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1 posts from November 2009

11/14/2009

Buffet's Secret Motive

Buffet’s Secret Agenda

 

A short while ago when the Oracle Of Omaha purchased the remaining 77% stake in Burlington Northern Railroad, Buffet commented that the move was “an all-in wager on the economic future of the United States.”

 

I do hope so.

 

But look a little deeper and there is probably a backup bet in there (only in high finance could such a thing as a “backup bet” exist!)

 

Buffet may be worried about increased environmental regulation which could drive up the cost of fossil fuels.  (If that happens it’s more attractive to move people and stuff by rail.)  He may also be worried about inflation (and who isn’t besides the boys at the Fed?)  Inflation means higher oil prices (because as the value of the dollar goes down the price of “stuff” goes up.)  Higher oil again means railroads get more attractive.

 

There may be yet another reason and that is this new administration will increase economic incentives for environmentally friendly companies (there’s about $8 billion in the stimulus bill already for high speed rails, but to build high speed rails it’s nice if you already have the easements.  Now Buffet does.)    

 

Let’s all hope Buffet is right.  Let’s hope he makes money off his railroad because the economy starts humming again and people and businesses are buying more goods and raw materials and those goods and raw materials somehow need to get to the people and the businesses buying them.  (How’s that for a run on sentence?)

 

But this railroad purchase once again shows Buffet’s brilliance.  Even if he is wrong about the economy he may win again through tighter regulation, higher oil prices, and environmental incentives.