All American In...'s  Instablog

The Market

Technical

The indices (DJIA 15318, S&P 1651) continued their rally yesterday, finishing within all major uptrends: short term (14824-15566, 1632-1711), intermediate uptrends (14175-19175, 1503-2091) and their long term uptrends (4783-17500, 688-1750).

The most important technical aspect of this pin action is that the S&P has made a higher high than the 6/10 high; coupled with the recent higher low (see yesterday's Morning Call), that suggests a return of some upside momentum. The targets now are the upper boundary of the short term uptrend and the 1675-1687 level---which is the upper zone of the May 22 'outside down day'.

Volume declined; breadth was mixed. The VIX fell but remains within striking distance of the upper boundary of its short term downtrend. It is also well above the lower boundary of a very short term uptrend.

GLD (132.0) fell and is nearing the recent double bottom (130.63) and the lower boundary of its long term uptrend (130.86). A break of either would be a disappointment.

http://www.zerohedge.com/news/2013-06-18/chart-day-when-etf-paper-beats-gold-rock

Bottom line: the volatility continues; and yesterday's S&P close at a new short term high, points to a return of upside momentum. Calling Market direction is a high risk proposition in a highly volatile Market; but the odds have increased of an assault on the e upper boundary of the short term uptrend and/or the upper zone of the May 22 'outside down day'.

Any move to the upside that pushes our stocks into their Sell Half Range offers the opportunity to do just that.

Fundamental

Headlines

Yesterday's US economic data was mixed: May CPI was a bit lower than anticipated, May housing starts were up but less than expected and weekly retail sales were positive. None of these would account for the Market surge.

But the thought that today's Fed message from its FOMC meeting will be benign got investor juices surging---this in spite of Obama's statement in an interview that Bernanke would be leaving in January.

That clearly begs the question, what does this mean for monetary policy. Judging by the yawn from investors, I can only assume that it means that they believe that Janet Yellen will succeed him; she being as close to Bernanke in monetary philosophy as anyone on the planet. In other words, no change in policy.

That said, as I noted yesterday, I believe that the tapering genie is out of the bottle and that no matter who says what, when, investors are not likely to stop worrying about the transition from easy to tight money. And that will likely impact the strength of the upside momentum in stock prices.

As a final note, while I doubt that Yellen will handle the Fed policy transition any different than Bernanke, I believe that it is chickens**t with a capital C for Bernanke to bail in the midst of the greatest monetary policy experiment in history (for which he is responsible), thereby avoiding having to deal with any turmoil related to the unwinding of that experiment.

What to watch for at today's meeting (medium):

http://www.zerohedge.com/news/2013-06-18/tomorrow-big-day

Déjà vu (short):

http://www.zerohedge.com/news/2013-06-18/deja-lu-all-over-again

Is this credit cycle over? (medium):

http://www.zerohedge.com/news/2013-06-18/credit-cycle-over

For China as well? (medium):

http://www.zerohedge.com/news/2013-06-18/china-joins-broken-keynesian-multipler-club

***over night rates are soaring

Goldman slams Abenomics (long):

http://www.zerohedge.com/news/2013-06-18/goldman-slams-abenomics-positive-impact-gone-only-high-yields-and-volatility-remain-

Bottom line: today's pin action will likely be all about Fed policy. As I noted yesterday, given the Fed's current stated guidelines on unemployment and inflation, I can't imagine them starting any tapering process any time soon. So I would expect the statement coming out of the meeting to be dovish.

That said, investors all over the world are starting to worry about the massive infusion of central bank liquidity and it is getting reflected in lower bond and stock prices. Clearly, the US has dodged that bullet to date apparently because its status as 'the cleanest dirty shirt in the laundry basket'. I have no idea how long investors will continue to give US Markets a pass. But I want to be conservatively invested when it happens because (1) current equity valuations are so stretched and (2) the US securities markets are a very crowded trade and I am not smart enough to be the first guy out the door.

