Coin and Banknote Markets Strong Amid Global Crisis 0

[GoldFinger1969]

Good post, WorldC, but my only quibble is there was no bubble at the market peak on Feb 19th or whenever it was.  Valuations were not cheap, but they were not anywhere near prior "bubble" levels.

Edited April 4, 2020 by GoldFinger1969

[Revenant]

1 hour ago, GoldFinger1969 said:

... but they were not anywhere near prior "bubble" levels.

Well, you're free to think that but I'd disagree. I don't know how the next few years and the next 10-20 years will play out but the debt levels in our society are completely insane and they just keep going up. Interest rates getting up to 1.5% percent starts to become problematic when 5-6% is historically normal because people and companies are in too much debt. Interest rates can't rise because if they rise then bonds become more attractive then high P/E stocks and the stocks start to crash. They can't rise because home prices are too high and if interest rates go up the home prices have to come down for mortgages to be affordable. We have 25 year olds with $125,000 in student debt that can't be cleared through bankruptcy because they had to make it that way because these kids are bankrupt and if they could declare bankruptcy all of them would as soon as they graduated because they are bankrupt by definition...

At some point something is going to break, and when that happens a lot of other things are going to break.

[World Colonial]

2 minutes ago, GoldFinger1969 said:

Good post, WorldC, but my only quibble is there was no bubble at the market peak on Feb 19th or whenever it was.  Valuations were not cheap, but they were not anywhere near prior "bubble" levels.

Where did you get that and which market are you talking about?

If you are talking about the US (or any) stock market, there are many indicators.  The most commonly used is the P/E ratio which is one of the worst and always has been  The P/E ratio using "forward" earnings is even worse.  Just exaggerate earnings forecasts and then adjust it downward with few remembering.  (It's all about earnings management and expectations.)

P/E is also one of the worst because earnings aren't even real money but an accounting number.  (Anyone who doesn't believe me can try to spend it at the grocery store.)  It's an estimate based upon management's application of existing accounting standards which change over time and aren't consistent between the US and elsewhere.  (Wasn't consistent elsewhere until the introduction of IFRS either.)  Change the accounting standards or how it is applied and earnings changes drastically, even though the economic position of the company doesn't change at all.  (Both change regularly.)

It's also a bubble because earnings and the P/E ratio are inflated in multiple ways versus the past.  First, artificially low interest rates have inflated profits through lower interest expense.  Second, it's enabled massive stock buybacks since 2012 ($4.5 trillion according to one source).  Third, it has inflated sales by enabling customers to buy more than they otherwise could afford.  Increase in real GDP since 2009 is mostly or entirely the result of incremental deficit spending versus 2007 and prior.  That's why it's fake and unsustainable.

The three that I consider best are the price/sales ratio, market value to GDP, and dividend yield.  All three were at or near record levels. Market value to GDP was 80% at the 1929 peak and I think 140% recently.  It's somewhat distorted due to international trade but price/sales which accounts for it isn't much if any better.  Warren Buffet seems to think the MV to GDP is relevant if that makes a difference.

The dividend yield in the DJIA at the September 3, 1929 top was 2.89%.  The DJIA fell form 381 to 41 on July 8, 1932.  As I write this post, the yield on the DIA ETF (couldn't find one for the index directly) is also 2.89% after a 29% decline.  I think it was 1.6% at the January 2000 peak but prior to the late 1990's, only below 3% just before the 1987 crash.

I prefer the dividend yield because it's a real number.  Dividends can either be paid or not.  Many don't or at least didn't care about dividends but earnings are either paid out as dividends or reflected in the equity section of the balance sheet.  Almost no one (literally) cares about corporate equity either, except during 2008 and now when most companies are at risk of becoming insolvent.  The rest of the time , it's leverage up frequently as much as possible including stock buybacks with debt.  If few or most don't care about dividends and hardly anyone cares about book value, why would these people care about earnings either?

The financial environment since 2000 has been priced to excess versus 1929 or any other period practically the entire time.  I'm not just referring to US stocks but global debt and real estate since these three are the largest and most important.  Not all stock markets, real estate markets or debt markets are the most overpriced recently or at the same time versus the past, but collectively it's an accurate representation of what existed at the 2/19 peak. 

