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Waldo Mushman

Waldo Mushman
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  • A 10-Bagger Emerges [View article]
    And these magic beans will grow to the sky.

    Of course no one is doing anything similar. And everyone is a candidate. And 100% of the clients are crazy for the process. And just think - if they grow the sales 800% it is only a PE of 40.

    Investing in a company that is so vulnerable is an absolute leap of faith. They may survive but statistics in business would strongly suggest that they won't ever achieve the 15 B market cap the author suggests. Between competitors, regulators, tort attorneys, patent attorneys, and financial realities they face an uphill battle. Lots of rough players will want to steal their lunch money (and probably can) if they get big enough.

    This company is way overvalued and currently offers a very unattractive entry point.

    John
    Aug 12, 2015. 03:53 PM | 2 Likes Like |Link to Comment
  • The Oil Glut That Isn't [View article]
    Independent of how you define glut or shortage the only ingredient that makes any difference is price. You don't seem to appreciate the fact that even with a diminishing inventory and anticipated reduced US production several other key factors make your bets highly unlikely.

    1. Iran
    2. Strength of dollar
    3. H wells and fracs in major non-US fields.
    4. Political impetus that supports low prices thus less development.

    You are making a very specious argument based wholly on the term "glut". Your oil plays need (emergency room admission) significantly better pricing and I am not seeing any knowledgeable oil players penciling in $100+ oil.... or $80.00+ oil .....some will go with $60.00+ but certainly not a large majority.

    LINE is a BK. I don't follow Brietburn but isn't it down ~80%? Woof woof.

    And again I repeat my thoughts from your earlier masterwork on LINE - Can't you find a real stock to take advantage of your oil glut thesis?

    John
    Aug 5, 2015. 02:19 PM | 2 Likes Like |Link to Comment
  • Linn Energy's Brilliant Move Is Bullish [View article]
    I am using todays prices to demonstrate what they have been doing for years. They have always bought deeply in the money puts. The portion of the put price that was above market prices was paid for with borrowed money and converted to distributions (unearned) when the puts were exercised. Literally billions of dollars were borrowed and with this two step process converted into shareholder payouts. Billions that bought no assets. Billions that now must be repaid with depleting assets and much lower prices.


    And to respond to the valuation question.

    A very rough rule of thumb is to value a company based on the BOE daily times a number. Last year that number was close to $100,000 per BOE. Today that number is closer to $35,000. (Understand that 100% of the price drop comes out of the bottom line. LOE's pretty much remain constant.) Convert the NG at a 16 to 1 and the NGL at 3 to 1 and I get less than 4B for what they have.

    The LINE number would probably be even less based on the crappy production they overpaid BRY for. Additionally any PV10 (or 12) calcs ignoring the fancy foot work of the BS hedges would probably bring the total value in at @ 3B.

    Expecting a recovery is blissfully ignoring what reality looks like for real oil companies.

    John
    Aug 3, 2015. 10:00 AM | 2 Likes Like |Link to Comment
  • Linn Energy's Brilliant Move Is Bullish [View article]
    Daniel -

    I feel like a fireman running around to all these LINE support forums and try to get people out of the burning building. LINE is effectively BK right now. You pose the hedges as something to applaud when in fact the hedges are the outrageous fraud that LINE has been perpetrating for the last 5 years.

    To repeat the hedge reality ..... LINE borrowed money to buy puts at prices significantly higher than current market prices. A LINE hedge today might have crude selling in the market for $50.00 and LINE buys a put with a $100.00 exercise price. LINE pays the extra $50.00 with borrowed money. 18 months down the road they exercise the put, receive the $100.00 ($50 of which they paid) and distribute the money as a distribution. The distribution is largely funded from the bogus puts they bought using borrowed money.

    LINE has total reserves that are worth maybe 1/2 of what they owe. The income stream is dropping. They have virtually no development acreage that is economic at this time. The bond buyback is very likely going on with lenders who have threatened to pull the plug.

    Even with your very generous recap the bottom line is lousy. What possible trigger do you see that will move this stock in the next 12 months?

