Thursday, October 2, 2008

IBM's foreign currency gains to evaporate?

A representative from IBM yesterday assured the markets that their financial health was adequate, and that the benefits of the weak dollar would not disappear because they were "fully hedged." Which means that IBM is the only company in the S&P 500 that was able to fully hedge this dollar weakness.

What is even more curious about this statement is that IBM lost about $160 million last quarter because of currency. Now they are completely up to speed with hedging? IBM has also been encouraging analysts to lower their numbers for the third quarter. What then, was the point in aggressively buying back $20 billion of stock at higher levels the past year? And then taking on debt to facilitate these purchases?

Anyone see Potash today under $100? Remember how they aggressively bought back stock with $2 billion of cash, and then borrowed another $2 billion to invest in their own company? It worked for a while, and now it has been crushed. At least the sell on that stock and the buyback script was written out here when the stock was over 210.

But IBM is not Potash. But IBM still has these caterings when the stock gives up the ghost. With GE getting hit, because of their finance arm, will they look askance at IBM also?

The tape says they will.

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