MASTER LIMITED PARTNERSHIPS

Tuesday, September 30, 2008

Well the dead cat is bouncing by 250 dow points and 4.50 mlp points which gets us back about 1/3 of yesterday's loss. Blogging about this stuff is so depressing as i look at prices i thought i would never ever see. I does humble the soul.

There are a lot of end of quarter moves going on and the Jewish holiday of Rosh Hashannah causing less than normal volume. Kinder Morgan leads the way higher up 2 points. Still some losers on the list like Inergy (NRGY) which is down 1 and Calumet (CLMT) which is down about 80 cents.

5 comments:

Anonymous said...: Doug Kass
Selling Into Weakness Seems Uninformed Here
9/30/2008 11:49 AM EDT

It is my view that those investors/traders who are selling into the weakness probably don't belong in the game.

They might be right this time -- but the body of evidence is that we are at or close to capitulation.

Case in point, the VXO.

Over the last two decades, the VXO has exceeded the 50 level on only seven occasions (October 1987, October 1988, October 1997, October 1998, September 2001, July 2002 and September 2008). On six occasions, the VXO eclipsed the 50 mark in late September or October).

On the six dates before today, the average rally has exceeded 15%.

Makes me say ... hmmm.

And on each date of a breach of the 50 level, the market recorded a low on that day or soon there after; 9/30/2008 1:00 PM
Anonymous said...: At least my order of Mystic Monk Coffee from you blog page arrived today. Great Coffee!!!! I wonder how its going to taste cooked over an open flame in a vacant lot?; 9/30/2008 1:20 PM
Anonymous said...: Investing
Want a High Yield? Go with an MLP
By RealMoney Guest Contributor
9/29/2008 8:59 AM EDT
URL: http://www.thestreet.com/p/rmoney/investing/10439635.html

This column was written by Douglas Skrypek, Managing Director and Chief Investment Officer of Parthian Capital. He is a specialist in investing in master limited partnerships, primarily midstream energy.

With the markets being so volatile, and capital gains from long positions tougher to come by, more investors are now seeking yield income. One often overlooked option for these investors are master limited partnerships (MLPs).

MLPs are attractive investments because they avoid the double taxation of the normal corporate structure. MLPs must distribute the bulk of their earnings on a quarterly basis to the limited partners -- in this case you -- in the form of cash distributions. The bulk of these distributions are tax deferred until the investment is sold or the cost basis reaches zero.

MLP buyers are unitholders, rather than shareholders, so you have no proxy vote at an annual meeting. The MLP is managed by a general partner (GP) that controls the daily operations of the firm. MLPs trade on exchanges just like any other public entity and liquidity is generally good.

As an investment, MLPs provide a steady, secure and generally growing quarterly distribution. There are over 50 publicly traded MLPs listed on the NYSE and Nasdaq. The majority of these are in the midstream energy sector, but there are also coal, shipping, oil and gas exploration and propane units which trade.

These vehicles have not been immune from the current market dislocations. Current yields in the sector are at levels last seen in 2000. I believe that there is incredible value in this space for long-term holders seeking large current income while waiting for the market to "normalize."

The MLPs that I focus on are in the midstream energy area. These include long-lived energy infrastructure assets, such as pipelines, terminals, storage tanks and barges that support the movement of crude oil, natural gas, natural gas liquids and products throughout North America. MLPs are a vital link in the energy food chain, and provide the critical link from producer to consumer.

Let's take a look at one MLP that I believe presents good value right now, NuStar Energy LP (NS) .

NuStar

Click here for larger image.
Source: Yahoo.com

NuStar is a large MLP based in San Antonio, Texas, that has a very large presence in the central corridor of the U.S. The company is the second largest independent operator of petroleum liquids terminals, and one of the largest pipeline operators in the country.

Assets include 6,251 miles of refined product pipelines, 812 miles of crude pipelines, 2,000 miles of anhydrous ammonia pipelines, 85 terminal facilities in six countries, 87 million barrels of storage capacity and two asphalt refineries with 104,000 barrels per day of throughput.

NS is currently working on more than $500 million in expansion projects. NuStar primarily serves the logistical needs of Valero (VLO) refineries in the U.S., as it was a spinoff from VLO several years ago.

