Economic Outlook: Placing big bets

By ANTHONY HALL, United Press International  |  Nov. 4, 2009 at 7:41 AM
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For the feather in his cap at age 79 and still going strong, the world's second richest man, Warren Buffett, bought himself a railroad.

The investor known as the Oracle of Omaha, whose investments are geared for long term results, was betting on the United States, on railroading and on China and rising oil prices, The Washington Post reported Wednesday.

In hard times, with billions of dollars trading hands, it is hard to be adorable. But Buffett managed to pull it off. "I love these bets," he said in a press release.

His recent bet is a $44 billion purchase of about four-fifths of Burlington Northern Sante Fe Corp. Buffet already owns about a fifth of the nation's second largest railroad line.

The bet is that oil prices will rise and railroad shipping will become cheaper than trucking goods across country. In part, China must do its part as a demand for Chinese goods helped boost a previous resurgence in railroads, the Post said.

In his release, Buffett said: "Our country's future prosperity depends on its having an efficient and well-maintained rail system. Conversely, America must grow and prosper for railroads to do well."

Buffett is also placing the bet consistent with his philosophy of buying for the long term. "He's betting on global population growth and global wealth increasing, thus raising the world's purchasing power to buy stuff that the U.S. makes, and also a bet that we will still import stuff that the rest of the world makes," said Peter Boockvar, an equity strategist at Miller Tabak.

In a surprise move, General Motors Co. also placed a sizable bet this week, announcing it would keep its European operations Opel and Vauxhall, which it had put up for sale last spring.

GM's German and British operations were on the block as GM headed towards bankruptcy and a buyer, Canadian auto parts supplier Magna International Inc., was lined up for the deal. But new GM Chairman Edward Whitacre Jr. has taken a more aggressive stance, pushing the automaker to think expansion, not reduction, The Wall Street Journal reported.

Whitacre, assigned to the chairman position by the government, is looking at a different GM than the company that fell in to bankruptcy and emerged debt free with a $50 billion government investment, the Journal said.

Pared down, perhaps in trim, GM's sales rose 4.7 percent in October compared with the same month a year ago. In Europe, Opel is looking at an "improving business environment," GM said.

With these big bets on the table, U.S. markets fell flat Tuesday, which they often do as the Federal Reserve's Open Market Committee sequesters itself for a two-day discussion on interest rates.

In market movement Wednesday, the Nikkei 225 in Japan rose 0.42 percent, while the Shanghai composite index in China rose 0.46 percent. The Hang Seng index in Hong Kong rose 1.76 percent. In India, the Sensex added 2.14 percent. In Australia, the S&P/ASX rose 0.19 percent.

In midday trading in Europe, the FTSE index in Britain rose 0.74 percent. The DAX 30 in Germany gained 1.42 percent, while the CAC 40 in France rose 1.52 percent. The pan-European DJ Stoxx 50 rose 0.86 percent.

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