And even though the current rally is beginning to lose some steam, there are still plenty of reasons to like railroads over the long haul. They’re clean, efficient, and their development is a fixture of President Barack Obama’s economic, political, and social agendas.

Obama Fast Tracks Railroad Investment

President Obama envisions high-speed rail as a big part of the United States economic recovery, as well as the country’s societal progression.

Earlier this year, Obama outlined his plan to devote at least $13 billion to developing high-speed rail over the next five years.

“Railroads were always the pride of America, and stitched us together. Now Japan, China, all of Europe have high-speed rail systems that put ours to shame,” Obama said.

While most passenger trains in the United States travel at the maximum allowable speed of 79mph, trains in Europe and Asia typically travel in excess of 125mph. In France, for example, the Train Ga Grande Vitesse (TGV) travels at an average speed of 133 mph. Another French train actually reached 357.2mph in 2007, setting a new world record, The Associated Press reported.

Japan, which opened its first high-speed rail in the 1960s, transports more passengers than any other rail system on earth, and its Shinkansen trains travel at an average speed of 180mph. And Germany, Spain and China all of have trains capable of traveling as fast as 140mph.

There are 10 “potential” 100-600 mile corridors in the United States that could be carrying similar high-speed trains sometime in the not-so-distant future, according to a fact sheet released by the Federal Railroad Administration (FRA).

Developing a high-speed rail system, “similar to how interstate highways and the U.S. aviation system were developed in the 20th century,” would bring a host benefits including more manufacturing jobs, more choices for travelers, and less dependence on oil, the fact sheet said.

“The potential economic benefits of a high-speed rail link between Chicago and Milwaukee, so that people are avoiding I-94, or the link between Chicago and St. Louis, Detroit, all those Midwestern cities, I think is enormous and is a very real option,” Obama, a Chicago native, said. “Although gas prices are low right now, it becomes a very meaningful option for people who don’t want to take off their shoes (for screening), drive to an airport, pay for parking, and suffer delays.”

High-speed passenger trains also figure in to the administration’s “green” agenda. Developing all 10 high-speed corridors could eliminate 6 billion pounds, or about 3 million tons, of greenhouse gas emissions each year.

“My high-speed rail proposal will lead to innovations that change the way we travel in America,” the President said. “We must start developing clean, energy-efficient transportation that will define our regions for centuries to come.”

The American Recovery and Reinvestment Act (ARRA) set aside $8 billion as part of what the Obama administration called a “down payment” on a new, cleaner high-speed railroad system, with another $5 billion included in the president’s budget to be dispersed over the next five years.

“To have the federal government now coming out even with $8 billion is great. It lets us look to the future and see what we could really do to develop high-speed,” Washington state rail division deputy director Andrew Wood told the BBC. “When I was at school in England teachers always said whatever America does Europe will do in 15 years. This is the roles reversed – the Obama plan’s the first step.”

Profits Coming Down the Track

While many U.S. rail companies, such as Burlington Northern, are focused primarily on freight transportation, they still stand to benefit from the Obama administration’s railroad revolution, because the first phase of development means upgrading existing track.

“It’s very likely that all of the money will go to significant improvements of existing tracks,” Ross Capon, head of the National Association of Railroad passengers, told The AP. “It’s not going to build bullet trains.”

That’s good news for companies like BNSF, whose railway system alone adds up to more than 50,000 miles of operated track. These companies also have long histories of operations in the Pacific Northwest and Midwest.

Shortly after the announcement by the Obama administration, Oregon Governor Ted Kulongoski and Washington Governor Chris Gregoire sent the White House a letter applauding its “bold rail vision and supporting critical infrastructure investments that will improve mobility, create and preserve jobs, and benefit air quality across our country,” the Northwest Progressive Institute Advocate reported.

“Our states, along with British Columbia, have a committed partnership with BNSF [Burlington Northern Santa Fe] and Amtrak,” the letter said. “Together, we welcome federal ARRA funds – and the jobs that we’ll create with those funds – to help advance our service and improve our infrastructure.”

Burlington Northern’s focus on clean energy further aligns its goals with that of the Obama administration and local politicians.

