Is The Silly Season Coming To An End
Discussion
People are irrational. They do not always behave logically or economically.
Coincidentally, I'm reading Richard Thaler's book ATM which covers the Endowment Effect explains pretty well why wide divergence between bid and ask can exist for a good. If people aren't forced to sell, then prices will remain "sticky-up".
http://www.economist.com/node/11579107
Coincidentally, I'm reading Richard Thaler's book ATM which covers the Endowment Effect explains pretty well why wide divergence between bid and ask can exist for a good. If people aren't forced to sell, then prices will remain "sticky-up".
http://www.economist.com/node/11579107
Mad March Taffy said:
Lots of people DON'T have a mortgage and they have cash in the bank doing nothing
We used my wife's redundancy money to buy our 996TS - even is it makes 5% per annum, it is better than having the money in the bank
I'd argue that at 5% (and ignoring the fact that it's fun to drive for a moment), it's not worth it over money in the bank. Annual tax, servicing, insurance and depreciation through inflation will kill that 5% "profit" dead. Plus there's the chance you crash it and if you're not on agreed value you'll likely get less than it's really worth, less of course your excessWe used my wife's redundancy money to buy our 996TS - even is it makes 5% per annum, it is better than having the money in the bank
Mario149 said:
I'd argue that at 5% (and ignoring the fact that it's fun to drive for a moment), it's not worth it over money in the bank. Annual tax, servicing, insurance and depreciation through inflation will kill that 5% "profit" dead. Plus there's the chance you crash it and if you're not on agreed value you'll likely get less than it's really worth, less of course your excess
Dad? Is that you?
Fokker said:
Some really interesting posts here and good reading. I, personally would like to be able to afford a nice 430 Scud or a 997 GT3 RS and if prices come down then thats a possibility for me.
On the other hand I have made some good dosh on the rise of the market so I suppose its about playing the game and not getting completely bent over and losing big chunks. I found the following interesing.
Working in the classic car market means that you meet a great deal of people with a great deal of varying theories on the recent meteoric rise in classic car prices. Well, taking those into account, here is my take on the rise and rise of classic car prices
You may or may not remember the stock market crash in 1987 when the DOW imploded. Shortly after this, investors were looking for the next big thing and classic cars appeared to fit the bill. Prices were rising, they were a tangible asset and they weren’t subject to Capital Gains tax (along with racehorses, watches and vintage wines).
All sounds good right? Well, not quite, with demand outstripping supply and prices rocketing, people were borrowing heavily to get in on the game and when interests rates peaked in 1990, Johnny lender had to have his money back as it was too expensive to borrow any longer.
With this, everything went up for sale and the market was turned on its head. Supply outstripped demand and £750,000 Ferrari’s went down to £100,000 almost overnight.
With fingers burned and lessons learned fast forward to the late noughties as the country is beginning to stagger back to its feet post-recession. With interest rates low to encourage borrowing, the upshot is that Mr Jones’ life savings are no longer putting on much weight just languishing in the bank – but we’ll come back to Mr Jones shortly.
They say that the five most dangerous words in finance are; “It’ll be different this time” – but looking at the situation with ruthless logic, it appears that it will. The key difference this time is that the market is being built on ‘owned’ cash and not borrowed money. This is to say that the people buying the cars this time around (while some are speculators) are using their savings or liquid assets to make the purchase and this is an important factor. With the removal of a third party lender, the risk is reduced and the asset is at the behest of the owner and no-one else.
To paint the picture, in 1990 Mr Smith had to sell his Ferrari 275GTB/4 for a substantial loss because the interest rates rose and made the borrowed equity in the car too expensive to sustain the investment.
In 2015 if our old friend Mr Jones wants to sell his Aston Martin DB4 that he bought with his savings then he will do so. The key difference here though is that Mr Jones bought the car with ‘owned’ money so he is in no hurry to sell and will choose the right time depending on demand/supply/market value to sell. No third party – no rush. This way, the market can self-regulate.
