NEWS ARTICLES

Warren Buffett's de facto vote of no confidence in the future of America

Mr. Warren Buffett's Berkshire Hathaway investment corporation is buying Burlington Northern Santa Fe Railroad for $26.3 billion dollars.

The big press, and financial TV programs have been describing the purchase as a, "vote of total confidence in the economy." A few quotes, from the Wall Street Journal, that were typical of all the financial headlines, were, "A long-term bullish signal"and, "The deal is a reflection of his (Mr. Buffett's) optimism about the economy," and so forth.

Without question Mr. Buffett is one of the best investors in the USA. He is also a master salesman. Mr. Buffett is the kind of super-salesman who's so good he does not look like he's trying to sell anything. Mr. Buffett comes across as a combination of Andy Griffith and Wilford Brimley.

Mr. Buffett, being the master salesman that he is will always say nice things, and he'll be particularly complementary towards people who have power and big egos - like President Obama. Do you really think that Mr. Buffett likes Mr. Obama's trillions of dollars in deficits? However, you're never going to catch Mr. Buffett spitting into the political wind. I guess that's one of the reasons why Mr. Buffett is a lot richer than I am.

While everyone in the financial media has been labeling the Santa Fe deal as a, "grand endorsement of the US economy" by Mr. Buffett, I, (Andy Molchan) see it very differently. I see it as the kind of purchase you'd make if you were expecting the current recession to turn into a depression.

What did Mr. Buffett buy? He bought a railroad that mainly hauls coal. To me, in my view/opinion, that's a bet on a future depression, not on an economic recovery.

I see Mr. Buffett's purchase as a bet against:

• 1. The future of road transportation because of high gasoline costs.
  
  
• 2. It's a bet FOR the permanent end of cheap oil.
  
  
• 3. It's a bet that the USA is so deeply stuck in a hippy-dippy, tree kissing, "green mentality" that the USA will never develop the nuclear electrical generating capacity it needs. (China is going to be opening one new nuclear electrical power plant, every month, for the next three years)
  
  
• 4. I see Mr. Buffett's investment in Santa Fe as a retreat to the most fundamental needs of civilization, i.e. heat and light. To me, Mr. Buffett is saying, forget about so-called "basics" like Coca Cola, you can live without Coke, but not without fire.
  
  
• 5. I see it as a bet against any kind of meaningful USA economic recovery during the remainder of Mr. Buffett's life.
  
  
• 6. I see it as a de facto, "actions speak louder than words" vote AGAINST Mr. Obama's love affair with yesterday's totally obsolete Keynesian economics.

As a systems analyst, and one of the proven best mega strategy analysts in the USA, I'm always looking at things like, (1) what did people NOT say? (2) What was NOT in the picture? (3) What was not asked? (4) What kind of assumptions had to be in force to power the actions? To be a really good analyst you have to be able to clearly see what was never there, and to hear what was never said.

The question is, "What was NOT in the picture?" What was not there was an investment in USA manufacturing. Why? The answer is that Mr. Buffett knows that smoke stack manufacturing in the USA is dying. My prediction is that twenty years from now there will be NO mass manufacturing of cars in the USA and apparently Mr. Buffett agrees in part. President Obama's has a 1930s, Franklin Roosevelt wannabe vision of happy soviet-style US workers, all gleefully marching to soviet style smoke stack factories, with a soviet-like central planning commission operating the entire economy. Obama's vision and nightmare is 80 years behind the times.

What was NOT there? What was not there was an investment in Wall Street. Hauling coal is about as far away from companies like Goldman Sachs as you can get. That's a wise choice by Mr. Buffett because in the next five years all of the Wall Street manipulators like Goldman Sachs will implode and fall apart.

Railroads are by far the cheapest why to move fright compared to everything else. Railroads hauling coal are making a profit even in black Africa. In my view and opinion, Mr. Buffett reasoned that if they can make a profit in black Africa than they should be able to make a profit in the future America.

As an analyst I look at what people do rather than what people say. I agree with Mr. Buffett's ACTIONS, but not with his words. At best, the current American recession will last for another ten years. A worst, the crackpots and economic morons in Washington D.C. will keep on destroying trillions of dollars trying to pound Keynesian round pegs into real world square holes until they turn the recession into a full throttle depression.

I agree with Mr. Buffett that even in a depression people will still need electricity, because without electricity you are back into the Stone Age. People must have heat and light, and that means they'll need coal. They'll need a way to get that coal to where it's being used, and that means they'll need Mr. Buffett's railroad. It's a very smart long-term move and my hat is off to Mr. Buffett.

Andrew Molchan
Systems Analyst, Publisher, and proud to be an American patriot in the classic American tradition