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[Joshua Brown]

Can you imagine?!

What will the investment world do if those darn indexes keep climbing despite the crazy overvaluation and the record-breaking bullish sentiment and blockbuster IPO and secondary stock issuance levels and the ever-expanding earnings multiples?

What will happen?

Will they just stand idly by and watch the abomination unfold without doing anything? Will they not stand up and shout from the rooftops that all has gone awry, and the dangers of a steep decline ? even a wholesale crash ? are everpresent? Will not duty as patriots and just old fashioned common sense force their hands ? and cause them slap the sell button not once but twice, and then again as they open their shorts? For surely the dreaded thing is so monstrously overbought that every honest man is bound by King and country to force a correction.

No?

[Joshua Brown]

I grew up in and still live in the South. During the dog days of summer in July and August, when folks say, "It's not the heat, it's the humidity," believe me, it's the heat AND the humidity.

Everything wilts. People move more slowly. Business slows down a little, too. There's a real and noticeable effect.

The fixed-income markets -- represented by Treasurys, corporate and municipal bonds, and other income-oriented investments -- experienced the dog days firsthand this summer as investors fretted over the prospect of the Federal Reserve scaling back its bond purchases, also known as tapering. Look what happened to the 10-year Treasury:

[Joshua Brown]

Markets were heading slightly lower on Wednesday morning as investors fears continued over how soon the Fed could start pulling back on their bond-buying program. The comments from two Federal Reserve officials yesterday did not ease worries. Both Minneapolis Fed Bank President Narayana Kocherlakota and Atlanta Fed President Dennis Lockart, said that the monetary policy should remain ?accommodative.? Today the Fed Chairman, Ben Bernanke, is expected to speak at 7:00 p.m. Investors will hone in on possible clues as to when they might have their sights set on cutting back on the program. Some even think that the Fed could begin tightening the reigns as early as December after a stellar October jobs report was recently announced. Rick Meckler, president of investment firm LibertyView Capital Management, said, ?We are bouncing back and forth here because the market is divided on higher rates and the benefits of a strong economy. Investors have not made up their mind on which is more of a driving force for the market.?

PetroChina has landed a deal to purchase Petrobras for $2.6 billion. PetroChina is the top oil and gas firm in China, while Petrobras is an oil and gas assets company based out of Peru. The deal was signed today but still needs approval from both the Chinese and Peruvian governments. Petrobras currently pumps out an estimated 800,000 tons of oil per year. PetroChina said, ?The three target blocks are all quality oil properties in Peru with achievable profit potential. The acquisition of the assets will help to expand the scale of PetroChina?s oil and gas cooperation in Latin America, and drive the sustainable development of PetroChina?s overseas business.?

Shares of Macy?s (M) were headed higher after the company surpassed analysts expectations with strong sales. They attributed their strong sales partially to their stronger advertising efforts. The company?s third-quarter earnings rang in at $177 million, or 47 cents per share. This beat out last years $145 million, or 36 cents per share a year ago. Revenue was up to $6.28 billion, or 3% higher. Analysts were expecting revenue to come in at $6.19 billion. At Macy?s (M) stores open at least a year there was a 3.5% increase, also beating out analysts projections of a 2.1% gain. The company said that they showed strong sales in October which has made them more stable heading into the holiday season. The holiday shopping season can account for nearly 40% of companies annual revenue. They are taking steps to set themselves up for success as being one of the first retailers to announce their plans to stay open on Thanksgiving. Brian Yarbrough, an analyst with Edward Jones, said, ?They?re in good shape. Unless something changes abruptly in consumer sentiment, they should have a great holiday season.?

That?s all for the day.

[Joshua Brown]

Imagine pocketing checks from an investment throwing off 7% interest.

It's not easy to picture in today's low-interest environment with saving accounts paying less than 1% and the S&P 500 carrying a dividend yield just under 2%.
Now, imagine pocketing dividends from a company yielding 7% with rock-solid business income all but backed by, and coming directly from, the federal government.

Hard to believe, but an investment like this exists. Around the time that I first told High-Yield Investing readers about the company last month, one person was so excited about it, he was inspired to email me this question:

"I was recently reading about Government Properties Income Trust (NYSE: GOV). With monthly income plus special tax preference, it seems almost like a no-lose stock. Is it too good to ignore?"
-- David K.

I wouldn't call it a "no-lose" proposition, but GOV is definitely worthy of consideration.

As the name implies, Government Properties Income Trust owns buildings that are leased to state and federal government agencies. The company owns 82 properties from New York to California that hold more than 10 million square feet of rentable space. Virtually all (94%) of the income generated by these buildings comes from the U.S. government, 10 state governments, and the United Nations.

