CNBC Transcript 2006 2019 02

Notes to Charlie Rose interview of Warren Buffett
rbcpa.com/warren-e-buffett/notes-to-charlie-rose-interview-of-warren-buffett/
Notes To The Charlie Rose 3 episode interview of Warren Buffett

Warren Buffett, Co-Chairman of Berkshire Hathaway, was interviewed by PBS commentator
Charlie Rose. The 3 separate episodes were presented on PBS on July 10 – 12, 2006. You can
purchase these videos at http://www.charlierose.com. The following are some notes I took
during the viewings of these episodes. Part 3 includes interviews with Bill Gates as well. As
many of our clients know, our two largest holdings are Berkshire Hathaway and Microsoft
Corp. We keep a web page on Warren Buffett Link . Please understand these notes are
informal and not all encompassing. I only took notes of items that were of interest to me.
During these notes you will see the word “WEB.” WEB is the initials of Warren E. Buffett.
Part 1 – Warren’s Personal Life

1. I listened as WEB discussed his reading of 5 newspapers a day. I was happy to hear that as
I do the same… He clicks in the AM, as do I , Oh yeah…..Yet, he discussed his love of freedom
from date books…He makes his own schedule. I try so hard to do that, but I at times fail, not
because of clients demands, as I rarely speak with clients. I just got back from a 2 week
vacation, not one message in voice-mail. I fail, because I feel I need to be in my office. I work
with others who are not affiliated with my section, and I feel as though I need to be there.
After seeing WEB, I am inspired to live my own life, not feel guilt, and go through the day
without emotion caused disruption (guilt). The life change for me, is going to be the loss of
guilt over making my own schedule. Realizing that like WEB I am up crazy hours reading all
kinds of stuff that will hopefully ultimately benefit my research, deployments, fatherhood,
business, business partners, etc.
2. I enjoyed the Buffett kids (all 3 are mature adults now) talking. All seemed to admire WEB a
great deal. Understanding that he is what he is. He was typically always there physically for
them, and for Susan (his recently departed wife), but emotionally he was often tied up in a
reading or interpretation of some type. I will often read in my kids rooms, and once again,
feel guilt of not sharing at the moment, but still, I dig being in their presence. I think the life
changing event of hearing WEB fro me was seeing that he is what he is, and that cant be
changed.
3. I didn’t realize how powerful, influential, understanding, pretty and generous Susan was.
What a wonderful relationship. I liked how the kids described Astrid, and how that
relationship would be so difficult to figure out from the outside. Astrid was the woman whom
Susan asked to look after Warren after Susan physically moved to California, without Warren.
I am very touched at WEB’s emotions with Susan. It was emotional to see Howard talk of his
mom. It was very emotional when Charlie said, “lets talk about Susan.” WEB responded, ” I
can’t, I’m sorry, I‘m not ready to talk about her.”, Charlie responded, “you must, she spoke
about you, so you have to speak about her.” WEB responded with kindness, “Charlie, I’m
sorry, I wish I could, but I cant, I’m not ready, I will talk about anything else.”
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4. I didn’t realize how sports minded WEB is. He seems to admire the greats in sports, Ted
Williams, Tiger and Ty Cobb. I didn’t realize that Carol Loomis had dated Ty Cobb several
times.
5. I enjoyed his explanation of why he likes talking to students. One, he loves to teach, and
two, he loves to make a difference. The students are typically young and energetic, and he
can talk to them in a way that is important to them. He mentioned that when he talks to
groups of 40 to 50 year olds, it is more as entertainment value, as they are set in their ways. I
don’t know, I am shortly pushing 47, and his influence on me is material.
6. I didn’t realize that he read Ben Graham’s Intelligent Investor, and then proceeded with
life, not realizing that Ben Graham was a professor at Columbia. He was skimming through
some Columbia material, noticed Graham. He kidded with Rose, saying that if he was going
to be a deciphal, he might as well learn from the Messiah.
7. I loved the part about WEB not being seen much by neighbors in 1960, but all the kids
knew WEB. My wife sometimes thinks I am unsocial with neighbors and friends, but I’m just
quiet…yet, get me with the kids on the ball fields, bikes, coaching or so forth, i just shine.
Donald Keough discussed WEB going across the street in 1960, WEB telling Donald how
much he loves Donald’s kids. WEB mentioning that if Donald gave WEB $10K , “he might be
able to turn it into something substantial.” Donald told his wife, “What am I going to do,
borrow $10K and give it to a guy who doesn’t go to work every day?” Keough chose not to
invest. Rose starts to ask Keough, “how much would….”, Keough says, ” Don’t ask.”….Scene
changes to another discussion with WEB, where he says, “oh, about $400 million today, but
we are still friends.”
8. WEB said his greatest attribute was focus. He has a great ability to focus on a situation and
block everything else. I admire that, and strive for it. I guess it is just implanted in us, either
we have it or we don’t…. time will tell, I said selfishly.
9. I admire how the kids would prefer fundings of their foundations as opposed to personal
wealth.
10. I like how he mentioned he pays $95 annually to play internet bridge, whereas he
claimed he would easily cough up $5M for that. he said he would take that over a vacation
home any day.
11. He loves home fries.
Part 2 – Warren’s Business Life

