PSA: The Federal Reserve of The Hobby

PSA just halted all four of its value grading tiers. The hobby is calling it a failure. We're calling it something else. PSA just acted like a central bank.

This episode breaks down why PSA controlling the supply of grades is the same lever the Federal Reserve pulls when it controls the supply of money. 

We map the full analogy, the dual mandate between volume and grade integrity, and where it breaks down in a way every collector should understand.

Then we run the backtest. PSA did this exact move in 2021, and the data tells us what comes next. 

Supply structure, grade inflation, and what to watch over the next two quarters.

Weekly Newsletter Signup: Slabnomics.com
🎥Youtube
📸Instagram

Transcript

0:00

On June 2nd, PSA stopped taking your cheap cards. Value, value bulk, value plus, value max, all four tiers closed. The four cheapest ways to get a card into a PSA slab are now gone, at least for the time being. The reason that they gave is a backlog. 10 million cards are sitting in the queue, moving nowhere. They want to get it down to 5 million, and they think that it's going to take about four months. Most of the hobby is going to read this as PSA failing, that they're overwhelmed, that they're buckling under demand. And on the surface, that's exactly what it looks like. Today, I want to give you a different lens. By the end of this podcast, you're going to know a lot more about not only PSA, what's happened in the past with PSA and how that translates to what's going on right now, but also what monetary systems actually look like. Because what PSA just did is not a customer service problem. It's more like a monetary policy. PSA acted like a federal bank. And once you see that way, you're going to stop asking, when is my bulk submission going to reopen? And you're going to start asking the better question. What's going to happen to the price of everything else? Here is the thing that the Federal Reserve actually does strip away the press conferences and the jargon. The Fed controls the supply of money. That's the lever that it pulls on. When the economy runs too hot, the Fed does not call up every business and tell them to calm down. It can't do that. What it can do instead is to make money harder to get. So it raises the cost of money. It slows the supply of money that it puts out into the marketplace, and the whole system cools because everything downstream runs on that supply from the Fed. That's the entire trick of our monetary system today in America. You don't control demand directly, you control the supply of the thing the demand is chasing. Now let's look at cards for a second. What PSA controls. We know PSA doesn't make cards. PSA doesn't even set the price of a messy rookie or a Jordan Fleer. What PSA controls is the supply of the grade, the slab, the population, the label that turns a piece of cardboard into a recognized liquid, comparable asset. The grade is therefore the money of this hobby, and that's really important to remember. The grade is the money of the hobby. It's the unit that makes a card bankable and that have people trust in its value. A raw card, on the other hand, is a private belief about that condition. But a graded card is a public tradable fact. PSA mints that fact. They're the printing press for the only currency that matters in our card hobby. So when PSA pauses the value tiers, you have to read this for what it is. They're not lowering demand, but they're going to lower supply, especially in the cheapest of the grades. They raised the floor on what it costs to turn a card into money, and the cheapest open door now is a regular service that's $80 a card plus shipping. In central bank terms, PSA just gave us a rate hike. This is the hobby central bank tightening. Here is where the analogy is going to get a little bit sharper and a little bit more uncomfortable. The Fed has what's called a dual mandate. There's two jobs that the Fed has technically maximum employment on one side, stable prices on the other. What's happened historically is if you push for growth, then you risk inflation. If you crush inflation, then you risk recession. The Fed lives inside this tension forever. Every decision is a trade between those two growth, growth and inflation. Now PSA has its own dual mandate. Two jobs that pull against each other. Job one is processing volume. Every card that comes through that door is revenue for PSA. The business wants that queue full. More submissions equals more fees equals more growth. Job two, though, is the integrity of the grade. The whole reason a PSA slab is worth anything is that the standard means something. The grade has to be scarce enough and trusted enough that the market pays a premium for it over Beckett, over CGC. Those two jobs for PSA are also at war, just like the Fed. You maximize volume of those cards coming in and you grade everything, the standard gets diluted, and you end up where we've been for years. We've talked about this on this very show. PSA went from grading a few hundred thousand cards a year when they're basically a coin company back in the day, to grading millions of cards during COVID. The PSA 10 supply inflated something like eight times off the pre-COVID baseline. This is great inflation. We have many more PSA 10s than there were before COVID. This is exactly like when the currency gets debased when the Fed keeps printing money. When PSA prints that many tens, the nine stops meaning anything. And we've documented exactly what that did to the PSA 9 across