Browsing Category

Trends

How the Great Recession Forever Changed Antique Collecting

How the Great Recession Forever Changed Antique Collecting

The year 2008 will forever stand as a stark dividing line in the history of antique collecting.  There was the time before 2008, when many categories of collectibles were still relatively vibrant and active.  And then there is the time after 2008, when many traditional collectibles markets – china, glass, furniture, etc. – collapsed in price.

What is the one key element that divides these two disparate time periods?  The answer is the Great Recession of 2008-2009.  This seminal event has reverberated throughout the antique collecting and investment market like an earthquake, right up to the present day.

The primary reason the Great Recession has had such a massive impact on antique collecting is pretty straightforward.  The economic fallout from the recession was absolutely massive.  In 2007, the real (inflation-adjusted) median household income in the U.S. was $58,149.  A full eight years later, in 2015, the same number stood $919 lower at $57,230.  A contraction in U.S. real household income was formerly unprecedented among post World War II recessions.

This declining discretionary income has had a direct impact on the ability of average people to collect antiques.  The marginal antique buyer has fled the marketplace and this is reflected in the pricing for most collectibles.  Prices for categories such as Depression glass, sports memorabilia, Waterford crystal, Victorian furniture and primitives, among others, have declined relentlessly since the Great Recession tore into the soft underbelly of the Western middle class.

I have a personal story that illustrates this fundamental change in the antique market.  In 2008, my beloved grandmother, aged 95, passed away.  She had been an avid collector of antiques and collectibles all her life, although she never paid much for any item.  After family members chose the antiques from her estate that they wanted, the remainder was put up for sale at a local auction house.

My family had always believed that her extensive antique collection was worth a significant sum of money – perhaps tens of thousands of dollars.  But reality, along with the concurrent Great Recession, shattered those misguided hopes.

Before I continue with the story, let’s review an important tidbit about the small auction scene.  Every small-time auctioneer is trying to reach a minimum bid of at least $100 for every lot he sells.  It simply isn’t worth the time to conduct bidding on lone items that end up selling for only $10, $25 or $40.  So nearly all auctioneers combine lower value, single items into larger, multiple item groupings in order to increase each lot price.

Many of my grandmother’s collectibles were of much lower monetary value than originally thought.  Consequently, most items from her estate were combined into multi-item lots by the auctioneer.  This phenomenon is actually a very important sign of a declining collectible market niche.  Many antiques that used to sell at auction as single items before 2008, now can only reach that magical $100 price point when they are sold in groups.

In the end, the collectibles portion of my grandmother’s estate realized less than $10,000 at auction.  This was partly due to the effects of the Great Recession.  Had her estate come to auction a couple years before, in 2006, the realized prices might have been 50% more, and perhaps even higher.  Once again, antique collecting clearly bifurcates into the time before the Great Recession and the period after it.

Now I don’t want to blame the decline of traditional antique collecting solely on the Great Recession.  There were other, powerful demographic and lifestyle trends gradually unfolding in the background at the same time.  But the financial damage caused by the Great Recession was the single largest contributor to the demise of antique collecting as it had existed since the mid 20th century.

And, so far, there are no signs that we are ever going back to the collectibles market that used to be.  So, if you are interested in collecting, stick to investment grade antiques that have a high probability of appreciating in the future.

Thoughts of a Grizzled Gold Scrapping Veteran

Thoughts of a Grizzled Gold Scrapping Veteran

A long time ago, I used to scrap gold as a hobby.  That’s right.  Before the cash for gold craze went viral, I was on the scene, tirelessly scouting flea markets and antique stores for scrap gold.  Given the extensive experience I acquired, you would think that I have a tip or two about gold scrapping.  And I do.

First, if you are currently contemplating scrapping gold or other precious metals as a hobby or a business, don’t do it.  The space is absolutely overrun with competition today.  There is a cash for gold kiosk or a pawn shop sitting on every other street corner these days.  And they have been busy separating desperate people from their gold jewelry for more than a decade at this point.  In many less fortunate neighborhoods there probably isn’t that much gold left to scrap anyway.

But it didn’t use to be that way.  Back when I was prospecting, in the late 1990s and early 2000s, nobody scrapped precious metals.  Why not?  Because gold and silver were only $300 and $5 a troy ounce, respectively!  Everyone was too busy driving their massively oversized SUVs to their ridiculously huge McMansions, while being fabulously wealthy, to worry about scrapping gold.

Perhaps an anecdotal story will best exemplify the conspicuous waste during this time.  My mother’s friend threw away a complete 12 place setting sterling silver service she had inherited just because she felt it was outdated.  She thought it was ugly and didn’t want it anymore, so into the trash it went.  Can you believe that?  A perfectly good 50, 75 or 100 troy ounce set of sterling flatware thrown into the trash heap!  Stories like this are fascinating as social commentary while also exemplifying the horrible wastefulness of the era.

But for an amateur gold scrapper like me, the late 1990s were a literal golden age.  I remember gleefully picking through boxes full of junk jewelry in antique stores at that time.  Each piece of jewelry might cost you anywhere from a quarter to a few dollars.  But sterling silver was common and karat gold could frequently be found.

