October 14, 2002; Kinder Morgan, Inc. May Have No Value

The greater concern today is, no doubt, the opposite of inflation.  We have translated that not to actual deflation of prices, but to deflation of debt that occurs in financial failure.  High debt has typically been a factor driving our sell recommendations.  We see sell recommendation Kinder Morgan, Inc. (KMI), for example, as having practically no value.  Its debt is about 8 times cash flow and it is borrowing more money to buy new properties at perhaps 7 times cash flow.  If the price paid for new deals is indicative of the value of existing assets, KMI is like a Japanese bank in that its liabilities may exceed the value of its assets.  Fortunately most of our buy recommendations have low debt and therefore offer deflation resistance.