The DJ EUR Stoxx 50 closed the week roughly unchanged at 2208.25 (page 1 of 3)

US Equities
• Recommendation update
Fitch Ratings placed the debt of Countrywide Financial Corp. (CFC, $53.59, CSFB: Not rated) on rating watch negative due to concerns over MSR (Mortgage Servicing Rights) hedging risk, current MSR valuations and sub prime credit risk. CFC's valuation of its MSR at 178 bps is high relative to competitors such as Washington Mutual Inc. (WM, $35.52, CSFB: Not rated) at 74bps (source: Jefferies & Co.). We do not think CFC credit risk has changed. Hence, if this downgrade occurs, we do not believe it would have a significant impact on the stock price. CFC has large back-up on existing lines and most of its borrowings are short-term. At the end of fiscal year 2002, short-term borrowing represented 47% of total liabilities, while long-term borrowing represented 35% of total liabilities (source: Bloomberg). Currently Fitch has an "A" rating on CFC, and could be downgraded to "A-". On the business side, we believe CFC should continue to demonstrate its ability to grow earnings, even on a cyclical downturn in loan origination volumes. However, CFC would have to continue to gain market shares from its rivals. In 2002, net revenue increased 71% to $4,519.47 million. We maintain our Buy rating on Countrywide Financial Corp.

General Dynamic Corp.'s (GD, $63.90, CSFB: Outperform) exposure to the business jet market remains the primary pressure on the stock price. Although the current stock price should reflect this weak industry, and the downside risk should be limited, we maintain our Hold rating on GD. Firstly, we do not think that the business jet industry would recover in the short-term. In trying to maintain significant sales volume of business jets, the company was forced to reduce its sales prices sharply, as GD's traditional customers remain at the sideline amid the current uncertainties. Secondly, even if GD's defence businesses would generate solid results, as defence budget increases, the company had in any case lost three of the largest program competitions decided on in 2002: Future Combat Systems, DD(X), and Deepwater.

On a positive note, GD's finances remain sound. The company has about $1.6 billion of net debt and a 23% net debt/capital ratio (source: JP Morgan), though the company has recently announced the acquisition of GM Defence, which could add $1.1 billion worth of debt (39% net debt/capital ratio) to its books. The acquisition is expected to be completed during the first quarter.

In the current market environment gold and gold mining company shares continue to offer a good opportunity to diversify. Based on our expectations that the gold spot price should reach USD 425-450 per ounce during the course of this year, an investment in a gold mining stock is a way to capitalise on the rising gold price. Gold mining companies over the last two decades have reduced their production as gold prices declined. They have entered in complex forward selling transactions in order to protect their assets and also to make profits on the volatility of the gold price.

As during the second half of the year 2001 gold prices started to strengthen, the gold mining companies began to reduce their so called hedge books, in order to raise their earnings sensitivity to the gold price. They are also starting to reactivate the mines that were shut down, in order to increase their production. This in a first phase leads to an increase in costs, reducing the mining company's earnings. This effect was also visible as our recommended stock in this industry; Placer Dome Inc. (PDG, $9.89, CSFB: Outperform) reported its 4Q02 results last Wednesday.