Numismatics and the Current Economy

If you follow economic news in even the most cursory fashion you are, no doubt, aware of the fact that the news has been pretty grim for the last few days. Lehman Brothers is gone, Merrill Lynch has been sold in a distress situation to Bank of America, AIG is looking perilous and the stock market yesterday had its single worst day since immediately after 9/11. How does this affect the rare coin market? The first thing to remember about the coin market is that no matter how “big” we’d like to say it is, in reality it is a tiny, tiny blip on the financial horizon. Most investors don’t know that there is a coin market, let alone understand the actual dynamics behind it. So from the “drag down” perspective I don’t think we have a lot to worry about. In other words, your set of Gold Dollars isn’t going to lose X% of its value because AIG stock is in the proverbial toilet.

It is pretty obvious to me that the short term affect of the meltdown of the financial sector is not good for the coin market. When the stock market loses close to 5% of its total value in one day and the economic picture looks painful (to say the least), many people’s focus turns away from pursuits like coins. By the same token, you could say that in these times, people turn to pleasurable pursuits like coins exactly because of the fact that it helps them forget about the Big Picture.

I think the medium to long term outlook for the coin market may be better than most realize. Once things settle down (at least until the next round of consolidation in the financial sector) people are going to be seeking new asset classes and markets like precious metals and coins may possibly prove appealing to a new wave of investors.

If you have read this blog over the last few years, you know how I feel about short-term investments in coins. I still do not like being short in any area of numismatics, but if gold continues to drop I would strongly consider buying something like generic double eagles to have a position. It seems to me that the long-term outlook for gold is rosy and given the scary things that we are seeing right now with banks and financial institutions, having something tangible like a little gold position might not be such a bad decision.

I do not expect to see really good coins getting cheaper any time soon. If you are a serious long-term collector, this is a good time to reflect on what your goals are. Hopefully, you didn’t expect to be in and out of the market in a year or two and, hopefully, you will not panic and decide to dump your coins.

I think this is an important point to address. Panic selling is never a smart thing to do and I think anyone who takes their collection to the next major show and announces that they “have to sell” is setting themselves up to get sliced and diced. Yes, the economy looks scary right now. But hopefully you haven’t been buying coins with funds you need for essentials (food, clothing, shelter, etc.). Just sit back, take and a deep breath and enjoy what you’ve got.

I’ve stated repeatedly that your coin collection needs to be viewed as a long-term work in progress. If the market goes up, that’s great. You’ll make some money on your purchases and everybody likes some paper or actual profits. If the market goes down, you might be able to buy the key date that seemed pricey a few months ago for 75 or 80 cents on the dollar. We’ve been in a bull market that’s lasted a long time and many new collectors are spoiled. Just ask a collector who was active in the 1980’s and 1990’s what it was like to slog through a seemingly unending bear market.

The bottom line is I’m not ready to call an end to the Good Times in the coin market. I think people will be more tentative in the next few weeks because of the financial crisis and the overall weakness in precious metals but we’ll continue to see strong prices for nice coins whether at auction or via private treaty sales. The 4th quarter of 2008 is certainly going to be interesting, to say the least.