Genuinely foolish

 "I absolutely love getting your emails about watchmaking, I am truly impressed by your skill, confidence and experience, keep them coming in. However, your knowledge of Bitcoin is hilariously non existent. You pass judgement on something you clearly know nothing about and what’s worse you don’t even care to learn. It’s mentally lazy and sadly quite arrogant. Bitcoin is a paradigm shift that is clearly currently beyond your grasp. Not because you’re dumb (clearly you are not) but because you truly feel you know all there is to know and your mind is closed. By all means offer comment on Bitcoin but know it would be like me, a know nothing member of the public telling you how to fix your watches and not having a clue or caring about my ignorance. Don’t you dare take me off your mailing list, I enjoy it too much as a watch enthusiast. But please, shooting your mouth off so ignorantly makes you look genuinely foolish and is so cringeworthy. Stick to what you know and keep an open mind and I hope one day you can learn something new.

J.B."

Dear J.B.

I've been called so many things, but this is the first time for me to be accused of paradigm paralysis.

Actually, paradigm shifts are cool. Shifting from mechanical watches to quartz was a huge paradigm shift, and from quartz to atomic timekeeping was an even bigger one. But the new revolutionary knowledge and all the practical benefits granted by it are not necessarily a guarantee that paradigm shifts will supersede previous knowledge and well established practices.

Atomic clocks are large, expensive and impractical. Quartz watches are far less accurate, but cheap and suitable for the masses.

Einstein's theory of relativity was a paradigm shift too, but if a falling brick hits me on the head, I'll blame old fashioned Newtonian physics.

Block chain technology is a paradigm shift indeed, but Bitcoin is not. It lacks transparency; it is not an asset, currency, nor a store of value. It is not a hedge against inflation. However, this is not the main problem. There are two major hurdles which prevent Bitcoin from ever becoming what its inventors intended it to be.

First: it is not backed by the government. Governments fight wars to protect fiat paper money - money which could be easily manipulated. Central banks hate Bitcoin and there will be no shift of that paradigm, ever.

The second problem is branding. Bitcoin is a cheap brand - it could be devalued by one tweet, by one press release, or a single statement by a government official. The US dollar is Louis Vuitton, but gold is Rolex. Elon Musk can wear his fingers off tweeting yet another opinion about the dollar or gold, but it will make no difference to their value, whatsoever. The only opinion that matters is the one of those in power.
As the Golden Rule goes: those with gold make the rules.

As I type this, on the desk is a cup of coffee and a bunch of watches which will soon be exchanged for fiat dollars. Taxes will be paid in dollars, worker's wages too. What is left will be exchanged for real goods - coffee and watches, and the cycle will be repeated. And every now and then, when times are good, a bit of surplus will be stored in gold, for that inevitable rainy day. This is how business has been done and how commerce has worked since the time of Babylon.

Of course, it is not my intention to crush your Bitcoin dreams. But quite frankly, figuring out that Bitcoin is just a fad - a gamble with odds stacked against you, a pyramid scheme and fools gold - requires neither humbleness nor mental acrobatics.

Cheers.                         

Angry ‘hodlers’

Yesterday's comment on bitcoin struck a nerve with two 'financial advisers'. Both made a strong demand that I 'stick with watches, or else', with one specifically requesting that I disclose my own investment portfolio, here, publicly. Sore losers: hit unsubscribe and make my day! However I am more than happy to oblige: here is the performance data of our Rolex restoration video, on YouTube. In 210 days this video was watched 3,140,888 times, generating passive income of $12,051 dollars. Total viewing time: close to half million hours! Actually, this video is so popular that it shows no sign of slowing down. Meaning it will continue to make us $1,700 per month for years to come. So much for your ‘stick to watchmaking’ advice. Yet this performance is hardly an exception: there are millions of hard working people out there who are not interested in get rich quick schemes; who understand that hard work invested in slow but steady growth will outperform the bitcoin hype. People with common sense, who use their brains, who are not side-tracked with fake news. People who enormously appreciate me, sticking it to you, disillusioned hodlers. Cheers.

Bitcoin is store of value?