I think the deals were so great because nobody could be bothered to scrounge around for the few dollars available from gold scrapping.  Antique dealers were doing well selling collectibles to Baby Boomers for outrageously high prices.  They didn’t need to squeeze the last dollar out of a few pieces of junk jewelry.

It takes some time to identify karat gold and individually price it.  For most dealers, $300 an ounce gold just didn’t justify the effort.  If a dealer was shooting for maximum turnover, it was simply easier to throw the jewelry in a communal bin and slap a nominal, one-size-fits-all price on it.  Despite the low precious metal prices – or perhaps because of them – it was an ideal environment for gold scrapping and I took full advantage of it.

One time, I even scored a 14 gram (0.386 troy ounce) pair of solid 14 karat gold cufflinks at a flea market for a mere $2.  Gold was trading around $350 at the time, so the scrap value was about $92.  That translated into an instantaneous 4,500% return on my initial investment!

Of course such phenomenally great deals were rare, even in the good old days.  And the days didn’t stay good forever.  As the price of gold and silver inexorably rose, the supply of cheap, overlooked junk gold jewelry gradually dried up.

As it became progressively harder and harder to find gold jewelry to scrap, I gradually abandoned my lucrative hobby.  Even though the price of gold increased substantially during the early to mid 2000s, the amount of scrap gold I found dropped so drastically that it didn’t make any financial sense to pursue gold scrapping.

The magic in gold scrapping was gone.  In many ways, I feel that 2006 was the death knell for the part-time precious metal scrapper.  In that year, the price of gold shot above $600 a troy ounce and has more or less stayed above that level ever since.  The increased recognition of gold’s scrap value quickly led to an explosion of scrap for gold companies and a simultaneous emptying of antique store display cases.  If you find a piece of karat gold jewelry in an antique store today, it will undoubtedly be priced two or three times above scrap value, even if it is damaged or otherwise junk.

The Coming Contemporary Art Crisis

The Coming Contemporary Art Crisis

While conducting research into investment grade art, I’ve noticed an interesting, albeit disturbing, trend in contemporary art.  Really good contemporary art is just as rare as high quality antiques.  Fine art in any era requires both a creative spark and a master’s touch.  And becoming a master takes many years – if not decades – of hard work and relentless study.  And it is because of this fact that an art crisis is inevitable.

Allow me to explain.  Good contemporary artists are out there, diligently toiling away to create works that will be recognized as future masterpieces.  Many of these master indie artists – woodworkers, jewelry makers, sculptures and print makers among others – are now getting older.  They are usually in their 50s or 60s and retirement is looming large on their horizon.

They have made good in their artistic careers.  They own and run their own studios or shops and have painstakingly built robust and loyal clienteles over the years.  These independent artists make a good middle class living (and occasionally better).  They have been fortunate enough to buy their own homes and raise families – all while saving for retirement.

However, many of these successful indie artists began their young adult lives as hippies, bohemians or other paragons of wanderlust.  They often traveled widely in their youth, eventually settling in socially vibrant, but inexpensive neighborhoods of large cities.  For example, the neighborhoods of SoHo and Tribeca in New York City were once renowned for their vibrant artistic communities as was the Haight-Ashbury neighborhood in San Francisco.

In the 1940s through the 1980s these neighborhoods and others like them were important destinations for young artists-in-training.  These future trend setters absorbed the avant-garde culture and edgy scene in these city neighborhoods, using them as inspiration for their formative artistic endeavors.

And a big part of the reason why it worked was because the cost of living was low.  The rent was cheap in these run-down neighborhoods, if only because the “rustic” lofts were often converted from abandoned factories.  These hip urban districts might have been full of unconventional thinkers and dreamers, but they weren’t nice neighborhoods.  Still, they worked for their purpose: nurturing and training young artists cheaply.

Then the world’s central bankers went insane.  For the last 25 years global central banks have surreptitiously stoked the fires of inflation – especially asset inflation – whenever they could.  Sure, televisions, laptops and other consumer electronics may have become dramatically cheaper over time, but that has been outweighed by the steadily escalating price of food, gasoline and rent.  It is that most despised of economic memes: deflation in the things you want, but inflation in the things you need.

All of us hate rising prices for basic needs, but they are especially devastating to young artists.  A crisis of urban affordability will ultimately evolve into an art crisis.  Rent inflation, in particular, prices budding artists out of gentrifying, formerly artist-friendly neighborhoods.

Once real estate prices and rents have risen far enough, poor aspiring artists can’t even afford the cheapest, nastiest part of town.  Those that stay are forced to work multiple jobs in an attempt to keep food on the table and gas in the car.  And they hope against hope that they can still successfully pursue their artistic dreams.

None of this is conducive to creative accomplishment, eventually leading to an art crisis.  That critical mass of creative people living in close proximity to each other is lost as urban housing prices shoot into the stratosphere.  Those who do manage to eke out a living in the city have little time to observe their surroundings, philosophize with friends or contemplate aesthetics – all necessary components of artistic development.  All too often they can’t even scrape together the discretionary funds needed to buy expensive art supplies or equipment.

