All American In...'s  Instablog

The Market

Technical

It was Tuesday, so stocks have to be up (now 19 in a row). The indices (DJIA 15387, S&P 1669) had another decent day, closing within all major uptrends: short term (14484-15202, 1588-1665 [both were above their upper boundary]), intermediate term (13969-18969, 1481-2069) and long term (4783-17500, 688-1750).

Volume rose slightly; breadth was mixed. The VIX was up again on an up price day---continuing to build support for owning volatility as a hedge.

GLD reversed its big Monday rally, selling off substantially. As you know, I am watching GLD closely; but I want a clear change of direction (up) before feeling comfortable re-building this position. Let's see what it does today.

http://www.minyanville.com/trading-and-investing/commodities/articles/A-Gold-Forecast-That-Will-Shock/5/20/2013/id/49917

Bottom line: stocks continue to advance while the number of technical indicators portraying hyper extension grows (see below). Sooner or later, one of those two things have to change---if for no other reason than if all technical indicators are pointing down, the number of indicators pointing up has to increase. Until that happens, I grin and bear it.

Meanwhile, (m)y strategy continues to be to take advantage of what I consider unwarranted optimism by lightening up on positions when the stock price trades into its Sell Half Range. I believe that we will have a chance to buy these shares back at much lower price.'

Risk appetite index (short):

http://soberlook.com/2013/05/headed-for-euphoria.html

Another extreme sentiment indicator (short):

http://www.athrasher.com/sentiment-has-hit-an-extreme-reading-according-to-ned-davis/

A history of DJIA recoveries (short):

http://advisorperspectives.com/dshort/updates/Sixteen-Real-Dow-Recoveries.php

Fundamental

Headlines

Another day with few economic numbers either here or abroad. The one datapoint was weekly retail sales in which all readings were up for the first time in several weeks. That's great; but this is a secondary indicator which by itself isn't going to cause anyone to alter their forecast.

The rest of the day was spent focused on our ruling class:

(1) Apple CEO Tim Cook defended before the senate his company's tax accounting policies---quite well I think. By the end of his testimony, it was apparent that instead of congress putting him on the witness stand for taking advantage of the tax laws as they are written, it is congress that should have been on the stand for authoring a totally dysfunctional, f**ked up tax code

(2) former IRS head tried to defend his organization before the senate with considerably less success than Mr. Cook; and the entire administration is scrambling to explain how they knew that the IRS was culpable in zeroing in on conservative groups but didn't tell Obama [hint: plausible deniability]. It will be interesting to see how this ends.

(3) two regional Fed bank heads made speeches, both sounding fairly dovish. Perhaps they were anticipating the Ber-nank's congressional testimony today as well as the release of the minutes of the latest FOMC meeting. Ordinarily, those two events would likely dominate the headlines for the day; but in a week ahead of a holiday [lots of people leaving early] that has little data, Bernanke's testimony and the minutes may be the sole focus of investors.

Regulators refuse to rein in bank derivative trading (16 minute video but a must watch):

http://www.nakedcapitalism.com/2013/05/banks-win-big-as-regulators-refuse-to-rein-in-700-trillion-derivatives-market.html

Another bit of clarity from the Fed (just kidding):

http://www.zerohedge.com/news/2013-05-21/dudley-terrified-over-reaction-qe-end-says-fed-could-do-more-or-less-qe

Although you won't find the Fed trumpeting this tidbit (medium):

http://www.zerohedge.com/news/2013-05-21/thanks-qe-bernanke-has-injected-foreign-banks-over-1-trillion-cash-first-time-ever

Is the Fed failing to inflate (short):

http://advisorperspectives.com/dshort/guest/Chris-Kimble-130521-Fed-and-Inflation.php

***over night the Japanese central bank met and reiterated its triple down, all in, balls to the wall monetary easing.

Everything you wanted to know about monetary easing but were afraid to ask (20 minute video but today's absolute must watch):

http://www.zerohedge.com/news/2013-05-21/math-stacked-against-japan-its-not-if-its-when

Irrational exuberance in Europe? (short):

http://blog.yardeni.com/2013/05/irrational-exuberance-in-europe-excerpt_21.html

Bottom line: 'stocks (as defined by the S&P) get more overvalued (as defined by our Model) every day; and as long as investors' mood remains highly optimistic, that is not likely to change. I have no idea how much higher stocks will go. But I don't think that is the appropriate measure. The issue is, are you smart enough to ride what is left of this rally and get out before stock prices are lower than they are today.

If you are, you have my utmost admiration. I, regrettably, am not that smart. So I rely on a Model that has worked on a long term basis for four decades. I am wrong to have our Portfolios at 40% cash today. I am content to be wrong on a short term basis to be sure my principal stays in tact long term.'

