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February 5, 2012

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Week Thoughts: MLPs Overshadowed by Jobs, Stocks and Football

MLPs under-performed stocks this week, an ongoing trend early in 2012.  MLPs were up 0.6%, compared with 2.2% for the S&P 500.  This week’s under-performance was to expected, as like last week, many MLPs passed through their ex-dates this week.  More on how MLPs tend to do after ex-dates below.   Surprise positive economic datapoints dominated the news and led stocks higher.  January payroll report was the big surprise.  The report, released on Friday reported 243k new jobs and an unemployment rate down to 8.3%.  Also this week, January vehicle sales were reported at 14.1 million, best since August 2009 (heart of cash for clunkers).  Data seems to be pointing in the right direction, and as Josh Brown writes this weekend, attitudes will need to be adjusted.

Despite all this good news, interest rates remain very low, the 10 year treasuries remains under 2.0%, a paradox of sorts in the face of such large positive swings for stocks since September 30.  Oil and gas prices were both down as well, even as the U.S. Dollar lost ground to the Euro this week.  So, it seems like all cash flowed into stocks today and away from almost everything else.

As I discussed in my Winners and Losers post earlier this week, there is now and has been for at least the last 18 months, dichotomy between haves and have nots in the MLP sector continues to grow.  This week, that was epitomized by the strength in earnings from Enterprise Products ($EPD) and Markwest ($MWE) compared with weakness from earnings of Inergy ($NRGY), Niska Gas Storage ($NKA) and Suburban Propane ($SPH).  EPD is so well positioned in the active shale plays that it is able to pick and choose high return crude and NGL projects, as highlighted by its blowout quarterly earnings (press release).  Markwest announced expansions to its processing facilities in the Marcellus and Utica (press release).  Whereas NRGY, SPH and NKA are struggling just to keep their heads above water.
Also, there were 2 equity offerings this week, $150mm primary issuance from Breitburn (press release) and an untimely Chesapeake Midstream secondary sale of units owned by Global Infrastructure Partners (press release).  CHKM had traded poorly for the last week prior to the deal following the announcement from CHK that it would curtail drilling in areas where CHKM has assets: Barnett and Haynesville shales.
In SEC filing news, there was a new initial S-1 for an MLP filed this week: Foresight Energy Partners.  Foresight is a coal operator backed by Carlyle  (filing).  There have been no other S-1 filings or updates to S-1’s this year to date.  Also, KMP updated its shelf registration to add an additional $600 million, for a total of $1.2 billion (filing).
Expect MLPs to outperform this week, as some of the stock market euphoria fades and MLPs catch up with ex-dates now finished.  Also, expect to read a piece from me about how certain MLPs typically do after ex-dates.
In case you missed it earlier this weekend, more breakdown of MLP performance: Winners and Losers
About the Big Game
Quick note on the Super Bowl: I’m a Patriots fan, even though I wasn’t born in New England, and I only started to like the Pats right before they started winning Super Bowls.  I guess that makes me a front runner.  But don’t question my fandom so fast.  I grew up an Oilers fan, watching Warren Moon zip the ball all over the field to Ernest Givens, Haywood Jeffires, and Drew Hill…  and watching them fail repeatedly in the playoffs, never more dramatically than against the bills after leading 35-3 at halftime in 1993.

Anyway, when the Oilers left town in 1997 for Tennessee, I rooted for the Zombie Oilers in their Super Bowl run (that included revenge on the Bills with the Music City Miracle), ending 2 yards short of victory against the Rams in the 2000 Super Bowl.  That almost Super Bowl Victory offered some closure, and I became something of a free agent fan.  Having spent 4 years in Connecticut for high school and starting college in Boston, I decided to jump on the Patriots bandwagon in 2000.  Its been a great ride, watching them rise from massive underdogs led by an unknown 6th round draft pick quarterback to perennial favorites (and hated as a result nationwide) led by a pretty-boy future Hall of Famer with a supermodel wife.  So, win or lose tonight, its been lots of fun to live in Boston during this decade of dominance.  Go Pats.

(Brady before he was drafted)

Also, this super bowl has a direct MLP connection.  The Tisch family, owners of the Giants along with the Mara family, owns through Loews Corp, the general partner of Boardwalk Pipeline Partners ($BWP).
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.  Long EPD.

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