Why Warren Buffett is buying railroads

[salin]

Source: CNN Money

Why Warren Buffett is buying railroads
Improved technology and fuel efficiency have made the rails a perfect industry for the 21st century.

By Michael Sivy, Money Magazine editor at large
Last Updated: March 12, 2008: 6:27 PM EDT

Money Magazine) -- Want to invest in a green industry that employs the latest technology, reduces U.S. oil consumption and is priced very attractively? Look no further than the railroads. Laggards for decades after the 19th-century boom ended, they're hot again.

"There was steady traffic growth until last year, and the trend looks good once the economy gets back up to speed," says Kenneth Kremar, an economist who follows the railroad industry for consulting firm Global Insight. Perhaps that's why railroad stocks have largely escaped the battering that other sectors have taken so far this year.

----

Astute investors are climbing aboard. Warren Buffett has been loading up on shares of Burlington Northern Santa Fe and was buying in January at prices only 13% below current levels. (News of his buying boosted the stock.) At last count, he owned more than 18% of the company.



Read more: http://money.cnn.com/2008/03/07/pf/sivy_apr.moneymag/index.htm?section=money_topstories

[elleng]

1. Mr. Buffett will be able to influence railroad's policies and politics

more than others. 'Railroad capacity can be increased only slowly, while demand has been rising quickly. That gives the industry some ability to raise rates.'

If lucky, trucks could benefit from such rail rate increases, but that's not the way its happened in recent years. Truckers forced to 'eat their lunch,' as it were. Interesting political issues here.

I wouldn't bet my farm on rail stocks, certainly in the short term.

[4dsc]

9. Train stocks up over 250%??

Anyone that has been paying attention know that many of these stocks are up well over 200% over the past 5 years.. Its been one the best investments money could buy and I don't see any reason why they are going to go down anytime soon..

[mahatmakanejeeves]

12. I bought UNP in March or April of 2000

for 35-5/8 or thereabouts. It was off $5 yesterday - to $124. It has not split in all that time. Seems to me they would have.

[mahatmakanejeeves]

13. "I wouldn't bet my farm on rail stocks"

You might not bet your farm on rail stocks, but that's how the stuff that's grown on the farm is being transported.

[Baby Snooks]

2. The future of travel...

He also probably knows that the travel industry may be looking at a return to the train as a means of travel. Particularly if the price of oil keeps going up. Which most expect it will.

One of the contributors to our polluted planet is the exhaust fumes of thousands and thousands of airplanes criss-crossing our planet every day. God forbid, however, that we should talk about that.

We don't want to give up our Hummers. And we don't want to give up our $299 weekends in Mexico or the Bahamas.

[BlueCollar]

5. I doubt that all of the airplanes criss-crossing our planet

every day put out as much pollution as the daily amount released by the millions of vehicles in one major metropolitan city in one day...

[Baby Snooks]

16. Studies from ten years ago showed they do

http://www.ehponline.org/qa/105-12focus/focus.html

"According to projections by the CARB, aircraft NO x emissions at so-called South Coast (the southern coast of California) airports will have doubled in 2010 over 1990 levels, to 24.8 tons per day or about 13% of 1990 levels. The board expects hydrocarbon emissions to drop somewhat, from 7.0 to 5.4 tons per day."

"In contrast, the board expects ground access vehicle NO x emissions, mostly from automobiles, to drop to 2.4 tons per day, or about one-quarter of 1990 levels. The projected reductions are due to California's stringent automobile air quality standards. But critics say the figures are optimistic because they assume a slower rate of growth than is actually occurring."

http://www.californiaskywatch.com/

http://www.californiaskywatch.com/jets/index.html

"2. How Do Aircraft Affect Climate and Ozone? Aircraft emit gases and particles directly into the upper troposphere and lower stratosphere where they have an impact on atmospheric composition. These gases and particles alter the concentration of atmospheric greenhouse gases, including carbon dioxide...oxone...and methane (CH4); trigger formation of condensation trails (contrails); and may increase cirrus cloudiness-all of which contribute to climate change..."

"4.6 Cirrus Clouds. Extensive cirrus clouds have been observed to develop after the formation of persistent contrails. Increases in cirrus cloud cover (beyond those identified as line-shaped contrails) are found to be positively correlated with aircraft emissions in a limited number of studies..."

They in fact contribute significantly to air pollution and in fact may contribute to changes in weather patterns.

The airline industry is just as powerful as the oil and gas industry. So who knows how much they, and the Bush Administration, has kept from the public.

[elleng]

7. Travel industry is not likely looking for

rail transportation except in the several densly populated corridors where its already popular. Rail won't substitute for air for trans-continental passenger travel in our lifetimes, IMO.

[Two Americas]

31. freight

Freight is what is important to move by rail. Even when rail transportation was the standard mode of transit, freight tonnage was many times greater than passengers.

Who cares what the "travel industry" is looking for? Working people need affordable transportation. Long haul and vacation travel was always a small part of passenger rail miles.

