Are today's dealers falling into the same trap as in the 80's?

291fifth

Back during the 80's there were two coin market crashes. At that time many dealers fell into the trap of continuing to invest their cash in inventory at higher and higher price levels until the markets collapsed when the "greater fool" couldn't be found.

Dealers often know only coins and don't feel at ease investing in anything else.

Are the dealers setting themselves up for another big fall? Your thoughts?

JJM

I think the high end, middle road, and low/entry end is here to stay,...thanks to the internet and the need to diversify portfolios with metal...its all good for collecting I believe

cladking

I think the probability of a crash in the near future are remote.

The only area which has run up sufficiently to possibly be affected are high grade coins but it seems
unlikely the trend toward high quality will reverse suddenly. This still leaves the possibility that spec-
ulators could suddenly duck but people are buying coins as a safe haven and speculation does not
seem rampant. Conditions for a crash could develop in less than a year but none seem apparent now.

RedTiger

I am having a difficult time with the concept of a "crash." Look at this ten year chart on the CU3000 index of top tier PCGS coins.
from
http://www.pcgs.com/coinindex/index10graph.chtml link



The chart hardly looks like a "bubble," top. It is up a modest 20% to 25% over five years. Certainly there are coins, and even series that are up much more, but 4% appreciation a year for the broad market is not likely to lead to a blow off top.

Now look at the longer term chart. During the spike around 1989/1990, the index tripled in value during the blow off. If anything I believe the mistake most collectors will make is to sell too soon for a modest profit, just before "liftoff."



Let me add that a top almost never comes when people are talking about one. A top comes when virtually everyone has doubled their money in the last year and think they are about to double it again in the next six months.

DHeath

Weak dollar, strong tangibles. I think the boom is coming. JMO

kranky

In the 80's, a lot of dealers were using borrowed money to carry their inventory. That's what killed them - when the market tanked, they had huge outstanding liabilities, and selling what they had in stock wasn't going to raise enough cash at the newly lowered prices. The dealers who own their inventory are in a lot better position to ride things out if it happens again.

291fifth

<< <i>In the 80's, a lot of dealers were using borrowed money to carry their inventory. That's what killed them - when the market tanked, they had huge outstanding liabilities, and selling what they had in stock wasn't going to raise enough cash at the newly lowered prices. The dealers who own their inventory are in a lot better position to ride things out if it happens again. >>



I wonder what percentage of current dealer money is borrowed?

MrEureka

Not an answer, just an observation:

Previous bull markets were strongly reflected in the CDN as dealers raised bids. When the market tanked, bids declined and the CDN loudly reported the declines.

In the current bull market, dealers aren't as busy raising bids. (Of course there are exceptions, such as early gold and Stellas.) Instead, the market strength is most visible in the premiums to "bid" that the hottest coins will command. As a result, when the market finally tanks, it may do so in a strangely quiet way. It will be interesting to watch.

oreville

The boom began over a year ago. It is no longer a young boom. But it has at least a year or two to go but we are beginning the signs of new interest in the coin market by formerly noncollectors.

In the meantime, do not be shocked by doubling (or even more) of prices or more within the next 15-18 months. It has happened so many times before.

But the slower the price rise the longer it will last. I root for the more modest price rises.

SamByrd

I do believe the coin market will adjust somewhat , no crash in my opinion. Most dealers are more fluid today they do not keep coins as long we have ebay and teletrade and other venues. In the early 1980's there was rapid price escalation and it was somewhat artificial, today a lot of good material is still rising as well as almost all of the key dates the prices will slow perhaps but they are not going to fall in price. I also think early copper and nice early type coins will continue to rise above the market. Some of the overvalued segments will see downward adjustments in my opinion but certainly no crash the demand is too strong and the coin market is larger now with the internet.

Bear

1. It appears that each time we reach a top, it is always different


this time. Coin dealers are a lot like most people, they are carrying

large amounts of personal debt which can and will impact their bussiness.

2. The CDN does not appear to be reporting price increases. The increases

taking place are off the price charts .


3. When the end does occur, all of those slabbed

and unslabbed coins, that are overgraded,

will fall like a stone.


4. Its very dishartening when dealers do not want to purchase coins at almost

any price. When collectors who are strapped for money and can not get credit,

go to sell their sizable collection, those who have not exibited common sense

and prudence ,will find that they may be forced to liquidate at 20 to 40 cents

on the dollar.


5. The day before the end, all will seem that the sky is the limit and everything will

seem positive. When the end comes, it will be sudden, savage and a total suprise

to most everyone. Very few but the strongest dealers and collectors, will weather the storm.


