is the bubble due to burst?

I always attributed the shoe-shine line to Bernard Baruch, but I could be mistaken.

 

They shared a bootblack.

 

Er bubbles are caused when buyers don't want to miss out of a potential entry level due to their belief that prices are going higher, Ponzi schemes a pure fraud.

 

So far, the difference between this market and the bubble of the 90's is that in the 90's every single Ferrari was going thru the roof, Mondials, 308s, 400s everything, people were selling their place inline for a new 348 for 5 and 10 grand.
This run up seems concentrated on Enzo era cars.

And yeah, It's not so much a Ponzi scheme as a game of musical chairs.

 

+1. That is a VERY important difference!

 

I don't have a view, or an axe to grind, on classic prices from here, but in addition to points made re the low yields of bonds / other relatively safe financial investments...

Given uncertainty over currency markets, assets which can be relatively easily liquidated in another part of the world (such as gold, art, certain cars) are clearly benefitting from a safe haven premium - correctly imho. I'd personally rather take long term ownership of an interesting classic than a bar of gold, and if you take a 20 year view, unlike a property or financial investment, tied to a particular location, currency or economy, you can sell where demand is strongest.

Another potential factor which may drive prices is when the first classic boom/ bust came round I'm not sure how many people were really that interested in cars, I get the impression they had a fairly niche following, and people who hadn't spent their life wanting a 250 swb (or whatever), and had just bought it as a trophy asset or speculatively, were the first sellers. My father for example was interested in steam trains and a car was just a way to transport the family. I think now, and possibly because of the 80's boom, a lot of people have grown up dreaming about these cars...

 

it may also be that the super wealthy Have finally caught on to the idea that cars can be an "ART-FORM" also...everyone aspires to collect the best of the best and with some paintings from the Masters in the $150 Mil. range why not Ferraris (but only the best) seeking top dollar now....I've been saying this for some 30 years now...Some of these earlier Ferraris are sheer works of art...on wheels... The painting ends up in someone's safe...all sealed for fear of damage or degradation. Cars, as an art form, you can enjoy and show and display your fine ART...
...Or, at least, that's my take on it....

 

I am not an art collector at all- I prefer classic cars. But Art has several factors that favour it over classic cars. 1) collectors are both equally male / female - not true with classic cars 2) classic cars are expensive to maintain. They need upkeep, insurance and need to be driven else they depreciate. Art requires no maintenance costs (not even insurance when its in the safe). Only the safe costs which are minimal compared to cars...

 

...not even insurance when its in your garage ...and not registered!

 

Forgetting the biggest... ART doesn't have to be titled therefore it is true portable wealth. Thats what the rich want. And cars do provide that if you treat it as art, if you never title it. Otherwise people love collecting. Driving a manual shifted really fun and beautiful car 25 years from now will be a very cool, rare thing in itself.......

They are special, there is a reason why you joined this forum, and this will happen again and again throughout time.

The allure of an old car could very well just be beginning if things go full electric. There are MANY factors at play that make this rally feel real.

 

You also take a big hit on the profit from selling a collectable car as the Fed tax rate is 28% plus your state tax rate. In my state that would be 34% of the profit I won't receive.

 

Move to the UK... No capital gains tax on cars...

 

Indeed, Ponzi schemes are pure fraud, but the point being that early investors in Ponzi schemes make a very good return, and late arrivals get taken to the cleaners. Same thing with bubbles, early investors do just fine and sheep that are late to the party get sheared. The reason is that both are fueled by greed and the promise of a high return....

 

Yes, and that would argue against a bubble. There is effectively an unlimited supply of low mileage Fiat-era stuff (599, 360/F430, 458, etc.) and an extremely constrained supply of Enzo-era cars. Price rises on the classics make sense. Price rises on readily available modern cars, or special souvenir versions of regular production cars ... not so much.

It's hard to say that vintage cars are a bargain now, or anything close, because they are relatively expensive. But scarcity and timelessness make them a much safer bet than a matte black, computer-laden wedge with visible carbon fibre which was dated after a year (looking at you, Lamborghini...) I suspect car enthusiasts among the 1 percent are looking at a $300K McLaren and seeing many alternatives that will (a) preserve their capital and (b) be more than a used car in a few years.

