Weekly Update-June 16, 2012

By: Michael Vodicka

“We’ve all got a green light to quit our jobs and stop working. Because at the end of the day, what does it really matter? The omnipotence of the Fed will fix everything for us and keep us safe.”

There’s really nothing to say about the market this week other than this.

Forget about the Greek elections this weekend. The Fed will fix it.

Forget about Spain, Italy and Portugal all operating on the cliff of a financial implosion. The Fed will fix it.

Forget about Germany’s willingness to fund weaker Euro countries. The Fed will fix it.

Forget about the Euro zone fixing a debt problem with more debt. The Fed will fix it.

Forget about China slowing down. The Fed will fix it.

Forget about slow economic growth in the US, the Fed will fix it.

Forget about high unemployment and stagnant wage growth, the Fed will fix it.

Forget about our huge debt and totally unsustainable borrowing. The Fed will fix it.

Forget about the US fixing its debt problem with more debt. The Fed will fix it.

The bottom line here, is that nothing matters. Not in the market, this world and maybe even the galaxy. Because the Fed will fix everything.

So we’ve all got a green light to quit our jobs and stop working. Because at the end of the day, what does it really matter? The omnipotence of the Fed will fix everything for us and keep us safe.

But if you don’t believe me, go ahead and take is straight from the horse’s mouth, AKA, Lael Brainard, Treasury undersecretary for international affairs.When asked what the US can do to combat market volatility, her response was the government “always” has tools to combat such events

See, just like I said, we have nothing to worry about. The Fed will fix everything.

Let’s get into some updates.

Updates:

Anyone who has been playing a sucker’s rally over the last two weeks is feeling a little bit of pain, with the market retracing 5% of its 10% decline from May to June in the last two weeks. Go ahead and put me in that group, because I have been pretty bearish lately. That’s mostly because I just don’t see how the Euro zone is going to come up with enough cash to support the growing list of countries needing financial assistance. But as always, that bullish movement could change on a dime, with plenty of uncertainties swirling around the global economy. So as always be prepared for volatility.

But in the meantime, we’ve seen some pretty decent movement in some of our favorite stocks.

CPFL Energia (CPL) was the big winner of the week, with the electric utility out of Brazil with a hefty 6.6% dividend climbing 6.2%. Emerging market stocks are considered to be high growth and higher risk, so when the “risk-on” trade moves back on the table, its a cinch that a stock like this will see some nice gains.

Global leader in prosthetics Stryker Corp (SYK) was also on the move, adding a solid 5.5% gain on the week as healthcare stocks continue to trade strong on the year.

Leading derivatives exchange Intercontinental Exchange, Inc. (ICE) was also well in the green, posting an outsized gain of 5.4%. That movement came on news that ICE had lost a bid for the London Metals Exchang (LME), which is typical for a company that moves away from an acquisition target due to decreased financial exposure and uncertainty. Bigger picture, ICE at $135 is just $7 off its all-time high of $143.

Shifting into some laggards, energy continues to trade seriously weak, and that showed up in Cimarex Energy (XEC), falling .4% in the bullish market. With Cimarex trading at $49, shares are now close to 50% of the 52-week high. This places investors in a tough position. Long-term, energy still feels like a great place to be investing, because crude is a precious resource that exists in a limited quantity while demand continues to increase. But this trade has just been totally brutal, across the entire sector, regardless of size or valuation. Speaking of valuation, these stocks have rarely ever been cheaper, with earnings holding up well in spite of shares plunging lower. For the time being, I still want to own energy stocks, because I like the long-term trend. But there’s no doubt it’s been pretty rough to see these stocks get punished like the world no longer needs crude or gas.

VeriFone Systems, Inc. (PAY) has been beaten like a mule over the last month, falling from $55 to $30. It started with the company’s Q2 earnings call, when VeriFone guided only slightly below full-year expectations. But that weakness carried on this week, with shares down 12% after the company announced a $17 million charge on a patent infringement lawsuit. That created a lot of uncertainty around shares, and there is nothing that the market hates more than uncertainty. Longer term, this is a growth company operating in the growth industry of electronic financial transactions, so even though this has been a tough setback, I still believe in the long-term trend.

That’s all for this week, but until next time, here is some more insight into this weekend’s Greek elections and its impact on the market and Euro zone. Enjoy!

Investors Brace for Dramatic New Stage in Europe

Your Investment Partner,

Mike

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.