VERY scary post in "Tangents"

[Count_Erfit]

There's a post by "jhollan" in

thread

 

I have been wondering about exactly this phenomenon for a while lately. Almost all market CRASHES (whatever the market) have been brought on by "credit" buying and the inevitable day of reckoning when it comes time to pay the bills.

 

I would sure like to know how much of this "hot" market is credit card driven.

 

I personally expect to see real estate crash like a heap of cards within the year.

 

People are so ecstatic about low rates, but seem to forget that the PRINCIPAL also needs paying.

 

I still think quality coins are just about the most liquid and underappreciated "fine art" with historical importance, but fear that they also could get hammered with our fine US credit bubble.

 

Gettin a bit nervous. Don't have all my eggs in one basket but also hate to see baskets smashed.

 

Anyone else?

 

[jtryka]

Well, you raise some very genuine concerns, and in many ways you present a doomsday scenario for the global economy. Should the housing bubble collapse, it would likely spawn a depression that would make the "Great Depression" not seem so "Great" anymore. People would default on mortages in droves, banks would fail, the stock and bond markets would collapse. And the Fed would be left with little choice but to start the presses and pump huge liquidity into the system. This would create hyperinflation reminiscent of post-WWI Germany, but it would do little to stimulate the economy. With a dead economy, and hyperinflation, the Fed/Treasury would be forced to remonetize gold and silver to bring stability to the currency so we could buy oil again. It would be a nightmare scenario that I don't believe will happen (or at least hope it doesn't happen).

 

As for real estate itself, the collapse of the bubble will not be nationwide. There are certain areas, particularly on the coasts that will be devastated. I know people here in the Puget Sound that bought homes 2 years ago for $250K and are now appraised at $450K. That is a huge runup. Meanwhile in the Midwest, like Indiana where I may be moving, there are many nice homes for less than $100K. Well buying a house for $100K even if the value goes to zero, would be withstood better than a person that buys a $450K home that goes down even by 50%. The real danger in all these markets is the proliferation of zero-down and INTEREST ONLY mortgages (I almost got in an accident when I heard a commercial for these on the radio)! I still believe though, that in some areas, people are more disciplined with home ownership, and go for more traditional mortgages with principal payments that grow over time. It's the areas where home prices have surged beyond affordability that are the most at risk.

 

As for the impact on the coin market, if there is a regional crash as I think might happen, some areas will collapse overnight. People will no longer justify paying thousands for high-grade moderns it they are about to lose their homes. And I'm not trying to bash modern collectors, but let's be realistic. Would you be willing to spend $10000, or $1000 or even $100 on a coin minted by the billions within the last few years if your house was about to be repossessed? Some extreme rarities will likely still be demanded, but prices will still fall to much lower levels, as the number of extremely wealthy individuals contracts. One area I think would benefit is junk gold and silver coins, especially as people spooked by weakness in the stock and bond markets and increasingly distrustful of banks (due to many failures) would be searching for hard money alternatives. These new market entrants would be buying junk silver coins by the bag, and generic gold/bullion. This would be exacerbated by our trading partners starting to demand payment in hard currency rather than increasingly worthless fiat dollars. This would result in a dramatic shrinking of premiums for better date collectible coins. Say if gold rises to $2000/oz. in that scenario, a 24-S Saint might go for 2x melt instead of the current 5x to 10x melt.

 

It's not a pretty scenario, but in my view not an overly likely scenario either. Do I think about it, yes, do I prepare for it, yes, though not as much as I probably should. Does it keep me up at night? No.

[jhollan2]

Wow, I never really thought that you could describe my situation as "scary." I admit that I probably was overentusiastic because I, like you, agree that the coins ARE an underappreciated fine art. As a prosecuting attorney the history of them fascinate me- the possibility of a coin being handled by a founding father or used to buy one of the famous "depression apples" is mind boggling. But, as with any market, you have to have liquidity in order to function. Most of the stock market functions on margin, and real property is purchased with money that is only theoretical- no one really pays cash for a house (well, very few people).

 

I wouldnt have such a doom and gloom outlook. While the numismatic value adds to a coin's price it isnt the sole factor. I'm not an economist, but a coin will always have the value of the metal that makes it. This distinguishes the coin market from real estate and stocks which can be heavily reliant on a subjective determination. But I think the real question is are you in it for the hobby and love of history, "art" as you termed it, or as an investment?

