An Interview with JOHN ALBANESE in the Rosen Numismatic Advisory
Maurice Rosen - June 17, 2008
Noted numismatic authority Maurice
Rosen interviewed John Albanese. The following interview appeared
in the Rosen Numismatic Advisory Newsletter (Vol. 33 No. 4)
in May 2008.
A grading service grading other services
coins? Whats going on?
Youve heard about CAC [CERTIFIED ACCEPTANCE CORPORATION].
Theyre the ones affixing labels or stickers to already
slabbed coins attesting to the premium quality
of the encased going a sort of Good Housekeeping Seal
of Approval. We all know that the variance in quality among
slabbed coins of the same issue and grade can be substantial.
If the grading services properly anticipated and provided
for the growing problem of C and D-quality
coins, there would be no need for CAC. For sure, no two coins
are alike and grading is an art not a science. Unfortunately,
after 22-years of grading, and after tens of millions of coins
have entered the marketplace, the advertised solutions that
the grading services promised to us have yet to be fully delivered.
The problem? The bottom-of-the-barrel
coins have been dragging down the market for the solid-for-the-grade
coins. The sight-unseen bidding system recognizes the ugly
truth that the worst coins in holders might be put to a dealer
forced to pay his bid. His defense? Lower his bids to provide
for that contingency. Sight-seen bidding, on the other hand,
permits the bidder the option of first viewing the coin to
determine if he is satisfied with it with no obligation
to buy the coin.
As time went on, as the nice coins have been squirreled away
by savvy collectors, investors and dealers, the bottom-dwellers
took on a growing presence in the market. Their ranks have
also been bloated by successful crack-outs, the resubmission
of coins to the same or another service with the hopes of
receiving a higher grade. What may have been a holdered 64-A
or B coin gets bumped up a grade and becomes a
65-C or 65-D coin. In its original
holder, it was a premium coin. In its new holder its
a likely reject from anyone with proper experience and taste.
All things considered, we are still much better off than before
the services existed. But the trend of increasing buyer sophistication
and discrimination has been looking for a way to take grading
to the next level, where people can trade coins with more
confidence and where the prices of the A and B
coins are not encumbered by the lid placed on them from the
C and D coins.
Thats where CAC comes into focus. Launched last November,
CAC is already making waves. Thousands of coins have been
labelled and, importantly, sight-seen bid prices
for many coins have been increasing nicely, waking up from
years of under-performance.
John Albanese, a noted numismatic authority whom youve
met here as a frequent interview subject and Crystal Ball
participant, is the founder and President of CAC. This interview
took place during mid-March.
MR: Lets talk about gradeflation.
Way back in 1976, the first year of The RNA, I coined that
term when describing the aftermath of the 1971-74 bull market.
Little did I know that wed still be experiencing over
32 years later. As a background for the creation of CAC, tell
me, John, your experience with gradeflation from its beginnings
JA: Its really a dynamic of market cycles, market
grading, and faulty price guides. There have also been periods
of grade-deflation, when grading became stricter. Id
like to use the example of a MS-65 Barber Quarter to describe
the evolution of gradeflation. Thats a popular Type
Coin, a strong proxy for the market. When I was buying gem
goings in the 1970s, grading was pretty stable. Going
by the Greysheet, in 1977 the MS-65 coin was bid at $300.
That price referred to a strong MS-65, what I would call today
a solid B coin. In 1978, the market was a little
stronger, bullion was heating up, and the bid rose to $325
which related again to the same solid B coin.
In 1979, prices for coins and precious metals were much stronger.
In March the coin was bid at $375, but by December it soared
to $1,050! However, the coin that brought $375 earlier in
the year was now bringing $1,500-$2,000, despite the $1,050
bid. [MR: This is a classic example
of my Market Premium Factor at work. Here, the MPF was upwards
of 67%. By contrast the coin you would have reasonably purchased
if you paid near the $1,050 bid was a MS-63+ or MS-64.]
If Im paying $1,750 for that coin in 1979, how am I
going to describe it and price it at $2,100 if the bid is
much lower at $1,050? A customer would point to the Greysheet
saying the coin is priced at double bid. So by paying a fair
price myself, and charging an honest markup, I had to describe
the coin as a MS-65+ or MS-67.
Here the Greysheet failed to reflect the true market value
and, by proxy, for so many other coins as well. Whether
that was due to an antiquated teletype system, the folks at
the Greysheet not attending enough shows or receiving too
little pricing data or listening to too few dealers, I dont
know but the real market value for coins was not being adequately
reported. As a result, I, and everyone else, was forced to
employ market grading. If, instead, the Greysheet
reported a bid of $1,750, the coin would be sold as a MS-65.
