8.7% Dividend Payer Linn Energy Was Dissed At Ira Sohn - Is There Reason To Worry? [View article]
David,
My entire thinking is to look beyond this historically low interest rate cycle to a normalized interest rate world and ask myself what is going to be the best place to be and in the case of MLPs which ones are so best of breed they can maintain consistent long term distribution growth to match my long term need for increasing income.
"LINE has weathered the storm better". Is not good enough for any retiree that must consider the impact on all MLP types of a normalized interest rate world. We have go back and look at the last normalized interest rate world and we see that E&P MLPs had a much more difficult time growing their distributions. You get a lot more margin of error when money costs 200-300 basis points less but when that margin of error is gone it is the E&P MLPs that have too many moving parts for my long term fancy.
My constant theme for the normalized interest rate world is MLPs that have rid themselves of GPs and IDRs. More money for LP holders and lower costs of debt and equity. MLPs that have comfortable dcf coverage cushions. This provides greater assurance that distribution growth can be maintained even if there is a bad quarter or two out there for the group. The cushion being used to reduce debt or raise less equity is win win for an investor like me. This is why I want nothing to do with KMP.... no cushion for my long term comfort.
I also want billions of organic growth opportunities in my MLPs because I do not want any of them to be too reliant on acquisitions to generate distribution growth. Those lower ebitda multiples that organic projects provide also provide a greater opportunity for the MLP to maintain solid distribution growth even in a higher interest rate cycle.
Many of us on SA are closer to retirement and I am semi-retired and I don't see too many of my costs going down but I am most afraid of future medical costs. What happens if medicare age is really changed to 70? That makes a huge difference on my retirement plans and what it will cost in retirement for healthcare. I expect to pay a lot more for medicare than my present elders but another 5 years in the private system comes at a very high price so I am laser-focused on investments like MLPs that can provide solid, consistent, income returns and hope my growth side can provide enough heft to take care of some of the rest.
I just don't see the long term for the E&P MLP segment as any place for solid, consistent, income returns and I am not convinced there is long term growth prospects in any commodity based investment. All you have to do is look at precious metals in addition to iron ore, coal, etc. the see the great bull market has ended and a lot of people got wiped out in the commodity wave who believed it could just keep going higher. In the history of the world no commodity has dominated the scene for extended enough periods of time to be able to rely on any consistency of income or growth. JMOHO.
8.7% Dividend Payer Linn Energy Was Dissed At Ira Sohn - Is There Reason To Worry? [View article]
The issue is LINE's most favorable hedges are working off and it is highly doubtful they can ever recreate the perfect hedge storm that has gotten LINE this far. My own belief is Berry Petroleum is a massive transaction that is needed in order to have any chance at maintaining a goal of 5% distribution growth.
What investors are missing is in the case of E&P MLPs the MLP takes much larger risks and you have to ask yourself can ANY E&P MLP maintain consistent long term distribution growth in the same way as the toll keeper MLPs and then you have to ask yourself whether the LONG TERM risk is worth the reward or are you better served in a great toll keeper that in time will pay you an equivalent yield to your original cost if you are patient for the long game.
I would find it shocking if anyone believed an E&P MLP could ever maintain continuous long term distribution growth. First, the underlying commodity cannot possibly rise every year, the hedges cannot be programmed for perfection, and in time a bad reserves number always pops out of the woodwork. Too many moving parts for my taste.
I held E&Ps in the early stages of the recovery and sold them and in the case of EVEP those shares have cratered because of speculative excesses now corrected for.
I now have yield to cost in all of my toll taker MLPs greater than what LINE is paying so I have a hard time justifying ownership of any E&P MLP for the long term knowing that my MLPs are now marching toward 10% yield to cost and the only E&P MLPs selling at 10% yield to cost are the secondary and third tier players that have no real growth opportunities going forward.
I think E&P MLPs are a long term value trap where too many moving parts (commodity pricing, hedging, and reserve calculations) are out there waiting to eventually tear your face off.
