The world isn’t ending, and the markets are not crumbling, so take advantage of short-term discounts.
At the end of 2021, I predicted asset markets would soften mid-year in 2022 for a short period of time, and while my timing was off by a few months in part due to the escalation of the Russian-Ukrainian conflict, I wasn’t wrong.
The softening of the market prices comes not from a crash or because prices were elevated, but rather a softening of demand in the markets across the board as the general public temporarily leaves the playing field, which creates tremendous purchasing opportunity.
How did we get here?
In late 2020, I predicted the rise of the “alternative asset” as the dominant investment class for middle-and-high-income earners in the United States, Europe, and Asia. This became more and more obvious to me as the Real estate markets were becoming unreachable for the masses as an investment tool. Pricing was rising too fast and money mobility was lowering itself with that rise, but also because the stock market was overinflated as valuations were no longer matching stock prices, increasing the risk for severe corrections in many sectors, especially around tech companies (who were also suffering from ethics issues and bizarre shifts of corporate direction with CEO stepping down and rebranding all together) and growth stocks.
In short: high valuation with lots of doubt creates an exodus. It was readily apparent (to those who have seen this happen before) that as investors left these markets, they would start to look for alternative places to park their money, especially as a safety measure against a declining currency and a wildly speculative and unregulated crypto market.
And…
There was a new type of investor created in 2020: an “Average Joe” investor who hadn’t saved a ton of money, but thanks to PPE money, stimulus checks, or halted student and mortgage payments now had 5 figures to start playing with. This initially led to a boom for crypto markets as the cost of entry was cheaper but also gave new players a taste of quick money with minimal risks (or so they thought). Ultimately, this worked out best for seasoned investors who allowed this boom to lead them to outrageous gains as new buyers weren’t strategic but rather jumped in out of FOMO
How the Hard Asset companies took advantage of this
As Warren Buffet said best in his latest speech about gold (something I have been saying for a decade), people will seek assets with utility and some level of mobility. While gold seems to always be the go-to place for older investors to hedge against inflation, it has no real utility and continuously sells a doomsday scenario that really isn’t valid anymore.
Watches, however, tell a different story.
With utility, mobility, no regulation, and the capacity to safely park money (assuming you know how to invest), luxury watch manufacturers did something amazing in 2021: they started to seize the press with headlines that got the general public paying attention.
Everything from the Paul Newman Daytona bringing 7-figures for a watch to a Patek worth $60,000 selling for $6M at an auction. Regardless of how ridiculous or singled out these results were, they attracted the general public on 2 fronts
1. They showed normal day-to-day people how a smaller cost of entry could lead to huge results.
2. They proved people’s vanity could now be rewarded instead of punished. Meaning you don’t need to convince someone to wear a Rolex, AP, Panerai, or Patek, you just have to give them a good financial reason to do it, just like I teach at Watch Trading Academy.
This was a perfect storm that helped not only watch manufacturers raise prices to combat inflation multiple times (over 10% in some cases) without anyone noticing as secondary market pricing was as high as 400% of MSRP in many cases, but the headlines focusing on no new supply coming made investors scramble to get in “early” per their own definition on something that has already been happening over the last 20 years.
Car companies also took advantage of this extra money floating in the markets by adjusting car pricing up severely on the used side to combat lost profits on volume new car sales that are temporarily not being produced in volume.
This was a retail strategy that led to record numbers for used car sales from Toyota to Lamborghini but something much bigger was brewing starting in 2020. If you have been following my advice at Exotic Car Hacks since 2020, I have been saying that you should be buying rare and exciting exotics as the world was changing and that change was being disguised under a shortage issue and an emerging pandemic.
I predicted then that the lockdowns would lead to a consumer spending roar and that those rare assets that would soon be discontinued would start to experience a tremendous upside. I bet on this myself and made $150,000 in 60 days on an Aventador SVJ.
But this was more than just V12s going away, it was a shift in automotive manufacturing that would shorten how much supply was sent to the US, moving our automotive depreciation curves to match Europe’s rather than our insanely high depreciation rates that came from attractive leases and discounts for ready-to-go cars.
Manufacturers knew that this disruption in supply would force Americans to get used to waiting, and as they adopted that way of doing business, they realized that profits were even higher with even less production. Obviously, this appealed to them big-time – enough to completely redefine the unit numbers that would be coming here over the next 5 years.
This lack of inventory, coupled with additional disposable money in the markets gave rise to record numbers in used car sales which ultimately forced the used market to exceed the new markets for those who couldn’t wait to order a car.
With record orders in, even those with money wouldn’t get the cars they wanted, forcing dealers to charge premiums for new car orders as well (we saw an example of this with the G63 selling 100K over).
I’ve consistently warned against buying here as these markups are temporary, but as these markups occurred, competing products that were not as in-demand also rose as demand shifted to these more affordable brands (basically if a Mercedes G63 sells for $300K, then a Bentley Bentayga Speed is now a bargain at $300K which is why they are now selling for $400K)
With a 12-month stretch of car pricing rising daily and leading the inflation rate at over 34% in a year for the category, normal people started realizing that the longer they waited the more expensive their dream would become, and while experienced buyers and investors didn’t fall victim to these absurd dealer markups, they focused their efforts in picking up rare hard to get cars brand new and realized that what was once a not-so-wanted old car, was about to become a rare collectible with secondary collector and vintage markets going to the roof over bidding wars.
