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jstan
climber
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Topic Author's Original Post - Aug 4, 2011 - 10:29pm PT
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5.400 Are we up for it?
http://www.youtube.com/watch?v=bCBieCjC-j4
Railroads quote their mileage as 500 ton miles/gal.
At 400 mph that equates to something like one gallon to transport 15 people 400 miles. Using light rail for passengers, air resistance may not make transcontinental passenger traffic an order of magnitude below the freight mileage. If it is an order of magnitude we still transport one person 400 miles on one gallon.
In the US the great plains present a barrier also seen in China and Siberia. But we have a historical advantage over Europe.
Below you see the original rights of way granted the railroads were very extensive.. Who is to say national interest will not permit pre-emptive use in Nebraska, for example? With a wide right of way who is to say what the peak velocity may become. In the US, certainly higher than in densely populated European countries.
If the US eventually realizes our market justifies developing something like 400mph rail, we may be able to develop the technology and shed a piece of our paralyzing trade deficit.
See below that Buffet’s Berkshire Hathaway will be positioned to participate.
If young, the possibility exists to sell United Airlines and buy Berkshire Hathaway.
http://www.google.com/search?hl=en&source=hp&q=buffett+owned+railroads&aq=f&aqi=&aql=&oq=
Why is Warren Buffett So Interested In The Railroad Industry?
July 6, 2007
Recently, Berkshire Hathaway (NYSE: BRK.A) disclosed its 10.9% stake in Burlington Northern Santa Fe (NYSE: BNI) worth US$3.4 billion. To no one’s surprise, investors around the globe jumped on the Warren Buffett express. Burlington’s share price rose 6.5% on the announcement.
And Buffett didn’t stop there. Berkshire Hathaway confirmed it has also acquired stakes in two remaining North American railroads. The largest American railroads remaining are Union Pacific (NYSE: UNP), CSX (NYSE: CSX) and Norfolk Southern (NYSE: NSC). Our neighbors to the north offer Canadian National [TSE: CNR].
No one really knows why Warren Buffett fell in love with railroad investing all of a sudden. Burlington certainly carries Buffett-like characteristics: consistent earnings growth (22% annualised over five years), impressive margins and limited competition.
But none of these railroads typify your typical Benjamin Graham value play. The stock trades for more than three times book with limited liquidity and tangible debt.
So what was Warren Buffett thinking that drove Berkshire Hathaway onto the rails?
It’s anyone’s guess. But the prevailing consensus believes globalisation - specifically, moving the major staples of trade (things like coal, oil, cars and clothes - in other words, basic commodities and finished goods) from producer to consumer - is the long-term trend at play here.
I’ll buy that.
It was about this time in 2002 that a rebirth in the tangible assets sector really began. Much of that growth can be directly attributed to the insatiable demand for raw materials that the developing giants China and India are now consuming.
These countries are still in the early stages of development. It takes about 30 years to go from an agrarian to an industrial society. China is about one-third of the way there. China will continue to import commodities to sustain this enormous transition. India will do the same.
Furthermore, the golden era of stocks (1982-2000) directed capital in about every investing avenue except natural resources and raw materials. Hence, limited demand caused a decrease in available supply.
Now the entire world can’t get enough copper, zinc, lumber and oil. But bringing on new production takes time. Supply can’t catch up with demand overnight. In fact, it’s going to take quite some time, especially when you throw the consumption potential of India and China (37% of the world’s population) into the mix. Consequently, commodities, the market for the essentials, will remain tight for the foreseeable future.
And commodity consumption won’t be limited to emerging markets alone. Let’s not forget that the United States has begun to embrace alternative energy. And the two greatest oil alternatives, coal and corn, are shipped by train.
So transport stocks like Burlington certainly play into this long-term trend. And considering that rising fuel prices affect trucks more than trains, this idea begins to make more and more sense.
But many feel it’s too late. Many believe the upside is already priced in.
Well, that may be true.
You see, recently, Prudential, Bear Stearns and UBS all downgraded BNI to some type of peer perform/neutral rating. Most investors are now asking: was Buffett wrong?
The key to that last sentence is the word “investors”. Most individuals who buy and sell shares are traders, not investors. These are people looking for a quick buck. The type of action that reflects an attitude more suited for the Las Vegas Strip, not the undying, underappreciated sex appeal attached to the US$500 monthly deposit in the retirement fund.
Without becoming too insipidly philosophical here, let me quickly add this. Blaise Pascal once said: “Most of men’s problems arise from their inability to sit quietly and alone”.
That’s a fair point. Actually, that’s a very good point.
It takes a rare soul to patiently sit on a US$32 billion Korean steel stock when the daily headlines of even the most conservative publications saturate our brains with tales of highflying hedge fund managers making upward of US$1 billion annually or A-list celebrities with nothing more than a high school degree receiving a US$20 million payday.
But take solace in this. As Max Ehrmann wrote: “If you compare yourself with others, you may become vain and bitter; for always there will be greater and lesser persons than yourself. Enjoy your achievements as well as your plans.”
Shipping is, and will remain, irreplaceable on the world stage. We can’t live without it. It won’t be replaced. It’s been around for centuries. Until we reach a stage of technological innovation in which the major staples of trade - things like coal, oil, cars, the finished products that fill Wal-Mart stores - can be disassembled one molecule at a time and instantaneously beamed to another location, our current means for commerce will remain the most efficient.
http://en.wikipedia.org/wiki/
First_Transcontinental_Railroad
In 1861 Curtis again introduced a bill to establish the railroad, but it did not pass. After the secession of the southern states, the House of Representatives on May 6, 1862, and the Senate on June 20 finally approved it. Lincoln signed it into law on July 1. The act established the two main lines—the Central Pacific from the west and the Union Pacific from the mid-west. Other rail lines were encouraged to build feeder lines.
