A roller-coaster ride in India

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Although gold is the international store of value, accepted everywhere, there are still local variations in the way people interact with their gold, and India is fascinating in this respect.

It is the biggest market for gold, since Indians like to keep gold as a form of savings, and gold jewelry is part of a bride’s dowry — and her family’s emergency financial backup.

In India, ordinary commercial banks will make a loan against your gold, something US banks are not accustomed to doing.

In both countries, loans against gold are the mainstay of pawnbrokers’ business.

So when the price of gold flops, a much greater proportion of the population is directly affected in India than in America. And it flopped earlier this month.

This story  from Yahoo News rounds up some reactions when gold was down to as low as $1321 an ounce.

But that was 1o whole days ago, and gold in New York is up to $1474 (a gain of nearly $12 just over the last day), so perhaps some Indian lenders are breathing more easily today.

Interesting nuggets from the story:

Last year, India pawnbrokers were lending about 90% of the metal value of gold jewelry. But in India, pawn loan durations are longer. In Hawaii, a pawn loan is regulated by law at 60 days (30 plus another 30 if the borrower does not redeem after 30. Pawn loans can be rewritten after 60 days, but most are either redeemed or abandoned by then.

Even when defaults jumped after the price dropped, Indian gold borrowers were still reclaiming their gold at rates well over 90%. This is roughly similar to Hawaii experience.

India’s Reserve Bank told commercial lenders who were backing lenders taking gold as collateral to limit their exposure to 60% of the metal value of jewelry held as collateral. So even when gold swooned by 30%, that should not have had any destabilizing effect on India’s overall financial system.

 

Thoughts from a gold refiner

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Dillon Gage is a gold refiner that Kamaaina Loan knows well. They put out a press release today — not something they do often — ruminating on the big drop in gold prices. Here it is:

DALLAS, TEXAS– Gold prices tumbled in April, breaking below $1,400 an ounce to a three-and-a-half-year low as investors liquidated and many flocked to equity markets in hopes of better returns. Big gold investors watched their wealth shrink. On April 15, gold lost $140 an ounce in one of its biggest, one-day drops ever. Global inflation has been tepid, providing little incentive to buy gold. But bargain hunters stepped in as gold pric es retreated, says Dillon Gage Metals, international wholesale metals dealers.

“After a punishing selloff, gold appears to be in the process of bottoming,” says Terry Hanlon, President of Dillon Gage Metals in Dallas. Gold has fallen more than $500 an ounce from its 2011 peak of nearly $1,900. Demand for physical gold and jewelry picked up as prices dropped, he says. Additionally, many bargain hunters are buying on this dip causing a shortage in the supplies of physical metals.

Asian consumers in particular see this month’s lower prices as a good time to buy gold jewelry and minted investment products. India, the world’s biggest gold consumer, is in its wedding season–when jewelry is given to brides and at the most lavish weddings to guests.

Escalating tensions on the Korean peninsula are another reason to buy gold, Hanlon says. Investors are watching North Korea, where official s this month rejected South Korea’s call for bilateral talks.

Factors that led to gold’s slide nonetheless remain. Weaker-than-anticipated GDP figures from China have weighed on a number of commodities, including gold, this month. Crude oil prices, an inflation barometer, gave back all of their March gains in April.

Inflation is tame and that’s not good for gold. According to JP Morgan’s global consumer price index for more than thirty countries, inflation has eased from 4 percent in 2011. Global prices in February were up only about 2.5 percent from a year earlier, the index shows. In the United States, weak retail sales suggest inflation will remain subdued, even though housing starts and home sales are improving.

Another factor that’s weighed on gold is a rumored plan by the debt-saddled, island nation of Cyprus to sell gold reserves to raise about 400 million Euros. Worries are that other indebted countries, including Italy, Portugal, Slovenia and Hungary, could follow suit and unload some of their gold reserves.

But on a more positive note, several well-heeled nations might buy gold at these lower levels to add to reserves.

