-2009 Great Recession – the worst economic contraction since the Great Depression of the 1930s – and then proceed to bloom into the greatest financial apostasy of all time?

I have to admit that I didn’t see it coming.

Of course, the real question is where do we go from here?  The conventional wisdom is that we’ve entered a new era of perpetually rising asset prices.  Stock market indices, real estate markets and crypto-currencies of all types will simply waft forever higher on their own smug sense of self-satisfaction, while their owners become rich, rich as Nazis I tell you!

Reality, however, is a harsh mistress.

I suspect that rather than spiraling higher into the financial stratosphere over the next few years, we are much more likely to experience a destructive market crash, or a series of lesser market crashes.  The historical parallels and mathematical realities governing our current predicament are just too brutal to have a happy outcome.

But why would I forecast a market crash when such events are rare throughout financial history.  Is our current “Everything Bubble” really that bad?

In a word, yes.  The Everything Bubble is so enormously overvalued as to be obscene.

For example, the S&P 500 index sports a sky-high price-to-sales ratio of 3.21 as of July 2021.  From the late 19th century right up until 1995 this ratio averaged around 0.8.  Since the Fed began blowing serial bubbles starting in the mid 1990s, the S&P 500 has averaged a somewhat higher ratio of around 1.5.  But this still pales in comparison to the 3.21 price-to-sales figure the index currently enjoys.

A 50% haircut in the major U.S. markets would barely bring this ratio down to an “elevated” average.

I like using the price-to-sales ratio as opposed to price-to-earnings ratios for a couple reasons.  First, sales tend to be far less volatile than earnings.  It isn’t unusual during recessions for earnings to turn negative, but sales rarely drop by more than 10% or 15%, even in highly cyclical industries.  This makes movements in the price-to-sales ratios far more subdued, which in turn gives the observer a much clearer view of the economic fundamentals.

Earnings are also subject to a tremendous amount of hype and fluff.  For instance, companies will often tout misleading EBITDA (earnings before interest, taxes, depreciation and amortization) or operating earnings (sometimes known as EBBS or “Earnings Before Bad Stuff”) to pump up their quarterly numbers.  And it is difficult to know whether the P/E ratio you’re looking at is using trailing 12-month GAAP, forward 12-month estimated GAAP, trailing 12-month operating or forward 12-month estimated operating earnings in its calculations.  No such confusion exists with price-to-sales numbers, which always use the actual trailing 12 month values.

Finally, it is far easier for an unscrupulous company to alter its earnings in a fraudulent manner than it is to fake sales data (although both can happen).

Looking at a chart of the S&P 500 index’s price-to-sales ratio is enough to induce vertigo.  Being a valuation metric, this ratio should lazily meander around a perfectly horizontal average with relatively modest variation on either side.  Instead we see an ascent on Mt. Everest, with the ratio blasting off from the COVID 2020 lows in a nearly vertical manner.  These sorts of blow-off top moves are a hallmark of late stage asset bubbles and nearly always resolve in a market crash.

A chart showing the S&P 500 Index’s Price to Sales Ratio from 2001 to 2021.

Photo Credit: multpl

Another key indicator flashing red is the market cap of all U.S. stocks and bonds outstanding compared to GDP.  Much like the price to sales ratio above, this valuation metric is very, very reliable.  I first wrote about this important barometer back in 2018, but since that time it has gone completely bonkers.

As of Q1 2021 the total U.S. securities outstanding-to-GDP ratio stands at an unprecedented 565%, having risen sharply in just the past year.  But before 1991, the ratio had never risen above 200%.  Indeed, even during the very worst of the 2000 Dot Com bubble and 2007 Housing bubble the ratio never surpassed 380%.

This valuation measurement is so important because it not only takes into account the stock market, but also the bond market.  In fact, the well known Buffett ratio, which tracks the total market cap of U.S. stocks compared to GDP, is just a subset of this valuation metric!  But the total U.S. securities outstanding-to-GDP ratio is a more holistic tool than the Buffet ratio in isolation.  Every time a barely solvent company issues an ugly looking CCC-rated junk bond or a unicorn technology startup goes public, it is reflected in this all encompassing ratio.

