U.S.Canada Conflict BuffettSwiss Re Toyota vs GM Timshel
U.S.-Canada Conflict, Buffett-Swiss Re, Toyota vs GM: Timshel
Commentary by David Wilson
Jan. 24 (Bloomberg) — Wall Street;s strategists are
standing by their unanimous view that share prices will rise
this year. Their counterparts in Toronto;s financial district
aren;t so sanguine.
Canada;s Standard %26amp; Poor;s/TSX Composite Index may end the
year with a 6 percent loss, according to an estimate made this
week by Jeff Rubin, chief strategist at CIBC World Markets in
Toronto. Before then, he foresaw a 17 percent increase.
Merrill Lynch %26amp; Co. more than tripled its projected loss
for the S%26amp;P/TSX Composite to 18.3 percent, which would be the
biggest full-year decline since 1974.
The index may fall below 10,000 during the year, David D.
Wolf, an economist and strategist at the firm;s Canadian unit,
wrote in a report this week. Last year;s close was 13,833.06,
and the benchmark has exceeded 10,000 since July 2005.
A trio of U.S. strategists — Banc of America Securities
LLC;s Thomas McManus, Citigroup Inc.;s Tobias Levkovich and UBS
AG;s David Bianco — cut their Standard %26amp; Poor;s 500 Index
projections this week. Yet they and a dozen others in a
Bloomberg survey see the index rising in 2008, just as they did
when the year began. The median forecast, 1,600, amounts to a 9
percent gain.
“Ultimately the market will recover;; from this month;s
drop, Ian Scott, a strategist at Lehman Brothers Holdings Inc.
in London and a survey participant, said at a conference. U.S.
stocks did just that yesterday, when the S%26amp;P 500 snapped back
from a 3.1 percent loss and closed 2.1 percent higher.
Historically in Sync
If the U.S. strategists; estimates prove accurate, the S%26amp;P
500 would rise for a sixth straight year, the longest winning
streak since the 1980s. That said, it;s doubtful whether U.S.
stocks can rise unless Canadian shares follow suit.
Since 1948, the S%26amp;P 500 and the S%26amp;P/TSX Composite have
moved in different directions only eight times, according to
data compiled by Bloomberg. The most recent occurrence was in
2000, when the 1990s Internet bubble burst. The U.S. benchmark
fell 10 percent as its Canadian counterpart rose 6.2 percent.
The indexes; relationship this year is the closest since
2003, Bloomberg data shows. Their coefficient of determination,
or R2, has risen to 0.552 from 0.388 in the same period of last
year. The number can be as low as 0, showing they are unrelated,
or as high as 1, indicating they move in lockstep or inversely.
And financial stocks are the most heavily weighted industry
in both benchmarks. They amount to 18 percent of the S%26amp;P 500 and
30 percent of the S%26amp;P/TSX Composite, by Bloomberg;s count.
Economically Sensitive
The U.S. gauge is less concentrated in energy, raw-material
and industrial stocks as well as financials. The three groups
add up to 27 percent of its value, well below their combined
weight of 50 percent for the S%26amp;P/TSX Composite.
Then again, indexes for all three industries approached
bear-market readings — losses of 20 percent or more — before
the market;s rebound yesterday. And the groups are among those
at risk on both sides of the border as economic growth slows.
Put all this together, and it looks like the predictions
from Canadian strategists are a bad omen for U.S. stocks.
* * *
Derivatives are “financial weapons of mass destruction,;;
Warren Buffett wrote five years ago in his annual letter to
Berkshire Hathaway Inc.;s shareholders. Buffett might use
another phrase today: creators of buying opportunities.
Swiss Reinsurance Co., the world;s largest reinsurer,
disclosed yesterday that Berkshire had purchased a 3 percent
stake. In return, Swiss Re agreed to have the Omaha, Nebraska-
based company assume 20 percent of its property and casualty
business for the next five years.
Two months earlier, Swiss Re took a loss of 1.2 billion
Swiss francs ($1.1 billion) on two credit-default swaps. The
company, based in Zurich, said the derivatives protected an
unnamed client from losses on securities tied to mortgages.
The prospect of further losses caused Swiss Re;s stock to
retreat within the past week. The price hit bottom two days ago
at 63.75 francs, the lowest since March 2003. By the end of that
day, Berkshire owned 11.25 million shares through its Columbia
Insurance Co. unit, according to Swiss Re;s statement.
* * *
Toyota Motor Corp. is within a rounding error of
supplanting General Motors Corp. as the world;s largest auto
manufacturer by annual sales. Compare the two by market value
instead and there;s no contest.
Toyota;s $184.1 billion value as of yesterday;s close
exceeded that of GM, Ford Motor Co. and Japan;s eight other
automakers combined, according to data compiled by Bloomberg.
The comparison held up even though shares of the company, based
in Toyota City, Japan, had declined 39 percent since reaching a
record 8,390 yen last February.
Worldwide sales at Toyota rose 6 percent last year, double
GM;s pace, to 9.37 million vehicles. The company wasn;t any more
exact in a Jan. 10 statement; detailed data is due next week. GM
said yesterday that it sold exactly 9,369,524 cars and trucks.
Regardless of which automaker prevails, Toyota may gain the
upper hand this year. The company is looking for 5 percent sales
growth, exceeding GM;s 3.5 percent projection for the worldwide
auto industry. GM doesn;t release forecasts of its own sales.
(David Wilson is a Bloomberg News columnist. The opinions
expressed are his own.)
To contact the writer of this column:
David Wilson in New York at
