URGENT: Sell Everything, Buy… Nickels?

LFTTwenty million nickels.

That’s what Kyle Bass, manager of hedge fund Hayman Capital, has stored away in a Dallas storage space.

At least that’s what he told Michael Lewis. You can find the interview in Lewis’ book Boomerang.

“The value of the metal in a nickel is worth six point eight cents,” Bass told Lewis. “Did you know that?”

He didn’t.

“I just bought a million dollars’ worth of them,” Bass went on. “Twenty million nickels.”

“‘You bought twenty million nickels?’” Lewis asked.

“‘Uh-huh.”

“‘How do you buy twenty million nickels?”

“‘Actually, it’s very difficult.”

First, Bass explained, he had to call the bank and talk them into ordering 20 million nickels from the Fed.

“The bank had finally done it, but the Federal Reserve had its own questions.

“The Fed apparently called my guy at the bank. They asked him, ‘Why do you want all these nickels?’

“So he called me and asked, ‘Why do you want all these nickels?’ And I said…

“I just like nickels.”

LFTApparently, Bass isn’t alone. A lot of people ‘just like nickels.’

According to many, it’s the closest thing we have to ‘honest money’…

And they’re buying them up by the truckload.

So we ask…

Is the nickel the perfect investment?

Nickels

Today, LFT investigates.

And if you come out convinced… you better act quick. Your last chance to back up the truck could be approaching fast.

First, allow us to make one thing clear:

LFTOf course, hoarding nickels isn’t a new idea…

[Already a ‘nickel bug’? Let us know: Chris@lfb.org.]

We first mentioned the idea all the way back in 2006, before it was a sparkle in any contrarian’s eye.

But we bring it up today for one simple reason we just mentioned: Your chance of stocking up before the nickel goes out of circulation could be running out.

Let me explain…

LFTSince Kyle Bass spoke to Lewis, the prices of these metals have dropped…

Upon writing, the melt value of a 1946-2014 nickel is just on the edge of four cents. Meaning, it’s down well over a third of the price he bought them for.

But he lost nothing.

Even though the metal value of the nickel is down, Bass didn’t really make all that bad of an investment.

In fact, Bass didn’t lose a penny on his purchase (aside from storage costs, of course. But we’re not suggesting you buy twenty million nickels).

Fiat money, you see, does well in deflation. Unlike gold, nickels have government-mandated deflation protection. They’re still going to be worth five cents no matter what.

But at the same time, due to their metal makeup, they are protected should inflation kick in too.

Each nickel is made up of 75% copper and 25% nickel.

[Excluding some 1942-1945 nickels. Some of those dates were made with 35% silver when nickel was sorely needed for industrial war use. But those have all been but scooped up by collectors.]

The same factors that could driving the U.S. dollar to the floor are the same forces that will drive these metals up.

But what if the dollar remains strong? Let’s say, in some weird twist of fate, the economy becomes robust as ever.

Either way, it’s a win.

If the economy becomes weak, investors will migrate toward commodities to hedge against inflation. If the economy improves, demand of the metals will rise, boosting the prices.

But here’s the most interesting part…

Even with copper and nickel as cheap as they currently are, the metal value is still high enough to produce losses for the Mint.

It costs the Mint about $1.62 for every 20 nickels, or 8.09 cents for each nickel it currently produces.

Coin Production

But that wasn’t always the case…

In the early 2000s, it was profitable to create pennies and nickels. But then, in 2006, due to rising costs of materials and labor, the coins became unprofitable. And by 2013, the Mint was losing $105 million annually to produce them.

LFTAnd the sentiment for both copper and nickel appears bullish…

Mike Bandrowski, for example, analyst at Clarus Securities reported on Tuesday that nickel has “imminent” upside. And it will perform strongly over the next two years as inventory dwindles.

“We see a great opportunity for nickel in 2015,” Bandrowski said.

One reason he cites is Indonesia: A year ago, you might’ve heard, Indonesia banned exports of raw ore last year. This cut 25-30% of nickel out of the global supply.

