There seems to be a greater game going on here with oil. The demand and supply balance didn't just change in the last month to result in a $20 price decline. Europe and China have been slowing for months. No, there is concerted selling going on to punish the Russians for their excursion into Ukraine.
What's the saying, bull markets take the escalator up and bears take the elevator down. You are right that interest rates are not going up anytime soon, but there is a difference in the stocks that you list. Some of those like the BDCs depend on a strengthening economy to make more loans. The leveraged funds like MORL and CEFL are made up of leveraged holdings -- they were asking for trouble. That's why I tried to point out the risks to posters who were investing in these.
More importantly, this little downdraft shows how risky the market plumbing is. There is simple no liquidity when the computers start selling. The same thing happened in 1987. The difference this time is that the Fed may have to step in and buy this time (the Japanese central bank has already bought stocks and ETFs, but still can't produce an economic recovery).
Bud, I just listened to the ATLS call (for the TRGP/ATLS/NGLS/APL deal) and feel like buying more TRGP and ARP. Goldman said TRGP is worth $150-160. ARP has gotten killed and they don't even have much oil. The Cohen's sounded like they are going to either sell it or bring out the value. The spinco piece of ATLS is being valued at $9 by the market and it will pay $1.25 per year and grow, so if the price of ATLS doesn't increase, I may add more of that. BBEP, LNCO and VNR have all been punished. ETE got creamed and so did EQM and I'll likely add to those. I had to dump EPB to make room for some of these buys, but figured since it was being acquired that it had limited upside even when KMI comes back.
The deal is taxable like the KMI/KMP. They seemed to hint very strongly that either a deal to sell ARP or otherwise bring out the value. Cooperman suggested that they merge ARP and ATLS. They stated that the market is valuing the spinco entity at $9 for an entity with a $1.25 distribution that is slated to grow. The 50% IDR level for ARP is at 60 cents quarterly and they are paying 59 cents now, and they hinted that the distribution will be increased soon. They mentioned that Goldman thinks TRGP should be valued at $150-160. They said Goldman thinks that APL will be worth $50 in NGLS shares.
First, the deal won't close until next year. Second, you will likely get 1000 shares of the spin off (Spinco) which will pay a distribution of $1.25. That's if they don't sell ARP before that and they hinted on the call that they may have something in the works to bring out the value in ARP. You will get 180 shares of TRGP, which Goldman thinks is worth at least $150 per share. Because TRGP will get to depreciate the new, higher value from the APL assets, they have said their distribution growth will be 34% next year and their tax rate will be lower. And $9000 in cash. Your tax ramifications will depend on what the values are when this closes. Since you bought it recently, you likely won't have much recapture.
Put WGP on your list. It is the gp of WES. Growiing distributions at 34% per year. Has had a great year, but started to get hit. It is a MLP so there is a K-1. Other corps that own MLPs are WMB and PAGP.
Bacon,LNCO has stated that because they have loss carryovers that their dividend will be treated as return of capital for several years. It is one of the reasons that I switched LINE for LNCO a few months back.
Gambler,I feel your pain. On Friday, I sold EPB to raise funds to redeploy since it was getting sold to KMI anyway and sold a couple of other things where I had gains. I also went to cash in my 401k plan. I added some ARP, and was considering adding some LNCO, BBEP and VNR but paused. I will always carry with me the memory of buying too early on Black Monday in 1987 when I was buying in the morning only to see it collapse later. Some have been writing that this market could unwind quickly because of the ETFs (not sure if that is correct, but it reminds me of portfolio insurance back in 1987). Today we broke the 200 dma on the S&P and appear to be sitting on a support level. Expect a huge bounce and then perhaps more selling. I'm sorry I argued against buying the inverse ETFs as they would have helped cushion the downdraft. We all knew this was to be expected, but still when it comes, it can be disturbing. The good news is that some things like Apple have not sold off, but the bad news is that that only means that there could still be more selling to come.
david, you can't rewind the clock, but you will end up with a better run manager in TRGP running APL and still get to participate in the growth from PXD. Many of us are disappointed in the different ATLS pieces (I own all 3). We will still own the stub entity paying 1.25 which the market seems to be valuing at $7 ($38 current ATLS value - $31 merger consideration). That's basically an 18% yield and there's no way a gp should trade at that level when it was trading at less than 5% before the recent slide. There could be an opportunity there when this all shakes out.
