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Buffet Betting on Railway Foretells Possible US Decline

By Mark Turn

Famed investor Warren Buffett, one of the richest people in the world, announced that his investment firm Berkshire Hathaway will purchase Burlington Northern Santa Fe (symbol BNI), the second largest railway in the United States, for an estimated $34 billion. Burlington Northern owns more than 20,000 miles of track in the United States and Canada, and saw earnings jump more than 25% last year. Berkshire Hathaway already owns 22% of BNSF.

An analysis of the deal by pundits has some heads scratching. A inflation rate factor seasonal chart of Bulington Northern [courtesy MarketTimingResearch.com] shows that the stock price most steadily rises during periods of slowing inflation rates, rather than rising, but the deal seems to be made partly upon Buffet's expectation of increased demand from China for American resources, and thus inflationary pressures.

Chart: MarketTimingReserach.com

Most of Burlington's track lines head westward, crossing upper resource rich regions (timber, coal, etc.) like Montana, Seattle and Vancouver. The tracks end in ports shipping most of their goods to and from Asia, especially China and India. This in effect means that Buffet's "bet on America" is a bet that the United States will be importing more manufactured goods from these regions into the country and selling more and more of its raw materials, unfinished goods and natural resources rather than manufactured goods to the growing Asia region dominated by China.

Economist Erik Reinert, in his book "How Rich Countries Got Rich and Why Poor Countries Stay Poor" pointed out that countries get rich as they turn away from raw material and commodity production to manufacturing, and countries that lose their manufacturing base become poor over time. Buffet's deal may not be a bet on America as much as it is a bet on the growing prominence and perhaps predominance of Asia over the US in time.