Pimco on Fed policy (medium):

http://advisorperspectives.com/commentaries/pimco_061813.php

The latest from Kyle Bass (medium and today's must read):

http://www.zerohedge.com/news/2013-06-18/kyle-bass-next-18-months-will-redefine-economic-orthodoxy-west

S&P forward earnings (short):

http://blog.yardeni.com/2013/06/s-500-forward-earnings-excerpt_5307.html

Investing for Survival from Bob Bauman

We're Watching this Offshore Tax Haven By Bob Bauman, JD, Offshore and Asset Protection Editor

The Commonwealth of Puerto Rico, a U.S. territory in the northeastern Caribbean, is known in Spanish as the La Isla del Encanto, which means the island of enchantment - and it's not just for its mesmerizing beauty.

It might also be enchanting for wealthy Americans on the look-out for a safe haven. Puerto Rico is particularly enchanting because it doesn't tax income from interest, dividends and capital gains - and there is no U.S. income tax.

The island is part of the U.S. for federal tax purposes, but it has a special status (like the U.S. Virgin Islands) as I explain in The Passport Book.

Nonetheless, a new local governor has been recently installed in Puerto Rico and its safe-haven status may be under threat. My Offshore Confidential and Freedom Alliance subscribers will be among the first to know about any changes.

In the meantime, however, Puerto Rico remains an attractive destination for seekers of low taxes and an income shelter on a sun-soaked Caribbean island.

No U.S. Income Taxes

Currently, most residents of Puerto Rico, except federal employees, pay no U.S. taxes on island income. And you can qualify as a legal resident by living 183 days a year on the island. Although residents must still file a federal tax return, they are exempt from paying U.S. income taxes.

Residents also avoid a 15% capital gains tax on assets held before moving there, and sold after 10 years of residence on the island.

Alberto Baco Bague, Puerto Rico's secretary of economic development and commerce, was recently quoted in The New York Times as saying: "There's nothing wrong with spending 183 days a year on a sailboat or yacht and working from here… We're catching up to Ireland and Singapore - you can shelter income legally and legally in a good way."

The other convenient aspect of establishing a base on Puerto Rico, apart from its proximity to the U.S. mainland, is that you don't need a second passport, because island residents are U.S. citizens.

Former governor Luis Fortuno, who narrowly lost the re-election at the end of 2012, is responsible for the attractive tax incentives on the island. He not only slashed property taxes to zero for new homeowners for the first five years, but he also included a 100% tax exemption on all supplemental, passive income. Moreover, international financial institutions that move to Puerto Rico are eligible for full property-tax exemption.

Puerto Rico's tax-free "enchantment" has reportedly attracted a few mainland millionaires in recent years, as well as a number of executives of some smaller U.S. financial firms. Real estate brokers have claimed they are getting between 10 and 15 inquiries a day from Americans interested in moving to the island.

Trouble in Paradise

However, things may be changing in paradise. New Governor Alejandro Garcia Padilla last week submitted his 2014 budget, and he has also hinted at plans to reduce the government's $2.2 billion deficit to $775 million, partly through taxation. He plans to tax those who are "self-employed earning $200,000 or more in revenue and those who purchase homes worth $1million or more."

He has yet to provide details of these proposed taxes.

Nonetheless, Michael Pfeifer, an international tax lawyer at the Washington, D.C. law firm Caplin & Drysdale predicts that Puerto Rico's tax incentives will continue to be used by some wealthy taxpayers as "a new opportunity for income-shifting and tax-deferral."

President Obama's demands for new and higher taxes on upper incomes may well spur this "still within the U.S." offshore movement.

However, Puerto Rico still has much beyond tax incentives and rum to recommend it.

A 2011 Gallup World Poll that assessed happiness in 132 countries on a scale of zero (worst) to 10 (best) found Puerto Ricans in the Top 10, at number eight.

And Medicare Benefits

Another great incentive for potential residents is that Medicare benefits for U.S. citizens are payable in Puerto Rico, unlike the situation for Americans who live in foreign countries.

And if you're looking for top beach destinations, TripAdvisor's Travelers' Choice awards placed Culebra in Puerto Rico as one of the three best U.S. beaches.

