It's driving everyone nuts who has ever owned an oil and gas limited partnership. We, who have watched this group for oh-so-many years, know that there is a fund that owns these MLPs and has either borrowed so much money or is having such incredible withdrawals that the manager sells them every single day.
These stocks are being liquidated and it isn't because of their fundamentals. It's because some unnamed moronic fund is out there flailing, dangerous, selling everything and when he's through the bear market in them will be done.
Now, I am not going to go into the notion that there is some sort of fundamental challenge here, that some of these are more levered to the price of oil than you realize and there will be pipelines that are going to be cancelled because of the low price of crude. Nor will I do it for natural gas. The simple fact is we need all of the pipe we can get in this country. Oil by train costs $13 more per barrel than oil by pipe and in an era where we are not as competitive as we like, it is suicidal to keep using rail. So oil pipes are especially needed at these prices.
Natural gas? I know this will shock people, but it is in incredible demand all over the country in part because of the closure of coal plants and in part because of a shortage of natural gas in the one-time big exporter Mexico and also because Cheniere Energy (LNG) is on the cusp of shipping liquefied natural gas and it is incredibly anxious to line up all the pipe it can from the many different shales around the country. Exported nat gas will very shortly encompass 10% of productions, so the industry is desperate for pipes.
So, it is not like the lower price of either commodity is going to impact all but the gunslinger MLPs and that's a minority.
This is about etiquette and honor. No one in this business is allowed, publicly, to say "it's this fund, he's in trouble, he's doing the selling and we are going to destroy him by short selling all his positions into oblivion until he capitulates."
What makes me so certain that this is all one big liquidation? Well how about Williams Partners (WPZ)? It just this week boosted its quarterly distribution from to 85 cents from 59 cents, a staggering amount. If it were going to cut its dividend, why would it just raise it, giving the stock, which trades at $45, a 7.5% yield.
How about the fact that right now Williams Companies (WMB) is pretty much in an auction mode having received a very real stock bid from Energy Transfer Equity (ETE) that at one point was worth $64, one it rejected for being way too low. WMB is now at $53 and is still very much in play.
How about Energy Transfer Partners (ETP), which just got new assets that will enable it to sharply increase its already huge distribution, one that has the stock at $49 yield 8%? How about MPLX (MPLX) making a $78 bid for MarkWest Energy Partners (MWE), one of the best pipes in the Northeast and the target is at $62 and yields almost 6%?
These are all signs not of a problem in the industry. Far from it. The lower some of these commodity prices go, the more pipe we need, not less, as they supplant other fuels like coal.
But the companies themselves don't do buybacks. They depend on their yields for support and they aren't working because of this forced selling. Because of the etiquette we can't find out when or who is doing it but, believe me, it isn't the industry's fundamentals, it's the fundamentals of the money management business at play and the possible failure of a major hedge fund or even two that is at work here.
Whatever, we don't know when the unnatural selling will end. We do know that I think we will look back and think "How did they ever get so low?" Which is why, if you are willing to accept that it is unnatural selling and you can own something for more than a few days of this fool's pain, this, right now, is the time to buy these stocks.