Is there a US coin bubble?
RYK
Posts: 35,799 ✭✭✭✭✭
In today's business section of the St. Louis Post Dispatch, there were two articles arguing that investing in commodities is approaching a bubble status. If that is the case, since coins are often linked to commodities, are we in a bubble, too? When you can buy an issue from the US Mint for $30 and sell it for $300 a week later or when a classic rarity can upgrade from XF to MS-61 and bump in price for $300,000 to nearly $4M, one could certainly make the argument that US collectible coins are a financial bubble. Be careful in arguing against the bubble because one of the articles defines financial bubbles by numerous criteria, including that the most ardent supporters of the bubbles will not accept the fact that they are participating in one.
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I look for some sort of adjustment within the next two years or sooner. At the same time, I have already begun to back away from paying such high prices for even the blue-collar coins and currency. For those who may disagree, I would say go ahead and spend your money and hope for the best. However, I'm afraid you will be disappointed in due time. Just make sure you don't use the "rent and food" money.
This probably will include gold and silver bullion, as the price of oil declines, so will the latest rush to own PM's.
But for the rare coin collector, I feel more comfortable, than if I (or you) were holding only bullion related coins.
Throw gas into the mix and that explains why all numismatic purchases for me ended several months ago.
It is not so much not having the money right at the moment but the level of uncertainty about the future that
causes me to hold back on spending money on coins.
You can't "short" coins
Just make sure you don't use the "rent and food" money."
Throw gas into the mix and that explains why all numismatic purchases for me ended several months ago.
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Point taken. It should be "rent, food, and gas money." Maybe more emphasis on the "gas" part.
<< <i>sell everything]
"> Latest Earthquakes in the World - Past 7 days
The Facts About Silver
More recently, silver has been moving in the area around 40:1 to over 70:1 with gold. There are some very strong reasons why this ratio is seriously out of whack, and why it will be increasingly out of whack, until the price of silver rises. The facts weigh heavily in favor of the smaller ratio and that's a higher silver price. Here are some of the facts.
1. When the U.S. Treasury sold off a half-million ounces of silver at less than $2 dollars per ounce, the price of gold was $35. The silver to gold ratio was about 17:1.
2. The U. S. treasury has no silver - nada, zilch, zero - as in NONE. There is no official stockpile anywhere in the world. I am aware that the latest GFMS report gives government holdings of 200 million ounces. This is unofficial at best and loaned at worst. See The Smartest Money
3. While gold rose from $35 to $320 since closure of the Gold Cover Clause (a 900% increase), silver rose from a $1.29 per ounce to the present $4.55 per ounce - a little over a 300% increase.
4. Global stocks and the rate of usage also seem to favor silver. There may be as much as a billion ounces a silver in the world. That's probably the maximum. This is according to the CPM Group and includes coinage. I refer you to my previous work. [See The Smartest Money] There are about 2 billion ounces of gold in the world, or a little more, and a good portion is still it in the central banks. There is half as much silver as there is gold.
I have found power in the mysteries of thought.
It is always a question of knowing and seeing, and not that of believing.
Our virtues, and our failings are inseparable, like force, and matter. When they separate, man is no more.
.
Keeper of the VAM Catalog • Professional Coin Imaging • Prime Number Set • World Coins in Early America • British Trade Dollars • Variety Attribution
All the classic signs are there. But, there is no way of knowing exactly where the top is...
Heck, when the NASDAQ hit 3k, that was a bubble. Sheesh! I videotaped it when it hit 5k. then POP.
Realestate was next. Everyone was flipping houses just like they're flipping mint products now.
My friend swears by Gold and says it will only keep going because our economy is in trouble.
He may be right, I don't think so, but he's convinced Gold at $2000 is next. <--- classic sign.
When the Gold Price hits the cover of Time Magazine...SELL.
For me, my purchases have been fewer and farther between. I'm a Value purchaser and just don't seem to find much anymore as the target of my purchases...(probably why Lincolns are going up, but I'm not buying them)
I don't think the Coin Market will have a Bubble Pop like Stocks and Realestate, prices will enter a continuous pullback like they did in the early 90s.
