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‘I didn’t know you were legit’

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goldaLes Gold, the Hardcare Pawn guy, is promoting his new book, so he’s all over the interview shows this week. Here, on Fox Business News, he explains that the bankruptcy of Detroit is not good news for his pawn business there.

Our Maui pawn business is no different. Here at Kamaaina Loan blog, we keep trying to debunk common, but wrong, opinions about the business.

The Fox interviewer assumed that most pawn customers are desperate. That’s not true.

Besides, nobody,  but nobody wants to do business with people who are going to have no income. Not Les, not us.

Now, it is true that a fraction of a pawnshop’s customers are selling or borrowing on their last assets, and they are one step from destitution.

And pawn shops do do business with those people, helping stave off the wolf for another few days. What other business would touch them? Not one.

But while that is something pawnbrokers do, it is not how they prosper.

They — and we on Maui — do well when borrowers redeem their collateral.

It’s true that a pawn loan is somewhat less insecure than any other loan. The lender has his collateral already, unlike a mortgage lender, who, if the loan is not repaid, has to shell out money to start foreclosure, then sell the property and hope the return covers the balance. (Something that, as we all know, frequently did not happen since the Crash of ’08.)

The pawnbroker’s security is in house, but, as Les Gold explains, it costs him money to store and insure it, and if he forecloses on it, he still has the expense and trouble to trying to sell it. Since it is used goods, he will have to offer a bargain price.

It’s a system that works, but not perfectly.

People find it hard to believe, but a pawnbroker would always rather have the loan repaid. Then he gets his principal back with interest. If all has gone well, the customer is pleased with him and may come back to make a new loan sometime.

Contrast that with a pawn loan to someone with no further assets. The pawnbroker loses his principal and gets no interest. He may or may not be able to recover that by selling the collateral. And the customer may not be happy to have lost his (ring, surfboard, computer etc.)

(The pawnbroker will have an easier time, usually, if the collateral is gold or silver. Unless the price of precious metals has gone down during the 60 days he has been required by law to hold the item. This has been the case lately, as gold has dropped by hundreds of dollars per ounce. There ain’t no free lunch.)

Besides, the customer’s broke and out of assets, so he won’t be a repeat customer anyway.

Gold says redemption rates at his pawnshop and across the country average 90%. That might be a little optimistic over the long run, although redemptionr rates have been up in recent years. But 80% is a solid number year in and year out for most pawnshops.

And, remember, there is a fraction of borrowers who are getting rid of something they no longer care to have. They could just sell it outright, but sometimes they aren’t sure. So they pawn it, and when it comes time to reclaim it, they decide — even if they have the money to do so — that they don’t want it.

Call it values clarification.

The Fox interviewer is surprised by all this. “I didn’t know you were legit,” he tells Gold.

 

 

 

How your old gold becomes new again

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crucibleGold is recycled more than any other substance. Here is a 9-minute video showing how old jewelry is turned back into pure gold. The video isn’t the clearest, but the narration is OK.

At our Maui pawn shop, we melt down old jewelry in a small crucible. No matter what goes in, the product that comes out is almost always just under 60% gold (because of the average mix of 10-, 12-, 14-, 18- and 22-karat gold that people bring us).

That’s just a preliminary step. The video by The Precious Metals West Blog shows what happens next. We at Kamaaina Loan don’t do this; it’s an industrial process that uses a very nasty substance, aqua regia (a mixture of hot, fuming nitric and hydrochloric acids), that only pros with special equipment mess with.

Aqua regia dissolves gold; it is the only thing that will. This is how we recover diamonds. The gold is dissolved, but the diamonds are not affected.

This is safer than trying to pry diamonds from settings, which can break or chip them.

 

Education of a pawnbroker

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In principle, pawnbroking is simple. The borrower presents some portable collateral and the lender gives him money. Later, they settle up and reverse the exchange. If the borrower can’t pay, the broker keeps the collateral and tries to sell it to recoup his loss.

