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Other than the stock market crash, what led to the spike and nose dive in coin prices in 1989?
TopographicOceans
Posts: 6,535 ✭✭✭✭
The PCGS 3000 chart shows what happened, but why did it happen?
The sudden spike and subsequent nose dive in the rare coin market, was it caused by the market crash with investors looking to invest their capital or what else was going on?
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The realization that beautiful-looking coins were not necessarily rare.
RMR: 'Wer, wenn ich schriee, hörte mich denn aus der Engel Ordnungen?'
CJ: 'No one!' [Ain't no angels in the coin biz]
The ones that fell the hardest, as I recall, were what we call generics today. Most mint-state coins are common---when prices for these fall quickly, there will be a siphoning effect. Most of the coins that were pitched to investors were choice-gem generics. These people did not really understand what they were buying.
RMR: 'Wer, wenn ich schriee, hörte mich denn aus der Engel Ordnungen?'
CJ: 'No one!' [Ain't no angels in the coin biz]
The realization that the "old" commemorative coins were not rare, and that it their present levels, they were grossly overpriced due to speculators driving up the prices, not collectors.
It wasn't in 1989, but during the '80s I read one column by a "numismatic investment expert" that there were two coin markets, one for investors and one for collectors. The "investors" were buying the high grade coins that were going to increase greatly in value in the future while the collectors were buying the lower grade stuff that had limited long term potential.
Lost in all of this was, without a collector base, how were the prices on these "investor grade coins" going to keep going up? Coins are not like shares of stock or a bond. They don't entitle you to share in the ongoing success of a company or the legal obligation to pay interest on a loan. They are objects of art or antiques that give pleasure their to owners who eventually sell them to other owners for future pleasure.
What we had here was the classic "bigger fool theory." The market only sustained itself so long as there were "bigger fools" who were ready to pay higher prices to the "previous fools." The ultimate result was predictable. There was "a crash" or as the sophisticated people like to say, "a correction."
sure looks like a bubble, then regression towards the mean
In my opinion, the run-up leading to 1989 was caused by a combination of several factors. Among these factors were the following.
1) Speculation by both dealers and collectors due to rising prices.
2) A perception that the advent of TPG holders made coins more liquid and easier to value.
3) An influx of "investor" money from non-collectors, including Wall Street types, due to the preceding two factors.
4) A sustained period of rising coin prices that allowed every "newbie" dealer to make money hand over fist by simply flipping everything in sight.
The crash occurred when people began to realize that coins are still collector items, not stocks, and that the speculation was baseless. The investor money pulled out, the newbie dealers went bust-o in a matter of days, and prices dropped like a rock in a short period of time.
To some degree, the investigation of Kidder-Peabody into the rare coin sector helped fuel rampant speculation.
Here's an interesting old article from 1990.
http://articles.chicagotribune.com/1990-02-25/entertainment/9001160493_1_rare-coins-american-rare-coin-fund-foreign-coins
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The chart is misleading as the spike in prices was at the high end MS. I was collecting during this period, and circulated collector coins such as early copper and bust coins did not experience a spike in prices - only a gradual increase that is still going on today with early US series for choice circulated collector coins.
Irrational exuberance. It happens in all markets. The fear of being left behind and then everybody heading for the same door at the same time.
mark
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
It was, indeed, because coins were being foisted as "investments," and on a large, institutional scale. I think it was Blanchard & Co. who were mailing out ads with long lists of generic Saints, with almost none of them listed for less than five figures.
Here's a warning parable for coin collectors...
Many factors that I am unable to summarize in a paragraph.
Experience the World through Numismatics...it's more than you can imagine.
You should read about the tulip bulb bubble or the south sea bubble
After the slab came the sight-unseen market. Abuses in the sight-unseen bid market created prices that were unsustainable. The bids may have came from outside investment activity, speculation in a new grading phenomenon or pure greed by dealers. Stricter rules were put in place to counter abuses. Sight-seen trading came more used. Prices retreated to normal level after that.
Also when prices crash, nobody wants to buy.
As soon as the SEC started investigating the Wall Street type firms that were pushing generic numismatic properties as investments, the music stopped. Part of the investment firm shtick relied on the unsustainable claim that the "investment" grade material would continue to rise in value in a sight unseen based trading market.
