The Fed and Central Bank Digital Currencies

The Fed and Central Bank Digital Currencies

We’ve all heard about Bitcoin and other crypto-currencies, which are all the rage right now.  But did you know that central banks around the world have been looking to create their own versions of crypto-currencies called central bank digital currencies?

This entire process kicked off in mid 2019 when social media giant Facebook announced ambitious plans to create a blockchain-based digital stable-coin called Libra.  This new crypto-currency was going to be backed by vast pools of safe, short-term debt instruments denominated in U.S. dollars, euros, British pounds, Japanese yen and Singapore dollars – much like a money-market fund.  The resulting digital currency would be relatively low-volatility – hence the name “stable-coin” – and could easily be traded across international borders via Facebook’s digital Calibra wallet.

However as 2020 dawned, it quickly became apparent that Facebook’s Libra digital currency would be stillborn.  Politicians and central bankers across the political spectrum strenuously objected to the bold plan.  Although the official skepticism towards Libra was ostensibly because of concerns over money laundering, in reality the idea was scuttled because it had the potential to permanently disempower existing national fiat currencies and their political beneficiaries.

But this idea did make it apparent to central bankers all over the world that digital currencies were here to stay and that if they wanted to remain relevant, they needed to adapt.  Facebook’s failed Libra initiative became the motivation behind the idea of replacing existing national fiat currencies with central bank digital currencies.

There are a lot of very rational reasons for the adoption of central bank digital currencies.  Probably the biggest benefit is that it can simplify and expedite global payment systems.

Most people aren’t aware of this fact, but the world’s financial system is laboring under a disorganized patchwork of different payment systems that have haphazardly accumulated over the last several centuries.

We have cash, consisting of paper money and coins which originated in the 17th century or earlier.  There are checks, which are a late 18th century invention.  The first credit card was the Diners Club card, which was first issued in 1950.  The ACH (Automated Clearing House) system was deployed in Great Britain in 1968 and the U.S. in 1972.  Finally, we have the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system which came into being in the mid 1970s.

Unfortunately, these payment systems are slow by modern standards and often don’t communicate well with each other.  Enter central bank digital currencies.  Under this new system the dollar (or euro or pound or yen) would utilize blockchain technology to allow for near-instantaneous transfers of money from person to person, institution to institution, or any combination thereof.  So for example, a digital U.S. dollar would be nearly identical to the existing dollar other than its purely digital nature and built-in payment system.

The coming advent of central bank digital currencies isn’t just idle speculation either.  The Swedish Riksbank began testing its digital e-Krona in February 2020.  The United Kingdom’s Bank of England is actively researching its own digital currency.  And the Reserve Bank of Australia announced in November 2020 that it will explore the concept of a sovereign digital currency.

But the Bahamas has beaten them all by launching its very own (domestic use only) digital currency called the Sand Dollar in October 2020!

The United States Federal Reserve has signaled that it will not be left behind in the rush for central bank digital currencies by preparing its own FedNow Service.  FedNow is slated for release in 2023 or 2024 and will include core functionality necessary to any successful digital currency including fast clearing and settlement capabilities and balance inquiry/reconciliation features.  Although FedNow isn’t a digital currency in its own right, it could very easily be used as the foundation for a future U.S. digital dollar once it has been perfected.

Now this is all well and good, but what I’m really interested in is the future implications of fully functional central bank digital currencies.  And due to the U.S. dollar’s importance in global trade and finance, I’m going to focus my analysis on the effects of a possible Federal Reserve digital dollar.

My thinking was really sharpened on this matter by a YouTube video I recently watched featuring Raoul Pal, the CEO and co-founder of Real Vision Finance.  It is an incredibly thought-provoking video that I highly recommend you watch.  I would even go so far as to say that Raoul Pal is almost prophetic in his musings.  I’ve embedded the video below for you convenience.

 

 

Let’s see if we can intelligently speculate about the future ramifications of a fully-digital, Federal Reserve dollar (which we will nickname “FedCoin”).

First it is apparent that upon the launch of FedCoin every citizen will receive a free online account (or digital wallet) capable of storing, sending and receiving the Fed’s new digital currency.  This will almost certainly be coupled with enticements for individuals to use the new system.  These could include higher interest rates on balances held in FedCoin (versus dollars held in the traditional banking system), faster receipt of government mandated stimulus payments, lower prices for goods and services (because there would be no credit card vendor fees for retailers to pay) and the possibility of bonus stimulus payments not sent out to people who don’t use FedCoin.

The savvy observer will immediately note that a Federal Reserve digital currency would permanently disintermediate a large segment of the financial services sector almost immediately.  The importance of this development cannot be overstated.  If FedCoin is rolled out successfully, the demand for credit cards, bank deposit accounts or other transactional, retail-facing banking services (think PayPal or Venmo) would decline dramatically nearly overnight.  FedCoin would simply do what these companies’ services already do, except faster, cheaper and better.

However once successfully established, the financial authorities would have unprecedented control over the financial system.  They could almost instantaneously credit or debit any FedCoin digital wallet for any amount with little oversight.  It would be difficult – bordering on impossible – for any central bank to resist the raw power that this scenario would bestow on them.

And while it could be used relatively responsibly – for the fast payment of stimulus funds or UBI (Universal Basic Income) to citizens in need – it is more likely that our central bank overlords will ultimately abuse their newfound financial power.

I imagine this would be a gradual, creeping process.

For example, if the economy were to take another nosedive (a distinct possibility in a world of rolling lockdowns due to COVID) the Fed might feel compelled to step in to provide fiscal stimulus if the legislative branches of government were unable to come to a speedy agreement among themselves.

In fact, the Federal Reserve has already floated a trial balloon for this idea via what it calls “insurance recession bonds“.  These would be contingent, zero-coupon bonds that would only be “activated” when GDP declines below a certain threshold.  Once activated, the Fed would automatically issue checks to every American household using the bonds as collateral.  It is important to note that the bonds would simply be a book-balancing accounting exercise – in reality it would be naked money-printing.

Insurance recession bonds are important because they would allow the Fed to usurp congress’ traditional role of allocating government spending.  Suddenly, the Fed would be the real fiscal power behind the throne.  I expect this outcome, if for no other reason than because the U.S. Republican and Democrat parties are unable to collaborate in any meaningful way anymore.