 

The difficulty is in factoring a bubbles variables. I do agree that looking at other instances of bubbles in various markets can help understand the sequence of events. The problem is figuring out if the current market is in a bubble and at what stage in the sequence of events we are currently in.
Ferrari GTO’s went from $5800/$8500 in 1971 to $500K by 1985. Still this was a bad time to take money off the table as they obviously went much further ($13-$17 Million by the early 90’s). Even after prices fell backwards, $4 million was a correct number to purchase a GTO after the bust, considerably more than the $500K of 1985.
My argument is that the variable to consider is the amount of money flooding in to our monetary system. I’ve read a number of comparisons of cars selling for X which is way more than they sold for even a year ago. The problem is X is a variable ($1 dollar isn’t the same as it was a year ago). Where do prices go if hyperinflation takes place?
Cars and Art are not meant to be investments. When speculation becomes overly evident in anything it does signal that a bubble may be present. That said, the money buying the cars and art has to come from somewhere. I would look to an outside event as a cause for the prices to correct. My guess would be a crash in the Chinese economy or major event in the monetary system. Until then prices may go considerably higher.

 

True if they get out, but sadly most stay in at risk of 'missing out'.

It's at times like these that is important to understand the effect of Quantative Easing has had on markets. This excellent article/video from Eurohedge in 2010 does the job quite well.
(Warning language is not the Queen's finest)

The "Buy The Dip" Scheme Explained | Zero Hedge

 

There are so many factures in this discussion. I have seen this morph for the past 40 years. All values are always based on current world standards that are always changing. In the 1970's you could have any of them for $3000, because it cost more to fix them than they were worth. Running the cars was never understood then, no Goodwood, no money to race , the Italians in town imported Olive oil, none fixed Italian cars! My home town had pot holes and railroad tracks, not racetracks. My first Ferrari had a trailer hitch on it, and I pulled my boat with it. Then, no events, it was just a car more expensive to fix than the value. But, I liked them because they felt GOOD to own. They still feel GOOD to own. But now, racing them, it’s the full Monty. Now, you can afford to drive them, afford to fix them right as there is a support system now that rewards doing it correct. It’s called the new world.

Bubble buyers don't jump into good Ferrari's. Car guys that have belief do. Try to convince a non-car guy to ''invest '' in a Ferrari . It just does not happen, unless you’re RM. You can not believe the liquid money out there in the world. It’s daily generated, it comes and goes – and when it goes.....it goes. Figure the past 20 years, Russia and ALL the eastern block have come out of a Deep Freeze. I was at Maranello last week. Talked to guys in the Museum. They have NEVER seen such interest in the brand – yes the ‘’BRAND’’. It’s increased 20 fold in the past 3 years. Buses of Chinese. Buses of Polish. Buses of Italians. They are swamped ALL the time. A row of new Ferrari's taking people for rides ( 8KM for 80 Euro) in front of the Museum. YOU don't get to drive at 10 Euro a Kilometer.

Ferrari is coming on stream as THE MARQUE to own when you dial in and have the dough..That could well be a long term thing. It could be forever. In fact, it will be forever. Bank on that. There is not a great car that I owned that hasn’t gone 6 fold. Money will ALWAYS be worth less, and with the ''NAME'' it is clearly a BIG identity link for guys who have money and are nobody. There are loads of nobodies with money.

I was in china this year, and NO ONE has a western identity. In China, you have no identity. People there are just hacking into the art market, they are NOT car guys but they will be. There were no ‘’art-collectors’’ 10 years ago, now it's the thing. Ferrari gives them a link-in. On the Tuscan event in June, crazy guys, hand selected by Ferrari, and all not connected BUT connected with the marque, connected to the BRAND. Princes driving Red cars. Without them, they can not blend into good circles. You have a BIG social life with a Ferrari that you don’t have with a racing sail boat.

