SL Advisors Talks Markets

Political Promises on Climate Change

 

In this week’s podcast, Simon Lack talks about the impractical promises from Democrat presidential candidates on climate change, and adds an update on the Blackstone-Tallgrass deal (6 minute mark). 

 

 

Political Promises on Climate Change   In this week’s podcast, Simon Lack talks about the impractical promises from Democrat presidential candidates on climate change, and adds an update on the Blackstone-Tallgrass deal (6 minute mark).     

 

In this week’s podcast, Simon Lack is going to talk about the ethical gulf revealed by Blackstone’s offer to take Tallgrass private.

 

Links:

Private Equity Sees Value in Unloved Pipelines

https://sl-advisors.com/private-equity-sees-value-in-unloved-pipelines

Blackstone and Tallgrass Further Discredit the MLP Model

https://sl-advisors.com/blackstone-and-tallgrass-discredit-mlp-model

 

 

In this week’s podcast, Simon Lack is going to talk about the ethical gulf revealed by Blackstone’s offer to take Tallgrass private.

 

In this week’s podcast, Simon Lack talks about the difference in value seen by private and public market investors.

 

Show Notes:

Energy remains out of favor (:46)

Recently dropped to 4.5% of S&P500 (:48)

FT wrote about Why US energy investors are experiencing a crisis of faith (1:01)

Being an energy investor requires religious conviction (1:12)

Attractive dividend yields (1:22)

Growing cashflows (1:23)

Malaise caused by reinvesting too much cash (1:36)

Poor expense control (1:46)

Fears of global warming (1:49)

Blackstone bought 56% of Tallgrass they didn’t already own (2:00)

GS estimates $250BN in private capital for infrastructure and natural resources (2:20)

Ultra low bond yields + tremendous demands for stable, long term flows (3:11)

Pension funds are part of the demand. US pensions 28% in fixed income, up 3% (3:19)

Blackstone paying 36% premium (4:06)

All good news, lifted the sector (4:20)

Except seems a bit of bait and switch (4:30)

Blackstone bought 44% earlier this year (4:40)

But buying 56% costs less than buying 44% earlier this year (4:52)

Questions asked about why they hadn’t bought whole company (4:55)

Meanwhile stock has slid over uncertainty about capex, recontracting on pipelines (5:04)

Blackstone took opportunity to bid for 56% they didn’t own at $19.50, 35% premium (5:15)

Management team gets to sell their shares at $26.25, 35% above deal price (5:33)

Good to see private equity buying another pipeline company (6:27)

Finding value in sector (6:32)

Disappointing to see another management team structuring transaction with superior rights for themselves compared with other investors (6:37)

 

Links:

Why US energy investors are experiencing a crisis of faith

https://www.ft.com/content/71655bca-c8c2-11e9-a1f4-3669401ba76f

In this week’s podcast, Simon Lack talks about the difference in value seen by private and public market investors.

 

In this week’s podcast, Simon talks about the distortions showing up in bond markets.

 

Show Notes:

Interest rates are low (:40)

$17TN publicly traded debt has negative yields (:45)

Incredible reflection of price-insensitive buying (:50)

Reflects degree of risk aversion. Prefer the certainly of a loss in bonds rather than own stocks (:57)

But bond investors generally do good analysis (1:20)

Look at energy (1:27)

Perennially out of favor (1:28)

Valuations cheap, yields high (1:40)

American Energy Independence Index yields nearly 7% (1:42)

Investor sentiment poor, long term outlook uncertain (1:48)

But a look at bond yields on biggest companies shows bond investors more relaxed (2:00)

EPD, $63BN market cap, yields 6% while its 2054 bonds yield 3.9% (2:08)

KMI, $46BN mkt cap, has 2098 bonds yielding 5.1% (2:27)

In many cases the bond yields are 1.5% below the dividend yield (3:05)

Must be so much better to own the stock where dividends can grow (3:15)

Interesting piece blog called The Pension Fund Apocalypse by Colin Lloyd (3:27)

He highlights the problems for pension funds by low rates (3:33)

Estimates that $26TN in pension assets earning negative real return on fixed income allocation (3:44)

Problem is that bond demand remains strong (4:13)

US pension funds incredibly raised their fixed income from <25% to 28% last year (4:17)

They should be investing less bonds given returns

But regulations make it hard (4:50)

More broadly, bond yields reflect some risk aversion and inflexible investing regulations (5:28)

Investors in energy company bonds are pretty calm, shown by low yields (6:29)

It’s a factor keeping interest rates low (6:58)

All suggests that stocks are cheap, not over the next week or two but over the next 2-5 years (7:16)

 

Suggested Links:

Bond Buyers Should Buy Pipeline Stocks

https://sl-advisors.com/bond-buyers-should-buy-pipeline-stocks

The Pension Fund Apocalypse

https://www.aier.org/article/pension-fund-apocalypse

 

 

 

In this week’s podcast, I’m going to talk about the distortions showing up in bond markets.

 

In this week’s podcast, Simon Lack talks about the growing concerns on trade and how we think events will unfold.

 

Show Notes:

S&P500 finally had big release on trade fears (:41)

German economy contracted in 2Q (1:05)

Trump’s modest relaxation of tariffs to miss Christmas season too little (1:12)

Flat yield curve indicating fear of recession (1:24)

Investors are worried (1:33)

Outlines of final act are coming into view (1:33)

China deficit likely lower this year (2:00)

Tariffs having an impact

Setting stage for Trump to grab deal and declare victory (2:50)

Able to enter election year bragging about first president to take on China and win

More focused on Dow than any previous president (3:30)

More unilateralist approach reflects popular opinion (3:43)

America has protected shipping lanes for years (3:57)

Why are US troops in Germany? (4:17)

Nordstream 2 (4:27)

Bilateral trade negotiations suit US as biggest economy (5:06)

TPP didn’t fit this (5:15)

Replacing NAFTA with separate negotiations with Canada and Mexico (5:36)

It’s why EU exists (5:50)

Wait until UK tries for US deal after Brexit (6:17)

A less selfless US, more inclined to consider self-interest (7:40)

More transactional (7:50)

Not conventional wisdom among governing class, but popular among voters (8:00)

In this week’s podcast, Simon Lack talks about the growing concerns on trade and how we think events will unfold.