Tag Archives: Kinder Morgan

The Kinder Morgan Myth Shrivels With Each Quarter

The KMI fantasy continues to shrivel, along with its “vaunted” DCF and its CAPEX. The CAPEX narrative is part of what fueled the myth surrounding KMI. Richard Kinder is self-serving Ponzi master who learned his trade under Ken Lay at Enron. He was sucking money out of KMI at a rate of close to half a billion dollars annually by the time the banks forced him to slash and burn the dividend.

Per yesterday’s earnings report for its Q1 2016,  Kinders revenues and earnings continue to decline.  What happened to the famed “stabilility in earnings and cash flow” – the narrative promoted by Wall Street, the media and the Company itself?   The legend had it that Kinder’s contracts insulated  the Company’s cash flow from volatility in the energy market. Operating income continues to plunge, falling 24% from Q1 2015 to Q1 2016.

But IRD did some bona fide research and buried in the Company’s 10-K – a place that no self-serving Wall St. analyst would ever tread –  is a disclosure revealing that more than 25% of Kinder’s revenues is sourced from buying and selling natural gas and CO2 in the State of Texas. Furthermore, Kinder discloses that its revenues and cash flow are highly correlated with the directional movements in the price of oil, natural gas, NGL (natural gas liquids).

The other part of the myth that is imploding is the CAPEX story.  The stock price was fueled by the narrative that Kinder would spend money to make money.  But now not only has the Company already lowered its cash flow guidance for 2016 – guidance that was promoted vigorously when it announced Q4/yr-end 2015 results – but Kinder has chopped down its CAPEX spending guidance as well.  Why?   Projects were cancelled because there were no customers for them.  KMI was borrowing money every quarter to fund CAPEX and the dividend. Yes, borrowing money to pay money out to shareholders, namely the Chairman.

Kinder’s debt load net of cash actually increased in Q1 from the end of 2015.  It’s tangible book value (stripping out goodwill) is $5.31 per share.

My Company report on Kinder Morgan backs up every assertion I make above and lays out a view of the Company that will surprise most investors, especially the ones who are still “stuck” in the stock.  I explain why  Kinder Morgan had become a Ponzi scheme dressed in drag in an analytic presentation that you not find like this anywhere:   You can access my report here:  KINDER MORGAN.

Avoid Or Short Kinder Morgan: The Reasons May Surprise You

Kinder Morgan has amassed the largest midstream gas transporation asset base in the United States. It did this primarily through the aggressive use of debt issuance to fund acquistions. In order to fund its dividend and related dividend growth rate policy, Kinder issued even more debt rather than pay out a dividend using internally generated funds. This is not unlike a standard Ponzi scheme. It is the view of IRD that Richard Kinder hashome-KinderMorgan managed KMI for his personal benefit rather than for the benefit of long term shareholders. IRD recommends selling this stock if you own it and finding other investment ideas if you are considering buying it.

Click here for access to this report:  IRD’s Kinder Morgan Report

Kinder Morgan: More Downside Risk Than Upside Potential

By 2015, KMI had become a personal cash piggy bank for Richard Kinder. Kinder owns 234 million shares. Before the dividend was cut 75% in late 2015, he was raking in dividend payments at a rate of $468 million per year. Basically he was running the Company like a Ponzi scheme in order to fund his massive personal dividend payout. – Excerpt from IRD’s Kinder Morgan Report

I started working on this Kinder Morgan report in early January.  I have taken my time in assessing the Company’s financials and I wanted to make sure that my thesis about the Company was credible because it is very rare to find anyone who is willing to issue contrarian analysis on KMI

One of the first big red flags for me was raised after I had sent several emails to the Company over the first four weeks of the year in my effort to gather as much information as possible. I also left several voicemails for the investor relations representative. Neither my emails nor my voicemails were returned. There is simply no excuse for this and reflects poorly on the Company. In close to thirty years of involvement in the financial markets, my investor inquiries to a company were ignored only one other time.

I wrote this research report “piece-meal” over time. Interestingly, every time dug deeper into the financials and related available public information, I discovered more problematic aspects than I would have had I written this report in a couple of marathon sessions. Similar to Amazon.com, this Company is complex maze of accounting, propaganda and hype. Each time I peel away a layer of veneer, I find more cracks in the facade.

