Dunn Research Group

Penny Wise is Pound Foolish

2009-11-01T10:21:00.000-08:00

Benjamin Franklin once observed that "a penny saved is a penny earned," however, in recent times, a penny saved is almost two pennies earned. Pennies made prior to 1982 contain 95% copper. Pennies made after 1982 only contain 5% copper. Therefore, at today's copper prices, a pre-82 penny is actually worth $.019. Rounded up, that's $.02. See Coinflation.com for more information.

Many people save pre-82 pennies because they see the value of copper rising in the future due to inflation and demand for the metal. These people are often referred to as "penny-hoarders". I would refer to them also as "wise"- how often when investing can you purchase your investment at half of its' value? It is literally instant profit- once the copper is melted down- which we will discuss shortly.

If you decide that saving pennies is a good idea, you can start by just sorting through the pennies you receive as change every day. Identify the pre-82 pennies before you even put them in your pocket, and store them in a different pocket. Pretty soon, it will become habit. At some point in the future, you may find yourself willing to expend a certain amount to expand you penny-saving program. Ryedale Coins makes a line of machines that will seperate up to 300 pennies per minute. Here is a video showing it in action.

At this point, it is important to note that the US Federal Government, as of December 2006, has made illegal the melting or exportation of pennies and nickels. If you melt or export too many coins, you will be labelled a criminal and fined up to $10,000 or imprisoned for up to 5 years. In the ruling, Director Ed Moy states that "We don't want to see our pennies and nickels melted down so a few individuals can take advantage of the American taxpayer. Replacing these coins would be an enormous cost to taxpayers." It seems Mr. Moy has failed to note that the production of these coins has already come at enormous cost to the taxpayer, as it costs more to manufacture and ship the coins than the coins are notionally worth- see page 18 of the 2007 Annual Report from the US Mint.

The illegality of melting copper and nickel coins is questionable. Some would say that the coins belong to the US Federal Government, and it certainly bears their image. Jesus even told them to "render to Caeser that which is Caeser's". There are a few points to consider. If any producer of a good or service sells that product for less than it is worth, thereby losing money, it is their responsibility to suffer the loss. The US Mint had no restriction on melting copper pennies until 2006, when it became evident that copper prices would be high and stay high. Furthermore, when a person earns wages for their output, it is their money to spend. They have traded a product of value for like value. Formerly, they possessed the product, now they have exchanged it for coinage. The Federal Government's only role in the transaction is to "coin money and regulate the value thereof".
If the Federal Government loses their shirt in coining money, that is their loss to bear. Perhaps they should regulate the value of the pre-82 penny upward to stem the tide of coin meltings. Or realize that no one can regulate the value of anything- value is relative to the parties involved in a transaction. Either way, each individual should be aware of the consequences of their decisions and be willing to bear those consequences, whether they be fair or not.

Let us examine two more possibilities: 1) the US Mint could lift the melting and exportation restrictions, or even retire the penny and 2) your economic survival could depend on your ability to save pennies and melt them down. In the first scenario, my advice would be to melt the coins when the ban is lifted, in the expectation that it would be imposed again. Then, you may claim that no laws have been broken. In the second case, you must define what your conscience allows. As we move closer to more government oversight and regulation, each person will find themselves choosing between what is legal and what is illegal to survive. Note that metal scrap laws have been enacted in many states, requiring photo ID and a vehicle, and creating incentives for scrap dealers not to accept metals, such as requiring them to hold metals for weeks, risking that the businesses will lose money if their scrap purchases go down in value over that time.

In closing, note the words of Samuel Johnson, "Do not discourage your children from hoarding, if they have a taste to it; whoever lays up his penny rather than part with it for a cake, at least is not the slave of gross appetite; and shows besides a preference always to be esteemed, of the future." It is wise always to ponder on the future, and lay up now for future needs then. It may make you wealthy, and it may help you survive.

