What's Busted About Coin Collecting & Product Idea

I received an ugly introduction to coin collecting as an investment today. My family had invested in some rare coins as an investment vehicle back in the mid-70s. They assembled a strong collection of Morgan silver dollars as well as a number of gold and other rare coins. The collection was kept for over 25 years.

I spent today attempting to liquidate these coins. First, I visited a number of Internet sites (Ebay, Yahoo! auctions). There was little interest in buying these coins. Dozens of coins are listed there, but the vast majority have no bids on them. Why? The ugly reality is that coin collecting today is completely subjective. Coins are not the same and it's impossible to tell what's valuable without seeing the coins live. So, sadly, it's not possible to leverage the Internet to sell person to person. Exascerbating the problem is that the rating/valuing system for these coins has a huge span. A coin with a basic rating of NS60 might be worth $10. An NS62 (two ratings above), is worth perhaps $100. So, a tiny difference in a coin's quality (which is a subjective combination of hundreds of different factors) can mean $100s.

Dealers are no better. Worse than selling to individual collectors, you now are selling to someone who's interested in buying at wholesale and selling at retail. As an individual investor, you're at a huge disadvantage pricewise. Once again exascerbating the problem is the rating system. Who are you to tell a reputable dealer that a particular coin is a NS64 and not a NS63, thus justifying a decrease in price of $90?

What's supposed to solve these problems are the professional coin grading companies, like Numismatic Guaranty Corporation. The problem with these services is two-fold: First, you're still dealing with subjective rating. Stories abound of dealers who repeatedly resubmit coins in hopes of getting a higher rating. Second, the price is busted. Even at dealer prices, you're paying >=$10 per coin plus shipping. For a $30 coin, it's not economical to spend 1/3 the value of your coin to get it valued (and thus have the ability to sell person-to-person through sites like Ebay).

How to fix all this? My thought is that a computerized system could be created to visually grade these coins in a completely objective manner. You build this system to automatically process the coins, rate them, and place them in plastic casing. Heck, you could even automatically provide photo proffs like the big boys. With the distribution of these machines across the country, you'd easily be able to also cut down on shipping costs, which are extraordinate when you're mailing silver coins across 2000+ miles.

The technology would not be difficult, as you'd attach cameras to the computer systems. Manufacture the systems at $10,000 each and charge $3 per rating, you're sitting pretty. This system could just as easily work for stamps, baseball cards -- you name it.

Anyway, back to semi-retirement...

Texas and The Sims Deluxe

Been back in Texas for the past few days and fighting off a cold. I arrived and promptly finagled Shandelle into skipping into town for a few days by skipping her connection from Houston to Oakland. Unfortunately, I managed to give her my cold and now she's miserable. On the upside, San Antonio is warm and humid. What could be better?

Also, to ensure that I know full well the Reality Distortion Field that exists in the Bay Area, this home is what you get for $330k in San Antonio. To put that in perspective, here is the beauty that you get for the same $$ in San Francisco (and it's not really even in a nice neighborhood).

I bought the Sims last night. Supposedly, it's the best selling game in computer gaming history. Personally, I don't get it. I kept trying to figure out what's the point. Do I build an empire? Conquer enemy worlds? Make my Sims the richest in the world? Uh, no. I dress these virtual people, tell them who to speak to, and when to bathe. Perhaps I'll get more into it, but for now I'm wishing I bought Civilization III.

Lubbock, TX & 802.11 Gets Some Sanity

Managed to make the drive from Denver, CO to Lubbock, TX today. Viewed some beautiful sights in rural Oklahoma (!) and experienced terrible Denver traffic getting out of town.

Also, good news on the wi-fi networking front. The 802.11 standard guys have introduced 802.11g, which is backwards compatible to 802.11b (the standard we're all using today). The 802.11a standard, which came about after 802.11b, was not backwards compatible. Anyway, the deal was that upgrading to the faster (a) standard would require completely new equipment. Sanity is restored.