"Everything is on its way to somewhere. Everything." - George Malley, Phenomenon
http://www.americanlegacycoins.com
A huge and unforeseen wave hit the global economy. IMO discretionary income disappeared and people had to sell non essential assets like coins to keep their home or kids in college. Same can be said for real estate like second homes. The economy has not improved significantly but should now that a person that understands economics is president. It will take the consumer some time to feel comfortable spending large sums of money on none essential assets even though the stock market market run has increased market value by $ 3 trillion. When the market drops by over 7,000 points and huge job loses occurred at all ends of the spectrum all asset classes fall in price, especially collectibles. When the Fed starts raising rates and they will this year it is a very good indication things are improving. Will generic coins ever fully recover? Who knows. I do feel the graph has been drug down by the, especially now that gold is about 50% of its high and silver even lower. I only collect a few $20 and have started looking for early dollars. I look at how high a particular coin price was prior to purchasing a coin see if it is firming and many have yet to recover but are no long falling. Same goes for a stock. I never try to grab a falling knife as that is the best way to get cut. I am right 100% of the time NO. I may see a 10 to 15% increase and the particular date not showing up often in recent Heritage auctions before I buy. That being said PCGS seems to have all the coins to grade they can handle so someone is buying and many crossing to PCGS for liquidity and valuation purposes. I think early dollars are the best coins to look at now as they sold off but it seems at the coin shows I attend quality coins made in the late eighteenth century are not getting any cheaper and coins that grade from VF and above are getting tougher to find. I am also in the hobby as a long term collector and don't worry to much about a dip in the market. Just a point in time to get ready to move when the coin starts moving north and the large dealer I use as a primary source not able to easily find the coin priced right. I also stick with a couple types of coins and watch how they are performing.
I still remember that spring weekend in 1989 when the market topped. I was set up behind a table at a little coin show in San Mateo,Ca... Common date PCGS MS66 Morgans/ Walkers traded hand for like $1200-$1300 ea. , then by next weekend at a Baltimore show the party was over. seems like yesterday.
THIS. As more and more slabs were born, it revised everyone's thinking about how "rare" coins were not that rare. Ironically, look at the growth in pops from 1989 to 2017. It's incredible. So if the meager pops in 1989 crushed the market, what do we say about today's 2X to 5X pops?
To be accurate, the realization that rare coins were out there in higher numbers than believed was one thing. But, it didn't help that it coincided with a peaking real estate and collectibles market from 1988-1990. The economy caused that Wall Street money to quickly leave. Liquidity was running away from all collectibles and most higher risk investments. Coins do not do well in recessions (ie 1990-1993). I recall Larry Hanks saying in 1990 that the correction was going to be deep and long. He was right. It took 5-6 years for coins to stop going down in price.
Larry Whitlow explained to me in 1990 that he was smack in the middle of the commem promoters. In particular he said they were keeping the MS65 Columbian market elevated and it wouldn't last much longer (CDN was at $3200-$3500 and Larry was paying $2800). Once the boiler houses left, down they went. A year later that same MS65 Columbian was $1250. I sold one then. Today.....$350-$450.
Supply caught up with demand and people who borrowed on cc debt to buy coins ran out of a credit line. A guy in my coin club who had run up really high credit card debt to buy coins and start his coin business at that time ended up filing for bankruptcy,
A lot of dealers owed big money to the auction houses and big coin firms in 1990. You saw quite a few formerly independent dealers go to work for Heritage and other large outfits from 1991-1996 to pay off their bills. Quite a few of them came right back to life again for the 1997-2008 market boom. And some of that has occurred again since 2008 as some have closed their doors and gone back to the safety of the big coins firms.
I moved from Florida to Washington state in '89 and began hitting all their coin shows.... they saw me coming and prices sky rocketed.... then they realized I did not have that much money and the market crashed....
Cheers, RickO
Run up caused by exuberance.
Spike caused by a rush that riches might be had. Crash caused by paranoia that one's investment was stupid, so there was a pullback. In the end (after the crash) it begins again.
Don't quote me on this. I'm guessing....like I did with statehood quarters a decade later.
Don't forget that interest rates were very very high
at the end of 1988/early 1989.
Can't remember exactly, but I want to say something
like 18% for CD's - sounds crazy.
I remember this because a customer and big buyer of rare coins
said to me "How can I turn down a guaranteed 18% interest rare
when, after the past year or so coins have gone up so much -
is there really another 20% to go ??"
Those high interest rates pulled alot of money out of the
speculative rare coin market - as well as some of the items
mentioned in this thread.
for PCGS. A 49+-Year PNG Member...A full numismatist since 1972, retired in 2022
I was working at a engineering firm in SoCal back in 89'. At lunch I used to visit a coin shop down on main street. It was a awesome site. The place was packed. I remember holding onto my wallet as I recently bought my first house with a 13% interest rate so no cash to spend but I remember folks pulling out wads of cash paying $450 for "white" MS65 common Morgans. It was a crazy time, interest rate were climbing and folks wanted Silver and Gold.
100% Positive BST transactions
Interest rates were fairly high in 1989....up to around 8-9%. But that's still only half of what they were in 1980-1981, when they did end up in that 15-21% range. The spent the most of the 1980's whipsawing their way back down. At peak rates near 20% in late Dec 1981, the coin market was severely crashed, and no one was buying coins unless they were bought 1-2 grades under what they were. I think rates from the 1970's peaked around 10% in early 1980, about double what they were from the 1976 coin market bottom. The rates vary a bit based on if you're looking at: 2/3/5/7/10/30 yr treasuries, bank loan rates, Fed Funds rate, CD's, etc.
https://www.google.com/search?q=historical+us+interest+rates&tbm=isch&imgil=QsU3m40gX6qm1M%3A%3BVncOHk9-r8i53M%3Bhttp%253A%252F%252Fritholtz.com%252F2012%252F01%252F222-years-of-long-term-interest-rates%252F&source=iu&pf=m&fir=QsU3m40gX6qm1M%3A%2CVncOHk9-r8i53M%2C_&usg=__8Key0GYmJA8gZNjMzTkz7vx1Mrc=&biw=1536&bih=731&ved=0ahUKEwjZ0MbMosLSAhVo7IMKHUytDx0QyjcIUA&ei=boq9WNnhMujYjwTM2r7oAQ#imgrc=QsU3m40gX6qm1M:
Interesting thread.
