The Forever Stamps Arbitrage

The United States Postal Service wants to increase the price of the first-class stamp from 46 cents to 49 cents early next year. Most of the stamps I own are the so-called “Forever” stamps so the price increase won’t affect me. But I’ve always wondered whether there exists a market to purchase these “Forever” stamps in bulk and re-sell them at a tiny discount (of present first-class stamp price) to consumers. Allison Schrager and Ritchie King explore this potential arbitrage opportunity:

Our plan is to buy 10 million stamps at $0.46 each and sell them at $0.48. The margins, of course, are small. If we buy 10 million stamps, spending $4.6 million, we’ll earn $200,000—a 4.3% profit.

The good news is that you can buy up to 1 million stamps in a single order from the USPS, and pay a mere $1.75 in shipping (shipping is their business, after all).

But $4.6 million (or $4,600,017.50 with shipping) is a lot of money, especially for folks like us (an economist and a journalist) who’ve never raised money before and don’t have many assets. Ideally we’d borrow it all at once, but given our limited financial means, securing a $4.6 million loan would be tough, at least at an interest rate that would still leave room for us to make money.

We’d get better terms on the loan if we had some collateral. But all we can offer is the stamps we plan to buy. So the trick is to get our seed funding by selling equity (we’d like to start with $250,000) and then securing loans for the rest using the stamps as collateral. It may seem a little far-fetched, but it’s not all that different from the kind of leveraged trading that goes on in the financial world.

In the past, our journey would probably end here. There’s no way we could convince our friends and family or millionaires to invest a total of $100,000 in this hare-brained scheme. But thanks to the recent US JOBS Act, we don’t need them. We can crowd-fund all of our equity from the general public on sites such as Crowdfunder. This would be our offer: We’ll split the profits 50/50, with half going to our shareholders and the other half to us.

The Big If: ability to move all those stamps (either independently or via a distributor). I think it’s highly unlikely, and the interest on outlaying loans will exceed the income generated from selling the stamps at a tiny profit. Still, it’s a cool thought experiment!

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