With Hard Asset Prices Plummeting, What's Next for the OA Market?

[buttock]

In my mind the only thing that really comes into play for buying collectibles is the perceived disposable income. The reason I say perceived is various people see a variety of influences against what they have to spend. For myself, the price of gold has no direct tie to my disposable income so the price dropping has no meaning to me other than as a conversation item. The stock market does have a big impact on my perceived disposable income since I have money directly linked to the market that I watch constantly so my perceived disposable income has a direct relationship to the markets because I can easily correlate the two.

 

I am not implying that there is a direct cause-and-effect between gold dropping and people deciding whether or not to buy a piece of art. I am suggesting, however, that a large drop in the price of gold in a relatively short period of time is probably symptomatic of and correlated with other factors that actually would impact both the pocketbooks and the psychology of art buyers.

 

Hi Gene, I think you are able to connect the dots between the various indicators, but most people can't so they just don't see them. The astronomic increase in a lot of art over the last few years has been staggering. I find myself asking how long can it go on since no exponential curves can go on for ever but will it drop or just hit a lull before going up more. I am watching closely the Jungle Action 6 cover on HA as this is a cover I considered buying back when it was offered on eBay about 5 years ago.

 

I agree with this. I've been collecting for over 20 years and I've rarely heard anyone reference comics or art to gold or stocks when the time came to make a purchase. There are 2 instances I can think of other than Gene: one person who runs mutual funds for a living, and the other who does comics for a living along with many other hard assets.

 

But for over 95% of collectors, I think this line of thinking is not even considered. There's data on how collectibles function as an investment -- not predictive, obviously, but psychological/economical -- look up "endowment effect" or read up on Richard Thaler. There are lots of irrational things collectors do that make this comparison difficult to apply in most instances.

 

I think Gene approaches things differently than most. I use disposable income on collectibles and if any appreciation occurs that's an added bonus, and I think this is how most approach things. Not that I'm expecting to lose whatever I spend, that's where making smart purchases comes in. But I'm a collector, and by that nature, I'm purchasing something I want, and the value comes in owning it rather than money. To focus on appreciation/depreciation/value ignores the tangible assets of the items themselves.

 

Speaking of tangible assets, here's a killer Wrightson I bought at NYC last year.

 

[delekkerste]

In my mind the only thing that really comes into play for buying collectibles is the perceived disposable income. The reason I say perceived is various people see a variety of influences against what they have to spend. For myself, the price of gold has no direct tie to my disposable income so the price dropping has no meaning to me other than as a conversation item. The stock market does have a big impact on my perceived disposable income since I have money directly linked to the market that I watch constantly so my perceived disposable income has a direct relationship to the markets because I can easily correlate the two.

 

I am not implying that there is a direct cause-and-effect between gold dropping and people deciding whether or not to buy a piece of art. I am suggesting, however, that a large drop in the price of gold in a relatively short period of time is probably symptomatic of and correlated with other factors that actually would impact both the pocketbooks and the psychology of art buyers.

 

Hi Gene, I think you are able to connect the dots between the various indicators, but most people can't so they just don't see them. The astronomic increase in a lot of art over the last few years has been staggering. I find myself asking how long can it go on since no exponential curves can go on for ever but will it drop or just hit a lull before going up more. I am watching closely the Jungle Action 6 cover on HA as this is a cover I considered buying back when it was offered on eBay about 5 years ago.

 

I agree with this. I've been collecting for over 20 years and I've rarely heard anyone reference comics or art to gold or stocks when the time came to make a purchase. There are 2 instances I can think of other than Gene: one person who runs mutual funds for a living, and the other who does comics for a living along with many other hard assets.

 

But for over 95% of collectors, I think this line of thinking is not even considered. There's data on how collectibles function as an investment -- not predictive, obviously, but psychological/economical -- look up "endowment effect" or read up on Richard Thaler. There are lots of irrational things collectors do that make this comparison difficult to apply in most instances.

