MASTER LIMITED PARTNERSHIPS

Monday, September 22, 2008

Market falling apart here in the last hour and everything is getting pulled down with it. MLP index is back down 1 point. I still think given the overall tape the performance is not that bad. DOW down 340 right now.

Buckeye Partners (BPL) down over 2 points is the biggest loser.

17 comments:

Anonymous said...: What an UGLY day!

The banks are being taken out and shot.

GM looks like it's the next casualty.; 9/22/2008 3:43 PM
Anonymous said...: BPL -5.25% on 90,000 shares...wonderful...; 9/22/2008 3:44 PM
Anonymous said...: I think Markets have 2 messages today.

1) Congress get your act together and pass the bank rescue or Mr. Market going to crater the stock market.

2) Congress, if you pass this bank rescue, Mr. Market is going to crater the stock market.

Take your pick, is # 1 or # 2 or both.; 9/22/2008 3:48 PM
Anonymous said...: The stock market is screwed either way. Why would anyone invest in this or any other market right now? Markets only function when we believe the system is sound, right now the system is completely dysfunctional. There is no point in even trying to game this thing.

We are going lower. The shame of it is that conservative people who save money, pay their mortgages, pay bills on time, etc are going to get butt f*cked due to all the reckless assholes who overspent.

Can anyone out there even begin to fathom what taxes will be like a few years down the road?

The Govt needs to let some things fail or we are simply manipulating markets and that will bit us in the ass at some point. Weaker dollar, higher taxes, higher unemployment, inflation, on and on...; 9/22/2008 3:54 PM
Anonymous said...: "... are going to get butt f*cked due to all the reckless assholes.... that will bit us in the ass..."

Do you think this guy has some sort of obsession???

Bruce; 9/22/2008 4:23 PM
Anonymous said...: "The Govt needs to let some things fail or we are simply manipulating markets and that will bit us in the ass at some point. Weaker dollar, higher taxes, higher unemployment, inflation, on and on..."

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I don't agree, the acute part of this crisis started when the bondholders of the GSEs were bailed out, while killing the preferred shareholders ( small and regional banks ).
That severely damaged the banking system, and destroyed any hope for preferred issuance by small banks ( that was one of the few capital markets that was working ).

Lehman and AIG both held GSE preferreds and were damaged as well. Lehman foolishly rejected $6.40 a share offer from a Korean Bank, and the Treasury stupidly didn't finance a takeunder at even a $1.00 a share. AIG also had an offer from private equity, that they foolishly refused as well.

The cost of GSE preferred dividends was about 2 billion a year, maybe 15 billion would have been enough for the treasury to finance a takeunder of Lehman.

We were weak, but stable and slowly healing at the end of August, with commodity + gold prices heading down, and the dollar strenghtening.

Now the patient is on it's deathbed. Confidence is zero,
Commodities are rising, the dollar is falling, and what could have been avoided ( or minimizing )with perhaps a 17 billion expense, now will cost 700 billion.

Now some purchase of the bad debt, might have been necessary even if the situation was as stable as late August, but maybe 250 billion might have been enough.

Paulson exacerbated a bad situation, and I'm sure, that he was penny wise and pound foolish.

In trying to prevent Future long run Moral Hazard, he forgot Lord Keynes's maxxim... "In the long run we are all dead".

Markets sold off IMHO because investors who were encouraged into buying GSE preferreds (20 billion since Nov 2007 ) and decimated, decided that it is a moral hazard to be part of the solution of recapitalizing the banks.
Now that job has been federalized.

IMHO Paulson will be judged poorly by history for his policy mistakes.

HS; 9/22/2008 4:27 PM
Anonymous said...: HS,

IMHO it will Greenspan's era of ridiculously cheap capital that will judged harshly. If he'd let the economy suffer through the pains of the aftermath of the dot-com burst and 9/11, we wouldn't be here today.

Where's Volker when you need him?! Hell, bring on Ron Paul!

Lee; 9/22/2008 5:17 PM
Anonymous said...: "Where's Volker when you need him?!"

Volker? Are you referring to the guy who brought us 16% interest rates and one of the worst (double-dip) recessions ever?

Want to know where he is? He's advising Obama.

No kidding.

Bruce; 9/22/2008 5:21 PM
Anonymous said...: Yes, that's the Volker I'm referring to. He inherited from Arthur Burns (an academic egghead like Bernanke) an economy that was in complete shambles. The inflation you're referring to was the natural consequence of paying the piper for past sins. He didn't create it, he inherited it. And immediately following the hyper-inflation of the era, guess what, we experienced the greatest bull market in the history of this country.

No pain, no gain. That's a concept that's completely lost on the tribe running our economy today. Instead, they've set the stage for the wholesale liquidation of this country's assets to any nation with cash.

