Trouble in Closed Access paradise?

[MichaelSol]

Michael:

You appear to be narrowing a statement down to one issue (comparison of income statement to balance sheet)...the number of shares.

Personally, I look to the income statement for the number of shares, not the balance sheet.

ed

Well, a passing remark certainly became an issue to some. My reference point was to shares issued, because, between shares outstanding and treasury shares purchased with cold hard company cash, trends with significant financial implications can be read more clearly whereas the shares outstanding on the Income Statement tells a more limited story. Depends on what you are looking for. The Balance Sheet, of course, tells the whole story, including shares outstanding (issued - treasury) and to me, presents the complete picture.

However, what is significant about stock buybacks at BNSF which is somewhat different than a typical stock buyback is that over the past decade, BNSF has had generally negative cash flow. Typically, corporations with free cash flow will use it buy stock back, not corporations like BNSF.

"BNSF’s ratio of total debt to total capital was 47.8 percent at the end of 2000, 41.6 percent at the end of 1999, and 41.2 percent at the end of 1998. The increase in 2000 over the prior year is attributable to the increase in debt and lower equity due primarily to higher share repurchases." P. 25, Year 2000 Annual Report.

Stock buybacks at BNSF are typically achieved with borrowed money, and that has four implications.

1) the company incurs future interest expense, further eroding cash flow. BNSF spent roughly $1.5 billion on its stock buyback that year. The company is still paying interest on that buyback at between 7 and 8%.

2) the price of the remaining outstanding stock "may" rise as a result, but then the dividend declines as a percentage of return, making the stock look less, not more, valuable. A 4% dividend might go to 3%, even though the dividend amount remains the same. Is that attractive to institutional investors? Doubt it. I think that creates a downward pressure on the price as institutional investors cash out looking for the better return.

3) the stockholder's overall equity declines as a result of the increase in treasury shares at the same time that, in the specific case of BNSF, interest charges increase. A double whammy.

4) significant number of shares are placed on the market seeking compensation, rather than measuring the market price for investment purposes. This dilutes the power of the market to effectively appraise the true market value of BNSF stock. The fact that a large buyer is also in the market, regardless of share price, further erodes the essential function of the market pricing mechanism.

Yet, with significant quantities of management shares diluting the market on a continuing basis what would they do?

Well, that is the conundrum of putting the people who manage the company into a position of a vested interest in the stock price as a compensation tool, rather than as an investment strategy and to me, that represents the weakness of a stock repurchase program based on executive compensation, rather than as a logical use of free cash flow.

[MP173]

Michael:

You appear to be narrowing a statement down to one issue (comparison of income statement to balance sheet)...the number of shares.

Personally, I look to the income statement for the number of shares, not the balance sheet.

ed

[MichaelSol]

Michael:

Of course BNSF's treasury stock is listed as a liability.  As is every other company's stock.  Take a look at any balance sheet and show me where treasury stock or any kind of equity is listed.  Always as "Liabilities and stockholders equity."

The part that Strawbridge misunderstood was in his contention that a buyback was entirely positive. In the case of BNSF, it isnt. That shows, first of all, in how Treasury shares are treated under GAAP. That shows, second of all, his misunderstanding of what is actually occuring during a buyback. Thirdly, he thought a balance sheet showed the same thing as an income statement.

[MP173]

Michael:

I find myself agreeing and disagreeing with you on this issue.  I certainly believe at this time, capacity needs to be added and should be done with internally generated cash.  Stock buybacks in this situation do not make sense to me.

I can certainly see why Krebs and the board went for the buy back in 2000.  Take a look at the capex for the previous 5 years.  From 1996 thru 1999 capex was over $8.3 billion.  Revenue went from $8.1 billion in 1996 to only $9.1 billion four years later in 1999.  Hardly worth the investment...or so it seemed at the time.

Had Krebs not returned some cash to shareholders he probably would not have survived.  His ability to see the future need was justified, he just wasnt around for the party that Rose threw.  Capex has ramped up the past few years.

