Nickels?

[Mister Imperceptible]

What do the wise forum members think of nickels as an investment? Unlike gold, which theoretically can go down in an upcoming quantitative tightening, or if a recession hits India and the large retail market for gold there plummets, nickels have a definite floor- the legal tender value.

Yes, copper and nickel are base metals very common on the Earth, and copper especially is tied to Chinese growth, but aren’t nickels essentially a very cheap option on cupronickel, with limited downside risk and potentially a huge upside? Suppose the central bank has no idea what they are doing and have to go back to QE after the upcoming crash?

In a SHTF scenario, wouldn’t you rather spend nickels than try to convince someone that your gold and silver has a specific value when you need to buy a pack of bubble gum?

I understand that the metal values in the nickel are around 85% of the face value, but accumulating nickels is tedious and it may take awhile. But by the time the metal values exceed the legal tender value, the nickel might be made of zinc or may no longer be minted altogether.

[jacob]

I suppose you could say the same thing about copper pennies. Some years ago (early 2000s), when the metal value/penny > $0.01, people (including me) started collecting them. A few years later, it became illegal to remelt them for metal. IIRC, there's even an export limit now: you can only bring $13.50 or so (so 1350 pennies) out of the country at a time.

Same story when silver quarters reverted to base metal. These now trade as collectibles and are cheap enough that they could actually be used as a secondary currency.

But overall, there does not seem to be a need yet ... and you need a lot of coins to amount to anything valuable.

[phil]

In Michael Lewis´book Boomerang, there is a story about a (very wealthy) guy who bought 1M worth of nickels. Very entertaining book anyway.

[Fish]

... and you need a lot of coins to amount to anything valuable.

For the curious... the "monetary density" of a US nickel is $0.05/(0.689 cm^3) = 72,600 USD/m^3. When storing multiple coins, the packing efficiency needs to be accounted for, which will range anywhere from 57.4% efficiency (loose change in jar) to 90.7% efficiency (hexagonal packing). So the monetary density becomes 41,700 - 65,800 USD/m^3 depending on how much effort you want to spend on tidying up your nickel collection.

Each $100k will require the acquisition of (100,000/0.05) = 2 million nickels, or 0.13% of the total number of US nickels minted in 2016 (source). The combined weight of $100k in nickels is 10,000 kg (or 22,000 lb). Assuming a "lazy portfolio" of loosely arranged coins, those 2 million nickels will have a volume of 2.4 m^3, roughly filling a closet. Strictly speaking, there's more upside to holding nickels vs. holding paper currency or "cash" in a savings account. But it's highly impractical, and it's also the kind of thing that if implemented seriously will come to define you.

For some alternatives to nickels, check out this fun post: https://www.evilmadscientist.com/2008/t ... of-things/

[Mister Imperceptible]

@jacob

But when is the right time? Will acquiring nickels be as easy when the “right time” comes? Or will I have to pay a premium?

Spitznagel: “How many people acquire gold only after it goes up, and dump it when it doesn’t? I’d recommend the opposite strategy.”

I’m not saying put a significant chunk in nickels, just a small portion as portfolio Insurance. For example, if one were to set up a Harry Browne influenced portfolio, perhaps allocate some of the portion of precious metals away from gold and into nickels, along with silver.

@phil

Kyle Bass. What’s worth noting is that the $1 million in nickels he bought in 2011 is still worth $1 million. While you might say the nominal mil is lagging inflation, inflation is eventually the friend of a metals investment. Gold was stagnant from 1980-2000. If inflation is part of the Fed’s goal (even if it’s low inflation) doesn’t that mean it’s not a matter of if, but when?

@fish

Thanks for the links. Showing me how to fill a shoebox properly. I think it’s possible to have $5k-$10k in nickels without it defining me (“I AM NICKEL MAN HEAR ME ROAR). An amount of nickels that can cover 6-18 months of expenses sounds reasonable. If “monetary density” was the only consideration of course I would just buy just gold and call it a day. Nickels I think are a good deal more practical than human blood and bird feathers. Although seeing ambergris has me fondly remembering the second or third mate from Moby Dick (“I have it! I HAVE IT!”). Perhaps cocaine, LSD, and antimatter would be more volume efficient.

[Mister Imperceptible]

http://www.bartleby.com/91/91.html

[bryan]

I considered holding physical copper once... not worth the transaction/storage/security costs.