    John
    Aug 2, 2015. 09:52 AM | 7 Likes Like |Link to Comment
  • Linn Energy: Say Goodbye To The Distribution [View article]
    Another observation about the die hard owners (if no longer supporters ) of LINE -

    Isn't it obvious that the shares are not going up anytime soon? You foolish optimists predict oil price bounce, re-establishment of a distribution, pay down of major portions of the debt or new equity infusions. Why own the stock waiting for those events to occur? Seems prudent to get the money out of harms way and rebuy once all your dreams come true. The events you hope for will have large lead times and there isn't any risk of a price spike while you are on the sidelines waiting.

    I -along with others -suspect that things will be getting much worse. The long side has been the wrong side and it is poor tactics to hold at this point. Not to put too fine a point on it, but do you believe that the debt holders are selling back the bonds at a major discount because they are fools? The debt is priced as junk for a very clear reason - it is junk.

    For all intents and purposes LINE is acting as if they are already in BK. The secured creditors are getting paid with cash from liquidating assets and the equity holders get nothing. Hard to present a case that LINE can even get close to repaying the debt or pay any future distributions.

    John
    Aug 2, 2015. 09:12 AM | Likes Like |Link to Comment
  • Linn Energy: Say Goodbye To The Distribution [View article]
    Best guess is that a structured BK has already been negotiated.

    LINE cannot
    1.) Pay off its debt selling its oil reserves or 100% of future production.
    2.) Borrow any new funds - resulting in -
    3.) They can't buy new phony hedges - or -
    4.) Make incredibly unattractive acquisitions -or -
    5.) Ever pay another distribution to unit holders.

    I am always astonished at the number of buffoons that see hope using total fantasy logic.

    This company is toast and I am only sorry that I can't get a borrow to dramatically expand my existing short positions.

    Take the losses now which harvests some tax advantage and use the remainder for some life affirming event to offset the humiliation of being such a poor investor. Only the very dim or lazy didn't see this coming from over 2 years ago.

    John
    Jul 31, 2015. 10:25 AM | Likes Like |Link to Comment
  • The Simple Math Behind Transocean [View article]
    The basic flaw is "Expecting a huge move". Unfortunately that huge move may not have read the time schedule you are relying on. Kind of a bummer when you miss the train by 30 days. The hubris of expecting to hit home runs normally results in disappointment. The guys who sold you the LEAP (like me) support your attempt to knock down all five milk bottles and gladly sell you another handful of softballs.

    Using options in hedges and spreads is exactly what the option houses are dying for you to do. The B-A slippage, the commissions, and the added ease you provide them to get Delta neutral make those practices a dead end (IMHO).

    If you don't maintain a margin account you have no business even contemplating options. The only relevant calculation involving margin is ROI over the term of the option (obviously adjusted by your assessment of the win chances)

    John
    Jul 22, 2015. 02:57 PM | 1 Like Like |Link to Comment
  • The Simple Math Behind Transocean [View article]
    Not to be argumentative but your understanding of options needs some serious review. You (just as the author) presuppose a significant price per share rise by the expiration of the LEAP. That is not a given by any stretch. You are buying "opportunity" and paying a hefty price for it. I very much prefer the odds when I sell "opportunity". My profits include the time premium you are so ready to pay. Your results are positive in a very limited number of outcomes. Absent a major move you lose 100% of the bet. It strikes me as far wiser to make a profit even if the price is stagnant.

    If you presume the price will go up, the best option play is to sell naked Puts.

    John
    Jul 19, 2015. 10:19 AM | 8 Likes Like |Link to Comment
  • Come On, Let's Face It, Linn Energy Is A Steal At $9 [View article]
    Worth remembering the strategy LINE used with the hedges.....which I think is fraudulent. Product is selling for X. LINE buys a put for X + (lets just say) $3.00. They use borrowed capital to pay for the in the money portion of the put. ($3.00 for this discussion). When the put matures they exercise and are paid X + the $3.00 and book the total as revenue. They pay out the artificially inflated revenue to shareholders and never disclose that the actual distribution is largely a return of borrowed capital. And the original borrowed funds are never repaid...and won't be.

    In my estimation LINN is running a Ponzi scheme. None of these comments are new revelations or my insights. Again I reference John Hempton's work.

