November 8, 2011

Taxi License ‘Medallions’ Outperform Stocks, Gold

Two NYC hack licenses recently sold for $1 million each

Taxis in New York. (Photo: AP) Taxis in New York. (Photo: AP)

Hailing a cab takes on a whole new meaning, as Wall Street’s search for alpha has taken it to an unusual place—right out its front door.

Bloomberg reports that the surging price of New York’s taxi medallions (known to everyone outside of New York as licenses) and their promise of steady cash flows have investors interested, and bolstered shares of a company that finances their purchase to a four-year high.

“Investors are pooling funds to buy the 6-inch-wide aluminum disks affixed to the hoods of cabs after two of them sold for a record $1 million each last month,” Andrew Murstein, president of Medallion Financial Corp. (TAXI), told the news service. Shares of the New York-based firm have climbed 17% since the Oct. 19 sale, compared with a 6.4% gain for the Russell 2000 Financial Services Index.

“A lot of people have been loading up recently on medallions because they think it’s a safe asset,” Murstein said.  

A regulated supply has helped taxi permits outgain equities, oil and gold for the past two decades, Bloomberg notes.

“With New York City unemployment at about 9% for over a year, more drivers will fill shifts and pay garages to drive cabs, giving medallion owners a profit of about $2,500 a month, said Simon Greenbaum, a broker at NYC Medallion Brokers Inc. That’s about a 3% return for a $1 million medallion.

Compare that with the 2.16 effective yield on U.S. triple-A-rated corporate bonds, down 75 basis points, or three quarters of a percentage point, this year, according to a Bank of America Merrill Lynch index. Yields on 10-year Treasuries have dropped 126 basis points this year to about 2.03%.”

Bloomberg quotes Nat Goldbetter, 67, who brokered the sale of the two $1 million medallions, as saying he fielded about 15 calls in October—50% more than usual—from investors not involved in the taxi industry looking to put money into medallions. He said each New York medallion reaps about $40,000 a year in profit.

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