Daily Dose of Optimism

US Coinage Hoard/Spend Index: Value of Metal in US Coins

Times were, when kids asked their parents why nickels were called "nickels," they got an answer about how the coin was once made out of the metal nickel, even though they are now made primarily from copper.

You will soon know how old you are when you tell your kids about buying anything with pennies, nickels, quarters, or dimes, and they ask you what the hell a penny, nickel, quarter or dime is, as that type of money won't exist anymore. Then, you will remember that metallic currencies were phased out around 2015 when the price of the metals used to make those coins was prohibitively expensive, and you will kick yourself for being old.

I have written for about the value of the zinc in pennies, and said that the metal in a penny would be worth more than a penny when zinc hit about $3,200 per metric ton. (Turns out that figure wasn't exactly correct - new calculations say, depending on the price of copper, that this would be around $3,900 per metric ton.)

I now realize that we are probably just a few years away from a scenario where the US decides that all money is either paper or electronic. Why would I say this, after calculating for myself the prices of just a few coins?

Take a look at the US Coinage "Hoard/Spend Index" below (a DDO exclusive!). Coins to hoard have a metal value greater than the currency value. Coins to spend have a metal value less than the currency value.

Conclusion? Dimes and quarters still have a few years left as coins. However, pennies and nickels have either outlived their usefulness, or are close to it. - Ed

Note: I am not factoring in the cost of producing the coins, and only have pricing for high grade metals. Metal prices:

Rock The Casbah

I found myself listening to The Clash again recently, and I had a few questions about the song "Rock the Casbah," so I turned to Google, which in turn led me to Wikipedia.

Turns out there are a number of interesting things about this song, so I thought I would share the video and some of the lyrics with you. According to Wikipedia:

The song was inspired by the banning of rock music in Iran under Ayatollah Khomeini. The song gives a fictitious account of the ban being defied by the population who proceed to "rock the casbah", causing the King to order jet fighters to bomb any people in violation of the ban. The pilots ignore the orders, and instead play rock music on their cockpit radios.

Who would have thought The Clash could be so intellectual and culturally sensitive? Here's the video, courtesy of the (soon to be?) $1.6 billion YouTube:

Also check out the lyrics, partially excerpted below:

Now the king told the boogie men
"You have to let that raga drop"
The oil down the desert way
Has been shaken to the top

The sheik, he drove his Cadillac
He went a-cruisin' down the ville
The muezzin was a-standing
On the radiator grille

Sharif don't like it
Rocking the casbah
Rock the casbah
Sharif don't like it
Rocking the casbah
Rock the casbah

By order of the prophet
We ban that boogie sound
Degenerate the faithful
With that crazy casbah sound

But the Bedouin, they brought out the electric camel drum
The local guitar picker got his guitar picking thumb
As soon as the sharif cleared the square
They began to wail [...]

A Student's Guide to Startups

If you've ever thought about starting your own business, these excerpts from a recent Paul Graham essay are particularly inspiring. - Ed

Link: A Student's Guide to Startups

As well as preventing you from being intimidated, ignorance can sometimes help you discover new ideas.  Steve Wozniak put this very strongly:

All the best things that I did at Apple came from (a) not having   money and (b) not having done it before, ever. Every single thing   that we came out with that was really great, I'd never once done   that thing in my life.

When you know nothing, you have to reinvent stuff for yourself, and if you're smart your reinventions may be better than what preceded them.  This is especially true in fields where the rules change. ... Who knows what obsolete assumptions are embedded in the conventional wisdom? ... Someone ignorant but smart will come along and reinvent everything, and in the process simply fail to reproduce certain existing ideas.

[...]

Even more important than living cheaply, is thinking cheaply. One reason the Apple II was so popular was that it was cheap. The computer itself was cheap, and it used cheap, off-the-shelf peripherals like a cassette tape recorder for data storage and a TV as a monitor. And you know why?  Because Woz designed this computer for himself, and he couldn't afford anything more.

We benefitted from the same phenomenon at Viaweb.  Our prices were daringly low for the time.  The most expensive level of service was $300 a month, which was an order of magnitude below the norm.  In retrospect this was a smart move, but we didn't do it because we were smart.  $300 a month seemed like a lot of money to us.  Like Apple, we created something inexpensive, and therefore popular, simply because we were poor.

A lot of startups have that form: someone comes along and makes something for a tenth or a hundredth of what it used to cost, and the existing players can't follow because they don't even want to think about a world in which that's possible.  Traditional long distance carriers, for example, didn't even want to think about VoIP.  (It was coming, all the same.)  Being poor helps in this game, because your own personal bias points in the same direction technology evolves in.

