I always like to see what Dan Ferris is recommending for subscribers of his Extreme Value newsletter, in part because I’m personally invested in a few of his picks that have done well (Altius Minerals and Sprott Resource), and in part because I’m generally sympathetic to the notion that long-term “value” investing is the best way for individual investors to build wealth.
And of course, his ads are full of colorful hype, outrageous promise, and simple ideas masterfully concealed … and I just eat that stuff up.
This latest one is about a “secret” that Jean Warren, who signs the letter as a researcher for Extreme Value found in a Maryland public library (Ferris writes his newsletter from Oregon, but his publisher and, apparently, his researcher, are in Baltimore).
And of course, it doesn’t matter that you don’t happen to live in Baltimore (though you might, for all I know), because the ad says that …
“A secret in your local library could help make you rich, no matter where you live.”
Makes you feel a bit like Nancy Drew, no? The Secret in the Local Library …. cue spooky music.
But of course, Nancy was solving mysteries and riddles, not trying to make you a bazillionaire. So what’s this “secret” all about?
“Head straight for the ‘M’ folder
“ The key to this secret lies in a government document from 1998… You can find it in most library archives, filed under “M”.
“The document was signed by the Attorneys General of almost all the states… and contains details of billions of dollars in cash they receive each year, which is earmarked for the benefit of Americans like you and me. I’ll tell you where the cash comes from in a moment. (It’s not the federal government.)
“The amount of money the states have received, thanks largely to this secret, has increased every year from 2000 to 2009…..
“Even better, they’re set to get an estimated $25.1 billion this year… and they could see as much as $27 billion in 2011. Incredibly, the government document stipulates that much of this cash must be made available for the benefit of state residents every year until at least 2025… and probably beyond. ”
So why are the states getting this money? And where is it coming from? And how could this possibly be to your benefit? Let’s hear a bit more of the teasing …
“ You see, this situtation [sic] involves 49 states, which have what’s known as a Balanced Budget Requirement… meaning many cannot run a deficit from year to year. So for decades, local governments have struggled to close the budget gap.
“Today, they are even more desperate for cash….
“That’s why the Attorneys General of all 50 states did an incredibly smart thing in 1998, which has been a saving grace for many states… and which could help make you a small fortune over the next few years… In short, the states decided to strike deals with some of the most profitable companies in America, whose names can be found in the government document at your library. Today, there are roughly a dozen publicly traded companies reaping the benefits of these deals…
“You see, in exchange for paying a large chunk of their profits directly to state governments, these companies in turn solidified their future profitability.
“ The state governments have virtually eliminated all competition… and have all but guaranteed that these dozen firms will continue to reap incredible profits for at least the next 15 years. “
Huh, OK … so that’s enough to tell you what the basic premise of the ad is — what’s being hinted about here is the Master Settlement Agreement (MSA) between the Attorneys General of all (I think) the states, and the big tobacco companies. It was signed in 1998, at which time it was certainly headline news and got a lot of attention, but in the past decade it has largely faded into the back pages of the paper — we still hear about it now and then when a watchdog group reminds us of how little of the settlement money is going to smoking cessation or public health programs, or, as last year, when the payouts drop and the state governments have to come up with money elsewhere.
And if you want to actually read the MSA — you don’t have to slip into your cloak, hide your dagger, and slink into the back of the stacks at your local library, you can just check it out here if you like.
Despite some occasional (and relatively minor) “hiccup” years it is still a big fund, with growing payouts most years (they have a pretty aggressive inflation escalator built into the payouts) — and while that $25 billion figure for this year is generally accurate (at least, it matches estimates I’ve seen), it includes the state tobacco taxes as well as the tobacco trust fund payments from the MSA (the settlement funds in recent years have averaged about $8 billion/year, the rest is from state tobacco taxes).
And the “eliminated all competition” stuff makes sense — after all, a major aspect of the settlement agreement was a dramatic curtailment of the amount of cigarette advertising … and I think we can intuit, even without knowing the details for the industry, that if you sell an addictive product and no