Increased Value or Added Cost=higher prices no matter how you twist it.
keets
Posts: 25,351 ✭✭✭✭✭
There's been lots of talk lately about the escalating prices of all the coins we like to buy and the busy, busy, busy Bourse floor at most shows. Then the other day somebody has the audacity to post a hairbrained example of a coin that gets traded from dealer-to-dealer-to-dealer-to-dealer with each "trade" increasing the buy price for a real customer, known in the larger cities as a collector. Well, exactly how hairbrained is that idea?? I mean, really, are all the coins in dealer-to-dealer transactions eventually being bought by a collector with no added cost as a result of all the "selling" that takes place----I doubt it. Are there many instances where prices are driven higher for us lowly end users simply by multiple dealer trades----I know for a fact there are. Is this an artificial market principal that inflates prices----I think it is, much like with other commodities. Have I fooled myself into thinking I can do anything about it----no, no, no!!! I just don't want to be caught standing when the music stops.
How about you, what do you think about that scenario?? Fantastic delusion, simple fact or maybe something in the "Great Grey" between the two??
Al H.
How about you, what do you think about that scenario?? Fantastic delusion, simple fact or maybe something in the "Great Grey" between the two??
Al H.
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Liberty: Parent of Science & Industry
i'm talking mainly about collector coins, also. my post is a reflection of the thought process from what i've seen over the last year or two helping a local dealer in his shop and at shows, along with discussion here and observation at shows. peculiarly, the evidence has been growing. i can watch material come into the local shop, be bought by one of several "show dealers" and be gone at the first show it's taken to before the public enters the room. who knows what happens how many more times before a collector steps in and stops the madness!!! remember, each time a dealer transaction takes place, the best case scenario to a dealer's choice customer just increased by a matter of 5-15% at best. while this is by no means the norm, it's a case that's repeated across the board as a matter of routine.
al h.
Ultimately it comes down to when the coin comes to the collector to buy and if the collector buys it at whatever price it is offered at. A collector does not HAVE to buy any coin but CHOOSES to buy said coin. As a matter of fact the same goes for the dealers. We all (dealers and collectors) pay what we think is a fair price.
edited to add:
In this coin environment right now people (dealers and collectors) are SPECULATING on what the top of the market is. To me collectors have it easier than dealers since collectors can put on hold their buying whereas a dealer HAS to buy coins to be able to turn a profit.
They get their stock from a source(s) and they had to pay a small premium to get it. It is passed on to the next buyer and so forth until it finally ends up being in someones hand that bought it to hold (until they can up-grade). At that point, the collector will hope to realize a profit when they sell.
IMO, I don't think ALL dealer to dealer transactions go this route. There are, I'm sure, those certain coins that dealers have in their inventory that will not sell for a profit. Do they hang on to them or put them up on eBay or Heritage and take what they can get, regardless of hammer? Yes, I think they auction them. Sometimes, this is the only way to eliminate stock that has no market in their region or buyer pool. This is why eBay gets so many low to middle "class" coins. The major auction houses IMO, charge too much for their services. Even a 5% commish can erase a sellers profit, and with some of them charging 15% and more, I can see many collectors AND dealers losing money. Granted, you get the exposure to the largest customer base available, but if there is no one out there interested in the coin, you may end up having to PAY for it to sell on top of the loss from the auction hammer. I know because this has happened to me.
I think this is the way it has always been and the way it will always be. Timing is a critical issue regarding making a profit. If you can second-guess the interests of the consumer base, you are ahead of the game. If you can't, you take your chances.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
it's where the buyers set the price in true auction format, or
people selling can list coins at thier price, which may or may not get bids.
a much more effecient market, except for the ultra high value stuff (which is probably > $5k or so)
which, by an amazing coincidence, is also the stuff dealers trade among themselves before finding a Home in the holdings of an Astute collector.
