Stamp futures
The U.S. Postal Service officially approved a forever stamp today. Forever stamps will go on sale May 14th.
I’ve been waiting for this for a while. I typically need about five stamps a year, but at the pace first class mail rates increase I rarely go through an entire book of stamps before rates go up, forcing me to double up stamps to finish up the book. Now I’ll be able to buy a book of forever stamps and not worry about rate changes.
More interesting, though, is that this creates a new market in stamp futures. Think about it this way: If you invest $1000 in forever stamps on May 14th, postal rates increase by 10% over the next three years, and inflation only increases by 5%, you could sell your forever stamps for a 5% net gain over keeping your money in cash. This means that folks can start financial speculation about the future relative change in first class mail rates versus inflation. In other words, stamp futures.
What if there’s an oil crisis, the cost of running the Postal Service truck fleet skyrockets, and first class rates go up to $1? You’d make a fortune! On the other hand, if someone comes up with technology which allows everything currently sent as first class mail to be sent as email instead and demand for first class mail drops to nothing, you’d lose your whole investment.
leeg Said,
March 20, 2007 @ 1:52 am
You’d think that, as it seems sensible, but in fact I live in a country where stamps have been effectively “forever” stamps for a very long time (some stamps have the face value on, while some just say “1st” “2nd” or whatever - in fact for at least the last ten years, they’ve mostly been the latter…known as no value indicator stamps) and I’ve never heard of that being done. In fact, at least legally Royal Mail stamps are tender equivalent to their face value in Sterling, but I’ve never heard of someone paying in stamps in the supermarket, either.
Jan Said,
March 20, 2007 @ 2:27 am
You know, I have the same stamp issues. At one point, I had 5 half-used books of 10-20 stamps lying around, all rendered ineffective due to 2 or 4 cent raises in stamp price.
Now I write a ton of postcards whenever I travel and just use my old postage on my postcards. I’m liking the forever stamp, however.
Andy Lee Said,
March 20, 2007 @ 7:20 am
I’m glad I’m not the only one too lazy to buy 2-cent stamps to make up the difference. I double up too.
Harvey Schwick Said,
March 20, 2007 @ 10:43 am
I’ve always just bought first-class stamps for this reason. They are effectively “forever” if you’re sending letters and/or postcards.
wind Said,
May 4, 2007 @ 10:09 pm
If you invest $1000 in forever stamps on May 14th, postal rates increase by 10% over the next three years, and inflation only increases by 5%, you could sell your forever stamps for a 5% net gain over keeping your money in cash.
i think it is wrong!!!!!!
if you keep 1000 in cash, your purchasing power is (1000/1.05).
if buy $1000 worth forever stamps, your purchasing power is 1000*1.1/1.05
it is always 10% gain! because locking in forever stamps is equivalent in locking in real purchasing power.
buying forever stamps is like buying stocks. as long as postage is increasing (ie. stock price is increasing), it never lose value.
what we need to worry about is nominal interest rate and change in price. the opportunity cost of locking $1000 in stamps it to put it in bank and earn risk-free interest rate or whatever investment alternatives you have on hand.
compare
1) invest 1000 today, get 1000 (1+interest rate) a year later. (CD, short term T-bill.. whatever)
2) buy $1000 stamps today, 1000(1+%change in postage price) a year later
if interest rate is larger than change in postage, buying forever stamps losses money!
of course buy the stamps on the day before the postage change and then sell immediately is smart, theoretically!
if interest rate
sudnem Said,
February 25, 2008 @ 2:03 pm
I must point out that you need to include some transaction costs in your analysis. The 5% return does not account for transaction costs. If you sold all of the stamps on eBay for $1100 dollars, then you subtract the original investment of the stamps (-$1000). You now have $100. The eBay fees would be $41.81. You would now have $58.19. If your buyer paid with PayPal, then you would reduce that by another $32.33 leaving you with $25.86. For this hypothetical, lets say we can get cash, so we are still at $58.19.
$58.19 is not too bad, but there are more transaction costs to consider. The process of purchasing and selling the stamps costs time and an outlay of cash. These values will vary according to the “investor”.
A further cost that we must consider is the tax that will be levied on the income. This investment would be levied with a long-term capital gains tax. That amount will vary according to the “investors” income level; so let’s ignore this one as well.
Lets just ignore those transaction costs as well. We have $58.19. Now accounting for inflation we take away 5% of the increase. We are now left with $8.19. [In three years this will cover the gallon of gas that the whole procedure will take.:)] This is less than a 1% return.
Another problem is that you would have to price the stamps under prevailing market prices in order to attract customers. You have to give them a good reason to move away from their efficient channels in order to make a one time purchase on your stamps.
A Roth IRA under the same facts would be $1,331 after 3 years, with minimal transaction costs. Heck, leave it in 10 years and you would have $2,594.
Yeah, I went over the stamp futures thingy. I just cannot justify it. I am still trying to get rid of a warehouse of Pet Rocks and Flowbees.