Red headed stepchildren of the hard asset investment world?

[Derek.Sheriff]

Every time I hear someone call in to a pro-hard asset investment radio show or podcast to ask about copper pennies, the host or guest seems to answer the question in a way that shows their knowledge about investing in base metals, but exposes their ignorance about copper pennies.

Sorting or even buying copper pennies is much different than investing in a copper ETF or even purchasing other kinds of copper bullion IMHO. Thoughts?

[Derek.Sheriff]

Heck, I guess being the red headed step child means you're on the radar screen. Maybe we haven't even gotten that far yet

[barrytrot]

"on the radar" probably means how many people/companies/funds have at least $10 million in the asset.

I would say the number of people/companies/funds with $10 million in cents is probably zero, maybe 1 or 2.

Therefore it doesn't exist to most "eyes".

But, hey, for most people $1 million is still a good deal of cash And I'm pretty sure there are a few with close to that.

[stlouiscoin]

"on the radar" probably means how many people/companies/funds have at least $10 million in the asset.

I would say the number of people/companies/funds with $10 million in cents is probably zero, maybe 1 or 2.

Therefore it doesn't exist to most "eyes".
But, hey, for most people $1 million is still a good deal of cash And I'm pretty sure there are a few with close to that.

the us mint says that they own all coins and bills, they just "represent" value when citizens how possesion of them. so according to the us mint, they own all copper pennies, as well as all pennies.

So, there is only 1 orginazation that owns over 10 mil in coppers, and there will only be 1

[John_doe]

let time get the last laugh. the only problem with their ignorance is a lack of liquidity in the market. they will be crawling back in 50 years or less.

[scyther]

let time get the last laugh. the only problem with their ignorance is a lack of liquidity in the market. they will be crawling back in 50 years or less.

I really hope it doesn't take 50 years...

[AGgressive Metal]

"on the radar" probably means how many people/companies/funds have at least $10 million in the asset.

I would say the number of people/companies/funds with $10 million in cents is probably zero, maybe 1 or 2.

Therefore it doesn't exist to most "eyes".
But, hey, for most people $1 million is still a good deal of cash And I'm pretty sure there are a few with close to that.

the us mint says that they own all coins and bills, they just "represent" value when citizens how possesion of them. so according to the us mint, they own all copper pennies, as well as all pennies.

So, there is only 1 orginazation that owns over 10 mil in coppers, and there will only be 1

This is urban legend - refiners melt 35%, 40%, and 90% US silver coins every day, no?

[John_doe]

let time get the last laugh. the only problem with their ignorance is a lack of liquidity in the market. they will be crawling back in 50 years or less.

I really hope it doesn't take 50 years...

This is my pessimistic view. I always expect the worst and prepare for such.

[Derek.Sheriff]

After reading the article about the guys who made a business out of selling copper pennies to refineries, I'm persuaded that the US Mint does claim ownership of all coins, it's just that they permit some to be melted while melting other coins is prohibited. Do I have this right?

Not that anyone would want to, but isn't it legal to melt quarters and dimes for example?

[Derek.Sheriff]

I guess my biggest gripe is that anytime someone calls or emails a financial show with a question about investing in copper pennies, the host or guest will go right to talking about the pros and cons of investing in copper in general. They overlook the fact that while an ETF, a futures contract, a copper bar or medallion can drop in value dramatically, copper pennies can't drop in value any more than cash, by virtue of their being legal tender. You can't lose your shirt investing in copper pennies the way you can with other copper related instruments or non-US minted copper bullion.

They also never seem to mention that paper dollars can be exchanged for copper pennies essentially free.

Sure there is labor involved in sorting coppers, but they never mention that sorting can be automated either. Investing in copper and investing in copper pennies is not even close to being the same thing IMHO.

[AGgressive Metal]

I'm persuaded that the US Mint does claim ownership of all coins, it's just that they permit some to be melted while melting other coins is prohibited. Do I have this right?

There are a variety of things you can't legally destroy without the government necessarily claiming ownership (example: endangered animals). The government claims some unique sovereign powers when it comes to money, but I don't think they go so far as to claim ownership of every coin after they are in circulation.

