• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

The 'Kyle Bass' Trade And How The Penny Cost Taxpayers $436mm

Tyler Durden's picture




 

It has been a few years since Kyle Bass suggested the 'nickel trade' and the idea remains as profitable for those with large wheel-barrows now as it ever was. As Bloomberg notes, the penny currently costs almost 2 cents to make and the nickel more than 10 cents - more than double the cost from 2006. In those seven years, the US taxpayer has lost a stunning $436 million thanks to the inflationary devaluation of the USD relative to the metals involved, and while a former Arizona congressman (Jim Kolbe) tried to sponsor a bill to abolish the penny (to save the cost of minting), President Obama noted that "given all the big issues, we're not able to get to it," even as the Canadian Mint just stopped distributing pennies - saving $11mm annually. It seems, while the production process may have costs, the 100% markup for pennies and nickels remains an intriguing disconnect.

 

 

 

 

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Wed, 02/20/2013 - 16:44 | 3261010 Banksters
Banksters's picture

Fuck this 90 pt drop,  You wanna see a market hissy fit, or should I say algo fit,  raise interest rates a quarter point

Wed, 02/20/2013 - 16:45 | 3261016 Glass Seagull
Glass Seagull's picture

 

 

Fewer coins, more food scrip.

 

 

Wed, 02/20/2013 - 16:45 | 3261017 Cursive
Cursive's picture

Save the Penny!  Dump BernanQE!

Wed, 02/20/2013 - 16:59 | 3261021 CaptainSpaulding
CaptainSpaulding's picture

This just in from Bud Fox..."Blue Horseshoe loves Coinstar"

 

Wed, 02/20/2013 - 17:00 | 3261072 ParkAveFlasher
ParkAveFlasher's picture

Edit made it funnier.  +1

Wed, 02/20/2013 - 16:48 | 3261027 a growing concern
a growing concern's picture

Nickels are a great arbitrage play. It's not like you're making any money in your savings account, so you may as well hold some of that in nickels. They have the added bonus of being extremely hard to steal, as they weigh a ton.

Wed, 02/20/2013 - 18:07 | 3261322 msmith9962
msmith9962's picture

Fill a sock with them and you have security too.

Wed, 02/20/2013 - 16:49 | 3261035 maskone909
maskone909's picture

lol i actually thought about penny hoarding. the only prob is that it costs more in gas to transport them then the profit margin togain. jusr imagine 10k in profit would require almost 700,000 pennies at a 1.5cent conversion

Wed, 02/20/2013 - 18:28 | 3261383 smlbizman
smlbizman's picture

the value will be realized when they pull the pennies and nickles out of circulation, than they will sell like the 64's, for their metal..

Wed, 02/20/2013 - 16:50 | 3261040 Henry Chinaski
Henry Chinaski's picture

People think I oppose everything Obama favors, but they are wrong.  I stand with the president on getting rid of the penny and having a college football playoff.

Wed, 02/20/2013 - 16:52 | 3261042 besnook
besnook's picture

time to make paper pennies.

 

cash will be obsolete as soon as they figure out how to buy and sell illegal drugs, weapons and other criminal goods and services with plastic. wells fargo is working on that.

Wed, 02/20/2013 - 17:01 | 3261078 Ahmeexnal
Ahmeexnal's picture

isn't that the reason Goldman Sachs created BitCoin?

Wed, 02/20/2013 - 17:41 | 3261226 espirit
espirit's picture

And all this this time, I thought HSBC had cornered the market on profit from illegal substances.

Oh well, guess it's all fair game now.

Wed, 02/20/2013 - 17:12 | 3261043 Dr Benway
Dr Benway's picture

I guess the gov is penny foolish, pound foolish.

 

So what kind of costs could reasonably be expected for an investor one day selling copper pennies for the 2c in metal? Would be interesting to know at what volumes it becomes worth it.

Wed, 02/20/2013 - 16:53 | 3261050 ParkAveFlasher
ParkAveFlasher's picture

As my father would say, "don't take any wooden nickels".

Wed, 02/20/2013 - 16:55 | 3261056 Dealer
Dealer's picture

I love Kyle Bass.  I'd suck his dick but I'm afraid I'd be labeled a cocksucker for life.

Wed, 02/20/2013 - 20:22 | 3261689 MisterMousePotato
MisterMousePotato's picture

You're going to regret writing that when you sober up, you know?

Thu, 02/21/2013 - 13:40 | 3263893 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

Change your oil ONCE, and they don't think you're a mechanic.

Wear a tuxedo ONCE, and they don't think you're a millionaire.

But suck just ONE cock..

 

Wed, 02/20/2013 - 17:04 | 3261082 wcvarones
wcvarones's picture

There's a lot of minting costs in those figures.

The actual metal value is only 5.1 cents in a nickel, and half a cent in a penny:

 

http://www.coinflation.com/

Nickels have been worth more than 7 cents in the last few years, but declined with the recent commodity pullback.