This article on confirmation bias is particularly apropos for me in the current market. My reply is that (1) the equations in our Valuation Model were developed long ago and updated as events dictate and (2) the Sell Half Price targets are determined by applying current data to the historical relationships set in (1). So I can choose to rely on those historical relationships or I can ignore them and go with arguments like 'it's different this time' or the Fed will successfully manage the transition from ease to tightening---for which there is not one iota of historical proof basis. I choose the former.

http://bucks.blogs.nytimes.com/2013/05/20/challenge-what-you-think-you-know/

EBITDA and the S&P (short):

http://www.zerohedge.com/news/2013-05-21/chart-day-sp-500-vs-ebitda

Goldman's bullish call (short):

http://www.thereformedbroker.com/2013/05/21/goldman-four-reasons-why-the-market-is-going-much-higher/

Subscriber Alert

In its most recent review, Total System Services (TSS) failed to meet the quality criteria for inclusion in the Dividend Growth Universe. Accordingly, it is being Removed from the Dividend Growth Universe and Sold from the Dividend Growth Portfolio.

Investing for Survival

Protect Your Income Stream

When living in a foreign country and living off your investments from home as I do, you only have to worry about two things…" writes Keith Hockton, IL Asia Correspondent. "That is, interest earned on your investments, because that's what gives you the lifestyle, and your foreign currency risk, because ultimately it's money that you will be earning in the U.S and then transferring into the local currency."

If both of those go against you due to unseen factors, i.e. a rise in the your adopted home country's currency or a fall in interest rates back home, it will affect your standard of living. So you have to try and protect yourself. Keep in mind that with currency risk, as in every other market, there is only ever one high and one low, and picking the high and the low is near to impossible.

So, if you see a rate that allows you a good standard of living and you like it, buy a decent parcel of the local currency with your USD through your bank in the U.S., and either transfer it to a bank in your host country or leave it in the U.S. That way for the next three to six months, your exchange rate is protected.

With term deposits you have to watch what rates are doing but again keep in mind that you are looking for the best rate that will allow you to live off your U.S. earnings. If you are happy with the rate and can afford to live by locking a chunk of money away for a few years, do it. Also keep in mind that with term deposits you will want a monthly income, and the rate for monthly, quarterly and six monthly payments will be less than what is quoted for the actual term of the deposit.

News on Stocks in Our Portfolios courtesy of Seeking Alpha

Home Depot beats estimates. Home Depot (HD) reported better-than-expected Q1 earnings as both revenue (+7.4% Y/Y) and EPS beat estimates. A "seasonal timing change" added $574M to sales and comps growth came in at 4.3% (4.8% in the U.S.). "Less favorable" weather conditions were more than offset by a "recovering housing market," CEO Frank Blake said. HD also raised its FY13 outlook, saying it sees 2.8% sales growth, 4% comps growth, and EPS of $3.52 (consensus is $3.54).

Medtronic (MDT): Q1 EPS of $1.10 beats by $0.07. Revenue of $4.5B beats by $0.11B

Economics

This Week's Data

The International Council of Shopping Centers reported weekly sales of major retailers up 0.2% from the prior week and up 3.1% versus the comparable period a year ago: Redbook Research reported month to date retail chain store sales up 0.5% versus the similar time frame last month and up 2.4% on a year over year basis.

Weekly mortgage applications fell 9.8% while purchase applications dropped 3.0%.

Other

Delinquency rates on business loans at a low (short):

http://www.aei-ideas.org/2013/05/delinquency-rate-for-business-loans-falls-to-lowest-level-ever-in-q1-while-charge-off-rate-falls-to-6-year-low/

Truck tonnage down slightly in April (short):

http://www.calculatedriskblog.com/2013/05/ata-trucking-index-decreases-slightly.html

I ask again, how can housing be up and lumber prices be down? (short):

http://www.zerohedge.com/news/2013-05-21/housing-unrecovery-here-lumber-enters-bear-market

Politics

Domestic

Wednesday morning humor (short):

http://www.zerohedge.com/news/2013-05-21/tuesday-humor-story-so-far

For the optimists amongst you (medium):

http://www.usatoday.com/story/opinion/2013/05/20/benghazi-irs-good-news-column/2324597/

The dream and the reality (medium):

http://www.nationalreview.com/article/348870/big-government-dream-and-reality-rich-lowry

And there is this (medium):

http://michellemalkin.com/2013/05/21/obama-irs-union-tea-party-targeting/

And (medium):

http://www.nationalreview.com/article/348687/autocrat-accountants-mark-steyn

More on out pathetic education system (medium):

http://townhall.com/columnists/thomassowell/2013/05/21/wimps-versus-barbarians-n1601497

International

Another gem from my favorite eurocrat (3 minute video):

http://www.zerohedge.com/news/2013-05-21/farage-bashes-tax-advantaged-hypocritical-european-politicians

Disclosure: I am long TSS.