Lee; 9/22/2008 5:35 PM
Anonymous said...: Lee,

There is some truth in what you say. Burns was not, however, an "academic egghead," although he was a lousy Fed Chair because he did not resist Nixon administration entreaties to keep interest rates low. The inflation you reference had its roots in LBJ's administration and his "guns and butter" approach. By the time Nixon was elected, inflation was already firmly entrenched.

Bernanke and Paulson are trying to keep us from sliding into an economic abyss. We certainly will, in fact, have to endure some pain but I, for one, would prefer to have no more pain inflicted than is absolutely necessary. Bernanke is a far superior Fed Chairman to Volker because Bernanke understands that resorting to blunt instruments of destruction (economy-killing high interest rates in Volker's case) should be the last resort--not the first.

Bruce; 9/22/2008 5:56 PM
Anonymous said...: Lee,

"No pain, no gain. That's a concept that's completely lost on the tribe running our economy today. Instead, they've set the stage for the wholesale liquidation of this country's assets to any nation with cash."

You nailed it. We live in a country where nobody takes responsibility for their actions. Blow up a company, walk away with severence bacause it was the markets fault. Lie on a mortgage application and lose your house, it's the banks fault. A hurricane strikes and you didn't buy enough insurance, blame the govt for not bailing you out. On and on it goes. At some point we all have to realize that there is risk in the world and with risk comes potential loss. Do we really want the US Govt to do everything for us, maybe as a society we are so lame that indeed we do.

Mr. Pipes; 9/22/2008 5:58 PM
Anonymous said...: "We live in a country where nobody takes responsibility for their actions. Blow up a company, walk away with severence bacause it was the markets fault. Lie on a mortgage application and lose your house, it's the banks fault. A hurricane strikes and you didn't buy enough insurance, blame the govt for not bailing you out. On and on it goes. At some point we all have to realize that there is risk in the world and with risk comes potential loss. Do we really want the US Govt to do everything for us..."

Now this is something I agree with completely.

Well said, Mr. Pipes; 9/22/2008 6:08 PM
Anonymous said...: mlpsrgood4u

The dotcom, telecom, internet bust was nothing new for Wall Street, it was merely a updated repeat of the Nifty-Fifty colapse.

Greenspan needed to lower rates after Dotcam burst + 9/11 but his big mistake was his blind belief in banking self-regulation. He stated ( grossly paraphrased) that banks wouldn't do stupid things because it would damage their reputation.
He had the authority to regulate exotic mortgages but didn't because he didn't want to stifle "financial innovation ".
Then he increased interest rates too gradually allowing "financial innovation" to blunt hikes, as the 9/11 crisis ebbed.

Basically rather that worry about reputational risk, banks violated all trust with their customers (who bought mortgage backed bonds) because banks were more focused on their bonus pools for 2005 + 2006.

After the Nifty 50 was repeated in the Nasdaq bubble, how could any reasonble person believe that banks could be trusted to self regulate because of any fear they might have had for reputational risk?

You're correct history will judge Greenspan harshly for his policy mistakes.
-----------------------------
That was Greenspan, now Paulson + Bernanke are in charge.

Bernanke now accepts crappy colateral for loans to banks, + he's lowered the fed fund rate (giving banks record net interest margins) to help heal their balance sheets.

Paulson (during the worst credit crisis since the depression) in the name of preventing "moral hazard" has actually undermined bank balance sheets. It's almost as if Bernanke + Paulson are working at cross purposes.

For this I believe that Paulson will be judged harshly by history.

By the way I am a republican.

HS; 9/22/2008 6:08 PM
joewxman said...: "At some point we all have to realize that there is risk in the world and with risk comes potential loss."

Amen Mr Pipes. And wait until the yuppie/baby boomers discover that one day their lives will come to an end. I suppose they will run to the government to keep that from happening.

We have a huge segment of the population who believes life is a risk free proposition in all areas, not just money.; 9/22/2008 7:06 PM
Anonymous said...: Joe,

These are interesting times.

When we took on our investment in a pipeline MLP, the risks seemed obvious.

1) A decline in supply or demand on either end of the pipeline

2) Regulatory risk

3) Interest rate risk vs treasuries

4) Operational Risk

5) Recession risk

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I don't think that many of us figured there was a risk of total colapse of the financial system.

Most of us felt that pipelines would have no problem obtaining reasonable financing as stable utility like businesses.

One of my holdings DCP Midstream just had their credit rating raised to "investment grade", yet it is in the toilet.

Pipelines are being priced as if there is real risk that they won't be able to access capital markets because of banking turmoil, and that equity financing is their only option.

http://biz.yahoo.com/ap/080909/dcp_midstream_rating.html?.v=1; 9/22/2008 8:34 PM
joewxman said...: the thing is...if the financial system collapses it really doesn't matter where your money is because it pretty much gets sent to money heaven.

One day this too shall pass.; 9/22/2008 8:38 PM
Anonymous said...: "All things must pass" ~ George Harrison; 9/23/2008 4:30 AM