Classic car bubble?

Author
Discussion

derin100

5,214 posts

242 months

Sunday 10th May 2015
quotequote all
s m said:
derin100 said:
s m said:
This "bubble"/rise in some old car prices/whatever you want to term it, appears to have been bursting for the last 10 years according to internet experts
Really? For example, were CSLs (both E9s and E46s) going up 10 years ago? Even 5 years ago? That certainly wasn't my experience. It took me nearly 2 years to sell my E46 CSL for £28K.

I restored a Pagoda only 4-5 years ago. Upon completion the offer on that only about 2years ago was £35K. Since then £100K and even over £150K isn't uncommon to see?

http://www.bmwclassics.co.uk/gallery/index.php?spg...

I don't know for sure about other Marques like air-cooled Porsche 911s...but I'm pretty sure one would have struggled to spend £50K on any 993 5-10 years ago? The were either flat-lined or just slowly creeping downwards.

If there really is no recent apparent surge in prices (for whatever reasons) it makes one wonder why somebody decided to bring it up and why so many people are responding to this thread?

Personally, I don't remember discussions about a classic car bubble bursting 10 years ago.
I'll have to differ on that one I'm afraid.

Wasn't the same cars being talked about 10 years ago in every case ( an E46 CSL was still not due for an MOT in 2005 and certainly wasn't an instant classic as you are obviously aware) - however, certain cars had gone up dramatically even back in 2005 and there were naysayers telling us people were going to get burned, certainly on old Fords for example. Low mileage RS500s were going for more than the original price and people were saying it was madness and wouldn't last, RS1800s going for 5 figure sums - buyers would lose out as prices dropped in the near future etc. it was all being fuelled by rising house prices etc and so on.





Obviously different cars come into the spotlight at different times and as said above, in the last few years things have rocketed with some cars more than others

As to whether this is a recurring conversation, even on here, I didn't have to look too far back to find this from 4 years ago forecasting a year at most of prices rising



Some of the forums only seem to go back to Jan 2011 but I can remember similar threads from 2005/2006
Fair enough, I take some of your points on-board in that it has been discussed here in times past.

However, I would say that the evidence presented in terms of that Coutts report is somewhat misleading. Whilst the time period does appear to cover the last 10 years in terms of showing a classic car rise over that period of 257%. However, what that does not confirm, in any way, is whether that rise was a steady rise over those 10 years or just a massive surge in the 2-3 years preceding 2014. That is to say, a completely skewed curve.

(I don't know if it actually defines what it constitutes as a "classic car" somewhere in the report either?)

Thus, one could have had classic cars sitting in the doldrums from 2005 until 2013, then had a massive surge (just as we've seen) and still get the same result...?

I think it's the scale of the recent change in prices that are probably (rightly) leading people to be concerned that this is a true "bubble". And bubbles always burst sooner or later...and are often accompanied by tears! laugh







Yet, fortune favours the brave? But evidently people seem to be getting more and more twitchy about a bubble? I'm not brave enough anymore.

thumbup

3528

40 posts

182 months

Monday 11th May 2015
quotequote all
DonkeyApple said:
At the bottom end it will be some people with spare cash indulging a whim for a better return.

However, the level of debt today absolutely dwarfs anything from 30 years ago by factors. This current bubble is all debt fuelled. Cars are now almost vanilla collateral in structured tax products with an LTV of 75% in the key deals. Just to give you an idea? Most retail home purchases are done at around that same LTV mark!!!!

It doesn't even have to be debt related to the car either. When rates rise 200bp then resi debt is likely to increase by more. There will be more than enough people who suddenly need to raise capital to pay down or finance property debt. The car will be among the first thing to go. Supply will rise as demand falls and asset prices will rebase.

Likewise, all true crashes need a catalyst event. The sheer number of fakes being peddled at the top of this market means that it only takes a small blip and a couple of failed auctions for sobriety to hit the market and people start worrying once again that what they are holding is a replica not a classic car and the rout will begin.

But don't go thinking this isn't a debt fueled bubble. It is all about the debt and it is massive beyond comprehension which is why everyone knows that when the auto correcting of inflation kicks in in the West we are going to have funding liabilities that large numbers won't be able to meet. And this is all assuming that some event like an economical collapse in China doesn't trigger a crash beforehand etc.
Your post above and your previous post are very informative, so thanks for explaining all that. You obviously have a very good understanding of this subject.

