Monday, December 23, 2013

Stocks DD Cites Ackman's Q4 Investor Letter Update


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http://www.scribd.com/doc/193312081/Pershing-Square-December-2013-Investor-Letter

Not much info at all other Herbalife.

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Stocks DD Cites on FNMA: Fairhome's Response to Govt's motion & Richard Epstein's views on Govt's response


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Richard Epstein's (Constitutional expert) views  -> https://www.dropbox.com/s/cx40ukv53lqdgdh/Richard%2BEpstein%2B-%2BTranscript.pdf

http://www.valueplays.net/2013/12/23/fairholme-responds-treasury-motion/
http://www.valueplays.net/wp-content/uploads/Fairx-discovery-motion.pdf

Indeed, the Government’s factual claims flatly contradict not only the allegations in Plaintiffs’ complaint, but also the Government’s own prior public statements. Although the Government now represents to the Court that the future profitability of the Companies is “purely speculative and unknown,” it neglects to point out that, as alleged in the Complaint, earlier this year it represented the exact opposite state of affairs to the Securities and Exchange Commission and to the public. For example, in March 2013, Fannie, under FHFA’s control as conservator, announced in a 10-Q form that “we expect our annual earnings to remain strong over the next few years” and that “[w]e expect to remain profitable for the foreseeable future.” Compl. ¶ 57 (emphasis added) (quoting Fannie Mae, First Quarter Report (Form 10-Q) at 1, 2 (March 31, 2013)). And in May 2013, the acting director of FHFA told the public that “it is clear [Fannie and Freddie] are each beginning to show regular, strong profitability.” Id. ¶ 60 (emphasis added) (quoting Edward J. DeMarco, Acting Director, FHFA, Remarks as Prepared for Delivery at Federal Reserve Bank of Chicago’s 49th Annual Conference on Bank Structure & Competition 2 (May 9, 2013))

Freddie was “speculative and conjectural” is directly contradicted by the accounting treatment of the value of Fannie and Freddie’s accrued losses for tax purposes. During the financial crisis, the Companies took a valuation allowance on deferred tax assets to account for their expectation that their future income would not be large enough to take advantage of their prior losses. As Plaintiffs explain in the complaint, in light of expectations for sustained profitability, the Companies changed this view. In the first quarter of 2013 alone, Fannie released $50.6 billion of the Company’s deferred tax assets valuation allowance. Compl. ¶ 58 (“The release of this valuation allowance underscores Fannie’s financial strength, as it demonstrates Fannie’s expectation that it will generate sizable taxable income moving forward.”). Similarly, in the third quarter of 2013, Freddie released $23.9 billion in deferred tax assets. Freddie Mac, Third Quarter Report (Form 10-Q) at 50 (Nov. 7, 2013). The release of the valuation allowances contradicts the Government’s assertion that the financial health of the Companies is unknown and unknowable and suggests that discovery is likely to reveal the Government anticipated Fannie and Freddie would generate tens of billions in profits.
Discovery is likely to reveal information relevant to resolving the factual dispute between Plaintiffs and the Government about the Government’s assessment of the future profitability of the Companies. And it is likely to produce evidence establishing that the Government in fact believed at the time of the Net Worth Sweep, and continues to believe, that Fannie and Freddie will experience sustained profitability. The fact that the Government has made statements in press releases discussing the future profitability of the Companies and has allowed the Companies to make similar statements to the SEC and to release some of their deferred tax allowances confirms that such evidence almost certainly does exist. The Government is almost certainly in possession of e-mails, strategy documents, internal analyses and projections, and other communications regarding the expected future profitability of Fannie and Freddie (both at the time of the Net Worth Sweep and at present) and also regarding when (if ever), and how, the conservatorship will end. Plaintiffs are entitled to discovery of those documents. This discovery should include the production of all nonprivileged documents, and appropriate depositions, relating to the Government’s decision to allow Fannie to disclose in its 10-Q form that it expects “to remain profitable for the foreseeable future.” Plaintiffs should also be afforded discovery about the Government’s decision to allow the Companies to release billions of dollars of deferred tax asset valuation allowances. All of this information is held only in the hands of the Government and is not available to the public or Plaintiffs. 

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