by Adam Crum
In light of the current economic situation‚ I think it’s important to address the concerns of many collectors and investors regarding their current rare coin holdings…and those who desire to increase their holdings‚ or to diversify into rare coins for the first time.
For obvious reasons‚ we have been fielding a HUGE number of calls from buyers and would-be sellers of coins wondering how the tumultuous global economy is affecting the values of rare coins and the overall business environment of our industry.
It seems that panic is striking nearly everywhere—and rightly so—but not here at Monaco. I have talked for years about the real threat of the kind of events that we have recently witnessed and have planned accordingly. I have been recommending and specializing in coins that would ultimately benefit from the scenario now playing out in this global economic mess. Monaco and our customers are well-diversified and have been buying popular‚ rare and quality coins for quite some time.
This focus on popular‚ quality and rare coins is working well for both those needing to sell‚ and for those wishing to add to their collections. The sellers are seeing that they have real liquidity‚ and those few who are sellers are providing real opportunity to those more fortunate buyers with stronger hands.
But I will touch more on the rare coin market in a minute.
Let’s first look at the mess unfolding in our financial markets and try to determine how that could impact the rare coin market.
By Secretaries Paulson’s and Bernanke’s own words‚ the U.S. financial crisis is on the edge of spiraling out of control. Both say they are prepared to take “drastic measures”…whatever that means.
The fact of the matter is that our national debt has grown by over $600 Billion in the past 15 days and now totals over $10.3 Trillion. True‚ SOME of that debt is backed by something of “value”…the trouble is‚ no one knows what that value is! Experts speculate the value of some of those assets is just 20 or 30 cents on the dollar…and that taxpayers will be on the hook for the rest.
The architects of this disaster can be tied to the political pressure during 1997 to 1999 to force Fannie Mae to loan money to those with little or no ability to pay it back. In their attempt to redistribute wealth and help those less fortunate achieve the American dream of home ownership‚ liberal politicians—whether purposely or accidentally—created a system that instead crushed those very dreams.
Market forces took over from all this new availability of borrowed money‚ and prices rose at a rate that have proven to be unsustainable. And that is where we are now…real asset values (more particularly real estate values) have plummeted and the government is now attempting to keep bad loans from failing and real estate prices from falling.
Rather than letting market forces flush out the excess borrowing and begin to replenish savings‚ the government is encouraging even more borrowing which will continue to drain what little is left in our savings pool.
So…where could this all lead us?
I believe that there are three possible outcomes:
- We inflate to the level of debt and fulfill the debt obligations…but we do it with cheaper dollars;
- We take the hit‚ cleanse the system of excesses which would deflate anything tied to paper‚ increase bankruptcies and put people on the streets‚ out of work;
- We bleed out and disinflate like Japan did over a 16-year period. (I doubt that will happen here…we Americans are WAY too impatient and we like to “mark-to-market” and move on.)
My bet (and looking at the government’s choices over the past 50 years I think it’s a safe bet)…we will inflate‚ print more money‚ encourage spending‚ encourage borrowing and hold interest rates artificially low.
Now‚ how will this affect the rare coin market?
Let’s first take a look at current conditions. Coins allow you—in fact‚ they FORCE you—to consider carefully whether or not to sell your coins in any particular market environment‚ thereby reducing the “panic effect.” While the rare coin market may not dominate the headlines these days‚ it is the only market I can see that has held steady…which is a HUGE win in this current economic environment. In fact‚ many areas of the rare coin market have seen price INCREASES over the past few months.
The indisputable fact is that coins are an excellent hedge in an economic climate like we are seeing now. This can be confirmed by studying history and looking at similar economic periods of the past. Rare coin prices actually rose during the Great Depression. They rose again in the recession of the mid-1970s‚ when real estate values and stocks plummeted. During the 1979 oil crisis‚ coin prices rose dramatically. And in the two years following the 1987 stock market crash‚ coin prices more than doubled (and launched my rare coin career!).
My very strong recommendations to you at this time: Sell only if you must. Hold what you have. And if you have the money you should look to increase your holdings.
Until next time‚ good luck…end enjoy the hunt!