And if a Fed issued central bank digital currency already exists, then this entire process would become even more irresistible.  After all, it would be convenient for both U.S. political parties if they were to grandstand for the cameras, each refusing to give an inch to the other side, while the central bank did the real heavy lifting of making sure tens of millions of people got the necessary funds to put food on the table or avoid eviction.

One dark side to this system is that there will be tremendous political pressure to make FedCoin the only game in town.  Right now the Federal Reserve (along with most other central banks) is bumping up against the limits of monetary policy due to the zero-bound problem.  When interest rates are at 0%, it is almost impossible to stimulate the economy via traditional monetary policy.  It is also very difficult to institute negative interest rates because people can always flee to physical cash (which is exempt from such a policy).

But once FedCoin has been properly rolled out and scaled-up, there isn’t any reason why the U.S. Treasury couldn’t phase out the use of cash (and non-FedCoin bank accounts).  The justifications for such a move could be numerous: cash is dirty and unsanitary in an age of pandemics; cash is antiquated and unnecessary; only criminals and tax-cheats use cash, etc.

The point is that once Fedcoin has been firmly established as a universal, convenient and low-cost alternative, the financial authorities might well move to ban cash.  This could be done via a carrot and stick approach, with small bonuses for those who use the new FedCoin (extra one-time payments or higher interest rates) and punishments for those who fail to adopt the new digital currency (slower stimulus payments or additional financial scrutiny from the authorities).  It is even possible that citizens may eventually be forced into using FedCoin or face the prospect of not receiving their stimulus or UBI payments at all!

Once the Fed has transitioned everybody to FedCoin and phased out cash, it will find a wonderland of new monetary policy tools at its fingertips.

For instance, the central bank could easily implement negative interest rates without having to worry about people hoarding cash.  It could (electronically) print and instantly distribute massive sums of money to systematically-important financial institutions or favored industries.  It could engage in targeted interest rates where some groups (like college students) would receive high interest rates on their FedCoin (to encourage them to save) while other groups (like retirees) might receive negative interest rates on their savings (to encourage them to spend).

It is even conceivable that the Fed could deposit stimulus funds into peoples’ digital wallets, but then declare that if the money is not spent within a certain time frame it will disappear!  And all of this could be done with little to no oversight from elected officials.

There are other downsides to central bank digital currencies for the average citizen besides delightfully cruel new monetary policies.  Once FedCoin is the exclusive money of the realm, the government would be able to track every single purchase or financial transaction that you make.  The central bank would even have the ability to block transactions that they feel are suspicious or that they don’t like.

So when might we realistically see FedCoin come into existence?  That isn’t exactly clear.  The Federal Reserve states that their FedNow Service won’t be ready until 2023 at the earliest.  This technology could serve as the backbone of a FedCoin rollout.  But in my opinion, it would still take a minimum of 18 to 24 months after the introduction of the FedNow Service for an official U.S. dollar-based digital currency to be ready.

That would put the first realistic date for the release of FedCoin at 2025 or 2026 at the earliest.  In all probability it would take substantially longer than this given the technical hurdles inherent in such an ambitious project.  In other words, the late 2020s or early 2030s seem like a far more viable date for the release of FedCoin.

But let’s not lose sight of what is important here.

Although central bank digital currencies may be the future of fiat money, they’ll only serve as a trap for the average person.  This is why I advocate buying portable tangible assets as a way to protect yourself from the possibility (maybe even inevitability) of FedCoin and other central bank digital currencies.  This could be as simple as purchasing a $1,000 face value bag of U.S. 90% junk silver coins or as complex as assembling a fine collection of vintage Patek Philippe wristwatches.  Bullion, fine art, gemstones and antiques are all feasible alternatives to a locked-down, FedCoin-dominated financial ecosystem.

Central bank digital currencies are coming, maybe not this year and maybe not next year, but they are coming.  Invest accordingly.

 

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A Love Affair with Exotic Hardwoods

A Love Affair with Exotic Hardwoods

I am a sucker for exotic hardwoods.  I know that might make me a bit strange, but I think it makes a lot of sense considering we live in a world dominated by particle board, plastic and cardboard.  I don’t know about you, but I’ve had quite enough of these subpar materials.  I would much rather live a life surrounded by beautiful, natural and durable materials.

And few things rank higher on my list of luxury materials than exotic hardwoods.

So I couldn’t help but write a post about my latest acquisition, a tropical hardwood box I recently purchased on Etsy.  As the hero photo at the top of this article shows, the top and bottom of this box are made from thick slabs of Yellowheart while the sides are finely dovetailed Wenge.  All of the woods used are solid, with no veneers present.  In addition, the craftsman who created this piece didn’t use any stains or dyes to artificially impart color.  Eschewing dyes is a common practice when working with high-quality exotic hardwoods, which allows the beauty of the natural wood to shine through in the finished product.

The box isn’t too large, measuring about 9 inches long by 5 inches wide by 3 inches deep.  But in spite of its modest size, this work of art weighs in at a robust 1.42 kilos – over 3.1 pounds.  It feels incredibly substantial in your hands due to the extremely high density of the woods used in its construction.  I’ll take more about this physical quirk later on in the article.

Exotic hardwood is a catch-all term for timber species harvested from tropical, savannah or desert regions located near the equator.  Exotic hardwoods are a distinct category from the temperate hardwoods (also called domestic hardwoods) we tend to be more familiar with in the U.S. – species like White Oak, Sugar Maple and Black Cherry.  In contrast, some of the more well known exotic hardwoods include Honduran Mahogany, Gaboon Ebony and Teak.

So what exactly is so special about exotic hardwoods?

Well, they have a lot going for them.  On the whole, exotic hardwoods tend to be both harder and denser than temperate hardwoods.  Even infamously tough domestic hardwoods like White Oak (with a density of 0.75 g/cm3 and a Janka hardness of 1350 lbf) pale in comparison to many commercially available exotic hardwoods, which can attain densities of 0.8 to 1.2 g/cm3 and hardnesses of 1,800 to 3,000 lbf (or more)!

Because of these exceptional physical properties, naturally lustrous exotic hardwoods usually take a remarkably high polish, sometimes approaching a mirror-like sheen.  They are also frequently rot and insect resistant due to their high oil content.  These attributes mean that items fashioned from exotic hardwoods have been known to survive for many hundreds of years with little to no damage.  One example of this is African Blackwood furniture that was found intact with the burial goods of the Egyptian Pharaoh Tutankhamun – furniture that had been entombed over 3,000 years ago!

