Back To The Future: The Coin Crash Of 1990

[CaptHenway]

And the date of the auction, please.

[physics-fan3.14]

Actually, nope....the "highest quality" coins of generic types (commemoratives, Morgans, etc.) were lumped with what are now thought of a lower end uncirculated (Unc 63) coins. Very high quality coins and very rare ones did not experience as much of a run-up as generic pieces. Much of this was fueled by attempts to establish uniformity so that coins could be traded much like stocks. Some investment agents bought into this and the tiny rare coin market was badly "bubbleized" due to the speculation. Further, unlike stock markets, there was (and is) no independent supervisory body and no assignment of market makers to support thinly-traded coins.

 

For common Saint Gaudens, what I have read indicates that the biggest spike was in the MS-graded coins, specifically MS-65 and above.

 

The Big Picture being: MS-gradeds were the coin of choice, not AU's in the 50's.

 

Agree or disagre?

 

Sorta agree, sorta disagree. It was the "investment grade" coins that had the biggest run up. The ultra-high grade rarities traded too infrequently and had too much of a premium. What was looked at more, and what had the bigger run-up and crash, were the MS-65 and 66 coins (rather than the higher condition-rarities). To support the idea of a liquid market, there had to be sufficient volume - the widgets were really the focus here, not the real collector coins (for the most part).

 

At least, that's my understanding of it.

[BROADSTRUCK]

The Albany below is pedigreed to Floyd T. Starr and was part of a group of commemoratives he purchased at the time of issue. Today it's in a older NGC holder as MS66 but was described in Stack's catalog raw as CH BU. Along with the original tab holder and mailing envelope it hammered for a whopping $3,200.00 plus the then 10% buyer premium of $320.00 totaling $3,520.00. Next lot up was a pair of non plated CH BU Elgin's in the original mailer described as "curiously toned" which hammered $13,200.00 with juice... And the list goes on!

 

[MarkFeld]

I have a commem in a NGC MS66 holder that's pedigreed from a auction that occurred just before the crash. I pulled the catalog off my bookshelf recently and just about fell out of my seat as it sold raw for 4 times today's pricing.

 

I would guess that many or most classic silver commemoratives typically trade these days at less than 25% of their all time highs (of 1989?).

[BROADSTRUCK]

I have a commem in a NGC MS66 holder that's pedigreed from a auction that occurred just before the crash. I pulled the catalog off my bookshelf recently and just about fell out of my seat as it sold raw for 4 times today's pricing.

 

I would guess that many or most classic silver commemoratives typically trade these days at less than 25% of their all time highs (of 1989?).

 

Commems continued upward until the mid 90's especially following the Shepherd sale in 1991. Last year at a show I stumbled upon my old toned Maine I sold in 1993 which was a really tough coin to find in the neanderthal days of numismatics. Although I was tempted to repurchase it 20 years later at a mere $250.00 increase, since Al Gore invented the world-wide web I've owned about a dozen toned Maine's.

[GoldFinger1969]

Mark, Broad...these coins (commemoratives) you are referencing seem like a very niche item....I've never see a coin like the pics above.

 

This would be different than selling AU-50's and mid-60's Saints and Liberty DE's in slabs in the 1988-1990 run-up, right ?

 

Plus, there's little/no bullion value in most commemoratives, right ?

[MarkFeld]

Mark, Broad...these coins (commemoratives) you are referencing seem like a very niche item....I've never see a coin like the pics above.

 

This would be different than selling AU-50's and mid-60's Saints and Liberty DE's in slabs in the 1988-1990 run-up, right ?

 

Plus, there's little/no bullion value in most commemoratives, right ?

 

Common looking commemoratives often/usually trade as widgets, similarly to how generic gold coins do. The toning seen on the example you referenced is somewhat unusual, but I wouldn't call it rare.

 

You talk about bullion value in many of your posts. It's largely relevant in the case or many gold coins and junk silver, but not for the majority of other types of coins, which trade based on their numismatic value.

[MarkFeld]

I have a commem in a NGC MS66 holder that's pedigreed from a auction that occurred just before the crash. I pulled the catalog off my bookshelf recently and just about fell out of my seat as it sold raw for 4 times today's pricing.

 

I would guess that many or most classic silver commemoratives typically trade these days at less than 25% of their all time highs (of 1989?).

 

Commems continued upward until the mid 90's especially following the Shepherd sale in 1991. Last year at a show I stumbled upon my old toned Maine I sold in 1993 which was a really tough coin to find in the neanderthal days of numismatics. Although I was tempted to repurchase it 20 years later at a mere $250.00 increase, since Al Gore invented the world-wide web I've owned about a dozen toned Maine's.

 

I believe that for the large majority of issues, the peak was in 1989 or 1990. Sure, there were certain (toned) exceptions, but I'm speaking of published prices and trading of generic pieces.

[Conder101]

Sorta agree, sorta disagree. It was the "investment grade" coins that had the biggest run up. The ultra-high grade rarities traded too infrequently and had too much of a premium. What was looked at more, and what had the bigger run-up and crash, were the MS-65 and 66 coins (rather than the higher condition-rarities).

Back then there weren't that many Ultra-high grade rarities. The grading services were still fairly new and they weren't giving out high grades. Back then MS-65 was THE investment grade and if a coin received a grade higher than that it was big news. So big it was reported on the pages of Coin World. Many if not most of today's 67's and 68's were 65's back in 88 and 89. (And I agree with the Captn, I was active back then and my recollection was that the crash began at the 1989 fall ANA show.) MS-64 and 65 coins were the biggest movers because they were also the top graded coins.

[GoldFinger1969]

You talk about bullion value in many of your posts. It's largely relevant in the case or many gold coins and junk silver, but not for the majority of other types of coins, which trade based on their numismatic value.

 

Right....the reason for that Mark is that I had many clients who got these calls from both schlockey firms and bigger legit ones like Blanchard/Monex/etc in the late-1980's, early-1990's.