Interest rates staying low is one factor in the market but another part of the meteoric surge is down to what I call the ‘table cloth’ theory.
Picture if you will a giant round table covered in a crisp white cloth. Every marque has its own table but for the purposes of illustration, we’ll use the Ferrari table. At the centre of the table is the most expensive Ferrari – a hallowed 250GTO which sold in 2014 for a shade under £23m. Slightly further out are the 250GT SWB’s then 275’s, 288’s, 330’s, 550’s, 308’s etc. This is to say that closer towards the edge of the table you get, the less valuable/desirable the cars are. However, as you lift the car in the centre, the table cloth effect means that all the other cars rise eventually. This is not to say that people only buy 308GTBs for reflected glory but it’s certainly a factor in values. ?
The super wealthy often buy centre table cars to add to private collections so to them, investment tends not be the overriding factor although lack of depreciation certainly helps. If you could afford a Picasso, you probably wouldn’t buy it because you need to make a few quid on it.
As nothing is ever that simple there is a third factor which contributes; say it quietly but Capital Gains tax (or lack of) is also a large draw on these cars. A classic car is effectively a used car and a private individual won’t pay tax on any profit made at the time of sale. As prices rise many owners are now looking at profit margins which dwarf the original purchase price of the car. In 2005 a friend was offered a Ferrari 330GT for £39,000. He turned it down citing that it was overpriced. The same car sold in 2015 for £612,000. Hindsight is a wonderful thing but it does show the upward parabola of the market.
So what happens when interest rates go back up and people want to put their money back into the banks? Well, as I see it that would see the market slow but not crash. The odd borrowing investor may choose to sell up which will increase supply and therefore have a small effect on demand but not enough to instigate a full blown crash. Bad news unfortunately, but classic cars may never be affordable again.
In short, the market appears this time to be built on stone and not sand.
My sentiments entirely. ''Own money' being the key difference here and largely ignored by the doom mongers. On the other hand I have made some good dosh on the rise of the market so I suppose its about playing the game and not getting completely bent over and losing big chunks. I found the following interesing.
Working in the classic car market means that you meet a great deal of people with a great deal of varying theories on the recent meteoric rise in classic car prices. Well, taking those into account, here is my take on the rise and rise of classic car prices
You may or may not remember the stock market crash in 1987 when the DOW imploded. Shortly after this, investors were looking for the next big thing and classic cars appeared to fit the bill. Prices were rising, they were a tangible asset and they weren’t subject to Capital Gains tax (along with racehorses, watches and vintage wines).
All sounds good right? Well, not quite, with demand outstripping supply and prices rocketing, people were borrowing heavily to get in on the game and when interests rates peaked in 1990, Johnny lender had to have his money back as it was too expensive to borrow any longer.
With this, everything went up for sale and the market was turned on its head. Supply outstripped demand and £750,000 Ferrari’s went down to £100,000 almost overnight.
With fingers burned and lessons learned fast forward to the late noughties as the country is beginning to stagger back to its feet post-recession. With interest rates low to encourage borrowing, the upshot is that Mr Jones’ life savings are no longer putting on much weight just languishing in the bank – but we’ll come back to Mr Jones shortly.
They say that the five most dangerous words in finance are; “It’ll be different this time” – but looking at the situation with ruthless logic, it appears that it will. The key difference this time is that the market is being built on ‘owned’ cash and not borrowed money. This is to say that the people buying the cars this time around (while some are speculators) are using their savings or liquid assets to make the purchase and this is an important factor. With the removal of a third party lender, the risk is reduced and the asset is at the behest of the owner and no-one else.
To paint the picture, in 1990 Mr Smith had to sell his Ferrari 275GTB/4 for a substantial loss because the interest rates rose and made the borrowed equity in the car too expensive to sustain the investment.
In 2015 if our old friend Mr Jones wants to sell his Aston Martin DB4 that he bought with his savings then he will do so. The key difference here though is that Mr Jones bought the car with ‘owned’ money so he is in no hurry to sell and will choose the right time depending on demand/supply/market value to sell. No third party – no rush. This way, the market can self-regulate.