 

I think you guys are taking this a bit too literally. Of course this line of thinking is not necessarily considered consciously for most collectors. But, at some point, it becomes too obvious to ignore, for everyone, like in late 2008 and early 2009. Whether you owned a share of stock or not, at that point, it was impossible to escape the news headlines and the palpable worry. If your wife wasn't telling you to cut back on frivolous spending then, seeing your friends losing their jobs and hearing about the stock market tanking hundreds of points a day probably didn't want to make you go out and spend $40,000 for a new piece of art. Like I said, for all the people who claim they would buy on a pullback, precious few did. One piece I bought during this period was my BWS Conan #23 first Red Sonja page. I told the seller I was willing to pay $X, that was my price, and feel free to see if you can do better. Guess what? No one else bit.

 

On the flip side, even if you don't follow the markets and had no idea the Fed and other central banks were printing money like drunken sailors the past few years, surely you knew that you were earning 0.1% in your bank account, which probably led many a collector to think, "Hm, I'm not giving up anything if I take this money out and try to do something with this." And, you probably saw the headlines about the stock market, art prices, housing rebound in some areas, etc., which gave you confidence in a general upward trend of prices. But, if that is reversing now, then what? If the facts change, will you still be clinging to the 2009-first half of 2013 paradigm which no longer exists? Will you be the last to know that conditions have changed?

 

As for the previous comment about exponential curves, of course they cannot go on forever. The pace of price appreciation cannot outstrip the pace of income and wealth growth indefinitely - mathematically, collectors will first have to devote an ever-increasing slice of their net worth to their collections and then eventually take on debt if that happens. Obviously we're not likely to reach that point as a tipping point will be hit long before that and people will adjust their behavior and prices will adjust commensurately before that.

[lb jefferies]

I feel very misunderstood.

 

It's all good, Gene (thumbs u

[drdroom]

This is one of my favorite threads on the board lately. Why do some people not like to discuss values?

[suspense39]

This is one of my favorite threads on the board lately. Why do some people not like to discuss values?

 

Interesting question....why don't they? I think discussing value is helpful across the board for collectors.

[vodou]

 

On the flip side, even if you don't follow the markets and had no idea the Fed and other central banks were printing money like drunken sailors the past few years, surely you knew that you were earning 0.1% in your bank account, which probably led many a collector to think, "Hm, I'm not giving up anything if I take this money out and try to do something with this." And, you probably saw the headlines about the stock market, art prices, housing rebound in some areas, etc., which gave you confidence in a general upward trend of prices.

 

Don't forget all those ZIRP credit cards too. Those offers are slowing down fast in my mailbox, the banks are always a wee bit ahead of the curve...

[inovrmihd]

For me personally, I have never given much thought to the price of hard assets when thinking about OA purchases. What I do think a lot about is the level of interest rates and low risk returns that are available. With the drop in muni CEF's and bond funds like PDI trading at discounts to book value, I can for the first time get a reasonable rate of return on my money. That, far more than the price of gold, will make me less willing to pay up for art.

[thethedew]

None of my OA purchases have been made for investment purposes, and I think it shows if one were to glance at my galleries.

 

For every reasonable purchase (like the Michael Golden collection), I have something like the unpublished Marvel Micronauts stuff, which I paid something of a premium for, it's likely am the only one on the planet who would have done so. Should they have to be re-sold, I'd guess they'd go for around a tenth of what I'd paid.

 

Don't care, It's one of my prideNjoys.

 

...and you should SEE what I've got coming next.

 

Andrew

[Kevin76]

This is one of my favorite threads on the board lately. Why do some people not like to discuss values?

 

It's not the value of something that bothers me, It's that Gene seems to think the carpet is going to be pulled from underneath us. Just because he got the worst looking McFarlane cover of the 298-300 run for what he calls "35% off" when in fact that was what the art sold for on that paticular day @auction that "hard assets" are on a downward spiral.