End of An Era

We gave notice at the loft today. Given that we're travelling for a bit and the substantial cost, it doesn't make sense to hold on to the place. Last day is December 14th, when our stuff will go into storage.

Sick in Denver

I'm in Denver staying with friends now since last Wednesday. I hope I'm not getting sick, but I think I am.

Something about the altitude, but my appetite just totally disappeared when I arrived here. Combine that with exercising hard for four days outside, staying up late and sleeping on the couch, and you have a recipe for illness. We'll see.

Denver is a great town. Pro's: near mountains, athletic people all around, sunny, good business climate, relatively cheap housing. Con's: Cold, dry air. The air is a big negative as I went riding yesterday and I spent the first 10 miles itching every part of my body b/c of dry skin. I used to get the same feeling in college during the winter swim season as chlorine does the same to your skin. Fortunately, this time I know about moisturizing skin lotion.

Tomorrow, I drive out south. Will likely go through Dallas and Austin. Back to Texas for Thanksgiving!

Cool Towns and Windy Lands

Jogged around Spokane, WA this morning. Even in spite of nasty weather, a nicely sculpted downtown. Much of the area was beautified for the 1974 World's Fair (do they still have those any more?). Some very fine bookstores and bicycle shops, as well as a modern riverfront center. Reminds me somewhat of San Antonio -- a small town bisected by a river with some decent downtown planning.

I drove West out of Washington through Idaho in Montana. Missoula is the first town on the interstate. I expected a sleepy cowtown (remember, A River Runs Through It?) and was shocked to find first a row of modern Big Box retailers. My suppply of clean socks was replentished at Gart's Sports. Then, I cruised for the downtown area. It was actually very cool due mostly to the influence of the Univerisity of Montana. I remember seeing the Grizzlies at the NCAA basketball championships last Spring. They made it to the second round. My late lunch was had in a nice grocery/deli placed in an old brick building. The workers there were neo-hippie types. I guess if you spend Winters this close to Canada you have to do some sort of drugs to pass the time.

I trudged on through the night and finally stopped off the interstate, just north of Yellowstone. Unfortunately, I can't go through the park as it closed last week. Tomorrow, I'll need to get an early start to make it to Denver, CO.

Personal Ad & Spokane

It's funny how many folks from my "past" seem to be finding me through my website. Don't get me wrong, that's not a bad thing.

Today, drove about 400 miles of interstate from Pt Roberts (20 miles south of Vancouver) to the other end of Washington state, Spokane. It's a suprisingly nice town with some cool downtown history. Destination: Denver.

Been reading a very nice book by Alfred P. Sloan, My Years With General Motors. Sloan is the guy who rose in GM after the bailout by the DuPont's and helped transform GM in to what some consider the first modern corporation. Might be a candidate for my book list.

Product Idea -- The Faux Rat

Thinking about the Aibo and the new robot mowers plus the unquenable need of my friends' cat to chase moving items (not to mention the fact that the cat pee-ed on my sleeping bag last night), gave me the idea that a robot cat toy is an opportunity. Imagine a little battery powered toy with some small sensors that would run around the apartment/carpet when activated -- basically pretending to be a small rodent. Anyway, you get the idea.. manufacture the thing with a retail of 99$. Cat lovers would eat it up.

Still Raining

I don't know how people survive in this.

A shot of the triathlon can be found here.

Vancouver is Rainy

Yesterday was another marathon driving day: 12 hours through rain and slop up the Oregon and Washington coasts. My recommendation: travel in the summer and hope it doesn't rain. On the upside, the northwest is truly beautiful. I highly recommend it.

