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Diminutive Art in the Modern Age

Diminutive Art in the Modern Age

I’ve seen both ends of the materialism spectrum in my family.  My parents have a house rammed full of so much stuff it’s difficult to walk around in.  And most of their possessions are junk.  They won’t throw anything away because of emotional attachments, but deflect any criticism by claiming that “as soon as we throw out (fill in the blank), then we’ll need it.”  One would think this is the perfect way to ensure that they would never need anything again, provided they already own it.

But, of course, life doesn’t work that way; they always buy more.  Growing up in their house has caused me to value the simplicity of an uncluttered life.  I have vowed never to emulate them.

My brother sits on the other side of the materialism fence.  He has embraced extreme monasticism, to the point where he even eschews useful furniture like a bed or dresser.  To him possessions are a sign of dubious individual moral fiber.  They are chains, tying you down to the banality of the physical world.  Once, after finding my brother sitting cross-legged on the floor of his room surrounded by a pile of books (with no furniture to be seen) I concluded that my brother’s approach to life was unnecessarily austere.

And that brings us to my own personal, middle path philosophy.  Don’t own many things, but make certain that the things you do own are nice.  And perhaps the highest application of this dictum is the field of art and antiques.  We all want a little color in our lives, something beautiful and inspiring.  Art and antiques, in addition to being fine investments, give us that special, deep connection to history, nature, philosophy or aesthetics that we crave.

But many people are intimidated by the scale of traditional art forms – the so-called major arts.  Paintings?  You need a gallery to display those properly, or at least a mansion with an extra wing.  Sculptures?  They require an exhibition hall or perhaps you could sneak by with only a large courtyard.  But good art doesn’t have to be cyclopean in size.  Some fine art and antiques are actually quite compact.

Over the last couple of decades our lifestyles have changed.  We are now more mobile than ever.  Our cell phones are mobile.  Our media is mobile.  Even our living arrangements are oftentimes mobile.  So why can’t our art be mobile too?

It can be.  The minor arts like jewelry, silverware, miniature sculpture and lacquerware, to name just a few, gracefully mesh with this modern philosophy of unencumbered living.  A superb, Edo era Japanese boxwood netsuke sculpture may be only a couple inches tall, yet overflows with history and culture.  An ancient Greek gold stater coin only weighs about 8 grams, but clearly reflects the grandeur of ancient Greece and the skill of her artists.  Small is beautiful and our society is just now coming to realize it.

The size of diminutive art bears no relation to its value either.  Most investment grade antiques are crafted from precious metals, glittering gemstones, exotic woods and other rare materials.  These miniature works of art are small, but exceedingly valuable.  Antiques conveniently allow us to hold a piece of the past in our hands while simultaneously being, if carefully chosen, top notch investments.

A collection of fine antiques takes up little space and can usually be displayed on a couple small shelves or, if need be, stored in the corner of a closet or a dresser drawer.  A modestly sized home safe or bank safety deposit box will also easily accommodate most collections.  Investment grade antiques are discreet and easily transportable, regardless of whether you need to take them down the street or halfway across the country.  And no one – not your friends, family or coworkers – will know you own a valuable collection of investment grade vintage wristwatches, antique jewelry or medieval prints – to name just a few possibilities – unless you tell them.

Art is a necessity in a balanced life, like food or water, but for the soul.  But art doesn’t need to be big to be good.  A compact collection of investment grade antiques can satisfy your aesthetic needs while also offering good investment returns.  As I like to say, own few things, but let the things you do own be nice (without taking up much space).

Investment Grade Antiques Diverge from the Collectibles Market

Investment Grade Antiques Diverge from the Collectibles Market

The antique market has undergone massive changes recently.  These developments have altered the antiques marketplace in one important way that few experts, much less casual observers, are aware of.  While high end, investment grade antiques have soared in value over the last 10 to 15 years, non-investment grade antiques – what I refer to as collectibles – have crashed.

This pricing revolution became starkly apparent to me as I was doing in-depth pricing research for guides I was writing.  I saw the same pattern again and again.  Investment grade antiques – high end coins, jewelry, silverware, mechanical watches, illuminated manuscripts, etc. – generally cost two to three times what they did a decade ago.  Sometimes they cost four times as much.  Very rarely, the increase was a bit less than two times.  These price increases were across the board, but only for antiques that fell into the investment grade category.  In other words, only those antiques that are portable, high quality, durable, scarce and reflect the zeitgeist of their era benefited.

