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Roger Conrad

8:36

I think the record is pretty clear that really large drops like those only happen when there's a great deal of leverage leaning in the wrong direction. That was definitely the case with MBS (mortgage backed securities) and real estate in general in 2007, and the result was when stocks started to decline and capital markets tightened, it was like a house of cards collapsing. I don't think we have anything close to that today. In fact, we see whole sectors where there's growth like US energy midstream where capital markets are demanding unprecedented levels of self funding. That's not to say we won't ever see another bear market in stocks. And in fact, what scares me most about this market is that so much money has gone to so few hands--mainly firms like Vanguard that basically run ETFs in passive strategies that are managed by algorithms and executed by computerized trading. I don't think we've come close to seeing this system tested yet in a market where capital is draining out.

8:39

We have seen how trading can get very ugly very fast, as on Christmas Eve and the days leading up to it. I think in a full blown rout, it's not hard to see the S&P dropping as much as 40% in a short period of time before rebounding. That said, as a firm we have a 10-point recession check list where only 2 indicators are flashing caution--and one of them, Federal Reserve policy, will go back to green in the coming months barring a now very unlikely rate increase. Without a recession, we've never had a prolonged bear market and any precipitous declines have been major short-term as well as long-term buying opportunities. Until that system flashes a real warning, that's how we're going to view big drops--as bullish.

Lawman

8:39

I read your comments on ROAN and RVRA. Can you explain why they have now recovered very much with the rise in the price of crude, and what would it take for these companies to reach their spin off prices?

Roger Conrad

8:45

Thanks. They've rebounded some but ROAN for example is still only a little more than half its price of last summer. RVRA is still down by about one-third. That actually corresponds pretty closely with the magnitude of the rebound in oil prices. In fact you could almost lay the charts on top of each other--and the same is true for the majority of E&Ps . Only the super majors are basically back to summer 2018 levels. I think this says two things. First, investors are still very cautious about this oil rally. They're willing to go all in on names where there's a comfort level but everything else is wait and see. Second, if oil can get back to $70 a barrel and make an assault on $80, E&Ps will follow. That's the best shot of getting RVRA and ROAN back to spin off prices. I think it will happen but it's likely to take patience. And in the meantime, we like other energy stocks more, such as those in the Energy and Income Advisor Actively Managed Portfolio.

Lawman

8:45

Still wise to hold hedges such as SCO and DUG?

Roger Conrad

8:47

We're not recommending that at this level of prices for the commodity oil and energy stocks in general. We see a lot more upside. Of course if you're really heavy in any sector in a volatile market like this one, it an make sense to hold a hedge position like that one--not matched to your holdings but simply as something that will go up if everything else goes down. That way you can sell it and use the proceeds to buy more good quality stocks cheap. That's been the reason for holding the ProShares UltraShort Utilities ETF in CUI.

Lawman

8:47

SZEVY; still like it?

Roger Conrad

8:48

Yes, though as I pointed out earlier in the chat, though it's trading below the Dream Buy price, it's got to post good numbers later this month to remain a buy.

Lawman

8:48

Is T going to be stuck at this level for a long time? What are the catalysts for this big telecom?

Roger Conrad

8:51

From a price of barely 8 times expected 219 earnings there are many potential catalysts. But i think they have to show they can follow Comcast's model of marrying content to network assets to really break the long-term trading range of high 20s to high 30s. Until then, they're going to have to slog it out. BTW, for all the hand wringing and bad press, the stock has returned about 6% this year. I expect it will add to those gains if they beat what are extremely low expectations for subscriber numbers next quarter--since that's what so many focus on.

Lawman

8:51

What are your current thoughts on TEF?

Roger Conrad

8:53

Great assets and the long-term plan to delever while investing in network and ultimately rolling out 5-G is still intact. I think it's being held back by concerns about emerging markets and would rally if people became more bullish on growth. But from 10.5X 2019 earnings expectations are very low, which protects downside. And this company is continuing to slog higher with revenues, customers and margins.