We saw the Murcielago markets rise over 30%, the Lamborghini markets as a whole rise high as 80%, and the hypercar market nearly doubled in the last 9 months. These were becoming the norm as seasoned investors knew the loss risk factors were little and the upside held more weight easily taking their crypto and stock market gains and parking them in their dream cars.
So, why did it CRASH?
Most will blame fear and the war, some will blame supply coming back, and others the lack of stimulus and aid that has made people lose that disposable and temporary income.
I, on the other hand, am arguing that it hasn’t crashed, the market is simply deleting those non-key players who shouldn’t have played to begin with. No different than a stock that is overvalued by regular non-investors and their fears of missing out (AMC, GameStop), hard assets markets are the exact same.
A huge influx of demand came from new players who didn’t know what or how to buy a watch (I wish they would have taken my course) and that influx will be eliminated from the markets on the very simple basis that the soaring doesn’t keep going.
Someone bought a watch in hopes of making 20K on their 60K purchase but realized afterward that there is no real upside left as they bought an overvalued asset. Once they see that their investment was NOT going to be short and easy, and are faced with the lack of additional disposable money, and a war on the horizon, a real fear starts to set in and that fear is what is driving the sell-off.
This is a GOOD THING, as unhinged markets are dangerous and unpredictable to the uneducated but ripe for those who know what they are doing.
If a hard asset no longer correlates its value to its real pool of buyers, it becomes inflated to levels that create too much risk and margin for it to remain a viable investment, removing it from the price bracket that real investors will pay. It’s a healthy market activity that these corrections take their place, no different than crypto markets going down 50% and offering a real view into the true current market cap of a coin rather than its imaginary inflated non-utility feature.
What am I doing in the next 6 months for watches and cars?
It is my belief that the sell-off in watches will be going much faster than people expect and we should continue to see a normal market again in the next 60 days or so. This means lower but stable pricing based on real supply, demand, and affordability index.
That means that we will see normal price hikes that mirror 10% yearly on watches and still create a fantastic opportunity to park money safely. While I think the craziness of markets has died down, for now, I do believe markets will go for yet another round of crazy upside later in the year.
I am basing this prediction on 5 easy-to-see indicators.
- Real estate still remains unreachable for most.
- Rate hikes continue to scare investors in the markets and continue to limit borrowing power.
- People made a LOT of money in the last 2 years, and they will need to park it somewhere.
- A continued distrust in corporations and organizations subject to government oversight, like banks.
- Cost of cash continues to go down as inflation continues through 2023 and demand remains HIGHER than supply.
I am personally taking timepiece positions in ultra-rare and undervalued long-term pieces from Audemars Piguet and Patek primary with some hard-to-get and exciting Rolex watches like the Jon Mayer dial Daytona, or platinum Daytona (but at discounted pricing against today’s market). Of course, there are and will remain short-term arbitrage opportunities to profit from watches at all price levels in the trading/flipping model.
On the car side, my focus in the next 6 months will be primarily on collectible rare cars from 100k to 500K ranges with the exception of a few 1.5M cars I have my eyes on, I believe these markets won’t be impacted much as the majority of them are still cash markets above all else.
While banks continue to use lower values on automobiles, they have always pulled back in bad economic times as banks don’t view vehicles as investments – ONLY utility – and do not position well on any older collectibles (they never have).
Since these positions don’t impact cash buyers and cash buyers need a safe place to park money, I am still a believer that the collectible markets will be strong as we are still in a changing automotive era. Frankly, 100K isn’t buying much these days, which means that many of these cars are now considered undervalued assets (we saw this with the Speciale and 458 Ferrari markets over the last 12 months as an example)
Staying up to date with markets and following our continuous updates in our community will help you navigate the luxury markets while also enabling you to protect your asset positions.
I am a believer that when uncertainty in all other markets exists, new money will find its way into alternative assets especially as the media and its acceptance is usually a 24-month cycle that has yet to be attained. Meaning it takes the average human 24 months to accept market data as truth, which is why most are late to the party.
I do not believe that government trust and global instability will change over the next 12 months, so people still will need a place to park money, and good, hard-to-get assets will continue to do well in late 2022 to mid-2023.
While I am sharing these personal choices of where my focus will be in the upcoming 12 months, I highly recommend that you spend time analyzing your own choices and use our resources to check your math in our communities, to ensure you are taking healthy and favorable long term positions rather than 90-day ones. As I always say, one of the worst decisions you can make is to purchase a luxury asset that you cannot afford and are forced to sell.
Study up, and thank you for your continued support of our communities as we continue to grow and welcome new investors, traders and hackers daily.
The post 2022 Alternative Assets Market Update – Plus My Investment Strategy appeared first on Exotic Car Hacks.