The farthest I am considering going with physical metals is smithing useful stuff out of silver/gold.

I figured LSD, DMT, and cocaine would be near the top. Interesting to see when gold will surpass hundred dollar bills; o/u 32 years (I would hammer the under)?

My bitcoin paper wallet is off the charts!!!

[Mister Imperceptible]

@bryan

If I were to buy any crypto currencies, I would dip from that portion of the portfolio allocated towards stocks. We have no idea how bitcoin will perform in a recession. We know how gold performs. I’ve been critical of cryptos but some like you are doing well with it. Seems more a part of the upward stock market. I’m looking for a negative correlation.

[jacob]

Storage is not what concerns me. Liquidity is. I've read too many stories about someone trying to trade in their penny-collection for a pair of shoes or something. It's rare enough that it makes the newspapers(*). Until prices reach a high level, you're essentially stuck with several tons of metal worth only low six figs. There are easier ways to do this... buy futures on CME and keep rolling them.

Would also note that the main reason gold has value is that rich people value it as decoration (jewelry). This is better than BTC ... but can you seriously say the same thing about copper or nickel?

(*) Some places even have laws against that to limit how much you're allowed to hassle the retailer (so they don't spend two hours counting all your change.)

[bryan]

I’m looking for a negative correlation.

Negative or just un-correlation? For building a portfolio, non-correlated assets seem to help (portfoliocharts.com from @tyler9000 is a good beginner resource). Bitcoin hasn't had to face a large economic recession/depression/crash yet, so we'll see.

@jacob, I would definitely stick to commodities via exchange for most individuals. Though, let's be honest.. if one were collecting coins for pennies on the dollar, one wouldn't be taking them in to the store to sell for pennies on the dollar. So the cost of the storage/exchange of physical goods is just too much (unless you have a business (or local demand) w/ those commodities already). I try to come up w/ sensible things to store value (Alpha Strategy, etc.) but not many things work well for minimalists/nomads. Having a "permanent home" enables a lot. Gold is quite easy (yet you still pay a premium on either side of the trade). I've pondered a few times on how the next crisis will result in "real world" prices of commodities being much higher than "market" prices (moreso than previous crises).

[jennypenny]

I've pondered a few times on how the next crisis will result in "real world" prices of commodities being much higher than "market" prices (moreso than previous crises).

Could you why you think that? A lot of people would argue the other way. Is it dependent on the particulars of the crisis or what intervention is taken?

Not trying to put you on the spot. Just curious.

[Clarice]

If you are investing in nickels a là Kyle Bass style - you have a lot of logistical problems and storage- associated costs. On a small scale - you also have to consider the hustle of starage and only then decide if it's worth for you.
In my personal experience of a SHTF scenario (Russia, early 90-s) the best things to hold in case of an inflationary collapse are alcohol and cigarettes. Just saying...

[jennypenny]

If SHTF because of some type of economic crisis/collapse, I wonder if people will be turned off of anything resembling money regardless of its value as a metal. I'd look to prison currency more than commodity currency.

[Mister Imperceptible]

@jacob

Regarding liquidity, I’ve read that those holding junk silver don’t have much of an issue getting the metal value for their coins.

I recognize the utility of options, but I will need to study them. It seems dangerous but I know the best hedge funds use them wisely. Is Taleb’s book on this a good resource or should I look elsewhere?

I did mention in the first post that I am well aware that base metals are not great standalone investments. I would never buy a hunk of base metal. It’s only the nickels doubling as legal tender that gives it a low downside risk and high upside that make it attractive to me.

@jacob + bryan

What scares me about paper commodities is counterparty risk. Will those funds holding a basket of futures behave the way they are supposed to? Ray Dalio seems to think so, that’s why he’s even willing to have paper gold instead of vaulted. Harry Browne would disagree.

@bryan

I’ve read the Harry Browne books, the long Boglehead thread about the Permanent Portfolio, as well as the MMM thread about the Golden Butterfly. Tyler9000 is everywhere, and I’ve had his website open on my computer for a month. Spitznagel’s Dao of Capital is in the mail, but I heard it was a lot of theory and short on application, so I ordered Craig Rowland’s PP book as well.

