Don't worry - Current coin prices are not a bubble.

Coppernicus

I've been watching the price of my specialty (Lincoln wheats) go through the roof. I have also read threads on this forum from other specialists about prices for their "babies." All in all, prices for most series are moving up strongly, some think too strongly. I disagree.

I am a student of the stock market (been investing for almost 40 years, have a PhD in Finance and teach investments and financial markets at the graduate school level). In the early '80s, the Reagan administration passed legislation which established IRAs, 401(k)s, 403(b)s, etc. If you look at a long-term chart of the S&P500 (1926-2003) you will see a dramatic steepening of the trend in the market beginning in the early 80s. Despite some pretty dramatic short-term swings, the overall steeper trend continues. I think this is due mainly to the increased demand for stocks for the tax-sheltered plans introduced in the early 80s. This represented true structural change in the financial markets.

How does this relate to the coin market? Two fundamental changes have taken place in the last few years. First, third-party grading has increased liquidity in the overall market. Second, ebay has opened up the third-party grading trend to thousands, if not tens of thousands collectors who used to be stuck with their local shop, if they had one. I believe that these two features which are relatively new have provided a "structural change" in the rare coin market, especially for the lower priced, "commodity" coins. This structural change will, IMHO, be similar to the tax law changes of the early 80's - forever changing the playing field.

There will still be price cycles, of course. But those who think the current price levels must "crash and burn" or the "bubble must burst" have not considered the underlying changes in the coin market.

I'd love to hear others' thoughts on my hypothesis!

Mike

keets

hey Mike

the only thing that doesn't fit with regard to our hobby is that it's still just a hobby at it's heart. it entails, for the most part, disposable income that collectors will always choose to spend wisely and with discretion. it just seems logical that at some point, as has always happened in the past, prices will get to a point where the buying slows and creeps to a halt until things settle down some.

i don't really think comparisons with the stock market and other entities which can be created are valid. the supply of coins will always be limited while the number of collectors grows to swallow them up. that's why prices rise and ultimately why prices fall. companies can split stock or issue more shares to keep things sane, that can't happen for us. when we get tired en masse of paying what we feel is too much-----a point i have already reached to a certain extent-----the adjustment will ocurr irrespective of all other things. the one thing that can keep the ball rolling is more and new collectors, and that has been happening for several years now, new collectors and returning collectors.

al h.

Coppernicus

I agree Al that coins are a hobby to many and therefore not exactly like stocks. However, there are many people who view coins as investments and I never said there wouldn't be ups and downs in the prices (cycles). My theory is that higher prices are here to stay, i.e. the average price level is higher, even though prices will still cycle around this higher level. But I see no reason that prices must come crashing down like they have sometimes in the past. I think TPG and ebay offer some more underlying "support" than there was prior to these relatively new factors.

Mike

atomic

I agree with the theory. But once inflation gets rolling, we may get a bubble as we did in gold prices in the early 1980s.
Atomic

cladking

The current market does appear to be much more than a mere cyclical upturn. There
are changes in the very structure of the market occurring and it's likely only a major
change in the overall economy could break it in the short term. There are other dynamic
and demographic issues to be answered in the longer term. Even bull markets can have
plateaus and corrections in the interim.

keets

hey Mike

i'm currently trying to get an assemblage of PCGS quarterly pop reports beginning in 1997, i'm about half way complete. it should be interesting to work up some graphs for different series' or issues to see how the pop's rise in response to the phenomenon of the last 3-5 years. with supplies of many coins very limited, there should be signs of leveling submissions for some. that could be an important factor in keeping prices strong as you've suggested. the Mint also seems intent on helping prop up prices with different programs like the recent Nickel commemorative. i think it'll be interesting to watch the State Quarter program end right when there will probably be something done with the Lincoln Cent.

what are your thoughts on how long it takes a new collector, perhaps someone who decides to save the State Quarter series, to move into other areas and maybe start looking at slabs or attending shows?? i don't spend as much time at the local shop as i used to, but people would often come in for the most recent release and leave without looking around. at the same time, while helping at shows, the same type of people will often look through the cases and ask questions. i enjoy that part of helping my buddy, trying to encourage newcomers to branch out.

al h.

Coppernicus

Al - Great idea on the pop report research. I hand collect ebay auction prices on the Lincoln wheats, PCGS only, and have almost three years of price data. Higher prices are the norm, and when I have more than 40 prices for a particular date/mm/grade, I graph them. I'd say the MS66 and up have a much steeper trend than the 65's and below, although the rarer dates/mm's are steep too, even in the lower grades.

I think the state quarter program has planted the seed in a lot of people, particularly YN's but it remains to be seen if the seed will take root.

