DISTRIBUTION CUTS LOOM!
With the exception of Kinder Morgan (KMP) Oneok (OKS) Nustar (NS) Enterprise (EPD) Buckeye (BPL) Sunoco Logistics (SXL) Magellan (MMP) and maybe a few others the market place is pricing in distribution cuts. And this is as ugly an enviornment as you could possibly get. The market is taking no comfort in the quarterly reports, distibution increases, distribution guidance. So what does that tell us? Look at crude now under 60 dollars and gasoline futures under 1.30. I think the market is telling us that economic conditions are going to get even worse...and worse enough that next quarter these companies will be telling us that market conditions will be so bad that distributions will need to be taken down to preserve capital. Can you imagine any of these companies going to the well with their equity prices sitting at yield levels of 20 to 25%? Look at Markwest (MWE) as an example of what the company said with reguards to earnings and guidance and the market's verdict. 20% yield? Crosstex (XTEX) cutting its distribution i believe has been taken to mean that more are coming. Unfortunately we have 3 months of agony to get through before we know anything.
So on that somber note we have no corporate news this morning and no upgrades or downgrades. Stock futures are weaker this morning as of this post. Crude is down to 58 bucks. Blah Blah Blah.
I'm beginning to think we have a 1000 point down day coming in the market....not sure when it will happen but if it does... It might be smart to put in some silly bids in some stocks...assuming of course that anyone has any money left to play with.
See you on the soup line!
joseph cioffi's Source Page - Associated Content
11 comments:
anyone holding *ANY* shares/units of MLPs needs balls of steel as these equity values could trade to zero for issues with large debt loads. Outside of the more liquid MLPs, all other MLPs are trash and it will be decades befor the levered hedge funds buy these. So you have to be certain the divvies arent in jeopardy (watch commodity pricing relatvie to hedge levels). The folks at Atlas broke their hedge at 140 oil and are now paying the price. Those will be worth 0 very soon.
Also, keep in mind mgmt at these companies sold calls on stock and are getting margined calls on their borrowd positions. The incentives are rapidly depreciating.
There are better opportunities elsewhere. You can buy PFE and other blue chips for 8% yield, why mess with this POS mlp space?
i don't know about 0 but clearly busting that hedge was nothing short of dumb...especially with crude going now below 60. The citi guy has it right.
The small cap MLPs are shut off from the capital markets. Unless things improve quickly they could be headed to zero. Large debt loads in relation to equity will spell the end. Raising equity now would be a disaster.
Hey Guys,
Cool the hyperbole please.
Many small cap MLPs are in fine shape. MWE won't need additional capital for 1 year--and even then, it won't need much and will have new assets to secure any loans. CPNO won't need new capital until well into 2010. Each could also cut back on some projects, do JVs, etc. rather than get loans. DPM has a very strong GP owned 50/50 by Spectra and Conoco. In fact, some have speculated that DPM could actually be an acquirer of other MLPs.
Just a few examples to warn against painting with too broad--and hysterical--a brush.
Finally, you are employing the same logic as those who said energy prices and stock prices would go up forever. Now you all say they will go down forever. Neither was--or is--true
Bruce
The selloff of the smallcaps with weak GPs continues. If you don't have a daddy with deep pockets its over...Things do not trade with
20%+ yields for no reason.
Has anyone here ever owned a stock which went from 50 to 5 and then back again? Think about it, that is what we are hoping for here. Look at the charts. Do you expect 500-1000% returns on these things to get you back to even? Maybe things are oversold, but maybe they were overbought a year ago also...
Bruce,
How often is the "market" wrong? The market has been selling MLPs since August 2007 and has been correct. The buyers have gotten creamed trying to rationalize why the sector is cheap. Preserve capital and avoid things until the dust settles.
MM
"How often is the "market" wrong? "
All the time. It depends on the time periods one looks at.
Based on your theory, one can be nothing more than a momentum trader.
Bruce
Bruce,
You are being a bit Polyannish. While the pipeline guys may be better than the E&P's, there will be capital constraints with respect to capex - let along no growth. I also dont see the distributions that safe as a result - but maybe relatively more safe to the E&Ps but that isnt saying much.
ETP is supposedly a buyer but they (according to comemnts made by mgmt) arent paying much of a premium to asset values.
"How often is the "market" wrong? "
All the time. It depends on the time periods one looks at.
Based on your theory, one can be nothing more than a momentum trader.
Bruce
Bruce is trading with 20 year timeframes...
MM
None of the long term MLP investors have experienced sell offs in this sector ( and many other sectors ) of this magnitude.
In the past, with few execptions MLPs would reach 9 or 9 1/2%% yields, and eventually rally back to 7% yields.
This has happened may times in the last 15 years.
Essentially we were betting that a MLP had a lousy quarter or three, and eventually would improve over time.
MLPs were overpriced at 5% or 6% yields last year.
It was natural that there would be a return to mean, and MLP investors viewed that as a buying opportunity.
What is different now is we're in a credit crisis unprecidented since the Great Depression.
Prior recent credit crisies faded fairly quickly, but this one intensified to the point that even creditworthy companies have credit availablity ( and cost )issues.
Things seem to be spinning out of control with the Fed and the the Treasury playing "Whack a Mole".
I think the market is selling off now because of fears that consumer credit cards will be frozen due to the inability to securitize credit card receivables.
This would cause a colapse of consumer spending far greater than already expected.
HS
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