Bullish Penny Update in Monday's Financial Times

For all you naysayers, of which the list now includes an easily deterred TopTick after the Fed changed the melting rules, I still think hoarding physical pennies is top investment out there right now. I personally have a box with $10k worth of unopened pennies still in the wrappers just waiting for the day when the fed announces that either a) the penny will be taken off the market and the collectors value will increase significantly and the melting rule will likely be abolished as enforcement costs would greatly exceed the benefits of enforcement or b) the penny becomes worth $.05 as the Chicago Federal Reserve central banker is lobbying for and is discussed below.

Either way, my downside is zero as the worst case scenario allows me to go to my local Bank of America and exchange for paper, which I will likely then turn into bars of silver. I mean you can argue that there is an opportunity cost, which could be large. Specifically, my $10k units of Fed debt, which in reality is negative capital as it has no net value and is nothing more than an IOU, could be invested in any number of good ideas that I am running with these days. However, these ideas all have risk associated with them as I may be wrong and the price of the assets may decline; meaning that the real opportunity cost that offers no risk is a 4.8% yield from treasuries - a price that I am willing to pay.

So in summary, pennies have zero percent downside risk and 400% upside potential in best case scenario. The only real issue here is timing, as any actions on pennies could be 1 month or 5 yrs. Regardless, I am happy with my position and thought I would highlight an article in an ESTABLISHMENT mainstream media publication that discusses the thesis that we were on before most. Enjoy!

Ben

Coins
Financial Times
Published: April 8 2007 19:24 Last updated: April 8 2007 19:24

Penny-pinching could soon get a lot more difficult. That, at least, is the fear of the US Mint, which in December warned of a potential shortage of small change and imposed new limits on melting and exporting coins. Rising metal prices have pushed the production costs well above the face value of nickels (five cents) and pennies (one cent). Though only temporary, strong metal markets suggest the restrictions might well be renewed to avoid hoarding.

There is a delicious irony in this. After all, the rise in metal prices – and many other assets – partly reflects the extraordinary lax monetary policies throughout the world in the past few years. Such policies are a lot easier when issuing paper money with no intrinsic value, rather than money tied to the value of commodities such as gold or silver.

Interestingly enough, however, shortages of small-denomination coins were frequent long before the end of the gold standard. The reason lay in the difficulties of maintaining a fixed rate between coins of different sizes. For much of monetary history, small coins tended to be more costly to produce than large ones compared with the intrinsic value of their metal content. Supplying them to avoid shortages usually meant debasing by reducing their metal content.

This time-honoured solution would be one way for the US to save its pennies, perhaps by following Europe in using a cheaper steel core plated with copper. Such a proposal might also lessen opposition by the zinc lobby that helped defeat previous attempts to do away with pennies altogether. But a smarter solution would be simply to declare penny coins to be worth five cents, as suggested by François Velde from the Chicago Federal Reserve. Next to the costs pennies impose on retailers, the value transfer involved would be small. Better still, it might even teach kids that saving the old-fashioned way makes sense after all.