I’m not necessarily recommending shorting KMI, although I think there’s money to be made on the downside if the price of oil continues lower, which I believe it will. This report explains why you should not buy KMI if you are thinking about it and it explains why you should sell it you still own it. This stock could easily go a lot lower.  Click on image to access this report.  Short Seller Journal subscribers will receive a 66% discount – contact me about this.

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The Oil And Gas Credit Collapse Is Going To Be Catastropic

We’re headed toward another big credit explosion and I think what’s happened in the oil market is will trigger that.  The perfect poster-child of what’s going to happen to the stock market is what’s happened to Kinder Morgan stock.  – interview with CrushTheStreet.com

It speaks volumes about the corrupted nature of our financial markets that this news report does not cause a huge downward price adjustment in the entire stock market:  Big Banks Brace For Oil Loans To Implode.  This is, minimally, t $500 billion issue and that number does not incorporate at all the size of the derivatives exposure to oil sector debt. Move along, nothing to worry about here…it’s reminiscent of circa 2007, when Bernanke stated that the problems developing in the mortgage market were “contained.”

And speaking of Kinder Morgan, I listened to the Kinder Morgan conference call because I’m working on stock report on KMI. I forgot what a Broadway play production these investor calls are. Richard Kinder is a grade-A snake-oil salesman. Everyone seems to have forgotten that he was the COO of Enron when Enron’s Ponzi scheme was being constructed. He was college buddies with Ken Lay. But he left in 1997, buying out an Enron pipeline subsidiary with William Morgan.  Everyone thinks Richard Kinder is squeaky clean and they don’t associate him with Ken Lay. It’s emblematic of the ignorance, denial and fraud embedded in our system. KMI has been issuing debt to make its dividend payments and the only reason they cut their dividend is because their bankers told them they would have trouble issuing more debt this year. Kinder kept referencing the possibility of stock buybacks on the call. Are you kidding me?  You can visualize the sycophantic big bank analysts writing everything down word for word in order to regurgitate them robotically in farcical equity reports designed to suck more idiots into the stock.

More on Kinder Morgan soon. As for the manipulation of the gold market, I’ve mostly managed to separate my emotions from the attacks on gold.  When you think about it, they have no choice.  The ONLY way they can support their lies about the relative health of the economy and financial system is by attacking gold and making sure the price doesn’t take off.  Just like they can print an unlimited amount of dollars using Bernanke’s infamous “electronic printing press” to defer the collapse of the banking system, they can print an unlimited amount of paper gold certificates in order to use the paper trading apparatus of the Comex to keep the price contained. Like all paper schemes, this one will fail spectacularly.  The only unresolved issue is timing.  That’s impossible to predict.

CrushTheStreet.com and I discussed these topics in depth and others, including China and the U.S. economy:

Hidden Financial Bombs Are Starting To Detonate

I am impressed, you answered very promptly even on a busy day;  Thank you for the note and the consideration of timing on my sign up. I appreciate both! I’m also already pleased with the value of your service.   – Comments from two subscribers to the Short Seller’s Journal

The S&P 500/Dow have started to sell-off relentlessly since the beginning of the year.  This morning’s excuse was IBM and, once again, China.  I guess Obama’s “America is exceptional” speech infected the brains of more people than I thought.  The sell-off in the stock market surely can’t be attributable in any small way to the fact that the U.S. stock market never been more overvalued in its history.    Not only is it trading at record valuation levels, the “value” of the stock market is resting on a mountain of debt and derivatives in the U.S. financial system of unprecedented size and diminished credit quality.

Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief.  – William White, form chief economist of the BIS – LINK

Unpayable debt and counter-party defaulted derivatives are the hidden financial bombs that are beginning to detonate both globally and in the United States.   Faux analysts like to point to the fact that consumer debt is lower now than in 2009.  However, the reason the amount of stated debt declined was a result lender write-offs – not consumers repaying any debt.   Now automobile and student loans are at all-time highs – over $1 trillion outstanding now in each.  Unlike mortgage debt, this debt is largely unsecured (cars are collateral that depreciate quickly in value).