 

He said the same thing with high grade comics ten years ago and told everyone not to buy comics and buy stock instead because the comic market was going to crash...still waiting for that crash to happen...

[delekkerste]

He said the same thing with high grade comics ten years ago and told everyone not to buy comics and buy stock instead because the comic market was going to crash...still waiting for that crash to happen...

 

I don't know what comic market you're looking at, but it's been a rolling crash in high-grade CGC books over the past decade...first Moderns, then Copper, then Bronze, then non-key Silver Age...at this point, I'd wager that the vast majority of high grade CGC books are past peak pricing. Everybody knows that Schmell's collection would have sold for more in 2010 or 2011.

 

And it's not like I was bearish for 10 years in a row; after I saw the general asset boom taking hold in 2004-ish, that's when the crash threads stopped. Anyway, I'd say I did all right for myself over the past 10 years despite not investing in comic books.

 

As for hard assets being on a downward spiral, I'd say I'm basing that on the fact that the quintessential hard assets, gold and silver, are down about 30% and 60% since 2011, while the CRB Index of commodities topped in 2008 and had a secondary top in 2011 and has been falling ever since. Interest rates are going up, hard assets are going down and the U.S. dollar is on a rampage.

 

When the facts change, I change my mind - what do you do, sir? If conditions change again, I'll change my mind and get more positive on hard assets. Right now, I don't see a good reason to be.

[delekkerste]

For me personally, I have never given much thought to the price of hard assets when thinking about OA purchases. What I do think a lot about is the level of interest rates and low risk returns that are available. With the drop in muni CEF's and bond funds like PDI trading at discounts to book value, I can for the first time get a reasonable rate of return on my money. That, far more than the price of gold, will make me less willing to pay up for art.

 

That makes a lot of sense, Andrew (I heard that you are a savvy finance guy yourself). As I mentioned, I don't expect that the price of gold is going to directly change many peoples' minds about OA valuation - I think it is more correlation than causation. The price of gold (and other commodities) is a decent barometer of inflation expectations, liquidity conditions, confidence and other things that will also impact upon art and collectibles prices. In this case, though, what is driving the price of gold lower is largely what is driving interest rates higher - the prospect that we have already seen the lowest interest rates of our lifetimes owing to extraordinary central bank stimulus which may have peaked and will be phased out going forward (of course, this is a point which will undoubtedly be debated for months to come).

 

Of course, interest rates are another story entirely. Whether people follow a whit of business/economic/financial news or not, they do transact with money every day, and interest rates are simply the price of money. As such, every financial and hard asset out there is affected by interest rates (even hard assets which have no cash flows like OA - just look at the mathematical pricing of, say, gold forwards and futures - they are impacted by interest rates due to the implied carrying costs). Interest rates directly impact the future value of all assets, while impacting the savings vs. consumption trade-off in the present, whether people are consciously aware of it or not. Of course, for those borrowing or investing money, they will have a direct impact there as well. It becomes an inescapable part of the spend/don't spend equation, even if people do not consider them directly.

 

So, with interest rates and the U.S. dollar (which most OA is denominated in) both going up, the price of money is getting dearer every day, especially relative to the assets that have been falling in price. Of course, this adjustment process is probably not going to happen in a straight line or occur overnight (for either interest rates or OA). The last time around, the stock market topped in October 2007, the economy topped in December 2007, but commodities didn't top until June/July 2008 and the OA market not until July/August 2008, and it wasn't until the last 3-4 months of the year that the OA market started to freeze up along with everything else. So, if we have reached an inflection point in the macro, it could still conceivably take up to 2-4 auction cycles before it starts to filter down into our hobby.

[thethedew]

What generally happens to supply when a market tanks?

 

My little niche keeps its examples closely-held, and I'd love to see some shake loose.

