Whitney Tilson’s in his email discusses documents undercut U.S. case for taking mortgage giant Fannie Mae’s profits; hedge-funder Bill Ackman is a star at Tribeca Film Festival; LL; lessons from consolidating industries; Insys; The Unraveling of a Wall St. Scion (the addictiveness of trading); Kase Fund 2015 annual letter and attending the 18th consecutive Berkshire Hathaway annual meeting.
Whitney Tilson: Documents Undercut U.s. Case For Taking Mortgage Giant Fannie Mae’s Profits
1) Fannie Mae (in which I have a ~3% position) was up 34% yesterday and is up another 12% today because, at long last, the truth is coming out: the government seized all future profits of the GSEs (via the 2012 “net worth sweep”; note that this was not the original bailout, which nobody is challenging) not because they feared ongoing losses, but precisely the opposite: because they realized Fannie and Freddie were about to become massively profitable.
The testimony by the former CFO of Fannie is so damning to the government’s case:
In a deposition taken last July, for example, Susan McFarland, Fannie’s former chief financial officer, said she told high-level officials at the Treasury on Aug. 9, 2012, that the company was, in fact, “now in a sustainable profitability, that we would be able to deliver sustainable profits over time.”
…In addition to telling Treasury officials in early August 2012 that Fannie would be able to sustain profits, Ms. McFarland said that Fannie could soon reap about $50 billion in income because of the reversal of an accounting entry, known as a deferred tax asset, required under accounting rules when the company began earning profits again.
…In her deposition, Ms. McFarland said that she believed her conversation with the Treasury propelled the government to change the terms of the bailout to seize Fannie’s and Freddie’s profits. “When the amendment went into place,” Ms. McFarland testified, “part of my reaction was they did that in response to my communication of our forecasts and the implication of those forecasts, that it was probably a desire not to allow capital to build up within the enterprises and not to allow the enterprises to recapitalize themselves.”
By acting quickly (and then lying about it to hide their true intent), they would achieve two goals: a) solve a political problem (shareholders, especially big hedge funds, profiting from entities bailed out by the government; though this was no different from AIG); and b) get access to a ton of cash flow that could be allocated for the government’s purposes rather than rebuild the GSE’s depleted capital bases (with some to shareholders).
Mark my words: this is the turning point. Now that the lie has been exposed, the courts will overturn this illegal seizure and the stocks of the GSEs will be multi-baggers from here.
PS—Here’s a good article today about the latest news, which concludes:
Now the world is beginning to see what really has been going on behind the veil of conservatorship. Let’s not kid ourselves, the words in these deposition transcripts merely put exclamation marks on the fact that since conservatorship has begun, over $100B has flowed away from the GSEs to Treasury, making the GSEs the most successful nationalization in world history so far.
These deposition transcripts support plaintiff arguments that the conservatorship’s third amendment was a backdoor nationalization. I’m really looking forward to listening to oral arguments this Friday. It would be amazing if Judge Sweeney ruled on the motion to compel before then, but I’m not expecting a miracle.
The government coverup is starting to lose traction and shares have begun their heroic march higher. This is just the beginning…If you think shares aren’t cheap now because they are up somewhere around 40% from my last one outlining that how goes HERA also goes the FDIA, feel free to reference this article in 12 months and we’ll see about that.
Whitney Tilson: Bill Ackman is a star at Tribeca Film Festival
2) Ackman has been counted out before – but Chapman is right:
“I don’t think Ackman is ‘done,’ just maimed,” Chapman said in an email. “That dude is RESILIENT!”
Herbalife is an obvious pyramid scheme (albeit one carefully and cleverly wrapped in the veneer of a legitimate business), so he will eventually be proven right on this – just as he will be proven right on the GSEs (which just became a lot more likely).
Whitney Tilson: Lumber Liquidators; lessons from consolidating industries
3) On his TV show on Monday (which has nearly two million viewers), Dr. Oz interviewed a women who installed Lumber Liquidators’ Chinese-made laminate in her home, which made her two kids sick, so she had the flooring removed and they got better – but of course LL refused to take the flooring back, much less compensate her for the removal costs, much less for her childrens’ sicknesses.
Here’s what aired: http://www.doctoroz.com/episode/toxic-laminate-wood-floors-are-they-making-you-sick (3:21). Here’s my transcript (starting at 1:12):
Anna: …and we picked out wood flooring from Lumber Liquidators. It was beautiful. We had it installed, it was gorgeous. It did have a smell to it, a chemical smell, but it was beautiful.
Dr. Oz: So after you install, uneventfully, these floors, the health of your family started changing?
Anna: Yes. My daughter immediately started exhibiting symptoms of, like, raspy voice, sore throat, her eyes were watering… My son, whose room is directly across the hall from her, he was exhibiting the same exact symptoms, just watery eyes, sore throat, but he was also getting nose bleeds.
Dr. Oz: Nose bleeds?
Anna: Yes, they were pretty bad. And I was thinking maybe seasonal allergies… I didn’t know what was going on.
Dr. Oz: Had they ever had those symptoms before?
Anna: No. No.
Dr. Oz: Oh my goodness. So you pay to get this flooring put in, you’re proud of it. Your kids are sick. Did you rip it up, I guess?
Anna: Well, first I contacted Lumber Liquidators and asked, you know, if I could bring the product back to them, and they said “Absolutely not.” The store manager said, “No way, you’ve installed it, it’s your flooring.” And then I called corporate and corporate told me the same thing – they said it’s absolutely not harmful. So I just took it upon myself to tear out the flooring, have it taken out. We took it out through the window of the bad room. We sealed off the room, and I took them to small claims court.
Dr. Oz: But what happened to your kids? How soon…did they get better after…?
Anna: Oh yeah. Within a day of the flooring being out of the house, all symptoms disappeared. It was about 24 hours, maybe a little bit more. But all the symptoms were gone.
Dr. Oz: Do your kids got sick from the floor that you paid for. Kids got better when you took the flooring out. There’s some correlation there.
Anna: Um huh.
Dr. Oz: You go to court over this. What do you have to say to the manufacturer?
Anna: When you purchase a product and you’re putting it into your home, you expect it to be not harmful to your family. Lumber Liquidators, they completely lied. It did not meet CARB standards. And I basically put poison in my home unknowingly, and they should really just do something about it. And instead they were just all about the money.
4) An interesting