MASTER LIMITED PARTNERSHIPS

Thursday, October 09, 2008

The dow has just turned down which i think may be a good thing. There is so much doubt that no one that now we can't rally for more than an hour or so. This may mean that we are setting up for a much better rally. So don't lose hope yet.

MLP index still up about 7 at this point.

12 comments:

Anonymous said...: The markets are probably spooked by Morgan Stanley down over 3.5 points to around 13.25 as I type.

HS; 10/09/2008 10:46 AM
Anonymous said...: Rallies will be sold until that trade no longer works.

I see no point in buying anytime soon, there is NO reason for this market to rally. We need a few days of going sideways.; 10/09/2008 11:09 AM
Anonymous said...: with all the help that has been pumped into the system by the taxpayers through their government its time that the investors grew some balls and showed some courage.; 10/09/2008 11:34 AM
AggiePilot said...: The following comes from a midweek update from Morningstars DividendInvestor which I subscribe to. The portfolio manager is Josh Peterson.
"Never in my professional career have I called any kind of bottom in stock prices--not for an individual stock, nor for an entire sector. But recent action among our pipeline master limited partnerships is tempting me to do so. I still don't know that we're there yet, but I have to believe we're getting close--and I'm highly confident that the recovery to come will prove very rewarding.
The irritating thing about historic buying opportunities is that they're never clear at the time. Any long-run chart of the stock market, or even high-quality individual stocks, makes the existence of historic buying opportunities all too plain with its V-shaped marks. But living through the first half of the V is not so easy: When prices are falling apart--especially in the absence of conclusive fundamental drivers--the temptation to sell is huge; the inclination to buy is almost nonexistent. Then again, historic buying opportunities simply don't emerge in any reasonable type of environment. They wouldn't emerge if investors were acting rationally.
I don't have a strong opinion about whether the stock market overall is forming a bottom, but the gap between price and value specifically among pipeline MLPs is so wide that I can't see it persisting for long. At one point this morning, the eight MLPs in the Harvest were down more than 12% on the day, making for a loss of 28% since Friday and more than 40% since the end of August. This selection of MLPs was priced to yield 12.6%--a full 9 percentage points higher than 10-year Treasury bonds compared with a typical yield spread of about 2.5 points. (One could argue about the validity of past statistical relationships in an environment like this, but there's no denying that these levels are off the charts--between the early 1990s and the onset of this crisis, the spread between MLP yields and Treasuries had never exceeded 5 points.) Our MLPs are trading at less than half what we believe the future cash flows of these enterprises are worth. And, at least until an afternoon recovery, we were seeing even the industry's strongest and best-regarded operators (such as Kinder Morgan Energy Partners KMP) surrender to overwhelming selling pressure. By any measure you care to name, the valuations of these partnerships are in uncharted territory.
Could these valuations be rational? If I were disposed to worry, I could identify plenty of things to worry about. Third-quarter results are virtually sure to be weak (at least relative to the recent past) as falling refined petroleum product volume and storm-related damage hinder cash-flow growth. MLPs typically finance their assets with a 50/50 mix of debt and equity; sooner or later, there'll be a lot of debt to refinance--and the capital markets would make refinancing today very tough indeed. Looking further down the road, a recession spells slower and perhaps modestly negative volume growth for pipelines. Perhaps the federal government will reconsider the tax-exempt status of these partnerships (which I continue to find an unlikely outcome), or the economy will begin a permanent shift away from carbon-based fuels toward renewable energy sources. But everything I can think of (except for the tax issue) points to slowing growth in cash distributions, not outright cuts. Trillions of dollars' worth of economic infrastructure and activity is powered by carbon-based fuels; as a country, we might like to change, but it's not going to happen overnight. Yet with yields above 10% across the board, MLP prices are ignoring not only the potential for continued (if slower) growth in per-unit payouts, but deep and permanent distribution cuts across the board.
Besides, if there were real, fundamental, company- or industry-specific events to worry about, wouldn't we see some news? Today, there was no news save for the announcement of two cash distribution increases (from Kinder Morgan and Enterprise Products Partners EPD). The industry has put tens of billions of new dollars into the ground in the past few years, and cash flows from these new assets are still rising.
As we see it, the world simply hasn't changed fast enough to put all MLPs' cash distributions in imminent jeopardy. Yet in the midst of any historic buying opportunity, the fundamentals don't matter. We should not be constrained by an assumption that the market is behaving rationally when it probably isn't.
We're left with what we can only call "technical" factors for recent declines: forced selling into an illiquid market. We don't know who all of the forced sellers are (hedge funds and investment banks are likely participants), or whether they're done selling. In the meantime, other holders--even those who aren't forced to sell--see the price declines and join in. Few investors want to step up to the plate as buyers, because it's not clear the forced selling has ended yet. But for every unit sold at today's prices, a unit was bought. The buyers in this environment are getting incredible bargains. At some point, the forced selling will stop, prices will stabilize, and then the bargains will suddenly become obvious to all.
