MASTER LIMITED PARTNERSHIPS

Thursday, September 11, 2008

From the lows this morning at 242.93 we rallied back almost to 246 and now we are selling off with the rest of the market and we're back to 243 and change. Dow down 90 after almost pulling even. The going out of business sale continues.

Martin Midstream Partners (MMLP) is up 87 cents on the company clarifying its at no risk from the family lawsuit. Other than a few issues ticking up a couple of pennies its just an endless decline. Eagle Rock (EROC) was driven down to nearly 10 dollars this morning on no news and heavy volume..its back to around 11.40 and still down 1 and some change among the biggest losers.

The horror show continues...no signs of when intermission begins!

8 comments:

Anonymous said...: One of the concerns I have is that we are entering a period of sustained deflation in asset values. Real estate and now commodities are the obvious signs of it. I'm not in the predicting business, but does anyone share my concerns about that? More importantly, does anyone have any thoughts on how MLPs would behave in such an environment? What would have to their distributions?

Steve; 9/11/2008 1:41 PM
Anonymous said...: Lumpy Gravy post on yahoo from WACHOVIA:

PDF uploaded to Files

MLPs: It Feels Worse Than It Really Is

• It Feels Worse Than It Really Is. Following yesterday's (9/9) market sell-off,

DAVE
which included the MLP sector (the Wachovia MLP Index was down 4.1% versus
a decline of 3.4% for the S&P500), we thought it would be constructive to put MLP
performance within context. Notably, energy stocks were down 9.2% yesterday (as
represented by the PHLX SIG Oil Exploration & Production Index), or more than
twice as much as MLPs. For the year, MLPs are down 17.9%, about in line with a
16.6% decline for the overall market (S&P500). While we can't say we are "out of
the woods" yet, we remain positive on the MLP sector as the combination of
attractive valuations and a robust outlook for distribution growth provide an
attractive entry point for investors, in our view.

• Disconnect With Strong Fundamentals Continues. The weakness in MLP
valuations has come against the backdrop of strong underlying fundamentals for the
sector. Ironically, the MLP sector is arguably the healthiest it has ever been
fundamentally, with visible distribution growth tied to organic infrastructure
investments, a still-robust drilling environment, historically high commodity prices,
and relatively low interest rates. In Q2, MLPs increased distributions by 12.3%
yr/yr (10.6% excluding GPs), ahead of our forecast. We remain confident in our
2009 distribution growth forecast of 9.8% (8.6% excluding GPs).

• Infrastructure Thesis Intact. Our infrastructure thesis underpinning the robust
fundamental performance for the MLP sector remains intact, in our view. MLPs
continue to play a major role in the build-out of new energy infrastructure
(pipelines, storage, processing capacity, etc.) in the United States. For 2008-2010,
we're forecasting organic capital spending of about $34B for the MLP sector,
which should support meaningful distribution growth, in our view.

• We Could Be At Or Near A Bottom. History suggests the MLP sector could be at
or near a bottom. During prior periods of weakness, the average peak-to-trough
correction in the Wachovia MLP Index was 23%, the average length of peak-to-
trough cycle (i.e. MLP bear market) was 382 days, and the average peak spread
between MLP yields and the ten-year Treasury during these periods was 390 basis
points (the highest spread was 512bps on 10/9/02). In the current period of
weakness, MLPs peak-to-trough decline has been 28% (for the Wachovia MLP
Index) with the cycle lasting 424 days to date. The current MLP spread to
Treasuries is (and also peak) 494 basis points.

• But When Will MLPs Begin To Rebound? Historically, MLPs recoveries have
been fast and sharp. For example, MLPs suffered through credit market crises
during 1998 and 1999 with an ensuing 30% and 32% respective recovery in 2000
and 2001. So when could a recovery occur? It's hard to say. Given the strong
correlation between MLP performance and high-yield credit spreads (0.96 for
2008), MLPs might very well bump along bottom for some time until the credit
cycle improves. If MLPs remained at current valuation levels, the sector could
generate a 19% one-year total return consisting of a yield of 8.5% and distribution
growth of 10%. Notably, MLPs would need to drop another 9.4% to generate a
total return of 0% for the next 12 months.

• Our Top Outperform-Rated Picks. CPNO ($28.40), ETE ($25.73), GEL
($15.84), NGLS ($21.05), NSH ($20.95), PAA ($43.68), and TOO ($15.09).

__._,_.___; 9/11/2008 2:10 PM
Anonymous said...: Steve,

There are always alot of unknowns, always have been and there always will be.

The facts are we need natural gas, we need jet fuel, we need crude, we need NGLs. We also need to transport and store the above. These interstate pipelines are tariff based industries, no different from the NJ Turnpike charging tolls, they raise the tariffs every year. The storage contracts tend to be for multiyear terms. The terminals charge throughput fees, storage fees, blending fees, etc. Gathering fees vary, but don't we need to gather natural gas? Is all of this going to evaporate because of Fannie Mae, Lehman, it didn't when Bear went tits up. Of course the economy can decline, but is it going to decline by 50%?

I lived through the Enron mess and I remember KMP tanked on that news. It rebounded quickly and life went on without Enron. If you don't believe me look at the chart.

Can distributions be cut? Of course. For some E&P's I would say they will see cuts. For the midstream and gathering guys I don't see that happening in the current environment. Even with all the "demand destruction" noise that we read about. Gasoline usage is -2% year-over-year. The MLPs more that make up for that in blending fees and a 5.5% tariff increase this past July. I would add BPL said jet fuel demand was up at its NY area facilities on its last conf call.

We just have a panic right now, in my opinion we've had a panic for the last 6 months.

I am a realist. Of course we can fall further. We have sustained alot of damage this year and it is going to take time to rebuild confidence.

I would like to hear some of the execs from the GPs and MLPs defend the sector one of these days.

Mr. Pipes; 9/11/2008 2:11 PM
Anonymous said...: I am inpressed with the healthy dialogue on the blog today. Keep up the good work.

Ramius; 9/11/2008 2:13 PM
Anonymous said...: Mr Pipes:

Thanks for the historical perspective. My own experience mirrors yours, even though I did not start owning MLPs until 2001. I have continued to build the portfolio since that time. My head tells me that this is a historic opportunity. My gut tells me this is one of the worst bellyaches I've ever had. The Lumpy Gravy post is heartening, too.

I still wonder how MLPs might perform in an environment in which the CPI is negative...

steve; 9/11/2008 2:42 PM
Anonymous said...: One thing that nags at me is the upward price of steel products. New projects will continue to suffer somewhat from overpriced steel. Anyone have a handle on this?; 9/11/2008 2:46 PM
Anonymous said...: Thanks for the wachovia post and in particular where they talk about the disconnect from strong fundamentals. I knew I wasn't crazy. There's someone else that thinks there's strong fundamentals... for mlps.; 9/11/2008 5:36 PM
Anonymous said...: Some MLPs have said that they can handle escalating steel (and other) costs.
What worries me is what happens if we go to $75 oil and a sustained deep recession?
Lightening up on my very overweight position in MLPs.

I am worn down.

rrcbenjy; 9/11/2008 6:39 PM