Charles Payne's  Instablog

The Street loved the statement but hated the reality that accommodation may be reeled in sooner rather than later. The fact of the matter is there are a number of issues here. The market was actually edging higher after Bernanke was forced to give a time line on tapering that suggested action happening in September ("next few meetings"). But the Fed minutes spooked the market because some see pressures inside for swift unwinding of the $85.0 billion monthly asset buying program. In many ways the minutes suggest an Arab Spring situation inside the Fed.

Is Bernanke losing control?

Alan Greenspan had such a vise-grip control over the Fed it was like a monarchy, but members today understand their voices carry a ton of weight, and they can move markets even when expressing views not in line with the chairman's. Moreover, these members appear to be putting more pressure on policy decisions and that's why this one particular paragraph in the minutes sparked a reversal in the market, leading to the most volatile day since November 2008:

A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence would be necessary and the likelihood of that outcome.

Earlier in the day Mr. Bernanke made precise comments designed to counter this statement. He noted policy changes and tapering in next few months (I rule out July because there is no press conference with that gathering and there is no way the Fed makes a major shift in policy without trying to sell it and quell markets) and mentioned "real" improvement in the labor market. I suspect real means people coming back to the job market and the unemployment rate still trending lower. On that note a trend means more than one or two months.

Then there's the fact some in the Fed actually want to see more accommodation, which is probably more in line with Bernanke's thinking:

One participant preferred to begin decreasing the rate of purchases immediately, while another participant preferred to add more monetary accommodation at the current meeting and mentioned that the Committee had several other tools it could potentially use to do so.

To be sure, Ben Bernanke worked hard to make the case the Fed still has room for accommodation even in an improving economy. Yesterday on Varney & Co I pointed out Big Ben came into the meeting feeling like he was finally in his sweet spot-the ability to print at will as the virtuous cycle was taking hold. Yesterday saw strong numbers from the housing market with existing home prices at multiyear highs. But Main Street hasn't bought into the plan enough to even begin to consider tapering, which makes those selling solely on Fed policy probably early.

Bernanke's Sweet Spot

> Consumer Delivering
> Banks double capital of four years ago
> Improved willingness to lend (still needs work)
> Credit availability improving
> Inflation on "low side" historically
> Stock and bond prices not inconsistent with fundamentals

There continues to be a great sense of frustration that the Fed is doing this alone without help from Washington- especially the White House. Bernanke mentioned the grand bargain budget deal would "inspire" confidence in markets and households that would strengthen the economy.

Action in bonds was overshadowed by the equity market, but the 10 year yield pierced 2.0% yesterday which is a red flag for the much ballyhooed bond correction. Such a correction should see funds migrate into stocks, although if too violently, funds might seek the shelter of the sidelines.

I think the reaction to yesterday's events was a bit exaggerated, but in the proper context we are talking about a 1% pullback from the all-time high in the Dow and S&P. There is pressure on the market this morning as the experts continue to guess the Fed's next move.

Mighty Meg and the Retailers

Earnings last night and this morning were pretty good once again, hinting at gradual improvement in the economy, which might be bad news for those that want more Fed action, but in the end it is what we all want and need.

HPQ posted earnings of $0.87, beating the Street's forecast by $0.06 and offered guidance that's well ahead of consensus.

PETM beat the Street by $0.02 and raised the range for the current quarter and full year outlook.

PSUN lost $0.14 per share; the Street was looking for a loss of $0.18, and management hiked revenue guidance for the quarter above consensus.

PLCE posted earnings $0.22, better than expected, and raised guidance for the current quarter and full year.

DLTR beat by $0.02 and raised full year guidance although it's below current street consensus.

Conclusion I do not see the Fed tapering soon, and there is still a chance it could happen next year. But the real deal is we should be cheering an improved economy. Yet this economy will never be as strong as it should be, but it's not the wreck the doomsday crowd says it is.
https://www.wstreet.com/user/register.asp?source=3

In the meantime Mead Johnson (MJN) was a giant winner in a down session yesterday. I gave this idea to everyone on the market commentary in addition to paid subscribers because it underscores one of my main investment theses.

There are companies out there that making real profits around the world, taking market share, inventing new products and that are cheap based on those developments and potential. I don't want to see investors whipsawed. Sure, we've been raising cash mostly by taking profits on a bunch of positions, but there are stocks worth holding during increased volatility.

Let's see how the market shakes out this morning. I'm licking my chops and actually looking for a chance to own great companies at discounts.

