SPECIAL BULLETIN #2
When Contemplating an Investment in "Rare" U.S. Coins Remember This,
It’s Crucial to BUY the Steak… NOT the Sizzle!
By Mike De Falco
The quality of the beef on the grill, rather than the sound of it cooking, will ultimately determine its value in the marketplace. The same thing can be said of counsel, particularly when investment viability is concerned, which brings me to my topic – all that’s GOLD doesn’t GLITTER, so you better exercise discernment (and due diligence) before utilizing the plethora of so-called investment advice available from any number of self-styled rare coin experts.
I’ve been actively involved in the rare coin market since 1958 and can’t recall a time when out and out hype and deception, masquerading as prudent investment advice, was as pervasive (and dangerous) as it is today. Nowhere is this more evident or more hazardous to your financial well being than it is in the "rare" U.S. gold coin arena. Let me give you a recent example: the now infamous promotion of 1908 No Motto Saint Gaudens Double Eagles from the Wells Fargo Hoard, which began in mid-1997 and continued through 1999 when the highest grade specimens (i.e., MS67 and MS68) were released for sale.
I refer to this particular marketing campaign as infamous because it ranks among the most disreputable and potentially devastating (from a financial perspective for those who are still holding the coins) rare coin promotions ever. At the time it took place I was the managing editor of "The Insider’s Advantage", a prestigious rare coin investment advisory newsletter. It was my responsibility to conceive and write all of the articles and commentary for the newsletter. Therefore, when this promotion began to take shape I seized the opportunity to unveil it. It literally reeked of hype and deception from the outset and lye begging to be exposed.
Setting the Stage to Shear the Sheep… "Investment Potential of 550%", "Limited Supply", "You’d Better Get ‘Em While They Last"
Whenever the seller begins by referring to the coin he’s pushing as a "magnificent piece of history", "long lost sunken treasure" or any other romanticized moniker – it’s likely to be over-priced and would be a poor choice for the sake of investment. Time has certainly proven that adage to be true in regard to the Wells Fargo Saint Gaudens because those very same coins are now worth 33% to 79% less than the price they originally sold for just 2-3 years ago (but more about that later).
The first coins from this hoard to be released to the public were the MS65 1908 No Motto Saint Gaudens, which were being sold for $1,160 each. The promoters seduced prospective buyers by telling them that the No Motto type in MS65 (3,805 graded) was almost 4 to 1 as rare as a comparably graded With Motto type (of which 14,411 examples had been graded MS65) and was selling for just a bit more. Moreover, during the last market high in 1989 this coin (according to them) was trading dealer-to-dealer for $6,500, rendering this a great buying opportunity. One promoter went so far as to question, "why would anyone want to buy the With Motto type at about the same price?" It seems he couldn’t figure that one out but said, "I never look a gift horse in the mouth and neither should you". I wonder what he’s telling his customers today?
In any event, their proclamation of rarity was true, from a convenient point of view. They simply divided the then (just prior to the hoard) MS65 population of the With Motto variety by the population of the MS65 No Motto variety and viola – you arrive at 3.743 to 1 (not quite as impressive as 4 to 1 but accuracy doesn’t appear to have been their primary consideration). The fact is though, this comparison is not credible. You see, the No Motto variety consists of just THREE dates, while the With Motto variety encompasses a total of FORTY-EIGHT dates altogether! Once the veil had been lifted and the truth cried out, this coin was exposed for what it is – the second most common $20 Saint Gaudens (regardless of variety, date and mintmark) in MS65 condition and themost COMMON date in grades MS66 through MS68! That’s quite a distinction for such a cleverly promoted issue that was enthusiastically touted as being both RARE and a PRUDENT INVESTMENT as well.
Now for the coup d’ grace. Following is a "WAS" (the original asking price for the Wells Fargo Double Eagles) – "NOW" (what you may realistically expect to realize for them today on the open market) price comparison. If you own any of these coins and doubt the veracity of what I’ve said -- I encourage you to try and sell them and find out for yourself.
- MS65 1908 No Motto Saint Gaudens: CCDN Bid was $3,800 in June 1989. Wells Fargo coins offered for sale at $1,160 each, currently exhibit a high sight-seen Bid of $775 on the Certified Coin Exchange (CCE) – down by 33.2%, losing a third of their value!
- MS66 1908 No Motto Saint Gaudens: CCDN Bid was $11,500 in June 1989. Wells Fargo coins offered for sale at $2,975 each, currently exhibit a high sight-unseen Bid of $1,010 on CCE – down by 66.1%, losing two-thirds of its value! I’ve seen numerous examples of this coin recently offered on Ebay and other auction venues, and they are an extremely difficult sell to say the least.
- MS67 1908 No Motto Saint Gaudens: CCDN Bid was $28,000 in June 1989. Wells Fargo coins offered for sale at $9,975, currently exhibit a current high sight-unseen Bid of $2,000 on CCE, down a whopping 79.9%, losing close to eight-tenths of its value! However, there is a $5,750 sight-unseen Bid for the No Motto Type (but it’s just for ONE coin), so maybe this date is worth somewhere around $3,500 to $4,000, which is nonetheless a monstrous loss!
