Classic car ''bubble'' and china crisis/stock market jitters
Discussion
DonkeyApple said:
This is very true. And this time, massive debt is involved.
Is it? How much debt is actually wrapped up in classic cars? And how much debt do classic car owners have?I grant you most of us will have a mortgage of some kind or another but how geared are normal individuals? How many private individuals can borrow to reinvest (although I do understand that more and more equities in the States are bought using debt- which is pretty frightening)
Granted the entire global economy could come crashing down around our ears but then we will all have bigger problems than a classic car bubble. And anyway in such instances tangible assets tend to fare better...
Just how many non car enthusiasts are buying? What is the demographic of the purchaser of a Testarossa/911 2.4s etc?
George 500 said:
Is it? How much debt is actually wrapped up in classic cars? And how much debt do classic car owners have?
I grant you most of us will have a mortgage of some kind or another but how geared are normal individuals? How many private individuals can borrow to reinvest (although I do understand that more and more equities in the States are bought using debt- which is pretty frightening)
Granted the entire global economy could come crashing down around our ears but then we will all have bigger problems than a classic car bubble. And anyway in such instances tangible assets tend to fare better...
Just how many non car enthusiasts are buying? What is the demographic of the purchaser of a Testarossa/911 2.4s etc?
Buying equity with debt ..... Isn't that what happened in 1929/ the decade up to that which then resulted in the Dow Jones dropping from c500 to c30 yes 30! Yep some 94% reduction in no time and remained /took 30 years to breach the 1929 peak. I grant you most of us will have a mortgage of some kind or another but how geared are normal individuals? How many private individuals can borrow to reinvest (although I do understand that more and more equities in the States are bought using debt- which is pretty frightening)
Granted the entire global economy could come crashing down around our ears but then we will all have bigger problems than a classic car bubble. And anyway in such instances tangible assets tend to fare better...
Just how many non car enthusiasts are buying? What is the demographic of the purchaser of a Testarossa/911 2.4s etc?
For an average Hoe equity investor to borrow money specifically to buy stock stupidity springs to mind.
It is the same leveraging right up to buy a classic car? Firstly rather than stock certificates which could be used for placemats or kids to draw on before the bin and worthless the Car is tangible and a physically enjoyable thing. It will never be worthless but can certainly be worth a lot more and drastically less.
What I dislike hearing is those who own say the 1989/90 classic car crash will not happen again it's different this time. It most certainly could happen again and without question the values will cycle up and down just like any other asset. An individual could say it's irrelevant as they are keeping it forever - hats fine but if push comes to shove and you desperately need money you'll be selling everything to survive.
Demographic of buyers - some of the top end stuff is and has been bought by new young person money (how they have earned that much is so few years is bewildering - unless mummy and daddy helping out - but if earned themselves good for them)
Definitely agree there has to be a correction at some point...
...mind you I said that about property for years and having left university in 2003 didn't buy until 2013
Equally though (and as a historian) I do wonder why everyone looks for previous events to repeat themselves. Whether it is preparing to fight the war that we have already finished or anticipating that an economic cycle will repeat history tends to surprise us
Please note that I do not disagree with the fact that some come prices are loopy currently
...mind you I said that about property for years and having left university in 2003 didn't buy until 2013
Equally though (and as a historian) I do wonder why everyone looks for previous events to repeat themselves. Whether it is preparing to fight the war that we have already finished or anticipating that an economic cycle will repeat history tends to surprise us
Please note that I do not disagree with the fact that some come prices are loopy currently
George 500 said:
DonkeyApple said:
This is very true. And this time, massive debt is involved.
Is it? How much debt is actually wrapped up in classic cars? And how much debt do classic car owners have?I grant you most of us will have a mortgage of some kind or another but how geared are normal individuals? How many private individuals can borrow to reinvest (although I do understand that more and more equities in the States are bought using debt- which is pretty frightening)
Granted the entire global economy could come crashing down around our ears but then we will all have bigger problems than a classic car bubble. And anyway in such instances tangible assets tend to fare better...
Just how many non car enthusiasts are buying? What is the demographic of the purchaser of a Testarossa/911 2.4s etc?