Hanlon says the bargain hunting that’s emerging in gold doesn’t mean the market will fully recover right away. “It may be a grad ual claw back,” he says. “But in time, I think we’ll see gold above $1,800 again.”

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Refiners are like pawn shops. They care less about whether the price of gold is up or down than they do about how much gold is moving.

 

 

. . . and what about diamond investing?

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With gold breaking back from its 9-year runup — as this is written, New York spot is $1372 or about $180 less than it was just a couple weeks ago — investors are wondering what other things there are (aside from mutual funds) they could put their money in.

What about diamonds, for example?

For starters, the last few years have been the only time in a century when it didn’t matter that diamonds (and gold, too) don’t earn interest. Neither does cash in the bank nowadays.

On  the other hand, a graph that shows a steady rise in diamond prices over half a century can be misleading.

A graph of Hawaii housing prices over the 50 years from 1955-2005 would look similar, but as Paul Brewbaker, the well-known local economist used to remind us, the rate of increase was only about the same as for a passbook savings account. (This situation has changed since the crash of 2008; today passbook savings accounts don’t grow, and housing prices went over a cliff.)
Anyhow, the point is, you have to watch out for money illusion and always remember the power of compound interest. $500,000 sounds like a lot more than $50,000, but $50,000 compounded at 4% gives you $500,000 in half a century. We should all live so long.
Here at Kamaaina Loan, a big move in the world price of gold brings in more business. Why?
Different strokes for different folks. The gold optimists think the price is unusually favorable and want to buy more. The gold pessimists have decided the gold bull market is over and want to cash out and get into something else. Should it be diamonds?
Here are some things to think about diamonds.
Diamonds are rated by the  “5 Cs” — cut, color, clarity and size (carat) and cost.
Cost is not an inherent character of a stone. It varies. And the other 4 Cs are subjective.
There are different diamond grading services because people have different opinions. This is not true for gold. A .9999 gold bullion coin is the same whether it comes from Australia or Austria (ignoring the very slight premium paid for especially popular coins).
Let’s consider a one-carat, internally flawless, round cut diamond of good (d) color. Rapaport, the leading price service and a big buyer and seller of  diamonds, reported the asking price for such a stone was $27,000 in April 2011. In August 2012 it was $28,00o. The latest report has the asking price as $28,400.
Not a lot of change over two years.
Now let’s look at gold. It was selling at $1556 in April 2011, and a report of the time said the recent changes “had the look of past silver and gold price peaks.”
Wrong!
In August 2011, gold was up to $1861 and it briefly passed $1900 a few weeks later (though only on intraday trades; gold has never closed over $1900).
Today, gold is $1372.
So, would you rather have put your money in gold or diamonds?
Inflation has been low over the past two years, and diamonds have just about kept up. Gold was way ahead of inflation for a while, now it’s way behind.
So, if you think you were so smart you would have realized gold was peaking last autumn and would have sold, you should have bought gold.
There’s more to consider if you want to try diamonds. Besides the 5 Cs, there are other factors, like scintillation, that strongly affect the value of a stone. Unless you are an expert yourself, you need to have a GIA-certified gemologist along with you. And while you may see some dealers pushing stones that have ratings from other sources (like EGL), know that GIA is the (ahem) gold standard of diamond grading.
So if you are considering selling your gold and getting into diamonds, or selling your diamonds and getting into cheap gold, or if you just need cash, we stand ready to buy and sell.
Know this. Kamaaina Loan has a graduate gemologist on staff and is GIA-certified.

Another pawn shop movie

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There are not a lot of films set in pawn shops. The best known, “The Pawnbroker” with Rod Steiger, is not admired by pawnbrokers, because it portrays them as grasping and cold, which they think is unrealistic.

Now there is another, called — what else? — “Pawn Shop.” We haven’t seen it, but it doesn’t sound very realistic either.