Interest rates staying low is one factor in the market but another part of the meteoric surge is down to what I call the ‘table cloth’ theory.
Picture if you will a giant round table covered in a crisp white cloth. Every marque has its own table but for the purposes of illustration, we’ll use the Ferrari table. At the centre of the table is the most expensive Ferrari – a hallowed 250GTO which sold in 2014 for a shade under £23m. Slightly further out are the 250GT SWB’s then 275’s, 288’s, 330’s, 550’s, 308’s etc. This is to say that closer towards the edge of the table you get, the less valuable/desirable the cars are. However, as you lift the car in the centre, the table cloth effect means that all the other cars rise eventually. This is not to say that people only buy 308GTBs for reflected glory but it’s certainly a factor in values. ?
The super wealthy often buy centre table cars to add to private collections so to them, investment tends not be the overriding factor although lack of depreciation certainly helps. If you could afford a Picasso, you probably wouldn’t buy it because you need to make a few quid on it.
As nothing is ever that simple there is a third factor which contributes; say it quietly but Capital Gains tax (or lack of) is also a large draw on these cars. A classic car is effectively a used car and a private individual won’t pay tax on any profit made at the time of sale. As prices rise many owners are now looking at profit margins which dwarf the original purchase price of the car. In 2005 a friend was offered a Ferrari 330GT for £39,000. He turned it down citing that it was overpriced. The same car sold in 2015 for £612,000. Hindsight is a wonderful thing but it does show the upward parabola of the market.
So what happens when interest rates go back up and people want to put their money back into the banks? Well, as I see it that would see the market slow but not crash. The odd borrowing investor may choose to sell up which will increase supply and therefore have a small effect on demand but not enough to instigate a full blown crash. Bad news unfortunately, but classic cars may never be affordable again.
In short, the market appears this time to be built on stone and not sand.
The cream, last of a certain variant etc will always command a premium IMO, not so sure about the leveraged middle tier though.
The 991 RS at £100k overs is a serious risk, last of the NA RS's but the only 'flappy'. Possibly a curates egg that one.
Edited by Robbo66 on Wednesday 10th February 13:57
The point about the traditional car enthusiast being a dying breed is a good one.
However, it is some time off. Can we predict the timescales? Lets say 30 year olds now are the last enthusiasts, and they will live to 75?
Therefore, the disappearance of this demographic group could be 45 years away, although it will decline over maybe the last half of that.
Not something I need to factor into anything!
However, it is some time off. Can we predict the timescales? Lets say 30 year olds now are the last enthusiasts, and they will live to 75?
Therefore, the disappearance of this demographic group could be 45 years away, although it will decline over maybe the last half of that.
Not something I need to factor into anything!
The way it might be different this time, is if there is a whole new set of people who have suddenly made so much money that they are able to support buying of ‘classic cars’ to an extent not seen before - i.e. For cash, no leverage, no competing loans, or assets that need shored up or whatever. That would have to be quite a large group of people, and I don’t know where they are in such numbers.
Now, many might think they are, but when you’re rich because everything has gone up in value because of monetary policy etc, or you’ve paid off or refinanced most of your debts and can indulge, you’re quickly not so rich when the reverse happens and it all goes down. I don’t believe they are all sitting on a basket of fully hedged diversified long-term portfolios of which their cars are only one element.
If, for one example, they have cashed in their pensions, and are living comfortably; they invest in a car, which seems to be going up in value, and compared to other assets is relatively liquid. Then, how uncomfortable does it make them if value starts to dip (which has and is happening), and then maybe liquidity tightens as there’s not such a sellers’ market. Your pension is going down, and you can’t get out. Stick and take the risk or get out when you can? What % of the new buyers have to take option 2 before there’s a glut of stock and not much demand? In a rising market, “You might get knocked down by a bus tomorrow, so why wait?’, in a falling market “Unless I get knocked down by a bus tomorrow I’m going to run out of cash”…
Another group of buyers (the table cloth purchasers), are likely to being squeezed to a much greater extent. Again, Stocks, shares, commodities, property etc all going great, then all going down, just on a bigger scale. Sovereign wealth funds consolidating, cash being repatriated, exchange rates destroying your bargaining power etc. Is their classic car ornament really the only thing that’s immune, or that they can afford to hold on to, or add to?