Have you got any thoughts about when this bubble might burst? I have read your explanation and understood most of it, but I don't really know what I should be looking for as a sign that a fall in the market might be imminent. Things like political events, or whatever other factors have a bearing upon the buoyancy of the classic car market.

Having waited decades to be in the position where I can afford a 'dream car', I have begun looking at the market again and the prices are outrageous for things that used to be considered relatively rubbish. Lamborghini Espadas used to be £15,000 liabilities, but I have seen asking prices recently of over £100,000. Also Ferrari 308s. They used to be undesirable liabilities, but I've seen asking prices recently of well over £70,000. It seems that the world had gone mad.

I honestly thought that putting £50,000 into this would get me a nice Testarossa. They weren't so expensive relatively recently, and were within reach, but all of a sudden I find that my budget will only get me half-way there. It's a bit depressing really!

The other option was a 360, and I have been keeping an eye on prices, but I wonder if the classic car market is slowing the depreciation of the 'nearly-classics' simply by association. Early 360s ought to be somewhere near the bottom of their depreciation curve by now, but they still seem a bit expensive to me.

I'm not pursuing this with the hope of eventually making a profit, rather that I'd like to buy sensibly and enjoy a nice car with a good chance of at least getting my money back if I need to.

ian2144

1,662 posts

221 months

Monday 11th May 2015
quotequote all
The Mk1 & Mk2 Escort values have gone mad over the past year or two. I thought I was in the market for a BDA Escort last year. But, with prices in the £50k bracket they are way beyond my budget.

I now have a restored Sunbeam Lotus for less than half of the above.

DonkeyApple

54,934 posts

168 months

Monday 11th May 2015
quotequote all
3528 said:
Your post above and your previous post are very informative, so thanks for explaining all that. You obviously have a very good understanding of this subject.

Have you got any thoughts about when this bubble might burst? I have read your explanation and understood most of it, but I don't really know what I should be looking for as a sign that a fall in the market might be imminent. Things like political events, or whatever other factors have a bearing upon the buoyancy of the classic car market.

Having waited decades to be in the position where I can afford a 'dream car', I have begun looking at the market again and the prices are outrageous for things that used to be considered relatively rubbish. Lamborghini Espadas used to be £15,000 liabilities, but I have seen asking prices recently of over £100,000. Also Ferrari 308s. They used to be undesirable liabilities, but I've seen asking prices recently of well over £70,000. It seems that the world had gone mad.

I honestly thought that putting £50,000 into this would get me a nice Testarossa. They weren't so expensive relatively recently, and were within reach, but all of a sudden I find that my budget will only get me half-way there. It's a bit depressing really!

The other option was a 360, and I have been keeping an eye on prices, but I wonder if the classic car market is slowing the depreciation of the 'nearly-classics' simply by association. Early 360s ought to be somewhere near the bottom of their depreciation curve by now, but they still seem a bit expensive to me.

I'm not pursuing this with the hope of eventually making a profit, rather that I'd like to buy sensibly and enjoy a nice car with a good chance of at least getting my money back if I need to.
The joy of bubbles is that no one knows when they'll pop or how, just that it'll happen at some point. smile

There will be no Govt incentive to protect a bubble like cars unlike resi property so market forces should be relatively unencumbered. And it's mostly overseas, private banks who are collateralising the top end into tax schemes for non doms etc so those institutions will get no help if left with client side liabilities they can't cover.

There is definitely a strong undercurrent of buying power just from the nature of Western demographics and economics, Ie a top heavy over 55 community who control most of the despicable income but the recent, rampant rise in values of 'transportable assets' is purely a function of money printing by the West devaluing their currencies combined with increased borrowing from the East creating more wealth over there along with the rapid shift of industrial production from West to East.

