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The Coronavirus OPEC+ Double Black Swan

Tyson Halsey, CFA profile picture
Tyson Halsey, CFA


  • The S&P has rebounded to fair value.
  • The MLP sector crashed due to excessive leverage creating significant opportunities.
  • Kayne Anderson, Energy Transfer and Antero Midstream are probable doubles.

In response to the COVID-19 epidemic and the March 9th OPEC+ oil collapse - two Black Swans - the S&P 500 declined 35% between February 20th and March 23rd. With effective behavioral and medical mitigation COVID-19 case rates began to slow, weakening the first Black Swan and decelerating the stock market plunge. The second Black Swan began to mend when the United States helped to resolve the OPEC+ dispute - principally between Saudi Arabia and Russia - over global oil market share. The resolution of this oil collapse has put the global energy sector on the road to recovery and helping the 32% recovery in the S&P 500.

The Deep Employment Wound

Since March 23rd, unemployment claims have risen with unprecedented speed - to nearly ten times the worst weekly numbers ever reported. Weekly claims spiked from the 200,000 per week range to 3,307,000 the week of March 23 and 6,867,000 the following week forewarning of the terrible economic consequences resulting from the 30.3 million people who have filed unemployment claims. Most restaurants, hotels and airlines have substantially ceased operations to stop the virus spread.

The shuttering of business operations can occur rapidly; unfortunately, the business re-openings and reemployment of those displaced will occur more slowly. It will take nearly two years to restore air travel to the levels experienced in January and February. The chart below shows the incredible spike in unemployment claims during the last seven weeks.

The S&P Earnings Collapse

Earnings estimates for the S&P 500 have plunged along with the market. The Fed Model Risk Premium chart set below shows the red S&P 500 earnings estimate line, in the second chart, drops off like a cliff. The earnings decline is as deep as the 2008 Financial Crisis.

The Fed Model Risk Premium Data set below shows

This article was written by

Tyson Halsey, CFA profile picture
Tyson Halsey, CFA, founded Income Growth Advisors, LLC, a South Carolina based Registered Investment Advisor. Through his career, Halsey has researched and invested in technology, energy, quantitative strategies, been a shareholder activist on behalf of shareholder rights, and invested in Master Limited Partnerships (MLPs) since 2000. . Halsey has appeared in major media including The Wall Street Journal, Barron's, Charleston Post and Courier, South Carolina Public Radio and CNBC. Halsey won the USA Today CNBC Investment Challenge in 1992 in the options division.Halsey formed Optima Process Systems, Inc. in 2018 and used economic cost modelling for ESG solutions. We analyzed heavy oil upgrading in South America, bunker fuel desulfurization for IMO 2020, and biofuel and biomass processing. Halsey has moderated panels on the energy transition "ESG 2.0" for the Ivy Family Office Network (IVYFON).

Analyst’s Disclosure: I am/we are long KYN, AM, ET. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (7)

jarhead68 profile picture
I just wonder....

I have been hearing about the impending resurgence of MLPs for YEARS. It never happens.

There is no evidence of a resurgence to mean. I don't know why, but this asset is out of favor and fights its way lower at any opportunity.

In theory, the MLP trade/investment briefs well, but ultimately doesn't perform on a short term horizon. (5-10 years)
iel76 profile picture
I wrote the following comment after KYN's most recent update:

"First of all I applaud the fund manager for the incredible amount of disclosure since the crash in late February early March. I wish all fund managers were so forthcoming.

That said, I just took a look at the KYN Annual Report from November 2018. Pretty much the same number of shares outstanding now as there were then. Investments held are down to $1.161 million from $3.467 million in late 2018. Net assets are down to $803 million from $2.066 million in November 2018. I guess it's fair to say there were better investments than KYN over this time frame.

Clearly the dividend will be cut, the question is how much? If you bought some of this at the recent lows,cutting the dividend in half still provides a double digit yield (as I write this a $.06 dividend yields 14%). No guarantee however that they won't cut more than 50%.

For those of us that bought this in 2019 or before, hard to see how you get your investment back..."

Anyone buying now (and I did average down significantly) absolutely has to anticipate a significant dividend cut or deferral. There is no way in the near/intermediate term KYN get close to prior levels. De-levering cost them an opportunity to invest at these levels.
River18 profile picture
Great update. Long KYN
35nakedshorts profile picture
MLPs haven't been good investment in bull market, now they're supposed to rebound while the economy is disintegrating?
Dudley13 profile picture
@ Tyson Halsey, What do you think of Tortoise NTG. They have really been beaten down, and just went through a 10 for 1 reverse split. Thanks
Run do not walk from the turtles, horrible management and terribly run funds. Do not chase yield, chase quality please. Your future self will thank you
River18 profile picture
Plus now Tortoise dropped the quarterly dividend till the end of the year.
I think only TPZ is still getting a monthly dividend, but for how long???
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