This is most evident in the ridiculously low yields on the majority of debt, no matter what currency you are talking about or the lack of creditworthiness of the borrower.  Recently, there has been $11 to 17 trillion of sovereign negative yielding debt, even though the credit quality of these countries must be the worst since at least since WWII if not earlier.  There is also 100 year (relatively common recently) and in one instance 1000 year (Austria) bond maturity, at fixed rates.  (Argentina issued 100 year debt right a few years ago after exiting the IMF program and is defaulting again.  Shocking that happened since it's only the 8th time they have done that.)  )  There is "covenant lite" (in other words, practically no covenants) corporate debt which is even worse than pre-GFC.  Despite the 2008 mortgage debacle, mortgage standards since can't be called anything other than lax, versus the actually restrictive standards of the past.  Practically anyone who can fog a mirror can get a large credit line on a credit card.  (My sister did shortly after filing bankruptcy even in 2011.)  Auto finance allows you to roll negative equity into your next loan.  See what I mean?

So when I tell you this is the biggest bubble of all-time, there is a reason for it, in the aggregate.

[World Colonial]

11 minutes ago, Revenant said:

Well, you're free to think that but I'd disagree. I don't know how the next few years and the next 10-20 years will play out but the debt levels in our society are completely insane and they just keep going up. Interest rates getting up to 1.5% percent starts to become problematic when 5-6% is historically normal because people and companies are in too much debt. Interest rates can't rise because if they rise then bonds become more attractive then high P/E stocks and the stocks start to crash. They can't rise because home prices are too high and if interest rates go up the home prices have to come down for mortgages to be affordable. We have 25 year olds with $125,000 in student debt that can't be cleared through bankruptcy because they had to make it that way because these kids are bankrupt and if they could declare bankruptcy all of them would as soon as they graduated because they are bankrupt by definition...

At some point something is going to break, and when that happens a lot of other things are going to break.

You did a better job of being more concise than I was in my post below yours.

What you are describing about the interplay of debt levels and interest rates is dead on.  This is the best evidence of the approaching "end game".  If interest rates rise noticeably now but still to lower rates than previously, the whole world will become insolvent.  It won't be evident immediately with developed country sovereign debt but none of these countries will have much leeway because exploding interest payments will eventually consume most and then the entire current budget.  It's a function of the debt maturity schedule and future deficits. 

Same concept applies to corporate credits, as many won't be in immediate trouble now because of extended maturities but eventually, rising interest payments will eat into earnings on the way up juts as it was a benefit on the way down.

And to be clear if I was not, I don't think things are going to "fall apart" now and or in the next few years either, even though I expect economic conditions to be very poor.  I think the US and other developed governments probably have enough leeway to borrow and "print" a lot more first.

I am predicting though that most people are going to be poorer or a lot poorer later than they are now.  No one can do anything about that.

Edited April 4, 2020 by World Colonial

[Revenant]

42 minutes ago, World Colonial said:

You did a better job of being more concise than I was in my post below yours...

You make great points and it certainly wasn't my goal to out words in your mouth on time frames. If 01 and 08 and the last 20 years proved anything it's that they've been able to keep the music playing when it shouldn't have continued. I think we'll limp along a while yet or I wouldn't be doing some of the things I'm doing but I have a high degree of confidence that this is a bubble and one day it will collapse.

I don't get into negative interest rates and bond maturities because they just don't make sense. I don't know how it happened. I can't get my brain around why someone would ever buy a negative yielding bond and not just keep cash. 0.1% from BoA is still better than -0.5%. It makes no sense to buy a bond that will not mature until after you're dead. None whatsoever. It doesn't really make sense to me to buy any bond with a maturity of longer than 5 years unless the bond is explicitly for making something with a useful life / service life of more than 5 years. And, yet, it happens. I still can't figure out why a Toyota dealership let me buy a new car 4 years ago with no money down and a 0% interest rate - makes no sense, but they did it.