The last car boom was fuelled by a handful of Uber wealthy Arabs and Americans with us Brits driving the mid level. This time the number of Uber wealthy is magnitudes higher and more globally distributed. This means there is an argument that values are more justifiable but then at the height of any bubble there is always this argument and whether it is true or not it never stops a bubble bursting ultimately. What is also different this time is just how leveraged these new Uber wealthy are. The old global magnates had much more solid wealth. Today, very many run on high leverage because it is tax efficient to do so and that means wealth is tied up and so in the event of funds being needed then assets must be sold and it is that kind of event that triggers a crash.

The car market could be as stable as a rock but for example, if there were a sudden issue in a particular sector various magnates in that sector might need to raise capital quickly and a random quirk of fate could see 3 or 4 bellweather cars hitting the same auction and failing to sell. That could be the event that starts the rout as money stays away from the next auction and more supply appears as more lenders put collateral assets up for sale to pay client margin calls etc.

But who knows. It could be 5 or 10 years away or happen at the first round of big auctions this summer.

As such, the key would be to only buy if you truly wanted the car and to not pay any more than you can easily have locked in for maybe a couple of decades. Only those who over stretch themselves are at real risk to bubbles like this.

Plus, there is always the game in bubbles of recognising that if prices continue to rise at current rates you'd only need to be owning for a few years before a halving of market values means you're still not out of pocket!!! wink

But I do think it best to avoid the models/brands where there has been a massive growth in 'specialists' and hundreds of absolute piles of bent dross have been slung out into the market and hoovered up by fools. It was the case with ETypes last time and I suspect it is the case with some Ferraris and 911s this time. And if you are buying for the love of the car and not in hopes of making a turn then you can afford to go not just off piste with your selection and search for common sense but also to only buy the best and not some tarted up banger that you prey to God will find another mug when you want to offload it. biggrin

200Plus Club

10,677 posts

277 months

Monday 11th May 2015
quotequote all
ian2144 said:
The Mk1 & Mk2 Escort values have gone mad over the past year or two. I thought I was in the market for a BDA Escort last year. But, with prices in the £50k bracket they are way beyond my budget.

I now have a restored Sunbeam Lotus for less than half of the above.
join the club, beautiful Sunbeam Lotus in concours condition for half price of a similar Mk1 Escort, and with better performance! bargain of the year!

9mm

3,128 posts

209 months

Monday 11th May 2015
quotequote all
3528 said:
DonkeyApple said:
At the bottom end it will be some people with spare cash indulging a whim for a better return.

However, the level of debt today absolutely dwarfs anything from 30 years ago by factors. This current bubble is all debt fuelled. Cars are now almost vanilla collateral in structured tax products with an LTV of 75% in the key deals. Just to give you an idea? Most retail home purchases are done at around that same LTV mark!!!!

It doesn't even have to be debt related to the car either. When rates rise 200bp then resi debt is likely to increase by more. There will be more than enough people who suddenly need to raise capital to pay down or finance property debt. The car will be among the first thing to go. Supply will rise as demand falls and asset prices will rebase.

Likewise, all true crashes need a catalyst event. The sheer number of fakes being peddled at the top of this market means that it only takes a small blip and a couple of failed auctions for sobriety to hit the market and people start worrying once again that what they are holding is a replica not a classic car and the rout will begin.

But don't go thinking this isn't a debt fueled bubble. It is all about the debt and it is massive beyond comprehension which is why everyone knows that when the auto correcting of inflation kicks in in the West we are going to have funding liabilities that large numbers won't be able to meet. And this is all assuming that some event like an economical collapse in China doesn't trigger a crash beforehand etc.
Your post above and your previous post are very informative, so thanks for explaining all that. You obviously have a very good understanding of this subject.

Have you got any thoughts about when this bubble might burst? I have read your explanation and understood most of it, but I don't really know what I should be looking for as a sign that a fall in the market might be imminent. Things like political events, or whatever other factors have a bearing upon the buoyancy of the classic car market.

Having waited decades to be in the position where I can afford a 'dream car', I have begun looking at the market again and the prices are outrageous for things that used to be considered relatively rubbish. Lamborghini Espadas used to be £15,000 liabilities, but I have seen asking prices recently of over £100,000. Also Ferrari 308s. They used to be undesirable liabilities, but I've seen asking prices recently of well over £70,000. It seems that the world had gone mad.