[Lemon Thrower]

copper is the red headed step child for good reason.

most people who are into real assets understand the economy. copper is tied to industrial production. we are in a global depression, and the chinese have been stockpiling it for years.. copper may go down in value in the future.

just because its a 'real asset' doesn't mean its a worthwhile specualtion. gravel is a real asset. neither gravel nor copper are precious metals.

[Derek.Sheriff]

copper is the red headed step child for good reason.

most people who are into real assets understand the economy. copper is tied to industrial production. we are in a global depression, and the chinese have been stockpiling it for years.. copper may go down in value in the future.

just because its a 'real asset' doesn't mean its a worthwhile specualtion. gravel is a real asset. neither gravel nor copper are precious metals.

I understand and agree with everything you wrote, but we're not just talking about generic copper here. Copper bars and gravel are not legal tender. As legal tender denominated as 1 one hundreth of a dollar, there's virtually no downside risk when compared side by side with paper dollars or their digital equivilent. There's a big downside risk for copper in other forms.

So let's say that the government lifts the melt ban and the next day the price of copper crashes. It seems to me you are still better off than you would be holding that same amount in paper dollars. What am I missing?

[Lemon Thrower]

there is risk.

if i tie up my money in copper, i have to pay for storage and wait for the goverment to lift the melt ban. that could be 1-5 years away. when the ban is lifted, i can probably get 85% of melt. between now and then, copper could decline. now in the mean time silver might triple.

you have a point that the copper will never decline more than 30%, but that does not mean it is the best investment.

[SilverDragon72]

Sure there is a risk. But isn't that the point of spreading out your money among different things? Copper will up and down, that's true. But what will it look it in 10, 20 or 30 years from now? Could it be the same as silver is treated today? I have a small copper position, and I will probably accumulate only so much, since I like to diversify into other things as well. Buy and hold for long term....but that's just me!

[barrytrot]

Depending on how you define risk there is zero with copper cents. "Opportunity cost" is never part of risk.

You "buy" a copper cent for 1 cent it's minimum value is always 1 cent. Zero risk.

[Derek.Sheriff]

there is risk.

i have to pay for storage and wait for the goverment to lift the melt ban. that could be 1-5 years away..now in the mean time silver might triple.

you have a point that the copper will never decline more than 30%, but that does not mean it is the best investment.

I don't pay for storage, but I hope you're right about the time frame for lifting the melt ban! But anyway, I agree about the opportunity cost involved.

[Derek.Sheriff]

I'm persuaded that the US Mint does claim ownership of all coins, it's just that they permit some to be melted while melting other coins is prohibited. Do I have this right?

There are a variety of things you can't legally destroy without the government necessarily claiming ownership (example: endangered animals). The government claims some unique sovereign powers when it comes to money, but I don't think they go so far as to claim ownership of every coin after they are in circulation.

I'm going completely off what the guy who had the huge pre-melt ban business reported he was told by the US Mint. I've never researched it in depth, which is why I'm only pursuaded but not totaly convinced.

[Derek.Sheriff]

This quote from Nate's comment on an article calling penny hoarding "insane" reflects my attitude. He really explains it clearly IMHO:

"I would not invest 100% of my funds in copper pennies, by any means, but they certainly they have a place in balanced metals portfolio, and that is what most people who sort pennies are doing. Most are also invested in gold, silver, other forms of copper, and other base metals. The beauty of copper pennies is that they are a virtually 'risk free' investment. At best, ten years from now copper pennies may be trading for 7 – 10 times face value (or more). At worst, they are still worth $0.01. With a solid floor, and a high ceiling, why not give them a shot?"

As for where copper prices will be in the future, I highly recommend this post written by Dr. Stephen Leeb, titled, "'Unimaginable' prospects for copper".

http://leeb.com/long-term-growth/%E2%80 ... r-10-31-11

He could be completely wrong for all I know and I don't agree with some of his solutions, but if he's right then penny sorters should get a very nice return on their investments while also having a lot to worry about when it comes to the future of the USA.

