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Five Things You Need to Know for Thursday


What you need to know (and what it means).


Five things you need to know to stay ahead of the pack on Wall Street.

1. Fannie Mae (FNM) Reveals Rudman Review

A report commissioned by FNM's board says former executives misled directors about accounting decisions, and ultimately blames CEO Franklin Raines for everything. Oh yeah, did we mention that despite this "hard hitting" review the stock is trading up more than $2 in the pre-market?

  • Report team was headed by Sen. Warren Rudman, and concludes company accounting was motivated by a desire to "show stable earnings growth" - Wall Street Journal.
  • Based on a review of four million documents and 240 interviews, the report has a main body of 616 pages plus several hundred more pages of appendixes, virtually guaranteeing that the people who bother to read it will number in the low teens.
  • Key report findings include:
    - Fannie Mae has already disclosed the principal problematic accounting issues contained in the report
    - No manager who knowingly participated in improper conduct is still at the company
    - Suggested changes in corporate governance are either in place or underway

Oh, and just one more thing... the last time the company reported any financial results was in August 2004. Sorry, we know how rude it is to point that out.

2. Financial and the Yield Curve Conundrum

Why are the stocks of Financials and Banks at or near all-time highs and seemingly accelerating in the face of yield curve inversion?

  • MV Professor Vitaliy Katsenelson pointed out that Banks are not as sensitive to the yield curve now, as opposed to say, 10-15 years ago, because their fee business is a much higher portion of net income than ever before.
  • MV Prof. Bennet Sedacca, however, says conversations he has had with CEOs of Financial Services companies about the curve inversion have been... difficult. "Whether JPM or BAC only have 40-50% of earnings from loans, the inverted curve IS an issue," he says.
  • Meanwhile, MV Prof. Jason Roney draws our attention to this chart which shows new highs in Banks with an inverted yield curve are nothing new:

3. Boeing (BA), Boeing (BA) Gone?

Looks like Airbus is the clear winner at the Asian Aerospace show. Meanwhile, both Boeing and Airbus say they expect the 2005 order flow to be cut by 61% this year.

  • Indian and Indonesian low-cost carriers placed orders for 40 A320 planes totaling $3.5 billion
  • Indonesia's Adam Air will replace its fleet of Boeing 737s with 30 A320s
  • Airbus also signed a $1 billion development and manufacturing deal with South Korea
  • The show's big contract orders thus far total $6.4 billion compared to the previous show's total of $3.6 billion. A final tally is expected on Sunday.
  • Meanwhile, Boeing's only major deal was on Tuesday for 10 373s at $70 million per

4. DAX What We're Talking About; Confidence

The German Dax is at its highest level since August 2001, while German business confidence is at its highest level in more than 14 years.

  • Ifo's monthly business confidence index of 7,000 German firms rose to 103.3 in February, from an upward revised 101.8 in January, beating market expectations.
  • The index, which is calculated from the balance of positive and negative feedback, is now at its highest level since October 1991.
  • A separate poll conducted by research firm GfK found that German consumer confidence was also rising, suggesting (ok, not suggesting, maybe subtly implying?) that this is because it is a World Cup year.
  • GfK summed it up best: "Despite the still tight situation on the labour market, stagnant retail sales during the Christmas period and stubbornly high energy prices, consumer sentiment remained largely stable in February."

We'll have what they're having.

5. Toll Brothers (TOL) Reports Some Numbers, Reaches for Olympic Metaphor

Luxury homebuilder Toll Brothers Inc (TOL) posted forecast-beating quarterly earnings, but hinted that a slowdown in the housing market was in the offing in certain parts of the country.

  • "In 2005, demand for new homes in many markets was propelled to unsustainable levels by speculative buying. We are now on the other side of that slope," CEO Robert Toll said.
  • "Markets such as metro Washington, D.C…will need to work through their excess supply before the imbalance once again tips in our favor, " he added.

"Other side of the slope?" Easy there, Bode Miller.

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