Just to be clear, GOV itself is not a government agency, nor are its dividends implicitly backed by the government. This is just an ordinary company that has some rather extraordinary tenants: the Social Security Administration, the FBI, the Department of Energy, the Food and Drug Administration and the Department of the Interior.

All of these agencies (and a few dozen more) rent space from Government Properties Trust. Even the Internal Revenue Service pays rent to GOV. So if you're tired of sending money to the IRS, this is one way to turn the tables and have them write checks to you.

As I've said before, there are some perks to being Uncle Sam's landlord. Compared with typical retail and office tenants, government agencies are more stable (less chance of default) and tend to stick around longer (more likely to renew leases). On average, they remain in the same spot for 26 years, dutifully sending in rent checks every month.

Now, that doesn't mean that the company is immune to trouble. For example, defense cutbacks have taken a toll in Washington, D.C., where occupied office space has dropped by more than 1.5 million square feet. That's the biggest decline among the nation's metro markets.

Still, GOV is in fine financial shape, with an investment-grade balance sheet and manageable debt (3.5 times annual EBITDA (earnings before interest, taxes, depreciation and amortization)). And the firm's portfolio is 93.4% occupied, with an average remaining lease term of 5.4 years. Those properties are throwing off enough income to support a nice 7.1% dividend yield.

Funds from operations have been running about 125% of dividends, which means the company is comfortably generating $1.25 in cash for every dollar distributed to stockholders. That's a nice margin of safety.

All in all, this 7% dividend payout is well supported by a stable income stream. And 13 new properties acquired last year are earning even more (about 8.2%). I want to see how the ongoing budget situation plays out in

[Joshua Brown]

It?s a year since I explained my reckless, intentionally dumb 3D printer trade. As I explained back in November of 2012:

I own both of the 3-D printer stocks in my personal account in small enough amounts that they can?t hurt me but large enough amounts that, if I?m right, their rise will be meaningful.

My completely unscientific plan has been to ignore valuation and avoid any news about them, only looking at them bi-weekly to see where they?re trading. So far I?m up quite a bit. It could all be wiped away in a week or I could double my money again?either way, I?m staying hands-off with my Triple D ($DDD) and my Stratasys ($SSYS) positions and willfully remaining ignorant about the short-term. I?m doing this on purpose.

Because I believe the big opportunity is too great for me to allow inconsequential tidbits of news and data to shake me out. Screw the news, forget the fundamentals?if this thing turns out to really be a thing, all I know is I?m going to want to own the two pure-plays down the road.

I did exactly what I said I would, thankfully. I tuned out every genius trader who was ?fading strength? or ?managing risk? or ?noting key levels? because I truly don?t feel they know what the f*ck they?re talking about when a brand new industry sprouts up out of nowhere. I deliberately ignored almost every headline, TV discussion, research report, analyst rec, etc. And I especially ignored people focusing on minute-by-minute price ticks.

Here were the results (quoted in percentage gain on the right axis), $SSYS in white, $DDD in purple, the S&P Midcap 400 Index in green since that post.

[Joshua Brown]

Quote of the day

Brad Balter, ?(T)here are thousands of long-short equity hedge funds out there already?who needs another?? (NetNet)

Chart of the day

[Joshua Brown]

In this market, finding a stock with strong upside that also happens to have come down well off of its 52-week high isn't as easy as it may seem.

But thanks to what I call the performance protection trade, there are high-fliers that have pulled back. Stocks such as Tesla Motors (Nasdaq: TSLA) and Facebook (Nasdaq: FB) fit this description well, as does auto and equipment rental giant Hertz Global Holdings (NYSE: HTZ).

HTZ has rewarded shareholders with a 40% gain in 2013, easily besting the benchmark S&P 500 Index's 24% year-to-date showing.

However, at the time of its 52-week high of $27.75 in mid-July, HTZ was up more than 70%. Shares sold off through the rest of the summer before retesting that high in September.

Then, in late September, HTZ suffered a huge one-day sell-off that drove it below both the 50-day and 200-day moving averages. HTZ currently trades near $22.80, about 17% off its recent highs and right about where it traded in mid-April.

[Joshua Brown]

?I?ve been doing fifty million a year in commission business with your desk, and believe me, it?s not because I care what your chief strategist?s research reports say. You?re not allowed to give me ?color? on the trading activity of others anymore because your line?s recorded. You?re also not able to create products that will fail for me to be able to short. And I sure as hell don?t need your firm?s Barclays Center tickets, I?m a Knicks fan and I have a box at the Garden. The least you can do is get me a million shares of the LinkedIn IPO.?

One of the key sources of alpha for famous hedge fund managers operating in the late 1990′s was the IPO flip. They won?t admit it now when citing their ?compound returns? from that era, but everyone in the game knows it. And then the strategy kind of went to sleep as IPOs cooled off and the markets stopped guaranteeing mammoth first-day pops.

