The Silver Bar Post

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With the recent drop in precious metal prices, a lot of first time buyers are getting into the market right now, filling up their sock drawers with silver coins. After a series of long discussions with friends and co-workers, I sat up late last night formulating this post to try to address the myriad questions that come up when talking about buying precious metals. I tried to keep this as concise as possible, so I had to limit the level of detail – do your due diligence and read up on the subject from multiple sources and points of view.

Why precious metals?

Think of precious metals as highly liquid, higher-yield versions of your cash assets (money market accounts) in your 401k. Given the joke rates that cash savings accounts and CD’s are paying right now, precious metals are, in fact, one of the few ways to make real earnings on liquid assets. Yes, the metal market plunged recently, but those were mostly recent gains – more of a market reset than anything, and prices are still higher than 5 or so years ago. Nonetheless, this shows that metals are not 100% liquid – you may be forced to hold them for a few months or years during times like these.

Paper or Plastic?

Lots of metal heads will rant about paper metal bonds that are not backed by any physical metal. Don’t get too freaked out by this – none of your stocks are backed by anything solid either. Nonetheless, owning mine or mineral stocks means fees and usually less liquidity. When you buy physical precious metals, they will arrive encased in plastic, often as part of an assay certificate. So, no – you don’t get to open them and play with them. But you can walk right out your door and sell them to a local or online dealer any time you want. The main advantage of buying your own physical metal is no brokerage fees, one less middle man, better liquidity and control. The main drawback is that you bear the burden of secure storage ( more on that later).

Gifts

I think precious metals are very cool gifts for new babies, marriages, graduations, birthdays, etc. They are not as gauche as money, and since they are investments, they are thoughtful and can get people in the right state of mind for saving and investing. Plus, kids think coins and silver bars are cool. Trust me, a $26 bar of 0.9999 silver gets more ooohs and aaahs than a $100 sterling knick-knack.

Gold vs. Silver vs. Platinum vs. Palladium

I’m not even going to touch this. There are so many arguments on all sides of this, it’s impossible for me to offer meaningful advice, except this: don’t believe everything you read. For every good argument you find, you’ll find ten other counter arguments. Plus, metal hoarding tends to bring out the wacko in all of us, myself included.

I can, though, comment a little on the relative buy and sell prices of silver and gold, particularly with respect to their spot prices. Since silver, at the time of this writing, sells for about $25/oz while gold sells for $1450/oz – it’s difficult to compare their pricing side-by-side. So I went to a few metal broker websites and wrote down their selling and buying prices quoted for several forms and quantities of silver and gold, then I calculated the % difference between these two prices and I was surprised at the results. In short, both metals have similar buy-sell differentials as long as you compare 1-5 oz of silver vs. 1/4 to 1 oz of gold. The smaller, 1/10 oz gold coins were a bit of a rip off because their relatively low re-sell price compared to their high purchase price.

I like silver because you can easily buy it in a variety of forms, in easily sellable “denominations” that equate to $25, $125 and $250 (at today’s prices). At $1450 for 1 oz of gold today, denominations of $2900 and $5800 are tough for 98% of us, plus you are instantly exposing yourself to $100 fluctuations in the value of your single piece of metal. And, again, that $1450 piece of gold is going to sell for $2000 down the road, which can be a lot more difficult than selling several 10oz bars of silver for the same net $2000.

Nonetheless, diversification is always a smart idea – so you should buy some smaller “denominations” of gold (1/4 or 1/2 oz) and lots of moderate “denominations” of silver (1 to 10 oz), with a few pieces of platinum here and there just for the bragging rights.

Look over the 1 yr, 5 yr and 10 yr spot price charts for these metals, and note the differences in trends and volatility.

Quantity

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Buying metals in large quantities is a double-edged sword. Higher quantities always have the advantage of lower prices per oz, approaching spot prices for large bars. Both coins and bars are discounted based on the number of pieces purchased, but also on the individual piece weight. Bars have the advantage in the latter case, because they are available in very large weights such as 1 kilogram. Coins are rarely offered in weights larger than 2 or 5 oz, and 1 oz coins are the standard. In contrast, 5 oz and 10 oz bars are commonplace.