 

One of the key selling points for my clients was they were buying an ounce of gold (Saints, Liberty's) so AT WORST they had that as a floor. They felt 'good' buying an ounce of gold, even if paying a 500% premium to the bullion content.

 

I don't recall them ever getting pitched or actually buying pure numismatic dimes, pennies, half dollars, or even quarter/half/ Eagles.

 

 

[GoldFinger1969]

Back then there weren't that many Ultra-high grade rarities. The grading services were still fairly new and they weren't giving out high grades. Back then MS-65 was THE investment grade and if a coin received a grade higher than that it was big news. So big it was reported on the pages of Coin World. Many if not most of today's 67's and 68's were 65's back in 88 and 89. (And I agree with the Captn, I was active back then and my recollection was that the crash began at the 1989 fall ANA show.) MS-64 and 65 coins were the biggest movers because they were also the top graded coins.

Maybe they also didn't yet have the ultra-high grades in for grading yet ?

 

I am sure they were more liberal on grading back then (since Mark is the expert on this, maybe he can tell about how standards have changed over time). It's possible that if MS-65 was the unwritten ceiling back then they realized that plenty of coins would not get MS-66, 67, or 68 ratings.

 

Take a look at that UHR 1907 Saint that was recently listed and I believe a few auction houses have sold previously and I am sure Mark is familiar with:

 

http://www.ebay.com/itm/200914525390?ssPageName=STRK:MEWAX:IT&_trksid=p3984.m1423.l2649

 

Now, I believe it may have been graded earlier as an MS-66 or MS-67 a decade or so earlier. That still stands out IF MS-65 is your normal 'ceiling.'

 

However....if you look at the pictures close, that is a DAMN FINE COIN. I'm no expert on grading, but if the Sheldon Scale is going to have anything but newly-minted coins including ASE's in the MS66-70 grades, then this coin HAS to be an MS-68 or MS-69. Again...this goes back to an another thread where I asked "How many dings are you allowed?" for each grade. Maybe the earliest grading in the 1980's was being done comparing coins minted decades earlier vs. brand-new coins. A tough hurdle, IMO.

 

Maybe the grading was too tough 25 years ago....got too liberal a few years ago...and is just right at the present time ? Dorothy's porridge, if you will.

 

To me, the Sheldon Scale is absolute, but I recognize that just like my old junior and high school teachers used to grade us 'on the curve', you might have the same thing with coins from different eras, even if it is NOT explicitly stated. A hairline or tiny scuff mark in a far-off location on the reverse for a coin minted 100-125 years ago may count for less than the same blemish on a 2014 ASE.

 

JMHO....awaiting the veterans opinions on grading today vs. the early-1990's.

[RWB]

"...the Sheldon Scale is absolute..."

 

Well, I'll have to add the word "bologna" after that...

[MarkFeld]

Back then there weren't that many Ultra-high grade rarities. The grading services were still fairly new and they weren't giving out high grades. Back then MS-65 was THE investment grade and if a coin received a grade higher than that it was big news. So big it was reported on the pages of Coin World. Many if not most of today's 67's and 68's were 65's back in 88 and 89. (And I agree with the Captn, I was active back then and my recollection was that the crash began at the 1989 fall ANA show.) MS-64 and 65 coins were the biggest movers because they were also the top graded coins.

Maybe they also didn't yet have the ultra-high grades in for grading yet ?

 

I am sure they were more liberal on grading back then (since Mark is the expert on this, maybe he can tell about how standards have changed over time). It's possible that if MS-65 was the unwritten ceiling back then they realized that plenty of coins would not get MS-66, 67, or 68 ratings.

 

Take a look at that UHR 1907 Saint that was recently listed and I believe a few auction houses have sold previously and I am sure Mark is familiar with:

 

http://www.ebay.com/itm/200914525390?ssPageName=STRK:MEWAX:IT&_trksid=p3984.m1423.l2649

 

Now, I believe it may have been graded earlier as an MS-66 or MS-67 a decade or so earlier. That still stands out IF MS-65 is your normal 'ceiling.'

 

However....if you look at the pictures close, that is a DAMN FINE COIN. I'm no expert on grading, but if the Sheldon Scale is going to have anything but newly-minted coins including ASE's in the MS66-70 grades, then this coin HAS to be an MS-68 or MS-69. Again...this goes back to an another thread where I asked "How many dings are you allowed?" for each grade. Maybe the earliest grading in the 1980's was being done comparing coins minted decades earlier vs. brand-new coins. A tough hurdle, IMO.

 

Maybe the grading was too tough 25 years ago....got too liberal a few years ago...and is just right at the present time ? Dorothy's porridge, if you will.

 

To me, the Sheldon Scale is absolute, but I recognize that just like my old junior and high school teachers used to grade us 'on the curve', you might have the same thing with coins from different eras, even if it is NOT explicitly stated. A hairline or tiny scuff mark in a far-off location on the reverse for a coin minted 100-125 years ago may count for less than the same blemish on a 2014 ASE.

 

JMHO....awaiting the veterans opinions on grading today vs. the early-1990's.

 

Many people talk about grading and changes in its standards, in terms of certain time periods being tighter or looser. And that is probably true in a general sense.

 

But it ignores the fact that for any given month, during any year or decade, there are likely to be many coins which are graded loosely, conservatively and both. So when considering any individual coin (for its grade, up-grade, cross-over potential, etc.) it doesn't matter what the tendency might have been the day, week, month or year it was graded. What matters is that exact coin. The rest is irrelevant.

 

 

[GoldFinger1969]

Many people talk about grading and changes in its standards, in terms of certain time periods being tighter or looser. And that is probably true in a general sense. But it ignores the fact that for any given month, during any year or decade, there are likely to be many coins which are graded loosely, conservatively and both. So when considering any individual coin (for its grade, up-grade, cross-over potential, etc.) it doesn't matter what the tendency might have been the day, week, month or year it was graded. What matters is that exact coin. The rest is irrelevant.

 

Well said, Mark.

