Watch Economic Observatory / "Luxury watches as 'assets'" revisited

In an effort to combat the global recession brought about by the COVID-19 pandemic since last year, governments and central banks have implemented fiscal stimulus and monetary easing measures across the board, resulting in excess money creating a localized "coronavirus bubble." Leading economic journalist Tomoyuki Isoyama examines this economic situation, one he's likely to have seen before.

Luxury watches as assets are back

　This series began in the November 2012 issue, when the economy was hit hard by the Lehman Shock and the Great East Japan Earthquake. Confidence in currencies, especially the dollar, was greatly shaken. The first column was titled "The European Tradition of Buying Watches as an 'Asset'," and introduced the traditional custom of owning "real assets" among wealthy Europeans who had experienced a shaken confidence in their currencies.

The COVID-19 recession has created a situation similar to the Lehman Shock

　With the spread of the new coronavirus, the world is now facing a similar situation. With economic activity frozen, massive fiscal spending and monetary easing are being implemented to protect people's lives and businesses. Printing so much money will inevitably lead to a decline in currency value, leading to inflation. This is the view of many wealthy individuals and investors, which is why stock prices are rising despite the poor state of the real economy. Prices of not only stocks but also non-currency assets such as precious metals, real estate, and Bitcoin are soaring. Some see this as a "bubble," but since the value of a currency is falling, it's only natural that prices expressed in that currency would rise.

　The first column begins with a story about Zurich, Switzerland, where the author once served as bureau chief for a newspaper.

A Swiss private banker told me that a long-established watch and jewelry store on Bahnhofstrasse, the main street, has a unique function: they will buy back watches that have been sold to their most valued customers. The reason they never hold huge bargain sales is because "selling" is not the only function of the store.

　Watches that cost anywhere from several million yen to over 10 million yen each are undoubtedly "assets." Not only are they passed down to children and grandchildren, but they are also used as various gifts. Since they only need to be worn on the wrist, they can easily be carried away in the event of a national crisis or war.

　However, no matter how luxurious a gift you receive, it is meaningless if you cannot exchange it for cash. Even if you manage to protect your assets safely from war or other disasters, a watch alone will not be enough to support you. You could take it to an antiques shop and exchange it for cash, but the end result is that you will be ripped off.

　A long-established watch and jewelry store in Zurich apparently buys the watches at favorable prices for its customers. As you know, luxury watches are individually numbered, so their origins are clear. It's also obvious at a glance whether they were sold in the store or not. Since they weren't sold at a discount, the store can also offer a higher purchase price. Of course, the store still receives a certain "margin."

　It may seem odd to have a watch and jewelry store nestled among a row of banks, but when you consider that watch stores have historically also performed a type of financial function, it makes sense that they would be located in the same place.

Precious metals, luxury watches, and growing preference for "real assets"

　Now is the time to reflect on this story once again. During the Great Depression, many countries around the world were on the gold standard, and the value of their currencies was backed by gold. After that, most countries stopped the convertibility of their currencies for gold and left the gold standard. After the "Nixon Shock" in 1971, when the United States stopped converting dollars into gold, central banks around the world began issuing paper money regardless of their gold reserves. Because it is unbacked, literally "paper money," there is a risk that it will become worthless if a country becomes unstable.

　Is there any way to absorb the ever-increasing amount of currency created during this COVID-19 recession, which has been described as on par with the Great Depression? The true value of monetary policy will be put to the test in the future, but if an "exit strategy" fails, the country could face serious inflation.

　In other words, the time has come for luxury watches to be considered assets and receive attention.

　According to nationwide department store sales figures for December released by the Japan Department Stores Association on January 22nd, overall sales fell sharply by 13.7% compared to the same month last year. However, sales in "art, jewelry, and precious metals" increased by 1.9%, recording a third consecutive month of growth while other sectors saw significant declines across the board. Perhaps there is a gradual trend toward converting cash on hand into physical assets such as precious metals and luxury watches.

　Even if inflation does not occur, tax increases will be necessary to recover the huge government expenditures, and there is a good chance that taxation on assets will be strengthened. If this happens, there will be a movement to seek "assets" that cannot be captured by the authorities. A luxury watch worth several million yen or tens of million yen that can be worn on the left arm will certainly be a valid asset.

Tomoyuki Isoyama
Economic journalist. Born in Tokyo in 1962. Graduated from the School of Political Science and Economics at Waseda University. Served at the Nikkei Inc. as a securities reporter, deputy chief of the same department, Zurich bureau chief, Frankfurt bureau chief, and deputy editor-in-chief and editorial committee member for Nikkei Business, before going independent at the end of March 2011. His books include Between Reason and Emotion: Thinking About Corporate Governance from the Perspective of Otsuka Furniture and The Secrets of Switzerland, the Brand Kingdom (both published by Nikkei BP). He is currently covering a wide range of topics in politics, business, and government, with a focus on economic policy.
http://www.hatena.ne.jp/isoyant/