[World Colonial]

3 minutes ago, Revenant said:

I don't get into negative interest rates and bond maturities because they just don't make sense. I don't know how it happened. I can't get my brain around why someone would ever buy a negative yielding bond and not just keep cash. 0.1% from BoA is still better than -0.5%. It makes no sense to buy a bond that will not mature until after you're dead. None whatsoever. It doesn't really make sense to me to buy any bond with a maturity of longer than 5 years unless the bond is explicitly for making something with a useful life / service life of more than 5 years. And, yet, it happens. I still can't figure out why a Toyota dealership let me buy a new car 4 years ago with no money down and a 0% interest rate - makes no sense, but they did it.

My explanation is moral hazard and in part, financial intermediation. 

Governments create the moral hazard which gives institutional buyers (I don't think it is individuals except very occasionally) the motivation to do so.

Financial intermediation because those who are making the decisions to buy these overpriced and low quality assets are mostly doing it with someone else's money.

There is diversification but if financial market participants didn't feel safe buying it, they would act differently.  This is what has changed mostly starting in 1982.  It turned into a full blown mania around 1999 and has been one ever since.

[GoldFinger1969]

Rev, you sound like the late Richard Russell of Dow Theory Letters or Geraldine Weiss of Investment Quality Trends when I used to read them in the 1980's !! 

You and WorldC's concerns on debt are noted, but other measures of the market (see below) are not as problematic.  And any "put" in the market was erased by the 35% drop in 1 month and the 2 bear markets in the 2000's that declined 45% and 57%, respectively.

Check out page 5 and subsequent pages:

https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer

It's unlikely we ever see dividend yields on the DJIA at 6% or dirt-cheap valuations like 1932 or 1982 because the markets today are fundamentally more transparent and with much better information, so the equity risk premium is substantially lower than in the 1920's when you got information from your RCA radio.  Or even the 1980's when it was largely from The WSJ or Wall Street Week with Louis Rukeyser (miss him !).

Edited April 4, 2020 by GoldFinger1969

[Revenant]

1 hour ago, GoldFinger1969 said:

Rev, you sound like the late Richard Russell of Dow Theory Letters or Geraldine Weiss of Investment Quality Trends when I used to read them in the 1980's !! 

Guess I'll take your word for it. I was 3 when the 1980s ended.

People always say it's different this time. I think it's even a meme now.

It's different until it's not. You can pretend you're flying until you hit the ground.

I guess we'll all see who is right in the fullness of time. For what it's worth, I'd love for you to be right. WC and I don't want this to be a bubble. We don't want a collapse or systemic failure, but I think it will happen.

[GoldFinger1969]

32 minutes ago, Revenant said:

I guess we'll all see who is right in the fullness of time. For what it's worth, I'd love for you to be right. WC and I don't want this to be a bubble. We don't want a collapse or systemic failure, but I think it will happen.

This isn't systemic failure.  It's a natural catastrophe -- like an asteroid hitting a city.  2008-09 was systemic.

[Revenant]

7 minutes ago, GoldFinger1969 said:

This isn't systemic failure.  It's a natural catastrophe -- like an asteroid hitting a city.  2008-09 was systemic.

Not saying it is one I'm saying we're going to have one at some point. The Coronavirus is the pin that the bubble, it isn't the cause or the bubble itself. We may limp on after this and something else will get the blame later.

[GoldFinger1969]

2 minutes ago, Revenant said:

Not saying it is one I'm saying we're going to have one at some point. The Coronavirus is the pin that the bubble, it isn't the cause or the bubble itself. We may limp on after this and something else will get the blame later.

No doubt a non-leveraged, low-debt economy fares better but I don't know of any economic system that can withstand a 20-40% drop in real GDP for any length of time.

And a Reserve Currency nation can NOT not have functioning debt markets, which means liquid Government and Corporate debt markets -- and government and corporate debt. 

 

[World Colonial]

31 minutes ago, GoldFinger1969 said:

This isn't systemic failure.  It's a natural catastrophe -- like an asteroid hitting a city.  2008-09 was systemic.

The economic and financial damage isn't caused by the virus, YET. 

