Maybe its hard to see. Its certainly hard to see it when you look at your portfolio value. However we continue to see some signs that we are being constructive. That being said yesterday's action was not pretty as some commodity unwind was going on. The MLP index in the last 2 days took out 5 days worth of gains. But note that i have been posting about the top of this base being around 275 so coming off from there and perhaps probing the bottom of the base around 260 would not be unusual.
At least one thing thats happened is the MLPS have not performed as badly as the Dow Jones Oil and Gas stocks (big energy) which has dropped from 760 to 600 in the last 5 weeks. MLPS have been taken down with this group however when you check the next chart.......
MLPS have outperformed big energy. Granted they are going down less which is outperformance but it would be nicer if we were above the zero line. Note that we have been pretty much following the S&P 500 for the last 3 months and at some point we need to see those lines cross.
Keep an eye on the financial stocks. They look like they have stopped going down and that may be the ultimate indicator of where this group is going.
Teppco (TPP) will be the driver of the MLP index this morning with a 7 million share stock offering and the stock down 1.21 in the pre market. No other news this morning and no upgrades or downgrades. Stock futures are soft this morning and energy prices are a little higher ahead of energy stats due out at 10:30am
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5 comments:
It's hard to see them staging a real rally when they are pricing deals at 52 week lows. Just like when JP Morgan prices a new issue preffered over 8.5%, the rest of the group will have trouble rallying. Although preferreds have come nicely off their lows, while MLP's are more beaten down.
If the commodity boom is now bust, the decline in oil and gas prices will negatively affect the balance sheets of MLPs. Financials issue equity when it's necessary and they retained earnings as an offset to the additional liability. MLPs do not retain earnings and have to use acquisitions, financed by debt or equity, to shore up their balance sheets. In times of rising asset prices, that works beautifully. If we are seeing declines in asset values, that will certainly make their balance sheets lopsided which will in turn make it difficult to raise more capital. That applies especially to E&P MLPs, but the market is unable to differentiate them from the whole MLP universe. Am I missing something here, or are we therefore at risk for values to continue to spiral downward?
steve
It seems like MLPs are in a permanent downward spiral. If they issue equity, like TPP today, they lose 15% in unit price in 2 days. If they issue debt, they pay 400+ bps over treasuries. Seems like the model just doesnt work without easy credit and a bull market.
Personally, I am sick and tired of owning these things. My intention is to trade my way out of the MLPs that I own and never look at them again.
ETP is trading as if a secondary will be coming from that name soon.
Well boys the rally is offically over. It was fun while it lasted, but we all knew that it wouldn't.
As proud owners of MLPs we know that making money is just not an option.
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