a few sports, especially in ultra modern. So today, what did PSA actually choose? They had a backlog, they could have raised prices across the board and kept every tier open. They could have printed through it. Instead, they closed the cheap door. And they're protecting the integrity of their standard. For the first time in a long time, PSA acted like the side of the mandate that cares about the currency, not just about the side that cares about volume. Whether they meant it this way or they were just drowning, the effect is the same. They tightened. Now you may be thinking to yourself, you're talking out your ass, this is all very theoretical. But we've run this experiment before. The hobby has 2021, 2020 before it, and 2022. So we know what happens. We're in the midst of this kind of tightening from PSA, what had happened to bring it about, and what happened afterwards. See, in the March of 2021, this exact same thing happened. PSA was buried. Their backlog was estimated to be at 10 to 12 million cards. Sound familiar? On March 30th, 2021, PSA did something far more aggressive than what we've just experienced this past month. They suspended every tier below Super Express. That's $300 a card. That move cut off something like 98% of incoming submissions overnight. So now we get to ask the analyst question: what happened next? The first thing the 2021 case teaches us is discipline about cause, because the market did crash in late 2021 and 2022 for cards. But here's the honest part here. Most of that crash might not have been the grading pause. There were macro reasons for this. We had had stimulus before, rates had gone up, and a lot of people were worried about what was going on with COVID. When COVID ended, though, those floodgates were opened, the economy started back up, and people went more about their normal lives. We lost the speculators who treated cards like a liquid trade. This was a demand side correction, and it would have happened whether or not PSA touched a single tier eventually. So I can't sit here and tell you a clean story about how the pause of PSA grading crashed the market. It didn't. That would be lazy, and y'all would all call me out, I'm sure. But what the pause specifically caused was narrower and far more interesting. First, the slab flood. PSA did not stop grading during the pause. They stopped intake and turned all their capacity onto the backlog. So the supply of graded cards kept growing behind closed doors. Meanwhile, a lot of the speculators left, but then that backlog that had been graded got released into a wave, into a market that was already cooling. Delayed supply then hit falling demand. A griffy rookie in a PSA 9, the population grew double digits while its value was actually falling. Hence, the supply showed up exactly when the market could not absorb it. And here's another thing I want you to sit with the raw to graded parity. In the year after the pause for modern cards, the premium on a PSA 9 over the raw card collapsed. In some cases, the raw card traded higher than the graded nine. Think about how strange that is. A graded, authenticated, condition certified card worth less than the same card ungraded. Why would that ever happen? Because of option value. A raw card is a live lottery ticket. Might be a 10, the raw card is both a 10 and not a 10 until someone grades it. And the market pays for that maybe. The PSA 9, though, is a settled answer. That maybe is gone. So when the slab flood filled the market with settled nines and the cost of grading had jumped, the math flipped. Buying a finished nine became cheaper than buying a raw card and paying to grade it yourself. So the grade stopped being worth the trip. When you tighten the grade supply and then flood it, the cheap end of the grade stops being money. It becomes a cost. So is this the same situation we have in 2026? Where does the tightening hit the most? See, in monetary policy, when the Fed tightens, it doesn't hit everyone evenly. It hits the marginal borrower first, the loan that only worked when money was free. When PSA tightens, though, it hits the marginal card first in the same way. That marginal card is precisely the type of card you're sending in a value bulk order. The 80 cent base card or the five, ten dollar base card. The grade it and pre modern trying to eke out a little bit of value. The submission that only made sense when grading costs $10 and you could send a brick of them. The marginal card is kind of like the low end of this market, and we've been telling you for months where the low end sits. In this top-down cycle, the high end is up near its all-time highs while the low end is sitting way below, somewhere around the low 40s or 50% of its peak. I thought that perhaps we could get a flip on this and we could start getting some more movement in the low end as more people came online, but PSA just made it economically irrational to grade the exact cards the market did not want graded. In this way, the supply structure thesis and the central bank analogy land on the same square. The pause is a supply shock aimed straight at low end, and the low end was already weak, almost crippled. You're not getting a crash here, really. This might just be the impetus to have people stop sending in that low end stuff. And it may actually lead to the recovery of the low end in the long term. Now they say history doesn't repeat itself sometimes, but it does rhyme. And if 2021 rhymes with 2026, here's the second order move to watch. The cheap grade might not disappear, but it might