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Tuesday, February 08, 2011

3 CHARTS....1 TOPPY????

Guess which of the three charts here looks the most toppy. Yes..ding ding ding ding...the MLP index!!! Now before we panic here people lets point out a few caveats in that topping concept. First off we'refinishing another distribution cycle which usually brings out sellers who only hang around for the payout. Then there is the secondaries that have been coming from companies in the last 2 months adding more shares to the mix. In an uptrend those offerings are wonderful buying opportunities.

And its not unusual for leadership to take a breather from time time but the we continue to see that 10 year and 30 year yields move higher. We have broken decisively above 3.50% on the 10 and 4.60 on the 30 year. So far the market has shrugged. But one must consider that the the longer MLPS don't move on to the next up leg, the probability of at least a short term top is increasing.

And speaking of corrections a must read here from Seeking Alpha arguing for a correction and that the great run in MLPs is coming to an end. There is a lot here to chew threw but in the end you have to ask yourself whether the once undiscovered space and the once perpeputually undervalued group is no longer undiscovered and is now approaching fair value. The spreads between long rates and MLPs has shrunk to about 3. At the 2007 top the spread got well under 2. Its not there at the top but the spread is no longer in the double digits.

Here is a piece on Motley Fool which pretty much explains what they don't understand about MLPS. They mix trusts and mlps into one group and argue players should stay away because dividends exceed earnings. I guess they don't understand how these things really work and that its about distributable cash flow (DCF). Breitburn Energy Partners (BBEP) is doing a 4 million share offering and the stock is down 1 in the pre open.

Overall the markets are flat but firm on stocks. Crude and nat gas are lower. Bonds are even from yesterday's close. And speaking of yesterday..took a much needed day off.

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