Berkshire Hathaway’s (BRK) whopping $44 billion acquisition of Burlington Northern (BNI) is a tremendous endorsement of the US railroad industry.
Now, while Burlington Northern is highly profitable, US rail — especially passenger rail — is kind of the laughingstock of the world.
So what gives? Basically, Warren Buffett is betting on lots more government spending, particularly with respect to infrastructure, and specifically he hopes a lot will be allocated to rail. Obama is known to be rail friendly, and the first stimulus was expected to be highly infrastructure-based, but it wasn’t.
Buffett — who has the ear of the President — is guessing, safely, that we haven’t seen the end of that dream, that Obama will open up the government’s coffers for a major upgrade of the rail system. If we begin taxing carbon, thus making it more expensive to ship goods by truck, that’s another plus.
Remember this is de rigeur for Buffett. He made a lot of money betting the banks were too-big-to-fail during the crisis. He likes regulated industries like insurance and utilities. He’s benefitted from housing. He advocates a high estate tax, which makes it easier for him to acquire family-owned businesses when they have to sell for tax puporses.