Why A Stock Market Bubble Is Forming Right Now [View article]
And the beat goes on. Bubbles bubbles toil and troubles.... I suppose it is more than past time for those who try to create fear and uncertainty to try to shake people loose from their stock market profits by creating in their own minds a scenario of crash and burn.
Use Linn Energy To Build Income Now [View article]
I think a better way to go for the long term is take a pass on all E&P MLPs. Being subject to the three risks of commodity pricing, hedging, and reserve measurements makes E&Ps too hard to own if you are a retiree dependent on not just consistent income but continuous and growing income.
Why not buy a great pipeline MLP with a solid record of distribution increases and let your yield to original cost get closer to the higher yields offered by E&P MLPs by simply waiting a few years for that yield to cost to come into line by your pipeline MLP?
LINE benefited from some of the best hedges ever to be put into place and now as many of those hedges come off LINE has had to do an extraordinary transaction (Berry) in an attempt to keep the distribution momentum going. I personally believe there will be a day of reckoning for LINE simply because it is hard to believe they can really sustain solid 5% distribution growth without taking extraordinary risks.
Better to own the pipeline MLPs that offer 5% distribution growth and holding steady assets that are not as subject to the three exposures common to E&P MLPs. JMOHO.
Looking At Fundamental Questions In MLP Investment [View article]
First, the writer's list of MLPs owned do not appear to be the best for a normalized interest rate cycle. There is an oversimplification of factors that need to be considered. Absent from the writer's discussion is comparing organic growth to acquisition growth MLPs. Also missing is a discussion of the new technologies that have not only extended the life of areas under development but have located such large new finds that in previous iterations those very fields would begin to be abandoned. Now there is even more build out once new reserves are found. This changes the entire equation when previously thought-to-be exhausted fields have many more years of supply to get at economically.
Unfortunately, the need for yield has too many MLP investors chasing the higher yielding MLPs. My prediction is when interest rates normalize we go back to the pre-collapse scenario for MLPs. Only the best of breed were consistently growing their distributions. However, when we enter the new normalized interest rate cycle we have a new wild card. EPD, MMP, GEL, MWE and a few others have taken out their GPs and may be in the best position to continue decent distribution growth as interest rates rise.
What about KMP that struggled to increase its quarterly distributions prior to the 2008 crisis. Lower interest rates has given KMP a chance to establish a dcf coverage buffer but still continues to pay out almost all of its dcf. In a normalized interest rate environment I assume KMP comes back down to earth once investors opt for better of breed MLPs that can easily grow their distributions AND have dcf coverage to boot.
Excess dcf not used for distributions is available for debt reduction or deferring on the need to raise capital. Either way, dcf coverage in excess of distributions accrues to all MLP owners' benefit.
My fellow MLP investors need to start thinking in terms of the next cycle and I believe it will be far better for you to take the hit in distribution yield and shift into MLPs that appear to have the ability to grow their distributions for many years to come.
Anyone who has been "stuck" in ETP thinking that 8% yield for the past 5 years made any sense need to realize that had they bought MMP, or EPD, or MWE, or GEL would not only have yield to cost of 8% like ETP they would have more than doubled their money while ETP has languished. Same for NS and BPL.
The high yield no growth strategy of MLP ownership will be a huge mistake long term. Maybe you own one of them because you believe a new growth story may be around the corner. Otherwise, find the distribution/growth stories even if it means a short term hit to your distribution income.
MLPs And Interest Rates, How Right Is Mr. Gundlach? [View article]
Taking the longer point of view which includes a vision of a normalized interest rate environment if you choose the best of breed MLPs with no GPs and IDRs then you are making a good decision because these MLPs have the lowest cost of debt and equity.
In a normalized interest rate world there is no doubt that distribution growth will become more muted. One only has to think back before the 2008 financial crisis to see the mighty KMP struggling to meet a 5% annual distribution growth because KMP for whatever operational reason has always paid out substantially all of its dcf and has little to no dcf coverage to speak of....
So look to the MLPs that will distinguish themselves that have no GPs and IDRs for the next cycle that have shown themselves well in this cycle. MMP, EPD, GEL, MWE are my core four.
