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Q: Couple questions. Are you selling anything to buy all of this KMI? Also, any insight into how large your position is now? Does the enormous volume on this breakdown scare you at all (does someone know something we don’t)?

J: I haven’t sold anything, no. KMI is my largest position right now but the miners as a group are still larger. Volume doesn’t bother me. In fact, I think it probably signals capitulation. That’s the real issue. Lots of folks bought this stock simply for the yield without really understanding the business or the financials. Now they’re panicked.

Q: Would you continue to add to KMI after the dividend cut news? Price sure got nicer. Seems like a big dividend cut and it sound like this kind of snuck up on the management team, but also a good candidate for a nice long stock.

Also, what do you think of CMG and the depressed stock price since their health inspector issues? I have no doubt that this is a minor issue and they will be a leader in the industry for a good QC process going forward But, is there more going on with the depressed stock price?

J: I never thought I’d have a chance to buy KMI this cheap. I figure it’s worth roughly $35 per share. I’ll have more in the weekend report.

As for CMG, it’s cheap relative to its own history but not very much so. Not a screaming buy by any means at least to my eyes.

Q: Here is one thing to consider.
Don’t know if this would be a large enough dollar amount to have a real impact or not.

There are quite a few closed end funds that invest in MLP’s.
They are leveraged.
There are limits as to how much leverage they can have.

I bet with recent downdraft in MLP prices and seeing that most of these funds are down around 40% YTD,
That they are in a position where they are forced to sell holdings to keep leverage within limits.
Fund down 40% means they have to reduce leverage by 40% and sell holdings.

The you have all those 3rd party advisors who use ETF’s (and most are momentum based), so they are also now selling the MLP ETF’s.

Selling begets selling.

J: KMI is not an MLP so may not apply to them. That said, this could have precipitated the selling we have already seen in the sector.

Q: Just wondering if you have read any of Dan Dicker’s articles over the last week about KMI. He went from uber-bull to uber-bear in the blink of an eye, all because of the dividend cut. Below is the last piece I saw. Curious what your thoughts are on his thoughts. To me, the divi shrinkage is likely temporary. After oil stabilizes and some debt gets paid off, they will likely start raising the div back up, no?
Thanks in advance!

J: I have been reading Dan’s stuff. Actually I find it interesting that the last public bull on the stock finally capitulated. Everyone hates it now which makes me feel even better about it.

Q: Can you talk more about your position here? With your believe that the market is going much lower and with oil looking like it won’t rebound for awhile, isn’t there a good possibility this will just move lower with the market or move lower with oil? It is starting to feel like this might be dead money for awhile even if it is technically “a deal” right now.

Thanks for thoughts.

J: Could be dead money for a while. Wouldn’t bother me. As for overall market risk, that’s why I’m long/short. I think the stock is worth at least $25 per share but probably closer to $35 or higher. I’ll have more details over the weekend.

Q: Could you give me what you would consider to be the top 3-5 high quality MLPs to consider for investment?

J: I think you’re best bet is probably AMLP unless you want to go do all the individual research yourself. You really need to look at their debt structure to make sure they won’t run into any funding issues for the next couple of years at least. I have seen some interesting insider buying in EPD. Might be a good place to start.

Q: You have been talking about the HYG, JNK, BKLN, etc and bonds but what about a position in shorting one of these bond instruments or TBT? Today, I saw where Martin Whitman who I thought was a great investor has one of his credit funds blowing up and Greg Zuckerman talked about a spread into other bond funds. How do we capture that?

J: The problem in junk will spread to equities. It always does.