I was interested in people's thoughts. I believe that the Fed views ZIPR as an emergency tactic that has exceeded its intended purpose and shouldn't be used to keep a shallow recession from happening. Moreover I believe they are more than willing to risk and tolerate a shallow recession to get rates to 1% next year and 2% the following year.
Over the long term I don't see the Fed Funds rate getting back to 6% in the next 10 years. Product manufacturing is constantly resourced to the lowest bidder which keeps product inflation low. On the services side I see Tech becoming a destroyer of value rather than a creator of value. For example iTunes really hurt the Music industry, Netflix destroyed video rental and is starting to impact content creators and distributors. Uber is hurting taxi companies and Air BnB is hurting hotels. These technologies help the consumer but also cost a lot of jobs which in aggregate may have a net negative for the economy. Really the only area where I think we'll see a lof of inflation is in health care...but I have a strong feeling that Tech companies will find a way to cut costs there as well.
In my view the China slow down is simply a hangover from over building of infrastructure and we should have seen it coming 18 months ago in the commodity prices for steel, copper, etc. And I don't think that is something that the Fed can concern itself with at this point.
Unfortunately many US companies will be hurt from a stronger dollar, but consumers may benefit to some extent and I believe the economy will function a year after the drama of the first rate hike is behind us.
Does anyone have insight into re-fracking? It seems that some shale producers are starting to re-frack existing wells and generating an initial incremental output of 30% which tapers off over the following year. However wells can be re-fracked several times.
My thought is that while it may require an investment similar to an initial frack, companies won't have to pay for additional land which might lower the cost to produce a barrel of oil.
Also, I'm wondering if anyone knows the status of some of countries with higher cost of oil production. Are we starting to see them pull back on investment if unprofitable or are they going to drill till broke?
Given where oil is today does anyone expect SDRL to just cancel their orders for new rigs? Given that oil companies had an out, can SDRL get an out as well? I'm thinking this has two advantages for them. First, it would lower the amount of debt they will accumulate for the new rigs and second it may limit the number of total new rigs that will hit the market in the next few years.
At this point I don't think pushing back schedules is enough, they need to just cancel the contracts and work on putting their current rigs to work.
Also while on the topic does anyone expect any announcements concerning NADL? At some point SDRL needs to put it out of it misery.
If they did they should spin it into an MLP (yes they can hold property) similar to the Energy Transfer structure. That way MPC can still make sure they have an off taker of default for the products and recoup a portion of the profits for themselves. Plus it can be used to make more acquisitions and generate additional GP revenue.
The CEO's of both TGH and TAL have stated that higher interest rates will be a positive for them as it will impact smaller competitors to a higher degree and drive out competition. It will also drive more shipping lines to lease a higher percentage of containers rather than to purchase them. As for Leverage TGH is low compared to competitors and has ample cash flow to cover to cost of increased interest costs and the dividend.
Its the price of steel (i.e. the cost of new containers) and a decline in demand for new containers specifically due to the Asia to Europe route. The manufacturers are getting ready to stall production for a few months which should increase the demand when and therefore the price of new containers going forward.
You can look at it two ways. First when would it make sense to buy back shares in general. That would be when its cash flow positive, i.e. when the dividend rate exceeds the interest rate on any new debt. The second is when would you forego a acquisition and just buy back stock. Again when its more accretive to cash flow to buy back shares than to make an acquisition.
However, I doubt either of these will happen. ABY was formed to be a finance vehicle for ABGB and while it is independent I would expect ABY to only negotiate accretive transactions and ABGB will have to either lower their sales price for drop downs or find other financing vehicles for their projects. On the other hand taking out debt to buy shares in a company that expects to do further drop downs seems irrational. It would make more sense to change the financing structure to a higher level of debt vs equity when the stock price is low and a higher level of equity vs debt when the stock price is high.
Long term this stock is a buy. The dividends are solid, there are no IDR's, and the board is independent. Moreover ABGB will be desperate to offload projects and payback debt so ABY has the upper hand. Also, ABY could always issue preferred shares to avoid issuing so many common shares at one time.
