Sorry Warren Buffett: Things Just Went From Bad To Worse For U.S. Railroads
Back in November 2009, knowing he had both the inside track and the final decision on US energy policy under his crony president Obama, Warren Buffett acquired the 77% of the Burlington Northern (aka BNSF) Railroad he did not own for one simple reason: realizing he could pressure the "progressive president" Obama to curb all pipeline progress, confirmed recently with the terminal failure of TransCanada's Keystone XL pipeline, Buffett would be ahead of everyone by controlling one of the key actors among "the New US Petroleum Pipelines." The "pipelines" in question were shown in the following chart from our March 2013 post.
And while Buffett's strategy worked great for many years, certainly as long as oil was rising and above $100, over the past year, things went downhill fast. Nowhere, was this more visible than in a one year chart of transports, which have crashed over the past several months entering their first bear market since 2008 in late December.
While all transportation components contributed to this plunge, rails were the biggest culprit. To be sure slumping railroad traffic was something we have covered extensively in the past year - together with ocean freight, together with trucks - and most recently covered it on January 3 in "What Rail Traffic Tells Us About The U.S. Economy." The short answer: bad things.
But while we were quite concerned about the implications of plunging railroad traffic, others ignored it, claiming as they always do, that "it is only coal, or only oil, or only [insert commodity related factor]".
However, a Bank of America report issued on January 6 revealed that the decline in rails was much more widespread than just "it's only X." This is what BofA's Ken Hoexter said in a report titled "Carloads flashing a warning signal; lower 4Q estimates again"
Longest and deepest carload decline since 2009
We believe rail data may be signaling a warning for the broader economy. Carloads have declined more than 5% in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are generally followed by a recovery shortly thereafter. The current period of substantial and sustained weakness, including last week’s -10.1% decline, has not occurred since 2009. In looking at carload data going back nearly 30 years, similar periods of weakness have occurred in only five other instances since 1985: (1) the majority of 1988, (2) the first half of 1991, (3) several weeks in early 1996, (4) late 2000 and early 2001, and (5) late 2008 and the majority of 2009. We exclude the period in 1996 from our analysis, as we consider it anomalous given that it overlapped with harsh winter conditions and was limited to January and early February of that year. Of the remaining instances, all either overlapped with a recession, or preceded a recession by a few quarters. The current period starting in October and continuing through the present has been accompanied by weak ISM results, with the purchasing managers index recently falling to 48.2 in December from 48.6 in November (a reading below 50 suggests contraction), and our proprietary BofAML Truck Shipper Indicator recently falling to its lowest level since 2012.
Here is a rather troubling finding from BofA: the manufacturing recession has spilled over from purely the industrial sector and into "other, more consumer-oriented segments." In other words, the service recession is imminent.
Weakness no longer limited to industrials or coal
For much of 2015, it was easy to dismiss weakness in carloads as being concentrated in industrial segments, and reflective of a secular shift away from coal. More recently, the softness has spread to other, more consumer-oriented segments. Intermodal carloads, which were up +1.0% and +3.6% in 1Q15 and 2Q15, respectively, posted a tepid +0.9% gain in 3Q15 and were down -1.7% in 4Q15. This follows the broader trend in 2015 of carloads accelerating to the downside through the year. Until recently, the difficult comparison year of 2014 was another reason to be dismissive of the decline percentages. Despite soft year-over-year results, absolute carloads remained above the 2010-2013 levels through the first 3 quarters of 2015. However, in 4Q15, volume is at its lowest level since 2010. BofAML Multi-Industrials analyst Andrew Obin recently noted that industrial weakness has not always been coupled with severe GDP declines, despite the high correlation between the two (86% correlation coefficient). However, as non-industrial segments post declining carload volumes, we are increasingly concerned with the breadth of the weakness.
All of the above is very bad news for the US economy of which railroad traffic is just one of the proxies, but isn't necessarily bad for Warren Buffett's major gamble on the "new pipelines."
This is.
According to a report in the FT, "the amount of oil hauled on US railways has declined steeply in the past year as refineries swallow more foreign supplies in the face of falling domestic crude output."
From a peak in January 2015 to last October, movements of crude by rail declined more than a fifth, the latest data from the US energy department show. Genscape, a research group, said rail deliveries to US Atlantic coast terminals continued to drop to the end of the year and the spot market for crude delivered by rail from North Dakota’s Bakken region “is at a near standstill”.
Once seen as a 19th century relic, moving crude oil by train re-emerged as a hot technology five years ago as surging output from long-neglected shale oil regions overwhelmed pipeline capacity. Investors from oil companies to Wall Street banks clamoured for tank cars, while fiery accidents prompted federal regulators to impose more stringent standards on rolling stock.