To call total U.S. securities outstanding-to-GDP’s current level repugnant is an understatement.  If we were to return to the historical norms that prevailed pre-1990, both the stock and bond market would have to take a combined 73% loss.  And because stock investors sit in a first loss position vis-à-vis bond investors, it implies a truly disastrous Depression-level event for equity indices – potentially an 85% or 90% market crash!

Either that or we avoid a market crash via hyperinflation.  Fun choice!

But hyperinflation – a crutch leaned on by far too many financial pundits these days – is an unlikely outcome, even against a backdrop of trillion dollar deficits and an ever expanding Federal Reserve balance sheet.

Under more normal economic circumstances, high inflation would mean rapidly growing nominal GDP and falling real debt loads.  This would make equities a more enticing proposition versus bonds because companies have an implicit inflation-adjustment mechanism – they can just raise prices for their products (if the market will bear it)!  These increased prices lead to additional revenue and earnings for firms in a persistently inflationary environment.

Market crash averted, right?

Not so fast.  The problem is that empirical observations of both U.S. and foreign economies do not reveal much evidence of inflation (excepting the temporary post-COVID spike).

Instead we see a troubling pattern where each successive recession leaves corporations, governments and average citizens more heavily indebted than before.  As the economy gradually becomes debt-saturated, more and more resources are diverted to paying the interest on these crushing obligations.  Consequently, non-essential economic activity slowly gets choked off leading to loss of pricing power, stagnant wages and disinflation, not inflation.

We can verify this by looking at a chart showing year-over-year nominal U.S. GDP growth rates over the last few decades.  I’ve added trendlines in red to show the average growth rate during periods of economic expansion.  The evidence is unambiguous – average nominal growth has been lower in every successive expansion since the United States cut the dollar’s last link to gold in 1971.

The Financial Crisis of 2008-2009 was particularly damaging, with nominal GDP averaging 5.3% before the crash and only 3.7% afterwards.  It is anybody’s guess just how low average nominal GDP will go in the aftermath of the COVID recession.  But there is at least one indisputable conclusion we can reach: absent massive changes to existing fiscal/monetary policies, nominal U.S. GDP will be lower over the course of the current expansion than the miserly 3.7% rate it achieved during the last expansion.

Persistently low growth and future disinflation does nothing to mollify fears of an imminent stock market crash.

Although I’ve peppered you with a multitude of frightening looking charts, one does have to exercise a degree of caution with valuation tools.  They can’t be used to time markets.  There have been countless instances when an already overvalued market simply ignored reason and became even more overvalued.  And there is nothing to say it couldn’t happen this time either.

But there are signs everywhere that this market cycle is far advanced, stumbling ever closer to a treacherous peak than any sort of harmless trough.

The first exhibit in our menagerie of speculative excess is the crypto-currency market.  Bitcoin, of course, needs no introduction, but it is the other, lesser cryptos that I would like to focus on for a moment.  These less well-known – although perhaps more infamous – crypto-currencies are often collectively termed “shitcoins” by a skeptical crypto community.

I measure speculative fervor in the crypto-currency space via two methods.  The first is the total market cap of all cryptos put together.  Because the space is dominated by Bitcoin, that particular token constitutes the bulk of outstanding market cap (usually between 40% and 70% of the total).  Aggregate crypto-currency market cap peaked in May of 2021 at an astounding $2.5 trillion.  To put this amount into perspective, it is believed that all of the above-ground gold in existence is worth perhaps $10 or $11 trillion.

Although the total market cap metric is quite useful, it has limited applicability with regard to shitcoins because they tend to have small market caps relative to Bitcoin, Ethereum, Tether and the other big boys.

That is where my other measurement tool comes into play – tracking the number of cryptos that have individual market caps greater than $1 billion.  In spring 2021 we hit 105 cryptos – mostly shitcoins – with a market cap of at least $1 billion.  This includes illustrious and desirable virtual currencies such as Ox (ZRX), Avalanche (AVAX), THORChain (RUNE) and my personal favorite, SushiSwap (SUSHI).  BakeryToken (BAKE) was a close second.  With names like these, how could you not be assured of great future wealth, honor and surgically enhanced women hanging off every arm?

That last sentence was sarcasm, by the way.  In reality, the price action we are seeing in shitcoins is a classic sign of financial mania.

