A couple of things here. First, they announced that there were still 3 drop downs to come into EPB so the eventual merger into KMP may still be after 2014. Note that it doesn't make sense to do dropdowns unless they are accretive to EPB's distribution. Second, as to the eventual merger, while KMI controls the process, there will be a conflicts committee to approve the transaction and they will no doubt remember the lawsuit that EP lost for having Goldman on both sides. As for the reason for the merger, there are always cost savings from duplicate overhead in accounting and other areas. KMI gets the benefit from using KMP with its lower yield as a currency to buy EPB units. Of course, the price that they determine will have to result in benefiting their gp stake more than hurting their lp stake in EPB.
A poster on the investor village board mentioned that MPC and its mlp, MPLX, had an investor day. Their presentation mentioned 10-15% growth for several years to come. MPC has lots of assets to drop down into MPLX and they are buying back their stock. The yield on both of these is lower than many of their competitors but both look well positioned. The chart on MPC is a little parabolic and the RSI is in overbought territory. Interesting presentation on the different growth projects.
Not sure your post is directed at me, but I am not advocating anything, only saying that the mREIT trade may be over. I wouldn't chase highs, computer driven or otherwise, but I also wouldn't try to prematurely try to buy a bottom when the downtrend appears to be continuing. Like it or not, rotation is a favorite game by Wall Street.
Interesting, though playing the takeover bet is risky. Here's one that I read about in Barron's and previously owned and lost money on. Omnicare, OCR, provides pharmacy services to assisted living facilities. We know with the aging population that that is going to be a growth area.
The question then becomes when and if you get the remaining 50% back and what return do you get. The history has been that these trusts eventually bounce, but the SD trusts are having some difficulty sustaining a rise. In the last period after the post ex-date selloff, this stock didn' t start to rally until mid October and then only about 10% until it resumed the latest downtrend. Previous rallies were longer and of greater size.
kbon, that's exactly what I am saying. It is done by probably every company. Whether it is getting the best tax break from local and state tax authorities in the name of bringing jobs to one state over another or getting the best break out of Congress, almost all corporations do it. Those that don't are going to find their competitors doing it and falling behind.
Jack, I actually bought some January calls when the taper became the untaper. I agree with some of your observations on the economy and its risks for many of the same reasons you cite. But it is not important how I see the economic trend, but rather how those investors and the computer trading algorithms see it. The computers see headlines of "stronger growth" and they sell mREITs and buy other stocks. Simply stated the trend is against them. You say that WMC will have higher earnings but the market does not believe that (yet).
A perfect example of this is when the taper did not happen. The stock did bounce, but then resumed its downtrend. The earnings report did not matter, the book value did not matter, the hedge report did not matter. I suspect the next dividend announcement will not matter. There is a legitimate debate about whether the Fed can ever end QE without blowing up the market and deflating the economy, but right now, the market is seeing a taper sometime. I suspect that if the taper ever occurred, mREITs could actually bounce as the event would become fully discounted. But until that point, there will be continuing pressure on the stock.
A word on the arithmetic of those higher rate spreads. Didn't the summer rate increase also produce the possibility of higher spreads? Yet WMC's core was 83 cents versus 94 cents in the 2nd q.
stagg, once again, you are not understanding. I'm not saying that this is my policy preference. But it is what is happening. Manufacturing jobs always move to the lowest cost. The only thing that could reverse that is if the trend in manufacturing costs are reduced. Lower energy prices could help that.
To take a different tact, how many people do you employ on your farm? Why don't you pay them more and hire more? Why don't you give them more benefits? We know the answer.
Probably because we spend most time discussing high-dividend paying stocks. I have said that there are a lot of stocks with low yields that have been and continue to be great investments. CVS looks like one of those. the recent rise looks a little too steep, however and the MACD has turned down.
stagg, you were connecting QE with tax policy. The two are not connected (except as how I pointed out).