[...]
One of the things employers expect from someone with "work experience" is the elimination of the flake reflex—the ability to get things done, with no excuses.

The other thing you get from work experience is an understanding of what work is, and in particular, how intrinsically horrible it is. Fundamentally the equation is a brutal one: you have to spend most of your waking hours doing stuff someone else wants, or starve. There are a few places where the work is so interesting that this is concealed, because what other people want done happens to coincide with what you want to work on.  But you only have to imagine what would happen if they diverged to see the underlying reality.

[...]

So the most important advantage 24 year old founders have over 20 year old founders is that they know what they're trying to avoid. To the average undergrad the idea of getting rich translates into buying Ferraris, or being admired.  To someone who has learned from experience about the relationship between money and work, it translates to something way more important: it means you get to opt out of the brutal equation that governs the lives of 99.9% of people. Getting rich means you can stop treading water.

Someone who gets this will work much harder at making a startup succeed—with the proverbial energy of a drowning man, in fact. But understanding the relationship between money and work also changes the way you work.  You don't get money just for working, but for doing things other people want. 

Commodity Futures Forward Curves

I have been doing a fair amount of homework on commodities for the past few months.

I'm happy to report that I have now found a number of great websites that provide extensive free news and pricing for commodity futures and options, but one of the things I've had a hard time finding was any information on the term structure of commodity futures contracts.

Hence, I went ahead and created something for my own purposes so I could see how the prices of various futures contract maturities were changing over time.

Take a look and let me know what you think :

Download Futures_Forward_Curves_9-29-06.pdf

This is a first draft, so feedback is appreciated. - Ed

Note: file has been fixed, for anyone who was unable to download on Monday.

The Relation Between Copper Prices, Warehouse Stocks and Currencies

For those of you reading (or writing) that copper is in a "bubble" simply because the price is up dramatically, I thought I would share this graph with you showing the relation between the spot price of copper and the warehouse stocks (aka inventory) of copper at the COMEX since 1974. Admittedly, the COMEX is not the only place that copper can be stored (can't forget about LME) but it is a good start.

This graph is a little out of date (hey, this is free information!) but I think the supply-demand picture is pretty clear. Add into this USD weakness against global currencies, and you should be able to put the moves in the price of copper into context (supply, demand and currency). Current COMEX Copper stocks are ~20k short tons, and LME copper stocks are ~116k metric tons.

Enjoy, and any feedback is appreciated. Copper is priced in dollars and cents per pound, and warehouse stocks are given in thousands of short tons, with a "short ton" being the name for a US ton (2,000 lbs), equivalent to 0.907 metric tons. - Ed

Putting Together the Increase in the Price of Copper
Copper Spot Price, 5 years

LME Warehouse Stocks, 5 Years

NYMEX/COMEX Warehouse Stocks, 60 Days
(Notice how low current inventory is relative to the 1974-2004 graph above) 

USD to EUR, 5 Years

Ken Fisher's Latest Column

Ken Fisher's latest column is up at Forbes.com. If you hurry, you can read it for free (registration required) at Forbes.com before they add it to the $5 archive. In this month's edition, Ken calls Congress for the Republicans, and has some interesting stock picks, two of which I have selected below. - Ed

Link: Fear Will Fade - Forbes.com.

Readers didn't much believe me last month when I said the Republicans wouldn't lose Congress in November. If I'm right and these skeptics are wrong, fears of a big political fallout will fade--which is bullish--and you should buy now before the fear fades. No surprise that readers have this view, since the media are close to unanimous in decreeing that the probability of a Democratic victory is high.

[...]

Germany's  SGL Carbon (6, SGG)  has fallen 33% since May and has yet to recover as it supplies primarily the hard-hit steel and semiconductor industries with carbon and graphite products, which include electrodes, laboratory components and furnace linings. If the economy doesn't roll over, SGL Carbon is too strong not to bounce back. It sells at 80% of sales and 15 times 2007 earnings. 

The Chinese stock market fell in 2003, 2004 and 2005.  China Netcom Group (36, CN) didn't suffer that fate and in fact was in public hands only for the third of those years. Still, in that backdrop you can buy it at only one times revenue, seven times trailing earnings and three times cash flow (in the sense of net income plus depreciation).

With $10 billion in revenue and 120 million voice customers and 13 million broadband customers in ten northern provinces, it is one of China's biggest telecom firms and will move up smartly when the Chinese market recovers.

Great Graph From Business Week About Jobs

Many healthcare jobs are quasi-governmental jobs, so this graph is basically saying that the housing boom and government employment is what has led recent job growth. That's frightening! - Ed