Warren Buffet does his biggest deal ever - buys railroad

[Vinnie From Indy]

Buffet's Berkshire-Hathaway just acquired Burlington Northern/Santa Fe railroad. It is being described as an "all-in" bet on the American economy. I will be interested to read the many opinions of this deal in the next week or so. It could be that Buffet is betting that the speculators in the energy markets will continue to manipulate prices making rail much more competitive in the future.

http://www.bloomberg.com/apps/news?pid=20601082&sid=asfU7Dluabw4

[Craftsman]

1. But does he own Broadway and Park Place?

[Orrex]

10. I got Park Place on a medium soda last week

If Buffet wants to buy me out, I'll be happy to take his call.

[PassingFair]

39. Don't bring that "soda" issue into this nice thread.....

:evilgrin:

[elleng]

26. Sure, in Omaha!

[monmouth]

2. Railway travel will undoubtedly make its second debut on the scene...n/t

[hlthe2b]

3. I wish.. but I think this is all about the profits of rail freight.... n/t

[Robb]

16. Yep

The "smart money" was actually on it years ago.

Absurdly wealthy friend of mine has been putting money into rail for about 10 years now. Infrastructure improvements, new rail technology patents, you name it. As ever, he's going to make out like a bandit.

[Statistical]

19. These lines aren't used by passenger they are freight lines.

Passenger railroads will never take off until Congress secures funding, right of way conflicts, and incentives for true high speed rail.

High speed rail is a direct competitor to airlines.
Low speed (Amtrack) is more a direct competitor with autos.

Given the low cost (subsidized) operating cost of autos in this country that makes low speed passenger rail a money pit.

[cark]

22. Passangers on rail is dead.

No rail company wants to haul people. People are cheap, they complain alot, they don't like bumpy rides or derailing and they expect to be places on time. Freight lacks these negitives for the most part.

[Brigid]

43. Then how come . . .

Europe has such good, efficient tran service? It doesn't have to be the way you describe.

[TheKentuckian]

47. The rest of planet Earth disagrees. Not just the "socialist-commie" Euros

but the Japanese, Indians, and Chinese too.

Highspeed rail kill planes in cost to benefit. Its not even close.

[cark]

49. Im not arguing about the merits of train travel

I'm just telling you why it won't be happening any time soon in our country. Our current rail infastructure is not set up to accomodate people trains and there is not enough economic incentive to even begin to consider upgrading.

[elleng]

4. HOLEY COWS!

My old business!!!!

[Skink]

5. Probably build some hotels next.

[elleng]

11. Don't bet on it!

Been there, done that, centuries ago!

[elleng]

6. Rail carries coal., and bnsf has/hauls TONS/MOUNTAINS of it!

[jaxx]

7. This is good news, they're a big employer around here.

Expansion is going to happen and we're ready.

[elleng]

9. At least they won't fade away!

[elleng]

8. Interesting additionally because bnsf's major competitor

is Union Pacific, headquartered in Omaha, Buffet's home town!

[cark]

23. UP has more trackage than BNSF but has much lower profit margins

BNSF is by far a better buy.

[elleng]

12. VERY IMPORTANT

as a major vote/bet on the U.S. economy.

[Javaman]

27. Either that or the failing of the airline and trucking industry due to peak oil. nt

[jwirr]

45. That is what I was thinking - Kunstler's The Long Emergency! Either

way I am glad he is investing in it.

[Wapsie B]

13. He probably wants some of the action when it comes to constructing high-speed rail.

BNSF carries a lot of freight through the midwest but the subsidies for high-speed rail service probably made it too tempting to pass up.

[elleng]

17. I wouldn't bet on that.

Passenger freight transport is very labor-intensive, and eats cash, doesn't produce any. Freight is the money-maker.

[Wapsie B]

20. x

x

[Statistical]

21. This has NOTHING to do with highspeed rail.

The lines can't handle high speed rail.

Highspeed rail requires a lot of planning with straight lines, minimal changes in elevation, and large turning radiuses.
These lines will never carry highspeed rail.

Highspeed rail requires Congressional action to secure funding, and right of ways.

You can't just drop highspeed rail on a path designed for lower speed travel.

The train would need to constantly accelerate and decelerate to negotiate the max speed of the various turns. This increases cost, reduces customer comfort, and increases travel time.

Generally speaking for high speed rail to be successful you need to design a track that the train accelerates to cruising speed and then pretty much stays at highspeed until the next stop (kinda like airlines do).

Even in Europe where highspeed rail is common they use totally different infrastructure than freight.

[Wapsie B]

24. I understand you can't put a highspeed line on the same path

as lower speed trains. But when those paths are determined and the tracks are built wouldn't the railroads own it and oversee operations?

[Statistical]

25. That is yet to be decided.

1) Due to Congress inability to get anything done I doubt we will see high speed rail in next 30 years.

2) Even if it does happen it is more likely those with experience in high speed rail would be in better position to capitalize on any high speed rail network.

