From the CNBC
Collectibles are all the rage. From the $120 million hammer price for the pastel of Edvard Munch's "The Scream" to the run-up in prices for diamonds, wine and antique cars, the collectibles market (or “passion investments” or “treasure assets”) is booming on the back of demand from wealthy investors.
For the rich, Burgundy and sapphire are the new black.
But financial expectations for collectibles may be surpassing reality.
A new report from Barclays Wealth shows that among global investors with more than $1.5 million in investible assets, collectibles and precious metals now account for 9.6 percent of their total wealth. The numbers are even higher in the United Arab Emirates (18 percent) and China (17 percent).
As Barclays points out, wealthy investors like collectibles because they want “tangible, scarce and non-fungible investments" that “could provide a stable store of value in uncertain times.”
Yet Barclays says that “the world of collectibles thrives on fairy tales” like "The Scream" sale, calling collectibles markets “riddled with inefficiencies, "frequently opaque and illiquid," and "extremely volatile and risky.”
Reasons for the growth of collectibles as a share of the portfolio of the millionaires, according to Barclay: Emotions, Hidden Cost, Opaque Markets, Correlation and illiquid.
Yet it would seem misguided to lump arts, wines, precious metals and jewelries as a single asset ‘collectible’ class, as the utility and reservation demand functions of these items are different.
Some of the wealthy people will buy because of aesthetics, enjoyment and or for social status.
But it isn’t a ‘fairy tale’ when wealthy investors say that they had opted for ‘collectibles’ out of “tangible, scarce and non-fungible investments" that “could provide a stable store of value in uncertain times.”
Bluntly put, 'collectibles' represents as insurance against counterparty risks and are ‘real’ assets for the millionaires.
What truly will be exposed as fairy tale are the colossal financial claims at the fractional reserve banking system. The euro debt crisis signifies an ongoing manifestation of such a process.
Thus, the increased exposures by millionaires on 'collectibles' reflect on the present economic and financial realities.
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