Friday, September 27, 2013

A Step-by-Step Guide to Profiting Off a 3-Cent Hike on US Postage Stamps

By Allison Schrager and Ritchie King

Yesterday, the US Postal Service (USPS) made a strange announcement: anybody who wants to turn a quick profit at its expense will have an opportunity to do so come January.
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What it actually said is that on January 26 next year, it wants to hike the price of a first-class stamp from $0.46 to $0.49. Stamp prices are normally increased by about 1 or 2 cents a year to match inflation. This 3-cent increase, which has to be approved by the US Postal Regulatory Commission, is large enough that it creates an opportunity for arbitrage in so-called “forever” stamps, which hold their value regardless of changes in postage price.
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Before forever stamps were introduced in 2007, all stamps in the US were denominated. In other words, the price paid was printed on the stamp. If the stamp was old, and the denomination was less than the current cost of postage, then a letter-mailer would have to supplement it with smaller stamps to make up the difference. A forever stamp can be used, well, forever.
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So what’s stopping stamp peddlers from buying up forever stamps at $0.46 before the price hike on Jan. 26, 2014, and selling them afterwards at a profit for less than $0.49?
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We hashed out a hypothetical plan to see whether forever-stamp arbitrage is worth it.