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Currency Sees Best of Times Amid Worst
 | By Allen Mincho, Bank Note Reporter
March 25, 2008 |
It was the best of times, it was the worst of times, it was the time gold soared to over $1,000 per ounce, it was the time that the bear in "bear market" rose up on its hindquarters to maul even such an established Wall Street name as Bear, Stearns.
What is one to make of such times? And, more important for those whose role it is to report, advise and generally pontificate, what can one say to bring clarity and direction to a currency market caught in an American economy that is beginning to appear closer to that of Argentina than Switzerland?
A look at history gives annoyingly little guidance, nor does it offer black-line rules that can be applied to the situation in which we seem to find ourselves today. During the past bout of "stagflation," the term applied to the economy of the 1970s where inflation was high and growth low, the currency market rose steadily through the decade. As inflation and interest rates reached record levels not seen since the Civil War, the currency market erupted in an orgy of speculative excess, with prices of many type notes doubling and tripling within an 18-month period, buoyed by record prices for precious metals and an economy where confidence had disappeared and fear reigned.
The election of President Ronald Reagan, along with a combination of Federal Reserve tightening, a rather vicious recession, a renewal of confidence in both the dollar and the overall U.S. economy and the start of a stock market resurgence kicked over the props that had supported high precious metals prices.
The result was a coin and currency market that was as bleak in the early 1980s as it had been sunny four or five years earlier. The identical items which had been traded with abandon a few years earlier became unwanted pariahs that were close to unsaleable at any price. Currency dealers hunkered down in a defensive mode, and those that survived that decade became much wiser as well as older.
The booming economy of the 1990s led first to a revival, and then to strong gains in both price levels and the number of participants in the market on both the dealer and collector levels.
The advent of respected and widely accepted third-party grading has broadened the market still further, and prompted another tidal wave of money to flow into what had previously been a business dominated by ma and pa sized sole proprietorships, while the shift toward sales through well-financed auction houses facilitated a market in which a $10 million dollar currency sale was no longer a once-in-a-lifetime event but an occurrence that no longer even rated a headline in the numismatic press. All of this took place against a backdrop of rising stock prices, then falling stock prices, then rising stock prices, with the one constant of the last two decades being easy credit, easy money and a general feeling of well being amongst the producing classes that are the backbone of the currency market.
So, what is the market for collectible currency to make of the economy in general, and what is going on around us on a daily basis specifically?
To date, an honest appraisal shows nothing amiss. Prices for all but the most generic of notes have not only remained strong but continue to increase, and attendance at coin and currency shows and auctions indicates no diminution whatever in either the number of buyers or their desire to purchase rare currency. Just as important, the last few outings have shown no indication on the part of either dealers or collectors of their inability to pay for their currency purchases, which is always one of the first signs of trouble in any market. Our sister market for rare coins is booming, the bullion dealers are coining money (and directing more than a bit into currency purchases) and the market for upper-end collectibles in just about every area continues to thrive at ever-increasing price levels as buyers decide they would rather hold hard assets than dollars whose value appears to depreciate through both inflation and against other currencies on an ever-accelerating basis.
As the Fed pumps money into the economy and forces interest rates down and the prospect for tax increases loom, alternative investments for the upper-middle and upper income buyers of currency appear even less appealing, while the "cost" of holding collectibles in foregone interest income drops to nearly nothing.
While there can be little doubt that the buyers of low-end currency, especially those who patronize the late-night television purveyors, have seen a severe cut into their discretionary income as food and fuel prices have increased, the economic distress visible in many quarters seems to provide more compelling reasons for those interested in rare currency to continue and even increase their purchases than it does in directing their discretionary income towards other saving or investment options.
As this is written in mid-March, the next major event on the horizon is the Krause-sponsored Chicago Paper Money Expo, moved to the end of March from its normal mid- to late-February time slot but still in its traditional suburban Rosemont, Ill., venue near O'Hare Aiprort. This is always a significant outing that attracts the lion's share of market participants, and more than a fair number of collectors as well. The Lyn Knight auction certainly helps to draw an audience as well, although this sale is somewhat smaller than in previous years.
The next couple of weeks offer a smattering of local and regional events with few significant enough to see more than a handful of major dealers in attendance, but all eyes then turn to the annual Central States Numismatic Society show and affiliated official Heritage-CAA auction that accompanies the event, which is also slated to take place in Rosemont. This year my company will sell the largest collection we have ever offered in one auction, that of our friend Tom Flynn. Tom's collection is the culmination of a four-decade collecting effort, and offers something for just about every collector. Tom's holdings include Fractional Currency, Military Payment Certificates, small-size type notes, large-size type notes, National Bank Notes and a magnificent assemblage of Canadian Currency that is the largest offering at auction ever presented in this country. This promises to be a truly market-defining sale, and, along with the other consignments, promises a 4,000-lot extravaganza which will likely set the tone of the market for the next several months.
I will report on both events, and venture an opinion on what the future holds for the currency market after the results are in from both Chicago venues.
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