• When you click on links to various merchants on this site and make a purchase, this can result in this site earning a commission. Affiliate programs and affiliations include, but are not limited to, the eBay Partner Network.

Archived

This topic is now archived and is closed to further replies.

Will the CAC cause more, not less, gradeflation?

Started by Zoins,

29 posts in this topic

Zoins

Zoins

Posted
Posted

The debate of marketing grading vs. technical grading comes up every now and again. Basically there's technical grading which is based on objective merits of the coin and market grading which can be used to subjectively adjust that grade based on what the coin is currently worth given current demand preferences.

 

Market grading is given as the reason that many coins that would have formerly been given AU58 grades are now sitting in MS62 and MS63 holders. It also happens in higher grades with MS coins being assigned higher MS grades.

 

Since marketing grading can increase the grade assigned to a coin compared to what it was given in the past, do you consider this a form of gradeflation?

 

Edited to change title from "Can Market Grading lead to Gradeflation?" to "Will the CAC cause more, not less, gradeflation?" to get more readership ;) See my post below.

Link to comment
Share on other sites
Arizonadesertrat

Arizonadesertrat

Posted
Posted

Market grading is pernicious----it confuses technical grading with pricing. When people send off their coins to TPG's for grade evaluation, they want an opinion that ideally won't oscillate with time, as pricing does. Many market graded coins are AU55-58 ones that are now in MS61-62 holders. Whatever happened to the sharp distinction between UNC and AU? At one time, I thought that at least this line was something that people would agree on.

 

Market grading is just a game, one that benefits dealers, graders and collectors who hope to sell later on (but only in a bull market). Say I have a swell-looking, AU58 Capped Bust half that I want 2x sheet for, but almost every buyer I encounter says no way, it's overpriced. So now I send it off and have it regraded, and it comes back MS62 because the graders think it's swell too. And maybe I can even assert that now my coin is a really nice MS62 (and double dip). Now I can find a buyer, after some lookie-loos dither. How did this happen? Market grading acts to lessen buyer price resistance. What will happen if the market goes south (and it eventually will)? Prospective buyers will look at a market graded coin and call a spade a spade---overgraded.

 

However, market grading is not THE cause of gradeflation. If TPG's don't maintain significant, extensive grading sets, what do people expect? The ANA grading standards state that MS66 coins don't have to be fully struck. Many advertisers in CW and NN use their 'house' standards and grade coins any which way, and the industry rags say nothing because ad revenue keeps coming in. If I had to point a finger at a key cause of gradeflation (and I believe that this term applies mostly to uncirculated coins), I would point the s**t vector at crackout artists. These suck coins that are exceptionally nice for their grades into higher-grade holders, and few owners have the guts to crack out these and start over again because of the financial hit that ensues.

 

New collectors that enter the market see overgraded coins, market graded coins, a plethora of TPG's with varying standards, and most don't take the time needed to learn to grade what they collect. This goes many-fold for investors. These coin buyers cannot tell the difference between overgraded/low-end coins and ones that are solid for their grades. So financial forces slowly cause grades to ratchet up, and there is no end in sight. And old timers like me (who only returned to collecting last January) look at what is going on and think people have lost their minds.

Link to comment
Share on other sites
Zoins

Zoins

Posted
  • Author
Posted

Here's are some other questions:

 

1) Does a sight unseen market require market grading and gradeflation?

2) Does the sight unseen market need both grade inflation and deflation?

3) Can current demand be manipulated to generate higher or lower market grades?

 

---------------------------------------------------------------------------------

1) Does a sight unseen market require market grading and gradeflation?

---------------------------------------------------------------------------------

The reason I'm asking is that one reason given for the formation of the CAC is that "gradeflation" is causing "coins not solid for the grade" to appear more frequently in holders, however, what does not solid for the grade mean. And is the elimination of gradeflation a goal or is it that "better" gradeflation is needed.

 

For the sight unseen market to work, it needs to mean "coins not solid for the market grade" or basically TPG grades need to reflect price guides, whether published ones or privately held ones. For coins that have technical grades that show lower prices in the price guides than in sight seen situations, the sight unseen market would require these have their grades inflated to reflect their market prices.