Roadtrip Day 1

COOS BAY, OREGON -- Today consisted of the first day of the first roadtrip. I'm in a small town on the coast of Oregon, just off 101. Today, I saw and did some interesting things:

0) Was physically unable to wake up before 9:30am. Managed to make it out the door by 10:45am.
1) Drove through a hole in a Redwood tree.
2) Did not drive on a single interstate.
3) Almost ran out of gas in Mendocino county.
4) Experienced the Marine Layer firsthand all the way up highway 1 and 101.
5) Found a room for 38$ a night in Coos Bay, Oregon, which was once the largest lumber port in the world. It's largest industry now is shipping wood chips to Asia that is then used make cheap paper.
6) Found a number of cool towns to visit again. Most notably, Eureka and Westport. Both in N CA. Eureka had some great old Victorian homes and offices that are very well preserved.

I'll likely hit Vancouver tomorrow night after another 500 mile day. :D

Triathlon #2 Completed

My second triathlong has been completed. The race website can be found here and the results can be found here. I finished 21st in my age group, 118 (out of about 500 men entering), and had the 22nd fastest swim time of anyone in the race. This is a great sport!

On Bay Area Residential Real Estate

I've spent the past months closely studying the residential real estate market in the Bay Area. Like many people, I've been flirting with putting (what's left) of my money into income properties given the relative unattractiveness of the equity and bond markets. I believe that it is not only a terrible time to purchase anything in the Area but, if I owned property now, I would sell it and reap any profits I could. Overall, I believe several factors/signs will cause supply to increase, while demand will be decreasing, thus causing a significant decline in prices. Eventually, the decrease in prices will reach a tipping point where a panic sell will ensue, causing a crash similar to what we saw in the stock market.

The signs as I see them:

Decreasing demand:

-- People are moving out and losing their jobs. Layoffs are still happening at an alarming rate in the Bay Area. Unemployment is now at 7.7% in San Jose proper. The loss of jobs has resulted in a 30% increase in foreclosures (http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2002/10/31/MN52875.DTL). Challenger, Gray & Christmas, a Chicago-based outplacement firm, states that dot-com layoffs were 51,564 nationwide by the end of April, up 37 percent from the previous record set in January. U-Haul statistics show that 12.7 percent more people moved out of San Francisco than moved in from March to mid-April, while 43 percent more moved out of Mountain View and Palo Alto in Silicon Valley.

-- The high cost of doing business in the Bay Area also means that more companies are incented to move work to cheaper locales. This trend is increasing significantly.

-- Misaligned buyer motives. Most people I speak with see now as a terrific time to buy real estate because capital is so cheap. Mortgage rates dipped below 6% for the first time in decades. Unfortunately, people are buying because the cost of capital is low and because the stock market stinks, NOT because they believe that prices are advantageous. This is a mania phoenomenon similar to what happened to the stock market in the 90s. Interest rates must eventually rise.

-- Quality of Life/Terrorism. Sadly, I believe that many folks will be moving from the area in search of higher quality of life and (perhaps subconsiously) to escape the potential threat of a terrorist attack in the area. Clearly, San Francisco has to be on the Top 10 Hit List of many potential terrorists. Big city life now has an added danger and many people will be motivated by that.

-- Decreasing rental rates. Cheaper rent means people are going to be less incented to buy. This Craigslist graph demonstrates how rental supply is increasing. In fact, rents in SOMA San Francisco have dropped by 75% in some properties.


Increasing Supply:

-- Landlords are motivated to cash out. The misalignment of Rental Rates has reached pretty epic proportions in the area. To illustrate, I looked at dozens of properties for sale in San Francisco. In general the asking price would generate a mortgage 2-3 times the monthly rental income for the property. In a healthy market (such as Stockton, CA), rental properties sell for prices that result in mortage payments 75%-100% of the monthly rental income for the average listed property. Bay Area Landlords are not stupid people. They are becoming incented to sell as rental rates go down.

-- Buildling starts have not gone done significantly. New housing starts decreased by 28% in 2002 relative to 2001 (as of early 2002). New homes are continuing to be built. Just drive down SOMA in San Francisco.


