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Uncle Pie

Uncle Pie
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  • Kinder Morgan Energy Partners: Why Not Consider This Outstanding Wealth Building Machine? [View article]
    KMI is a C corp and would work better in an IRA.
    With KMP, a partnership, you are paying a premium valuation for a tax sheltered income stream but not benefitting from the tax shelter since an IRA is already a tax shelter...no need to put one tax shelter into another. Plus you run the risk of UBTI tax as you point out.
    Apr 18 01:44 PM | 1 Like Like |Link to Comment
  • Kinder Morgan Energy Partners: Why Not Consider This Outstanding Wealth Building Machine? [View article]
    Dear Butterfly Seeker,
    Thank you for the excellent analysis of the Kinder gearing which is obviously more in-depth than my back-of-the-envelope figuring. Hopefully these comments will encourage SA readers to look under the hood of these securities and check the debt levels and not overload their portfolios with highly levered high yielders! The comment about KMP's cost of capital was based on a Merrill Lynch report issued 14 April 2014, which stated, "KMP's cost of capital is the highest of any of the MLPs we cover and has been a focus of investor concern". And they cover a lot of MLPs as MLPs are continuing sources of underwriting fees for firms like Merrill, as MLPs are continual issuers of debt and equity. (no wonder Merrill rates them a "buy"). Morgan Stanley has KMP as "underperform"...maybe they weren't in the syndicate!
    Another of Merrill's concerns is that KMP has a higher percentage of floating rate debt than its peers, leaving them more vulnerable to higher rates.
    They speculate that KMP might buy out KMI sometime after 2016 once KMI's tax loss carry forwards are used up. They posit an all equity deal, citing KMP's leverage (over 5x debt/EBITDA for both KMP and KMI), and suggest $38 worth of KMP units for each KMI share. This would result in 10% dilution to KMP's distributable cash flow, but it also eliminates future corporate tax bills for KMI and brings down KMP's cost of capital. Which they term "long term positives". We'll see.
    I continue to hold KMP and KMI but not without a bit of healthy skepticism.
    Apr 18 12:23 PM | 5 Likes Like |Link to Comment
  • Kinder Morgan Energy Partners: Why Not Consider This Outstanding Wealth Building Machine? [View article]
    you discuss the cash flows but not the balance sheet. KMP is carrying about $22 billion in total debt, which is about 8X the annual cash flow, a worrisome figure. You also mention SDRL, which is also very highly levered. I'm a longtime KMP unitholder but am concerned about the leverage. I sold my SDRL, (fortunately, as it turned out), because I was concerned about their debt load in the face of weakening day rates. The biggest losses I've taken in my 40 years of investing have come because I only looked at the income statement and the corporate assets, and did not pay enough attention to see how those assets were financed. Keep a sharp eye on the balance sheets! You also should deal with the issue that KMP is paying nearly 50% of its cash flow to the general partner, KMI, a situation which gives this MLP just about the highest cost of capital in the industry. KMP's sky-high IDRs put a big crimp on their ability to compete for acquisitions. I'm not familiar with the other companies you mention but a quick look at Linn energy I see some $10 billion in debt which is about 9X their annual cash flow from operations of $1,166 million in 2013. Moreover Linn's debt has increased 6 fold in the past five years and the shares out have tripled. They've lost money in 4 of the past 5 years. OHI has $2 billion of debt or about 7X their cash from operations of $280 million in 2013. These are scary debt ratios and leave very little room for anything to go wrong. Hopefully everything will go right for these companies but I for one would like to see balance sheets managed more conservatively. There's always a reason when a company has to have a sky-high yield to catch a bid.
    Apr 18 08:53 AM | 7 Likes Like |Link to Comment
  • 5 Important Reasons To Avoid Canadian Oil Sands Now, Perhaps Forever [View article]
    Also the large capex they have now will be winding down as we get through the year opening the door to the possibility of a dividend increase in 2015.
    With the world's central banks printing paper money with abandon, I'm happy to own a position in a long lived supply of oil in a politically secure jurisdiction next door to the largest consumer of oil in the world. The politicians can print money ad infinitum, but they can't print oil.
    Apr 17 12:42 PM | 1 Like Like |Link to Comment
  • The Kinder Morgan Conundrums--Part I [View article]
    The Turbotax Premier software handles K-1s well. The Premier is the high end of their personal tax software line, costs about $90. Have used it for many years with no issues.