I believe we are now on the verge of massive expenditures.  It is obvious the present system is stretched to it's limits.  The next round of improvements will take serious cash.  Can the railroads generate that cash internally?  I dont know. 

But they are in the best financial position they have been in decades.

ed

[MP173]

Michael:

Of course BNSF's treasury stock is listed as a liability.  As is every other company's stock.  Take a look at any balance sheet and show me where treasury stock or any kind of equity is listed.  Always as "Liabilities and stockholders equity."

ed

[MP173]

A bit over my head on the accounting of the equity...however, as a summer project I am reading Revsine, Collins, Johnson's Financial Reporting and Analysis, an MBA level book.  If I ever make it thru Chapter 13, Income Tax Reporting, I will soon be on Financial Reporting for Owner's Equity.  So, perhaps this weekend with 95 degree plus and high humidity weather rolling in, I will get to it.

What I do know is the stock options/executive compensation issue is rearing it's head again.  Today there were reports that the SEC is requiring much more detailed reporting on executive compensation and the issuance of options.

Speaking of options the latest scandel is the back dating of options to a "low water mark".  Already dozens of companies have admitted this.  Just the tip of the iceburg.

Regarding Pfizer and it's CEO/Chairman Henry McKinnell...he was appointed CEO in January, 2001 and Chairman of the Board in May, 2001.

Pfizer's returns per years since his arrival in the corner office:
2001   -  -12.5%
2002   -  -22.2%
2003  -  +17.8%
2004  -  -22.3%
2005  -  -10.6%
2006 ytd +12.1%

A $10,000 investment in Pfizer in January, 2001 would now be worth around $5500.  Now that is creating shareholder value!  Certainly worth the 880,000 stock options PER YEAR he receives.

I do not begrudge people earning high salaries...my compensation this year will be over 85% based on performance.  I just dont see McKinnell earning those options, nor the $15,880,989 he earned in 2005.

ed

[MichaelSol]

I think what Michael is saying is that the difference is because of unexercised options. One statement is covering actual outstanding shares, while the other covers outstanding shares plus shares held by the company treasury to cover issued options, that have not yet been exercised.

So he's counting unexercised options as "shares"?  If he does that he'll get the answer he wants.  And the answer he usually wants is the one that makes the BNSF look bad.

<>When they buy the stock back it doesn't cease to exist - it becomes treasury stock.  But it's not outstanding.    They've taken 85,000,000 shares into treasury.  That's about $5.6 billion at today's value.   <>

It doesn't matter what I "want," SFAS 128 compels this treatment regardless of how it makes BNSF "look". Note that on the BNSF 2005 Consolidated Balance Sheet, such "Treasury Shares" are not treated as an asset, as you seem to think, but as a $4.6 billion liability.

It is BNSF, not Michael Sol, that counts unexercised options as "shares" -- but that's why they show up as a liability.

A liability, in that instance, reduces, not enhances, shareholder equity by that amount.

[greyhounds]

I think what Michael is saying is that the difference is because of unexercised options. One statement is covering actual outstanding shares, while the other covers outstanding shares plus shares held by the company treasury to cover issued options, that have not yet been exercised.

So he's counting unexercised options as "shares"?  If he does that he'll get the answer he wants.  And the answer he usually wants is the one that makes the BNSF look bad.

When they buy the stock back it doesn't cease to exist - it becomes treasury stock.  But it's not outstanding.    They've taken 85,000,000 shares into treasury.  That's about $5.6 billion at today's value.

 

 

[CSSHEGEWISCH]

Without commenting on the relative merits of stock options and stock buybacks, many institutional investors favor stock buybacks as a way of boosting the price of the remaining stock and improving their own bottom line.  Since institutional and other large investors often control substantial percentages of a firm's stock, management ignores their desires at its own peril. The absorption of Wisconsin Central by Canadian National was driven by shareholders who were disappointed by the lackluster performance of Wisconsin Central's share price.  Also observe the situation at General Motors, which seems to be driven by Kirk Kerkorian's desire to jack up the price of GM shares.