News on Stocks in Our Portfolios

Economics

This Week's Data

The International Council of Shopping Centers reported weekly sales of major retailers up 0.3% versus the prior week and up 2.5% versus the comparable period last year; Redbook Research reported month to date retail chain store sales up 0.4% versus the similar timeframe last month and up 2.9% on a year over year basis.

Weekly mortgage applications fell 3.3% while purchase applications were down 3.0%.

Other

Household financial health continues to improve (short):

http://scottgrannis.blogspot.com/2013/06/households-financial-health-continues.html

What's wrong with the economy---from a liberals viewpoint (medium):

http://economix.blogs.nytimes.com/2013/06/17/the-current-u-s-economy-text-and-subtext/

New warning signs from the Chinese economy (short):

http://pragcap.com/chinas-economy-new-warning-signs

Cyprus' President asks for complete unwinding of EU bail in (medium):

http://www.zerohedge.com/news/2013-06-18/cyprus-bail-blows-president-urges-complete-bailout-overhaul

Delinquent loans in Spain surge (medium):

http://www.zerohedge.com/news/2013-06-18/when-correlation-causation

Another funding shortfall in Greece (short):

http://www.zerohedge.com/news/2013-06-18/greece-has-one-month-plug-%E2%82%AC12-billion-healthcare-budget-hole

Politics

Domestic

More foul play in our education system (medium):

http://www.nakedcapitalism.com/2013/06/nyu-administrators-create-student-debt-slaves-to-subsidize-summer-homes-ginormous-pension.html

International War Against Radical Islam

The Market

Technical

The indices (DJIA 15179, S&P 1639) had one of those see saw days, but ended up on the day. Both finished within all major uptrends: short term (14786-15534, 1632-1711), intermediate uptrends (14175-19175, 1501-2089) and their long term uptrends (4783-17500, 688-1750).

The S&P has now made a higher low (6/12) versus the 6/5 low (the bottom of the decline off the 5/22 high). The key now is, can it make a higher high versus the most recent 6/10 rebound high (1648). If it does, the S&P is probably headed to the upper boundary of its short term uptrend. If not the lower boundary of its short term uptrend as well as the 6/12 higher low are the levels to watch.

Volume picked up; breadth improved. The VIX declined, finishing within its short and intermediate term downtrends.

GLD declined but closed above the recent double bottom and the lower boundary of its long term uptrend. However, short term, it is directionless.

http://advisorperspectives.com/dshort/guest/Ted-Kavadas-130617-Gold.php

Bottom line: volatility persists; and while all major trends remain in tact, the lower boundary of the S&P short term uptrend has been under assault and the sustainability of upside momentum is in question. I am not saying that the current advance is over; but I am saying that it is breathing hard and without another shot of adrenalin, the risk grows that it may be ending.

Any move to the upside that pushes our stocks into their Sell Half Range offers the opportunity to do just that.

Fundamental

Headlines

Only one economic indicator was released yesterday---the NY Fed June manufacturing index which was much stronger than anticipated. That along with an improvement in the Nikkei overnight made for a great first couple of trading hours.

However, in the background there was a lot of chatter about Wednesday's FOMC meeting with the undertone that the Fed wouldn't be tapering anytime soon. Then mid afternoon, an article in the Financial Times suggested that the Fed would indeed be chatting up the likelihood of tapering sometime in the future. That pushed prices down in another big price swing. Then in the last hour, sentiment gyrated back to the 'no tapering' scenario and stocks recovered.

http://www.zerohedge.com/news/2013-06-17/ft-joins-fray-fed-likely-signal-tapering-move

Bottom line: the point of the above is not a blow by blow description of intraday trading but (1) to illustrate the degree and sensitivity of investor schizophrenia over Fed tapering and (2) to suggest that it is a genie that is unlikely to be pushed back into the bottle, no matter what the Fed says Wednesday or any other time.