[ZenOps]

Copper is precious enough for me, 16 million tons per year is rarish in my view. If copper were that common, the US, Britain and Canada would still be using it for pennies (disco'ed in 1982, 1991 and 1996 respectively)

Iron is the one that is a true base metal at 2.6 Billion tons per year. Aluminum as well, at 44 million tons per year (but is actually more common than Iron, if the demand and price of aluminum should rise, it could easily be in the billion ton range.)

Just in energy expendature alone, with the exception of Iron - any metal takes at least 90 cents per pound or so (current spot price) or else it starts to become unfeasable to mine. In which case its deflation.

[Lemon Thrower]

Depending on how you define risk there is zero with copper cents. "Opportunity cost" is never part of risk.

You "buy" a copper cent for 1 cent it's minimum value is always 1 cent. Zero risk.

1. you can't buy copper cents in any meaningful amount for a penny unless you are ignoring your labor.
2. storage of copper in meaningful amounts costs money and is out of pocket. portland mint charges you for storage.
3. opportunity cost may not be out of pocket, but its real. you can also call it purchasing power risk.

the once cent face value is a floor on your risk, but its just that - a floor - rather than the absence of risk.

I traded most of my copper for silver. lets say you choose not to and copper goes up to $4/lb and silver quadruples. So your copper is worth theorectically 2.5 cents if and when the melt ban is lifted (in all likelihood, 85% of 2.5 cents) each but face value is still just 1 cent. In the meantime, gas and groceries are up by 20%. You may choose not to call that a risk, but I call it a risk.

[Derek.Sheriff]

Copper is precious enough for me, 16 million tons per year is rarish in my view. If copper were that common, the US, Britain and Canada would still be using it for pennies (disco'ed in 1982, 1991 and 1996 respectively)

Iron is the one that is a true base metal at 2.6 Billion tons per year. Aluminum as well, at 44 million tons per year (but is actually more common than Iron, if the demand and price of aluminum should rise, it could easily be in the billion ton range.)

Just in energy expendature alone, with the exception of Iron - any metal takes at least 90 cents per pound or so (current spot price) or else it starts to become unfeasable to mine. In which case its deflation.

Your post was full of a lot of good, thought provoking info. Thanks.

[scyther]

2. storage of copper in meaningful amounts costs money and is out of pocket. portland mint charges you for storage.

What do you consider a meaningful amount? I think you could store at least a few thousand dollars (face value) without taking up a ton of room in your house, let alone paying someone else to store it...

[Lemon Thrower]

yes, you could store several thousand dollars FV of pennies in your house, but the question is whether that would be meaningful.

a meaningful amount will depend on how much cash you need to live. but consider this.

hypothetically, if you had $4000 in pennies, and they lifted the melt ban today. copper cents are worth about 2.3 cents. If you could get a local refiner to pay you 85% of melt, you would be doing pretty good (hard to get that even for sterling). If he's out of town, then you have to add shipping. So you invested a penny for these cents, and if you are lucky you will clear a penny profit. so your 'investment' makes $4000. Now consider how long you can live on $4000. A long time ago, when i was in college, i could make $4000 last a whole year. but that was a long time ago. So $4000 is a nice chunk, but you wont' live on it long. Also, it takes quite a bit of effort to accumulate $4,000 FV of copper cents in the first place. If you do a few hundred a week, and have good percentages, you could do this in a year. But $4000 is say par for a year - you are really going to extraordinary work to do more. So say you wanted $40,000 in copper cents - how would you go about getting them? If you buy them presorted, you knock 30% - 60% off of your investment return. And that's 4 million pennies, which would take up 50-100 cubic feet.

in contrast, 3 gallon jugs of silver would have a value of well over $40,000.

however, leaving aside quantities, what you should do really all depends on whether you think silver is going to outperform copper. it has so far, and i expect it to continue.

[scyther]

I agree sorting copper isn't the best way to make money, especially if you hand sort. As for the storage problem, I guess it just depends where you're living and how much stuff you already have taking up room. If you have an empty corner in your basement, you could probably fit tens of thousands FV there. If you're living in a small apartment, it could be a problem. I don't think most people would consider putting all their money into pennies, though. As for silver outpacing copper- yeah, it probably has more upside, but it also has a definite downside. It was $9 an ounce just a few years ago. You could lose a lot of money on it. Which is why I feel more comfortable stacking mostly copper...