There are some very niaive lenders but also those who know its a game and it's about writing as much business as possible before it ends and the clients default and they then default and sling the counter party risk and the cleanup job back into their bank lender. And as we know, the bank will simply crystallise the assets asap regardless of value.
On top of this, we now have investment funds buying assets and they are accelerating their returns by financing heavily.
And then there are the structured products for tax benefits that use classic cars as transportable collateral.
In the last correction there may have been some people using personal debt to secure a classic car but this time around the debt is institutional.
George 500 said:
Definitely agree there has to be a correction at some point...
...mind you I said that about property for years and having left university in 2003 didn't buy until 2013
Equally though (and as a historian) I do wonder why everyone looks for previous events to repeat themselves. Whether it is preparing to fight the war that we have already finished or anticipating that an economic cycle will repeat history tends to surprise us
Please note that I do not disagree with the fact that some come prices are loopy currently
Yes but there was a massive property crash in 2007. Biggest one ever. Except the Govt stepped in and created an artificial market, printed money, took control of the primary mortgage lending banks and dropped rates to zero so that those with cash bailed out those in debt. So the losses were shifted from those in debt to those with none as their assets ceased to yield and were devalued. ...mind you I said that about property for years and having left university in 2003 didn't buy until 2013
Equally though (and as a historian) I do wonder why everyone looks for previous events to repeat themselves. Whether it is preparing to fight the war that we have already finished or anticipating that an economic cycle will repeat history tends to surprise us
Please note that I do not disagree with the fact that some come prices are loopy currently
Finally enough, the exact catalyst for accelerating the classic car bubble.
No Govt will step in to save a correction in this type of market.
Forget about blue chip classic investments etc for a moment and take a look at "the chaf" so to speak as that's what probably affects most PH'rs......
Air cooled 911
Ferrari 355/360/550
Delta Intergrale
E30 M3
(+ many more but you get my drift)
None of the above are especially rare but all have gone from being reasonably attainable in the last few years to out of reach due to price increases. Who is buying these and where are they getting their money from?
I'd say a demographic of two. People who have had property for 10+ years and are now in huge positive equity against their mortgage and those who can now have early access to pensions due to new rules.
These two demographics have two important considerations, the cost of borrowing and the incentive of saving which are both linked. As soon as mortgage rates go up, that £60k 355 starts to cost a considerable amount of cash. Same as saving, once a decent return is due on your £60k "investment" by doing nothing more than simply sticking it in the bank why would you tie it up in a troublesome old car that you use a few times a year?
If this middle ground or "the chaff" compared to the wheat experiences rate rises it will see a market crash through nothing more simply than the market being flooded in a sell off.
I'd also imagine there's an acute timing issue as well but this is more of my humble opinion-if all these classic car buyers piled in in the last two years, I'd say every single one will have two more years maximum before they're presented with a huge maintenance bill that might just prompt a "get out while I'm still even" moment! Speaking as a previous classic owner, that day will come!
Air cooled 911
Ferrari 355/360/550
Delta Intergrale
E30 M3
(+ many more but you get my drift)
None of the above are especially rare but all have gone from being reasonably attainable in the last few years to out of reach due to price increases. Who is buying these and where are they getting their money from?
I'd say a demographic of two. People who have had property for 10+ years and are now in huge positive equity against their mortgage and those who can now have early access to pensions due to new rules.
These two demographics have two important considerations, the cost of borrowing and the incentive of saving which are both linked. As soon as mortgage rates go up, that £60k 355 starts to cost a considerable amount of cash. Same as saving, once a decent return is due on your £60k "investment" by doing nothing more than simply sticking it in the bank why would you tie it up in a troublesome old car that you use a few times a year?
If this middle ground or "the chaff" compared to the wheat experiences rate rises it will see a market crash through nothing more simply than the market being flooded in a sell off.
I'd also imagine there's an acute timing issue as well but this is more of my humble opinion-if all these classic car buyers piled in in the last two years, I'd say every single one will have two more years maximum before they're presented with a huge maintenance bill that might just prompt a "get out while I'm still even" moment! Speaking as a previous classic owner, that day will come!
Relating this to property market, I deal with many buy to let "investors" in the west country, many of them are in a position that each property brings in £8-900 per month, the mortgage payments currently cost them £500 per month.
