Guess everyone but me knew about this. All in theknow dumped the past two day. Its bull
Really makes you feel used . I wouldnt mind it if it wasnt so
You cant keep the public trust when you see this kind of trading.
Was this mentioned in the conference call?
Thanks everybody for shedding some light on the issue. I suppose it's a safe assumption if a company decreases capex during rising rates and increases distributions, the impact to pps would not be so severe since the aftertax yield would maintain it's competitiveness with debt instruments.
Until the last two series of interest rate increases when the Fed raised short term rates, long term rates also went up. If long term rates go up it effects all stocks. The effect is greater IMO on MLP because of the yield issue. If is was simple everyone would be a millionaire. Don't think anyone ever suggested that interest rates totally determined prices on MLPs.
This time last year, EPD was in the 24 range, currently at 27 or so. Despite ?4 short term raises in interest. I believe the initial poster was referring to short term increases, since the Fed has little control over long term interest rates, and the Fed has announced that it will continue to raise the short term rates. For that poster, he now asks what the effects of interest rate increases will be on EPD going forward. I suggest that it is a lot more complicated than that, and recent history, at least, bears that out.
What are you talking about? Suggest you open your eyes and your brain. Of course interest rates are not the WHOLE answer to prices. If they were then every MLP would go up and down at the same percentage. Your example is ludicrious. You need to use common sense.
If a pipeline company has a major shutdown of course it's price will nosedive. When the problem is corrected the price will correct again. The simple fact is that many buyers of MLPs are looking for tax deferred income. Maybe even you. If interest rates go to 10%, then no one would buy an MLP with a distribution yield of 6%. The price would drop until the yield became attracive to potential buyers.
I also note the the Wachovia MLP write up is available from almost every broker with similar comments. Stop arguing about what happened in the past with MLPs and interest rates. It is a fact, not theory.
No problem with your analysis except MLPs often sell much like a bond. Prior to the new tax reform, almost 1/2 of the holders were individuals looking for income (source- GTM investor relations in 2003). Each time the long term rates have moved up MLPs have tended to go down.
Interest rates are PART of the puzzle. You don't get it and haven't been around if you think I am new to MLPs. First MLP purchase was in 1996. All I've tried to say is if interest rates on the long end move upward then MLP unit prices will need to overcome that pressure to rise. It is not my theory. It is an historic fact.
Lets move on.
MLPs are not bonds. If an MLP has a lot of debt, then of course they will be affected by interest rates, and in fact may move pay off some debt if necessary to maintain their attractiveness to investors. In the distribution that you receive, some of the capital investment is being returned, and some depreciation is being credited from the pipeline or other assets being depreciated, so not all of the distribution is taxable. Instead, the basis in your investment is decreased, and when you sell you will have a greater capital gain than you otherwise might have had, if MLPs were simply stocks with dividends. All of this is tracked int he K1 on a year to year basis. Capital gains may be long or short term, and qualify for their own tax treatment per each individual investor's circumstances. Thus it is difficult to say for any MLP without a lot of intimate knowledge, what the effect of interest rate increases would be. However, if the value of what they transport goes up, and they are able to charge more in future contracts for transporting the oil or gas, they may do well despite interest rises. In general, interest rate increases are an anathma to the stock market. But MLP are not general stocks, in the classic sense. It is also unclear that interest rates, other than short term are rising, and pipelines have long term life, so other than talking in general, I think that I would just consider interest rates as part of general market risk in making this investment. These are great when held long term. Steady cash income coupled with tax deferral is their raison d'etre; any appreciation over time is a bonus. Buy a little bit and follow it along. You will not really learn about these untill you have been an owner for a year or so.
halahata001 wrote: "I don't buy your [arbtrdr's] theory that MLPs trade linearly with the 10 year US Tresury."
First - it is not arbtrdr's theory - as he stated in his reply. As for data - Use data from Wachovia - which did an MLP 101 paper around September of last year. That complete paper is no longer accessable on the net - but here is part of their findings:
From 1998-2002, our MLP universe has had an average yield of 8.7%, ranging from a high of 12.1% to a low of 6.9%. The disparity in yield among MLPs can be explained by several factors including risk profile (financial and operational), growth prospects, and interest rate environment.
Interest Rates & MLPs
According to our analysis, the movement in interest rate can explain roughly 25-30% of MLP price movements, over the past ten years. Over that time period, the spread between the yield for the ten-year treasury (a proxy for interest rates) and MLP yields has averaged roughly 213 basis points. Thus, in periods of rising interest rates (i.e., when "risk free" money is available at higher rates), MLP yields have tended to increase, in kind. An increase in yield for MLPs implies a decrease in the price of MLPs.
As to stinky and monica - I belive that Yahoo put the "report abuse" button on the pages for a reason. And while using the IGNORE button solves the problem for an individual user - those new to the board will come away with a negative impression, as it takes some time to wade through the adolescent posts.
And DANG - it only takes a minute to do the RIGHT thing.