WHERE'S THE BEEF IN THE NEW U.S. RARE COIN BULL MARKET?

US coins phenomenon

The demands of day-to-day business, especially the record volumes of gold and silver bullion WCM is selling, has put the U.S. Rare Coin Market Update ezine on the back burner for the last month and its frequency of publication will now go to a quarterly or three times a year cycle. Just not enough hours in the day, and although free ezines do generate additional business, the question is always how much. Isn't brutal honesty almost refreshing?

As a registered investment advisor since 1985, I am a vocal skeptic on the operation of the rare coin marketplace, having had my eyes opened on numerous occasions since 1994 as to some of the costly pitfalls that one can encounter in pursuing this area for investment purposes. Even finding numismatic experts of 30 years experience with impeccable integrity after several years and hundreds of thousands of dollars of my own money did not prevent me from buying a rather expensive $1 Gold Type II that got contaminated from a piece of errant plastic in a PCGS holder. At the outset of my acquisition campaign, even buying from a dealership that touted itself as selling "the finest rare coins in the world" did not spare me from overpaying for mediocre, problematic, and even doctored rare coins. When I attempted to get my money back from this highly-touted dealer on a doctored $1 Gold MS65 coin in a PCGS holder that had literally turned in color over just a year's time to display the now obvious area of alteration, I was paid a wholesale price from these swell guys to take the coin back for a net loss of $1,600. And unfortunately, all of the coins that I purchased from this well-connected source carried the PCGS pedigree which in my humbled opinion now does not guarantee either accurate grading or avoidance of a big discount from market on resale. BUY THE COIN, AND NOT THE HOLDER couldn't be more true, especially since a finite number of graders are now being asked to grade hundreds of never-to-be-truly-rare modern coins per day purely in the interest of incremental revenue; the human eye was not designed to perform constant focusing at close range for hours on end without eye strain or mistakes. So I have always put my money where my mouth is in investing, and have the scars to prove it in the numismatic arena.

I am concerned about the liquidity of very expensive U.S. rare coins going forward. By "very expensive", I am labeling the $15,000 and above per coin zone with this caveat, since also again from first-hand experience, I know it can take months and even well over a year to sell one of these very expensive gems at anywhere near the desired price target. Remember, you can liquidate any asset quickly if you are willing to cut the heck out of the price , but I doubt seriously if that panic-selling type of pricing strategy was integral to your initial goals for pursuing numismatics. So stick with truly rare coins in the $3,500 to $10,000 price range, and should we enter a depressionary environment in the United States (an event that has a greater probability of occurring now than ever before since 1929), you will have a wider audience of prospective buyers who can even begin to entertain your marked-up asking price. You can't buy bread or pay the electric bill with a rare coin, it must be converted to cash first. The super rarities like the just auctioned 1933 St. Gaudens $20 Gold are in a world of their own where money is no object. The rich people of the world do not operate within the same constraints as you and I ...... telling you the obvious. So obscene money is regularly being paid, even in this double-dip recession, for U.S. rare coins with survival populations of three or less.

If you subscribe to any coin publication or internet ezine or email update service, I am sure you have been flooded with accolades as to how the rare coin market is super hot and product is just flying off the shelves. These kinds of marketing-oriented analyses are always suspect when there is no hard numerical data presented to back up the claims of a raging bull market in an asset. The rare coin industry has gotten very good at using every media outlet available to "scream from the rooftops" that you had better buy now before prices advance by hundreds of percentage points higher. This same level of hyperbole was in effect back in 1997 when I started putting my own numismatic portfolio together, and I take these proclamations today with a good bit of skepticism, if not disdain. Let's look at some real data, and see if the "overall" rare coin market is advancing smartly, or if possibly only the most heavily promoted areas hawked by the most egregious dealers are receiving steadily higher bids at both the wholesale and retail levels.