BNSF last year acquired 200 fuel-efficient locomotives from General Electric Co. (GE). The engines burn 20% less fuel than their predecessors, BusinessWeek reported. And this year, Burlington Northern will become the first company in the industry to deploy a hydrogen-powered locomotive.

For years now, Burlington has provided potential customers with data showing exactly how much more carbon-friendly their hauls would be if they used trains instead of trucks.

For instance, a train carrying 100 tons over 1,000 miles produces 45% less pollution than a long-haul truck does, according to BNSF.

And unlike trucks, trains don’t get stuck in traffic.

“Congestion costs the industry $8 billion a year,” said Ray Kuntz, president of the American Trucking Association. “And it’s growing at 8% to 10% per year.”

CSX has also developed a low-emissions locomotive with three clean diesel engines.

“We’re already three to four times more fuel efficient than trucks and we want to take to the next level and really put a green product out there,” Michael Ward, Chairman and CEO of CSX told Fox Business. “This locomotive will reduce the emissions of particulates and NOx (nitrogen oxide) by 80% and the emissions of CO2 by 50%.”

Ward said his company is investing $1.6 billion in clean technology this year.

“We think long-term more and more people are going to turn to the railroads to relieve highway congestion and because of our small environmental footprint,” he said. “So we’re making investments in the future even in this tougher time.”

Source: Obama’s High-Speed Vision Gets Railroad Companies Back on Track

The Financial Times led off one headline column this week thundering:

“The world economy will this year suffer its worst performance for more than 60 years with a serious risk that 50 million people will lose their jobs, international organizations warned yesterday.”

The consensus has gelled. Now it’s just a matter of who can come up with more staggering figures. The IMF says global output will fall for the first time since the World War II. And 50 million are a lot of people.

Where to invest is the question. In pockets of strength is one answer. Where might these be?

Warren Buffett likes railroads and recently upped his stake in Burlington Northern. He now owns 22% of the company.

The railroads are interesting because they have put up increases in earnings despite declines in freight volume. Union Pacific (NYSE:UNP) reported a 35% rise in fourth-quarter earnings, despite a 12% decline in carloads. CSX (NYSE:CSX) reported a 16% gain in earnings. Burlington, Buffett’s darling, reported a 19% increase. Canadian National Railway chipped in an 11% increase.

A good chunk of those increases is due to a lag effect in fuel surcharges. When those fuel surcharges come down, as the price of oil is now much lower, so too will some of those earnings. But not all.

In fact, railroad executives have been pretty confident in their ability to continue to raise prices on their customers. Railroads have to compete with truck and other means of transport in many cases. The railroads say that even with the increases, it’s cheaper to ship by rail than it was 28 years ago — adjusted for inflation.

Railroads are also pretty green. One rail car can carry freight 436 miles on one gallon of fuel, according to the American Short Line and Regional Railroad Association. And it emits far fewer carbon emissions than a truck, at a time when that could be very important.

Even so, the freight volume falloff has investors worried. Union Pacific chief James Young said that freight volumes fell 18% in the first three weeks of January. In some areas, the drop-off is really something — like the 60% drop in auto-related freight Young cited.

Whew, you see stuff like that and you think the world must really be coming apart at the seams. Still, Buffett is a buyer, and the prices might discount a lot of bad news already. Many of the big railroads trade for single-digit price-to-earnings ratios, and the industry as a whole goes for about 9 times earnings.

Buffett isn’t the only one taking a look at railroads. Donald Coxe, another investor I respect, thinks it is also a good time to be looking at the railroad stocks. “They benefit from lower energy costs,” he writes in a recent note to clients, “which may offset a significant percentage of the cutback in top-line revenues during the recession. Coming out the other side, they should be core investments.”

David Winters, of Wintergreen Advisers and another investor with a good long-term record, also likes railroads. He calls them “unduplicable franchises” protected by huge costs of entry.

In addition to railroads, there is timberland. As I’ve noted before, timberland values have held up well in this mess. The Wall Street Journal recently ran a piece on timberland and included this chart.

