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I have created a new blog site designed which will encompass many other authors, news from DLRC, DGS and other numismatic organizations, as well as in-depth reference material. Please go to my new BLOG site! Thank you.

John

State of the Mayhem -- oops, I mean Market

It's been a while since my last posting but I've been doing my best to observe the external markets to pass on some worthwhile perspective on how the financial crisis is affecting the coin hobby/industry/investment market.

For starters, it does feel as though we've been relatively insulated from the major vicissitudes of the market swings. Coin values have remained steady throughout the past month or so (and they were quite healthy before) but I do expect that there will be some downward pressures on prices of certain coins. There simply has to be. There's not as much confidence among ALL consumers right now, whether you are a car buyer, grocery buyer, house buyer, art buyer, or coin buyer. I still feel that the latter is the best place to be (more on that later) but it seems to us that everyone is being cautious right now with their spending. And rightfully so!

That said, we're still seeing good activity across the board, but the amount of volume is down for us about 10-20%. We're still not seeing many fresh collections come in, which would be nice, but that means collectors are not dumping their coin collections. And I've heard that from many of my contemporaries. Big-ticket coins ($10,000+) are harder to sell right now so there should be some good deals in this end of the market if you are feeling flush.

Why Are Coins Insulated?
A good question, and I admit my bias up front. However, I love certified coins as my primary investment (my entire inventory!) because the certified rare coin market is the most efficient of all collectibles and therefore, affords sellers the most liquidity. Every US coins has a value and we'll make you a cash offer on just about anything!

There are many reasons for this, but the principal reason is that collectors and dealers really respect the major grading services (PCGS and NGC) and their coins are highly respected and sellable. Sure, we may squabble about whether a coin is high end or low end for the grade, has good eye appeal, etc but we will NOT debate authenticity or the grade (in most cases). NGC and PCGS have made huge strides for the industry to give us all confidence. When a problem is brought to their attention, they fix it. So we(as dealers and market makers) are comfortable supporting the coins in their holders. Dealer confidence translates to collector confidence, and so on.

Another reason for numismatic liquidity is the fact that coins are so easy to transport. It's a snap ship a $50,000 coin across the country via Fedex. Try that will a large landscape painting... or better yet, 50 of them!

Coins are also intrinsically tied to the emotions of the gold market. Right now (and for the foreseeable future) gold feels like a good play. Sure, it goes up and down, but many of us see gold in the $1500 range at some point. That will be an incredible boon for all US coins -- gold, and non-gold alike.

Let's Trade
I mentioned earlier that folks are being careful with both their buying and selling. But trading (non-cash transaction) is a GREAT thing to do in this market. Drop me a line and let's make a big trade!

State of the Market - Post Long Beach Report

John Brush and I have just returned from the Long Beach show which was held last weekend. The show coincided with the events of one of the most bizarre weeks ever witnessed by the United States financial markets. And yet, dealers bought and sold coins during the show trying to pretend Wall Street wasn't actually crumbling around us! Even more strangely, gold surged over $80 during show hours on Thursday. A huge plasma screen in the corner of the convention hall allowed us to follow the numbers. For years, we've often joked that gold always goes down during Long Beach, and this was the reversal of a lifetime -- the single largest one-day gain of gold spot!

There's no lack of opinions about the severity of the bloodletting on Wall Street right now. We certainly seem to be paying the price of our excesses for the past 20 years. We all drank from the ample goblet of corporate (paper profits), house price increases and, of course, all that EASY credit.

Whomever you blame for the current conditions, the fact of the matter is, this is going to be a very painful pill to swallow. But I know why you're reading this. You want to know how Wall Street's woes will effect the the value of your coin collection.

As John and I walked the floor in Long Beach doing business with all our dealer friends, we sought answers as well. Before Wednesday's gold surge, the mood was mixed with some thinking prices couldn't hold while others felt the opposite. The price surge certainly shook things up a bit. Not everyone rushed to a quick judgment that the coin market would turn on gold-bug enthusiasm, but we ALL held our collective breaths. We (coin dealers) are constantly looking for positive arguments to support the fact that we carry large inventories whose value we'd prefer not to see decrease. So the gold surge felt good. But we all feared that the day's close would bring a quick correction. When that didn't materialize on Thursday everyone heaved a collective sigh of relief. In fact, gold even continued to post some gains over the next 48 hours!

So, perhaps the gold bugs are ready to assert themselves. This theory plays into the hearts of all numismatists. The logic is basically that gold (above all) will hold its value when government paper fails. In times of financial instability (anywhere in the world!) gold tends to benefit as folks wish to stuff their mattresses... and government coppers as well! If this is the case now, gold could be in for a HUGE run. And rare coins tend to run with gold; mostly because the greatest amount of value in the rare coin market is derived from rare gold coins. The rest (type coins, coppers, etc) will benefit from the "drafting" effect as they always do.

