Buffett/railroads: What does the Sage of Omaha see in railways? Warren Buffett is paying a big premium to swallow Burlington Northern Santa Fe, a US railroad operator. The Berkshire Hathaway chairman seems to think rail transport could be building a bit of a head of steam.

On its face, the transaction — at a 31 per cent premium to Burlington’s market price on Monday — makes other US railroad operators look relatively cheap. Stifel Nicolaus reckons there could be more than 30 per cent upside in CSX’s stock price, for instance, if investors were to peg sector valuations off the Berkshire-Burlington deal — and that’s after the uplift rival stocks got after Buffett’s transaction was unveiled.

But it’s not that simple. Berkshire now has its railroad. Antitrust issues would most likely prevent it buying another, even if Buffett wanted one — and Burlington is anyway seen as one of the top names in the sector. Antitrust concerns would also be a barrier to consolidation within the sector.

Meanwhile, leveraged buyout investors are thin on the ground these days — as are activists like the Children’s Investment Fund, which retreated earlier this year after taking on CSX management for 18 months. So there’s no obvious reason to attach an M&A premium to Burlington’s rivals in the railroad business.

There is a general economic play. Railroad volumes and pricing have been soft through the recent recession. But they may at least have bottomed. Burlington’s adjusted third-quarter revenue of $3.6 billion was down 27 per cent on the previous year, but up 8 per cent on the prior quarter, according to BMO Capital Markets.

It’s tempting to raise other possibilities, too. Railways are more environment-friendly than trucks. Partly as a result, there’s a chance the Obama administration will encourage investment by the highly regulated railroad industry. On another view, any emphasis on American energy self-sufficiency could spur new coal-fired power plants, which in turn could boost coal transport volumes.

Yet the trucking industry, suffering from overcapacity, isn’t going to give up without a fight. And a recovery will take time to build, especially for the transport segments relating to consumer products. At best, Buffett’s fully-priced deal will only bear fruit over time. Short-term followers into the sector could be disappointed.

US elections: The Republican surge in America’s November 3 off-off-year elections may re-open the economic policy debate. The party’s victories in the state houses of Virginia and New Jersey will bring no quick change at the national level. But a bipartisan economic policy consensus since 2007 has favoured government spending and state bailouts. The results suggest a popular distrust of both that may force policy modifications.

US elections: The Republican surge in America’s November 3 off-off-year elections may re-open the economic policy debate. The party’s victories in the state houses of Virginia and New Jersey will bring no quick change at the national level. But a bipartisan economic policy consensus since 2007 has favoured government spending and state bailouts. The results suggest a popular distrust of both that may force policy modifications.

Virginia has had a pattern since the 1980s of electing Governors from the opposing party to the President, so a narrow victory for Republican Bob McDonnell would have been no great surprise in isolation. However in spite of the state’s gentle leftward demographic trend and Barack Obama’s success there last year, McDonnell won by around 18 per cent, the biggest landslide since 1961 and the biggest Republican win ever.

In New Jersey, incumbent Governor Jon Corzine had raised taxes, failed to control government spending and attempted to impose tolls on hitherto free highways. His background as former head of Goldman Sachs won’t have made him more popular either, though it provided him with ample campaign funds. In the event, Republican Chris Christie appears to have won narrowly in a state Obama carried by a hefty 15 points.

The results do not repudiate Obama, who remains generally popular and admired.

However there is considerable public discontent with the economic policy followed by both parties since the recession began in 2007, which involved massive increases in the federal budget deficit together with bailouts of unpopular banks, Fannie Mae, Freddie Mac and Detroit automakers General Motors and Chrysler.

The Democrat congressional healthcare proposal, which expands public spending without much attempt to control, and account for, costs; and the House of Representatives’ “cap and trade” carbon emissions proposal, which increases state control over the energy sector, have both met with considerable grassroots opposition.

The American public is wary of the massive increase in the public sector implied by the present budget deficit of around 10 per cent of GDP. If further analysis demonstrates this carried into the polling booth Tuesday, then the Obama administration’s economic policy may shift sharply towards control of public spending, as midterm elections in November 2010 could otherwise cost Democrats their hard-won control of Congress.