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Market Makers and GAC
djm
Posts: 1,565 ✭✭✭✭✭
I just got finished reading a “Market Report” on a major coin dealer’s website. There were two things that struck me:
Firstly in the year 2007 with all of the electronic trading, why would there still be a need for Market Makers?
What kind of coins could possibly need a market maker?
It’s obvious that the true rarities 1913 V Nickels, 1933 St. Gaudens $20, or any other coin that has a total mintage of under 100 don’t need a market maker as there are many more buyers than coins available. The prices of this coins rise to their own level.
At the other end of the spectrum are coins such as the moderns and the widgets, there were plenty of them minted and plenty available for sale, they are traded every day among numerous unnamed collectors at a price supported by the open market. No need for market makers in this arena.
Then there are your semi-rare coins such as the 1921 Peace Dollar, 1895 O Morgan Dollar, 1916 D Dime, 1909 S VDB Cent and I’m sure you can think of plenty more. These are coins that have more sellers than buyers this is where the market makers manipulate the market. Even with a safe full of these coins they will go out and buy any reasonable coin that is for sale. They continue to hold the coins making the coin appear rarer than it really is. The market maker hears of a potential buyer and release a coin at a substantial profit to them self. This practice costs both the buyer and seller a substantial sum of money. When a coin that the market maker deals with appears in a public forum, the market maker will pay any price to get the coin. This serves two purposes it raises the value of the market makers inventory and it forces the coin collector to either go without the coin or buy it from the market maker. Why can’t the coin market be a market value system where coin values rise to there own level with out manipulation?
I learned a long time ago when somebody said they were a Market Maker run don’t walk away. I can tell some horror stories about dealing with market makers in the OTC stock exchanges.
Second why do we need somebody to verify the grade placed on a coin by a grading service?
I am going to start with a cliché here, “Coin grading is an art not a science” this being said the coin graders are human and do make mistakes. The mistakes are made in both directions, however the under graded coins are re submitted and the problem is fixed. The over graded coins remain in collector and dealers hands. Do enough over graded coins exist to warrant casting doubt on every coin not owned by a well healed coin dealer? I think not.
Further how can anyone guarantee that the GAC stickers will not be abused? Let’s assume the GAC stickers are not abused. Mistakes can still be made as the people issuing the stickers are only human.
The issue of “gradeflation” and market acceptability of graded coins can be handled by the grading companies if the hobby feels a real problem exists. I would suggest an “ANSI” type standard for coin grading. I realize that setting up this type of standard would take several years to implement. A standards committee would need to be formed; the members would include representatives of the interest third party grading companies, members of the dealer community and of course members from the coin collecting hobby. Once a standard is adopted the grading companies that are complying with the “standards” would be allowed to place a logo on there capsules similar to the USB 2.0 logo placed on computing equipment. This would insure that coins bearing the logo would be consistently graded across the board. Of course the crossers would not like this as there would be no premium for a specific holder as all of the coins would be graded the same. There are many ways to enforce compliance with the accepted standards as is done in other industries. I would go into so some of them but this message is already long enough.
Firstly in the year 2007 with all of the electronic trading, why would there still be a need for Market Makers?
What kind of coins could possibly need a market maker?
It’s obvious that the true rarities 1913 V Nickels, 1933 St. Gaudens $20, or any other coin that has a total mintage of under 100 don’t need a market maker as there are many more buyers than coins available. The prices of this coins rise to their own level.
At the other end of the spectrum are coins such as the moderns and the widgets, there were plenty of them minted and plenty available for sale, they are traded every day among numerous unnamed collectors at a price supported by the open market. No need for market makers in this arena.
Then there are your semi-rare coins such as the 1921 Peace Dollar, 1895 O Morgan Dollar, 1916 D Dime, 1909 S VDB Cent and I’m sure you can think of plenty more. These are coins that have more sellers than buyers this is where the market makers manipulate the market. Even with a safe full of these coins they will go out and buy any reasonable coin that is for sale. They continue to hold the coins making the coin appear rarer than it really is. The market maker hears of a potential buyer and release a coin at a substantial profit to them self. This practice costs both the buyer and seller a substantial sum of money. When a coin that the market maker deals with appears in a public forum, the market maker will pay any price to get the coin. This serves two purposes it raises the value of the market makers inventory and it forces the coin collector to either go without the coin or buy it from the market maker. Why can’t the coin market be a market value system where coin values rise to there own level with out manipulation?
I learned a long time ago when somebody said they were a Market Maker run don’t walk away. I can tell some horror stories about dealing with market makers in the OTC stock exchanges.
Second why do we need somebody to verify the grade placed on a coin by a grading service?
I am going to start with a cliché here, “Coin grading is an art not a science” this being said the coin graders are human and do make mistakes. The mistakes are made in both directions, however the under graded coins are re submitted and the problem is fixed. The over graded coins remain in collector and dealers hands. Do enough over graded coins exist to warrant casting doubt on every coin not owned by a well healed coin dealer? I think not.
Further how can anyone guarantee that the GAC stickers will not be abused? Let’s assume the GAC stickers are not abused. Mistakes can still be made as the people issuing the stickers are only human.
The issue of “gradeflation” and market acceptability of graded coins can be handled by the grading companies if the hobby feels a real problem exists. I would suggest an “ANSI” type standard for coin grading. I realize that setting up this type of standard would take several years to implement. A standards committee would need to be formed; the members would include representatives of the interest third party grading companies, members of the dealer community and of course members from the coin collecting hobby. Once a standard is adopted the grading companies that are complying with the “standards” would be allowed to place a logo on there capsules similar to the USB 2.0 logo placed on computing equipment. This would insure that coins bearing the logo would be consistently graded across the board. Of course the crossers would not like this as there would be no premium for a specific holder as all of the coins would be graded the same. There are many ways to enforce compliance with the accepted standards as is done in other industries. I would go into so some of them but this message is already long enough.