Then, look for fortress balance sheet MLPs like PAA who does have a GP and IDRs but has a logistics unit that has been able to deliver big time although certain spreads are destined to come down over time that led to a period of superior earnings growth.
Another over-arching theme I am looking at is organic growth initiatives because the ebitda multiples for organic growth are much lower than acquisition multiples. This should translate into better distribution growth even in a more normalized interest rate environment.
I can see so many MLPs that believe will be slammed hard by the beginnings of normalization and all throughout the process to normalize interest rates. They will not be the best of breed MLPs but the second and third tier MLPs that really don't have the best assets or much in the way of decent organic growth opportunities.
Those MLPs reliant on acquistions to grow; especially acqusitions by their GPs and then dropped down to the LP..... it will be extremely difficult to generate decent distribution growth over time.... ETP, RGP, and ETE are an example of a GP/LP team that hasn't done well by its investors because there has been too much reliance on acquisition growth that hasn't translated into distribution growth. This is what you want to avoid in a normalized interest rate world for sure.
David Tepper May Be Bullish But Appaloosa's Position Reductions Show He Isn't Greedy [View article]
David Tepper is a great spokesperson and clearly moves markets. We all need to learn and implement the lesson of tapering back on positions and repositioning.
I myself went off margin last week after being solid on margin since 4/09. I have a core portfolio that provides all the income I need and while I have growth positioning I went off margin to figure out what is next. I would love to see a market correction knowing that opportunities will present themselves. For now I am content looking for opportunities and doing my homework in advance of those hoped-for opportunities.
Annaly Capital Faces Continued Pressure On Its Net Spread [View article]
All Mreits are facing pressure and AGNC/MTGE recently reported the first result when there is a change in interest rate cycle and that was a big immediate hit to nav. Next comes the inevitable dividend cut and you better believe the smart money is out of Mreits because the cycle is over.
I have repeatedly suggested the old metric that having 3 years' equivalent income in capital gains of Mreits is a desirable exit point. You have to get in at the right time in the cycle and from today forward the greater likelihood is you are better off banking your 3 years cap gains at lower rates and moving on to a more desirable sector. The alternative is to let the 3 years' cap gains disappear in favor of the remaining income but a closer analysis will reveal that your final three years' TOTAL return will really suck big time.
If you think about it. If you have three years cap gains and book it you would have to wait three years to recover equivalent dividend income and that income level is sure to slowly evaporate therefore the most likely outcome from today is a negative return.
Example is AGNC down to $29 from $33 so you have to go 1 3/4 years at present dividend (which is not sustainable IMO) to recover lost capital assuming you could have sold at $33.
Mreit investors like all investors must take a greater interest in total returns rather than the seduction of supposed high income that may not hold once the cycle has changed.
Prospect Capital: Record Originations Lack Income Punch [View article]
I use PSEC as a metric that tells me there still is no mania in BDCs. For those BDCs that sell at a premium to nav those amounts are not too unrealistic. Given the needs of income starved investors it is a pleasant surprise to me that BDCs are selling at reasonable premiums. I assume this is more a function of the fear that resulted in late 2008.
I assume PSEC is running into yield spread issues as we now see with the Mreits. Many Mreits have recently raised massive sums and AGNC recently reported very disappointing results. It is a part of every interest rate cycle and the test of time is PSEC's ability to deliver consistent distributions. Distribution growth gets more difficult as interest rates start to rise so perhaps investors need to get more realistic about their expectations from BDCs.... and Mreits too.
BDC investors can take heart that so far at least their share prices have not fallen as much as Mreits like AGNC, MTGE, ARR and a few others recently.
Time For Investors To Reassess Their MLP Holdings [View article]
Credit Suisse issued a report in MAR regarding rising interest rates and MLPs. Their overall conclusion was that MLPs that can grow their distributions at superior rates will be less affected if investors feel their continuing growth in yield to their cost allows their investment in reits to adjust for the increased risk of increasing interest rates.
