WILL MLPS CONTINUE TO DIVERGE?

MORGAN KEEGAN SAYS

BUY A PAIR OF "TRANSFERS"

Lets begin with a question. What does an investment house do when one stock is up 50% in the last 12 months and the other is up 60%? It tells you to buy both of them today and that is what Morgan Keegan is telling clients to do. It is starting Energy Transfer Partners (ETP) and Energy Transfer Equity (ETE) at "buy" to which i say welcome to the land of MLPS! Better late than never. More on this later.

Meanwhile the MLP index looks like it went to a short term buy yesterday if one relies on chart signals. Note the MACD on the chart crossed yesterday and the relative strength has bounced off that 30 low from last week. This is all happening while the 10 year has broken out of a base on the dauly chart.

We have cleared 4.90% and it looks like we may be headed back to the 5.25% top which was put in a year ago. Now one could argue that there is some sort of seasonal thing going on here and that we could go to 5.25% without much pressure on the group. I find this a bit difficult to grasp personally. Yield compression has pushed MLPS to its highest valutations relative to the 10 year. The spread among MLPS growing their distributions the fastest is less than 1% and in some cases the spread is actually negative. In the non growers tor uneven growers the spread is 1-2%.

So what does all this mean. I think deals in the group are pushing prices. Also note this comment posted last week about a court ruling regarding MLPS and what Wachovia thinks about that. That may be another reason supporting prices. Clearly there is a growing demand for income producing shares and not enough supply. We'll see what today brings in the face of a weak stock market open on the futures and 5% looming on the 10 year.

Now back to Morgan Keegan, it is starting coverage on a whole bunch of MLPS today. All of these are at outperform. Copano (CPNO) Enterprise Holdings (EPE) Enterprise Products Partners (EPD) and Kinder Morgan (KMP). I guess it likes what it sees.

No coporate headlines so far this morning. News as it breaks this morning.