Should/can we stop calling this a "bubble"?

[Acquisition40]

Originally Posted by benlee

You're be surprised at the massive amount of inventories hold by greys. Even in the city like Jakarta where I lived in, a supposedly 3rd world country, I can go to this mall where many of the grey dealers operate, and I can buy any "hot model" I want on the spot, including white dial C-Daytona, 5711, you name it, but of course at inflated premium prices. I have no idea how they get the stocks but it looks likely these stocks are sold by ADs as well as flippers. Same can be said of Singapore, Bangkok and Hong Kong. And that is not including grey dealers that only operate online.

I see! Has PP and Rolex been cracking down on ADs in SEA as well?

edit: Do you think they have enough inventory to manipulate/control the grey market pricing? Do you think if all the greys in the world immediately relinquished all of their inventory, would there still be a lack of supply to fulfill demand?

[hdfb910]

just my opinion, but I think all this is going to realign the 5711a msrp (so the AD can get theirs "$") I believe the price will go up again within a year and within 3 years the msrp will be closer to 40,000... like I said, just my opinion.

[The Argonaut]

Originally Posted by incontrol

Great article! I am interested to see where the market goes from here. Thanks for posting it.

Sent from my iPhone using Tapatalk

Try the first in his two part post. Really interesting stuff.

https://thewatchbaron.com/2020/01/26...-january-2020/

[Acquisition40]

Originally Posted by thase13

Great questions!

1. I suggest that grey market pricing is unsupported because it's irrational and not based on the statistical norms. Grey market lives on the extreme outlying tail of what the most irrational moneyed buyer is willing to pay and not closer to the middle of any pricing bell curve for any given specified demographic. The grey marketer will continue to test the extremes of price tolerance and will only pull back when they determine they've pushed too far.

2. I only say that pricing isn't lockstep because in the watch industry, most manufacturers aren't willing to pursue grey market pricing out into the territory of the unsustainable extremes because that level of pricing volatility has a different effect for manufacturer and grey marketer. In the grey marketer's case aggressive pushes and pull backs are an expected part of doing business, in the manufacturer's case, that level of price volatility will have an undesirable ripple effect across the entire company's balance sheet.

3. I'm not sure I agree that it's as arbitrary for the manufacturer as it is for the grey marketer. The manufacturer probably spends a considerable sum annually researching pricing models as it pertains to the overall health and sustainability of the company. The grey marketer is simply interested in eliciting the highest price at any given particular point in the time domain. Now I'm not saying that just because it's researched, it's correct; I'm just saying the the consequences for getting it wrong are much more serious for the watch manufacturer than they are for the grey marketer.

Thanks for the detailed answers!

1. Would you mind elaborating further on what/who constitutes as "irrational moneyed buyer"?

2 and 3. Agreed! Greys have the flexibility of being volatile and not publicly disclosing pricing at all times. Is it fair to consider it an even purer version of a laissez-faire practice? If manufacturers operated under this system, they would sacrifice a great deal of trust. Agree also with the consequences being much more serious for manufacturers: every time there is a new model release for any brand, the first comments on Hodinkee are whether it's overpriced!

S

[thase13]

Originally Posted by Acquisition40

Thanks for the detailed answers!

1. Would you mind elaborating further on what/who constitutes as "irrational moneyed buyer"?

2 and 3. Agreed! Greys have the flexibility of being volatile and not publicly disclosing pricing at all times. Is it fair to consider it an even purer version of a laissez-faire practice? If manufacturers operated under this system, they would sacrifice a great deal of trust. Agree also with the consequences being much more serious for manufacturers: every time there is a new model release for any brand, the first comments on Hodinkee are whether it's overpriced!

S

1. The segment of consumer who possess the means to view all goods as inelastic and are insensitive to value.

[thase13]

Originally Posted by GluryOl

Why would that be irrational? Perhaps they dont believe all goods are inelastic but just those pertaining to them. Art is generally inelastic ...doesnt make the person spending $54 mio on a Koons irrational

A fair point.

I didn’t intend it to be read as a pejorative. Art is difficult because it typically references an original good where there’s only one. But let’s say you’re at an auction and 10 people are bidding on a de Kooning. Nine people bid it up to $54m and one person bids $540m. I would offer that to the 9 losing bidders the winning bid would be considered irrational.

If I manufacture 1000 items and price them at $10,000 each but someone is willing to find someone exiting from my shop and pay them $110,000 for the item they just bought. Then would you not agree that paying 10x for an item they could have purchased for $10,000 is irrational to anyone who just paid $10,000 for the same item. Similarly, if I assign a price of $10,000 each and someone comes in and offers me $1,000, would that offer be subject to the same scrutiny questioning its rationality?

My point is, that if irrationality is to be found, it exists at the extreme opposite ends of the bell curve.

[cascavel]

Originally Posted by yoast

Here is an interesting article on the subject:
https://thewatchbaron.com/2020/02/16...february-2020/

So, this writer says that the bubble is bursting and that evidence of this is that it is "easy to find a 5711A for under $55K" and that it is "easy to find a 116500 for under $20,000". Really, where?
Anyone can predict the past but if you're having trouble evaluating the present what kind of luck are you going to have with the future?

[cascavel]

In the past three years the U.S. equity markets, alone, have created around 12 trillion USD. In markets, like watches, where social media has nurtured a great popularity for a few models and production is somewhat inelastic the combination of unlimited dollars chasing limited supply means that prices will go up. And they will stay up until something in that equation changes.