How can timberland values continue to climb when nearly everything else is going to pot? The WSJ quotes Jeremy Grantham of GMO: “As long as the sun shines, the trees will grow. Timber will never be an orphan.” Timberland appreciation for the past decade was 4.1%, versus a negative 3.8% for the S&P 500, according to the WSJ. That kind of long-term appreciation has always been timberland’s great appeal.

The other great part about timberland is if timber prices are unfavorable, you just don’t harvest your trees. You let ’em grow. And their value increases anyway. “Trees keep growing 4% per year, no matter what happens to inflation, interest rates or market trends,” says Dennis Moon, quoted in the WSJ story. Moon is head of U.S. Trust’s group overseeing timberland. “You don’t have to cut them down this year if that doesn’t make sense.”

Source: Buffet’s Investing in Railroads in Early 2009

Foreclosures jumped 81 percent nationwide last year. That’s 3.2 million homes.

In December alone, foreclosures jumped 41 percent versus the December 2007 reading.

The readings for the reports this week anticipate further drops in both December Building Permits and Housing Starts. The only question is by how much. Last month, expectations for both reports were off by at least 10 percent. This month is expected to be nearly identical to last month for Building Permits, and a drop of about 15k units in the Housing Starts report.

Try as I might, I can’t see either of these reports coming close to expectations. I don’t think a slowdown of 75k units on each is unrealistic. The housing market is just in terrible shape. Excess inventory is growing, not shrinking. A reading of 550k or even less on both reports is reasonable. I guess we will find out Thursday.

Earnings:
Tues: BAC, CSX, IBM, JNJ,
Wed: ABT, AAPL, EBAY, USB, UTX
Thur: BAX, GOOG, MSFT
Fri: GE, HOG,

Source: Nothing Left for The Big Bad Wolf

Buying shares for income has traditionally entailed investing in sectors that economically aren’t going anywhere.  U.S.-focused investors find themselves owning railroads, trucking companies and electric utilities, not the most exciting of sectors, and most unlikely to grow your investment as a percentage of the global economy.

Even in those so-called “tried and true” sectors, in the modern U.S. economy of huge payouts, stock options and multi-millionaire management, you aren’t likely to get the dividends you deserve. For example, the railroad company CSX Corp. (CSX) yields 1.5%, trucking company J.B. Hunt Transport Services Inc. (JBHT) yields 1.0% and even electric utility American Electric Power Co. Inc. (AEP) yields a modest 4.3%.

All three companies pay out less than half their earnings. The remainder is retained in the company, or used for share buy-backs, to provide capital gains for top management’s greedy stock options. If you can’t get decent dividends from investing in these admirable operations, dividend investing in the United States is a lost cause.

But internationally, income investment is a horse of a different color.

First, international firms don’t follow the Wall Street model of huge salaries, generous stock options and seven-figure bonuses. Less money earmarked for executive compensation means more cash in investors’ pockets.  And that’s a good thing, because international investors have a natural cynicism about retained earnings, believing that money that stays with the company is just management’s to waste. It’s much better to have the excess cash paid out in dividends, to do with, as you like.

Second, foreign markets are growing much faster than the United States. If the local economy is growing at 7% to 10%, even the railroads and electric utilities will grow at a similar pace, providing an increasing stream of profits.

Third, you don’t need to confine yourself to companies growing at the speed of an arthritic snail to get good dividends or sacrifice the capital gains that come from investing in sectors that provide the world’s new ideas, intellectual growth and economic advance. Unlike the technology firms in the United States, some international companies in growth sectors don’t feel they have a God-given right to keep ALL the earnings under management’s control. Instead, they pay out dividends to shareholders.

The international appeal of dividends makes more sense when you remember that many of these companies are still controlled by the founders or their immediate heirs. Large dividends on their holdings are understandably attractive to these rich founding families.

Furthermore, in some countries such as Taiwan, the tax system rewards paying dividends, by imposing an additional “retained profits tax” on companies that keep too much of their earnings without making good use of them.  (The United States had a similar tax from 1936 to 1958, but the management lobby proved stronger than the investor lobby, so it was repealed.)

