In a roller–coaster market that’s desperately seeking a sign of what the future holds, it can’t hurt to peek into Warren Buffett’s crystal ball. And to the investment maven whose net worth tops $32 billion, there’s something about a freight train that’s magic enough to freeze out new recession fears. At a Fortune magazine conference last week, Buffett proclaimed that “as of today, the recovery is still under way.”
Why is Buffett so sure the U.S. economy has something left in the tank? Because he’s reading freight rail statistics like they were tea leaves. It’s no secret that Buffett loves railroads — his Berkshire Hathaway (NYSE:BRK.A, BRK.B) ponied up $34.5 billion to purchase Burlington Northern Santa Fe back in 2009.
Recent performance of the rail freight industry in general — and BNSF in particular — has bolstered Buffett’s confidence in the sector. “Our railroad carried 200,000 carloads last week — that’s the highest total in three years,” he said. “That’s stuff moving around the country, supplying merchants and doing all kinds of things.”
Don’t dismiss Buffet’s words as false confidence or a weak “preempt” bid in his favorite card game, contract bridge. Strong freight rail volume is the real-world equivalent of a “2 No-Trump” open — it measures fact rather than projections, since growth is tied directly to economic activity. The industry’s carload total for the week ended Oct. 1 hit 408,383 — 4.5% higher than the same week in 2010, according to the Association of American Railroads.
Those numbers reflect shipments of commodities like coal, as well as finished goods such as autos and consumer electronics. Freight railroads like Union Pacific (NYSE:UNP), CSX (NYSE:CSX), Norfolk Southern (NYSE:NSC) and Kansas City Southern (NYSE:KSU) also are benefiting from the spike in volume.