Based upon previous high Bids isn’t there at least a chance of recovery to the original Wells Fargo asking price? In my humble opinion – THERE’S NOT A SHOT! Keep in mind that the 1989 Bid price for this particular coin was due in part to a red-hot coin market and the fact that a much smaller number of coins (under 900 pieces) had been graded MS65 or better by the two major grading services at that time. There are currently more than 24,000 1908 No Motto Double Eagles that have been graded MS65 or better – a mind numbing increase in the actual supply of 2,667 PERCENT!
The promoters of this hoard were certainly more than generous with the sizzle lavished upon these coins and unfortunately, a lot of people were lured into the frying pan with both feet. Grossly exaggerated (if not downright misleading) statements concerning rarity, overstated previous market highs and seductive prognostications in regard to investment potential combined to produce compelling reasons to buy and an intoxicating allure that was extremely difficult for greedy or neophyte rare coin investor to resist.
During that same period of time I busied myself trying to sell the steak instead -- warning collectors and investors of the imminent danger of steep price declines for these coins after the sizzle or marketingcampaigns faded. I authored several commentaries to that effect, the first of which was titled, "The Generic Coin Market Trap". That article appeared in the April 11, 1997 issue of the COIN DEALER newsletter (CDN) MONTHLY SUPPLEMENT, which is America’s foremost weekly publication reporting wholesale Bid/Ask prices for nearly all U.S. coins. The valuations reported within are highly regarded in terms of timeliness, accuracy and lack of bias. It’s the equivalent of the Wall Street Journal of the numismatic marketplace. I also expressed my opinions in the July/August 1997 and March/April 1998 editions of The Insider’s Advantage, as well as a four page no-holds-barred Special Market Communiqué (authored by me in its entirety) released in May 1999.
Speaking of selling the steak, I also wanted to present a viable alternative to investors with a sincere desire to participate in the tangible asset arena so I began by writing another poignant commentary, which appeared in the September 12, 1997 issue of the CDN. The article presented sound, thoroughly researched statistical data (not sizzle) that led me to the conclusion that high quality Morgan Dollars in MS65 Deep Mirror Prooflike (DMPL) condition represented one of the most undervalued areas of the rare coin market! I targeted thirty-seven specific dates for immediate purchase, which I felt could be acquired with a minimal amount of effort, and were undervalued! Additionally, I wrote other articles on the subject that appeared in the November/December 1997 and the March/April 1998 and 1999 issues of "The Insider’s Advantage". While the sizzle coins crashed and burned, the thirty-seven MS65 DMPL dollars I recommended increased in value by 36% on average for the period from January 1998 to June 2000 (a 14% plus gain per annum!). In fact, a number of individual coins realized gains of 100% or more during the same period of time.
Fortunately, numerous individuals listened to what I had to say and acted upon my advice. Not only were they successful in circumventing potentially disastrous losses – but are now in a handsome profit position as well. I’m truly grateful that my counsel was well received and taken advantage by so many, who were ultimately rewarded for their ability to recognize the truth. But as they say in regard to advice; "That was yesterday -- what about today?"
The SS Central America Sank in 1857 With $3 Million in Gold Coins and 30,000 Pounds of Gold Bullion Onboard… Don’t Let Your Investment Sink in 2000!
There’s a ship on the horizon loaded with glittering treasure; the steak’s in the frying pan and it’s beginning to sizzle; you reach for the asbestos cooking gloves, but the smoke detector goes off! The alarm is wailing, so you better take heed.
In 1989, after resting on the ocean floor for 132 years (at a depth of over 8,000 feet), the deep-water research and recovery vessel of the Columbus America Discovery Group reached port in Norfolk, Virginia laden with a treasure of monumental proportions. This bonanza was valued at more than $100 million! After nearly a decade in the court system the ownership question was finally settled. The court awarded approximately 7% of the treasure to the insurance companies (who have consigned it to a Sotheby’s auction scheduled to take place in the fall) and the balance to the Columbus America Discovery Group who recently sold it in its entirety. Included in this treasure are about 5,000 heretofore extremely rare 1857-S Type I Double Eagles ($20 Liberties) in grades from AU58 through MS66, according to one of the three firms who are marketing them – and they’re singing the same old praises.
The ultimate gold treasure; the coins are gorgeous; they are historically significant and you too will become a part of history if you own one. Best of all you can even buy more than one and enjoy their rarity, history and growth POTENTIAL! I won’t deny that these coins are truly sexy and historically significant with a great story – but RARE…and with growth POTENTIAL? I don’t think so.
