Wednesday, November 4, 2009

Betting Against the Greenback

Amid crushing federal deficits, zero-interest financial bailouts, and a struggling US economy, it is hard to find something to smile about, unless your Warren Buffet.

Warren Buffett has made what he calls an “all-in wager on the future of the United States”, spending $US26 billion on the rest of Burlington Northern Santa Fe railroad.


Burlington Northern is a proxy for the competitiveness of the US economy, since its main business is hauling coal and grain to the coast for export.

The latest Institute for Supply Management survey for the US, out yesterday, showed that the lower dollar is already helping: the manufacturing sector grew in October for the third consecutive month and at the fastest pace since 2006.

Buffet's strategy is two-fold: as the dollar falls, he protects his wealth by staying invested in inherently valuable assets. A wise move, but the really clever part is that the profits of Burlington Northern are tied directly to American manufacturing and export growth.

As the dollar gets weaker, Buffet's new acquisition does more business.

A shrewd move indeed.

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