So there you have it. A simplified theory that gives us confidence that rare coins could be a wonderful hedge market in these turbulent times. Of course, I remain steadfast in my assertion that one should not buy rare coins as a pure investment play. One should buy rare (or not-so-rare coins) because of a passion to collect. However, I love that the rare coin market has been a wonderful investment for the past 2 decades. Many of our clients have seen their holding increase in value -- and they've benefited by physically enjoying their asset. I, for one, have learned more about world history through coin collecting than in any book, or class. And I see the same recognition in the next generation of collectors.

Is there a better career than being a coin dealer? Possibly not, I think. The longer I do this (20 years full time now), the more I love my job.

Until the next post, let's all hope that the financial markets shore up quickly (not likely) and the gold continues to shine.

Summer's Over...Let's Party!

I'm half kidding, of course, but now that Summer is over, we can all go back to concentrating on our coin collections. Collectors always find it difficult to concentrate on their hobbies during the summer months, what with kids out of school and nice weather to distract us...

I'm just returning from a short trip to NYC where I met with a client to specifically help him with his collecting strategy. We spent the better part of the day together and he was able to clean house of duplicates and upgrade his set where it makes sense. I used the second day to visit the US Open where Federer took apart his latest opponent...

The good news is the coin market is holding up extremely well against the overall economy. This is not all that surprising given that rare coins (as part of the "hard asset" class of investments have typically been a good hedge against during inflationary times. What makes our market even more resilient lately is the fact that the base of collectors continues to grow. Every new collector that joins our ranks helps to solidify the value base of coins in general. For example, if 10 new collectors decided to go after gem Barber quarters in September, the supply wouldn't be able to handle the pressure and prices would probably rise 25-100% from that small influx of demand. Morgan dollars have a much greater supply so we'd need a greater number of new collectors.

Gold, silver and platinum don't seem stable at all right now which is probably the worst drag on the market. Personally I like gold under $800 per ounce if it will stabilize. In fact $700 gold would be even better long term and would probably attract a lot of new buyers for better-date gold coinage as they started collecting. It seems to me that gold moves in step with oil these days, and oil has dropped like a rock in the past month.

Coming soon to DLRC...are some great new fresh collections. One of the collections contains over 350 freshly-certified DGS coins that are consigned to us from a client. All the coins are wonderful collector-grade material with a large amount of circulated Barber halves, Seated halves and the like. At DGS the most criticism we get is that we're too conservative -- and we love it! Check out these coins as they are graded accurately and fairly in our opinion and you will definitely find dates you need. The second deal is a fresh collection of world gold with some interesting US mixed in. Win and the boys seem to be getting more calls than usual right now as people are selling parts of their collections to trade up, or simply to raise money. No matter what side of that equation you are on, we want to hear from you. Nobody will treat you more fairly and we could really use the material.

DGS Update

Business at Dominion Grading Service (DGS) has been clipping along at a solid pace this month. We have now graded 2,812 coins -- only 376 submitted by DLRC.

The buzz around "town" has been really good for our graded coins and dealers, as well as collectors, have been buying DGS coins because they are confident that our coins are conservatively graded. It's really that simple. If we grade the coins correctly, people will buy them. And that's our secret formula.

Also, today we officially broke the $100,000 mark for sales of DGS coins! Between DLRC and DLRC Auctions, we have sold 224 DGS-graded coins for a total of $103,338. That's an average sales price of $461! Clearly, we are not grading bulk submissions of modern coins, but you can take a look at our visual population report and see that.

Speaking of innovative ideas, we certified our first Hobo Nickels this week. To my knowledge, no grading service has ever done this, but a very good client asked if we could put these in holders without grades. It's impossible to grade these coins, since they are technically damaged, but Hobo nickels are a work of art and we were happy to accommodate his request.

If you have any questions or comments about our services, please direct them to me for a personal response. Thanks!

In Memory of Jack Lee...

I write tonight's blog with a very heavy heart. I was traveling out of the country over the weekend when I heard that my dear friend, Jack Lee, had passed away. Jack has been well known in numismatic circles these past two decades, primarily for the famous Silver dollar collections he assembled. Their quality was been unmatched because Jack had the rare combination of a critical eye, patience, and financial means to build the greatest Morgan dollar collection.

However, I didn't even know Jack when he build and sold those sets. I met him around 2000 when I started to share table space with him at the U.S. Coins (Kenny Duncan & co.) at Long Beach shows, where I would sit adjacent to Jack and his wife, Mary Catherine. The two of them (already in their 60's at the time) were tremendous fun and always teased me, show after show, for some reason or another. Jack was forever giving me grief if I showed up 5 minutes late for the show in the morning, bought an extra Coke, or didn't shave. I remember that he and Mary Catherine always brought their own coffee pot to the shows so a home-brew was never far from hand. Later, Jack and I did numerous deals together. Our biggest deal was a partnership on an 1870-S Seated dollar. He bought the coin in our Richmond Auction for $360,000 in 2005. I told him a few months later that I thought he had purchased the "rip of the auction." Jack simply replied (in his trademark Mississippi drawl), "If you really feel that way, you can half of it for $230,000." In other words, put your money where your mouth is... Well, I did. We marketed the coin for about 6 months and eventually sold it for $550,000 -- this was back in Feb. 2006. Since then the coin has realized near $1 Million. I knew that coin was a steal! Anyway, Jack was cool as a cucumber the entire time and a real gentleman. As a retired successful banker, a few extra zeros never made him nervous.