Most retailers had no choice other than to describe the coin
as better than MS-65 to justify their selling price.
We move on to April 1980 when the bid is $2,450, but the
dealers are happily paying $3,500-$4,000 and forced to market
the coin as MS-65+ or MS-67. From March 1979 to April 1980
the coin went up by almost 900% not unusual for many
Type Coins! Then in April 1980 the market crashed, buyers
backed away and sellers dominated. Just one month later in
May, despite the Greysheet showing a higher bid of $2,500,
the coin that cost $3,500-$4,000 was now going for half as
much, and the coin that you could get if you paid the full
$2,500 bid was a true MS-65+. So where I was faulting the
Greysheet for not raising their bids fast enough which caused
gradeflation, now, by stubbornly leaving the bid at the former
level, they forced grade-deflation.
By the time the coin market hit its bottom in August 1982,
the Barber Quarter was bid at $1,000. But that price related
more to a MS-67 than to a MS-65. A decent MS-65 might have
cost $600, or 40% less [MR: What I term the Market Discount
Factor]. Thereafter, the market got stronger, to the point
just before PCGS came into operation in early 1986 when the
reported MS-65 bid rose to $2,500. However, the few bidders
then were extremely selective, demanding an MS-67 coin for
their posted MS-65 bid. The bidders were raising prices almost
every week to support their own specialized marketing plans
but buying few, if any, MS-65 coins at their MS-65 bids.
When PCGS began in February 1986 NGC started in later
1987 we essentially inherited a market structure with
very high published prices. Morgan $1s in MS-65 were $800!
Graders cant help but be affected by the market. Here
I am grading at NGC in 1987/88 with a nice Morgan $1 in my
hands. If I call it MS-65 its going to be worth $500+.
Many of those coins were MS-66s at the least. It was tough
to grade the coin knowing it would command $500+. Market grading
forced the tighter grading. If bid were, say, a more market-reflective
$200, then a lot of coins that didnt grade MS-65 would
have. The market actually adjusted as MS-64s traded for that
Think back to those hectic times of 1989, Maurice, when Proof-68
Barber Quarters were $40,000, when MS-66 $20 Saints were $12,000,
and so on. The services were very reluctant to hand out those
grades. I know I was. That was when Wall Street money was
coming in and rumored to be even more substantial. It was
when a large buyer named Iraj Sayah spent multi-millions which
caused rumors of foreign buyers coming into the market. We
had the perfect storm: Wall Street, rumors of
huge money coming in, a new grading and marketing mechanism
(slabs) with strict grading, great press, and a thin supply
of nice coins to satisfy demand. I mean Texas commems in MS-67
at $5,000, a Proof-67 Trade $1 at $100,000! Then came the
inevitable collapse in 1990. Thereafter, through the 1990s,
except for rarities, it was a pretty rough decade for coins.
That brings us to the recession of 2001/02, 9/11,
the stock market bottom in 2002, and the Federal Reserves
mission to lower interest rates from 6% to eventually 1%.
And, of course, gold rising from a low $250 in 2001 to where
it is today. I credit the growth of the internet for helping
to minimize gradeflation as more people became educated about
coins and privy to many new resources, Web sites and chat
rooms. They became more sophisticated consumers.
As for the grading, since the 1990s, much of the product
coming out of the grading services was A or B
quality. Whereas those coins were leaving the market, the
C coins werent. They tended to linger in
dealer inventories. I got to the point where even though the
Cs were a minority of the coins graded,
they represented as much as 90% of certain dealers inventories
and auctions! That presented a problem for bidders on the
system. Seeing so many lower quality coins in the market influenced
them to lower their bids for fear of buying coins they would
have troubling selling at a profit. Their bids reflected the
possibility of the worst coin being put to them.
This comes down to whether A and B
coins should really trade at a premium or should C
coins trade a discount. My feeling is that A and
B coins have traded at a discount and havent
kept up with our expectations because the C coins
[MR: as well as the D coins discussed later] are
keeping them down. If we consider market grading, and youre
sitting in the grading room when looking at a MS-65 Morgan
$1 that came down from $800 to $80, and youre doing
a competent job, youre grading a coin differently at
$80 than you were when it was $800.
That Natural process allows the grader to be more relaxed
when grading. He might be thinking, The coin has a couple
marks, but its okay for a 65. Hes justified
to do that but it lead to gradeflation. It wasnt a conscious
attempt of the services to do this; they reacted to the market.