I take that to mean that truly fixed interest or dividend rates with zero growth of income beyond the coupon rate for debt and only annual growth of dividends in stocks can be trumped by MLPs that continue to grow investors' yield to cost each quarter.
Time For Investors To Reassess Their MLP Holdings [View article]
I would like to address the tax issue. Dave Camp (R-MI) is the man charged with doing tax reform. He is on record wanting more MLPs in diverse areas such as green energy.
While it might be helpful to the Wall Street Money Machine to whip up fear about MLP taxation there is nothing out there to suggest any changes when the committee chairman is moving in the exact opposite direction in an effort to afford green energy a certain equivalency. In point of fact I believe the effort to afford green energy equivalency serves two purposes. First, maybe that would get the government out of the green business and leave it to the greater fools to fund green initiatives which more times than not have failed. Second, it all but secures MLPs if the left is on board for MLPs of a stripe they like.
For my fellow investors simply follow Dave Camp as he continues to move forward his initiative to increase the areas that MLPs can operate.... that way, you don't let rumor mongering by the Wall Street Money Machine whip up the fear and hysteria which only serves their purposes of ginning up fear and making more money from the volatility that ginning up fear creates for their benefit.
PennantPark Has A Q1 Earnings Shortfall [View article]
Well many of us paid a very high price in 2008 when we found out established BDCs like ACAS and Allied who were supposed to have a strong and experienced management teams led their shareholders on a path of destruction in large part because of lousy equity investments they overpaid for late in the cycle. But ACAS gets extra special credit for investing in structured products that were meant to do nothing more than juice their dividend so they could continue to issue equity based upon a false reality of intrinsic value of said structured product investments.
The BDCs that held up best were most tied to traditional mezzanine financing so I am not so sure that investing in a BDC for a growth kicker makes a lot of sense. Maybe it should be about income from income generation by the BDC. Maybe some of the kicker comes from equity in the form of a convertible preferred where we still see real income.
I do not believe in that income feature that was added on to the investment.... PIK at all anymore. I feel as though most of those PIK related investments picked me and many other investors apart in 2008.
You can't even effectively sell the high inflation strategy in the US economy unless you can create clear labor cost push which at these levels of unemployment appears highly unlikely.
Going back to the 1970s you had a private sector union dominated economy that could generate labor cost push inflation. For those old enough to remember Jimmy Carter came into office promising to get a handle on inflation by curbing labor costs. He gave in to postal service worker demands for extraordinary high wage increases and that set off a storm of labor negotiations across the entire economy that ratcheted up labor cost push.
Today, we are not a union dominated economy and services are a much larger part of our economy so commodity inflation would not be as harsh as it was when manufacturing was a bigger part in the 1970s. Then commodity and labor inflation pushed us hard.
Too many Wall Street interests have played the inflation scenario and all I see is a bunch of bag holders holding a lot of gold, silver, and other commodities that have significant losses now that would have done a whole lot better in the stock market.
Inergy-Crestwood Merger Could Be Big Winner For Income Investors [View article]
I think the biggest problem is NRGY management who like ETP management waited way too long to bail from retail propane and by doing so missed some great opportunities to build out midstream businesses at more opportunistic ebitda multiples a few years ago.
Therefore, all I see is too mediocre management teams forming into one mediocre management team. CMLP was not exactly lighting it up in sector either. An 8% yielder like CMLP translates into an MLP whose cost of capital is 300-400 basis points higher than the peer group making it much harder to effectively create accretive acquisitions.
So let's be honest about this merger. Two mediocre MLPs will try to make a go of it and be more competitive in a world where the dominating MLPs have a huge advantage in terms of cost of debt, cost of equity, and their ability to use the "ATM" window to quickly raise funds from institutional investors starving for yield.
To my way of thinking this merger will not be effective in materially reducing costs of debt and equity overall. ETP's distribution growth has been nil for five years and RGP's barely exists.
In a next cycle world of higher interest rates I think there will be a great many disappointed investors that buy these mediocre MLPs and find that in that world of higher debt and equity costs these MLPs will find it difficult if not impossible to raise distributions meaningfully while best of breed easily does so.