Well-known/regarded hedge fund titan Ray Dalio of Bridgewater Associates was in the news today warning that “if assets remain correlated, there’ll be a depression”  LINK

Who am I to question Ray, but he’s got it wrong.  The mistake embedded in his assertion is that economic activity is currently connected to the massive global financial bubble. Sorry Ray, but if you use unmanipulated data, the world is already in an economic depression. The price of oil, the baltic dry index, the Cass shipping and freight index (LINK a volume-based index down almost 20% since 2013), etc – measurements of actual economic activity – are reflecting a level of economic activity globally and in the United States that is suggestive of a deep recession on Main Street.

I’ll say we are in trouble up here [Canada]. Aside from the obvious, oil and the Canadian dollar crashing in unison, we have a seriously over-priced housing market and a totally unsustainable condo boom in our two largest cities. Alberta is an unfolding disaster and, for all intents and purposes, the largest province by far Ontario, is bankrupt. Superimpose on that a neophyte federal government and a totally clueless central bank head and we are headed for very big trouble. At least gold is $1575 in Cdn. Dollars and will explode higher shortly.  – John Embry in an email exchange with IRD

The error in Dalio’s assertion is that financial assets drive economic activity.  The “wealth effect.” Unfortunately, while record hedge fund management fees might determine whether or not Mr. Dalio decides to bid on the latest Picasso up for auction or buy a new Ferrari this year, the majority of wealth accessible to most humans has nothing to do with the current price of AMZN or the dividend paid on KMI.  The “wealth effect” concept is yet another Keynesian rhetorical diaper wrapped around the mechanism by which the elitist suck wealth from the middle class.

Real Main Street economic activity has been receding since 2008.  The illusion of economic “growth” has been created by issuing more debt used by the hoi polloi to buy cars, unaffordable homes and online college degrees.  At this point in time, the relative trading level and correlation of financial assets has nothing to do with economic activity, other than maybe the ad rates that can be charged by the adult Nickelodeon channels:   CNBC, Fox Biz and Bloomberg.   This chart perhaps best illustrates this point – click to enlarge:

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This graph on the left plots Kinder Morgan stocks vs. the S&P 500 for the last two years.  KMI here represents real economic activity because its business is based on the price and demand for oil.   Even if you want to argue that KMI has take or pay contracts, if its customers can’t pay, KMI does not “take” revenues.  It’s no coincidence that KMI’s stock has crashed along with the price of oil (and gas).   The misnomer of “Dr. Copper” is that it should be “Dr. Oil.”  After all, for every pound of copper used it takes energy to mine that copper.  For every product produced with copper, it takes energy to produce that product.  For every copper-embedded product purchased, it takes energy to deliver to that product.  Get it?

It’s the human condition to believe irrationally that bad things can’t happen.  Denial and hope are the two strongest forms of the human emotional defense mechanism.  But bad things are starting to happen.  The price of oil is telling us that the world, including the U.S., is already entering an economic depression.

Referring back to that graph of KMI vs. S&P 500, KMI represents the “poster child” for the U.S. economic system.  KMI is loaded down with debt that will eventually become unpayable, some of it possibly by this fall.   It’s also emblematic of the proverbial stock idea that was supposed to be “can’t miss.”  It paid a huge dividend and it’s business model was “safe.” But KMI’s operating income has plunged 45% from Q3 2014 to Q3 2015.  How on earth is that reflective of a stable business model?

KMI is somewhat of a Ponzi scheme.  It relies on generating growth to fuel bullish stock reports and investor interest.  It relies on an unfettered ability to issue debt in order to pay its dividend.  I’m working on a big research report and you might be surprised at my conclusions.  Kinder Morgan stock has already decimated a large number of investor portfolios.  And yet, the indefatigable  bullishness on the stock coming from  the “it’s too cheap to sell” or “opportunity of a lifetime” CNBC zombies continues to blossom.

The orange line in the graph above is the S&P 500.  You can see just how disconnected the real economy, as represented by KMI stock, is from Ray Dalio’s “financial assets.”   And you can also see that the real economy is headed for a depression.  In other words, it’s too late to worry about whether or not correlation among financial assets will cause an economic problem.   “Financial assets” are a creature of Wall Street.   The real economy is a creature unto itself and adheres to natural laws uncorrelated with Wall Street’s money-making gimmicks.  Sorry Ray, but eventually your “financial assets” will be inextricably correlated with the real economy.

