Stocks trimmed their gains today as investors expressed concern on whether the Federal Reserve may signal that it will scale back its stimulus at the conclusion of its next policy meeting. “We continue to have these momentary scares around what the next step for the Fed might be, which seems to send some chills up the spine of the market, but that’s a little overdone,” James Dunigan, chief investment officer in Philadelphia for PNC Wealth Management, said.

Dollar Trumps Yen on Upcoming Fed Announcement (Reuters)

The dollar trumped the yen today — its first time in five trading sessions — as stock markets rallied on the Federal Reserve’s upcoming announcement about whether it will maintain its monetary stimulus policy. “The dollar has been selling off over the last week or so, so I think it probably has more room to gain than to lose,” said John Doyle, currency strategist at Tempus Inc. “That said, if (Bernanke) comes out and basically shoots down any idea of tapering back QE this year, then obviously the dollar is going to weaken on that news.”

Home Builder Confidence Reaches 7-Year High (CNBC)

Americans are feeling confident about their housing prospects, so much so that it’s been seven years since they have last felt this way. Specifically, the monthly sentiment index from the National Association of Home Builders hit eight points in June to 52, and any score above 50 indicates that builders view sales conditions as good. “With the low inventory of existing homes, an increasing number of buyers are gravitating toward new homes,” said NAHB chairman Rick Judson.

I shared my view last week that the Fed is not likely to taper near term. More recent data confirms that perspective, which I shared in greater detail this past weekend when I appeared on The Wall Street Report. Just this morning, the New York Fed’s own Empire Manufacturing Survey for June boosted the case for no near-term tapering:

• “The new orders index slipped six points to -6.7, the shipments index fell twelve points to -11.8, and the unfilled orders index fell eight points to -14.5.”
• “Labor market conditions worsened, with the index for number of employees dropping to zero and the average workweek index retreating ten points to -11.3. Continuing the trend seen in the past few months, indexes for the six-month outlook declined, suggesting that optimism about future conditions was weakening further.”

Now that’s just the latest, and we can add last week’s industrial production report, as well as the May producer price index. Keep in mind that China is slowing and the euro zone remains sluggish. Factoring all of these elements together, it reinforces my view that the Fed is not likely to taper its stimulating efforts near term.

Even though the evidence points in that direction, the horde likely will wait until it learns of the Fed’s decision for itself this Wednesday, which is the date for the next Federal Open Market Committee meeting. Should Bernanke — and I think he will — signal the Fed will continue to inflate the economy in the coming months, it will not only be gas for the fire that has been the stock market, but it will bring calm to the stock market.

With that view, we’ve been using the recent market volatility to scale further into some of our existing PowerTrend Profits positions. Much like the fat cats of Wall Street, we don’t buy an entire position in one fell swoop. Rather, we take advantage of any dips in the share price to improve our cost basis, while also increasing our position size — that’s a long-term win-win and a key strategy to long-term profits. That strategy has led to huge profits:

• More than a 45% return in our Starbucks (SBUX) holdings during the last 10 months;
• A near 32% gain in Applied Materials (AMAT) in less than 10 months;
• A return of 34.4% return for our Inter Parfums (IPAR) position in less than six months;
• A near 29% return in roughly a year’s time in International Flavors & Fragrances (IFF).

Not only are those returns well ahead of the major market indices, but with each of those, I’ve used market volatility to your advantage. Keep in mind that those are only some of the big returns that subscribers to PowerTrend Profits have booked. As I said, my subscribers and I have been using the last six weeks to make sure we’re positioned for even more big profits in the weeks and months ahead. After all, the informed investor not only wins the day, he or she also generates considerable profits while being able to sleep at night.

PowerTalk #35 — Dishing on Cyber Security with Sourcefire’s CTO

Earlier this week, I was talking with some folks at the U.S. Chamber of Commerce, and they pointed out several of the key concerns that are on the minds of its more than 3 million members. For those businesses that comprise the Chamber’s constituents — from mom-and-pop shops to leading industry associations and large corporations — cyber security increasingly is on their minds.

That makes my most recent PowerTalk all the more timely. Joining me to discuss the growing threat we all face — cyber attacks — as well as a set of new solutions to combat them is Martin Roesch. Martin is not only a founder of cyber security company Sourcefire (FIRE) but also its chief technology officer (CTO) and a board member.

