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AMSEC Star Floor Safes – High Security on a Budget

Most of us looking to secure high value items – like cash, jewelry or bullion – are also operating on a strict budget.

Floor safes are the natural solution to this conundrum. These safes are installed directly in the concrete slab in your basement (or ground floor, if your house doesn’t have a basement). Because they are encased in solid concrete, floor safes offer superlative security at a very reasonable cost.

But today I want to talk about a very specific floor safe – the AMSEC Star floor safe. These floor safes are one of the world’s most secure residential safes. They are a perfect choice for the homeowner looking for a high security safe at an affordable price.

Once installed, the door of a floor safe is the only part that is exposed. So assuming proper installation, the security of a floor safe is commensurate with the security of its door. Luckily, the AMSEC Star floor safe’s round, lift-out door is reminiscent of a miniature bank vault.

This is where AMSEC Star floor safes crush the competition. Their round door is more or less a giant steel hockey puck that weighs in at an impressive 20 pounds (just over 9 kilos for our Canadian friends). But in order to truly appreciate just how secure these masterpieces of the safe industry are, we must first understand how they are constructed.

AMSEC starts off with an ingot of tough, A36 steel that is machined into a solid cylinder approximately 7.5 inches wide by 1.75 inches thick. A tiny hole is then drilled completely through the center of the door in order to accommodate the spindle, a narrow metal rod that connects the dial on the front of the door with the locking mechanism at the back.

A small, 3-inch diameter circle is then counter-bored partway into the rear of the safe head, centered on the spindle hole. This excavated space is where the guts of the safe’s mechanical combination lock is installed. Because it is on the back of the safe door, this area is not visible or accessible when the safe door is locked.

This unique construction explains why AMSEC advertises its Star floor safes as only being C-rate (which is defined as having a 1-inch thick steel door), even though most of the door is fully 1.75 inches thick. In fact, out of the safe head’s total surface area of 44.2 square inches, only 7.1 square inches, or 16% of the safe door, is protected by the thinner, 1-inch thick layer of steel. The other 84% of the safe door is a monolithic, 1.75-inch thick steel plug.

Photo Credit: AMSEC

But this technically-correct application of the C-rate burglary standard overlooks a multitude of mitigating factors that make AMSEC Star floor safes significantly more secure than their C-rate designation would imply. In reality, AMSEC Star floor safes are comparable to free-standing TL-15 safes in terms of security, but at a fraction of the cost.

In order to illustrate this, let’s talk for a moment about how you would theoretically try to crack an AMSEC Star floor safe.

Attempting to intuit the lock combination via traditional, manipulation-style safe-cracking is futile. Every AMSEC Star floor safe comes with a manipulation-resistant, Underwriters Laboratories (UL) Group 2 mechanical lock. Even better, this same lock used to carry the higher security, UL Group 1 certification. It is a proven design that has been seasoned over many decades. And although the lock no longer possesses the UL Group 1 listing, it is still made to the same technically demanding standards.

In other words, unless you are an internationally-renowned master safe-cracker, there is no way you are getting into an AMSEC Star floor safe in a reasonable amount of time by manipulating the lock.

Any attempt at prying the safe open is futile. AMSEC Star floor safes have a solid, 1/2-inch thick steel collar that is engineered to accept the door with almost no play whatsoever. This results in a gap between the precision-machined door and the tight-fitting collar of only a few hundredths of an inch – about 1 mm. A burglar has no opportunity to even attempt a pry attack because it is impossible to fit a tool into this almost non-existent door gap.

Sledgehammer attacks are also doomed to failure. This is because a sledgehammer attack relies on breaking the seams of the safe body or collapsing the door frame. AMSEC Star floor safes have 1/4-inch thick, continuously welded steel bodies and robust, 1/2-thick solid steel frames and collars. In addition, the body, frame and collar are all encased in hundreds of pounds of concrete during installation, providing even more protection. As a result, all a sledgehammer attack will do is activate one or more of the safe’s relockers, making it even harder to open.

An enterprising burglar may attempt a drill attack. This approach seems enticing when one considers that the lock mechanism is “only” protected by 1 inch of steel. However, it is important to note that this is twice the steel thickness of a typical floor safe door. Furthermore, there is a nasty surprise in store for anyone foolish enough to try to go through the “weak spot” of an AMSEC Star floor safe.