Wow. To recap, NGLS is buying APL. If you are an APL holder, you end up with a lower yield but better distribution growth and I think a better managed entity. ATLS is going to spin off its gp and lp interests in ARP, so the spun off entity will still be the gp of ARP along with the non-midstream assets that ATLS owns. They said this entity will distribute about $1.24 per year. As a gp, that should trade at a 4% yield so the price of the spun off entity should trade around $30 but the downside is that its growth will come solely from its interest in the upstream (ARP). ATLS shareholders are getting $9 plus .18 share of TRGP or about $29 total, so the stub is only valued at $9, meaning it would yield 1.24/9 or 13%. There may be an arbitrage op there as ATLS should be much higher priced. I originally thought that the Cohens were selling ATLS cheap, but considering they are keeping the gp interest in ARP, that should improve the total value of the different parts.
I guess this means that TRGP is off the market. I was hoping that they would be taken out after the rumors surfaced a few months ago that ETE/ETP were interested. ATLS was having trouble getting the proper valuation because the distribution growth had slowed at both APL and ARP. We'll see if they do now that the midstream unit is gone. ARP still gets no respect. They have gotten killed along with the other e&p's and I added a little on Friday. BBEP and LINE/LNCO are still getting hit today and so is ETE and EQM.
Have been discussing this on several boards. With all of the excess reserves that banks have, the question is how does the Fed mechanically raise rates. There is no demand for reserves because the banks have plenty so it is unclear how the Fed would keep the rate higher than demand. The only way they could do it is to soak up the excess reserves by selling bonds, but that would crater the bond market, and besides they said they wouldn't reduce their balance sheet. It appears that they are stuck. It is looking more and more that the central bankers of the world cannot produce inflation with their money printing, at least measured in wage increases, increases in lending or velocity of money. They can only blow asset bubbles and depreciate currency.
BTW, the 5 year total return on SDRL is 9%. So that 12% return on Coke wins and at no time during the 5 years did Coke suffer a 50% loss, just like SDRL did. There is something to be said for slow and steady, you know, like the turtle.
Stagg, I am not meaning to pick a fight, but we have had this running discussion. You stated above in your first post "low yield stocks get beat down as much or more than high yield stocks. That is just not true in the latest selloff. If you pull up the charts, KO is killing SDRL over a 5 year period. The problem with comparing any 2 stocks is that the comparison can always differ depending on the period that you look at. The fact is that when we own a particular stock, we don't own it for its entire history since its IPO -- we only own it for the period that we bought it, so we don't get to claim its entire record as part of our record. If you bought SDRL when it was in the $40's, you have lost 50% of your money. Clearly, you were wrong when SDRL was in the $40's to say that nothing was wrong with the stock or that sector.
No doubt the e&p firms have been taken out and shot just like the drilling firms, and midstream has suffered also. But midstream doesn't have the same overbuilding problems that drilling ships have, and no one is talking about whether the midstream firms can continue their dividends -- the talk is about how much they will raise them. Note I have never made a call on what the price of oil will be. I just said like you, that we will continue to need it.
stagg, you have been successful with your high-yield investing, but you have to admit that it is more volatile than lower yielding stocks. Some investors on these boards live on their dividends so they don't have them to reinvest when the high yield stock blows up.
Someone mentioned on another board that nat gas prices are actually up today. Sure enough the futures are about $3.8 with many of the winter months prices over $4. We just got into Fall. While most of the e&p MLPs have both oil and nat gas, this is far from the sub $2 nat gas prices that we experienced a couple of years ago. This doesn't mean that MLP stock prices can't still fall further, but we have to be closer to the end then to the beginning.
I've certainly read those type of comments and heard them repeated by Cramer, but for the most part, stocks are not controlled by retail investors who might be susceptible to these theories. Hedge funds should know better. The reason the funds may not have jumped on the bandwagon yet might be because they are not yet convinced that the Fed can't raise rates or that the economy may slow. Maybe the funds are buying MBS themselves and leveraging it up 6-8 times and throwing out the middle man (WMC).
IO stands for "interest only." It is a type of security that is formed by separating the principal component from the interest component of a mortgage backed security. IO's and inverse IO's are used to offset the different risks to MBS cashflow when rates move up or down.