There is not ONE Ferrari I have owned ( please, vintage ones), that I have not regretted selling. I think I beat the bubble, and I am always ‘’TODAY’’ wrong. And, ‘’TODAY’’ happens over and over, decade after decade. In fact, you can be a nasty person, a real ****** and get respect with a Ferrari. It’s not the art market YET, because it is JUST developing. As the knowledge base gains creditability, and the market induces more creditability as new academic experts come in to support a cleaner image, MORE creditable collectors will adapt cars into their holdings of tangibles and collectables. Event use give the object a new exciting purpose.. Hence, the added value is there and will be. Will there be a Burst? Ok, I remember when Dino’s were not Ferraris. I remember when ‘’chairs and flares’’ was a queer thing. For now, a good vintage Ferrari is just a great thing to own. I said it before, it is a reward for hard work and luck in business. Talk the talk and walk the walk. It’s a guy thing. You can even be a real nobody and be an expert on your Ferrari car. It’s a finite subject that anyone can master. So, there will be people who take interest in the subject, drive the events, buy books, collect bits and info, and become King for life – Ferrari guys. If you have a good Ferrari car, you get a thumbs up.

Then, there is the fact on the right cars, the great Ferrari’s, there are so few in a BIG world packed with EGO and MONEY. Moving target money, where a vintage Ferrari parked in your garage is REAL, and something the LONDON WHALE sold you is GONE IN SIXTY SECONDS. Consider the lost of J.P. Morgan’s latest – 6.2 Billion. That is 6000 Million. That is 1,500 Vintage Ferrari’s at $413,000 each.

Ferraris are now, an international currency. You can trade one for a house in the South of France instantly. You can sell them anywhere. The more time you spend with the Ferrari, the more you drive, the more you will realize that Enzo was one of those Guru Genius Legends that emerged like Leonardo , Brahms, Faberge, Ettore and Picasso. Ferrari will become the ‘’thing’’ to have, the trophy to keep. There are simply not enough good Ferrari cars for the ever changing world.

 

I agree with the most part- as long as your talking vintage Ferrari!

 

The Poles that come by buses to Maranello are probably more full of vodka than dough, though.
With love from Warszawaland.

 

Ah Yes, The Quantitative Easing.
[ame=http://www.youtube.com/watch?v=PTUY16CkS-k]Quantitative Easing Explained - YouTube[/ame]

 

Well stated!! Just a follow up. Dropped a friend off today at the Ferrari dealer to pick up his car after service. The head salesman reported that Ferrari is cutting back, yes back, on production numbers and want to make this an even more exclusive club. He also reported that China is such an emerging market that they could package used "ferrari oil as cologne" and sell it there.

 

I notice they recently had a concours in Dubai or some other more enlightened place in the Middle East and I noticed some Indians (from India) at last year's Pebble with special maharajah's Rolls so I think that what is happening is that buying the proper old car, i.e.

1.) preferably 50s or '60s vintage
2.)a one off or a car with a "story"
3.)or a race car once (driven by P. Hill, Rubirossa, Shelby, etc.)
3.) a car properly documented six ways to Sunday

will allow you to enter some events, such as say the Colorado Grand, etc. where you might be sitting next to other Captains of Industry. Now you could join the Bel Air Country Club or some expensive yacht club but this is just another way to rub elbows with people who you would otherwise not meet but who are influential in their fields of endeavor.

So as new nations become more involved in world commerce, it makes sense that their high rollers would want to "join the club" by buying a mobile work of art that will get them some respect and some entrees. I also agree that some of them buy new models first and only then are asked "why did you buy that when you could have bought a (old model) and some then educate themselves and work backwards chronologically to one that is fun to drive and will be more acceptable in historic events be they vintage racing or concours.

 

I don't buy that, they are cutting production because they hare having trouble selling. When you can see a new unsold F12 in a showroom week after week, and "used car sale of the century" fliers arrive in the inbox, then something isn't quite so rosy.

 

Absolutely agree.

Marcel Massini

 

What will be interesting is when cars move from fuel to the next transportation method. Than a vintage car will be truly a work of art rather than something is used. But then again the race horse industry seems to be doing fine and looks like it will continue for some time to come.

On the other hand I think the passion for cars and things like art, horses, power tools etc is innate to most men. It is a common language that is shared through passion. It is relatable and transferable to others with the same passion and it will manifest in a lot of wealthy men owning, buying and selling these cars. There will also be wealth and there will always be egos.

Apologies if this sounds completely politically incorrect, but every track day/car show/forum/meet up is made predominantly of men.