No doubt you’ll hear what a phenomenal buy these are, because due to the quantity available, they can now sell these at prices significantly lower than they would have been. In fact, during the last market high the Bid price for uncirculated specimens were as follows: MS61 - $3,250; MS62 - $7,100; MS63 - $12,750; MS64 - $36,000; MS65 - $92,000; and MS66 -- $120,000. Current retail price indications for like graded specimens (gleaned from Coin Universe and Numismedia) are as follows: MS61 - $5,690; MS62 - $6,560; MS63 - $7,690; MS64 - $11,190; MS65 - $17,810; and MS66 - $32,000.
Today’s retail prices may appear to reflect a bargain for specimens grading MS63 or higher, but keep this FACT in mind. During the last market high there were a total of just 201 Type I Double Eagles graded AU58 or better, and that encompasses the entire series from 1850- 1866. So, using the seller’s estimate of 5,000 coins, the actual supply has recently increased by 2,487 PERCENT based upon this hoard of 1857-S Double Eagles alone! It will certainly be interesting when the final population figures are in and published. Hopefully they won’t drag their feet like they did with the Wells Fargo 1908 No Motto Saint Gaudens. By the way, the final tally for those was significantly higher than initially indicated, particularly in regard to the finest quality specimens. I have a hunch that the same thing will happen with the 1857-S Double Eagles, rendering them a very poor choice from an investment perspective. Taking that into consideration, it is my honest opinion that a more realistic retail value for an MS65 1857-S Double Eagle at this time would be in the $8,000 to $9,000 range (and I believe that is an optimistic estimate). Can I sell you one for that price? Of course not, because they aren’t generally being offered for sale dealer-to-dealer at a realistic wholesale market price. However, ask me again in a couple of years when they make an appearance on the open market and go begging for buyers – just like the MS66 1908 No Motto Saint Gaudens! Who knows, maybe I can sell you one for $5,000 or less, then!
A thought just occurred to me. The government accused entrepreneur Bill Gates of monopolistic practices and ordered Microsoft to be broken up. Isn’t this the same thing? At the very least, it’s a classic example of market manipulation. Yet another cartel, just like OPEC. In fact, one of the players involved in this promotion actually suggested establishing a coin cartel way back in 1980, while attending a coin dealer meeting at my house. He wanted to call it MOPEC – Morgan or Peace Dollar Exporting Community. Isn’t that ironic?
Anyway, before you jump into the frying pan and buy one (or more) of these "pieces of history" – examine your motivation to acquire them (at all) very carefully. If you’re not the least bit concerned about the future value of this coin, then acknowledge the fact there your buying more sizzle than steak. Furthermore, if you are contemplating 1857-S Double Eagles with a thought toward future appreciation – I urge you to consider the monetary losses sustained by those who invested in the infamous the Wells Fargo 1908 No Motto Saint Gaudens promotion. Sadly, investors who purchased the finest quality examples of these coins (MS66 and MS67 specimens) suffered the steepest losses. An extraordinarily insightful man once said, "If you DON’T study history – you’re DOOMED to repeat it".
***SS CENTRAL AMERICA UPDATE***
The Emperor Has NO Clothes!
By Mike De Falco
Since I first penned this "hoard" article (June, Special Bulletin #2) for Wexford Capital Management’s online newsletter, the veil of secrecy (intended to mask one’s perception of rarity) surrounding the SS Central America’s enthusiastically marketed 1857-S Double Eagles has been lifted – and the emperor has NO clothes! Actually, the coins are not as rare or valuable as initially implied by the sellers.
The following table presents the current PCGS population figures and the September 7, 2000 Certified Coin Exchange (CCE) high SIGHT SEEN bids for Type I Double Eagles. Keep in mind that the population figures do not included coins that may have been certified and graded by NGC and ICG. As you can plainly see, the secondary (or wholesale) market value for these coins is 25% to 50% of the retail valuations as they appear in the CU Price Guide. If you own one of these treasured coins, realize it wasn’t a prudent acquisition after all and wish to divest yourself of it, your situation could be even worse. The CCE bid is a sightseen value, which means that the dealer has the right to reject the coin at the bid price upon his inspection. Moreover, the bids are for a quantity of ONE coin! I’m reasonably confident that if you attempted to sell a few pieces at this time, the price would be substantially less.
In closing I want you to know that this table and short commentary are not intended as an I-told-you-so, but rather to reiterate the absolute crucial nature of buying the STEAK, not the SIZZLE!
SS CENTRAL AMERICA DOUBLE EAGLES
THE RARE GET-IT-WHILE-YOU-CAN TYPE I $20 LIBERTY
THE VEIL OF SECRECY HAS BEEN LIFTED
CU RETAIL PRICE
CCE HIGH "SIGHT" BID
PERCENTAGE OF RETAIL
NOTE: CCE HIGH SIGHT BID IS FOR "ONE" COIN!
WCM Note: The advisor has conducted considerable business with Mr. De Falco based upon his expertise and integrity, and looks forward to having De Falco Numismatic Consulting as one of the Tangible Asset Program's critically-selected, contracted rare coin brokers.