The entirety of the 3-inch diameter locking mechanism is protected by a circular, carburized hardplate. A hardplate is a specially treated alloy plate that is specifically designed to defeat drilling or cutting attacks. Hardplates from respected safe manufacturers like AMSEC typically sport a Rockwell hardness of 60 or greater. This will shatter most conventional drill bits.

But the hardplate used in the AMSEC Star floor safe is special. It employs a case-hardened disc that freely rotates on its central axis, which is the lock spindle.

This means that any cutting tool that penetrates through the 1 inch of overlaying steel to reach the hardplate will tend to skip endlessly across its spinning surface, rather than bite into it. This turns the revolving energy inherent in almost all power tools malevolently against itself. The central spindle is also highly drill and drive resistant, making it extremely difficult to disable the revolving hardplate.

Even if a criminal manages to somehow drill completely through the 1 inch of steel and the hardplate underneath it, there is a good chance that he will trip one or more of the independent steel relockers associated with each of the 3 locking bolts. And once a relocker is tripped, brute force is the only realistic way into the safe.

A burglar who wisely opts to avoid the center of an AMSEC Star floor safe door is faced with the unenviable task of drilling or cutting through 1.75 inches of forged steel. This is thicker than the E-rate security designation, which is defined as a safe door with 1.5 inches of steel. From its inception in the 1950s until the early 1990s, the E-rate classification was synonymous with the UL TL-15 rating, which is a high security, commercial safe rating.

In addition to cutting through 1.75 inches of unforgiving solid steel, a burglar would also have to contend with his circular saw, demolition saw or angle grinder hitting the safe’s round collar (and the concrete behind it). This is because the relatively small door of an AMSEC star floor safe is recessed approximately 1.5 inches below grade once installed. The curvature of the 1/2-inch thick steel collar would tend to deflect the cutting blade, making it difficult to maintain a linear cut and dramatically increasing the safe-cracking time.

Honestly, if I were a burglar facing an AMSEC Star floor safe, I would avoid the safe door altogether and try to cut the safe out of the surrounding concrete. I’m not alone in this sobering security assessment either. An AMSEC executive who regularly posts on a popular gun enthusiast forum as “TheSafeGuy“, has this to say about AMSEC Star floor safes:

“They were the favorite safe for gas stations and car washes. Every Mobile gas station in the USA had a Star lift-out door safe in the office floor at one time. Burglaries with these safes were unheard of because of the in-floor and tight-fit, lift-out door design. The only successful burglaries involved digging them out of the concrete floor with heavy equipment.”

Of course, once a thief is reduced to tearing a floor safe out of the concrete in order to open it, you know the safe manufacturer has done a superlative job. At this point, we’re talking about using loud, dangerous and exhausting tools, like heavy-duty demolition saws and jackhammers.

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Even then, the burglar had better hope that nobody comes home for several hours, because that is how long it will take him to finish the job. And if you’ve had the foresight to “enhance” your concrete pour with steel rebar or mesh, a successful burglary will take even longer.

Most burglars simply won’t bother; the effort and risk involved are simply too great. Couple this with the fact that floor safes are easily concealed and usually reside in a part of the house that criminals don’t explore (the basement), and you’ve got yourself the perfect high security safe at a reasonable price.

AMSEC Star floor safes come in two different body versions: a cylindrical body and a rectangular body. The former are cheaper, but have less storage capacity. The latter are more expensive, but provide more storage.

Prices for cylindrical Star floor safes start at just under $600 (for the C3 model, with 0.16 cubic feet of storage space) and top out at a little less than $750 (for the C7 model, with 0.45 cubic feet of space). They are perfect for valuables that don’t take up much room, like cash, junk silver, gold coins or other high value density items.

Rectangular body Star floor safes have prices that range from around $750 (for the B6 model, with 0.36 cubic feet of usable space) to a bit over $1,100 (for the B24, with 1.26 cubic feet of space). I like these square body safes better, as they give you a lot more room to work with for only a modestly higher price.

All pricing is current as of January 2019.

A good rule of thumb is to always buy a safe that is substantially larger than you think you will need. And this advice goes doubly for floor safes due to the difficulty of installation. After all, if you find out a few years after buying one that you need more space, there is no easy (or cheap) way to remedy the situation.

