I read Dale Brown's thoughts on what made the DeRo sell for $7k plus change. I trust his judgement about the quality of the bike and its standing in the pantheon of vintage lightweights completely. If any bicycle from that time period is worth the price paid, then that one certainly deserves the cash consideration it received.
Having said that, I would also like to say that what makes collectible objects spike up and down in price (and they do go down as well as up--just ask the car and art collectors about their markets) is not largely the quality and standing of the bike, car or art work, among knowledgeable collectors. It is the changing amount of money in the hands of collectors, and the changing number of collectors, that desire to buy the fairly constant quality and standing of that bike, car or art work.
The DeRo was a great bike. The DeRo is a great bike. The DeRo always will be a great bike. The DeRo didn't change. The amount of money in the hands of the collectors, and maybe the number of collectors with that kind of cash and interested in the DeRo changed. They could afford to spend more for the same great bike now than they could a few years ago, so they did. A few years from now, they maybe able to afford to spend less and so they will spend less.
The above raises the question of why the bidders had more money to spend on the DeRo now than, say, four or five years ago. I can think of three reasons right off the bat.
First, four or five years ago Silicon Valley was in the dumper, so the guy from Sunnyvale who bought the DeRo yesterday might have been filing bankruptcy four or five years ago and not bidding. (note: three years before that, he might have just gone public and had a cool hundred million to play around with; this is how it goes on the individual level of markets). To me, this man's bid for the DeRo says more about expectations in Silicon Valley than about in change in standing of the DeRo. But he could also be old wealth, so what in that case would explain his willingness to spend more now than a few years ago?
Well, obviously, massive tax cuts. Wealthy folks, especially the top five percent just do have a ton more after tax green than three or five years ago. All the statistics show it. Any time you see major tax cuts enjoyed by the affluent, you can never go far wrong anticipating a major spike in prices for collectible goods a year to three years down the road as the cut filters through. If there is another round of massive tax cuts, the DeRo will inflate an amount comparable to the spike associated with the last tax cuts, if the next round of tax cuts are of similar size and distributed the same way the last ones were. Tax cuts have often had this kind of an effect. But there's more at work than tax cuts I suspect.
Five years ago there was a trillion dollar surplus (that means Uncle was sitting on a trillion we couldn't get our hands on to spend on bikes). Now the Bush Administration oversees a massive budget deficit. So: anyway you cut it, there's trillion, maybe two trillion (depending on who you believe about the size of the current deficits) new dollars floating around out in the economy. And four years ago, I believe it was the Pentagon that discretely announced that its accounting system had malfunctioned and it could not account for about two trillion dollars in the latter part of the Clinton Administration and the early part of the Bush Administration. We can reasonably assume that these trillions are not stuck in a mattress in Don Rumsfeld's office in the Pentagon. We can reasonably assume that they have danced out the back door of the Pentagon and are washing through the economy, however asymmetrical their distribution. Making the conservative assumption that a significant portion of as much as four trillion dollars found its ways into the hands of affluent folks who like to collect things, then I think a reasonable case can be made that part of the spike in the DeRo's market price may be attributed to affluent collectors having a steadily rising tide of cash from defense hijinks and an unprecedented government spending spree to play with.
Fourth, we have the Federal government's little known Plunge Protection Team (Fed Chairman, Treasury Sec. and I forget who the other two are, but you can google PPT and find out) that has been, since about the time of 9/11, been issuing debt and printing currency in absolutely mind boggling quantities and shoveling them out the door to be invested discretely by a variety of financial players in the form of massive, effectively untraceable derivative plays aimed at trying to counter the ongoing economic shocks of 9/11 and the wars in Afghanistan and Iraq, plus the overhead of base expansions into central Asia and west Africa, etc. The amounts of these financial plays could easily run into the trillions, as they are effectively fiat money activities subject to little or no discretionary review by anyone other than the Plunge Protection Team, which one would hope is doing its best to stave off a great depression at any cost. Again, making the reasonable assumption that a significant portion of these trillions has the last few years found its way into the hands of affluent persons who like to collect things, then we can conclude that another component of the DeRo's spike in market price is accounted for.
Dale mentions that had the bike been a little smaller, then the Japanese investors might have entered the bidding and the price might have gone higher still. I agree and disagree with this. A smaller bike almost certainly would have increased the number of prospective bidders, but the key is whether those bidders had more play money than the person in Sunnyvale. I would reasonably suspect that a significant proportion of these shorter bidders would have been Japanese (though I have no cultural morphology statistics to back up my anecdotal observations suggesting the average Japanese person might be a little shorter than the average caucasion in Sunnyvale--it is worth noting, however that Sunnyvale has all nationality and ethnicity of affluent persons, so I am not sure we can safely assume the Sunnyvale buyer was taller). But even if the height assumptions prove true, I am not sure the economic tides have been all that kind to the Japanese economy, especially to its affluent class, at least in relative terms. Put more succinctly, I haven't seen any evidence that Japan has undergone a comparably massive redistribution of wealth to the upper class in recent years as has occurred by every measure available in the USA. Every oligarchic dog has its financial day, it seems. The Japanese were once upon a time so flush that they were spending $20M for beach houses in Kohala on Oahu, but that was back in the late 80s/early 90s before the first President Bush threw up in the lap of the Japanese prime minister and Japan plummitted into one of the longest periods of recession/depression of any g8 country ever (something it is still struggling to extricate itself from). Frankly, if the bike were smaller, I'd be more inclined to think that Shanghai money or Singapore money might have come into play, though with Yao Ming in the NBA I'm not sure we can assume the Chinese are shorter than Caucasians in Sunnyvale either. But who knows?
What I do know is that if the DeRo goes back on the market six months from now, the next big spender sending the price spiking is likely to come from Texas, or Dubai, or Saudi Arabia, or West Africa, or Russia--all places where oil flows like sweat in the Tour de France. Does anyone know if Vladimir Putin rides? He's a former KGB man who runs Russia, which just renationalized one of the largest oil companies in the world (Yukos) which is now one of the really big oil players, at a time when oil prices have, oh, doubled at the well head the last year or so.
In short, until you see fiat debt issuances from the privately owned central banks and money supply numbers from the state treasuries stop increasing, or until you see massive wealth redistribution downward through the population, you can bet on two things: the sun will come up tomorrow, and the DeRo will go higher. Its really that simple. Thank heavens something is.
Best regards, Don Wilson Los Olivos, CA
Second,
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