In my previously mentioned buy-sell price analysis, I also examined the effect of unit quantities and price differentials. For silver, even though there is a linear relationship between unit (bar, round or coin) weight and “% over spot” purchase price, there is a similar differential on the re-sell prices, so the effect of unit weight isn’t huge; in other words, buying and selling one 10 oz bar only has a very slight advantage over buying and selling ten 1 oz bars. For gold, there was a stronger effect, up to about 1 oz. As I previously noted, for coins, 1/10 oz bars carrying a high cost penalty, so I would stick to 1/4, 1/2 or 1 oz coins, going with the highest denomination (weight) that your budget allows.

But large quantities, in particular large indivisible bars, can be difficult to liquidate quickly. In addition, aside from the American Eagle, Canadian Maple and Austrian Philharmonic coins, large quantities require 1099 reporting to the IRS when sold. Pre-1933 coins are also exempt.

Back on the positive side, purchases over about $2000 from online sellers often get you free insured shipping.

Finally, many online sellers have minimum purchase requirements; if you find a great price, but your budget is limited, the required minimum purchase may determine the amount you purchase.

Go in together with your good friends or family members to buy a large amount in one transaction, so you get quantity discount and free shipping without bearing the full cost yourself. Needless to say, you should only do this with people that you trust and are close to.

Payment Methods

Many sellers offer “cash” prices that are around 2% below “invoice/list” prices that are charged when using a credit card. The reason should be obvious – credit card transaction fees are about 2.5%, so the sellers are just trying to recoup that cost. While “cash” often means wire transfers, money orders or bank transfers – all of which carry fees – sometimes “cash” prices include personal checks. This can be a great way to save money on your purchases, so long as you’re not in a hurry: though sellers may require you to send payment postmarked within 24 hrs of purchase, they are still going to sit on your order until your check clears. Credit cards have the advantage of speed, traceability, dispute and fraud protection, and also often 1-2% cash back (or other) rewards that may offset the slightly higher purchase price.

Storage

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I won’t get into storage contracts with sellers or other warehouse type arrangements, since I presume the 2%ers with $100k in metals have people that take care of that sort of thing for them, rather than reading my blog. A $35/year small safe deposit box at your bank is a no-brainer, and you should have one anyway with the originals or copies of all your important documents inside. If you start hoarding silver bars, you’ll fill up the typical small safe deposit box within your first few $k of metal. Plus, many banks have limitations on the amount of insured precious metals in certain boxes – so ask around and make sure you have the right size and type of box. You should also drop $120 for a heavy-ass safe at home that will give any robber a hernia before he moves it a foot. It took me and my neighbor both to move mine in place. Again, you should have one anyway for your important stuff, and God damn is it fun to spin that big dial and open it up to see the glittery metal that you have not yet moved to the bank. I like to keep a few bars and coins on hand just to gaze at and stroke fondly from time to time, but I keep the majority in my bank.

Coins vs. Bars vs. Rounds

Notes: coins are government issued money with legal denominations ($1, $5, $20…); rounds are made by private mints, just like most bars, and are not legal tender.

This is another Pandoras box. Coin investing is in itself an art form. I list a few arguments for each below. One thing I will discount is the argument that the $1 face value of coins somehow imparts some magical inherent value on them in the case of the collapse of the paper dollar. Really? Give me a break.

I also group bars and rounds together, as my buy-sell cost analysis has shown that there is little difference.

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Advantages of Coins

1. Government-minted coins are sometimes easier to sell, and arguably more difficult to fake
2. Coins often come in more weight options, particularly for gold (1/10, 1/4, 1/2 oz), although often these are from private mints
3. Higher selling prices (albeit with higher purchase prices than bars)
4. A few government coins can be sold in any quantity without requiring the buying dealers to file a 1099 with the IRS

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Advantages of Bars

1. Less expensive per oz; silver 1 oz bars are usually less than 8% over spot (however, selling prices are lower than coins) – compared to 15-30% over spot for coins
2. The sell/buy price differentials at any given time are much closer than those for coins, so there is less short-term risk; you must hold on to coins longer than bars
3. More compact than coins, especially in large quantities – particularly in rectilinear safes, deposit boxes, etc.
4. The larger weights available with single bars equate to prices closer to spot, allowing a buyer to approach spot prices much closer than any coin; however, upon selling, bars are indivisible

