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Investors Injured by Classic Inflation Hedges

"The potential for negative surprises is rising fast"

by Bob Stokes
Updated: February 08, 2017

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[Editor's Note: The text version of the story is below.]

There are few things that will turn heads more quickly than seeing the proud owner of a classic car taking his prized possession for a spin.

Maybe it's a Model T with its hand-crank engine or the big and heavy '59 Cadillac with its famous tailfin. Then again, the attention grabber might be a modern classic like the Ferrari F40 from the late '80s. The list goes on.

Of course, some people get involved with classic cars for the sheer love of it. Others do so as an investment.

These investors typically view classic cars as an inflation hedge, or an investment that is expected to maintain or increase its value through periods of inflation. And, in 2016, according to the U.S. Bureau of Labor Statistics, the inflation rate rose from 1.4% in January to 2.1% in December.

Even so, for the past year and a half, the classic car market has been stuck in reverse gear.

Here are a chart and commentary from the just-published February Elliott Wave Financial Forecast

The Hagerty Collector Car Index, a combination of classic car market prices and transaction volumes, peaked back in July 2015.

But classic cars are not the only inflation hedge that has seen a decline. So has the art market.

A Sept. 19, 2016 Bloomberg headline said:

That $100,000 Painting Bought to Flip Is Now Worth About $20,000

Yes, an art dealer who paid that princely sum two years ago for an abstract canvas by Hugh-Scott Douglas saw the value of his investment drop by 80%. As Bloomberg noted, "such is the new art season."

Our October 2016 Financial Forecast said:

Art is [an] inflation hedge that defied the trend toward deflation, at least until 2014. Back in December 2014, the fall auctions hauled in a record $2 billion in winning bids, and the Financial Forecast concluded that art prices were vulnerable to decline … .

Looking at the big picture, the full-blown effects of deflation might still be far away, considering the stock market is still historically elevated.

But, as our February Financial Forecast notes:

The potential for negative surprises is rising fast.

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