    Apr 17 09:36 AM | 1 Like Like |Link to Comment
  • 5 Important Reasons To Avoid Canadian Oil Sands Now, Perhaps Forever [View article]
    Analysts lie. Companies lie. Bankers lie. Brokers lie. Dividends don't lie.
    Apr 16 06:55 PM | 4 Likes Like |Link to Comment
  • NYT: Petrobras hobbled by scandal and stagnation [View news story]
    does the NY Times say why PBR shares are up about 30% in the past month?
    Apr 16 10:56 AM | Likes Like |Link to Comment
  • A Long-Term Look At Inflation [View article]
    Excellent review!
    As you may know the Johns Hopkins University professor Steve Hanke has published a paper listing all fifty six (56!) instances of hyperinflation which have occurred in recent history. You can find it if you google: steve hanke hyperinflation
    Did you know the price of a year at Yale college is the same today as it was one hundred years ago? When priced in gold, that is. This, and other interesting
    price points from the website pricedingold.com
    Apr 16 09:33 AM | Likes Like |Link to Comment
  • One For Tax Day: Tax-Free 6.6% With Strong Upside Potential [View article]
    Levered bond funds borrow short and lend long. When the yield curve inverts, they are in trouble.
    Apr 15 08:21 PM | Likes Like |Link to Comment
  • The Kinder Morgan Conundrums--Part I [View article]
    I didn't see any mention of the warrants. I'm not familiar with the exact terms of the warrants, but they are using $38 worth of KMP units as a buyout price for KMI in their scenario so presumably the warrants would be worthless if the strike price is $40. And the KMP units could sell off further in the face of impending 10% DCF/unit dilution. But it's just a "what if" scenario.
    Apr 15 10:33 AM | 2 Likes Like |Link to Comment
  • The Kinder Morgan Conundrums--Part I [View article]
    Merrill Lynch is out with comments on KMP this morning. They address the issue that KMP's IDR obligations to KMI give KMP/KMR the highest cost of capital of all the MLPs they follow, and likely have contributed to KMPs underperformance. They discuss the possibility of KMI being purchased by KMP. Their scenario is: KMP pays a 20% premium for KMI. It is an all equity transaction as the high debt leverage (debt over 5X ebitda) precludes anything else. This results in dilution of about 10% to KMP holders: DCF/unit goes from $5.64 to about $5.09. However this is offset by the elimination of the IDRs and the elimination of KMI's corporate tax bill. As KMI has tax loss carry forwards that do not run out until 2016, they think any transaction is unlikely until then.
    You can get research from Merrill Lynch, Morningstar and Standard & Poors if you have an account with Merrill Edge. This is the deep discount, do it yourself division of Merrill Lynch priced to compete with Schwab, Fidelity, Etrade, et al. A good deal in my opinion.
    Apr 15 10:11 AM | 1 Like Like |Link to Comment
  • 5 Canadian Oil And Gas Stocks With Improving Fundamentals [View article]
    it's a response to the comment above by user 1869665 that Penn West is attractive because it's selling below "book" value.
    Apr 15 10:01 AM | 1 Like Like |Link to Comment
  • 5 Canadian Oil And Gas Stocks With Improving Fundamentals [View article]
    "book" value is not necessarily the same as market value. That's why they keep taking write downs.
    Apr 15 09:28 AM | 1 Like Like |Link to Comment
  • Macro Enterprises: Top Pick In Canada's Oil-Related Services Industry [View article]
    curious you don't mention that this micro-cap stock is up ten-fold in the past year? Isn't that kind of important?
    Apr 14 06:55 PM | Likes Like |Link to Comment
  • 5 Canadian Oil And Gas Stocks With Improving Fundamentals [View article]
    Having been an investor in Canadian energy companies for over a decade, Canadian Natural Resources, CNQ, has been, by far, the best investment. Suncor, SU, has not had much price performance but its dividend and valuation make it attractive. Ditto for Cenovus, CVE. Nice dividends to be had at Vermilion, VET, Baytex, BTE, and the infrastructure companies like Pembina, PBA and Keyera, KEYUF. I'd stay away from Penn West, this company has failed to earn even one half its cost of capital for over 5 years. They have to keep selling assets to remain afloat. There is a good analysis of CVE at Kurt Wulff's website at http://www.mcdep.com. All these companies have investor presentations on their websites.

    Long COSWF, ERF, CNQ, SU, CVE, VET, BTE, PBA & KEYUF.
    Apr 14 06:46 PM | 2 Likes Like |Link to Comment
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