[beshannon]

Originally Posted by interestedwatcher

eh - you're telling me that a BLNR at close to 17000 USD is not in line for a correction?

No one is going to suggest that the bottom will fall out and you can get SS in stores without a wait, (well at least until a recession), but I wouldn't be buying a BLNR et all at full grey prices. I'd grab them at RRP all day long though.

Of course you would but you can't.

The market sets the price, if they sell at 17K then that is what the market will bear. Wishing that you can buy one at the artificially low MSRP set by Rolex is a nice goal.

[PJ S]

Originally Posted by beshannon

Of course you would but you can't.

The market sets the price, if they sell at 17K then that is what the market will bear. Wishing that you can buy one at the artificially low MSRP set by Rolex is a nice goal.

It’s not really, since the market is the market at large, not a smattering of individuals who can afford to be blasé about the price in order to obtain instant gratification rather than await their turn.
If it was what the market would bear, Rolex (and the others) would’ve set the price at that level.

[beshannon]

Originally Posted by PJ S

If it was what the market would bear, Rolex (and the others) would’ve set the price at that level.

And yet they have not.

Why?

So the secondary market takes over.

Those wishing for lower prices should ask themselves why? Because they want to buy? Because they want the value of all watches to decline?

[Russell996]

Originally Posted by cascavel

So, this writer says that the bubble is bursting and that evidence of this is that it is "easy to find a 5711A for under $55K" and that it is "easy to find a 116500 for under $20,000". Really, where?

He indicates to the reader where he went in the article - but to be more precise I would suggest Watchfinder and the Burlington arcade and surrounding streets.

[LawMan]

Of course this is a bubble for stainless steel models. This is simple economics where demand outstrips supply .
I’m pretty sure rolex could fill the demand if they wanted to but they don’t. On the other hand I think rolex is making a conscious shift to sell more precious metal pieces. In addition the economy is doing very well in the United States, people feel good and are flush with cash, the stock market is at an all-time high. I remember during the great financial crisis I was buying Daytonas for eight to $9000 apiece and the market was flooded with them. If there is a deep recession on the horizon luxury watches are among the first things to go as well as second homes etc.


Sent from my iPhone using Tapatalk

[The Argonaut]

Originally Posted by Russell996

He indicates to the reader where he went in the article - but to be more precise I would suggest Watchfinder and the Burlington arcade and surrounding streets.

Also, I think the author of the article was implying that whilst there are numerous 116500s on C24 for a smidge over $20k, you could likely negotiate them sub $20k.

[Nauti]

yep ..its a classic Supply / Demand thing and that has driven prices upwards and until the HK Riots it was still holding firm with global demand outstripping supply, however the HK market which is the biggest in the world for Swiss watches and luxury goods has seen a big downturn of 25% in sales and 45% in visitor numbers......to put into context HK is 2/3 the size of London and has 30 AD's to Londons 15 and that's before you add the mass of HK Used dealers......

And all this before the tragic 'Corona' outbreak which has no doubt slowed the Chinese / HK market even further which I am pretty sure means that dealers in that part of the world have more stock (supply) than current 'demand'....and many must now be trading for cash flow rather than profit, also knowing they can re-buy cheaper than current inventory, the manufacturers will no doubt be diverting stock that was destined for HK / China to US and Europe...

there seems to be quite a few more 'incoming' threads and wait times seem reduced also it looks as if a few buyers are undecided when they get the call given higher new list prices and lower resale values...has chased off some speculators.

add that to people who are trying to panic sell to cash out perceiving further softening and well its a self fulfilling prophecy....

Don't panic it's not crypto or tulips.....we have lovely physical assets to enjoy and for the majority of us that's why we bought them to 'enjoy' them...

and for those that bought to enjoy and invest.....Hong Kong will eventually get resolved for the benefit of the HK population and Corona virus will be yesterdays news.......and we will be onto a new crisis somewhere else....

no bubble burst ....just a bit of air let out the baloon !

[Acquisition40]

Originally Posted by thase13

A fair point.

I didn’t intend it to be read as a pejorative. Art is difficult because it typically references an original good where there’s only one. But let’s say you’re at an auction and 10 people are bidding on a de Kooning. Nine people bid it up to $54m and one person bids $540m. I would offer that to the 9 losing bidders the winning bid would be considered irrational.

If I manufacture 1000 items and price them at $10,000 each but someone is willing to find someone exiting from my shop and pay them $110,000 for the item they just bought. Then would you not agree that paying 10x for an item they could have purchased for $10,000 is irrational to anyone who just paid $10,000 for the same item. Similarly, if I assign a price of $10,000 each and someone comes in and offers me $1,000, would that offer be subject to the same scrutiny questioning its rationality?

My point is, that if irrationality is to be found, it exists at the extreme opposite ends of the bell curve.

This is getting interesting.

Isn’t that irrational person paying that amount for it because it makes sense to them, whether or not it don’t make sense to others?

Maybe the $100,000 is irrational to the person who paid $10,000, but the person buying it for $100,000 bought it because it made sense to them? Isn’t that the case for 5711s, Daytonas? People pay the premium because they otherwise don’t have access to it. And as it’s been said by many members on the forum, it’s probably cheaper to to pay the premium than to do a bundle deal, especially if one doesn’t really want the bundle pieces. That being said, there are plenty of people who refuse to pay grey prices, but there are also plenty of people willing (and have no choice) to pay the markup as long as they want the watch.