Don

8:53

Roger--of all the stocks that you recommend, which one should I buy for my infant grandchild that he can hold for decades? thanks, Don

Roger Conrad

8:55

That's a tough call. If you lived in Virginia, I would recommend Dominion Energy (NYSE: D), which is the cheapest big high quality utility with multiple growth drivers. Enterprise Products Partners (NYSE: EPD) is another good one with a great track record as well as steady path to growth. My oldest son has made a cornerstone investment in Verizon Communications that's already paid off for him but I think will grow a lot more as that company leads 5-G forward.

TXPipeliner

8:55

CWEN and CWEN.A, is there any advantage to owning one over the other? "A" lags the other by $.45-.50, so yield is higher.

Roger Conrad

8:59

I'm not really sure why there would be a price anomaly as there's really not a practical difference between what you get with A shares as opposed to C shares. You might remember NRG Yield split into A and C shares as part of a transaction some years ago. The only real difference is liquidity--there's a lot more C's traded, which at least today made the price a good deal more volatile than the A's. I also notice the A's apparently closed about 30 cents under the C's, which will likely make for an interesting arbitrage opportunity tomorrow. But what you buy with one you pretty much get with the other.

Herm

8:59

Pipelines and energy seem to getting a little more interest lately, namely thinking of KMI. Do you see any catalyst to help this part of the industry along?

Roger Conrad

9:02

I really like it at this price. I think they hit the cover off the ball with Q4 results and guidance. They also seem to be getting attention from analysts at long last and technically they appear on the verge of breaking out. I know there are still a lot of people not believing the rally because of the losses they took in 2015, and I still hear the word "kindered" used. But this one now has a strong balance sheet (upgraded to BBB), self-financing ability and a wealth of projects in which to invest while rivals are capital constrained. I like it up to 22.

9:05

As for a catalyst for midstream, I'm pretty certain I won't be the one to guess what it is. But whatever strikes the fire, good earnings and growth numbers like Kinder put up in Q4 are the best evidence that the kindling has dried out. It's only a matter of time in my opinion before things light up in my view.

TXPipeliner

9:05

ROC, return of capital, how much does that affect your appraisal of a stock or partnership? I can't see that reducing your basis is a good thing.

Roger Conrad

9:08

The tradeoff of course is you don't pay a tax the year you receive the distribution, only when you sell the shares. The time value of money alone makes that worthwhile, so does a high tax rate if you're living off investment income. And not to be a Cassandra but I think there's better than even odds the higher tax rates go up sometime in the next 2 to 3 years, quite possibly by a lot. Anyway, if you hold MLPs in an IRA none of this comes into play and you only pay taxes when you take distributions. As for how ROC affects our analysis, we see a lot more upside with a high level.

Jon

9:08

Wondering if you have any thoughts on NOK or ERIC, and more broadly, the extent to which 5G is a) a game changer and b) an investable theme.

Roger Conrad

9:11

My overall view on equipment companies is this is an extremely competitive business. And unlike in the 1990s, the number of viable customers is now relatively small in every country. Those aren't good economics and they explain why so many of these companies are basically living from product to product. It really is a race to the bottom to improve efficiency and cut price. The US government's apparent attempt to shut down China's Huawei may provide a temporary reprieve for some companies, as the Trump Administration's solar tariffs did this year for FSLR. But my view is these are cyclical players at best.

Ray

9:11

Im somewhat overweight T. Have owned for many years. I enjoy the dividend but the share price is back where it was many years ago. What do you think of the current management and the reality, not ability, that they will be very serious on paying down debt?

Roger Conrad

9:18

What I know is AT&T is going to generate $26 billion or so in free cash flow after dividends the next two years, which is an amount equal to about 15% of the company's total debt. Even if they're worst managers on the planet--some think they are--they're going to reduce debt going forward. But that's really the easy part. The real issue here is if they successfully integrate the Time Warner assets with emerging 5-G and network spending--as Comcast has done so successfully in recent years. If they can do that, even $182 bil of debt isn't going to be that daunting.

Harvey

9:19

I am late to the broadcast.What is your current view on NEP-Hold or sell.

