Wednesday, July 6, 2016

Uh-Oh. Overpriced piece of glass fails to sell at auction.

During inflationary times people will buy almost anything.  Why?  Because they can afford to.  At least they think they can.  It's the old human failure of extrapolating the present into eternity.  Why worry about tomorrow when the living is so easy today?

When young children witness a train passing by they look upon it in awe.  The train is so big!  And it's so long!  Daddy, does this train wrap around the Earth and to the moon and back?  It must!!  We've been watching it for what seems like a long time and we still can't see the end of it!

Yes, we adults look down, pat one of the children on the head and then think about how nice it was to be so young and naive.  Of course the train doesn't last forever; it's foolhardy to extrapolate the present endlessly into the future.  As childish as all this seems all adults are guilty of behaving just like that child at some point during adulthood.  Some even make a career of it.

Additionally, if the train has been going past you for a long time, would it not be wise to at least begin to suspect that the end of it might soon be coming around the corner?  Would it not be prudent to think about making plans to board once it arrives instead of waiting for it to pull up to the platform before gathering up the kids?

The liberal inflationary train has been running on a regular schedule for about 50 years now.  We see normal people of middle or upper middle class means buying all manner of goods that they don't need.  Many are in serious debt as they do it.  Why not do it?  After all, the money train will last forever, right?  A trap the richer class falls into, especially near the end of the run, is to bid up art, jewelry, and fine goods.  The items purchased might be 5% better/nicer than something else but they command 2x to 20x more in price.   Additionally, they eat out at fancy restaurants all the time living hand to mouth on their big salaries yet never seem to be able to pay the bills down and certainly never bother to save anything.  The more foo-foo and hardly edible the meal, the more far-gone the sucker is.  At some point in all this people actually value the ambience of the restaurant above the food.  And they pay 3x more for the ambience. Again, the attitude is that the money train will always run so let's live life fully right now.

That has been the American experience for many people for a long time now.  So long in fact that it has become the default behavior.  You are treated as kind of a fool if you don't behave like that.  Yeah, I bought island property and a boat to go with it recently (OK, it was actually a partnership on the boat...) but I only felt justified doing it because my house is paid off, I have no other debt and I had savings in hand to pay for these things.  I drive a modest vehicle which, being a 2001 model year, has seen better days.  I avoid debt however possible because I know that the gravy train isn't endless and it has been rolling by for such a long time now that the risk is elevated that it will end.

And so I finally get to the point of this post which is the signs to look for that the herd is getting scared, losing confidence in the ability of the con men to keep this puffed up economy rolling along.  Today's evidence is the inability to auction off the world's largest uncut diamond.

Putting something to auction is not cheap or easy.  You have to telegraph well in advance and make sure that likely buyers are present.  So it does not behoove one to purposely overprice their goods which means that the low bids offered were not in line with what the diamond owner had been led to believe the glass would sell for.

This is a warning sign IMO.  A warning sign that the easy money is slowing down at all levels.  I expect to see more and more of same as problems continue to grow in the EU and as the herd gets more and more nervous.

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