it appears to be panic selling over the fiscal cliff and a possible change in taxation . MLP's in general are down over 11% in a month. for perspective after the halloween massacre of canadian energy trusts in 2006 they dropped 25% .
in addition I thinkj a lot of people have large cap gains in MLP's and they are selling to protect them and plan to buy then back in a month or after the first of the year. add to that dividend tax anxxiety and te fact the MLP's as a whole are relatively thinly traded and teh result is wholesale price slaughter.
now fast forward to 2013,assuming no change in tax treatment. where would you want to invest. bonds paying a negative real rate of return or an MLP paying 6,7,8% or more and growing its payout year after year.....
It just makes no sense, most people don't buy MLP to sell and buy and sell, they buy and hols for the long term so the tax laws don't apply and capital gains don't come into play unless you sell. It's just stupid....
Investors are completely freaked out and panicking over the great unknown. Fear and uncertainty kill a market every time, and Every time the Rich Smart Guys swoop in buy all the Scared Money and Get Richer. What saddens me is that I have no money left to buy more Shares of EPD and LINE. I`ve owned units of EPD for over 10 years and i`ve seen things like this happen many times. EPD ALWAYS bounces back stronger than ever. EPD is one of the best i`ve seen at keeping things moving foreward by forward thinking in the way of Capital Projects to keep themselves positioned for organic growth rather than buyouts.Read about some of the things EPD has in the fire and Why. Not exciting reading by any means but it tells me that EPD is comitted as always for Growth and creating value for its Unit Holders.
Unfortunately the market is a assuming a change in tax treatment, see the CNBC video. It's absurd that during these market panics, MLPs tend to be more volatile than the market. As far as I'm concerned, the lower long term bond rates go, the more valuable DCF should be. The real risk to MLPs should be rising interest rates which we may never see again in our lifetimes.
Selling for lower tax rates this year, cap gains and ordinary applied to recapture, and tax policy potential change. Am encouraged if it's a rational process, which you can't count on. WSJ article by Liam Denning, that MLP taxes lost to govt is only $300 million per yr, vs a $ trillion per year deficit, .03%, 3/100s of a percent. Small potatoes, when you consider jobs and energy infrastructure and security, but you never know what will come out of the process when the can of worms is opened. The fundamentals for the industry seem stronger than ever for the next few years, and I don't think the unit prices come close to reflecting those prospects. Probably a good entry for a number of MLPs but who knows, could be a better buy before the tax/spending conversations are over. With EPDs 140% dist coverage, probably the safest in the sector.
In this free money environment, a lot of hedge funds borrow and buy these with the proceeds. When the market swoons big, at some point the margin calls start rolling in and you get forced (not panic) selling. You want to be the one picking up the pieces. I made a killing on it in '09 - but not after being stabbed by the falling knife many times first!