Too many investors have forgotten how KMP struggled to meet its own distribution growth targets prior to the financial crisis.... zero interest rates has been KMP's salvation.... for now.... but in a world of normalized interest rates... I believe KMP will run into the exact same problem because they have made no effort to build ANY dcf coverage during this historic low interest rate cycle.
Energy Transfer Partners: The Pieces Are Falling Into Place [View article]
For those who have languished in ETP the last five years taking solace from its high yield you forgot about this pesky little thing called total return.
So while you stayed in ETP that sells in the same range it did in 2009 you could have had distribution growth in other MLPs like PAA, OKS, MMP where five years of distribution growth in any of those would give you a higher yield to cost than ETP.
Then add to it the fact that all three of the above have doubled in price and split their shares 2/1.
I'm sorry, but ETP failed its shareholders and the reasons for failure was management's short sided decision to hold its retail propane business. By the time mgmt. woke up they were forced to sell the business for significantly less than just 2 years ago when the greater fools in the retail propane business thought the solution to their problems was to become industry consolidators. A closer look at all retail propane MLPs clearly shows their shareholders have been investing in dead money MLPs some for as long as a decade or more. But hey you were getting that extraordinary high yield so why take a moment to think about that total return thing.
Why invest in ETP when there are far superior MLPs where the management teams keep getting it right. I would suggest smaller MLPs like XTEX have so much more to offer in the way of total return. The only real winner in ETP is ETE to the extent that endless streams of capital raises by ETP resulted in higher distributions for ETE although one has to say that ETE is not among the better GPs in terms of distribution growth for its shareholders.
8.7% Dividend Payer Linn Energy Was Dissed At Ira Sohn - Is There Reason To Worry? [View article]
My entire thinking is to look beyond this historically low interest rate cycle to a normalized interest rate world and ask myself what is going to be the best place to be and in the case of MLPs which ones are so best of breed they can maintain consistent long term distribution growth to match my long term need for increasing income.
"LINE has weathered the storm better". Is not good enough for any retiree that must consider the impact on all MLP types of a normalized interest rate world. We have go back and look at the last normalized interest rate world and we see that E&P MLPs had a much more difficult time growing their distributions. You get a lot more margin of error when money costs 200-300 basis points less but when that margin of error is gone it is the E&P MLPs that have too many moving parts for my long term fancy.
My constant theme for the normalized interest rate world is MLPs that have rid themselves of GPs and IDRs. More money for LP holders and lower costs of debt and equity. MLPs that have comfortable dcf coverage cushions. This provides greater assurance that distribution growth can be maintained even if there is a bad quarter or two out there for the group. The cushion being used to reduce debt or raise less equity is win win for an investor like me. This is why I want nothing to do with KMP.... no cushion for my long term comfort.
I also want billions of organic growth opportunities in my MLPs because I do not want any of them to be too reliant on acquisitions to generate distribution growth. Those lower ebitda multiples that organic projects provide also provide a greater opportunity for the MLP to maintain solid distribution growth even in a higher interest rate cycle.
Many of us on SA are closer to retirement and I am semi-retired and I don't see too many of my costs going down but I am most afraid of future medical costs. What happens if medicare age is really changed to 70? That makes a huge difference on my retirement plans and what it will cost in retirement for healthcare. I expect to pay a lot more for medicare than my present elders but another 5 years in the private system comes at a very high price so I am laser-focused on investments like MLPs that can provide solid, consistent, income returns and hope my growth side can provide enough heft to take care of some of the rest.
I just don't see the long term for the E&P MLP segment as any place for solid, consistent, income returns and I am not convinced there is long term growth prospects in any commodity based investment. All you have to do is look at precious metals in addition to iron ore, coal, etc. the see the great bull market has ended and a lot of people got wiped out in the commodity wave who believed it could just keep going higher. In the history of the world no commodity has dominated the scene for extended enough periods of time to be able to rely on any consistency of income or growth. JMOHO.
