Friday, February 22, 2013

Black Gold

A Ponzi scheme in the making?

Linn Energy trading at USD 37 per share and a M Cap of USD 7.5 Bn odd
vs
John Hempton of Bronte
(well, not really vs because it's just John Hempton thrashing them)

Accounting magic and cash flow management
Buy deep in the money puts.
Pay Cash for them - but capitalize that on the B/S
Sell the commodity at the inflated price (legitimate) - but book the cash inflows as distributable income.

Furthermore, raise equity and debt capital from time to time to finance above mentioned transaction series.
And use cash flows from there to pay out dividend.

Like lemmings... 'investors' flock to stock for the dividend yield.

This should end fun :)

Here, here and here.

Addendum:
The death knell rings for the wrong reasons...
Today, a new post by John here.

If you can use supermoney to buy another real company with real assets, things change.
And things have changed.
Hempton covered his shorts.

May be that's why I like him - he is brutally honest and keeps his emotions out. 
"So even if I am right that Linn is a Ponzi (and many company supporters disagree with me) it is not a Ponzi that will collapse next week. And so my opportunity to profit will not be next week.
I covered most of my short.
For a loss."


I think so.

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