Well, income investors didn't have to wait long. Energy trusts shareholders will be in for a rude awakening to start the week. Last week, many notable energy trusts delivered bombshells by cutting their payouts - in a big way too!
Last Thursday, Shiningbank Energy Income Fund trimmed its distribution for the third time in the last 12 months. This only served as a prelude as a slew of cuts flew in last Friday. Enterra Energy Trust (NYSE:ENT) slashed its monthly payout by 50%. Precision Drilling Trust (NYSE:PDS) followed suit, reducing its distribution by almost 40%. Advantage Energy Income Fund (NYSE:AAV) would complete the hat trick, cutting its monthly payout by 17%.
Are you among the investors reeling from these announcements? If you feel inclined to blame the Canadian government, please take a closer look first! What are the wind-shifts in the industry outlook have caused these reductions, rather than the proposed tax levy?
- Inventory Surplus - Everybody loves to blame the weather. I'm not sure how many new believers Al Gore will induct into his earth-saving crusade. But this past winter's unexplainable quirkiness have resulted in less demand for oil and gas. As inventory builds, demand to drill rig services (such as those provided by Precision Drilling) have been scaled down. Maintaining a high payout despite bleak short-term outlooks would be corporate suicide.
- Speculators Are Out! - When speculators rushed to boost oil and gas prices last year, they did so on the justification of the middle-east turmoil, the North Korean threat, and the various reported incidents at oil fields around the world threatening supply. Yet nothing happened! Investors aren't willing to price in such risks again. The middle-east turmoil continues, but by now the market is used to it. The current concensus is that oil and gas will rise again, but not in the short term. How many investors are willing to wait it out?
- Individual Company Weakness Start To Show - During the good times, it doesn't matter if you are a below average oil and gas stock. These companies rose just as their peers did. Now that the lights are turned on, and the party nears its end, we're going to see some of the ugliness behind those financials in this upcoming quarter. It's better to play safe with a lower payout, then be caught pants down when things get rough.
- Tech Is Back! - In case you didn't notice, tech has replaced oil and gas as the sector to be in. Since July 2006, tech has soared with notable names such as Intel (NASDAQ:INTC) (up 16%), Apple (NASDAQ:AAPL) (up 30%), Google (NASDAQ:GOOG) (up 27%), Microsoft (NASDAQ:MSFT) (up 29%). Attention span? That's hardly a word for those who move with the herd.
The contrarian investor in me is very tempted to keep monitoring this situation, but then I'm in the minority. Just like Sheldon, I don't like following the crowd. Heck, I still don't understand why so many people insist on hanging onto Jim Cramer's every word!
Vince Chan editorializes about investment / financial media at Investorial.com and is also a contributor for GuruWatch.org and InvestorGeeks.com.
Closing Bell: A six-day rally (AIG, REGN, M, MOT, PALM, RIMM)
Tesla Roadster sets a record -- travels 313 miles on a single charge
Cramer on BloggingStocks: China's industrial focus helps lots of U.S. names 