Cyber attacks not only are growing in volume, but they are hitting major companies like Google (GOOG), Bank of America (BAC), Northrop Grumman (NOC), Microsoft (MSFT), Yahoo (YHOO), AOL (AOL), LinkedIn (LNKD), Tumblr, the Reuters news service and the BBC, to name a few. The situation is a cause for alarm. Findings from Symantec’s (SYMC) Internet Security Threat Report, Volume 18 revealed that not only was there a 42% surge in targeted attacks during 2012, but 31% of all targeted attacks are aimed at businesses with fewer than 250 employees.

That’s one of the reasons why the threat of cyber attacks sits in the crosshairs of my Safety & Security PowerTrend, one of my Great 8 PowerTrends that shapes how we invest in my PowerTrend Profits newsletter.

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Sincerely,

Chris Versace
Editor, ETF PowerTrader
Editor, PowerTrend Profits
Host, PowerTalk

Upcoming Appearances

• Watch my recent appearance on The Wall Street Report where I shared my view on the economy and the stock market, as well as a new stock pick.
• Each Friday, I’ll be joining The Andrea Tantaros Show to dissect the latest economic and stock market news with Andrea and her listeners. You can listen to that discussion by clicking here.
• I’ll be hosting several panels at FreedomFest this year, which runs from July 10-13 in Las Vegas. More details on the show can be found here.
• I’ll be making a presentation to the Maryland SIG chapter of the American Association of Individual Investors on July 17. Be sure to attend if you’re nearby — more information can be found here.

For weeks now, uncertainty about how long the Federal Reserve’s stimulus support would last has been the primary driver pushing Asian currencies lower. Now it looks like a whole host of pressures will be piling on in the months ahead. The Japanese yen’s fall, sovereign risk re-assessment and deteriorating current-account deficits are weakening the monetary growth achieved in the region since the 2008 global financial crisis. The “hot-money” that had flowed into places like India, Indonesia, Australia and other countries had been covering up fundamental weakness. Now that those funds are no longer pouring into the region, those poor fundamentals remain. And they’re taking a toll on currencies, with Australia’s dollar falling some 10 percent from this year’s high. How low these currencies go remains to be seen.

Netflix Teams up with DreamWorks (Reuters)

Investors in Netflix soon will be streaming more profits into their portfolios, after the video-delivery giant signed its largest deal ever for original programming with DreamWorks Animation SKG. The agreement also means that for the first-time, DreamWorks’ programs will be presented as a branded set of shows. The first show launches in December. It is a new show called “Turbo: F.A.S.T.” based on the latest DreamWorks theatrical release: Turbo. This show is designed to push new subscriber growth for Netflix as many viewers are looking toward Internet-based TV for alternatives. We’ll see how much it pushes share appreciation as well.

The Other Side of the Story: Easing to Spur Double-digit Stock Growth (Bloomberg)

Even though Asian currency traders may beg to differ, there’s evidence that supports the view a reduction in the Fed’s quantitative-easing (QE) stimulus will actually spur the economy. According to data compiled by Bloomberg, the last four times that the Fed has begun to raise interest rates, the S&P 500 has gained 16%. Bears aren’t buying it though, saying that economic growth expansion is still the slowest it has been since WWII and pulling support will only slow that growth.  As you might imagine, Bulls see just the opposite. According to John Canally, of Boston-based LPL Financial Corp, “The Fed tightening, that’s good for stocks.”  As a reduction in QE stimulus would indicate the Fed’s confidence in a self-sustaining market. Who’s right? Who knows, but we’ll have a better idea after this week’s Fed meeting.

The competition between two billionaires, Ergen and Softbank’s owner Masayoshi Son ultimately is a battle to acquire Sprint Nextel Corp. (S), the third-largest U.S. wireless carrier and the majority owner of Clearwire. The losing bidder likely will consider making a deal to buy the 79 percent stake in the fourth-largest U.S. wireless company, T-Mobile, which currently is owned by Germany’s Deutsche Telekom.

Neither billionaire seems to be backing down, nor is either expected to be deterred if his rival gains control of Clearwire and Sprint. Ergen is a poker-playing entrepreneur who started in the satellite industry as a seller of big satellite-receiving dishes to rural customers before he launched a successful satellite TV business that allowed users to receive programming with much-smaller, 18-inch satellite dishes. Son, a highly competitive businessman is vowing to transform his company into the world’s biggest mobile communications services provider.

Both are determined to acquire an existing U.S. wireless carrier. Ergen already is gaining experience in wireless broadband for his company by announcing in May that Dish Network planned to develop a fixed wireless broadband service with NTELOS Holding Corp. (NTLS) in rural Virginia using a spectrum in the 2.5 GHz range. Broadband service speeds at the venture’s initial test sites are expected to be fast, ranging between 20 Mbps to more than 50 Mbps.

