Buffett’s own private stimulus
What Warren Buffett's $34 billion bet on railroad Burlington Northern means for the U.S. economy
Warren Buffett has purchased railroad Burlington Northern Santa Fe for $34 billion.
(Corbis/Najlah Feanny)
Warren Buffett is betting big on railroads, having his Berkshire Hathaway investment vehicle buy No. 2 U.S. railroad Burlington Northern Santa Fe for $34 billion, plus assuming $10 billion in debt. Buffett described his biggest-ever purchase as “an all-in wager on the economic future of the United States.” Will the Oracle of Omaha's bullishness help speed the economic recovery?
Buying a railroad is a good omen: Railroads and other transportation companies are "a good leading indicator of how the economy and broader market will do," says Paul LaMonica in CNN Money. So it's a good sign for transportation companies—and the economy in general—if Warren Buffett is saying we've hit rock bottom. And "if the Burlington deal ignites legitimate interest in the rails as well as the transportation sector at large," the recovery will get some added steam.
“Is Warren Buffett calling a bottom?”
This is about the world’s economy, not America’s: One look at Burlington Northern’s website, says Randall Forsyth in Barron’s, is enough to suggest that “the Sage of Omaha really is putting his money on the future growth of the world economy.” BNSF rail cars connect West Coast ports to “trucks that restock the shelves at Wal-Mart Stores throughout the nation.” And given the economic misery here, betting on Chinese exporters might make better sense.
“Has Buffett overplayed his hand?”
Warren Buffett is betting on American coal: “This is classic Buffett,” meaning it has “common-sense simplicity,” says Jim Jelter in MarketWatch. In this case, Burlington Northern “hauls coal, lots of coal,” and coal is something the energy-thirsty U.S. has in abundance. “Not coincidentally, Buffett’s Berkshire Hathaway Inc. also owns a lot of power plants.”
“Buffett the Empire Builder”
Burlington is about Buffett, not the economy: Warren Buffett’s making a “survivalist bet,” says Alice Schroeder in Bloomberg. The railroad business is "not going to lead the economy out of recession,” so this is a long-term play. Buying a solid company like Burlington soaks up Berkshire cash, which “lowers the danger of his successor doing something dumb,” and it dilutes the company’s exposure to risky financial stocks, another way to “protect his legacy.”
“Buffett revisits hunting ground for survivors”
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6 Comments
Posted by Edgar, Wednesday, November 4, 2009, 3:18 pm Good for him. Better for BN. Good for all of us.
Posted by Reality, Wednesday, November 4, 2009, 5:27 pm We've worked out the math in our university's energy class and we've calculated that coal will last not the hundreds of years the companies say it will last, but more like 30 years at the most, taking into account accelerated demand. Burning coal is an antiquated, albeit cheap, way to produce energy, but its longevity is being overshot. Were this the actual reason for BN's purchase, then the oracle bought into the hype. Clean coal is oxymoronic. Considering his savvy, the purchase must have been made for other reasons.
Posted by kenny, Wednesday, November 4, 2009, 10:59 pm There are reasons some people have money. Buffett is one of those shining stars. The atheletes and wantabe start who 'earn' millions are losers who do nothing more than line their own bank accounts, and whine when their business managers lose it for them. Buffett is a good man. They are NOT. Congresspeople who enter office near palpers and leave millionaires do nothing for us, but they sure leave a less than 200 k job a year as millionaires. hmm.. riddle me that, batman???
Posted by bet, Wednesday, November 4, 2009, 11:01 pm 100 years? the dude is old and he and his advisors will not be around. this is a short term investment.
Posted by R.Venkatachary, Friday, November 6, 2009, 5:03 am Sound economy, that is what a forword looking economist would say about Buffet investment.It is a eminently sensible act which will help give a much needed thurst to employment, raise the level of energy production,cheap trvel as againsst the massive usage of gas by automobiles all over the US..
Posted by Dan McColly, Saturday, November 7, 2009, 11:34 am Rail is the future of a country as expansive as this. But not the present. It's about rightofways and a basis on which to build infrastructure over time. It's the little engine that WILL. PS. Thankfully there are still risktakers in the world willing to look past the current quarter.
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