Tag Archives: midstream pipeline stocks

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.

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…