Each was required to build only 50 miles (80 km) in the first year; after that, only 50 miles (80 km) more were required each year. Each railroad received $16,000 per mile ($9,940/km) built over an easy grade, $32,000 per mile ($19,880/km) in the high plains, and $48,000 per mile ($29,830/km) in the mountains. This payment was in the form of government bonds that the companies could resell.
To allow the railroads to raise additional money Congress provided additional assistance to the railroad companies in the form of land grants of federal lands. They were granted right-of-ways of 400 feet (100 m) plus 10 square miles (26 km2) of land (ten sections) adjacent to the track for every mile of track built.
To avoid a railroad monopoly on good land, the land was not given away in a continuous swath but in a "checkerboard" pattern leaving federal land in between that could be purchased from the government. The land grant railroads, receiving millions of acres of public land, sold bonds based on the value of the lands, sold the land to settlers, used the money to build their railroads, and contributed to a rapid settlement of the West.[9]
The total area of the land grants to the Union Pacific and Central Pacific was even larger than the area of the state of Texas: federal government land grants totaled about 5,261,000,000 square meters and state government land grants totaled about 1,983,000,000 square meters.[10] The race was on to see which railroad company could build the longest section of track and receive the most land and government bonds.
The bonds and land grants have been frequently characterised as a government subsidy. However, Stephen Ambrose has argued against this since the companies repaid both the capital and interest.[11] He also argues that although the companies were able to sell the land grants in the Sacramento Valley and Nebraska at "a good price", most of the land in Wyoming, Utah and Nevada was "virtually worthless".[12]
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bluering
Trad climber
Santa Clara, CA
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Sounds really nice. But is it really practical?
Me? I love trains, but most prefer airfare. And inner city, town to neighboring town, way easier and more practical with a car.
Interstate travel is where trains may shine.
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Karl Baba
Trad climber
Yosemite, Ca
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High speed rail is the wave of the future and if we had a clue, which we don't, we'd be spending billions in stimulus money working it out and putting it in place.
Peak Oil is either here now or fast approaching. The price of Air travel will skyrocket when oil goes to 200 then $300 per barrel.
Then that energy efficiency in rail will really come in handy. How would you like to drive across the country when gas is $15 a gallon and a flight is $2000?
That changes the game for us all and it's coming. Only the timing is is question without some kind of miracle
And remember, you can cite all kinds of nice technology but for it to do us good as a large population, the infrastructure has to be built and that takes energy and time and money. All of which are getting less and less
But we prefer to whistle as rome gets set to burn
http://en.wikipedia.org/wiki/Peak_oil
peace
Karl
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jstan
climber
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Topic Author's Reply - Aug 5, 2011 - 01:53am PT
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Thanks Karl.
There is more than enough capital sitting in the US earning.01% return to make some of this happen. I think two things mitigate against it.
1. Everyone is scared
2. We are now persuaded absolutely no one can be trusted to be honest.
That is a heck of a barrier.
Time to start planting banana trees. The US's future is in bananas.
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Todd Eastman
climber
Bellingham, WA
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Buffet's BNSF derives a significant portion of its business from hauling Montana coal to West Coast ports for marine shipment to China. Currently the coal is shipped from the two facilities in British Columbia. A far larger port is proposed for just north of Bellingham. Lots of issues with this plan locally and regionally.
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apogee
climber
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That article is from 2007. Shortly after that, Buffett came out saying he loved windpower, and was ready to bet the farm on it.
Since then, natural gas prices have dropped, and now he has backed away from wind.
I'm all for seeking alternative sources of power and travel- lawdy knows we're stuck in a rut, and other countries are waaaay ahead of us in these respects.
Buffett is a businessman first and foremost. When he sees potential for financial gain, he moves on it- if the potential isn't there, he bails. His interest in railroads (at that time, anyway- who knows where it sits today, as we head into a double dip recession...?) is surely based first on the financial potential it holds for him, and secondly on the greater good of the country.
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Bob D'A
Trad climber
Taos, NM
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no John we are not up for it. That would be progressive thinking, that way of thinking died on 11/4/2010.
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jstan
climber
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Topic Author's Reply - Aug 5, 2011 - 12:47pm PT
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All is not lost. Americans will be able to go abroad to see what people willing to work together can accomplish.
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August West
Trad climber
Where the wind blows strange
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Dingus
We might be politically broke, but this country is far from broke. We have had far higher debt to GDP ratios in the past.
The country thought it was broke in 1938, but it had no problem spending huge sums on aircraft carriers and sending millions of men to Europe (only a few short years later). We could do the same thing today. Only put people to work doing something that would have an economic return down the line, such as building better transportation.
The US government can currently borrow long term at historically very low rates. We should take advantage of that to invest in the future.
Without continuous investment, our current transportation infrastructure won't be able to handle the current load. Nevermind that the population continues to grow.
If we continue to believe that we are too poor to invest in the future, someday that will be true. But we don't have to let that day arrive.
cheers
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nutjob
Gym climber
Berkeley, CA
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I think Buffet also made major investments into the global transport/shipping container market, further underscoring the base motive to stay engaged with material transport as a stable long-term profitable business.
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