cnpcoins

How Strong Is The Dollar?

NOTE:   World Fair of Money, August 5-9, LOS ANGELES Convention Center.  One of the biggest coin shows in the country, run by the American Numismatic Association.  If you are in the Los Angeles area, please come visit my booth – Customized Numismatic Portfolios, get your free “Pocket Constitution,” and learn how to get a free 6-month trial membership to the ANA. Los Angeles Convention Center

A couple of weeks ago, when oil prices dropped, some in the media suggested that Recession and the current glut of oil supply could drop prices below $40 a barrel before the end of the year.   Since gold so often “walks with” oil, this created a possibility for a dip in gold prices and a great buying opportunity for gold and gold coins. 

The gold price dipped to about $900 for a short time, but quickly rebounded to the $950 level.  Interestingly enough, stocks also rose, reacting to improved corporate earnings, and despite increasingly negative news on employment and a potential bubble bursting in commercial real estate. 

When stocks and gold rise together, what you are almost certainly looking at is a weaker dollar.

It is no surprise then that demand in the coin market continues strong.   There is a good balance between buyers and sellers, with slightly more demand than supply, as it has for several years now.   As a result, rare coin values have held, and are trending slightly to the upside.   This trend is reminiscent of the Great Depression, during which time rare coins increased strongly in value.

Massive and increasing Government debt levels, increases in the money supply, a pending collapse of commercial real estate values, and tremendous uncertainty about future governmental policies of the Obama Administration (Health Insurance Bills, Cap and Trade, etc.) have led to a huge and truly amazing build up of American’s cash accounts. 

Unsure about the future, investors have not been investing, and consumers have not been consuming.  Instead, they have been saving. 

The savings rate is now 6.9%, one of the highest savings rates in US history.  As a result, last month alone, over $800 Billion (4/5 of a Trillion) was slugged away into savings accounts.  No wonder bank profits are up!  There is now over $9 Trillion Dollars in US cash accounts, and that number is climbing daily and rapidly.  If current trends continue, cash in savings accounts will increase by nearly One Trillion Dollars per month!

This represents a reservoir of “liquid” cash earning low interest.  Thus, as soon as it becomes clear to the population at large that their dollars are losing value they will be quick to unleash that buying power. So great is this reservoir of cash, it could easily propel hyperinflation, which will be a bonanza for rare coin and gold prices. 

There is a possibility that to fight inflation, the Fed will suck money out of the money supply.  However, doing so would choke off economic growth, hamper bank liquidity to deal with the coming commercial real estate bubble burst, and more importantly, dramatically increase the Federal Government’s annual debt payments well beyond the current $400 Billion annually – not to mention what it would to do debt owned by States.   Plus, the Fed has basically announced that they expect interest rates to remain low for “some time to come.”

For collectors, this is a green light to buy those special coins you have been wanting all along.  High quality Key Dates, Rare Date Dollars, MS-65 St. Gaudens, are rising but still at levels that make them very attractive.  Many coins now available in this balanced coin market will likely not be available as demand increase beyond supply, pushing prices up.  Considering the amount of cash and government debt, buying rare coins now might, in retrospect, rank as one of the best investments you have ever made.

For investors, recognize the future is uncertain, but high inflation remains a high probability.  Along with rare coins, you might want to divert some assets in your Individual Retirement Account (IRA) into gold and or silver bullion.  This can be done effectively and inexpensively. 
Feel free to contact my office for details. You can email me at: [email protected]

Smile: It’s a Mid-Summer Lull – And Happy Independence Day

Maybe it’s summer or that I just returned from a well deserved vacation in Southern France, but it seems to me the Economy is in an interesting lull. 

Economic statistics are flat.  Prices of gold, stocks, residential real estate, interest rates, and pretty much everything except gasoline are fluctuating within narrow price ranges. 

The same is true for coins, where trading remains active, but prices, which have been rising steadily for the last several years – at least for the moment – are relatively flat.

This is not a bad thing.  Just like people, markets need “breathers” after periods of great activity. The roller coaster ride of the last twelve months has been excessively stressful.  The market implosion and financial crisis have been exacerbated by massive federal spending and unprecedented governmental intervention in business and financial markets.   This has created a “throw your hands in the air” uncertainty for investors and consumers, who, instead of investing and spending, have been slugging money into cash accounts at the unprecedented savings rate (for the US) of around 6%.

As a result, over $8 Trillion investor money sits inactive in cash accounts, generating next to zero interest, and waiting for a place to go.

It strikes me odd that despite such a reserve of cash, credit should still be so tight.  Yet, that is the situation in which we now find ourselves.  I believe this underscores the weakness of assets held by banks and uncertainty about just how far the government takeover of the economy and excessive government spending is going to go.  It likely also reflects a potential disaster in commercial real estate, which would likely trigger yet another Federal Government bailout.

The Federal Government can borrow almost unlimited sums of money - not surprising because of the cozy relationship between the Federal Government and the Federal Reserve which basically allows money to be created from nothing, especially now since the Federal Reserve is buying its own paper. This creation of cash combined with over the top Federal Government “borrowing and spending” has created a potential perfect storm for inflation.

When that storm begins, the $8 Trillion in US cash accounts will furiously compete for assets to hold value against the falling dollar, flooding financial markets with liquidity.  The resulting inundation could bring the dollar down as much as 70% from its current level, and trigger explosive demand for hard assets.

But we still don’t know when.  It might now be a summer lull, but just like the squirrel gathers nuts in summer, now is the time to gather up gold, silver and rare coins to position yourself for the upcoming inflation storm, for whether it arrives this month or next, this winter or next, this year or next, arrive it surely will.   

A Small River in Provence

Gordes...also a small town in Provence

Lavender fields