As a final bonus, every AMSEC Star floor safe is made in the United States. This is an important consideration because the build quality of imported safes – particularly those originating from China – is often suspect. Both the material and build quality of domestically manufactured, U.S. made safes are invariably higher than that offered by cheap foreign imports.

About the only drawback that Star floor safes have is their relatively small, 7.25 inch diameter circular door opening. If you need to store bulky or awkwardly shaped valuables, this is less than ideal. In that case, it might be wise to cross-shop Hayman floor safes, which have a larger, rectangular door that can be upgraded to 1-inch thick or 1.5-inch thick steel for an additional fee.

Despite this one minor shortcoming, AMSEC Star floor safes are far superior in terms of security to any other C-rate floor safe on the market today. In my opinion they are the best, most secure floor safe currently available in North America. This is validated by the fact that the safe’s unique, round-door design has remained basically unchanged since its original development in the late 1940s. Although any safe can be opened with the right tools and enough time, Star floor safes offer exceedingly high security for a surprisingly affordable price.

Read more thought-provoking Antique Sage security articles here.

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Why Is Silver So Cheap? – A Historical Analysis

Why is silver so cheap? On an inflation-adjusted basis, the price of silver is comparable to the price of dirt right now. It is a bizarre historical anomaly for a metal that has been treasured since the dawn of civilization.

The precious white metal’s current price is a far cry from how valuable it used to be.

For example, during the 1st century AD in the Roman Empire, one day’s skilled labor was equal to one silver denarius coin. This was equivalent to about 3.9 grams (0.1254 troy ounces) of pure silver.

In late 14th century medieval England, a master carpenter earned one groat (4-pence) per day. These coins weighed 4.66 grams of sterling silver, or 4.31 grams (0.1386 troy ounces) of fine silver.

A skilled construction worker in late 16th century Mughal India commanded a salary of 5.25 silver rupees a (lunar) month. A Mughal rupee was a large coin containing 11.3 grams of nearly pure silver. Assuming a 6 day work-week, this would translate into a daily wage of around 2.47 grams (0.0795 troy ounces) per diem.

Even as recently as the 1850s, a carpenter living in the United States would have only received a daily wage of somewhere around $1.50. Because a silver dollar contained 24.06 grams of pure silver, this wage would have equaled 36.08 grams (1.1601 troy ounces) of fine silver per day.

Today we can conservatively expect a skilled worker to earn a minimum salary of $25 per hour, or $200 per day. With silver currently bouncing around $16 a troy ounce, today’s skilled laborer earns a wage of 388 grams – 12.5 troy ounces – of silver every day!

This naturally leads to a very basic question. Why is silver so cheap right now?

Another way to measure the historical price of silver is via the gold-silver ratio. This calculates the price of one troy ounce of gold in terms of ounces of silver.

From the dawn of human history until the mid 19th century, this ratio never rose above 20 to 1. It fluctuated from a low of 2.5 to 1 at the dawn of the Egyptian Empire in 3100 BC to a high of 16 to 1 throughout much of the 19th century. It was 12.5 to 1 during the time of Roman Emperors. In early 19th century Japan under the Tokugawa Shogunate, the ratio was 5 to 1.

Today the gold-silver ratio stands at 82 to 1.

So once again I’ll ask the question. Why is silver so cheap?

If you look at how much silver is mined every year, the lunar-themed metal seems even rarer. The global mine supply of silver has averaged 803.2 million troy ounces per annum over the past decade (2008 through 2017), while gold has averaged 89.4 million troy ounces over the same period. This gives a gold-silver production ratio of about 9 to 1.

This doesn’t make any sense. Why is silver so cheap?

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From a historical perspective, the price of silver only really collapsed about 150 years ago, starting around 1870. And then the white precious metal’s situation went from bad to worse in the 20th century. This culminated in silver’s price washout in the 1990s to early 2000s, when you could buy as much of the stuff as you wanted for a mind-blowingly low $5 an ounce! This was most likely a unique historical event.

Even though you can no longer buy silver for $5 an ounce, it is still tremendously undervalued today. In order to understand why silver is as cheap as dirt, we have to look back at a few key events in world history.

The first of these was demonetization – the discontinuance of silver as an official form of money.

Until the 1860s, many nations around the world were on silver standards or bimetallic gold-silver standards. This manifested itself through the free coinage of silver, meaning that you could take unlimited quantities of silver bullion to your national mint and have it turned into legal tender silver coins (for a fee, of course). So your silver bullion was, quite literally, money!