You Can't Eat Silver

2009-10-25T14:18:00.001-07:00

For most of Americans, prior to the post-WWII era, storing about 6-months supply of food was a fact of life. We take for granted now that we will either have enough money to buy food, or have a steady and convenient source for food. Such has not historically been the case, and many indicators point to an increase in food prices, and/or a reduction in the food supply:

-Inflation, especially given the large increase in the dollar supply.

-Reduced/ destroyed harvest, due primarily to soil and weather conditions, including natural disaster. (Note that if rice prices go up and/or supply down, so will wheat and other staples, as people seek alternatives)

-Less available petroleum due to inflation and/or supply issues, and exorbitant fuel costs for food-shipping.

-Loss of income due to unemployment and/or financial failures.

Our ancestors had a saying, "Store what you eat, and eat what you store". Following are some suggestions for food storage.

-Use this food-storage calculator to help determine your needs.

-Start a small garden and learn how to grow food. Plan it out on paper if it helps you envision your garden. Seed packets will tell you spacing on your plants. Or try growing just a few plants in a pot. In the process, you will understand the amount of energy required to produce food.

-Learn to can and preserve food. There is a starter kit available for $50.00. Watch videos on youtube, or find a book.

We are heading into uncertain times, and while I am not suggesting you go out and buy a year's worth of food, it is a considerable idea. As events unfold over the next several weeks and few months, ask yourself where you see trends going as to food prices/supply and availability of income/dollars/money. Where is the most beneficial place to use your limited resources? Buying silver is great, but you can't eat silver.

The Time to Refinance is NOW

2009-10-14T07:39:00.000-07:00

Over the past year, the Federal Reserve has doubled the monetary base, primarily through excess reserves on deposit with the Federal Reserve. Think of the Federal Reserve System as a bank for banks. When a bank has extra dollars, they can deposit them in the FRS, and earn interest on those dollars, much like you or I would by depositing extra dollars in a savings account.
What you may find interesting is that the "extra dollars" or excess reserves, were created out of thin air. Yes, someone at the Federal Reserve typed a combination of buttons on a computer keyboard that resulted in "deposits" made at the Federal Reserve. Here are some graphs to help you understand how easy, and dramatic, the rise in the monetary base has been:

click on chart for larger view

The first graph shows an increase of almost $900 billion in the excess reserves on deposit with the Federal Reserve System.

click on chart for larger view

The second graph shows where the extra $900 billion has been added to the overall monetary base, unadjusted. (Adjusted means the data has been adjusted to hide or obfuscate problems and otherwise benefit political interests)

The excess reserves are dollars that are on deposit, and not lent out by the banks, and therefore not circulating. In other words, they are dollars not being spent.

The banks earn interest on these reserves, currently about .013%- less than a quarter of 1%. Ask yourself- why would banks want to earn .013% on their savings rather than lend it out at a rate of 7%, or 3%, or even 1%?

Another question to ask is- what happens when banks do decide to lend from their reserves? First, it will increase the amount of dollars in circulation, which inevitably leads to inflation. Given the large and rapid increase in dollars, it is believable that hyper-inflation would happen at some point. (There are many countervailing trends in play that would postpone or even prevent this, and Robert Wenzel at EconomicPolicyJournal does a most excellent job of following and relaying these)

To fight inflation, the Federal Reserve will raise interest rates to slow down the circulation of money- people and businesses are more likely to borrow money at 2% interest than 12% interest. And to fight rampant inflation, the Fed will really raise interest rates- reference the spike in mortgage interest rates around 1980. Given the extraordinary circumstances we are in today concerning the monetary base, it is conceivable that mortgage interest rates could go as high or higher than they did in the 1980's.

To further reinforce the data, reference a speech given by Kevin Warsh, a Governor and Board Member of the Federal Reserve System, in which he states that:

"...when the decision is made to remove policy accommodation further, prudent risk management may prescribe that it be accomplished with greater swiftness than is modern central bank custom."

Understand that "policy accommodation" refers to helping political interests achieve their goals by doing what the FRS does best- print dollars. Mr. Warsh admits that this decision at some point will be "removed", and that the ensuing "risk management" will occur with "greater swiftness than is modern... custom". Basically, he is admitting that the FRS will move faster to raise rates- or erase dollars- than has ever been done before.