Wed, 02/20/2013 - 17:11 | 3261104 Kreditanstalt
Kreditanstalt's picture

Don't be ridiculous.

They should be FORCED to continue minting pennies (and for that matter they should be the 100% copper they once were).

The enemy here is not "the penny", not "the cost" nor the goal "saving taxpayers money".  The enemy is CURRENCY DEBASEMENT and the penny should be maintained as a reminder that the real villains are GOVERNMENTS.

Wed, 02/20/2013 - 17:10 | 3261105 rotagen
rotagen's picture

Lets get on topic, you don't need a crystal ball to see what's going down.

 

And theres only one solution.

 

http://www.marketoracle.co.uk/Article39053.html

Wed, 02/20/2013 - 17:14 | 3261120 tony bonn
tony bonn's picture

"...In those seven years, the US taxpayer has lost a stunning $436 million thanks to the inflationary devaluation of the USD relative to the metals involved..."

talk about majoring in the minors and re-arranging deck chairs on the titanic, this farticle rises to imbecility....removing the penny is pure fraud.....the same with a nickel.....how many items jump by more than 5% in price because of that stupid move? not everything which loses money should be ended, including the post office.....there truly are some services which should be maintained at a loss....

with 1.5 trillion usd deficits, whining about an average 60 million usd loss per year is the biggest sanctimonious horse shit i have heard in a long time....

if you want to save real money, slash and burn the cia, defense, debt, and bureaucrats.....that would be savings you could crow about....in the mean time, we will have to listen to this chicken shit about the cost of the penny and the post office.

Wed, 02/20/2013 - 17:17 | 3261136 fuu
fuu's picture

<golf clap>

Wed, 02/20/2013 - 17:30 | 3261192 smartstrike
smartstrike's picture

...that was just a plug for Kyle Bass to keep his name in the limelight.

Wed, 02/20/2013 - 18:20 | 3261362 hardcleareye
hardcleareye's picture

Nope, that was a "Tyler Troll"... wasting my time....  lol

If you want to read what Bass is saying these days go to his blog

http://kylebassblog.blogspot.ca/

Wed, 02/20/2013 - 17:15 | 3261123 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

I think that the US should start minting SUB PENNY coins!

Wed, 02/20/2013 - 18:00 | 3261284 Mi Naem
Mi Naem's picture

It is unfortunate that copper, zinc, and nickel have gone up in price. 

What we need is for everybody to wear WIN buttons.  (for "Whip Inflation Now") 

Those buttons bring prices down, which is what causes inflation.  This was one of the good ideas that Gerald Ford (American President and frequent star on Saturday Night Live)  came up with.  It worked in the 70's, and helped get him re-elected.

Wed, 02/20/2013 - 19:37 | 3261559 Acidtest Dummy
Acidtest Dummy's picture

I see what you did there.

Wed, 02/20/2013 - 18:16 | 3261346 Honey Badger
Honey Badger's picture

"In those seven years, the US taxpayer has lost a stunning $436 million ..."

To put that into context, the Fed prints $2.79 billion every DAY.   

Wed, 02/20/2013 - 18:19 | 3261357 Weyland_Yutani
Weyland_Yutani's picture

I guess the expression "worth every penny" is void?

Wed, 02/20/2013 - 20:16 | 3261674 Fredo Corleone
Fredo Corleone's picture

Weyland-Yutani.

"Building Better Worlds"

Wed, 02/20/2013 - 18:22 | 3261364 Monedas
Monedas's picture

Many of the world's government mint coins are sold at a loss .... paper markets are a rip off .... crocked government casino with bottomless pockets .... even Monedas could make money with those advantages .... while mint coins are heavily subsidized .... moral .... buy phizz govmint coins .... it's a no brainer !    While they are auditing US gold .... let's see a "real" audit of the US and Canadian mints .... nevah gonna happen !       Monedas     1929     Comedy Jihad World Tour    Fatwas issued while you wait !

Wed, 02/20/2013 - 18:24 | 3261372 Pancho Villa
Pancho Villa's picture

I'm afraid that the penny and the nickel are doomed. But we don't really need them. In the 1960's, a penny had at least as much purchasing power as the dime does now. For example, four pennies would buy a first class stamp and 25 pennies would buy a gallon of gas. Now, four dimes will get you a first class stamp and 25 dimes will NOT get you a gallon of gas.

We don't need pennies and nickels and whenever the melt value of a coin becomes significantly higher than its face value, people start hanging onto them and they cease to circulate.

Wed, 02/20/2013 - 20:35 | 3261707 MisterMousePotato
MisterMousePotato's picture

When I was a kid, a nickle would buy a pack of gum (five sticks of Juicy Fruit [probably real sugar]. Or was it ten sticks?). Ten cents bought a large(ish) candy bar. Four ounces? Six? Eight even? Can't recall. This was 1960 +- or thereabouts. Twenty-five or fifty cents was some real money for a kid back then.

Wed, 02/20/2013 - 18:29 | 3261384 Rick Blaine
Rick Blaine's picture

Some of the critics of Bass' "nickel trade" crack me up.