Jack and I went on to do many, many other deals together and he taught me many things about professionalism in the coin trade. Just two weeks ago we did well over $100,000 in business at the ANA show. I felt he was slowing down, but I truly didn't see this coming. It's quite a loss for me.

Jack, you are sorely missed by all who knew you. And you will always be remembered.

I don't have a picture of Jack, so I have copied this one of Michael Casper and Jack (right) which I found on the pcgs.com site. Michael, I hope you don't mind.

Third Party Grading, Visited

I was asked a very interesting and challenging question today by Steve T., a collector of certified U.S. coins and customer of ours for just over 2 years. First, Steve was disappointed because he had cracked an NGC MS61 gold piece out of its holder and submitted it PCGS -- and it graded AU58. We had originally sold him the coin and he wanted to know if we would allow him to return it. In other words, "would we guarantee the grade of the coin?" I responded that it simply is not possible for DLRC to guanantee the grades of certifed coins we sell once they are cracked out of the holder, for two reasons. First, we cannot be certain that a coin hasn't met with outside forces which may adversely affect it's current condition; but more to Steve's question... the fact is most coins will NOT grade the same if cracked out and resubmitted. Shocking, perhaps but definitely true. And we could be talking about PCGS to PCGS; NGC to NGC; DGS to DGS; or any cross submissions as well. Assigning a grade to a coin is very difficult and subjective in so many ways.

Many submitters expect a certain grade when submitting coins and when a coin doesn't reach that grade expectation, the coin is cracked out and submitted again. Someone may submit the same coin 4-5 times before the desired grade is awarded. (Not all coins are submitted in this fashion, but there is a cottage industry of "crack out" artists that mkae their living this way.) By this measure, economic theory dictates that the coins remaining in holders tend to be the coins that recevied the highest awarded grade after x-number of submissions; and the mature marketplace will ultimately be weighted in favor of coins that have been "maxed" out. As a buyer, if you then crack out a coin you run the distict possibility that you are regrading a coin that took x-tries to achieve its high grade.

All this being said, Steve was then concerned about the future of grading services in light of this grading variability. I know this can sound disconcerting, but it really shouldn't be. The certified coin market is a great hooby which has achieved a cross-over to investment-grade status for many people. It's a real marketplace in which hundreds (if not thousands) of dealers make individual (and independent!) spreads on coins and values are amazingly dependable year over year. Try buying a five-fiugre paiting and offering it blind to 10 national art dealers. You will find the margin of offers (if any at all) to be much larger and seemingly random. As coin dealers, we buy and sell over $2 million in coins every month. Without the solid repuations of PCGS and NGC, this would not be possible -- not even close.

A word on CAC: Collectors' Acceptance Corp has emerged as a "grader of the grading services". We are fielding a lot of questions about whether this is good for the industry and whether or not collectors should insist on CAC-stickered coins. First, I'll say that CAC'd coins sell faster than non-CAC coins. Becuase CAC has only been in operation a short time it's impossible to know the long-term impact, however, I can say that it will NEVER be a negative. CAC is quickly becoming known as a conservative arbiter of quality standards, and a CAC'd coin should give its buyer an added sense of security that it's grade is accurate. That said, I don't think that a non-CAC'd coin is a negative. Nor do the folks at CAC want you to think so. They've either not seen the coin or decided that it didn't make their standard for the grade. But just as some people like chocolate, and others vanilla, CAC will not always agree with us at DLRC (and our five-star coins, for example). Just use the service as another opinon. We also REALLY like the fact that CAC is putting money behind their stickers. They are making a two-way market in CAC stickered coins and their buy offers are STRONG. Stronger than retail in many cases. That's a great thing for the market. And we wish them much success.

A word on DGS: Dominion Grading Service, as many of my readers know is the new grading service that we started our own grading service. Not so much to compete with NGC and PCGS, but to supplement them. We are really enjoying the process of grading coins for our customers and it's really giving us a greater relationship with our customers AND the coins we grade. I started in the coin business as a child helping my father at coins shows when there was nosuch thing as third-party grading. EVERY coin dealer graded his own coins and reputations were won and lost based on the dealer's integrity from grade through pricing fairness. I see DGS as a way for us to get back to those roots -- especially on circulated collector-grade coins. And just like CAC, our business model is dependent on supporting this market. We WANT to buy DGS graded coins, becuase we know they are graded conservatively. Collectors have responded by buying our product from day 1, and support grows every day.

This 1807 half dollar is an ideal example. It graded DGS VF35 Lightly Cleaned and consigned by a client -- reserve at $421. It just closed in tonight's auction for $570 (+ 15% buyers premium) with bids from 4 different bidders.

That's all for now... back to Michael Phelps' gold-quest. Please respond with any questions.

Sincerely,
John