 

I am sure you are familiar with that UHR 1907 Saint I referenced above (I believe it's the highest-graded -- no ?). My readings indicate it was graded once before and came in at MS-66 or 67. So it was resubmitted and went up 2 notches, to just below the perfection level of MS-70.

 

What are your thoughts on that ? Why would the grade on such a special coin -- I'm assuming they gave it more time to grade than the average for all the coins they graded that day -- change by 2 (or 3) MS grades since I am presuming they really gave it the once-over the 1st time (maybe that's incorrect ?) ?

 

If that coin was only MS-67, then some real nice ones might be only MS-63 or MS-64 -- and maybe that's why graders decided it had to go up to MS-68 or 69?

 

I'm speculating here, and like you said I realize that this is not an exact science. The grade on a coin like that above is going to affect all the grades for the UHR's, the HR's, the 1907 series, all the Saint-Gaudens, and maybe all the Double Eagles.

 

You wonder if there was a de facto 'ceiling' of MS-65 at one time and the graders thought they were being generous giving that UHR 1907 an MS-67 grade...and then realized it was too low (or that if it was MS-67, other outstanding coins would be below MS-65).

 

Anyway, I really thought it was interesting that a one-in-a-lifetime coin like the 1907 Saint-Gauden UHR -- which I am assuming got the best/most senior graders at either PCGS/NGC and probably a few extra seconds (minutes?) of evaluation -- went up 2 (or 3) grades in less than a decade.

[MarkFeld]

Many people talk about grading and changes in its standards, in terms of certain time periods being tighter or looser. And that is probably true in a general sense. But it ignores the fact that for any given month, during any year or decade, there are likely to be many coins which are graded loosely, conservatively and both. So when considering any individual coin (for its grade, up-grade, cross-over potential, etc.) it doesn't matter what the tendency might have been the day, week, month or year it was graded. What matters is that exact coin. The rest is irrelevant.

 

Well said, Mark.

 

I am sure you are familiar with that UHR 1907 Saint I referenced above (I believe it's the highest-graded -- no ?). My readings indicate it was graded once before and came in at MS-66 or 67. So it was resubmitted and went up 2 notches, to just below the perfection level of MS-70.

 

What are your thoughts on that ? Why would the grade on such a special coin -- I'm assuming they gave it more time to grade than the average for all the coins they graded that day -- change by 2 (or 3) MS grades since I am presuming they really gave it the once-over the 1st time (maybe that's incorrect ?) ?

 

If that coin was only MS-67, then some real nice ones might be only MS-63 or MS-64 -- and maybe that's why graders decided it had to go up to MS-68 or 69?

 

I'm speculating here, and like you said I realize that this is not an exact science. The grade on a coin like that above is going to affect all the grades for the UHR's, the HR's, the 1907 series, all the Saint-Gaudens, and maybe all the Double Eagles.

 

You wonder if there was a de facto 'ceiling' of MS-65 at one time and the graders thought they were being generous giving that UHR 1907 an MS-67 grade...and then realized it was too low (or that if it was MS-67, other outstanding coins would be below MS-65).

 

Anyway, I really thought it was interesting that a one-in-a-lifetime coin like the 1907 Saint-Gauden UHR -- which I am assuming got the best/most senior graders at either PCGS/NGC and probably a few extra seconds (minutes?) of evaluation -- went up 2 (or 3) grades in less than a decade.

 

I don't know the coin's grading history or what went through the graders' minds when they graded, re-graded and/or if applicable, re-graded it again.

 

The Ultra High Relief's are considered Proof's, not business strikes. They were carefully made and have been well cared for. I don't think any grade below PR67. So a discussion of PR63-64 examples is pretty much moot.

 

And I must take issue with your comment "The grade on a coin like that above is going to affect all the grades for the UHR's, the HR's, the 1907 series, all the Saint-Gaudens, and maybe all the Double Eagles." I don't think assigning a grade to an Ultra High Relif will affect grades of any Types of Saints, other than perhaps, other Ultra Hgh Relief's.

 

[GoldFinger1969]

I don't know the coin's grading history or what went through the graders' minds when they graded, re-graded and/or if applicable, re-graded it again. The Ultra High Relief's are considered Proof's, not business strikes. They were carefully made and have been well cared for. I don't think any grade below PR67. So a discussion of PR63-64 examples is pretty much moot.

 

No, I meant if a coin like that -- which (admittedly, I'm going by a couple of photos) at first glance -- looks perfect, it'd be tough to give other UHRs and other Saint Gaudens from other years which might command north of MS-65 that high a grade.

 

In other words: if that coin was an MS-67, there are alot of MS 65's/66's that should be in the low-60's, IMO.

 

And I must take issue with your comment "The grade on a coin like that above is going to affect all the grades for the UHR's, the HR's, the 1907 series, all the Saint-Gaudens, and maybe all the Double Eagles." I don't think assigning a grade to an Ultra High Relif will affect grades of any Types of Saints, other than perhaps, other Ultra Hgh Relief's.

 

See above...if that coin was actually an MS-67 and then you get all these other Saint DE's from other years with all kinds of blemishes/marks/imperfections....I can't see them getting MS-64/65 grades, only 2-3 below that coin.

 

I'm thinking 5-6, minimum. And I have one such coin (mine's MS-65) and I like it, but if that UHR was only MS-67, no way mine is an MS-65.

 

UNLESS...they are grading on a curve. Which this discussion thread and everything else I've read here and elsewhere informs me should not and is not happening (and if it is, no way a curve of 2-3 grades; maybe a tough-to-get coin gets a rounding error to the next highest level).

[DaveG]

GoldFinger,

 

I hate to say this, but you're starting to remind me of the type of brand-new equities trader who joins a firm during a bull market and who thinks that traders in the market he's seeing for the first time behave the way they do all the time and will always behave the same way, even in a choppy market or a bear market.

 

Please do yourself a favor and "don't be that guy."

