It’s rare that people write two conflicting opinions on the same topic back to back. Regardless, I’m going to do just that. In my last article, you read my explanation of the bulk market up until this point in time. If you haven’t read that piece, please take a moment and do so before finishing this article. I ended last time with a possibility: If you bought now at 3 cents a card, and it does manage to climb a penny at the holiday, you’ll gross a 33% return in a short period of time. That is still true. That possibility exists. So why can’t I stop there? There’s a more pessimistic vision that keeps me from personally investing right now that I think at the very least will convey just how much you have to think about when you’re making an investment decision in Pokemon. I've set you up for how to think about the market but now we're going to do some actual analysis.
What makes people buy cards?
If you follow my work, you’ve probably read my article on the motivations behind people collecting. Don’t get me wrong: I stand by everything I said in that article. But I want to boil it down and observe the collecting phenomenon through a more market-oriented perspective. Pokemon cards are a non-essential commodity. Therefore, they depend on two things from their audience. First, people have to have excess income. Second, people have to be confident that their excess income is not in immediate demand. These two factors are at the core of most the Western world’s economy and, some would argue, any modern currency-based economy. The wheels on this bus only go round and round if people aren’t afraid to spend their cash.
The kryptonite to this super-marketplace we are experiencing is a fear of spending. What happens when people lose their confidence that everything in Pokemon is going to go up? Or worse: what happens to Pokemon when people are afraid they’re going to lose their homes and jobs? I’m talking about recession. And I’m talking about war.
Woah. That got intense. But hear me out. With the European Union experiencing increasing unrest in the form of Greek economic failure, Brexit, Turkish civil crackdown, increasingly divisive German politics, a refugee crisis, suffering French/Spanish economies, a constant fear of terrorism, and other signs of instability AND the United States reverting back to big stick policy with notoriously unstable entities, there are a hell of a lot of reasons to wonder if the 2008 recession was just phase one. For those who aren’t aware or haven’t been around long enough to experience it firsthand, recessions mean 90% of your Pokemon collectibles become unmovable assets until it passes or collapses. Recessions don’t pay off for sentimental cardboard, they pay off for commodities like water and the bread/milk aisle at your local Aldi.
Pokemon collectors carry a lot of debt. What our age demographic didn’t have at the dawn of the last recession is $1.45 Trillion in student debt. Now we do. Many are buying homes for the first time and surprise surprise, the big bankers who saw no repercussions for their role in the subprime mortgage crisis are repacking trash mortgages. (If you haven’t watched The Big Short, it’s on Netflix and is mandatory viewing if you’re going to spend your money with intent to get a return.) We’ve been talking for about a decade now about how the entire world economy is being slowed by the debt burden of the key Pokemon generation so we’d be idiots to think this could never affect the value of our collectibles. We want to make money like the big kids and that means we take on real risks like they do.
Why am I telling you all of this? I’m not here to predict the apocalypse but I am here to say that $0.03 for a bulk pokemon card might not be the floor. $0.03 might be the second notch on a long ladder that we’re all falling down. As I noted before, the bulk market is not propagated by wealthy collectors with a keen eye for opportunity. That’s your 1st Edition Base Set. The worker bee in the bulk hive is the ignorant consumer who likes pokemon cards or has a kid that likes pokemon cards but isn’t able to independently make good decisions about how to wisely purchase for value. Instead, they see the number of cards in a bulk lot and the price and decide it’s wayyy better than the lottery ticket booster pack they’ve been unknowingly buying for $1.29 above retail at a Wal-Mart checkout lane. What we cannot ignore is that this is the most fickle consumer that exists in the Pokemon world. Yesterday, these people were buying Yo-kai Watch TCG cards and before that they were buying Bakugan and before that they were “investing” in pogs and beanie babies. Do you catch my drift?
I’ll phrase my position in the form of a question: What is the inherent value in bulk?
Spoiler: there isn’t any. The luxury of Pokemon bulk pricing was not a sign of the popularity of Pokemon alone. Rather, it was a sign that Pokemon was underprinting. We know Pokemon has rectified that situation. Long gone are the days of Pokemon selling out of sets and ending the production. They’ll go back after the 2-year window and print it. They’ll print so much of it that distributors beg stores to take it. Hell, distributors are still sitting on Evolutions product. Pokemon has rectified the disparity between market demand and supply but in doing so they’ve made every card common. Sure, there are delays in the market that cause high prices like Rainbow Rare Charizard GX which, at something like 1 in 1000 packs, is going to take more time to come down as more packs are opened. But true scarcity is reserved for promos and old sets.
$0.03 is not the floor for bulk.
Like I noted in the last article, it took a long time for Pokemon bulk to even get to $0.03. Bulk Pokemon cards are just as capable of being next to worthless as Magic or Yu-Gi-Oh or a retired TCG. Pokemon is pumping out hundreds of millions of them and they don’t magically go away. Over time, they will cycle and cycle and cycle with less decay than production ultimately leading to a humongous surplus. The lots will eventually find equilibrium at a rate that is just barely profitable for high volume sellers who are piecing the work out to minimum wage employees and card shop volunteers (see: useful loiterers). Christmas is a helpful time for moving product but it is not the hands of God performing a marketplace water-to-wine. If anything, the insane number of new products Pokemon is pushing (so many that they’re literally cancelling products for fear of them competing with each other) will lead to an even greater surplus of bulk. The crash of Pokemon bulk is imminent. And I suspect the floor is under $0.02.
The short term for Pokemon bulk looks bad. The long term looks potentially fatal. Large companies have almost all stopped buying bulk except to meet immediate demands when they have no supply. A major Amazon seller got out of bulk completely, selling off huge portions to other buyers and beating small sellers to the punch. The sense of confidence people had in bulk was unjustified. I’m not buying bulk, but I tell you what. If you want to give me 20 to 1 payout on odds that Pokemon bulk will crash, I’d be more than happy to short the market if you’ll draw up the contracts.
‘til next time,