And Buffett was there to provide the needed cars, for a generous fee of course, while doing everything in his power (it's a lot) to delay implementations of stringent, or even any standards, on "rolling stock." Here are some highlights of the outcome:
- Dramatic Explosion Footage: Warren Buffett-Owned Oil Freight Train Derails, Bursts Into Flames
- Massive Fire Rages After Another Buffett-Owned Oiltrain Derails In North Dakota, Town Evacuated
- One Day After Obama Kills Keystone XL Pipeline Another Buffett-Owned Oil Tanker Train Derails In Wisconsin
- Fire Burns After Another Oil Freight Train Derails, This Time In Canada
- Train Carrying Toxic Gas Derails In Tennessee, Catches Fire; Thousands Evacuated
And so on. However, the following brief blurb in the FT article reveals that the time to pay the Piper has finally arrived.
Tank cars, once feverishly ordered during the US shale boom, are sitting on sidings. Lessors are obtaining car rents 20-30 per cent below early 2015 — “if you’re lucky enough to keep your car in service”, said James Husband of RailSolutions, a consultancy.
This means that the rail industry is about to be slammed with a dramatic repricing, one which is only the start and the longer oil prices remain at these depressed levels, the lower the rents will drop (think Baltic Dry but on land), until soon most rails will lose money on every trip and will follow the shale companies into a race to the bottom, where "they make up for its with volume." After all, those billions in debt interest payments won't pay themselves, meaning doughnuts for equity holders like folksy uncle Warren.
Then again, we are confident that in the end, the Avuncular Octogenarian of Omaha will find a way to avoid being on the receiving end of yet another bad decision, courtesy of two things: this...
... and this.
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And the snow hasn't even arrived in most of the country.
Warren Buffet is an old fart has been! A yes man for Obokenyan
WARREN DOESN'T CARE ABOUT "MARKETS" HE IS INSIDE THE BLACKMAIL RING...GUESS WHERE "UNCLE WARREN" WAS ON 11/09/2001?
where?
Buffet doesn't give a shit...why should he? He gets billions of tax payer dollars for free from his gov-scum puppets and eats ice cream.
Good God, Becky. your parents must be proud
Dude, don't do that. Don't make me use my brain cells to think. First off, you mean Sept. 11, 2001 not Nov. 9 i'm assuming?
Don't know where he was on that date, but didn't he buy the Swiss Re company that got screwed having to pay Silverstein for 2 separate attacks?
BTW You should see the new WTC7 and 1 World Trade buildings, they are closer than 1&2 used to be. Plus 3,4,5,6 are all 80-90 stories. Plus there's a new train station and Westfield Mall, not to mention $24 per person tour of the "museam" that says 7 fell because of sagging trusses... Is Buffet in on these?
Sagging trusses + fire
Got it. I still can't believe they didn't come up with something better. Figure they would have said explosives were planted by boogiemen or something. If I ever take that tour I'm going to laugh my ass off as loud as possible when they get to that part.
Its actually a headphone listening sorta thing at the very end, after the bent up firetruck. I've heard the sagging-truss theory for 1&2 for a long time, but that was the first time I ever saw 7's explanation grouped together (14 years later). I thought Solly had removed upper floors to have football sized trading rooms, how could a large central interior area not have impeded these plans? I would love to see some pictures from Solomon Bros. archives in WTC7.
The Museum of 9/11 is what it says it is, I don't think your reaction will be laughter, and if your go to NYC you need to see it. The pools upstairs are kinda weird tho.
I defintely wouldn't laugh about the people that were murdered that day, for sure. I saw a video of a speech that was given at ground zero (not sure if it was some ceremony or what). It was a clear and calm day and as they started speaking this huge wind began to blow and you can see the discomfort on peoples faces. It gave me the chills bigtime.
I always wondered if that was a message from beyond that they still exist and these people haven't really gotten away with anything. I looked very hard for the video some years later because I wanted to see it again and I couldn't find it. If anyone knows of this and could post it that would be great.
As he was for Bush, Clinton, Reagan....
Dick Buffet has been a lemming cliff guide for a decade or more
Good job, Warren. I'll even bet you don't realize that it was people like you that screwed it up for you.
Uncle Warren went poo-poo on his choo-choo.
I've got a hunch the Barnacle of Omaha couldn't answer the question "Who is John Galt?". He's not nearly as smart as Ayn Rand was. Man, did she nail it.
Fuck Buffett. Old asshole pirate.
Evil old Satanic monster. Someone should tie Buffeet to the tracks of one of his railroads. Evil evil f*ck.
Like this?
https://www.youtube.com/watch?v=PhC_JJwlep0
It couldn't happen to a nicer couple.
And yet the price of oil still hasn't caught up with the little people.
I say abolish wall street.