TopOne of the most representative sets of U.S. rare coins is the 12- Piece U.S. Gold Set which is comprised of the most common date gold coins in each respective series ($1, $2.50, $3, etc.) at the Mint State 65 or investment grade level. I recently saw the use of a truncated version of this classic configuration, a 10-Piece Gold Set that conveniently left out the $1 Gold, Type II, and the $3 Gold coin, both of which have not done particularly well recently, and viola: A rising price trend is created. This is not the case over the entire series, as the following table so painfully shows:

	1997 to 2002
12- Piece U.S. Gold Set	5-YEAR CUM. RETURN	12/21/01	07/26/02	YTD '02 + / (-)
$1 Type I	-33.3%	$3,300	$3,750	13.6%
$1 Type II	-15.8%	$30,750	$30,750	0.0%
$1 Type III	-37.2%	$1,225	$1,280	4.5%
$2 1/2 Liberty	-41.1%	$1,060	$1,100	3.8%
$2 1/2 Indian	-17.2%	$2,450	$2,450	0.0%
$3 Indian Princess	-27.2%	$7,500	$7,600	1.3%
$5 Liberty /wmotto	-46.9%	$2,125	$2,200	3.5%
$5 Indian	-22.1%	$8,800	$8,750	-0.6%
$10 Liberty /no motto	0.0%	$42,500	$42,500	0.0%
$10 Liberty /w motto	-41.3%	$2,350	$2,500	6.4%
$10 Indian	-42.0%	$2,350	$2,400	2.1%
$20 Liberty Type I	-75.0%	$7,500	$7,500	0.0%
$20 Liberty Type II	8.1%	$40,000	$40,000	0.0%
$20 Liberty Type III	-37.5%	$1,875	$2,300	22.7%
$20 St. Gaudens	-18.4%	$840	$870	3.6%
$20 High Relief	25.0%	$23,250	$23,250	0.0%
EIGHT PIECE SET
U.S. GOLD	-32.0%	$21,850	$22,570	3.3%
TWELVE PIECE SET
U.S. GOLD	-24.7%	$64,625	$65,950	2.1%
FOUR PIECE SET
U.S. GOLD	-20.3%	$42,775	$43,380	1.4%

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So you have to ask, with gold bullion rising from the $270 to $323 area (a 20% rise) when this data was compiled, where is the comparative rise in generic U.S. gold coins? The year-to-date price gains exist in any noteworthy amount in only 7 of the 12 coins and the overall picture is barely keeping up with the rate of inflation. Note that these are wholesale or dealer-to-dealer bid prices (sight-seen with coin in hand to make a bid or offer to purchase) taken right from The Coin Dealer Newsletter (CDN) or greysheet, so we are not viewing what might have happened at the retail level. But when you go to sell a U.S. rare coin, you will be offered a wholesale "sight-seen" bid as in those shown above, so the purported activity at the wholesale level is just as important to you the collector as the retail level, that 30% to 45% higher level at which you will pay for your rare coin in the first place. How could the wholesale level in a series be showing a barely positive price gain while all of the most heavily advertised dealers in the country are shouting that the market is unbelievably strong. Maybe it is "unbelievable"!

Well, I am sure it will take you less than 1/10 of a minute to come up with one plausible explanation, but an equally disturbing explanation is that the data at the wholesale level, in this case CDN, is being purposely distorted by the participating dealers who assist in supplying the weekly and monthly data. This could be
just another case of garbage in/garbage out, but dealers with 20 to 30 years experience in numismatics have told me that the industry as a whole will often fail to submit data that shows higher bid prices on a particular type or series of coin just to avoid having to bid at that higher price next week to attempt to obtain product for their clients and/or inventory. Kind of like "bid rigging", but how the heck does an outsider or prospective client/investor obtain objectively generated rare coin pricing (without the distortions of the multitude of retail mark-ups) if one of the most widely used wholesale pricing services, CDN, is getting bad data. How do you confidently value the rare coin portfolio of a client when the level of confidence in the equation: Price = Wholesale + 25% mark-up (conservatively!) ........ is not within shouting distance of retail published rare coin prices such as listed in Coin World Trends, pcgs.com, and NumisMedia.com? Prices listed for the same coin (theoretically identical of course which no two coins are, just to add more variables to the equation!) vary amongst these retail pricing services such that I often take the average of the three or throw out the lowest or the highest price if it varies significantly from the others. Pricing a U.S. rare coin using both wholesale and retail sources becomes a bit of art, and less and less science.

