High Class Problem
Earning season got off to a good start last week when Kinder Morgan - KMI - $25 reported a significant increase in their project backlog (38% year over year). Putting new capital projects into the rate base is how pipeline companies grow.
KMI seems to be on a path to creating a “problem” that value managers seldom face. KMI is doing too well. The stock is up from $18 to $25 this calendar year. That is a big move for a stock that started the year yielding over 7%. The question will become when to “jump ship” and move on to another value idea.
For right now I am going to wait for both the end of “earnings season”, and the results of the election.
KMI’s results give us an interesting insight into two “macro” issues.
KMI’s backlog jump does show that there is a strong demand to add industrial/energy capacity that is not yet reflected in the economic data. I have always considered the outlook for capital spending as one of the most overlooked measures of economic activity. Consumer spending trends are easy to follow, but building industrial capacity is what creates long-term economic growth. KMI is a strong “canary in the coal mine” that economic growth might be stronger than expected. Some of this growth is AI related, but a significant part could be the effects of “re-shoring” US manufacturing.
KMI is also a classic example of how government regulation effects economic growth. When politicians talk about “reducing regulation” it usually sounds like a campaign slogan with little real meaning. KMI cannot build these projects without significant input from either the FERC or state agencies. If you do not think that political results will effect future economic growth estimates, you are just not paying attention. A slow moving FERC can significantly effect the future GDP growth rates.
KMI is a “Trump stock” in the extreme. Politics at the FERC could prevent many of these projects from moving forward. I think I am well hedged because Chart Industries - GTLS - $125 - is an extreme “Harris stock”.
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I think it is bad idea to build a portfolio based on political predictions. I have tried to keep this portfolio neutral to the election outcome because it is just too close to call.
I have been a “political junkie” since reading profiles of the candidates for the 1968 election in the Weekly Reader distributed to my 4th grade class.
So two weeks before the election let’s make some predictions:
The Democrats will win the House be at least 10 seats.
I think the Democrats have a strong chance to win the Senate. The Republican candidates (with maybe the exception of Sam Brown in Nevada) are quite poor. I think Dan Osborn has an outside chance in Nebraska.
I think the story will be the high level of women’s voter turnout in a post-Dobbs world. Abortion is a very difficult issue to poll.
Right now I will call the Presidential race for Trump. Harris is a uniquely bad politician. I think Newsome or Shapiro would have won easily. At this point, I think Trump has defused the abortion issue in the Presidential race. Mifepristone is available by mail in all 50 states, and there have been very few bad stories about this issue.
I think the possible outcome not being considered by the market is a clean Democratic sweep if Harris wins the Presidential race.
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My travels have taken me to La Jolla, California. I am writing with a clear view of the Pacific Ocean from my Holiday Inn. I will spend the winter in Las Vegas.