Better yet, line them all up against a wall and give them all a nice dose of lead.
For the children, of course.
First the children.
fify.
Time for Obunghole to bail out the fried old bastard.
Hey whatevs, it's all good. My Greenbrier is only off -66% so far. Holding that puppy long term. Like next fucking century long term.
And so, you’ve reached the giddy heights
And your future’s looking bright
Don’t worry, it will all end soon
The crack of doom is coming soon...
The small and mighty all the same
Life’s a shallow facile game
Every ego will be crushed
And every empire turned to dust
The crack of doom is coming soon…
[/Crack of Doom, Tiger Lillies]
Warren too busy sucking the Nigger's dick to monitor his toy trains properly
Warren Bathouse?
and if you dropped a nickle in the toilet, would you stoop over to scoup it out?
There's a train that runs through my town in the Midwest and a every 2 - 3 hours you could hear the horns. That was more than a year ago.
Steady decline and these days there's a train every 2 - 3 days.
We need an index to track empty tankers. Can we call it the Tanker Dry Index?
Maybe "The Bakken Dry Index"...
BUFFET: Ol' UNCLE SCUMBAG...
TOO FAT TO FLAIL
Cronies Gone Wild 2-The Movie
Just when you thought you've seen it all this octogenarian oligarch will shock you as he strips down to his G-String for dip with Becky Quick in the bathtub! Thrill to the pounding beat of Muzak laid down by Jam Master Yellen as this rapacious swordsman downs a half a bottle of Viagra and has a go at Hillary! as she cackles "What difference does it make!" while he nimbly chats on the phone with his nephews at the SEC.
This film has not yet been rated ;-)
When you look at the thumbnail of the photo of this post on the main page it kinda looks like Obama is giving Warren a haircut.
Chint won't be pres..no offense to people with C, H, I, N or T in ther ancesteral dna.
Take a guess what will happen to the railroad industry after our beloved leader puts the coal industry out of business...
https://www.aar.org/BackgroundPapers/Railroads%20and%20Coal.pdf
But but, isn't he part of Bill Gates philantropic movement where some rich folks give away a part of their fortunes through some sort of Jackie O trusts? Or something like that. Walmart Walton billionaires are fond of Jackie O type Trusts for wealth retention and tax avoidance.
Gawd love them Billionaires! As fellow Canuck Mike Meyers, and side kick Garth, stated in Waynes World; "We are not worthy!`"
And that old sumbeach really peezed me off when he bought Heinz and closed out the Ketchup factory in Leamington that had been there since almost the dawn of time. Like we's Canucks don't use no ketchup ya know.
So some dick head Exec at Burger King, with whom the Buffet had history, got pissed about the Oracle's acquisition and cancelled Heinz ketchup purchases and that set off a series of events that culminated in several thousand people losing their livelihood. Morons.
We the People 'everywhere' , are not playthings for the rich and arrogant no matter where they hail from.
He'll be fine. He is going to benefit off of our new oil export policy as well. If he or his companies didn't plan ahead while he was raking it in hand over fist while being in control of the movement of a huge portion of the countries coal, farm products (if they were feeling generous), and shale (blowing up the countryside) then he is no better than the oilies who spent all of their money on four wheelers and the bar.
Screw him.
If the U$D is the Petrodollar, and Petro is -75% THEN why is USD trading at highs????
Its not the Petrodollar, its the Military Dollar! Oh PS- Fuck Warren, he's an asshole.
Fuck him in the neck. Anyone that buys government favors is a part of the problem.
Progressive National Socialist crony scum.
Boycott his companies.
repeat
I heard after 2016, Uncle Buffy is having Omaha re-named Obama
Exactly 3 years earlier:
Buffett Railroad Sees Crude Cargo Climbing 40%
8 January 2013, by Tim Catts & Noah Buhayar (Bloomberg)
http://www.bloomberg.com/news/2013-01-08/buffett-railroad-sees-crude-cargo-climbing-40-.html
You do realize that Warren first worked for Goldman-Sachs. That's where he got his "education." And GS never let him forget it, either. Those "donations" are to foundations that will be MANAGED by the same financial sociopaths currently behind our economic problems. They will continue to reward those who lie, steal and murder.
The best thing to happen in this case is Boofett and Munger and herd of their weenus suckers/take over douches boarding Trans Debris Airlines, and crashing on take off...and leaving no traces...
You know...like the Pentagon and 93...
....you know.....not even a wheel....seat....nothing
I believe the phrase is Suck-it Up
OMG Let's cry a fucking tear for uncle Warren. He defines crony capitalism and all the corruption it brings at the expense of working people. What a sad sack of shit.
It's cyclical.. the US is not going to stop sending things by train. Great time to buy! Nice fat 4% dividends with solid cash flows.