CSD: Taking Advantage Of Spin-Offs' Extraordinary Returns [View article]

- Looking at the graph, it appears that almost all of the excess return was produced between mid 2012 and end of 2013. That's not very convincing to me as strong evidence of systematic outperformance. - MLPs had a huge boom over the last few years. If CSD is overweight in MLP, and maybe other sectors, has the computation of excess return been adjusted for industry industry weightings? I see no evidence. - What is the rationale behind your selection of risk factors? Bond market risk for an equity CEF? You said the index is overweight in small caps. Small caps outperformed in the last few years. Have you compensated for small cap beta risk? Why not take the often used 3- or 4-factor risk model for equities?

Deutsche Multi-Market Income: Wide Discount Provides A Good Entry Point [View article]

Point well taken; but to be honest, I question the benefit of complicated derivatives other than adding transaction cost or possibly hidden fees, or giving the illusion to be a more "fancy" and sophisticated product, maybe trying to justify the fees. History has proved time and again that simply buying and holding assets generates the highest risk-adjusted returns in the long run. A portfolio equivalent to the underlying assets in this CEF could be easily replicated, or held via an index ETF at negligible expense ratio. In aggregate, you cannot create wealth by trying to generate "nice looking" distributions yields (without comparing risk-adjusted returns and leverage ratios), nor by creating complex financial products like derivatives on top of real assets. There must always be a counterparty, and when one wins, the other loses.

Alerian MLP ETF Finally Admits Its 8% Expense Ratio [View article]

To evaluate or compare the distribution yields, one would also first have to investigate the source of the distributions. Distributions could come from distributions of the underlying MLPs, realized capital gains, leverage, etc., even return of capital in some cases. It actually totally does not make sense to compare investment vehicles, or estimate future returns, based on distribution yields. It's a meaningless number for valuation purposes, in my opinion.

Alerian MLP ETF Finally Admits Its 8% Expense Ratio [View article]

Just out of curiosity, how do you think UBS counter-balances their risk for the ETNs that they issue? Assuming they hold most of the ETN's underlying index constituents on their own balance sheet, and given that USB is a corporation, wouldn't they eventually have to pay taxes on their holdings after basis is depleted or upon sales transactions? Doesn't seem like their low tracking fee could cover that.

JRI - CEF With 8% Dividend Offering Global Exposure [View article]

Expense ratio is 1.56% and eats ca. 20-25% of investment income per your numbers. They try to compensate for that by leveraging the portfolio, which makes it inherently more risky. Not a good deal in my opinion. I would rather buy some of the underlying assets without leverage (or leverage my portfolio myself if I wish), and save the hefty management fees, thus increasing my income by ca. 25%.

Deutsche Multi-Market Income: Wide Discount Provides A Good Entry Point [View article]

As with most CEFs, I'm not impressed, for the following reasons: - At an 8.5% discount and 7% distribution rate, the yearly return (economic benefit) from the discount, via distributions at NAV of discounted assets, does not even cover the expense ratio. In other words, you pay hefty management fees even after taking into account the economic value of the discount. Most CEFs trade at discounts for a reason. The discount is not a free lunch; the opposite is the case - using a rigorous discounted cash flow analysis, it should be larger than it is. - Looking at the current yields of most corporate as well as international sovereign bonds, I assume that a lot of the 7% distribution probably stems from bond valuation gains due to falling interest rates during the last years and decades, and/or reflects interest payments from bonds that were issued in the past when interest rates where higher, and now trade above par, and won't be covered by the current YTM of the bonds. The bonds' value will decrease with each interest payment on the bonds, accordingly, even if interest rates stay at current levels. It can be said with almost 100% mathematical certainty that future returns on NAV will be lower than the current distribution rate. In my opinion, it is totally foolish and does not make any sense to me to take payout ratios / distribution rates as a measure of expected future returns, or as a criterium for selecting CEFs. This of course applies to all CEFs. - With leverage of 32% and annual cost of leverage of 1.16% (assuming this percentage is based on NAV), their interest rate on debt would be ca. 3%. Although I'm not sure what the maturity of their debt is, this seems high. I can do my own portfolio leverage e.g. at IB at margin rates of between ca. 0.6% and 1.1%, without paying hefty management fees to fund managers.

Bond Market Battle: Berkshire Hathaway Vs. Kinder Morgan Energy Partners [View article]

I took the small number of historical defaults, even in the wake of market crashes, as a positive sign. If I recollect right, there have been historically "almost no" defaults for municipal bonds, even for the lower rated investment grade ones, meaning a fraction of the default rates of similar corporate bonds. After the GFC there were 3 or 4 major defaults that I'm aware of (Detroit, Stockton, Vallejo, San Bernardino?). I believe in Detroit pensions got actually cut in about the same ratio as bonds, and bondholders could recover part of their principal. Given the almost negligible historical default rates, I was under the impression that with BAB bonds I get an almost risk-free yield premium, making it an almost perfect risk-free arbitrage play compared to government bonds, unless you assume a "new normal" in the future for municipal default probabilities. But I'm sure you did more sophisticated investigations than I did.

Bond Market Battle: Berkshire Hathaway Vs. Kinder Morgan Energy Partners [View article]

Maybe a bit off topic, but how would a typical high quality BAB bond with similar maturity compare to the KMP bonds in terms of yield to maturity (or credit spread) vs. default probability? Last time I checked, BAB bonds seemed to have much smaller default probabilities, with similar or higher yields.