[MichaelSol]

<>And year to year fluctuations in the shares outstanding don't mean a thing..  In 10 years BNSF reduced the number of shares outstanding from 468 milion to 381 million.  You can falsely present that anyway you want, but they reduced the number of shares outstanding by 85,000,000 while investing heavily in expanding their capacity. What a great railroad!   <>
 

At BNSF, nearly 60% of the buyback of outstanding shares over the entire ten year period occured in just one year, 2000, when BNSF bought back 51 million shares. To achieve that, Long Term Debt (including commercial paper and current portion due) increased from $5.8 billion to $6.85 billion, an 18% increase in debt, and the Debt to Equity ratio increased from 41.6% to 47.8%, a massive increase in one year. [Caveat: I am using BNSF's figures for debt to equity ratio. BNSF does not use a conventional debt to equity ratio methodology].

And that wasn't because they were borrowing to invest in infrastructure.

Capital expenditures in 2000 were $1.4 billion, down from $2.23 billion in 1996 and the second lowest level of capital expenditure of the entire ten year period, 1996-2005.

If nothing else, that suggests there's a connection between stock buy-back and lack of infrastructure investment and that while stock buyback may be a great deal for management, it may not be a benefit to the Company and may in fact damage its long term prospects by increasing debt load.

[beaulieu]

 

Michael - Why would not the shares outstanding be the same on the P&L and on the balance sheet?

Of course, this also leads to why management would choose share buyback as opposed to dividend distribution, since options not exercized would not participate in dividends, while the share buyback is much more likely to benefit them.

[MichaelSol]

So is it your contention that the number of shares outstanding is different on the Income Statement than it is on the Balance Sheet.?  They can't be.  You're just blowing Montana Smoke again.

"That can't be."

Remember those words.

This confirms my long-standing position on your comments. You didn't look, and you don't know. You just talk.

Go to the Income Statement. Then go to the Balance sheet.

One reports shares outstanding. One reports shares issued. They are different. It can be, and almost always is. You didn't know that?

For instance:

From the Balance Sheets.

Pre-merger BN, 1996:

Stockholders’ equity:

Common stock, $.01 par value, 300,000,000 shares authorized;

154,198,088 shares issued

Treasury stock, at cost, 196,122,000 shares

In 1997, BNSF Annual Report

Stockholder's equity:

Common stock, $.01 par value, 600,000,000 shares authorized;

470,240,000 shares issued [merger shares]

Treasury stock, at cost, 6,961,000 shares.

Looking at the BNSF 2005 Annual Report,

Stockholders’ equity:

Common stock, $0.01 par value 600,000,000 shares authorized;

527,289,000 shares issued

Treasury stock, at cost, 155,718,000 shares

There are reasons for looking at shares outstanding [dividend distribution, which is why it is on the Income Statement], and there are reasons for looking at shares issued [shareholder equity allocation, which is why it is on the Balance Sheet].

This is why the Income Statement reports one, and the Balance Sheet reports the other. Interestingly, Greyhounds confesses he never knew this difference existed, argues it can't exist... just "Montana Smoke," even though the reporting follows GAAP reporting principles.

Beaulieu is correct.

[beaulieu]

I think what Michael is saying is that the difference is because of unexercised options. One statement is covering actual outstanding shares, while the other covers outstanding shares plus shares held by the company treasury to cover issued options, that have not yet been exercised.

[bobwilcox]

These numbers are Income Statement numbers, I am using Balance Sheet numbers.

 

 

Michael - Why would not the shares outstanding be the same on the P&L and on the balance sheet?

[greyhounds]

So is it your contention that the number of shares outstanding is different on the Income Statement than it is on the Balance Sheet.?  They can't be.  You're just blowing Montana Smoke again.

And year to year fluctuations in the shares outstanding don't mean a thing..  In 10 years BNSF reduced the number of shares outstanding from 468 milion to 381 million.  You can falsely present that anyway you want, but they reduced the number of shares outstanding by 85,000,000 while investing heavily in expanding their capacity. What a great railroad! 