As for the Fed I actually think it would be better for swift and determined unwinding rather than trying to appease markets. If the initial reaction is harsh that's fine because we need policies based on the economy and not emotions. In fact, the big problem in this world of soft landings is trying to make tough medicine go down easy. Greenspan kept rates too low for too long, but a greater mistake was raising them at such a slow pace that the damage already planted into the system took full bloom.

If Bernanke wants to take a real victory lap it should ignore the market and make bold moves in the opposite direction. Consider how much the Street is whining from the notion of buying less debt might as well say we've won and cut the juice when they decide the coast is clear. On that note I suspect Bernanke is watching the action in the market and will be more reluctant to change policy.

Yesterday there was a chance of some changes this year, but continued pressure on stocks could push that out to 2014.

I wanna run, I want to hide
I want to tear down the walls that hold me inside
I want to reach out and touch the flame
Where the streets have no name
I want to feel sunlight on my face
I see the dust-cloud disappear without a trace
I want to take shelter from the poison rain
Where the streets have no name
Where the streets have no name
Where the streets have no name

-U2

"For the record U2 and the individual band members have a totally clean record with every jurisdiction to which they are required to pay tax and have never been and will never be involved in tax evasion"
-The Edge to the Baltimore Sun

When U2 saw its taxes leap to $1.1 million in 2006 after only having to pay $46,500 in 2005, the band did what any smart band would do ... moved its corporation to a cheaper tax domain. The move to Amsterdam must have saved the band hundreds of millions on the more than $1.0 billion it's raked in since then. It's always better to find a place where the accounts have no names to shelter hard earned bucks.

This is particularly true of famous leftists banking big time money. Hey, I'm a fan of the music and commonsense action to keep more of what they've earned.

Washington DC was a busy place yesterday with the IRS scandal moving to the Senate while Tim Cook was under the microscope for saving money on taxes but not breaking laws. Apparently, Apple uses a subsidiary in Ireland that doesn't have to pay taxes to that nation because it's managed from outside and doesn't have to pay taxes to America because it's not an American company. I'm sure this angers some people, more often than not people that pay no taxes and those in government see a chance to play the class warfare card and try to embarrass a symbol of American capitalism.

It was really as self-serving as it gets in a town where accountability has been thrown out the window and finger pointing is as close to honest debate as one could expect.

In the meantime the guys in charge of the IRS while it targeted Tea Party groups did their best Barney Fife impression as they continue to claim they know nothing, can't remember anything, but are sure singling out conservatives weren't "politically motivated." The bumbling by itself is disappointing, but using the IRS as a political weapon is deplorable. So, while one guy was defending his company (Apple) because it only paid $6.0 billion in taxes last year some guys down the street were trying to build a moat around the White House using the dirt from excavation to bury truth.

The fact of the matter, and it was only brushed a couple of times yesterday, is American policymakers have their work cut out trying to lure and keep businesses here while the world beckons. Two decades ago jobs began to shift because it was much cheaper to manufacture abroad. Now, the dilemma is the fact that the customer base is growing faster outside the United States. Coupled with an educated workforce, particularly in Asia, it makes a lot more business sense to manufacture closest to your customers with a smart and cheaper workforce.

Add to this mix the highest corporate taxes in the world and just how does America lure some of that $1.5 trillion offshore stash back home.

There have to be pro-growth policies coupled with lower taxes. Otherwise it's the just the armies of the government and giant businesses going around in circles. Yesterday, Tim Cook said he was cool with corporate taxes in the 20% range with expatriated taxes in the single digits. That would be a great start but for a government that doesn't get the idea that generating prosperity across the board that would see even greater tax receipts than confiscatory and punitive policies.

Conclusion

The tax code and IRS would be better used to enforce tax policies that aim to fund government, not create rivals to the private sector. Increasing the army of storm troopers will only embolden more of the despicable action that saw political opponents of President Obama targeted and punished. A terrible mistake is being made when even the most liberal of corporate chiefs fights against current tax policy.

(I do find it funny Cook took shots at companies that use offshore banks in the Caribbean while he found the most convoluted maze imaginable to not pay taxes on billions of dollars. Even with tax avoidance some people think they're nobler than others).

