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Five Things That Made Us Go 'Hmm'

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar and welcome to the Friday Five. This is our look back at five interesting headlines for investors. We have some 80 degree weather here in Chicago today and it's making me go, "Hmm."

Morningstar Markets Editor Jeremy Glaser has also got five things that are making him go, "Hmm," from the markets. He's here to join us. Thanks for joining me, Jeremy.

Jeremy Glaser: You're welcome.

Stipp: So, what do you have for the Friday Five this week?

Glaser: A few head scratchers, but we saw Microsoft introduce a phone. The former CEO of WaMu testified in front of Congress. Toyota runs into even some more problems, if that was even possible. We saw retail sales numbers come in even better than we expected. And finally, some interesting perks out of Abercrombie.

Stipp: Sometimes when I'm using a Microsoft product I go, "Hmm," a lot. So what do you have on Microsoft today?

Glaser: They introduced a new phone called the KIN, two models that are geared mostly towards teenagers and to the tween crowd. So, in the same group of people that brought out the Sidekick, which was so popular on T-Mobile for years. What made me kind of question this decision is that it's a completely separate platform from their Windows Phone 7 that they're rolling out later.

Now, the idea of Windows Phone 7 is to compete against the iPhone and against the Android and to be a truly modern smartphone application, but the KIN is completely separate. And I think that a lot of teenagers are not going to be that excited about getting somewhat of a dumbed-down smartphone. With the pricing for a lot of these full feature phones at around $99, I don't know if there's a lot of place for this kind of "in between" a "regular" phone and a "smart" phone. It's a weird market to get into.

Stipp: So much competition in this space, you really have to hit the nail on the head on that one.

Glaser: Exactly.

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Stipp: So, for number two, some interesting and sort of quizzical statements from a bank CEO. What do you have there?

Glaser: Yeah, the former CEO of WaMu got in front of Congress to talk about how it was nothing that the company really did that sent into bankruptcy or sent the FDIC having to come and seize it. It was because the government didn't give them a bail out like they gave everybody else. So, they didn't give them the same opportunities to be bailed out like other companies did.

This is somewhat, as you said, a quizzical statement. I think it's clear that WaMu's lending standards were nowhere even close to up to snuff. They were running out of capital, deposits were running out of the bank as fast as people could line up to get their money out. It doesn't seem like, given an amount of time, they would have been able to turn it around.

The fact that they weren't willing to take personal responsibility, this many years past the actual failure, shows a lot about where their heads were when they were in the middle of the crisis.

Stipp: Rationalizations can cause for some very strange pathways.

Glaser: Yeah. Exactly.

Stipp: Speaking of pathways, Toyota has had a very interesting and potentially rocky one. We've reported on it before. What's so quizzical on Toyota this week?

Glaser: Well, this week, Consumer Reports came out with a "Don't buy" rating on a Lexus SUV. Not this is an extremely rare rating for Consumer Reports. Sometimes they might say, "This isn't the greatest," but to just unequivocally say, "You should not be buying this," is incredibly unusual.

And Toyota, in response, actually pulled the sales of this SUV worldwide and is now testing all of the other ones. They think there might be some problem with the software in the stability control programs. Just more software-related issues, more safety related issues from Toyota.

It seems like what looked like was a relatively simple fix with an accelerator pedal is becoming a much broader quality issue.

But one of the most other puzzling things is that Toyota sales really have not dropped off yet. The incentives that they've had out there had people out there and they still want to buy Toyotas.

So, it seems like a lot of their brand equity hasn't completely disappeared yet, but I think a few more high-profile things like this and it's going to be hard to convince people, at any price, to buy into a Toyota.

Stipp: Speaking of people going out and buying things, retail sales, we figured it might do a little better, but were you going, "Hmm," when those retail sales came out this week?

Glaser: Yeah, definitely was surprising when I got that email in the morning saying that retail sales were up 1.6%. Auto sales had a lot to do with it. People were out there buying cars. But really across the entire economy, consumers were out there; they were spending. It's a little, maybe, confusing because unemployment is still really high, there was a lot of talk about going to a "new normal" of consumer spending were people are going to save more.

But people who have jobs now seem to be a lot more comfortable with them, they don't see there being the mass layoffs that there were before, and people are willing to go out and buy those things that they were putting off for so long.

Stipp: So if consumers are out there they're probably at the mall, they're probably at A&F and if they're buying things at A&F, surely the CEO deserves some kind of reward for that. Right?

Glaser: Absolutely. So, the CEO of Abercrombie & Fitch seems to really like private jet travel and he was charging a really substantial sum of money to the company for his own personal jet use. So in order to try and tamp down on this, the board of directors said, "You have to keep it under $200,000 for your personal use, but if you agree to this we'll write you a check for $4 million to make up for the inconvenience."

And that really is a head-scratcher. I'm not quite sure if not using a jet is worth $4,000,000, but if that's a deal that I'd have to make, I'd be happy to take it.

Stipp: It sounds like, really, the way to not fly to me.

Glaser: Exactly.

Stipp: Thanks for joining me Jeremy.

Glaser: You're welcome.

Stipp: For Morningstar I'm Jason Stipp, thanks for watching.