So the first group doesn’t exist in great numbers, IMO, and the second group is struggling and it ain’t getting better soon.
Finally, there might be an uber prime classic car market where you can justify buying a car and not driving it, but to me that just shows how dysfunctional the market has become – lots of cars that “enthusiasts’ are buying, but they can’t use for fear of depreciation. If value destruction was not a concern, then the place would be full of 50-somethings driving the wheels off their boyhood dreams. They're not, therefore they are concerned about values, therefore my first point applies!
A car has a purpose, it’s a car. If it’s no longer useable for that purpose, it becomes art, which has no other purpose than as art itself. So, you now some truly wealthy enthusiasts who are probably the safest group (but not big enough to support values on their own), you have have ‘art' collectors who feel wealthy for external reasons, but who are likely feeling a bit nervous, and you have some very rich ornament collectors, many of whom are having their wings clipped (check what’s happening with Prime London property for example).
The biggest real, sustainable, group of buyers of the secondary classics at least are enthusiasts who just want to drive them and not suffer much loss. They have been priced out for 3 years at least, which is ironic as they are the only group who could sustain a stable market. They will sustain it again, but it will be priced at their level, which is much lower than today’s.
Now, many might think they are, but when you’re rich because everything has gone up in value because of monetary policy etc, or you’ve paid off or refinanced most of your debts and can indulge, you’re quickly not so rich when the reverse happens and it all goes down. I don’t believe they are all sitting on a basket of fully hedged diversified long-term portfolios of which their cars are only one element.
If, for one example, they have cashed in their pensions, and are living comfortably; they invest in a car, which seems to be going up in value, and compared to other assets is relatively liquid. Then, how uncomfortable does it make them if value starts to dip (which has and is happening), and then maybe liquidity tightens as there’s not such a sellers’ market. Your pension is going down, and you can’t get out. Stick and take the risk or get out when you can? What % of the new buyers have to take option 2 before there’s a glut of stock and not much demand? In a rising market, “You might get knocked down by a bus tomorrow, so why wait?’, in a falling market “Unless I get knocked down by a bus tomorrow I’m going to run out of cash”…
Another group of buyers (the table cloth purchasers), are likely to being squeezed to a much greater extent. Again, Stocks, shares, commodities, property etc all going great, then all going down, just on a bigger scale. Sovereign wealth funds consolidating, cash being repatriated, exchange rates destroying your bargaining power etc. Is their classic car ornament really the only thing that’s immune, or that they can afford to hold on to, or add to?
So the first group doesn’t exist in great numbers, IMO, and the second group is struggling and it ain’t getting better soon.
Finally, there might be an uber prime classic car market where you can justify buying a car and not driving it, but to me that just shows how dysfunctional the market has become – lots of cars that “enthusiasts’ are buying, but they can’t use for fear of depreciation. If value destruction was not a concern, then the place would be full of 50-somethings driving the wheels off their boyhood dreams. They're not, therefore they are concerned about values, therefore my first point applies!
A car has a purpose, it’s a car. If it’s no longer useable for that purpose, it becomes art, which has no other purpose than as art itself. So, you now some truly wealthy enthusiasts who are probably the safest group (but not big enough to support values on their own), you have have ‘art' collectors who feel wealthy for external reasons, but who are likely feeling a bit nervous, and you have some very rich ornament collectors, many of whom are having their wings clipped (check what’s happening with Prime London property for example).
The biggest real, sustainable, group of buyers of the secondary classics at least are enthusiasts who just want to drive them and not suffer much loss. They have been priced out for 3 years at least, which is ironic as they are the only group who could sustain a stable market. They will sustain it again, but it will be priced at their level, which is much lower than today’s.