Even the Paul Newman auction. Sure someone yelled out $10M at the beginning, but it did still climb from there. And as for art, sometimes dealers will bid to make sure a piece commands a high price to ensure the value of rest of their inventory or others’ collection don’t take a hit/increase more in value—which I find it a form of playing the market, but it’s still a rational decision.

Maybe there’s the person that’s listing their SS 5711 for $100K, but if there’s a buyer (for whatever reason specific to the buyer), there’s a buyer, right? Isn’t that how the market economy works? The rest of the world is irrelevant and the only relevant players in the market are the ones who are selling and buying. Those may be outliers, and most grey buyers are still shopping around to get the best condition/deal/value, and I’d imagine that most grey dealers are wary of that.

S

[Acquisition40]

Originally Posted by LawMan

Of course this is a bubble for stainless steel models. This is simple economics where demand outstrips supply .

Is that how bubbles are defined? Simply when demand is greater than supply?

That's kind of what I was getting at... the question of "why". Why are we calling this a bubble? Asking because when we talk of other bubble situations, there are so many other factors at play, often involving exploitation, non-sustainability, and some sort of definably weak foundation in the market.

I think it's totally fine if bubble means demand > supply, but also interested to hear what people have to say about other possible factors.

Grey dealer price/supply manipulation is pretty interesting to discuss (though, I don't necessarily agree with it), and whether/why manufacturers are holding back on production is a good topic as well.

Sure, Rolex and PP can totally increase their SS production, but Mr. Stern said that it was important for Patek to not be known as the Nautilus company. Whether he's speaking the truth or not, who knows, but it seems like sensible, long-term thinking. As for Rolex, I've no idea, since they never say anything.

S

[Acquisition40]

Originally Posted by beshannon

And yet they have not.

Why?

So the secondary market takes over.

Those wishing for lower prices should ask themselves why? Because they want to buy? Because they want the value of all watches to decline?

What good would it do for manufacturers if the secondary market took over? Do you think that's true, especially when PP and Rolex is ending relationships with certain ADs, and AP decided to go boutique-only?

[Calatrava r]

Interesting article. The rampant speculation drove the prices up. That has cooled somewhat and prices have softened. That to me is a good thing. I would love to see end user owners have the watches they want at reasonable prices.

[martinr]

It might be a bubble and it might not, it’s impossible to predict the future, but the prices and popularity of certain SS watches are driven by social media, Instagram etc. So when these watches aren’t the latest and greatest must have hot items anymore and people move on to something else the bubble will burst. Seems pretty obvious to me.

[thase13]

Originally Posted by Acquisition40

This is getting interesting.

Isn’t that irrational person paying that amount for it because it makes sense to them, whether or not it don’t make sense to others?

Maybe the $100,000 is irrational to the person who paid $10,000, but the person buying it for $100,000 bought it because it made sense to them? Isn’t that the case for 5711s, Daytonas? People pay the premium because they otherwise don’t have access to it. And as it’s been said by many members on the forum, it’s probably cheaper to to pay the premium than to do a bundle deal, especially if one doesn’t really want the bundle pieces. That being said, there are plenty of people who refuse to pay grey prices, but there are also plenty of people willing (and have no choice) to pay the markup as long as they want the watch.

Even the Paul Newman auction. Sure someone yelled out $10M at the beginning, but it did still climb from there. And as for art, sometimes dealers will bid to make sure a piece commands a high price to ensure the value of rest of their inventory or others’ collection don’t take a hit/increase more in value—which I find it a form of playing the market, but it’s still a rational decision.

Maybe there’s the person that’s listing their SS 5711 for $100K, but if there’s a buyer (for whatever reason specific to the buyer), there’s a buyer, right? Isn’t that how the market economy works? The rest of the world is irrelevant and the only relevant players in the market are the ones who are selling and buying. Those may be outliers, and most grey buyers are still shopping around to get the best condition/deal/value, and I’d imagine that most grey dealers are wary of that.

S

Ok, people have pointed out that from the POV of a individual, any purchase can be rationalized. I honestly don't have a problem with that. But, are you implying that our next logical step from there is that if it's rational for one individual, it's rational for an entire market? Seems a bit non sequiter to me and I don't think it's how a normalized distribution curve is supposed to work.

Also, if you're suggesting in your last paragraph that the theory of a market economy is informed from observations of a single discrete transaction rather than by theoretical models derived from the analysis of the average of the aggregates along with estimations as you move in incremental standard deviations away from the norm, then I'm afraid I'm completely lost in this discussion. I guess I just don't understand the value of modeling a market economy using outlier behaviors that may be 1, 2 or even 3 standard deviations off the norm as a baseline.

I really have no dog in this fight. People are going to do what they're going to do and I certainly am not standing in judgement of anyone. So, please help me understand your point. Is my use of the word "irrational" creating a discomforting hyper-focus on the negative connotations of the term? I'm not married to the usage and I'd be more than happy to go back and change it to something less triggering.

[Xerxes77]

Originally Posted by cascavel

So, this writer says that the bubble is bursting and that evidence of this is that it is "easy to find a 5711A for under $55K" and that it is "easy to find a 116500 for under $20,000". Really, where?
Anyone can predict the past but if you're having trouble evaluating the present what kind of luck are you going to have with the future?

Agree with you!

About Patek

I see Patek rise the mrsp price of all Nautilus so this will make sense to rise price on grey market. Also Patek Nautilus demands it’s 10 times more then supply.
On January when I buy my Nautilus 5726 1A-014 my AD told me this is the single piece who are allocated to them for this year and next year on this model. I don’t know if it’s like this but if it is then I don’t see to go down price sooner.