Much like the Holland Tunnel charges drivers a toll to pass through it, MLPs charge users for volume passed through pipes and quantity stored in tanks. NS does not take title to the products it stores and transports, thus it has no commodity price exposure in those areas of its business. NuStar does have some commodity price exposure in its asphalt business. The company generated 84% of its cash flow from stable midstream assets and the remainder from asphalt refining.

Recently, it guided third-quarter 2008 earnings per limited-partner unit to "at least" $2.25, due primarily to much stronger margins in its asphalt business. NuStar expects third-quarter asphalt margins to increase substantially from about $9 a barrel to $15 to $20 a barrel. This will lead to an increased distribution for unitholders in the current quarter.

NS also announced a $16.1million expansion of its East Pipeline to will be completed in May 2009. Organic expansion projects, such as this, are critical for increased distributions going forward. They are an inexpensive way of increasing revenue and broadening geographic reach for producers and end users.

In order to grow, build new pipelines, add storage facilities and expand into new drilling basins, MLPs require capital. Access to funds has not been a problem in the past, but the turmoil we are currently experiencing has brought us into new territory. NS did raise significant capital earlier in the year. In March, it did a secondary equity offering which raised $217 million, and in April, it floated $350 million of senior notes, providing some clarity for those fearful of capital constraints.

NuStar currently yields a bit over 9.25%, providing investors with a solid yield. MLPs may not be glamorous, and they are misunderstood by many in the investment community, but they do hold hard assets that are critical to serving the energy needs of the country.

Disclosure: The fund I manage is a holder of NS units.; 9/30/2008 1:43 PM
Anonymous said...: Here's an article in Bloomberg echoing the themes of how the distress in the bond market his distruped the flow of money.

The authors neglected to say was that the unintended consequences of an acute credit crisis was caused by the Feds actions in not backstopping a takeunder of both Lehman and Washington Mutual ( not to mention screwing GSE preferred holders ).

HS

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Corporate Bonds Have Worst Month Since '80 as Lehman, WaMu Fail

By Caroline Salas and Gabrielle Coppola

Sept. 30 (Bloomberg) -- Investment-grade corporate bonds are headed for their worst month in almost three decades, losing 6 percent in September, after the failures of Lehman Brothers Holdings Inc. and Washington Mutual Inc. spurred losses.

This month's decline, the biggest since a 7.4 percent drop in February 1980, will also cap the worst quarter since a loss of 6.8 percent in the three-month period ended in September 1981, according to Merrill Lynch & Co.'s U.S. Corporate Master index. Daimler AG, the maker of Mercedes-Benz cars, was the only company among the 50 biggest issuers in the index to rise this month.

``There's no safety, the only thing you know is that if you don't buy anymore, you can't get hurt anymore,'' said Gregory Habeeb, who manages $8.5 billion of bonds at Calvert Asset Management Co. in Bethesda, Maryland.

The credit-market seizure led the Federal Reserve to pump an additional $630 billion into the global financial system this week as Congress prepares a second attempt at passing a $700 billion plan to help the financial industry shed devalued assets. The government's measures may fail to prevent a recession given the credit contraction, said John Lonski, chief economist at Moody's Capital Markets Group, who forecasts the economy will shrink in the fourth quarter and in the first quarter of 2009.

``It's been terrible in the financial markets because capital just won't flow,'' said Milton Ezrati, senior economist and strategist at Lord Abbett & Co. in Jersey City, New Jersey. ``People are just unwilling to lend or take any risk anywhere near a potential problem.'' Lord Abbett manages more than $40 billion in fixed-income assets.

Proceeding Cautiously

The extra yield, or spread, investors demand to own investment-grade debt instead of similar-maturity Treasuries widened to a record 4.65 percentage points yesterday from 3.17 percentage points at the end of August, Merrill data show. Investment-grade corporate bond sales have amounted to $82 billion in the past three months, the slowest quarter in a decade, according to data compiled by Bloomberg.

``If you're a business executive and you see this swelling of corporate credit risk premiums, how can you not respond by proceeding more cautiously?'' Lonski of Moody's said in an interview from his New York office. ``The near-term prognosis for the economy is: Poor.''

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed the $700 billion plan to restore access to credit for individuals and businesses. The measure would give the U.S. Treasury authority to buy bad loans, including mortgages, from financial institutions.

`Insecure and Suspicious'

The credit markets have been a ``disaster,'' said Lord Abbett's Ezrati. ``The words are: Insecure and suspicious.''