I sold out of TAL at $47 last year. The Brooklyn Shorty SA author pummeled that stock but upon review he is/was correct. I put a small portion of the proceeds into TGH after reviewing their portfolio I think they are a lot more stable because a much smaller portion of their portfolio is based on the 2009 - 2010 containers with the higher rates.
Note that both TAL & TGH have stated that rising interest rates will positively affect them by chasing out some of the fringe players and thus driving up per diem rates.
Also, on its next run up I think I'm going to dump SSW. I like the company but I think the industry is starting to overbuild like they did with tankers and oil rigs.
For arguments sake lets assume that the dividend is sustainable for another year or so and will then decline as the hedges reset. Lets also assume that oil stays in the $45 - $55 range and gas is where it is today
Wouldn't it be better for shareholders if Linn just suspended the dividend and used cash flow to buy back debt at low prices? At the very least building a war chest would strengthen the company's prospects rather than allowing for a slow decline into a debt default.
I can't find a rational reason to keep this dividend where it is unless the strategy is simply to payout as much to the current shareholders as possible before a recapitalization or an exchange of debt for equity basically wipes them out. I can't seem to find logic in management's decisions starting with the renegotiation of the BRY deal. They should have just let it go.
I'm long and hoping for reasonable insights.
Any thoughts on NADL?
I'm wondering if SDRL will put it out of it misery and if so at what price? I could also see SDRL simply doing an exchange of NADL shares for SDRL shares to avoid any cash payments and allow everyone to share in the future. The benefit would of course depend on the rate of shares exchanged. Any rigs with contracts could then be dropped down to SDLP with proceeds used toward paying down debt or buying back shares.
Any thoughts on what the price or exchange rate would be or if/when JF will be help recapitalize the company?
I'm seriously asking this question. Given that mReits like AGNC are trading so far below book value ~22% why aren't big players like Ichan or Jana Partners stepping to buy large share counts and moving to dissolve the company? For example if I could get $24 for my AGNC shares today I would happily take it. It seems as though this would be a fast and easy return on investment for them.
Dilution and debt are not bad things in and of themselves. As long as the investments keep increasing cash flow per share and CAFD then its a good move. In this business model cash flow growth has to come from acquisitions which inherently results in dilution and debt. At some point they may also expand into solar which would add another layer of complexity.
I second the motion. And at a 5% dividend the price would be $44/sh.
However, to get to the $2/sh this year the dividend needs to be raised to $0.52 in Q3 and $0.55 in Q4. If you annualized the $0.55#$%$ $2.20/sh so at 5% shares should go up to $44 or the dividend rate will go up to 5.5% at $40.
If the Q4 dividend goes up to $0.55/sh and the yield decreases to 4.5% the shares will be at $48.88 and I think this is possible because they would be starting off 2016 at their target and would likely increase it at least $0.01/qtr in 2016 ending 2016 at $0.59 in Q4 and paying you $2.30/sh. or 4.5% above target.
Of course this is just speculation based on past history.
Just curious if anyone knows why WMB keeps dropping since Monday. It seems most people believe ETE will follow up with a higher offer which I would think would mean it should trade above the offer price of the value of conversion X current ETE price.
Also, I would have thought that ETE, KMI, WMB and EPD were too big for mergers of empires and would face without selling a large proportion of assets. Am I wrong about that?
At this point do you think ETE ups the ante? If not does WMB fall back to $48?
Helmet & Board,
That was very true during the financial crisis and somewhat afterward. However, the average age of a US car is around 11 years old. Car sales are hot mostly among higher income people as the average price has skewed over 30K however, you can only keep repairing a car so long before it costs more than a new one.
What I think you're more likely to see is increasing demand for cars 2 - 5 years old where the price is less than a new car but it doesn't need major repairs yet. In that scenario I would expect the companies financing used cars to be the winners of higher interest rates. So ALLY and WFC.
I don't see why people buy the used cars today unless they are paying cash. The price tag may be less but whenever I have bought in the past the interest rate differential more than makes up for the difference in cost. Factor in a extra 2 years that it will run maintenance free and new has always been a better deal. Even when paying cash though there are alternative uses for that money.
Best new car deal I ever got was the Tuesday after 9/11.