Also to not forget we speak about Patek who make around 60000 watch per year and only 20% are steel.

On the other hand let’s be honest buyers who can buy a Nautilus 5711 in steel with 50000€ from grey market are not affected by coronavirus crisis or HK problems.

About Rolex
This in my opinion it’s another story. Rolex always know how to manage the market to stay in great demand and also to represent a “status symbol”.

But they have a big number of watch production and if the China market it’s close then this watches will go on another market and they will rise the supply. Of course this rise don’t be in massive number but availability will be more friendly and this will do to a lower prise on grey market(please don’t think the price will go down with 70% on grey market but will come down with 30-40%).

On the other hand Rolex can keep lower supply to maintain the demand because we speak about the most powerful luxury watch manufacture when we speak about Rolex. Do not forget also they rise the price too at the beginning of the year.

Will see how they will manage the situation.

About AP

They only now start this game with limited supply but to not forget even if AP RO are a beautiful watch with a great history demand only now are rise for AP RO and mostly because of frustration of the people who can’t reach PP or Rolex who need to stay on the waiting list with no certitude they will received one.
So with AP will see how will be.

If you take a look on Chrono24 you will see the price rise for “hot” watches especially for Nautilus.

So I am not specialist in Nasdaq index and also on watch market but I think it’s 2 completely different thing.

Just my humble opinion.

[PJ S]

Originally Posted by beshannon

And yet they have not.

Why?

So the secondary market takes over.

Those wishing for lower prices should ask themselves why? Because they want to buy? Because they want the value of all watches to decline?

Why haven’t Rolex doubled the price of all their hot references?
You do realise we on here account for about 1-2% of the total market?
Furthermore, how many people do you imagine are buying these pieces, of which Rolex are making 800K annually?
Lets assume there are 2000 buyers worldwide, non-forum users too, and let’s assume Rolex sells 2.5 pieces on average per person, so that’s ~320K buyers.
Isn’t it plainly obvious why they haven’t matched what a handful are willing/able to pay?

Remove the loupe, and look at the whole of the picture.

[Acquisition40]

Originally Posted by thase13

Ok, people have pointed out that from the POV of a individual, any purchase can be rationalized. I honestly don't have a problem with that. But, are you implying that our next logical step from there is that if it's rational for one individual, it's rational for an entire market? Seems a bit non sequiter to me and I don't think it's how a normalized distribution curve is supposed to work.

Also, if you're suggesting in your last paragraph that the theory of a market economy is informed from observations of a single discrete transaction rather than by theoretical models derived from the analysis of the average of the aggregates along with estimations as you move in incremental standard deviations away from the norm, then I'm afraid I'm completely lost in this discussion. I guess I just don't understand the value of modeling a market economy using outlier behaviors that may be 1, 2 or even 3 standard deviations off the norm as a baseline.

I really have no dog in this fight. People are going to do what they're going to do and I certainly am not standing in judgement of anyone. So, please help me understand your point. Is my use of the word "irrational" creating a discomforting hyper-focus on the negative connotations of the term? I'm not married to the usage and I'd be more than happy to go back and change it to something less triggering.

Definitely no dog in the fight as well, and certainly no harmful intention, but trying to understand your points a bit better because I think they're interesting. Maybe the questions and the points sound aggressive, but I say that in the most respectful way.

Oh yes, I'm sure these manufacturers spend quite a bit of money trying to figure out how to price things based on these market data, curves, charts, etc. I also agree that outliers don't inform how the overall market moves. Also, I'm not suggesting what informs the theory of a market economy, all I'm saying is that as long as there is a seller and buyer and they agree on a price (without an intervening body), that's what "market economy" is, which is how it the watch industry seems to work, whether AD or grey or at auction... based on demand and supply.

What I'm still curious to know is, and what you've yet to explain is: what's rational for an entire market? Can you help me understand by defining "rational" as well as "entire market"?

You said that "grey market pricing is unsupported because it's irrational and not based on the statistical norms", and all I'm question is where are you getting the part that 1) it's unsupported (because it's irrational) and 2) that they're not based on statistical norms?

And yes, do you happen to have another word than "irrational" in mind? You've used it a few times, and I believe I'm interpreting it a certain way, as well as GluryOI in his response to the art bit. Maybe another word would help with our understanding?

My point is that yes, grey market charges a lot more than MSRP for some models and sure, they're try to push the boundary of where the pricing is, but if grey-buyers are generally paying what they're asking, isn't that a legitimate way of determining how much something is trading for? And Chrono24 takes some statistical average of that? If one checks out the "recently sold" tab on European Watch Co or other dealers, they're certainly trading. I don't see how this isn't within somewhere reasonable within their pricing bell curve is they're conducting transactions every day.

No worries if you don't want to indulge me in this conversation--appreciate it anyways. I do think it's interesting to hear how we get to our different opinions and conclusions.

S

[thase13]

Originally Posted by Acquisition40

Definitely no dog in the fight as well, and certainly no harmful intention, but trying to understand your points a bit better because I think they're interesting. Maybe the questions and the points sound aggressive, but I say that in the most respectful way.

Oh yes, I'm sure these manufacturers spend quite a bit of money trying to figure out how to price things based on these market data, curves, charts, etc. I also agree that outliers don't inform how the overall market moves. Also, I'm not suggesting what informs the theory of a market economy, all I'm saying is that as long as there is a seller and buyer and they agree on a price (without an intervening body), that's what "market economy" is, which is how it the watch industry seems to work, whether AD or grey or at auction... based on demand and supply.

