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.”
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