The Market

Technical

The indices (DJIA 15335, S&P 1666) took a breather yesterday, but remained within all major uptrends: short term (14471-15180, 1588-1665 [the Dow is above its upper boundary]), intermediate term (13965-18965, 1481-2069) and long term (4783-17500, 688-1750).

Volume declined; breadth deteriorated. The VIX rose, finishing within its short term and intermediate term downtrends.

http://www.minyanville.com/business-news/markets/articles/255EGSPC-255EVIX-stock-market-volatility-s2526p/5/20/2013/id/49867

GLD bounced strongly off its April low. If GLS remains above 130.8 by Wednesday's close, our Portfolios will begin to re-build this position.

http://scottgrannis.blogspot.com/2013/05/whats-bad-for-gold-is-good-for-stocks.html

And (medium):

http://blogs.wsj.com/moneybeat/2013/05/20/why-precious-metals-are-taking-a-pasting/

And on a brighter note (short):

http://www.bespokeinvest.com/thinkbig/2013/5/20/a-double-bottom-for-gold.html

Bottom line: stocks remain firmly in an uptrend. While there are numerous technical indicators that raise questions of durability, momentum is currently trumping everything. As long as that remains the case, stocks will continue to move higher. However, I believe that the 17500, 1750 levels present impenetrable resistance.

Meanwhile, (m)y strategy continues to be to take advantage of what I consider unwarranted optimism by lightening up on positions when the stock price trades into its Sell Half Range. I believe that we will have a chance to buy these shares back at much lower price.'

Some perspective on this 'can't lose' market (short):

http://pragcap.com/some-perspective-on-the-cant-lose-market

Fundamental

Headlines

Only one number yesterday---the Chicago Fed's National Activity Index came in well below expectations. That isn't great for our forecast; but in context of the overall dataflow, it is not a game changer.

As usual, no one seemed to care. Most of the day investors and the media spent speculating about what happens to Jamie Dimon today, wondering how far up the food chain the IRS scandal is going to move and trying to understand why FOMC member Evans spent so much time focused on the math of the Fed's balance sheet since everyone with a third grade education knows how massive it is and how much more massive it will be if QEInfinity continues.

If that sounds like a snoozer, then you understand the market's performance.

Bottom line: stocks (as defined by the S&P) get more overvalued (as defined by our Model) every day; and as long as investors' mood remains highly optimistic, that is not likely to change. I have no idea how much higher stocks will go. But I don't think that is the appropriate measure. The issue is, are you smart enough to ride what is left of this rally and get out before stock prices are lower than they are today.

If you are, you have my utmost admiration. I, regrettably, am not that smart. So I rely on a Model that has worked on a long term basis for four decades. I am wrong to have our Portfolios at 40% cash today. I am content to be wrong on a short term basis to be sure my principal stays in tact long term.

The latest from John Hussman (medium):

http://advisorperspectives.com/commentaries/hussman_052013.php

Is a melt up coming? (medium):

http://www.thereformedbroker.com/2013/05/19/felix-zulauf-here-comes-the-buying-climax/

More on valuation (short):

http://turnkeyanalyst.com/2013/05/are-market-valuations-too-high/

And (medium):

http://aswathdamodaran.blogspot.sg/2013/05/equity-risk-premiums-erp-and-stocks.html

Unfortunately, all those under funded pension funds are not benefiting from the recent Market moon shot (medium):

http://www.zerohedge.com/news/2013-05-20/bernanke-wealth-effect-completely-wasted-trillions-pension-funds

Speaking of retirement funds, they appear to be a source of funds for the growing real estate bubble (short):

http://www.zerohedge.com/news/2013-05-20/what-could-possibly-go-wrong-here

True or false: 'Profits are the milk of the stock market'. And the answer is (short):

http://www.zerohedge.com/news/2013-05-20/wtf-chart-day-its-all-about-earnings

So much for 'Cyprus isn't a template' (short):

http://uk.reuters.com/article/2013/05/20/uk-eu-banks-idUKBRE94J0R820130520

Company Highlight

Accenture Ltd is a global leader in management and technology consulting services and outsourcing solutions with 200 offices in 54 countries. The company has generated an impressive 50%+ return on equity over the last five years while growing earnings per share and dividends 13-15% annually. ACN should be able to continue this trend as a result:

(1) demand outsourcing services are rising rapidly,

(2) Accenture's strong financial condition will allow it to continue its aggressive stock buy back program.