What I'm still curious to know is, and what you've yet to explain is: what's rational for an entire market? Can you help me understand by defining "rational" as well as "entire market"?

You said that "grey market pricing is unsupported because it's irrational and not based on the statistical norms", and all I'm question is where are you getting the part that 1) it's unsupported (because it's irrational) and 2) that they're not based on statistical norms?

And yes, do you happen to have another word than "irrational" in mind? You've used it a few times, and I believe I'm interpreting it a certain way, as well as GluryOI in his response to the art bit. Maybe another word would help with our understanding?

My point is that yes, grey market charges a lot more than MSRP for some models and sure, they're try to push the boundary of where the pricing is, but if grey-buyers are generally paying what they're asking, isn't that a legitimate way of determining how much something is trading for? And Chrono24 takes some statistical average of that? If one checks out the "recently sold" tab on European Watch Co or other dealers, they're certainly trading. I don't see how this isn't within somewhere reasonable within their pricing bell curve is they're conducting transactions every day.

No worries if you don't want to indulge me in this conversation--appreciate it anyways. I do think it's interesting to hear how we get to our different opinions and conclusions.

S

"What I'm still curious to know is, and what you've yet to explain is: what's rational for an entire market? Can you help me understand by defining "rational" as well as "entire market"?"

I'm sorry, I thought I was clear. MSRP is what's rational for an entire market.

"You said that "grey market pricing is unsupported because it's irrational and not based on the statistical norms", and all I'm question is where are you getting the part that 1) it's unsupported (because it's irrational) and 2) that they're not based on statistical norms?"

It's unsupported and irrational because it's not based on fundamentals. Grey market pricing is driven by scarcity. Grey market pricing is not informed by value (innate and static), it's informed by worth (assigned and variable). Grey market pricing is exploitative. Again, I'm not being judgemental, however consumers who live in the grey market accept this as fact. I guess that I'm just concluding that because it's a price outlier, ipso facto it's not based on what's statistically normal. Statistical normal resides under the bell of the bell curve and not out on the tails.

Masayoshi Son, fresh off of the success of his big gamble on AliBaba, purchased through his company Softbank, controlling interest in a company called WeWork. Based on your relativist position (and supported by a number of analysts at the time), the purchase was completely rational, if only because Masayoshi Son had his own personal rationalizations for the purchase. Over time it was discovered that the underlying fundamentals of the company were insufficient to sustain the investment and additional capitalization was required to keep WeWork afloat. This prompted analysts and Softbank investors to question the "rationality" Masayoshi Son's decision to acquire the company when specific sectors of the WeWork business were shown to be consistently performing at a loss. Am I correct in assuming that your position is that Masayoshi Son's decision to purchase a controlling share in WeWork for billions and billions of dollars is rational simply because his personal reasons for the purchase overrule those of the broader consensus?

This is why stock market economies are generally represented as aggregates of the average rather than transactional reflections of individual statistical outliers. The Dow Jones Industrial Average chooses to track a collection of the most stable companies in the Dow rather than index on the most active statistical outlier for a reason. One reason is because it's a more accurate and reliable indicator of the overall health of the market economy represented by the Dow. The NASDAQ composite works in the same way, it's an average of a collection of the premium tier blue chip stocks listed on the NASDAQ. This way, wild swings in the irrational demand for any given stock, TSLA comes to mind, results in more balanced movement in the overall composite index. When one watch seller sells one watch to one buyer, that is a transaction. When you sum all of the transactions of watches sold over a given period of time and create a normal distribution curve of all watches sold, that is a market economy. The only external requirement is that the watch's price is unregulated and allowed to float in an unrestricted manner.

So what would you employ as the best representative of the overall health of the economy, the wild movement of one volatile stock or the average movement of a more reliable subset of that market? While the WeWork debacle had a significant overall impact on Softbank, the failed IPO barely registered a blip on the major markets.

You want to maximize your future potential for price stability and value retention, buy MSRP. You want to satisfy your immediate need and are willing to expose yourself to more risk, buy grey market. But I think it's a frightening proposition to suggest that retail and grey market should collude to set fair market value. Just IMHO.

My point is that yes, grey market charges a lot more than MSRP for some models and sure, they're try to push the boundary of where the pricing is, but if grey-buyers are generally paying what they're asking, isn't that a legitimate way of determining how much something is trading for? And Chrono24 takes some statistical average of that? If one checks out the "recently sold" tab on European Watch Co or other dealers, they're certainly trading. I don't see how this isn't within somewhere reasonable within their pricing bell curve is they're conducting transactions every day.

There's a significant amount of information asymmetry when talking about grey market sales. First, it's one-sided; no one takes grey market data and cross-references it against the WW sales and revenue numbers of the corresponding manufacturers. Furthermore, with most grey market data you're getting watch sales and sale prices while, inventory hold periods, watch acquisition and service prices, and other operating costs are hidden. Consequently, all assumptions about the grey market volumes are derived from an incomplete representation of the business. Is this really how you want to set market pricing?

I've found that I'm starting to repeat myself and I'm sure that to other TRF members, I'm starting to sound like a pedantic, broken record, so I'll bow out now and let other people have the floor. Also, to be clear, these are just my personal feelings and I'll certainly be the first to admit that I'm not in any position to pontificate authoritatively on this matter.

Thank you very much for the excellent conversation.

[The Argonaut]

Originally Posted by thase13

"What I'm still curious to know is, and what you've yet to explain is: what's rational for an entire market? Can you help me understand by defining "rational" as well as "entire market"?"

