Print
Comment
Email
RSS
Twitter
Buffett the Betting Man
Buffett the Betting Man
By Bernhard Warner and Matthew Yeomans
Posted Wednesday, November 4, 2009 - 3:46am
Evidently, Warren Buffett is a betting man. And a big one at that. The Wall Street Journal and the New York Times strike nearly identical headlines this morning in describing Buffett's surprising $26.3 billion acquisition of Burlington Northern Santa Fe Corp, both declaring "Buffett bets big" on, of all things, freight trains. The NYT notes the investment seems more 19th century than 21st century, but this is not just the move of a wealthy old man who likes to play with trains. "Mr. Buffett is wagering that as the economy revives, so will the demand for goods to be shipped by train. Burlington Northern carries coal and timber from the West, grain from the Midwest and imports arriving directly from Mexico and Canada, as well as through California ports," the newspaper writes. The move, the WSJ notes, completely transforms Berkshire Hathaway "into a megaoperator of industrial firms, moving the Omaha, Neb., conglomerate further from its roots as a nimble investment outfit." The thinking is that high fuel costs are here to stay and therefore freight trains will be a more efficient way to move goods around the country than trucks.
The world demand for oil, however, has never been so uncertain. According to the WSJ, the world may be on the cusp of shaking off a global recession, but that's not having the expected lift for oil demand. The newspaper writes, citing sources, that "the International Energy Agency next week will make a 'substantial' downward revision to its long-term forecast for global oil demand ... marking the second year running the group has slashed its view of the world's thirst for oil."
General Motors stunned the automotive world yesterday with news that, no, it will not be selling its European division, Opel. "The decision was a blow to the Canadian auto supplier Magna, which was poised to acquire a 55 percent stake in Opel with the backing of the German government and labor unions," the NYT writes. Instead, the new GM board decided it would keep Opel and pour billions into restructuring the unit, which includes British automaker Vauxhall. "GM's change of heart reflects the car maker's increasing confidence about its outlook as well as the direction of its aggressive new chairman, Edward E. Whitacre Jr. The former AT&T Corp. chief, who was picked by the U.S. government for his post, has told GM executives to concentrate on expanding its market, not shrinking it," the WSJ writes. Don't feel so bad for Magna though. In a separate article, the WSJ reports that "being dumped by GM is a blessing." Turning around Opel would be costly and time-consuming for Magna, the newspaper notes. Across town, Chrysler's new turnaround maestro, Sergio Marchionne, the CEO of Fiat, will unveil his plan to restore Chrysler's business later today. How can Marchionne save Chrysler, which has seen U.S. auto sales drop by 40 percent in the past year? With Fiats, writes Business Week. "Marchionne will lay out his plan, which, according to industry insiders, involves plugging Chrysler's product holes with Fiat-engineered cars."
Retail bounced back in October as sales figures show "robust sales growth for the first time in more than a year," the NYT writes. Sales for women's apparel have increased for the first time since August 2008 and across-sector sales in California also appear to be stabilizing. Overall, Thomson Reuters, "which aggregates analysts' estimates for 30 companies, predicts a 2% increase," writes the WSJ. Of course this good news is only relative to how bad things had become during the last 12 months but still, as the NYT writes: "Contrary to predictions made only a few weeks ago, the nation’s stores could be poised for a merrier Christmas this year than last."
China is on a tear with its economy now expected to grow 8.4 percent this year, according to the World Bank’s latest projection, the NYT writes. The Bank raised its forecast for growth in China, "though it cautioned that more policy adjustments would be necessary in the medium term to ensure the country’s recovery would be sustained." But the World Bank also worries that a new Asian economic bubble might be on the rise, notes the WSJ. The sudden injection of billions of dollars in investment capital in the region is "raising concerns about asset price bubbles" in Asian equity markets and in China's, Hong Kong's, Singapore's, and Vietnam's real estate markets, the bank said.
And finally, consider the rotten job the poor human resources manager has these days. Whenever they post a "help wanted" ad, they get inundated with résumés and cover letters, most of them unqualified. CNNMoney.com reports that there are quality job positions that continue to go unfilled despite the highest unemployment rate in generations. The reason? Not enough qualified candidates. CNNMoney.com cites a recent survey by Human Capital Institute and TheLadders. It concluded: "[M]ore than half of employers said 'quality of candidates' or 'availability of candidates' are their greatest challenges—despite the recession."
Recent Today's Business Press Posts
-
Caitlin McDevittNovember 24, 2009
-
Bernhard WarnerNovember 23, 2009
-
Caitlin McDevittNovember 22, 2009
-
Paul SmaleraNovember 21, 2009
-
Matthew YeomansNovember 20, 2009
Comments
From Stagnant Industry to Big Player
No industry has (and largely through its own efforts) engineered so dramatic a positive reversal of economic fotunes as ahve the railroads, and with so little public scrutiny.
In 1950 the United states still had about 100 railroad listed as "Class I by the Intersate Commerce Commission. By 1973, that number had been cut roughly in half, and prehaps a third of the mileage was bankrupt or insolvent. Few of the remainder were considered suitable for investment.
But revitalized by deregulation under the Staggers Act, and a sweeping change in work rules intitiated in 1985 (the one that cut 5-person crews to 2, and removed the word "caboose" from everyday usage. the industry began a revival which would reduce the US/Canadian rail scene to seven major players, all quite solvent and respectably profitable.
Bu the lean, mean, successful rail industry which evolved largely unnoticed bears little resemblance to the culture which still captured a certain amount of sentimental interest and recognition of common standards when this writter was growing up in the late 1950's and early 1960's
Major-railroad employment today is (in absolute numbers) about one-tenth of what it was in 1945; half again of that when population growth is factored in. The business model of siding-to-siding delivery of carloads has given way to intermodal shipments and solid trainloads of bulk commodities, a technology derided as "boxes and rocks" in the last years before the corner was turned.
And erhaps most siginificantly of all, the media reporting on that industry is now directed toward a fully diverse, feminized and sensitized socitey, on e which would be totally unrecognizable to the relative handful of mature white males who had always called th shots before the industry's fall and rise.
Among the modes of thransport, railroading is unique in that it has, since the end of the age of land grants, privately furnished and financed its own infrastructure, and retained absolute control over it. The airlines and motor carrier have a tumultuous history, and very few of them have maintained a record of sustained and stable propsperity.
In a truly competitive economic millieu. the rail industry would spawn a number of alternative forms of entrepreneurship. with numerous variations of responsibility for and contol of the rights-of-way, rolling stock, and pricing systems. But the industry's natural tendency toward monopoly makes this highly unlikely. And the agressive stance recently taken within the Beltway increases the possibility that the railroads, like the automobile industry, will be viewed as a plaything to be seized and broken by bureacratic zeal.
Mr. Buffett's new acquisition now means that the headquarters of America's two surviving Western rail carriers are less than 25 city blocks apart, in Omaha, in a state which has proven to be one of the most entrepreneurial and most recession resistant. But rival Union Pacific has a long history of incosistent policies toward the pubic sector, and is often characterized as possessing a "bunker mentality", in part due to the centralization of almost all its dispatching functions in an underground facility on Omaha's Twelfth Street.
It remains to be seen whether mr. Buffett's bold stroke will be viewed as an opening move in what may prove to be a very great game.
Buffet's train
Burlington Northern. Buffet's biggest bet! And his all time best!