Internationally, you can find what seems impossible in the United States: Companies in growth sectors, with good track records, that nevertheless pay out good dividends, at least at the 4-5% level and sometimes more. By investing in such companies, investors can have the best of both worlds:

• A substantial dividend that they can live on.
• And the chance of capital gains in the future as the company expands.

It’s almost like U.S. investing in the halcyon days of 1949, when the Dow Jones Index had a Price-Earnings (P/E) ratio of 7% and a 6.9% yield (U.S. Treasuries yielded less than 3% at that time). And while we can’t go back in time, by investing internationally and picking carefully, we can get some of the advantages of an investor in 1949. And even possibly do as well as that investor did during the subsequent decade of Eisenhower growth and stock price rises.

Here’s how to “have it both ways,” when it comes to international income investing:

Administradora de Fondos de Pensiones Provida SA (ADR: PVD), commonly known as Provida, is the funds manager of the privatized Chilean social security funds, a business it has diversified to hold investments in fund administrators in Peru, Ecuador, Mexico and the Dominican Republic. Majority owned by the Spanish bank Banco Bilbao Vizcaya Argentaria with a P/E ratio at 9 times trailing earnings, and a dividend yield of 7.6%, this stock is especially juicy for income investors. Growth will likely come from increases in assets under management, as Chile becomes richer and some expansion of the Chilean pension fund model to other countries.

Acer (Taiwan) (London Stock Exchange: ACID) is the world’s third largest manufacturer of personal computers, with top technological innovation in Taiwan and the ability to manufacture in the cheap-labor rural China. P/E ratio 12 and a dividend yield of 5.6%, plus you get to participate in the growth of the PC industry.

Eni SPA (ADR: E) is Italy’s entry in the “Big Oil” stakes. Because of Italy’s neutral foreign policy posture, it has the advantage of being able to operate in countries like Kazakhstan, Libya and Venezuela where U.S. companies have difficulty. At a price-earnings ratio of only 6.7 with a dividend yield of 6.6%, it currently offers excellent value with chances for growth if oil prices stay high and new oil sources remain attractive.

[Editor’s Note: When it comes to global income issues, Money Morning Contributing Editor Martin Hutchinson knows his stuff.  An investment banker with more than 25 years’ experience, Hutchinson has worked on both Wall Street and Fleet Street and is a leading expert on the international financial markets. In February 2000, as an advisor to the Republic of Macedonia, Hutchinson figured out how to restore the life savings of 800,000 Macedonians, who had been stripped of nearly $1 billion by the breakup of Yugoslavia - and then the Kosovo War. Hutchinson’s “Insights on Income” column is a regular feature in Money Morning].

Source: Insights on Income: You Don’t Have to Sacrifice Capital Gains for a High Yield

The moment diesel fuel crested $3/gallon trucking simply could not compete. This trend will only accelerate now that diesel prices have passed the $4 mark.

It’s no shock that mega-investors like Buffett and Soros are reinventing themselves as modern-day rail barons. You should, too:

• Buy CSX (CSX: NYSE)
• Sell Con-Way Frt. (CNW: NYSE)

Adam Lass

Senior Editor, WaveStrength Options Weekly

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Source: Trucking Dies & Railroads Fly When Diesel Fuel Crests $3.00

I managed to pack in four barbecues (or “cookouts” to put it in American lingo) over the weekend – all pretty close to home – so not too much damage done. And with soaring gasoline and food prices contributing to a projected 3.6% rise in consumer prices this year, it might be the best way to go.

Gas prices obviously remain front-and-center of the news, so let’s check in and see how it’s affecting consumers on both sides of the Atlantic, plus an industry that is arguably getting hammered even harder.

National Average Gas Price

Following a daily march higher over the past three weeks, the current national average gas price per gallon sits at an ugly $3.93. But with gas in 11 US states already over $4 a gallon, this number is now more for headlines than anything else. Bottom line: It’s expensive!

Little wonder that AAA projected a drop in Memorial Day travelers this year – the first decline since 2002. Many have also scaled back their plans, due to rising gas prices. And MasterCard reported a 7% drop in gas sales in the week leading up to the holiday.