Exotic hardwoods are also celebrated for their amazing grain patterns, color palettes and contrasting textures.  Skilled woodworkers love to use these desirable visual features to their artistic advantage when working with exotic cabinetwoods.  Domestic hardwoods, while still very beautiful in their own right, can have trouble providing the same visual interest.  Please note that I fully believe a few select temperate hardwoods, like Black Walnut and Redwood burl, can be exceptionally attractive in their own right and are capable of rivaling even the best exotic hardwoods.

Because the box I purchased is made from Wenge and Yellowheart, I wanted to talk a little bit more about these two specific woods.

Wenge (scientific name: Millettia laurentii) is a dense (0.87 g/cm3), hard (1,930 lbf) wood that originates from tropical West Africa.  Its coarse grain sports a luscious chocolate-brown hue alternating with almost pure black lines.  This gives Wenge a unique, highly desirable visual contrast that has been exploited by luxury woodworkers to great effect for over 100 years.  Due to its very dark color, it has sometimes even been used as a substitute for Ebony.

Wenge Grain

Wenge Grain (Photo Credit: The Wood Database)

Wenge first rose to international fame during the 1920s when it was extensively employed by French Art Deco designers such as Eugène Printz and Pierre Chareau.  The wood then had a renaissance among interior decorators in the late 1990s when blond woods fell out of favor.

At that time (circa 1998), it was still possible to purchase Wenge for $7 to $8 per board foot.  But due to steadily increasing demand and dwindling supply (a recurring theme in the world of exotic hardwoods), Wenge now costs around $20 a board foot (in 2020).  This translates into an annualized price trend of 4.6% over the last 22 years for Wenge versus just 2.1% for general U.S. CPI inflation over the same period.

Although Wenge timber still has good availability in the international marketplace at the present time, the species is in the early stages of commercial endangerment due to aggressive over-harvesting.

Yellowheart (scientific name: Euxylophora paraensis) is a similarly dense (0.83 g/cm3) and hard (1,790 lbf) wood found in Brazilian lowland rainforests near the mouth of the Amazon River.  This fine grained tropical hardwood exhibits a lustrous, vibrant yellow tone that gives it a tremendous visual punch.  In fact, Yellowheart is commonly known by its Portuguese name, Pau Amarello, which literally translates into English as “yellow wood”.

Yellowheart Grain

Yellowheart Grain (Photo Credit: The Wood Database)

Another popular trade name for Yellowheart is Brazilian Satinwood.  However, this is a technical misnomer.  Although Yellowheart belongs to the same family (Rutaceae) as the true satinwoods, only West Indian Satinwood (Zanthoxylum flavum) and East Indian Satinwood (Chloroxylon swietenia) are commercially accepted as genuine satinwood species.  Regardless, Yellowheart shares many of the same desirable characteristics as the true satinwoods – a yellow or golden hue, fine grain texture, high density and excellent luster.  The only area where Yellowheart falls a bit short is its figure, which tends to be fairly straight versus the wavy, interlocking grain commonly found in the true satinwoods.

Yellowheart is moderately priced within the universe of exotic hardwoods – a surprising development considering how eye-catching it is.  As you might have already guessed, tropical hardwoods are almost always more expensive than their temperate counterparts due to their greater rarity, difficulty in logging and distance from end-markets.

Even though its natural distribution is limited to eastern Brazil, Yellowheart lumber still has fair availability in the U.S.  While not currently endangered, that designation could change if Yellowheart becomes more popular for high-end flooring or furniture-making.

Perhaps the most interesting characteristic of both Wenge and Yellowheart is the fact that they are relatively color-fast compared to many other exotic hardwoods.  One of the dirty little secrets of the exotic wood trade is that the colors of some of the world’s most beautiful tropical hardwoods fade over time with prolonged exposure to sunlight and air.

For instance, freshly-cut Purpleheart – a favorite of exotic woodworkers – starts off a muted violet-gray color that quickly deepens into a vibrant purple tone after a few weeks.  However, after 5 to 10 years that wonderful purple hue will age into a dull, nondescript brown color.  Many other tropical hardwoods, such as Bois de Rose and Pink Ivory, also trend towards undesirable shades of brown or black over time.

But Wenge and Yellowheart are exceptions to this unfortunate tendency.  Wenge starts off a very rich dark brown/black and actually lightens a little bit with time.  But its trademark contrast and chocolate brown color remain largely intact.  Yellowheart deepens slightly from its initial canary yellow tone to more of a golden-yellow with age, which hardly seems like a con at all.  For those who are interested, you can read more about color-change in exotic hardwoods in this great article on the topic.

Rarity is the last subject I’d like to touch on in regard to exotic hardwoods.

Items made from tropical hardwoods are predictably rare in American (and other developed country) households.  When we do run into items crafted from Rosewood, Mahogany, Kingwood or Teak they are almost always antique or vintage pieces made back when these woods were more widely accessible.  Much of the time these vintage pieces were veneered to reduce costs – solid pieces are rarer still.

I am of the opinion that no more than 1 in 25 U.S. households own a piece of furniture or decorative item made from exotic hardwoods.

This means that most people have never seen a piece of solid Honduran Mahogany (or any other tropical hardwood) in their lives, much less know what one looks like.  I find it to be a sad commentary on the state of the world when the average person has never experienced the pure joy of admiring a solid slab of gorgeously-figured Hawaiian Koa or Bolivian Cocobolo.

Instead, most people sleep-walk through their lives with cheap furniture made from MDF, plywood or particleboard.  IKEA self-assembled furniture is the epitome of this trend.  And while flat-pack furniture might look good when you first get it home, it degenerates over a matter of months until it finally becomes a utilitarian lump in your house that you stack other banal household items on top of.

I believe we should strive for more.

Exotic hardwood furniture has one big negative; it will certainly cost more than whatever particleboard junk you can pick up at your local big-box store.  However, I firmly believe that it is an investment well worth the price.  A fine Mahogany table or Teak campaign chest will last longer than you or I will and will look great doing it.  As an added bonus, fine antique furniture has the possibility to appreciate in value in the future – an outcome you couldn’t even dream of for self-assembled flat-pack furniture.

And for those willing to take the time to look, bargains can still be found in the world of exotic hardwoods!

