It may surprise some of our readers, but we have taken a bearish position on the economy as a whole. Before this decade is out, we expect Australia and the world will experience a significant recession.

No longer are economies insulated from each other. Everything is linked, and it’s entirely plausible that Australia will be the first domino to fall, due to our level of household debt caused by a long-running speculative property bubble. The depth to which this will affect society means that many will lose everything. Despite these dark warnings, some are simply burying their heads in the sand and refusing to acknowledge the evidence before them. Rather than taking prudent steps to protect themselves against this impending firestorm, they assume the good times will keep rolling. We know this cannot happen. We know we are overdue for a correction.

(For more on this threatening situation, we recommend reading Matt Barrie and Craig Tindale’s extensive analysis on the state of our economy, as well as Business Insider’s warning of rate hikes, and watching Four Corner’s piece on the housing market.)

Collector cars are somewhat of a canary in a coal mine. Before the affluent sell their investment properties, they will sell their third car – typically a classic or exotic car. So if we see a flood of Porsches and Ferraris hit the market, we know that the fire has only just begun and it’s going to be bad. Around the same time we will see a property market crash. Those who are financially liquid will be able to fill their sheds with cheap collectible cars and their portfolios with bargain properties, all ready to sell once the market recovers. They will use these economic cycles to their own advantage, being proactive rather than reactive.

Why is it then are we advocating for investing in classic cars? The answer is because we believe in these very cycles. It is possible to predict the market, and it is possible to profit from these peaks and troughs, provided you stay calm, have faith, and move swiftly. We understand that beyond economic downturns, the most profitable days always come. There may be smoke on the horizon, but our markets always rise from the ashes, stronger and more prosperous than before.

During the Global Financial Crisis ten years ago, the Australian government poured money into the economy to stop it from sinking. The result was that we didn’t have the recession we needed to have. The economy is a bit like our native bushland, in that it needs a fire to regenerate from time-to-time. Because we never allowed that bushfire to occur, it meant the regeneration never happened, and our economy flatlined for a decade. It also meant the fuel in the undergrowth became unmanageable. Instead of two small fires, we now need to have one big one.

But we will recover, we will rebuild, our markets will regrow. It may take five years, it may take longer, but if you have an understanding that economies work in cycles, then you understand that we will see that growth again in the future.

One of the greatest things about classic cars as an investment that few understand is that they always return to their previous, pre-recession values quite quickly. Typically as soon as the economy shows signs of strength and growth, when the sun starts peeking out from behind the cloud. And then their values continue to rise, right where they left off. The only exception being overvalued vehicles that are in their own bubble, which will naturally take much longer to recover.

Collector cars are unlike almost all other investment types. We advocate for them as a long-term investment because they are finite. Unlike commodities that continue to be mined, unlike housing that continues to be built, there's a limited number of each car model available. Unlike company stocks, their values cannot fall to zero. And unlike most other investments, you can insure them against damage and theft. Industry trends also mean we’re losing the things we love about older cars: big, naturally aspirated, petrol-powered motors, manual transmissions, rear-wheel-drive, pop-up headlights. There are fewer cars being produced with the things enthusiasts love. The dam is getting smaller, but the number of those wanting a drink remains the same.

Every car that we feature we give a rating to, but most cars we focus on we consider to be Grade Bs. That is, they are currently undervalued but considered a good long-term investment. In each case, we believe we have identified a vehicle that has all the right ingredients to be a worthwhile long-term investment. We also tend to favour models that are still cheap, relatively speaking. For example, a good undervalued $200,000 car might double in price over a decade, whereas a good undervalued $20,000 car might rise in value five-fold and in only half that time. It also means that the cheaper they are, the less likely they are to drop much further than their current value if and when we have a recession. Minimum downside with maximum upside is our code.

We are bearish on the economy for the next 24 months, but we are optimistic about its recovery and the big opportunities that the acceleration of regrowth will provide. Our members should be aware of the impending dangers and do what they can to protect themselves, while still being open-minded to areas of investment that will provide high yields as the economy recovers (and thereafter). We are fans of diversification across both tangible and intangible investments, and we would recommend speaking with your financial advisor as to how to best minimise the impact of an economic downturn on your assets.