Fed Minutes ‘Rescue’ MLP’s

October 8, 2014   7:30 pm

In an incredible turnaround in stocks today MLP’s were at least partially ‘rescued’ from an out and out rout.  While the MLP’s had their worst day in a year it was only about half as bad when the day ended compared to where it was in the morning. We surveyed the universe of MLP’s at 10:15 am this morning and a full half of the issues (over 50) were down by 3% or more. As it turned out only about 20 issues fell by more than 3%.  We have made our views on MLP’s well known and we would expect them to drift lower over the coming months and quarters–or worse yet plunge if the price of crude oil drops more than a buck or 2 in a single day.  While most of the upstream MLP players have their production hedged-over time lower prices will start to bite the distributions.

Our ill-timed purchase yesterday of Breitburn Energy LP (see this write-up) (ticker:BBEP) for a quick ‘flip’ started this day extremely poorly.  The shares fell to $16.81 before reversing course and closing at $17.81.  We are thankful we are down just 25 cents on the shares and with a bit of luck (and a bounce in oil prices) this may work out ok over the course of the next week.

Todays sharp rally on the release of the FED minutes was a fake move we think.  Nothing is new–it is obvious that no rate hike is coming soon. Nothing in the minutes does anything about the coming recessions in Asia and Europe.  The bond market knows it–but the equity markets just like to have excitement for no real reason I guess.  The 10 year treasury yield fell to 2.33% even as stocks skyrocketed.  The bond market is telling us that the stock rally is a ‘fake out’ and won’t last long.  Just the same we kind of enjoyed todays ride up even though we believe stocks will resume a downward drift very soon.

With the October dividends starting to roll in the model moved to a gain of 9.93% YTD–that is just 1.1% under our peak gain of around 11% for the year.