To help hold the line on grading, I believe that grading
or reference sets are necessary at the services. You dont
have to have one for every series. Say for Liberty Seated
and Barber coins one coin in every grade irrespective of denomination
would suffice. A skilled grader can extrapolate. Graders should
spend 30 to 60 minutes each week looking at the set
a tune-up in which they recalibrate their mind-set to avoid
getting into a rut. To me, this is very important.
MR: Given all this John, why
did you start CAC?
JA: I felt we were basically in a death spiral. I
saw the C coins dragging down the prices of A
and B coins. Throughout my career Ive always
tried to buy the A and B coins. I
felt that someone just had to push back. I felt strongly that
the A and B coins needed to trade
on their own, to be decoupled from the C coins.
I felt the best way to accomplish that was to start CAC. Earlier
in the interview I was critical of The Greysheet for contributing
to gradeflation. The Greysheet changed ownership in 1984.
Since then Im glad to say theres been a decided
improvement. Theyve been much more responsive, reporting
the prices as they see them.
MR: What do you hope to achieve
JA: We will ignore the less than B coins.
We know its going to be hard but were barely in
the first inning and have achieved some impressive success.
Greysheet bids are strong since we started, but Bluesheet
prices (sigh-unseen bids as opposed to the Greysheets
sight-seen bids) have not been as strong. Were already
seeing a start to the decoupling we hoped to achieve. We expect
volatility in prices; what we shouldnt expect is volatility
in grading. Thats our mission.
MR: Have you encountered any
obstacles in developing and carrying out your mission?
JA: Clearly, there have been obstacles from the dealers
selling the C coins. They are starting to encounter
problems selling their coins because were making markets
in A and B coins, not C
coins. However, the bigger problem is people not fully understanding
our program. Thats probably my fault for taking a low-key
approach to this point, not aggressively advertising and marketing
CAC. That will be addressed soon enough, and your advisory,
Maurice, will be a big help to us. Our efforts have been to
get the product out there, encourage submissions, allowing
the product to speak for itself. The market will eventually
determine how successful well be.
I have dealers calling me telling me they dont need
me to tell them their coin is PQ. I tell them theyre
right, but the problem is the guy a few tables down from them
has coins for sale at much lower prices then they do. Their
nicer coins need to distinguished from the pack. Im
not disparaging the other coins; after all, a C
is a passing grade. I just dont believe that a minority
of less-than-solid-grade coins coming out of the services
should dictate the entire marketplace.
MR: Since the start of this
decade, weve seen gold go up over four times in price,
silver over five times, yet by any measure, rare coins have
severely lagged. On your Web site (CACcoin.com) you address
this by using the 1922-P $20 as an example. Please tell me
how the under-performance the rare coin market has experienced
might reverse with CAC.
JA: Before I get into that, understand that there
are other factors in play that account for the lag in coin
performance vis-à-vis gold. For one, gold stock prices
in general have lagged the metal. Actually, coin-to-gold price
comparisons did well into 2006. Since then, gold started to
spike up, and the preponderance of C coins in
the market served to cap further increases for many coin prices.
Importantly, the huge wave of the previous few years of discretionary
spending, the positive wealth effect of rising housing prices,
low interest rates, and a strong stock market gave way to
a slowing economy and the emergence of the subprime and credit
crisis. So, the feeling of good times is unraveling for many
So far Ive talked about A, B
and C coins. Now Ill address the D
coins. The population of the MS-65 1922-P $20 has absolutely
exploded over the last several years, maybe on the order of
30 to 40 multiple! So far the CAC weve had some 75 pieces
submitted and I think only four have qualified! If I had to
give you one coin where there is the greatest variance in
the perception of quality between CAC and the grading services,
Id point to that coin. The 1923-P $20 is another good
example as are several earlier, mid-priced Saints. Im
bidding $4,000 for the 1922-P and $5,000 for the 1923-P and
would gladly buy the right MS-65. There just arent too
many out there. In fact, those were the bids back in the year
2000 before the coin market got strong and when gold was below
$300. These are but two examples of many great buys available
MR: Of all the vintage (non-modern)
coins that exist in PCGS and NGC holders today, what percentage
would you say would qualify for the CAC green label?
JA: I would say its a high percentage, upwards
of 80% or so. We unveiled our service at a Connecticut show
last fall. We offered free submissions to the public. Some
500-600 coins were brought to us of which about 85% were labeled.
On the other hand, if you were to go through a typical dealers
showcase on the bourse floor of a show, it could be less than
half that rate. So far, thats been our experience based
on current submissions.