But the coup de grâce for the global silver standard came, rather unexpectedly, from the aftermath of the Franco-Prussian War. Once the Prussian Army had crushed the French at the battle of Sedan in 1870, the victorious Germans demanded an indemnity of 5 billion gold francs from the defeated nation. The French had no choice but to pay the exorbitant bribe, even though it amounted to a staggering 1,451 metric tonnes of gold. As a point of reference, this is more gold than is currently held in the entire Swiss national gold reserves.

Prussia opportunistically used this golden windfall to switch its currency from the silver-backed German Thaler to the gold-backed German Mark. However, because the major economic powers of Great Britain and France were already on gold standards, this Prussian monetary reform had an unintended side effect.

It fatally undermined the acceptability of all remaining silver-backed currencies in international trade, causing a domino effect. As the price of silver fell throughout the 1870s, more countries (including the U.S.) were forced to switch to gold-backed currencies as silver-backed currencies collapsed in foreign exchange value.

At the same time, halfway around the world in the United States major silver mining discoveries were taking place. The first of these was the famous Comstock Lode, located in Virginia City, Nevada. This deposit produced massive quantities of silver from 1860 until the mid 1880s.

As the Comstock Lode’s production began to taper in the late 1870s, Leadville, Colorado replaced it as the United State’s premier silver boom town. Mining there continued uninterrupted until the early 1890s.

Silver was also discovered in the Coeur d’Alene region of Idaho in the mid 1880s. This area eventually became one of the most prolific silver deposits in the world, yielding more than a billion troy ounces of the precious metal to date. Silver is still mined in the Coeur d’Alene region today, over 130 years after its first commercial production.

These sizable silver discoveries ensured that prodigious supplies of the precious white metal flooded the global market for decade after decade, helping to drive its price down.

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Another little-recognized factor that crippled silver prices was the commercial deployment of electrolytic refining in the late 19th and early 20th century. Until that time, metal refining was a very imperfect process. Copper, zinc, lead and other base metal ores often contained trace amounts of silver that couldn’t be profitably extracted using older, less efficient refining methods.

But at the dawn of the 20th century, electrolytic refining suddenly turned the metal mining industry on its head. This new refining process used electricity to decompose a mixed-metal anode bar in an electrolyte solution and then reconstitute a pure, single-metal bar at the cathode. This is an extremely efficient refining method that allowed for the recovery of effectively all trace metal impurities.

And while the percentage of silver contained in most base-metal ores is very small, the quantities involved become massive in aggregate. The widespread adoption of electrolytic refining allowed the small quantities of silver that had previously been “locked-up” in base metals to be freed.

This was especially important because metals are generally recycled over time. So as all the lead, copper, tin and zinc accumulated since Roman times was gradually recycled over the course of many decades via electrolytic refining, a considerable amount of additional silver was recovered. This extra supply largely hit the market in the early to mid 20th century.

In addition, the secondary production of silver extracted via electrolytic refining is price insensitive. If you are a copper miner, you care primarily about the price of copper. Any silver you get from the refining process is considered a by-product metal that you will sell into the spot market regardless of how low the price of silver might be at the time.

The next major event in the silver price timeline took place during the 1960s. Although the white metal had been largely demonetized in the late 19th century, most countries still used silver for token coinage. But when silver prices started to rise in the 1960s due to widespread inflation, all countries on earth quickly removed any remaining silver from their circulating coinage. This process was largely complete by the early 1970s, resulting in silver being completely demonetized for the first time in human history.

The final insult came when national governments began to slowly dispose of their leftover silver stockpiles. For example, the last of the U.S. Government’s strategic silver stockpile was sold off to the U.S. Treasury for the minting of U.S. Silver Eagle bullion coins in 2002.

Other nations enthusiastically followed suit. Foreign governments and central banks were significant net sellers of silver from the 1980s until around 2010. However, there have been almost no government sales of silver bullion stockpiles since that time.

At this point, I think it is fairly safe to assume that governments have no substantial silver reserves left. This is in stark contrast to gold, which is still widely held as an important reserve asset by nearly all central banks around the globe.

So now we know why the price of silver has been so undervalued for the last 150 years. But will it stay cheap forever? Well, let’s examine the evidence.