[KingOfLostSouls]

3. The Wizard Of Omaha

jesus I wish I had some extra money to buy rail.

where buffet goes, the money follows.


and rail does provide a great future for transportation. electric powered rail. buffet is gonna see a future in business til the day he dies.

[Eurobabe]

4. Get the rails running again and stop this NIMBY shit America!!

If you saw how efficient and well-run the railroads, passenger and freight, are in Germany, you would just sit down and cry.

If America ignores rail transportation, you can kiss it goodbye in the 21st century.

[elleng]

6. A very high percent of freight

goes by rail in the u.s.

because rail passenger service is so labor=intensive, and the country is so large, passenger rail service as elsewhere is really not economically feasible; it is, of course, in discreet corridors, where it is running now.

[Hugabear]

8. But light rail will bring homeless people to our precious town!

I kid you not, that is one of the primary arguments against light rail here in the Orlando area, various local communities are terrified at the prospect of homeless and other "undesirables". It's a ludicrous argument, but they're quite vocal about it.

[Eurobabe]

17. Ohmigod. Public transportation is class-less in Europe

By that I mean, no one looks at you like you are a freak because you ride the S-Bahn, U-Bahn, Bus, Tram. In the US
the common attitude is, you ride the bus, you are a slob who can't afford a car. Very sad. :eyes:

[Prophet 451]

27. What a weird attitude

Here (England), it's getting to the point where you only use your car when you have things to transport (say, when you do the week's grocery shopping) and use public transport the rest of the time.

When I was working in London (which I don't anymore), I'd take a bus to the station, a train into London and use the tube (subway) to get around during the day and I wasn't the only one, there'd be dozens of people getting on at every stop doing exactly the same thing. Personally, I always found the train an infinitely nicer way to travel too. You can stretch your legs, get a cup of coffee, read your paper. Much nicer way to ease into the workday than spending an hour cramped up in a car.

[depakid]

19. These are the sorts of people I have ZERO sympathy for

and of course, they'll also be the ones who cry the loudest about their "lifestyles" in the post peak oil world.

[unc70]

21. We preserved rail corridor for future in my neighborhood

In the hopes that a future rail or other transit system would need the right-of-way. Relatively new development, in last 10 years.

But we also have a town bus system that is free -- no fares for anyone.

Chapel Hill really is a special place. Carrboro, too.

[elleng]

24. And hiking trail, too,

eh, unc?

[Lydia Leftcoast]

38. Or Japan

Both freight and passenger transportation in Japan are amazing!

You can literally go almost anywhere by train.

[mahatmakanejeeves]

10. Coal Can't Fill World's Burning Appetite

Of course, their business could still be hurt temporarily if the economy deteriorates further. But eventually, says Kremar, "we'll see a pickup in demand, especially in the kinds of commodities railroads carry."

Coal Can't Fill World's Burning Appetite

[elleng]

25. Any environmental problems

with removing mountaintops, to retrieve coal?

[mahatmakanejeeves]

32. I could be wrong, but

I think more coal originates in the Powder River Basin of Wyoming than any other individual region of the US. This coal is being hauled away by BNSF and UP. It is low-sulfur coal as well, suitable for use in midwestern and west coast power plants.

[elleng]

33. That is true.

There are probs in WV about shaving tops off mountains for coal, and leaving a real mess.

Potential competitor to UP and BN has been trying to obtain permission to extend lines east, and combination of competitors, residents and local businesses have presented big obstacles.

[techtrainer]

11. Because he already owns Boardwalk and Park Place? (nt)

[lovuian]

14. we have a train that runs right through our subdivision

I'm waiting for the day that a rail car will be for passengers to take us into the city

It will happen some day

[elleng]

26. It will happen

if it becomes politically popular.

[DeepModem Mom]

15. Interesting! nt

[crimsonblue]

18. The're fixing up the trains so that they have something

to transport us all to concentration camps when martial law takes over. I mean, we've already privatized prisons, war, law enforcement, and they are shopping the Air Traffic Controllers (but I expect they will just nationalize them again when controllers try to unionize). It would make sense that when our freedom is taken away, it is taken by private companies... because, after all, companies are people and people are not.

[crimsonblue]

20. One more thing about trains and emissions...

GE and other companies have been developing supertrains that can run on nat. gas or electricity, and the fuel efficiency has been dramatically increased over the past 15 years. But in order to take advantage of this, we need to repair our critically aging rail lines, replace the smog emitting engines, and encourage more public use of the train. I know that many of you out on the east coast take trains or subways everyday, but many many people here in the heartland have never ridden a train and don't even know where their closest station is.

[elleng]

23. Freight railroads

have been taking advantage of GE's developments. Railroads own the lines, mostly, and maintain them, at least those used to their advantage.

There are no smog=emitting engines any longer, except those used as 'museums.'

Passenger service to many cities was discontinued over the last 50 years, when railroads decided they couldn't afford to haul passengers along with freight. Govt. then developed Amtrak. FYI, http://www.trainweb.org/phillynrhs/amtrak.html.