Roger Conrad

9:20

Still rating it a buy up to the mid-40s, as indicated in the February issue of CUI. As I mentioned earlier in the chat, I like the pipeline deal, which will boost throughput and profits at their regulated natural gas pipelines without a significant capital investment. it's another clear statement of sponsor NextEra Energy's support for its yieldco, which is the blue chip of this space.

Jon

9:20

Any further thoughts on beneficiaries from the move to electric vehicles? To what extent will this move the needle for electric utilities (or gas utilities that supply natgas power plants)? Also, at one point, you indicated that semiconductor stocks might be the best way to play the change as content is likely to rise. But what about manufacturers of power conversion equipment that may be installed in houses (or elsewhere)?

Roger Conrad

9:26

Thanks for this question. It's one I should really devote an issue of CUI to, including exploring some of the technology players. I think the real needle mover with EVs as far as electric utilities are concerned isn't raw demand for energy--it's the investment in rate base, mainly the power grid that will enable ubiquitous EVs recharging as well as accommodate distributed energy that's likely to come with them. I still believe the utility we'll see profit in a big way first will be Edison International. EV infrastructure and grid enhancement is already driving 9.5% annual rate base growth that if the state of California continues to pursue decarbonization will last at least a decade and could well accelerate. This upside is obscured right now by the company's potential exposure to damage liability from wildfires through the state's inverse condemnation law. But PG&E's bankruptcy has forced the issue and if/when this company gets relief I think it's headed for a price north of $100.

9:27

The risk is if California does not act before the next wildfire season and tragedy strikes again. But I see that as a low probability given where we are now. Look for more on EVs and their impact on the electricity and natural gas value chain in an upcoming issue of CUI. Thanks for your question.

MartyR

9:27

of the 3 0ptions on the AM & AMGP mergers

Roger Conrad

9:31

I recommend taking all stock in this deal. This is a union that will cut costs and increase growth rates. Note that this pair announced their earnings for Q4 today and they were once again stellar with distributable cash flow rising 43%, EBITDA by 42% and coverage hitting 1.3 times even with 29% distribution growth. Throughput was up across the system and I continue to look for big gains in the water management system operations as well. Note this will constitute a conversion from MLP to corporation and is a taxable event, with the amount depending on return of capital collected by investors--so some unitholders may want to take some cash to cover the tax.

andy

9:32

With the recent correction the market seems full speed ahead. With the Fed on ho;d and Trumps trade policies moderating before the election how worried are you about a recession/bear market in 2019-20

Roger Conrad

9:35

Like many people, I'm certainly concerned about the possibility that government policies will run the global economy off the rails if ill conceived or executed poorly. And my colleagues and I often debate what is and isn't in those categories. But the bottom line is it doesn't pay to act on those worries until they show up in the numbers and particularly the 10-point recession checklist I mentioned earlier in the chat that we use as a firm. Again only 2 of 10 are flashing caution and Fed policy is about to move back to green, We've never had a recession without at least the majority of these flashing red and without a recession even the most severe market declines have historically been bullish.

Max

9:35

Enlighten me on Dominion's Cove Point LNG export facility. If 100% of its capacity is under a 20 year fixed rate contract, won't Dominion receive the same dollar amount in the15th year as it is receiving today?

Roger Conrad

9:37

Max, I did answer this question earlier in the chat. Again, my understanding is there's a step up in rates over that time but we'll get more details when Dominion publishes its 10-K in the coming weeks. There's also more than one contract for export capacity as well as import capacity at the facility.

Kevin

9:37

For which closed end fund are you a director? What would you say have been your most valuable investment insights as a result of that role?

Roger Conrad

9:40

Miller Howard High Income Equity (NYSE: HIE). Those are good questions. Without revealing anything confidential, I'd say it's the mechanics of how funds and fund companies work, and what they have to do in a regulatory environment that clearly favors the biggest Wall Street firms with the most connections whoever is in power.

MartyR

9:40

when do you think we should sell USO and XLI?

Roger Conrad

9:42

Those are questions best addressed at one of our Pig Versus Bear monthly webinars for our trading service. We will be having one next week I believe. We did, however, publish an update today for outstanding trades that should be in subscribers' email boxes now. if not, please give us a call.

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