Interesting start of the year in the equity markets and specifically in the MLP space.  The first seven trading days of the year reflected our worries about valuations expressed in our fourth quarter investors’ letter as the SP 500 is slightly down and the Alerian MLP Index shows a loss of over 2%. 

Coming off a multi-year high, these corrections are currently only minor noise but it is their timing that makes them noticeable as usually equities rise in this seasonal period.  This is also the worst start of the year in MLP history (source: CBRE Clarion Securities).

In our letter we indicated a range-bound scenario as the most likely to occur for equities in 2014 and this start seems to confirm that idea.

A few words on Emerging Markets as well; EM are the only equities showing attractive valuations as their P/E in aggregate is at the lowest level since the 1998 Asian crisis.  Their foreign currency reserves are also in good shape and their funding is much more balanced than in the past (more debt being funded in local currency rather than US Dollars).  EM FX also corrected much more orderly when the Fed announced the start of the tapering process as opposed to earlier in the year when similar announcements first surfaced.  The short term picture for EM remains murky and to a great extent still tied to the commodity cycle and the process of structural reforms but the long term should remain bright.