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The speculation in the crypto-currency space has become so extreme that otherwise intelligent people are “investing” in shitcoins that they know are probably fraudulent because the allure of easy money is simply too great.  Bloomberg recently ran a great article on the topic titled “Crypto Scammers Rip Off Billions as Pump-and-Dump Schemes Go Digital“.

Here are a couple money-quotes from the article:

“‘Everybody I know has gotten rug-pulled [been the victim of a pump-and-dump scheme],’ says Titus, a 38-year-old butcher in Salem, Oregon.  ‘You know, you win some, you lose some.  Hopefully, win more than lose.'”

“Many who feel they’ve been ripped off just shrug. They chalk it up to the cost of doing crypto, the price of buying a lottery ticket that maybe just might hit that big jackpot.”

My God, is humanity dumb.  We keep repeating the same financial mistakes again and again, apparently forever.

Fortunately (or maybe unfortunately, depending on your viewpoint), this intensity of speculative fervor can’t persist for very long.  The crypto space will either have to continue delivering amazingly high returns (even taking into account all of the pump-and-dump schemes), or it will implode in on itself in spectacular fashion (while taking many peoples’ savings with it).

In any case, a future market crash is assured; it is merely the timing that is uncertain.

Another area where we see speculative price action reaching a frenzied peak is in that old favorite of market gamblers everywhere: the S&P 500 Index.  I’ve created a chart showing the S&P 500 from the spring of 2009 (which was the bottom after the Great Financial Crisis) to July 2021 (the latest data available).  I then segmented the chart into 5 distinct rallies during that 12 year period.  Finally, I drew a linear trendline in red through each separate rally.

The results are stunning.

It shows that each successive resurgence in the S&P 500 during the recent bull market has enjoyed a steeper slope than its immediate predecessor.  As “investors” (I put that term in quotation marks because they are really gamblers) become more assured that the stock market is a perpetual escalator up, they buy the next dip more aggressively.  As a result, each subsequent rally is more extraordinary than the previous one.  It is true that each runup in stocks is interrupted by a brief sideways market action or minor decline, but this merely serves as a prelude to the next dramatic ascent.

When you zoom out, it is clear that the entire edifice takes on the appearance of an exponential curve – a hallmark of financial market manias spanning the ages.  Perhaps most worryingly, the trendline angle of our current rally is well in excess of 70 degrees – a thoroughly unsustainable angle of attack.  For all you geometrically challenged people out there, a 90 degree rally would be perfectly vertical.  This doesn’t mean we can’t have another market drawdown or consolidation followed by an even more extreme melt-up, but such an outcome is cosmically improbable.

Instead it is far more likely that our speculative mania reaches its natural endpoint and swan-dives into a magnificent market crash – Fed be damned!  Few financial market participants are prepared for an event of this magnitude.

The final area where speculation has exploded within the past couple of years is certain niches within the collectibles market.  Magic the Gathering cards, comic books, modern sports cards, video games, sneakers and Pokémon cards are all collectible categories that have experienced frenzied trading and price increases.  Although an important catalyst for these moves was undoubtedly the spring 2020 lockdowns associated with COVID-19, pricing has since taken on a life of its own.

For example, a 1993 Magic the Gathering Black Lotus (alpha) card is more than $50,000 in the summer of 2021, a 300% increase from its price just 3 years ago.  A 1999 Pokémon Charizard Holo 1st Edition certified PSA 10 is $350,000, a nearly 800% increase over the same time.

Meanwhile, in the world of vintage video games a factory sealed, Wata 9.8 certified copy of 1996’s Super Mario 64 for the Nintendo 64 console brought a cool $1.56 million in a July 2021 auction.  And that record-breaking sale eclipsed a Wata 9.0 certified early production run Legend of Zelda Nintendo game cartridge from 1987 that had sold for $870,000 just days earlier.

The speculative excess in these collectable categories is truly breathtaking.

Here is a chart showing climbing market prices for a Magic the Gathering Black Lotus card (alpha).

Photo Credit: MTG$

If you read my website at all, you know I’m a proponent of using fine antiques as an investment vehicle, but that enthusiasm does not extend to the collectible space.