My YouTube Channel
I screwed up - I mean 1979/80, not 1989/1990
for PCGS. A 49+-Year PNG Member...A full numismatist since 1972, retired in 2022
The rare coin market probably makes up less than 1/10th of 1% of the total economy but the state of economy drives that very small percentage, so there is a correlation to the ebbs and tides of the GPA. It's all tied together as a backlash to spending.
"Keep your malarkey filter in good operating order" -Walter Breen
My personal backlash to spending is because my wife decided to retire 10 years early, not because of the overall economy. She got promoted to boss at her job, and wants no part of being "the man". Lol.
The coin market had many of it's own issues, which have mostly been addressed by others. Still, this chart nicely illustrates how the coin market was not the only one getting hammered by macro forces.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
The answer is ALWAYS too much stupid money chasing too little supply. In this case, it was the "idea" that you could start "mutual-fund" type Wall street funds for coins. That where the Stupid Money came from. The Supply came from this "new thing" called graded coins, and through the population reports (at the time) made a case for rarity.
Interesting to wonder if the funds might be viable today, now that the supply of slabbed coins is (I'm guessing) 20+ times larger.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
If considering the entire slabbed market, then 20+ to 30X seems reasonable. If just considering higher dollar gem coins like say MS65 and higher Barber halves, the pop increases on things like that are approx half that....around 5X to 15X higher....with the biggest increases tending to show up in the higher grades due to gradeflation.
if the Big Funds did any due diligence in how the slabbed/stickered/upgrade market works today....I'd think they'd pass. In the heat of 1989 you pretty much had one fairly tight price range for any particular grade that applied to 80-90% of the coins. A gem MS65 Barber half back then sold for 95-110% of certified CDN regardless of PCGS/NGC....and most big buyers didn't care so much as to what the coin looked like as long it was graded. Today, that range is probably more like 50-200% where the coin, holder, stickers, eye appeal, etc. all gets scrutinized to the nth degree. There would be no real way to value the Fund from day to day or year to year as the coins are no longer fungible or interchangeable as was assumed in early to mid-1989. With a 30-50 yr old Dave Akers or Jim Halperin in their grading primes running such a fund and personally selecting the coins, it would likely do pretty good over time. Big Funds run by smart money would tend to all come back to market at the next peak....ultimately depressing prices with too many coins being hard to digest. It's nice to ride their coat tails though.
I had a 10 percent mortgage loan in 1988 after buying points or what ever they called them along with a 16 percent loan on a 1984 corvette thru the gm finance arm. I was in my 20,s at the time and I thought it was normal. I graduated high school in 1981 and my class ring was crazy expensive for the time. I was working 70 hour weeks making more in overtime than regular pay. I was actually having a good time just worn out from Friday nights. I don't recall having a major credit card, I was clueless. If I needed money I just called the bank and signed my name on the bottom of the form. Life before the internet and smartphones was not bad for me. People were doing all types of crazy deals to make money. Then the music stopped, the best thing that happened to me was the Texas savings and loan disaster and the RTC selling the foreclosed properties for 10 cents on the dollar. Just wish I had more dollars at the time
NGC registry V-Nickel proof #6!!!!
working on proof shield nickels # 8 with a bullet!!!!
RIP "BEAR"
1980, Uncle Sam finally decided I should be back in United States (had not been in the states for 1 second from 1978 to 1980) and I bought a house. The loans were made by the city, a bond issue, at 12%, when the banks were 16% or higher. My girlfriend and I both put $2000 each into an IRA in 1983, 10.5 years CD @16.5%.
In the late 1980's, Dallas, where we were living, had a housing crash, like Detroit, California, etc., a lot of places crashed around 1989. I got a house from a co-worker, he was moving, he handed me a check for $15,000 and the house. and I assumed his loan (@ 18% VA) and promptly refinanced it. He was underwater, and had bad credit, so he could not refinance it himself, and it was better than just walking away. Rented it out for 5 years, and sold it to the tenants, and made a nice profit.
Condo's were dirt. Literally thousands of FINISHED and partial built condominiums were bull dozed. Oil prices were down, oil jobs, bank jobs, real estate jobs, etc were gone, and people were leaving in droves. There was no market for condo's, so whole tracts were just bull dozed down and burned.
The sky fell on me once. Fog: whatcha gonna do ?
An old thread on the 1989 crash.
https://forums.collectors.com/discussion/comment/11576819#Comment_11576819