American billionaire investor Warren Buffett has cast a big vote of confidence on the U.S. economy by purchasing one of the nation's largest rail systems. The deal, worth $44 billion, marks the single biggest investment ever undertaken by Buffett's company. Analysts say it's also a big gamble on the economic future of the United States.
To determine if the economy is on the right track, Warren Buffett says look to the nation's railroads.
"I do think things like rail car holdings are important," Buffet said. "I mean, that is telling you what is coming into this country, going out, and so on."
But after acquiring the Burlington Northern Santa Fe rail system in a deal valued at $44 billion - some analysts wonder if the world's second richest man knows something they don't.
"I think he perceives the economy to be better than most other people perceive it to be at this point," noted analyst Ira Silver, "and sees economic growth as positive going forward for a long time."
Economists see the investment, by Buffett's Berkshire Hathaway group, which already owns 22 percent of the rail company, as a bet on future prosperity. At $100 a share, the deal is worth more than Burlington's estimated earnings.
Economist John Ryding says it's a venture that succeeds only if consumers resume their old spending habits.
"Railroad's have been one of the oldest investments in the United States and here they are, it's a 21st century technology for moving goods around the country. It's really also a vote of confidence in the economic recovery," Ryding said.
Buffett admits he's unsure about the immediate future but adds that an efficient railroad system is vital to U.S. prosperity. Ira Silver says it's a big gamble, but one that might work if the U.S. economy recovers.
|Buffett says efficient railroad system is vital to U.S. prosperity|
"He's putting all this money behind an industry that pretty much is an indicator of the economic growth in the U.S. economy," Silver said.
Burlington Northern transports a variety of cargo from coal to grain. It's also the second largest rail operator in the United States with over 32,000 miles of track.