Ergen has amassed a track record of making strategic acquisitions during his tenure. His purchases at Dish Network include the assets of video entertainment company Blockbuster Inc. in a winning bid valued at $320 million on April 6, 2011. Dish Network currently is proposing to buy Sprint Nextel for $25.5 billion but will need to increases its offer to try winning support from its acquisition target’s board of directors.

SoftBank will be a formidable foe. The company strengthened its position earlier this week when Sprint separately agreed to a sweetened, $21.6 billion takeover by SoftBank, rejecting the higher offer from Dish.

If Dish is able to acquire the roughly 49 percent portion of Clearwire that Sprint does not own, the value of the SoftBank offer to acquire Sprint may fall. Without full control of Clearwire and its valuable airwaves, Sprint will not be able to offer a fourth-generation network to compete evenly with bigger U.S. wireless rivals Verizon (V) and AT&T Corp. (T).

In a speech today in Tokyo, Son said, “I am determined to be No. 1 in the world very soon in my industry. You are lucky not to be my competitor.”

He clearly is not lacking in confidence or bravado. Son also acknowledged that an acquisition of T-Mobile US Inc. (TMUS) would be a “Plan B” target if he is unable to buy Sprint. Deutsche Telekom, T-Mobile’s 74-percent owner, is eligible to sell its entire stake at once to a third party, such as Softbank or Dish, so such a deal is a possibility for either company if it loses in its bid to buy Sprint.

The landscape in mobile communications in the United States is changing, with video requiring additional bandwidth, and both Ergen and Son plan to be part of the industry’s future. Investors would be wise to watch to see how the consolidation plays out but both Ergen and Son have the money and willpower to be long-term competitors in the sector regardless of which one buys Sprint Nextel.

Paul Dykewicz is a seasoned journalist who is the editorial director of the Financial Publications Group at Eagle Publishing and the editor of the Eagle Daily Investor website. He also edits five monthly investment newsletters, Forecasts & Strategies, Successful Investing, High Monthly Income, Alpha Investor Letter and PowerTrend Profits, as well as a number of time-sensitive trading services.

Stocks fell today, following yesterday’s rally in the S&P 500, as the International Monetary Fund shredded its 2014 outlook for America and urged the central bank to manage its exit from stimulus plans. “We’re hitting a period of higher volatility,” Bryan Novak, Chicago-based Astor Asset Management LLC, said. “Interest rates need to rise, but while you have an economic picture, where growth is around 2 percent, you don’t have a lot margin of error to work with in terms of interest rates. That has a meaningful impact on the futility of the economy at this point. The market is going to focus heavily on every word that the Fed says.”

Yen Rises Broadly as Volatile Stocks Make Investors Nervous (Reuters)

The yen has hit a target for best weekly performance, a goal it hasn’t hit since early 2010, as volatile stock markets had investors unwinding bets against the yen. “The yen has proved to be investors’ go-to safe haven to ride out global stock market volatility,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington D.C. “The uncertainty has prompted investors to exit recently overcrowded plays like betting on the dollar and Japan’s Nikkei stock index and against the yen,” he said. “With that play now in reverse, the yen has steadily been squeezed higher.”

Fading Optimism Spurs Consumer Sentiment Retreat (CNBC)

According to a survey released today, consumer sentiment fell this month after reaching a six-year high in May, as household optimism about employment and housing faded slightly. Specifically, consumer confidence fell in lower-income households, which were, according to survey director Richard Curtin, “more likely to report worsening overall financial prospects” than higher-income households. Curtin also added that “all consumers were less optimistic about job prospects in early June, expected smaller gains in the value of their homes and judged the probability of stock price increases somewhat below last month’s level.”

Hog producer Smithfield Foods Inc (SFD.N), which recently accepted a $4.7- billion buyout offer from China’s Shuanghui International, posted a 63 percent drop in net profit as its exports to China and Russia fell due to concerns about a drug it uses to produce lean meat. Smithfield, whose products include Smithfield bacon and Eckrich sausages, announced that its net income fell to $29.7 million, or 21 cents per share, in the fourth quarter ended April 28, from $79.5 million, or 49 cents per share, a year earlier. Its fiscal-year fourth quarter revenues rose 3 percent to $3.32 billion. “For the industry, pork exports were down to nearly every major market in the fourth quarter with volumes to China and Russia falling over ractopamine certification requirements,” CEO Larry Pope said today. The results show Smithfield’s management and directors recognized the need to boost exports into China when the company agreed to be acquired by China’s Shuanghui International.