 

 

 

[MichaelSol]

Michael:

Got a minor disagreement with you on your comment about same number of shares for BNSF as 10 years.  Morningstar shows the number of shares as follows:

1996 - 468 mil
1997 - 471
1998 - 476
1999 - 466
2000 - 415
2001 - 390
2002 - 380
2003 - 372
2004 - 376
2005 - 381

Obviously they took a lot of the company out of the market a few years ago. 

These numbers are Income Statement numbers, I am using Balance Sheet numbers.

Four of ten years on the Income Statement show decreases, while six of then ten show increases.

[greyhounds]

Ed, IIRC our wonderful Federal Government played to populism a few years ago and limited the amount a corporation could deduct from its income taxes for CEO pay to $1,000,000.

I think good CEO talent is pretty rare (see Snow at CSX, Davidson at UP, etc.  Who was that woman at Sara Lee? Problems, problems)  A bad CEO will hurt a company faily quickly.  So the good ones are in high demand.

Now a person who can manage Pfizer is obviously worth more than $1 million/year.  So says the CEO market.

Pfizer gets around the asinine tax law (the govt. shouldn't try to influence what Pfizer pays its management) by granting stock options.

I don't think it's a big deal.  If he gets the stock up to $30 he's done his job well and he'll be rewarded with $5 million/year less his own taxes.  I don't think that's outrageous pay for someone who can do that job.

People with rare talents and abilities get paid well.  That's a good thing.  And I don't see anyone being harmed by the stock options.

The best stock option deal I ever had was when I was a programer at MCI.  (In the time before Bernie Ebers)  The purchase price was set at the beginning of the year at 85% of the current market price.  That's the most we ever paid.  If MCI stock went up our purchase price didn't.  If MCI stock went down, we paid only 85% of the market price.  This was open to all MCI employees.  We could buy the stock by payroll deduction.

Naturally, I maxed out my purchases.  I left the company and sold all my MCI stock before that bad CEO, Bernie Ebers, crashed the company.  He's in the jailhouse now, or at least on his way there.

I don't get upset by CEO pay.  A good one is worth his/her weight in gold. 

 

[MP173]

Michael:

Got a minor disagreement with you on your comment about same number of shares for BNSF as 10 years.  Morningstar shows the number of shares as follows:

1996 - 468 mil
1997 - 471
1998 - 476
1999 - 466
2000 - 415
2001 - 390
2002 - 380
2003 - 372
2004 - 376
2005 - 381

Obviously they took a lot of the company out of the market a few years ago.  At the same time they were aggressively expanding (Krebs..."if you build it they will come" philosophy which proved to be a pretty good investment).  Long term debt peaked in 2000 and has dropped.  There is an increase in other long term liabilities...no doubt leases on equipment.

I have mixed feelings about BNSF, i thnk they could be run better financially, but on the other hand, they sure have done a better job than UP.

ed

[MP173]

beaulieu:

Dont quite understand your comment regarding not borrowing for capex.  A look at their cash flow statement indicates (2005) under Investing Activities:

Capital Expenditures - (1,750) ...indicating they invested $1,750,000,000 (that is 1.750 billion)

Their "Purchase of BNSF common stock" was $799 million.

Common shares dropped from 376.8 million in 2004 to 371.6 million in 2005.

Stock options, restricted stock, et al are the 10,000 pound gorilla that got out of the cage.  Not just in railroading, but all industries.

I currently own 20 common stocks and I read most of the proxies that I receive.  The stock options and restricted stock provisions are upsetting to me.  If you think BNSF is bad, try Pfizer.  CEO of Pfizer gets nearly 1 million stock options per year.  Plus the strike price is at the time of the offering.  So, if the stock is at $25, that is the stock option strike price....and usually you have 10 years to execute the option.  That is a license to steel shareholders $$$.