This debt is interest only, by the time they have spent a bit of money on maintenance, the odd void and management there isn't much in it for them. If rates go up even 2% they will at current rental rates be losing money; at that point there will be a whole bunch of terraced houses for sale as they try to get out.
I'm not sure if the prices will go flat or if prices will drop as the desperadoes get out at any price......doesn't look pretty out there.
This debt is interest only, by the time they have spent a bit of money on maintenance, the odd void and management there isn't much in it for them. If rates go up even 2% they will at current rental rates be losing money; at that point there will be a whole bunch of terraced houses for sale as they try to get out.
I'm not sure if the prices will go flat or if prices will drop as the desperadoes get out at any price......doesn't look pretty out there.
George 500 said:
Thanks DonkeyApple- that's pretty frightening, will be interesting to see how it plays out
Have not a jot of sympathy for people who have borrowed 90% of the asset value of something as fickle as a motor car...
It's just another margin trade. If it goes up 10% in value then the gain is 100%. Have not a jot of sympathy for people who have borrowed 90% of the asset value of something as fickle as a motor car...
The other big use for cars these days is as collateral as part of a tax avoidance structure or to avoid moving money across borders. Your asset sits offshore and was paid for with offshore money but the loan is paid to you in GBP or USD in your taxable country. This you can operate onshore, with plenty of cash, but no tax liability. Or more importantly, no assets that anyone can come after you for. It's the same reason why Abromovich has several yachts in several locations (before the crunch, RBS was peddling all sorts of ludicrous debt&tax schemes around gin palaces to any old punter) or various people own famous art works.
And then of course, there is the money laundering aspect. Rarely is a market so good for washing a bit of dirty cash.
DonkeyApple said:
It's just another margin trade. If it goes up 10% in value then the gain is 100%.
The other big use for cars these days is as collateral as part of a tax avoidance structure or to avoid moving money across borders. Your asset sits offshore and was paid for with offshore money but the loan is paid to you in GBP or USD in your taxable country. This you can operate onshore, with plenty of cash, but no tax liability. Or more importantly, no assets that anyone can come after you for. It's the same reason why Abromovich has several yachts in several locations (before the crunch, RBS was peddling all sorts of ludicrous debt&tax schemes around gin palaces to any old punter) or various people own famous art works.
And then of course, there is the money laundering aspect. Rarely is a market so good for washing a bit of dirty cash.
Till recently, you did not consider cars an "asset class". Now they are. And as pointed out by a few, the holding cost can be high. 5% borrowing cost will change everything - 3% interest rates likely in the next few years.The other big use for cars these days is as collateral as part of a tax avoidance structure or to avoid moving money across borders. Your asset sits offshore and was paid for with offshore money but the loan is paid to you in GBP or USD in your taxable country. This you can operate onshore, with plenty of cash, but no tax liability. Or more importantly, no assets that anyone can come after you for. It's the same reason why Abromovich has several yachts in several locations (before the crunch, RBS was peddling all sorts of ludicrous debt&tax schemes around gin palaces to any old punter) or various people own famous art works.
And then of course, there is the money laundering aspect. Rarely is a market so good for washing a bit of dirty cash.
Mermaid said:
DonkeyApple said:
It's just another margin trade. If it goes up 10% in value then the gain is 100%.
The other big use for cars these days is as collateral as part of a tax avoidance structure or to avoid moving money across borders. Your asset sits offshore and was paid for with offshore money but the loan is paid to you in GBP or USD in your taxable country. This you can operate onshore, with plenty of cash, but no tax liability. Or more importantly, no assets that anyone can come after you for. It's the same reason why Abromovich has several yachts in several locations (before the crunch, RBS was peddling all sorts of ludicrous debt&tax schemes around gin palaces to any old punter) or various people own famous art works.
And then of course, there is the money laundering aspect. Rarely is a market so good for washing a bit of dirty cash.
