A good friend of mine has a large Ferrari collection. He has several
Ferraris worth over $10,000,000. We often exchange emails discussing
the state of the economy. Recently he introduced me to what he calls…

The Ferrari Factor.

He watches the Ferrari market like a hawk. He feels the Ferrari market
is  an early indicator of what the overall economy is doing. It makes
sense that as people feel richer that they will buy expensive
things…like Ferraris.

NOTE: The unique thing about Ferraris…vs other ultra high end cars..
is that you (and me) can’t simply walk into a Ferrari dealership and
buy one. Even if you do walk into the dealership with the $250,000 in
cash to buy a new one they will tell you “NO”. There is a 2-3 year
wait and to even be on the list to buy one you have to had purchased
at least 1 car from that dealer before. Needless to say, its an
exclusive club.

My friend told me that he has been watching as the inventory of used
Ferraris has shot up dramatically over the last few months. Obviously,
this is driving prices down.

Its safe to assume that these soon to be former Ferrari owners are not
confident about the economy.

Over the last weekend I did a little research on the typical buying
patterns for luxury goods. (You would be amazed what you can find on
Google.)

For example. According to several sources most luxury goods…Ferraris
for example are paid for with cash. Where does this cash come from….at
least where has it come from over the last few years….

Wait for it….dont read ahead….here it comes….

HELOCs…Home Equity. It shouldn’t surprise any of us but, most people
have been supporting their luxury lifestyles using their home equity.

Even the guys and gals buying $250,000 Ferraris.

People have been buying luxury lifestyle bling- bling…cars, boats etc
with home equity money. As the prices of their homes erode, their
financial confidence erodes…they sell their toys.

That’s what is starting to happen.

For example; my Ferrari collector friend told me that he is in the
market for a Ferrari 430 Spyder. He said that he was offered one about
a year ago at a Ferrari dealership in Newport Beach California for
$375,000. Now, he told me that virtually the same car can be had for
$300,000. So, that’s roughly 20% depreciation in one year….about the
same as the local Newport Beach real estate values.

He then told me that when you see things like Ferraris being dumped on
the market it’s a great indicator that the economy is no more than 180
days from being in recession. He built his Ferrari collection buying
cars when the market prices were down…like the prices are headed
now…during the past recessions.

Expect things like luxury boats, vacation homes, planes and of course
exotic and collector cars to soon flood the market as their owners try
to raise cash and reduce their overheads.