Doom to boom: That sums up the massive January momentum shift in performance of master limited partnerships (MLP).

The Alerian MLP Index is again pushing new all-time highs in the 430 range following a stunning 11 percent one-month gain. The only negative is more than a few of our MLP Profits Portfolio Holdings are again selling above recommended buy-under targets, at least temporarily closing the window on the buying opportunity that emerged in late 2012.

The primary catalyst for recovery was the reversal of negative factors that affected the fourth quarter of 2012.

For one thing, the 12th-hour deal reached to avert a US government fiscal cliff produced investment taxes that were far more benign than expected.

But it still raised the top rate for capital gains and dividends going to just 20 percent.

That makes MLPs much more attractive, particularly for upper-bracket investors. And, perhaps more importantly, it at least temporarily set to rest worries about legislation that could eliminate MLPs’ tax advantages.

The deal on the cliff still brought austerity that will impact growth in 2013. Some 77 percent of taxpayers have seen their taxes rise this year, mostly due to higher Social Security levies.

And there’s more to come as spending cuts kick in, either by the so-called sequester or as the result of another deal in Washington.

But the odds that Congress will refuse to raise the debt ceiling and cause the US government to default are now quite low. And the austerity we’ll get is far more benign than what would have resulted from going over the fiscal cliff.

As I’ve written many times in this space, the biggest danger to MLPs’ four-year-plus bull market is that management will stop demanding long-term contracts before building. That’s hardly where we are now.

But the sector does face one significant headwind this year: a North American shortage of energy midstream infrastructure that’s created vast differentials in regional pricing of oil and gas.

The infrastructure shortage is hugely bullish for MLPs over the long term because it means more demand for pipelines and related assets.

Ironically, the short-term the picture is far less clear-cut. Pricing differentials are inhibiting producers’ profitability and hence their willingness to sign long-term contracts for new capacity. This, in turn, is discouraging new building, at least for the near term.

The solution is getting larger. MLPs with scale and scope are the preferred providers for giant energy companies that can afford to plan beyond the current cycle. The bigger an MLP gets the better its access to the really big and lucrative contracts.

In This Issue

That’s what’s behind the sector mergers we’re seeing, the focus of this month’s In Focus feature. Both February Best Buys—Inergy Midstream LP (NYSE: NRGM) and Mid-Con Energy Partners LP (NSDQ: MCEP)–are potential targets.

The companies reporting fourth-quarter earnings highlighted in Portfolio Update are primarily interesting as acquirers but could eventually be prey as well as predator.

Rounding out the issue, my co-editor David Dittman highlights “financial” MLPs, the only group truly vulnerable to an adverse change in taxation in 2013, in a Sector Spotlight.

David also uses News & Notes to focus on one of the most interesting areas of MLP midstream growth, the conversion of import-oriented liquefied natural gas (LNG) terminals to export readiness.