King of the Pipelines?

If pink is the new grey, which is the new black and with regard to the returns of most hedge funds last year? If flat is the new up, then yesterdays +7.90 in the SPX is the new down as when things felt that heavy last year there was usually a double digit negative number in the +/- column to show for it.

What’s new in the recovery from the Great Recession is that things are moving out of inventory and in to people’s homes if yesterday’s Chain Store Sales and Wholesale Inventory numbers are to be believed.

If it was hoped that the $787BN Uncle Sam spent was going to get the ball rolling it was merely that and meant to be only a spark to light a flame under the consumer to begin to do what we too oft hear is 70% of our GDP.

Burt White, CIO of LPL Financial, compared the recovery to a relay race in Barron’s last weekend with Uncle Sam in the blocks and the consumer crossing the finish line. In the middle, however, the baton needs to be passed and if 3 is the new 4 then the next runner is corporate America.

An example of how this works can be seen in Kinder Morgan Energy Partners LP’s (KMP) Rockies Express, nicknamed the “King of Pipelines” by federal regulators, a four-year $6.7BN pipeline project stretching 1,679 miles from Colorado to Ohio.

“Everybody really needed the pipe.” Those words might have been spoken in a crack den last night but they were also uttered by Steven Kean, KMP’s president of natural gas pipelines and the company’s chief operating officer. He followed with, “The question was: who was going to build it?”

Construction of the pipeline required 27MM man hours and created 10,000 jobs along the route. Rich Davis, an electrician at the REX’s, as the project was named at KMP, $35MM compressor plant in Philo, Ohio, said: “The employment outlook here was really grim. The boost to the local economy has been astronomical.”

Any questions as to whether the pipeline will be a success are answered in the 3 year waiting list to access capacity.

In keeping with the topsy turvey nature of the markets KMP’s CDS hit a low of 95bps for 2009 on 8/10 and has since risen to last night’s closing level of 152bps while the stock has also risen from $52.93 on that day in August to $55.42 last night.

This could be the result of a project that is working but one that was 50% over budget and put KMP on S&P’s “negative” outlook list.

Not negative are all those people who were gainfully employed by private industry.

Hopefully the spark will light a flame. Lord knows there’s enough gas in the pipe to keep it burning.

Enjoy the weekend.