Therefore, based on this information, it would be wise to consider refinancing your current mortgage to a fixed, low-rate mortgage loan, if you haven't already. And in an inflationary environment, it will be much easier to pay off that mortgage, especially if you can keep your income growing steady with inflation. Practically speaking, gold and silver are best at this. Other currencies can, to the degree that they are not backed by the US Dollar.

Will the Real Pro-Choicers Please Step Forward?

2009-10-02T18:50:00.001-07:00

Will the pro-choice crowd have the will to stand up and tell governments to "keep your laws off my body?"

I won't hold my breath. In the meantime, reference here what can be done should you end up having the vaccine injected.

Cold Hard Cash

2009-09-24T16:35:00.000-07:00

What's the first image that comes to mind when you hear the phrase "cold hard cash"?

Do you think of a dollar bill, a.k.a., the Federal Reserve Note? If indeed you did think of a piece of paper with green ink on it, does it strike you as odd that a piece of paper could be "cold" or "hard"?

I know of something that is cold and hard and is money: silver, and its' better know cousin, gold. There was a time not too distant in the past when our great-grandparents used these precious metals as an exchange of value.

There are many reasons to buy silver, either to hold, or as an investment. Many good people have written on these subjects, for instance, here, here, and here.

My favorite reason to own silver? Because it is money created by God, not by man. It cannot be counterfeited. Do you find it ironic that we put God's name on paper money, which has no value, and we have forsaken the ability to use God's created money which has intrinsic value?

If you've never bought silver, know that few do. It may not seem normal at first. I would encourage you to study silver as money, and silver as an industrial commodity, starting with the links above. Do your homework, and buy only what you understand. Save up in the meantime.

Stop by a local coin dealer. Walk in and talk with someone knowledgable about gold and silver. If you're not comfortable with that, call them. Eventually, it could benefit you to build a rapport with someone you trust.

Some terms that may help-

Coins: usually refers to government-issued coins, i.e., Eagles, Krugerrands, Maples, etc.

Rounds: private-issued coins- the government would have you believe they own the word
"coin". Rounds come in all different designs, and almost always weigh one troy
ounce. They also tend to cost less than government "coins".

Junk silver: older silver coins, like dimes, quarters, half-dollars, and dollars. Pre-1965, when
the government ceased making coins of silver, and reverted to baser metals of
lesser value. These coins are 90% silver, though some are 40%, depending on the
date. You will usually pay face value multiplied to reflect current spot price. For
example, I recently bought some junk quarters at 12 times face value. Those
coins, each worth 25 cents in 1960 are now worth $3.00. You get the most silver
for your money from junk silver.

Spot Price: this is the current price at which a metal is selling. It fluctuates throughout the
day, always changing to reflect buying/ selling activity. Check it here 24/7.

Don't be afraid to learn and try something new- it could make you wiser and wealthier.

Go buy some silver.

A Cool Measure of Inflation

2009-09-22T10:38:00.000-07:00

For years now, I have kept a watchful eye on the price of the Lasko box fan, available at Home Depot, Lowe's, Wal-Mart, and many other retailers. It is a basic sheet-metal frame with plastic grills, plastic blades, a motor, and 3 speeds. It is also very inexpensive.

It appears the model 3733 is the most affordable fan Lasko makes, and I doubt they could produce it at a much lower cost. This is the most basic fan I have found. Given this observation, and the fact that I have abused these fans on construction jobsites for many years with little recourse, I highly recommend buying one for work and home use.

Generally, I buy at least one every year, in the spring, and I have noticed the creep in price every year. Here's a breakdown:

2009: $14.99
2008: $11.99
2007: $9.99
2006: $8.99
2005: $9.99
2004: $9.99

These are the prices I paid at either Lowe's or Home Depot. I do shop around when I buy them, as I am fascinated with the change in price annually, and I make notes of the prices.

I consider this price as an indicator (of many) of price inflation.

Is inflation heating up? Will your Lasko help you keep a cool head?