I'm sorry, I thought I was clear. MSRP is what's rational for an entire market.

"You said that "grey market pricing is unsupported because it's irrational and not based on the statistical norms", and all I'm question is where are you getting the part that 1) it's unsupported (because it's irrational) and 2) that they're not based on statistical norms?"

It's unsupported and irrational because it's not based on fundamentals. Grey market pricing is driven by scarcity. Grey market pricing is not informed by value (innate and static), it's informed by worth (assigned and variable). Grey market pricing is exploitative. Again, I'm not being judgemental, however consumers who live in the grey market accept this as fact. I guess that I'm just concluding that because it's a price outlier, ipso facto it's not based on what's statistically normal. Statistical normal resides under the bell of the bell curve and not out on the tails.

Masayoshi Son, fresh off of the success of his big gamble on AliBaba, purchased through his company Softbank, controlling interest in a company called WeWork. Based on your relativist position (and supported by a number of analysts at the time), the purchase was completely rational, if only because Masayoshi Son had his own personal rationalizations for the purchase. Over time it was discovered that the underlying fundamentals of the company were insufficient to sustain the investment and additional capitalization was required to keep WeWork afloat. This prompted analysts and Softbank investors to question the "rationality" Masayoshi Son's decision to acquire the company when specific sectors of the WeWork business were shown to be consistently performing at a loss. Am I correct in assuming that your position is that Masayoshi Son's decision to purchase a controlling share in WeWork for billions and billions of dollars is rational simply because his personal reasons for the purchase overrule those of the broader consensus?

This is why stock market economies are generally represented as aggregates of the average rather than transactional reflections of individual statistical outliers. The Dow Jones Industrial Average chooses to track a collection of the most stable companies in the Dow rather than index on the most active statistical outlier for a reason. One reason is because it's a more accurate and reliable indicator of the overall health of the market economy represented by the Dow. The NASDAQ composite works in the same way, it's an average of a collection of the premium tier blue chip stocks listed on the NASDAQ. This way, wild swings in the irrational demand for any given stock, TSLA comes to mind, results in more balanced movement in the overall composite index. When one watch seller sells one watch to one buyer, that is a transaction. When you sum all of the transactions of watches sold over a given period of time and create a normal distribution curve of all watches sold, that is a market economy. The only external requirement is that the watch's price is unregulated and allowed to float in an unrestricted manner.

So what would you employ as the best representative of the overall health of the economy, the wild movement of one volatile stock or the average movement of a more reliable subset of that market? While the WeWork debacle had a significant overall impact on Softbank, the failed IPO barely registered a blip on the major markets.

You want to maximize your future potential for price stability and value retention, buy MSRP. You want to satisfy your immediate need and are willing to expose yourself to more risk, buy grey market. But I think it's a frightening proposition to suggest that retail and grey market should collude to set fair market value. Just IMHO.

My point is that yes, grey market charges a lot more than MSRP for some models and sure, they're try to push the boundary of where the pricing is, but if grey-buyers are generally paying what they're asking, isn't that a legitimate way of determining how much something is trading for? And Chrono24 takes some statistical average of that? If one checks out the "recently sold" tab on European Watch Co or other dealers, they're certainly trading. I don't see how this isn't within somewhere reasonable within their pricing bell curve is they're conducting transactions every day.

There's a significant amount of information asymmetry when talking about grey market sales. First, it's one-sided; no one takes grey market data and cross-references it against the WW sales and revenue numbers of the corresponding manufacturers. Furthermore, with most grey market data you're getting watch sales and sale prices while, inventory hold periods, watch acquisition and service prices, and other operating costs are hidden. Consequently, all assumptions about the grey market volumes are derived from an incomplete representation of the business. Is this really how you want to set market pricing?

I've found that I'm starting to repeat myself and I'm sure that to other TRF members, I'm starting to sound like a pedantic, broken record, so I'll bow out now and let other people have the floor. Also, to be clear, these are just my personal feelings and I'll certainly be the first to admit that I'm not in any position to pontificate authoritatively on this matter.

Thank you very much for the excellent conversation.

First class Thase.

[Acquisition40]

Originally Posted by thase13

"What I'm still curious to know is, and what you've yet to explain is: what's rational for an entire market? Can you help me understand by defining "rational" as well as "entire market"?"

I'm sorry, I thought I was clear. MSRP is what's rational for an entire market.

"You said that "grey market pricing is unsupported because it's irrational and not based on the statistical norms", and all I'm question is where are you getting the part that 1) it's unsupported (because it's irrational) and 2) that they're not based on statistical norms?"

It's unsupported and irrational because it's not based on fundamentals. Grey market pricing is driven by scarcity. Grey market pricing is not informed by value (innate and static), it's informed by worth (assigned and variable). Grey market pricing is exploitative. Again, I'm not being judgemental, however consumers who live in the grey market accept this as fact. I guess that I'm just concluding that because it's a price outlier, ipso facto it's not based on what's statistically normal. Statistical normal resides under the bell of the bell curve and not out on the tails.

Masayoshi Son, fresh off of the success of his big gamble on AliBaba, purchased through his company Softbank, controlling interest in a company called WeWork. Based on your relativist position (and supported by a number of analysts at the time), the purchase was completely rational, if only because Masayoshi Son had his own personal rationalizations for the purchase. Over time it was discovered that the underlying fundamentals of the company were insufficient to sustain the investment and additional capitalization was required to keep WeWork afloat. This prompted analysts and Softbank investors to question the "rationality" Masayoshi Son's decision to acquire the company when specific sectors of the WeWork business were shown to be consistently performing at a loss. Am I correct in assuming that your position is that Masayoshi Son's decision to purchase a controlling share in WeWork for billions and billions of dollars is rational simply because his personal reasons for the purchase overrule those of the broader consensus?