People want to believe that bad things don’t happen.  But the laws of nature don’t care about what people want to believe.  These laws are not necessarily correlated with human faith and bad things are about to happen out “there.”

If you want to hedge yourself against what is coming, subscribe to my Short Seller’s Journal.  Homebuilder stocks are getting hammered this week and I will be featuring two ideas connected to homebuilders that have not been sold down hard yet.

Kinder Morgan: Dead-Cat Bounce Coming – Sell, Do Not Buy

It was inevitable that Kinder Morgan stock was going to bounce at some point.  Nothing goes straight down without a dead-cat bounce.   There has been a lot of money made on the short side of this stock and prudent traders will take at least 70% of it off the table for now.  This catalyst alone could stimulate a $3-4 bounce in the stock.

Untitled1As you can see from this graph, the RSI/MACD momentum indicators are deeply oversold and need to bounce for a bit.  Retail investors “doubling down” and professional short covering will fuel most of the bounce.  Additionally, I am expecting a short bounce in the price of oil, which will help push KMI stock higher.

Again, I am not recommending shorting this stock yet.  I need to complete my research and will be publishing a full-blown report.   I will say that the more I dig, the more I find highly troublesome red flags with its accounting and its business.  To say the least, the idea that this company is strictly a fixed, fee-based revenue model with no risk on either end of its pipelines is completely misleading, if not a fraudulent claim by analysts.

I have introduced a new subscription-based newsletter service called SHORT SELLER’S JOURNAL.  It’s a weekly report delivered to your email inbox with:  1) a brief comment on the previous week’s trading action plus any thoughts on the upcoming week;  2) I will feature 1 or  2 short-sell, trading, or investment ideas – the investment ideas will be primarily junior mining stocks; 3) trading recommendations, charts and put/call option ideas.

Here’s what Enron’s stock did before it completely collapsed.  To reiterate, I am not making a strictUntitled comparison between Enron and KMI.  However, I will suggest there is a strong possibility that the intrinsic value of KMI’s business is below $20, if not $10.  Furthermore, in this era of insane liquidity and insane valuations being paid for anything that moves, there’s always a possibility that KMI will be bought by private equity firm before the U.S. systemic bubble bursts.

A reader left this comment on here last night.  It illustrates perfectly the thought-process of the typical retail investor, reinforcing my assertion that the story-line being pimped by Wall Street that the sell-off is from the irrational behavior of frightened retail investors is pure misleading propaganda:

Dave, good stuff here on Kinder Morgan. My Dad is way overexposed there and he will not sell…..He has rode the market up and now riding it down and downer. Swears he will not sell this cheap.  Oh well…

 

Kinder Morgan Slashes Dividend 74% – Stock Plunges After Hours

Kinder Morgan finally announced an anticipated dividend cut.  It slashed its dividend from $2.04/yr – 51 cents per quarter – to 50 cents annually, or 12.5 cents quarterly.   Something is wrong with this company beyond the fact that it has been forced to cut its dividend in order to preserve cash.

I am not recommending shorting it – yet.  (click image to enlarge)  I am not recommending anything other than investors shouldUntitled get out of the way by getting out of this stock.   I am in the process of digging through the financials to figure out where the hidden landmines are buried.  I’ve already found a few highly questionable items.  It’s clear that anyone with a “buy” recommendation is either a criminal or has not done proper research.

I am introducing a weekly newsletter service.  Subscribers will receive a weekly report either Sunday evening or early Monday morning.   The report will include a short comment on the previous week’s market activity;  one or two stock ideas focusing on short sell ideas, mining stocks (primarily juniors) and special situations.   I will include whether or not the idea is short term trade or longer term investment.  I will also have specific put/call options suggestions.

I am working on a big research report on KMI.  Subscribers to the newsletter will be able to purchase this report for big discount. (Note, after you go through the Paypal subscription procedure, you will be redirected to a page that will enable you to download the current newsletter. After that, you will receive a weekly email with each week’s newsletter attached in PDF form).

