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Thursday, September 27, 2007

The selling just continues led by Energy Transfer Partners (ETP) which is down another dollar and change. Also down nearly dollar is Nustar (NS) so they are leading the MLP index down 2 points at 295.80. It is pretty demoralizing as the rest of the market is nearing new highs and your group is closer to the August lows. Plains All American is up 68 cents which is probably making things a little less worse then they otherwise would be.

About the only hope we have right now is that this is all related to end of quarter...and that comes to an end at 4pm tomorrow.

2 comments:

Anonymous said...

I have four comments on price action for the MLPs these past few months.

First, regarding ETP/ETE several insiders have stepped down at management positions (prior to ETP responding to the FERC's lawsuit deadline). I wonder if they did this to sell their shares out of the public eye (I assume they no longer have to file with the SEC)? The lack of response on ETP's part to the FERC, the departure of management, and the price action suggests to me there is more to come. Too bad, as I really liked the ETP story and at some point the price will make owning ETP compelling again. IMHO.

Second, hedge funds have used leverage to make a spread buying safer investments such as MLP's. Even the big dedicated funds, such as FMO and KYN, use leverage up to 30% over NAV. As funds continue to suffer mark-to-market in their positions, banks will continue to issue margin calls. This should happen at the end/beginning of every month until the underlying assets have bottomed. Could the price action of the MLP's be the result of this unwinding? JMHO.

Third, issues like EEP offer nearly a 7.6% yield now (though distribution growth is in the distant future so that is why the yield is higher than the average). However, this suggests to me that mid-7% yields could be a floor to MLP's in general if selling continues. As an example, the PAA 2-year chart looks to be struggling to hold a trading range. Perhaps it has just fallen out of a bear pennant. The next major support is near $44/sh, which would put PAA yielding 7.5%. I don't know if MLP's will see 7.5% yields in general, but I am watching.

Last, the pay-go congress has come out with the Baucus-Grassely and Levin-Rangel bills in both houses. They came out in June-July and fear / politics have spread doubt on future taxation of non-investment partnerships (such as the energy MLPs). Perhaps selling the sector is a recognition of what the US government might do similar to the Halloween Tax Massacre in Canada. JMW (just my worry?)?

Any thoughts on these topics??

Cheers,
SSI

joewxman said...

It certainly could be all of the above. I am going to highlight your comment on Monday morning and see if we can get others to provide feedback. I'll have more tomorrow morning.