- The stock market remains in an overall bull trend despite volatility in earnings season. The Dow transports and industrials are trending upward. - Technology stocks like Facebook and Twitter are showing weakness, raising questions about overvaluation in the sector. The NASDAQ faces technical weakness. - Bio-tech has entered a bear trend with a 15% decline from highs. Consumer staples have strengthened. Real estate remains strong. - American corporations hold $15 trillion offshore to avoid US corporate taxes until profits are repatriated, depriving the US of tax revenue that could fund jobs and infrastructure. The top 15 US companies hold $1 trillion in offshore profits untaxed by the US.

1. Wealthbuilder Stock Market Brief 4th
. May 2014.
A choppy earnings season but the bull remains firmly intact:
It was a choppy earnings season but despite its volatility the bull trend remains very much intact.
The Dow Transports and Dow Industrials both are trending upward with higher highs and higher
lows and both indices are in congruence. (Though it must be noted that the Transports Index is
significantly stronger than the Industrials). In addition The VIX remains at historically low levels
and the Advance/Decline line shows no sign of any technical stress what-so-ever.
Despite this strength there are some specific areas of weakness.
One sector experiencing difficulty is technology. It would appear the gloss has definitely come
off silicon valley. Review the charts below of Facebook and Twitter. This weakness is asking
questions of this industry going forward. If a solid recovery is safely in place these media poster-
boys should be “booming”. The chart evidence presented proves they are not. I think the issue
here is overvaluation and the inability of future income streams to validate exorbitant P/E ratios.
This technological weakness is not company specific. The NASDAQ is indicating real technical
weakness. The chart below of the QQQ’s shows that the index is hovering about its 100 daily
moving average. If the price action breaks below this important average and then fails to
consolidate around the 200 daily moving average (which is only 5% lower), it will be very
worrying for the sustainability of this bull market, long term.
Another area of weakness is bio-tech which has technically entered a bear trend. While there has
been a 15% retrenchment from previous highs in the bio-tech ETF: IBB, I still anticipate further
correction.
As suggested in last month’s brief the consumer staples sector (ETF: XLP) has had a positive
season. This I believe is due to rotation by astute money managers into markets offering earnings
consistency. The consumer staples bear trend, which began last autumn, is definitely over.
In the general “blogosphere” for the past 2-3 months there has been numerous stories heralding
the “collapse” of the American real estate market. While these articles make for interesting
reading they are somewhat sensational. The market confidence in this sector remains strong as
can be observed by reviewing the Dow Jones Real Estate Index Fund ETF: IYR below. This year
this ETF is up 11% and technically the trend is powerful. I think this is one of the reasons the
FED is continuing with the QE tapering policy. I think Janet Yellen and her team are genuinely
confident the recovery has legs. Of course should this strength become too robust it will call into
question the continued low interest rate environment.
Of course when that mantra begins to be played out in the media all bets concerning future
market trend will be off ,from my point of view. But that is a discussion for another day.

2. Dow Jones Transport Index: Daily.
Dow Jones Industrials Index: Daily

3. Market Volatility Index:VIX: Daily.
A/D: Advance Decline Line: Daily.

4. Power Shares ETF: QQQ: Daily.
Facebook Inc: Daily.

5. Twitter Inc: Daily.
Bio-Tech ETF: IBB: Daily.

6. Consumer Staples ETF: XPL: Daily.
Dow Jones US Real Estate Index ETF: IYR: Daily.

7. America’s offshore profits:
A couple of months ago I was doing some research for an article on world economic instability.
One of the surprising facts I discovered was that nearly 15 trillion dollars of cash resides in off-
shore tax havens ranging from Bermuda, The Virgin Islands, The Isle of Man, Jersey, The Grand
Cayman Islands, Panama and (surprisingly) Ireland.
This “off-shore” reality is greatly motivated by the fact that even though the American corporate
tax rate is officially 35% approx., “international” branches (affiliates) do not pay this tax until
profits are repatriated. In the main most of the American Fortune 500 earn the majority of their
income internationally, thus in the main they pay no corporation tax on the majority of their
revenue.
Very often these trillions of deferred interest free tax loans remain “abroad” until “tax amnesties”
are arranged. Under such amnesties the 35% rate can be adjusted down to the region of 5%.
(Reference: 2004 Bush tax amnesty “Homeland Investment Act”. The adjusted rate was 5.25%).
Such “amnesties” make a mockery of the official American corporate tax rate.
If these corporations paid the real corporate rate, billions of additional taxes could be collected to
greatly improve America’s fiscal balance sheet. This would allow much needed revenue to be
invested in such areas as infrastructural development. This type of executive action would
ensure that real jobs were created on the American mainland; jobs that play real wages not
subsistence stipends.
A recent post on Zero Hedge picked up on this problem:
“The 15 US Companies With The Most Offshore Profits:
In the aftermath of several recent events such as:
i) the issuance of new mega batch of $12 billion in bonds by a suddenly domestic-cash strapped
Apple,
ii) the repatriation of $9 billion in offshore profits (and payment of $3 billion in taxes) by eBay,
iii) the flurry of pharma M&A deals and reverse mergers in which US companies are re-
domiciled offshore (in low corporate tax hosts like Ireland) to avoid paying US taxes,
iv) the outright use of offshore funds to buy offshore companies such as the GE-Alstom deal
which bypasses the US treasury entirely.
Two questions emerge: who has the most offshore cash, and who is most likely to be the next US
corporation to engage in one or all of the above listed transactions which merely seek to
optimize a company's offshore cash holdings.

8. The answer is shown on the chart below: this is the list of the top 15 US companies that have the
bulk of accumulated offshore profits, amounting to roughly $1 trillion in cash, which is never
subject to US taxation, and which financial engineers try to generate the highest shareholder
returns on.”
I think this matter of “un-repatriated” taxes is going to become more and more an issue as main
stream media begin to pick up on it.
Surely something is wrong when Federal America has an official business tax rate of 35%
approximately; a rate which is applied aggressively to land based mom and pop small businesses,
yet is never applied to the multi-trillion corporate sector.
Charts: Courtesy Worden Bros.
© Christopher M. Quigley 4th
. May 2014.