Marilyn at the Stray Cat knows the drill by now. When I shuffle in to get my morning coffee I want my change back a particular way.
I give her my two bucks and she gives my quarter’s change back to me in nickels.
Five nickels and I’ve just made a tidy return on a modest commodity speculation - wOOt!
See the nickel in a nickel makes the nickel worth more than a plug nickel.
I first learned this when I was reading about the latest speculative strategy of a very hot shot hedge fund manager.
Kyle Bass of Hayman Capital was one of the really smart guys that shorted the housing market with credit default swaps, and made billions of dollars.
One of his recent little side bets is the good old Thomas Jefferson nickel.
Bass bought 20 million nickels. Well, he really didn’t buy 20 million nickels, he just exchanged a million dollars for 20 million nickels.
Bass noted that if you want to acquire that many nickels the Federal Reserve will call you up and ask why you want all those nickels.
His reply was,. “I just like nickels.”
That might have been a slightly disingenuous statement, as he didn’t like the nickles as currency, but the nickel in them. When he did this 20 million nickel acquisition the nickel in each nickel was worth 6.8 cents.
Important Point - that’s the melt price of the nickel, and it is against the law of the United States to melt down U.S. currency. So for now Bass has an unrealized commodity profit sitting in a Texas bank vault.
So I thought as long as I was going to get change for my coffee purchase at the Stray Cat, I might as well get my money back in nickels.
After all a quarter worth of nickels was 34 cents as the commodity nickel. No brainer!
By the time I got around to doing this the commodity was worth about six cents a coin, so the deal was exchange a quarter and get 30 cents.
I also told Marilyn to be on the lookout for pennies minted 1982 or earlier. Those Lincoln coins are 95% percent copper. At current prices they are worth about 2.6 cents each for their copper value.
Again it is against the law to melt down U.S. coins, but everyone can have spare change sitting around.
Last week I told Marilyn I was depressed. The commodity in a nickel was now only worth 5.686 cents per coin. So my quarter swap was worth only 28.43 cents each time I did it. Marilyn laughed at my ‘depression’.
Ultimately this is about as safe a hedge as one could get. As long as there is a USA the nickel will always be worth a nickel, and right now if you gather up twenty of them you can buy what I use to call a nickel candy bar.
So it’s worth something as a currency and likely to be worth more if not much, much more as a commodity.
The Feds put an end to the copper pennies in the 80s and silver coinage in the 60s as the metals in the coins became worth much more than their face values. Are the nickels made of nickel days numbered? Perhaps.
There may be a time, when the current nickel doesn’t exist. However, they would still be legal tender, but that they would also command a premium price.
This is what has happened to silver coins. They are legal tender, but a coin dealer will give you more than their face value.
So if the future is deflation, the nickel might even be able to once again buy a nickel candy bar.
If it’s persistent inflation the nickel will be worth a lot more than a nickel.
All in jest now - I don’t worry about hyperinflation. If there ever is hyperinflation I figure the Federal Reserve will give everyone a smart phone, and each night the Feds will download pixel trillions of dollars to your phone to buy your daily bread. No need for the wheelbarrows of money like they had in Germany back in the 20s when today the Federal Reserve with modern gadgets can effortlessly transmit pixel trillions! What could possibly go wrong?
Meanwhile, I think I’m going to go get another cup of coffee.