MR: Besides the A,
B, and C coins, weve seen what
I describe as D and F coins, mistakes
and horrible mistakes which lead us to wonder What were
they smoking when they holdered that coin. I ask you,
how did those coins get holdered in the first place?
JA: I wish I knew. Ive already taken about 15
CAC labeled coins off the market that made me wonder how this
happens. I think its just that graders are human. Try
as we all do were not perfect. Clearly, you want to
keep that to a minimum. We offer a buy-back guarantee. If
I agree that the coin shouldnt be labeled, I take it
off the market, remove the label and sell it for a loss.
MR: What about the problem of
JA: For sure, doctored coins have been a problem but
I think its one that has been overblown. Certain dealers
play that up as a way of explaining the underperformance of
rare coins in the face of rising gold prices. A dealer whos
sold a bunch of MS-65 $20 Saints to an investor a few years
ago, at say $1,500, and now their prices are up only 5-10%
while gold has doubled is avoiding the real issues to his
customer by badmouthing a proliferation of doctored
coins. The grading services put out statements that
they are going to get tough on doctors and be far more vigilant.
Theyre taking a firm stand. Im happy to see that
and believe that doctoring will become much less of a problem
as we go forward.
MR: What premiums do you see
CAC coins bringing in the marketplace?
JA: They are bringing premiums from what Ive
read although I dont think most are brining much of
a premium. In the first place, A and B
coins bring premiums anyway, always have. We also chose not
to hype-up our service bur rather see how the market accepted
us. I dont know of anyone paying big premiums for CAC
coins. I think theyre trading for what theyre
worth which is exactly what we hope to achieve. The whole
notion of CAC was not to make those coins worth a premium
but to properly distinguish them from the C and
lesser quality coins.
MR: Please discuss the trading
market that is developing for CAC coins. When will it be introduced?
Also, how much capital is supporting CAC.
JA: Its somewhat informal. CAC coins are not
now listed on the CCE coin exchange. Were developing
our own trading system named Coinplex that will trade CAC
coins, as well as all other certified coins from any service.
Were only weeks away from it being introduced. At only
$100/month, we should have a large audience. The initial capital
for CAC is $10 million with commitments for up to $25 million.
We will also be retaining earnings so this can be substantial
in five years. But please understand that were not trying
to promote the idea of sigh-unseen bidding. Coins are works
of art and must appeal to a buyer whether stickered by CAC
MR: Are there any disadvantaged
factions in the business that would like to see CAC fail?
JA: As you know there are dealers who look to sell
nice coins. CAC coins will be rewarded. As we de-link the
A and B coins from the others, ours
will have a better chance of performing well in the market.
If you were selling the C or D coins
and buying strictly based on price, you can have a problem.
I would imagine that they would be happy if we just went away.
MR: Should the services be more
careful when grading less than A and B
quality coins to reduce their error rate of off-quality coins?
JA: Perhaps theres some merit to that but keep
in mind that C is a passing grade. If a C
coin comes into a grading service it must properly be graded
for what it is. You cant call a 65-C coin a 64. The
issue here is that we have a very discriminating public buyer
who wants to buy quality coins. Whether its coins or
anything else, people are getting smarter when they buy things.
These folks dont really aspire to put together a collection
of C and D coins that barely make
or miss the grade. They want value for their money and are
expressing their demands.
MR: Do you have any desire to
one day start your own coin grading service?
JA: I really dont, and even if I did, as I mentioned
earlier, if a C coin came in it would have to
be identified as being in its full numerical grade, not a
point lower. I think the present services have established
a nice baseline. Lets remember also that most of the
rare coins in existence have already been graded, so what
would be the point? There would just be a lot of wasted plastic
as people crack coins out of their holders. It would be very
confusing. PCGS and NGC are already embedded in the market.
Introducing CAC is confusing enough.
MR: Of all the vintage U.S.
coins in existence, what percent of the ones worthy of being
slabbed (eliminating those that would be body-bagged) have
already been slabbed?
JA: Its obviously impossible for us to know
whats out there but I think its fair to say that
on the low end its 75%. The services have essentially
graded close to all of those coins.
MR: That being so, then whats
the future of the grading services?
JA: There are plenty of generic coins still out there.
From what I understand PCGS is opening submission centers
across Europe. World coin grading is a big concept now. Then
you have modern coins which represents an almost infinite
supply going into the future, assuming the market remains
buoyant. Also, PCGS and NGC are into other fields besides
coins, including paper money, gemstones, comic books, cards
and so on.
MR: Just what goes into your
decision to label a coin submitted to CAC?
