New tax law may be hurting a lusterless US coin market

Last year, Donald H. Kagin had ''seven or eight people'' working on retirement portfolios at his San Francisco coin firm, Kagin's Numismatic Investment Corporation. This year, he has just two.

At New England Rare Coin Galleries in Boston, there were 180 employees in 1981; this year, only 25 are left, says company chairman James L. Halperin.

The reason for the layoffs, both men assert, can be traced directly to a section of last year's Economic Recovery Tax Act, known as 314-B. That section prohibited collectibles, including coins, stamps, art, and antiques, from investment portfolios for individual retirement accounts (IRAs). That exclusion, they both say, has hurt their businesses ''tremendously.''

Not only does 314-B prevent individuals from investing in collectibles to build their IRAs, it has hurt in another way, they say. Despite the fact that corporate pension plans can still invest in collectibles, the perception is that the prohibition applies to all retirement plans.

''All in all, it's had a very negative effect,'' Mr. Kagin says.

The two dealers were among several hundred in Boston last week to attend the annual convention of the American Numismatic Association (ANA).

Apart from coins, then, one of the most frequent topics of discussion at the convention was the potential for passage of a bill that would repeal 314-B. It is co-sponsored by Sen. Daniel P. Moynihan (D) of New York.

''It will be part of a miscellaneous bill to take care of a number of small tax changes,'' Kagin said. ''We hope Congress will vote on it this fall.''

However, not everyone is willing to lay the blame for the coin trade's current troubles on 314-B.

''In my opinion, it's an exaggeration to say the coin companies had to lay off people just because of the law,'' said Michael Haynes, president of Steve Ivy Rare Coins Inc., a Dallas-based coin and investment firm. ''Basically the cycles that affect other businesses affect coins, too. Coins have just had a huge business cycle.''

''If people are really serious about collecting coins, they're going to buy them whether they get the tax break or not,'' said Ronald Guth, owner of Ron Guth Rare Coins Inc. of Evansville, Ind.

But if the Moynihan bill does pass, most dealers say, it will be a boost for a coin market that has been depressed for the past two years. Even without passage, however, the numismatic business appears to have started recovery - perhaps taking off at the very time last week's convention was in progress.

''The market does seem to have turned up a bit,'' smiled Donald Carmody, a dealer from Walnut, Calif. ''Many people who came here had cash parked in places like money-market funds. Now they seem ready to buy coins again.''

''It looks a lot better this year,'' Mr. Guth said. ''At the show last year in New Orleans, it was almost dead.''

Last year and 1980, the coin business - which had ridden an unprecedented upward wave, fueled largely by speculators - took an equally unprecedented nose dive. The value of rare coins declined sharply, as the people who had bought them just for investment purposes got out in favor of higher-interest investment vehicles.

Over the past decade, according to a June survey by Salomon Brothers Inc., coins have enjoyed one of the best performances of any investment. For the 10 -year period ending June 1, 1982, US coins had the second-highest compound annual rates of return, chalking up a 22.5 percent return, topped only by oil. Coins were followed by US stamps, oriental rugs, gold, Chinese ceramics, farmland, silver, diamonds, housing, old masters, and the consumer price index.

In the last year of the study, however, coins ranked near the bottom, with a -27 percent rate of return. The previous year coins were down 8 percent.

In the speculative investing climate of 1978-80 that pushed gold, silver, and many collectibles to record highs, coins rode the trend, in some cases increasing in value 200 to 400 percent. But in 1980, the trend reversed, and the value of coin portfolios plunged, wiping out millions in paper values.

''During the boom, a lot of people went out and borrowed hundreds or even thousands of dollars to buy coins,'' Guth said. ''But when the bottom fell out, they had to sell the coins to pay off their loans. And many of them still lost a lot of money.''

''We were used to cycles, but nothing like this,'' Mr. Halperin of New England Rare Coins said.

Now, however, a few people are starting to buy coins again, and the small increase in interest has pushed up prices - and portfolio values - perhaps 5 to 10 percent.

''Over the last 60 days, we've noticed the market is a little better than it had been over the previous six months,'' Mr. Haynes said. ''There's more collector demand. People are coming to shows like this and asking, 'What can we buy?' ''

One thing working in the coin investor's favor, Haynes added, is that unlike most other investments - and some other collectibles - there is a strong base of collectors who want complete sets of coins they are interested in. These people are often willing to pay much more than a particular coin is actually worth to complete a set.

He told of presiding at one auction where two collectors engaged in a bidding duel over one coin they both wanted to complete a set. For several minutes the two men bid, seeming to dare the other to go higher. After the final bid of several thousand dollars - which represented many times the coin's value on any normal market - one of the men graciously walked over to the other, shook his hand, and said, ''It's yours.''

While this collector base can occasionally inflate the value of a particular coin, it can also be a stabilizing factor on the entire market. In Europe, said Gunnar Thesen, owner of Oslo Mythandel A.S., a coin dealer in Oslo, Norway, a much higher percentage of people buying coins are collectors, not investors.

''The market in Europe is a bit better than it is here,'' Mr. Thesen said. ''It is easier to sell coins because there are more serious collectors. This keeps the prices more steady.''

Europeans, he added, tend to leave US coins to American collectors and investors. There are a few exceptions, including US silver dollars and commemorative coins that have not been circulated. Which investments did the best over the last year? (as of June 1, 1982) Type of investment Return Bonds 11.4% Consumer price index 6.6% Oil 6.3% Housing 3.4% Diamonds 0.0% Chinese ceramics -0.5% Farmland -0.9% Foreign exchange -1.9% US stamps -3.0% Stocks -10.5% Oriental rugs -16.2% Old masters -22.0% US coins -27.8% Gold -34.0% Silver -44.5% Source: Salomon Brothers Inc.

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