Clearwire Gives Dish’s Ergen a Nod in Billionaires’ Duel (Bloomberg)

Dish Network Corp. (DISH) Chairman Charlie Ergen’s won the latest round in his bid to outflank SoftBank Corp. (9984) and its fellow billionaire owner Masayoshi Son for control of money-losing, high-speed Internet network Clearwire Corp. (CLWR) and the latter company’s valuable airwaves. At stake for the winner is a chance to enter the U.S. wireless market. Clearwire’s board of directors yesterday endorsed Dish’s $4.40-a-share bid rather than an offer of $3.40 a share from the wireless company’s majority owner, Sprint Nextel Corp. (S), the third-largest U.S. wireless carrier. Dish could be worth keeping an eye on as a potential investment if it manages to thwart Tokyo-based SoftBank’s plan to acquire a combined Sprint-Clearwire to expand into the U.S. wireless business.

U.S. Wholesale Prices Rise in May (Detroit Free Press)

Investors looking to predict if the Federal Reserve will change its easy-money policy that has been propelling stocks upward received a fresh piece of economic news today as the U.S. Labor Department reported a 0.5 percent rise in food and gas costs in May. Otherwise, inflation was mild. The producer price index jump of 0.5% in May from April nearly offset a 0.7% decline in April from March. Specifically, gas prices rose 1.5% last month, while food costs climbed 0.6%. The index, which measures price changes before they reach the consumer, has increased just 1.7% in the 12 months ending in May. That rise is up from a 0.6% year-over-year increase in April, the smallest in 10 months. Core prices, which exclude the food and energy, rose just 0.1% in May. They are up just 1.7% in the past year, below the Federal Reserve’s 2% inflation target. As long as the Fed’s easy-money policy remains intact, U.S. equities will be cushioned somewhat from a weak economy.

Stocks gained today, giving the S&P 500 its biggest gain since early January, due to better-than-predicted economic data and acquisitions in the media and grocery industries. “It’s undeniable that the series of data are getting better,” Chris Bertelsen, chief investment officer at Global Financial Private Capital, said. “The only issue for the market is we’re in a vacuum month. In other words, there are no earnings, there is nothing to latch onto other than an occasional number here and there and people are worried about the Fed tapering.”

Yen Highest Since Early April (Reuters)

The yen soared against the dollar today to its highest level since the Bank of Japan unleashed an aggressive stimulus plan in April. Further, the Bank of Japan announced on April 4 that it would purchase $1.4 trillion in bonds, boosting demand for Japanese equities and increasing the yen’s value. “This week’s BOJ meeting, which offered no new policy initiatives or stimulus programs was the catalyst for the rapid change in sentiment in the foreign exchange market,” said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York.

Consumers Spent More than Expected in May (CNBC)

Retail sales surged in May as households began to step up purchases in automobiles and other purchased goods. Specifically, the Commerce Department said today that retail sales increased 0.6 percent after edging up 0.1 percent in April. And this increase in consumer spending, along with recent job gains and a jump in consumer confidence, hints at an underlying strength in the economy, despite belt-tightening in Washington.

Stocks fell today, sending the S&P 500 to a third day of losses, as investors considered prospects for economic growth and the pace of Federal Reserve stimulus actions. “Markets are having a difficult time holding onto gains of any kind,” Peter Kenny, chief market strategist at Knight Capital Group Inc. in Jersey City, New Jersey, said. “Buying is suddenly becoming less automatic given the backdrop of the Fed narrative. It appears as though whenever the market pops its head up and trades in the green, institutions lighten up, hedge risk and provide supply. It appears as though the easy lifting is behind us.”

Dollar Falls Broadly on Uncertain Fed Growth (Reuters)

The dollar dropped to its lowest level in four months today, on the uncertainty of whether the Federal Reserve will begin to taper back its loose monetary policy. “There is broad volatility and people are afraid the Fed will push off its bond-buying tapering until later in the year,” Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, said.

Why Cyclicals Will Be Hot for Investors This Summer (CNBC)

According to analysts, cyclicals are beginning to look more attractive to investors right now — ahead of the summer months — as the economy continues to show signs of improvement. “There’s been a lot of turbulence in the global markets, but the underlying bullish story is still intact,” said Thomas Lee, chief U.S. strategist at JPMorgan. “There’s a story of wealth effect helping the global consumer, particularly in the U.S., and U.S. housing continues to be strong. [Investors] are still underweight cyclical stocks, so the story of markets being driven by cyclicals is intact.”