September 18, 2013 
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Gary Miller



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For over 30 years, Gary Miller has provided financial guidance to individuals and pension plans. He is a Registered Investment Advisor and a Certified Financial Planner ™ Practitioner. Gary holds a Certificate in Personal Financial Planning from the University of California, Irvine and has served as a Board Member of the Financial Planning Association, Orange County Chapter.

A Good Day, September 18, 2013!

This was a good day for our style of investing and in particular for one widely held position.


Even before Federal Reserve Chairman Bernanke revealed that the current policy of buying massive amounts of bonds would continue, sending interest sensitive issues soaring, Rich Kinder and his team offered a lively and detailed rebuttal to accusations that they had been starving their pipeline maintenance budget in order to make their earnings figures appear better.


The Kinder Morgan quartet of interrelated companies (Kinder Morgan Incorporated, parent;Kinder Morgan Partners (KMP), Kinder Morgan LLC (KMR) and El Paso Corporation) has been under pressure since the April peak. This was primarily attributable, in my view, to anticipation of rising interest rates: a high percentage of Master Limited Partnership1 (MLP) owners are income seeking. When interest rates are expected to rise, some shifting is normal as pure income producing assets such as bonds, fall in price when this happens. But income generating equities, like Kinder Morgan are able to raise dividends, so should be less sensitive to rising interest rates. Still, with the increased presence of institutions in the MLP space2, volatility for this sector has been rising.  But whatever the explanation, the price of Kinder Morgan assets has been gradually falling toward bargain territory all summer.


To compound the negative effect of pressure from rising interest rates, a specific analyst attack (a company called Hedgeye released negative bullet points on Twitter) aimed at Kinder Morgan took about 5% of the price of the shares of the parent corporation over the Labor Day weekend, and the stock has struggled as analysts duel over their love or hate for the company.


Well, on Wednesday September 18, Team Kinder responded with a vigorous and detailed one hour presentation online that rebutted most of the points raised by Hedgeye, a short selling advocate. I've listened to Rich Kinder on many conference calls, and can tell you his tone of voice was that of the impatient sheriff's arrival to a rural Texas town where gamblers, drinkers and thieves were cavorting with ladies of the night, and it was high time things got a-righted. Rich Kinder's weapons were not six shooters, rather a focused fire of operational detail with specific dollar figures for each of many divisions of this complex business. Analysts' questions were welcomed and answered with numbers and specifics, something I've always appreciated about this company.


As a result, and no doubt with help from Chairman Bernanke, all four Kinder Morgan entities, KMI, KMP, KMR and EPD put on a show today, greatly improving our clients' net worth.


1Master Limited Partnership (MLP) is a limited partnership that is publicly traded on a securities exchange. It combines the tax benefits of a limited partnership with the liquidity of publicly traded securities.


2The success of investing in these tax favored entities has drawn in Wall Street aggregators such as mutual funds and exchange traded funds.

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I hope this newsletter has been helpful.  If you have any questions, please do not hesitate to give me a call: 949-254-0656.

Gary Miller