Pipelines and Pleasant Illusions

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Energy Transfer (ET +0.47%), a purveyor of subterranean arteries, presents itself as an investment. One might say it has rallied, a rather vulgar term, by 42% over three years. Including the reinvested distributions—a practice akin to a spendthrift claiming virtue—the total return reaches 78%. It is a curious spectacle, this elevation of mere conveyance. The market, you see, often mistakes motion for progress.

The Business of Flow

Energy Transfer commands a network exceeding 140,000 miles of pipeline, traversing a landscape indifferent to its ambitions. It shepherds natural gas, liquefied natural gas, crude oil—the very lifeblood of modern excess—across forty-four states. One imagines a vast, metallic circulatory system, pumping the planet’s desires. They even export some of it, adding a touch of geographical audacity to the proceedings.

Like all such ventures, it extracts “tolls” from those who dig and refine. A predictable arrangement, naturally. It’s a business insulated, they claim, from the whims of commodity prices. As if the world were so easily categorized. Tariffs, however—those blunt instruments of policy—and rising interest rates—the price of borrowed time—pose a threat. One should never mistake a temporary reprieve for lasting immunity.

The structure, a Master Limited Partnership, is a particularly American invention. A blend of return of capital – a rather elegant euphemism for returning one’s own money – and ordinary income. It’s a financial sleight of hand, designed to appease the taxman while maintaining the illusion of prosperity. A significant portion of that enticing 7.3% yield, one discovers, is merely the investor’s own funds circulating within the system. A rather circular arrangement, wouldn’t you agree?

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Catalysts and Convenient Narratives

Energy Transfer has expanded its dominion through acquisitions, swallowing up rivals with the enthusiasm of a glutton at a buffet. More acquisitions are promised, naturally. Expansion in the Permian Basin and the completion of a Louisiana LNG project offer further opportunities for growth. And, of course, the expectation of favorable policies and lower interest rates—a perpetual hope, perpetually deferred.

Profitability, they measure in adjusted EBITDA and earnings per public unit—metrics as opaque as the intentions of politicians. Analysts anticipate growth, naturally. A 6.5% CAGR for EBITDA, 11.7% for EPU. Projections, like promises, are easily made. Reality, however, has a habit of proving recalcitrant.

The Illusion of Value

At $18, Energy Transfer appears, to the uninitiated, a bargain. Twelve times this year’s EPU, they proclaim. A low multiple, indeed. The stock, they suggest, will continue to rise, attracting investors with its “evergreen” business model and high distributions. A charmingly optimistic assessment. One might also observe that a rising tide lifts all boats, even those with leaks.

To believe in perpetual growth is, of course, to misunderstand the nature of things. The market, like life, is a series of cycles. But then, to expect rationality from the market is to mistake a mirage for an oasis. One invests, not in certainties, but in pleasant illusions.

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2026-02-10 21:12