The Coin Market has the rotation game going for it, as people seem to jump on the Next Hot One(TM) --- the 2007 Reverse
I do think Classic Coins will continue to climb, and we've had an extreme divergence in quality, but I'm not comfortable playing at those levels (too much risk). As we move to a cashless society (debit/credit/zip-zip) Coins and Papermoney will surely continue to see increased demand.
But, we're in a Bubble.
I didn't want to burst his ''bubble'' , so I said "cool". Did I worry about him ? Not for a second. He approaches numismatics the right way. It's fun.
From my view, RYK, as it pertains to investments, there is a bubble. And like all markets, there are corrections. If history repeats itself, some coin investors will get beat in the game (usually because of the hype that got them to pay way over "FMV" for an item), but a numismatist /and or a hobbyist has his frolic in coins , not the market or it's volatility. (my humble opinion).
Perhaps not, however, you can buy coins at great prices from people who need cash to cover their 'shorts'. Cheers, RickO
<< <i>"You can't "short" coins"
Perhaps not, however, you can buy coins at great prices from people who need cash to cover their 'shorts'. Cheers, RickO >>
<< <i>In today's business section of the St. Louis Post Dispatch, there were two articles arguing that investing in commodities is approaching a bubble status. . >>
If it's written in the newspaper, then it's most likely the correction in commodities is over and that we'll begin to see higher prices again shortly, imho.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
<< <i>I understand that every once in a while a 'gift' is presented to collectors, as in the recent 2008/2007 ASE issues >>
I prefer to think of the US Coin market as being in "Gift Status", and not "Bubble Status".
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
<< <i>When a coin upgrades and the price becomes 10X because of the number on the slab, that's a racket ™. >>
I couldn't agree more--ditto for that sticker stuff too.
How do you define "every once in a while"? Every couple months? In the last five years there have been quite a few of these "gifts"...to the tune of seemingly several each year.
Remember two things that define a bubble:
1. An increase in the number of transactions--check
2. A strong sense of denial among the participants in one--check
<< <i>No >>
Well, that proves it.
Experience the World through Numismatics...it's more than you can imagine.
<< <i>I'm not so sure that I like the "bubble" metaphor. I prefer "smoke and mirrors" to describe a good part of the slabbed modern market, while "house of cards" seems suited to a good part of the slabbed classics market. >>
Is this "bifurcation" ? Let's separate the glue, paper, and plastic from the metal and then split the coins into sectors, too.
Oh wait, we can't. It's a market, a racket and a hobby. The sport of Kings and the playground of paupers.
Well, for me, it's a study in economics , a hobby in numismatics, as well as an involvement with like-minded fellows.
You guys make me think too deep sometimes.
<< <i>My definition of 'bubble' is hobby related; yours is investment related. Your reason #2 doesn't automatically lessen the participants in #1. I don't collect with investment as a prime objective.I define "every once in a while" as any time the hobby is advanced and benefits from any event that increases awareness. Respectfully, John Curlis >>
I thought it was clear in the OP that I was talking about a financial bubble. I cannot conceive of such thing as a hobby bubble. I guess if a lot of people rushed into coins at once, independent of speculation or investment motive, there could be a hobby bubble. I have to ponder this further...
That is not bubble talk from them.
As far as coins, I do not view them as commodities. They are too individualistic.
And, while your example of a coin graded XF being bumped to 61 and subsequently bringing alot higher price happens, it may be a bubble only for that buyer for that coin, not necessarily for the series, or other coins in similar graded holders.
The nuances of auctions on a rare coin,( emotions of a couple persons involved in the bidding) or even transactions by private treatise cannot be compared to commodities traded all over the world in my opinion.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
no one wishes to admit to it... because they are so tied up into it.
in a normal hobby prices do not double and triple in a few short years
unless speculation is taking place. even i was thinking more of an investment then a hobby at many points when i was collecting.
i do await the coin market crashing soon. i see no reason why it
should continue to go up as there is very little value left...
of course those who are really into it will see value everywhere...
Experience the World through Numismatics...it's more than you can imagine.
Nevertheless, the coin market is not immune to bubbles. Consider 1963-64 (BU Roll Mania) and 1979-80 if you have any doubts.
From my perspective, the best way to judge if a bubble exists is to ask a simple question: Could prices collapse spontaneously? (I.e, without any external factors impacting the market.) And if the answer is "yes", then a bubble exists.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
Manipulators can bring a market down any time they want.
