Still Betting on High Inflation

 | Jan 04, 2013 | 11:00 AM EST  | Comments
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"These days, people seek knowledge, not wisdom. Knowledge is of the past, wisdom is of the future." -- Vernon Cooper

One of the core parts of my daily routine involves reading scores of news articles, from myriad sources, on a variety of topics; I read when I am on the elliptical machine, when I'm having breakfast and any other chance I get. I believe this is an absolute necessity to being a profitable active trader, and also to my position as a frequent writer of new investment ideas and themes.

During my Thursday perusal, two particular items caught my eye. One that gathered a lot of attention, and helped turn the market down in the final hours, was the surprisingly hawkish view from a good portion the Federal Open Market Committee. Evidently half of the committee is turning against the prospect of endless quantitative easing, and they want to curtail the Federal Reserve's efforts here before the year is out.

The other, less-covered tidbit was from the Association of American Railroads. In 2012, shipments of petroleum on U.S. railroads rose more than 46% as shale oil producers put record amounts of crude oil on trains in order to overcome pipeline capacity constraints. Growth could easily surpass 600,000 barrels a day carried by rail in 2013.

So what do these two divergent pieces of data say to me? First, the Federal Reserve is more concerned about possible rising inflation than it has publicly let on. My own opinion is that, because of the growth of the federal deficit and the Fed's balance sheet over the last few years, significantly higher inflation is in the cards in the medium and long term. (Stagflation may even reenter the public's lexicon again in late 2014 or 2015.)

Second, the impressive expansion of domestic oil production continues unabated. Further, the energy infrastructure build-out -- which is needed to transport, store and process these new fuel sources -- is lagging behind production growth.

Moreover, this pair of tidbits further confirms that high-yielding energy infrastructure plays will remain a core part of my income portfolio. In an environment with rising inflation, a good place to invest remains in hard assets that throw off increasing distribution payments because of rising operational cash flow. In addition, infrastructure capacity continues to lag growing demand. I will continue to profile some of these plays, which are in my portfolio in the months ahead.

Another one of these that I like and own is Martin Midstream (MMLP), which deals in petroleum products in the U.S. Gulf Coast region. The company owns or operates 27 marine-shore-based terminal facilities and 12 specialty terminal facilities, among other assets.

Here are four reasons Martin Midstream is good pick-up for your income portfolio at $32 a share:

● At current price levels, Martin's dividend yields at a robust 9.6%. Further, the company has consistently grown its per-share payout by a few pennies per year over the last decade.

● Revenue growth is expected to rise 4% for 2012, but analysts expect that growth will accelerate to 12% next year -- which bodes well for future dividend hikes.

● The company is using divestitures to reduce its exposure to the gathering and processing of natural gas. This will allow the company to focus more on its oil storage, sulfur services and marine-transport businesses, which will help to streamline the firm.

● Insiders were small but frequent buyers of the shares in the last two months of 2012.

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