We've been through a mass, sectorwide selling panic before. Between April 30 and July 15, DividendInvestor's bank holdings lost 38% of their value. The outlook for near-term earnings was generally poor, but prices fell off a cliff, with a trend that seemed to indicate the extinction of the banking industry. That decline reversed July 16, when bank earnings reports--which were indeed poor--were still much, much better than market prices reflected. High-quality bank stocks came back, and fast: In the first eight days after the July 15 low, DividendInvestor's banks snapped back 36%. I don't think bank stocks were being afflicted by nearly as much forced selling as MLPs are, but if anything, the latter's near-term fundamentals are stronger than those of bank stocks (then or now).
At any one point in time, price and value can become very distinct concepts. In the long run, prices are bound to reflect value, and for MLPs the value proposition is very tightly wrapped around cash distributions and the growth of these distributions. With Kinder Morgan leading the way, I expect another round of per-unit distribution increases from the Harvest's MLPs in the next few weeks--as well as financial results that, while shy of optimal, will remind investors that these partnerships are very much alive, solvent and profitable.
The passive way to play a historic buying opportunity is to avoid being a seller. I'm prepared to continue holding the Harvest's midstream MLPs--and all of the stocks in the Builder and Harvest portfolios--as though the world is not coming to an end. In this way, I can at least continue collecting ample cash distributions from my holdings, while participating fully in the price rebound that follows.
The active way to play this opportunity is to step up to the plate with additional funds. The Harvest lacks ready cash to take advantage right now, but I can confidently recommend buying all of the Harvest's MLPs at current prices. (Crosstex Energy XTEX XTXI is in dicier financial shape than the rest, but I still conclude that its current price provides a very handsome margin of safety for known challenges.) I think the best approach is to buy such MLPs as a basket, rather than any one or two names, and averaging new money in over a period of days or weeks would add some conservatism to a buy strategy.
While I continue to monitor company-specific developments and industry fundamentals closely, I see this situation as having all the hallmarks of a historic buying opportunity. Even if additional volatility is likely and the bottom has not yet been established, I think it highly likely that long-term investors in these partnerships can expect delightful returns from here for many more years to come."
I have made purchases for the following MLP's over the past 5 weeks. Here are the results to date.
Stock Loss
XTEX -53.23%
ETE -35.87%
ETP -32.38%
EPE -29.63%
EPD -18.20%
KMP -20.10%
OKS -30.88%
TCLP -24.32%
Sometimes I think I am crazy, but I am considering adding to my purchases. I have invested $9500 to $12,500 in each of these stocks and had planned a total of $15,000 in each. I am having a real hard time completing the plan. Am I crazy to complete?? I do not need the captial for several years, but would use the income. Does anyone see any real problems with any of these MLP's?? Several Analysts Reports I have recently read basically say while capital market convulsions have kept MLPs from raising capital in recent months, the sector has raised almost as much in capital this year as last, and MLPs on average have only used 40% of their existing credit lines, leaving more than $25 billion in capital potentially available for growth projects, based on our estimates. However, I also know banks and financial companys have cut off some lines of credit to various commercial businesses. Specifically builders, even those part way through a project. Just how hard is it for MLP's to get credit and which one's are most vulnerable. I have more faith in the midsteam gas MLP's than any others. But look at XTEX, 21.6% yield, THIS IS NUTS!!
AggiePilot; 10/09/2008 1:52 PM
AggiePilot said...: The following comes from a midweek update from Morningstars DividendInvestor which I subscribe to. The portfolio manager is Josh Peterson.
"Never in my professional career have I called any kind of bottom in stock prices--not for an individual stock, nor for an entire sector. But recent action among our pipeline master limited partnerships is tempting me to do so. I still don't know that we're there yet, but I have to believe we're getting close--and I'm highly confident that the recovery to come will prove very rewarding.
The irritating thing about historic buying opportunities is that they're never clear at the time. Any long-run chart of the stock market, or even high-quality individual stocks, makes the existence of historic buying opportunities all too plain with its V-shaped marks. But living through the first half of the V is not so easy: When prices are falling apart--especially in the absence of conclusive fundamental drivers--the temptation to sell is huge; the inclination to buy is almost nonexistent. Then again, historic buying opportunities simply don't emerge in any reasonable type of environment. They wouldn't emerge if investors were acting rationally.
I don't have a strong opinion about whether the stock market overall is forming a bottom, but the gap between price and value specifically among pipeline MLPs is so wide that I can't see it persisting for long. At one point this morning, the eight MLPs in the Harvest were down more than 12% on the day, making for a loss of 28% since Friday and more than 40% since the end of August. This selection of MLPs was priced to yield 12.6%--a full 9 percentage points higher than 10-year Treasury bonds compared with a typical yield spread of about 2.5 points. (One could argue about the validity of past statistical relationships in an environment like this, but there's no denying that these levels are off the charts--between the early 1990s and the onset of this crisis, the spread between MLP yields and Treasuries had never exceeded 5 points.) Our MLPs are trading at less than half what we believe the future cash flows of these enterprises are worth. And, at least until an afternoon recovery, we were seeing even the industry's strongest and best-regarded operators (such as Kinder Morgan Energy Partners KMP) surrender to overwhelming selling pressure. By any measure you care to name, the valuations of these partnerships are in uncharted territory.