8.7% Dividend Payer Linn Energy Was Dissed At Ira Sohn - Is There Reason To Worry? [View article]
What investors are missing is in the case of E&P MLPs the MLP takes much larger risks and you have to ask yourself can ANY E&P MLP maintain consistent long term distribution growth in the same way as the toll keeper MLPs and then you have to ask yourself whether the LONG TERM risk is worth the reward or are you better served in a great toll keeper that in time will pay you an equivalent yield to your original cost if you are patient for the long game.
I would find it shocking if anyone believed an E&P MLP could ever maintain continuous long term distribution growth. First, the underlying commodity cannot possibly rise every year, the hedges cannot be programmed for perfection, and in time a bad reserves number always pops out of the woodwork. Too many moving parts for my taste.
I held E&Ps in the early stages of the recovery and sold them and in the case of EVEP those shares have cratered because of speculative excesses now corrected for.
I now have yield to cost in all of my toll taker MLPs greater than what LINE is paying so I have a hard time justifying ownership of any E&P MLP for the long term knowing that my MLPs are now marching toward 10% yield to cost and the only E&P MLPs selling at 10% yield to cost are the secondary and third tier players that have no real growth opportunities going forward.
I think E&P MLPs are a long term value trap where too many moving parts (commodity pricing, hedging, and reserve calculations) are out there waiting to eventually tear your face off.
Why A Stock Market Bubble Is Forming Right Now [View article]
Aint gonna happen.
Use Linn Energy To Build Income Now [View article]
Why not buy a great pipeline MLP with a solid record of distribution increases and let your yield to original cost get closer to the higher yields offered by E&P MLPs by simply waiting a few years for that yield to cost to come into line by your pipeline MLP?
LINE benefited from some of the best hedges ever to be put into place and now as many of those hedges come off LINE has had to do an extraordinary transaction (Berry) in an attempt to keep the distribution momentum going. I personally believe there will be a day of reckoning for LINE simply because it is hard to believe they can really sustain solid 5% distribution growth without taking extraordinary risks.
Better to own the pipeline MLPs that offer 5% distribution growth and holding steady assets that are not as subject to the three exposures common to E&P MLPs. JMOHO.
Looking At Fundamental Questions In MLP Investment [View article]
Unfortunately, the need for yield has too many MLP investors chasing the higher yielding MLPs. My prediction is when interest rates normalize we go back to the pre-collapse scenario for MLPs. Only the best of breed were consistently growing their distributions. However, when we enter the new normalized interest rate cycle we have a new wild card. EPD, MMP, GEL, MWE and a few others have taken out their GPs and may be in the best position to continue decent distribution growth as interest rates rise.
What about KMP that struggled to increase its quarterly distributions prior to the 2008 crisis. Lower interest rates has given KMP a chance to establish a dcf coverage buffer but still continues to pay out almost all of its dcf. In a normalized interest rate environment I assume KMP comes back down to earth once investors opt for better of breed MLPs that can easily grow their distributions AND have dcf coverage to boot.
Excess dcf not used for distributions is available for debt reduction or deferring on the need to raise capital. Either way, dcf coverage in excess of distributions accrues to all MLP owners' benefit.
My fellow MLP investors need to start thinking in terms of the next cycle and I believe it will be far better for you to take the hit in distribution yield and shift into MLPs that appear to have the ability to grow their distributions for many years to come.
Anyone who has been "stuck" in ETP thinking that 8% yield for the past 5 years made any sense need to realize that had they bought MMP, or EPD, or MWE, or GEL would not only have yield to cost of 8% like ETP they would have more than doubled their money while ETP has languished. Same for NS and BPL.
The high yield no growth strategy of MLP ownership will be a huge mistake long term. Maybe you own one of them because you believe a new growth story may be around the corner. Otherwise, find the distribution/growth stories even if it means a short term hit to your distribution income.
MLPs And Interest Rates, How Right Is Mr. Gundlach? [View article]
In a normalized interest rate world there is no doubt that distribution growth will become more muted. One only has to think back before the 2008 financial crisis to see the mighty KMP struggling to meet a 5% annual distribution growth because KMP for whatever operational reason has always paid out substantially all of its dcf and has little to no dcf coverage to speak of....