 

Andrew

[suspense39]

Right when the recession started there was about a two week period where eBay was flooded with rare collectibles.....stuff that hadn't been seen in years and things were going for about a third of their previous value. It lasted only about two weeks and then the prices started going right back up, even though more bad Wall Street, property and economic news was coming out. But as I said this was the rare and hard to get stuff, the more common stuff I don't think as really gotten back to its pre-recession value. For example, common comic books vs. key books....the keys recovered much faster and exceeded their previous value and the common books never really did.

[delekkerste]

What generally happens to supply when a market tanks?

 

My little niche keeps its examples closely-held, and I'd love to see some shake loose.

 

If the brief downturn of late 2008-early 2009 was any indication, both supply AND demand will probably dry up at first. Sellers won't want to accept lower prices and buyers won't want to pay the old, record prices (look at how many "Reserve Not Mets" were in the contemporary art sales of November 2008, or, going back in time, during the previous fine art market downturn circa 1991). If the downturn lasts longer than last time, however, at that point I think you'll see supply start to increase. Most people I think will just sit on their hands, though, and pretend that their 2012 and 2013 purchases are still worth what they paid for them - that will likely be more the norm than tons of supply coming out and prices tanking left and right (though you will see instances of public puking; witness the disastrous Heritage Illustration Art sale from Feb. 2009 or thereabouts).

 

 

But as I said this was the rare and hard to get stuff, the more common stuff I don't think as really gotten back to its pre-recession value. For example, common comic books vs. key books....the keys recovered much faster and exceeded their previous value and the common books never really did.

 

Exactly. If you follow other art & collectibles fields, a good chunk of what's out there is still selling below peak prices from 2006-2008 even as the crème de la crème went on to make new highs in 2011-2013. Same goes for the stock market - there are still plenty of stocks selling for well below pre-crisis levels (think financials, materials, industrials, etc.) even as the blue chips rebounded to new highs in many cases.

[adamstrange]

I feel very misunderstood.

Have you ever started a thread about hard assets increasing in value and how that's going to increase demand for comics or original art?

 

If I didn't know better, I might think that all these postings about how bad economic circumstances might negatively influence the comic & art market are just a ploy to keep down prices to give a late entrant to the market time to accumulate before the next big boom.

[delekkerste]

Have you ever started a thread about hard assets increasing in value and how that's going to increase demand for comics or original art?

 

If I didn't know better, I might think that all these postings about how bad economic circumstances might negatively influence the comic & art market are just a ploy to keep down prices to give a late entrant to the market time to accumulate before the next big boom.

 

Well, it's a good thing that you surely do know better, then! But, since I know that there are probably some people out there who believe in ludicrous conspiracy theories like this, please allow me to set the record straight once and for all:

 

1. Anybody who thinks that what I write here is going to determine what thousands of OA collectors think and do has a much greater opinion of what I say than I do myself.

 

2. As a matter of fact, I did start a thread about hard assets increasing in value - back in 2005. It's the "Gold Price Hits $500/oz." thread in The Water Cooler section of the Boards, which has since become the de facto place to talk about markets here. It has 8,751 entries and 355,084 views at present, and I bet has both made and saved people more money than any other thread that has ever been created on these Boards. Go check it out - just don't start accusing me of having the power to move the stock market and the price of gold up and down as well as OA.

 

3. No, I don't start threads hyping up comic and OA prices. There are already enough hucksters and hypesters in this hobby as it is. And, besides, if I did, I'm sure that people would just accuse me of trying to hype up the value of my collection. :doh:

 

4. Far from being a late entrant, I've been collecting OA for 11 years and have already spent most of what I'm ever going to spend in this hobby; I'm probably closer to the end of my OA buying days than the beginning (let's call it the 7th inning). At this point in my collecting career, I would have every incentive to try and hype up the value of my already considerable holdings instead of trying to talk the market down.

 

5. It makes no sense that I would be trying to "accumulate before the next boom" when there's already a boom going on that I could take advantage of now. It would be far easier to try and blow a lot of hot air to try and expand/extend the current bubble versus trying to single-handedly engineer a crash, Lex Luthor-style. I mean, seriously - that's like the storyline out of a bad Silver Age DC comic book.