 

---------------------------------------------------------------------------------

2) Does the sight unseen market need both grade inflation and deflation?

---------------------------------------------------------------------------------

There have been various reasons given for subjective grade inflation including eye appeal and the like but they are subjective and not a part of technical grading.

 

I generally haven't heard of TPGs lowering a grade based on market demands so the technical grade may be a floor but not a ceiling. However, for the sight unseen market to work efficiently, there needs to be a way to lower a coin's grade from the assigned grade as well in order to meet market pricing. The CAC can be seen as a way to market grade a coin lower than the TPG grade, correcting a market inefficiency in using grades to price coins.

 

---------------------------------------------------------------------------------

3) Can current demand be manipulated to generate higher or lower market grades?

---------------------------------------------------------------------------------

For some coins, it may be possible to manipulate the markets to cause bigger swings in market grading.

 

---------------------------------------------------------------------------------

Conclusion - For Now

---------------------------------------------------------------------------------

My current conclusion is that the sight unseen market requires market grading. Market grading includes both grade inflation and grade deflation relative to the technical grade based on current demand.

 

Instead of eliminating gradeflation, I think sight unseen markets (and the CAC) need market-driven gradeflation, both inflationary and deflationary. It seems plausible that grade inflation exists today but not grade deflation. The CAC's contribution is in adding selective grade deflation and indirectly pressuring TPGs to do more market grading through large customer demand in the attempt to create a sight unseen market. Successful execution of and market acceptance of the CAC will logically lead to more market grading. It will also lead to more gradeflation, but gradeflation that is better suited to the sight unseen market.

 

Given that sight unseen markets need market grading and gradeflation, is that a good thing for collecting and numismatics?

Link to comment
Share on other sites
Arizonadesertrat

Arizonadesertrat

Posted
Posted
...

1) Does a sight unseen market require market grading?

2) Does the sight unseen market need both grade inflation and deflation?

3) Can current demand be manipulated to generate higher or lower market grades?....

Given that sight unseen markets need market grading, is that a good thing for collecting and numismatics?

 

1) Yes and no. There is too much quality variation within a technical grade, particularly MS grades. Market grading is a simplistic way of circumventing the augmentation of a technical grade with an honest description of a coin.

2) I'm not sure the sight-unseen market needs deflation---how many dealers want to buy low-end coins? Real deflation would mean downgrading coins---who is willing to take a financial hit to do this?

3) Manipulation occurs all the time to generate higher prices, hence the evolution of a multi-tier market.

You stated that "successful execution of and market acceptance of the CAC will lead to more market grading, adding grade deflation to grade inflation." Grade inflation as a result of more crack-outs yes, but not deflation (unless CAC decides to issue "NOT CAC-APPROVED" stickers).

 

I don't think market grading is good for collectors, however. Many collectors do buy coins on a sight-unseen basis, which IMO is foolish unless they are purchasing from trusted dealers. Market grading is about extracting more money from collectors, especially in bull markets. I have no problem with paying 2-3x sheet for exceptionally nice coins, but I would much prefer to do this for properly graded coins (and I refuse to buy coins sight-unseen). All market grading accomplishes is a reduction in buyer price resistance, making collectors think that they are getting better deals right now.

 

Market grading does contribute to a confusion in grading standards. Collectors are already looking at TPG holders and making judgements about grading accuracy, based on when a particular TPG graded the coin. Market grading only exacerbates this problem. In any field, a grading scale should remain inviolate. Suppose you think a family member has a fever, and you have several thermometers available, made in different years by the same company, and the normal body temperature is 100 deg. F on one, 94 on the second, and 98.2. on the last. Which would you prefer to use? What is going on in grading coins would not be tolerated in other fields that also rely on grading standards.

