State of the Market

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I started collecting about two years ago and I work with paper money on a regular basis. I was curious as to what the state of the market is for canadian banknotes now relative to maybe the past 10-15 years. From what I've seen, it seems to be picking up more recently. Does anyone have any thoughts?
Thanks!

Personally speaking, I’m quite bearish on the overall paper money market for several reasons. Current unemployment is over 7%, Canadians are now more indebted then they ever have in our countries history (nothing like being the best in something). Most people are house/car/toys rich and cash poor which will get worst over time when more and more of peoples little cash flow will be forced and reallocated to debt repayment driving demand lower. An aging collecting pool which is not being replenished by younger collectors who are needed to absorb the huge amount of inventory of notes held by older collectors that are making their way into the market. Year over Year of flat book prices that are still grossly overvalued and the last not so scientific measure but quite telling which is that I haven’t seen a dealer smile in over 4 years.

FWIW
MG

What MG said is a pretty nice analysis. Paper money collecting has generally slowed down a lot in the last decade, and very few young people are interested in collecting beyond "novelties." I've been in world paper money for the last 10 years, and the market has been ridiculously slow with a few exceptions (Chinese paper money is picking up dramatically in speed.) The difference with those is that people are buying into trends, they're doing it purely for speculation in a market with millions of collectors, which is why a banknote with a printing of 2 million can attract overnight queues and 10 to 500 times its face value from the date of issue.

What I hope is that in today's cash strapped society that people aren't just going to take their parent's/grandparents collection right to the bank, and there'll be some potential bargains.

There will definitely be a flight to quality as well, as there has always been. The lower grade, relatively common stuff will get hit hard, while rare birds like 1935 UNC notes will still appeal to the sophisticated end of the market.

The one thing that I have personally noticed is that the closer we get to paper being replaced by polymer, some collectors have been buying some of the more common replacements to fill in their holes in their collections. In particular, trying to get higher grade notes if at all possible.

I started collecting 34 years ago but I had no clue what the market was like as I thought I was the only one collecting paper money (LOL)!  That's when you could still find a few 1954 notes amongst the multicoloured (70's) issues.  I went to Sears or a few mall dealers & bought the odd note -but very few memorable finds.  I also blindly put aside a few Bird series notes and didn't touch the collection until 2001.  By then online selling was becoming hot & I dumped many of my old circulated 54's & some multi-coloured for a great price.   I bought to upgrade my collection.   

By 2004 the Journey series was being upgraded with the security strip and the lost prefixes (2003 BER & BEL) were causing quite a stir.   I started going to shows and thought this hobby was going to grow in leaps and bounds.  It did, in a way, as there were many more dealers selling paper money then there were when I started attending shows.  The Canadian Paper Money Forum was well established &  I met many new collectors but most were baby boomers or Gen X.   I've seen far fewer Gen Y and younger people get into the hobby (& only a trickle of women).

But the bubble burst in 2009 when Canadians finally started to feel the pinch from the global economic crises of 2008.  The market was sliding but there were a few good spells and few slow spells. 

CA_Banknotes & Friedsquid are correct in noting how higher grade, various replacements, and old favourites (eg: 1935) continue to perform well.  Some of the rarer/higher graded varieties may even reach book value (or beyond). Generally speaking 1979, Birds & even many older Journey notes have taken quite a hit with little interest and the BV has been much quicker to reflect their lacklustre market activity.  The book seems off the charts optimistic with most upgraded Journey "inserts."

I think its safe to say that most collectors would welcome a greater demographic mix in the hobby and that they hope this new polymer series will give the market a badly needed shot in the arm.   

I went to Sears

That brings back memories...going to the Simpson Sears store in downtown Toronto
They use to carry coins/notes/stamps/FDC's.....
The only other places I remember was Arcade Coins and Charltons on Queen Street
The one good thing about the old days was that we always had silver in our pockets

Well I'm happy to see that my questions generated such interesting thoughts. Your insights are much appreciated. After working for a few years in coins and stamps, I think I've found what I was looking for in banknotes. I just wish more people my age would get into it to sustain the demand. I guess it doesn't seem to likely to happen anytime soon given the electronic age we live in.  Either way, I know I'm enjoying it tremendously.

But the bubble burst in 2009 when Canadians finally started to feel the pinch from the global economic crises of 2008.  The market was sliding but there were a few good spells and few slow spells. 

"Bubble" is a good term for it. I remember a few years back people posting about how their collection was getting a better return on investment than their personal investment portfolios.

The market went sharply upwards when baby boomers started to retire. They might have already been collectors when they were younger, but at retirement they had all this new time on their hands, and as a group, had amassed the largest amount of personal wealth in history. In other words, ripe conditions for a big upswing in the collectibles market.

I don't see the market recovering to 2008 levels for a very long time, if ever. If anything, as older collectors start to pass on, their collections will be entering the market in ever increasing amounts, and with few younger collectors entering the market, expect to see a lot of those notes unsold, and prices going down even further.

The introduction of the polymer notes did spark an interest in paper money collecting for sure- but in the wrong areas I'm led to believe. It's like when the $1s and $2s were removed from circulation, people hoarded them because they thought they would go up in value, but garden variety ones in UNC have probably a worse return than inflation. These days I give a $1 or $2 bill to someone, they think it'll go up in value- good luck giving them a BEL/BER $10 and convincing them it's worth many times its face value.

Today's Gen Y is so cash strapped that they don't have money to dump on collectibles, and anything bought seems to be something that can be shown off (i.e. electronics and clothing.) It's about spending tomorrow's money, buying on impulse and trying to impress others to gain status. Whereas with the baby boomers, the wealthier ones found many places to spend their cash on, such as collectibles or recreational activities.