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So if the rare coin industry would put down its marketing juggernaut megaphone for a minute, and address the issue of providing "real" and "consistent" rare coin pricing information to the investing / collecting public, there would truly be a verifiable bull market in U.S. rare coins today because people would have faith in the reasonableness of their initial purchases and in their ability to track their investments with time. How's that for a mouthful! When you spend $3,500 to $15,000 for a single asset, you really want a reliable method, one that is public in its availability as "published data", and one that you don't have to be an industry insider to have access to and to comprehend. Keeping it simple, you just want to be able to reasonably price your rare coin portfolio without risking a heart attack when you take your collection into a dealer for appraisal or resale.

Okay, so maybe I picked a bad example with the 12-Piece Gold Set (cause that's not where the majority of marketing dollars are being applied today!). Let's look at another series, one of my favorites, the Morgan Silver Dollar Deep Mirror Prooflike series, and in particular, the skillfully cobbled Wexford DMPL Collection. In this instance, I have included some dimples that are on my long-term want list, just to show that I am not prejudiced against other equally rare dimples just because I don't currently own them:

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	5-YEAR
MORGAN DOLLARS	CUM.			YTD '02
Deep Mirror Proof-Like	RETURN	12/21/01	07/26/02	+ / (-)
1878 8TF	12.5%	$4,500	$4,500	0.0%
1878 7TF	42.9%	$5,000	$5,000	0.0%
1878 7TF (Rev. of '79)	42.9%	$7,000	$7,000	0.0%
1878 CC	43.8%	$2,875	$2,875	0.0%
1878 S	4.4%	$1,775	$1,775	0.0%
1879 P	27.8%	$5,750	$5,750	0.0%
1880 P	1.9%	$2,650	$2,650	0.0%
1880 CC	30.4%	$3,000	$3,000	0.0%
1882 P	50.0%	$3,600	$3,600	0.0%
1882 O	-7.2%	$3,200	$3,200	0.0%
1882 S	21.9%	$835	$835	0.0%
1884 P	25.9%	$1,700	$1,700	0.0%
1888 P	31.8%	$1,450	$1,450	0.0%
1888 O	5.8%	$1,375	$1,375	0.0%
1889 P	23.7%	$2,350	$2,350	0.0%
1890 CC	34.5%	$7,600	$7,600	0.0%
1897 P	17.6%	$2,000	$2,000	0.0%
1897 S	35.0%	$1,350	$1,350	0.0%
1898 P	18.8%	$950	$950	0.0%
1899 P	31.5%	$1,775	$1,775	0.0%
1900 O	6.7%	$2,400	$2,400	0.0%
1901 O	114.3%	$4,500	$4,500	0.0%
1902 O	6.5%	$3,300	$3,300	0.0%
1903 O	42.3%	$3,700	$3,250	-12.2%

All Shown	28.2%	$74,635	$74,185	-0.6%

Wexford DMPL Set	23.4%	$44,585	$44,135	-1.0%

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Now, I am the last person to complain about making money, especially in rare coins, but what has the DMPL set done for me lately. This type of stagnation of prices is not normal for any bull market, because except for the really big moves over the pre-2002 five-year period (1882-P and 1903-O), there is little necessity for prices to need a respite to cool down. Annual average appreciation has seldom exceeded the 10% rate, hardly super hot. Although a very respectable overall performance, beating stocks hands down I might add, the Wexford DMPL Collection has stagnated in 2002 at a time when dealers are constantly complaining about having "nice" coins for their clients. I can't think of a nicer type of Morgan to offer a client. Maybe it is a function of the fickle nature of markets and the dimples are temporarily out of favor, but I think a lot has to do with the concentration in marketing efforts by dealers in the less than $1,000 price range of rare coins. Not to mention the modern
"stuff" that they are shoving into third-party slabs, promoting as rare, and overpricing the begeebies out of. How many really rare coins do you think exist with dates after 1965? This is the affordable range that provides initial comfort to the new collector / investor, and this is where supply is the most strained. These low-priced coins are seldom truly rare with survival rates in the thousands based upon condition, but this is likely the area that has seen the most price increases and, not in coincidently, the most glitzy marketing hype and money spent to promote.