I don't hold out hope for sanity to invade the White House, especially economic sanity, but will we spend the next three years going from excuse to excuse? There are so many challenges for the nation we can't meet any of them without capital and fossil fuels and the same people mucking up works for both. It is time to tear down the walls that hold greatness in the ground and gobs of money outside the country. Let's put an end to the poison rain.

https://www.wstreet.com/user/register.asp?source=3

Pythagoras was a Greek philosopher and leader of a cult that bore his name. It's hard not to see parallels between him and the Wall Street crowd that lives and dies by the numbers. Of course Pythagoras and his followers were a lot more disciplined than the folks that huddle each day in the canyons of lower Manhattan. They were strict vegetarians and amazing mathematicians. The Wall Street crowd believes in thick, rare steaks, and all the fine wine that goes with it and their math is fuzzy at best.

Pythagoras' cult prayed to the tetratktys, or first four digits.

* One - represented reason
* Two - represented argument
* Three - represented harmony
* Four - represented justice

Then there's the famous theorem that made Pythagoras a household name even to this day. He was so excited upon proving his theorem Pythagoras sacrificed a cow (I said they didn't eat meat but it didn't stop them from having fun). When we examine the stock market rally, we have to take into account the four digits from the Pythagoras belief system. The one that bothered me most yesterday was "reason." The big news (according to news types that have no clue about how to make money) was Yahoo buying Tumblr for $1.1 billion. A deal some would say there was no rhyme or reason for considering the price tag.

I can't call it yet, but it seems like a high price to pay, but I've watched names like CSCO and MSFT languish for years in part to holding on to too much cash. In that regard I think it was a smart deal. Then there is reason with respect to the broad market rally and its justification. I've gone along with the idea the rally is justified and still think there are scores of individual stocks still cheap enough to own - especially if you can catch a dip. Still, you are going to get arguments on this from smart people, angry people, people who have no clue and people that simply want to see America fail.

Part of the problem is that there is no harmony. It would be so much easier if the economy was generating 300,000 jobs a month, factories were being built, and the Fed didn't feel obligated to pump in $85.0 billion a month. Yet stocks zoom. Stocks are higher even as GDP growth barely stays above water. There is no harmony between the stock market and the US economy, but with Tim Cook heading to Capitol Hill today to discuss corporate taxes we are reminded that many of the biggest publicly traded names make more money outside this country than inside.

Poetic Justice

Surely as the divine powers take note of the dutiful,
surely as there is any justice anywhere and a mind
recognizing in itself what is right, may the gods
bring you your earned rewards.
-Virgil

Finally there's the issue of justice. I watched the market move mostly sideways for years after the 2001 market crash, ignoring amazing profits as investors had licked their wounds and moved on to the housing bubble. That same bubble took stocks down even more, aided by bumbling lawmakers that bailed out failed businesses in the name of a soft landing. Well, it was anything but soft and took another giant chunk of confidence from the investing public. Now those same investors are coming back to the market hoping not to get hammered again.

The haters would love to see investors troop back into stocks and get scorched again to teach them a lesson. There really are some out there content to have missed 9,000 Dow points because such profits are unethically based on Fed money printing. It's not good enough for them to miss out, but they resent the public not worshiping at their altar of fear. Yes, there are so many things wrong with America and we are on that well-worn path of Greece but we are still America - for now. I suspect reluctant investors just getting back in the mix will be tested soon.

I can say already many will fail based on some comments I heard yesterday about the fact a couple of our buy and hold ideas haven't moved up much - since last week.

Beyond the stock market, the nation is dealing with a series of scandals that will test our belief in Justice when it comes to the highest powers in the land.

For now, I think there is an element of justice to the rally for those of us that have dealt with the long trip of indifference and near death.

Conclusion

If Wall Street was only about the numbers on a day to day basis the market would be easy, but it's about emotions on a day to day basis, trust on a day to day basis, consensus on a day to day basis, and hype on a day to day basis. Yes, there is a lot of public information, but the public is severely uneducated about the market in general and even names in their portfolios. Numbers do matter in the end, and it's that plus the human element to make those numbers happen again and again that eventually determine the fate of stocks.

I think the market, when it's not reacting to exogenous forces and events, does rely on reason, argument, harmony and yes justice, too.

War on Capitalism

Today, Tim Cook has to explain taxes and expenditures to a bunch of Senators and give a reason why Apple loathes bringing overseas profits back to America. The richest company in the world actually has more -real- money than the United States government, yet they want to scold him on how to spend the riches that belong to Apple shareholders.

Today also sees a vote on whether Jamie Dimon should retain both the CEO and Chairman's titles at JP Morgan. Considering the company is considered the best run business on Wall Street, and some would say all of America, it's kind of crazy this spectacle is occurring in the first place.

https://www.wstreet.com/user/register.asp?source=3