The collectibles that are skyrocketing in price are largely made of plastic, paper and cardboard.  Most can’t even be used for their originally intended purpose without destroying their value as collectibles.  They are nothing like the antique jewelry, sterling silverware, old coins and other high value objets d’art that I recommend savvy investors accumulate.  These venerable antiques are made from some of the most enduring, desirable substances on earth – stuff like gold, silver, gemstones and exotic woods.

I would also like to point out that the piranha-like price action in the vintage collectibles space is tightly confined to those items from the 1980s, 1990s and early 2000s.  This is not a coincidence.  I believe that collectibles from this time period are shooting up in price for one very good reason.

The Millenials in their 20s and 30s who are speculating on these items have never seen a real market crash in their adult lives.  The last truly significant market decline was the 2008 to early 2009 timeframe.  Since that time, the Federal Reserve’s Everything Bubble has persistently risen regardless of the macroeconomic backdrop.  Young people – anyone below the age of about 35 or so – have come to believe that bursting bubbles and crashes are myths told by old investors to scare them out of the markets.  They have also conflated gambling with investing due to having no point of reference for what a normal, reasonable market looks like.

In contrast, most collectibles from the 1960s and 1970s – Hot Wheels cars, Barbie dolls, PEZ dispensers, Hummel figurines, etc. – are dead in the water.  These older collectibles have seen effectively no price bump at all during the last few years.  In fact, their prices have been declining!  I attribute this to the fact that older collectors who would normally be buying these items are too experienced to fall for the ridiculous arguments about never ending demand and perpetually rising prices.

We are in the midst of the greatest investment mania of all time.  But as euphoric as investors, speculators and gamblers in various asset markets are today, there are sure to be tears tomorrow.  A market crash is coming.  I can’t tell you when and I can’t tell you how, but it is coming.

I will leave you with a quote that famed economist Roger Babson made in a speech on September 5, 1929, just weeks before the Dow Jones bubble burst:

“Sooner or later a crash is coming, and it may be terrific.”

I believe we are living in similarly dangerous times.  Protect yourself.  Buy cheap assets like precious metals and high quality antiques.  Make certain to hold large cash reserves.  Don’t use leverage.  A market crash may be frightening, but you can survive it if you act now.

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Hyperinflation is on everyone’s lips today.  Investors are scared to death that they will wake up one morning and look out the window only to find that the world has devolved into a monetary Venezuela.  In this fantasy world, desperate people will frantically shuttle around huge stacks of rapidly depreciating cash in wheelbarrows, all while looking in vain for a business or shop that will exchange their increasingly worthless fiat for something – anything – of value.

Unsurprisingly, I have a different opinion.

I think the developed world is currently experiencing a multi-decade long “soft” depression, where economic growth, wages and consumer demand all remain stagnant.  In this scenario it is disinflation, not hyperinflation, that we need to watch out for.  Disinflation is defined as a monetary phenomenon in which inflation is still positive, but tends to move asymptotically towards zero over time.  It is important to note that disinflation is distinct from deflation, where prices tend to decline over time.

For now, though, it is hyperinflation that has caught the imagination of nervous investors.  In February 2021, genius hedge fund manager Michael Burry (who was favorably portrayed in the movie The Big Short) publicly warned that the United States is going down the same hyperinflationary road as Weimar Germany.  Since then, the financial media has been filled with breathless articles about how we are teetering on the brink of a dollar collapse as we transition into a hyperinflationary regime.

But I want to focus on one specific article I recently read titled Trading “Project Zimbabwe”.  It was written by “Kuppy” of the Adventures in Capitalism blog.  I’ve referenced him before in a post I wrote in the summer of 2020 called Money Printer Go Brrr – The Hyperinflation Myth That Won’t Die.  I chose to highlight his latest work because it is typical of the hyperinflationary scare genre that is so popular right now.

I’ll excerpt a few choice quotes below:

“I like to joke with friends that if they want to hedge their portfolio, they should buy the 2022 SPY $1,000 call [with a strike nearly 2.5x current levels] because they probably do not have enough right-tail [inflation] protection.  They roll their eyes or laugh a bit, but this is only because they have not studied the period we are about to go through.”

The author then follows up with this gem:

“Part of what is so misunderstood about the Weimar period is the extreme volatility. Traditional charts simply show an index going parabolic. Even log charts look rather similar.  However, there were multiple dramatic market crashes along the way.  There were many speculators who recognized what was happening, pressed too hard and got liquidated during one of these crashes.  Others survived the margin calls but sold out through sheer panic.  Even if you know the road-map, you can get whipsawed.”

