Multi-billionaire Warren Buffett landed on the Railroads recently, and he decided to buy. Anyone who has ever played the game of "Monopoly" knows how lucrative and profitable it can be to hold the railroads. Mr. Buffett seems to agree. But what was most fascinating about the mainstream media's spin on the deal was that they concluded it was a sign of imminent economic recovery. Marketwatch quoted Art Hogan, chief market strategist at Jefferies & Company, as saying a buyer would not pick up a railroad "unless you thought the economy was going to do better and that energy prices are going to go higher."
He was half right. Energy prices are definitely going to go higher, and when they do they will make long haul trucking with diesel a very expensive way to move stuff around the country. To my mind, Buffett is well beyond the main stream media cheerleaders. He's looking years ahead to when the railroads, possibly driven by clean coal, become a revitalized transportation center for the nation as a whole, with truck and air freight on the decline due to hefty oil prices. But America is the Saudi Arabia of coal, and coal fired trains will again dominate transportation in the middle of this century.
Does Buffett's vision necessarily mean the economy is ready to spike up again? Certainly not, and for the very same reason that those higher energy prices will bring another wave of painful change to the nation accustomed to running everything on gasoline. But the men who inherit the Buffett empire will be sitting pretty with control of key railroads, and the money to put them to work. Buffett's vision is a sign of hope that some real big money knows what lies ahead, and is getting positioned for the decades to come. It says nothing, however, about the imminent recovery of the economy, and one should not take the stubborn rally in the DOW for any sign of real improvement either. Look at other key indicators.
Consider these headlines: (All from this week's news)
U.S. Rail Traffic still down sharply, -13.7% in Oct. -18.2% from 2007
Commercial Mortgage Lending down 54% YoY
Commercial Property to Hit Bottom in 2010
NY Times: Broader Measure of Unemployment stands at 17.5%
Washington Post: Real Unemployment 20.2%
The Nation: Stunning Unemployment Numbers For Americans Under 30
Number of Unemployed for 27 Weeks or Longer Skyrockets
Wall Street Journal: Upper Class Unemployed Running Out Of Money
SF Chronicle: Defaults Soaring in Upper Eschelon Zip Codes
Yahoo Finance: Gold Bars Selling Like There's No Tomorrow
Fannie Draws From Emergency Treasury Fund...Again ($15 Billion)
Miami Herald: Lending Drought Leaves Little Financing For Businesses
Personal Bankruptcies climb 9% in October
LA Times: Airlines and Hotels Facing A Bleak Holiday Season
Treasury Expects to Hit Debt Limit Next Month
Bottom line? If you look at real economic activity, shipping, orders, sales, job creation or decline, home sales or foreclosures, credit expansion or contraction, it doesn't take much thought to determine we are not in a recovery. An uptick in the rate of decline is not a recovery either. We will recover when debt diminishes, assets appreciate, unemployment drops, jobs grow, sales increase, credit expands. Until you see that on a sustained basis, forget all the talk about recovery. None of those indicators are positive. Not one.
This is not doom and gloom. It is simply the truth.
He was half right. Energy prices are definitely going to go higher, and when they do they will make long haul trucking with diesel a very expensive way to move stuff around the country. To my mind, Buffett is well beyond the main stream media cheerleaders. He's looking years ahead to when the railroads, possibly driven by clean coal, become a revitalized transportation center for the nation as a whole, with truck and air freight on the decline due to hefty oil prices. But America is the Saudi Arabia of coal, and coal fired trains will again dominate transportation in the middle of this century.
Does Buffett's vision necessarily mean the economy is ready to spike up again? Certainly not, and for the very same reason that those higher energy prices will bring another wave of painful change to the nation accustomed to running everything on gasoline. But the men who inherit the Buffett empire will be sitting pretty with control of key railroads, and the money to put them to work. Buffett's vision is a sign of hope that some real big money knows what lies ahead, and is getting positioned for the decades to come. It says nothing, however, about the imminent recovery of the economy, and one should not take the stubborn rally in the DOW for any sign of real improvement either. Look at other key indicators.
Consider these headlines: (All from this week's news)
U.S. Rail Traffic still down sharply, -13.7% in Oct. -18.2% from 2007
Commercial Mortgage Lending down 54% YoY
Commercial Property to Hit Bottom in 2010
NY Times: Broader Measure of Unemployment stands at 17.5%
Washington Post: Real Unemployment 20.2%
The Nation: Stunning Unemployment Numbers For Americans Under 30
Number of Unemployed for 27 Weeks or Longer Skyrockets
Wall Street Journal: Upper Class Unemployed Running Out Of Money
SF Chronicle: Defaults Soaring in Upper Eschelon Zip Codes
Yahoo Finance: Gold Bars Selling Like There's No Tomorrow
Fannie Draws From Emergency Treasury Fund...Again ($15 Billion)
Miami Herald: Lending Drought Leaves Little Financing For Businesses
Personal Bankruptcies climb 9% in October
LA Times: Airlines and Hotels Facing A Bleak Holiday Season
Treasury Expects to Hit Debt Limit Next Month
Bottom line? If you look at real economic activity, shipping, orders, sales, job creation or decline, home sales or foreclosures, credit expansion or contraction, it doesn't take much thought to determine we are not in a recovery. An uptick in the rate of decline is not a recovery either. We will recover when debt diminishes, assets appreciate, unemployment drops, jobs grow, sales increase, credit expands. Until you see that on a sustained basis, forget all the talk about recovery. None of those indicators are positive. Not one.
This is not doom and gloom. It is simply the truth.
