December 28, 2008 at 6:25 PM
Posted by Thomas Catino
Despite a rapid decline in commodities prices, a Barclays analyst note emphasized some of the positives that seem to have been discounted in shares of Copano Energy (CPNO) with the ongoing drop in crude oil, namely its strong hedge position through 2010 that supports its current cash distribution at roughly a mid-$40 crude level production and its strong liquidity position. Specifically, the analysts pointed to hedge gains of $85 million in 2009, $65 million in 2010 and $309 million in liquidity after accounting for $210 million in spending from the pending McMullen acquisition and related growth projects. Their conclusion is that Copano can reach a targeted $3.00 cash distribution per unit on an annualized basis until 2011 (up currently from $2.28, which at the current stock price of $9.65 is a stunning yield of 23.6%). The sentiment is in line with an upbeat presentation the management team gave recently at a Wachovia investor conference. With an extended outlook, the models of course do get a little hazy, and after 2011 with lower hedge gains, Copano will have to begin making some accretive transactions and bank on higher crude and gas prices. But until that time, their cash distribution looks pretty stable. The note didn’t generate much attention from the Street on a post-holiday trading session combined with the fact that investors have largely abandoned the energy space, but Copano is worth checking out and could bounce back nicely especially if energy prices begin to stabilize or even firm up a bit come January.
Money---Supply, Velocity, and Loss of
We all know that the money supply has been increasing, and many have been surprised at the decline in prices that has accompanied the recent "growth" of the money supply. We all know that inflation is a monetary phenomenon, Right? Yes that is right, but lets take a closer look at what is happening with the money supply and the velocity of money. If inflation is a monetary phenomenon and money supply is increasing, why aren't we already seeing inflation? During the time that the money supply has been growing the velocity of money has been declining---at an alarming rate. Why has the velocity declined. Financial innovations---such as those nasty Collateralized Debt Obligations (CDO's) increased the velocity of money. These innovations were "productively" increasing the velocity of money when they were created and when all was well with their value. As the credit crisis evolved--we had to unwind all of the "productivity" that was gained through the use of these "darling turned ugly duckling instruments". This unwind took its toll on the velocity of money and the real damage will be the unseen damage that is yet to come. What unseen damage? The damage that will be done as the velocity of money declines as these instruments are "cleaned up". The decline in velocity caused by the unwind of these instruments has contributed to the false sense of "deflation" that has gotten so much attention from many "talking heads" lately. We know, through both common sense and historical numbers that the velocity of money declines during recessions---sometimes sharply. During a NORMAL economic cycle, the decrease in velocity would be normal as central banks would increase the money supply, get the economy going again and then the velocity would again rise.
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NO YOU CAN'T FIGHT THE FED!!!!
The old saying "You can't fight the Fed" has never been more true than it is today. It may have just taken on a little different meaning. You can't fight the Fed in this environment because their relentless printing of money will cause the value of the dollar to decline. Maybe it really had to be done to save the banking system (but right or wrong printing money will have the same effect--it will decrease the value of the dollar). I hate to continually make the weak dollar argument as it almost seems unpatriotic, but you cannot deny the effects of the Fed's recent actions. I have gotten many responses arguing that the dollar is still the world's reserve currency and will remain so as we pull out of this crisis. But is this time different? I would argue that it is. Let me say one more time that China is still growing (growth is declining, but growth is still growth). Is China poised to gain some of the market share of the "reserve currency"? They are positioning themselves to do just that. Read the remainder of the article at www.stockshotz.blogspot.com
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