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I Can See Clearly Now...


In the security and network security space, a bunch of names have crashed back to Earth.

Editor's Note: This article was originally written at 10:30 AM ET today.

Back in September, as the Dollar Index (DXY) danced on the edge of critical support I was finding it difficult to gauge which way the next move would go. Unfortunately it appears "this time is indeed different" as the DXY has now put the 78-80 support levels firmly behind it and is accelerating its dive.

There will be rallies, very sharp ones, and perhaps even vague attempts at interventions, but since we came off the gold standard in the early 70's, history would suggest that nothing has worked to prop our debased currency except for bouts of very high interest rates and we know those are not on the horizon.

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I was intrigued by Prof. Udall's thought that perhaps even lower rates at some point might restart speculative capital flows into the dollar, but in the end I can't shake the feeling that the U.S. may have already supplied all the speculation the world can handle.

I've received some sharp disagreements on my suggestion that the commercial real estate market is not in as bad a shape as some might think. First of all, I could well be wrong. It would not be the 100th time or the last. Second, I am hardly bullish on the sector – I am simply not Armageddon bearish. Third, for those who pointed to anecdotal evidence of deals already going bad, I am not questioning that there are plenty and that next year will see many more.

A bunch of the highly leveraged buyers of the last two years, together with the proud owners of many spec. buildings delivering in '08 will be hurting gators, but I would simply offer that the big gorillas – the REITs, Blackstone (BX), Apollos, etc. – of the world, which had actually stepped away from the feeding frenzy, are circling over these potential cadavers with fully loaded "funds" waiting to be deployed at more reasonable cap rates.

About the Minx: I think the risks of a complete meltdown are the highest they have been since the late 90's. Am I saying we are going to crash? No. I am just saying don't get caught flat-footed if we do. With that as a backdrop, nothing wrong in scooping up some longs in case Hoofy or Snapper come back on the stage. Here are some new, and not so new, ideas to chew on:

Harris Corp., (HRS) the fundamental story we spotted back in May, is playing out just right, and the stock relative strength seems to know nothing of what's happening in the credit markets.

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A while back I mentioned the buzz surrounding the build-out of wireless back-haul networks, i.e. the portion of the network that connects wireless towers to the core IP network. The pure play in that group is Ceragon Networks (CRNT), which got away from me before I could jump on. Well, the train is back, and I'm buying a little bit of it into this morning's secondary. Key considerations around this name are: Do you believe the build-out will actually happen? What multiple are you willing to pay based on your answer to the first question?

The security / network security space: a bunch of names have crashed back to Earth. The train wreck in Vasco Data Security (VDSI) continues and I continue to sell puts with an eye to own for longer than a trade. OSI Systems (OSIS) popped up on one of my chart scans and with good reason. As fast as this puppy is growing the current multiple gives it a very nice cushion. No bear market here on an absolute or relative strength basis.

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I am also sniffing around competitor American Science & Engineering (ASEI), though this one would be a "Stumpy play" and I am not quite comfy enough with it yet.

The iShares DJ US Broker Dealers (IAI) is actually a misnomer for this ETF. With 20% of the weighting in CME Group (CME), NYSE Euronext (NYX), and 20% more between Goldman Sachs (GS) and Morgan Stanley (MS), that's a nice vehicle should we find out that the whole credit mess was just a big joke, or if one wants to balance banks shorts.

And to satisfy my aggressive juices, I continue to add long term in-the-money Cypress Semi (CY) calls and paying for them by selling way out-of-the-money near term SunPower (SPWR) calls.

Party on, Minyans!
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Positions in CRNT, CY, SPWR, IAI, NYX, OSIS, VDSI and HRS.
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