Earlier today I wrote about Kyle Bass buying $1 million of nickels.
That seemed like a weird investment. Kyle Bass is a lot smarter than I pretend to be, however, so maybe I thought maybe I was missing something.
It's undeniably true that the metal materials in US Nickels is worth more than the coins. But melting U.S. coins is illegal, so realizing that value might be challenging.
One surprising thing I discovered is that many people who are hoarding nickels are doing so as a hedge against hyper-inflation.
How do you buy currency to hedge against inflation in that currency?
SurvivalBlog argues that when countries revalue their currencies by dropping a zero in the aftermath of inflation, they often merely revalue the paper money. The coins are left circulating at face value.
Typically, this leaves the holders of coinage as the unexpected beneficiaries of a 10x, 100x, or even 1,000x gain of the purchasing power of their coins. Governments just assume that most citizens just have a couple of pocketfuls of coins at any given time. So if a currency swap were to happen while you are sitting on a big pile of nickels, then you would make a handsome profit. To "cash in," you could merely spend your saved nickels in the new currency regime.
Hoarding nickels may also be a bet that the composition will change.
It seems impractical for the U.S. to continue minting coins with face values below the cost of their metal. So eventually the government may start using less nickel in the nickels. This could inflate the value of the pre-change nickels.
So maybe nickle-hoarding isn't knuckle-headed.
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