I honestly thought that putting £50,000 into this would get me a nice Testarossa. They weren't so expensive relatively recently, and were within reach, but all of a sudden I find that my budget will only get me half-way there. It's a bit depressing really!

The other option was a 360, and I have been keeping an eye on prices, but I wonder if the classic car market is slowing the depreciation of the 'nearly-classics' simply by association. Early 360s ought to be somewhere near the bottom of their depreciation curve by now, but they still seem a bit expensive to me.

I'm not pursuing this with the hope of eventually making a profit, rather that I'd like to buy sensibly and enjoy a nice car with a good chance of at least getting my money back if I need to.
If you're not looking to make a profit and the driving experience is more important, go for something modern like a Granturismo. That's where the vfm is. It's better to drive than any of the cars you've listed, has just as much road presence, can be used every day and its value will not be anything like as susceptible to a market crash. You can also warranty it against borkage. I'd love to see a successful warranty claim for rebuilding a Testa or Espada engine...

Harris_I

3,225 posts

258 months

Monday 11th May 2015
quotequote all
DonkeyApple said:
3528 said:
Have you got any thoughts about when this bubble might burst?
The joy of bubbles is that no one knows when they'll pop or how, just that it'll happen at some point. smile
As a random aside, I was once at a conference where the keynote was Nassim Taleb (he of "Black Swan" fame). Some poor chap in the audience asked him what would be the next black swan. If looks could kill, the hapless questioner would have been vapourised where he stood. "You obviously haven't read my book," was the curt response.

It's a Rumsfeldian paradox, an unknown unknown. No-one knows what the next black swan is. But as car enthusiasts, we should all rejoice in the feeling that many wonderful cars will one day be back in our reach again.

DonkeyApple said:
despicable income
<snigger>

3528

40 posts

182 months

Monday 11th May 2015
quotequote all
DonkeyApple said:
The joy of bubbles is that no one knows when they'll pop or how, just that it'll happen at some point. smile

There will be no Govt incentive to protect a bubble like cars unlike resi property so market forces should be relatively unencumbered. And it's mostly overseas, private banks who are collateralising the top end into tax schemes for non doms etc so those institutions will get no help if left with client side liabilities they can't cover.

There is definitely a strong undercurrent of buying power just from the nature of Western demographics and economics, Ie a top heavy over 55 community who control most of the despicable income but the recent, rampant rise in values of 'transportable assets' is purely a function of money printing by the West devaluing their currencies combined with increased borrowing from the East creating more wealth over there along with the rapid shift of industrial production from West to East.

The last car boom was fuelled by a handful of Uber wealthy Arabs and Americans with us Brits driving the mid level. This time the number of Uber wealthy is magnitudes higher and more globally distributed. This means there is an argument that values are more justifiable but then at the height of any bubble there is always this argument and whether it is true or not it never stops a bubble bursting ultimately. What is also different this time is just how leveraged these new Uber wealthy are. The old global magnates had much more solid wealth. Today, very many run on high leverage because it is tax efficient to do so and that means wealth is tied up and so in the event of funds being needed then assets must be sold and it is that kind of event that triggers a crash.

The car market could be as stable as a rock but for example, if there were a sudden issue in a particular sector various magnates in that sector might need to raise capital quickly and a random quirk of fate could see 3 or 4 bellweather cars hitting the same auction and failing to sell. That could be the event that starts the rout as money stays away from the next auction and more supply appears as more lenders put collateral assets up for sale to pay client margin calls etc.

But who knows. It could be 5 or 10 years away or happen at the first round of big auctions this summer.

As such, the key would be to only buy if you truly wanted the car and to not pay any more than you can easily have locked in for maybe a couple of decades. Only those who over stretch themselves are at real risk to bubbles like this.

Plus, there is always the game in bubbles of recognising that if prices continue to rise at current rates you'd only need to be owning for a few years before a halving of market values means you're still not out of pocket!!! wink

But I do think it best to avoid the models/brands where there has been a massive growth in 'specialists' and hundreds of absolute piles of bent dross have been slung out into the market and hoovered up by fools. It was the case with ETypes last time and I suspect it is the case with some Ferraris and 911s this time. And if you are buying for the love of the car and not in hopes of making a turn then you can afford to go not just off piste with your selection and search for common sense but also to only buy the best and not some tarted up banger that you prey to God will find another mug when you want to offload it. biggrin
Great insight and great advice, thank you.