 

I don't care if people like me or don't like me, agree with what I say or don't agree, but I do take offense at people questioning my motives and integrity. There are no negative stories out there about me screwing other collectors, backing out of deals, reneging on promises or anything else untoward. Dictum meum pactum - my word is my bond. I'm as straight a shooter as they come in this hobby, because I'm well-balanced, well-capitalized and intellectually honest. It's the ones that are overly vested financially and/or emotionally (or are not vested enough) that you have to worry about.

[tth2]

2. As a matter of fact, I did start a thread about hard assets increasing in value - back in 2005. It's the "Gold Price Hits $500/oz." thread in The Water Cooler section of the Boards, which has since become the de facto place to talk about markets here. It has 8,751 entries and 355,084 views at present, and I bet has both made and saved people more money than any other thread that has ever been created on these Boards. Go check it out - just don't start accusing me of having the power to move the stock market and the price of gold up and down as well as OA.

You're being too modest. Your posts in that thread have been immensely helpful to me on many occasions as to when to buy or sell.*

 

Even when you may not have been trying to do so.

[delekkerste]

You're being too modest. Your posts in that thread have been immensely helpful to me on many occasions as to when to buy or sell.*

 

Even when you may not have been trying to do so.

 

Happy to do what I can to help lift you up into the middle class in Hong Kong, Tim. (thumbs u

[adamstrange]

I was just busting your chops, not in any way questioning your integrity.

 

I'm sorry you felt the need to post an extremely long rebuttal as I did use the

Evidently I did not make it clear I was kidding.

 

As a matter of fact, I did start a thread about hard assets increasing in value - back in 2005

Yes, but not as part of a discussion to switch into collecting more comics and OA but about how much, and I quote, "I LOVE GOOLLLLLLLLLLLLLLLLLLLD!!!!!!!"

 

4. Far from being a late entrant, I've been collecting OA for 11 years

I started back in the mid-80s so I consider anyone that started this millennium as a late entrant.

 

I do take offense at people questioning my motives and integrity

You seem to be extremely careful to ensure that your actions are above board and that your reputation reflects your probity. It's a very commendable and, unfortunately, uncommon characteristic these days.

 

To get back to your original question, I think that only a minority of collectors are likely to think about price of hard assets when making decisions about comics or original art. I've collected for a long time and it's really, really, really, really rare to hear it discussed as factor unless it's part of a larger discussion about the particular direction of the economy.

[delekkerste]

I disagree. I think the 1990s Christie's and Sotheby's auctions were mostly populated with the first generation's retirement party dishoarding. It's really hard (imo) to separate those sales from the Internet Phenomenon (and all that goes with it OA-wise) though. That resulting great spike in new demand creation is not likely to be repeated. But will the great supply continue? Are we in the middle of the second generation's dishoarding right now, with the result that most major pieces are changing hands once and then going back into hiding? Could be that much of the art traded since 2003-present isn't coming back around for another 20-30 (but probably not 40) years.

 

I meant that the first wave of dishoarding occurred at a time before the hobby had reached any kind of real critical mass and maturity. I mean, a lot of prices have gone up by hundreds of times since then; I consider all that to be still in the primordial ooze days of the hobby.

 

But, in any case, I think that Generation 2.0s dishoarding to Generation 2.5 (I'd consider myself to be a 2.5er, having missed the boat when prices were dirt cheap, but having started near the beginning of the Heritage/Internet era) and Generation 3.0 will prove to be a huge windfall for the Gen 2.0 sellers. Gen 2.5 I suspect will do OK, but not as well as they think, when it comes time to selling, but Gen 3.0 (people who started buying in recent years) and Gen 3.5 (the Johnny-come-latelies who are currently migrating from CGC slabs and whatnot) I think will not fare very well, if not absolutely, then relative to what they could have done with their money elsewhere.