This is why stock market economies are generally represented as aggregates of the average rather than transactional reflections of individual statistical outliers. The Dow Jones Industrial Average chooses to track a collection of the most stable companies in the Dow rather than index on the most active statistical outlier for a reason. One reason is because it's a more accurate and reliable indicator of the overall health of the market economy represented by the Dow. The NASDAQ composite works in the same way, it's an average of a collection of the premium tier blue chip stocks listed on the NASDAQ. This way, wild swings in the irrational demand for any given stock, TSLA comes to mind, results in more balanced movement in the overall composite index. When one watch seller sells one watch to one buyer, that is a transaction. When you sum all of the transactions of watches sold over a given period of time and create a normal distribution curve of all watches sold, that is a market economy. The only external requirement is that the watch's price is unregulated and allowed to float in an unrestricted manner.

So what would you employ as the best representative of the overall health of the economy, the wild movement of one volatile stock or the average movement of a more reliable subset of that market? While the WeWork debacle had a significant overall impact on Softbank, the failed IPO barely registered a blip on the major markets.

You want to maximize your future potential for price stability and value retention, buy MSRP. You want to satisfy your immediate need and are willing to expose yourself to more risk, buy grey market. But I think it's a frightening proposition to suggest that retail and grey market should collude to set fair market value. Just IMHO.

My point is that yes, grey market charges a lot more than MSRP for some models and sure, they're try to push the boundary of where the pricing is, but if grey-buyers are generally paying what they're asking, isn't that a legitimate way of determining how much something is trading for? And Chrono24 takes some statistical average of that? If one checks out the "recently sold" tab on European Watch Co or other dealers, they're certainly trading. I don't see how this isn't within somewhere reasonable within their pricing bell curve is they're conducting transactions every day.

There's a significant amount of information asymmetry when talking about grey market sales. First, it's one-sided; no one takes grey market data and cross-references it against the WW sales and revenue numbers of the corresponding manufacturers. Furthermore, with most grey market data you're getting watch sales and sale prices while, inventory hold periods, watch acquisition and service prices, and other operating costs are hidden. Consequently, all assumptions about the grey market volumes are derived from an incomplete representation of the business. Is this really how you want to set market pricing?

I've found that I'm starting to repeat myself and I'm sure that to other TRF members, I'm starting to sound like a pedantic, broken record, so I'll bow out now and let other people have the floor. Also, to be clear, these are just my personal feelings and I'll certainly be the first to admit that I'm not in any position to pontificate authoritatively on this matter.

Thank you very much for the excellent conversation.

It's unsupported and irrational because it's not based on fundamentals. Grey market pricing is driven by scarcity.

If you google "economics", you'll find under many definitions that economics is the study of scarcity within society. First line in wikipedia "is the social science that studies how individuals, organizations, and societies manage the scarce resources under their control for the satisfaction of their needs and desires."

Grey market pricing is exploitative. Again, I'm not being judgemental, however consumers who live in the grey market accept this as fact.

So you're saying that people that buy grey, whether it's high-demand models or less-desirable under-MSRP models are being exploited? They're actively choosing to go this route. They have a choice and don't have to buy if they don't think it's fair. Many choose not to; many choose to--either way, based on how many choose to buy is how the pricing is set. Watches aren't water/food/fuel/housing. Maybe some people super need them, but it's people who have the financial mean to purchase at grey-prices that do so.

As for WeWork controlling share acquisitions, just because it's a bad financial decision doesn't mean it's an irrational one. Rational decisions can get completed ruined and "irrational" ones can end up brilliant. Maybe speak to those who bought a SS 5711 at the $40K mark (over MSRP and therefore, irrational according to your definition) and sold it at $60K? In fact, many people buy watches from ADs even when they know they'll take a hit for various reasons (name on paper, sentimental).

You want to maximize your future potential for price stability and value retention, buy MSRP. You want to satisfy your immediate need and are willing to expose yourself to more risk, buy grey market. But I think it's a frightening proposition to suggest that retail and grey market should collude to set fair market value. Just IMHO.

You're saying this as if every single person interested in buying a high-demand SS model has this option of buying them at this point in time at MSRP. Many people don't. Maybe clients with really great relationship with ADs are going in with what's equivalent to stock options, exercising the option to purchase something that is worth more at a much lower price of yesterday.

I'm sorry, I thought I was clear. MSRP is what's rational for an entire market.

At this moment MSRP of these high-demand pieces is what's desirable/hopeful of the entire consumer-base, but it's not what's necessarily defined as "rational". On the other hand, MSRP of non-popular models is NOT the desirable (or rational, in your terms) price of the entire consumer-base because they're sold lower at both ADs and greys. High-desirable model MSRP is not supported market value because, in large, only clients with relationships can get them; even then, many of them have to wait as well.

The price with which I can buy multiple SS Daytonas right at this moment is what I would consider market price. The price at which I can buy one SS Daytona if I'm a highly recognized client is MSRP. This applies to scarce models.

I never said retail and grey should collude. I said that MSRP is the number set (or Suggested) by the manufacturer; grey-prices is what's reflected by the market.

S

[S``]

Originally Posted by Acquisition40

...MSRP is the number set (or Suggested) by the manufacturer; grey-prices is what's reflected by the market.



