Message-ID: <27833437.1075840758745.JavaMail.evans@thyme> Date: Fri, 18 Jan 2002 08:26:40 -0800 (PST) From: grants@wsrn.com To: j.kaminski@enron.com Subject: GRANT'S INTEREST RATE OBSERVER (Vol.20, No. 01/Jan. 18, 2002) Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Grants Publishing @ENRON X-To: Kaminski, Vince J X-cc: X-bcc: X-Folder: \vkamins\Deleted Items X-Origin: KAMINSKI-V X-FileName: vincent kaminski 1-30-02.pst Hot Off the Cyberpress! A new GRANT'S publication is now available at www.grantspub.com. Here are highlights of the latest issue: RISK IN A CHEAP STOCK "I'll bet if I told you 32 months ago, when we announced the goal [to double earnings per share in five years], that in the fourth quarter of 2001 Fannie Mae would report earnings per share of $1.40, up 59% from the first quarter of 1999, you would have guessed that our stock would be up by at least that amount." So said Tim Howard, CFO of Fannie Mae, on the fourth-quarter conference call Monday. He went on in that vein: "I certainly would have. But it's not. At the close of business on Friday, the stock was up just 15%, about a quarter of the earnings growth. But if there is surprise or disappointment in that result, there also is promise. Over the past decade, our stock price has grown faster than our earnings per share. It just hasn't done so evenly. To the contrary, there frequently have been periods when, for whatever reason, the price of Fannie Mae stock has become uncoupled from its fundamentals. This appears to be one of those times. Neither our performance nor our prospects seem to justify our current valuation." By the sound of it, Howard was singing our song. . . STOP THE PRESSES The Wall Street Journal has capitalized the phrase "New Economy" in its news columns since at least Aug. 31, 1999, but it printed it small Tuesday. On page one, column six, it referred to "the excesses of the new economy." One of these excesses, so we proposed in the September 14 issue of Grant's, was the Journal's use of capital letters for an economy that didn't really exist (a dynamic economy is forever new and forever aging). And we proposed that a return to lowercase "n" and "e" would "mark another milestone on the road to investment sanity." Regrettably, The Wall Street Journal Indicator did not flash an unambiguous "buy" signal Tuesday. On page A4, the jump of the Enron story referred for a second time to "New Economy." This time it was in capitals. . . . MONTH OF TUESDAYS The bear market and an unplanned recession have discredited the nostrums of the boom. However, faith in a homegrown American productivity miracle is largely intact, recent downward revisions in the data notwithstanding. On January 7, The Wall Street Journal reported new findings by a pair of authorities in the field, Dale Jorgenson of Harvard University and Kevin Stiroh of the Federal Reserve Bank of New York: "[T]he likely scenario for productivity growth over the next decade remains a robust 2.24% annually," concludes their analysis. "That's just a tad lower than the average 2.36% that helped the economy surge from 1995 to 2000." . . .Following is a new chapter in the Grant's revisionist history of the millennial productivity bulge. . . . RESTING PLACE "Worst case" may, for once, actually describe a commercial experience. The market expects that revenue per available room (RevPAR) for the U.S. lodging industry fell by 6.5% in 2001. In 1991, the latest prior recession year without a terrorist attack, RevPAR declined by only 2.6%. . . . RISK IN A CHEAP STOCK By refusing to surrender to thrift, the American consumer may be helping to perpetuate the kind of economy in which the funds rate hovers below 2% for a long time. . . . ********************************* ********************************* PLEASE NOTE: Grant's Interest Rate Observer is taking its winter vacation and will resume publication with the issue dated January 18. ********************************* ********************************* ________________________________________ This issue and more can be found at http://www.grantspub.com. Grant's Financial Publishing Inc. is the publisher of Grant's Interest Rate Observer, copyright 2001, all rights reserved.