Silver has already been completely demonetized. So it is effectively impossible for its monetary demand to drop any lower. Furthermore, there are no longer any meaningful government stockpiles of the metal (unlike with gold), so that potential supply overhang is gone. No government can credibly pledge to sell physical silver in large enough quantities to suppress its price for long.

More or less all base metal ores are subject to electrolytic refining these days. This means that there is more silver produced as a by-product of base metal mining than from primary silver mines. But in spite of this fact, the gold-silver mining ratio is still only 9 to 1. So the extra silver supply certainly doesn’t seem to adversely impact its rarity very much.

In addition, mining companies have been having an increasingly difficult time finding large, rich ore deposits, regardless of whether they are looking for base metals or precious metals. Humanity has effectively high-graded the planet for several centuries now, always mining the richest ore bodies from the easiest to access locations.

All that is left are low-grade, geologically-complex ore bodies located in remote, politically unstable regions. The idea that we will magically stumble across another Comstock Lode or Coeur d’Alene bonanza chock full of high-grade silver ore borders on the ludicrous.

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My analysis is pretty straightforward. Silver is insanely undervalued at any price below $20 an ounce. The current gold-silver ratio of 82 to 1 is egregiously high and represents little downside risk for silver investors.

The upside is that silver might one day revert to its traditional value. If one day’s skilled wage was to once again become equal to a single troy ounce of silver, it would imply a silver price of at least $200 per ounce. Anything even close to this result would enrich silver stackers beyond their wildest dreams.

However, I feel it is important to note that I don’t think the price of silver will skyrocket while the global securities market bubble is still in play. As a bedrock tangible asset, silver is the antithesis of the paper asset casino that currently dominates the marketplace.

In other words, silver will only rise dramatically in price if it is either partially or completely remonetized. And remonetization will only be possible once our grotesque paper asset bubble has definitively (and messily) popped.

So I’ve got good news and bad news for you. The good news is that I think you have a little more time to get in on this stunningly undervalued monetary metal. The bad news is that one day when we least expect it, this marvelous bargain will be gone.

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Gold Versus Bitcoin as a Store of Energy

Gold mining consumes a massive amount of energy. So does Bitcoin mining, for that matter. But rather than being a drawback, I see the high energy consumption of these alternative currencies as an overlooked benefit.

After all, a currency that can’t be arbitrarily created at the whim of 12 corrupt central bankers sitting in an oak-paneled conference room somewhere in the bowels of Washington D.C. is a bonus in my book. If we had been using either a gold-backed currency or Bitcoin when the 2008 financial crisis struck, it would have been impossible for the Federal Reserve to unilaterally bail out Goldman Sachs, Citigroup and all the other too big to fail banks against the will of the American people.

The fact that real energy and resources have to be expended to acquire new supplies of either gold or Bitcoin is one of the very compelling features that both of these currencies share in common. In fact, I would argue that is a vital attribute for any successful currency – it must represent a store of energy.

If we compare gold versus Bitcoin from a store of energy perspective, does one have a higher energy density than the other? And if so, by how much?

Let’s examine the energy density of gold first.

Because it is impossible to get good information on aggregate energy usage in the gold mining industry, I’m going to use a single major gold producer, Goldcorp, as a proxy for industry-wide energy consumption. Goldcorp, a Canadian-based miner, is one of the world’s largest gold producers, with a 2017 production total of 2.57 million troy ounces.

According to its February 2018 corporate presentation, Goldcorp attributes 14% of its production costs to either fuel (generally diesel or fuel oil) or power (mostly electricity). But Goldcorp also has other energy intensive costs that fall outside of this narrow definition of energy.

For example, tires (2%), explosives (3%), site costs (5%), maintenance parts (9%) and consumables (15%) are all energy sinks.

The massive tires used on mining vehicles are composed almost entirely of oil derivatives. A tire for the massive Caterpillar 797B dump truck weighs 11,860 pounds (5,380 kilos) and contains almost 2,000 pounds (907 kilos) of steel, which is itself a very energy intensive metal to mine and refine. It is estimated that each one of these mammoth tires consumes 100 barrels of oil to fabricate.

Explosives are another energy cost in disguise. Although it is generally accounted for as a material on a mining company’s ledger, explosives are actually highly concentrated chemical energy.

Two of the most commonly used explosives in mining today are ANFO and TNT. ANFO is composed of 94% ammonium nitrate and 6% fuel oil (another hidden energy expenditure). Ammonium nitrate, in turn, is created by reacting gaseous ammonia with nitric acid. However, ammonia is not found free in nature and must instead be synthesized via the Haber process.

