Michael Sol wrote:
> Wow, I almost feel like I'm reading Overton himself -- Overton, the
> former Public Relations Dept. employee of the Q, who wrote a darn good
> PR book when he set his mind to it!
>
> I am always interested in how Warren Buffett predicted the condition of
> the railroads in 1921.
>
> In any case, Mr. Edgar states what is true: the Q was a good investment
> because it pooled the eastbound traffic (which was typically 2:1
> compared to westbound for transcontinentals) from two transcontinentals.
> In the long run, that saved the Q.
>
> So, yes, the Northern Lines got decent dividends -- from their own
> traffic -- but did not benefit much from the Q as the Q's westbound
> traffic was divided by two; which made little difference to the NP since
> it was already bound to the Q through the Billings traffic agreement.
>
> And, while Warren Buffet's views in the 21st century are interesting, it
> didn't resurrect much of the NP. In 1908, the NP had higher revenues
> than the Milwaukee Road. By 1921, the NP earned $69 million in total
> revenues, Milwaukee earned $105 million.
>
> In 1915, NP earned $26 million in NROI and received $6 million from the
> Q. In 1917, NP earned $34 million in NROI, $31 million in 1918. Q
> dividends plummeted from nearly $8 million in 1917 to $5 million in 1918.
>
> In 1921, the year of interest, NP's NROI was $10.8 million. Interest on
> its funded debt, including the Q bonds, amounted to $15.3 million. This
> was also the year that the Q bonds were due, and that's what you have to
> go to the bankers with for refinancing. Not good.
>
> In 1921, GN's NROI was $12.9 million. Total fixed charges, including
> interest on the Q bonds, $16 million. And the Q bonds were due. Not good.
>
> The Q on the other hand had a good year -- $29 million in NROI, with
> fixed charges of only $6.6 million. That was one of the advantages of
> being the purchase rather than the purchaser. Looked pretty rosy on the
> surface. $22 million in dividends paid to the GN and $22 million more
> paid to the NP. Paid nearly twice the amount in dividends than it
> earned. Nothing "healthy" about that. The Q was forced to lose nearly
> $27 million to its owners that year in direct losses. But, notice what
> happened to its accumulated surplus: it declined from $214 million in
> 1920 to $134 million in 1921. An $80 million treasury raid. Ouch.
> Nothing "healthy" about that either.
>
> Complicating matters was the fact that the other investment, the SP&S
> had in 1921 a NROI of only $1.7 million, with fixed charges of $3.4
> million (over half of that of the mighty Burlington). After fixed
> charges and other expenses, it lost nearly $2 million, having lost money
> continually since its construction, with accumulated losses by 1921 of
> $19.6 million -- looking like it was never going to make any profit.
>
> As of 1921, very few people were as able to see the past as clearly as
> Warren Buffett or Mr. Edgar. Things looked pretty shaky for Northwest
> railroads and I am not sure what the point is of ringing defenses
> because of something Overton wrote as a former PR agent, or what Warren
> Buffet was looking at in 2009. The fact is, 1921 was a very bad year. As
> Mellen observed, "they were going to pieces," and that was based on what
> actually happened as opposed to the public relations version or what
> happened in 2009.
>
> best regards, Michael Sol
>
>> Gerald & Virginia Edgar wrote:
>>> With all due respect to Mr. Sol (who was on the Milw payroll during
>>> their 3rd & final bankruptcy), the "20's recession & GN/NP problems
>>> re: CB&Q purchase in 1901 is well documented in the best selling
>>> "Burlington Route" by Richard Overton. Perkins had indeed exacted a
>>> premium price from Hill in 1901 (Perkins & Forbes also considered
>>> buying Hill's holdings as they had the $$$ to do so; read about it in
>>> Overton). Both GN & NP profited greatly over the yrs by having a) a
>>> captive & highly dependable partner to/from the Chicago, K.C. & St.
>>> Louis gateways; b) an ownership that gave them generous dividends
>>> from 1901 right thru BN merger time - especially important in the
>>> 30's! & c) today the most trafficked route from Chicago to the
>>> Pacific NW is the former Q/Hill Roads combo. There are reasons why
>>> Buffett bought BN and NOT U.P. despite he & Uncle Pete both having
>>> hdq in Omaha.
>>>
>>> As for that Milw line to the west coast, it's of course gone AND GN &
>>> NP (nee BN) became transcontinentals ONLY because they purchased
>>> CB&Q; they only got as far as Duluth, Twin Cities & Sioux City prior
>>> to 1901 whereas the Q was already west to Denver, Billings, etc.