I think I'll sit on my money for a little while and see what happens with the market, then perhaps look at some alternatives, as you suggest.

911s are amongst the others whose prices caused me to fall of my chair. And 356s. It wasn't that long ago that a decent 356 Coupe was about £15,000, when building a replica Speedster was about the same price. Now things are ridiculous. And an original Speedster was under £50,000 not that long ago. There's one in the classifieds here at the moment for just under £350,000. The sad thing is that people other than car enthusiasts must have driven the prices up, because you surely couldn't account for such a rise simply through the passage of time and the same 'types' of owners/enthusiasts being involved with these vehicles from then through to now.



3528

40 posts

182 months

Monday 11th May 2015
quotequote all
9mm said:
If you're not looking to make a profit and the driving experience is more important, go for something modern like a Granturismo. That's where the vfm is. It's better to drive than any of the cars you've listed, has just as much road presence, can be used every day and its value will not be anything like as susceptible to a market crash. You can also warranty it against borkage. I'd love to see a successful warranty claim for rebuilding a Testa or Espada engine...
Amazing looking cars! To be honest I'm more into classics, but I have been looking at more modern cars recently in an attempt to escape the ridiculous prices of classics.

It seems to be right across the board. Everything I've looked at from E9 BMWs to 911s seem to have ridiculous prices in the tens of thousands. Some of the slightly later BMWs don't look too ridiculous at the moment though, and there are some nice ones amongst those.

3528

40 posts

182 months

Monday 11th May 2015
quotequote all
ian2144 said:
The Mk1 & Mk2 Escort values have gone mad over the past year or two. I thought I was in the market for a BDA Escort last year. But, with prices in the £50k bracket they are way beyond my budget.

I now have a restored Sunbeam Lotus for less than half of the above.
One of my friends is into Escorts and has a nice MkI tucked away. I remember when you couldn't get tuppence for a MkI!

thelawnet

1,539 posts

154 months

Monday 11th May 2015
quotequote all
It does seem like a risky bubble in the sense that cars are not cheap to own - if you spent £100k on antiques, then you only have insurance costs.

Property also has reasonably high costs to own, but you can rent it out at low risk and not only cover the costs but also make a decent income. You can't really rent out your classic car.

On the other hand I suppose an old car might provide more utility (expose your wealth to the world, provide driving pleasure) than an antique that nobody will see.


irish boy

3,523 posts

235 months

Monday 11th May 2015
quotequote all
Educational thread. I was thinking about this topic just the other day.

We have a few classics, but it's stuff my dad has been gathering up since the 70's. With something like his 1927 rolls it's a tricky one. I've no interest in driving or maintaining it, no one else I know (30's bracket) does either. But he's completed the Peking to Paris in it, and it's been in the family since I can remember. Could I sell it if something happened to my dad? I don't know.

I think we tend to gravitate toward poster cars of our own age range, for me things like a lotus Carlton, delta, 964 turbo etc along with more every day stuff ie r5 gtt etc would be where my money would go, whereas they wouldn't interest my dad in the slightest. But not at today's prices. Doesn't seem that long ago since I sold a pristine e30 m3 Evo sport for 14k, superb car and I'd have another, but again, not at today's prices.

DonkeyApple

54,934 posts

168 months

Monday 11th May 2015
quotequote all
3528 said:
Great insight and great advice, thank you.

I think I'll sit on my money for a little while and see what happens with the market, then perhaps look at some alternatives, as you suggest.

911s are amongst the others whose prices caused me to fall of my chair. And 356s. It wasn't that long ago that a decent 356 Coupe was about £15,000, when building a replica Speedster was about the same price. Now things are ridiculous. And an original Speedster was under £50,000 not that long ago. There's one in the classifieds here at the moment for just under £350,000. The sad thing is that people other than car enthusiasts must have driven the prices up, because you surely couldn't account for such a rise simply through the passage of time and the same 'types' of owners/enthusiasts being involved with these vehicles from then through to now.