Because of these widespread financial pressures, I suspect that many potential artists since the early 1990s have never evolved into full-fledged artists.  And this is the crux of my concern about a future contemporary art crisis.  The current generation of successful independent artists is rapidly aging.  Even if they don’t want to officially retire, their productivity and output will decline drastically as they age into their 70s and 80s.  So who will replace them, making the fine contemporary art of the future?  I sadly suspect the answer is “no one” or at a minimum “too few”.

Some aspects of the luxury goods market will not be impacted by the coming art crisis.  The established luxury brands like Tiffany & Co., Louis Vuitton, Cartier and Gucci will continue to employ artists in substantial numbers to design and create luxury goods.  Due to their size, these corporate behemoths have direct access to the capital markets.  Central bank policies that have been destructive to indie artists are advantageous to these major luxury houses.  They will experience no shortage of hired help.

But it will be a long march through the wilderness for small art studios and those who love their work.  This dearth of indie art isn’t upon us quite yet.  But the art crisis is coming.  I believe that over the next 10 to 15 years we will see the widespread retirement or closure of many successful small art and craft shops.  I wish it were otherwise, but this will negatively impact the supply of indie fine art for many decades to come.  Make your art investment plans accordingly.

Will the Original Apple iPhone become a Valuable Future Antique?

Will the Original Apple iPhone become a Valuable Future Antique?

I’m constantly challenging myself to think differently in my quest for the next great antique.  And one of the questions I’ve recently pondered is “What luxury item today will become tomorrow’s investment grade antique?”  In many ways, the original Apple iPhone, released in 2007, is an obvious answer to this query.  It fulfills most of the five requirements for an investment worthy tangible.  The original iPhone is portable, ruggedly constructed from quality materials, fairly durable, and certainly embodies the stylistic zeitgeist of the age.

I know you’re thinking I’m slightly crazy.  But the idea really isn’t as unreasonable as it might seem at first.  For instance, a working example of a vintage Apple I desktop computer sold at auction for a record $905,000 in 2014.  This computer originally retailed in 1976 for $666.66.  You could have purchased one of these machines in new condition for the full retail price in 1976 and then simply tossed it into a closet to gather dust.  Had you done so, you would have been rewarded with an annualized return of 20.90% per annum over the 38 year period from 1976 to 2014.  In contrast, the S&P 500 index, although performing admirably over the same time frame, only managed 11.31% per year.

Alas, I hate to dash your dreams of future iPhone riches, but those sweet returns will not repeat with Apple’s first smartphone.  One big reason is rarity.  The Apple I computer was the Apple corporation’s very first computing device.  It was designed and hand assembled by Steve Wozniak, co-founder of Apple, friend of the late Apple CEO Steve Jobs, and a technology titan in his own right.  This strong link to the origins and founders of the company absolutely boosts the desirability of that model.

Only about 200 of the Apple I computer were produced in total.  On the other hand, over 6.12 million units of the original Apple iPhone were manufactured via hapless Chinese sweatshop labor.  The iPhone is simply not desirable according to this metric.  The Apple I computer is truly rare, with only an estimated 15 specimens still functional.  There are undoubtedly hundreds of thousands of original iPhones still extant and that will probably still be the case several decades from now, as well.

Another problem for the investment prospects of the original Apple iPhone is that the device is already becoming a complete anachronism.  Now, I suppose most antiques are anachronisms to some extent.  But a late 19th century, Gorham sterling silver pitcher can still be used to serve lemonade, iced tea or any other cold beverage you wish.  A vintage Longines mechanical wristwatch from the 1950s will not only still tell the time, but also help you look stylish while doing so, too.

However, an original Apple iPhone will be a fancy paperweight in the future.  The model has already been declared obsolete by both Apple and all major cell service providers.  The original iPhone stopped receiving software updates years ago.  It is also questionable if you’ll even be able to power one on after a decade or two.  An iPhone’s battery is non-user serviceable and, like all lithium-ion batteries, tends to gradually lose its ability to retain a charge over time.

Despite an original Apple iPhone’s case and screen being reasonably durable, its silicon-based circuitry isn’t as robust.  This will prove problematic considering replacement parts are no longer being produced.  Not that it matters much anyway.  Ever since the original iPhone was declared obsolete by Apple in 2013, it can no longer be serviced at the Apple Genius Bar in retail locations.  And given how difficult it is to repair an original Apple iPhone today, you can guess that it will be almost impossible to do so in another 50 years.

Finally, I would like to point out that a big reason the Apple I computer can command such high prices is because of how popular Apple devices are at the current time.  Few people know this, but Apple was very close to bankruptcy in 1997.  If the company had liquidated then, instead of going on to pioneer the modern smartphone, we would not be talking about that record breaking auction for the Apple I computer.

Instead, the Apple I computer would have remained an oddity from the dawn of the personal computing age, primarily of interest to hardcore technology nerds.  So acquiring an original Apple iPhone now is actually a huge bet on Apple remaining a dominant technology company for the next half a century.  In a business sector as competitive and cutthroat as technology, I would not want to make that wager.