Warren Buffett And The Railroads; George Carlin On Global Warming

Random musings on Warren Buffett, Burlington Northern Santa Fe (BNSF), and Union Pacific Railroad (UNP).

I can't help but think about the difference between the Scandinavian-German reticence to invest in America as compared to the flamboyant French investment style personified by Warren Buffett.

When the North Dakota legislature authorized the Legacy Fund as a mattress for hiding Bakken oil royalites, the legislators telegraphed their pessimistic view of the future of America.

About the same time, literally, about the very same time the Legacy Fund was being put together, this news story from The Los Angeles Times:

Billionaire investor Warren Buffett's $34-billion acquisition of railroad giant Burlington Northern Santa Fe Corp. is the biggest bet yet on a U.S. economic recovery, one that could resonate from the international sea lanes to the railroads crisscrossing the country.

Burlington Northern is the nation's largest rail transporter of coal and grain and provides a vital link for consumer goods from Asia to the Midwest, many of them flowing through the ports of Long Beach and Los Angeles.

"It's an all-in wager on the economic future of the United States," Buffett said in a statement announcing the deal Tuesday. "I love these bets."

I have since read that "the all-in wager" was not an exaggeration. Apparently, the purchase of the Burlington Northern could have broken Berkshire Hathaway.

I remember that interview: 

"It's an all-in wager on the economic future of the United States," Buffett said in a statement announcing the deal Tuesday. "I love these bets."

I was reminded of that story, that interview, when I happened to note that Union Pacific Railroad announced today an increase in its dividend, payable in February. I didn't think much about it at the time; I just posted it. [It may be just me, but dividend announcements seem to be coming more frequently in energy-related companies lately. I'm thinking of Marathon, PSX, Apache, and now UNP, which I think of an energy-related company.]

A few minutes ago, I took a look at the dividend history for UNP from 2009, the year Warren Buffett bought BNI, through today's announcement. Here are the dates of the dividend increases:

• February 25, 2009: 27 cents
• May 26, 2010: 33 cents
• November 26, 2010: 38 cents
• May 26 2011: 47.5 cents
• November 28, 2011: 60 cents
• November 28, 2012: 69 cents
• August 28, 2013: 79 cents
• payable February 28, 2014: 91 cents (announced today, February 6, 2014)

In the meantime, the share price of Union Pacific Railroad has gone from $65/share in November, 2009, when Warren Buffett announced his decision to buy BNSF (BNI), to today's price of $175/share, nearing its 52-week high, at a time when the general market has re-trenched somewhere between 3% and 10%. [One day later, February 7, 2014: UNP is trading at a 52-week high, nearly $178.]

I say all this because we have no idea what BNI would have done during this same time period, but one can probably use UNP as a proxy for BNI. My hunch is that with the demise of coal and a relatively bad economy, UNP has not done as well as BNI, since the latter pretty much has a monopoly on track in the Bakken.

I remember vividly the day that BNSF (BNI) caught my attention and I have told that story often.

A story I don't recall talking about as often is the fascination I had back in the 80's or 90's or whenever it was when The Wall Street Journal had a series of articles on the race between Union Pacific and BNSF to see who would be the first to double-track the entire route between Chicago and Los Angeles. I think an unbiased observer would say the race turned into a draw. A biased observer, like me, suggests Burlington Northern won by a whisker. [Apparently, there are a few miles where double track does not yet exist, and places where, nearing the Grapevine in southern California, there is triple track. Don't quote me on that, I could be wrong. Probably am. I am a biased observer.]

Wow, my memory is really, really, really bad. I just googled "the race." I was way wrong. The race was in the early 2000's. From the December 28, 2004, issue of The Wall Street Journal:

TANGIER, Okla. -- More than 135 years after the completion of the first transcontinental railroad, R. J. Juarez is trying to do it again.

On a hot day in late summer, at this dusty outpost near the Texas-Oklahoma border, Mr. Juarez urged the mammoth machine he was operating to move faster. The yellow beast, more than a quarter of a mile long, should have been capable of laying a mile of railroad in less than five hours but it had been "touchy all day," said Mr. Juarez, a track worker. He had to restart it repeatedly.

"We should have been done earlier," he grumbled. Mr. Juarez is a player in a modern version of the track-laying race that created the U.S.'s cross-country rail link. Today's competition is between two industry giants, Union Pacific Corp., the nation's largest railroad, and Mr. Juarez's employer, Burlington Northern Santa Fe Corp. Both want to be the first to run side-by-side tracks between Chicago and Los Angeles, the nation's busiest freight entry point.

This 2,100-mile, two-lane railroad highway would allow multiple trains to travel the same route at different speeds -- and in opposite directions -- without trains having to stop or use sidings.

Burlington Northern Santa Fe had a head start because a large portion of its Chicago-Los Angeles freight mainline, known as the Transcon, already had two lines. It has now double-tracked about 90%.

That's far ahead of Union Pacific, which had less double track to begin with and constraints on capital spending. Union Pacific has completed only about 30%.

"We're ahead and we prefer to keep it that way," says Lewis Ruder, a construction engineer for Burlington Northern Santa Fe.

Union Pacific is working feverishly to narrow the gap, although there's little chance it can catch up. When Burlington Northern Santa Fe tried to secure another track-laying machine last spring, the company quickly learned that Union Pacific had snagged it.

Idle chatter.

The following is not (don't tempt me; I am tempted to post this daily from here on out):

George Carlin On Global Warming, George Carlin