That said, given the Fed's current stated guidelines on unemployment and inflation, I can't imagine them starting any tapering process any time soon. So I would expect the statement coming out of the Wednesday meeting to be dovish. Nevertheless, it appears that investors are starting to worry about what the end game to the current unprecedented Fed easing looks like. If so, they may at last be checking the history books, figuring the odds of a successful transition from easy to tight money and concluding that they are not high. No one knows if this affair ends in recession or inflation; but they may be realizing that neither will be good for stocks at current valuations.

The latest from JP Morgan (medium and today's must read):

http://www.zerohedge.com/news/2013-06-17/jpmorgan-fed-stimulus-inflated-prices-financial-assets-removal-could-create-tail-eve

The latest from John Hussman (medium):

http://advisorperspectives.com/commentaries/hussman_061713.php

The latest from Lance Roberts (medium):

http://www.zerohedge.com/news/2013-06-17/bonds-versus-stocks-just-ask-japan

The latest from David Stockman (medium):

http://www.zerohedge.com/news/2013-06-17/david-stockmans-non-recovery-part-1-post-2009-faux-prosperity

More on current valuations (short):

http://advisorperspectives.com/dshort/guest/Forecasting-the-Market-Chris-Turner.php

How is this for correlation (short):

http://www.thereformedbroker.com/2013/06/17/chart-o-the-day-hows-this-for-correlation/

What higher interest rates may mean (medium):

http://www.minyanville.com/business-news/markets/articles/Dissecting-the-Jump-in-Real-Interest/6/17/2013/id/50336

Company Highlight

The 3M Company (formerly Minnesota Mining and Manufacturing) is a broadly diversified technology and manufacturer of great brands in industrial, health care, graphic and display, office, communications, transportation, and safety and security products (50,000 products sold in over 65 countries). After a difficult 2008-2009, the company is enjoying a resurgence of growth in sales and profits as it transformed its business strategy. The company earns over a 20%+ return of equity and has generated profit growth of 10% annual rate over the past 10 years. While dividends have not kept pace as the company reinvested cash flow in new businesses, the dividend pay out ratio should increase in the next several years. The pillars of its business plan are:

(1) transform its manufacturing footprint from US oriented to international based and improve its productivity,

(2) invest in strengthening and streamlining its supply chain,

(3) increase its brand building marketing focus on high growth overseas markets, using acquired local or regional brands where it makes sense,

(4) raise its investment in R&D to advance the 3M brands,

Negatives:

(1) its large international business exposes it to currency fluctuation risks,

(2) its businesses are highly competitive,

(3) a majority of its products are economically sensitive.

MMM is rated A++ by Value Line, carries a 22% debt to equity ratio and its stock yields 2.4%

Statistical Summary

Stock Dividend Payout # Increases

Yield Growth Rate Ratio Since 2003

MMM 2.4% 7% 36% 10

Ind Ave *

Debt/ EPS Down Net Value Line

Equity ROE Since 2003 Margin Rating

MMM 22% 23% 2 16% A++

Ind Ave*

*the Diversified Company Industry operates in so many varied products and services, comparable numbers would be of little analytical value.

Chart

Note: 3M stock made good progress off its March 2009 low, quickly surpassing the downtrend off its October 2007 high (red line) and the November 2008 trading high (green line). Long term, 3M is in an uptrend (straight blue line is the lower boundary). Intermediate term it is in an uptrend (purple lines). The wiggly blue line is on balance volume. The Dividend Growth and High Yield Portfolios own full positions in 3M. The upper boundary of its Buy Value Range is $71; the lower boundary of its Sell Half Range is $157.

(click to enlarge)

http://finance.yahoo.com/q?s=MMM

6/13

News on Stocks in Our Portfolios courtesy of Seeking Alpha

FactSet (FDS): FQ3 EPS of $1.15 misses by $0.11. Revenue of $214.6M (+6% Y/Y) misses by $0.34M

AT&T reportedly thwarted in Telefonica bid.AT&T (T) has reportedly been thwarted in a €70B bid to acquire Telefonica (TEF) by Spain's government, which has the power to stop the sale of any company that is deemed strategic. The U.S. carrier told state representatives that it would take on the Spanish operator's €52B of debt as part of any transaction. Telefonica said it hasn't "received any approach or...indication of interest," from AT&T. The Spanish company's shares were +3.1% at midday in Madrid.

