There is no better sign of the top of a boom-bust monetary cycle than extravagant spending by those who have benefited the most from the sea of new money floating around the economy. With $2.1 trillion of fiat dollars available to financial players, the hedge funders and investment advisers have been the main beneficiaries of quantitative easing. They have reaped huge fortunes from the rise of the financial markets and are now spending ridiculously to try to get rid of their cash. All the luxury markets are exploding: real estate, art, jewelry, wine, and rare automobiles. The last time this happened was in 2007-2008.
I rest my case about the financialization of the economy as the result of quantitative easing and bailouts. There is no doubt that the markets have correlated with the expansion of money supply from two rounds of quantitative easing:
Thus through monetary inflation wealth has been transferred to the financial markets at the expense of savers. I have at times referred to this phenomenon as a “bifurcated economy” where the financial types become wealthier, but the effect has yet to trickle down to the masses (us).
Yesterday I ran an article on the fact that individual One Percenters are investing in hard assets as opposed to stocks. Actually these folks are the one-tenth of One Percenters. This is an almost certain sign of an economic bubble top as these newly wealthy(ier) hedge funders and advisers ride the wave of money. Historically when you see ridiculous things happening from the 0.1 Percenters then you know we’ve reached some kind of top.
Here is my proof.
Today the Wall Street Journal ran an article on the Ecclestone girls, the beautiful ultra rich daughters of Bernie Ecclestone. They each have bought huge palaces:
Tamara, 27, bought a 16,000-square-foot historic brick home across the road from Kensington Palace, where Prince William and Duchess Catherine will soon take up residence, for about $70 million early last year. Her 23-year-old sister Petra paid $85 million for a 57,000-square-foot Los Angeles mansion a few months later. Known as “the Manor,” the 14-bedroom, 27-bathroom home was built by Candy Spelling and her late TV producer husband Aaron Spelling.
The sisters are among a small number of ultra-wealthy, young people who are making waves at the very top of the real estate market. A trust linked to Ekaterina Rybolovlev, the 22-year-old daughter of Russian fertilizer billionaire Dmitry Rybolovlev, bought a four-bedroom penthouse in New York for $88 million earlier this year. Another young Russian, Anna Anissimova, the 27-year-old actress daughter of Vasily Anissimov, who made his billions in iron ore and aluminum, recently put her New York apartment on the market for $50 million. (She paid $9.9 million for the apartment in 2004, when she was 19.) Megan Ellison, the 26-year-old daughter of software mogul and Oracle CEO Larry Ellison, bought three homes in the Hollywood Hills over the last few years, one of which she put on the market recently for $15.5 million.
Today Bloomberg reported another record breaking Manhattan sale:
A duplex penthouse at a tower under construction on Manhattan’s West 57th Street went under contract for more than $90 million, setting a record for a single residence in the borough.
The 11,000-square-foot (1,000-square-meter) unit, spanning the 89th and 90th floors of the building known as One57, sold at a price between $8,000 and $9,000 a square foot, Gary Barnett, president of developer Extell Development Co., said in a telephone interview. He declined to name the buyer.
The deal is the second this month to break a record as trophy apartment hunters clamor for a limited number of units in New York’s ultra-luxury market. Howard Marks, chairman of Oaktree Capital Group LLC (OAK), paid $52.5 million for a duplex at 740 Park Ave., the most ever for a Manhattan co-op, according to property records filed May 11. This week, a 10,882-square-foot duplex at the Ritz-Carlton was shown as no longer for sale on listings website Streeteasy.com. The New York Post reported that casino mogul Steve Wynn purchased the home for $70 million.
It isn’t just real estate; it’s all luxury hard assets. Recently Edvard Munch’s “Scream” sold at auction for $120 million. An iconic piece, but great art? (“Hey Winthorp, come on over and see my new Munch.”) And that’s not uncommon: the art market, especially contemporary art, is setting records. This week alone Sothebys and Christies sold $65 million in U.S. art. This is extraordinary. We are now back to levels (unadjusted for price inflation) seen at the top of the last boom.
It doesn’t stop there: wine auctions are also at record levels:
At Acker’s December 2011 Hong Kong auction, a 55-bottle “superlot” of DRC Romanée-Conti containing every vintage of Romanée-Conti from 1952 to 2007 (except for 1968, which was never released), brought a whopping $813,333 against an upper estimate of $300,000—making it the highest-priced lot of the year.
Collector automobiles are also in play. At a Barrett-Jackson auction in January,
“Our totals were only a couple million off from 2007,” Craig Jackson, chief executive of the Barrett-Jackson Auction Company, said in an interview, referring to the peak year before the economy went into a tailspin. “It’s coming back.”
Barrett-Jackson’s six-day event, the largest of the annual January auctions in the Phoenix area, accounted for more than half of the vehicles that changed hands during the week, with total sales of more than $90 million.
In February, a rare Ferrari GTO sold for $32 million. It smashed the previous single automobile sales record, a 1957 Ferrari 250 Testa Rossa, which was set at Pebble Beach in 2011 for $16,390,000.
Do you like watches? You may be too late to pick up that Patek Philippe:
Antiquorum thought they might get $800,000 for a rare platinum Patek Phillipe at its auction this week [April 25, 2012] in New York, but following spirited bidding an American buyer paddled down $902,500, the highest price ever paid for a single dial Patek Philippe. Several other Patek Phillipes at the sale also achieved record prices. The watch was made in 1992 and was coveted for years by serious collectors. The sale grossed $4,636,488. [The most expensive watch ever sold was for $11 million in 1999. — JH]
DoctoRx has recently written about the overvaluation of the current stock markets. Please check out any of his recent articles on the Daily Capitalist. Facebook at $105 billion?
All this froth should look familiar to investors who have been reading the Daily Capitalist for a while. There is simply too much money floating around looking for a home in something other than cash, Treasurys, or volatile stocks. It is a signal that the next phase of this monetary steroids boom-bust cycle is coming.