I am very aware of the trend in tax policy and it has been documented in many articles how the big corporations are paying less in taxes by taking advantage of various loop holes. But that money that Whirlpool got increased its profits and because of that profit increase, its stock tripled and the holders of that stock benefitted. Many of those stockholders are in the US or in mutual funds that had WHR as a holding. You seem to imply that WHR would have had the same profit if it paid taxes instead of keeping these breaks and that those taxes would have stimulated the economy. I think that argument fails. First, how can WHR pay more taxes and not have its profits adversely effected. That's simple arithmetic. Second, there is no proof that the taxes WHR would pay would stimulate the economy, especially if they were misspent by the govt. The govt has a poor track record when it comes to spending wisely. Need I mention Solyndra? Deficits would be smaller if corporations paid more taxes, but that doesn't mean that these corporations would invest more in the US. In fact, the last time that they allowed corporation to bring home foreign profits at a reduced tax rate, the money was not reinvested, but instead paid out to shareholders.
stagg, you have to realize that there will always be a tension between management and shareholders, between capital (investors) and labor, between developed countries and emerging countries, between individual taxpayers and corporate taxpayers. Sometimes there is a temporary balance in which both sides can benefit, but human nature is such that one side is always trying to get a better side of the bargain. The world is not Lake Woobegone.
The flip side is that without increasing book values, the mREITs can't issue accretive spo's to buy more product at those higher spreads. The mreits did best when declining rates produced higher book values which led to spo's and also increasing leverage. Not sure if the repo lenders will extend more leverage if book values are at risk since most mreits are already over 7 times.
Bottomline, over history, mREITs do best when rates decline. It is a more difficult argument to say that they will have the same outperformance under a reversal of the conditions that brought about the outperformance.
I have not bought WMB because it seems stuck in the $35-36 range despite all of their good projections. I don't know if the market is not confident or just ignoring them.
stagg, you are getting a few thoughts mixed up. I think what you mean to say is that "good-paying" jobs are good for the economy. Part-time, lower wage jobs, while better than no jobs, may not be enough to power the economy higher. I have not examined the recent jobs report to see if there is an uptick in good paying jobs or whether the improvement is due to lower wage, unskilled jobs, but that has been the trend in the global economy
Second, as to the taper, you are confusing the reason for it. The reason for QE in the first place was as an emergency measure, since extended 3 times. The prime beneficiaries of QE are the primary dealers and those with financial assets who benefit from a valuation of their financial assets using ultra low interest rates produced by such Fed buying of Treasuries and MBS. Large companies (and even companies with bad credit) also benefit from lower rates, and shareholders benefit from increased profits due to these lower debt costs (the savings of which are used to buy back stock, which can cause stock prices and p/e ratios to improve). The "cover" for the policy was that there would be flow through benefits to the public in the form of lower borrowing costs and higher asset prices (i.e. the wealth effect).
Not sure why you think the end of QE has anything to do with our corporate tax policy. They do share a common thread in that both are the result of policy decisions to benefit a certain class (banks, primary dealers and corporations) under the guise that what is good for those constituencies will flow down to the rest of us.
First, as to the best 5 year periods in the market, just based on a quick look at an S&P 500 chart, one can look at 1995-2000 period to see returns that look at least as good. The period from 1984 to 1989 also looks good. Some would argue that it is the policy of the Fed with QE that has produced this best return in the market. Others might mention that after a financial crisis the size of what we just experienced, we are just getting back to the levels we were at pre-2008, so is that really an improvement due to current policies, especially when the "current" policies were not really that different, except for QE. Yes, the stock market has put in a very good performance in the last 5 years, but what about the economy? Other statistics might lead to a different answer, i.e. the level of debt, the level of poverty including food stamps usage, the overall number of jobs and worker participation rate and the standard of living for the middle class. Not fair to blame this administration or any administration for these trends, but then don't take credit for a bounce in the stock market that was produced largely by policies of the Fed.
stagg, you will note that BDCL is down after hitting RSI level 70 when it traded over $30. Earlier in the year, BDCL had 2 periods when it sold off 4 points or about 15%, both about the time of the taper talk. I would not be surprised to see a similar sell off if we get an actual market correction. The MACD lines have turned down. To me that means "Danger Will Robinson." The first support level is at the 50 dma at $28.10. the level after that looks like $27 where the previous advance started.
We have seen a lot of rotation out of certain sectors of high-yielding stocks, from mREITs to variable rate MLPs and now the stronger MLPs like midstreams and even general partners are getting hit. Why should the BDCs hold up?