Economics

This Week's Data

The May consumer price index rose 0.1% versus expectations of up 0.2%; ex food and energy, it increased 0.2%, in line with estimates.

May housing starts were up 6.7% versus forecasts of up 11.9%; building permits were down 3.1% versus an anticipated decline of 4.3%.

http://www.calculatedriskblog.com/2013/06/housing-starts-increase-in-may-to.html

Other

A closer look at Fridays' industrial production number (medium):

http://scottgrannis.blogspot.com/2013/06/industrial-production-lackluster.html

And (short):

http://pragcap.com/the-u-s-economy-and-peak-capacity-utilization

Current US economic profile (short):

http://www.capitalspectator.com/archives/2013/06/us_economic_pro_4.html#more

Counterpoint (medium):

http://www.zerohedge.com/news/2013-06-17/what-fed-looking

Latest CBO estimates of FY 2013 deficit too low (medium):

http://www.zerohedge.com/news/2013-06-17/failed-projections-or-just-another-government-lie-you-judge

Update on existing home inventories (short):

http://www.calculatedriskblog.com/2013/06/existing-home-inventory-is-up-149-year.html

Politics

Domestic

The more government does, the more certain it is to fail (medium):

http://www.realclearmarkets.com/articles/2013/06/17/the_more_government_does_the_bigger_the_failures_100402.html

International

Another EU bail in slams small depositors (medium):

http://www.zerohedge.com/news/2013-06-17/ft-joins-fray-fed-likely-signal-tapering-move

***over night, Merkel was openly critical of Japanese easy money policy and EU auto sales fell to 20 year low.

Disclosure: I am long MMM.

The Market

Technical

Monday Morning Chartology

The S&P closed right on the lower boundary of its short term uptrend. While it appears to have escaped from the very short term downtrend, it can't generate any momentum to the upside. Amid confusion and volatility, the best thing to do is nothing.

(click to enlarge)

GLD is still holding above its double bottom and the lower boundary of its long term uptrend. Like the S&P, it seems to have successfully challenged the very short term downtrend but can sustain no upward momentum.

http://www.zerohedge.com/news/2013-06-14/stunning-images-china-ten-thousand-people-waiting-line-buy-gold

(click to enlarge)

The VIX continues to battle with the upper boundary of its short term downtrend but can't hold on to any break. However, if it does successfully push through that boundary, it would be a bad sign for stocks.

(click to enlarge)

Update on 'the best stock market indicator ever':

http://advisorperspectives.com/dshort/guest/John-Carlucci-Best-Indicator-Ever-Update.php

Fundamental

The latest from David Rosenberg (medium):

http://www.zerohedge.com/news/2013-06-13/10-nagging-concerns

The latest from Bill Gross (medium):

http://www.zerohedge.com/news/2013-06-14/pimcos-bill-gross-which-way-bonds

Revenue and earnings expectations continue to decline (medium):

http://www.zerohedge.com/news/2013-06-14/stocks-headwinds-are-clear-and-seem-be-strengthening

Update on the big four economic indicators:

http://advisorperspectives.com/dshort/updates/Big-Four-Economic-Indicators.php

Investing for Survival

What a crisis feels like (medium):

http://www.zerohedge.com/news/2013-06-12/guest-post-what-crisis-feels

News on Stocks in Our Portfolios

Economics

This Week's Data

The NY Fed June manufacturing index came in at a surprising 7.84 versus expectations of 0.5.

Other

Politics

Domestic

A potentially damaging disclosure in the NSA phone/email monitoring scandal (medium):

http://www.zerohedge.com/news/2013-06-16/nsa-admits-warrantless-wiretapping-according-house-judiciary-committee-member

International

Spain's debt hits new high (medium):

http://www.zerohedge.com/news/2013-06-14/spains-debt-surges-record-high-accelerating-pace

The Syrian conflict ramps up another notch (medium):

http://www.zerohedge.com/news/2013-06-16/iran-sends-4000-troops-aid-syrias-assad