For instance, the Wenge and Yellowheart box (made from reclaimed wood) that I found on Etsy only cost me $60, plus shipping and sales tax.  This is a remarkably low price for an heirloom quality exotic hardwood box.  In fact, $60 probably isn’t too far off the cost of the raw lumber used in the construction of the box!  This means I may have only paid $15 or $20 for the considerable workmanship put into its creation.

Antique stores and thrift shops are a great place to start looking for fine hardwood furniture.  However, keep in mind that most of what you find there will be made from domestic hardwoods.  Online shopping venues like eBay and Etsy undoubtedly also have treasures to be unearthed, although you will most likely be limited in the size of what you can buy due to shipping costs.

In any case, life is too short to stay surrounded by plastic and plywood.  Exotic hardwoods are an aesthetically pleasing solution to this lifestyle dilemma that also allow you to reconnect to nature in your daily (indoor) life.

 

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Daniel Carr & The Moonlight Mint – Overstrikes, Bullion & Fantasy Coins

Daniel Carr & The Moonlight Mint - Overstrikes, Bullion & Fantasy Coins
Photo Credit: South Street Coin Company
Here is a stunning example of a 2011-dated 1000 Amero fantasy coin issued in pure .999 fine gold by Daniel Carr.  Overstrike, fantasy and bullion coins privately-struck by Daniel Carr and his Moonlight Mint have enjoyed strong secondary market prices due to robust collector demand.

Daniel Carr and his Moonlight Mint products are one of the best kept secrets in coin collecting.  He produces absolutely sublime coins – usually in ultra-high relief with proof-like surfaces.  His pieces call out to you to be possessed and cherished, before being passed onto future generations.

Yet when I first heard about him, I had a hard time figuring out who the man was and what exactly he did.  After coming across Carr’s name on numismatic forums all over the internet, I quickly discovered that many coin collectors loved his Moonlight Mint products while a few hated them.  I wanted to know why.

After extensive research, I got my answer.

Most collectors love his coins because they are as close to perfection as it is possible to get.  On the other hand, numismatic purists hate his coins because they are, ironically, too close to perfection!

I’ll talk about that more in a moment, but first let’s cover some important background information.

Daniel Carr specializes in an area of coin collecting known as exonumia.  This is a sub-section of numismatics that encompasses non-coin items such as medals, tokens, fantasy issues and bullion bars – anything that wasn’t issued by a sovereign government with a face value.  Many collectors are drawn to exonumia because of its rich history, endless choice and, of course, its strong dash of numismatic whimsy.

Daniel Carr strikes exonumia at his private Moonlight Mint facility located in Loveland, Colorado and then sells these products to the general public via his website.  The items he mints include medals, hard times tokens, trade coins, fantasy pieces, overstrikes and bullion coins and bars.

But the mainstay of Carr’s business is fantasy coins.  These are privately-struck pieces that were never officially issued by any national mint.  Yet they were often coins that almost came into existence, only to be stymied by some historical quirk of fate.  Daniel Carr enjoys meticulously recreating these improbable coins for discerning collectors.

Carr’s detractors believe he diminishes the hobby of coin collecting when he strikes what would, under normal circumstances, be near-perfect counterfeits.  But there are a couple important mitigating facts.  First, the date on Moonlight Mint fantasy issues never match any officially struck date.  Second, Daniel Carr never attempts to deceive his costumers about what they are buying.  Everyone laying down money for his coins knows exactly what they are getting – beautiful, but unofficial fantasy pieces.

And because a quick look at the date of any Carr fantasy coin will let even a novice collector know that it isn’t an official mint product, I’m enthusiastically siding with those who love Daniel Carr coins rather than those who hate them.  Carr and his Moonlight Mint strike incredibly desirable pieces that must by experienced firsthand to truly be appreciated.

Daniel Carr’s Biography & the History of the Moonlight Mint

Born in 1958 in Denver Colorado, Daniel Carr is a self-taught medal and coin engraver/designer who has had a love affair with numismatics since the age of 14.  Although art (primarily sculpture and engraving) was a hobby, he ultimately graduated from the University of Colorado with a Bachelor of Science in Mechanical Engineering in 1982.  Later in life, Carr decided to combine his diverse interests by entering the field of numismatic design.

In 1998, Daniel Carr submitted an Apollo Astronaut-themed design to the U.S. Mint for use on a proposed small-diameter circulating dollar coin.  However, his concept was passed-over in favor of the Sacagawea gold-dollar that was ultimately adopted.  Undeterred, Carr submitted several reverse designs for the U.S. Mint’s state quarter program in 1999.  Two of his designs were chosen – one for the 2001 New York state quarter and the other for the 2001 Rhode Island state quarter.  In addition, his proposed reverse for the 2003 Maine state quarter was adopted with modifications.

In 1998 Daniel Carr completed the first iteration of a unique software program – VS3D Virtual Sculptor – meant to digitally render coin designs.  He subsequently enhanced his software in 2004 to allow it to interface directly with CNC engraving machines.

In 2007, he bought himself a piece of decommissioned Denver Mint industrial equipment – a Grabener coin press.  This German-made coin press is capable of exerting up to 400 tons of striking force.  It operated at the U.S. Denver Mint between 1986 and 2001 before being retired and sold as surplus.  Once restored to working order in his Loveland, Colorado workshop, Carr began using the Grabener press in conjunction with his VS3D Virtual Sculptor software to design and strike his own line of privately-issued coins and medals.

Moonlight Mint's Grabener Coin Press

The Moonlight Mint’s Grabener Coin Press (Photo Credit: Moonlight Mint)

These moves culminated in Carr’s establishment of the Moonlight Mint in 2008 – a company dedicated to minting overstrikes, fantasy and bullion issues for coin collectors.  In 2013, Moonlight Mint acquired the rights to the storied Clark Gruber & Company name, allowing Carr to strike coins and bullion bars under this moniker.  He further enhanced the Moonlight Mint’s operations in 2016 with the acquisition and restoration of an antique Mossberg ingot rolling machine.

Fantasy Overstrikes

Daniel Carr is perhaps best known for issuing fantasy overstrike coins, which are highly regarded by many coin collectors.  An overstrike occurs when an existing, previously struck coin is used as the planchet (coin blank) for another, different coin strike.  In most instances an overstrike is an error when produced by a government mint.  However, Daniel Carr intentionally creates overstrikes as a private mint product.