 

I encourage you to slow down; be more thoughtful; gain more knowledge

 

I also suggest you read more carefully the responses to your posts - they sometimes contain the answers to questions you ask in following posts.

 

As far as behavior of the TPGs in the "early days", I understand that there was some reluctance to assign higher than MS-65 grades at first. Part of the reason for this, I believe, is that the graders (who were pretty experienced coin market participants) knew that there were "monster" coins out there and had to leave some room at the top for appropriate grades for those coins when they made their way to the grading services.

 

There have certainly, in the past, been celebrated examples of coins being upgraded several points by the TPGs over a number of years. I don't know if it is a "common" occurrence or if it just receives out-size publicity when it happens.

 

edited to add: one of the reasons that grading coins is an art, not a science is that coins of different metals, from different mints, and minted in different years, often look different. The TPGs take this into account when they grade: for example, an 1881-S Morgan (known for flashy luster and, I believe, great strikes) will be graded differently from a Morgan from a year and mint known for subdued luster and weak strikes - not all MS-65 Morgans look alike.

 

also: for a telemarketer to market a coin to the masses, it has to exist in substantial quantities. This is why MS-65 Morgans and double eagles were favorites of theirs years ago. Classic Commemoratives (struck before 1982) were also marketed, as they (mostly) exist in quantity, too. This is why "regular" collector coins aren't heavily telemarketed - they don't exist in enough quantity.

[GoldFinger1969]

GoldFinger,I hate to say this, but you're starting to remind me of the type of brand-new equities trader who joins a firm during a bull market and who thinks that traders in the market he's seeing for the first time behave the way they do all the time and will always behave the same way, even in a choppy market or a bear market.Please do yourself a favor and "don't be that guy."

I encourage you to slow down; be more thoughtful; gain more knowledge

 

Point taken.....but I am gaining alot of info. from people here that I don't see elsewhere in my book, Web, and Message Board readings. For me, give-and-take is a great learning tool. I've been on the other end as the 'expert' and didn't mind being that guy so hopefully those of you with more 24/7 experience don't either. I do appreciate it -- some of the others apparently do, also, from the messages I've been getting.

 

I also suggest you read more carefully the responses to your posts - they sometimes contain the answers to questions you ask in following posts.

 

Noted....

 

As far as behavior of the TPGs in the "early days", I understand that there was some reluctance to assign higher than MS-65 grades at first. Part of the reason for this, I believe, is that the graders (who were pretty experienced coin market participants) knew that there were "monster" coins out there and had to leave some room at the top for appropriate grades for those coins when they made their way to the grading services.

 

Interesting, thanks ! (thumbs u

 

There have certainly, in the past, been celebrated examples of coins being upgraded several points by the TPGs over a number of years. I don't know if it is a "common" occurrence or if it just receives out-size publicity when it happens.

edited to add: one of the reasons that grading coins is an art, not a science is that coins of different metals, from different mints, and minted in different years, often look different. The TPGs take this into account when they grade: for example, an 1881-S Morgan (known for flashy luster and, I believe, great strikes) will be graded differently from a Morgan from a year and mint known for subdued luster and weak strikes - not all MS-65 Morgans look alike.

 

Noted...and I did read that in 1 or 2 of the books I have almost finished, books recommended by you guys, thanks ! (thumbs u

 

also: for a telemarketer to market a coin to the masses, it has to exist in substantial quantities. This is why MS-65 Morgans and double eagles were favorites of theirs years ago. Classic Commemoratives (struck before 1982) were also marketed, as they (mostly) exist in quantity, too. This is why "regular" collector coins aren't heavily telemarketed - they don't exist in enough quantity.

 

Got it....yes, my relatives and clients got called all the time on Morgans and DE's...at ridiculous premiums. Ironically, the good thing is it got them into coins so that even though they got killed on their early purchases they bought enough over the last 20+ years such that they are probably in the black. They didn't lose their shirts and now have a nice nest egg of bullion/numismatics for themselves or their heirs.

 

Not bad, when you consider some of the worthless stuff pedaled by boiler rooms !

[GoldFinger1969]

Found this on the web from April 1990. It was Kidder Peabody that had the $42 million fund for coins. This article seems to have hit up on the frenzy that would have hit in the NY area if heavy-hitters from Kidder and Merrill Lynch were talking up the coming $$$ that would hit the coin market. I'll bet alot of dealers and jewelers in the NYC-area jumped the gun to beat them to the punch.

 

April 1, 1990 MONEY Magazine – ''It's the greatest investment in the world . . . There's not much supply out there and demand is sky-high . . . Don't miss the huge price run-ups . . . Some of our clients doubled their money last year . . . $10,000 invested in 1970 is worth $2 million today . . . 1,000% appreciation in five years . . . We hear $500 million to $1 billion is coming into the market . . . It's set to rise to heights never before imagined . . . Wall Street is buying in . . . The Japanese are just waiting . . . With savings accounts and CDs, you're up the creek if there's a depression. You're gonna wind up in the soup lines. Coins very rarely dip in price. And it's only temporary . . . The chance of a lifetime . . .''

 

Talk about exciting times. If the fall of Communism, the reunification of Germany, the imminent decline of apartheid in South Africa and the junk bond Walpurgisnacht aren't enough, try the brave new world of rare coins. The italicized fusillade above represents just some of the hysteria-inducing remarks of coin dealer Michael PapaGiorgio on his paid-for hour every Saturday on WOR-AM in New York City. He, in turn, is just one of the dealers, telemarketers and stock brokers who are mounting what may be the biggest promotional blitz ever seen for investing in coins. Many individuals recently soured on stocks and bonds are attracted to the turned-up flame of rare coins. Are those glittering profits authentic? Is rare-coin investing as low risk as some of its boosters are claiming? Or is coinmania merely destined to become the tulipmania of the 1990s? For the answers, you need a short course in the byzantine world of rare coins.

