Beating the S&P 500: "Crazy Money" for Classic Cars
But "Collecting" on Collectibles in a Deflationary Depression is Another Matter 

By Robert Jay Wed, 08 Sep 2010 16:15:00 ET	Email |  Print  |   RSS |  My Updates	BOOKMARK AND SHARE IT!

Ettore Bugatti has been described as an "eccentric genius." He founded the car company which bears his last name in 1906.

 

Over a century later, his "genius" is generating crazy cash. The demand for this high-performance sports car is through the roof: This past May, an anonymous buyer paid more than $30 million for a 1936 Bugatti Type 57SC Atlantic. A recent Bloomberg news article explains:

 

"Collectors are pumping money into the classic-car market like never before, driving up prices for the world’s most famous models of Bugattis, Ferraris, Mercedes-Benzes and Rolls-Royces.

 

"Today, with the stock market in the doldrums, investors seeking hard assets are turning to vintage cars -- often for more than $1 million, says Keith Martin, publisher of Sports Car Market magazine...

 

"At the moment, important cars are making crazy money."

 

That crazy money has beat the S&P 500 in recent years. Bloomberg goes on to report that, from September 2006 through July 2010, an index of popular collectible automobiles has gained more than 61 percent. By comparison, the S&P 500 has lost 16 percent.

 

That said, consider this comment from the September European Financial Forecast:

 

"The problem with these hard assets...is that they’re also hard assets to sell.... The collectibles market is notoriously opaque; the items are illiquid; and with so few transactions to draw from, clear pricing information is nearly impossible to come by."

 

Investors who pay top dollar for classic cars today eventually may wish they had waited longer. A growing body of evidence suggests that a deflationary depression is unfolding, which in turn means that most collectibles will fall in value. Here's what EWI's Robert Prechter wrote in Conquer the Crash, 2nd edition (p. 160):

 

"If you collect certain items for the love of them, you are about to be made very happy. Prices for art and collectibles, so outrageous today, will fall to joyously affordable levels in a depression. If you want to enhance your collection, keep your capital safe, wait until the bottom, and buy up all the items you want at pennies on today’s dollar value."

 

Imagine having to sell collectibles during a depression. People on top of the world today may need to raise cash tomorrow. It's happened before.

 

The time will come to scoop up bargains for all kinds of investments. The more immediate goal is to steer away from financial danger, so you can be in position to take advantage of those eventual bargains. A great way to discover how to keep your money safe is by securing your own copy of the new 200-page manual Wealth Preservation in Very High-Risk Financial Times (from our friends at the SafeWealth Group who are experts at wealth protection).