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Author: woodstove Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1933  
Subject: Re: All's well at Honeywell? Date: 6/16/2001 12:24 AM
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Hi Zenvestor and Lleweilun,

Thanks for the heads-up on HON and an excellent discussion.

I wonder if there will be more of these sorts of situation? It might be that long HON / short GE hedges had to be unwound, when the merger began to look uncertain, and that pushed HON down? Allowing a straight long position in HON to be very probably profitable.

A news article of June 15th, linked from the HON articles list, quotes someone as "convertible arbitrage is the next accident waiting to happen in the hedge fund industry". I believe what he is saying is there is too much money in hedge funds nowadays for the volume of good opportunities in convertible bonds. Even though more conv bonds are being plentifully issued.

If there is more money to do arbitrages, whether convertible bonds or mergers, then whenever there is a slip the unwindings may be of greater volume. And, if less quality deals are about (though GE:HON looks good) then there may be more slips.

It might perhaps be worthwhile doing the homework in advance on merger parties, to have straight valuations and be able to respond to events. I'm not in a situation to be a hedge fund arbitrageur, but if there are enough of them milling about then a simple long-position contrarian may do ok from time to time. Maybe it's even striking a blow (well, a tiny tap anyway) for rational investing in tangible production capacity! It's always bothered me a bit that wheat or coffee crop failure is seen by most market reporters as good news.

After I bought some HON, there was some very good news. The phone rang and I was told I had won $500 in free gas vouchers and could get a free cleaning of the carpets in one room. You just never know how the market will deliver value!

Woodstove
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