(Popularly defined as a rich collector who wants to look at, show friends and family,
and generally enjoy owning for more than a year or 10, probably realizing a gain upon sale)
Beginning and mid level collectors can now always know what coins are "worth" by recent auction results. (the High level Dealers and Astute Collectors always knew this stuff)
Liberty: Parent of Science & Industry
<< <i>Each dealer in line thinks that he "knows" the greater fool. >>
Funny to hear this as I do not think any dealer or collector is a fool. To each his own I guess.
it's another dealer or a retail customer they simply know who to "shop" a coin to first. Some
of the top buyers will take longer to reach and this is especially true in the more thinly traded
segments of the market.
The collector.
That's why we should buy and and sell collector to collector and then we wouldn't have coins buying at 400 passing from dealer to dealer and selling at 800.
your thinking pre-supposes a static price for coins, moreso what was stated by fifth. my example in the response to Baley is real life and it's reflected in the clear fact that collector coins as well as high end material has risen in price. collector coins are traded exactly in this manner, just at lower levels.
keep in mind that i have no complaint about hpow this all takes place, just opening it for discussion because i think some don't really believe it's going on----and i hope i'm not coming across as delusional or overly-cynical. as in other areas of commerce, it's common. a good example might be how car dealerships use auctions and wholesalers.
my main point is that each dealer transaction adds cost to a coin to an eventual collector who buys to hold. if it's only 5% and the coin is traded between dealers 3 times after it first arrives on the market place, well, you can do the math for whatever value you choose.
al h.
<< <i>That's why we should buy and and sell collector to collector and then we wouldn't have coins buying at 400 passing from dealer to dealer and selling at 800. >>
coynclecter,
That would be ideal, however, the real reason a dealer can exist is that he provides the medium for the transport of goods. The dealer is a conduit to distribute coins to collectors; he provides a service. This is no different than Tonka manufacturing toy trucks, selling them to distributors, who in turn sell them to retail stores. Each sale is marked up. The consumer , or collector, then buys them at a retail price. Now, the corner toy store probably charges more than WalMart, but that toy dealer provides another service, convenience. Same thing with coins and dealers. IMHO
<< <i>That's why we should buy and and sell collector to collector and then we wouldn't have coins buying at 400 passing from dealer to dealer and selling at 800. >>
You missed my point above. If the collector CHOOSES to buy the coin at 800 then there is no problem.
Personally I WISH I could buy coins at certain prices and double them.
coynclecter:
If you had a coin you paid $500 for and wanted to sell it to a collector a week after buying it how much would you sell it for?
The collector.
That's why we should buy and and sell collector to collector and then we wouldn't have coins buying at 400 passing from dealer to dealer and selling at 800.
If only it were as simple as you state. The dealer provides instant liquidity, which may be important to the collector. The dealer pays the holding cost while he searches for a ready buyer or the top end user. The dealer exposes the coins to thousands of collectors, sometimes at considerable expense. By the time the collector's time and expenses are added up in bypassing the dealer, often times he's better off selling it and taking the hit - after all, what are the odds the collector really would have found the ultimate end user?
By all means, if you know who to sell it to and can get a better price going that route, then do so. But don't think that just because the dealer turns a profit that he didn't earn it!
If I was to sell a coin a week after I bought it , it would be because I regretted buying it and would be happy to get my 500 back. I would probabaly even take a 10% loss and write it off to education.
Maybe it seems that way in a rising market. Likewise, it might seem like each dealer transaction REDUCES the cost to the collector in a falling market. (After all, coins trade at progressively lower prices in a falling market.) But the reality is that we all buy as low as we can, we sell as high as we can, and when push comes to shove, NONE of us really gives a ratzass what the other guy paid or how many people made a buck on the coin.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
As much as I can get without jeopardizing my relationship with the customer. If that number is $2000, yippee! If it needs to be $300 because I made a mistake or because the market tanked, then $300 it is.
Edited for clarification.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
I think what you're saying is a simple commercial fact of life. Just as any other product or good gets marked up in its journey from manufacturer to distributor to retailer to customer, so do coins.
