Weekly Commentary & Outlook
McIntyre, Freedman & Flynn
By Tom McIntyre
September 24, 2012
The stock market was flat on low volume last week.
In other words little of consequence happened.
Oil prices fell back somewhat after rumors that a release from the Strategic Petroleum Reserve were floated by our government in an attempt to influence the market of yet another asset class. One wonders where the stock market, interest rates and the price of commodities would be if the government both at home and elsewhere was not manipulating prices to the extent they do.
As the charts above illustrate, the markets did little last week as we approach the end of the third quarter - near five-year highs on the averages.
The Markets & Economy
Quite simply, nothing happened last week. Traders’ eyes remain on the election polls, which are confusing to say the least, and for the most part seem to be attempting to convince Americans the race is over. The upcoming debates will have something to say about that.
On the economic front, jobless claims remain elevated near 400,000, and so there is no obvious improvement there. Over in Europe the Germans and Spanish are once again disagreeing about how to proceed with Spain’s budget crises, and Greece is a can that continues to be kicked down the road. It appears to me that like so many issues, there is some sort of agreement between governments and central bankers globally to keep things under wraps until after November 6th. Whether it works out that way remains to be seen.
Of course, the tensions in the Mideast have gotten much worse despite the American media’s relative non-coverage again, with the goal of waiting until after the election to let voters realize our policy in the region is in tatters.
What to Expect This Week
Later this week, we will get the government’s first estimate of GDP growth for the 3rd quarter - look for around 1.6%. Hard to believe that Americans are actually feeling better about the economy even as it officially seems to be getting worse. The media plays a large role as does the rally in stocks, which while great for us, is largely a function of Fed policy reflecting poor economic fundamentals and prospects.
The weekly update from the Economic Cycle Research Institute shows more improvement but, of course, one must remember that this index is heavily influenced by the stock market performance. The folks there at the ERCI themselves continue to feel the United States is already in a recession and the data will confirm this as it is revised in the future. Of course, the Federal Reserve Board must agree with that assessment as its’ latest money-printing policy implies they see very little growth on the horizon.
Perversely, this remains good for high quality equities which grow their market share while the weaker competitors fall by the wayside. If you read the business press you will see the list of winners and losers each week in this battle.
Last week the management of Enterprise Product Partnersannounced that they are recommending to its Board of Directors to raise the cash distributions for both the third and fourth quarters of this year. This should come as no surprise to investors as this management team has consistently raised its cash payouts each quarter. We expect this trend to continue. CEO Michael Creel stated that the reason the Company wants to raise its payouts is its newer projects are exceeding expectations.
The management team recommended that the Board of Directors should increase its cash distributions from the previous year by 6.1 percent and 6.5 percent respectively, during the third and fourth quarters. This would increase cash distributions to $0.65 in the third quarter and $0.66 in the fourth quarter of this year. We anticipate the Board of Directors will approve these increases and look for further increases as the Company continues to generate robust profits from its properties in the Eagle Ford Shale in South Texas.
Enterprise has been one of our top performing investments since the market bottomed, yet the shares are still conservatively valued. As the cash distributions continue to rise, more investors will flock to this name as finding attractive yielding instruments has become difficult in this environment. We continue to buy shares of Enterprise, and believe the price will reach $65 within the next 12 months.
(c) McIntyre, Freedman & Flynn