ECB and Bank of England left interest rates unchanged as expected (page 1 of 4)

Stock Market
• Recommendation update
Last week, Countrywide Financial Corp. (CFC, $54.01, CSFB: Not rated) reported December 2002 operational results. The company reached a new loan funding record in December of $35.2 billion, the figures were $32.2 billion in November, and $34.7 billion in October. For 2002, CFC funded $251.9 billion in mortgage loans, increasing its 2001 record by 63.5%. Refinancing activity fuelled by low interest rates has been the primary driver for loan funding activity over the last two years. We believe low interest rates should continue to drive purchase-funding volume. Servicing portfolio followed the up-trend; it grew to a new record level of $452.4 billion, representing a 3.9% rise from November, and a 34.4% rise y-o-y. We maintain our Buy rating on Countrywide Financial due to its diversified businesses. This should reduce the risk of the cyclicality of the core mortgage business. Securities trading volume was $175.6 billion, representing a 39% increase y-o-y, and insurance recorded 4.2 million policies in force vs. 3.3 million in 2001. Next week, CFC is expected to publish its 4Q results. Consensus is expecting $1.905 EPS, increasing by 9.48% m-o-m, and by 65% for the full year.

Boeing Co.'s (BA, $33.85, CSFB: Outperform) stock price should remain under pressure for the coming months due to built-in pessimism. On one hand, the downtrend in commercial aviation should continue in 2003. For the coming year, the company expects 275-285 commercial aircraft deliveries, while it delivered 381 aircraft in 2002, representing a 28% decrease from 2001. This segment should continue to add volatility to BA's stock price. On the other hand, military aircraft segment revenues rose 14% in 3Q'02, and space & communications division revenues rose 2%. We expect this trend to continue as long as government spending on defence remains strong. We think current stock price does not take into account BA's commercial aviation business and possible signs of a recovery in civil aviation.

Next week, the company will make public its 4Q'02 results. Consensus is expecting $0.707 EPS, increasing from $0.46 in the previous quarter. However, we maintain our Buy rating on Boeing, believing current valuation presents a good entry level for the long-term. The current stock price is lower than its theoretical price of $43.45, derived from the dividend discount model.

Spot gold price continues to remain firm above $350 an ounce, with some spikes towards the $357 levels. We expect gold price to continue to stay close to these levels, as the current economic and political uncertainties continue to dampen the market. Gold and therefore the gold mining industry still offer very attractive opportunities for investment and diversification. We believe that a gold mining stock is a good way to invest in gold, as it tracks gold price quite closely. It however, shows a higher volatility, which is related to the profitability of a gold mining company as a function of the gold price. As the production cost for gold is relatively high, the profit margins are relatively narrow. Placer Dome (PDG, $11.71, CSFB rating: Outperform), the gold mining stock that we recommend as a BUY, outperformed the gold spot price by 4% since we added the stock to our recommendation list on August 30, gaining 17.45%.

The company has continuously reduced its hedged positions, by 20% over the year, and is now gives a more sensitive to movements in gold price.