Liam Dann: Investing to defeat inflation? How about $500,000 sneakers

OPINION:

It’s the economy, silly. Or is it just stupid economics.

The original line – paraphrased by Bill Clinton strategist James Carville – is a shrewd political observation.

It’s the answer to an implied
question, something like: what do voters really care about?

Answer: It’s the economy, silly.

But what if it’s the economy that’s stupid?

Last week, someone paid US$352,800 (NZ$525,000) for a pair of limited-edition Louis Vuitton Nike Air Force 1 sneakers.

The pair (size 5) fetched the highest price in a release of 200 new pairs that sold for a total of almost NZ$40 million.

The Nike Air Force 1 are cool shoes. These are the must-have sneakers for hip-hop stars.

The Louis Vuitton edition comes in a kind of two-tone beige and brown to which my childhood in the 1970s makes me extremely sensitive.

I would definitely wear them.

But think how crazy that price is.

The sneakers went on sale at a Sotherby’s auction house with a reserve of around NZ$3,000 and were expected to fetch between NZ$7,500 and 22,000.

Let’s convert them into a more relevant Kiwi asset – a villa in Auckland.

It’s like a house, put up for auction with a reserve of $3 million, supposed to bring in at least three times that amount…and then sell for half a billion dollars!

I understand you can buy and sell collectible sneakers…or anything really.

It’s not new. There have been markets for stamps and comics for years.

But apparently the sneaker market is booming as an investment asset class.

I think this is a symptom of a world awash in money and distressed and with an investment mentality that is divorced from the productive economy.

Most depressing – for pessimistic economic commentators anyway – is that whoever bought these sneakers is likely to make another kill.

Unless global markets collapse completely in the next few days or weeks, there will be ample opportunity to activate them for a quick profit.

The buyer probably isn’t stupid – but this saving is.

We don’t know who bought the sneakers, but chances are they wouldn’t mind the effects of consumer price inflation.

They certainly don’t come home from the supermarket appalled by the 5.9% rise in the price of cheese and wonder if they should have bought those sneakers.

Just in case the Autorité des marchés financiers reads this, I would now like to disclose that I am not a registered financial adviser and the following does not constitute financial advice.

It is a satirical device to highlight the excesses of the post-pandemic market bubble.

Anyway, what I’m saying is that we all need to get our savings into the sneaker market now, because if we don’t, we could go backwards in real terms.

We are the suckers. Watch our KiwiSavers plummet as investors take money out of the markets with real companies making and doing real things.

Or leave it in the bank and earn 3% less than the rising cost of living.

How to invest to fight inflation has become one of the big barbecue questions lately.

People wondered: what will happen to interest rates?

But I think we’ve all figured that out by now.

They’re going up – if they don’t, hang on to your hat because something much worse must have happened.

What should we do with our money to beat inflation then?

Sneakers, bitcoin, NFT?

Well, chasing higher returns by taking ever higher risks usually doesn’t end well.

This is what causes bubbles to inflate until they burst. This is what happened in 1987 and in 2008.

So my actual take is a little less exciting.

As human stupidity rains around us, we must remember the golden rules of investing. We need to reflect and understand our own risk appetite.

For me, it might just be about weathering the storm and sticking with solid investments to offset the loss in value until everything settles down.

I still think everything will calm down, and so do most economists.

Any chance we had of pandemic inflation being a short-lived transitory phenomenon has been lost.

Low vaccination rates and the inability to share vaccines with poor countries have given us new variants. These have prolonged the pandemic and with it production delays and shipping bottlenecks.

Regardless of the lockdowns, Americans have been too sick to go to work.

Meanwhile, on the Ukrainian border, the threat of war is driving up energy prices.

And now, at the Canada-US border, the convoy of anti-vax trucks is blocking the flow of goods and halting manufacturing on the US East Coast.

It’s the kind of disruption that reverberates around the world, disrupting supply chains everywhere and driving up inflation.

But I’m optimistic that we can avoid a spiral into the stagflation of the 1970s and 80s – (recession and inflation combined).

To do that, we need to pull the world out of the inflationary crush of the pandemic and back to some sort of normality.

We have to get there before central banks get into the thick of it in the fight against inflation.

If they are forced to choose between raising interest rates to levels that crush economic growth or letting inflation soar, there will be no winners.

Even luxury sneaker investors may then find they have nowhere to run.