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Linn Energy, LLC (LINE) Message Board

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  • ronharv ronharv Dec 19, 2012 9:38 AM Flag

    Linn Bond

    I tend to agree with the Norris quote. I think of LINE as about 50% bond and 50% equity in terms of its behavior the past several years. The dist. in times of interest-rate stability provides a safety net and the equity aspect offers growth potential over the longer term, growth that's ultimately connected to dist. increases. I own a number of corporate bonds and bond funds and they're behind LINE in profits but not by a jaw-dropping amount. So as a kind of hybrid LINE does behave more as bond OR equity during any given period but, overall, is subject to both the pushes and pulls that drive the corporate bond market as well as energy equities. (Right now I hope the equity aspect of LINE kicks in, as I bought Jan.36 calls a couple of days ago at 1.17 and would like to sell covered calls at an attractive price once again. The latter trade requires a price above 41 for me to feel comfortable.) QUALIFICATION: This hybrid view of LINE is just my personal take; I could be all wet.

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    • Poor Ron^3 insists on calling fellow Americans to the center of his flat earth alternative reality he is at the center of.

      Bond risk is measured by the concept of duration. It has to do with the timing of interest payments and final maturity return of principal. Junk bonds are considered like low risk equity because of the uncertainty of payments and return of principal. The measurement is the time required to recoup the original investment at different changing interest rates. It is not a measure of default risk but only rate risk.

      Owning LINE equity is another large step away from junk bonds in risk. There is no priority to cash flows and their is no final maturity backed by the assets of the business. Given there are cash flows duration can be calculated. But it is far greater than even a zero coupon or IRR bond as there is no final maturity.

      These concepts are easy to look up in the age of the Net. An American respectful of others and themselves would take the time to at least review the *science* before posting like a caveman without humanities store of knowledge.

      Common sense is enough to beat the market with a long term fundamental value discipline like Graham and Dodd. But this means a personal honesty to stay away from investments products which your background does not allow the investor to understand. Until you have invested enough time to understand the concepts.

      LINE has some *bond like* attributes. But even with in a diversified portfolio the likelihood of variability of cash payments or returns is far greater than a diversified portfolio of junk bonds.

      What makes it more *bond like* than normal is that interest rates are manipulated to artificially low levels. Record low interest rates result in record high duration or rate risk. The expected return of equity is very high relative to bonds due to the massive economic uncertainty Obama's willful political agenda imposes. Given the massive risk spread between bonds and equity alone with record low rates LINE has bond like qualities simply because this combination closes the gap between bonds and dividend paying equity.

      As iron sharpens iron we must be honest and rational to be purposeful and productive. Pagans and heathens do not have to be purposeful or honest and the fruit of this 'worldview' is clear in history.

      Merry Christmas Americans. Our traditions produce superior results and that is something we should all be thankful for and always seek to improve not replace.

 
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