WEDNESDAY MORNING AFTER THE FED

THE RALLY SHOULD CONTINUE

The fed pissed off everybody yesterday which means they probably did the right thing so the markets got whippsawed and then extended their rally. MLPS bounced sharply higher up 11 and change and we are back to Friday's close and over 300. This morning we have earnings to ponder from Copano(CPNO), Calumet(CLMT), Legacy(LGCY),Constellation(CEP) and Martin Midstream Partners (MMLP). I put all the news links on one page. Also this morning Friedman Billings is upgrading Natural Resource Partners (NRP) to buy from hold. That one has been beaten dow severely in this selloff.

A couple of notes. I have been wondering why Williams Partners (WPZ) has not bounced at all from the selloff. Well "Factoids" posted the following on the Yahoo Williams message board.

WPZ currently has one of the lowest payout ratios [based on DCF estimates] in the pipeline MLP sector - and I tend to view that as a good thing. Low payout ratios tend to lead to higher than sector average distribution increases. And WPZ's 4% plus rise in the Q1 distribution is evidence of that.But I was discouraged by WPZ's remarks that indicated that WPZ will conintue that have higher than typical distribution coverage [or a low distribution/DCF ratio] because the current margins - which have been high - are potentially not sustainable long term. So it is prudent of them not to raise the distribution to a higher percentage of DCF. While that alone is not a concern, WPZ already is selling at a higher than sector average price/DCF. I am using a blended estimate from multiple brokerages - and that estimate is $2.98 - with the price/DCF currently being over 14 while most in the sector sell in the 13s. I would logically believe that if you required higher than sector average coverage ratios, then you should have lower than sector average price/DCFs.Of course, the price/DCF is influenced by expect distribution growth. And WPZ does have the expectation of higher growth. So that is the biggest part of the story that explains their current price/DCF. But WPZ was pretty tight lipped in their conference call. They were very limited in their 2007 guideance. They would not even give cap ex guideance. So to me, buying WPZ today is like buying a high priced pig in a polk - something conventional wisdom would tell one NOT to do.When WPZ was asked what their plans were for drop downs in assets from Williams in 2007, they replied: We offer no guidance on that other than to say what our parent company has already said - that Williams has a deep and growing stable in midstream assets that would enable them to do drop downs at a pace of one to one and a half billion dollars in assets per year - but that is not a committment, but a statement of 'inventory'.Are they going out of their way to make potential unit holders like me uncomfortable? Or - are the p!ssed at the analyst and do not realize that potential unit holders are listening? Heck if I know. I liked a lot of what I heard in the call [growing well connects, great assets, a future of drop downs from Williams and the purchase of third party assets]. But I really did not like the lack of 'visibility'. Some MLPs have a good story to tell - and are 'selling' you on investing with them during their calls. This call did not have that 'selling' attribute.Well, at least that was my impression. Am I alone in that?


Then there is this absolute stroke of timing brilliance that appeared in the Energy Transfer Partners (ETP) board last week before the collapse.

I am a numbers guy - and I use models to determine my expectations of price movements. So I input the numbers from approx 2PM EDST to see how ETP - and the MLP midstream sector looked. Some findings: without cutting the EPS and DCFs for ETP - but cutting my CAGR forecast for ETP from 10%/annum to 6% per annum - and at a price of $51.81 - ETP is under-valued even at that slower growth rate [but only 5% under-valued] in a sector where most of the MLPs are over-valued. It is my current expectation that the FERC action will not hurt the 2007 DCFs and EPS - and the impact in 2008 is not going to be great. The increased flow to DCF and EPS from organic projects coming on line will overshadow any FERC impact. But a FERC impact SHOULD affect the CAGR projection. And I believe a 40% cut [to 6%] is a cut on the high side - but it is probably safest to be a little pessimistic. ETP at a six percent yield with ONLY six percent distribution growth [DANG! it hurts to cut growth to THAT low of an estimate] still should net a 12% total return. Which means about an average return for a mature MLP in the high IDRs. We are accustomer to much better perfromance. But that is still probably market beating performance. Year to date the average old timer MLP [APL , BPL , EEP , EPD , ETP , KMP , MMP , MWE , NS , OKS , PAA , SXL , TCLP , TPP] is up only 7.78% - and that is with a large and unsustainable yield compression during 2007.ETP - which is down 7.15% as I write this - is not even the MLP that has fallen the most since the start of the month. BPL is down 6.37%. CPNO is down 8.78%. DPM down 5.31%. MMP down 5.50%. OKS down 6.36%. PAA down 5.79%. SXL down 4.61%. TCLP down 4.46% TLP down 5.22%.XTEX down 4.09%.Should you sell? My gut reaction is NOT AT THIS PRICE!! But each of us has their own guts. Listen to your own. [Does that mean I have thought about selling? Yep.]Should you be buying? Probably not. The market tends to over-react. And it is my calculation that ETP has only fallen to an approximately fair price [if one dramatically cuts the CAGR projection - which I believe that market has correctly done]. I would say there is a fair chance that we will see ETP at $46 before we see it at $56 - not because that it logical - but because that just the way the market usually goes with a falling knife.Is the sector price correction over? Probably not. The MLPs eneded July with an average spread to the ten year's yield of 40 basis points [based on Q2 distributions]. It is at 100 basis points [now based on Q3 distributions] this afternoon. MLPs began the year at a 123 basis point spread. MLPs have have tough summers before - summer appears to be their off season. I thought the MLP sector was over-valued - and I would not be buying until I see spreads around 150. But that could be my 'greed' showing - hoping for a price to fall so it then looks attractive to me.

Of course that buying oppportunity in ETP lasted 1 day as it is back over 50. But just pointing out there are some people worth reading out there and Factoids is one of them.

Stock futures look good this morning...the energy complex is lower with natural gas flat at the moment. 10 year back to 4.81 which is probably a good thing the way this market has been. I am going fishing this morning for 3 hours out in Lake George so happy trading and hopefully i'll come back to higher prices.