So look to the MLPs that will distinguish themselves that have no GPs and IDRs for the next cycle that have shown themselves well in this cycle. MMP, EPD, GEL, MWE are my core four.
Then, look for fortress balance sheet MLPs like PAA who does have a GP and IDRs but has a logistics unit that has been able to deliver big time although certain spreads are destined to come down over time that led to a period of superior earnings growth.
Another over-arching theme I am looking at is organic growth initiatives because the ebitda multiples for organic growth are much lower than acquisition multiples. This should translate into better distribution growth even in a more normalized interest rate environment.
I can see so many MLPs that believe will be slammed hard by the beginnings of normalization and all throughout the process to normalize interest rates. They will not be the best of breed MLPs but the second and third tier MLPs that really don't have the best assets or much in the way of decent organic growth opportunities.
Those MLPs reliant on acquistions to grow; especially acqusitions by their GPs and then dropped down to the LP..... it will be extremely difficult to generate decent distribution growth over time.... ETP, RGP, and ETE are an example of a GP/LP team that hasn't done well by its investors because there has been too much reliance on acquisition growth that hasn't translated into distribution growth. This is what you want to avoid in a normalized interest rate world for sure.
David Tepper May Be Bullish But Appaloosa's Position Reductions Show He Isn't Greedy [View article]
I myself went off margin last week after being solid on margin since 4/09. I have a core portfolio that provides all the income I need and while I have growth positioning I went off margin to figure out what is next. I would love to see a market correction knowing that opportunities will present themselves. For now I am content looking for opportunities and doing my homework in advance of those hoped-for opportunities.
Annaly Capital Faces Continued Pressure On Its Net Spread [View article]
I have repeatedly suggested the old metric that having 3 years' equivalent income in capital gains of Mreits is a desirable exit point. You have to get in at the right time in the cycle and from today forward the greater likelihood is you are better off banking your 3 years cap gains at lower rates and moving on to a more desirable sector. The alternative is to let the 3 years' cap gains disappear in favor of the remaining income but a closer analysis will reveal that your final three years' TOTAL return will really suck big time.
If you think about it. If you have three years cap gains and book it you would have to wait three years to recover equivalent dividend income and that income level is sure to slowly evaporate therefore the most likely outcome from today is a negative return.
Example is AGNC down to $29 from $33 so you have to go 1 3/4 years at present dividend (which is not sustainable IMO) to recover lost capital assuming you could have sold at $33.
Mreit investors like all investors must take a greater interest in total returns rather than the seduction of supposed high income that may not hold once the cycle has changed.
Prospect Capital: Record Originations Lack Income Punch [View article]
I assume PSEC is running into yield spread issues as we now see with the Mreits. Many Mreits have recently raised massive sums and AGNC recently reported very disappointing results. It is a part of every interest rate cycle and the test of time is PSEC's ability to deliver consistent distributions. Distribution growth gets more difficult as interest rates start to rise so perhaps investors need to get more realistic about their expectations from BDCs.... and Mreits too.
BDC investors can take heart that so far at least their share prices have not fallen as much as Mreits like AGNC, MTGE, ARR and a few others recently.
Time For Investors To Reassess Their MLP Holdings [View article]
I take that to mean that truly fixed interest or dividend rates with zero growth of income beyond the coupon rate for debt and only annual growth of dividends in stocks can be trumped by MLPs that continue to grow investors' yield to cost each quarter.
Time For Investors To Reassess Their MLP Holdings [View article]
While it might be helpful to the Wall Street Money Machine to whip up fear about MLP taxation there is nothing out there to suggest any changes when the committee chairman is moving in the exact opposite direction in an effort to afford green energy a certain equivalency. In point of fact I believe the effort to afford green energy equivalency serves two purposes. First, maybe that would get the government out of the green business and leave it to the greater fools to fund green initiatives which more times than not have failed. Second, it all but secures MLPs if the left is on board for MLPs of a stripe they like.
