November 20, 2011 Limbo

Risk/Reward Vol. 93


THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

"Jack be nimble, Jack be quick
Jack go under limbo stick...
How low can you go?"---Lyrics from "Limbo Rock" by Chubby Checker

"So hoist the John B's sails/See how the mainsail sets
Call for the captain ashore/ Let me go home----Lyrics from "Sloop John B" by the Beach Boys

"The point is, ladies and gentlemen, that greed, for lack of a better word, is good."---Gordon Gecko from the movie "Wall Street"

A personal shout out to Bob Kerbell, a loyal subscriber and good friend, for hosting the opening weekend of the deer gun season. Bob's hospitality is surpassed only by the majesty of his farm/game preserve. Nothing compares to a walk through the woods in anticipation of rousting a monster buck. One of these years I will break the tie between the number of my sailing and hunting trophies.

Europe remains a mess--keeping the rest of the world in limbo. How low will I go? Not much lower than 11,700 on the Dow, a level with which we flirted several times last week. It's a shame considering how well US corporations have performed, but I will not hesitate to punt if the market goes south. I am too old NOT to "time" the market.

On news that Teekay LNG Partners (TGP) floated a secondary stock offering to defray the cost of acquiring more liquid natural gas(LNG) tankers, I bought. As a result of hydraulic fracking, natural gas has become plentiful in many places around the world--most notably in the US where the cost has been halved since 2008. However, the demand has heightened in countries that heretofore have relied upon nuclear energy to generate electricity--a taboo since the tragedy in Japan. Indeed the cost of LNG in Japan is now $15/mmBTU compared to $3.87/mmBTU, the cost of natural gas in the US. This spread has resulted in a premium for LNG tankers such as the ones TGP owns and operates. I see the 8% dividend growing in coming years--if not, you can change the lyrics from Sloop John B to Stupe John B.

Speaking of fracking, did you catch the spike in WTI oil pricing that occurred mid week with the announcement that one of my favorite pipeline companies, Enbridge, is buying a half interest in the Seaway pipeline that runs from Houston to the oil storage hub at Cushing, OK? Enbridge intends to reverse the flow of the Seaway to take oil OUT of Cushing and down to the refineries near Houston. This is a huge development and stands as further indication that the domestic production of oil (from the Bakken, the Eagle Ford and the Mississippian basins) is not to be stopped. Heretofore the Seaway pipeline brought IMPORTED oil from Houston to Cushing. If the market holds, I will buy more SDT, PER, EEP.

Also, if the market holds, I intend to buy the investment grade, exchange traded debt of Kohlberg, Kravis and Roberts, LLC. (KKR) which trades on the NYSE as KFH. Henry Kravis was the main protagonist in the bestseller and movie "Barbarians at the Gate" which chronicled the takeover of RJRNabisco by "raiders" back in 1988. Kravis is thought to be the inspiration for Gordon Gecko, the "Wall Street" villai