6. I urge all collectors to have reserve cash and lines of credit available, so that collections

do not have to be liquidated at bargain basement prices.

topstuf

Since it now requires appx. $3000 to buy a "desirable" coin, I would expect some slowing. Fairly ridiculous to try to find any "neat" coins below that level. And that is a substantial sum for almost all collectors.


Also, I believe a HUGE amount of "discretionary" funds ( I won't call it "income") will disappear with the already-in-progress housing slump. A whole lot less "oh what the heck, let's take another $5k for that coin I been wanting."

The soft housing will have repercussions that will change more than we can even imagine as yet.

Baley

I think there are a few people who sold all their nice coins a couple of years ago,

and have been essentialy on the sidelines, predicting a "market crash" ever since.

One of these days they will be right. Meanwhile, all those nice coins keep going up up up.

RYK

I urge all collectors to have reserve cash and lines of credit available, so that collections

do not have to be liquidated at bargain basement prices.

I agree with all of Bear's points, especially this one. Ideally, one should have cash on hand to cushion the blow of emergencies and other unplanned financial demands. I also think that collectors, at every level of income and wealth, should hold back some of their intended coin money, at least 10%. If there ever is a hard crash, it would be great to have some liquidity to scoop up bargains while there is blood in the street. I do not advocate market timing, and for that matter, I do not advocate investing in coins, but there will be a day sooner or later when a lot of cool coins are or seem a lot cheaper.

topstuf

A true ...COLLECTOR.... should never have more in his collection than he can afford to leave alone.

Ideally, he should not even KNOW what his coins comprise relative to his financial condition. Why, my coins are probably only 37.96678% of my assets.

morgannut2

At the auctions I see a surprising number of coins (maybe 80%) going to the internet rather than dealers bidding in the room for inventory. It wasn't that way as recently as 2003. And a number of big ticket items that dealers do buy I suspect are really collectors with the good sense to use dealers as their eyes.

BAJJERFAN

<< <i>In the 80's, a lot of dealers were using borrowed money to carry their inventory. >>


I wonder how many today actually own 100% of their inventory or are they buying on terms from other dealers?

GOLDSAINT

My opinion is that 95% of collectors have now been priced out of the rarer material, and better graded classic market.

What I see is not a crash but several thousand millionaires putting away coins to free themselves of all the paper they own.

I don’t see dealers going bankrupt in a crash, rather I see a melting away of profits as nearly all of the better material is put away for long term.

I see the dealers just bewildered at what new prices more common coins and color brings, never believing that such coins would ever reach such heights.

Coins unlike many other investments have a limited supply, and by the end of this year, the supply of most rarer coins well be locked away for many years to come.

I also see dealers beginning to buy, and push, higher grade common coins to the very wealthy that they would have never recommended before.

Unlike the old markets crashes, I think that most dealers, as well as collectors, will just be pushed to the sidelines by high prices paid by the big money boys who never have to sell.

Like it or not, if you are not a very rich person, and have not already built your classic coin collection in grades from AU up, then you are going to be on the sidelines, perhaps for a very long time.

291fifth

<< <i>My opinion is that 95% of collectors have now been priced out of the rarer material, and better graded classic market.

What I see is not a crash but several thousand millionaires putting away coins to free themselves of all the paper they own.

I don’t see dealers going bankrupt in a crash, rather I see a melting away of profits as nearly all of the better material is put away for long term.

I see the dealers just bewildered at what new prices more common coins and color brings, never believing that such coins would ever reach such heights.

Coins unlike many other investments have a limited supply, and by the end of this year, the supply of most rarer coins well be locked away for many years to come.

I also see dealers beginning to buy, and push, higher grade common coins to the very wealthy that they would have never recommended before.

Unlike the old markets crashes, I think that most dealers, as well as collectors, will just be pushed to the sidelines by high prices paid by the big money boys who never have to sell.

Like it or not, if you are not a very rich person, and have not already built your classic coin collection in grades from AU up, then you are going to be on the sidelines, perhaps for a very long time. >>



Interesting comments. Truly the "hobby of kings" once again.

BillJones

I agree with Bear. This market is starting get pumped with speculation that will lead to a correction.

Contrary to popular opinion, I did not find the recent Baltimore show to be a great place to buy. Previously the limit for “high quotes” for me had been at levels below the prices cited in “Coin Values” (Coin World) magazine. There were some areas, like early U.S. coins, that exceeded those amounts, but for the most part if I had a customer who used “Coin Values” as a guide, I could sell him better want list items at a discount under those prices.