Pawn Shop tells the story of Rey (Garrett Morris) who has been working in the same pawn shop for nearly 30 years. In all that time, he’s refused to let his adult son Mike (Foolish) become his own man. These days, Mike earns his keep working in the shop, where he’s constantly bickering with his cheapskate dad and his eccentric co-worker Tony (Cool Aide). But trouble starts to brew when someone swipes local thug Pierre’s ( Joe Torry ) jewelry right out from under his nose, and police accuse Mike of dealing in stolen property. Now, with the law closing in on one side and Pierre looking for blood on the other, Mike is about to discover why doing the best thing isn’t always the easiest thing.

 

But at least it’s supposed to be funny.

Not all that funny, evidently, since it went straight to DVD.

Ah, well, we pawnbrokers will have to keep seeking our muse.

Your personal info and us

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OK, this is a little bit inside baseball,  but in the age of digital promiscuity, everybody should be interested in who gets their personal data and why.

A chain of New York pawnshops is suing the New York police for $61 million in a dispute about a national pawn reporting database.

According to the New York Post, the cops want to force the pawnshops to hand over their customer information to a company called LeadsOnline.

Gem’s owners say they stopped using the Texas-based LeadsOnline because they feared the service violated federal privacy laws, which they are required to follow.

 

At Kamaaina Loan, we’re concerned, because the Honolulu police have been trying to persuade the state Legislature to force island pawnshops to also participate in a national database (the big ones are LeadsOnline and BWI).

Long before Leads or BWI, Kamaaina Loan set up the first Internet reporting service, which lets Maui police see what items we have taken in on a pawn loan or a sale. The local cops can match this list with any information they have about stolen goods.

If there’s a hit, the police can 1) come pick up the allegedly stolen goods; and 2) find out the name, address, phone number, driver license number (or other ID), and thumbprint of the person we obtained it from.

This is, we believe, a useful protection for honest customers and for ourselves.

But we are very worried about what happens if some national or international ” big data” company is given access to our records. They won’t say what they do with the data. Who they sell or give it to. Or why.

We believe our sales records should go to the local police. It’s required by state law. But we don’t think it should go any further.

Other pawnbrokers, like Gem in New York, agree.

 

Pawn 101: Stupid pawnbroker tricks

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According to the Newport News (Virginia) Daily Press, a local pawnbroker was caught accepting stolen goods.

In a sting operation, police used an ringer to present items in “plastic security boxes.”

Maui retailers don’t seem to have adopted these, but they are the jewelry store equivalent of those plastic security tags that clothing stores attach to clothes to discourage shoplifters.

The Virginia pawnbroker was buying items in security boxes that had not been unlocked. That’s not in itself illegal, but it ought to have made him suspicious.

During the 2012 investigation, Newport News Police Detective W.E. Nesbitt indicated in the criminal complaint that he learned Pellecchia takes suspected stolen items brought in through the pawn shop to his home to sell on eBay.

The suspect wasn’t actually charged with receiving stolen property but with failure to keep pawn records. He maintains his innocence.

As we often say at Kamaaina Loan blog, a pawn shop is a stupid place to fence stolen goods, because you have to leave your name, address, picture and thumbprint. By the same token, if you’re going to accept stolen goods, setting up a pawn

Pellecchia

shop is a stupid way to do it, because most cities or states (including both Hawaii and Virginia) require pawnbrokers to keep complete records of what they buy or accept as collateral, and, in Hawaii, police can inspect the records without notice.

Mr. Pellecchia may not have know that, because the newspaper reported his business experience was in selling pizza.

 

The TAT kabuki

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Every year for the past two decades, the state Legislature considers whether to appropriate all or part of the counties’s share of the Transient Accommodations Tax. This is the tax imposed on visitor rooms, and it’s a virtually universal way that attractive destinations have to soaking tourists.

Hawaii’s TAT rate of a little over 9% is actually on the low side.

Still, because tourism makes up such  big part of our economy, the total take of TAT forms the second biggest fraction of Maui County’s government income, after property tax.

This year, in a newish wrinkle, the Legislature is also making noises about appropriating the utility franchise tax that has always gone to the counties. In an editorial, The Maui News called this piracy.