    John
    Jul 9, 2015. 09:37 AM | 2 Likes Like |Link to Comment
  • Why I Am Buying Natuzzi Hand Over Fist [View article]
    Not particularly on point but I just bought two of their chairs from a local dealer on a 4th of July sale. They were discontinuing all Natuzzi furniture and the price was ~ 40% off list. Apparently Nattuzzi has moved some manufacturing to China and the dealer saw inconsistent quality from that line.

    The trade seems an unlikely winner. Not a clue how extensive the dealer loss may be but If a reputable and long established dealer in Austin dumps them for quality issues I suspect it is happening elsewhere.

    John
    Jul 9, 2015. 09:24 AM | 6 Likes Like |Link to Comment
  • Come On, Let's Face It, Linn Energy Is A Steal At $9 [View article]
    Linn has always been a financial construct. It has never been an oil company. I was a holder years ago until I understood the hedging sham they employed to create the illusion of value. Management is purposely, aggressively, and ongoing deceiving the investors. If you are even vaguely intrigued with this scabrous beast I suggest you review John Hempton's (Bronte Capital) thorough analysis done about 2 years ago.

    And these latest gyrations are the dying gasps of a caught trout gasping for air. Linn will be a BK within 3 years.

    John
    Jul 6, 2015. 10:28 AM | 9 Likes Like |Link to Comment
  • SunCoke Confides To IRS: We Don't Qualify For MLP Status [View article]
    Richard -

    Another excellent article. Applause for the research and the exposure of a management team that apparently is a big fan of fudge. Sad to watch the ongoing parade of less than forthright officers.

    Don't agree with your trade though. The Canadian experience is informative and instructs that many of the trust babies go on to lead very successful lives as tax liable C corps. I also support the proposed MLP tax changes since the abuse is becoming rampant. Creative accounting threatens to kill a very sheltered harbor in these turbulent seas. Having said that, I also believe that we are looking at the ghosts of tax laws to come. The scalded promoters haven't leveraged whatever influence they have to dilute the current proposals.

    The current market for coke is not robust but the likely revenue path is north. They seem to be shooting straight about revenue and operating expense. The potential of double taxation and the loss of the depreciation pass through will be a negative but not a death blow.

    Be Well

    John
    Jun 18, 2015. 10:18 AM | Likes Like |Link to Comment
  • WHZ - Paying $4.24 For $0.27 [View article]
    Another negative to consider is that LOEs increase as time passes. Workovers, rebuilding pumps, mechanical issues....all become more frequent with age. Not only do you have the extra expenses you also have the production stop while repairs are made.

    It is puzzling why anyone is much concerned about future prices on oil much past the next distribution. 90% + of the next payout has already been booked and the distribution will be ~ .05. My bet is that the income chasers will abandon ship as the distribution shows little upside. Also there is little rational hope for a major oil bump in the next 6 months.

    I remain very short this name and expect/hope to see $2.80 as my exit point in June and my Sept 2.50 calls to expire worthless.

    John
    May 20, 2015. 01:59 PM | 1 Like Like |Link to Comment
  • Whiting USA Trust II Grossly Overvalued - Distribution To Be Slashed, Wells Are Unprofitable [View article]
    The oil wells are depleting - maybe 20% annual drop in revenues with no drop in the LOE. Thus the distribution will continue to drop independent of the price they receive.

    The most common way to value an income stream is to use PV calcs and the income stream you project is only worth ~ $2.70 using a PV10 and ~2.20 using a PV12.

    This is one of the most obvious shorts available.

    John
    May 16, 2015. 12:16 PM | 1 Like Like |Link to Comment
  • Whiting USA Trust II Grossly Overvalued - Distribution To Be Slashed, Wells Are Unprofitable [View article]
    The painless way to short the name is to sell naked 2.5 calls. The current delta is 1.0 so you aren't getting paid any time premium but you also don't have the negative that an outright short position would entail. Be forewarned that the MM's in the option arena are not your friends and will try to take your lunch money.

    John
    May 15, 2015. 11:11 AM | Likes Like |Link to Comment
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