And copper? It’s sitting at a five-year low. And, according to Northern Miner, most copper analysts “are bullish that copper has some of the best supply and demand fundamentals in the longer term, as we get through this rough patch and the “peak copper” scenario looms large again.”

If and when nickel and copper go up, the Mint’s losses will increase dramatically. And they’ll eventually become too ridiculous to justify further nickel production.

LFTPoint? It’s only a matter of time until the nickel goes the way of the old pennies, quarters, dimes and half-dollars.

And it might happen much sooner than later.

“Three members of the House,” The Blaze reports, “have proposed legislation that would require common, everyday U.S. coins to be made from U.S. steel instead of imported copper, zinc and nickel.

“The Cents and Sensibility Act, from Reps. Steve Stivers (R-Ohio), Tim Ryan (D-Ohio) and Pat Tiberi (R-Ohio), is aimed at saving money by ending the use of these imported minerals to make pennies, nickels, dimes and quarters.

“This legislation is a common-sense solution to lower the cost of minting our coins,” Stivers told the rag.

“Not only will it cost less to produce, but it will also allow us to use an American resource — steel — that can be manufactured right here in our backyard.”

(Side note: Our nickels are currently made from Canadian metals.)

LFTAs you know, changing the metal makeup of nickels wouldn’t be an unprecedented move, either. Not by a long shot…

Before 1964, you probably know, U.S. quarters and dimes were 90% silver.

And from 1965 to 1970, half dollars were 40% silver covering a copper-nickel mix.

Today’s coins don’t have a lick of silver in them.

Also, prior to 1983, our pennies were made up of 95% copper and 5% zinc.

The pennies in your pocket only consist of 2.5% copper. Just enough on the outside to make it still look like a penny.

Blame the Fed.

The consistent debasement of the dollar over the past century-plus has made it, time and time again, too expensive to keep using the good metals. Each time, they had to be replaced with cheaper substitutes.

Had you seen what was coming in the early ‘60s, you could’ve started hoarding quarters and dimes while they were 90% silver — and for far above face value.

You would’ve bought them without tax or transaction costs. And would’ve, in very little time, made an absolute killing.

Gresham’s Law states that good money will be hoarded whenever bad money showers the market. Well, right now, the nickel is as good as it gets.

And soon, we suspect, it will be replaced by a cheap substitute like steel too.

Or cut out altogether.

If you have some storage room in your house (just don’t break through the floor), this creates a unique opportunity for you.

Before I show you three inventive ways to get your nickel on, you might remember the last time we mentioned this investment strategy…

LFTIf you’re a really long-time reader of LFT, you might’ve once known this letter as Whiskey and Gunpowder…

[Do you go that far back? Let us know: Chris@lfb.org.]

If so, you may also remember when the astute Gary Gibson, your trusty editor at the time, helped to create a video about nickels.

Everything in the video (aside from the price of metals) still rings true.

If you wish, grab some popcorn and dim the lights.

It’s movie time…

LFT“A huge opportunity to hedge against both inflation and deflation is lying out there in the open,” Gary Gibson wrote in the pages of Whiskey and Gunpowder.

“Again, there is currently no transaction cost to saving in nickels and no risk from plummeting metal prices. There is literally nothing (in case of deflation) to lose and everything (in case of inflation) to gain.

“Your only real problem is storage; a few thousand dollars of nickels takes up a lot of space…and it’s heavy. But people had the same problem with silver when it was cheap.

“I doubt they’re complaining now,” Gary pointed out.

“Having ‘too much’ cupronickel won’t seem like much of a problem if inflation continues to drive the cupronickel in five-cent pieces far in excess of face value.

“At worse, the dollar strengthens and you’ve just saved money. That is not a bad worse case scenario at all.

“The cupronickel is the last bit of honest U.S. currency there is. Right now it’s dying slow, like the others did.

“But things could speed up quick”

So how can you get your hands on a bunch of nickels before it’s too late?

LFTHere are some tips on how to stack up those nickels…

ONE: The most obvious place to get your nickels is at your bank.

Every time you visit the bank, buy some nickels. Ask them how many rolls you can buy without getting charged.

