Over the past week, Twitter has become a boxing ring for two heavyweight investors who exchanged personal jabs over the last week. In one corner is CNBC's exuberant Mad Money host Jim Cramer. In the other corner is Keith McCullough, founder of Hedgeye Risk Management. Caught in the middle is Linn Energy (LINE), a controversial oil and gas company, along with its shareholders.
It all started on February 16, 2013, when Barrons reported that Linn Energy may be "overstating the cash flow available for distribution, by not deducting the cost of financial derivatives – mainly put options – from its realized gains on hedging activities." The article claims that these derivatives should count as expenses, and Linn consequently has serious questions surrounding the health and legitimacy financial statements.
Hedge fund manager Keith McCullough, founder of Hedgeye Risk Management, agreed with Barrons and introduced the idea of Linn as a short to his clients in earlier in the year. He cited Linn's balance sheet, unsustainable dividend payment, and its questionable acquisition of Berry Petroleum as negative catalysts.
As the bears grew in numbers and continued to short the stock, Linn Energy stock dropped from $37.33 on February 14 to $29.10 on June 18. Rather than taking profits and walking away, McCullough and Hedgeye took to Twitter to call out Jim Cramer, proponent of Linn Energy and owner of the stock for his charitable trust.
Jim Cramer, shame on you @JimCramer if world class research is what you can't handle, you can't handle truth— Keith McCullough (@KeithMcCullough) June 14, 2013
McCullough even called Cramer out for his infamous "Bear Stearns is fine" remark in 2008 to further diminish his credibility.
After continued attacks from McCullough and his Hedgeye associates, Cramer fired back. He blocked many of his attackers, including McCullough. He also claimed that the firm's attack on Linn is manipulative and against the law.
Does the Anti-$LINE security house do anything but attack people? Do they do work? Play hockey? Just go be w/ the Bruins and the Blackhawks— Jim Cramer (@jimcramer) June 18, 2013
(The previous tweet is especially funny because McCullough was a hockey player at Yale)
I did not know you were allowed to have bear raids since the '34 act allegedly banned them. But i guess there is a $LINE carve out!! Ha!— Jim Cramer (@jimcramer) June 17, 2013
McCullough wasn't too happy about getting blocked.
Jim, I am formally warning u - unblock or everything u say will be audited by Hedgeye Risk Mgt police @jimcramer— Keith McCullough (@KeithMcCullough) June 14, 2013
Jim, you have 9 mins to un-block me - be a man @jimcramer— Keith McCullough (@KeithMcCullough) June 14, 2013
The insults didn't stop there.
My good friend Doug Kass has shown me the resume of the "expert" ringleader attacking $LINE. Almost 3 years experience! What a pro!!— Jim Cramer (@jimcramer) June 16, 2013
So who won the Twitter battle? McCullough and Hedgeye certainly deserve a lot of credit for their transparency and execution of a profitable trade. In the end, investing is about making money and McCullough has a profit on his Linn short and Cramer is in the red on his loss on his long. Hedgeye also managed to drive opponent Doug Kass of CNBC away from Twitter altogether.
However, Linn stock has since recovered from the full brunt of Hedgeye's "bear raid." Shares have rallied around 12 percent to $33.31 over the last few days, but are still down significantly over the past several months. Moreover, the Linn debate has not yet been settled; Cramer's charitable trust is still long the stock and Cramer has reiterated that he likes the stock long-term.
The Twitter war between Cramer and McCullough has now cooled down. However, Twitter followers have certainly gotten their money's worth in this heavyweight bout.