RARE COIN MARKET UPDATE
( July, 1999 )

I'm going to do things a little differently with this update and discuss some of the general parameters in the U.S. and global economies that should work well into the next century to support a healthy rare coin market. Since my outlook for the U.S. and global financial markets, to include that supposed safehaven of bonds, is quite bearish at this junction, I am constantly posing the question to myself as an investment advisor as to what could derail the current bull market in rare coins should we enter a cyclical (i.e., major) bear market in stocks or financial assets in general. For the short answer, it all boils down to liquidity and confidence. What is very interesting about the present time in investing history is that the central bankers of the world are faced with defending their currencies and their economies at the same time. To increase the value of a domestic currency, a central banker will often display monetary discipline by reducing overall system liquidity and gradually raising interest rates. This is what the U.S. Federal Reserve is engaged in as a near-term strategy, but the U.S. Dollar currently is in no need of defending. The rise in interest rates is intended to brake the U.S. economy so that imbalances in the demand for labor and input costs do not create a re-emergence of inflation. The best news on inflation is behind us, and Alan Greenspan has seen some of the same articles as I have on this issue.

Since the U.S. is the strongest economy in the world, bar none, a gentle tapping of the brakes should do no harm (theoretically). This is not the case with the economies of Indonesia, China, Brazil, Argentina, U.K., and Germany. These are generally fragile or late stage economies that will suffer as the liquidity punchbowl is withdrawn locally and interest rates are increased. Since the British Pound has been decimated with the mysterious pre-announcement of a 40% sale of gold reserves (a repeat of Australia's and Canada's experiences), a rise in rates to counter the effects of misguided policy will bring Europe closer to recession. Granted, everyone seems to be celebrating the recoveries in South Korea, Thailand, Taiwan, and Japan with surges in stock prices, but remember that equity investors are trying to look ahead and have been known to jump the gun. The real economies in these countries, with Japan the standout example, are still sputtering at best. A simple case in point is the price of memory chips and hard drives stateside; if Southeast Asia was truly recovering with domestic demand participating, we would not be seeing these prices continue to soften more than currency translation would imply. Domestic demand is weak or weakening around the world in close to 60% of the global economy.

With global capital as hot as a firecracker, central bankers must entice investors with interest rates that are sufficient to make up for all of the other flaws in a country's monetary, fiscal, legal, and financial systems (to include cooking the books). So we have the central bankers of the world maintaining a basically tight monetary policy regime to avoid further capital flight, but with one hand on the monetary spigot in case the domestic economy starts to sink too far too fast. A Stop and Start Policy.

This winded dissertation leads me to the conclusion that the central bankers will not let the global economy slip into the depressionary or recessionary crevice without a fight, and are standing ready to flood the world with cheap money should the need arise. In short, more than adequate liquidity in the financial system will be available for rare coin investors to continue to make timely purchases. As to confidence, it may become more of a relative issue where lack of confidence in other investment avenues may make numismatic and bullion coin investing safer alternatives with subsequent flows increasing over today's already healthy and rising levels. If the entire U.S. rare coin market's capitalization is under $3 Billion, just think what the diversion of some of that misdirected internet stock money could do for the numismatic bull market. Paper can go up in smoke in more than one way.

In conclusion, while this summer's rare coin market is more focused on the rarest of type and issue coins, I see the spectrum broadening as we enter Fall. This increased demand from re-ignited (and justified) fears over the Y2K problem during the latter months of the year and from mounting, not diminishing problems in the global financial systems will cover many more areas of the rare coin marketplace (Gold type coins in key & semi-key date MS65 & MS66 and most common date Gold in MS60 to MS64 non-gem grades are prime examples). So take a page from your stock investing experience, and buy low when everyone in officialdom is forecasting gold will see $200 per ounce before it will see $400. Bearishness has never been more rampant in the gold bullion market than it is today. BUY LOW, SELL HIGH!