Financial News Beat

Savers are living in punishing times, with bank savings accounts paying a paltry one percent on average. Today, everyone is focused on getting to most for their money and as yields, such as those from Utilities, are now playing an integral role in just how one can achieve a better return. Bonds and certificates of deposits have been traditionally considered safer investment vehicles, but in an era of low interest rates, they are not as attractive anymore.

Trusts such as Baytex Energy (BTE) and Enerplus (ERF) have been traditionally steady performers, with high yields, there is some uncertainly around the performance of this sector for 2010. More trusts are now adjusting their models to add more growth-oriented properties and paying fat dividends are no longer the number one priority for many of these firms. Additionally, the upcoming change in the Canadian tax law, which will take effect at the start of 2011, will undoubtedly have an effect on the Canadian trust sector, that has proven lucrative in the past.

Warren Buffett was born with investing in his blood. According to the numerous biographical sketches written on the “Seer of Omaha,” he displayed an amazing aptitude for money and business at an early age and it has served him well in all the investments he has made through the years. He has come a long way from his early years when he  purchased three shares of Cities Service Preferred at $38 per share for both himself and his older sister, Doris, to being one of the richest man in the world. He built Berkshire Hathaway Inc. (BRK-A) (BRK-B) into a behemoth by taking calculated risks, as evidenced from his latest and largest acquisition ever, 131 year-old Burlington Northern Santa Fe Corporation (BNI) for $34 billion. The company will pay roughly $26 billion in cash and stock for the 77.4 percent of the company it doesn’t already own. The acquisition sent ripples through the market and reignited investor interest in rail and transportation stocks.

As part of the bid, Mr. Buffett will split Berkshire’s class B shares 50-for-1 to pay Burlington Northern shareholders, essentially breaking his rule of never splitting Berkshire’s stock. The split increases the total number of class B shares while avoiding fractional stock ownership for Burlington Northern shareholders.

In a 2007 letter, Warren Buffett stated that he preferred to seek out value in “companies that have a business we understand; favorable long-term economics; able and trustworthy management and a sensible price tag.” It would follow that Mr. Buffett would never have invested in the network of railways that comprise BNSF in the 19th century, when the United States became the world’s first emerging market. It was then a classic high-growth, high-risk industry where fortunes were won and lost. Logically speaking, U.S. railway operators, such as  have consolidated over more than a century, have grown more efficient and no longer face the possibility of another company laying a rival track, that Mr. Buffett has made such a big bet on the sector with his acquisition.

Buying a railroad is a sound way to gain cash dividends and provides broad exposure to companies that need coal and freight, though the strength and prospects of the U.S. economy remain challenging. Warren Buffett has, in fact, seen into the future because railroads are very fuel-efficient, pollutes the air less than trucks and stand to benefit from the “green” wave now sweeping the country. According to Mr. Buffett, one train can supplant about 280 trucks. This should also serve  GATX, CSX and Union  Pacific (UNP) well. Quite simply put, Buffett’s bet on Burlington is a long-term play on economic recovery and quite possibly, global warming.  The purchase includes a nice potential option in the form of 32,000 miles of rights-of-way that could eventually form the backbone of a nationwide broadband.

The balance sheet at Berkshire Hathaway shows a tidy sum of $20 billion in cash left to spend. So, where will Buffett set his sights next? He certainly won’t make a big acquisition such as Burlington Northern, but he could certainly increase his stake in existing holdings such as Kraft Foods (KFT) or purchase a sizable stake in companies such as Transocean Ltd. (RIG), Cisco Systems Inc. (CSCO) and TD Ameritrade (AMTD), for example.

The purchase of BNSF will most likely conclude his search for an “elephant” acquisition, which he first described in one of his famed letters to Berkshire investors two years ago. His last major deal was in late 2007, when he agreed to buy a majority stake in Marmon Holdings, the conglomerate controlled by the Pritzker family. It will be very interesting to see where Buffett will make waves next.

The global economic woes seem to be abating in many countries as France and Germany have emerged from their recessions, with Japan following closely behind. Oil prices neared $75 a barrel on Monday, for the first time in 10 months, spurred by optimism that the global economic landscape is improving. Natural gas, which is defined as fuel that’s used to heat buildings, cook food, dry clothes, heat water, and even to help produce electricity, rebounded strongly from a new seven-year low on Monday, though it is still trading below $3 per 1,000 cubic feet due to an enormous glut and very little demand from major industrial customers.

Federal Reserve Chairman Ben Bernanke on Friday said the U.S. economy is reviving, plus signs of improvement in the U.S. housing market lifted expectations that the demand for energy, specifically for oil and gasoline, will grow. The prospect of increasing demand will certainly keep upward pressure on oil prices. The ease of using oil for making gasoline makes oil extremely more valuable and consequently, according to Seeking Alpha, oil has usually traded between six and 12 times the price of natural gas.

Natural gas prices are at seven-year lows and supplies continue to grow. Some analysts have said that the demand prospects are the worst they have been in recent memory. It has been a very moderate and relatively uneventful summer, with no hurricane damage. Meteorologists are forecasting the same trend through the fall. That could drive natural gas prices down even further if people do not need as much heat for their homes.

The conventional wisdom is that over time natural gas prices should rise to meet the new supply. It is worth noting that natural gas is cleaner than coal and is available in large quantities in both the United States and Canada. Natural gas is one of a few potential responses to climate change and oil dependence, which are issues that are growing in intensity as the Obama Administration strives to curb our dependency on foreign oil.

Me too. But if you already know how, could you send me some instructions or maybe just put some of that money in an envelope and send it my way because I could really use it. Cheers.