 

 

Link to comment
Share on other sites
Zoins

Zoins

Posted
  • Author
Posted
2) I'm not sure the sight-unseen market needs deflation---how many dealers want to buy low-end coins? Real deflation would mean downgrading coins---who is willing to take a financial hit to do this?
A sight unseen market needs a way to indicate coins are worth less than what price guides would indicate. It might be worth thinking why there isn't a sight unseen market today. It's plausible that TPGs do not engage in grade deflation since many of their customers would not want grades adjusted lower, only higher. In this sense, I agree that a true deflation or lowering of the grade below the technical grade is unlikely while higher adjustments allegedly happen. However, the astute sight unseen buyer needs to know if the coin is "solid for the grade" and needs some indicator when pricing should be below price guides.
You stated that "successful execution of and market acceptance of the CAC will lead to more market grading, adding grade deflation to grade inflation." Grade inflation as a result of more crack-outs, but not deflation (unless CAC decides to issue "NOT CAC-APPROVED" stickers).
Grade deflation below the technical grade is currently unaccepted in the marketplace thus hampering the development of the sight unseen market. A NOT CAC-APPROVED sticker will also not be accepted which also hampers development of a sight unseen market. However, the lack of a CAC sticker can be used to solve the problem of pricing coins that do have market-adjusted grade floors.

 

Real grade deflation can be considered to exist when market grades above the technical grade decrease in magnitude, however for a sight unseen market to work efficiently, there also needs to be grade deflation that reduces the grade below the technical grade, if needed to reflect pricing. I view the CAC as a way to attempt to perform some grade deflation from the printed grade. That deflation can be to lower the value of a coin from the printed grade, whether that printed grade is a market grade or a technical grade.

Link to comment
Share on other sites
Zoins

Zoins

Posted
  • Author
Posted
Market grading does contribute to a confusion in grading standards. Collectors are already looking at TPG holders and making judgements about grading accuracy, based on when a particular TPG graded the coin. Market grading only exacerbates this problem. In any field, a grading scale should remain inviolate. [...] What is going on in grading coins would not be tolerated in other fields that also rely on grading standards.
The ANA is starting to talk about market grading and educating collectors about it.

 

There is also some argument behind "AU62" grades so perhaps the ANA standards are out of date and will change to reflect market realities.

Link to comment
Share on other sites
Arizonadesertrat

Arizonadesertrat

Posted
Posted
Market grading does contribute to a confusion in grading standards. Collectors are already looking at TPG holders and making judgements about grading accuracy, based on when a particular TPG graded the coin. Market grading only exacerbates this problem. In any field, a grading scale should remain inviolate. [...] What is going on in grading coins would not be tolerated in other fields that also rely on grading standards.
The ANA is starting to talk about market grading and educating collectors about it.

 

There is also some argument behind "AU62" grades so perhaps the ANA standards are out of date and will change to reflect market realities.

 

The ANA has done little to attenuate the mess that exists today. It was silent on the issue of 'First Strikes,' has sold 'official grader' naming rights (very improper, IMO) and its own grading standards seem to respond to market movers (rather than be set in stone). I hope to see some movement, but I would not hold my breath on this issue.

 

Maybe a grade like AU62 would be helpful to some collectors. At least it would cause less confusion to novices, who look at market-graded, MS62 coins and then cannot grade properly because they think it's OK for uncirculated coins to show evident wear as long as the coin looks really peachy. I will never agree that an MS66-graded coin doesn't have to be fully struck (a change that 'reflected market reality'). If an MS66 coin isn't all there regarding fullness of strike and luster, I pass.

Link to comment
Share on other sites
Zoins

Zoins

Posted
  • Author
Posted
The ANA has done little to attenuate the mess that exists today. It was silent on the issue of 'First Strikes,' has sold 'official grader' naming rights (very improper, IMO) and its own grading standards seem to respond to market movers (rather than be set in stone). I hope to see some movement, but I would not hold my breath on this issue.
I agree the ANA hasn't been doing much lately but hopefully things are starting to change. In recent history, the US Mint has done a lot more to protect consumers that it's not even close. The US Mint even spoke up about 'First Strikes.'
Maybe a grade like AU62 would be helpful to some collectors. At least it would cause less confusion to novices, who look at market-graded, MS62 coins and then cannot grade properly because they think it's OK for uncirculated coins to show evident wear as long as the coin looks really peachy. I will never agree that an MS66-graded coin doesn't have to be fully struck (a change that 'reflected market reality'). If an MS66 coin isn't all there regarding fullness of strike and luster, I pass.
I prefer technical grading myself, but there seems to be much pressure towards market grading. My view is that a sight unseen market requires something like market grading and successful pursuit may erode technical grading as a standard.