Then he finally knocks it out of the park:

“I have written about this multiple times in the past year, but put selling is literally the gift that keeps on giving…in a world where JPOW has eliminated the left tail, yet retail investors are crazily overpaying for calls, implicitly juicing put implied volatilities, why would I do much else but write puts with my capital?”

This investment strategy is a huge red flag to me.  I have a fair amount of experience with options and writing puts is effectively writing an insurance policy.  You are pledging to bail out the put buyer if anything goes wrong with the underlying stock.  It doesn’t matter whether it is an adverse political event, generalized financial collapse or company specific fraud – the put writer will be forced to deliver cash and take devalued shares in return.

It is akin to picking up nickels in front of the proverbial steamroller.  Everything might go swimmingly well for years at a time, only to have your carefully constructed strategy spin apart in a couple days dominated by “impossible” multi-sigma moves.  Financial history is littered with the corpses of similar trading strategies that, although back-tested perfectly over a 5, 10 or 20 year time period, nonetheless failed spectacularly within a few years of their implementation.

My philosophy is that if you write put options on overvalued or junk stocks you will, sooner or later, end up being the proud owner of a portfolio full of those same loathsome stocks.

Now Kuppy is no fool.  So why is he so enthusiastic about a trading strategy that has bankrupted countless speculators before him, especially when he understands the concept of tail risk?  What is really going on here?

In my opinion, Kuppy is getting rich by speculating.  He, along with most other market participants, has discovered that you can throw your money at almost anything during our ubiquitous Everything Bubble and still make good money.  But the problem with participating in a financial bubble is that it is a case of easy come, easy go.  You will inevitably lose any money you’ve made if you don’t cash out.  But cashing out means walking away from future easy gains and few people have the intestinal fortitude to do that.

Therefore, most speculators resort to rationalizing their bubble antics instead.

The conventional wisdom right now is not that we are experiencing a series of obscene bubbles rife with grave financial risk, but instead that we are facing the progressive, accelerating debasement of the U.S. dollar.  This renders savings, conservative investing and prudence ineffective – indeed downright stupid – but only if the hyperinflationary narrative is true.

Unfortunately for Kuppy and company, I think disinflation is a far more likely monetary outcome over the course of the 2020s.  And if disinflation doesn’t happen, then deflation (not hyperinflation) is next in line as being the most likely result!

I hold this unpopular opinion for a multitude of reasons.

First, it must be unequivocally stated that commercial banks, not the Federal Reserve, have been the unquestioned driver of money creation in the United States since World War II.  A commercial bank is just a fancy term for any deposit-taking institution that also engages in fractional reserve lending.  In our modern world, governments located in developed economies made a deal with the devil whereby politicians effectively outsourced money creation to the commercial banking system.  This means that it is private bank loan creation that drives growth in the money supply, not the Fed printing up new reserves via quantitative easing.

U.S. banking system loan growth from 1953 to 2020.

Photo Credit: Alhambra Investments

As you can see from the chart above, private lending in the United States has been anemic ever since the 2008 Financial Crisis.  And why wouldn’t it be?  Consumers and small businesses that might need or want a bank loan are already debt-saturated.  Everybody has much weaker balance sheets than they did just 20 or 30 years ago.  Most banks take one look at the credit risks involved and sensibly walk the other way.

As a result, the growth in borrowing in our economy is currently driven by governments, government agencies and mega-corporations – all of which have relatively strong balance sheets and direct access to capital markets.  But floating a new bond issue through an investment bank isn’t fractional reserve lending; hence it results in no new money supply growth.

I would be much more sympathetic toward inflation fears if we did not have any good data on the subject.

However, we have two modern counterfactuals that cast doubt on an inflationary outcome: Japan and the Euro area.  Both of these economies lowered their interest rates to zero (or below zero in some cases) and had central banks that engaged in rampant balance sheet expansion.  Regardless, inflation rates in both regions have been perennially lower than in the United States for many years running with no prospects for an imminent change in the situation.

The U.S., Japan and Europe have been engaging in remarkably similar fiscal and monetary policies for some time now.  Disinflation, sometimes devolving into outright deflation, has dominated in the latter two cases.  So why in the world would we expect there to be a different outcome in the U.S.?

