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Posts Tagged ‘economic downturn’

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As the economy continues to struggle with rising unemployment numbers (heading toward 10%), tight credit for small businesses, bankruptcies and housing foreclosures increasing 15% in the first half of 2009, it should be no surprise that we are also seeing the activity of the coin collecting community shift their priorities.  With less disposable income we are seeing a drop in attendance and purchases by collectors at both the local and national level at both shows and auctions. Additionally, this economic down turn has hit collectors at all financial levels.  These are certainly not surprising results, but the question a lot of dealers and collectors alike are asking is: how long will it last? 

Many dealers are traveling less (particularly between coasts) due to slow retail and wholesale sales which are primarily due to the factors mentioned above, as well as, the lack of fresh material and the presence of what are referred to as “C” and “D” quality coins on the floor.  Or, to say it another way, too much of what everyone has already seen time and time again.  Dealers are relying more and more on internet transactions to get rid of these less than desirable coins while looking for the more desirable “A” and “B” coins, and in particular those coins that have the new little green “CAC” (Certified Acceptance Corporation) sticker affixed.  

Note, the “C” and “D” coins that are selling for discounts are not good collector or investor coins for your portfolio!    If dealers and collectors are trying to get rid of this material now, they will be trying to do the same thing in twenty years.  Quality (often referred to as eye appeal) is the leading factor that dominates market value!  

It is not surprising that a number of collectors out there have slowed down, or at least put things on hold for a while.  There are also a number of collectors and dealers that are either being forced to sell their collections to make ends meet; or, they are just becoming disillusioned by the current rare coin market, jittery economy and few positive signs of a timely recovery. 

There is also a strong desire by everyone in this collectible/ investment space to establish the value of their numismatic portfolios.  Of course value is always based on quality, availability and demand, and in a down market, the inferior examples in a specific grade are just going to sit and sit and sit!  In this market, only the top tier coins, i.e. the “A” and “B” examples in any given grade are going to be the coins that will move, and probably move at a premium independent of tier price.  Likewise the more common issues are going to be less desirable and will suffer due to the lack of demand for such ordinary items.  Add to this the overall movement of the world economy and this becomes a complex issue unless you are holding bullion (for which there are daily prices, and liquidation is efficient and has a well defined mechanism).

For some collectors who have been able to put themselves in a strong cash position, this is an excellent time to purchase coins if the right gems emerge.  For example, the recent sell of the Adams-Carter Class III 1804 dollar brought half a million dollars less than it would have reportedly brought a year ago due to the current recession.  This rarity sold several months ago at the CSNS show in Cincinnati.  It sold for $2.3 million (including the buyer’s premium) and was considered by the buyer at that time to be a bargain.  Time will tell, but my best guess is that this coin will recover nicely from the current down turn simply because it is a “true rarity“.  A true rarity is important for everyone to understand vs.  series rarities such as the 1909 S VDB.

In the early part of this recession, it seemed as though the casual (new) collectors began to disappear as the economy tightened up.  However, at this point, with the continuing problems on Wall Street, Main Street, General Motors going in and out of Chapter 11, CIT on the brink of insolvency, credit card debt, real estate debt and increased home foreclosures, we find that a lot of people who thought they were insulated from a fragile economy simply are not.  Of course Bernie Madoff made us all acutely aware of the criminal nature of some people and how cautious we all should be in the current environment with all financial investments.  Thus, there seems to be a slow methodical breather being taken by the collector base, as well as investors, until things become a little more upbeat, i.e. employment numbers dramatically improve for starters.

Remember, it started with the causal collector, then moved to the more dedicated collector and finally to the financially capable and steadfast collector.  Caution rules the moment for most.  At present, the biggest buyers of coins are coin dealers! 

Another important realization is that a price correction is taking place in the numismatic marketplace just as it has in so many other parts of our economy.  Of course we have the same problem as the other markets and that is, we don’t yet know where or when we will (or have) reach the bottom, what the recovery will look like and finally the time line of that recovery.

There are areas in this market that are doing better than others.  For example, early copper collectors seem to be holding up their area of collecting, while Morgan Dollars (particularly the common dates) and some of the more common early commemoratives are weakening.  Indian Head Cents and Lincoln Cents are somewhat slow.  Early Type (“A” and “B” coins) seem to be holding their own due mainly to their rarity due to scarcity.  This of course provides a nice buying opportunity if these are areas of interest to you and cash is available.  So, what do you buy now with confidence that your investment is sound in this down market?  You buy “A” and “B” coins that are rare due to scarcity and are always, for these reasons, in high demand.  Look for that “CAC” sticker or work closely with an experienced rare coin dealer to help you make these decisions.

The collectible and rare coin market has maintained its strength longer than most investment vehicles.  At first, it looked like rare coins were the ideal hedge against what was happening in the stock market.  However, sooner or later, just as with all bubbles, it has been forced to give back some of that rapid growth seen in the past three to five years.  There has been a lot said about foreign vs US money coming in from all over the world to purchase rare coins.  Now we see the effect of that world economy and realize the reality and consequences of what is now a world market in rare US coins, controlled by an impartial and slashing world economy.  

How long will it last?  It will last until we start seeing positive job reports at the end of every week for starts!  Look for that first and then formulate the next question!

When will collectors/investors from all positions and skill levels feel comfortable enough to re-enter the coin market once the economy begins to gain positive momentum?

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