It is that, but it is also a form of kabuki, highly stylized theater. Every year, the four mayors rush to Honolulu to demand that the state keep its mitts off the county TAT money. As The Maui News said:

 

 

Last week, Mayor Alan Arakawa and County Council Chairwoman Gladys Baisa were at the Legislature testifying against SB 359, which is this year’s version of “Let’s Steal The Counties’ Shares” of the transient accommodations tax. A Friday story in The Maui News said the TAT is Maui County’s second largest revenue source at $20 million to $25 million.

Write, phone, text, email or send a smoke signal to our state legislators and tell them to stop these attempted raids on county budgets.

State and county governments are supposed to cooperate to solve problems. Constituents need to remind our state legislators they expect a partnership – not a looting of county coffers.

 

This may be the year, but never yet has the Legislature actually done much about grabbing the TAT money. What is really going on is that the Oahu-centric legislators make scary noises about grabbing the TAT, panicking the mayors, who then expend all their efforts during the short legislative session defending the TAT, rather than using their time to ask the state for help for their local issues.

This allows the Oahu senators and representatives to go ahead with their own local schemes without questioning from those pesky Neighbor Islanders.

This happens because of the big imbalance in size between state and any county, even the City and County of Honolulu. Losing the TAT would be a huge blow to a county, but picking up the few tens of millions would hardly show up in the multi-billion-dollar state budget.

 

 

If that’s a 4-foot-long catfish, we must be in Indiana

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An Indiana pawn shop has started a reality TV show about itself for local cablevision.

Early submissions were a large stuffed catfish and a phony check not written, as claimed, by George Washington. Sounds interesting.

In case you’re wondering about the reality pawn show that Kamaaina Loan auditioned for in October, things are progressing. The “sizzle” (TV lingo for a short sampler used to try to interest producers in watching a longer pilot show) has been turned down by several networks but not all. Several appointments are scheduled in the next few weeks to keep hunting for a home.

We had a great time meeting folks who brought their unusual treasures to us for our sizzle to promote a Maui pawn reality show

No, no, no, not that kind of stuffed catfish

and are grateful no one asked us to place a value on a stuffed catfish ($450 in Indiana). A stuffed marlin we could have dealt with.

A more elevated view

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Funny thing how climbing the county building from the eighth to the ninth floor changes the view so much.

Mayor Alan Arakawa has an excellent summary in The Maui News about “Now is the time to fix the water system.” As this blog noted in February, we should welcome water rate increases, because the time to have begun fixing what ails the Department of Water Supply is not now but years and decades ago.

For all that time, the County Council wouldn’t raise rates to levels sufficient to maintain the system. And Mayor Alan Arakawa was no different from the rest of the council in that respect.

Now he has got religion, and a good thing, too. It also appears that at least some other members of the council are coming around to the understanding that the water system doesn’t repair itself.

Right now, I get all the water I can use delivered to my house for less than the cost of a can of soda each day, so even a doubling of water rates isn’t going to break the banks of any but the destitute.

It may help, too, that the department has moved to monthly billing. We’ll have to write twice as many checks but for half as much each, which should ease the sticker shock.

For a generation at least, Maui County has had the lowest water rates in the state. It is not something to be proud of.

 

 

 

Pawn 101: We buy (almost) anything

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So when a customer walked in with a box of old cannon balls and shells, Kamaaina Loan shelled out, so to speak.

Old ordnance has collectible value, but it takes an expert to identify the many varieties.

The collection we have is from the Civil War period and includes a Parrott shell (which was used in a cheap cannon that had a tendency to explode), some round shot and a mortar bomb filled with Minie balls (which are not balls but cylinders) rather than the usual round grapeshot.

As collectibles, cannon balls have the advantage of not needing gentle handling, unlike, say, Meissen china. On the other hand, shells, if filled with powder, can be dangerous. All ours are either solid cast iron or disarmed, so no worries.

In a pawn shop, you never know what will come through the door next.