As I recall that article (I read it in the Wall Street Journal, where it was initially published, there were four aspects of a bubble:
1) A bubble generally starts when there is some new large event about which investors are unsure of the ultimate outcome. This description fits the so-called Internet bubble in stocks in 2000 and the so-called bubble in stock prices in the 1920s (the large event here was the electrification of the United States). But I do not see where this description fits the coin market. (Or the tulip market.)
2) The article also implied that bubbles were more likely in markets in which it was costly (=difficult) for short sales. Clearly this is the case with coins.
3) The story said that vastly increased transactions were a sign of a bubble. I think this element accurately describes the current coin market.
4) Finally the story said (and implied) that a bubble ends when enough of the investors who are less optimistic about the event (randomly) act together to start lowering the price and that the price then plumments downward. I guess this accurately descibes the end of the so-called bubble in coins that ended, as I vaguely recall, in 1980. My understanding is that prices dropped like rocks at the end of the 1980 "bubble." It does not describe the prolonged fall in coin prices during the 1990s.
All in all and without reading the professional articles that the WSJ story references, I think a "bubble" might be possible in coin prices. But I think it is difficult to know whether the current rise in prices is a "normal" up-tick or a "bubble." In the stock market, there are good theories about the factors that determine stock prices, that is, the "fundamentals," and hence it is possible to define a bubble as a large divergence in price from these fundamentals. Although I think this difference would be very tough to measure during a bubble, at least in theory it is possible. But in the coin market and in all collectibles markets it seems much more difficult to measure the "fundamentals" that determine prices and so it seems exceedingly difficult to determine if there is a bubble in coin prices.
<< <i>I'm not so sure that I like the "bubble" metaphor. I prefer "smoke and mirrors" to describe a good part of the slabbed modern market, while "house of cards" seems suited to a good part of the slabbed classics market. >>
All the world's a stage,
And all the men and women merely players;
They have their exits and their entrances,
And one man in his time plays many parts,
His acts being seven ages. At first, the infant,
Mewling and puking in the nurse's arms.
Then the whining schoolboy, with his satchel
And shining morning face, creeping like snail
Unwillingly to school. And then the lover,
Sighing like furnace, with a woeful ballad
Made to his mistress' eyebrow. Then a soldier,
Full of strange oaths and bearded like the pard,
Jealous in honour, sudden and quick in quarrel,
Seeking the bubble reputation
Even in the canon's mouth. And then the justice,
In fair round belly with good capon lined,
With eyes severe and beard of formal cut,
Full of wise saws and modern instances;
And so he plays his part. The sixth age shifts
Into the lean and slippered pantaloon
With spectacles on nose and pouch on side;
His youthful hose, well saved, a world too wide
For his shrunk shank, and his big manly voice,
Turning again toward childish treble, pipes
And whistles in his sound. Last scene of all,
That ends this strange eventful history,
Is second childishness and mere oblivion,
Sans teeth, sans eyes, sans taste, sans everything.
-Shakespeare
It follows that it's all smoke and mirrors. It will never change.
This is why modern coins will always be collected from this point out.
Knowledge is the enemy of fear
However, the one variable that is unknowable (is that a word?) is the amount of leverage in the coin market. And this is the variable that creates bubbles, IMO. See debt supercycle. How many dealers or collectors own a leveraged coin collection? Financial institutions that lend money to collectors and use the coins as collateral make me very nervous. Often asset backed lenders forget that asset values can decrease and that borrowers might have credit issues. Oddly enough these two things seem to happen around the same time (sarcasm) and further magnify losses. If a big, leveraged dealer goes down, I think the coin market could have some serious issues.
For my series of interest, I see coins languishing in dealer's inventories - sometimes for months and months. If these dealers are levered they could have some serious cash flow issues in the near future.
In honor of the memory of Cpl. Michael E. Thompson
Yes, the wealth will always be there, but it won't always flow as freely into the coin market as it does now.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
sans bubbles, too.
According to Shakespeare, I'm about full circle.
There may be a correlation, but it's hardly one to one. While the coin market dropped (very roughly) 50% between April 19, 1980 and the ANA show of the same year, GDP certainly didn't halve.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.