Warren Buffett's Railroad Gamble

OMAHA, Neb. (TheStreet) -- Railroads. They seem so nineteenth century. But when the Oracle calls his $34 billion purchase of Burlington Northern(BNI Quote), announced Tuesday, a "huge bet on that company," there's no mistaking the here-and-now relevance of an industry once responsible for greasing the tracks for the rise of the U.S. as a world economic power.

Warren Buffett's most recent acquisition, his largest ever, quickens the transformation of Berkshire Hathaway(BRK Quote) from a re-insurance and financial services holding company into a diversified industrial juggernaut that neither Carnegie nor Rockefeller nor Leland Stanford would have found alien.

Eight years ago, Berkshire bought the natural-gas-pipeline and power-plant operator MidAmerican Energy. Last March, it acquired the Marmon Group, a confederation of diverse industrial-ish companies, from electrical wiring to valves to fasteners to water purification systems. And in 2006, it took control of Iscar Metalworking, an Israel-based manufacturer of big industrial tools.

Buffett Boosts Rail Stocks

Insurance now comprises about 40% of Berkshire's holdings. Some 25% are energy-related. Burlington Northern, whose management is considered perhaps the savviest in the railroad industry, will represent 20%. Burlington's 32,000 miles of track and who knows how many cars -- a large portion of which transport coal -- pass through the Midwest and Northwest, where MidAmerican's power plants burn said coal.

The deal has been roundly hailed as "turn call" by Buffett -- meaning that many people have interpreted the purchase as the billionaire investor's way of indicating that he believes in an imminent turnaround in the U.S. economy. The volume of freight for major U.S. railroads, after all, is viewed as a gauge of the broader economic climate. Buffett himself reportedly consults railroad data weekly as way to get a handle on the state of the nation's business.