As has been stated before, coin dealers provide liquidity to the market and they expect (and should) to get paid for that service.
The easiest way for a collector to reduce the price he pays for coins is to travel up the distribution chain. If one usually buys coins from a retail store, then he can go to a medium-sized coin show, if he's used to going to a medium-sized show, he can go to Baltimore and then to FUN and then to the ANA and finally to a major auction. At each step, however, the collector incures costs, both in cash and in time.
It's always a trade-off for a collector - pay more for the coin to be brought to you at home or spend money and time to go where the coins are.
Check out the Southern Gold Society
I work very hard for my money and don't have a lot by any means. But I've seen a lot of tragedy in life, it just ain't worth sweating the small stuff. Yeah I know I'm against the grain again, but that's what I do best.
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Yeah of course a dealer would like to hear my words of wisdom.
This is a topic that speaks to capital markets in general, and "artifical market princip[le]" is exactly right.
Let me share with you a related principle that resulted in enormous frauds in our securities markets. I am going to greatly simplify this, as there are numerous aspects to the fraud that are not germaine to this discussion.
In the late 90s and early 2000s, companies like Qwest, Enron, Golbal Crossing, and others regularly engaged in the bogus trading of "dark fiber," called "dark fiber swaps." Dark fiber is broadband capacity that isn't being used by customers. What Qwest and other companies would do is trade their dark fiber capacity between one another, and swap it back again. These companies performed ridiculous amounts of swapping, and each time they swapped, each company would record revenue and profits from the swap.
In reality, this dark fiber capacity was almost worthless: it was the swapping activity itself that artificially created the value. (In addition, the revenue and profits recorded by the companies also was fictitious -- paper profits having no basis whatever in reality, because there were no customers for all this broadband capacity.) Here's a brief snippet from an article:
"Qwest swapped network capacity with companies like Enron and Global Crossing; each company posted revenue and profits, making its financial results more impressive. In a deal with Enron, consummated on the last day of the third quarter in 2001, Qwest sold optical wavelength services to Enron for $195 million over 25 years, yet immediately recognized $86 million of that revenue. At the same time, Qwest bought "dark" fiber - fiber not yet activated to transport communications services - on such long-distance routes as between Salt Lake City and New Orleans for $308 million."
I'm not saying this is what is happening in the coin market - I don't think dealers are trading coins to record ficitious profits, since they don't file annual reports and don't have shareholders to please. But just as fiber swapping artificially inflated the value of all those unused networks, all the dealer-to-dealer coin trading may be artificially inflating the value of certain rare coins. In my opinion, the two are analogous.
But the dark fiber swaps (and many other round-trip and swap-type frauds) speak to just how easily markets can be manipulated. And the implosion of all these companies, and resultant security fraud prosecutions, provide a tangible, current, real-world example of an "artificial market."
Turning back to coins, if end-users of all these coins don't support these prices, you can bet your last gold piece prices will fall -- hard. So it may indeed be the case that certain segments of the market have been artificially inflated via dealer-to-dealer trading.
Don't take my word for it. Ask people who bought five-figure coins in 1989. Or talk to Qwest's and Global Crossing's former shareholders who were wiped out: they'll clue you in.
Wouldn't a dealer be better off just holding onto inventory in a rising market?
That's the key -- who will provide the money to purchase the coin? Now this is something that a number of board members have raised: if all the dealers can't find a high-priced home for all these coins they are trading, what happens to prices? It's a good question, and one I'll leave for you to answer (if for no other reason than, in truth, I'm not qualified to answer it).
I was trying to provide a different, but real-world, example of the artificial market principle to which Keets speaks. This is an example of which I have expert knowledge. To that end, artificial markets do indeed exist. Over the last few years we went through one of the most tumultuous artificial market frauds in this country's financial history, wiping out hordes of shareholders and contributing to the stock market implosion.
Edited for puncutation.
In the cases of the dark fiber swaps, I don't believe that any actual money changed hands, there were just accounting entries.