migrate. In 2021, when PSA closed the door, the volume didn't vanish, but it went to competitors. SGC had a historic run, CGC started moving, tags started popping off. And now this could be the impetus to have those things start popping off again, especially CGC, which has been going gangbusters over the past year and a half or so. Even though PSA bought SGC and bought Beckett through the holding company, Collector's Universe, the rivals have still grown up in that CGC and tag. So trying to rhyme with 2021 might be difficult, and this might just be where our analogy with the Fed breaks, but I think the break is the most important thing in this episode. So I've spent this whole episode telling you that PSA is like the Fed. And now I'm going to tell you where that comparison fails, because if I do not, I'm going to sell you a clean line instead of what the truth is. The Fed is a public institution. It has a legal mandate written down and it's held accountable for this. It's supposed to act in the interest of the entire economy. And when it fails at that, there are hearings, there's oversight, there are votes. You can hate the Fed, plenty of people do, but it answers to something outside of itself. PSA answers to PSA. It's a private company. Its parent owns the top three graders of the hobby. By most estimates, that's well over 90% of the graded market under one roof. When PSA tightens the grade supply, it's not balancing a dual mandate for the good of the collectors. It's making a business decision for the good of the business. And those two things which help PSA and what helps you are allowed to be the same right up until the moment that they're not. This is the actually most unsettling insight here. It's not that the hobby has a central bank. It's that the hobby has something with a central bank's power over their supply, but none of the central bank's accountability. There's no mandate, no oversight, just a cue, a price sheet, and some press releases. So when PSA says this pause is, in their words, a structural defense of the future we're building, you're allowed to believe them and stay awake at the same time. It can be a smart operational move and a reminder that one company decides what your cardboard is worth to convert into money. Both are true. In summation, what's happening now with PSA happened back in 2021. And what we saw after that tightening of the supply chain in the hobby in 2021 was a rapid fall in the market for cards. This might be different, but it also might be very much the same. There's usually some impetus that affects the bull market at some point and makes it turn into a bear market. Another point I went over, one of the most important parts of PSA halting these submissions is that supply is going to dry up. The raw to grade strategy of buying a raw, sending it to PSA, and then selling whatever grade it was, is one of the most efficient money-making parts of the hobby. That's now off the table, which means the speculators are going to start leaving the hobby in droves in order to search for greener pastures. On the way, we talked about why the PSA 9 is often not as expensive as the Raw. It's kind of like a Schrdinger's card situation, where it could be a PSA 10, it could be a PSA 8, but you don't know until it actually gets graded. And the final thing to summarize here before I close is it's so important to remember that what PSA is doing is under their own volition for the good of their company, but it does give us a very clear indication of where we are in the market. When they believe that they can't handle the volume that's coming in right now and they put a pause to thing, that breaks a lot of things down the cycle that the speculators who are driving a lot of the market volume have come to depend on. So here's what I actually want you to do with all of this information. You don't need to watch the backlog ticker. The reopening date is not going to be your signal. The signal is what the tightening does to the spread. Watch that gap between raw and graded on modern cards over the next few quarters. If 2021 rhymes, the cheap grade weakens first and the floor and what's worth grading at all moves up for good. It kind of has to, with $80 being the cheapest it can be to grade. Nobody's going to be sending those marginal cards. The whole lesson of that last tightening cycle is that an $80 grade on a card that might be a nine is a coin flip you lose a lot of the time. So you can only grade the cards where the 10 carries the cost and the profit for you. Sell the rest raw and keep the option value for the buyer who wants to do that lottery ticket. And as always, keep informed of what market you're actually in. Not one where scarcity is discovered, but one where scarcity is decided by a company named PSA. That doesn't make it a bad market per se, but it makes it a market you have to read with your eyes open. As always, I'm always going to suggest you have as many tools as possible in your tool belt to know both where we are in market cycles and to know analysis for different cards about which ones are overvalued or undervalued by the MLD framework. For more on this kind of information, sign up to my comps newsletter, which is free, and check out my other stuff on slabnomics.com where you can find that sign up. Remember, the Fed controls the money, PSA controls the grade. And the difference is that the Fed has to explain itself. PSA just has to send an email. As always, thanks so much for listening to Slabnomics. Keep building, and I will talk to you later.