Thursday, April 28, 2011

Nickel Mania

In 1980, when I was eleven, the U.S. Mint announced pennies would no longer contain 100% copper, starting in 1982.  I started hoarding pennies.  I saw certain wealth in my future. Being the sentimental sort, the first roll I sealed into a plastic tube, inscribed with "Donot Open Until 2000".  That roll appears in the image above.  My wife says this proves I was a lunatic at a very early age.

Before I went to college in 1987, I schlepped approximately $800 worth of pennies to my local bank.  That's a lot of copper.  And, a surprised bank teller.  I gave up on my copper trade: I had hoarded copper through some ridiculously high interest rates, most certainly losing money.

Yesterday, I had lunch with a friend thrilled with the nickel trade.  In case you are unaware, the metal value of a nickel is now about seven cents.  He explained that an unnamed hedge fund manager is out marketing with a picture of a vault full of nickels.  This is his actual strategy.

Aside from the legality of melting down US currency, let's think about expense.  If my brother the chemistry PhD student kept reasonable hours, I'd have the exact answer already as to how much energy is required to melt a nickel coin, separate the copper and nickel, etc.  (I know, specific heat, melting point, yada yada yada...I'll miss some detail in scaling it up and wasting energy in the process...I'll follow up with relevant details later.)

Clearly, you're better off reconstructing my 1980 penny hoard.  Those pennies are worth almost three cents today.  Pure copper will be easier to work with than the copper-nickel alloy of nickels, so I'm guessing the melt down expense may actually cover for the substantially higher storage cost of nickels versus pennies.

You want a better trade?  All donations to the strategy will be accepted via Paypal.  [This is not an offering to sell securities!  You will lose money, but I'm happy to accept your contributions!]

I have completely secure storage (in a safe deposit box) and clean title (I purchased direct from the issuer!) to U.S. government backed inflation indexed securities in small denominations.  Not only are they indexed to inflation, they carry an accrued premium above inflation based on the implied inefficiencies of one of the worst functioning government programs.  Equally importantly, storage costs are a mere fraction of coinage storage.  In the space required for a roll of nickels, I can hold almost $200 face value of these securities.

Want more information?  Here you go...Forever Stamps good for 1oz of first class postage, well, forever.  The best part of the current "Forever" stamps, truly appropriate for gambling on inflation?  The image is not Lady Liberty, but the Las Vegas replica!  (Note: not worth 1 of your 20 if you're counting.)