Edited by footsoldier on Wednesday 10th February 15:26
Edited by footsoldier on Wednesday 10th February 15:27
Digga said:
Mario149 said:
I'd argue that at 5% (and ignoring the fact that it's fun to drive for a moment), it's not worth it over money in the bank. Annual tax, servicing, insurance and depreciation through inflation will kill that 5% "profit" dead. Plus there's the chance you crash it and if you're not on agreed value you'll likely get less than it's really worth, less of course your excess
Dad? Is that you?
footsoldier said:
The way it might be different this time, is if there is a whole new set of people who have suddenly made so much money that they are able to support buying of ‘classic cars’ to an extent not seen before - i.e. For cash, no leverage, no competing loans, or assets that need shored up or whatever. That would have to be quite a large group of people, and I don’t know where they are in such numbers.
Now, many might think they are, but when you’re rich because everything has gone up in value because of monetary policy etc, or you’ve paid off or refinanced most of your debts and can indulge, you’re quickly not so rich when the reverse happens and it all goes down. I don’t believe they are all sitting on a basket of fully hedged diversified long-term portfolios of which their cars are only one element.
If, for one example, they have cashed in their pensions, and are living comfortably; they invest in a car, which seems to be going up in value, and compared to other assets is relatively liquid. Then, how uncomfortable does it make them if value starts to dip (which has and is happening), and then maybe liquidity tightens as there’s not such a sellers’ market. Your pension is going down, and you can’t get out. Stick and take the risk or get out when you can? What % of the new buyers have to take option 2 before there’s a glut of stock and not much demand? In a rising market, “You might get knocked down by a bus tomorrow, so why wait?’, in a falling market “Unless I get knocked down by a bus tomorrow I’m going to run out of cash”…
Another group of buyers (the table cloth purchasers), are likely to being squeezed to a much greater extent. Again, Stocks, shares, commodities, property etc all going great, then all going down, just on a bigger scale. Sovereign wealth funds consolidating, cash being repatriated, exchange rates destroying your bargaining power etc. Is their classic car ornament really the only thing that’s immune, or that they can afford to hold on to, or add to?
So the first group doesn’t exist in great numbers, IMO, and the second group is struggling and it ain’t getting better soon.
Finally, there might be an uber prime classic car market where you can justify buying a car and not driving it, but to me that just shows how dysfunctional the market has become – lots of cars that “enthusiasts’ are buying, but they can’t use for fear of depreciation. If value destruction was not a concern, then the place would be full of 50-somethings driving the wheels off their boyhood dreams. They're not, therefore they are concerned about values, therefore my first point applies!
A car has a purpose, it’s a car. If it’s no longer useable for that purpose, it becomes art, which has no other purpose than as art itself. So, you now some truly wealthy enthusiasts who are probably the safest group (but not big enough to support values on their own), you have have ‘art' collectors who feel wealthy for external reasons, but who are likely feeling a bit nervous, and you have some very rich ornament collectors, many of whom are having their wings clipped (check what’s happening with Prime London property for example).
The biggest real, sustainable, group of buyers of the secondary classics at least are enthusiasts who just want to drive them and not suffer much loss. They have been priced out for 3 years at least, which is ironic as they are the only group who could sustain a stable market. They will sustain it again, but it will be priced at their level, which is much lower than today’s.
Agree in principal, but it very much depends on the type of car you are purchasing. I believe there to be a raft of cash rich buyers, looking to invest in the 'cream' as part of their realisation of their boyhood dream, as well as the associated CGT advantages. You need to buy well, last of a line or high end classic. I agree regarding a general correction, but Porsche have been undervalued for years, and the rare, matching numbered older cars have simply caught up.Now, many might think they are, but when you’re rich because everything has gone up in value because of monetary policy etc, or you’ve paid off or refinanced most of your debts and can indulge, you’re quickly not so rich when the reverse happens and it all goes down. I don’t believe they are all sitting on a basket of fully hedged diversified long-term portfolios of which their cars are only one element.
