Posted by: Michael Mandel on November 03
This morning Warren Buffet’s company Berkshire Hathaway announced that it was buying Burlington Northern Santa Fe in a deal valued at $44 billion. In the announcement, Buffett called the purchase an “all-in wager on the economic future of the United States.”
Is Buffett right that a bet on Burlington Northern is a bet on the economic future of the U.S.? Because if Buffett is right, we’ve got real problems.
Let’s take a look at what Burlington Northern carries. Its major freight revenues (as of 2008) come from coal (23% of revenues); agricultural products (20%); international intermodal shipments of consumer products, which is probably mostly imports (16%); construction and building products (14%); and petroleum products (4%).
In essence, Buffett is betting that the next ten years will look a lot like the last ten: A lot of growth in imports, construction, energy and agricultural products. If he thought that innovation was going to be the driver of the next ten years—biotech, energy, and infotech—he wouldn’t be buying Burlington Northern.
I’m not saying that Buffett is wrong. His skepticism about the tech sector in the late 1990s, and innovation in general, turned out to be right on the mark. Berkshire Hathaway stock over the past decade has risen by 84%, whil the S&P 500 is down by 18%.
But his “all-in wager on the economic future of the United States” paints a remarkably gloomy picture of where we are heading.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.