Ezrati said the government bailout, if passed, will improve the tone in the market and increase available credit.

Bond investors are reticent to buy after being burned by what were once some of the highest-rated institutions. New York- based investment bank Lehman, rated A2 by Moody's Investors Service and A by Standard & Poor's until its collapse, filed for the biggest bankruptcy ever on Sept. 15.

The next day, New York-based American International Group Inc., the biggest U.S. insurer and rated A2 by Moody's and A- by S&P, was forced to obtain an $85 billion loan from the government in exchange for an 80 percent stake. Lehman's bonds have lost 86 percent on average this month, and AIG is down 37 percent, Merrill index data show.

Washington Mutual, the 119-year-old Seattle-based thrift, became the biggest U.S. bank to fail on Sept. 25. Its bonds have tumbled as much as 99.8 percent this month. Washington Mutual was rated investment-grade by Moody's until Sept. 11 and by S&P until Sept. 15.

Refocusing

Morgan Stanley recommends investors buy bonds of companies that don't need access to the capital markets in the near-term and whose earnings have held up as the economy slows. MDC Holdings Inc., the Denver-based builder of Richmond America Homes, is attractive because it doesn't have any maturities until 2012; and Hess Corp., the fifth-biggest U.S. oil company, offers a safe haven because the New York-based company's profit is still increasing, according to Morgan Stanley.

``In periods when sentiment is this bearish and when price action gets so dislocated and sloppy, we have to push back on the negativity,'' Gregory Peters, head of credit strategy at Morgan Stanley, said in a Sept. 26 report. ``We recommend focusing on companies which do not need to rely on capital markets for their survival, and those that can deliver quality earnings in the midst of all the economic turmoil.''

Risk of Being Wrong

Bonds of financial institutions fared the worst this month as investors dumped the debt on concern more banks will fail and as their access to capital in the short-term markets evaporated. The spread between yields on commercial paper due in 30 days sold by financial borrowers and those for industrial companies has widened to as much as 1.45 percentage points, the most since the Federal Reserve began compiling the data in 1997.

``Things are probably cheap but who can take on this kind of risk?'' said Calvert's Habeeb. ``The risk for being wrong is so substantial that institutions that were solvent institutions just two to three years ago are failing, and the risk is just deemed too great. That's what's precipitating this lack of buying and thus this freefall of prices.''

Financial company bond yields have jumped to a record 6.97 percentage points more than Treasuries on average from 3.64 percentage points at the end of August, Merrill index data show.

``My goodness that's unheard of,'' Lonski said. ``In all likelihood financial institutions and banks will tighten lending standards even further. That will have the effect of practically guaranteeing some reduction in economic activity.''

To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Gabrielle Coppola in New York at gcoppola@bloomberg.net; 9/30/2008 2:05 PM
Anonymous said...: Craven Idiots in Congress are getting political cover to become "Statesmen" in a crisis.

HS

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House Members Receive Angry Calls on Vote, Aide Says (Update1)

By James Rowley

Sept. 30 (Bloomberg) -- Voters flooded Capitol Hill offices today with complaints about the U.S. House's defeat of the $700 billion financial-rescue plan, a House Republican leadership aide said.

The tenor of the calls is a reversal from an earlier outpouring of voter opposition to the bailout legislation, the aide said.

Congressional leaders are discussing adding new provisions as sweeteners to entice more Republicans and Democrats to support the rescue plan after its 228-205 defeat yesterday in the House, the aide said.

House Republicans are proposing altering the measure by expanding the role of the Federal Deposit Insurance Corp. Under the plan, the FDIC would inject capital into the credit markets by assisting banks with troubled assets, the aide said. Another provision being floated would extend unemployment insurance, according to the aide.

White House Chief of Staff Joshua Bolten met last night with House Republican leaders as part of a redoubled effort by the Bush administration to revive the rescue plan, the aide said.

The chief negotiator for Senate Republicans, New Hampshire Senator Judd Gregg, said he was willing to consider proposals to expand the FDIC's role as well as raising the size of bank accounts the agency insures to $250,000 from $100,000 now.

``There are questions'' about the ``type of accounts'' and the cost of these proposals, Gregg said as he went into the office of Senate Republican Leader Mitch McConnell to confer about what to do next.

``There is no need for a meeting'' of House and Senate negotiators until the House makes clear how it wants to proceed, Gregg said.

To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net.; 9/30/2008 2:16 PM