JA: It all depends on the series. CAC has capital
commitments of $25 million, 51% of which is my contribution.
Essentially, if we put our sticker on the holder it means
were happy buyers of the coin that grade. That might
not sound too technical but were willing to put our
money where our opinion is. Other dealers will be coming on
board as well. We think it will prove out when our trading
platform is an operation. While we cant be expected
to make markets in every coin in every grade, we believe that
CAC markets will be deeper than any other market.
MR: How can you hold the line
on your grading such that your interpretations wont
change over time, as has happened for the grading services.
JA: Lets say that we do a poor job. If we do
than we have to buy our own coins back and we wouldnt
last very long. We could have $25 million of low-end unsalable
inventory and be out of business. So its in CACs
best interest to maintain the standard because we are consuming
our own product. Its like owning a restaurant where
we eat every meal, so were not going to be serving poor
quality food. Or its like a prospective home buying
desiring to buy a builders home. Why is
that? because he built it for himself. In effect, were
grading for ourselves.
MR: Of all the coinage series,
which ones have the best and least chance of being labeled?
JA: From what Ive noticed over the decades the
series that has held up the best is proof nickel coinage.
Theyre small coins, of a hard metal, and dont
pick up too many hairlines. So a proof 3¢ nickel might
have a 75% chance of being stickered. MS-65 and MS-66 $20
Saints have a much lower success rate of being stickered.
Why? We see them differently. We have a different standard.
I dont think its a secret. If you would ask the
typical dealer or collector what area the services should
be grading tighter, theyd probably say $20 Saints. Thats
unfortunate as $20 Saints have often been regarded as a poster
coin for investment numismatics.
MR: Lets leave CAC for
a while and look at the opportunities in todays market
for investors. What are your general comments and the area
you like the best?
JA: For the most part, nice coins are in very strong
hands. A lot of well-to-do people have been buying coins and
are more likely to sell other assets should they need to raise
cash. Clearly, the higher gold and silver prices are a strong
support for the market. Many coin issues that have lagged
and underperformed are ripe for big upward moves. I like virtually
every Type Coin in Mint State and Proof 64 and higher, and
Proof Gold. Many are priced at a third or a quarter where
they were in 1980 when gold was over 15% less than where it
is today. Basic issues like 3¢ Nickels, Shield and Liberty
Nickels are bargains. The more exotic types, such as Bust,
No Motto, Stars Obverse and Arrows Seated issues are wonderful
buys. The tough part is finding the coins.
MR: What potential do you see
for these coins?
JA: Well, we talked about the MS-65 Barber Quarter
which was $2,500 for a long time and now is $1,100 bid. I
believe if the price doubled to $2,200, it would be no big
deal, the price would hardly be deemed out of whack. You could
almost throw a dart at the sheet of Type Coins and do well
with whatever you buy assuming, of course, that you
bought nice coins at fair prices.
MR: Some people shy away from
small-sized coins, such as 3¢ Silvers and Half-Dimes,
are more drawn to larger-sized coins. Should an investor take
that into consideration?
JA: It never was that way. I remember when the 1980
market was on fire. Gem 3¢ Silvers, Half-Dimes, you name
it, sold as well as anything else. I think that emanates from
the seller and the lack of properly educated new buyers. When
novices first come into coins they are usually drawn to gold.
If you offer them a 3¢ Silver of Half-Dime theyll
react negatively, preferring a big gold, or even silver, coin.
As they learn and graduate into other stages, they may begin
to appreciate coins for their rarity and collector appeal
irrespective of the coins size. Thats been my
experience. Also, understand that preference for large coins
is already priced into the market, something we already see
in Proof Gold across the denominations for the same coinage
MR: What about Commems? Talk
about coins in the doghouse for a long time.
JA: Ive been wrong about them for a few years
but now they seem even more undervalued. Im looking
at people moving up from the modern coin market to areas such
as Commems, which have similar themes and attractive qualities
as moderns. Many issues have a very low price spread between
MS-65 and MS-63, even down to AU, that buyers can find good
value. In the earlier issue, many prices here have been destroyed
by the C and D coins. Thats
especially true for the Alabama, Missouri, Isabella, Lafayette,
Grants, etc. I was buying Alabamas years ago at $2,000 when
gold was under $400. Now bid is $1,200! Take a look at the
1921 Pilgrim at $365 bid. Its done nothing for years
while gold and silver has soared; finding a solid B
coin is harder than you would think. Many people, including
dealers, wont buy Commems because theyve lost
money. To me thats a strong sign of contrary opinion
MR: How do you feel about modern
coins? When you and I were grading at NGC there was a ban
on holdering coins dated after 1964. The ban was removed,
the floodgates opened, and a new market was born. You didnt
like them in the past. Any change?
