U.S. Coin Price Guide

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Follow the Money
By Blanchard Economic Research Unit

To know which asset class will appreciate in value, you have only to follow the money. When the stock market is gobbling up all of the available discretionary funds, you know that alternative investments, such as rare coins, are going to do poorly. On the other hand, bear markets in stocks cause net withdrawals, which in turn support the prices of alternative assets as investors seek better returns.

There have been numerous articles in the financial press that have talked about the resemblances between 1987 and 2007. The topic is of interest to us because of the absolute explosion of the rare coin market that took place after the stock market crash of 1987. The crash precipitated a stampede to alternative assets like rare coins and, in a little over two years, the market in investment grade rare coins went up several hundred percent even as the price of gold fell from $500 to $360.

Financial conditions today lead us to believe that the rare coin market is poised to duplicate the bull market experienced 20 years ago. Today, we’re hearing much of the same language that we heard in 1987, when Alan Greenspan said that the world was on the edge of a global financial collapse. In fact, Greenspan said that the current market turmoil is “identical” in many ways to that which occurred in 1987.

The stock market crash in 1987 and the credit market crisis in 2007 both served to reverse the flow of funds into stock mutual funds. According to the Presidential Task Force on Market Mechanisms, appointed by President Ronald Reagan to investigate the October 1897 market crash, skittish fund shareholders withdrew billions of dollars from stock mutual funds and added to the market's fall. In fact, in October 1987, fund shareholders made net withdrawals amounting to 3% of domestic equity fund assets - the largest monthly outflow as a percentage of fund assets to date. The withdrawals continued for 15 of the next 17 months - even as the market started to recover - and totaled 12% of the assets in stock funds before the crash.

Today, investors have been putting far less money into U. S. stocks, in large part because the S&P 500 has been the worst-performing of nine different vehicles tracked by Morningstar, including commodities, real estate investment trusts, gold and foreign stocks. The last quarter of 2007 marked the worst period for stocks in 52 years, with equities off 15.5% from their October highs. In response, investors took more money out of stock mutual funds than they put in - a net outflow of $46.4 billion.

Where is all of that money going? In 1987, a lot of it went into alternative assets - rare coins went ballistic.

We appear to be seeing the exact same phenomenon today, with the classic U.S. coin Key-Dates and Rarities Index up by 31.9% in 2007, despite the fact that the Index was actually down from the first half of the year. Since August 2007, this index, and the Coin Universe index, shows that we are at the beginning of a powerful bull market!

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