 

The question is whether the industry and community prefers objective technical grading which doesn't jive with price lists or if they want subjective market grading which fits better with price lists.

Link to comment
Share on other sites
EZ_E

EZ_E

Posted
Posted

AZ Desertrat, for only being back in the hobby a short while, you sure are knowledgeable! It takes most collectors years to get the knowledge you have.

 

The following quote is so true, btw.

 

Many advertisers in CW and NN use their 'house' standards and grade coins any which way, and the industry rags say nothing because ad revenue keeps coming in.
Link to comment
Share on other sites
EZ_E

EZ_E

Posted
Posted
Everyone, of all ages, loves the Fat Lady. NGC Forum does not wish to exclude anyone.

 

CC, I'm surprised that you haven't been banned yet. I'd work more on intelligent contribution to the discussion at hand instead of instigating things.

 

Just a little friendly feedback. (thumbs u

 

--------------------------------

 

Market grading serves one purpose alone and that is to set the value on a coin. I think that the collector loses anyway one looks at it. It serves the TPGS's because they get more resubmissions, it serves the dealers/crackout artists and can possibly serve a collector considering selling their collection and shoots for upgrades. Regardless of the justification, I still feel that this practice is highly unethical. As mentioned earlier, the line between AU and Unc was clearly deliniated. The fact that it is so easily crossed today would most likely baffle the collector of old.

Link to comment
Share on other sites
James_OldeTowne

James_OldeTowne

Posted
Posted

I do have some concern that the sticker will help crack-out artists more easily and quickly identify coins with upgrade potential. In other words, someone's already done their work for them. If this turns out to be true, gradeflation might be a bit accelerated.

Link to comment
Share on other sites
Tradedollarnut

Tradedollarnut

Posted
Posted
I do have some concern that the sticker will help crack-out artists more easily and quickly identify coins with upgrade potential. In other words, someone's already done their work for them. If this turns out to be true, gradeflation might be a bit accelerated.

 

Yet the financial incentive for them to upgrade the coin is reduced - more than a wash IMO.

Link to comment
Share on other sites
James_OldeTowne

James_OldeTowne

Posted
Posted
I do have some concern that the sticker will help crack-out artists more easily and quickly identify coins with upgrade potential. In other words, someone's already done their work for them. If this turns out to be true, gradeflation might be a bit accelerated.

 

Yet the financial incentive for them to upgrade the coin is reduced - more than a wash IMO.

Tradedollarnut, I'm sorry, but I don't quite follow that. Can you please elaborate?

Link to comment
Share on other sites
physics-fan3.14

physics-fan3.14

Posted
Posted
I do have some concern that the sticker will help crack-out artists more easily and quickly identify coins with upgrade potential. In other words, someone's already done their work for them. If this turns out to be true, gradeflation might be a bit accelerated.

 

Yet the financial incentive for them to upgrade the coin is reduced - more than a wash IMO.

Tradedollarnut, I'm sorry, but I don't quite follow that. Can you please elaborate?

 

I think he is saying that since the CAC stickered coins are supposed to sell for a premium, they have already been priced for a grade bump. Thus the crackout artists won't be making as much. I think it is all the same thing, what's in a name?

Link to comment
Share on other sites
pbfloyd-migration

pbfloyd-migration

Posted
Posted

 

I think he is saying that since the CAC stickered coins are supposed to sell for a premium, they have already been priced for a grade bump. Thus the crackout artists won't be making as much. I think it is all the same thing, what's in a name?

 

 

I believe the green CAC sticker states that the coin is good for the grade, both technically and for it's overall aesthetic appeal.

Link to comment
Share on other sites
Go to topic listing