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Presenting ZIRP's Latest Contraption: Master Unlimited Garbage Partnerships
The reach for yield must be carefully balanced against the inane ignorance of 'if it sounds too good to be true, then it is!' and it appears that there are plenty of sucker-draining entrepreneurial asset managers out there willing to create whatever the market will bear. To wit, the WSJ reports on the growing size of the Master Limited Partnership (MLP) market; for years a haven for 'safer' income with upside potential this asset-class has been seized upon as "private-equity firms, eager to offload assets, are turning mountains of sand, gas stations and coal mines into a special type of security that offers investors annual yields as high as 19% for years to come." Seven of the last ten MLP IPOs have offered yields above 10% (sound reasonable?) and with the sector's market cap having risen from $65bn in 2005 to over $350bn now it seems like the thundering herd is willing to sell it to the blundering herd. Critically though, as WSJ notes, these new MLPs carry much more risk than their predecessors - as the promise of such high returns may be too good to be true. Indeed - though we assume that the Fed will be buying MLPs too by the time these go pear-shaped.
Perhaps most interesting is the final WSJ Headline: "Yield-Starved Investors Snap Up Riskier MLPs" and the print version was "Riskier Master Partnerships Tempt Yield Hungry" when one considers the original headline used before the editors got their hands on it "New Breed of MLP: Sky-High Yields And Increased Risk" (found from the URL designator on the online version)
We suspect that the latter was more honest but the former more palatable to their advertisers...
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Need a good list of MLPs to avoid. I have noticed a plethora of these cropping up lately. Is the whiting Trust one of those ? Look at that collapse.
With yields near zero in the United States, shrewd value investors are increasingly looking to European peripheral debt for high returns. Spanish and Italian debt just looks irresistible at these yields, and Savvy value investors have managed to lock in a 7% risk free return for 10 years. In a world where the US ten year treasury yield is sub 2%, that's pretty damn smart if you ask me.
Needs more lulz.
$$MMDB note that your trite comments are being ignored. Time to go back to your operations job in the back office somewhere.
I miss the REAL Million Dollar Bonus, this MDB_ joker just doesn't have the same gravitas.
Oh MDB where are you? I miss snorting beer through my nose and laughing til I cry.
Guess I'll have to go back to MSNBC.
Sound just like the ads on TV for freedom 55. LOL
Sign me up! Well, after I get my cash back from PFG.
I'll short what he's shorting
"I feel safer investing with the experts at MF Global. I trust them."
The sad part is that as long as more risk "works" the average client will not see it as risky behavior.
That is until the elevator brakes no longer work.
These investments work well if you're one of the first people in the door. As usual though, the crowd that follows will get trampled upon.
Oh good, for a second there I thought we were running out of ponzi schemes.
Charles would've been so proud.
A mountain of sand financially engineered into an opaque asset promising 19%? Count me in.
...
Here at Pillars of Sand investing we are dedicated to recycling oxygen that the plants in the office would need if they were not plastic.
So sir or madame or whatever the case maybe, would you care for some literature on our ground breaking investment opportunity on the Big gaping hole in the ground where we throw your money down...
Or for the more conservative investor would you like to test our products with the Pound Sand option. So instead of seeing the money vanish quickly, we roll it up into a mutual fund that yeilds slightly less than a five year old with a lemonaide stand.
Either way it doesn't matter as my commission is based on the gross sale up front at 2 points so I could care less if you lived or breathed after the ink dries on the check.
Think of my future...um...your Future...that's the ticket. Your future investment is just waiting.
It's 2006 all over again.
The Coal Seam Trust is Dead!
Long Live the Coal Seam Trust!
All you need to know is that the sales commissions are not regulated, difficult to ascertain, and fucking huge relative to other investments!
I think the banks should buy the shit out of them. This way they can collect the insane yields and it will offset the increased hooker/blow costs that they have been dealing with. Should these mlp's blow up it's only prudent that we all dig deep and bail them out again.
Or better yet the insurance companies can buy them up to make help them offset the pension/annuity payments they are choking on.
Sell!
I'd be curious to see what this crowd thinks of the mREIT sector... also very substantial yields.
The Linda Green and Jon Corzine master un limited partnership.
What could go wrong ?
I thought there was no such thing as risky since the fed eliminated it? Seriously though MLPs have been popping up everwhere. I'm starting to see the dinners advertised, and wholesalers are constantly calling on us.
The best part (and this applies to the "good" mlp's) is when you watch them drop 15% and scratch your head as to what happened. Then a week later you read they are announcing they are diluting the shit out of their shares. Then you look around the office to see if you can find the memo that everyone else must have got....
Hmmmm...that experience sound vaguely familiar....
I didn't hear a good argument why these things are more risky. Their yields are higher because they're not paying corporate income taxes. The "risk" is that some statist fuck-stick figures that out and restructures the tax code to leach off of these companies as well.
Compare a power or gas transmission company to a company like Exelon, a dividend paying utility stock that's back to 8 year lows, and you'd rather those billions in corporate income taxes had come your way instead of to the state.
The thing that sucks about MLPs is that you have track your taxes in each state they operate in.
What could go wrong???
Masturbation Limited Partnership. Can I collateralize that?
I think the issue to look for is a mlp without replaceable assets that just pays out until it runs out or is a complete fraud from the start. I dont have an issue with mlps in general.
Hey, all you have to do is look at the DCF for a MLP....
There are some solid plays at ~7-8%, above that caveat emptor...
watch out for higher US interest rates. the FED's own forecast indicate that fed funds rates could increase to more than 2% by 2014-not 2024. this bodes ill for fixed income and leveraged bond funds that have sucked in almost 900billion of the public's money in the last 3 years. assets in money funds as a percent of the wilshire 5000 have plunged to levels that are near prior peaks in stocks(down over 50% from the peak in '09). the NYSE a/d line of stocks only peaked in JUNE! this MLP is but another symptom of the desperation being felt by millions trying to earn a retrun on their savings-getting pushed into risky securites more and more.
Awesome. In Australia all the rage currently is hybrid securities, i.e. securities with the promised return of a bond but the risk of a stock. Many can postpone or cancel interest payments at will. Shedloads of grannies looking to get higher return of retirement savings have flooded into this sector, with no regard to the fine print.
We also have something called listed investment companies (LIC). These companies buy shares as investments, then promise investors higher returns than the underlying investments generate, with the blessing of ASIC. The shortfall is funded by endless capital raisings. Check out my report, banned information in Australia:
http://s1144.photobucket.com/albums/o489/_DrBenway/
"promise investors higher returns than the underlying investments generate."
Dr. Benway, in Australia, you may give this a fancy name. In the rest of the world, we just use the simpler term, "securities".
Ah, my dear Philosophers bone, you are right of course. This scam is pretty neat though. The LICs buy a portfolio of stocks (BHP, CBA, etc) that yields 4%, then the LIC pays 8% in dividend, issuing shares to new investors to pay the shortfall. It's a disguised ponzi.