Prices for collectable Paper Money in general continued to display weakness across a broad front in the recent past. Auctions continue to provide a significant degree of liquidity for sellers, albeit at lower prices than they might have expected even as recently as six months ago. One aspect of the evolution of the overall marketplace that remains unchanged, however, is the fact that auctions continue to provide a significantly higher degree of liquidity for sellers than do efforts aimed at consummating private transactions. While price levels at auction have undeniably declined over the past six months, material is selling at the new lower levels. Private transactions, in contrast, are—in an increasing number of cases—hampered by the under-capitalization that is not at all unusual in the numismatic trade. This is a challenge that is magnified when potential buyers’ own sales, from which they had hoped to finance new inventory purchases, are declining, both in terms of numbers of transactions and their individual dollar value.
     Another factor contributing to a declining number of transactions is the unwillingness of some sellers to accept the reality that their offerings are now worth less—in some cases less than cost—than even in the very recent past. Such sellers typically wait for the market to rebound or search for a buyer less informed about current price levels. The result is often times a deferral of sales until some unknown future date at an impossible to accurately predict price level—perhaps higher, perhaps lower, than avail-able at present.
     Transactions for six-figure items have been especially hard hit by there cent downturn. Such rarities—always necessarily a rather thin market—are either not taking place at all as potential sellers hold off in response to declining prices, or when offered at auction, show a declining sell-through rate when consignors place reserves above market levels. This prevents items from selling to buyers actually willing to conduct transactions at current levels.
     The next significant test of whether the hopes of sellers (for a stabilization of prices) will be realized is the Lyn Knight auction, being held March5-7, in conjunction with the Chicago Paper Money Exposition.

LARGE SIZE TYPE NOTES
     Large Size Type Notes have displayed a broad contraction in activity levels, with greater liquidity at auction than in private transactions. Given the wider reach of the auction process versus private placement efforts, this is not at all surprising. Buyers continue to express a growing preference for third-party certified material, with their primary focus on PMG or PCGS. Such items continue to display greater strength than their uncertified counterparts, especially at the upper end of the grade scale, where the consequence of a mistake is often especially high. A continuation of this pattern remains dependent on the certification companies maintaining an observed pattern of both accuracy, i.e. an Uncirculated Note really being accepted as just that, and consistency, i.e. the buying public seeing—over a long period of time—that “65” Notes are clearly superior to “63”Notes. Overall, the Large Size Type market, which had been the focus of the strongest speculation-driven buying on the way up, seems to have been the most adversely affected by the withdrawal of that buying once prices ceased to advance.

SMALL SIZE TYPE NOTES
     Small Size Type Notes continue to display a growing preference on the part of buyers for certified material, especially at the upper end of the grade scale. While prices here have also clearly pulled back from the peaks reached early last fall, the declines seem generally less than ob-served in the Large Size Type arena, where prices have in the past decade advanced exponentially. Like Large Size Type, the most noticeable con-traction of values and number of transactions has taken place at the upper end of the price scale.

FRACTIONAL CURRENCY
     Long a specialist driven market and less subject to price advances or declines driven by speculative buying, Fractional Currency seems less affected by recent pullbacks from market highs than observed in the Large Size Type field. Like Large and Small Size Type, buyers are expressing, especially at auction, a growing preference for certified material. Particularly at the upper end of the grading scale, there is definitely value added, most notably for PMG and PCGS certified items. The strongest demand continues to be for especially well-centered Notes, regardless of rarity, and for the scarcest Friedberg numbers within a given design Type, especially Spinner and Justice Notes.

NATIONAL BANK NOTES
     National Bank Notes, with buyer interest driven by bank rarity and geographically specialized collecting, continues to operate as multiple markets. As such, strength and demand levels are often dependent on the relative affluence of the most active buyers at any given time within a particular geographic collecting area. Buyers here are far less impressed by third-party certification than in other collecting specialties, as their valuation decisions for the items they seek are typically more driven by overall aesthetic appeal and bank rarity than by technical grade. Whether a Note enjoys the imprimatur of an additional point on a grading scale from an outside entity is quite simply of somewhere between less to no concern at all to the more advanced players in this area. Uncirculated Type National Bank Notes continues to be the one area where buyers do seem to have a demonstrable preference—as expressed by a willingness to pay higher prices—for the third-party certified versus the seller certified item—which is, after all, exactly what an item refereed to as “uncertified” actually is.

MISCELLANEOUS
     Obsolete Notes, perhaps the least driven by speculator demand over the last decade and most the province of the long-term collector than any of the other collecting areas, seems less affected by recent price declines than the Large Size Type Note specialty. It should be noted, however, that especially for particularly common Notes, there has been a recent price inflation for high-end certified material bearing grade numbers in “65”and higher. Such items have been marketed at levels well in advance of what traditional collectors intent on purchasing a Note—rather than a holder with an outside grade opinion—might have paid in the past.

Reprinted from the No. 3 MARCH 2009 issue of the Currency Dealer Newsletter "the Greensheet"
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