By Chris Campbell Feb 13, 2015 
Twenty 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.”
Apparently, 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?
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:
Of 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…
Since 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.
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.
And 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.
Point? 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.)
As 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.
remember the last time we mentioned this investment strategy…
If 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…
“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?
Here 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.”
source -- http://lfb.org/urgent-sell-everything-buy-nickels/
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