Okay, so it’s looking a lot like the stagflationary environment of 1970s again. Weak dollar, high food and energy prices, and general economic malaise.
In those days, people spent a great deal of time preserving value in creative and interesting ways: including owning and trading collectibles such as stamps, artwork, and coins.
Today, collecting is starting to make a BIG comeback.
Let’s be clear at the outset that collectibles aren’t for everyone. To be a serious collector, you first need a passion for something to collect. Without a keen interest in what you are collecting, the time and hassle associated with acquiring and managing a collection probably won’t be worth it.
Collecting is Lots of Fun,
but It’s Easy to Get Ripped Off
You also need to know what you’re doing. The uninformed and the under-informed can easily mistake something that is relatively common for something that is rare, can easily be induced to overpay for an item (since fair-market pricing is often difficult to ascertain), and can easily get sold convincing-looking fakes.
These days, almost anything of significant historic or collectible value can and will be counterfeited. There are entire factories in China dedicated to producing fake versions of everything from designer purses to rare U.S. coins. “Made in China” U.S. Morgan silver dollars, for example, are being sold over the Internet and are even making their way into U.S. coin shops. They look authentic to the naked eye and are only revealed as fakes upon close inspection by people who know the tell-tale signs.
In addition to these hazards, collectors face the problem of having to sell (if and when the time comes) in an illiquid market. In contrast to, say, an ounce of gold bullion, which has a particular market price on any given day and can be sold to any coin dealer at any time for the spot price or just a small percentage below it, a rare European gold coin from the 1800s could be difficult to sell for anywhere near what the owner thinks it’s worth. A coin dealer may offer only 65% or as little as 50% of the retail price on numismatic coins.
In fact, Independent Living News doesn’t recommend rare/collectible/numismatic coins for most people – at least if they are looking at them as a reliable investment. And there is the highest density of fast-talking sleazebags in the rare coin market than just about any other. For serious investment money, stick with bullion coins, bars, and rounds. But if you like the history and beauty of rare coins, have at it. Unlike blowing money on an expensive vacation, you’ll end up with some real value there!
Even more obscure markets such as dinosaur fossils, Pez dispensers, or antique pottery present significant challenges as well. To get close to full value out of a rarity you believe is worth a lot, you might have to put it up for auction. You’ll pay a big commission to the auction house. And it could still take weeks or months to find a buyer who is able and willing to meet your reserve or minimum bid.
These Forms of Tangible Wealth
Aren’t for Everyone
As you can surmise, collectibles lack many of the characteristics of sound, safe investments. When thought of as a hobby, though, building a collection of valuable, tangible items can be worthwhile to undertake – especially when compared to other forms of leisure and entertainment activities (which involve nothing more than spending money for nothing tangible) as we alluded to above.
There is an argument to be made against collectibles as an asset class in the midst of a weak economy. It goes like this: Nobody needs rare stamps or celebrity autographs or fine art to live. But everyone needs food, fuel, clothing, and the like. When times get tough, people in tough situations will sell their collectibles so that they can afford basic necessities. This scene will undoubtedly play out frequently in the years ahead.
But selling pressure from cash-strapped collectors won’t necessarily depress the collectibles market if new money is coming into the market at the same time. Where will the new money come from? Potentially from the trillions of dollars that are now sitting in bank accounts and fixed-income securities, earning virtually nothing.
If just a tiny fraction of the public loses confidence in the banking system and/or the bond market (which at their roots are large-scale Ponzi schemes), where will people park their wealth? They will seek the safety of tangible assets – including more speculative and illiquid markets like collectibles.
Of course, the most direct, immediate, and sure beneficiary of a flight from financial assets would be precious metals bullion. But a secondary beneficiary could be collectors’ items. It’s no guarantee that collectibles will hold their value in a bad economy, but there are plausible scenarios in which they would hold up much better than stocks, bonds, and cash.
It’s difficult to generalize about collectibles as an asset class since they are so varied, but in an inflationary / stagflationary economic environment where the public flees paper assets, we could expect collectibles to hold their value better than most paper assets.