The power of arbitrage: ask Mr. Pickles

Enthusiasts of frequent-flier mileage have all kinds of crazy strategies for racking up credits, but few have been as quick and easy as turning coins into miles.

At least several hundred mile-junkies discovered that a free shipping offer on presidential and Native American $1 coins, sold at face value by the U.S. Mint, amounted to printing free frequent-flier miles. Mileage lovers ordered more than $1 million in coins until the Mint started identifying them and cutting them off.

Coin buyers charged the purchases, sold in boxes of 250 coins, to a credit card that offers frequent-flier mile awards, then took the shipments straight to the bank. They then used the coins they deposited to pay their credit-card bills. Their only cost: the car trip to make the deposit.

The story is interesting throughout.  There is this (unconfirmed) report:

One FlyerTalker, identified by his online moniker, Mr. Pickles, claims to have bought $800,000 in coins. He posted pictures of the loot on FlyerTalk.

He says his largest single deposit was $70,000 in $1 coins. He used several banks and numerous credit cards. He earned enough miles to put him over two million total at AMR Corp.'s American Airlines, giving him lifetime platinum-elite status — early availability of upgrades for life and other perks on American and its partners around the world. He also pumped miles into his account at UAL Corp.'s United Airlines and points into his Starwood Preferred Guest program account.

Comments

Did he get more than the pudding guy a few years ago?

These folks would have been better served using a cash back card. Schwab and Fidelity both offer cards with 2% cash back, and no cash back limit. That $800K would have netted him about $16K in cash.

I briefly considered joining in the fun, but the nagging guilt of tremendous lost economic value (shipping all those coins, and then taking them to the bank), as well as the relatively low ROI (where the "I" includes time going to the bank) kept me on the sidelines.

Poor Mr. Pickles. All this publicity probably means he's gonna lose those goodies. The airline lawyers will find some fine print to get him.

The coins are sold at face value. But when you pay for something using a credit card, the credit card companies charge the vendor a fee, often from 2% - 5% of the transaction value. That fee is where the airline miles or cash back come from.

Presumably the department of the treasury eats this fee as part of its cost of doing business.

Perhaps this should be part of the stimulus package. Sell $1 coins for $0.85, limit 100,000 per family. With the proviso that all shipments go through USPS.

I see no downside.

The Mint supposedly did it to encourage adoption of the $1 coins. They probably should have had a limit on orders per CC.

I've never understood why the Mint needs to advertise/promote $1 coins. Why don't they just start issuing them to banks instead of dollar bills. Everyone I know is happy to recieve them in change, yet I rarely hear see them disbursed except at subway stations and post office vending machines.

"Do you really think the Treasury ate 2% or 3% on these transactions? As I said, there is something wrong here."

the cost of making the coins is much less than $1

I don't know anyone that prefers dollar coins to their paper equivalent. Evidently, Nelsonal and I have mutually exclusive friends.

there are government revenue-generating advantages to minting new coins and getting them out into circulation. it is NOT the same as literally printing money.

ask your local congressman about them. then you will understand why this is even happening in the first place.

I do not know anything about taxing in the US, but doesn't the IRS use credit card consumption as a proxy for income?

As far as arbitrage opportunities go, this one was fairly weak. You see better ones on fatwallet/slickdeals every day of the week. They took forever to ship the coins and my understanding is they limited you to a few orders out at once, but maybe that was per credit card. It's trivial to turn credit into cash without a transaction fee if you are in the know.

This used to be possible on the Chase Freedom Cash card, yielding 3.75% cash back if you did it right (by making the Mint one of your top 3 purchase categories for the quarter, and accumulating 20000 points which could be traded for a $250 check). It took about 2 weeks to complete the transaction. I only did this once, buying $6,750 in coins to see if it would really work. It did, but I felt too dirty having done it to do it again. Anyway, I'm $250 richer and Chase closed it off in July.

I'm not sure why the Treasury went to the trouble of identifying them and cutting them off. Maybe guilt for setting up such as stupid promotion.

ah,
Mr. Pickels AKA Marc Pablo co owner of catransplant.org. Yea he did this, but not as much as he has pumped it to be.

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