The day of the independent BOD is over.  Take a look at the boards and you will see a carefully woven group of people that are inter connected from company to company.  Most BOD will have a couple of "common" members that are on other boards.

Ah, I rant.

Shifting gears now.  If I were a CEO and there was to be a 25% investment tax credit, but only with the condition of opening up my property to others...I would pass...really quickly.  But, then again, I am not the CEO and dont have to make that decision.

ed

[beaulieu]

<snipped>

Turning to something I do understand a little bit...I find it interesting that the railroads, particularly BNSF will continue to purchase it's shares on the open market (share buyback) and not invest that $$$ into it's own infrastructure.

Now, I realize that budgets are established and any free cash must be utilized in order to maximize ROE, but if a company buys back stock, yet borrows for capex, what is the point?  Unless it is to mask the increasing number of stock options, which might be the case.

ed

They do not and cannot borrow for capex.

As to Michael's point about Management and Stock Options, as long as they don't manipulate timing, then it should not be an issue. Michael would you rather they paid them higher direct salaries? Or is it that you feel that management is overpaid, which is a different issue. Only a totally naive investor would not pay attention to stocks outstanding, and the buyback issue. The railroads are no different than many other large companies.

With reference to transportation costs, I had quote last year for a 40ft. container of furniture from
Ho Chi Minh City to St. Paul, MN, dock to dock, with cargo insurance, and customs brokerage fees
of $5600. This was for shipping in the last week of July last year.

[TomDiehl]

Getting back to the original subject, another "quote of note:"

"Any program that provides sufficient funds..."

This is the same question that's been floating in all these threads on this subject. It doesn't matter if the government or a private company owns the rails, they still need a BIG investment to make his dreams come true.

Notice that this guy is living in a theoretical world. He can't even tell you where the money will come from. In the real world, none of these investments in any type of infrastructure construction or improvements will get started until that question is answered. And there's a LOT of other projects and special interests looking to get a piece of that same pot of money.

[MichaelSol]

I find it interesting that the railroads, particularly BNSF will continue to purchase it's shares on the open market (share buyback) and not invest that $$$ into it's own infrastructure.

Now, I realize that budgets are established and any free cash must be utilized in order to maximize ROE, but if a company buys back stock, yet borrows for capex, what is the point?  Unless it is to mask the increasing number of stock options, which might be the case.

Bingo. Management, which ultimately negotiates these options agreements which are duly rubber stanped by the BODs, is making a killing off the stock-buyback programs. BNSF started its stock buyback about ten years ago -- roughly the same number of shares outstanding now, ten years later, as then. That means the market has been flooded with executive option shares.

The same management advocates the stock buy-back programs to "boost" shareholder value. Sounds good to shareholders, even though it distorts normal market mechanisms because a very large buyer is not "rational," that is, not buying according to realistic assessment of share value, or for "investement" purposes at all, but simply at "whatever" value.

The market is further distorted as large numbers of shares are "dumped" -- ie options exercised -- for reasons again unrelated to market value of the stock, but rather in relationship to the option price which is often tens of dollars different than market price.

Rather than a means to raise capital, the stock market increasingly resembles a compensation tool for management, rather at the expense of long term shareholders, and at the expense of a realistic measurement of the "real" market cap of the company. This contaminates the ability of railroads to raise important equity capital for infrastructure needs -- compelling higher debt to equity ratios than railroads might otherwise enjoy -- and which presents a greater risk during business cycle downturns.

In recent years, Railroads are notorious for this. Do railroad managements manage for the good of the railroad? Well, that is a question.

Notwithstanding overall negative cash flow over the past ten years, BNSF has no fewer number of shares outstanding, and still has a higher debt to equity ratio than ten years ago, despite an enormous expenditure of company funds over that time period to buy back stock.

Of course the fact that this has occured in conjunction with a long term trend that offers the regular railroad employee a lower CPI-adjusted salary than the employee earned in 1976 only adds icing to the cake.

As always, the interesting question is, where is the money coming from, and, where is the money being spent?