 

As for your concern about my credit, and the credit of others who may be buying things on ebay or elsewhere, I wouldnt worry too much. There will always be a turnaround, whether its people looking to profit or paying for their child's education. Even if everyone who bought coins in the past year, or even since the beginning of the state quarters dumped everything they own it still wouldnt collapse a market forever. Every day another coin is cleaned, lost, or otherwise destroyed; it will never be replaced. I'm not selling everything I bought, just the duplicates and coins I dont want... Maybe my enthusiasm provided another individual the funds to upgrade, and now my coins can go to someone who is just starting out. If push came to shove I'm sure I'm not the only one who could deal without cable or even my cool courthouse parking spot before I sold it all off.

 

Sorry about the rant, they train you in law school as if you were paid by the word.

 

-Jill

Current Ebay Auctions

[IrishMike]

I wouldn't worry much about no down mortgages. Properties in Indiana have for years appreciated 3-5% per year. It is a very stable housing market. 100% financing is not available to everyone. A true no down mortgage (just a first) requires very high credit scores. Fannie, Freddie and FHA have been compiling statistics for years that indicate there more relevant reasons for default then down payment. In fact these loans carry private mortgage insurance, which insures lenders down to 78%.

 

I have counseled many folks to put as little down as makes sense and to keep liquid. If you lose you job or source income all the equity in the world won't help you make the payments.

[Count_Erfit]

jill.....I don't see your SITUATION as "scary." Just taken in the aggregate, if a BUNCH of coins are being bought on credit, that begins to scare me.

 

What scares me MOST is the debt of the whole NATION. Personal and national.

 

 

jtryka.....ANOTHER "scary" is that we may not GET what we expect (and which has been historical) in the way of eliminating debt through hyperinflation.

 

THIS time, it could be the real humdinger where they use DEFLATION to just re-po the debt, wipe out the debtors, and let it sink to where the "NWO"....really....wants it. Good for elite and let the hoi-polloi just sink or swim.

 

I .....think...... we are not even REMOTELY prepared for the upheaval this time.

 

But....as you say.....I'm not losing sleep either.....but now I may.

 

rats!

 

grin an bear it.

[dakra]

When I was out of work... I didn't find out a few tid bits until I started going throught he bills when I was out of work. My wife was buying gas, groceries...etc using her credit card.... and paying the minimum or less on the credit cards, sometimes letting a month go by before paying them.

 

7k on one credit card, 6k on another.... I cringed!

 

When the money started flowing in slowly, I tightened the belt, paid down the debt and now I'm at a point in which I am paying everything else off early. Debt it not my friend, I was there once and never want to be there again.

 

of course, my wife's cc is heading up again... I need to speak with her about charging gas and paying the $20 minimum when she is up to $700 again!

 

Do what you can to get out of debt, If I can just reach one person in this message, I will be happy

 

Dave

[truthteller]

It's the American way to be in debt, really in debt is being a really good American. However, when one stops and thinks, TV tells you to spend, big business tells you to spend, your government tells you to spend, your kids tell you to spend. It's only after you go bankrupt does it sink in that you were spending for everyone else's benefit but your own. That's when you either wise up or blame everyone else. I read several posts on the PCGS forum of folks wanting to declare bankruptcy rather than part with their beloved coins. Tightening the belt means often parting with dear items. Coins and tangibles can be repurchased, your credit and sanity often cannot.

 

 

TRUTH

[JamminJ]

Here's an apt adage:

 

People who understand interest collect it. People who don't pay it.

 

-JamminJ

[dakra]

JamminJ,

I like that!

 

Dave

[chinook]

Debt by itself is not evil. But it is difficult to go bankrupt if you don't have any. As a former stockbroker I used to recommend to my clients to buy companies that had large amounts of cash on their balance sheets. Eventually the economy would turn and these companies would prosper. But rarely did I see a highly leveraged company pull through bad times.

 

In 1999 and 2000 I would receive a phone call a day from a prospective client wanting to purchase stocks with a credit card. The writing was on the wall for the stock market. Whenever something gets too popular then end is near.

 

While there are many more people collection coins I do not feel we are near a critical mass. Most people are collecting moderns in which there are millions of examples available. However when these people move to the classics which are very thin then we will see price appreciation the likes of which we have never witnessed. I just hope this time is many years to come as the hangover from this will be devastating and take generations to overcome.