For my part, I donate a monthly YN drawing prize at my coin club's meeting and I "seed" the "Take a penny, leave a penny" trays at the gas stations. After I've cherry picked a roll of, say, BU 58-D's, I scatter the rest all over southeast Wisconsin, hoping to spark someone's interest. Maybe even a baby-boomer who collected as a kid and now has some $'s to spend? My interest in collecting was renewed when I found a nice RB 1957 in change one day - "Where are those Whitman folders I had as a kid?" - been super "re-hooked" ever since!

Mike

K6AZ

Third party grading was in existence during the boom of 1989 and look what happened.

I have been a collector for 33 years. I have seen several of these cycles, usually fueled by dealer promotion. There will be a bust to this cycle, the only question is when. If you are a true collector who doesn't care about the daily value of your collection, you will be fine. If you are into coins as a speculation investment, you are asking for trouble.

Coppernicus

K6AZ - Good point on the TPG's being around in '89. However, the combination of TPG and ebay will provide more support than just TPG alone. Personally, I don't collect for investment purposes so I only look at prices on the "buy side." I often overpay if I really want a piece and if the price should fall (collapse?), I'm really not hurt by it. My investments are in the stock market and over the last 30 years or so, have done very well. Coins are for holding, showing, talking about, etc.

Mike

cladking

Also in 1989 the number of collectors was static. Few were on the net at that time, too.

K6AZ

Exactly, and if you hold your coins through several cycles, most likely you will come out ahead.

I see too many people get into coins as some type of get-rich-quick scheme. It's not going to happen, unless you are one of the big shots manipulating the market.

For me, I keep plugging along on my Morgan set. When prices get above what I want to pay, I lay off for a while until they come down. I don't sell my coins when the price goes up, some of them have been very hard to locate. I have many that if I sold tomorrow, I could more than triple my money on. But I am a collector at heart, and I want to finish my set.

Coppernicus

When I see what some of these high-grade wheats are going for, it's tempting to think that if I sell, I could double, triple, (or more) my money. Quick example: I paid $30.00 for my 39-P in 67RD about 1 1/2 years ago. Average sale on ebay is now at $97! Many more examples just like this. My '28-P and '29-P in MS66 RD have almost tripled since I bought them, etc., etc., etc. However, I too want to complete the set so I try not to think too much about what they're worth in today's market.

I've sold some when I upgrade and the high prices on say, a 64RD allow me to bid higher on the 65RD upgrade. I've been looking at the average price of the one that I'm replacing when going after the upgrade. Still get outbid quite often though!!

Mike

MrEureka

There will still be price cycles, of course. But those who think the current price levels must "crash and burn" or the "bubble must burst" have not considered the underlying changes in the coin market.

I agree that the long term trend is positive, but that doesn't mean that we won't have some pretty serious burst bubbles along the way. After all, the stock markets of the 20's and 90's both had some very strong and real underlying justification, and they still ultimately crashed.

Markets feed on momentum and overshoot. Then, they have to adjust with a crash. I don't see why coins should be any different. Doesn't mean a crash is around the corner. The coin market could easily triple before heading south. Or it could tank tomorrow.

K6AZ

<< <i>Markets feed on momentum and overshoot. Then, they have to adjust with a crash. I don't see why coins should be any different. Doesn't mean a crash is around the corner. The coin market could easily triple before heading south. Or it could tank tomorrow. >>



Andy, you get an A in coin economics. We just don't know when, but it will come down at some point. The smart ones who can most precisely figure the timing are the ones who make the most money.

roadrunner

Keets, pops have been increasing fairly steadily since 1994. I purchased pop reports every few years and did "growth" studies.
All but the bluest of blue chips have shown a fairly steady progression. Even coins like Seated, Barber, and Morgan proofs have pops increasing at a fairly strong rate. Many are resubmits but a large chunk are new coins too. We'll never be able to separate the two. Some great blue chips like an MS63 bust quarter show almost no change over 5 years. But it's very hard to locate coins like that.

We're definitely in for a bust at some point as every speculator, investor and dealer (just like in the stock market) will head for the door at the same time. This is basic human psychology. And that 20 year uptrend since the Reagan era is basically our FED taking the reigns of the economy and inflating the money supply and devaluing our dollar. It's amazing what 20 years of irresponsible monetary growth and borrowing can do. The amount of easy credit has only ballooned in the last few years and this money has also found its way into coins. It's not just about the state quarters and new collectors rediscovering their "youth." The money had to come from somewhere....and from where it came....it will also be taken away.

roadrunner

tradedollarnut

In addition to ebay, the surge in dealer's inventory pictured on the internet has increased the ability for collectors to buy coins. And the online Registry programs have increased the ability of collectors to organize and share their coins. And the online chatrooms have increased the ability of collectors to socialize with other collectors who appreciate their coins. All have served to ratchet upward the demand for coins.

