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Five Things You Need to Know for Tuesday

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

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

1. Confidence Men

This morning at 10 a.m. Consumer Confidence will be released by The Conference Board, a New York-based business group.

  • Most expectations are for a range of 102-5 to 109, with the average according to Bloomberg.
  • Last month the index hit 107.2, its highest level in four years.

    (Chart: Thomson Financial)
  • The gauge averaged 100.3 last year after bottoming in 2003.
  • The Consumer Confidence Survey is a mail-based survey sent each month to 5,000 households.
  • Monthly response rates average 50% for preliminary numbers, 70% at the close of the survey.
  • The Index is based on responses to 5 questions:
    - An appraisal of current business conditions.
    - Expectations regarding business conditions six months forward.
    - An appraisal of the current employment conditions.
    - Expectations regarding employment conditions six months forward.
    - Expectations regarding total family income six months forward.
  • There are three response options: POSITIVE, NEGATIVE or NEUTRAL.

2. Existing Home Sales. Are they... (gulp) you know, still existing?

February's existing home sales reported by the National Association of Realtors rebounded 5.18% after five consecutive months of decline. Expectations for March, however, are for a resumption of the downward trend.
  • In February there were 6.91 million existing home sales reported, an increase of 5.18% from January.
  • The rebound followed a string of five consecutive reports of month-over-month declines.
  • Many economists suggested last month's rebound was due to sales initiated in January's unusually mild weather.
  • Expectations for March, according to Merrill Lynch, are for decline from 6.91 million to 6.84 million.
  • The range of expectations on the Street are between 6.4 million to 6.95 million with consensus 6.7 million.

US Existing Home Sales (actual thousands) (Chart: Thomson Financial)



3. Did you say "Banking Profitability Crisis"?

According to a recently-released paper from the Capco Institute, "A Bad Situation Getting Worse: The US Banking Profitability Crisis," a bad situation is getting worse. And, there's a US banking profitability crisis.

  • According to the paper's underlying thesis, improvements in productivity are insufficient to offset constrained revenue opportunities for banks.
  • The clear trend in place is toward increasing fee income as a percentage of total income and a focus on proprietary trading among firms that provide capital market services.
  • Key findings of the paper include:
    - Expenses will outstrip revenues between now and 2007 for the first time in 30 years.
    - Revenues continue to shift from income-generated sources to fee-based sources.
    - A serious profit compression could leave some banks exposed to unfavorable market conditions.
  • The paper notes that there is a trend toward declining profitability in the financial services industry overall.
  • Industry consolidation has done little to resolve the fundamental deterioration in revenue opportunities despite a surface appearance of improvements.
  • For investors the implications are that banks with business models relying on corporate and institutional fee-based businesses may underperform in the future against banks whose business model is more interest income oriented.
  • Meanwhile the PHLX Bank Sector Index (BKX) and the AMEX Broker Dealer Index (XBD) are near all-time highs.

4. Hu Needs You?

After last week's unproductive - and, to be perfectly frank, embarrassing - meeting with President George W. Bush, Chinese President Hu Jintao left Saudia Arabia with a number of far more important mementos than a fancy dinner at Microsoft (MSFT), a Boeing (BA) tour and cup of coffee at Starbucks (SBUX).
  • China and Saudi Arabia signed defense and security agreements, with Saudi Arabia securing Chinese weapons and technology in exchange for greater access to the Saudi crude oil market.
  • In January 2006, Saudi King Abdullah signed a memorandum of understanding during his visit to China, the first by a Saudi monarch since the two countries established diplomatic relations in 1990.
  • The two leaders also discussed a proposal to set up an oil stockpile in China.
  • China plans to fill the first of its strategic oil reserve facilities by the year end, a senior planning official said in March, adding that three other reserves would be ready in 2007-2008.
  • Consumption of oil in China is forecast to jump 6.0 percent this year after consumption of 6.4 million barrels per day in 2005.
  • Chinese oil demand has seen year-on-year increases averaging more than one million barrels per day, about 40 percent of the world's increased demand
  • Saudi Arabia is the world's biggest exporter of crude oil and the biggest supplier to China, which imports about 15 percent of its oil from the Arab nation and is second in global oil consumption to the US, which accounts for 25% of world oil production.

5. Dorkbot

If you are unaware of "Dorkbot," a monthly meeting of people doing strange things with electricity, consider yourself "cool."
  • Dorkbot meetings were created about five years ago by Douglas Repetto, the director of Columbia University's Computer Music Center, according to the Associated Press.
  • The meetings, which typically involve three presentations by people from diverse backgrounds - anyone from engineers and computer scientists to artists and musicians - have gradually grown and spread to about 50 cities on five continents, the AP article said.
  • Repetto recently completed a project called "foal table," a mechanical table that walks in the awkward, stumbling manner of newborn horses.
  • In New York, the next Dorkbot meeting will take place May 3.

Among those scheduled to present are Jason Van Anden, an "Intelligent Designer" who will demonstrate a beta version of IntelligentDesigner software that "enables pretty much anyone to control things in an uncontrollable way."




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