Aug 31st, 2012
MLP Market Post
MLP Week Thoughts: Easing Does It
MLPs were up this week, with the Alerian MLP Index registering 1.4% gains, compared with a 0.3% drop for the S&P 500. Talk of easing out of Fed Chairman Bernanke helped the market pop a bit on Friday. It wasn’t talk of easing really, more Bernanke acknowledging his willingness to take further action to try to combat his “grave concern” for the U.S. job market. But in the land of central bankspeak, that works, at least for a day.
WTI crude oil was up nearly $2 on Friday, or just over 2%, to close the week up roughly flat at 0.2%. But the big move this week was out of natural gas, which drifted higher starting Wednesday and closed the week up 3.5%, breaking its 5 week losing streak. NGL prices were up big as well, in particular propane, which was up 13.1%. Ethane had a solid week, but remains depressed relative to the end of last year.
Gold is now down 8.0% year over year and 10.6% from its high achieved on the day before Labor day last year (9/2/11). So, in the risk-off flight to safety trade the last 12 months, U.S. treasuries are faring much better than gold. Clearly some of the gold buyers from last year have a sunnier disposition and have migrated some assets to stocks and MLPs, both of which are up 18%+ year over year.
Hurricane Isaac scared a lot of people and occupied a lot of space on TV screens, but luckily didn’t do much harm. Hurricane Katrina was 7 years ago this week, reaching its peak of destruction around August 28, 2005. Natural gas prices started 2005 at $5.50 / mmbtu, but during the height of Katrina, natural gas reached $12.65 / mmbtu, and then in the aftermath of the Hurricane, natural gas prices reached more than $15.00 / mmbtu.
As terrible as a hurricane of Katrina-magnitude would have been this week, there were probably some cash strapped producers with no Gulf exposure that were hoping for lasting supply disruptions from a hurricane. The problem is, with the growth in onshore natural gas production, the impact of a Katrina-level hurricane would be muted.
Below is another chart of what happened this week: MLPs up more than stocks, gold, oil, royalty trusts, variable distribution MLPs and GPs. Not much outperformed MLPs this week, but as I mentioned in my post earlier this week, MLPs tend to do well in market holiday weeks because there are no equity deals weighing on the sector. That trend tends to revert in the first few weeks after Labor Day when MLPs come back to the market. So, while MLPs gained on the S&P 500 on a year to date basis, and trails by only around 7% as of today, the lead may widen next week.
Winners & Losers
There was virtually no news this week for specific MLPs. But as they say in the land of the blind, the man with one eye is king. Similarly, in the week of no news, the analyst with 6 MLP initiation reports is king, at least for that week. That analyst was Ethan Bellamy out of R.W. Baird. He initiated with outperforms on SXL, ETE and PAA. SXL (6.6%) and ETE (3.3%) well outperformed their peers this week. Coincidence? I don’t think so. There were some losers this week, but none more than 4.5%. Volume was so light, its hard to put much stock in moves (either direction) this week.
For the year so far, the members and order of the top 5 didn’t change from last week. In the bottom five, RNO crept out of the bottom five for the first time in months, despite cutting its distribution this quarter and operating in a horrific coal market. Also notable is that besides Oxford, there are no MLPs with more than 20% negative total returns year to date.
Oh, and there was the convention in Tampa, which hopefully helped the Tampa Bay Rowdies sell more tickets than usual, and helped David Laxer (my partner in the Rowdies), to sell a few more steaks and bottles of wine at his legendary Bern’s Steakhouse…
Romney gave the big keynote address last night, accepting the Republican nomination, trying to show as much emotion as possible and trying to connect with the women and middle-class voters he’ll need to get elected. I’m not looking forward to the rhetoric and campaigning we’ll all see in the next few months. I’m not big on sharing my political views here, but what bothers me about the election process is that there is no middle party.
Isn’t there room for a party that believes in evolution, lower government spending (especially on federal defense budget), campaign contribution limits, individual rights (including right to choose, right to bear arms, right to marry whoever), and lower taxes? Nope, in this country, we get only two choices. That, combined with lack of term limits has really reduced the effectiveness of our political system. On the positive side, that lack of effectiveness has significantly reduced the tax regulation risk of MLPs lately, given that no one believes tax reform could make it through the legislative process…
Have a great Labor Day everyone.