EVillageProwler

<< <i>After all, the stock markets of the 20's and 90's both had some very strong and real underlying justification, and they still ultimately crashed. >>



Huh? Someone please tell me the "real underlying justification" for stock market of the 1920's...



<< <i>We're definitely in for a bust at some point as every speculator, investor and dealer (just like in the stock market) will head for the door at the same time. This is basic human psychology. >>



Why? And, why don't some of the differences of today matter vis-a-vis this assertion?

For those who think I am merely a proponent of the "I'm bullish on the coin market" notion, that isn't true. I have no idea what is going to happen, and I cringe when I hear of people getting into coins as an investment. I have no crystal ball. But, I do follow this issue with great interest and truly want some followup on some of the assertions being made here.

EVP

roadrunner

Why, not a new paradigm shift in the coin market?

Basically all markets cycle and they have been doing so with amazing consistency since recorded history. That's just our human condition playing the major role every time. Just when we think we've created a better mousetrap (the FED reserve system, the 1920's, coming off the gold standard, living "freely" off huge deficit spending, Tech stock darlings and "infinite" growth, 36,000 DOW, never ending real estate price appreciation, "zero risk" derivative based financial instruments, jobless recoveries, etc.) the whole darn thing goes "poof." What we have now may appear to be a whole new "market" never before seen to man, but it's just another version of the same old thing. Markets will cycle and most of the sheep get sheared. Been happening for thousands of years and will continue to do so no matter how much we want to believe we have found Shangri La. I think the 5000 NASDAQ is the best example of one current mania that was nothing new, yet tens of millions bought into the hype and the new "economy."

roadrunner

cladking

<< <i>Why, not a new paradigm shift in the coin market?

Basically all markets cycle and they have been doing so with amazing consistency since recorded history. That's just our human condition playing the major role every time. Just when we think we've created a better mousetrap (the FED reserve system, the 1920's, coming off the gold standard, living "freely" off huge deficit spending, Tech stock darlings and "infinite" growth, 36,000 DOW, never ending real estate price appreciation, "zero risk" derivative based financial instruments, jobless recoveries, etc.) the whole darn thing goes "poof." What we have now may appear to be a whole new "market" never before seen to man, but it's just another version of the same old thing. Markets will cycle and most of the sheep get sheared. Been happening for thousands of years and will continue to do so no matter how much we want to believe we have found Shangri La. I think the 5000 NASDAQ is the best example of one current mania that was nothing new, yet tens of millions bought into the hype and the new "economy."

roadrunner >>



Certainly there is nothing new under the sun and no market can increase forever since
everything is finite including the potential number of buyers. Everything not only occurs
in cycles but there are many different cycles in play which apply to any given complicated
phenomena such as a market. It is merely many peoples' contention that most of these
cycles which apply in this case are all on the upswing. While this may not benefit every
single sector of numismatic and exonumismatics and there can be significant counter-cycli-
cal moves within individual sectors, the major trend is still higher.

Large corrections are caused by large changes in supply or demand. This can occur if great
quantities of coins become available because speculators decide in tandem that it's a good
time to dump or if collectors become unable to continue buying because of overarching eco-
nomic reasons. Simple rising prices will not lead to a correction but to a leveling off at some
point. Collectibles do tend to experience volatility in price because many people tend to spec-
ulate in them. For the main part this isn't apparent in any of the sectors of the coin market
at the current time.

roadrunner

Cladking,

I'm not saying we are in a bubble about to burst, but at some point in time portions (or all) of the current coin market will experience a sharp correction or bust. Only unpromoted steadfast collector coins will be fully immune to the changes. For the first time in my memory, collector coins (esp key dates) are being actively sought and hence promoted by most dealers. If they were not intervening do you think the key dates would have appreciated as much as they have? If it takes 4 transactions to find a permanent home for a key date and 3 of those markups were dealer-to-dealer, how much of the increase was truly collector demand?

I would say there is plenty of speculation in the current market. Many dealers and well-heeled collector/investors have returned to this market in force to participate in the current resurgence. I cannot exclude myself from that list and I see dozens of major buyers who post on the forum. Why weren't they buying with the same ferver from 1992-1998? Do you think Larry Hanks takes out 2 page Coin World buy ads because he is not speculating? Do you think nearly every major retailer is out there beating the bushes
to buy coins and expand inventories because they aren't speculating on ever-increasing prices? Any of these guys taken out increasing lines of credit to play in the market? What would happen if say Heritage, TIA, Legend, Whitlow, DVRC, Pinnacle, Spectrum, BV, and dozens of others curtailed their buying because they felt some storm clouds on the horizon. Of course this line of reasoning is more to the high end of the coin market as well to those more speculative issues that exist in large quantities.