This time several dealers quoted me numbers beyond “Coin Values.” The coins in question were nice, but there was nothing super special about them. Their argument for asking such prices is that the auctions are producing very high prices. Maybe so, but those numbers are not published in any reputable price guides, I’m going to have a hard time working with them.

Even with the Internet selling more stuff to people than ever before and making the market for coins much larger, a correction is still possible. When I look at the ads in Coin World and regularly see 5-figure prices for coins that are scarce, but hardly rare, I think about the crash of 1980.

For my part, I’m not going overboard on anything. If I think that price is fair to my customer after I’ve added my percentage, I’ll buy. If think something is worth going into inventory, usually at the Gray Sheet bid price or a little more, I’ll give it a try. I won’t pay “future prices” which is what more than a dealers at Baltimore were charging.

RedTiger

A lot of good points, especially by Bear.

It is a very different market today, as being reported by some of the dealers on board. Auction prices, bourse prices, Internet prices, seem to be getting further and further apart. Dealers with "dog" coins in inventory see what "fresh" coins are bringing at auction and think their dogs deserve their day. Only a few people want to play ball with them.

A correction, I can see, 10% down would not surprise anyone, especially if gold and silver bullion correct too.

Seems to me that most dealers are still going great guns. 500 tables at the Baltimore show, indicates a lot of liquidity. Those tables aren't cheap, not when factoring in travel and hotels. Almost all of them know about Ebay, and can walk the floor looking to buy, so it isn't like they have to set up and pay for a table. Most dealers are probably still flush with profits from these past few years. It will take more than a lean year to really hurt most of them. The majority of the dealers I see on the bourse, have lived through the 1990 top and will be quite reluctant to repeat their mistakes. I believe it will take a new crop of dealers rotating in, for caution to be thrown to the wind.

I believe it is far too early to ring the bell to get out. A mild correction (steep in some areas), would be a healthy thing. For most collectors the spread between buy and sell make it unprofitable to get out and back in. Also the "right" coins are difficult to find, so unless the collector only does widgets, those coins may not be available at lower price levels even if there is a correction in price.

BlindedByEgo

Home equity providing liquidity to support a rapidly inflating US consumer economy, along with a negative savings rate in the US. Not a bullish sign for a strong. long term economic outlook IMHO.

I don't know about a crash; seems that price appreciation has been strong, but nowhere near the "tulip bulb" levels of the 80's.

What I see is a merging of intrinsic and extrinsic values - as precious metals go up, numismatic values will go down. Less base of customers available as houshold spending on non-essentials drops.

Rising interest rates and erosion of faith in the USD world wide will dry up real estate equity liquidity.

The ripples from this cycle will last for years. Precious metals are one available hedge.

Baley

I believe it is far too early to ring the bell to get out. A mild correction (steep in some areas), would be a healthy thing. For most collectors the spread between buy and sell make it unprofitable to get out and back in. Also the "right" coins are difficult to find, so unless the collector only does widgets, those coins may not be available at lower price levels even if there is a correction in price.

well said

GOLDSAINT

“I believe it is far too early to ring the bell to get out.”

Personally I do not see any bell ringing, period, in this market, and in fact I for one would not want to trade my coins back into paper as the World printing press go wild.

What I see is a finite supply of good quality coins being sucked out of existence until such time as there is just very little to buy. I do not think most of the buyers of the higher priced coins being bought today have an exit strategy; I think they just want out of some of the paper they are holding. They simply want something REAL, and not printed.

Look at the prices being paid for high grade, but very common date, Bust Halves just posted this week, and think about this for just a minute,

If an upper middle class working man and women are earning $60,000 each in a family of four, so $120,000 gross.

If they are paying as per statistics 50% in ALL taxes, they are left with $60,000 to pay all of their bills, leaving them with very little for hobbies.

If one is a coin collector can he or she convince the other one to spend $20,000 on a great coin? I doubt it very much.

As I said I think that 95% of the hobby is already priced out of the better, rarer, coin market. Not the extreme rarities, just good quality.

In the last 3 years I have personally bought about 300 coins, do I want to sell any of these for paper? NO!

Am I going to start buying colored WLH’S for $5,500 a pop? NO!

Am I now out of the market? YES!

Tarmac

I am always amused when I read that a trophy coin has been purchased and is in 'strong hands' not to see the light of day at auction for decades.

The real estate gravy train is over and consumers are tapped out. I predict it will take 18mos for all those bizzare ARMs to deal a major blow to many markets, coins and otherwise.

Coin dealers are human and humans repeat history and it's NEVER different this time.