JA: I was harshly criticized for my comments about
the modern market. Some have trounced vintage coin performance,
particularly those relating to precious metals. After all,
if you bought platinum coins years ago, even at high prices,
youve done well. I still dont believe in them
as viable investments, however. When you say market,
to me it means buy and sell but all I see are sells, not many
bids. It seems to me that every week the mint is coming out
with a new coin. I cant keep track of them. A similar
phenomenon occurred in baseball cards. For decades there were
two or three companies making the cards. Then in the mid-1990s
there were a dozen or two more cranking them out. Then the
market soon collapsed. My concern is that the mint is flooding
the market. Its very expensive for todays modern
collector to keep up with this.
MR: One strong factor supporting
the vintage coin market not widely talked about is the likelihood,
as you stated, that most of the worthy rare coins have already
been slabbed. The supply is known. Investors can have the
confidence that what they see is what they know exists. Future
surprises will be few. We now have a somewhat fixed supply
versus the torrent of incredible money creation since the
bull market days of 1980 and 1989.
JA: Thats entirely correct. People look at something
like Citicorp today and realize that there are now 25% more
shares outstanding than there were a few months ago. That
cant happen with coins. You cant have a secondary
issue. The mint is not going to make more of them.
MR: Youve been involved
with slab grading since its inception in 1986, 22 years ago.
Project 22 years into the future. How might grading be different?
JA: Theres been talk of a 100-point grading
scale. I know that one service discussed laser-inscribing
coins, which is not that difficult to do; its done with
diamonds. Ill keep up with any positive changes that
come our way, but my main concern is that the buyer is getting
value. The current economic problems will blow over. Growth
will be restored and the country will do well. Its the
expansion of the wealth-effect that will underpin a strong
coin market. As long as grading remains true and on the mark
serving the best interests of the public and this being
the basis of any changes that are to come well
all do fine.
MR: Do you have a concept of
what the perfect grading service would be?
JA: Having extensive grading sets and an outside body
serving in a quality control function of the services. Instead
of the services buying back coins on their own, contributing
money to a fund for an outside body to decide which coins
to take off the market. I believe were approaching those
concepts. Obviously the services know theyre not perfect
and want to improve.
MR: Whats your take on
institutions coming into the market? We saw their early footprints
in 1989. Here we are 20 years later. They represent far more
money now. Now we see their participation in commodities,
something they never did years ago. Its not hard to
envision one or more boutique firms establishing a small position
in coins and kicking off a bullish stampede like we saw in
bull markets past. John, what do we have to offer to invite
their participation, enabling them to be satisfied by their
due diligence testing?
JA: First of all, I know for a fact there are institutions
circling around as we speak. The talk is that coins are a
future asset class. Theyre not considered that today,
theyre sort of on their own, but firms are open to the
idea that they might be in the future. So, do they want to
buy coins now when they are a potential asset class or wait
until that becomes a reality? Thats like saying do you
want to buy a relatively unknown stock today or wait until
its invited into the S&P 500? They know that coins
trade like an illiquid stock. They know they cant pump
$100 million into the market in two days. It has to be done
quietly and over a long period of time. We should forget about
the notion of an institution barreling into the market with
everything tripling overnight. What we have to offer them
is an imperfect system. Thats their opportunity! What
will happen when we do perfect it? We could then have a huge
expansion of prices.
MR: Youve been a leading
bidder for U.S. Type Coins. Do you have a strategy of how
high you are willing to take the market?
JA: Ive been a stronger bidder for quite some time.
Throughout my career Ive always been very bullish on
Type. Essentially, Im waiting for equilibrium in the
marketplace. Take the MS-65 Small-size Bust Quarter. Bid a
couple years ago was $13,000, now its $17,000. Thats
a coin that was never available at or near bid. Id go
to a show and see one priced by a boutique dealer at $25,000.
I know the coin is worth every penny of that but I cant
justify it to my customer. Back in the old days before grading
services it would be called a MS-67. My feeling here is just
get the bid up to where you can actually buy the coin. At
least the next time I see a nice Bust Quarter I wont
be quoted 50% over bid, maybe 20%. Then I can more easily
explain to a client.