What we see now is a psychologically triggered political response to the pandemic.  In the past, this event would have been allowed to run its course, regardless of the human consequences.  Society is better organized now to respond to it due to much improved communication and increased economic resources but this doesn't change the psychological component.  There have been several recent pandemics (SARS and Swine Flu) where the scientific establishment didn't know the potential danger beforehand.  Nothing close to the current response was even attempted.

I'll grant you that if a large meteor actually hit the earth, I would agree it is the direct cause.  Short of that, it's always psychological.  Go compare this event to prior history and look at what happened in the financial markets.  Sometimes there is a correlation and sometimes there isn't.  But even when there is, it's not proportionate to the event.

9/11 triggered a mini-crash.  The 1987 crash which was noticeably bigger wasn't associated with anything.  No one has been able to find a "reason"  Many excuses have been made up but that exactly what it is.  The 2011 (or 2013) "flash crash" had no external event associated with it.  External events don't explain October 28 and 29, 1929.  If I showed you a chart which included Pearl Harbor day without the dates and possibly even with a price reference, you might not be able to identify it.  (The Dow fell 3% to 107 bottoming at 92 on December 28, 1942.)  If you could identify it,. almost no one else can.  The Mutually Assured Destruction (MAD) threat didn't disappear with the end of the Cold War.  People just aren't afraid of it but Russia still has enough TNT to blow the US off the face of the earth.  When the psychological mood is ready for it, the fear will reappear since the weapons certainly aren't going away..

More recently this past Thursday, the weekly jobless claim of 6MM was DOUBLE "expectations" and the worst ever, yet the market action ignored it with the Dow rallying 3%+,  The rationalization was the supposed pending agreement to cut oil output by 10-15MM barrels but that was (and is) just a rumor which Russia later denied anyway.,  Trump just made it up.  There was no actual "reason" other than psychological, just as is always the case.

Believing in an external cause is the biggest fallacy in financial markets.  It's the optimism or pessimism of financial market participants.

Edited April 5, 2020 by World Colonial

[World Colonial]

1 hour ago, Revenant said:

Guess I'll take your word for it. I was 3 when the 1980s ended.

People always say it's different this time. I think it's even a meme now.

It's different until it's not. You can pretend you're flying until you hit the ground.

I guess we'll all see who is right in the fullness of time. For what it's worth, I'd love for you to be right. WC and I don't want this to be a bubble. We don't want a collapse or systemic failure, but I think it will happen.

Correct..  

I would like to see the financial markets become more a lot more reasonably priced without the economic damage, but that isn't an option.  The fake prosperity which the global economy experiences today and at least the prior few decades cannot survive the end of the bubble.

[RWB]

Here's a really silly request....Would anyone like to present real, verifiable data relating to coin and banknote markets?

Thanks!

(I presume the original insinuation has long since been discarded.)

[GoldFinger1969]

1987 Crash was caused by the drop in the dollar the previous week....talk of repealing M&A favorable policies on interest deductability...and a rising bond yield that made stocks very un-attractive.  When the market fell apart 6 weeks ago, you could get 1.5% on a 10-year Treasury bond.  In early-October 1987, you could get over 9%.

Markets discount the worst, then look for positive stuff like a FALL in claims (whenever) or a cutback in oil production (whenever).  Doesn't have to be "real" -- it can be a rumour or a Tweet.

Edited April 5, 2020 by GoldFinger1969

[GoldFinger1969]

2 hours ago, RWB said:

Here's a really silly request....Would anyone like to present real, verifiable data relating to coin and banknote markets?  Thanks!  (I presume the original insinuation has long since been discarded.)

Well, I think I said that you weren't likely to see a dropoff in prices right away.  But I am keeping a VERY SHARP EYE on the more popular and liquid coins/currency notes to see if the price drops. 

I'll be focusing on $500, $1,000, and $5,000 bills plus Gold Certificates for currency....and for coins both the bullion price of gold (to track generics) as well as quasi-numismatics in conditions that traded at premiums (MS65-67).  And 1907 High Reliefs in AU58 or higher, a 5-figure purchase that will be of interest to upper middle-class earners and the wealthy.