The Haber process is extremely energy intensive because it requires high pressures (between 150 and 250 atmospheres) and temperatures (750 to 930 °F or 400 to 500 °C) in order to work. In fact, it is estimated that ammonia synthesis via the Haber process devours more than 1% of total global energy output.

TNT, or trinitrotoluene, is hardly less energy intensive. The base chemical used to create TNT is toluene, a light hydrocarbon fractionate. Although it occurs naturally in crude oil in limited quantities, most toluene is a byproduct of gasoline production via either hydrocarbon cracking or catalytic reforming.

Gold mining site costs are another secret energy cost center. While these can vary widely from mine to mine, they include exploration drilling, mine ventilation, waste water disposal, waste rock removal and site reclamation. These activities consume large quantities of energy, only a portion of which are accounted for in raw electricity and fuel costs.

All of the equipment and replacement parts used to keep a gold mine running smoothly also cost a great deal in energy terms. Parts and machinery must be fabricated in a factory and then transported to the mine site, which is often geographically remote. Even common raw materials used in gold mining, like lime and sodium-cyanide, require tremendous amounts of energy to synthesize or extract.

And, of course, we can’t ignore the fuel costs attributable to commuting mine workers and contractors, which only show up as an indirect, payroll cost.

Overall, it wouldn’t be an exaggeration to guess that anywhere from 1/4 to 1/3 of the cost of gold extraction is directly attributable to energy, either in the form of electricity or fossil fuels.

According to an estimate by industry consultant CPM Group in its 2018 Gold Yearbook, the All-In-Sustaining-Cost (AISC) to mine an ounce of gold averaged $949 across the entire gold mining industry in Q3 of 2017.

This means that there is between $237 and $316 worth of energy embedded in every ounce of gold pulled from the ground. With WTI crude currently trading at $51 a barrel and using the midpoint of the above energy consumption estimate, there is the equivalent of just over 5.4 barrels of oil used in the extraction of each ounce of gold. That is equivalent to 31.6 gigajoules (GJs) of energy per ounce!

We can calculate gold’s electrical energy equivalence at around 8,800 KHW per troy ounce. This represents about 10 months’ worth of electrical usage for the average American household.

So gold represents an excellent store of energy, being incredibly energy dense. But how does the energy consumption of crypto-currencies compare? Is Bitcoin far behind?

For Bitcoin’s energy usage estimates, I’m going to rely heavily on the work of Alex de Vries, who is widely regarded as the world’s leading authority on Bitcoin energy consumption, as well as being a prominent blockchain expert.

According to Mr. Vries latest estimates, Bitcoin’s blockchain calculations consume about 67 terawatt-hours (TWH) annually, which is about the same amount of electricity that the South American country of Chile uses in a year. As of 2018, the average time between each successfully mined Bitcoin block is about 9 and 1/3 minutes. And each of these new blocks rewards miners with 12.5 new Bitcoins.

So we can extrapolate that somewhere around 704,000 new Bitcoins are created every year via mining.

This means that each freshly mined Bitcoin represents just over 95,000 KWH of electrical energy. This is equivalent to about 110 months of electrical usage for the average American household.

Although not directly comparable because Bitcoin is mined using electricity and not oil, each unit of the premier crypto-currency is equivalent to over 58 barrels of oil. This represents 342 GJ of energy per Bitcoin.

But what about the energy density of gold versus Bitcoin on a dollar for dollar basis?

With Bitcoin currently trading at $3,500, each dollar’s worth of Bitcoin stores about 27.1 KWH of energy. With gold going for around $1,240 a troy ounce, every dollar of the precious metal symbolizes around 7.1 KWH.

An energy assessment of gold versus Bitcoin from an oil perspective gives us similar values. Each dollar of Bitcoin equals 0.0167 barrels of oil, while every dollar of gold is 0.0033 barrels of oil.

So Bitcoin has a clear advantage in energy density versus gold, with a ratio of 3.8 to 1 in Bitcoin’s favor.

Of course, it is wise to keep in mind that this energy density ratio is somewhat arbitrary. It will fluctuate markedly with changes in the relative market value of gold versus Bitcoin. In fact, as the price of Bitcoin has dropped over the past several months, the preeminent crypto-currency has become more “energy rich” on a per dollar basis relative to gold.

