Calling top of the bubble

[Horationelson]

It just doesn't make sense anymore.

I was passing through a well known department store today and stopped by the Rolex boutique in there, where I have bought a few watches over the years. It wasn't just busy, it was buzzing. Husbands and wives, groups of friends, lone international buyers were all looking around to see what was in stock and get a glimpse of whatever exhibition models were on display. How it's been for at least the last 2-3 years.

But today really felt that bit more detached from the economic reality than it has done previously. Inflation is going to squeeze a lot of household finances, other than the 0.1%. It is going to dampen consumer spending. Not in watches immediately, because people still see them as an investment/safe haven but across several types of goods and service providers. And that downturn in business will have a further cyclical effect on household wealth and disposable income. I'm not forecasting an outright economic crash, but I think that a sufficient dose of reality will set in soon, which will certainly reverse some of the supply/pricing craziness that we have seen.

The bigger issue is that all of these grey dealers are holding hidden stock. Watchfinder UK has two Milgauss in stock (none blue). Watchfinder USA apparently doesn't have a single Milgauss in stock and only has two Daytonas. Really? Many have heard anecdotally that these and other dealers are sitting on double digits of these models, trying to restrict supply and distort demand even more. There is only so long that this can last in current market conditions. What's more, it's unprecedented for retailers to be sitting on such high levels of invisible stock. Yes stock is an asset on the balance sheet, but when it is being marked to a market value which your business's own practices are helping to keep artificially high, there is a real danger that when things go south, your business' asset value plummets and - guess what - not only do you have to sell more watches to bring cash through the door, but you have to lower the price.

I love my watches and Rolexes as much as everyone else on here, but I think 2022 is going to be the year that reality bites. For those who have one or several watches that they see as quasi-cash based on current market levels, I would exercise some caution. That is all.