Wednesday, November 04, 2009

Buffet is Bullish on Trains

There has been a great deal of buzz this week about Warren Buffet discussing a recent purchase by his company. Buffet is noted for his candor, which makes him one of the more credible voices when it comes to the status of the economy and Wall Street in particular.

Recently, Buffet was found on the Fox Business network visiting with anchor Liz Claman. In particular, he was discussing his Berkshire Hathaway's gamble into the railroad business. Just recently the company purchased Burlington Northern Santa Fe in a deal worth about $44 billion.

This is a bold move for Buffet in a shaky economy, but typical of a person who has learned to take advantage of sales that can be found when a business environment is in decline. Furthermore, with the move towards reducing energy costs in order to support the environment and save dollars, trains are a very smart form of transportation. Buffet does not buy things he is not comfortable with and had already owned 25 percent of the company before he acquire the rest of it in a recent meeting in Fort Worth, Texas.

Why trains versus trucks or other forms of transportation? Buffet told Claman that "the rails move a freight at a much more environmentally friendly way than the truckers do. And they also only use about a third of the fuel. So, it's helping...It helps in terms of the atmosphere. It is a very, very efficient, effective, environmentally friendly way of moving freight. And, you know, our rail system is a huge asset to the country."

Claman covered a topic that is extremely important to anyone concerned about transportation. She noted that trains are, in transportation, the "cheapest, best way. But then there's cap-and-trade, Warren. Some analysts are very skittish about coal and a possible backlash if cap-and-trade goes through. You mentioned now -- you said, we're going to see a diminishing of coal use. But what do you think cap-and-trade would do to the business if that went through?"

Buffet can not easily dismiss the topic, but noted "It won't change the composition of what utilities are doing tomorrow or next week or next year. The utilities over time are going to use less coal and probably more nuclear. Our own utility, for example, uses wind very substantially in Iowa. So, over time, coal is going to diminish somewhat. Now, I think that will hit Eastern coal more than Western coal, but that's a fact of life over a considerable period of time. And that's true whether there's cap-and-trade or not, yes."

One of the things that caught my eye in the interview was Buffet's discussion of his view of the dollar in this current economy, stating "You're seeing us get rid of a lot of dollars today in exchange for a lot of assets. So, I would rather own physical assets than own dollars." Why? Because of the rapid decline of the value of dollars through the printing of money. Those of us who cannot afford to purchase railroads, might want to consider precious metals as a part of an investment strategy.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

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