Monday, December 12, 2016

Customs Gone Crazy, Part I: Irrational Exuberance

This is part one of a three part series on the state of custom knives at the end of 2016.  Its a weird place.  I posted a picture of the price of an Oeser/Pena flipper on IG and it sparked a really good conversation.  I thought that conversation, in expanded form, would make an excellent post, especially this week when I am going to focus on the custom knife market.

That tongue twisting phrase, irrational exuberance, was coined by Alan Greenspan, head of the Federal Reserve, to describe the overheated stock market at the height of the Dot Com boom. He saw things like IPOs of companies with no products raking in cash equal to what GE made in a year where they produced things like 1,000 new jet engines and sold them all. Greenspan spoke like a disclaimer reads, but in that one instance, he captured an idea perfectly. And he did it with a twinge of moral judgment.

For me, the custom market has become a bizarre place. Its collapsing in many ways and at the same time something like the Oeser/Pena Flipper collab is selling for $2,000 direct from the makers. This is irrational exhuberance. In three years, five years, and in ten years, when folks have a bit of perspective, this will look incredibly silly. For the record, 99% of the population, including many knife knuts and myself, thinks this looks silly now.

But let's be clear--this is not to say that Oeser and Pena are bad guys for charging that much money. Its not like they are engaging in EpiPen price gouging. Their flipper, despite what some crazy people on IG think (those aren't the people that commented on my post, BTW, those folks seemed pretty reasonable), is not a necessity. It is a luxury item and if you want to charge an exorbitant amount for a luxury item regardless of its inherent value, so be it. That's the business model of virtually every high end watchmaker out there. Without people being willing to pay lots of money for things of questionable value (see Panerai's Brooklyn Bridge LE), the high end watch market would collapse.

Let me also be clear--if you want to pay $2,000 for that knife, I cast no moral aspersions on you. We live in a free society and if you earned the money legitimately and you are not depriving yourself or your family of necessities, spend it how you want. I think there is a moral limit to this logic--it seems unjustifiably wasteful to burn money, for example, but buying the Oeser/Pena Flipper for $2,000 is not that level of waste.

So this is not a judgment of the makers or the buyers. It is simply a comment on the market. And the market is, right now, exceptionally and historically stupid. I have mentioned this before, but the Tulip Craze seems like an excellent parallel.

This is a bubble market to be sure. And the fact that prices are collapsing all over the board should indicate to people that 1) it is a bubble market; and 2) the high prices we are seeing on stuff like this are unsustainable.

And suppose that you intend to buy this knife and flip it. Again, we live in a free society and you are free to do that. But let's not pretend like the knife is a good use of money. Its not an immorally bad use of money, but its not a bright idea. Even if you are a knife collector, it seems like an unwise investment. And this is with the caveat that ALL knives are bad investments. You know what is a good investment? Yep, investments--stocks, bonds, financial products. If purchased wisely, they provide a reliable return on your initial money.

Knives, even the highest end collector knives, rarely do that. So if you are a collector, think twice. The simple probabilities are not in your favor. Of the thousands or tens of thousands of knife makers that have produced a blade, a very small handful, maybe ten or twenty, have made knives that retain a large amount of value over many years. And an even smaller amount, maybe five, make knives appreciate in a way that is equivalent to real investments. Five out of ten thousand. Those are bad odds my friend.

And those five guys, let's say its Michael Walker, Bob Loveless, Buster Warenski, Bill Moran, and Bill Scagel, they made knives for years with designs far more complex, with skill far more evident, and materials far more rare compared to the Oeser/Pena Flipper. Like this one--the legendary King Tut Dagger from Buster Warenski:

So not only do the random odds favor my argument that this knife will be a bad choice for collectors, the actual comparison to truly collectible stuff favors my argument. This isn't a close call either. Take a look at the King Tut Dagger. Then go back and look at the Oeser/Pena Flipper. Putting aesthetics aside you will see that Warenski's creation used more complex methods, more original designs, and more rare materials than the CPM154/G10 exposed screw construction on the Oeser/Pena Flipper.

And finally there is this point--these five men plied their trade for decades before asking $2,000 for a knife, even adjusted for inflation. No Walker sold direct from maker for $2,000 in his third or fifth year of making knives. These folks earned those prices because the market, over a long span of time, held constant on the evaluation of their output. They were knives people liked and like now even decades later. That sort of stability is hard to earn and it makes me more confident that their work and not this knife will retain value over time.

The Oeser/Pena Flipper looks great. I am sure someone bought it (what did PT Barnum say?). And more power to both parties. But let's not pretend like this is anything other than irrational exuberance.


  1. It looks like you missed the knife for $10,000 at Oeser's site. Beautiful knife but I'll try to get a hold of one of his more reasonable designs.

  2. Tony, have you had a chance to use a Rockstead knife? I wonder how it stacks up against these overblown customs in your opinion. Thank you.

  3. The combination on the hype and the ridiculous prices being asked by relatively new makers is what's going to ruin the market.

    I know a very well known maker who was selling his knives for under 1000 direct and they are now close to double the amount now a mere 3 years later. He felt he was doing himself a disserive being a widely known, long time respected maker and asking less than someone who was making knives for a couple years and just has a lot of hype behind them.