November 25, 2008

Prices are absolutely wacky right now.

There has not been a lot going on in stocks and bonds - unless you count insanity!

With the collapse of financial markets and an assured recession that will last one or more years, it seemed certain that prices for collectibles in general would soften. Prices in our hobby, however, have been at 10-year lows for over a year, so I am really quite uncertain how much further prices will fall.

So far, prices have not collapsed, but they remain soft. However, prices seem much less predictable than I think I have ever seen. Prices are all over the board! Price are both absurdly high and pathetically low at the same time.

In early October, I saw a bond from the Mexican Pacific Railway sell for a very strong $180! I had not seen the bond sell for awhile and was surprised at the strong showing.

Obviously, in live auction situations, it takes a minimum of TWO people to bid prices up. High prices don't happen in a vacuum. While the winner ultimately paid $180, there had to have been at least one other bidder willing to pay $160 to $170.

(Yes, high minimum starting prices are popular in European auctions and they often limit sales to single bidders. In that respect, "auctions" with high starting prices approach the definition of fixed-price sales. In those cases, sellers essentially take over the role of one bidder. By saying, "I'm willing to hold onto these item at these starting prices," sellers are putting in first bids. If no one is willing to pay more, then sellers' implied "bids" win. While there are few "absolute" auctions in the U.S., lower starting prices make U.S. auctions of certificates seem more competitive.)

Then this morning, I saw another example of the same bond sell on eBay for a mere $29 at a "Buy It Now" price. This is what I mean by insane prices. One certificate sold for six times! as much as a nearly identical one. How can we perceive a market direction when prices are so wacky?

In mid October I saw several U.S. certificates sell in the U.K. for what I considered borderline insane prices. Several lots sold for amounts two to five times more than reasonable collectors would have paid. Remember, it takes at least two to tango in genuine live auctions. Hopefully, they saw something in person that had been undescribed in the catalog. Maybe there were autographs. Maybe there were imperf revenues. Maybe there were multiples or undescribed extras. Without expending a lot of energy, there's no way for me to know.

All I can tell for sure is that prices are currently displaying crazy prices ranges right now. If you are a collector picking up certificates at the low end, good for you! Keep it up. If you are participating at the high end, then I sincerely suggest you step back, take a deep breath, and be sure you know what you're doing.

Yes, some of those certificates are quite rare. However, don't be too sure that you will get your money back out in any reasonable amount of time. Now may be the time for bargain-hunting, but it is most assuredly a time for caution.

1 comment:

Anonymous said...

I will disagree a little bit here. I think prices in the Scripophily marketplace have always been a little wacky.

I have been a collector for over twenty years and have seen the same pieces vary in price, in some cases dramatically, depending on the seller. Some, like Clinton Hollins, always seem to have pieces at a lower price than others. Other dealers have the same prices at much higher prices. Now granted the dealers I am thinking about have much fancier promotional and sales materials; things like full color catalogs that are very well done.

I think some collectors like looking for the bargains while others like to buy from dealers with the nice marketing materials and they are willing to pay for that.

You are correct about the auction marketplace. It takes two. I looked at many of the prices realized in the most recent Smythe auction and I don’t think there were a lot of two’s. There were a number of lots that did not sell, which is a little unusual for them. But, more importantly, most of the pieces that did sell sold at below the low estimate. Now someone may say that this is a reflection of an eroding marketplace – or was this a result of overly high estimates that the market just could not justify? I have to lean toward the latter. When I got the catalog in the mail I thought the estimates were quite high for many of the pieces offered. I think these high estimates kept a lot of people from even bidding.

For years I have seem pieces sell in Europe for more than here in the US – especially American pieces. On the other hand, some European pieces sell here for less than in Europe – although I don’t see a lot of Americans being interested in non-US materials so the price differential is less.

Will the recession affect a marketplace with prices that have not increased in a number of years – only time will tell. I expect that the rare and truly great pieces to continue to do well, but those pieces that are fairly common will be hard to unload unless the price appears very opportunistic.

Tim W.