[gmarguli]

While there are many more people collection coins I do not feel we are near a critical mass. Most people are collecting moderns in which there are millions of examples available. However when these people move to the classics which are very thin then we will see price appreciation the likes of which we have never witnessed. I just hope this time is many years to come as the hangover from this will be devastating and take generations to overcome.

 

I feel that most of the people "collecting" moderns will probably not move to classics. Instead, they will move to another hobby. The people pulling state quarters out of change are not real coin collectors. Same goes for the person who buys proof sets from the mint every year. They don't fuel the coin market. They are a niche that has no affect on the overall market.

 

The people collecting the high end modern coins and playing the registry set game also aren't likely to move to the classics. It's an ego trip and if you want to feel special you certainly don't pick a set that would be hard to complete both time and money wise. You pick something easy so you can see your name up in lights and look at yourself in the mirror and think that you are special. Now that's not true for all, but for many it is.

 

Those that do move from moderns to classics - what are they going to buy? Are they going to buy circ Morgans which are so common that you can buy them from every dealer on the planet or are they going to go after gem Seated material and cause the prices to rise? Will there be enough of them to make the prices rise significantly given the loss of collectors due to natural causes?

[cladking]

Modern coins are a niche market for two reasons. The big reason is that it is a small part of the overall market. Yes it has grown a great deal in the last few years but if you add up the value of all the moderns with premiums it makes a small fraction of the total value of the older coins. This may not always be true but it certainly is now. The second reason is that this market tends to be overlooked by many established dealers and collectors. There are myriad reasons for this but it tends to largely be related to the differences in the level and nature of the business and the unwillingness of many to "sully" themselves with such coins or business.

 

It is impossible to predict how many of these new collectors will move into the classics. Most future classic coin collectors are probably already collecting something. These people will branch out in ways which suit their personal needs and there will be at least some who gravitate to classics. This really has already started even if not extremely obvious. It seems likely that encouraging these people today might reap more rewards tomorrow for those who seek new collectors in their field. Perhaps discussing their interest or your interest might be more effective than belittleing or warnings. It may not matter so much what any individual does but you can bet that all of us together exert strong influence on the current and future course of many of these individuals.

[chinook]

Those that do move from moderns to classics - what are they going to buy? Are they going to buy circ Morgans which are so common that you can buy them from every dealer on the planet or are they going to go after gem Seated material and cause the prices to rise? Will there be enough of them to make the prices rise significantly given the loss of collectors due to natural causes?

 

 

Greg, I don't disagree with anything you have said. The classic market is very thin to begin with. Example: In the seated liberty universe-a very long series- according to the PCGS pop reports (business strikes) there are 785 quarters in 65 and 628 halves in 65. Even if you triple the numbers to account for NGC, ANACS, ect, you can see that there doesnt need to be a tremendous number of new collectors to create overhelming demand and hence move prices.

 

There are over 50 million baby boomers in this country. They are the wealtiest group of Americans EVER. They have been responsible for the real estate boom of the 70's and the stock market boom of the 90's. As they approach retirement they will impact other facets of life including hobbies. Many will play golf, go fishing, collect antiques. This has already started to happen. If just 1/10 of 1% decide to collect classic coins then we are talking over 50,000 people.

 

When I look at the Heritage auction archives I usually see 10-15 people bidding on the same coin. Imagine if that was 20-30 people. Prices would be MUCH higher. Now imagine 50 bidders.

 

There is a huge amout of money out there and rare coins will continue to attract some of it just as it has been for 200 years. One thing that I feel is a certainty is that the number of collectors will continue to rise. At what pace I do not know, but it will grow. The number of classic gem coins will not. Therefore we will continue to see demand outweigh supply and prices will trend higher. There will be crests and troughs, no doubt, and there will also be a tremendous boom and crash. But I do not feel we are anywhere near there yet. The dramatic price moves we saw in the late 80's will pale by comparison to what we will see. Do not underestimate the impact of the baby boomers. Others have done so in the past and have always proved wrong.

[Count_Erfit]

Other than the fact that my personal opinion is that the boomers are going to get one REAL slap in the face surprise from deflating real estate and means testing for social security and a dollar worth next to nothing, I.....can.....attest to the adage that it is better to COLLECT interest than to PAY it.

 

......retired ....pawnbroker.

 

 

Having vented on what I perceive to be the future for more boomers than I believe expect it, there should still be wealth and (again IMO) coins are a true form of art that I would rather own than paint on canvas or......(sorry Antiques Roadshow)..... ceramics.