I wrote a white paper in May titled The Roaring Twenties that focused on speculation on the part of investors and hyperactive purchase of luxury goods, particularly by consumers in upper income brackets. On the consumer side, that paper cited the boom in housing prices as well as associated demand for appliances, orders for pool construction, purchases of athletic equipment, wine and spirit sales, and the burgeoning industry in pre-prepared meals. I also focused on recent car and art auctions as well as a relatively new corner of the collectible world known as Non-Fungible Tokens or NFTs.
Well, a new chapter in this saga took place last week in the form of Monterey Car Week in which five auction houses brought in a total of $343 million, up 37% from 2019. (The 2020 event was canceled due to Covid-19) While 25% fewer cars were offered, overall proceeds surged because the average price increased 28% to $428,004 and 80% of cars offered were sold as compared to 59% in 2019.
Similarly, the following chart depicts sales of super yachts which have roughly doubled since the onset of the pandemic. As just one example, Jeff Bezos commissioned a yacht that reportedly cost $500 million.
I can imagine three explanations for this phenomenon. First, there is certainly a sense of carpe diem brought on by the pandemic, and extreme consumerism represents a form of escapism. Second, economists have coined the phrase “wealth effect” to describe consumption resulting from rising net worth which is certainly the case for owners of financial assets and homes. Finally, some believe we are in a bubble or mania. I lean toward the first two explanations, but in any case, it is a fascinating time to observe human behavior.