Securities markets agree with my assessment as well.  Both U.S. Treasury bonds and the foreign exchange market have been remarkably sanguine about the future of the U.S. dollar.  If hyperinflation – or even simply elevated inflation – was lurking on the horizon for the dollar, you would expect bond investors to be a little skittish about tying up their money for 10 years at a nominal yield of only 1.5%.

Yet that is the going yield-to-maturity on a 10 year U.S. Treasury note as of June 2021.  It sure smells like disinflation to me.

Naysayers claim that the Fed’s $120 billion per month purchases of Treasury and agency debt invalidate any pricing signals coming from the bond market.  But it is important to note that out of the approximately $4.5 trillion of net new Treasury issuance in 2020, only around $2.4 trillion was purchased by the Federal Reserve.  The free market happily absorbed the other $2.1 trillion with nary a complaint – and all at or near record low yields.

And that leads us to our next problem.

Economists really don’t have a proper definition for the U.S. dollar and, therefore, can’t accurately measure its supply.  I know, I know…the green paper stuff in your wallet is dollars.  That is absolutely true, but physical currency makes up a tiny fraction of the dollars in existence.  Most dollars these days are purely digital in nature, existing only as a series of 1s and 0s in some database.

Not only that, but dollars don’t even have to be domestic to be considered dollars.  The Eurodollar market refers to all the U.S. dollars that are deposited or domiciled outside of the United States.  These are typically concentrated in tax havens like the Cayman Islands, the City of London, Switzerland, Singapore, etc., but they can reside in any foreign locality.  The Eurodollar market is massive and has a huge influence on interest rates and international capital flows.

In any case, we don’t have a good definition of exactly what a dollar is.  After much contemplation, I’ve come to the conclusion that the commonly cited monetary aggregates published by the Federal Reserve – M0, M1, M2, MZM, etc. – are far too narrow in their scope to be useful.

The closest I’ve come to a good definition is this: the dollar is a currency unit that can extinguish U.S. tax liabilities and dollar-denominated debts.

But even that leaves a lot of wiggle room.

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Is your money market fund dollars?  Probably not, considering that it holds short-term corporate or government debt (which is a pledge to pay dollars in the near future, but not quite yet).

How about an Amazon gift card?  It might be denominated in dollars, but you sure can’t pay your income taxes with one.

And what about stable-coin crypto-currencies like Tether?  They are pegged to the dollar and (purportedly) backed by reserves, but they ultimately aren’t dollars either.

In spite of these monetary instruments clearly not being dollars, they can all act very cash-like under many circumstances.  During the good times, these cash-substitutes (which are typically privately issued) proliferate, leading investors to falsely believe there is far more money in the economy than there actually is.  But when the bad times come and people need money, they quickly discover that cash-like doesn’t always mean cash.

As you can see, this gets very messy, very quickly.

It also leads to the next reason I believe disinflation is in our future rather than rampant inflation: deflating asset bubbles.  Bubbles are both self-referential and self-reinforcing due to their intrinsic nature.  Persistently rising prices in an asset class (any asset class) gradually draw in more and more speculators who believe they are making a one-way bet.  Eventually, even otherwise conservative investors buy-in, deluding themselves into thinking they are prudently investing when they are really gambling.

Although primarily financial creatures, bubbles create a host of real world side-effects in the mainstream economy.  The first is the infamous wealth effect, where investors spend lavishly on vacations, home improvements and fancy dinners because they feel flush with unrealized portfolio gains derived from skyrocketing asset markets.  This is the transmission mechanism that the Federal Reserve is explicitly targeting with its reflation-oriented, low interest rate policy.

Unfortunately, the wealth effect is much less powerful than central bankers originally believed.  Rich people own most of the world’s assets, but have already bought as many Greek islands, Rolex watches and bottles of vintage wine as they care too.  Piling another million or two on top of their already prodigious mountains of wealth is unlikely to spur much more consumption.  On the other hand, your average 401-k investor with a 9 to 5 job is probably not going to splurge on a new $50,000 SUV just because his Apple stock netted him a cool 10 grand.

But where bubbles really do goose the real economy is in respect to employment and wages!