Check out the Southern Gold Society
Sequitor - They are not analogous is the least. Dealer-to-dealer sales are REAL. Real money changes hands. Looking for a better analogy? Consider two dealers swapping inventory at inflated values and then selling the coins to investors at a small increment over the misrepresented "cost". Although that wouldn't inflate the market (unless the scam involved dozens of major dealers, all intent on raising values), it would represent a conspiracy to defraud investors.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
And the volume in the recent auction sales is incredible.
The only cases of dealer-to-dealer-to-dealer transactions causing price runups are cases where the first seller sold too low or didn't go to the right dealer to begin with.
In 1996 and 1997 a very nice 1955 DDO cent in PCGS MS-65RD that I showed here exchanged hands between at least 3-4 dealers before I was able to track it down and buy it. It went between Tom Caldwell (NE Numismactics) Jay Parrino (the Mint) and I also believe Laura (Legend) among others. The price was raised from around $14.5K to $19K by the time I was able to pin it down. I had no choice. I didn't have the money to pay in full without a trade until Jay Parrino had it. At the time he sold it to me, it was the highest price ever paid for a 55DDO.
In my mind I paid about $2K too much but had the gut feeling that waiting for a better price would yield me a lesser coin.
I now have had the coin 7 years in the same holder. My original instincts were correct.
It is part of my die variety cent set in which I only wanted the best in the 72DDO, 83DDR and 84DDO, etc. . A really cool looking set!
I am glad the coin exchanged hands between dealers since it remained available to collectors like me at the right time. Had another collector gotten it before me, i would have waited a long time to track it down again. I have waited as long as 24 years to locate the coins I did not buy the first time.
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Yeah of course a dealer would like to hear my words of wisdom.
I'm not a dealer stman and I liked your words of wisdom just fine!
<< <i>I'm not a dealer stman and I liked your words of wisdom just fine! >>
Thanks Puff... you must mean the part where I said me going against the grain is what I do best.
<< <i>In case anyone misunderstood my wink above - what I meant was "did the dealer actually create a profit on the sale"? If inventory value is rising, what good does it really do to sell a coin [that will cost more to replace in inventory] other than perhaps for cashflow purposes? >>
Actually in the retail business, I think that's referred to a "turns" or turning your money. If you start with 100K in inventory in January & each month your turn you inventory over at a 10% profit, and consistently do that each month, at the end of the year, you should have made 120% gross profit for the year (or something like that maybe more if it gets compounded). If at the end of the year you sold you entire inventory & had only cash, you'd have profit.
I think what TDN is suggesting is that if at the end of the year you simply reacquired your exact same inventory, but now at double the cost & you still had every bit of it, would you really have made a profit? Not sure of the answer to that - per accounting rules, you would have, because each time you sold, you made money, but in the real world, if you had used all of your profit to buy exactly what you started with, you would be in the unenviable postion of paying taxes on "profits" that were only "paper" profits because what you owned at the end was exactly what you started with - had you just kept your initially inventory, without making a single sale, you'd have been better off. But then that's an investment and not a business.
I'm not sure which is the better strategy, but its hard to run a business if you don't sell your inventory.
“It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.” Mark Twain
Newmismatist
To the contrary, they are analogous. In the dark fiber swaps, "real" money changed hands, too -- but instead of hard cash, they were accounting book entries and money wires to create paper trails for the auditors: that's "real" money. To perpetuate the fraud, the swaps were reciprocal -- I buy $300 million of capacity from you, you buy $300 million of capacity from me. We exchange the capacity, along with the cash -- and the kicker is, we both get to record a gain. So yes, REAL money changed hands in these deals.
But again, my point wasn't about the specifics of these transactions, and frankly I don't want to delve into the details. I merely wanted to provide a known example of artificial market inflation via trading among a select group of parties.
Looking for a better analogy?
I was looking for a recent, real-world example of proven market-inflation. I should've just kept my example to myself. Sorry. No more erudite theories by me on these boards.