[MP173]

I am NOT an expert on currency valuation.  In fact, I know very little about it.  So, a brief summary of floating currency rates, etc. would be much appreciated.  I realize it is something I should be much more aware of, but my current career has very little impact on importing or export.

Dave, you list four valid points, I have no idea of how to rank each one. 

Turning to something I do understand a little bit...I find it interesting that the railroads, particularly BNSF will continue to purchase it's shares on the open market (share buyback) and not invest that $$$ into it's own infrastructure.

Now, I realize that budgets are established and any free cash must be utilized in order to maximize ROE, but if a company buys back stock, yet borrows for capex, what is the point?  Unless it is to mask the increasing number of stock options, which might be the case.

ed

[jeaton]

I would say that the improvements in the efficiency of global communication and transportation systems and the elimination of political and monetary barriers to free trade were needed to facilitate the shift.  Further, in 1966, there was not all that much institutional knowledge on the subject of manufacturing in a foreign environment. 

In 1966 it was much more difficult to take advantage of labor costs than it is today.

I don't mean to suggest that there is no risks involved in the current situation.  If China decides to let the Yuan float or political changes in the Far East result in a major disruption in manufacturing, I think we may find ourselves hanging out to dry.

[n012944]

Dave:

IHowever, the discussion of who the beneficiaries are (domestic vs foreign) is opening up a very large can of worms.  We are already sending strong signals regarding investment in our country...the Chinese were not allowed to invest in oil ( I think Unical) and the ports on the east coast were addressed recently.

 

I think it would be very hard to invest in one and not the other.  Most main lines that need upgrading have both domestic and foreign traffic on them, so how to do determine which lines get the help?  Also, it would have been nice to see the railroads response to this, but as usual Dave only posts stuff to support his arguement.  What's the matter Dave, you were made to look like a fool on the Touble in Open Access Paradise thread, so you had to try to turn it around???

 

Bert

[MichaelSol]

I didn't make the assertion, FM did.  My opinion is only based on anecdotal information, but I would place labor cost as the first factor.

But, labor cost has always been a significant differential -- more so 40 years ago than today. Does that explain why manufacturing has moved overseas?

The Yuan is undervalued by many reports, by as much as 40%.

Tariffs and transportation costs have changed significantly. Perhaps the three together have leveraged the shift.

[jeaton]

Michael

I didn't make the assertion, FM did.  My opinion is only based on anecdotal information, but I would place labor cost as the first factor.

I understand that China has its currency pegged to the US dollar.  I think they produce the largest share of US imports (except for Canada and Mexico), but they are certainly not the only Far East source of consumer goods.  If China's currency was allowed to float, just what would be the change and how would it impact the balance of trade?

It is true that a manufacturing facility can be thrown up in China without meeting environmental or safety requirements, provided, of course, that the Chinese government approves.  But how does that explain why companies close down perfectly good manufacturing facilities in the US and move production out of the country?

Maybe a comparison of the actual cost of shipping a consumer good to, let's say, Denver from Chicago vs. Denver from any Chinese port city might be a reasonable illustration of the alleged inbalance of import vs domestic rates.

[MichaelSol]

Dave:

I think that is a reasonable quid pro quo 25% investment tax credit for "addressing concerns."

However, the discussion of who the beneficiaries are (domestic vs foreign) is opening up a very large can of worms.  We are already sending strong signals regarding investment in our country...the Chinese were not allowed to invest in oil ( I think Unical) and the ports on the east coast were addressed recently.

The US has always invested heavily in outside countries.  This attempt by corporations to have it both ways (the ability to invest overseas while restricting investment or marketing of products here) sends very mixed signals and is extremely short sighted.

The reason the containers are streaming in from Asia is not the low rail prices, it is the inability of the United States corporations to produce at market prices.  As long as labor rates overseas are what they are (India will probably be the next China) we will have this problem.

ed

All good points, but one thing remains paramount - if it is the US taxpayers who are (indirectly) paying for the infrastructure investments, then said investments should favor domestic over foriegn interests, right?

