Shame Shame Afridi: Ball-Biting Ain't Cricket

Calling all experts.(from the editor)

Railway Age October 1, 2008 | Vantuono, William C. cnbcfastmoney.org cnbc fast money

[ILLUSTRATION OMITTED] The value of having a staff of contributing editors who really know their business was forcefully demonstrated on Oct. 2, when our office was reeling with the news that railroad stocks, which up to that point had been outperforming the market, seemed to be in free-fall. The short term looked awful in morning trading on the New York Stock Exchange. At 12:30 p.m., Norfolk Southern shares were down 13.11%; CSX, down 10.01%; Kansas City Southern, down 15.23%; and Union Pacific, down 10.87%. We knew we needed to report on this immediately.

Senior Editorial Consultant Luther Miller (who has been a part of Railway Age since 1958) quickly found what he believed to be one source of the trouble: A report on the CNBC Fast Money website, attributed to an Oppenheimer market strategist, suggesting that patterns in a market-volatility chart indicated “transports are a sell. Although the Dow has come back to its highs and global markets have come back to their highs, the transports have not.” He said he would “get out of the rails.” It’s been said that a good reporter is someone who may not know everything, but knows someone who does. So we called upon two of our contributors–Dahlman Rose & Co. analyst Jason Seidl, our man on Wall Street, and Frank Wilner, one of the railroad industry’s best economists. Their eloquent commentary made sense of some very difficult concepts.

Jason Seidl saw three forces at work: “There is a general reluctance of investors to put money to work in this market. The railroads have started to break technical support levels, which have nothing to do with their fundamentals. Redemptions occurring at hedge funds that have been decimated in this market.” OK, what’s a “technical support level”? Wikipedia defines it as “a price level where the price tends to find support as it is going down. This means the price is more likely to ‘bounce’ off this level rather than break through it. However, once the price has passed this level, even by a small amount, it is likely to continue dropping until it finds another support level.” But what does this number crunching really mean? Frank Wilner put it in perspective: “Chartists hold that the statistical relationship of sector stocks to the broad market and other sector stocks is relatively stable over time–much like the relationship of the planets to each other and the sun. When those relationships don’t behave, chartists buy or sell to restore the so-called natural order. They ignore current events and other traditional drivers of the stock market. They are wedded solely to their own statistical tables.” This is what we posted on our website, and published in our daily Rail Group News. It was picked up elsewhere.

The following day, as we went to press, the figures were these: The market was up 2.94%, and the railroads were once again outperforming it. KCS was up 8.87%; NS, 5.60%; CSX, 7.71%, UP, 3.27%; and BNSF, 4.22%.

Now, I’m not saying that our report had anything to do with the turnaround. The fundamental strength of our railroads did. What I am reminding you is that we constantly try to get the most out of our small staff by drawing upon the strengths of Raihvay Age’s experienced contributors–editors like Jason Seidl, Frank Wilner, Tony Kruglinski, Roy Blanchard, Greg Gormick, Bill Middleton, Ron Lindsey, Larry Kaufman, and Alex Binkley.

I BEG YOUR PARDON!!!

We’ve had an unwritten rule around the Railway Age offices since long before I arrived in July 1992: Never use absolutes, because there’s always someone who can prove you wrong, I thought for sure I was correct when I said, in the September issue (p, 14), “Other than two captive coal mine-to-power plant operations in the West that operate 1970s-vintage General Electric E60s, electrification hasn’t been employed by a U.S. freight railroad since 1982, when Conrail dismantled what little remained of the catenary it had inherited from the Penn Central.” Wrong! David K. Johnson, President of Iowa Traction Railroad, sent the above photo with this note: “I BEG YOUR PARDON!!! Iowa Traction Railroad has been hauling freight under 600 volt DC electric wire since 1897 here in Mason City, Iowa.” The Iowa Traction traces its roots to the Mason City & Clear Lake Railway, which was founded in 1896, Passenger service began on July 4th, 1897, Freight has been its only revenue source since the charter for passenger service in Mason City expired in 1936. The railroad’s name was changed to Iowa Terminal Railroad in 1961 under new ownership. David Johnson acquired the operation in 1987 and renamed it Iowa Traction. web site cnbc fast money

Today, Iowa Traction operates track between Emery and Mason City, where it interchanges with Union Pacific, Motive power consists of four electric “steeplecab” locomotives built between 1917 and 1923 by Baldwin-Westinghouse and acquired secondhand between 1948 and 1968 from other interurban railroads. They’re believed to be the only locomotives of their type in regular revenue freight service, not for a museum or tourist operation.

There I go again–another absolute!

[ILLUSTRATION OMITTED] Vantuono, William C.