You would tend to think that £60,000, or HK$726,000, is a lot to spend on a bottle of wine, even if it is 1982 Château Pétrus, and even if the bottle in question contains six litres of wine rather than just one. Yet one buyer paid that price – a record for this particular wine – at a recent Hong Kong auction.
This isn’t a one-off by any manner of means. Right around the world, the prices of rare, luxury and collectible items are starting to soar again. A rare Ming dynasty Chenghua bowl sold this month for $4.7m, while a large blue-and-white Qianlong moon flask went for $5.1m. An 8.74-carat blue diamond just fetched $5.7m, a record for a stone of that type. Classic cars are soaring in value: prices have risen by 60% since 2006, beating most other investments. In August, a 1938 Bugatti sold for $1.3m, and more than 15 classic cars have fetched more than $1m so far this year, according to figures from the auction house Bonhams.
Meanwhile, the prices of top-end London houses, a market now largely the exclusive preserve of the world’s super–rich, are starting to look lively once again. Prices in central London have now gone above their 2007 peak, reckons online estate agent Rightmove. That surge is being led by buyers right at the very top end of the market, drawn in by the weakness of the pound.
But just about anything with any kind of scarcity value or collectability seems to be soaring in price right now. A clump of Elvis Presley’s hair, believed to have been shorn from the singer’s head when he joined the army in 1958, just sold for $15,000. Barbra Streisand has raised $600,000 for her charitable foundation by auctioning off memorabilia from her singing career. Even the art market has recovered its verve. After going through a bubble as intense as anything that the banking industry experienced, it froze completely after Lehman Brothers collapsed, with sales down almost 80%. But even it has started to recover in recent weeks.
What the rich are doing with their cash is always instructive. After all, they are clever with money: if they weren’t, they wouldn’t have been able to accumulate so much of the stuff in the first place. So what does all this tell us about the world economy? Well, the booming luxury market tells us three main things.
First, there is a lot of spare money splashing around (much of it in China, which is where the really fancy prices are being paid). The programmes of quantitative easing – which used to be known as printing money – implemented by most of the world’s main central banks haven’t done very much to boost bank lending or stimulate economic activity. But they have created a lot of spare cash that is now swirling around the financial system. The way the luxury market is booming again tells us that most of that newly minted money is likely to go into creating a series of mini-bubbles in asset prices – and very little of it is likely to go into reviving economies, saving jobs, or creating new industries.
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Second, the rich are preparing for inflation. With interest rates at record lows, stockmarkets recovering strongly, and the banking bonus system back to its old ways, it’s not just that there is plenty of money around. Inflation is certain to make a return as well. The gold price is one clue to that.
Real assets are the one really safe place to park cash that you fear will be eroded by rising prices. Your money in the bank may gradually lose its value. But the bottles of fine wine in the cellar or the Chinese antiquities on display in the hallway will go up along with the general price level – and probably even faster. They aren’t growing any more 1982 Bordeaux and they aren’t making any more Ming vases. Like farmland, these are among the few investments where the supply is completely fixed: the only thing that varies is the demand. And those assets survive inflation.
Last, it tells us that the rich don’t have much faith in productive assets. They could be putting their money into new companies or venture funds seeding the industries of the future. Instead, they are bidding up the value of items whose only real worth is their scarcity value.
The world is awash with idle factories. Real wages are stagnant in most of the developed world, and consumers are over-indebted. Share prices might be rising for now, but it’s going to be very hard for corporate earnings to keep pace with the expectations markets are now putting on them. The luxury boom suggests that the rich don’t think there is much money to be made from stocks in the next few years, and don’t want to tie up too much of their cash in them.
Indeed, if you wanted to think of the perfect investment for a world characterised by rising inflation and low growth, you’d probably decide it was luxury collectible items. The rich have already figured that out. They are almost certainly right – and heck, if they are wrong, they’ll still have some decent wine in the cellar and some fine antiques to admire in the hallway.
• This article was originally published in MoneyWeek magazine issue number 458 on 23 October 2009, and was available exclusively to magazine subscribers. To read more articles like this, ensure you don’t miss a thing, and get instant access to all our premium content,
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