 

Let's start with the news. Coins are going big time. Wall Street has indeed entered the market, heretofore a cozy backwater of collectors and a smaller contingent of investors -- plus the predictable array of crooks and shady dealers. The dawn of the new age came last April, when Kidder Peabody launched a $42 million private limited partnership in U.S. rare coins (minimum investment: $50,000). This move galvanized the rare-coin market. Dealers raced to buy investment- grade merchandise on margin in the belief that Kidder had started a Wall Street stampede. Result: a wild run-up in prices that spiked and then crashed $ in July when dealers, disappointed by Wall Street's silence on the subject, dumped inventory. Some coins fell as much as 40% over the summer. All last fall and early winter, however, one name was on the lips of dealers: Merrill Lynch.

 

The biggest brokerage house, the rumors went, was preparing a major move into coins. PapaGiorgio, who is president of First International Rarities Exchange, a Chicago coin dealership, told his WOR listeners repeatedly that Merrill Lynch might be entering the market through the purchase of as much as $200 million of rare coins. Finally, in February, the brokerage filed a public limited partnership prospectus with the Securities and Exchange Commission to sell $50 million to $75 million worth of coins to small investors. Each limited partner will have to put up a minimum of $5,000. (Merrill Lynch mounted two smaller partnerships in ancient coins in 1986 and 1988. Now closed to new investors, they produced 22.5% and 18.6% in coin appreciation and trading profits last year.) Wall Street's new passion for coins is just the cue some dealers have needed to try to stimulate demand. Although prices have not regained last summer's high, dealers insist that coins have entered a golden age of price increases. Exclaims a promotional flier for Fred Sweeney Rare Coins Inc., a Shawnee Mission, Kans. dealer: ''Tens of thousands of individual investors will come pouring into the market, trying to ride the coattails of the big money . . . Expect a price explosion of unheard proportions.'' Notes John Albanese, president of Numismatic Guaranty Corp. of America, a leading independent coin- grading service: ''Telemarketers have been making cold calls, telling people that if they don't get in right away, they'll miss the boat.''

 

The latest news from Wall Street is not exactly designed to contradict that statement: Hugh Sconyers, manager of Kidder's private partnership -- up 20% in value for its first 10 months -- says the partnership will more than triple its stake in coins to $142 million, perhaps this year. Sconyers says he wants to purchase major private coin collections for the partnership. Wall Street's sudden interest in coins is not hard to explain, given customer disenchantment with mainstream investments. ''Stockbrokers want new alternative investments they can sell to clients,'' says Keith Zaner, trends editor of Coin World, a leading collector and investor weekly. Coins, which once might have seemed an eccentric choice, have been taking on investment legitimacy by looking more and more like stocks and bonds. This so-called securitization began in 1986 with the introduction of a consistent coin-grading system.

 

Until the mid-'80s, buyers were at the mercy of one of the market's most sinister traditions: dealers graded their own merchandise and routinely inflated values. Even honest dealers disagreed about how to grade a given coin. ''It was total anarchy,'' recalls Joseph O'Connor, a dealer in Oak Forest, Ill. There are now many grading services, but only three enjoy wide investor confidence: the Numismatic Guaranty Corp. of America (NGC), the Professional Coin Grading Service (PCGS) and the American Numismatic Association Certification Service (ANACS). The services assign a grade to a coin submitted to them by dealers for a fee of about $26. The coin, along with a label stating its grade, is encased in a tamper-resistant plastic holder. Today more than 2.5 million individual coins have been ''slabbed''; of these maybe only 10%, or 250,000, have strong investment potential. Prices of these coins range from around $250 to $250,000, with some going for upwards of $1 million. The uncirculated, and rarest, coins are graded MS60 (MS stands for mint state) to a perfect MS70. Proof coins, struck by the U.S. mint for collectors but never meant for circulation, are graded PR60 to PR70. Coins that have been circulated -- and show dents, scratches and rubbing marks -- are assigned one of 19 grades, from 1 (for poor) to 58 (for ''about uncirculated''). Unless a coin is so rare that it exists only in poorer condition, MS65 -- free of any blemish detectable by the untrained eye -- is usually the minimum grade for investment.

 

Independent grading has enabled investors to buy and sell coins sight unseen. And this in turn has allowed the investor to shop for price: if a buyer doesn't like what one dealer is charging for a specific coin with a specific grade from one of the three main services, he can call around until he finds an identical coin at a better price. Grading has trimmed dealer markups, but they still range widely -- from 8% to a stiff 30%. It would take three years to overcome that 30% hit on a coin that appreciated 10% a year, not counting storage costs. Another move to make coins trade more like conventional securities: the introduction four years ago of an electronic market called the American Numismatic Exchange. It offers an alternative to the cumbersome buying and selling mediums of auctions, coin shows and telephone trading. This computer network allows 175 coin dealers to bid on PCGS- and NGC-certified coins. It also lets investors buy and sell more quickly and at less volatile prices. Says John Schneider, president of the exchange: ''Our network is patterned on the over-the-counter market and the New York Stock Exchange. Our goal is to have certified coins trade just like major financial products. Then numismatic expertise on the part of the investor will become less and less important.''

 

While the moves toward securitization have helped investors, coins are not stocks, and the market in them is nothing like the stock market. Coins are limited-edition art objects, so valuation of any issue is inherently subjective. ''Coins are collectibles,'' says Tom Kurtz of Numismatic Management, a coin company in Iselin, N.J. ''They have only one fundamental, supply and demand, while stocks go up and down on such basics as earnings outlook and new products.'' And demand is sometimes hard to gauge -- there may not be a bid on a coin every day -- particularly when the market is being primed so vigorously. What's more, trading remains completely unregulated by any major government agency. And coins are not a liquid asset, no matter what some dealers may tell you. While industry improvements have made it possible to sell some coins in a single day, an investor might wait weeks and, in some cases, months for the right price for a very rare and valuable coin.

