Dear Diary,

We read through our mail this morning. As you can imagine, we get many letters from readers. We can’t reply to them individually, but we read every one.

Then we look for a rope and a stool…

We’ll come back to this topic in a minute. First, we set the scene. We are staying at the Mount Juliet Hotel in County Kilkenny, about 80 miles south of Dublin. Through our window we see a lowing herd “winding slowly o’er the lea.” A swift running black-blue stream separates the hotel from the green field. It is cold and rainy.

Inside: floral carpets… large, cushy chairs with embroidered pillows… bric-a-brac adorning large marble fireplaces with Greek-looking motifs. A typical Anglo-Irish Georgian manor home, in other words.

Into the dining room come aged Americans. They’re on a summer tour of Ireland. From the accents, we judge them to be from the Greater Boston area – most likely McCarthys, Murphys and O’Donnells with ancient family memories of Ireland as it never really was.

And there, stage right, at a small table, with a white tablecloth, next to the window, a not-so-young grandson of Ireland sits staring out the window, pondering. That would be your editor.

And what he is pondering is whether there is a German word to describe the moment you want to slit your wrists… when you realize how painful and desolate private life can be… and when you recognize that all that lies behind you are empty words and poured-out wine bottles… and all that lies ahead are old age and death…

…and you give up all hope.

Surely, the Germans – who, after all, produced Nietzsche and Schopenhauer – have thought up a word for it. It must be something every thoughtful and sensitive person has experienced at one time or another.
Which, of course, leaves out 99% of the sitting members of Congress… and probably most voters, too.

But the financial world is our beat. So, let us return to it for just long enough to mention that nothing worth mentioning happened yesterday.

The Dow rose again. And US bond yields are still so low you have to go all the way along the yield curve to five years out before you encounter a whole number.

Now, back to our thoughts…

Some Reader Feedback

Your editor is accustomed to gloomy days and gloomier thoughts. That is his job: to fear the worst and look ahead, to try to see it coming.

But he was laid especially low by today’s correspondence.

Of course, there are extenuating circumstances. We have many new readers… following the recent launch of our new letter. They have paid good money for our thoughts and ideas. But many of them lack the context to fully appreciate them.

They are coming into a conversation that began 15 years ago. Or longer…

One letter begins:

I’ve known you since 1984. That was the year I subscribed to Strategic Investment and, like my exposure to Harry Browne, proved to be one of my life’s pivotal experiences.

Naturally, some new readers are disoriented. And disappointed. And yes – we should have done a better job of explaining where we are coming from…

Broadly, there are two categories of dear readers: There are those who are too smart. And those who are too dumb.

The too smart ones catch all our mistakes. They notice our occasional lazy analysis and lack of rigorous thinking… and our errors in arithmetic, grammar and historical facts. We can’t get away with anything.

For example, one wrote to correct our math:

If the world’s supply of food fell by 10%, 700 million would starve, not 70 million.

Another to correct our grasp of late 18th century Scots dialect:

… it’s either Robert Burns or Robbie Burns, not Bobby. And the quote is “Gang aft agley.”

The too dumb ones generally just miss the point. But here we take the high road – insincerely admitting that if readers don’t understand we have done a bad job of explaining.

A Class of  Their Own

Some super smart, some super dumb… and some in a class of their own:

I’m reading Hormegeddon, which I received after subscribing to your newsletter, and have found it interesting although occasionally off-base.

However, I’ve just reached page 149 which has your graph of world energy consumption that shows Nuclear and Hydro-electric as the two top sources.

REALLY!! You have just lost all credibility. I will not read another page, and will do my best to spread the word that you are completely full of [sh**]. If Bonner is as wealthy as you claim I can only assume that he made his money by ripping off unaware marks like me. Stansberry should be ashamed to associate with dirt bags like you.

To many questions we answer “yes.” Some remarks bring a “no.” To others, we can only reply with a “huh?”:

RE: This country is completely f**cked up 8/15

Do not appreciate the words used in your commentary. Even if somebody else said them. You do not have to repeat them. SHAME ON YOU.

Oh, my. We look out the window and sigh.

There go the Americans… the silly old duffers. They are loading them on the Tauck tour bus, the seventy-somethings creaking up the stairs.

But they are so cheerful… so happy! Surely, they have lost their minds.

More tomorrow…

Regards,

Bill

Market Insight:

The End of Master Limited Partnerships?

From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners

One of the big events we’re trying to get a handle on at Bonner & Partners is what the end of the Fed’s zero-interest-rate policy will mean for investors.

There are lots of theories…

Some analysts reckon stocks will take a rate hike in their stride, as they did in previous tightening cycles. Others – your editor included – worry about what the effect will be for assets currently being priced off of the artificially low “risk free” rate of return on bonds. (A higher risk-free rate makes the present value of future cash flows worth less. Stock prices fall to adjust for that.)

But Jim Nelson, our resident income-investing expert, sees a more specific consequence of rising rates: the potential demise of high-income-paying master limited partnerships.

As Jim told readers of The B&P Briefing, our bonus newsletter for paid-up Bonner & Partners subscribers:

One of the most sought after investments over the last five-plus years has been master limited partnerships – or MLPs. These are tax-advantaged partnerships set up to own and manage various infrastructure assets… usually in the energy industry.

They are tax-advantaged in that they don’t have to pay any corporate income tax, as long as they pay their partners (shareholders) out all of their income. This is why they’re often referred to as “pass-through entities.”

MLPs enjoy this tax-advantaged status because the costs of building the equipment and other assets (such as oil and gas pipelines, refineries and transport ships) are steep… but necessary for global trade.

And because MLPs retain almost no cash after paying their partners, new builds have to be financed through debt. And this is where rising interest rates come into play…

As you may already know, one of the largest publically traded MLPs in America, Kinder Morgan Energy Partners L.P. (NYSE:KMP), just made a big splash by announcing that it is breaking up its partnership.

This is a big deal, because KMP is not only a big income payer, it is also the fourth largest energy company (based on combined enterprise value) in North America. And it has interest in about 80,000 miles of oil and gas pipelines and 180 terminals.

Why would Kinder Morgan willingly give up its tax advantages?

Because of the threat rising interest rates pose. If its debt costs rise, Kinder Morgan’s ability to expand and grow will be severely impaired. That’s the real business effect of rising interest rates.

By breaking up the partnership, its new owner will be able to issue new stock… hold back a portion of earnings… and operate these assets without the restrictions MLPs come with.

Jim reckons Kinder Morgan’s move to break up its KMP, and two other MLPs in the group, “could have ripple effects throughout the MLP landscape… and prove a real game changer for income-focused investors.”

That’s because MLPs have been able to deliver strong yields in a world where yield is hard to come by.

So what are the alternatives for high-yielding income investors in a world of disappearing MLPs?

Jim and Kelly have developed a simple strategy that they believe can potentially double – even triple – your ordinary income… with low risk. Better yet, you can collect these income payouts instantly… and as often as you want.

Jim and Kelly will explain more about this strategy on Saturday in the Weekend Edition of the Diary. They will also have a special invitation to share with Diary readers. So, stay tuned for that.