Carr has minted a wide variety of fantasy overstrike coins including Peace dollars, Morgan dollars, large cents and silver American Eagle bullion coins, among others.  Most of the time he employs a genuine, vintage circulated coin as a blank to enhance the history and legitimacy of a freshly-struck piece of the same design.  In some cases, ghost images from the original coin are still faintly visible on the final, overstruck coin.

It is important to note that the defacing of U.S. coins is legal provided it isn’t done for fraudulent purposes.  All of Carr’s overstrike products fall under this safe-haven provision.

Daniel Carr’s most well-known fantasy overstrike coin by far is his 1964-D Peace silver dollar.  In August of 1964 Congress authorized the U.S. Mint to resume striking silver dollars – a coin that had not been minted since 1935.  The Denver Mint dutifully prepared new Peace dollar dies and struck a grand total of 316,076 coins.

Unfortunately, the United States was in the midst of a silver coinage crisis at the time and the decision was quickly made to melt all existing 1964-D Peace dollars without releasing any into circulation.  Despite persistent rumors to the contrary, there is no record of any original 1964-dated Peace dollar surviving.  But even if these coins did exist today it would be illegal to own one because the assumption would be that it had been stolen from the mint!

Enter Daniel Carr who meticulously reconstructed his own Peace dollar dies to strike this fantasy masterpiece.  In addition, nearly all examples were overstruck on circulated Peace dollars dating between 1922 and 1935.  Carr’s 1964-D Peace dollar allows the collector of silver dollars or unusual coins to own what would normally be an ultra-rare piece for as little as $200.

Daniel Carr 1902-S Philippine Silver 1 Peso Overstrike Fantasy Coin

Daniel Carr 1902-S Philippine Silver 1 Peso Overstrike Fantasy Coin (Photo Credit: Moonlight Mint)

Another interesting overstrike fantasy piece created by Carr is the 1934 Saint-Gaudens $20 gold piece.  The renowned St. Gaudens design was featured on the nation’s largest circulating gold coin from 1907 to 1933 and is widely regarded as one of the most beautiful U.S. coins ever minted.  While 445,500 of these coins dated 1933 were originally struck, nearly all of them were melted due to President FDR’s gold nationalization edict issued in April of that same year.  Only a handful of 1933 St. Gaudens double eagles survived, making it one of the rarest and most valuable coins in the world today.

The United States didn’t strike any gold coins in 1934.

Daniel Carr’s 1934 Saint-Gaudens $20 gold piece plays with the idea of an alternate history where the United States didn’t abandoned the gold standard in 1933.  All of these amazingly beautiful fantasy issues were overstruck on genuine St. Gaudens double eagle gold coins dated between 1908 and 1928.  A grand total of just 60 overstrikes were produced, making them very difficult to find in the secondary market.

Carr has also tried his hand at minting foreign fantasy overstrike coins.  Two of his most desirable foreign overstrikes are the 1907 and 1915 Mexican silver 1 peso.  This series was officially struck in Mexico from 1910 to 1914, with patterns struck in both 1908 and 1909.  It is affectionately nicknamed the “Caballito” (little horse) peso among numismatists due to its dynamic equine motif.

Although the coin’s design is stunningly beautiful, its original production run was plagued by technical difficulties due to poor quality dies and inadequate striking pressure.  Consequently, most Mexican Caballito silver pesos suffer from mushy details and uneven striking.  Even so, an original example in decent circulated condition will still cost you at least $100 while a gem Brilliant Uncirculated specimen can run close to $1,000.

Daniel Carr sought to solve the coin’s technical issues with his fantasy version.  First he consulted with the world’s foremost expert on Mexican Caballito pesos, Alan Schein, throughout the project.  Then Carr engraved high-relief dies with increased detail before fully striking the coins using his high-pressure Grabener coin press.  The resulting 1907 and 1915 Mexican Caballito pesos are spectacular fantasy issues that realize the true vision of the original design.

Carr only issued 64 of these coins dated 1907 and an additional 47 dated 1915.  All were overstruck on genuine Mexican Caballito silver pesos originally minted between 1910 and 1913.

The last of Daniel Carr’s overstrike fantasy coins that I wanted to highlight is the 1902-S Philippine silver 1 peso.  After the 1898 Spanish-American war, the United States gained control over the Philippines from Spain.  The Philadelphia and San Francisco mints began striking coinage for the newly acquired Philippine territories shortly afterwards, starting in 1903.  The Philippine silver 1 peso is a particularly gorgeous coin, with its dramatic depiction of Liberty on the obverse and a heraldic American eagle mounted atop a shield on the reverse.

The Philippine silver 1 peso coin was originally struck to the same standard as the U.S. silver dollar from 1903 to 1906, before being reduced in both weight and fineness starting in 1907 due to rising silver prices.  Survival rates for these early U.S.-Philippine silver issues are very low, resulting in the coins being rather scarce and difficult to obtain.

Daniel Carr decided to recreate this classic coin with a date of 1902 and a San Francisco mint mark.  His expertise in die engraving and minting produced a 1902-S Philippine silver 1 peso fantasy issue that is close to perfection in every dimension.  Although the total overstrike mintage is just 204 specimens, these proof-like beauties are still attainable with prices generally running between $150 and $350 each.  All of Carr’s 1902-S Philippine silver 1 peso fantasy coins were struck over genuine 1903 or 1904-dated Philippine 1 peso silver coins.

 

Daniel Carr Fantasy Overstrike Coins for Sale on eBay

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Amero Fantasy Issues

One of Daniel Carr’s early successes was his Amero series of fantasy coins, struck from 2007 to 2018.  The Amero is a fictional currency unit for a hypothetical North American monetary union between Canada, the United States and Mexico.  The imagined Amero would presumably function similarly to how the Euro is used across Europe today.

Carr’s designs for his Amero series are fanciful, yet superbly conceived.  They feature a variety of well-executed subjects on the obverse, ranging from the bust of a Native American chief with full headdress to an Art Deco-inspired personification of Liberty, among others.  The reverse typically depicts a majestic eagle with a map of North America and the legend “Union of North America”.  Denominations range from the modest 1/4 Amero struck in copper, to the hefty 1,000 Ameros minted from 1 troy ounce of pure 24 karat gold.  Silver coins also exist in the 5, 10 and 20 Amero denominations.

Daniel Carr’s Amero series hasn’t been without its share of controversy, though.  The modern concept of a shared North American currency originated in a 1999 research paper written by Canadian economist Herbert Grubel on behalf of the Fraser Institute.