But over the past year or so it?s been Game On again. As explained in the below linked-to article at ValueWalk, this is a perfect environment for it. The public is once again hungry for deal stocks and will bid up shit like Potbelly and the Container Store by 100% upon the open, it?s almost a lock. In the meantime, companies ? specifically tech startups ? have been holding off on their IPOs to the extent possible, giving capital rich hedge funds an even better opportunity than IPO share ? they?re actually buying in at earlier stages while the company is still private. This makes the profit on the flip even juicier.

Profits are profits and no one is saying these gains require an asterisk next to them. But be aware that this source of alpha is likely finite and fleeting.

[Joshua Brown]

In the world of identity theft, it doesn't pay to assume "it won't happen to me."

In fact, with an average of a new victim every three seconds in 2012 -- and the rate of breaches seeming to increase at a faster pace than the national debt -- you might as well assume that it will happen to you and be prepared when it does.

Identity theft can dig you a debt ditch deeper than the Mariana Trench. But I've found a $1.4 billion company -- a mere pollywog among the multi-billion-dollar big fish in this sector -- that's throwing out lifelines to consumers and dishing out profits to investors.

In fact, this little gem just reported record revenues and hundreds of thousands of new customers in the third quarter. Its IPO went for $9 just over a year ago, and newcomers to the stock are basking in 75% gains.

We'll take a closer look at the company in a moment, but first, let's talk about what drives this crime today, how big the business of identity theft has become, and what is being done to protect people like you and me.

A $21 Million Violation Of Privacy
Unfortunately, the same technologies that make banking, shopping and working so convenient also make identity theft easier. An estimated 12.6 million people were victimized last year, at a cost of $21 billion. At a projected annual growth rate of 4%, the losses are on pace to grow even more staggering.

Stolen Social Security numbers caused the most damage because they're almost always required to open new accounts, but credit card fraud accounts for more than 65% of all cases.

The ways in which thieves steal information has become sophisticated: They can read "noise" waves and intercept data with ATM skimmers, or infiltrate peer-to-peer networks like music sites. Other ways include phishing (by email), "SMSishing" (by text) or "Vishing" (by voicemail).

It's not all rocket science, though. Many old-school ways still work: Dumpster diving, wallet stealing, snail mail swiping, looking over someone's shoulder at a device, giving credit card numbers to customer service reps or inputting any data online.

Unfortunately, thefts are adept at cracking codes, creating viruses and weaseling their way into improperly secured networks at work, school, banks -- really, any place that involves a computer.

People can only go so far to protect themselves, and, unfortunately even the most savvy IT professional in the world isn't capable of building an impenetrable fortress.

Unlocking The Door To Profits

[Joshua Brown]

In the world of identity theft, it doesn't pay to assume "it won't happen to me."

In fact, with an average of a new victim every three seconds in 2012 -- and the rate of breaches seeming to increase at a faster pace than the national debt -- you might as well assume that it will happen to you and be prepared when it does.

Identity theft can dig you a debt ditch deeper than the Mariana Trench. But I've found a $1.4 billion company -- a mere pollywog among the multi-billion-dollar big fish in this sector -- that's throwing out lifelines to consumers and dishing out profits to investors.

In fact, this little gem just reported record revenues and hundreds of thousands of new customers in the third quarter. Its IPO went for $9 just over a year ago, and newcomers to the stock are basking in 75% gains.

We'll take a closer look at the company in a moment, but first, let's talk about what drives this crime today, how big the business of identity theft has become, and what is being done to protect people like you and me.

A $21 Million Violation Of Privacy
Unfortunately, the same technologies that make banking, shopping and working so convenient also make identity theft easier. An estimated 12.6 million people were victimized last year, at a cost of $21 billion. At a projected annual growth rate of 4%, the losses are on pace to grow even more staggering.

Stolen Social Security numbers caused the most damage because they're almost always required to open new accounts, but credit card fraud accounts for more than 65% of all cases.

The ways in which thieves steal information has become sophisticated: They can read "noise" waves and intercept data with ATM skimmers, or infiltrate peer-to-peer networks like music sites. Other ways include phishing (by email), "SMSishing" (by text) or "Vishing" (by voicemail).

It's not all rocket science, though. Many old-school ways still work: Dumpster diving, wallet stealing, snail mail swiping, looking over someone's shoulder at a device, giving credit card numbers to customer service reps or inputting any data online.

Unfortunately, thefts are adept at cracking codes, creating viruses and weaseling their way into improperly secured networks at work, school, banks -- really, any place that involves a computer.

People can only go so far to protect themselves, and, unfortunately even the most savvy IT professional in the world isn't capable of building an impenetrable fortress.

Unlocking The Door To Profits
Because identity theft has become so prevalent and such a b