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Originally Posted by Wid_Conroy
the jump in interest rates spooked parts of the market last week and is on top of the list of risks for any investor. There is no doubt that if stocks rollover, the card market will do the same, and in a more violent fashion.
that said, as long as the Fed is determined to pin rates at zero, it just makes sense to be invested in stocks and other risky assets like coins, cards, etc.
the jump in rates at this point is more due to inflation fear than actual inflation.. i think at the point we see stronger evidence of the latter, that will be the true catalyst.
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Stock market is taking a rest from a remarkable run since elections (which feels like a correction in a one way bull market). Since elections, its been the reflation trade - rising commodity/energy prices, higher inflation expectations, and indigestion in the long end of the yield curve. All based on extreme fiscal stimulus, continued accommodative monetary conditions, commodity infrastructure underinvestment, supply chain disruption (ie semi chips), and pentup demand from reopening. You factor in 5% gdp expectations this year and above normal next, people are expecting increased velocity of $, pushing inflation higher.
I believe we will see transitory inflation for reasons above. But we are nowhere close to full employment, and the uneven distribution of wealth from asset reflation is an unbalanced economy that will not allow a level of sustained inflation over the short/intermediate term that would force the fed to change course over the next 3 years. And sure we are finally seeing a rise in real yield (nominal less inflation), but for perspective we rose from negative real yields to zero, a step away from Japanification, but not an endorsement of a secular rise in real yields. Bottom line asset/commodity prices are rising, wages are not, squeezing the have nots and keeping the system accommodative.
Bringing it back to cards, the last couple of cycles since the 90’s card bubble have shown real yields, demand for liquidity and employment are arguably equally (if not more) strong coefficients to vintage card prices than the stock market’s wealth effect and speculation factor.
Cards are a non-income producing, store-of-wealth asset. In that sense, moderate inflation is positive and real rates are negative to card prices. And while real yields have increased from negative rates, it’s still zero... while inflation expectations are rising dramatically (the fed is welcoming this as they want to run hot over their 2% target). This is supportive for cards.
Demand for liquidity is another factor on supply. Cards are a a source of liquidity and as the demand for liquidity increase so do the available cards in the market. Right now, the Fed electronically flooded the system with liquidity and the excess liquidity spilled over into the card market. The Fed has telegraphed accommodative conditions to 2024 (and the other central banks are in concert with that timeline - a race to zero in their respective fiat currencies), and probably yield curve control thereafter (because of our unbalanced risks). So I expect general liquidity to continue to be extraordinary (as we follow the longer term paths of Weimar/Argentina, where debt can be only repaid thru reflation, or dimished purchasing power of the currency used to pay back the debt). To put into perspective, we tried to unwind the fed’s balance sheet in 2013, but had to do a course correct as the market threw a tantrum, and again in 2018. The fed’s balance sheet in 2013, 2018, and today was 3 Trillion, 4T and 7.4T, respectively. Add the trillion dollar annual deficit the treasury will run - putting us deeper in the hole and making it more impossible for us to get out conventionally.
Employment is a distorted signal right now. In the past, it was (and will again be) a factor for liquidity demand, impacting the amount of card supply. But in our situation, we have a moratorium to pay rent and student loans, receive expanded unemployment and stimulus checks, and business loan forgiveness. There is suppressed demand for liquidity in a time where the system is flooded for liquidity. At the more intermediate term, our employment rate has improved, but we still have tons of slack from an elevated rate and lower labor force participation. We have a long way to go to bring us back to full employment, so the fed will continue to be accommodative, and possibly resort to yield curve control (which suppresses the real yields not inflation), once the stimulus sugar highs wear off. This is also supporting card prices.
But will a market correction have a significant adverse affect on vintage card prices? The market has experienced significant market multiple expansion since 2018 - all the way to 2000 dot com bubble levels. We can be in a flat and skinny scenario, where the stock market stalls as the earnings grow into its valuation, but the conditions for card prices (and assets) remain supportive as we continue to transfer private debt into public debt, run hot on inflation with suppressed real yields.
I’m not saying we will not correct in a stock market correction. There is too much speculation right now in this card market not not have “beta” with the equity markets. But the extent of the impact is more micro within the card market (ie prewar will have less beta than modern due to the difference in magnitude of their price increases and the marketplace players are simply different - modern is more “hot” money). I do believe certain prewar card prices have transitioned into new levels for the reasons above, which will prove to be more stable than we would expect if we have a small correction in the market. That said I’m taking this extraordinary demand and liquidity to reposition my collection even more so to key players that would retain liquidity and value over the longer term. By the end of this, I’ll probably just end up owning nothing but Cobbs and Ruths.
-biased viewpoints from a HODL(er)