You can account for quite a lot by looking at just how many people in the West are retiring each year at present and just how large their pension reserves and property assets are. Combined with the ease of debt for classic cars at a certain level.

There are huge amounts of excess investment capital in the hands of people who would normally opt for yield but are choosing capital growth as there is no real yield.

And it is a market with absolutely no regulation, no ability to short and no limits to capital flows in so you do have the situation where everyone from all aspects wants to talk up and bid up values. It's why when these types of off exchange markets do burst they do so with extreme style and a kind of economic purity that is almost refreshing.

If there isn't something that you definitely want and would drool over regardless of its value or if you would only be spending a percent or so of your wealth then there is no harm in joining the market but otherwise it has to be worth being somewhat hesitant.

Plus, don't forget when the Boomers all die off in the harsh winter of 2031 there won't be an army of buyers for crap like Miura's, DB5s or 288 GTOs as the next generation of classic car buyers behind us will be salivating over early MkV diesel Golfs etc. And arguing over which subsidiary of VW made the best seat warmers or satnav screen. biggrin

3528

40 posts

182 months

Wednesday 13th May 2015
quotequote all
Hmmm, good point there with your last paragraph!

If I scraped everything together I could buy one of my favourites right now, but I just don't think they are worth it at these recently-inflated prices. Whatever the shape was of the depreciation/subsequent-appreciation curve of the Testarossa was before it shot through the roof in recent times, then I would expect its safe/sensible value (at least for me) today to be a gentle continuation of the shape of that appreciation curve (for want of the correct terminology), not with it turning into an Evel Knievel ramp at the end.

My other idea is to perhaps buy some property locally and get some return on renting that out whilst I watch the classic car market and hope for a price collapse. If nothing happens within the next few years then that's okay because I'd have made a return on the property and could put that towards the car fund. Also, it seems that local property prices are due to go up because things around here are about the same as they were in 2009. I can't see that continuing for much longer, so a rise in property value would add to the car fund.


DonkeyApple

54,934 posts

168 months

Wednesday 13th May 2015
quotequote all
The key with anything is to not over extend.

My wild guess is that regional property has only risen because London has and in turn that has risen for the same reason as cars. A safe haven for overseas wealth, excess leverage and a need for unconventional yield. Property is just as inflated as cars and at the same risk of a collapse.

However, what we do know is that governments will step in to underwrite that market so you do have a limited downside risk.

Even if property is in the same bubble as it has a yield, a true demand (ie an actual use, unlike a classic car) and asset values in a fall will be under written by the State as a fall beyond a certain level will collapse out banking system as its foundation is based on property asset values then arguably, property is more sensible than classic cars.

In terms of pure investment, cars fit in with wines and other negative yield instruments in that they are tier three investments. Whereas yielding assets like property or equities are tier two and logically you'd invest any excess capital in these sectors before going near tier three.

With tier one basically being cash or cash equivs then my current view (and this is based on me always being bearish in nature, not a gambler but also believing that their will be a life defining economic event within ten years as we learn the effects of QE and use interest rates to get inflation under control) is that I am overweight in cash, have reduced tier two capital to reflect the higher returns and therefor higher risk and am planning on selling a couple of cars over the next 12 months as well as some wines. I'm going to lose a bit of yield and may well lose a chunk of capital appreciation but I believe that I am at that specific age point in life where a major economic event within the next decade will specifically define how I live the rest of my life and as rates will soon be ticking very slowly up the downside to cash v the risk of inflated assets is not that big and I obviously feel it's superior for me at my age and with the investments that I have ended up with over the last 20 years.

3528

40 posts

182 months

Wednesday 13th May 2015
quotequote all
Thank you, yet again. The more I read of your posts the more I realize how little I know about things that I ought to know about. You have prompted me to go and read up on a lot of things that I had no idea about.

The impending major economic event worries me a bit!

mikey k

13,011 posts

215 months

Wednesday 13th May 2015
quotequote all
yes some very interesting points there!

DonkeyApple

54,934 posts

168 months

Wednesday 13th May 2015
quotequote all
3528 said:
Thank you, yet again. The more I read of your posts the more I realize how little I know about things that I ought to know about. You have prompted me to go and read up on a lot of things that I had no idea about.

