Scared of the Strength

Mushroom Man on the Move

SAN FRANCISCO -- When I first (and last) caught up with Rick Ziesing, founder of Bonanza Capital Management in Kennett Square, Pa., ("the mushroom capital of the world," you'll recall) on Aug. 6, his focus was mainly on the short side.

This morning, Ziesing revealed being "heavily long and afraid."

In the aftermath of today's action -- featuring the Nasdaq Comp's explosive return to record territory -- the hedge fund manager reported paring down his exposure from 100% long at the beginning of the day to 20% cash at its end.

"When it gets this easy, they are about to pull the rug out from under you," he said.

To backtrack, Ziesing went long "with both feet" on Oct. 15, a beautifully timed call he admits was as much luck as skill. In addition to believing "the rate situation looked pretty benign," Ziesing became more aggressive in conjunction with the funding of his second hedge fund, Versant Partners, on Oct. 15.

Since inception, the $5.4 million Versant fund is up 25.6% net to investors. Bonanza, with assets of about $13 million, is up 37.9% net year to date.

The strategy this year has been two-pronged, Ziesing said.

One prong features core holdings in names focused mainly on bandwidth and data storage, including E-Tek Dynamics (ETEK), Network Appliance (NTAP), Comverse Technology (CMVT), Vitesse Semiconductor (VTSS) and Sawtek (SAWS).

Each of the aforementioned rose today, led by Comverse's 13.2% gain. However, another core holding, RF Micro Devices (RFMD), slid 9.8% amid speculation it made a less-than-bullish presentation at Credit Suisse First Boston's conference.

Prong 2 is not a sequel, but investments in what Ziesing unashamedly calls "vaporware stocks," such as Puma Technology (PUMA), USinternetworking (USIX), Aether Systems (AETH), Diversinet (DVNT) and Digital Lightwave (DIGL).

"There's no fundamental reason for" their tremendous gains, he concedes.

But "if people want to throw money at B2Bs and Cramer's Red Hots," Ziesing is not going to sit idly by. Still, he's "ready to punt in a heartbeat" if momentum changes.

One name that seems to straddle both prongs (carefully, I hope) is JDS Uniphase (JDSU), which is up over 555% year to date and is the epitome of speculative excess to some market watchers. But Ziesing makes a distinction between JDS Uniphase and other "story" stocks.

"It makes me breathe a little hard at these levels, but I don't think you can sell that company," the hedge fund manager said. "It's ridiculously overpriced" and "hugely discovered," but "it's still the highest-quality company out there" in fiber optics.

Ziesing first became enamored with JDS Uniphase -- and CEO Kevin Kalkhoven -- at a Montgomery Securities conference in late 1996.

"I've followed [the company] since and haven't seen him make a business decision I wouldn't have made," he said. "JDSU has sizzle, but for a reason. You can make the argument it's worth the valuation. I can't find a better company to buy."

Tooting the Golden Horn

Check out the excellent piece in today's Financial Times about Goldman Sachs' multi-tiered relationship with Ashanti Goldfields (ASL).

When Ashanti was beset by financial woes as a result of an ill-fated hedged bet against gold, Goldman had to keep its roles as Ashanti's financial adviser and seller of financial derivatives separate, not only from each other, but from its own gold-trading desk -- a desk that traded "heavily" at $325 an ounce on Oct. 4, the day before Ashanti disclosed it might face margin calls, according to the story. Goldman denied any wrongdoing, but some other banks believe the trade was "an effort to extricate both itself and clients from derivative liabilities," FT reported.

One gold-market participant -- not typically an adherent of conspiracy theories -- says the revelations about Goldman's trading "show how rigged the price of the metal has been over the last 60 to 90 days."

The price of gold fell 4.6% to $287.30 today, continuing its decline since the Bank of England's auction earlier this week met with unspectacular demand.

The source, who requested anonymity, said "rumors were flying" today about certain entities trying to keep the price suppressed. But he attributed the decline to "the big guys following the technical sellers down because there was no realistic reason for an uptrend."

The FT story also notes the potential conflicts of Goldman's participation in the golden deal Ashanti inked with its creditors, as I previously reported.

A Goldman spokeswoman declined to comment.

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