Warren Buffet generally doesn't make investment decisions that rely on other people (Congress) doing their job in order for him to make money.

Maybe that is his plan but I think it is unlikely. Rather rising fuel prices make railroads even more profitable because they are more efficient than trucking.

[MidwestTransplant]

14. Yes I think it's a commodities play

[cark]

30. Buy Hard Assets

I would much rather own hard assets than dollars in the coming years. Resources will become more scarce (China India) while dollars will become worth less an less due to our spending habits and insurmountable debt.

[elleng]

31. Talking about ourselves, or Buffett?

He's betting economy will improve, ours and prolly worldwide, so transportation remains and increases in value.

[cark]

32. Long term

Our economy will improve, but the value of the dollar has and will continue to decrease IMO. I would rather own something more than a promise on a piece of paper. Look at our debt, our decreasing manufacturing base and upcoming entitlements promised to the all the boomers. Long term it doesn't look optimistic for our economy. I'm investing in hard assets (mines and natural resources) that are in limited supply along with investing in countries where we are sending all of our money and jobs (China).

[elleng]

33. Thanks. Will think about this

once I have something to invest.

[HamdenRice]

15. A few semi-secret aspects of railroad deals: They are corridors for long distance fiber optics

Sprint was originally a branch of "SPR, or Southern Pacific Railroad". Long moribund canal companies even saw a revival of their stock prices and were targets of acquisition in the 90s.

If you are a new long distance company, it's almost impossible to get a right away for cable optics from, say NYC to LA without buying or dealing with a railroad.

[phantom power]

28. I wonder if Buffet is also thinking "electric transmission corridors"?

[HamdenRice]

29. I'm sure it's something in addition to trains

although train freight does have a strong future due to carbon concerns because it is so much more efficient than trucking.

I'm sure it's a combination of many things, but those corridors are extremely valuable for stuff other than trains -- telecom, as well as, as you point out, electricity.

[elleng]

18. Big bet on the United States.

The deal, which will also include the assumption of $10 billion in Burlington Northern debt, represents what Mr. Buffett said was a big bet on the United States. He told CNBC in an interview that railroad operators cannot do well unless American businesses were producing goods and customers were buying them.

“It’s an all-in wager on the economic future of the United States,” he said in a written statement. “I love these bets.”

In the interview with CNBC, Mr. Buffett said that the deal came together quickly. He made a proposal to Matthew K. Rose, Burlington Northern’s chairman and chief executive. Mr. Rose took the proposal to his board — and got an answer in about 15 minutes.

“We are thrilled to have the opportunity to become a part of the Berkshire Hathaway family,” Mr. Rose said in a statement. “We admire Warren’s leadership philosophy supporting long-term investment that will allow BNSF to focus on future needs of our railroad, our customers and the U.S. transportation infrastructure.”

http://dealbook.blogs.nytimes.com/2009/11/03/berkshire-to-buy-rest-of-burlington-northern-for-44-billion/?hp

[PHIMG]

34. If you want clean energy fear for the future of the Class 1 railroads

Nearly half of thier business is shipping dirty coal around the country. This is why they are all members of the Clean Coal astroturf groups.

Its hard to see how the Class 1 railroads can survive without coal to ship.

[elleng]

35. They might not be able to survive without coal,

which is why they're pro-coal. They'd do what's possible to diversify, but will do what they can to keep coal moving.

[old mark]

36. In the North East, raill passengers never left-we are trying to extend the rail

service back to almost what is was in the 1950's. There will be a big decision on the extent of the service to be built in 2010. You can now take a train from Boston to Florida, and a lot of local stops are under consideration - it's mostly large cities now.

It's great if you have never done it.

mark

[PretzelWarrior]

37. there's a reason I like this. the transportation mode least open to change is rail for freight

they are some of the most assholish of the entire bunch and it is creating huge inefficiencies in our supply chain and logistics infrastructure in this country.

There is a way we could send way more of our freight across rails for much more of its journey here in the U.S. AND between countries in North America.

There is actually quite a bit of money to be maed in that sector especially if we see new attempts to cap carbon output in this country.

[elleng]

38. Another thread on the subject.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=4130875&mesg_id=4130875

[aikoaiko]

40. He must be betting that goods transportation will increase greatly or...

...he is going to scrap the metal.

;)

[elleng]

44. NOT SCRAP THE METAL.

Read the articles. He's betting economy will improve, and transports with benefit.

Rail for scrap was done some years ago (may still be) by SMALL lines not foreseeably profitable.

[aikoaiko]

46. I was joking about the scrap metal part --

;)

[elleng]

48. GOOD!

[Lasher]

41. Buffet bet that other currencies would rise against the US $.

He was right. Extrapolating just a tad, investment in non-US equities would have been a good move back then because those stocks are not tied to the US $.

If you think Buffet has a clue you might ask yourself if this could be a time to buy.

Never, ever seriously consider investment advice from an anonymous contributor on an internet forum.

[Brigid]

42. Darn.

I was hoping it would be CSX so I could write him about their trains constantly blocking traffic here.