Could these valuations be rational? If I were disposed to worry, I could identify plenty of things to worry about. Third-quarter results are virtually sure to be weak (at least relative to the recent past) as falling refined petroleum product volume and storm-related damage hinder cash-flow growth. MLPs typically finance their assets with a 50/50 mix of debt and equity; sooner or later, there'll be a lot of debt to refinance--and the capital markets would make refinancing today very tough indeed. Looking further down the road, a recession spells slower and perhaps modestly negative volume growth for pipelines. Perhaps the federal government will reconsider the tax-exempt status of these partnerships (which I continue to find an unlikely outcome), or the economy will begin a permanent shift away from carbon-based fuels toward renewable energy sources. But everything I can think of (except for the tax issue) points to slowing growth in cash distributions, not outright cuts. Trillions of dollars' worth of economic infrastructure and activity is powered by carbon-based fuels; as a country, we might like to change, but it's not going to happen overnight. Yet with yields above 10% across the board, MLP prices are ignoring not only the potential for continued (if slower) growth in per-unit payouts, but deep and permanent distribution cuts across the board.
Besides, if there were real, fundamental, company- or industry-specific events to worry about, wouldn't we see some news? Today, there was no news save for the announcement of two cash distribution increases (from Kinder Morgan and Enterprise Products Partners EPD). The industry has put tens of billions of new dollars into the ground in the past few years, and cash flows from these new assets are still rising.
As we see it, the world simply hasn't changed fast enough to put all MLPs' cash distributions in imminent jeopardy. Yet in the midst of any historic buying opportunity, the fundamentals don't matter. We should not be constrained by an assumption that the market is behaving rationally when it probably isn't.
We're left with what we can only call "technical" factors for recent declines: forced selling into an illiquid market. We don't know who all of the forced sellers are (hedge funds and investment banks are likely participants), or whether they're done selling. In the meantime, other holders--even those who aren't forced to sell--see the price declines and join in. Few investors want to step up to the plate as buyers, because it's not clear the forced selling has ended yet. But for every unit sold at today's prices, a unit was bought. The buyers in this environment are getting incredible bargains. At some point, the forced selling will stop, prices will stabilize, and then the bargains will suddenly become obvious to all.
We've been through a mass, sectorwide selling panic before. Between April 30 and July 15, DividendInvestor's bank holdings lost 38% of their value. The outlook for near-term earnings was generally poor, but prices fell off a cliff, with a trend that seemed to indicate the extinction of the banking industry. That decline reversed July 16, when bank earnings reports--which were indeed poor--were still much, much better than market prices reflected. High-quality bank stocks came back, and fast: In the first eight days after the July 15 low, DividendInvestor's banks snapped back 36%. I don't think bank stocks were being afflicted by nearly as much forced selling as MLPs are, but if anything, the latter's near-term fundamentals are stronger than those of bank stocks (then or now).
At any one point in time, price and value can become very distinct concepts. In the long run, prices are bound to reflect value, and for MLPs the value proposition is very tightly wrapped around cash distributions and the growth of these distributions. With Kinder Morgan leading the way, I expect another round of per-unit distribution increases from the Harvest's MLPs in the next few weeks--as well as financial results that, while shy of optimal, will remind investors that these partnerships are very much alive, solvent and profitable.
The passive way to play a historic buying opportunity is to avoid being a seller. I'm prepared to continue holding the Harvest's midstream MLPs--and all of the stocks in the Builder and Harvest portfolios--as though the world is not coming to an end. In this way, I can at least continue collecting ample cash distributions from my holdings, while participating fully in the price rebound that follows.
The active way to play this opportunity is to step up to the plate with additional funds. The Harvest lacks ready cash to take advantage right now, but I can confidently recommend buying all of the Harvest's MLPs at current prices. (Crosstex Energy XTEX XTXI is in dicier financial shape than the rest, but I still conclude that its current price provides a very handsome margin of safety for known challenges.) I think the best approach is to buy such MLPs as a basket, rather than any one or two names, and averaging new money in over a period of days or weeks would add some conservatism to a buy strategy.
While I continue to monitor company-specific developments and industry fundamentals closely, I see this situation as having all the hallmarks of a historic buying opportunity. Even if additional volatility is likely and the bottom has not yet been established, I think it highly likely that long-term investors in these partnerships can expect delightful returns from here for many more years to come."
I have made purchases for the following MLP's over the past 5 weeks. Here are the results to date.
Stock Loss
XTEX -53.23%
ETE -35.87%
ETP -32.38%
EPE -29.63%
EPD -18.20%
KMP -20.10%
OKS -30.88%
TCLP -24.32%
Sometimes I think I am crazy, but I am considering adding to my purchases. I have invested $9500 to $12,500 in each of these stocks and had planned a total of $15,000 in each. I am having a real hard time completing the plan. Am I crazy to complete?? I do not need the captial for several years, but would use the income. Does anyone see any real problems with any of these MLP's?? Several Analysts Reports I have recently read basically say while capital market convulsions have kept MLPs from raising capital in recent months, the sector has raised almost as much in capital this year as last, and MLPs on average have only used 40% of their existing credit lines, leaving more than $25 billion in capital potentially available for growth projects, based on our estimates. However, I also know banks and financial companys have cut off some lines of credit to various commercial businesses. Specifically builders, even those part way through a project. Just how hard is it for MLP's to get credit and which one's are most vulnerable. I have more faith in the midsteam gas MLP's than any others. But look at XTEX, 21.6% yield, THIS IS NUTS!!
AggiePilot; 10/09/2008 1:53 PM
AggiePilot said...: Joe,

