Munis rallying but still lagging.......... - Bennet Sedacca - 1:33 PM
We noted a while ago that long-term municipal bonds trading at 105% of long-term Treasuries was ludicrous. Well, Treasury yields are falling as we suspected, but municipals remain undervalued on a relative basis in our view. It is possible that when many folks retrun to their desks next week, the mis-pricing of munis could quickly change.
One of the reasons cited for the cheapness of long munis is their low absolute level and that retail investors don't find 4.75% after tax terribly appealling, but what if stocks were to fall? 4.75% after tax, or 7.30% tax equivalent may look awfully attractive then, particularly compared with a 1.75% dividend rate on stocks.
There is always the chance that 'natural buyers' like insurance companies could sell Treasuries and buy munis. Or arbs that like to do that sort of trade. Incidentally, January is seasonally an excellent month for munis, after which negative seasonality takes over.
Positions in various long-term bonds, bond funds and municipal bonds.
Flashback! - Bill Meehan - 12:58 PM
This day in market history...
- Closing levels 5 years ago today found
- DJIA: 10,803.16
- S&P 500: 1328.92
- Naz: 2539.35
- Crude: 26.55
- Gold: 274.70
This day in Minyanville history...
- Prof. Macke informed us about Gift Cards and how they work and followed it up with Gift Card Responses from some Minyans.
In other news...
In 1831, Charles Darwin set sail from Plymouth, England aboard the HMS Beagle on a five year surveying expedition of the southern Atlantic and Pacific oceans.
Commentary on Guidant
Weighing in on Guidant (GDT) - Phil Erlanger - 11:30 AM
As we expand out Erlanger Chart Room in 2006, we will be blending the fundamentals with the technicals. We have been able to integrate several third party research firms that do great fundamental quantitative work. Expect to see some of these data points in our stock analysis going forward.
Guidant (GDT) is a great situation where blending the fundamentals with the technicals makes sense. In terms of our core work, our technical rank highlights the weakness in the stock price. Moreover, short selling is average at 54% with an Erlanger Short Ratio of 2.32. Short interest is not a plus for this stock. We note call activity, can you say call squeeze, was excessive in front of today's guidance and latest FDA letter provided to them on 12/23.
We note that Guidant is flagging on our torpedo warning so the acquirer ultimately is getting damaged goods. There are issues with operating cash flow, free cash flow, turnover and valuation. Even on a basis of intrinsic value Guidant is trading at a discount of 11%. Meanwhile Medtronic is trading at a discount of 31% and Boston Scientifc is trading a discount of 53%.
From our perch, we view Guidant as a weak stock with poor fundamentals and sentiment that will continue to weigh on its price performance. The only question is whether their bidders recognize this and chop the purchase price once again?
Just to state the obvious - Fil Zucchi - 11:02 AM
So Boston Scientific (BSX) is committed to "moving forward with the due diligence with a goal of reaching a definitive agreement" with Guidant (GDT), even after GDT's financials are in V-tach. While "moving forward with the due diligence" is a lot more tenuous than "we are going to buy them any way," the only sure synergies in a BSX/GDT deal remain in the consolidation of the product liability and securities class actions pending against both companies.
Focusing on common sense - rather than financial clairvoyance - even if BSX' "oops I-can't-get-it-out-of-this-dude's-artery" stents are the perfect match for GDT's "you-mean-it-did-not-start-AGAIN?" defibrillators, the prices of BSX and GDT's stock hardly seem to be discounting the possibility of a not-so-happy outcome. Aren't there any other less risky names in med-tech?
More on this - John Succo - 10:37 AM
The news of Guidant's (GDT) earnings are weighing on the stock. The market thinks this is new news.
But to the people that matter, Johnson & Johnson (JNJ) and Boston Scientific (BSX) this cannot be new news. They are insiders in the company and very familiar with this business. They have people on the ground that see these things far in front of the market.
So it is very likely that they understood the deterioration in GDT's business due to litigation and merger activity. They made the bids, and in JNJ's case a lower bid of $63, with full knowledge.
We see some arbs buying stock here and some arbs fearfully buying puts.
This situation is not for the weak of heart. But as Michaelangelo said, "Genius is eternal patience."
Position in GDT and JNJ
Follow the yellow brick road - MV News - 8:00 AM
A Barron's article over the weekend said that we may be in the early stages of a powerful bull market in gold, which would pay off nicely for long term investors.
The column said gold holds appeal as a place to stash cash and investors are finding it easier to enter the market than in the past, thanks to ETFs like GLD.
Minyan Dr. Marc Faber noted that commodities are an asset class for the first time and that gold is relatively low compared to the DJIA; approximately 20oz of gold are needed to match the level of the index with gold considered expensive when the ratio dips below 5.
James Turk of Goldmoney.com expects prices to top $850/oz next year, and notes that gold's all time high of $850 in 1980 would be $2200 in current dollars.
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