And most of the time, it is pretty simple. Probably three-quarters of the deals at Kamaaina Loan And Cash For Gold’s Maui pawn shop are for gold in one form or another, or silver  or other precious metals. Most of the rest are for familiar items like Playstations, iPods, surfboards or fishing poles.

But the residue? Some curious stuff comes over the counter.

A good place to find it in at 50 N. Market St., where we sell fishing gear, golf clubs and tools. Most of the tools are common enough: battery-powered drills are probably the most numerous item these days. (Corded drills are becoming rarities, almost.) But ask Bob to show you around and you’ll likely encounter a tool you not only don’t have but never heard of.

Today’s exhibit is a professional grout scrubber. Yes, it was new to  Bob, too. Turns out that for a big tiling job, with several tilers laying down tiles, it pays to have one worker follow behind them cleaning up the new floor with a power scrubber and massive sponge.

The one we have is made by Rubi, and while it’s used, our price is less than a third of the price for a new Rubi Spomatic 250 Electric Sponge.

That’s why it pays to stick your head in the door every few weeks, even if you’re not shopping for anything in particular. You never know when we’ll have something you never knew you couldn’t live without.

Warning: Fake US silver coins flood Canada

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According to the Hamilton (Ontario) Metroland news service, police have recovered “hundreds” of fake US Silver Eagles.

Although described as “silver dollars,” the fake coins — silver and nickel plate over brass — are also described as 10 ounces in weight. That would make them bullion pieces in a coin shape, since a silver dollar weighs 1 ounce.

The release (from police) says the suspects got the coins from online auction sites, before selling them to local shops. They targeted businesses that were either busy or short-staffed, so buyers would spend less time verifying the coins’ authenticity.

At today’s prices, a 10-ounce silver “coin” has more than $220 of silver in it. So 500 fakes means the scammers hit the Canadian pawn shops for somewhere in the neighborhood of $100,000 .

The story concludes with good advice:

Police say if someone is willing to sell a coin for less than its silver value, they’re most likely trying to pass off a fake. They also warn the public to buy coins and other precious metals through reputable dealers who take the proper steps to check authenticity.

The release did not say what online auction sites were moving these “high-quality fakes, professionally manufactured by an unknown source.” But Kamaaina Loan Blog had no trouble finding a site selling purported 1-oz Eagles for less than $19. Since that coin, if real, would have more than $22 in silver in it — and would retail, in 1-coin sales, for around $30 — we are suspicious.

Pawn 101: The most common bad news

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According to examiner.com, the most common bad news answer that the Pawn Stars stars give to customers is:

 “The customer’s ‘Sterling Silver’ flatware is actually plated.”

At Kamaaina Loan, the most common answer the customer doesn’t want to hear is probably, “Not for me.”

And it probably applies more to tools or electronic equipment than to flatware.

The deal is, it doesn’t make sense for a pawnbroker to lend money on (or purchase) anything that doesn’t have a ready resale value. “Ready” is a relative term. For collectibles and art, a ready market might take years to develop.

For power tools, which we see a lot of, a ready market means turnover in weeks, or at most a few months.

For electronic equipment, stuff that still works perfectly might not be worth a dime — games and game players from a couple of years ago usually have very small value in the market, if any. Older cellphones are another item that depreciates fast because newer models keep pushing them into the background.

The market is what it is. We don’t do much in the fur coat line, because who on Maui would we sell a fur coat to? On the Mainland, the coat might do better.

Plated silverware is usually (but not always) practically worthless, because the film of silver is so thin. Underneath is scrap iron, worth a penny a pound.

But you have to check. There are a few (very few in the case of plated eating utensils) models that have collectible value.

Which is why the No. 1 all-time response we give to customers who call is, “Bring it in.”

Until we see it and handle it and examine it, we cannot put a value on it.

We can tell you what silver is worth — $30.82 cents an ounce in New York as this is typed, but that’s for Comex-deliverable silver, which is a strange beast of great purity. Sterling is silver mixed with other metals (for durability), so it is worth less.

But a silver dollar — even if it is a Susan B. Anthony silver dollar without any silver in it — it always worth a dollar.