Novelty Coins and Bars

Don’t do it. Aside from pouring acid on your gold to test its purity, the only way that you can definitely ruin your return-on-investment is by buying a themed, holiday, baby, wedding, engravable or other hokey coin or bar. Not even a dealer wants to buy those. People want coins and bars that look expensive, with lots of 9’s on them, troy ounce units, serial numbers, industrial logos and fancy-sounding mint names. Not Donald Duck, flowers or your nephew’s name.

Approved Brand and Good Delivery Listed Silver Mints

You will only buy your metals from a reputable dealer that is also a U.S. Mint dealer (there’s a list on the U.S. Mint website, where, incidentally, you can buy collectors coins but not actually investment coins – go figure). Texas Precious Metals and Provident Metals are well-established on-line dealers (who buy and sell) and accept personal checks.

Further, you will only buy gov’t coins (U.S., Canadian, Australian, etc.) or privately-minted bars from mints that are listed on one of the two approved lists below.

Now, in actuality, there are several perfectly legitimate mints that are not on these lists, which have good regional reputations. Just do your homework. Northwest Territorial Mint is one such mint. In Seattle, you can move their product no problem. In NYC, bring a NTM bar into a coin shop and they might look at you like you have three eyes. OPM and Sunshine are two listed American private mints that offer bar and round bullion that typically sell for very close to spot.

In my previously-mentioned buy-sell price analysis, I looked at the effect of mint type, and found that there were three groupings: generic, unlisted mints (Scottsdale, Northwest Territorial…); listed mints ( OPM, Sunshine…); and listed brand name mints (JM, Engelhard…). The generic mints are less desirable, as their re-sell prices were lower than other mints, low enough to offset the benefits of their low initial purchase price. On the other end of the spectrum, the brand name mints had very high purchase prices that were not offset by proportionally high re-sale prices. So the best way to go seems to be listed mints with less well-known names. I am personally a big fan of OPM bars and rounds.

This is just a partial list of common mints; there are dozens of other listed mints. The names listed generally refer to the mint mark, not necessarily the corresponding company/producer name. Check the full lists:

NY = New York Mercantile Exchange (NYME) Approved Brand
London = London Market Association (LBMA) Good Delivery List

Britannia Refined Metals (NY, London)
Degussa (NY)
Engelhard (NY)
Heraeus (London)
Johnson-Matthey (NY, London)
Metalor (NY, London)
OPM (NY)
Pamp (NY, London)
Perth Mint/Western Australian Mint (London)
Rand Refinery (NY, London)
Royal Canadian Mint (London)
Sunshine (NY)

Bierfilzl felt beer coasters

I received these cool felt bierfilzl beer coasters from Graf & Lantz for Christmas, and they are really sweet. Not only do they look cool, they work great. Supposedly, all coasters were felt-based back in the day.
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As it turns out, felt coasters are all the rage right now. You can find all types just about anywhere. Lots of folks are going the DIY route and making them at home, complete with backing material. Pretty cool.
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Kobalt Double Drive screwdrivers

My Dad gave me a Kobalt Double Drive screwdriver set for Christmas. I was a little dubious about the quality of Kobalt tools (sold at Lowes), and I generally stick with Craftsman for hand tools. I also thought these were just ratcheting screwdrivers, which are kind of gimmicky in my opinion.

Image from Tool Guyd
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But, as the name implies, these are not just ratcheting screwdrivers with interchangeable tips. When used with one hand, they are indeed “just” ratcheting screwdrivers, not requiring you to release you grip as you rotated your hand counterclockwise to re-start a clockwise (when tightening standard threads) rotation of the driver. But if you place your other hand on the blue metal band on the lower portion of the grip, and hold it still (which you often must do just to keep a screwdriver head in place), then the “double drive” will actually continue to rotate the bit clockwise while your other hand is rotating counterclockwise. So the bit just keeps rotating in one direction while you twist the handle in alternating directions. So you’re pretty much tightening the screw at twice the speed with half the amount of hand rotations. Pretty cool!