Sorry last post got posted twice and it is a long one. Maybe you can delete one.

AggiePilot; 10/09/2008 1:56 PM
Anonymous said...: "The dow has just turned down which i think may be a good thing."

Joe, So far, we've had too much of a "Good Thing".

HS; 10/09/2008 2:54 PM
Anonymous said...: Another distribution increase:

BRIEF-Magellan Midstream to raise quarterly cash distributions
Thu 9 Oct 2008 2:25 PM EDT

Oct 9 (Reuters) -:

* Magellan midstream confirms business fundamentals and announces intention to

raise quarterly cash distributions

* Magellan Midstream holdings lp (MGG - news) says business fundamentals for

operations remain solid despite recent negative pressure on both entities'

unit prices

* Magellan Midstream partners lp (MMP - news) sees new quarterly distribution 70.25

cents per MMP unit

* Magellan midstream holdings lp (MGG - news) sees new quarterly distribution 35.4

cents per MGG unit; 10/09/2008 3:05 PM
Anonymous said...: Is there any point to even looking at this shit anymore? The price on your screen is meaningless, it reflects nothing, its just a random number...this is nothing more than crowd psychology and the crowd has blown itself up and has no choice but to sell and keep selling.; 10/09/2008 3:22 PM
Anonymous said...: The was things are going, there won't be any banks to save by next Thursday.