You pull over at a petrol station, fill your sixty litre tank with unleaded, and drive home. The next day, the needle shows that you only have thirty litres left in the tank. You suspect a leakage. However, after examining the car, the mechanic concludes that there is nothing wrong with the tank. "It simply fluctuated in volume overnight, as they tend to do". But you know that the petrol tank does not and cannot fluctuate; by the very definition of being sixty litres in volume, it will hold sixty litres of petrol. Because that is what store of value means: being of a certain size, capable of holding and storing a certain volume of liquid. It is simply common sense. In the past year, Bitcoin exploded in volume by six hundred percent, then all of a sudden, in the past six weeks, almost halved in value. A few weeks ago, one Bitcoin was worth more than one kilogram of gold. Today, it is worth five hundred grams. Where did your gold disappear to? Well, if you ask your financial adviser, who got you into Bitcoin in the first place, he would tell you the same bullshit that idiot car mechanic told you: "things fluctuate over time, hang in there, it will bounce". Which could be true, no one knows what the future brings. But we do know that STORE OF VALUE - whether that is a sixty litre petrol tank, a meter stick containing one thousand millimetres, a kilo of gold, or your 4 bedroom house - remain very constant over time. Houses don't grow in size. Land does not shrink or fluctuate. Clock dials will always show sixty seconds per minute. For that reason, we call them 'store of value'. Bitcoin is not a store of any value whatsoever. It is a speculative 'asset'. A pyramid scheme designed to suck you in. Surely, some gamblers will get rich in the process, but that is not because Bitcoin is store of value. Of course, every real asset from gold, land, houses to petrol, could also be manipulated and hyped. Here is what happened on the weekend: some lunatic just bought a fibro house in St Marys (suburb of Sydney near Penrith) for $1.81 million dollars!

Cheers.

"I am ready to buy, is there any movement on price?"

This week started with an unusual number of enquiries that can be summed up with one statement: "I am ready to buy, is there any movement on price?"
Clearly, these requests are coming in from buyers who are new to watch collecting or those who are looking for bargains.Without being emotional about the current market demand for bargains, here are the fundamentals:

1. For watch prices to go down, the Australian dollar must appreciate significantly against the Swiss franc and US dollar. The Australian dollar has been heading in the wrong direction for the past eight years and it is going to decline even further.

2. From 2010 til around 2015, we benefited from a somehow better exchange on the Japanese yen, giving us access to Japans' stock of fine watches. That Japanese stock is now completely depleted, having been sucked up by eager Chinese buyers.

3. Global stock levels are low. After the GFC in 2008, almost all Swiss big brand watch manufacturers geared up for a move into vertical integration- meaning full ownership and control -from manufacturing to retail. This has resulted in a low output, exuberant prices, and a no discount policy.

4. Low production means no overstock to supply the grey market. In the past 3 years, the parallel market has collapsed. This is a global phenomenon.

5. Due to the current pandemic, Swiss manufacturers have closed their factories. Supply of new stock = zero. Furthermore, almost all retail outlets are closed so the supply and demand chain is broken. There is a strong possibility that shops will reopen in the near future, but it won't be business as usual. There won’t be any new models, just old ‘pre-pandemic’ stock.

6. The second hand market thrives when 'business is as usual' – a strong dollar, plenty of supply, a strong grey market and big Swiss brands offering discounts. This is when watch collectors are selling used watches to buy or import new ones. On better days, you could stop in Hong Kong on your way back from London, buy a new Submariner, and then sell your two Omegas on arrival to a second hand dealer. This scenario is highly unlikely until at least this time next year.

7. As I’ve said before: there are no distressed local sellers offloading watches in hurry. With the Government printing money and paying employees to sit at home; when almost all retail shops are closed; and when people are still in lock down, we have entered a period of collective hibernation. Of course, this too will change, but not overnight.

8. Watches are a poor investment class, but an asset nevertheless. In times of severe crisis, any asset is worth more than paper money. No watch dealer is going to rush to exchange a real asset for money that is losing its purchasing power. The bottom line is that we have been low on stock since 2015 and there is no logical reason to offer any discount either today, or in the foreseeable future.