WHAT better way to celebrate the sun setting on the Federal Reserve’s zero interest rate policy, that great inflater of asset prices, than with an auction of US$100,000 used handbags?
That’s the plan over at Christie’s, which is holding its inaugural live auction of Handbags & Accessories to be held in New York.
One bag is estimated to fetch US$100,000 to US$150,000 and several more are slated to reach the mid five figures.
I’d like to stress that these are previously owned objects, from the “secondary market” as Christie’s would have it, and may derive some of their value from the fact that their makers cleverly control distribution of certain designs, selling only to their largest clients.
That this comes just days before the Fed is expected to hike rates next Wednesday, effectively ending seven years of virtually zero rates, is particularly appropriate.
What’s interesting here isn’t simply the way in which used handbags becoming both financialised and fetishised reflects a 1 percent in ever more desperate search for conspicuous means of displaying wealth.
Instead, like art and baseball cards before them, now used handbags are being marketed as investments, stable or growing stores of value in a world with little stability or growth.
“Woman are buying these bags because they know they will be worth more later,” Caitlin Donovan, Christie’s specialist for handbags and accessories told CNBC on Thursday.
It’s good to have a little something put away against a rainy day, isn’t it?
Now, an auction house employee may be forgiven a bit of flim-flam, but the interesting thing about Donovan’s comment is that it accurately describes the psychology of asset bubbles.
The buyers of these bags can “know” no such thing as that they will rise in price, of course, but stranger things than a Birkin Bag Bubble have happened and the prices about which these consumers care most urgently, Manhattan or London real estate for example, have certainly risen vertiginously.
Why shouldn’t the prices of other similarly desirable things rise in sympathy. Isn’t that how all this is supposed to work?
So, here we are with Christie’s publishing an auction catalogue in which the word “shiny” is used, though whether as a straight adjective or as a complement is unclear.
Well, in a way this is exactly how zero rates and quantitative easing were supposed to work, and how they have been proven to work in practice.
One way extraordinary monetary policy works is through the asset channel, the hope being that by raising the prices of assets, animal spirits in the economy rise.
We’ve certainly seen evidence on the asset side, though the data on follow-through effect for the broader economy, outside of the world of very expensive handbags and accessories, is less encouraging.
Secondly, asset purchases by central banks disproportionately benefit the wealthiest, who own most assets, a point made in a 2012 study by the Bank of England.
The sweet spot, therefore, as we can see, are those assets coveted by the richest. If handbags can be positioned in that space, perhaps the effects will be similar.
The results thus far in the handbag secondary market may not be so amazing, at least to judge by Donovan’s testimony on CNBC.
While saying that some bags that retailed at $12,000 may fetch “upward” of $30,000 at auction, the most expensive bag on offer, while having an estimate topping out at $150,000, originally sold for “around” $300,000.
The future price path of used handbags remains to be seen.
There certainly isn’t anything like a handbag index to give us historical comfort, much less anything in the way of data about accessories prices over time.
Rather than reflecting a nascent bubble, it seems more likely that this sort of thing is simply an outgrowth of the burgeoning population of very wealthy people wanting to have a bit of fun, and of an industry cunningly, and here I refer both to luxury goods companies and auction houses, providing them with goods on which to spend their cash.
Still, as interest rates rise, the risk must be that asset prices are not well supported. If that helped the wealthiest on the way up, so will it hurt them on the way down.