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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.

Crying all the way to the pawn, shop, no doubt

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So many people — 5,000 a day — want to check out the “Pawn Stars” store in Vegas that it’s creating a traffic jam and making it difficult to keep videotaping. Brent Montgomery, creator of the top-rated show, who was in Banff, Alberta, Canada for some reason, said

A long wait

A long wait

:

the popularity of the reality show has brought big changes to the family business on which it is based.

The daily number of customers at the World Famous Gold and Silver Pawn Shop depicted on the show has gone from 70 to 5,000.

“It’s made production hard because we can’t let them all in at one time because it starts to look like a studio show and not a reality show,” Montgomery told the Banff World Media Festival.

“We also have to make sure they’re not in the way. They all want to take pictures.”

At Kamaaina Loan’s Maui pawn shop, we get nervous about customer satisfaction if the line is longer than 2 people. But we are not very famous. Yet.

Big dog

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Here at Kamaaina Loan And Cash for Gold, we often brag about being Maui’s biggest pawn shop. But that’s big-frog-in-small-pond talk. DFC Global just announced it had bought a chain of pawn shops in Romania that will bring its total to  1,457.

Its press release says Romania has a long history of pawn loans, but the shops are quite small. 32 shops did a turnover of $9 million,  That’s less than $300K per shop. Even Maui’s smallest pawn shop probably does more than that.

DFC Global Corp. is a leading international diversified financial services company serving primarily unbanked and under-banked consumers who, for reasons of convenience and accessibility, purchase some or all of their financial services from the Company rather than from banks and other financial institutions.

 

Romanian pawn shops are similar to Maui pawn shops in that they primarily lend or buy gold, usually jewelry. However, they also make auto loans, which some pawn shops in America do, although not so much

 

Arizona loves to pawn

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Nationwide,  about one American in 5 uses a pawn lender to raise cash, according to the private financial regulator FINRA.

But for some reason, in Arizona it’s 1 in 4.

Old West Indian trading posts were, among much else, pawn lenders. But there couldn’t be enough trading post business to account for the difference.

Our Maui pawn shop has active accounts for around 1 in 10 Maui residents. The FINRA survey asked whether respondents had used a pawn loan in the past 5 years.

There are other pawn shops on Maui besides Kamaaina Loan, and we have some turnover in customers over 5 years, so Maui people might be close to Arizonans in using pawn.

Nationwide, there’s more pawning in the South. But that’s because most Southern states raised the ceiling on interest, not because Southerners are specially attuned to pawning.

 

 

Fair’s fair

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You may not realize it, but Hawaii law requires second-hand dealers to follow the same rules as pawnbrokers — keep records of all incoming merchandise, and of the IDs, addresses and other information about the sellers (or borrowers in the case of pawn customers).

The reason you may not know this is that island second-hand dealers routinely ignore the law and enforcement is slight. Pawnbrokers, and our Maui pawn shop for sure, follow the rules strictly.

Why not? Our owner helped write that statute decades ago.

If you think it makes little sense to require pawn shops to keep careful records to discourage fences but to allow second-hand dealers a free pass, the idea is gaining some currency. For example,  this Boston Globe story explains the outcry when police advised consignment stores — often selling expensive goods like Prada — that they, too, needed to cooperate in deterring thieves.

Reporter Beth Healey provides a good overview of the competing arguments, including one from a defense attorney about civil liberties. He’s going to lose that one.

Unusually, though, Healey ends by revealing one of the dirty little secrets of the anti-pawn shop mindset — it’s about scorning working people:

 

Goldstein [a pawnbroker] said that out of fairness, consignment stores should follow the same rules.

If stricter measures are being applied to people in less affluent neighborhoods with lower economic means, he asked, “Are they being implemented with people on Charles Street and Newbury Street?”

A pawn shop chain moves upscale

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Pawn America is one of a couple of large (for the pawn business) chains that started in the past generation. Most pawn shops, however, are still small, local and often mom-and-pop operations.

Kamaaina Loan And Cash For Gold fits the usual pattern.

This story from the St. Paul Pioneer-Press describes how Pawn America is trying to attract shoppers who have never tried a pawn shop’s retail operation by separating it from the lending operation.

Our Maui pawn shop

Brad Rixmann, pawnbroker

did that long ago. In fact, we are perhaps overseparated, with four locations along one long block of North Market Street. One for jewelry, art and curios; one for tools, fishing and golf, the pawn shop and the new store with a wide selection of stuff, from guitars and surfboards to DVDs and Hawaiian artifacts.

The Pioneer-Press story also gives a good explanation of the difficulties pawn shops face from local governing authorities who have decided — but misguided — ideas of what pawn shops are.

“Six or seven years ago, they came to the city of Inver Grove Heights and we said no,” Mayor George Tourville said. “We took a look at the issues around how they operate, and the stigma of stolen goods going right straight to the pawn shop, and we didn’t have the votes to get them into the city of Inver Grove Heights.”

 

It took a while, but eventually the hicks in Inver Grove Heights got a clue:

Police were reassured by safeguards like the Automated Pawn System, which provides law enforcement with daily computerized reports on everything the pawn shop acquires — along with photo identification of each seller. That makes it much more secure than online resale activity, where it’s easier to stay anonymous.

Only then did Inver Grove Heights discuss rewriting its pawn ordinance and changing the zoning for Pawn America.

“It was not a slam dunk,” Tourville said. But with those safeguards and the company’s strong reputation, “it allowed the city council to say, ‘Hey, this is a good thing for our community,’ ” he added. “They built a good space, they’ve got people working. That space was empty and it was filled.”

As this blog has noted many times, a pawn shop is a really stupid place for a fence to offer stolen goods. He has to leave his name, address, driver’s license (or other ID) and a thumbprint, plus be filmed by surveillance cameras.

 

 

 

 

And soon, a daily pawn show in cable TV

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America’s thirst for pawn shops shows appears to be limitless. History, truTV and TLC already produce a variety of weekly shows. Now, CMT has announced a daily show, to be called “Win or Lose Pawn.”

A publicity photo shows a palm tree, but evidently this is not going to be Hawaii’s entry in the pawn TV derby. The show is being cast in Southern California, and Television Blend reports that its producers are looking for “two sorts of people: those who are looking to pawn an item and those who simply want to get an appraisal of a, hopefully big ticket, item.”

Sounds real. That’s what happens every day in Kamaaina Loan’s pawn shop.

“Win or Lose Pawn” is being birthed by a producer known for shows such as “Shark Tank.” Television Blend, however, is skeptical:

This show is coming at the wrong end of the pawn shop phase and I only see a long, hard road ahead.

Hey, here’s an idea, Hollywood. How about a pawn shop show that instead of being concocted and staged and produced, shows what really happens in a pawn shop. We think it would be interesting. You know, not reality, but real.

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.

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.