(As a side strategy, courtesy of the MakinBacon blog, ask for new “wrapped” rolls. You could find some nickels in those rolls with minting errors. Collectors eat those things up. And they’ll pay you a good return on your (non)investment.)

If you’re a business owner, you’ll have no problems buying nickels from commercial banks.

TWO: Go to your local casino, if gambling is legal in your state.

It probably has nickel slots. Bring in a big container and ask to buy some nickels. If they haven’t reverted to completely digital, you could find yourself in the money.

THREE: Stop at local businesses.

“I’ve managed a number of businesses through the years,” one blogger, called MakinBacon writes on his blog, “and at the end of the day we always had rolls of coins that have to be dropped off at the bank. It could make sense to talk managers of stores in order to have another outlet to acquire coins.

“I think this is one many people wouldn’t think of.

“Remember, all of this works great as long as the new nickels aren’t released into circulation. Once that happens, you will have the same problems you have with pennies; the need to sift through them to find those with the metal content.”

LFTOK. Enough about nickels.

In other news, I’ve officially made my first mortal enemy. His name is David Moore. And he hates… of all things… yoga pants.

And any man who is against women wearing yoga pants is no friend of mine…

Especially when he wants to fine and put those women in jail for simply wearing them out in public.

David Moore

Apparently, Moore, a miserable Missourian Rep., had a bad time when a few naked bicyclists rolled through his town of Missoula.

In August.

So angered was he by the jangly bits flying freely through his streets that he felt he needed to do something… anything… to avenge his inability to shrug off that people were…gasp!…naked!

In August.

So that means he’s been stewing about these naked bikers for SEVEN months. Stewing so hard, in fact, that he wrote up H.R. 365.

The bill bans “any device, costume, or covering that gives the appearance of or simulates the genitals, pubic hair, anus region, or pubic hair region.”

The bill also banned public nipple exposure. Men’s or women’s.

No nipples are safe.

Even more ridiculous, this bill could include, he told the the Billings Gazette, ‘tight beige garments.’

And, somehow, that doesn’t exclude yoga pants (in Moore’s mind, at least).

“Yoga pants,” he told the Gazette, “should be illegal in public anyway.”

Of course, the bill didn’t pass. Moore’s only true success was in wasting every productive person’s time.

So now, this is what he gets from the Internet…

A bunch of photoshopped pics of him in yoga pants.

Photoshopped picture

Justice has been served.

Let’s dig into the mailbag.

LFT“On 11 Feb 2015,” Tom B. writes, “the FCC Daily Digest released a document from Wheeler that tells a different story than the one in your daily email letter.

“Here is the link to that Fact Sheet.”

LFT: Hey Tom,

Thanks for sharing.

I’m looking at the document now.

Not sure where the confusion comes in, but this is precisely the story I told. The plan will lead to more tax, regulation and worse service.

That was the gist of the article.

Also, this document isn’t from Wheeler. Read it again…

“On February 5, 2015, Chairman Wheeler circulated to his fellow Commissioners President Obama’s 332-page plan to regulate the Internet. Here are some key aspects of that plan:”

It’s likely from Ajit Pai, the commissioner I mentioned in the issue.

Thanks for writing in.

LFT“In the short term,” another reader writes on the subject of net neutrality, “we may be screwed.”

“If it is like so many things (FedEx, Uber, etc.), when the twits in government at all levels stifle something, ingenuity and market forces will result in something new that will, at least for a while, be superior to the old (USPS, cabs).

“Am I delusional on this one?”

LFT: Nope. Absolutely agree.

You just made my next point.

The “digerati” will fight back on this one. Ultimately, it’ll be a good thing that the government is waging this war.

The smartest people in the tech space want nothing to do with the government. Mostly for this very reason. They know that if you give the government an inch, they’ll take 100 miles.

If this net neutrality move is all about control and taxation of the Internet, then Big Bog Gov. is in over its head.

Thanks for writing in.

And have an awesome weekend, dear LFT reader.

Until tomorrow,

Chris Campbell

Chris Campbell

Written By Chris Campbell

Chris Campbell is the Managing editor of Laissez Faire Today. Before joining Agora Financial, he was a researcher and contributor to SilverDoctors.com.