But it wasn’t just Americans feeling the pressure at the pump this weekend…

Truck JamLike in the US, Monday was also a holiday in Britain, with the long weekend giving Brits a similar chance to hit the road for a short break.

Trouble is, UK gas prices are 17% higher than this time last year, with diesel prices almost 30% higher. The national average is currently $1.14 a liter and $1.26 a liter respectively. In US terms, that’s about $10.16 and $11.23 per gallon.

You can see why 16% of respondents to an Automobile Association survey said they plan to use their cars less.

What bothers many Brits, though, is that about 60% of fuel costs go into the government’s coffers in taxes. And today, the nation’s truckers took their protest to the streets.

In a mass demonstration against high prices and the government’s planned 2 pence per liter fuel tax rise (set to come into effect in October, having been postponed from April), hundreds of truckers set off from various parts around the UK and conducted a “go-slow” along the motorways.

One convoy ended at London, where the truckers handed a petition to the government at Downing Street. The other convoy, starting from further afield, handed its petition to the Welsh Assembly in Cardiff because (ironically), the trip to London would have cost too much.

The underlying problem that the trucking industry faces today is certainly not exclusive to Britain, though. High fuel prices are hammering both British and American truckers. So could America see a similar backlash?

America’s Big Rigs Have Big ProblemsActually, it already has. You may remember some truckers driving their rigs to the Capitol in Washington, D.C. in early April to protest against high fuel prices and imploring Congress to provide some relief measures.

You can see why. While diesel prices are up 30% in Britain over the past year, the price has blasted 80% higher in the US – from $2.50 a gallon this time last year to $4.50 today, according to the New York Times.

When it costs $1,125 to fill up a 250-gallon fuel tank, that clearly crushes any kind of profit margin that trucking companies hope to generate.

In fact, the American Trucking Association says times are so tough today that during the first quarter, 935 companies with fleets of five trucks or more went out of business. That’s up an astonishing 143% from the 385 in Q1 2007 – and is the worst quarterly “bust rate” since 2001.

In total, 45,000 trucking vehicles have permanently pulled off America’s highways since early 2007, according to America’s Commercial Transportation Research.

The domino effect of this is far-reaching. Reduced profits can erode employee wages, decrease supplies of goods, and create more potential for failing companies. In turn, that can cause bankruptcy and dents GDP growth.

So is there a way to play these developments?

Hit The Road (The Railroad, That Is)In a desperate attempt to offset some of the costs, some trucking firms are turning to rail companies.

While trucks can only haul so much and are directly impacted by rising gasoline costs, rail companies can absorb soaring oil prices more easily, as they can haul more goods. A few of the biggest names in this area include:

Burlington Northern Sante Fe (NYSE: BNI) – a firm that Warren Buffett has invested heavily in… Union Pacific Corp (NYSE: UNP)… and CSX Corp (NYSE: CSX).

All three are also members of the Dow Jones Transportation Average (^DJT), which is a remarkable story itself…

Transports Bust The TrendRemarkably, despite the march in oil prices to over $130 a barrel, that hasn’t stopped the Dow Transports from surging, too.

This is a major reversal in the historical trend. Oil prices and the Dow Transports usually move in opposite directions – and you’d think that with fuel being the biggest expense for Transportation Index companies and high oil prices pressuring so many areas of the transportation sector, the index that represents these firms would also be under severe pressure.

Not so. The DJT is actually up 15% in 2008, and as my colleague Jim Stanton reported in his bi-weekly “Sector Watch” column last Monday (May 19), the index raced to an all-time high of 5,550.17 on the same day. Jim applied some technical analysis to the index – and how to play the next move profitably through the index’s ETF – so take a look.

With the index made up of airlines like American (NYSE: AMR), Continental (NYSE: CAL), JetBlue (Nasdaq: JBLU) and Southwest (NYSE: LUV), plus shipping companies FedEx (NYSE: FDX) and UPS (NYSE: UPS) – all of which are buckling under the weight of high oil and gas prices – economists are now hotly debating whether it’s throwing the market a curveball.

Traditionally seen as a sign of US economic strength and turnarounds, the fact that the index is soaring while consumers and the economy are struggling is a source of confusion.