They often cite how it is illegal to melt down, or otherwise destroy, coins...so he'll never be able to truly benefit from it...

The way I see it, he really can't lose on it...at least if you consider the two extreme outcomes of all of "this."

If (when?) we eventually experience a legit currency crisis, and we pretty much go SHTF, no one is going to give a damn about laws like that...and the nickels will hold their value to at least some degree because of the raw materials...assuming of course he/his clients have physical possession of them...

...and if we ever let true deflation ever take hold (like we should have done in '08), the nickels will go up in value as a currency.

Either way, he has succeeded in at least preserving some of the wealth of his clients - and if you listen to his various speeches, etc., that's what he's really trying to do.  He's not necessary trying to make a killing on each and every "bet" he places.

I THINK the only way he could "lose" on this bet is if we see a steady, controlled "inflation" - but IMHO, that's less likely to happen than either of the two "extreme" outcomes.  Shit, Japan has been trying to do inflate their way out of their debt problems for 20 years...and all they're done is add more debt....

Wed, 02/20/2013 - 18:38 | 3261404 Antifaschistische
Antifaschistische's picture

by the way Mr. Blaine,

Yes...it is currently illegal to "melt" coin.   But if you did, there's not a recycler in the US that's going to question where you big block of copper came from.   Though, with nickels at 75% copper, they may want to assay it first....and you won't be able to melt this on your kitchen stove.

Wed, 02/20/2013 - 19:48 | 3261583 Rick Blaine
Rick Blaine's picture

Yeah...it may not be "easy" to get to make that material "usable"...but at least he/his clients will "have" it.

The only commodities I own are in the form of thousands of small pieces of lead...most of which are covered by a thin copper "jacket."

I figure no matter what happens, they'll always be worth something.

 

Wed, 02/20/2013 - 18:35 | 3261400 Antifaschistische
Antifaschistische's picture

For the fun of it, I've purchased a few hundred pounds of pennies from "sorters" like pennybullion.com.   They pull the pre-1982 pennies.  There are other sorters on ebay.

Out of rebellion, I throw every other penny I get into the trash, or into the street to show others how worthless it is, and to force the US Treasury to spend a few cents to remake and redistribute replacement pennies.

Please join me.

Wed, 02/20/2013 - 19:46 | 3261587 Acidtest Dummy
Acidtest Dummy's picture

You should cut off your nose to spite your face? Nah, keep the '82 and older pennies and buy nickels with the newer ones. I thought everyone knew that.

Wed, 02/20/2013 - 20:31 | 3261718 SKY85hawk
SKY85hawk's picture

What's with pre-1982 pennies?

 

Thu, 02/21/2013 - 00:10 | 3262235 Acidtest Dummy
Acidtest Dummy's picture

Predebasement or before the debasement, 1982 was the last year pennies were 90 percent copper, 10 percent zinc. 1983 was the first year pennies are 90 percent zinc, 10 percent copper.

Oh yeah, PROSECUTE THE WAR CRIMINALS.

Wed, 02/20/2013 - 18:47 | 3261425 Herdee
Herdee's picture

Maybe the U.S. Government should get their penny and nickel and the rest of the coinage made in China in order to save money (they let Corporations destroy America this way).Or even better,sell the U.S. Mint to China.I was reading today that the Chinese have already bought enough oil and gas assets worldwide that the production from the assets is more than Saudi's now.Seems like everybody is selling out to them.

Thu, 02/21/2013 - 00:14 | 3262240 cynicalskeptic
cynicalskeptic's picture

China is converting all the $US they've gotten making crap for us into HARD ASSETS, knowing damn well that the value of the dollar is tanking.  China is converting dollars into equity stakes in Australian and South American mines, African farmland and energy sources all over the world.

Wed, 02/20/2013 - 20:00 | 3261622 robertocarlos
robertocarlos's picture

My small grocery store stopped using pennies except in the price of goods. If you buy a $1.99 item and hand them a twoonie, you get no change. It's ridiculus.

Wed, 02/20/2013 - 20:59 | 3261792 Old Poor Richard
Old Poor Richard's picture

Keep harping on it, you dipshit.  If you keep calling the USGov stupid long enough, they're finally going to cave and start making our money like those toxic, smelly slugs that come out of Europe.  Ever jangle a handful of Euro fractional coins compared with a handful of US coins?  Ever get a whif of Euro coins?  As a taxpayer, I'm happy to have some of my tax money go to making sure our coinage isn't skanky and slug-like.

 

Thu, 02/21/2013 - 00:12 | 3262238 cynicalskeptic
cynicalskeptic's picture

Pennies no longer made from coper because the metal value is higher and now even the 'cheaper metal version is worth more for its metal value - so time to make a 'cheaper' coin AGAIN.

Doesn't this count as 'debasing' coinage? - not as bad as removving all the silver from coinage in '64 but still a debasement.  

And wasn't debasement a capital offense in th eoriginal Constitution?

 

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