When Warren Buffett and Carl Icahn agree with me on something, it tends to catch my attention. Usually, I find that their tactics are only valid if you have a spare billion or so lying about, and the patience of a saint. The rest of us must use what leverage we can manage. Still, when the movement of giants coincides with a trading theorem that I am already playing out, well heck, only a fool would ignore them.

A particularly salient example cropped up just this week. As regular readers know, I am long both Archer Daniels Midland (ADM: NYSE) and Monsanto (MON: NYSE). The basic idea here is that energy is darned expensive (just in case you hadn’t noticed last time you paid your electric bill). This is absolutely fabulous news for those of you who are already long oil stocks. This year, for example, WaveStrength Options Weekly (WOW) readers have seen gains of nearly 700% on calls against such oil patch players as Chevron (CVX: NYSE), El Paso (EP: NYSE) et al.

This was clearly the right position to take… months ago. But now a body needs a back door into energy, and for that, I have recommended ethanol. Long a “fuel of the future,” but simply too darned expensive to produce stateside to be useful, recent changes in farmers’ planting habits have brought corn futures low enough to make the ethanol “pipeline” intriguing.

So let’s take a gander at that flow pattern: We’ve got Monsanto making hybrid corn seeds, fertilizer, pesticides and herbicides. We’ve got ADM buying up this newly reduced corn to crank out “white lightning” cheap enough to make it a viable fuel additive. Now we just need to get the stuff to market.

But here we see a bit of a kink in things. You see, one can’t put ethanol through a pipeline at all. It’s just too darn corrosive. In fact, the only practical way to move it about is by road or rail tanker.

Which brings us back to energy prices again. For quite some time, highway truckers had the advantage of flexibility. They could travel whenever and wherever a shipper needed them to go. Need to ship more ethanol from Oklahoma refineries to the thirsty East Coast market? Line up a few more trucks. Need to head south instead of north? Turn right at Knoxville and you are on your way.

But now the high price of diesel fuel is slanting things back in the direction of rail carriers, as rail engines are far more efficient per pound hauled. What’s more, these efficiencies compound themselves. As more shippers switch over, the railroads have been able to slip in fuel surcharges to offset their increased fuel costs.

Suddenly a rail carrier like CSX (CSX: NYSE) can brag about 24% volume growth in ethanol transport in 2006. In fact, it seems to me that CSX should be the third leg in an investor’s “ethanol stool.”

CSX Transportation Inc., (CSX’s principal operating company) operates the largest railroad in the eastern United States, some 37,170 miles of rail linking commercial markets in 23 states, the District of Columbia, and two Canadian provinces.

Add it all up, and CSX is pretty much printing money. 2006 saw cash from operations more than double to $2.1 billion. CSX earnings in 2006 spiked 64% and dividend payouts grew 50%. The guys in the corner office in Jacksonville are calling for record revenue, cash flow and profits through 2010.

What’s more, the board is extremely kind to shareholders. Not only do they kick billions out in dividends, they have also approved a $3 billion share buyback to be completed by the end of 2008. This will suck up about 15% of outstanding shares, improving price by roughly the same, pretty much automatically.

Which brings us back to Warren and Carl. Berkshire Hathaway has disclosed a 10.9% stake in Burlington Northern Santa Fe (NYSE: BNI) worth $3.4 billion, and confirmed holdings in two other North American railroads. The choices are pretty simple: It’s got to be some combination of Union Pacific (NYSE: UNP), Norfolk Southern (NYSE: NSC) and CSX.

Carl Icahn is getting in too: He recently disclosed to the SEC that his firm has picked up some 2.7 million shares of CSX Corporation (CSX). And just to ice the cake, the UK’s massive Children’s Fund also announced that they were to buy a $500 million position in CSX.

However, there are two ways to look at this. Investing for the long haul along with Carl and Warren is probably not such a bad idea. But if you are interested in cranking things up a bit this year, I have selected call options for WOW readers that ought to register triple-digit gains in time for your Christmas shopping.

Oh, and one last point…

Does Wall Street blow smoke up your skirt? You may as well ask if the sun rose this morning?

Back on June 19, I advised WOW readers to buy puts against local toolmaker Black and Decker (BDK: NYSE). No matter how you looked at its story -- value-wise, charts, news -- it all stank. In fact, it stank so bad that on July 5 I told them to do it again.

In mid-July, a rumor began to circulate that BDK was so awful that GE was going to buy them out. Needless to say, the M&A maddened market ignored every rule of due diligence and jumped all over the story, pumping BDK’s forlorn share price more than 11% in 48 hours.

Were we busted? Naaaah! I looked over the charts and the numbers, and told my readers to stick by their guns. And today, they saw the payoff!

This morning in an audio conference call, the BDK suits warned investors that the story was every bit as sad as I figured, if not worse. BDK shares wiped out all the gains the bogus buyout story lent them and then some, and WOW readers saw gains of 22% and 29% virtually overnight.

Adam