[crimsonblue]

29. I guess my point was that railway is probably the most eco-friendly transport system..

Not to mention the most economical for large volume loads. Also, there is a negative connotation in many people's minds about trains (soot pumping in the air, loud violent machines, jerky and scary ride).. working on a good PR campaign never hurt...

[elleng]

30. You are right about eco-friendly,

and that was one of many rationales in support of a merger I worked on some years ago.

As to PR, much to my surprise they've been spending some, that is, the freight rrs. appear concerned about legislation someone may be thinking of. Since I've retired I haven't followed all that stuff, just the noisy, 'sexy' political news! But I do see, from time to time, a big pretty train: support whomever, UP, NS, etc. Always strikes me as funny! HOW exactly would most people 'support' UP, NS, etc?

[mahatmakanejeeves]

34. The AAR, calling itself "America's Freight Railroads"

IIRC, used to run promo commercials sponsoring the local (DC) talking head shows. The commercial showed long stack trains, trains on the Keddie Wye, and so forth, with many scenes in the American West. The commercial stressed fuel efficiency, getting traffic off the Interstates, that sort of thing. There was just the one commercial, not a series of them.

[elleng]

35. Are you in DC, mahatma?

I was, and I'm now in Silver Spring.

I recall AAR ads, and I've also seen some (1 or 2) recently, from UP and ?, lauding the wonderfulness of taking traffic off the roads. (That was one 'reason' for approving the NS/CONRAIL/CSX consolidation.) Easier said than done.

I'll have to look into whether there's a threat of legislation, causing them concern about regulation.

edit - Definitely something going on: http://www.kcsouthern.com/en-us/GeneralPublic/Documents/08-01-07FrtRRGrehseGasEmissions.pdf

[mahatmakanejeeves]

36. Alexandria, home of Potomac Yards

Gone, sadly. Southern end of the PRR electrification. Before AC, with the windows open on summer nights, I could hear the GG1s' blower motors. Now it's a shopping center. At least the widescreen Chinese-made TVs at Best Buy came across the country in containers on UP, NS, and CSX.

[elleng]

37. I could hear trains from home in NW DC,

and thought it was neat as I was working on rail matters for much of the time.

Sounds like you're an afficionado, like friends of mine at ICC in 'olden days!' One would visit Vegas to be able to watch the trains there!

[mahatmakanejeeves]

39. I'm a recovering railfan.

There's nothing to see anymore anyway. I took my last train picture in August 1994, out in Idaho or Montana. And that was the end of that.

[robertpaulsen]

22. Why? Perhaps being aware of Peak Oil is one reason.

Warren Buffett: Peak Oil Apostle ?

CNBC has an interview with Warren Buffett in which he seems to be admitting a belief in reasonably imminent peak oil.

BUFFETT: Well, ag commodities are a little tough. You know, if I had to on--where ag commodities would be three years from now, up or down, I wouldn't know which way to bet. But they look like they've had quite a run. But if you take something like oil, I mean, we have been sticking straws in the ground now since, what, Titusville in 1850-something with Colonel Drake. And we have--we have--we have found a lot of the oil that's to be found. And if we're going to produce--or use 85 million barrels a day now and the rest of the world probably is going to increase its demand in the--in the--in the next five or 10 years, we're going to have--we're going to have a tough time maintaining production that satisfies those at this price, even. So I think something like oil, six and a half million humans--or six and a half billion humans are going to use a lot more oil than a lot fewer used 20 years ago or 30 years ago.

KERNEN: So that goes for metals, too? You're saying things that we can grow, we can grow more of. But things that are in the ground are...

BUFFETT: Well, we--yeah, we're using--my son is turning out considerably more bushels of corn or soybeans per acre than 20 or 30 or 40 years ago. So land can get more productive. But oil is finite. There's actually some school that says it isn't, but I think it's pretty finite. And, you know, we have 500,000 producing oil wells in the United States. The average production is 11 barrels a day. Five hundred thousand times we've actually hit. But if you look at our production vs. 30 years ago, it's way down. And most, you know, most fields are depleting at a pretty good rate. And with demand--if demand grows a million or a million and a half barrels a day from year to year and the present fields deplete and we don't find the elephants in the future...

QUINTANILLA: Well, with that in mind, some of the biggest bets, Warren, that get talked about on this show are from the likes of Boone Pickens, who says that he likes wind. Or it's the tar sands or it's a play on water here at GE. When it comes to energy, is there a next generation play, an alternative play that at least has caught your eye?

BUFFETT: Well, we're using more and more wind. We have a big energy company and--for example, in Iowa, we have a lot of wind farms and we're going to have more. So sure, the world is going to attempt to do that, but that is--that is not a big answer to the kind of energy demand that--that's coming along. So I think we've got to do everything we can in alternative areas, but I don't--I do not see that as a cure-all at all.

http://peakenergy.blogspot.com/2008/03/warren-buffett-peak-oil-apostle.html

[Prophet 451]

28. Huzzah!

Quite apart from the enviromental benefits, rail is a much more pleasent way to travel.