Another factor to keep in mind is that both Bitcoin and gold are only energy storage vehicles in a very abstract way. It is not possible to pull electricity or oil back out of either of these alternative currencies once it has been consumed in their production.

Instead, both gold and Bitcoin provide their users with very different sets of energy-derived benefits. Gold is a physical commodity that possesses excellent corrosion resistance, malleability and ductility, as well as superb electrical and thermal conductivity. Some people bizarrely conclude that this means the yellow metal has no intrinsic value. I strongly disagree, as I argued in a recent article I wrote on the intrinsic value of gold and gemstones.

On the other hand, Bitcoin provides its users with a fully digital currency secured by an incorruptible, publicly-verifiable blockchain.

Personally, I feel that gold has the edge here, although you might reasonably reach a different conclusion. Bitcoin’s blockchain technology is certainly innovative and definitely has value, but this value is completely self-referential.

For example, do we really need to know how much someone’s Starbucks latte cost 5 years ago? As it is currently structured, Bitcoin will retain this (and other equally superfluous) transactional data in perpetuity.

I believe that earth’s scarce energy resources could be better utilized. For instance, the electrical energy consumed in crypto-currency calculations could instead be used to tackle computationally-intensive math problems that would broadly benefit humanity. For those who are interested, this is a topic I addressed in greater detail in an article titled “Blockchain 3.0 and the Problem with Bitcoin“.

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Profiting from the Global Dollar Shortage of 2019

We are on the verge of a dollar shortage – a monstrous, massive global dollar shortage. The kind of dollar shortage that goes down in history as a singular, unprecedented event. And it represents a great opportunity to make money in the tangible asset space.

It has been apparent for some time now that financial conditions are tightening. The Federal Reserve has been raising short term interest rates relentlessly since December 2016. They have also been engaging in quantitative tightening – the slow, but persistent shrinking of the Fed balance sheet – since November 2017.

These developments are beginning to have an impact on global liquidity, especially against a backdrop of inflated bubble financial markets. This means that the dollar is getting stronger versus just about every other currency out there:

The Brazilian Real declined from 3.3 to the dollar a year ago to 3.85 today, a -14% loss.

The Turkish Lira had a rough time, moving from 3.84 to the dollar to 5.38 at the end of 2018, a -29% drop.

The Iranian Rial’s black market rate plummeted from 41,000 in November 2017 to 117,000 in November 2018, a stomach churning -65% fall.

The Argentinean Peso hardly did any better, experiencing a -54% depreciation from 17 to the dollar at the beginning of the year to 37 at the end.

However, the worst of the lot was the Zimbabwean Zollar, a debt instrument issued by the African country’s central government that circulates like currency. Each Zollar is supposed to be worth 1 US dollar. But that didn’t stop the Zollar from collapsing from 1.4 to the dollar during the summer of 2018 to 10 to the dollar a mere six months later, an astounding -86% decline in purchasing power.

I won’t even bother mentioning Venezuela, which is currently experiencing a crippling hyperinflation. Its currency is quite literally not worth the paper it is printed on.

The global dollar shortage isn’t just limited to basket case emerging market currencies though. Other financial markets are also starting to break down due to a lack of dollars.

The crypto-currency complex is a prime illustration. The much hyped Bitcoin is down a breathtaking 72% for 2018, from $14,100 at the beginning of the year to less than $4,000 right now.

Lower-rated corporate debt is also feeling the heat of the dollar shortage. Yield spreads on junk bonds are up over 100 basis points in just the last 2 to 3 months.

Even the poster children of our current Everything Bubble – the FANG stocks – have lost their sizzle due to the sudden dollar shortage. The FANG stocks, consisting of Facebook, Amazon, Netflix and Google (now Alphabet), have dropped by a shocking -20% over the past 4 months.

As harrowing as this flood of bad news might seem, we are at the very beginning of the global dollar shortage. It will get much, much worse before it gets better.

All of this means that you’d better have some safe, liquid assets in your portfolio – things like U.S. Savings Bonds, U.S. Treasury securities, or an FDIC insured bank account/money market account.

Of course, the Fed won’t stand idly by while the financial world burns down around them. They will leap into action, pumping unbelievably large amounts of dollars into the world’s financial system in an attempt to stem the global dollar shortage.

