“This, too, shall pass.” There is some debate regarding the origin of the saying. It has been attributed to Abraham Lincoln, though the origins are almost certainly way older. It seems an appropriate thought for reflection amidst the current global pandemic.
Covid-19 has certainly created for the global economic and social systems a challenge the like of which has not been seen before. Will the scientists eventually find a way of containing and vaccinating against this virus? Almost certainly yes. Will that happen relatively soon? I think so too. Will societies and economies return to some semblance of normality? Again, one would think so. Yes, to all these issues, these too will pass.
However, one cannot help but feel that many things not only will change after the dust has settled but that also many things need to change. Although it seems somewhat of an “inane indulgence” at this time to discuss watch issues, it is done so here as a way of capturing just a brief sojourn away from the tragedies that are now any every-day occurrence.
How might “watch world” look after the dust has settled?
Refocus on the end-collector
The cancellation of Basel was, for me, an opportunity for the watch manufacturers to reassess how they present themselves to the world. I have always had a problem with Basel. Unless I managed to get an invitation to visit the Patek Philippe exhibition, then the only way I could evaluate a new watch was to see a review of it from someone who had seen it. If I liked the look of a watch, I would need to place an order without ever having seen the watch on my wrist. To be honest, that is actually a very poor process for the collector. Going forward, wouldn’t it be excellent if the manufacturers ended this type of watch fair and replaced it with something that put the collector in a much better position?
Refocus on good Authorised Dealers
Basel was also the venue where ADs were invited to see the new collection and hear what allocation of watches they might expect over the coming year. Maybe this also needs to be re-evaluated. I see so much sharp practice from unscrupulous ADs that maybe the process of allocation needs a total re-think. Basel sees the manufacturers meet the ADs. Many of these ADs have facilitated what can only be described as a very unpleasant process of allocation of hot watches. Bundling. Flipping. The feeding frenzy on hot steel sports watches has been quite disgusting to watch.
As a collector, I have seen so many new entrants into the “collecting” field. New collectors who’s prime interest has been about making profits from watch arbitrage rather than collectors who gain their joy from wearing their watches. It is quite commonplace for some collectors to have multiple ADs from whom they can source hot watches. Last week’s blog called on Patek Philippe to address the ADs who facilitated (and indeed knowingly participated in) flipping hot watches. Maybe in the future, the role of the AD post-Basel can be changed?
Refocus AWAY from Dealers/Flippers
Amidst the chaos in financial markets, one of the things that really caught my eye was the widening in spread on the most liquid and safest financial assets – short dated US treasuries and T bills. When the spread widens on these type of assets, it is always bad news. By the “spread”, I mean the difference between the price that one can buy and the price where one can sell. It is a huge red flag.
A couple of months ago, I highlighted on this site, the fact that this “spread widening” had started amongst the former gilt-edged watch assets – 5711A, 5712A and Daytona 116500. At the height of the bubble, dealers were happy to accept a 10-15% or so bid-offer spread on these hot watches. Dealers would pay up because they knew that they could sell on the same day. Dealers were being greedy as they knew that making 10-15% on a watch every day was much better than making 30% on a watch once per week.
However, things started to change In December/January. The dealers suddenly started seeing their inventories increase and they started to widen the bid-offer spread. Right now, I would guess that if you could get a dealer to buy your (hot) watch, he would be offering at least 40% below the price at which he would aim to sell. Liquidity in the gilt-edge watch market has dried up.
The easy money is no longer there. Instead, as was evident from my in-box that told me that I was “living on a different planet” and that these hot watches were still “flying off the shelf”, it seems that denial is the mode du jour. As of today, I can see over 200 5711A on Chrono with prices starting at $50k. I can see over 700 Rolex 116500LN with prices starting at just under $20k. Try selling one? See how much bigger the dealer spread is now!
As denial turns into acceptance, there will be a lot of dealers/flippers who find themselves with watches that serve no purpose to them as items of art or pleasures to wear. Instead, they will be seen as inventories at loss. Possibly quite significant loss. So, once the dust settles how will this work itself out? Honestly, I do hope that the gluttonous feeding frenzy of the “flipper pack” truly gets its ass handed to it. Lets see more and more true collectors stress to Patek Philippe that the evolution of its market AWAY from the mode of the last five years is a truly good objective.
Social Media Stars
Social media has certainly played a big part in creating the hype and frenzy that has fed the feeding frenzy I mention above. Regrettably, it has sucked into its vacuum a lot of people who basically see themselves defined by their watches. There is no question, I know a lot of collectors who’s watch collection accounts for well over 50% of their net wealth! Good grief. Collectors would rather have no money in the bank and live in small apartments so long as the outward evidence of their watches portrays them as superstars. Somewhere along the line, many people became defined by their watches.
Social media just catalysed the process. It allowed people to portray themselves as rich, successful and accomplished merely by a wrist shot of a watch. How will this change after the dust settles? This one is hard to anticipate. Who knows what type of economic slump will follow. Who knows how many people will be forced into selling their watches. As an economist, I would have to say that the economic risks over the coming 12-24 months look frightening. Will this re-focus attention on a more balanced approach rather than portraying a fake image? Being defined by a watch collection is a very sad scenario. But again, I hope we see a return to solid collecting values.