March 1, 2014 Yelling Timber

Risk/Reward Vol. 210

THIS IS NOT INVESTMENT OR TAX ADVICE. THIS IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

"So give me that high/Like you did last night, last night
'Cause I was high/When you made me fly."---lyrics from "That High" sung by Pitbull featuring Kelly Rowland

"Cause you make me feel like/I've been locked out of heaven
For too long/For too long."---lyrics from "Locked Out of Heaven" sung by Bruno Mars

"Respect yourself/Respect yourself
If you don't respect yourself
Ain't nobody gonna give cahoot, na na na na"---lyrics from "Respect Yourself" sung by The Staple Singers

Eschewing threats to world peace and lukewarm economic numbers, this week the S&P500 reached a new record, the NASDAQ hit a multiyear high and the Dow Jones Industrial Average gained 1.36%, closing down only 1.5% for the year. The question for next week is whether what happened (or did not happen) "last night, last night" in Crimea will impact "That High." If conventional wisdom prevails, until the Crimean crisis resolves look for a pull back in equities, a nosedive in emerging market stocks and a spike in the price of oil.

Speaking of conventional wisdom, its application caused the stock of all business development companies (BDC's) to drop early this week, as Standard and Poor's announced on Monday that henceforth BDC's would not be eligible for inclusion on any of its indices. The stocks included on these indices are those held by exchange traded index funds (ETF's) to which passive investors have flocked in recent years. Thus, the exclusion of BDC's caused the sponsors of these ETF's to sell their shares of BDC's in order to more accurately reflect the make up of each index. Talk about being "locked out of heaven." But the hit did not last "For too long/For too long", as the outstanding dividends paid by BDC's attracted a bevy of income investors in this yield starved environment.

BDC's were not the only stock to take a hit in what otherwise was an up week. Take a look at the action in Linn Energy (LINE, LNCO). Under attack by naysayers and short sellers for nearly a year, some of the gains recently enjoyed by LINE were erased as the company announced disappointing earnings at the close on Wednesday. A close reading of the transcript of the conference call held in conjunction with its earnings report revealed that LINE's earnings shortfall was a hangover from the now completed acquisition of Berry Petroleum. More important to me was the news that LINE has hedged its natural gas production through 2017 which should go a long way in protecting its remarkable 9+% annual dividend, paid on a monthly basis. Despite being overweight LINE, I bought more near Thursday's low.

As I write, the situation in Crimea becomes more uncertain. Although I find parallels drawn to 1914 unpersuasive, prudent investors should be at the ready. To quote that noted investor, Pitbull (and his most recent collaborator K$sha) be prepared if "It's going down/I'm yelling timber/You better move/You better dance.