>>>
>>>
>>>
>>> Gerald
>>>
>>>> Michael Sol wrote:
>>>>>
>>>>> --- In MILW@yahoogroups.com <mailto:MILW%40yahoogroups.com>,
>>>>> "hiawatha101" <mcnorton41@...> wrote:
>>>>>> Haven't seen it mentioned here before, but maybe I missed it. Anyway,
>>>>> there was a very serious but short recession in 1921, which caused
>>>>> problems like the one described in this quote. That's why the train
>>>>> delivering a bunch of SP 2-10-2s from Baldwin in 1922 was called
>>>>> the "Prosperity Special."
>>>>> ---------------------------------------
>>>>> Seattle and Tacoma experienced depressions after World War I, and
>>>>> "the water front properties of the company in the two ports have to
>>>>> a large extent been lying idle." The Milwaukee had carried 457,515
>>>>> tons of export and import traffic through the ports in 1918. By
>>>>> 1925, this had diminished to 42,656 tons. The worst year for the
>>>>> Milwaukee, 1921, demonstrated the Milwaukee's reliance on the giant
>>>>> Anaconda mines in Butte. A "copper depression" had struck in 1920,
>>>>> and by the April 1, 1921, the Butte mines had shut down entirely,
>>>>> causing successive shutdowns of auxiliary services, coal mining,
>>>>> and timber across Montana and Idaho, and, of course, a huge drop in
>>>>> shipments on the Milwaukee Road, Anaconda's preferred railroad.
>>>>>
>>>>> International Harvester's Cyrus McCormick recalled that the 1920's
>>>>> were a terrible time for American agriculture. To him, the "whole
>>>>> economic mechanism of American life was crippled; and the business
>>>>> of farming -- together with everything dependent upon it --
>>>>> suffered most of all." The price of wheat, "held down" during World
>>>>> War I to $3.00 a bushel, collapsed on its own in 1921 to a dollar a
>>>>> bushel. Corn remained unharvested in fields. "The price of cattle
>>>>> and hogs fell until every animal was a liability."
>>>>>
>>>>> Milwaukee's NROI in 1921 was only $9.8 million, which translated
>>>>> after fixed charges into an $11 million deficit.
>>>>>
>>>>> The misery was shared. Former N.P. President C.S. Mellen told
>>>>> Clarence Barron that by 1921 that the Northern Pacific and Great
>>>>> Northern were "going to pieces." In that particular year, the
>>>>> Northern Lines found themselves desperate for funds to refinance
>>>>> the mortgages they had incurred to purchase the Burlington in 1901.
>>>>>
>>>>> That purchase had greatly improved the performance of the
>>>>> Burlington – it had become the key link for two transcontinental
>>>>> railroads and, uniquely, was the "long haul" link for Northern
>>>>> Pacific traffic. This had resulted in tremendous growth for the
>>>>> Burlington. But, the cost to the Northern Lines had been
>>>>> substantial. The Great Northern and Northern Pacific had each
>>>>> issued $115 million in "Joint 4" bonds, $230 million total, to fund
>>>>> their purchase of the Burlington. These were falling due in 1921.
>>>>> Although the Burlington had profited greatly , the Northern Lines
>>>>> themselves, ironically, had seen few benefits accrue from the
>>>>> purchase. Indeed, their growth collapsed after the Milwaukee's
>>>>> Pacific Extension opened. The Northern Pacific, in particular, was
>>>>> already bound to the Burlington by the Billings traffic agreement,
>>>>> that had made it, in essence, a short haul transcontinental,
>>>>> handing the longer hauls over the Burlington.
>>>>>
>>>>> With an additional $115 million in debt, in addition to its own
>>>>> construction debt, the NP gained only an additional fixed expense.
>>>>> The only way past the 1921 "Joint 4" refinancing was to raid the
>>>>> Burlington treasury to the tune of $60 million in cash and stock.
>>>>>
>>>>> Milwaukee almost made it, but by 1925, still succumbed. In large
>>>>> part, this was because the ICC, pressured by bankrupting farmers to
>>>>> reduce rates, did so at compelling losses to railroads. A reduction
>>>>> in livestock rates following National Livestock Shipper's League v.
>>>>> A.T.&S.F.Ry. Co. reduced the income of the Milwaukee approximately
>>>>> $1,400,000 annually. A rate reduction following Rates on Grain,
>>>>> Grain Products, and Hay took another $3,400,000 from the Company's
>>>>> annual revenues. Granger commodities kept receiving special
>>>>> treatment from the ICC, and this particularly hurt the most
>>>>> prominent of the Granger Railroads: the Milwaukee Road. Finally, a
>>>>> general rate reduction in 1922 of 10 per cent following the Reduced
>>>>> Rates Case took another $14,000,000 out of the Railroad Company's
>>>>> bottom line. Wall Street "insider newsletters" put the St. Paul
>>>>> Receivership squarely at the door of the government rate-makers.
>>>>>
>>>>> You don't read that one in the general histories.
>>>>>
>>>>> best regards, Michael Sol
>>
>
>
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