Calm Before the Storm??
By: Tim McPartland,
A refreshingly calm day in most markets today as the fall in crude oil prices was mainly overlooked–except by the oil issues. But this calm can change at any given moment.
Many of the MLP’s fell by over 3% (19 issues) with many more down 1-2%. We have re-thought our intent to purchase a e&p MLP on a big downdraft as the very bearish calls from Goldman and others makes us wonder if the risk equals the reward. Undoubtably distributions will be cut 6 months or a year out as new hedges are put on by the producers. You can’t take a 20% revenue hit and continue to pay 12% distributions–long term. I suspect future distribution cuts are priced in to share values, but just the same we will wait longer before moving to a e&p purchase. Wednesday we get the EIA weekly oil inventory numbers which will be very sensitive to any further inventory growth.
We did make a purchase today of investment grade BDC FS Investment Company (ticker:FSIC). A nice 8.4% current yield, paid monthly (plus a 10 cent special just declared earlier in the month), along with a good 5 year track record makes us want to own this issue–we wish we had purchased it sooner. Our cash on hand had reached 15% so it is good to deploy some of the stash to a quality asset. You can check out FS Investment Companyfurther here. We will get the portfolio updated when Google quotes comes back up (hopefully tonight).
Tomorrow is the start of the FOMC meeting–wrapping up on Wednesday at which point the media will parse every syllable of the FOMC statement. Likely we will have some nonsense market movement based upon nothing at all—nothing with meaning. The facts are no matter what the statement says interest rates won’t be raised by the FED anytime soon–we think not sooner than 2016. In particular with the low oil prices, and assuming they remain low, inflation (as measured by the government) will remain very tame. There is no choice in this matter–what are they going to do-raise their own (government) borrowing costs?