If, for one example, they have cashed in their pensions, and are living comfortably; they invest in a car, which seems to be going up in value, and compared to other assets is relatively liquid. Then, how uncomfortable does it make them if value starts to dip (which has and is happening), and then maybe liquidity tightens as there’s not such a sellers’ market. Your pension is going down, and you can’t get out. Stick and take the risk or get out when you can? What % of the new buyers have to take option 2 before there’s a glut of stock and not much demand? In a rising market, “You might get knocked down by a bus tomorrow, so why wait?’, in a falling market “Unless I get knocked down by a bus tomorrow I’m going to run out of cash”…
Another group of buyers (the table cloth purchasers), are likely to being squeezed to a much greater extent. Again, Stocks, shares, commodities, property etc all going great, then all going down, just on a bigger scale. Sovereign wealth funds consolidating, cash being repatriated, exchange rates destroying your bargaining power etc. Is their classic car ornament really the only thing that’s immune, or that they can afford to hold on to, or add to?
So the first group doesn’t exist in great numbers, IMO, and the second group is struggling and it ain’t getting better soon.
Finally, there might be an uber prime classic car market where you can justify buying a car and not driving it, but to me that just shows how dysfunctional the market has become – lots of cars that “enthusiasts’ are buying, but they can’t use for fear of depreciation. If value destruction was not a concern, then the place would be full of 50-somethings driving the wheels off their boyhood dreams. They're not, therefore they are concerned about values, therefore my first point applies!
A car has a purpose, it’s a car. If it’s no longer useable for that purpose, it becomes art, which has no other purpose than as art itself. So, you now some truly wealthy enthusiasts who are probably the safest group (but not big enough to support values on their own), you have have ‘art' collectors who feel wealthy for external reasons, but who are likely feeling a bit nervous, and you have some very rich ornament collectors, many of whom are having their wings clipped (check what’s happening with Prime London property for example).
The biggest real, sustainable, group of buyers of the secondary classics at least are enthusiasts who just want to drive them and not suffer much loss. They have been priced out for 3 years at least, which is ironic as they are the only group who could sustain a stable market. They will sustain it again, but it will be priced at their level, which is much lower than today’s.
Edited by footsoldier on Wednesday 10th February 15:26
Edited by footsoldier on Wednesday 10th February 15:27
Agree - it's not a one-size-fits-all explanation, but all values will go with the prevailing tide to an extent.
This article from Simon Kidston is a good summary of recent events:
https://k500.com/story-item/reality-check-what-the...
This article from Simon Kidston is a good summary of recent events:
https://k500.com/story-item/reality-check-what-the...
footsoldier said:
Agree - it's not a one-size-fits-all explanation, but all values will go with the prevailing tide to an extent.
This article from Simon Kidston is a good summary of recent events:
https://k500.com/story-item/reality-check-what-the...
Results at those 2 auctions certainly point to a shake in confidence at the highest levels. This article from Simon Kidston is a good summary of recent events:
https://k500.com/story-item/reality-check-what-the...
Whether that has any relationship to a 1990 964 Carrera or 991 GT3 is another matter!
footsoldier said:
Agree - it's not a one-size-fits-all explanation, but all values will go with the prevailing tide to an extent.
This article from Simon Kidston is a good summary of recent events:
https://k500.com/story-item/reality-check-what-the...
I turned down an average (but one of the first 500) 2.7 RS in summer of last year at £260k. At the time I wondered whether I'd regret it. Reading that article and the phrase "Carrera RS market a casualty for unremarkable cars. Only the best will sell" makes me think I may have been right...This article from Simon Kidston is a good summary of recent events:
https://k500.com/story-item/reality-check-what-the...
Speaking to a respected trader a couple of Saturdays ago, I was told that market for impact bumper 911s was flat on its back too.
anonymous said:
[redacted]
Apologies to Tom and this isn't a dig at 911V in particular but they are stuck because they are £20-£25k's worth of car tops, it's only the whole air cooled commotion that has everyone asking crazy money for everything.Three years ago they were £20k and they are not better cars today.
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