Some other worrisome signs to look at:

-- The book factor. Real Estate Howto Books are flourishing at bookstores now and many are in the Top 100 at Amazon.com. Border's has gone from a single shelf of books to an entire bookcase, which is 5 times larger in less than a year. A similar trend happened when stock market investing took off.
-- The median home price here is over 4 times the national average (over 400k versus about 100k). This is very similar to looking at the P/E (price to earnings ratio) of a stock. In the late 90's, P/E multiples were greatly out of whack and a crash ensued. In the case of the "earnings" of a residence, it's either the rental income or the "utility" an owner-occupant receives. In both cases, the ratio is incredibly out of alignment, further encouraging people to sell.

So, the market is going to tank, but how much? No one can predict the future, but my gut says that the Domino Effect seems to be the ultimate destiny for the area because people have so much of their net worth tied up in these homes. String a few $200k losses together and you start talking real money! As an interesting anecdote, one friend of mine has already taken a paper loss on his home in the Bay Area of over $100k, around 15% of his home value. He's able to handle that loss, but it's only a matter of time until people start to see these losses increasing and then release they need to get out as quickly as possible. Then, the crash ensues. As we've seen in the stock market, prices can't go up forever at breakneck pace. It's to be seen if the decrease will be soft or hard, but it's coming and my bet is on a crash.

Books, Glorious Books

My list of recommended books has been updated per overwhelming demand. ;)

Return the Free Market to Bay Area Housing

This particular article (http://www.siliconvalley.com/mld/siliconvalley/business/columnists/4310498.htm), written by a decidedly bitter laid-off QA manager, is representative of a scary fact about the Bay Area: The cost of living (and therefore hiring) of employees is out of whack. Why is this so? Curiously, it's due to a factor right in front of our collective faces, which is the housing+real estate crunch. This crunch is because of poor development strategies across the area as well as a "not in my backyard" syndrome of regulations prohibiting higher density constructions. In order to keep the Bay Area a competitive region in which to do business, we must replace how our current strategy with one that accepts higher density housing.

Median home prices in the SF Bay Area are roughly three to four times the national average. This higher cost affects the entire economy of the Bay Area. To illustrate, the corresponding house payment is 4 times the national average for an average worker. This person must then make that much more cash per month in order to be able to afford their home. This process snowballs as local businesses must increase the amount they pay in order to continually attract talent to the area. The trickle down affect happens across the economy. Gas is more expensive because the driver to deliver it is more expensive. And so on. This results in the unfortunate reality today, which is that Bay Area salaries are double, if not triple equivalent salaries in other areas.

The Bay Area housing prices have skyrockted in the past two decades. The root cause is demand outpacing supply. Obviously, the market in that case will want to reach equilibirum and builders will be incented to create supply. Unfortunately, the regaulations and rules that the Bay Area (and San Francisco the City itself) enacted in the 70s and 80s mean that it's incredibly difficult for developers to actually create new, higher density construction. The problem is a "not-in-my-backyard" syndrome where it's impossible to remove antiquated housing and replace it with taller buildings offering greater living space on the same acreage. By passing these laws stifling development, earlier generations of residents ensured that their properties would see huge growth in value. Unfortunately, they sold out their own future and that of their children as many of these people are no longer able to afford to live here. You can't blame these folks for wanting to protect their views of the Bay, but the Bay Area cannot stand still as time passes by.

How do you solve this problem and ensure that the Bay Area will be healthy in the long term? It's reltively simple: While protecting historic buildings and keeping the character of the region, remove the shackles of the regulations that prevent development. Develop a strategic plan to identify areas where higher density housing (10-15 stories) can be built. You want affordable housing? Don't pay for it with government subsidy. Instead, free the market for developers to build again. Otherwise, we should expect growth to be stifled in the Bay Area in the coming years as jobs and entrepreneurs float away to cheaper areas.

Interestingly enough, this plan will also fix the traffic problem on our freeways. Today, the Bay Area is stuck in limbo today with regards to public transportation. The population density is high enough to cause gridlock on the freeways, but too low to support efficient mass transit. Higher density housing will generate the appropriate tax revenue to support a real mass transit system and take more people off the freeways.