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Hoofy's Lovefest: FCStone Group, Ciena, Hologic

By long as the credit markets underwrite any risk for no premium, Boo will likely continue to be relegated to a corner in fully assumed fetal position.


I return from my annual frolic to far-flung golf destinations to find the Minx and Hoofy continuing their lovefest, companies hurting their balance sheets to meet EPS estimates, and my golf handicaps underscored by the swirling winds of Whistling Straits, and way too many "refreshment" carts crowding the fairways of Blackwolf Run. The only contacts with the markets consisted of my Blackberry and a late night run through the StreetAccount headlines. So with that caveat, here are a few randoms:

  • Fave FCStone Group (FCSX) jumped some 13% on totally random speculation that it might be added to the Russell 2000. I'll take gains for good or silly reasons, and the one suggested seems to fall rather squarely in the latter category, hence a good chunk of my trading position went bye-bye on Friday.

  • Speaking of silly things, I could not help doing a twice over on Big Blue's (IBM) decision to borrow $11.5 billion to buy back stock right here, right now. It cost it one notch on its credit rating, and certainly did not impress other potential buyers, but according to press reports, it will move its '07 EPS growth from the 12-14% range to the 13-14% range, and presumably will keep the banks involved in this trade quite busy covering their shorts over the next few months. Then and only then we'll find out who was the dolt in this deal. Meanwhile, as a clear sign of confidence in its business, Big Blue axed 1600 employees.

  • Right, wrong, or indifferent, the ability of companies, private equity, and LBO firms to borrow any amount of money to finance any kind of deal continues to be the bane of Boo's existence. Aside from the painful experience of waking up to shorts blowing up in his groin, it is undeniable – and equal parts puzzling and mesmerizing – that as long as the credit markets underwrite any risk for no premium, Boo will likely continue to be relegated to a corner in fully assumed fetal position. The eventual consequences of this dynamic are growing increasingly irrelevant, and dismissed as the psycho-babbling of delusional bears.

  • An 11% move higher in the 30 yr. treasury yield has the 3-day RSI of that contract (see the chart here) continuing to scrape the single digit levels. Meanwhile, for all the talk about the "equity friendly" message of a steepening yield curve, the Dollar Index (DXY) continues to reflect the Treasury "strong dollar" policy. Will the next 50 bps. up in rates be viewed as equity friendly as the first 50 bps.? Will it impact the models for buy-outs, LBO's and buybacks? Will Boom Boom do a fly-by? Can Boom-Boom and the greenback afford too many more fly-by's?

  • Ciena's (CIEN) stock flies as management sees a pick-up in business on the back of its 4200 Metro Area Network product. Stay tuned Minyans because cycles in this industry don't last just one quarter, and if the international markets do pick up (and so far they have not) this one could get very interesting.

  • At least according to Qiagen, there was in fact no good reason for Digene (DIGE) to have missed the rally, and Qiagen made sure there would be a 30-something percent rally today. Should we have seen this coming when Hologic (HOLX) bid for Cytyc (CYTC)? Please note the very annoying absence of DIGE from my positions.

  • Interesting piece by Morgan Stanley's Kathryn Huberty on the planned IPO of the VMware division by EMC Corp. (EMC). VMware is a pure competitor to Citrix Systems' (CTXS) Presentation Server product line. But the reason why Huberty likes VMware's prospects is for the potential of the "virtual desktop opportunity," something I discussed here. Bizarre that she did not even mention CTXS in her discussion; if I find out why I'll pass it along.

Have a great day Minyans!!

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Positions in FCSX, CIEN, HOLX, CTXS
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