Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Luxury Watch Market
Transcript
- Lucas: So we talk a lot about hard assets in stagflation — gold, silver, real estate — but there's one market that's been quietly getting hammered and it's full of tiny little gears and sapphire crystals. Luna: You're talking about luxury watches. And yeah, the froth has definitely come off. Lucas: Massively. The Bloomberg Subdial Watch Index — that tracks the fifty most traded models on the secondary market — it's down about twelve percent year-over-year as of June. And that's after a pretty brutal 2024 and 2025. Luna: Twelve percent doesn't sound catastrophic until you remember that some of those watches were trading at two or three times retail during the pandemic. We're talking about a genuine correction. Lucas: Exactly. Take the Patek Philippe Nautilus 5711 — the stainless steel one with the blue dial. At its peak in 2022, that watch was changing hands for around a hundred and sixty thousand dollars. Retail was about thirty-four. Now? You can find one for under ninety grand. Luna: Still more than double retail, but the air has definitely come out. And I think the question is: is this just mean reversion after a mania, or is stagflation specifically squeezing this market? Lucas: I'd argue it's both, but stagflation is the thing that's different now. In 2022, you had zero interest rates, stimulus checks, crypto millionaires — all this speculative fuel. Now we've got four point three percent unemployment, but real wage growth is barely keeping pace with CPI. Luna: And the CPI number we just got for May — three hundred and thirty-four on the index — that's up about one point eight percent year-over-year. Not runaway, but persistent. And core is even stickier. Lucas: Right. That sticky inflation eats into disposable income for the kind of person who might stretch for a Rolex. But the really interesting dynamic is on the flip side: the people who already own these watches are holding on tighter. In a stagflationary environment, a steel sports Rolex is a pretty good store of value compared to cash yielding zero. Luna: Especially if you bought it at retail. You've got an asset that's still worth more than you paid, and it doesn't show up on any bank statement. I think that's part of the appeal right now. Lucas: Totally. And we're seeing that in the broader data. Swiss watch exports — which is basically the entire industry — they've been running flat to slightly down in volume, but value is holding up. People are buying fewer watches, but the ones they buy are more expensive. Luna: That's a classic stagflation trade-off. Quantity down, price up. It's happening in food, in energy, and now in luxury goods too. Lucas: And it's not uniform across brands. Rolex and Patek are relatively resilient because they've always limited supply. But some of the brands that ramped up production during the boom — I'm thinking of certain independent makers, or even some of the lvmh owned houses — they're seeing steeper drops. Luna: There's a famous line from Jean-Claude Biver, the watch industry legend, who said: 'The only thing worse than a recession in the watch industry is a boom, because during a boom everyone makes mistakes.' Feels relevant. Lucas: Biver's exactly right. The mistakes during 2020–2022 are now getting unwound. But here's the thing I find most interesting for our stagflation lens: the secondary market correction is actually making these watches more accessible to a different kind of buyer. Someone who's worried about inflation and wants a tangible asset that's historically held its value. Luna: Is that a meaningful demand shift? Are we talking about a few thousand collectors, or something bigger? Lucas: I think it's bigger than most people realize. There's a report from McKinsey last year that estimated the global pre-owned watch market at about twenty-five billion dollars in 2025, growing at eight percent compound annual growth rate. That's not just collectors — that's people parking money. Luna: And that growth is happening despite the price declines. So volume is actually rising on the secondary side, even as values dip. That's a fascinating sign of maturation. Lucas: Exactly. The market is getting deeper. Now, one factor I think deserves more attention is the role of central bank policy in all this. We just had Kevin Warsh's first FOMC meeting as Fed chair last week. Luna: Right — the big takeaway was basically 'we're holding steady, we need to see more progress on inflation before cutting.' And we've got the ten-year breakeven inflation rate at two point two six percent, which is down from two point two nine but still above the Fed's target. Lucas: So real rates are still positive but not aggressively so. That's actually pretty supportive for hard assets. If real rates were two or three percent, you'd rather own Treasuries. But at near zero real yield? A watch that might appreciate in value and gives you the pleasure of wearing it — that starts to look attractive. Luna: Especially if you believe, as many do, that the Fed is going to be slow to cut because inflation is sticky. Stagflation means slow growth but still above-target inflation, and that's exactly the environment where real assets outperform. Lucas: Let's talk about one specific watch that I think tells the story. The Rolex Daytona 'Panda' — the 116500 with the black dial and white sub-dials. In early 2022, it was trading at around thirty-five thousand. Now it's about twenty-two. That's a thirty-seven percent drop. Luna: Ouch. But still well above the fourteen thousand retail price. So a buyer today is paying a fifty-seven percent premium over retail, which is actually more rational than the hundred-fifty percent premium a few years ago. Lucas: Right. And here's the key question for anyone thinking about buying one now as an inflation hedge: can that premium compress further? I think it can, but not dramatically, because Rolex is never going to flood the market. They have a built-in scarcity mechanism. Luna: But the risk is that if we get a real recession — not just slow growth but a contraction — then discretionary spending on luxury goods falls off a cliff. The UK just reported GDP shrank zero point one percent in April. That's the kind of data that makes people nervous. Lucas: And the UK is a big market for watches. But I'd counter that the buyer at the twenty-two thousand dollar level isn't the same as the buyer at thirty-five thousand. At twenty-two, you're getting more genuine collectors and inflation hedgers. At thirty-five, you were getting speculators. Luna: So the correction is actually healthy for the long-term legitimacy of the market. It's just painful for anyone who bought at the peak. Lucas: Exactly. And that's really the stagflation story in miniature. The easy money era inflated a lot of bubbles — crypto, meme stocks, watches, sneakers, you name it. Now we're in the hangover phase. But the underlying demand for things that hold value isn't going away. Luna: You know, speaking of things that hold value — and I don't want to make too heavy a pivot — but that's actually why we do this show the way we do. We don't run ads, we don't chase clicks, we don't have a corporate sponsor. It's just us, sitting here, trying to make sense of the numbers. Lucas: And that's only possible because of listeners who chip in. If you find yourself coming back to these conversations — whether it's about watches or wine or the broader economy — and you want to keep them ad-free, the best way is to buy us a coffee. Luna: It's literally just a way to cover hosting costs and keep the lights on. No perks, no tiers, no special access. Just a small way to say 'this is valuable'. Lucas: That's at buy me a coffee dot com slash fexingo. And honestly, every contribution helps us keep doing what we're doing. Luna: Alright, back to watches. So we've established the secondary market is correcting, but the store of value narrative is still intact. Where do you see this going in the next twelve months? Lucas: I think we're going to see continued divergence. The blue-chip references — Daytona, Nautilus, Royal Oak — they'll stabilize because demand from genuine collectors and inflation hedgers is durable. But the fringe stuff that shot up during the mania? That's going to keep falling. Luna: So if someone's thinking about buying a watch as a stagflation hedge, what's your advice? Lucas: Buy what you actually like, because you might be wearing it for a while. Don't buy it purely as an investment. The best inflation hedge is the one you don't have to sell at the wrong time.