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Is Kinder Morgan The Next Enron/Bear Stearns?

I’m not saying that Kinder Morgan is a bundle of fraud, like Enron, and I’m not saying that KMI is about to impale itself on subprime mortgages, like Bear Stearns, but this graph is almost identical the graphs of Enron and Bear Stearns before they they went belly-up:

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A stock does not have the chart pattern because it’s being attacked by short-sellers. It has the price pattern because there is something extraordinarily wrong with the business model and/or the balance sheet.

KMI has $40 billion in debt on top of $35 billion of stated book value.  That book value in no way can possible reflect the plunge in the price of oil.  KMI’s asset values have to be written down to some degree, at the very least.  There’s is something else going on.  I recommend getting out this stock ASAP.  I may be wrong, but it’s not worth taking the risk on a stock with a graph that looks like that.

The Price Of Oil To The U.S. Economy: “Look Out Below”

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.  – HL Mencken, 20th century American writer

Kinder Morgan stock is perhaps the reigning poster child for the message being conveyed by the collapsing price of oil as it pertains to the U.S. economy:

It’s too late to recommend shorting this stock, although I do believe it will hit $10 before it hitsUntitled $25.  KMI has been a darling of financial advisors and Wall Street pimps.  It sports a big dividend and was  billed as a “must own” stock.  Of course, the moronic “wealth” advisors can’t analyze their way out of a paper bag and thus were ignoring KMI’s monstrous debt load, which exceeds the Company’s book valued by a significant amount now.   If your trusty Schwab or AG Edwards broker calls you up to recommend this stock, hang up the phone.   This one’s a goner unless the price of oil does a spectacular U-turn back up.   Highly unlikely.

But take a look at that graph.  In all probability that is likely the path that the real inflation- adjusted U.S. GDP is about to follow.  The price of oil is collapsing, not because supply is flooding the market but because, at the margin, demand for the quantity supplied is falling.  It’s falling because basic, grass roots level economic activity is collapsing.   Trucking and rail – freight volume – in the U.S. is collapsing at a shocking rate – Heavy Truck Orders Plunge 59% in November;  US Freight Shipments In North America Plunge.  Freight shipping, both truck and rail, are heavy users of diesel fuel.  You can figure out the rest of the narrative from there as it pertains to the demand for oil…

Housing is now rolling over.  Notwithstanding the manipulated and highly misleading data reporting from the Census Bureau and the National Association of Realtors, home sales volume is rolling over and it about to go off a cliff.  This is exactly why the Federal Government is now trying to roll out zero-down, zero-percent mortgage financing – LINK. I’m not making this up.  The Federal Government, backed by the Taxpayer, is now going to fill the void left by Countrywide, Wash Mutual and Wachovia after those banks blew up on subprime crap mortgage paper.  Instead of bailing out the big Wall Street banks who choked on this garbage, let the taxpayer make the loans directly.  That avoids the political disaster of the next bank bailout.

But the message is desperation.  Desperation to force air into a collapsing economic system.   The next shoe to drop will be auto sales and the collapse of the related subprime junk debt which has been issued for the purpose of propping up the auto industry and the related manufacturing.   Freight shipments tells us this business is collapsing.

Just about anyone with a credit score over 600 can walk into an auto dealer and get a 135% loan to value loan on a used car without any income verification documentation.  Most OEM’s are now funding 0%, 72-month loans for new cars.   Both flavors of car loans are funded by banks, large and small.   Here’s what this looming disaster looks like graphically:

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As the pool of potential debt-financed car buyers shrinks, the blue line (auto sales) will do a cliff-dive.  As the existing pool of loans age, the default rates will soar and the universe of subprime loans will begin a default-driven death spiral.  It’s going to get very ugly over the next 12-24 months in the auto sales and auto finance sector.

The U.S. economy, along with the entire global economy, is collapsing.  This is most likely why the volume on “terrorism” has been turned up to eleven on a dial that only goes to ten.   The next push will be for sending a lot more ground troops to the Middle East. Obama confirmed this last night when he denied the need to do that.  It needs to be denied two more times according to the old political rule of thumb and then it will happen.