Edited April 5, 2020 by GoldFinger1969

[RWB]

When researching the US Proof Coins 1836-1942 book, there was a conspicuous drop in auction prices for most (not all) coins over the previous 20 years. (This was in reported dollars, adjusted for inflation.) Data summaries are in the book.

[GoldFinger1969]

21 minutes ago, RWB said:

When researching the US Proof Coins 1836-1942 book, there was a conspicuous drop in auction prices for most (not all) coins over the previous 20 years. (This was in reported dollars, adjusted for inflation.) Data summaries are in the book.

Which years 20 previous to ?

[GoldFinger1969]

Over at GC, a 1907 High Relief Saint NGC MS63 CAC went for just over $17,000 including the bp....lots of bidders, auction lasted 2+ months but lots of activity AFTER the global viral thing hit so the final bidding wasn't decided a month ago or whatever.

That price is consistent with recent prices for a 63 CAC, I think a bit lower but nothing dramatic.

Edited April 6, 2020 by GoldFinger1969

[World Colonial]

16 hours ago, RWB said:

When researching the US Proof Coins 1836-1942 book, there was a conspicuous drop in auction prices for most (not all) coins over the previous 20 years. (This was in reported dollars, adjusted for inflation.) Data summaries are in the book.

It will be a lot worse under anything close to similar circumstances in the future.  The price level is vastly inflated versus the past.

[World Colonial]

17 hours ago, GoldFinger1969 said:

1987 Crash was caused by the drop in the dollar the previous week....talk of repealing M&A favorable policies on interest deductability...and a rising bond yield that made stocks very un-attractive.  When the market fell apart 6 weeks ago, you could get 1.5% on a 10-year Treasury bond.  In early-October 1987, you could get over 9%.

Markets discount the worst, then look for positive stuff like a FALL in claims (whenever) or a cutback in oil production (whenever).  Doesn't have to be "real" -- it can be a rumour or a Tweet.

No, that's what is commonly believed but not accurate.

[RWB]

15 hours ago, GoldFinger1969 said:

Which years 20 previous to ?

Published in February 2017. Data collected through 2016. All major auction companies and available dealer sales.

[GoldFinger1969]

38 minutes ago, World Colonial said:

No, that's what is commonly believed but not accurate.

What is or isn't...my 1987 recollection or my forecast ?

My forecast may or may not pan out -- it's a guestimate -- but my information on the 1987 Crash is bullet-proof, trust me.  I had just entered the business and every hour of every day from the August peak is fresh in my mind.  And I have the actual newsletters and financial clipping still saved to this day.

[GoldFinger1969]

41 minutes ago, World Colonial said:

It will be a lot worse under anything close to similar circumstances in the future.  The price level is vastly inflated versus the past.

Proof sets ?  Which ones ?

I'm not sure there is alot of fluff in various coins.....the air went out of their bubble a few years ago (i.e., Franklins).  I can't speak for EVERY type coin, and bullion (silver and gold coins) will also track the underlying PMs, but I don't see vulnerability akin to 1980, 1989, or 2007 pricing.

[GoldFinger1969]

40 minutes ago, RWB said:

Published in February 2017. Data collected through 2016. All major auction companies and available dealer sales.

OK got it...I thought you were talking about the 1836-1942 period.

The Proof Sets are basically a scam.  They have pretty much unlimited supply...anybody can buy them....which means future demand is nil.  Like a penny stock with an unlimited Registration S ability to sell new shares.

Better to buy a proof modern day silver or gold coin, even paying up for the slab.

 

[World Colonial]

49 minutes ago, GoldFinger1969 said:

What is or isn't...my 1987 recollection or my forecast ?

My forecast may or may not pan out -- it's a guestimate -- but my information on the 1987 Crash is bullet-proof, trust me.  I had just entered the business and every hour of every day from the August peak is fresh in my mind.  And I have the actual newsletters and financial clipping still saved to this day.

What you said about 1987.  That's the most common explanation I read but it's a rationalization, not a cause.  Apparently, I have contributed to the derailment of this thread enough already but the conventionally held view of cause and effect (such as the one you gave) doesn't actually explain anything.  

