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August 15, 2011

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MLP Week Thoughts: Fed Speak Clearer

What a ride for the markets and MLPs last week.   On Monday, the MLP Index dropped 7.1%, the third largest percentage drop in a single day for the index ever.  Tuesday saw a huge reversal, with the MLP Index jumping 8.4%, the fourth largest percentage gain for the MLP index in a single day.  Most of these gains came after the Fed’s release.  As the market fell again on Wednesday, MLPs continued held flat, then continued up on Thursday and finished the week up 3.5%.  Treasuries were up sharply, sending yields sharply lower.  Gold had an even better week than treasuries and MLPs, up 5.1%.

I’ve added GLD to the weekly chart, and I may add oil next week, but gold was the story last week, reaching new all-time highs on Wednesday as the broader markets plunged.  Despite the volatility, large cap stocks ended down less than 2% for the week.
The Fed, which usually speaks in code, came out very clearly last week indicating that rates would be held extremely low for not only an extended period of time as they usually say, but they have put a date of mid-2013 on it:

“To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 0.25 percent.  The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.  The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.  The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.” (Fed Release)

This extended period of time should be a positive for MLPs, which will have access to cheap debt, and their equity yields should trade lower as well, as investors search for greater yield than is offered elsewhere.
There wasn’t much in the way of MLP specific news this week, although there was an equity deal from $PAA for $458 million on Thursday.  It was a secondary (no equity to the PAA) offering of units owned by Vulcan Energy Corporation (Yahoo Finance Press Release).
See below for the top 5 and bottom 5 price movers this week in MLP land.  $LINE and other E&P MLPs found bids on the back of stabilizing oil prices.  $MMLP, $EXLP and $NMM were in the bottom 5 last week and rebounded.  Natural gas storage plays $NKA and $PNG continued to backslide, and $AMID has had a rough start to its life as a public company.

Sorry so late on the recap of the week, better late than never I guess.
Disclosure: The information in this article is not meant to be financial advice, we are not your financial advisor and I am posting my comments for informational purposes only. 

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