Hedge fund manager buys $1 million in nickels

[AndreaGail]

Kyle Bass has a lot of spare change.

The founder of Hayman Capital, the Dallas-based hedge fund that profited from the collapse of the housing market, bought 20 million nickels, according to a new book from Michael Lewis.

In "Boomerang," Lewis writes that Bass spent $1 million on 20 million five-cent coins.

Why?

Bass apparently believes that the metal in each nickel is worth 6.8 cents. So the face value is below the underlying value of the coins.

That seems like such an obvious way to make money that its almost surprising everyone isn't hoarding nickels.

The catch is that melting U.S. coins is illegal. In 2006, the U.S. Mint reacted to rising metal prices by passing an interim rule that banned melting coins. In 2007, that rule became permanent.

"The rising commodity prices of copper, nickel, and zinc have increased the value of the metal in both pennies and nickels so that the content of these coins now exceeds their face value," the Mint explained. "There is concern that speculators could remove pennies and nickels from circulation, and sell them as scrap for profit."

http://www.cnbc.com/id/44788851/

[Shami-Amourae]

This was talked about on the Colbert Report. Video in the following link:
http://www.colbertnation.com/the-colbert-report-videos/372964/february-01-2011/michael-lewis

Start @4:10.

[Jazkal]

dollar positive, right?

[Cebu_4_2]

pot metal is useless. Heat a penny and smack the biatch with a hammer, if it dont burn you there is nothing left, just like magic.

[DMac]

Is Kyle Bass a member here?

[sirgonzo420]

pot metal is useless. Heat a penny and smack the biatch with a hammer, if it dont burn you there is nothing left, just like magic.


Damn deflation!

[Silver Rocket Bitches!]

So how long before they replace the nickel content with a nickel/zinc mix?

[gunDriller]

5 grams per nickel.

20 million nickels = 100 million grams.

220264 pounds.

110 tons.

wonder what other metals the guy collects ?

[Golden]

All we are is just another brickel in the wall.

[Sparky]

So how long before they replace the nickel content with a nickel/zinc mix?

Never; it will have no nickel in it, and zinc is getting too expensive. Think steel, aluminum, etc. The new composition is already in the works, so it's probably about a year or two away.

[Ash_Williams]

Canada is just plated steel now for 1c and 5c... maybe for everything actually.

[Sparky]

So, out of curiosity, how can a coin melting ban be enforced? If you were to melt a bunch of nickels and pennies together, you'd end up with a blob of metal that has the composition of neither nickels nor pennies. I guess you'd have to be caught in the raid of a major operation, surrounded by lots of coins and melting/molding equipment. Or would they put the responsibility on the refiner, when you go to exchange your metal blob for some FRNs? Maybe they would have to identify suspicious submissions, in accordance with the Patriot Act.

[Ash_Williams]

The thing is that the melting ban doesn't even matter.
"Junk" silver is traded as easily as 999 silver. You don't need to melt it, everyone knows the silver content, and it's in a handy, marked, divisible form.
Why would it be any different for junk copper and nickel?

[Sparky]

The thing is that the melting ban doesn't even matter.
"Junk" silver is traded as easily as 999 silver. You don't need to melt it, everyone knows the silver content, and it's in a handy, marked, divisible form.
Why would it be any different for junk copper and nickel?

Ya, but it's legal to melt junk silver. That might add a level of "legitimacy" to its value. That being said, the price impact on the melting rules during the 1960s was quite erratic. Here's the history lesson so you can draw your own conclusion. The spot price listed is the average for the year, which is all I can find:

January 1963, no melting ban. Silver: $1.29/ounce
1964, anticipated end of silver composition is public information. $1.29
January 1965, silver removed from most coinage. $1.29
May 1967, melting ban enacted. $2.06
May 1968, one year into melting ban. $1.96
May 1969, melting ban removed. $1.81
May 1970, one year after melting ban. $1.64
August 1971. domestic gold standard removed. $1.39
1972. $1.98
1973. $3.14
1974. $4.39
1976. $4.35
1978. $5.93
1979, silver price blowoff begins. $21.79
1980, silver price blows off in January. $16.39
1981. $8.43
1982. $10.59
1983. $9.21
1985, twenty years after most silver removed from coins. $5.81
1990. $4.07
1992, lowest annual silver price during PM bear market. $3.71

[Joe King]

The thing is that the melting ban doesn't even matter.
"Junk" silver is traded as easily as 999 silver. You don't need to melt it, everyone knows the silver content, and it's in a handy, marked, divisible form.
Why would it be any different for junk copper and nickel?It isn't any different. When silver was phased out of circulation there was a melt ban on 90% until there were enough of the new coins minted.

After coins of the new composition were minted in sufficient qty as needed in the economy, the ban was lifted.

Same will likely happen for nickels once the composition is changed and a few years go by.

The only reason there is a ban on melting them now is due to the fact they are needed in circulation.
So for people who are willing to look ahead at what will likely happen, it becomes a waiting game.