The situation hasn’t gone nearly as well for the rest of the antiques market, however.  The price of more pedestrian collectibles – most memorabilia, ceramic figurines, antique furniture, glass, china and crystal – has plummeted since the turn of the millennium.  Markets that used to be vibrant for these antiques have collapsed in value by anywhere from 25% to 80%.  And the trend doesn’t seem to be changing anytime soon.  The demand collectibles formerly enjoyed is simply no longer there.

As interesting as this bifurcation in the antiques market is, I find the reasons why the split has occurred even more intriguing.  If we can understand why it is happening, we have a chance to reasonably predict future demand and relative price movements.  There are several interconnected reasons why the collectibles market has weakened while the investment grade antiques market has simultaneously appreciated.

The aging of the acquisition-oriented Baby Boomers is first and foremost on the list of trends that has tanked the collectibles market.  Around the year 2000 the Baby Boomers were in their late 30s to mid 50s.  This was their prime collecting age, when they stuffed their newly built McMansions full of every conceivable antique and collectible.  But now that the Baby Boomers are aging into their 60s and 70s they have slowly changed from net buyers of collectibles to net sellers.

The Great Financial Crisis of 2008-2009 also brought profound, irreversible changes to the antiques market.  Before the crisis, many people spent a significant portion of their discretionary income on collectibles.  After the crisis this extra income – and by extension a great deal of collectible demand – has evaporated.

The trend towards young people living in condos, apartments, townhouses or other, smaller homes has meant there is less room for knick-knacks and shelf sitters among the younger demographic.  It has also resulted in younger generations highly valuing portability.  Many of today’s Millennials live semi-nomadic lifestyles, changing apartments often and even moving across the country for job opportunities.  Because of this, antiques that are durable, small and easily transported have a tremendous edge over ponderous, fragile furniture, china and other unwieldy collectibles that grandma may have favored.

Another important factor in the escalating prices of investment grade antiques is the price of bullion.  Gold, silver and platinum have all increased sharply in value since the early 2000s.  Any antiques containing significant amounts of precious metals have, consequently, seen their value rise, as well.  This trend applies to other fine raw materials, too.  For example, fine gemstones and exotic woods have also increased in price over the last couple decades, indirectly driving up prices for antiques that incorporate them.

Finally, many younger people, having grown up in the Age of Wal-Mart, have developed an aversion to mass produced junk.  Instead they recognize and strive to own fewer, but higher quality items.  Investment grade antiques, with their old world workmanship, individuality and scarcity, effortlessly fit these requirements.

None of these trends are likely to end anytime soon.  Therefore, I think we can expect more of the same.  High quality, investment grade antiques will continue their brisk appreciation while more common collectibles will remain stagnant at best.

The Future Is Handmade

The Future Is Handmade

As we boldly move into the 21st century, it is becoming apparent that mass manufactured goods will continue to become cheaper and more plentiful.  The rise of computer AI, robotics and globalization is all converging to create an environment where most items can be produced quickly and in large volume.  The future will feature ever less expensive consumer electronics, appliances and clothing.  It will also feature many fewer human workers.  So how will people make money and what will they do for work?

Since the beginning of the 19th century people have been trained for the industrial economy, a dystopia of gigantic factories and high speed machinery.  Workers stood on long assembly lines dutifully cramming the same widget into the same appliance again and again.  Then, in the mid 20th century, came the rise of the office economy.  This system relied on vast cube farms populated by armies of college-educated workers mindlessly entering data into spreadsheets.  Now we are rapidly transitioning into the information age, where individuals are often self-employed or contract workers.  A typical workspace for these intrepid pioneers may consist of sitting in a Starbucks with a MacBook Pro and an espresso.

But many of us will still long to use our hands just as much as our minds in the information age.  For those people, the obvious solution is handcrafting one-of-a-kind goods for direct sale to the public.  We can already see how this new style of production is spreading quickly.  Online distribution platforms like Etsy, eBay and even Amazon are providing today’s entrepreneurial craftsmen with powerful retail outlets that have a truly global reach.  It is now possible to sell your unique creations almost anywhere, to almost anyone.

And as the global marketplace inevitably becomes flooded with commoditized manufactured goods, handmade alternatives will become increasingly desirable.  No mass-produced cell phone or coffee mug can possibly compare to the warm, personalized touch of a handcrafted sterling silver keychain or a handmade monogrammed leather wallet.  The care, expertise and skill that goes into the creation of handcrafted goods is immediately and viscerally apparent to even the casual observer.  Handmade will eventually become a byword for luxury and refinement in a world awash in mass produced clutter.