The impending major economic event worries me a bit!
There is always the chance that rising interest rates may not trigger a collapse but what we do know is that rates have never risen by the exact amount required at the exact right time. It's an I exact science and the fear of increasing too quickly and triggering a halt to growth always means they lag and then have a period of catch up.

As a country we have gotten very used to low interest rates. Most debt holders (home owners) under 45 have no direct experience of financing lend rates much above 7% yet at the same time have almost no spare capacity to finance propert debt at that level. It would only take a modest move above this level to create an army of defaulters and so a price capitulation. Again, my personal view is that such an event is needed in the UK so as to shift assets from the older to the younger without the State taking its 40% IHT cut but I appreciate that this is an extreme view as most want asset values to continue to increase.

Anyway, the references at the bottom of this article are worth reading: http://en.m.wikipedia.org/wiki/Black_swan_theory

And the two simple books that I think everyone should read are these:

http://www.amazon.co.uk/gp/aw/d/1853263494/ref=mp_...

http://www.amazon.co.uk/gp/aw/d/111827010X/ref=mp_...

I think reading these two books gives a natural appreciation to how we end up thinking and whether it is worth following a crowd or sitting it out.


3528

40 posts

182 months

Wednesday 13th May 2015
quotequote all
Thanks for the links. I noticed that Mackay's book even pre-dates 'On the Origin of Species'! It has obviously stood the test of time.

Would the required asset shift be due to the older generation being pushed into helping out their struggling offspring, rather than those assets being inherited at a much later date (and after inheritance tax)?

I presume that this asset shift would contribute towards the effects of a bursting bubble in classic car prices. If people mistakenly think that classic car investors are mostly those investing cash, rather than employing financial leverage, then would a negative effect on classic car prices caused initially by debt-ridden (younger) classic car owners reacting to high interest rates, be compounded by the older classic car owners (as parents) also selling off cars to help out their struggling offspring with the proceeds?


DonkeyApple

54,934 posts

168 months

Wednesday 13th May 2015
quotequote all
3528 said:
Thanks for the links. I noticed that Mackay's book even pre-dates 'On the Origin of Species'! It has obviously stood the test of time.

Would the required asset shift be due to the older generation being pushed into helping out their struggling offspring, rather than those assets being inherited at a much later date (and after inheritance tax)?

I presume that this asset shift would contribute towards the effects of a bursting bubble in classic car prices. If people mistakenly think that classic car investors are mostly those investing cash, rather than employing financial leverage, then would a negative effect on classic car prices caused initially by debt-ridden (younger) classic car owners reacting to high interest rates, be compounded by the older classic car owners (as parents) also selling off cars to help out their struggling offspring with the proceeds?

I think those effects are valid but would have a gentle impact on the supply side.

To trigger a crash you need the market to firstly be suddenly spooked so that demand shrinks suddenly and then supply to suddenly increase as some people panic sell or become forced sellers.

There is an argument that as your typical classic car owner tends to be older then they will have less debt so less impacted by rate rises but as rates do rise some demand will go from the classic car market as money in older hands reverts to traditional yield investments over capital gains.

But the trigger is far more likely to be at the very top end. A couple of fakes being outed at the £20+ level could spook the demand side and be the catalyst. We all know they are out there but at the moment they keep getting passed on like hot potatoes but it's more than possible that someone may suddenly shout out and it gathers momentum.

Alternatively something like a crash in tech stocks could remove a heap of US buyers from the top of the market and as many of those multi millionaires have their wealth tied up in paper stock then a need for cash could see them start to sell assets like cars or worse they've been using the cars as loan collateral and the lender puts them up for sale. If you get a sudden glut of the £20m+ cars appearing at auctions it might spook buyers and be the trigger.

The key is to look for fragility in the market as this means the market is less able to absorb 'events' and more likely to be spooked into a rout. In my eyes like the fall in oil lead to less cash going into the London resi market from overseas buyers caused everyone to get nervous that another negative effect could trigger a sell off, so I'd watch car auctions for signs of big ticket items failing to hit new highs or sell at all. We did see a bit of that at the end of last year as oil fell but it seems to have been absorbed as oil stabilised and began climbing off lows.