KMP an after-tax loser in Kinder consolidation deal, Wells Fargo says [View news story]

Thank you KMR Holder and ba37840. However I'm still confused. Per your explanations, it sounds like after the basis reaches zero, all distributions are taxed at LTCG. In addition, per your statement, the capital account keeps being reduced below zero for each distribution. At time of sale, you say the negative amount of the capital account is added to the total gain, which is then split into an LTCG and an ordinary income portion. In summary, if what you say is true, the distributions after the capital account becomes negative would be taxed twice, first at time of distribution, and second at time of sale. This does not make sense to me. Please clarify.

Kinder Morgan scrapping MLP structure in $44B deal [View news story]

Sorry, thirsty_for_income, neither of my two questions were not meant to be sardonic at all. The arbitrage seems tempting to me, but so obvious and simple, that I questioned its validity for myself, and I'm wondering what the likelihood is of the deal falling through. Tail risks should not be neglected in portfolio construction or special situations arbitrage. An arbitrage may not be an arbitrage when taking into account all possible scenarios.

KMP an after-tax loser in Kinder consolidation deal, Wells Fargo says [View news story]

A bit off topic, but can someone please explain what happens after the basis drops below zero? I hear that tax at capital gains rates has to be paid on distributions after the basis is zero - but if basis is still reduced to negative numbers, will taxes have to be paid again at time of sale? I assumed that basis will stay at zero and not become negative.

Kinder Morgan scrapping MLP structure in $44B deal [View news story]

Are you assuming that the rest of the investors cannot do the math (multiplication by 2.4849) for this obvious risk-free arbitrage opportunity, giving you an information advantage? Or could it be that the market attributes a small likelihood of the deal falling through, which would reverse Monday's gains and result in ca. -25% for KMR?

Kinder Morgan deal risks unpleasant tax surprise for some investors [View news story]

One of the first realistic posts I've seen, after hundreds of cheerleading comments by those who are, effectively, unwittingly being slaughtered by RK and blinded by the eye-candy in his presentation with arbitrary and hypothetical future distribution growth numbers. In the long run, this transaction is a wealth transfer from LP retail investors who intended to hold their units for life, to RK and his KMI empire. As commenter eternitus141 above in this thread put it: if the transaction was the other way around, guess who would owe $2.5 billion in taxes?

Here's The Alarming Table Kinder Morgan Doesn't Want You To See [View article]

I don't know all the history or motivation of Hedgeye, but they are presenting an interesting table, whether or not the companies are comparable. If not to bash or glorify KM*, the table could be used to estimate and compare expected total returns of different companies from different industries. I find this actually more useful than engaging in cheerleading several times per week with hundreds of cheerleading comments, without doing any analysis, numbers, or risk reward comparisons. How do the valuation metrics of KMI (after consolidation) compare to those of other capital intensive companies like CVX or XOM?

## CSD: Taking Advantage Of Spin-Offs' Extraordinary Returns [View article]

- MLPs had a huge boom over the last few years. If CSD is overweight in MLP, and maybe other sectors, has the computation of excess return been adjusted for industry industry weightings? I see no evidence.

- What is the rationale behind your selection of risk factors? Bond market risk for an equity CEF? You said the index is overweight in small caps. Small caps outperformed in the last few years. Have you compensated for small cap beta risk? Why not take the often used 3- or 4-factor risk model for equities?

## Deutsche Multi-Market Income: Wide Discount Provides A Good Entry Point [View article]

## Alerian MLP ETF Finally Admits Its 8% Expense Ratio [View article]

## Alerian MLP ETF Finally Admits Its 8% Expense Ratio [View article]

## JRI - CEF With 8% Dividend Offering Global Exposure [View article]

## Deutsche Multi-Market Income: Wide Discount Provides A Good Entry Point [View article]

- At an 8.5% discount and 7% distribution rate, the yearly return (economic benefit) from the discount, via distributions at NAV of discounted assets, does not even cover the expense ratio. In other words, you pay hefty management fees even after taking into account the economic value of the discount. Most CEFs trade at discounts for a reason. The discount is not a free lunch; the opposite is the case - using a rigorous discounted cash flow analysis, it should be larger than it is.

- Looking at the current yields of most corporate as well as international sovereign bonds, I assume that a lot of the 7% distribution probably stems from bond valuation gains due to falling interest rates during the last years and decades, and/or reflects interest payments from bonds that were issued in the past when interest rates where higher, and now trade above par, and won't be covered by the current YTM of the bonds. The bonds' value will decrease with each interest payment on the bonds, accordingly, even if interest rates stay at current levels. It can be said with almost 100% mathematical certainty that future returns on NAV will be lower than the current distribution rate. In my opinion, it is totally foolish and does not make any sense to me to take payout ratios / distribution rates as a measure of expected future returns, or as a criterium for selecting CEFs. This of course applies to all CEFs.

- With leverage of 32% and annual cost of leverage of 1.16% (assuming this percentage is based on NAV), their interest rate on debt would be ca. 3%. Although I'm not sure what the maturity of their debt is, this seems high. I can do my own portfolio leverage e.g. at IB at margin rates of between ca. 0.6% and 1.1%, without paying hefty management fees to fund managers.

## Bond Market Battle: Berkshire Hathaway Vs. Kinder Morgan Energy Partners [View article]

## Bond Market Battle: Berkshire Hathaway Vs. Kinder Morgan Energy Partners [View article]

## KMP an after-tax loser in Kinder consolidation deal, Wells Fargo says [View news story]

## KMP an after-tax loser in Kinder consolidation deal, Wells Fargo says [View news story]

## Kinder Morgan scrapping MLP structure in $44B deal [View news story]

## KMP an after-tax loser in Kinder consolidation deal, Wells Fargo says [View news story]

## Kinder Morgan scrapping MLP structure in $44B deal [View news story]

## Kinder Morgan deal risks unpleasant tax surprise for some investors [View news story]

## Here's The Alarming Table Kinder Morgan Doesn't Want You To See [View article]