In the end, the profound changes the world is currently experiencing will resolve positively.  People cannot be truly happy in life unless they feel they are doing something meaningful.  Working on an assembly line or in an office cubical might have put food on the table in decades past, but I think few people found it fulfilling.  Today we stand on the precipice of perhaps the most radical change since the industrial revolution – a world where many traditional white collar and blue collar workers retool to produce handcrafted luxury goods.

The Decline of American Retail

The Decline of American Retail

The United States is a consumer oriented society.  We have more retail square footage per capita than any other nation on earth.  We developed the concepts of “retail therapy” and “shop ’til you drop” as (unhealthy) ways to manage psychological problems in our lives.  There is no way around it; Americans love to shop.

But the retail space has been changing rapidly over the last 20 years.  The rise of internet retail – with Amazon.com as its poster child – is just one example of the epochal change that is taking place.  Many people would call this sort of change a good thing, ultimately.  And I won’t argue with them.  But there is another, darker side to the changes in retail that is important for both investors and consumers to understand.

Our bubble prone economy has massively overbuilt commercial retail space.  A corollary of this assertion is that we have far too many retailers.  Put quite simply, there aren’t enough retail dollars spent in an average year to support the companies and infrastructure currently occupying the retail sector.  Up until now, this fact has been obfuscated by three poorly recognized trends.  But these trends are reaching their conclusion, leaving the United States with a potential retail apocalypse on its hands.

As the pool of discretionary retail dollars shrank in the aftermath of the 2008-2009 Great Financial Crisis, small retailers tended to feel the pinch first.  These were the proverbial mom and pop shops, with a handful of store locations or less.  While the nature of these retail establishments could vary considerably – florists, convenience stores, antique & consignment shops, restaurants, specialty retailers, etc. – they all had one very important element in common.  None of them had access to the capital markets.  They could issue neither stock nor bonds to raise capital.

This placed these small businesses at a distinct competitive disadvantage compared to larger chain retailers.  In our current era of near zero interest rates, large companies could easily tap cheap public market financing to support their operations while sole proprietorships couldn’t.  Consequently, in the years since the Great Financial Crisis, a massive number of these small retailers have gone out of business.  See my related articles on The Bittersweet Goodbye of the Physical Antique Store and The Great Boston Antique Store Massacre of 2011-2012 for more details.

The second overarching trend has been consolidation among the remaining American retail chains.  A perfect example of this phenomenon was the 2005 merger of Federated Department Stores (owner of Macy’s) with The May Department Stores Company (owner of Filenes, Marshall Fields and Lord & Taylor).  Once two large corporations merge, overlapping store locations can be closed and smaller, non-core operations can be sold or spun-off.  These actions help reduce competition and stretch the limited pool of available retail dollars further.

But even these developments didn’t keep up with the decline of the American consumer, beset as he is by excessive consumer debt, lack of salary increases and anxiety over job security.  So, over-levered corporate retailers began to liquidate next.  These American retail companies had tapped the high yield bond market until even the stupidest bubble-head money manager won’t lend them another dime.  Electronics retailers like Circuit City (2008) and RadioShack (2015), book seller Borders (2011), video rental shop Blockbuster (2010) and home goods store Linens & Things (2008) are all examples of national retailers that have declared bankruptcy and subsequently liquidated due to the difficult retail environment.

I think it is important to note that the first two trends I listed above leave equity and bond investors in the retail space completely intact.  Wall Street loves this, in spite of the fact that it is cannibalistic behavior.  The large, stronger corporate retailers eat the small, weaker mom & pop shops first.  When there are no more small retailers to feast on, the big corporations begin to devour each other in mergers.  But once all the mergers that make sense (and some that don’t) have happened, the weaker national retailers begin to fail.

Now we are progressing to the next ominous phase of our peculiarly American retail disease: poor sales results from previously strong national retailers.  Target, J.C. Penney and Macy’s are just a few of the large physical retailers that have reported disappointing sales numbers in 2016.  These massive corporations are caught between the inexorable pressure of ultra-low margin online retailers like Amazon.com on the one side and overextended consumers who are relentlessly cutting back on spending on the other.

The future is clear; more American retail chains will liquidate in bankruptcy.  In fact, it is probable that household names that have defined their respective retail spaces for generations will come to an ignominious end.  One dead store walking that comes to mind is Sears, an original pioneer of mail order catalogues back in the late 19th and early 20th centuries.  They were, ironically, the Amazon.com of their day.  And they will soon be gone.

The world is changing.  And investors holding shares or bonds in the affected companies who do not take heed will feel the pain.  It is yet another reminder that your investment dollars may very well be safer in investment grade art and antiques than traditional financial instruments.