You can also use it in the opposite direction (for loosening) by moving a small switch (similar to the small levers on ratchet socket wrenches).

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Obviously, for short screws or bolts, this type of driver is minimally useful – but for longer screws or bolts, or if you’re working with a lot of screws, then these drivers will definitely speed things up and save you effort.

One of the best things about this set is that these drivers appear to be pretty well-designed and well-made. Unlike many gimmicky screwdrivers, the handles for these remain standard-sized, not bulky, the direction switch is small enough to stay out of the way and the double-drive band is made from anodized metal in a nice serrated grip finish. Also, the end cap on the smaller driver rotates to allow you to put pressure on the driver while rotating it. The end cap on the larger driver doesn’t spin, but it is removable to allow you to store bits in the handle (loose).

One downside is, of course, the minimal set of bits provided as well as the quality of the bits. I’ve been using mine for working on my winter bike project, which of course requires metric hex head bits. The set only includes a couple of SAE hex bits. I also snapped a flathead bit while tightening up some cabinet pulls with minimal force. But of course other bits you may already have will likely fit into the large driver just fine.

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Which brings me to the 2nd downside, and that is the different bit sizes for the two different drivers. But you’ll likely only use the smaller driver for a few operations, where a Phillips is sufficient.

While not a necessity or a completely revolutionary invention, the Kobalt Double Drive screwdriver is pretty cool, good for bike work and not at all gimmicky.

The Best Security Monitoring Company

Sorry for the trick title – there is no single “best” company for monitoring your security system! But here are some questions to ask that will take most monitoring companies by surprise:

1. Will I own the hardware, or will I be leasing it?

Never lease hardware. You have to pay for un-installation someday, plus you’re constantly paying for hardware rental long after it becomes obsolete. Also, if you don’t own the equipment, the dealer can withhold codes from you (see below).

2. How long is the service contract duration? What happens if I have to move or cancel the service for any other reason before this?

Most companies try to get you into a five-year contract, three-years at a minimum. A good provider will offer an annual contract for the first year, then switch to monthly or quarterly after that.

The contract will usually stipulate that if you cancel early, you must pay for the remaining service term! That’s right – they want money for nothing! Run, don’t walk away from such companies. They will often also assign bogus monetary value to thing like “proprietary codes”, “programming”, “phone numbers” and cellular modules (which are usually rented even if you’re buying the rest of the system. Our former monitoring company valued a $150 GSM module at $500!!

3. Will the system contain a proprietary “dealer code” (or “installer code”) that is secret and not given to me?

When you ask this, an unscrupulous dealer will start sweating bullets. They sneak these codes into your system during installation in order to keep you or future tenets/owners from being able to switch to a different monitoring company. Nice, huh?

Even though this practice has been found to be illegal in several (if not all) states (including Ohio) – often through ADT lawsuits – unethical companies continue the practice because they know consumers’ only recourse is expensive and/or time-consuming legal proceedings.

Double, triple check any service contract for verbiage about such codes.

My advice is to pick out you own security system, buy it and either install it yourself or find an installer to do it for a fee. Then you can search for a monitoring service provider independent if the system hardware, including on-line providers and/or web-based self-monitoring services.

Shark Navigator vacuum

You’ve probably seen those commercials for Shark vacuum cleaners – think lower-cost Dyson. Actually, some models are not much less than the least expensive Dyson. My wife and I are allergy sufferers, and we wanted to find a (real) HEPA vacuum cleaner for our housecleaners to use. I suspected that their vacuum was spewing pet dander from other’s houses into ours!
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So, once again Dave has done to footwork for you. From my research, it looks like the nicer Shark models are every bit as good as the Dysons, sometimes better, and as good as or better than many other brand name vacuums on the market.

Our Shark Navigator Pro is extremely powerful, loud, lightweight and easy to use. Emptying the plastic bin is more of a pain that removing a bag because you have to drop the contents into some wide-mouth receptacle that is not inside your house (otherwise, you’re defeating the purpose of the HEPA filter). Also, having a true HEPA filter, it needs to also employ a foam pre-filter (to avoid clogging the HEPA filter quickly), which you have to rinse off and dry from time to time.

