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Minyan Mailbag: Stagflationary Effects On Collectibles


All of our models...strongly suggest risk seeking is turning into risk averting.



My question is about
stagflation. How do collectibles, i.e. art or antiques, fare in such an environment? Do they hold value or depreciate?

Your thoughts would be greatly welcome.

Thank you, Minyan Larry


In order to understand how collectibles (art, antiques, wine, etc.) fare in a stagflationary environment, one must understand how they fare in inflationary (risk-seeking) environments. But before that I need to register a theoretical caution to the use of the term stagflation. In my view there are only two environments: inflationary (risk seeking) or deflationary (risk averting) and nothing in between. Now, certainly SOME sectors can be experiencing deflation while others are experiencing inflation (think computers, software, automobiles and, say copper, silver, and stocks) over the last 4 years, but in the end, such a situation is mostly transitory, as the larger macro environment is either secularly trending inflationary (risk seeking) or deflationary (risk averting).

Now, in risk seeking (inflationary) environments (credit booms), history and theory both strongly suggest that EVERYTHING goes up in price – wine, art, antiques, etc. The price of collectibles of all sorts benefit from the same desire to speculate (seek risk) as do stocks, houses, junk bonds, emerging markets, etc. The underlying process – risk seeking – AND the underlying means – 'free' credit – are to blame and affect the stock of IBM (IBM) just as much as a bottle of Latour. Of course, the opposite is true in a risk averting environment: those same peripheral goods where marginal speculation is taking place – old furniture and old grape juice – will be hurt by the reduction in risk seeking and contracting credit/liquidity.

When it comes to understanding how the price of all sorts of speculative goods is going to behave, one must simply understand whether global aggregate risk taking is increasing or decreasing; whether liquidity is going up or down; whether time preferences are increasing or decreasing.

All of our models, and certainly the action in the global financial markets since May strongly suggest risk seeking is turning into risk averting.



Stagflation to me is that period where an economy/market is turning over from inflation (the expansion of money stock) to deflation (contraction of money stock).

Inflation is a period when central banks offer cheap credit and market participants accept it; the money stock therefore expands along with debt. Market participants must be seeking risk to take that credit. Stagflation begins when central banks are still offering that credit (as now the money supply is still growing at abnormally high rates (9-10%), but market participants begin to balk at taking that credit, predominantly because they have too much debt already to be supported by their income. Market participants begin to seek less risky behavior. The growth in the money stock begins to slow not because less credit is being offered, but because less is being taken.

Deflation is then when participants en masse refuse new debt and actually attempt to begin to pay it off despite more credit being offered to them. They actually begin to save (hoard) currency in order to pay back that debt and economic activity, previously expanding because of credit and not productive growth, stalls. This creates a spiral which is almost always addressed by central banks through offering even more credit at a zero cost, which normally collapses a currency.


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