I feel the current market still has some sound legs under it. But don't throw caution to the wind and say that we have created a new demand that will support the market in rough times year(s) down the road.

roadrunner

keets

For the first time in my memory, collector coins (esp key dates) are being actively sought and hence promoted by most dealers. If they were not intervening do you think the key dates would have appreciated as much as they have? If it takes 4 transactions to find a permanent home for a key date and 3 of those markups were dealer-to-dealer, how much of the increase was truly collector demand?

WOWZER!!!!!!!!!!

someone has spoken in the simplest of terms a large part of the mechanics that drives prices upward. who's responsible for handing out awards around here??? the scary part of that statement is how it can relate to uneducated investors and uneducated new collectors who ask what to buy/collect/hold. can anyone say "market maker" without getting hissed at???

al h.

Baley

...at some point in time portions (or all) of the current coin market will experience a sharp correction or bust. Only unpromoted steadfast collector coins will be fully immune...

and even those might drop some, just not as much, on a percentage basis (and certainly not as much on a "number of dollars" basis) as the high end of the "bubble"

I do agree with the original premise of this thread that the fundamentals are in place for a strong overall coin market are (and have been for a couple of years now), and that when prices do correct, they will still end up higher than today's prices, with the possible exception of the Really Frothy areas of the high end market (and we will leave as an exercise which coins those are, in my opinion. Hint: it's not circulated bust coins)

Baley

oh, one last tip, for all who happen to be reading this: the sure sign that the bubble is about to burst, is when "Rare Coin Investments" are featured on the cover (or even prominently) in the mass media financial publications, and your neighbors and people at work are talking about "investing" in coins.

cladking

<< <i>

I do agree with the original premise of this thread that the fundamentals are in place for a strong overall coin market are (and have been for a couple of years now), and that when prices do correct, they will still end up higher than today's prices, with the possible exception of the Really Frothy areas of the high end market (and we will leave as an exercise which coins those are, in my opinion. Hint: it's not circulated bust coins) >>



The only area of the market which truly qualifies as "frothy" and which might
qualify for such a definition would be pop top US coins. These are universally
trading at higher than historical levels and are on the cutting edge of a trend
which could, at least theoretically, reverse at any time.

One thing which has been said before in other ways is that there really isn't an
historical price on most of these coins. There isn't an historical price on them
because largely they were unavailable in the past. Without the grading services
to identify the better coins or he internet to locate the, collectors had to settle
for whatever their own experience and travels determined were the finest coins.

While it is entirely possible that this trend will revrse tomorrow and many thous-
ands of US coins will plummet in value overnight, it should be considered that it's
entirely possible that this is the area that many of the real collectors have gravi-
tated. This isn't to say that one can't be a real collector of circ bust halfs or bot-
tle caps, just that it could be unwise to dismiss any area of the market as un-
sound or less worthy.

There are a lot of serious collectors on these boards with interest in high grade US
coins and I personally would have a difficult time believing that they are all simply
wrong. It isn't impossible, of course, that many would decide that circ bust halfs
would be more fun to collect though.

K6AZ

One other thing that I should point out, and that is every time there has been a run up in coin prices, you will hear all sorts of dealers trying to explain how this time it is different, this one is going to last indefinitely, etc. The market doesn't stay up or down for ever, but goes in never ending cycles. There will be a crash to this cycle. The only question is how high it will go, and how long it will take to crash.

kenoshapete

What does IMHO mean?

cladking

in my (humble) opinion

BAJJERFAN

<<"someone has spoken in the simplest of terms a large part of the mechanics that drives prices upward. who's responsible for handing out awards around here??? the scary part of that statement is how it can relate to uneducated investors and uneducated new collectors who ask what to buy/collect/hold. can anyone say "market maker" without getting hissed at???">>

so the final sale of every key date will be to some greenhorn who has absolutely no idea of what he is doing and when the market starts to soften he will quickly start to panic and sell the coins back to the dealer at a loss and start the cycle all over again? perhaps some collectors are trying to fill that empty hole or two before prices rise even more. sometimes it takes pretty firm prices to shake lose some of the better stuff.

MrEureka

Huh? Someone please tell me the "real underlying justification" for stock market of the 1920's...

The post war era was a good time in general, but investors got most excited over radio, telephone and automobile stocks. I don't think it would be much of a stretch to say that at the time, these technological innovations seemed even more impressive than anything a dotcom ever advertised on a Super Bowl broadcast.