By 2007 alternative radio talk show host Hal Turner, a hardcore conspiracy-theorist, had latched onto the shared-currency idea.  He falsely claimed that Daniel Carr’s Amero fantasy coins were proof that an ill-advised North American monetary union was imminent.  Although these wild speculations were quickly debunked, some people remained suspicious of the Amero fantasy issues.

In order to clear up any misunderstandings, Daniel Carr publicly stated that his Amero coins were solely meant for collectors and did not imply any political message.  A message on Carr’s website explained:

“My goal with these coins is not to endorse a Union of North America or a common “Amero” currency.  I fully support the United States Constitution, and I would not welcome (in any form) a diminishment of its provisions.  I expect that these coins will help make more people aware of the issue and the possible ramifications.  I leave it up to others to decide if they are in favor of, or against a North American Union.  And I encourage citizens to voice their approval or disapproval of government plans that impact them.”

 

Daniel Carr Amero Fantasy Coins for Sale on eBay

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The Moonlight Mint’s Clark Gruber & Company Bullion Issues

Daniel Carr has also issued an extensive line of bullion products – first under the Moonlight Mint name before switching over to the Clark Gruber & Company brand.  He has struck bullion coins and bars in metals as varied as silver, gold, platinum, palladium and even indium!  These bullion products are of particular interest to collectors because Carr has imbued their design and production with his own artistic sensibilities.

For example, Carr’s Moonlight Mint/Clark Gruber & Co. products draw heavily for inspiration on coin designs from both the 19th century Old West and the golden age of American numismatics, circa 1905 to 1920.  The resulting bullion pieces are uniquely American in their look and feel, representing an authentic embodiment of American monetary traditions.  Each non-legal tender piece is also stamped with a purely symbolic dollar denomination at the rate of $40 per troy ounce of pure silver and $2,000 per troy ounce of fine gold.

Privately-minted bullion bars and coins have a long, rich history in the mining districts of the American West.  Although first issued in North Carolina and Georgia in the 1830s and 1840s, privately-struck U.S. gold coins really hit their stride during the California Gold Rush of the early 1850s.  During this time legendary assayers such as Moffat & Co., Augustus Humbert and Kellogg & Co. minted California placer gold into a variety of beautiful coins.  Some of these bullion pieces were used locally for high-value transactions while others were shipped back east to the nation’s banking centers.

The next great renaissance in privately-struck bullion coins occurred during the Pike’s Peak Gold Rush in Colorado in the early 1860s.  The Denver firm of Clark, Gruber & Company minted copious quantities of $2.5, $5, $10 and $20 gold pieces from locally mined ore to satisfy demand for money in the region.

Honest to a fault, the company actually struck their coins with a slightly higher gold content than equivalent U.S. Mint issues.  Clark, Gruber & Company was so well respected that the United States government purchased their entire operation in 1863.  The resulting U.S. Assay Office was eventually converted into the Denver Mint in 1906.

It was no coincidence that Daniel Carr resurrected the Clark Gruber & Company name in 2013 for use on his Moonlight Mint bullion products.  He wanted to capture the pioneering spirit and unimpeachable honestly of that legendary firm.  And in my opinion, he has succeeded beyond all expectations.

Moonlight Mint's Mossberg Ingot Rolling Machine

The Moonlight Mint’s Mossberg Ingot Rolling Machine (Photo Credit: Moonlight Mint)

An interesting Moonlight Mint bullion product is the massive 100 gram silver “Union” coin featuring a winged Liberty design derived from the famous $20 St. Gaudens double eagle gold coin.  Carr actually based his work on Augustus Saint-Gaudens’ preliminary design sketch of the iconic coin.

In effect, Carr’s ultra high-relief, angelic-version of Liberty is what the $20 St. Gaudens gold piece might have looked like if history had taken a different turn.  Daniel Carr only plans to strike these impressive silver coins for a 3-year run from 2019 through 2021.

A pair of gold bullion pieces that I find fascinating are Carr’s 1/5 owl (symbolic face value: $200) and 1/2 eagle (symbolic face value: $500) gold coins that carry the Clark Gruber & Company branding.  The obverse designs of these attractive coins closely match the original Clark, Gruber & Co. gold coins issued back in the early 1860s.

The biggest difference between those privately-issued 1860s coins and the recent Moonlight Mint series is that the latter is minted from .999 fine gold in round fractions of a troy ounce – 0.1 troy ounces for the 1/5 gold owl and 0.25 troy ounces for the 1/2 gold eagle.  Carr’s coins are also a technical triumph, with far better details, luster and striking than you could ever hope for in a 19th century coin.  Struck every year from 2013 to the present, Carr has typically limited the mintage of these Clark Gruber & Co. pieces to less than 50 of each denomination per year.

The final Clark Gruber & Co. products I wanted to touch on are Carr’s silver ingots and octagonal slugs.  Gold and silver bullion bars were a mainstay of mining communities in the Old West and the Moonlight Mint keeps that old-time tradition alive.

Weighing between 1 and 5 troy ounces each, these silver bars are typically stamped with either the Moonlight Mint logo (an owl sitting on a crescent moon), a majestic eagle, or a bust of Liberty borrowed from 19th century circulating U.S. gold coins.  The stamping of a symbolic dollar value on each bar at the rate of $40 for each troy ounce of silver further enhances their monetary character.

Although unattainable for most collectors today, over-sized octagonal gold bullion coins with a face value of $50 were struck by the San Francisco U.S. Assay Office during the 1850s.  These pieces were termed slugs because they were technically considered ingots and not coins.

The United States even issued an octagonal $50 commemorative gold coin in 1915 to celebrate the opening of the Panama Canal.  In addition to being obscenely heavy (with a gross weight of nearly 84 grams – 2.69 troy ounces), the octagonal $50 Panama-Pacific gold piece is considered one of the most exquisite and desirable U.S. coins ever made.

Daniel Carr’s Moonlight Mint has perfectly replicated the look and feel of these massive octagonal bullion slugs in silver.  Weighing in at a hefty 1.5 troy ounces of .999 fine silver, each of Carr’s octagonal bullion pieces is emblazoned with the Clark Gruber & Co. name and a symbolic $60 face value.