When I was in high school about a decade ago, it was easy to spark interest in paper money, I traded some old notes with other kids, and educated them about what to look for with serial numbers. Just the other day one guy messaged me and told me he found a $20 with number 1234567. If you can get kids interested in this stuff early on, there's a chance they'll spread it to others and keep the spirit of collecting alive.

Give it some time, and today's younger collectors will evolve to the current baby boomer generation. I've collected paper money for their designs (hence why I'm mainly a World Paper collector) and did a lot of casual searching of bricks and bundles of used notes to find goodies. I'm only 22 right now and I already want to acquire some high quality 1935 stuff.

The first thing I wanted to note (but got sidetracked with my own recollections) is that when one discusses "the market" it is an erroneous assumption to paint the various markets with one broad stroke. 

First, you have coin shows and paper money auctions, which I would suggest is a fairly intense market since most people there are collectors or interested/invested dealers, individuals.  This market is competitive & does not tolerate common notes (esp at auctions) so I would suggest that it has been slowed down much less than the world market.  Also, most collectors/investors have seen dips in markets before, know things are slow now, so they would (rightfully) believe this is an opportunity to buy.  If I had the time/resources, I would be focussed on this market. 

Second, you have a world real market in coin shops coin shows (bourses) around the world.  While the bourses at shows may remain stable (for the next few years at least) the actual real world shops seem to be in decline due to the virtual (3rd) market.  These markets typically seek considerable mark-ups in price (close to book) and most dealers would expect a little bit of haggling/dealing when selling.  Although we may see far fewer "brick'n'mortar" shops, we might stop to think how few there were before the heady days 2000- 2008, and their decline may just be the result of a market correction (combined with the low overhead of online business).  Still, most serious collectors prefer the 1st and 2nd real markets simply because they can inspect the note they wish to purchase (however, they don't totally avoid the 3rd market for graded notes, or a find they know they can bank on!)

The last (virtual market) is obviously notes bought/sold online (ebay, ebid, and some e-dealers).  I believe it is these virtual markets where we've seen the greatest slow down but that may also be due to the fact that most people in the business know that there is stifled interest and they're dumping the "Garden variety" chaff which really should go back to banks (rather then be sold for a mark up).  Insert & special number hunters will never do this (return their finds to a bank) so you have a huge glut when it comes to most recent issues. There are many e-dealers who list their notes as if everyone were as plush as the heady days. I believe the boomers are also flooding online auction sites with stashes left to them in safety deposit boxes (54- Bird series: which only confuses the true state of the virtual market!) That stuff sold when there was greater interests in notes (when the general world economy was much healthier) but those times have past.  We've also see some crazy activity on many of these online sites where polymer notes are selling for a 15 - 30% mark up when they can be withdrawn from your branch at the bank.  Considering all the "Buy it now" and pie in the sky "Best offer" listings of desirable notes, it is no small wonder that notes listed as true auction style listings can do fairly well (provided they're actually a note worthy of interest). 

Finally, I wouldn't feel any compulsion to go out and sell my collection over night.  True, the US, Europe and world economy is in turmoil right now.  However, things usually recover though this slump may be long.  Canada has weathered the storm fairly well (look how Mark Carney has been offered a job in England).   After Australia went polymer their regular replacement notes shot up considerably.  If history is any indicator there could be similar trends seen here.  The one undeniable fact is: all three markets are fluid and typically experience ups and downs (with interest varying on different types of notes).   I may be an optimist, but I still happen to believe that the upcoming $20.00 , $10.00 , and $5.00 polymer editions will likely spark some interest in paper as they're released.  While it may be true that Gen Y collectors are few and far between, their numbers still could grow, as could the gender imbalance improve.  Time will only tell.

I've found that it is not a good time to be selling anything right now unless you want to lose money on your items.  I tried to sell a few items to several dealers and their offers were nowhere near what I expected.  I decided to hold on to my bills.

It seems to be a buyers market right now and I was told that it's a good time to scoop up asterisk notes.

It seems to be a buyers market right now

- Yes, it does seem to be that way (particularly in the real world markets) however what happens is that we often see less of the desirable notes offered at this time. Dealers are the first to know its a weak market.   

Also- there many collectors who feel the same as you and sometimes bidding wars will happen because they want to scoop up a note now. 

Also: in the 3rd (digital or virtual market) there is so little offered in real auction listings that when there is such a listing (in true auction style for a note of some relevance) bidding can be quite serious and get to almost book value levels (or more).   

Its an exciting time for many collectors due to the arrival of polymer series notes.  Many of us will be looking for short prefixes/or signature year of printing change-overs of the remaining Journey series so that makes things interesting too.

Today's Gen Y is so cash strapped that they don't have money to dump on collectibles, and anything bought seems to be something that can be shown off (i.e. electronics and clothing.) It's about spending tomorrow's money, buying on impulse and trying to impress others to gain status. Whereas with the baby boomers, the wealthier ones found many places to spend their cash on, such as collectibles or recreational activities.

Interesting.  But did the boomers buy in to collectibles when they were in their twenties?  I don't think so; they had Woodstock, hippie culture and living in nasty vans for entertainment.  Remember the 70s were a tough time economically with big inflation, no growth, and high interest rates.

I doubt that this sort of collecting has ever been a young man's game.  There could certainly be a generational shift, however, because it seems like the younger generations are putting money into technology and simply have less interest in possessing physical objects - including cars and houses.  With higher commodity costs we get people using zipcars and riding bicycles while living in smaller apartments.  If you've ever spent time in a studio or dorm you know there's just no space for extra stuff.

As ever I expect the future to be contingent on economic conditions - higher inflation would be a big drag on returns.