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Don't buy MLPs

Don’t Jump Into MLPs With Tepper Just Yet

Range-bound markets over the past year have made it difficult to earn good returns. Most investors haven’t made any money at all. And this reality has forced them to pile into high-yield products to make up the difference.

One popular area to reach for yield has been the energy space. The general belief is that crude has hit a bottom and that energy companies are now a safe bet. Especially with the dividends some of them are offering.

Billionaire hedge fund manager David Tepper is all over this theme. His interests lie specifically in Energy Transfer Partners (ETP) and Williams Partners (WPZ). Both these companies are master limited partnerships (MLPs) and both operate in midstream energy assets such as storage and pipelines. Read more

Trouble With Triple Leverage ETFs

Triple Levered ETFs Will Make You Go Broke… Even If You’re Right!

In a previous article we explained why “buying oil” using ETFs comes with an overlooked set of complications. Well, things get even more messy if you want to amplify returns using leveraged ETFs. Investors should completely avoid trading any type of ETF, levered or unlevered, unless they understand exactly what’s going on under the hood. And that means actually taking the time to read the mammoth prospectus of the product in question.

We know most amatuer traders never bother to look at a 190-page prospectus. And so, with the recent popularity of oil gambling, we thought it prudent to dissect the triple-levered oil ETN — UWTI. We can only hope that a few of you will listen to our warning and not burn through your precious account balance in the levered oil casino.  Read more

oil pump at night
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The Problem With Oil ETFs

By now, even those who don’t watch the markets have noticed the epic 75% fall in crude oil. It’s pretty hard to miss given that gas prices’ now start with the number 1, instead of 2 or 4. And most of us are happy about the extra hundred bucks or so to spend each month.

But now with oil so low, our team at Macro Ops is constantly getting calls from our gambling friends, asking how best to play the oil “rebound.” The usual line we hear is “Surely oil can get back to the 60’s, right? Look what happened after 2008, oil had a 240% gain from the lows! Doubling my money is guaranteed!”

Read more

MLPs: A Great Opportunity In The Near Future, Just Not Yet

MLPs: A Great Opportunity In The Near Future, Just Not Yet

  • Shares of various MLPs have been battered over the last year.
  • It’s a classic case of the baby being thrown out with the bathwater. Attractive MLPs with strong balance sheets have been sold indiscriminately along with over-leveraged operators.
  • Soon investors with dry powder will be able to pick up excellent MLP assets for pennies on the dollar.

Crude continues its relentless march downward, blowing through predicted bottoms and calls for reversals. Its fall has surprised many and devastated a few. For us, this has been completely expected. We’ve been calling for $20 oil since 2014. We know this downward trend won’t be over until there’s blood in the energy streets… total capitulation… which is why we have our target for oil at $16/bbl.

All is not doom and gloom though. For the investor who is patient, there will be some amazing opportunities available in the oil and gas space in the coming months. Read more

ConocoPhillips: The Dividend Isn't Worth The Potential Squeeze

ConocoPhillips: The Dividend Isn’t Worth The Potential Squeeze

  • A bet on ConocoPhillips is a leveraged bet on oil.
  • Why there’s a good chance the dividend will be cut.
  • There are safer plays for a dividend investor looking to put money into an E&P.

I’ve heard many income investors pitching ConocoPhillips (NYSE:COP) as a great value at its current price and 6.4% dividend (one of the higher yields among large E&Ps). Their analysis relies on two assumptions. First, current oil prices are unsustainable and will soon rebound. Second, ConocoPhillips’ dividend is sacred to management and is therefore safe from being cut.

I believe these investors have fallen prey to a bit of recency bias and a lot of wishful thinking. Dig into the assumptions and you find that buying ConocoPhillips as a value income play is far from a sure thing – and in fact comes with quite a bit of downside risk.

A bet on ConocoPhillips is a bet on the future price of oil. Read more

Stop Listening To Blowhard Oil Bulls

Stop Listening To Blowhard Oil Bulls

Some investors truly deserve a gold medal. The mental gymnastics they execute to avoid evidence contrary to their beliefs is amazing.

Instead of objectively assessing the avalanche of data that runs against their long-held opinions; they spin, distort, and bend over backwards to twist reality into what they want to be true.

Why? Because nothing is more important to these people than proving themselves right… even if that ultimately means staying wrong.

This human foible is perhaps no more prevalent than in the financial commentary space. And currently, the greatest examples of this are the indefatigable commentariat of oil bulls. Read more

Par Pacific’s Recent Share Offering And Price Decline Doesn’t Make It Any Less Valuable

It’s been a wild few weeks for Par Pacific Holdings (PARR).

After a major move to the upside caused by strong Q3 results, PARR plummeted almost 14% on November 23rd on news of a brand new share offering.

PARR announced that it was selling 3.4M common shares at $22/share in a registered direct offering. At $22, these shares were priced at over a 20% discount to the stock’s closing price a day before. PARR was able to raise approximately $73.74 million with this offering.

The market’s immediate reaction to this news was to sell-off. PARR has since declined further and is now hovering around $22.

We believe the reaction to the share offering was overdone and that the price decline is providing a great buying opportunity at a discounted rate. Read more

Is Oil Black Gold Or Fool’s Gold? We Think It’s The Latter, Here’s Why

 

The following excerpt and image below are from Carl Richards in a New York Times Blog post:

The recency bias is pretty simple. Because it’s easier, we’re inclined to use our recent experience as the baseline for what will happen in the future. In many situations, this bias works just fine, but when it comes to investing and money it can cause problems.

When we’re watching a bull market run along, it’s understandable that people forget about the cycles where it didn’t. As far as recent memory tells us, the market should keep going up, so we keep buying, and then it doesn’t. And unless we’ve prepared for that moment, we’re shocked and wondered how we missed the bubble.

We wanted to start this article on oil with a brief mention of recency bias for the following reason: This cognitive bias has blinded many investors from properly understanding the true fundamental supply and demand dynamics at work in crude. It is human tendency to overweight the importance of recent data relative to past information. Most of the time this is the right thing to do. But occasionally in investing, there are large paradigm shifts that vastly differ from recent experiences. In these instances, the investor would benefit from a more detailed study of historical data in order to better grasp possibilities. There is large alpha in these secular market shifts for those who stay on top of them. (Keep reading….)