@Clarice

Interesting. The trouble with storing whiskey, cognac, and scotch is- I enjoy drinking it too much

@jennypenny

https://m.youtube.com/watch?v=xLVSohBg_yA

[Mister Imperceptible]

I'd look to prison currency more than commodity currency.

Wait- when you boil it down, aren’t those the same things? I know I can’t eat, drink, or smoke gold, but then again, neither did the Greeks, Romans, Persians, or Chinese of yesteryear.

Never mind the Fed increasing its gold holdings, what about the Rothchilds? That’s the type of private investment I want to emulate.

That is food for thought. If I can’t unload metals, I can at least barter. But as bryan said above, impractical for nomads. I’m relatively stationary now but with financial independence comes geographical independence. I can store gold in a foreign bank, but not nickels or cigarettes. In the end, we are talking about only a small portion of what I may intend to hold in hard assets. Just to avoid bringing a Krugerrand to Kroger. (Eh? Eh? )

[unemployable]

In my personal experience of a SHTF scenario (Russia, early 90-s) the best things to hold in case of an inflationary collapse are alcohol and cigarettes. Just saying...

I understand the preferred currencies in post-Soviet Russia were the US Dollar and the Deutschemark. If you had a pile of either you could basically name your price for any good or service.

Nowadays the most obvious currency to hold in preparation for such a scenario would be the Swiss franc.

Not that alcohol and cigarettes are bad options either.

[unemployable]

@jacob

Regarding liquidity, I’ve read that those holding junk silver don’t have much of an issue getting the metal value for their coins.

In bulk, as in several pounds worth, you can find dealers who will pay 70-80% melt value for junk silver. It's unlikely they'll actually melt it rather than try to sell it for maybe 120% melt.

I recognize the utility of options, but I will need to study them. It seems dangerous but I know the best hedge funds use them wisely. Is Taleb’s book on this a good resource or should I look elsewhere?


What scares me about paper commodities is counterparty risk. Will those funds holding a basket of futures behave the way they are supposed to? Ray Dalio seems to think so, that’s why he’s even willing to have paper gold instead of vaulted. Harry Browne would disagree.

These comments go together... Hedge funds more than $100m or so don't deal with exchange-traded options, unless they're actually dealing in options arbitrage. The size and liquidity just aren't there. They usually deal with banks who will write them a specialized contract, or credit default swaps which are mostly standardized.

Most such contracts (all forwards and CDS's) have daily collateral transfers. That is, there's a daily settlement price based on the price of some other asset that usually trades on an exchange, and then one side makes up to the other the difference between that day's settlement and the previous day's. So your risk is limited to your counterparty going under the next day, and even then there's bankruptcy court.

As an example, John Paulson's funds made something like $10 billion shorting subprime mortgages (by buying CDS on subprime mortgage-backed securities), and the funds got paid in full... and two of his counterparties were Lehman and Bear Stearns.

I know Bridgewater quite well actually from my last real job, but never met Ray.

[Mister Imperceptible]

@unemployable

This is exactly what scares me. Being one of the little fish getting arbed by the big fish.

I’m also very uncomfortable with the idea of relying on a bailout to collect my money.

[Riggerjack]

https://johntreed.com/blogs/john-t-reed ... u-s-nickel

I'm not a proponent of holding physical metals at all, but if I did hold a physical metal, it would be pennies and nickels for the same reasons in the link.

Though I often wonder what good scenarios are floating around in the heads of goldbugs... "When TSHTF, I will be the smart guy who can struggle to carry all my gold around, and when money is no good anymore, surely, everyone will trust my shiny gold bits at whatever value I think is right!"

Seriously, right now, just try to use any gold to buy anything. Without great uncertainty, and blood in the streets, you will still go through hassles to get 90 cents on the dollar. After there is blood in the streets? Gold is likely to do you no good, and may add your blood to the streets.

If you think you need to bribe a border guard to get out after it all comes crashing down, get some cubic zirconia and a nice black velvet bag, a money belt, and a Jeweler's loop. At least then you won't feel so bad when he takes the bribe, then jails you anyway. Sitting in that cell, thinking that guard has your life savings is going to be worse than thinking "damn, I'm out a hundred bucks!"

[jennypenny]

In large parts of the world gold is a more useful currency, so it depends what you're ERE/exit strategy is. I personally prefer jewelry as a way to hold gold, even with the markup.