I am off to the Coin World website to attempt to review this phenomenon at the retail level, which can become a very manual process and impossible if you don't save prior issues. A picture may be worth a thousand words, so I will see what I can do to add to this article after electronic publication. A sequel so to speak.

U.S. rare coin dealers are a short-sighted lot. If they wanted to bring into the marketplace the maximum number of participants to actively bid prices higher, they would take actions that would allow accurate pricing data to reach the most widely circulated publications, both paper and electronic. Instead, they choose to play one more game with the truth and hold back price increase information that may cost them a few dollars in their next acquisition. What they are missing is that a firmly in place and verifiable exponential curve of U.S. rare coin prices that all can see will bring in more investors from the stock market minefield than they can imagine. Americans buy into a trend, and are loath to be the first ones on board a developing trend. Coin dealers are missing the big picture. They deal in an asset that is no one's liability, is reasonably liquid, usually contains precious metal, historically has done well over time (depression test is coming), and the value of which does not rely solely upon a compromised evaluator of value such as a fee-paid accountant. Granted, a bidding dealer for your rare coin on resale may be compromised as to his or her intent, but you do have the ability to obtain multiple bids from a multitude of sources. In essence, you can get an almost limitless number of accounting reports in the numismatic marketplace.

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Before I conclude, just so you have some more data in front of you to support my contention that published data do not support the animated claims of a rip-snorting bull market in U.S. rare coins. Without reliable published data compiled and presented in a consistent and understandable manner for the budding collector and/or investor, how does one know who's on First?

Other Significant Series
- All Undervalued	5-YEAR
	CUM.			YTD '02
BARBER HALF DOLLARS	RETURN	12/21/01	07/26/02	+ / (-)
MINT STATE 65	0.0%	$2,300	$2,300	0.0%
PROOF 65	8.5%	$2,550	$2,550	0.0%

TRADE DOLLARS
( 1873-1815 )
MINT STATE 65	18.6%	$7,000	$7,000	0.0%
PROOF 65	27.4%	$6,750	$6,750	0.0%
SEATED LIBERTY HALF DOLLAR
( 1839-1891 )
Mint State 65
NO MOTTO (1839 - 1866)	5.5%	$4,325	$4,325	0.0%
ARROWS (1854 - 1855)	-3.8%	$6,250	$6,250	0.0%
WITH MOTTO (1866 - 1891)	6.7%	$2,400	$2,400	0.0%

PROOF 65
NO MOTTO (1839 - 1866)	9.1%	$4,800	$4,800	0.0%
ARROWS (1873 - 1874)	8.2%	$8,600	$8,650	0.6%
WITH MOTTO (1866 - 1891)	6.3%	$2,550	$2,400	-5.9%
Mint State 65
Cap Bust Half Dollar (1807-36)	-2.8%	$5,900	$5,900	0.0%
Cap Bust Half, RE (1836-39)	0.0%	$9,650	$9,650	0.0%
Liberty Seated Dollar, N/M	-11.1%	$12,600	$12,600	0.0%
(1840-1865)
Liberty Seated Dollar, W/Motto	0.0%	$16,900	$16,900	0.0%
(1866-1873)

Limit your rare coin purchases to 3 or 4 truly rare U.S. coins with survival rates less than 70 and just don't plunk down $50,000 to $100,000 after some high-pressure salesmanship from a young pup who couldn't grade a planchet from a slabbed coin. Consider Early Gold (1804 through 1838) especially the $2.50 denomination, as well as Capped Bust Half Dollars, Trade Dollars, and Seated Liberty Half Dollars as these pre-1900 treasures will never grow common. Remember that the pre-Civil War coins of Americana had to survive the melting point of the very difficult war years. Think rare, and like the Marines, you are only looking for a few good coins. Go slow. It is not hard to lose money in rare coins if you don't deliberate long and hard before you write that first check.