To get a killer price on these vacuums, wait until you get one of those 20% off coupons in the mail from Bed, Bath and Beyond – they carry several Shark models.

Appliance Extended Warranties

A few years ago, it was pretty common knowledge that extended warranties (or service contracts) were kind of a rip-off, so like most people, I never opted for one. When we bought our current house, it came with mid-range appliances. I was pretty shocked at the cost of even the smallest repairs. In our area, a service call is $150 plus parts, a little more on weekends, after hours or rush service. The parts themselves are rarely less than $100, and can easily be $500+.

So while shopping for (and buying) new appliances over the years, I’ve kept a close watch on factory warranties and the cost or extended warranties. A few findings:

  • Factory appliance warranties generally are only 1 to 2 years, even on higher-end appliances; this alone speaks volumes about their reliability
  • As I mentioned above, parts and repair parts are very high – easily 20-80% the cost of the appliance
  • Extended warranties (from the manufacturer) or service contracts (from the retailer) can be very reasonable, especially if you buy 2 or more appliances at the same time; 3 extra years of coverage can be, for example, only $120 on a $2500 range
  • Its important to review the details in coverage and compare extended warranties vs service contracts; in some cases, one can be much better than another
  • Appliances in general seem to have mediocre reliability, regardless of price or brand; if you buy four matching, same-brand appliances, chances are you have 1 or 2 decent appliances and 2 or 3 crummy ones that are going to need frequent repair; why else would the initial warranties be so short?
  • Dishwashers in general seem to be less reliable than other types of appliances
  • I’m not suggesting you go buy extended warranties on everything you buy; I think it only makes sense for bigger ticket items, like large appliances. A former co-worker once told me a terrible story about her elderly parents who had bought all their home electronics and appliances from Sears, and had always bought extended services contracts – on everything from toasters to hand mixers. When her parents passed away, they realized they been paying hundreds of dollars a month to Sears for things they rarely even used.

    Some personal experiences:

  • We have a low-end clothes dryer that probably cost around $400 new; we paid $200 to have a $5 pulley replaced, although this was after several years of service.
  • Our gas range control panel stopped working; we had purchase a 3 year service contract through Lowes for $115 (see Lowes Protection Plans); after 3 years of use, tw paid $0 to have a new panel installed on a Saturday; the service tech said it would have been $175 for the service call plus $300-400 for the new part. He said he always recommended service contracts or extended warranties if they only cost around $100 or so for each appliance.
  • Weil-McLain Ultra boilers

    There are tons of articles, reviews and forums on ultra high efficiency gas boilers on the web, so I won’t add much to the cache of existing info. But I will chime in about the reliability of Weil-McLain’s Ultra Series has boilers, simply because there seem to be a lot of old school boiler guys out there who poo-poo on anything new or out of the ordinary.

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    I chose an Ultra boiler based on what I consider sound engineering design, and I have no regrets. Ours has been running fall to spring every year for the past 8 years without any issues, including two winters when we were living 4000 miles away, but keeping the house slightly warm. The Taco brand circulating pump that came with the boiler pooped out at one point, but was still under the installer warranty – and of course, this has nothing to do with the boiler quality. We did have some igniter oxidation, which was easily cleaned off with sand paper, though we had to call in a technician to find this out. Now it’s part of my annual check.

    Although US natural gas prices are low, the benefits of a modulating output boiler go way beyond cost savings. The modulating output means you don’t have to size your boiler exactly for your house, which is quite a challenge to do accurately in old houses. The monolith block aluminum heat exchanger is a great idea, and draws ire from the cast iron and stainless grouches. But the higher thermal conductivity combined with low thermal mass and the modulation are an idea design for efficient heat cycling. Aluminum forms a natural (native, to you material scientists) oxide coating that protects against corrosion, and the low operating pressures and temperatures in household boilers mean there are no real material strength concerns. Industrial aluminum heat exchange devices operate at much, much higher temperatures and pressures.

    So if you’re in the market and have heard or seen negative comments about the Ultras, fear not!