If you want me to explain it in a PM, I can do so.

[kbbpll]

One thing I note about the coin market is that I've gotten more special offers on items in my watch list over the past few days than I've ever gotten. Granted I do not typically have a lot of watched items. I swear the one I just got a special offer on has been in my watch list for at least 6 months. I'll also note that what I look for is typically very narrow in scope, and I have not seen any big uptick in coins being offered for sale, so from that standpoint I don't see a big rush of collectors trying to cash out. Again, within a very narrow range (1899-1905 dimes).

[World Colonial]

51 minutes ago, GoldFinger1969 said:

I'm not sure there is alot of fluff in various coins.....the air went out of their bubble a few years ago (i.e., Franklins).  I can't speak for EVERY type coin, and bullion (silver and gold coins) will also track the underlying PMs, but I don't see vulnerability akin to 1980, 1989, or 2007 pricing.

You have looked at charts of various PCGS indices right?  A lot lower than 1989 but still way higher than prior to that.

There is a huge amount of "hot air" in the price level, especially the US market.  Some of it is due to currency debasement (everything has gone up) but most of it is due to the financialization of the "hobby" from TPG and the buying of coins as "investments".

Someone might get the idea from consensus sentiment that prices are predominantly due to actual interest in collecting.  I don't buy it for a minute.  To believe this is to concurrently believe that collectors experienced a collective epiphany starting in the 1970's where they miraculously came to believe that what they collect is a lot more interesting than their predecessors did.  Why would anyone believe that? 

Some of it is due to financialization attracting more affluent buyers who can afford to ignore larger potential losses but there is no reason to believe this applies generally.  This is evident from the numismatic press and forum posts where the stagnant or declining price level since at least 2008 is perceived negatively instead of an opportunity to stretch your budget further.  Going by what we can see, the latter is a distinct minority view.

As to the future, depends upon what coins someone has in mind.  Common pre-1933 US gold has the spot price as a floor but no reason to expect it to sell for noticeably higher premiums given how common.  I still expect most coins to sell for (noticeably) less adjusted for price changes versus now.  The most common US coins (basically practically everything post 1933) I expect to overwhelmingly sell for less than the grading fee decades from now.  Most scarce or rare (actual or imagined) coins, still a lot less.  Most coins aren't interesting enough to most collectors if they are or face the prospect of losing noticeable value, especially in an era of declining affluence.

I can't know whether nominal prices will be lower or much lower decades from now since there might be much higher inflation.  I consider it a virtual certainty most will lose noticeable value adjusted for price changes.

[World Colonial]

17 minutes ago, kbbpll said:

One thing I note about the coin market is that I've gotten more special offers on items in my watch list over the past few days than I've ever gotten. Granted I do not typically have a lot of watched items. I swear the one I just got a special offer on has been in my watch list for at least 6 months. I'll also note that what I look for is typically very narrow in scope, and I have not seen any big uptick in coins being offered for sale, so from that standpoint I don't see a big rush of collectors trying to cash out. Again, within a very narrow range (1899-1905 dimes).

There won't be a rush to sell the more preferred coins unless there is extended financial duress.  Most who can afford to keep what they have would rather do so than offer it at "fire sale" prices.

I did notice that the upcoming Heritage Central States world coin auction has a much smaller selection than normal.  It's about 1200 lots versus 3000 to 4000 generally.  I don't know if this due to collectors holding back or for those outside the US, not being able to consign the coin due to postal delays.

[GoldFinger1969]

WorldC, when a penny or nickel or dime trades for $20 let alone $200 (or egads, $2,000 !!) that's alot more fluff and mumismatic premium than you find in most gold coins.  Same thing with MSD's.  So even though coin prices corrected in those smaller denominatons, I still think you could have trouble down the road.

Most people got into those sets as kids -- I guess -- because starting off collecting them was easy and cheap.  Not many 10-year olds can start out with Saint-Gaudens or Liberty Double Eagles.

For me, my Saints and Liberty's are a numismatic, artistic, and bullion-inspired investment.