 

Bottom line: coins are not the sure bet that their shrillest boosters claim. Meanwhile, the belief that coins are security-like investments is creating a dangerous situation. Madeline I. Noveck, a financial planner in New York City and an expert on antiquities, warns: ''Wall Street is popularizing coins as an investment, and that is drawing into the market many people who perhaps shouldn't be there, especially those with no coin knowledge.'' Why would any small investor want to put even a toe into such a murky market? To make money, of course. As the chart on page 157 shows, coins of high quality and reasonable rarity have done splendidly over the past five years.*

 

Before you buy, be sure to follow these guidelines: -- Learn about rare coins. Go to coin shows (listed in Coin World), talk to dealers and collectors and read every book and journal you can get your hands on before buying a single coin. The successful investor needs knowledge to identify and follow the 200 to 400 kinds of U.S. coins that have genuine investment potential. For example, all of the Saint-Gaudens MS65 $20 gold pieces -- minted between 1907 and 1933 and bearing a relief designed by the famous sculptor Augustus Saint-Gaudens -- are collectible, but the investor needs to know which years may be undervalued and therefore worth owning. Similarly, only some of the heavily hyped silver dollars designed by George Morgan are investment quality. Those of lower grades and from years when millions were minted will be shunned by the knowledgeable buyer.

 

Source books include the annual Coin World Guide to U.S. Coins, Prices & Value Trends (Amos Press, $4.95); A Guide Book of United States Coins (Western Publishing, $7.95), known as the ''red book''; and the Investor's Guide to Coin Trading by Scott A. Travers (John Wiley & Sons, $24.95). The American Numismatic Association and the Federal Trade Commission have jointly issued an excellent free guide, Consumer Alert: Investing in Rare Coins (ANA, 818 N. Cascade Ave., Colorado Springs, Colo. 80903).

 

Find a reputable, experienced dealer. Best bet: someone in business in the same area for at least 10 years who is a member of the Professional Numismatists Guild (P.O. Box 430, Van Nuys, Calif. 91408) or the Industry Council for Tangible Assets (25 E St. N.W., Washington, D.C. 20001). These groups have established stringent guidelines for ethical conduct and can give names of dealers. Ask for references from clients and from a bank. -- Do your own price homework. Deciding what you are willing to pay requires knowledge of the price history of a coin. ''Look for undervalued material -- what's selling well below market highs -- especially in a rising market,'' says Tom Kurtz. You can find wholesale prices in one of these publications: The Certified Coin Dealer Newsletter (weekly; P.O. Box 11099, Torrance, Calif. 90510; one year, $99), Coin World (weekly; P.O. Box 150, Sidney, Ohio, 45365; one year, $26) and Numismatic News (weekly; 700 E. State St., Iola, Wis. 54990; one year, $24.95). Always bear in mind the need to factor in your dealer's markup, which can sometimes change an undervalued coin into a pricey one. -- Avoid the esoteric. U.S. government mintages are the only reasonable coin investments for the beginner because they enjoy the broadest collector and investor market. Paper currency, foreign and ancient coins, and issues by such short-lived governments as the Confederate States do not have enough buyers ^ and sellers to support an active market. -- Store safely. Do not leave your coins with the dealer or even at home. You'll have to add rent -- $25 a year -- for a safe-deposit box to your coin costs, but it's worth it to avoid theft of one-of-a-kind coins. And how about those partnerships? While the Merrill Lynch deals are accessibly priced, professionally managed and diversified, you pay for all that with 15% sales fees and annual management fees, as well as markups. And at $50,000 apiece, the Kidder partnership is aimed at a fairly exalted market. Besides, coin partnerships are like gold stocks: you might feel more secure having the genuine article than a piece of paper -- especially when the real stuff is beautiful to boot.

 

FOOTNOTE: *Our portfolio, compiled by Joseph O'Connor: 1942 Mercury 10 cents, PR65, up 10% over the past five years; 1930 Standing Liberty 25 cents, MS65, up 89%; 1878 CC Morgan $1, MS65, up 339%; 1922 Grant 50 cents, MS65, up 332%; 1936 Rhode Island 50 cents, MS65, up 162%.

 

BOX: STARTER COINS MONEY asked the three dealers below to recommend affordable coin portfolios for a beginning investor. The coins were selected for their strong demand and prospects for appreciation. All are currently trading below their recent market highs. The code that follows the name of each coin indicates the grade. Issues from different mints make up the sets. Prices do not include dealer markups -- which can add 8% to 30% overall.

 

Joseph O'Connor, O'Connor & Co., Oak Forest, Ill.

 

1907 Indian 1 cents, PR65RB $405 1927 Buffalo 5 cents, MS65 176 1935D Mercury 10 cents, MS65FB 395 1938 Washington 25 cents, PR65 265 1934 Boone Bicentennial 50 cents, MS65 425 1935 Walking Liberty 50 cents, MS65 360 1883O Morgan $1, MS65PL 800 1947 Booker T. Washington set, MS65 588 1952 Washington-Carver set, MS65 955 TOTAL $4,369

 

Gerald Bauman, MTB Banking Corp., New York, N.Y.

 

1913 Buffalo 5 cents, MS65 $200 1910 Barber 50 cents, PR63 1,100 1936S Oregon Trail 50 cents, MS65 800 1937 Roanoke Island 50 cents, MS65 700 1937 Texas Centennial set, MS65 1,200 TOTAL $4,000

 

Tom Kurtz, Numismatic Management Corp., Iselin, N.J.

 

1908 Liberty 5 cents, PR65 $1,250 1935 Boone Bicentennial 50 cents, MS65 465 1924 $20 Saint-Gaudens gold, MS65 2,800 TOTAL $4,515

 

Some rare coins have been giving investors a spiky but rewarding ride in the five years since independent grading brought a mea sure of credibility to pricing. The chart tracks a selected basket of five investment-quality coins that cost $2,820 in January 1985. This group, described on page 160, gained 24.9% annually, on average, and was valued at $8,560 at the end of 1989. The same amount of money invested in the Coin World Trends index of 1,325 high- grade (MS65) coins would have risen an average of 21.2% a year, to $7,381. If the original $2,800 were put into Stan dard & Poor's 500-stock index instead, it would have risen an average of 20.3% a year, to $7,112, with dividends reinvested.

