Buffett uses BNSF to bet on coal
(John Kemp is a Reuters columnist. The views expressed are his own)
Warren Buffett’s acquisition of the remaining 77.4 percent of Burlington Northern Santa Fe (BNSF) railroad his Berkshire Hathaway does not already own looks like a strategic bet that America’s future energy needs will be met, in large part, through a massive expansion in coal-fired power generation coupled with carbon capture and storage (CCS).
Coal is the most important item moved on BNSF’s railroads. It accounted for almost half the tonnage moved by BNSF in the first nine months of the 2009 (214 billion revenue ton miles out of a total of 444 billion) and a quarter of the company’s revenues ($2.7 billion out of a total of $10.4 billion).
BNSF’s track and rights of way are perfectly positioned to benefit from a massive expansion of the country’s coal-fired output in the next 20 years, coupled with CCS technology to curb the carbon-dioxide emissions.
BNSF controls the crucial rails linking the massive domestic reserves of the Powder River Basin, the Northern Great Plains, the Western Interior Basin and the Illinois Basin east to the main industrial centres of the Midwest and west to the major electricity demand centres in southern California.
* http://pubs.usgs.gov/of/1996/of96-092/Comp/main.gif * http://www.eia.doe.gov/cneaf/coal/reserves/chapter1.html#fig1 * http://www.bnsf.com/tools/reference/division_maps/?menu=5&submenu=0 * http://graphics.thomsonreuters.com/109/US_ENRGY1009.gif
When Warren was talking about the collapse of the market we all should have been buying, however I’m going to have to say that history will say that this purchase should have been an interim sell indicator.
Warren, despite his historic success, has become emotional about the market. He is becoming less of a student of the market and more of a teacher and anyone who thinks they can ‘teach the market’ is about to learn a lesson. No matter how you are, the market is bigger.
Warren’s ‘All in’ on the recovery is a bad bet.
The macro trade has been to fade Warren.
I think his recent purchase by Berkshire is a good indicator that the market is overbought and investors should raise cash.
In short, Sell.