For my fellow investors simply follow Dave Camp as he continues to move forward his initiative to increase the areas that MLPs can operate.... that way, you don't let rumor mongering by the Wall Street Money Machine whip up the fear and hysteria which only serves their purposes of ginning up fear and making more money from the volatility that ginning up fear creates for their benefit.
PennantPark Has A Q1 Earnings Shortfall [View article]
The BDCs that held up best were most tied to traditional mezzanine financing so I am not so sure that investing in a BDC for a growth kicker makes a lot of sense. Maybe it should be about income from income generation by the BDC. Maybe some of the kicker comes from equity in the form of a convertible preferred where we still see real income.
I do not believe in that income feature that was added on to the investment.... PIK at all anymore. I feel as though most of those PIK related investments picked me and many other investors apart in 2008.
Is A QE Exit Really Scary? [View article]
Going back to the 1970s you had a private sector union dominated economy that could generate labor cost push inflation. For those old enough to remember Jimmy Carter came into office promising to get a handle on inflation by curbing labor costs. He gave in to postal service worker demands for extraordinary high wage increases and that set off a storm of labor negotiations across the entire economy that ratcheted up labor cost push.
Today, we are not a union dominated economy and services are a much larger part of our economy so commodity inflation would not be as harsh as it was when manufacturing was a bigger part in the 1970s. Then commodity and labor inflation pushed us hard.
Too many Wall Street interests have played the inflation scenario and all I see is a bunch of bag holders holding a lot of gold, silver, and other commodities that have significant losses now that would have done a whole lot better in the stock market.
Inergy-Crestwood Merger Could Be Big Winner For Income Investors [View article]
Therefore, all I see is too mediocre management teams forming into one mediocre management team. CMLP was not exactly lighting it up in sector either. An 8% yielder like CMLP translates into an MLP whose cost of capital is 300-400 basis points higher than the peer group making it much harder to effectively create accretive acquisitions.
So let's be honest about this merger. Two mediocre MLPs will try to make a go of it and be more competitive in a world where the dominating MLPs have a huge advantage in terms of cost of debt, cost of equity, and their ability to use the "ATM" window to quickly raise funds from institutional investors starving for yield.
To my way of thinking this merger will not be effective in materially reducing costs of debt and equity overall. ETP's distribution growth has been nil for five years and RGP's barely exists.
In a next cycle world of higher interest rates I think there will be a great many disappointed investors that buy these mediocre MLPs and find that in that world of higher debt and equity costs these MLPs will find it difficult if not impossible to raise distributions meaningfully while best of breed easily does so.
Too many investors have forgotten how KMP struggled to meet its own distribution growth targets prior to the financial crisis.... zero interest rates has been KMP's salvation.... for now.... but in a world of normalized interest rates... I believe KMP will run into the exact same problem because they have made no effort to build ANY dcf coverage during this historic low interest rate cycle.
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So while you stayed in ETP that sells in the same range it did in 2009 you could have had distribution growth in other MLPs like PAA, OKS, MMP where five years of distribution growth in any of those would give you a higher yield to cost than ETP.
Then add to it the fact that all three of the above have doubled in price and split their shares 2/1.
I'm sorry, but ETP failed its shareholders and the reasons for failure was management's short sided decision to hold its retail propane business. By the time mgmt. woke up they were forced to sell the business for significantly less than just 2 years ago when the greater fools in the retail propane business thought the solution to their problems was to become industry consolidators. A closer look at all retail propane MLPs clearly shows their shareholders have been investing in dead money MLPs some for as long as a decade or more. But hey you were getting that extraordinary high yield so why take a moment to think about that total return thing.
Why invest in ETP when there are far superior MLPs where the management teams keep getting it right. I would suggest smaller MLPs like XTEX have so much more to offer in the way of total return. The only real winner in ETP is ETE to the extent that endless streams of capital raises by ETP resulted in higher distributions for ETE although one has to say that ETE is not among the better GPs in terms of distribution growth for its shareholders.