The Wall Street Journal-20080111-Ahead of the Tape
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Ahead of the Tape
[Today's Market Forecast]
Hopes Pinned
On Exports
Look Misplaced
Some economists believe strong exports will help keep the U.S. out of recession. They might expect too much.
The deficit shrank for much of 2007, helping to puff up gross domestic product. Further export strength in 2008, fueled by global demand (with perhaps a boost from a weaker dollar) would lift GDP again. It might also encourage hiring, which would help keep consumers spending.
But the dollar's worst days may be behind it, at least for now, a fact that weighs against an export boom. And slower U.S. growth should have some impact on the rest of the world, putting export demand in further jeopardy -- unless foreign economies have so completely "decoupled" from the U.S. that a slowdown here can happen with no impact abroad.
There are signs of trouble in some key foreign spots, including Europe, Japan and the United Kingdom. J.P. Morgan's global purchasing managers' index of factory activity is at its lowest since July 2003.
The upshot: Investors betting an export boom will boost manufacturers and beaten-down technology shares could be disappointed. The Commerce Department releases November trade numbers today, but there's a fresher read on exports already out there -- The Institute for Supply Management's new-export orders index for December. It's already at the lowest level in nearly a year.
Soft Reinsurance Market
Poses Drag on Berkshire
Shares of Warren Buffett's Berkshire Hathaway Inc. have taken a beating in recent weeks. One possible reason: The company is heading into a soft market in one of its core businesses -- reinsurance.
How Mr. Buffett maneuvers could affect Berkshire's earnings in years to come.
Reinsurance is insurance for insurers wanting coverage to spread their own risk of losses from catastrophes (think hurricanes). Berkshire, with its deep pockets and strong credit rating, can sell a lot of it.
This is the time of year when many property-catastrophe reinsurance policies are renewed, and prices are weakening quickly. Prices fell 9%, on average, for annual contracts renewed on Jan. 1, said Guy Carpenter, the reinsurance-brokerage unit of Marsh & McLennan Cos.
Berkshire tends to retreat from the market when prices get soft, shifting into areas where it has pricing power. That explains Mr. Buffett's recent moves into bond insurance, a potentially lucrative niche amid recent bond-market turmoil.
"Berkshire appears to be backing away" from reinsurance, Citigroup analyst Joshua Shanker wrote this week in a report initiating coverage of the company with a "hold" rating. Mr. Buffett didn't respond to a request to comment.
If true, that may affect Berkshire's 2008 profit. In 2006, after reinsurance prices soared following Hurricane Katrina, the company logged a 373% rise in third-quarter net income. Reinsurance generated about 11% of the company's revenue that year, not including investment income from premiums.
The flip side is that while Berkshire could lose premium income by pulling back now, it might not have to pay out as much if a big storm does hit this year. And it could always dive in deeper after the next major costly hurricane strikes, an event likely to send rates higher again.
-- Liam Pleven
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