[James_OldeTowne]

Check your stats. I remember the coin market crashing during the 1989 ANA Convention in Pittsburgh, when it was announced that a large brokerage firm which had been planning to launch a mutual fund or whatever based on slabbed coins would NOT launch the fund after all. Prices of everything, especially commems, had been run up in anticipation of selling coins into this fund.

I agree that the big crash in the coin market did indeed take place in 1989, and for the (approximate) reasons stated. Although Capt Henway has a few years on me, I'm old enough to remember when this happened.

 

To Mark Feld's request for clarification, even to this day, there are some who blame TPGs for the crash, fairly or unfairly. Certification was supposed to turn coins into liquid commodities, with the perception that once a coin was assigned a grade, it would always be that exact grade, leading to a completely stable product. Well, we all know how that turned out. There was also the perception that high-grade "investment quality" coins (i.e. MS-65) were "rare", and extremely common Morgan dollars in MS-65 were trading for something like $700 and up, and even more common Walkers were trading for $500 and up in MS-65. We also all know how that worked out.

 

I do not foresee a crash like that taking place in the near future. It's a much more mature market, now.

[GoldFinger1969]

To Mark Feld's request for clarification, even to this day, there are some who blame TPGs for the crash, fairly or unfairly. Certification was supposed to turn coins into liquid commodities, with the perception that once a coin was assigned a grade, it would always be that exact grade, leading to a completely stable product. Well, we all know how that turned out. There was also the perception that high-grade "investment quality" coins (i.e. MS-65) were "rare", and extremely common Morgan dollars in MS-65 were trading for something like $700 and up, and even more common Walkers were trading for $500 and up in MS-65. We also all know how that worked out. I do not foresee a crash like that taking place in the near future. It's a much more mature market, now.

 

The article above seems to make it clear that the belief that HUNDREDS of millions in cash coming into the market drove the prices up. That makes sense. Investors/dealers saw the real Kidder cash and then assumed Merrill Lynch and other firms with larger retail client bases would drive prices even higher. The experience of gold and mining stocks in the 1970's was still fresh in people's minds, so the frenzy that developed is not a suprise to me. I'm just surprised I didn't read about it much at the time or hear about it on my radio programs (guess they were more sophisticated).

 

MS-65 Saint commons were trading at $4,000 - $5,000 in 1989 with gold at $350-$400. So a 1,000% premium to underlying bullion content.

 

No wonder they crashed.

[CaptHenway]

Found this on the web from April 1990. It was Kidder Peabody that had the $42 million fund for coins. This article seems to have hit up on the frenzy that would have hit in the NY area if heavy-hitters from Kidder and Merrill Lynch were talking up the coming $$$ that would hit the coin market. I'll bet alot of dealers and jewelers in the NYC-area jumped the gun to beat them to the punch.

 

April 1, 1990 MONEY Magazine – ''It's the greatest investment in the world . . . There's not much supply out there and demand is sky-high . . . Don't miss the huge price run-ups . . . Some of our clients doubled their money last year . . . $10,000 invested in 1970 is worth $2 million today . . . 1,000% appreciation in five years . . . We hear $500 million to $1 billion is coming into the market . . . It's set to rise to heights never before imagined . . . Wall Street is buying in . . . The Japanese are just waiting . . . With savings accounts and CDs, you're up the creek if there's a depression. You're gonna wind up in the soup lines. Coins very rarely dip in price. And it's only temporary . . . The chance of a lifetime . . .''

 

Talk about exciting times. If the fall of Communism, the reunification of Germany, the imminent decline of apartheid in South Africa and the junk bond Walpurgisnacht aren't enough, try the brave new world of rare coins. The italicized fusillade above represents just some of the hysteria-inducing remarks of coin dealer Michael PapaGiorgio on his paid-for hour every Saturday on WOR-AM in New York City. He, in turn, is just one of the dealers, telemarketers and stock brokers who are mounting what may be the biggest promotional blitz ever seen for investing in coins. Many individuals recently soured on stocks and bonds are attracted to the turned-up flame of rare coins. Are those glittering profits authentic? Is rare-coin investing as low risk as some of its boosters are claiming? Or is coinmania merely destined to become the tulipmania of the 1990s? For the answers, you need a short course in the byzantine world of rare coins.

 

Let's start with the news. Coins are going big time. Wall Street has indeed entered the market, heretofore a cozy backwater of collectors and a smaller contingent of investors -- plus the predictable array of crooks and shady dealers. The dawn of the new age came last April, when Kidder Peabody launched a $42 million private limited partnership in U.S. rare coins (minimum investment: $50,000). This move galvanized the rare-coin market. Dealers raced to buy investment- grade merchandise on margin in the belief that Kidder had started a Wall Street stampede. Result: a wild run-up in prices that spiked and then crashed $ in July when dealers, disappointed by Wall Street's silence on the subject, dumped inventory. Some coins fell as much as 40% over the summer. All last fall and early winter, however, one name was on the lips of dealers: Merrill Lynch.

 

The biggest brokerage house, the rumors went, was preparing a major move into coins. PapaGiorgio, who is president of First International Rarities Exchange, a Chicago coin dealership, told his WOR listeners repeatedly that Merrill Lynch might be entering the market through the purchase of as much as $200 million of rare coins. Finally, in February, the brokerage filed a public limited partnership prospectus with the Securities and Exchange Commission to sell $50 million to $75 million worth of coins to small investors. Each limited partner will have to put up a minimum of $5,000. (Merrill Lynch mounted two smaller partnerships in ancient coins in 1986 and 1988. Now closed to new investors, they produced 22.5% and 18.6% in coin appreciation and trading profits last year.) Wall Street's new passion for coins is just the cue some dealers have needed to try to stimulate demand. Although prices have not regained last summer's high, dealers insist that coins have entered a golden age of price increases. Exclaims a promotional flier for Fred Sweeney Rare Coins Inc., a Shawnee Mission, Kans. dealer: ''Tens of thousands of individual investors will come pouring into the market, trying to ride the coattails of the big money . . . Expect a price explosion of unheard proportions.'' Notes John Albanese, president of Numismatic Guaranty Corp. of America, a leading independent coin- grading service: ''Telemarketers have been making cold calls, telling people that if they don't get in right away, they'll miss the boat.''

