MASTER LIMITED PARTNERSHIPS

Tuesday, November 11, 2008

Its a horror show that never seems to come to the final conclusion where the hero drives a stake in the heart of Dracula. Instead its the realization that its perpetual night with no chance of daylight. The light at the end of the tunnel is in fact...an oncoming train! Poe should have been this depressing!

Between more hedge fund unwind and the smell of distribution cuts all over the place the damage is extensive with the index down over 7 and getting close to 200. No sign of any kind of bottom as prices drop to in some cases after life prices! Markwest (MWE) under 12. Atlas Pipeline (APL) under 14. Willams (WPZ) with a 17 handle. And so on and so on and so on.

And just exactly how many hedgefunds bought all this mlp shit anyway?

12 comments:

Anonymous said...: who's unwinding or is its just a guess?; 11/11/2008 1:55 PM
Anonymous said...: Joe, and anyone else. I am new to the MLP space; having bought shares of 2 MLPs about a month ago at, what has so far, been good prices (they are the only securities in my portfolio that are up since then). I look forward to receiving the dividends later this month. My question: In a generic sense, what does one look for when evaluating an MLP for purchase? My thoughts: market cap, bigger being preferred; reasonable yield (maybe 8% to 20%) and a history of dividend increases; solid guidance; ??? Thanks, JCarr; 11/11/2008 2:08 PM
joewxman said...: John,
My guess is you bought either Kinder Morgan, Nustar, Oneok, or Enterprise.

Hope you have a strong stomach..not so much with whats listed above but with many mlps in the group which are trading as if distributions going foward are going to be cut. In which case they could see prices go even lower. I really have little confidence in here as many mlps are trading at going out of business prices.

In my never to be humble opinion either stand aside or just add to what you have. I think the trick to making big money from here would be to pick an mlp that is yielding over 20% and winds up not cutting its distribution next year or even raises it. You need confidence and a strong stomach to pull this one off. I have neither at this point.; 11/11/2008 2:15 PM
joewxman said...: "who's unwinding or is its just a guess?"

I have no evidence of an unwind..it just feels like one. I know that may sound silly but in fact i've been watching the tape for years and sometimes it just feels like some big position is being unwound. Particularly on a day like today where volume is very low..it doesnt take much to move things around.; 11/11/2008 2:19 PM
Anonymous said...: I'm wondering if a lot of the pressure on MLPs is tax loss selling. If it is, a lot of those sellers may be surprised when they do their taxes for 2008 and find that they have incurred big tax recapture income from their MLP sales. Those recapture amounts are taxed at ordinary income rates. Beware.; 11/11/2008 2:25 PM
Anonymous said...: The recapture of losses is small potatoes compared to the erosion of share price. Anything that I've held for more than a few years is deeply underwater, even considering the return of capital; 11/11/2008 2:53 PM
Anonymous said...: It will be years before anyone reading this website has to worry about recapture...We have ridden the Titanic to the bottom.; 11/11/2008 3:01 PM
Anonymous said...: What happens to MLPs if equity markets drop and continue dropping? They will be unable to float equity and what happens when the bank lines come due? Everyone is assuming markets will recover within a year or two. If they don't the MLP model is f*cked.; 11/11/2008 3:33 PM
Anonymous said...: All you have to do is look at your portfolio. The answer to your question is obvious. It is happening to us NOW. All of us are betting that we have made the right choices. I have less confidence in myself every day. I am very near to liquidating all of it.; 11/11/2008 3:58 PM
Anonymous said...: JCarr,

FWIW, I look for the lowest Debt/EBITDA. In theory, how long does it take to pay of the debt from actural earnings. Four of the lowest are SXL, GEL, MMP and CPMO. the first 3 have low trading volumns.

JMHO,

Reading tee leaves; 11/11/2008 4:43 PM
Anonymous said...: Here is the link to an excellent synopsis of the MWE conf. call by Bob "Factoids" on IV:

http://investorvillage.com/smbd.asp?mb=5028&mn=3838&pt=msg&mid=6087979

Bruce; 11/11/2008 9:46 PM
Anonymous said...: 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?; 11/12/2008 8:03 AM