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Good Lord brother, it would take a book to answer all that. Ol' curly is too slow to handle complicated questions like those. I'll let some of the educated brothers do it.
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<< <i>I just got finished reading a “Market Report” on a major coin dealer’s website. >>
Which major dealer?
Russ, NCNE
At the other end of the spectrum are coins such as the moderns and the widgets, there were plenty of them minted and plenty available for sale, they are traded every day among numerous unnamed collectors at a price supported by the open market. No need for market makers in this arena]
I agree with this but I do not think the CAC are targeting these coins.
The issue of “gradeflation” and market acceptability of graded coins can be handled by the grading companies if the hobby feels a real problem exists.
This is why the CAC is being formed, the existing TPG's have presumably been a part of the problem that has gotten out of control
I would suggest an “ANSI” type standard for coin grading. I realize that setting up this type of standard would take several years to implement. A standards committee would need to be formed; the members would include representatives of the interest third party grading companies, members of the dealer community and of course members from the coin collecting hobby.
standards have been around along time in the form of books, peoples opinion and organizations like PCGS, and ultimately the buyer....your suggestion seems cumbersome
The market maker hears of a potential buyer and release a coin at a substantial profit to them self. This practice costs both the buyer and seller a substantial sum of money. When a coin that the market maker deals with appears in a public forum, the market maker will pay any price to get the coin. This serves two purposes it raises the value of the market makers inventory and it forces the coin collector to either go without the coin or buy it from the market maker. Why can’t the coin market be a market value system where coin values rise to there own level with out manipulation?
I do not understand this comment,.....if a coin appears in public forum, a collector has the right to bid on it as well...the collector controls his pocketbook and ultimately what he pays
I learned a long time ago when somebody said they were a Market Maker run don’t walk away. I can tell some horror stories about dealing with market makers in the OTC stock exchanges.
There are horror stories in anything traded. I say an active and reliable market is better than no market....this is one of the main reasons the CAC is being formed and I think ultimately if they put their money where the sticker is it will define them.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
BidAsk: I see from your comments that you are obviously a coin dealer.
<< <i>standards have been around along time in the form of books, peoples opinion and organizations like PCGS, and ultimately the buyer....your suggestion seems cumbersome >>
As far as I know there are no standards, PCGS grades to their criteria, NGC grades to another critera, while PCI grades to yet another criteria. Opinions are not standards they are just one persons idea. Yes there are many books on grading but they all contain different examples of what a specific grade is. It is always cumbersome when you try to level a playing field that has been lopsided for many decades.
<< <i>I do not understand this comment,.....if a coin appears in public forum, a collector has the right to bid on it as well...the collector controls his pocketbook and ultimately what he pays >>
Haven't you ever heard of the golden rule? He who has the gold makes the rules. I collect can't and won't ( unless totally pissed off) pay $30,000 for a $12,000 coin just to protect an investment.
<< <i>I say an active and reliable market is better than no market....this is one of the main reasons the CAC is being formed and I think ultimately if they put their money where the sticker is it will define them. >>
If there is no natural market for a coin why should one be made its a coin that is not wanted at the selling price. This is just touting trash. Maybe we should start refering to these coins as "Classic Crap". Take your losses and move on.
<< <i>Russ: I know you know whose Market Report I am refering to. There is no need to name names. >>
Why not?
<< <i>BidAsk: I see from your comments that you are obviously a coin dealer. >>
He's a coin dealer?
Russ, NCNE
Any and all coins can benefit from market makers because they tend to make the market more efficient, and narrow the bid/ask spreads. In thin markets where no one makes a market, the spreads tend to be much wider. On thinly traded OTC stocks, the spreads tend to be quite wide and widen even more when prices are volatile. However, if there was no market makers the spreads would be even wider or the stock would not trade at all, to go to even smaller markets like the old pink sheets.
In 2007, virtually anyone can step up and make a market. Some do it on Buy/Sell/Trade in their area of specialty. The original poster is free to post a cash bid and also stock coins for sale at a set price, and become a market maker in any coins he/she would like. Most market makers place their bids where they know they can make a profit, and the asking price where they know they can find replacement coins below that price easily.
It is difficult to manipulate a market, though it has been done, and will be done again. For most coins, it would take too much cash to do so, and there can be a lot of risk trying to do so. Mostly the coin market makers respond to perceived market demand. Those that try to front run the market usually will get run over before long. There are a lot easier ways to try and make money than trying to manipulate the market for certain coins. Most do it the old fashioned way, on the percentage between bid and ask, and make a sure percentage every time.
<< <i>
<< <i>Russ: I know you know whose Market Report I am refering to. There is no need to name names. >>
Why not?
<< <i>BidAsk: I see from your comments that you are obviously a coin dealer. >>
He's a coin dealer?
Russ, NCNE >>
No, I am not a coin dealer........
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i><< BidAsk: I see from your comments that you are obviously a coin dealer. >>
He's a coin dealer?
Russ, NCNE >>
No, I am not a coin dealer........ >>
But, he said you obviously are.
Russ, NCNE
A market maker will help make the buyers a bit more comfortable with the prices. A comfortable collector is a buying collector.
Better yet - one day the PCGS state quarter variety set (we are still waiting for its launch on these 3 year old coins) will include these (2) coins and the collectors will become even more "comfortable".
Wondercoin