Unfortunately, the Fed is almost guaranteed to overreact to the financial panic by printing far more dollars than it should. In the last financial crisis, the Fed increased the size of its balance sheet from about $900 billion to $4.5 trillion. And honestly, that barely got the job done, spawning the most tepid recovery in U.S. post-war history.

This time around I expect the Fed to balloon its balance sheet to nothing less than an astounding $20 trillion dollars. The sums involved are so large as to almost be beyond comprehension.

But suffice it to say that all this money printing is ultimately bad for the value of the dollar. Every new dollar that gets created dilutes the existing supply of dollars.

This is why I recommend that everybody store a portion of their wealth in portable tangible assets – things like precious metals, fine art, antiques and gemstones.

Now here is the tricky part.

In the midst of this unprecedented dollar shortage, the Fed will be rapidly debasing the dollar by handing out fistfuls of them to foreign central banks and too-big-to-fail financial institutions. But in spite of this massive debasement, the dollar will still temporarily strengthen for a period of time. This is precisely the moment when you must be trading your dollars for tangible assets.

This is actually a lot harder to do in reality than it sounds. You will need to be selling your dollars when everyone else is desperate to hoard them. People have an inherent herding instinct, especially in financial markets. From an emotional perspective, a contrarian stance will be incredibly difficult during this time.

But if you can pull it off, some of history’s greatest tangible assets bargains will be yours for the taking. Precious metals, investment grade antiques and gemstones are all screaming bargains right now. And I suspect they may get a little bit cheaper yet during the depths of the crisis.

But Rome wasn’t built in a day and neither is a solid tangible asset portfolio. Slabbed coins, antique silver and vintage watches all take time to properly evaluate and acquire. Even commodity physical assets like gold and silver might be difficult to acquire at reasonable prices on short notice during an intense financial crisis.

So the smart investor will leg into a tangible asset position. The few dollars you might save trying to time the exact bottom of the market are likely to cost you a lot of lost profits.

I already suspect that we are seeing the lowest prices (on a valuation basis) in recorded human history for some segments of the antique market.

How cheap are antiques right now?

Right now (December 2018) you can buy a random date, PCGS certified MS-63 U.S. Liberty Head gold eagle ($10 coin) for $700 on eBay. The bullion value of this piece (with spot at $1,234) is $597. You are only paying $103, or 17.3%, in premium over the coin’s melt value.

Not only that, but these desirable pre-1933 gold coins are eBay Bucks eligible. During one of eBay’s frequent promotional periods, it would be possible to get 8% to 10% of the gross purchase price back as an eBay Bucks voucher. This would bring the effective premium over melt down to just $33, or 5.5%.

Think about it for a moment. You can buy a beautiful and historic 100 year old U.S. gold coin in Mint-State for only $33 more than its scrap value. That is simply mind-blowing to me. It is undoubtedly the lowest percentage premium these coins have carried since the late 1930s/early 1940s.

That isn’t the only tangible asset deal out there either.

I recently stumbled upon a luscious 0.34 carat old mine cut diamond on Etsy for $375. The old mine cut was used in the diamond trade from the 18th century until the end of the 19th century. These vintage gems are a favorite of sophisticated gem connoisseurs because of their tremendous presence and charm.

As an added bonus, the seller recently marked the stone down by 10% to $337.50. This comes out to only $10 a point, which is ridiculously cheap for a lightly-included, 19th century diamond of excellent color. I remember seeing similar prices for antique cut diamonds back in the 2002/2003 recession, except that those stones weren’t as high quality. $10 a point is less than 60% of the cost of a similar modern-cut stone, which is shocking when you consider that the old mine diamond is hand-cut and has 150 years of history behind it.

But the thing I love most about tangible investments is that they all possess optionality. Optionality is any element of a financial instrument that you don’t pay much for right now, but might be worth a lot in the future.

Think of it as a lotto ticket.

The only difference is that when the drawing happens on Friday night and you don’t have the winning numbers, the average lotto ticket becomes instantly worthless. But optionality on a tangible asset is like a perpetual lotto ticket. There is a drawing every Friday night, and if you don’t win this Friday night, you can just hold onto the asset and wait for your winning number to come up on a future Friday night.

Right now tangible assets have substantial optionality. And the looming global dollar shortage of 2019-2020 will be one of history’s best opportunities to accumulate these overlooked assets at deep discounts. Don’t blow it.

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