The Moonlight Mint logo of an owl sitting on a crescent moon graces the reverse of these magnificent coins – an obvious nod to the famous reverse of the 1915 Pan-Pacific $50 gold piece.  The obverses vary, but always reference a classic U.S. coin design or pioneer theme.  Some examples of the obverse designs used on Carr’s octagonal slugs are Liberty with a puma, a Native American bust and a heraldic bald eagle inspired by an 1850s private California gold issue.

 

Moonlight Mint & Clark Gruber & Co. Bullion Coins for Sale on eBay

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The Investment Case for Daniel Carr and his Moonlight Mint Coins

The investment case for Daniel Carr and his Moonlight Mint overstrikes, bullion pieces and fantasy issues is remarkably straightforward.  He produces incredibly well-designed, technically-polished gold and silver coins with a lot of history and symbolism behind them.  Yet their mintages are usually quite limited.

It is normal for Daniel Carr to strike no more than 200 or 300 of a given coin.  He frequently limits mintages to less than 100 pieces.  Some issues have a total population of only 20 or 30 coins!  And Carr never goes back and restrikes older designs or dates, no matter how high prices might climb in the secondary market.

Fiercely dedicated collectors usually snap up any available inventory within weeks of its release on his website.  At that point, it is only possible to purchase his products on the secondary market (e.g. online platforms like eBay).  This means that buyers are limited by what’s on offer, so you may have to patiently wait for the exact piece that you want to show up.  Many Daniel Carr collectors are “strong hands”, meaning they have no intention of selling regardless of how high prices go.

Consequently, you can expect secondary market prices for Daniel Carr coins to be high (and remain high) relative to their bullion values.  As proof, the median realized price of Moonlight Mint issues sold in the secondary market (via eBay) during summer 2020 was $125.  This statistic excludes expensive gold coins but includes low-intrinsic value copper and bronze pieces, thus dragging down the average realized price.  Nonetheless, it is common for Daniel Carr silver coins and bullion bars to sell for $50 to $100 a troy ounce – a profound vote of market confidence in a world where the spot price of silver has been hovering between $25 and $30.

It is also noteworthy that third-party grading services ANACS and ICG currently certify Daniel Carr fantasy issues and tokens.  It is almost unheard of for professional third-party graders to accept submissions of modern fantasy issues from private mints.  So the fact that these firms do is telling (although it should be noted that the two gorillas in the coin-grading space – PCGS and NGC – do not certify Carr pieces at the present time).  In any case, a third-party certification is valuable because it can give novice collectors or those seeking a guaranteed ultra-high numerical grade (e.g. MS-69 or MS-70) the confidence to buy.

Right now in 2020 Daniel Carr is 62 years old and near the apogee of his creative and technical skills.  But he won’t be producing these wonderful pieces of exonumia forever.  The productivity of many artists and craftsmen declines dramatically as they age into their late 60s and early 70s due to creeping health issues or the desire to enjoy semi-retirement.

Even if Daniel Carr has another 10 or 15 good working years left (and I certainly hope he does), it will still amount to far less coin production than you’d think given the complex designs, exacting quality standards and limited mintages that he embraces.

As a result, it is easy to see a time 20 or 30 years in the future when Daniel Carr coins are widely recognized as legitimately rare works of desirable numismatic art.  In such a scenario, his coins would command much, much higher premiums than they do today.

As numismatic investors, we are looking for today’s $100 or $200 coin that will be a $1,000 or $2,000 coin a couple decades from now.  And although we cannot say for certain that Daniel Carr issues will achieve that prestigious distinction, their combination of stunning design, extreme rarity and cultural relevancy certainly gives his coins that potential.

 

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Money Printer Go Brrr – The Hyperinflation Myth That Won’t Die

Money Printer Go Brrr - The Hyperinflation Myth That Won't Die

The dominant narrative of the 2020 financial markets is that the U.S. Federal Reserve is printing the U.S. dollar into oblivion.  After having expanded its balance sheet by roughly $3 trillion between March and May 2020 (during the worst of the pandemic lockdown), the Federal Reserve has actually shrunk its balance sheet by $220 billion since then.  But this hasn’t stopped financial pundits from breathlessly speculating about how close the U.S. dollar is to collapsing into hyperinflation.

A great example of this conventional wisdom can be found in an article I recently discovered on the financial blog Adventures in Capitalism.  This blog is run by Harris Kupperman (aka Kuppy), founder of the hedge fund Praetorian Capital.  This guy is a market pro with over two decades of investing experience.

Kuppy penned an article titled “Did The Market Actually Recover From COVID-19…???”  It posits that even though the broad equity markets are either near (the Dow and S&P 500) or at (the NASDAQ) all time highs in nominal terms, in reality they are grinding along very low levels in valuation terms.  This means that equities are a buy – a strong buy!  Only an idiot wouldn’t be long this market!

The way he achieves this valuation sleight of hand is by arguing that the U.S. financial authorities are engaged in what he calls “Project Zimbabwe” – in other words, hyperinflation.  During hyperinflations, stock markets shoot to the moon in nominal terms, even as the economy disintegrates around them.  This has happened in every country that has 1) experienced hyperinflation and 2) had a freely-trading stock market at the time of its hyperinflation.

The two latest examples of this unfortunate situation are Zimbabwe and Venezuela.  The Zimbabwe Industrial Index is up 654% for the YTD period through July 2020 while the Venezuela Stock Exchange General Index is up 280% over the same time.  So just invest in stocks and we’ll all be rich, rich as Nazis!

Or maybe not.

Inflation in Zimbabwe is running somewhere close to 800% on an annual basis while Venezuelan inflation is maybe around 2,000% (hyperinflation rates are notoriously difficult to track, so all these figures are approximate).  So equity investors in these countries might actually be losing money in real terms as inflation threatens to outpace any gains they make in the markets.  Suddenly, those hockey stick equity market charts don’t look nearly so appealing.

But Kuppy will not be deterred.

He produces a chart that shows the ratio between the S&P 500 ETF (SPY) and the Federal Reserve’s balance sheet.  The implication is that in a “true” bull market the S&P 500 will rise in relation to the Fed’s balance sheet, while in a bear market it will fall.  The chart then shows this in action, with the market ratio rising (the green line below) for most of the 2010s only to get unceremoniously knocked back down by the 2020 global pandemic.