 

The latest news from Wall Street is not exactly designed to contradict that statement: Hugh Sconyers, manager of Kidder's private partnership -- up 20% in value for its first 10 months -- says the partnership will more than triple its stake in coins to $142 million, perhaps this year. Sconyers says he wants to purchase major private coin collections for the partnership. Wall Street's sudden interest in coins is not hard to explain, given customer disenchantment with mainstream investments. ''Stockbrokers want new alternative investments they can sell to clients,'' says Keith Zaner, trends editor of Coin World, a leading collector and investor weekly. Coins, which once might have seemed an eccentric choice, have been taking on investment legitimacy by looking more and more like stocks and bonds. This so-called securitization began in 1986 with the introduction of a consistent coin-grading system.

 

 

Thank you for digging up the facts. It was speculation about the Kidder Peabody Fund that inflated the coin market in 1989. That bubble burst at the 1989 ANA convention in Pittsburgh.

 

There may have been another bubble that burst in 1990, but I do not recall that one.

[GoldFinger1969]

Thank you for digging up the facts. It was speculation about the Kidder Peabody Fund that inflated the coin market in 1989. That bubble burst at the 1989 ANA convention in Pittsburgh. There may have been another bubble that burst in 1990, but I do not recall that one.

 

Thanks Captain....actually, it wasn't speculation about the Kidder fund that inflated the market, it was the actual launch of the fund with $42,000,000 PLUS the expectation that Merrill Lynch was going to get into the act.

 

This is my neck of the woods and I've already made some calls out to friends. But I can say that Kidder was mostly an institutional firm with a very small retail presence. Merrill Lynch was the mega-retail firm. If Kidder could get almost $50 MM for coins, the feeling probably was that Merrill Lynch could get half a billion for coins.

 

I am actually surprised that we didn't get more actual funds or talk of funds for investing in coins during recent market sell-offs (2002, 2009). There is so much more $$$ in private banks and wealth management that if you had only a small amount move into coins it could once again lead to a stampede.

 

Whether it would be purely numismatic investing or quasi-bullion coins with significant silver/gold content would be an interesting variable. Having worked in several Private Banks, I can tell you that even a small allocation to pure bullion is considered unconventional, so you will NOT get even low-single digit allocations to coins made by the leading wealth managers. Too risky and not their area of expertise -- a good way to lose business.

 

But if you get a 3-5% allocation to precious metals, even a fraction of that amount could go into coins and it would amount to BILLIONS. I'm not predicting it any time soon -- in fact, given their clients status, ART investing is more likely to appeal to them as a collectible -- but the coin market is more liquid and transparent than even the art market so who knows ?

[DaveG]

GoldFinger,

 

Thanks for that trip down memory lane!

 

 

Kidder, Peabody - boy, I haven't heard that name in a long, long time!

[GoldFinger1969]

GoldFinger, Thanks for that trip down memory lane! Kidder, Peabody - boy, I haven't heard that name in a long, long time!

 

You're welcome Dave....had some friends work at Kidder, small retail brokerage, some good analysts, good traders on the old FNN Network (and early days of CNBC). Was owned by GE at the end and they sold it off after 1995 I believe.

 

The mortgage collapse (MBS securities) of 1994 killed the firm basically.

[rogerxd45]

hey me too!

[DaveG]

GoldFinger,

 

A buddy of mine went to work at Kidder as a fixed income analyst in early '87, when they were still considered very white shoe.

 

A couple of years later, the firms I was working for were covered by saleswomen from the post-GE acquisition Kidder. They (and the rest of the financial world) were a little embarrassed by having the GE logo on their business cards!

[GoldFinger1969]

GoldFinger, A buddy of mine went to work at Kidder as a fixed income analyst in early '87, when they were still considered very white shoe.A couple of years later, the firms I was working for were covered by saleswomen from the post-GE acquisition Kidder. They (and the rest of the financial world) were a little embarrassed by having the GE logo on their business cards!

Yeah, not the best business combination even with Jack Welch at his peak.

[GoldFinger1969]

Another piece I saw on the web talking about the Coin Bubble:

 

"The latest and perhaps most famous fall from Wall Street grace related to rare coins began in June, 1989, when coin values plummeted. At that time, the word that Merrill Lynch and Kidder Peabody were forming a mulitmillion dollar partnership with Mr. McNall energized the rare coin market and sent prices soaring. A Coin World trade magazine cover before the crash lauded the coming of the investment giants and the hundreds of millions that would be pumped into the investment subculture."

 

Bruce McNall's name at that time was gold -- literally. He owned the LA Kings of the NHL and brought Wayne Gretzky to LA from Edmonton. His primary business was reportedly coin and precious metals.

 

The Coin World cover story couldn't have hurt, either. I can easily see why people would gravitate to the 'blue chips' of coin hobby like the $20 Saint Gaudens. You figure you can't go hurt buying best-of-breed. Unfortunately, like stocks, even great coins at lousy prices make for a terrible investment.

[DaveG]

A lot of the "problem" is that any coin (of a specific date/mintmark) that exists in sufficient quantity to be marketed widely is, by definition, NOT a rare coin.

 

I can imagine the poor investor who decides he wants to buy Saints, but then finds out that the coins he can buy only go up and down with the price of gold and investor demand and that he can never complete a set because there are three or four (or however many) dates of which only a dozen examples (for example) exist.

 

That's a formula for driving up the prices of the truly rare Saints, but it probably would leave a bad taste in the mouths of most investors.