In Pebble Beach, California, during The Quails “Concours d’Élégance”, a 1962 Ferrari 250 GTO was sold at auction by Bonhams for $38 million, which constitutes an all-time record for a collector’s automobile. The price paid is 100 times that of the most expensive new Ferrari in their catalogue (F 12 berlinetta) and 30 times that of their latest special series car (F 150, limited to 499 units). What to think of this exorbitant amount?
This is reminiscent of the art market in general, which is also establishing new records: in late 2013 a triptych from Bacon fetched $142 million. A collector’s automobile is akin to the art market with its great names, its benchmark products, its myths. However, this phenomenon is more recent, younger, thus explaining the price explosion, albeit with a more “mono-maniac” culture: seven out of the ten most expensive cars ever sold in an auction are Ferrari’s! Speculators will have a choice between worrying about a bubble in a fashion trend and buying cars that are not quite as mythical as Ferrari’s yet... This craze reminds me a little of the recent craze for Chinese artists, whose standing exploded at the same rate as the number of new multi-millionaires in China. What will remain of it? It’s hard to say.
These record prices and clear increase in global sales volume show that investors are looking for markets with room left for progression. The stock market is at its highest and many feel that a crash is more and more likely, with growth still stalling. Sovereign bonds are almost over-performing... the yield is paltry. Real estate is peaking in London and in China’s large cities... what’s left to speculate on? The art market and used Ferrari’s are fetching all-time records... there lie the opportunities!
There is another reason that motivates investors: those are real assets, unlike pieces of paper showing you own a share in a company’s capital or a share of a country’s debt. Not at all. Real stuff... a painting, an automobile. In other words, an asset without any counterparty risk: it has intrinsic value; its owner is not dependant on anyone (a company, a country); ownership is direct. Obviously, the market price may vary, but it cannot go to zero: a painting cannot go bankrupt. A rare Ferrari, a Picasso, a Bacon, an impressionist painting... will always be worth something, especially with paper assets losing trust.
Real estate boasts the same qualities but its high financing needs (most often bought with credit) makes it more sensitive to the environment, thus to bubbles, as has been seen with the sub-primes crisis. The asset of choice is gold, of course, as it has been forever. Gold also has a fundamental advantage over other assets: it is perfectly homogenous, whereas a car, a painting or an apartment will never be worth exactly the same as another. Basically, one should own gold, of course. And then, other assets may be interesting, but the markets are complex and one has to be on the lookout for potential bubbles (Chinese artists...) and the obvious traps. But, from now on, we will have to monitor the value of used Ferrari’s!