Relative labor rates overseas are not the number one reason for the inability of US firms to compete in the US consumer market.  Number one is the currency manipulation by the Chinese to keep the Chinese currency artificially low vs the US dollar.  Number two is the environmental/regulatory/litigatory red tape that prevents US corporations from making the capital investments necessary to adjust to global changes in semi-real time.  (It took the Chinese about 6 months from the development of the idea to actual begining of construction of the new Chinese rail lines.  The DM&E saga has run over a decade now and they have yet to turn a spade of dirt for the new railroad grade.)  Number three is the imbalance of import transportation rates vs export transportation rates (of which US railroads play a major role).  Number four is the relative labor rate differential.

The source of the above is You?

Jay, those are all good points. Which ones do you disagree with, and why? Or how would you order them differently, and why?

Best regards, Michael Sol

[jeaton]

Dave:

I think that is a reasonable quid pro quo 25% investment tax credit for "addressing concerns."

However, the discussion of who the beneficiaries are (domestic vs foreign) is opening up a very large can of worms.  We are already sending strong signals regarding investment in our country...the Chinese were not allowed to invest in oil ( I think Unical) and the ports on the east coast were addressed recently.

The US has always invested heavily in outside countries.  This attempt by corporations to have it both ways (the ability to invest overseas while restricting investment or marketing of products here) sends very mixed signals and is extremely short sighted.

The reason the containers are streaming in from Asia is not the low rail prices, it is the inability of the United States corporations to produce at market prices.  As long as labor rates overseas are what they are (India will probably be the next China) we will have this problem.

ed

All good points, but one thing remains paramount - if it is the US taxpayers who are (indirectly) paying for the infrastructure investments, then said investments should favor domestic over foriegn interests, right?

Relative labor rates overseas are not the number one reason for the inability of US firms to compete in the US consumer market.  Number one is the currency manipulation by the Chinese to keep the Chinese currency artificially low vs the US dollar.  Number two is the environmental/regulatory/litigatory red tape that prevents US corporations from making the capital investments necessary to adjust to global changes in semi-real time.  (It took the Chinese about 6 months from the development of the idea to actual begining of construction of the new Chinese rail lines.  The DM&E saga has run over a decade now and they have yet to turn a spade of dirt for the new railroad grade.)  Number three is the imbalance of import transportation rates vs export transportation rates (of which US railroads play a major role).  Number four is the relative labor rate differential.

The source of the above is You?

[Anonymous]

Dave:

I think that is a reasonable quid pro quo 25% investment tax credit for "addressing concerns."

However, the discussion of who the beneficiaries are (domestic vs foreign) is opening up a very large can of worms.  We are already sending strong signals regarding investment in our country...the Chinese were not allowed to invest in oil ( I think Unical) and the ports on the east coast were addressed recently.

The US has always invested heavily in outside countries.  This attempt by corporations to have it both ways (the ability to invest overseas while restricting investment or marketing of products here) sends very mixed signals and is extremely short sighted.

The reason the containers are streaming in from Asia is not the low rail prices, it is the inability of the United States corporations to produce at market prices.  As long as labor rates overseas are what they are (India will probably be the next China) we will have this problem.

ed

All good points, but one thing remains paramount - if it is the US taxpayers who are (indirectly) paying for the infrastructure investments, then said investments should favor domestic over foriegn interests, right?

Relative labor rates overseas are not the number one reason for the inability of US firms to compete in the US consumer market.  Number one is the currency manipulation by the Chinese to keep the Chinese currency artificially low vs the US dollar.  Number two is the environmental/regulatory/litigatory red tape that prevents US corporations from making the capital investments necessary to adjust to global changes in semi-real time.  (It took the Chinese about 6 months from the development of the idea to actual begining of construction of the new Chinese rail lines.  The DM&E saga has run over a decade now and they have yet to turn a spade of dirt for the new railroad grade.)  Number three is the imbalance of import transportation rates vs export transportation rates (of which US railroads play a major role).  Number four is the relative labor rate differential.