Keep in mind that a lot of these scarcer coins were unbuyable
anywhere near their bids. One reason they were so low was
the downward pressure of the C and D
coins. Its like looking to buy or sell a house. In a
strong market buyers had to keep raising their price to close
a deal. In a weak market, sellers have to reduce prices to
attract a buyer. Well, now we have a strong market and I have
to raise prices to find the right coins. Thats what
I mean by equilibrium. Its been a long time coming and
has a long way to go.
MR: How can you insolate yourself
from undue pressure to grant labels to submitted coins?
JA: What will make CAC successful, or unsuccessful,
is the fact that we are biased. We have a conflict of interest.
Theres a lot of capital committed to CAC. Our critics
have raised the point that we are affixing labels and making
markets. But that keeps us on our guard. We have to buy the
coins offered to us. I mentioned earlier the analogy of running
a restaurant. Are you going to feed your family spoiled food
in your own restaurant? Of course not, and this is how we
view CAC. I believe that our inherent conflict keeps us sharp.
MR: Getting back to coins that
look especially attractive to you for investor/collectors,
what do you like for under a couple hundred dollars?
JA: That may be the area that shows great percentage
gains. Your readers can have a field day trolling around looking
for VF and EF Type Coins. Issues like Half-Cents, Large Cents,
Two-Cent pieces, I can go on and on. Take that 2¢ piece
in EF at $34. If someone had sold 1,000 of them I would buy
them. But it would be impossible to find 1,000, maybe even
100. How about EF Type-2 3¢ Silver at $85? Or a Bust
10¢ in VF at $60? Way too cheap. All the way down to
Trade $1s there are bargains galore. By comparison,
the earlier, more glamorous and rarer Type issues, such as
1793 Half-Cents and all Early Bust Silver, have doubled and
then some the last few years. I know its only a matter
of time before that wave touches the rest of the Type market.
MR: How about Morgan and Peace
Silver Dollars. What do you like here?
JA: This is certainly one of the most popular areas
in U.S. numismatics. I like all the dates from about $500
to $10,000 in MS-65. I especially like the O mints,
such as the 1890-92. The 1890-O is bid at $1,550 and could
easily be $4,000 and people wouldnt flinch at the price.
What hurts that coin, and so many others, are the C
and D coins out there, and the fact that you can
buy MS-64s by the boat load. As for the Peace $1s, historically
theyve not been as popular as the Morgans. Their attraction
is that the set is completable and more affordable. Youll
face the same difficulties finding solid-grade examples of
the scarcer dates because of the preponderance of C
and D pieces in the market. The relative rarity
of nice MS-65 1921 and the rarer S mint issues
highlights that situation. Solid gems are undervalued. Theyve
also been held down in price due to the abundance of MS-63
and MS-64 pieces we see in the market.
What do you like in the area of Gold coins?
JA: By far the cheapest gold type coin is the MS-65
Type-2 One. In 1999 I had a client buying every one I could
find. I was paying $55,000 or so, a time when gold was under
$300! Last year they were $25,000, now $33,000. It has a long
way to go to make up for gradeflation. If it were $75,000
it wouldnt be out of line. Thats an example of
a coin that has been punished because of its size. Typical
new buyers gravitate to larger coins. When they become more
knowledgeable they consider other coins, which is what I see
happening for this and so many other coins.
MR: What advice can you give
my readers about coin auctions?
JA: They are a great resource for consumers. They
can consign coins that were graded many years ago which might
grade higher today and realize much higher prices than they
thought because their coins will have full exposure. On the
other hand, there have been instances where coins have brought
multiple time of what experts would say a coin is worth, clearly
astonishing prices. Most collectors know what theyre
doing but sometimes investors can get carried away like this.
Id recommend that such folks hire an experience pro
to advice and bid for them. It would cost them a very modest
fee but be worth it in the long run.
MR: What makes you so confident
to say that gradeflation has ended?
JA: Im not a submitter but if you were to speak
to dealers who submit many coins they would tell you that
in the last six months or so grading has tightened. Ive
heard the theory that CAC is responsible for that, another
is rising prices. If Im in the grading room, Im
supposed to be immune to prices; but, if a Bust Quarter is
$13,000 versus $25,000 I believe you look at the coin differently.
The 1922-P $20 at $5,000 bid has to look different than then
it was below $2,000.
Another thing, its very evident to me that buyers control
the grading standards. I remember back in 1985 there were
several companies in Minnesota pushing the MS-63 13-piece
U.S. gold type set. At that time, Type-2 Ones in AU-58, obvious
sliders, were bringing $10,000-$11,000 and being
sold retail for $15,000+ as MS-63. That was before todays
slab grading services. It was the buyers who controlled the
grading. They said this is what we want the coin to look like.