The investment banks that are cranking out worthless technology IPOs by the dozen need an army of bankers, lawyers, accountants and marketers to do the grunt work involved.  Likewise, our gargantuan housing bubble is keeping an entire fleet of real estate agents in the lifestyle to which they have become accustomed.

Perhaps most interestingly, the profitless prosperity companies – Netflix, WeWork, Tesla and others like them – are directly pumping up employment in a big way.  These are often good jobs that deliver high salaries and generous bonuses.  Private equity is the typical funding mechanism for pre-IPO profitless prosperity firms.  And much like workers in investment banking and hedge funds, private equity employees also receive generous compensation.

Taken together, it is clear that the true transmission mechanism for low-interest rate fueled bubbles is through the salaries and bonuses they provide to those employed in bubble sectors.  These strong wages help keep consumption and, by extension inflation, higher than it would be otherwise – probably much higher.

Of course, we must naturally ask ourselves what happens when our dear bubbles inevitably burst?

It is difficult to see how it couldn’t be a massacre.  Layoffs will be widespread and disproportionately hit bubble employees making relatively high salaries.  The freshly unemployed will be forced to tap equity portfolios and retirement accounts in order to put food on the table, but those securities will be worth much less due to falling markets.  Many formerly middle-class peoples’ houses will be repossessed as continuing to pay the mortgage, property taxes and insurance will prove to be untenable.

This is the stuff of nightmares.  It is the reason the Federal Reserve is so frightened that the bubbles they’ve created will collapse, dragging the economy down with it.

Here is the kicker though.  The inflation rate in the U.S. since the 2008 Financial Crisis has been anemic at best.  And this is with the benefit of the Everything Bubble pumping up employment and wages.  In fact, the United State’s prominent position as bubble factory to the world is probably one of the only reasons why our inflation rate has been consistently higher than in either Europe or Japan.

It isn’t too difficult to imagine a near future where the bubbles stop bubbling and disinflation or deflation results.

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There are other good reasons to expect disinflation, of course.

The rapid expansion of private sector debt during the 2020 COVID debacle springs to mine.  Additional borrowings by large corporations, small businesses, landlords and their tenets (leases are just another form of debt) will all weigh on future economic consumption.  All that new debt will eventually have to be repaid (with interest) or defaulted upon – a highly disinflationary prospect.

We can expect tax rates to climb in the future as well.  This will be driven by the need for the U.S. government to appear at least somewhat responsible in the face of continually escalating deficits.  Tax increases, even if insufficient to close the budget gap, will be a powerful signal to markets that the government will not spend itself into ruin.

But tax increases reduce consumption in an economy and contribute to deflationary impulses.  Rising taxes on corporate profits would be especially devastating because so many investors have come to expect the companies they invest in to pay little to no tax.  However, I think the generational low for such taxes came with the passage of the 2017 Trump tax cut, when U.S. corporate taxes were dropped to a flat 21%.  Higher corporate taxes are almost a given in the current political environment, which will contribute substantially to future disinflation.

I would like to note, however, that disinflation does not mean that prices drop.  On the contrary, I think it highly likely that nominal prices will be higher 5 years, 10 years or 20 years from now.

And I’m no inflation denier, either.

2021 has seen a major upward adjustment in prices due to the lingering supply-chain disruptions caused by the COVID pandemic.  These price increases are very real and very sticky too.  We won’t be giving them back, short of falling into a severe deflationary spiral.

Disinflation merely means that going forward we are likely to see slow, modest price increases, rather than dramatic, galloping ones.

The important take away from all this inflation/disinflation/hyperinflation talk is that the best way to protect yourself is to have a healthy cash cushion and to invest in reasonably priced assets.  The cash part is easy enough, even if relatively boring.  Finding reasonably priced assets in our massively overvalued markets is much harder.

This is where antiques, bullion, art and gemstones can play a vital role in your portfolio.  These are the asset classes that time forgot.  While financial pundits are hysterically shrieking about hyperinflation, many tangible assets have been curiously ignored by bubble-obsessed investors.

But their loss is your gain.

Because they are so cheap, a prudent investment in fine antiques or bullion will do well in almost any conceivable monetary future.  And it doesn’t matter whether we ultimately face disinflation, deflation or hyperinflation, tangibles will navigate them all with equal aplomb.

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