Railroads Get a Boost

Not everyone is struggling in this economy, as railroads see strong surges in profit.

Union Pacific Corp.'s third-quarter profit jumped 51% as the railroad company posted volume growth for the third consecutive quarter and noted freight revenue improved across all business segments.

Chairman and Chief Executive Jim Young said strong volume growth, pricing gains and operating efficiency "combined to produce another record quarter" for the company. Results easily topped Wall Street's expectations.

The company's results further highlight the transport sector's rebound from last year's moribund levels, as the U.S. economic recovery continues. Already, peer CSX Corp. and transport companies J.B. Hunt Transport Services Inc. and United Parcel Services Inc. have reported results above prior-year levels as volumes jump higher. Union Pacific has said it sees a peak autumn intermodal shipping seasons, although it warned of industry uncertainty.

As the dollar weakens and commodity prices rise, commodity movers like railroads should see a boost, as I wrote about a year ago, when Warren Buffet bought railroad company Burlington Northern.

I should really start listening to myself.

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.

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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.