Negatives:

(1) its large international business subjects it to the risk of currency fluctuations,

(2) the global slowdown is impacting its consulting services.

The company has virtually no debt, is rated A++ by Value Line and pays a dividend providing a 2.2% yield.

Statistical Summary

Stock Dividend Payout # Increases

Yield Growth Rate Ratio Since 2006

ACN 2.2% 14% 36% 6*

Ind Ave 1.8 10 32 NA

Debt/ EPS Down Net Value Line

Equity ROE Since 2003 Margin Rating

ACN 0% 68% 1 10% A++

Ind Ave 20 19 NA 13 NA

*ACN has paid a dividend for 7 years.

Chart

Note: ACN stock made great progress off its October 2008 low, quickly surpassing the downtrend off its September 2008 high (red line) and the October 2008 trading high (green line). Long term, the stock is in an uptrend (straight blue lines). Intermediate term, it is an uptrend (purple lines). The wiggly blue line is on balance volume. The Aggressive Growth Portfolio owns a full position in ACN. The upper boundary of its Buy Value Range is $47; the lower boundary of its Sell Half Range is $84.

(click to enlarge)

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

5/13

Economics

This Week's Data

The Chicago Fed National Activity Index was reported at -.53 versus expectations of -.23.

http://www.capitalspectator.com/archives/2013/05/chicago_fed_slo_2.html#more

Other

The problem with EU youth unemployment (medium):

http://www.zerohedge.com/news/2013-05-20/europes-status-quo-pandering-risks-radicalization-entire-generation

The math of QEInfinity (medium):

http://www.zerohedge.com/news/2013-05-20/stocks-slide-following-permadove-chuck-evans-attempt-math

Chinese inventory growth (medium):

http://www.zerohedge.com/news/2013-05-20/artificial-growth-exhibit-chinas-inventory-stockpiling-hits-all-time-high

Is the US the 'cleanest dirty shirt'? (short):

http://www.zerohedge.com/news/2013-05-20/guess-who-dirtiest-dirty-shirt

Global leading economic indicators portray weak recovery (short):

http://advisorperspectives.com/dshort/guest/Dwaine-van-Vuuren-130520-Atypical-Global-Recovery.php

Politics

Domestic

IRS-gate---what did He know and when did He know it? (medium):

http://www.zerohedge.com/news/2013-05-20/white-house-explains-obama-didnt-know-what-he-knew-when-everyone-else-knew-what-he-s

Ron Paul on the IRS (medium):

http://www.zerohedge.com/news/2013-05-20/ron-paul-irs%E2%80%99s-job-violate-our-liberties

Thought for the day (short):

http://cafehayek.com/2013/05/abuse-of-reasons.html

International

Russia sends more ships into Mediterranean (short):

http://www.zerohedge.com/news/2013-05-20/russia-adds-two-more-warships-mediterranean-task-force-near-syria

Disclosure: I am long ACN.

The Market

Technical

Monday Morning Chartology

There is nothing to say. This chart speaks for itself. The only question is 'how high before the fall?'

(click to enlarge)

GLD is now testing its April low and the lower boundary of its long term uptrend. If successful, our Portfolios may start to nibble.

(click to enlarge)

The VIX was down on Friday. But even on such a strong up day, it made no attempt to challenge the lower boundary of its long term trading range.

(click to enlarge)

Update on 'the best stock market indicator ever':

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

Fundamental

More on valuation (short):

http://www.bespokeinvest.com/thinkbig/2013/5/17/sp-500-pe-ratio.html

Another hint of caution from a Street bull (short):

http://blog.yardeni.com/2013/05/bernankes-melt-up-excerpt.html

News on Stocks in Our Portfolios courtesy of Seeking Alpha

Donaldson (DCI): FQ3 EPS of $0.46 misses by $0.03. Revenue of $619M (-4% Y/Y) misses by $40.41M.

Economics

This Week's Data

Other

The disconnect between Wall Street and Main Street (medium):

http://advisorperspectives.com/dshort/guest/Lance-Roberts-130517-Great-American-Divide.php

Politics

Domestic

Look who is now in charge of your healthcare (medium):

http://www.zerohedge.com/news/2013-05-17/irs-official-charge-during-tea-party-targeting-now-runs-health-care-office

In case you missed this weekend news (medium):

http://www.zerohedge.com/news/2013-05-19/white-house-damage-control-script-jeopardized-new-disclosures

International

More on Benghazi (medium):

http://www.weeklystandard.com/author/stephen-f.-hayes

A message from the Boston Marathon bomber (short):

http://www.powerlineblog.com/archives/2013/05/ms-found-in-a-boat.php

Immigration into Germany (short):

http://www.zerohedge.com/news/2013-05-19/other-way-exit-euro

Disclosure: I am long DCI.