Thursday, March 31, 2016
How to Get a Potential 600% Return on a US Government Backed Investment
There is a potential return of well over 600% on an investment with an extremely low minimum to participate. In addition, the investment is guaranteed by the United States Government. First, let me tell you that I am not referring to US EE Saving Bonds, although those used to have a lot of benefits before 2008. (The current yield on them is 0.1%.)
Before I tell you what this investment is, I want to give you a little background. You may have already seen it on the news recently but the former economic adviser to President Obama and ex-Treasury secretary Larry Summers has called for the elimination of the $100 bill and potentially take them all out of circulation, similar to what happened to the $500 and $1000 bill. He also hinted that the $50 bill should be looked at in the same way.
Reasons given were to reduce the drug trade and money laundering. Some pundits believe that the government wants all money to go electronic, so that they can track all transactions easier.
So what does all this have to do with investing you might ask? Well, recently, I sold an old car for $1500 and the woman who bought it went into her bank to get cash to pay for it and came out with a wad of money, folded over, about three inches thick. It was all twenties.
The first words out of my mouth were "They didn't have any hundreds?" No $100 bills!
Remembering the news about the hundred dollar bills, I tried an experiment. I went to three major banks to withdraw or cash a check for one or two hundred dollars, and asked for my money in hundreds. Two out of the three banks didn't have hundreds.
Now come on! No hundred dollar bills? These were not podunk banks. These were major banks with many branches in major cities across the United States.
So I thought maybe the elimination of the benjis has already started. (In case you haven't heard the term benji, it refers to Benjamin Franklin who appears on the hundred dollar bills.)
So I decided to do some research on high denomination currency. Prior to 1970, the $500 and $1000 bills used to be in regular circulation. (If you watched any of the old Perry Mason TV shows, you might have seen a couple of them in use.)
However, the US Government took them out of circulation, and they ended up becoming collectors items. If you check out some of the prices of uncirculated $1000 bills on eBay (EBAY), you would see prices of $7,799, $7,500, $5,250, $6,000, etc. These are returns over face value of 425% to 680%. Anyway, you get the picture.
Could the $100 bill become a collector's item? Certainly, if they are withdrawn from circulation. You would want to get uncirculated currency in mint condition.
If you ask you bank for a bundle of new $100 bills (a bundle is one hundred banknotes), your bank will file a CTR (currency transaction report) with the government, since the bundle will equal $10,000. In that case, you might be viewed as a suspicious character.
Could the $100 bills increase in value as much as the $1000 bills? That is a big uncertainty because there are far more hundreds in circulation than there were thousand dollar bills. But you never know. They could end up like the $100 trillion dollar Zimbabwe bills.
However, one thing to keep in mind is that the hundred dollar bill will never lose value (not counting the loss due to inflation). If it never gains value as a collectible, you can always spend it.
So if you have a little spare change, why not put away a hundred dollar bill for each of your children and/or grandchildren, or even yourself. You never know what it could be worth in the future.