 

SPY to Fed Balance Sheet Ratio

SPY to Fed Balance Sheet Ratio

But I find Kuppy’s accompanying commentary to be an intriguing window into the hyperinflation-obsessed thought process of professional money managers everywhere.  I have excerpted a paragraph from his article below:

“What I find stunning is that after the COVID-19 crash, we’ve barely even bounced off the lows. In fact, we gave back a decade of retained earnings, financial engineering and everything else. We’re actually all the way back at 2010 levels. That’s stunning right? It’s literally been a wasted decade in the financial markets when indexed to the Fed’s balance sheet. That’s your COVID-19 crash and it’s as severe as you’d expect it to be.”

So Kuppy thinks the downtrend in the S&P 500/Fed balance sheet ratio will stop and reverse higher as the Fed’s money printing continues unabated.

Hyperinflation Ho!  Zimbabwe here we come!  Save us Dow!  Save us S&P 500!  Save us NASDAQ!

The hyperinflation narrative is perhaps best represented by the catchy slogan “money printer go brrr”, which implies that Fed governors are busy manning the printing presses in the basement of the Eccles Building in a nefarious attempt to destroy our collective monetary future.  Here is an absurdly entertaining YouTube meme that encapsulates everything the mainstream investment community currently believes about the Fed’s money printing.

 

 

Kuppy, like many money managers in the world today, is suffering from Fed induced Hyperinflation Derangement Syndrome.  Their thinking is that because gold is going up and stocks are going up and the Fed is printing, then it must mean that hyperinflation is right around the corner.

Except it’s not true.  The Fed printing is really just plugging a giant sinkhole in the economy…barely.

As soon as I read Kuppy’s article I decided to prove it wrong.  After about 45 minutes of work, I had my own chart showing the ratio of the Japanese Nikkei 225 Index to the Bank of Japan’s balance sheet.  Remember, this is the same Bank of Japan that has been printing with wild abandon for years…years!  They’ve printed so much that their balance sheet has now swelled to 118% of Japanese GDP.  To put that into perspective, if the Fed just matched the BOJ, they would have to print an additional $16 trillion – enough to double the value of every dollar deposit account in the entire country!

And despite all this BOJ printing, there is still no inflation in Japan.  None.  Zero.  Nada.  Zilch.  The latest Japanese inflation reading in June 2020 was a microscopic 0.1% year-over-year.

Kuppy implicitly believes that the last 10 years of retained earnings and financial engineering in corporate America couldn’t have been for nothing.  But it was.  Outside of a handful of exceptions, corporations actually retained very little in the way of earnings over the past 10 years.  Instead they spent it all on share buybacks and dividends.  Financial engineering has likewise proven to be a curse for long-term shareholders.  It has hollowed out many companies’ productive capacities, snuffing out their future viability.

Instead of arising like a phoenix to new highs, further Fed printing will only cause the S&P 500 to Fed balance sheet ratio to contract even more aggressively.  One only has to look at the Nikkei to BOJ balance sheet chart below to realize that.  Regardless of how many trillions of yen the BOJ has printed, the ratio has relentlessly sunk ever lower.  In fact, you can still buy the Japanese Nikkei Index for the same (nominal) price it was back in 1987 – over 30 years ago!

 

Nikkei 225 Index to BOJ Balance Sheet Ratio

Nikkei 225 Index to BOJ Balance Sheet Ratio

In the final analysis, there are two interpretations of what is happening in the market right now.  The first is that we are in the nascent stages of hyperinflation – the money printer go brrr hypothesis.  This is the glib, simplistic myth that just won’t die.

The other possibility is that traumatized investors are fully cognizant we have entered a modern-day Greater Depression.  Consequently, they are retreating to the safest, most liquid and money-like financial instruments possible – things like Treasury bonds, Agency debt and cash, along with gold and silver bullion.  In conjunction with that, we are also experiencing the end stages of the largest equity bubble in the history of mankind – the twilight of the dreaded Everything Bubble.

I think the latter explanation is far more compelling than the former.

Of course I don’t hate equities simply because they are equities.  I hate them because they are so overpriced at the moment that their future returns will undoubtedly have a negative sign in front of them.  If the valuations weren’t so obscene, my investment outlook would be more constructive.

As a parting gift, I will give you a little investing tip.  You’ll often hear that you should invest in good, solid dividend paying stocks.  And I would, if there were any domiciled in the United States.  Alas, U.S. corporate management has mortgaged their shareholders’ future through accounting tricks and excessive leverage.

But I did stumble across a gem from overseas during my research.  Coca-Cola Bottlers Japan Holdings Inc. is a company that controls 90% of the Japanese Coca-Cola beverage distribution market by sales volume.  It administers the most important, most populous geographic areas in Japan, including Tokyo, Osaka and Kyoto.  The company trades under the ticker “2579” on the Tokyo Stock Exchange or “CCOJY” as an over-the-counter ADR (American Depositary Receipt) in the U.S.

The firm has a market cap of around $3 billion, making CCOJY a mid-cap company.  It also has an English language website, which makes gathering company information easier.  The ADR (CCOJY) will probably be the most accessible security option for most U.S. investors.

I like CCOJY because it has a healthy dividend yield of between 2.5% and 3.0%, a low price-to-sales ratio of 0.35, and a reasonable debt to (tangible) equity ratio of only 55%.  The company’s debt sports a solid AA-/A+ credit rating, which means that their debt servicing costs are negligible.  The chances of this firm going bankrupt are nil.

Coca-Cola Bottlers Japan Holdings Inc. is the kind of company you buy today and stuff away in your retirement account for the next 10 years.  You’ll earn a fair return on it (probably mid single digits annualized), which I understand isn’t stellar.  But neither will you wake up one random morning to news that the company disintegrated overnight as its executives fled to Mars in the wake of an accounting scandal.

CCOJY has declined by about 45% (in dollar terms) from earlier this year due to the impact of COVID-19.  But it is a consumer staple company and sales volumes are unlikely to drop significantly.  Positive near-term catalysts include the (now delayed to 2021) Tokyo Summer Olympics and the potential for further consolidation with the remaining smaller Japanese Coca-Cola bottlers.  CCOJY’s dollar price is currently near an all-time low, while its yen price is the same as it was back in 2013, 2009, 1995 and probably earlier as well (but that is as far back as I could get data).

In any case, please do yourself a favor by not falling for the hyperinflation myth.  The U.S. dollar isn’t going to fall apart anytime soon.  But even so, I think allocating some of your portfolio to gold or silver (or the rare undervalued stock) is a good idea.  Otherwise, holding cash while you wait for better investment opportunities to come along is just fine.

 

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