Fortunately times have changed and it has taken meetings,
such as the one that took place in Orlando this past January
which you attended, Maurice, where large buyers and retailers
voiced their concerns, making them known to the major grading
services. Were already seeing the positive effects in
the market making me feel that this thing we call gradeflation
has truly ended.
THE RNA SUMMATION
Has it, indeed, ended? While it wont become apparent
until some time has passed, the market is firmly suggesting
that were on the right path. It likes what it sees and
is responding positively. Is Johns CAC responsible for
it? For sure, he gets some credit but, as he said, buyers
control grading. Thats where all of us should be congratulated
for exerting the pressure that helped to launch CAC in the
first place and convince the services that this was a force
to be reckoned with.
I came away from the interview with several important thoughts.
One, is what John describes as his desire to achieve equilibrium
in the market. He defines that as CAC successfully implementing
its strategy to distinguish the solid-for-the-grade coins
from those of lesser quality. Armed with this mechanism, buyers
will have more confidence to bid for coins, not fearing that
they would be hit with coins of inferior quality. With less
confusion and more certainty, increased participation would
ensue, and coins would be unencumbered to seek their rightful
price levels. John gave us examples of the Small-Size Bust
Quarter, Barber Quarter, the 1922-P and 1923-P $20 Saints.
Another thought is something I have expressed in these pages
over the years: institutional participation in our market.
For sure, the exciting prospects of how the market is responding
now makes that prospect brighter, but John revealed to us
that institutions are circling around as we speak.
His, and my, point that opportunity knocks when the majority
doesnt see what you correctly see, can be an appealing
attraction to one or more forward-thinking, large investment
firms. Should such a firm make a $100 million commitment to
rare coins patiently over some time, that amount might well
represent a pittance to their overall managed funds. Yet,
when their completed efforts are made known, it would have
the effect of throwing a boulder into a bathtub! The barreling
in that John mentioned will come the end of the bull market,
affording us the green light and easy means to exit our position
with plentiful gains.
Continuing with this second thought is the sheer awesome
comparison of the size of todays total market of investible
money to the relatively tiny coin market. Since the historic
bull market Tops of 1980 and 1989, money ahs expanded multi-fold,
over some 10-times since 1980 alone. Yet, the supply of rare
coins is substantially the same. Yes, there have been some
hoards and discoveries, and, yes, high prices have drawn out
of hiding some coins previously unknown. But, by and large
the population of rare coins is the same.
My point: if rare coin prices reached their heights in 1980
and 1989 amid the pool of investment capital existing at the
time, to what heights can they go during this bull market?
If you think Im being too grandiose with such an assumption,
it might not matter because the hype that could eventually
engulf the bull market will be entranced by that assumption
and many others.
The third thought is the bounty of wonderful values in the
market. Johns waxes on about coins as seemingly unimportant
as EF Half-Cents and 2¢ pieces while recently buying
such high-powered coins as: two 1894-S Barber Dimes, and 1838-O
Bust Half-Dollar, and a MS-69 $20 High Relief. There is opportunity
at every dollar level. You need not be a multi-millionaire
to do well. As our market achieves equilibrium
amid a healthy, robust bull market anyone can be a winner!
Another thought: the creation of independent, outside governing
and supervisory body to self-regulate the grading services
and, perhaps, other market-making mechanisms. This reminds
me of the Securities Act of 1933, and the Securities Exchange
Act of 1934 which created the SEC. Done properly, the industry
shouldnt fear their loss of independence and outsiders
snooping into their affairs. By the time this idea has legs,
the industry will have grown substantially. Such a protective
structure will be necessary to maintain and increase confidence
in the market. I view it as the natural maturing for our industry
to aspire to, not avoid.
Bottom-line: CAC provides the buyer with an additional layer
of information to make an informed decision. It leads to buyer
confidence. The reason CACs existence is the services
failure to deliver the right product to satisfy the growing
demands of a discriminating public. At first, they resisted
the intrusion of CAC; now they are adapting themselves to
coexist. Their efforts to tighten grading speaks to this.
As long as CAC holds fast to its mission, its stature can
only increase. To stay informed of CACs services and
developments, go to their website CACcoin.com.
Ive seen similar intrusions in the past:
the Greysheet coming on the scene in 1963 making secret
wholesale prices available to the public; ANACS in the
late 1970s essentially placing itself between the relationship
of the dealer and his customer; and in 1986 PCGS itself helping
to level the playing field of knowledge and reduce the edge
that some dealers believed they had. Such intrusions were
really innovations that greatly improved our market. So it
will be with CAC.