S

Great explanation... I wouldn't have typed out something as succint as you.

Just to add something...

The gray dealers certainly applies price discrimination, but never in my mind were they colluding... Also, with the internet, it is pretty simple to come up with a price discovery process by analyzing the length of time needed for a sale vs. asking price, and etc...

[S``]

Originally Posted by PJ S

Why haven’t Rolex doubled the price of all their hot references?

Companies are in the biz of growing their OVERALL margins, not Single SKU's margin...

Most of the watches that ~750k (ex. Rolex) produces are non professional steel sports. The professional series in steel (ex. Hulk, GMT, Daytona, SkyD - if we only consider those whose premium is closer to >40-50% above retail) are a small percentage of that overall numbers (2-10% being quoted if you include LN subs etc)

Not too long ago, Steel DJ, DD, EXP, EXPII , and OP were getting regularly discounted at 10-20%... With Precious Metal pieces getting discounted 30-40% depending on models...

Since 2015, there had been at least 2-3 price hikes in most regions of the world that had bumped all of the prices of all Rolex models...

Now, with most discounts minimized, most ADs being able to sell "bundles" in place of a discount, their partner retailers are able to move "hard selling" items much more frequently than in the past years. Ex. Look at the Gold Daytona and GMT now vs in the past. The YG/green and WG/blue Daytona is now a "waitlist" model... In the past, pre John Mayer, they were a walk in model...

I could imagine that if Rolex were to price EX. The daytona based on the gray market for an unworn model, there would be more sitting on the shelves for purchase. However, more of their bread and butter would remain unsold as well due to the fact that bundling is no longer seen as necessary.

How about if Rolex produces more supply into the market with a higher margin for ex. A Daytona? Then, they would turn out to be the next AP, with only the RO lines selling at MSRP, While the rest getting discounted or bundled at the AD/Boutique.

Eventually, actual supply and demand will dictate the market price of a certain item in the market, not social media.

[Watch Expert]

If the inflated price is due to genuine demand and also if the model has been discontinued, then price will remain high ; price may drop slightly but not free fall.
If the inflated price is because some group of dealers buying in bulk and keep them hoping price will continue to increase ; at the same time the AD still pumping more regular supplies to the market. You will see significant price correction. Will it come down to retail price, for Daytona, Nautilus Aquanaut and Royal Oak. I don’t see that it could.

Especially Rolex Daytona I don’t think it will, considering certain Rolex Daytona Paul Newman model price is getting close to $10million - $15million.
Also I see Patek dress watch ref 1518 may be the second position below the Rolex Daytona.
They will be up there for as long as it could be, perhaps forever.
Patek Nautilus and Aquanaut price hype is not fully supported by any good ground. It is falling apart as we see it.

Will it be disaster if there is financial crisis? Or will there be crisis? Crisis occur because there is liquidity dry up in the market and people do not trust banks and decide to pull money out of the market at same time ; like Lehman Brother collapse and price of everything plumets.

Today the money supply is not controlled by man, there is artificial intelligence that navigates what amount of liquidity needed to sustain an economy. So I think it is highly unlikely to have major financial crisis.

Money has been loosen by banks, today the liquidity seems to be much more accesible and easy compared to in 2016-2018; We see stock reaching new record height and more people in finance get bigger bonus.

The big problem if the sales of watch model that is concentrated too much in Asia; corona virus will likely to stay in China ; Taiwan; Hong Kong ; Japan and Singapore for the rest of the year till vaccine is found. So watches that are traditionally sought after by rich Asian businessman will suffer price correction.

The Europe, UK Australian and US market in general (housing, stock market, watches) is stable or slightly moving up ; infact in certain watch model (especially Rolex) moving up in price because of the easing in borrowing and growing economy.

Patek market is very limited and people that can afford Patek know that there is not many people can afford to purchase their watch when he decide to resell. It is ok if you buy Patek retail, but if you bought Nautilus 5726 ,5980 ,5711 or 5740 at premium 200% over retail last October, today you can purchase at price 30% cheaper and you may not be able to sell easily even if you want to get out and take 40% loss. But price still 70% -100% over retail.

I have seen many models (Patek Vacheron AP) quoted in Chrono 24 selling for more than certain price say US$50,000 or more when in reality the grey dealers are trying to sell like $35,000 and unable to sell them. But Rolex perform well. I saw dealers that have 7 Rolex sub 3 months ago, last week his store was clean. Only date just left.

Patek sport watches are inflated and only grey dealers in HK and Singapore that holding dozen of them know how far can it come down, not even Thierry Stern know how much stock of Aquanaut and Nautilus are in the hand of grey dealers unsold due to corona virus in China.


I would say Rolex sport is a safe buy even at premium. Patek sport is good buy at retail , but not a good buy at premium. Stay away from Patek sport watches. Patek dress watch leather straps is ok, a healthy buy at grey used market or retail. Patek sport watch at premium involves high risk, you may be drowned.

Richard Mille, I think is going similar direction with Patek sport watches.

Buy used watches if the price is 20% cheaper than retail. (Only exception is Rolex) ; as it will not happen till you die. Rolex demand is genuine , sales are very well spread globally not dependant on one market and price range like Air King ; Milgauss is still very affordable for successful average middle class family. There are also massive speculation going on in Rolex, but the Rolex demand and Rolex production is
huge; so the grey market is just a minor impact ; just a small percentage of the overall Rolex sales and would not be to bring a major disaster that able to sink Rolex price.