Till recently, you did not consider cars an "asset class". Now they are. And as pointed out by a few, the holding cost can be high. 5% borrowing cost will change everything - 3% interest rates likely in the next few years.The other big use for cars these days is as collateral as part of a tax avoidance structure or to avoid moving money across borders. Your asset sits offshore and was paid for with offshore money but the loan is paid to you in GBP or USD in your taxable country. This you can operate onshore, with plenty of cash, but no tax liability. Or more importantly, no assets that anyone can come after you for. It's the same reason why Abromovich has several yachts in several locations (before the crunch, RBS was peddling all sorts of ludicrous debt&tax schemes around gin palaces to any old punter) or various people own famous art works.
And then of course, there is the money laundering aspect. Rarely is a market so good for washing a bit of dirty cash.
And that's not even considering the leveraged car funds where increasing costs will slow new investors but also force out existing ones meaning the underlying assets must be sold and sold within the legal timeframes to return money to investors.
Or the recent need to have a classic car collection to be taken seriously in certain circles and that some of these collections are being built using money that the owner simply doesn't have or secured against business assets such as share holdings in their company etc.
There is absolutely no doubt that what has built up since the credit crunch, combined with the largest and wealthiest demographic in the West seeking any form of return on their capital above bank rates as created a market which any downward adjustment in could be absolutely immense.
I always compare asset bubbles to forests. In order to be healthy a forest needs to be regularly struck by lightening and a fire started. That fire burns off the light layer of debris that has built up on the floor and clears out the old, weak trees leaving gaps for new growth and adding nutrients from the detritus ash and killing off diseases and pests. When you start to interfer and stop these small fires or there are no natural fires for a long time then new growth halts, diseases and pests dig in hard, and the amount of debris that builds up deep on the floor means that when a fire does eventually start, whenever that is, the heat from all that debris kills all the healthy trees and the entire forest is completely wiped out instead of being rejeuvinated.
This is a market which has definitely passed the point of any serious lightening strike being a prudent clear out of the week and a rejeuvination but a total wipe out in my opinion.
Edited by DonkeyApple on Monday 31st August 11:32
GC8 said:
Please don't say 'leverage' or 'leveraged'. It doesn't actually mean anything and it is offensively American made-up nonesense. Americans rape our language.
If you mispronounce the word levvarage too, then I will hunt you down.
If you're going to ask people to avoid a word, you generally need to provide an alternative for them to communicate their meaning with.If you mispronounce the word levvarage too, then I will hunt you down.
Leverage seems to me a perfectly good word for borrowing to buy an asset, such as a mortgage for a house - a lever is a good mechanical analogy for the manner in which any subsequent gains or losses are magnified.
GC8 said:
Please don't say 'leverage' or 'leveraged'. It doesn't actually mean anything and it is offensively American made-up nonesense. Americans rape our language.
If you mispronounce the word levvarage too, then I will hunt you down.
And yet our language is comprised of made up words and words taken from other cultures or social evolution of word usage. If you mispronounce the word levvarage too, then I will hunt you down.
English words made up by Shakespeare:
http://www.shakespeare-online.com/biography/
English words taken from Arabic:
https://en.m.wikipedia.org/wiki/List_of_English_wo...
English words taken from India:
https://en.m.wikipedia.org/wiki/List_of_English_wo...
English words taken from French:
https://en.m.wikipedia.org/wiki/List_of_English_wo...
And how many words have we taken from American culture? Well, a rather large amount were adopted into our culture after WW2.
Our English language has and constantly evolves, assimilating and adsorbing from all cultures across the globe because we are the most outward looking and culturally open people on the planet. It's why we have so many different words for the same things and such complex grammar and syntax that deviates from basic rules.
Some would say that we 'leverage' our cultural dominance to continually expand and improve our language.
However, if you are so keen to live in an environment of traditional, pure and unevolving English then may I suggest going to live in the Deep South as the English spoken there is the purest and most original remaining in the planet. Even down to the syntax and grammar.
Anyway, I always thought you were a Yorkshire Lad, in which case one can hardly accept guidance on Queen's English from a culture that prides itself on decimating it.
GC8 said:
Public schoolboy from Derbyshire, with family from Sheffield. An adopted Yorkshireman and faux-Northerner. 
My maternal family were taught how to walk upright and function in society at QEGS Wakefield but still considered lower than colonials by the paternal arm of the family. Gassing Station | General Gassing | Top of Page | What's New | My Stuff