If we're talking "real world", then it's pretty simple. If a dealer wants the perceived market value of his coin to increase, all he has to do is advertise to buy more at a higher price. Doesn't matter if he really buys more or if he rejects every coin that is offered to him.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
You know I've had several people tell me for a "fact" this did happen but no one has the guts to say who this slime ball is but I have the guts to call this person a slimeball to his/her face if some one would only name names if they really know and arent just blowing smoke. So who was it that did this ???
Les
It is interesting that you mention this...
I had an experience a while back in which I phoned a dealer, who regularly publishes buy prices for Carson City Double Eagles in a Greysheet ad, inquiring on a buy price on a specific PCGS-certified piece. He quoted me a buy price on the phone 20% less than the price quoted in the ad run the same week. Needless to say, I promptly hung up the phone and would recommend no further dealings with that party.
I think this is an important point. This is also a point I made in my Houston show post. It seemed to me that most of the money changing hands was dealer to dealer. One of the guys at the Houston show was selling Toned morgan’s at regular grey sheet ask prices. On dealer day he sold a third of what he had on Friday, as the dealers kept selling and had money they kept hitting his items. This also happened on Saturday. I visited with one dealer that had a table and all his items were in red boxes locked in his case. When I ask him what he was selling his reply was that he was “wholesale only”, and was just here to buy. One expensive Bust half sold to 3 different dealers and went up 20% each time. The last time I saw it the price was 35% above PCGS price guides. The facts of life today if are if you are a series collector collecting the higher grade dates, and mint marks, you are going to pay way more than most price guides by the time you fill that hole. The only thing that could be done about this is for us collectors to unite the forum, and STRIKE!
Call a 30day non-buying moratorium. Most of us are honorable people, who also know who each other are, so we will take the pledge not to buy on EBAY, at shows, or at auctions for 30 days? Somebody post a moratorium thread with the rules.
Buying low and selling high "back into the market" is not unethical. On the other hand, if a dealer buys coins quietly, prices rise, and he then hypes the coins and unloads them at even higher prices, the behavior MAY be unethical. It all boils down to whether or not he believes his own hype.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
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<< <i>I'm not a dealer stman and I liked your words of wisdom just fine! >>
Thanks Puff... you must mean the part where I said me going against the grain is what I do best.
That's the one!
There is no "nice" in coins. Oh it may start out that way, but it ends fast.
Same is true of any "collectible" that is not fungible and depends on a "perceived" value rather than an intrinsic one (such as interest or dividend) which can be calculated into the future.
ALL is fair. NOTHING is taboo. HYPE is the driving force in coin marketing. Look at this week's CDN. The auction results publicized are, in my opinion, outrageous. Coins selling for twice what they did a year and a half ago. BUT.....they are .....SELLING. Whatever the motivation, the buyers are coughing up dough to get coins. And experienced dealers know to make hay while the sun shines.
EXPECT ......nothing but pleasure from your coins and you won't go wrong. But....SAY....all you expect is pleasure and really mean "profit" and you better quit collecting today and sell em all.
There is only one way to consistently make money in coins and that is to DEAL in them. EVERYTHING is for sale. Losses taken quickly and caution takes over.
I was a dealer and had very few what I call "collectors" who added to their interests constantly. MOST were off on the latest tangent from month to month.
Here's coin ethics: I answered a teletype ad (back when we had "teletypes") for VG-F pre-21 morgans for $28.00 per delivered. I confirmed by phone and shipped. Meanwhile silver ....... plummeted!
In a week, I got my coins back. NO explanation. No call in advance. Just the coins in a box.
Just to have it in writing, I sent a TT message to the dealer who was the "buyer." Asked what was wrong, grade, appearance, what?
Got reply: "No problems, just not what I looking for." uh-huh.
One of largest, if not THE largest wholesaler in the bizz.
sweet.
hey Topstuf
that dealer wasn't from a Little Town up north, were they??
al h.