So far all of the recent "plans",

none has been implimented and all will take weeks or more.

No commercial credit has been bought, no Tarp, no-nothing.

What's worse the more corporate bankruptcies, the weaker the banks will be.

The auction for CDS swaps for Fannie + Freddie were held on OCT. 6, 2008. Lehman's is scheduled for tommorrow, Wamu for Oct. 23.

Maybe the Treasury is holding out to find what ( if any ) banks's exposure to these CDS's are.

AIG asked for about 40 billion more, so chances are they are on the hook.

As for MLPs's ( and other Co's ) unused revolvers... will there be a bank solvent enough to fund them?

Why should any investor buy at any price in such a situation?

---------------------------------
#U.S. Treasury May Buy Stakes in Banks Within Weeks (Update1)

By Robert Schmidt and Rebecca Christie

Oct. 9 (Bloomberg) -- The government is planning to buy stakes in a wide range of banks within weeks as the credit freeze increasingly threatens to tip the U.S. economy into a deep recession."

http://www.bloomberg.com/apps/news?pid=20601087&sid=asrBlxAsNT3s&refer=home
---------------------------------; 10/09/2008 3:39 PM
Anonymous said...: Mine was the 3:39 post
------------------------------

The only effective card left to play for the Fed and the Treasury is to guarantee interbank transactionstransactions between regulated banks until the their various plans are implimented.

This should have been done the Day the Tarp Bill passed.

It seems to me that Paulson and Bernanke are complete idiots.

Leting Lehman fail, and coming up with actions that were too little and too late.

I don't have much left in this market, but we may have gone past the point of no return for this economy. I worry for my family and my country.

HS; 10/09/2008 3:53 PM
Anonymous said...: This article refers to the Lehman CDS auction that I posted earlier.

Someone will be holding the bag here, either hedge funds, banks, insurance Cos ( AIG ) or their counterparties.

No doubt, Paulson doesn't want to give any bank money that will end up pissed away a settlement for a CDS contract.

HS

HS
-----------------------------------
The Next $350 Billion Hole
By Alex Dumortier, CFA
October 9, 2008 Comment (0)

The Investment Opportunity of the Decade

Tomorrow will be a massive test for the credit default swaps market as dealers and investors get together to determine the settlement value of credit default swaps (CDSs) on failed broker Lehman Brothers. With approximately $400 billion in notional amount of swaps outstanding, if the swaps settle at 12.5 cents on the dollar (which is where Lehman’s reference bonds are trading), swap sellers could face losses totaling $350 billion.

That was no error: The figure is $350 billion -- half the amount of the Paulson bailout plan. For comparison, it’s almost ten times the CDS losses due to the nationalization of mortgage giants Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).

More for the survivors to choke on
To add insult to injury, Lehman’s bankruptcy puts more pressure on the large swaps dealers that remain who must fill the vacuum in supply and take on more risk. These dealers include Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Merrill Lynch (NYSE: MER) and JPMorgan Chase (NYSE: JPM).

Lehman isn’t the last hurdle for the CDS market, either. At the end of the second quarter, AIG’s (NYSE: AIG) AIG Financial Products unit had almost $450 billion in exposure to credit default swaps, which was instrumental in the insurer’s downfall.

Final losses are highly uncertain
One glimmer of hope: The loss numbers I cite are gross losses. Imagine two CDSs with respective losses to the seller of $500 million and $400 million. Gross losses total $900 million; however, if a CDS dealer sold the first and bought the second, net losses to the dealer are only $100 million. Unfortunately, due to the lack of transparency in the market, it’s anyone’s guess as to what degree losses may offset each other.

In a speech he delivered yesterday, SEC Chairman Cox urged lawmakers to increase oversight of the CDS market. That may help to avert a future crisis, but in the meantime, we may be inching closer and closer to Buffett’s nightmare scenario.

http://www.fool.com/investing/dividends-income/2008/10/09/the-next-350-billion-hole.aspx; 10/09/2008 4:48 PM