Is Buffett's Burlington Northern (BNI) Bet A Signal Of Future Inflation? (Update)

(Update: Buffett confirms he bought BNI in part as a hedge on inflation in Fox interview)

Two notable things are happening today in the market: 1. Warren Buffett agreed to acquire Burlington Northern Santa Fe Corp. (NYSE: BNI) for $100 per share. 2. Gold (NYSE: GLD) is at a new record high.

Are these two events related?

I think they are. It is my view that Buffett is smart enough to know that inflation is coming and instead of sitting around in cash he has to put that cash to work. Of course, in an inflationary environment gold prices would automatically benefit.

If and when inflation hits the U.S. economy, it will likely hit hard. Smart investors know to position themselves in real assets versus paper ones. Buying real assets, or in this case the transporter of real assets, Buffett will directly benefit from inflation.

Coal goes up in price = BNI benefits. Bread goes up = BNI benefits. Toy prices go up = BNI benefits. Oil prices go up = BNI benefits as the shipper of goods flock to the rails because they are cheaper than trucks.

So when Mr. Buffett says the BNI deal is "an all-in wager on the economic future of the United States." I think what he really means is the BNI deal is "an all-in wager on the decline in the United States dollar."

So with gold surging today, maybe smart investors are reading between the lines here.

UPDATE: Warren Buffett, in an interview with Fox Business Network this afternoon about Burlington Northern (NYSE: BNI), confirmed what we suggested earlier - that he bought the company in part as a hedge against inflation.

Here is what Buffett said on Fox Business Network:

"I'd be more worried holding cash... The one thing about those unprecedented after effects is they're going to be very bad for cash. I would much rather own working assets that have cash in a period that could become inflationary down the road." More from interview.

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