I enjoyed part 2 of the Charlie Rose interview of Warren Buffett. It hardly hit home with new
information as part 1 did, but seeing and hearing Warren on a not so great day, sure beats a
lot of other things in life. My wife at dinner last night mentioned, “I might as well watch
Warren on the Tivo tonight, since he has become such a common person in our household.”
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I sense she might be referring to the guest that Ben Franklin refers to Nevertheless, she is
happy that I have chosen a role model like Warren, as opposed to perhaps a lesser healthy
model, maybe such as John Belushi (oh, how I dug him.)
Incidentally, Berkshire is typically (but not always, and hardly exact) a 15% portfolio position
of ours. All purchases have been from 11/23/05 till now.
1. Warren talks about the textile business he bought after Berkshire. Rose asks, “Why did you
do that?”, Warren answers, “Only my psychiatrist knows.” Interesting, I wonder if Warren has
seen or sees a psychiatrist during his life. I know a fantastic physiologist named, Dr. John
Sarno ( www.healingbackpain.com ). Sarno believes that all people in power (and those not in
power as well), should spend time with psychologists. I was introduced to Sarno in 1992 by a
good friend and very smart person, as I was about to undergo an operation for herniated
discs. He cured my back, he assured me that within a month I would be playing softball
again. I told Sarno, ” I don’t think so.” He said, “Ron, I am sure of it.” I explained to him, how
my pursuit would be golf and not softball. Sure enough, i was playing within a month. I have
since given up golf, for a sport that occupies even more time, more pain, crazy hours, but a
blast for me and my health…long distance running.
2. Still looks at Coke as a wonderful company. If he was running a partnership in 1999, like
the old days, he might have sold Coke. He doesn’t regret holding. He said wonderful
companies don’t come around every day. (Later in this paper you will see how at a later date,
Warren wished he had sold his Coke shares.)
3. Not envious of any deals that were made in the last year by others. He looks at GM, and
mentions that entire GM is selling for $15B. He looks at GM as too tuff to figure out. Claims
GM has 1/7 of all world vehicle sales. Says that GM has a lot of world wide obligations. Talks
of contracts with UAW based on contracts when GM dominated the market. He doesn’t
blame UAW, just the way it is. He has looked closely at GM. He discussed legacy costs, which
competitors don’t have. He calls it a huge annuity and health insurance company, with an
auto company attached. Warren can not come to a conclusion as to valuation of GM.
4. He claims that odds are good that they will find intelligent things to do with their money.
When buying, looks for enduring competitive advantage, reasonably attractive price (least
important, but still important), great management that he trusts. Warren says there is not a
single purchase candidate for all their funds. He claims it has happened before, “it happens
from time to time, I can’t do something smart every day, much less every year, but he can do
something smart every 3 or 4 years. (As you go further in these notes, I think this discussion
was from prior to 2005 annual meeting).
5. He talked about his competition. He certainly hinted at the hedge funds, as they take an
over-ride and use other peoples money, he mentions that their calculus is different than his
calculus. They get % of upside and no downside. As I type this, I think of my own business of
managing money. I have been quite interested in Berkshires recent discussion of “frictional
costs.” Many money managers consider that a “dig” on the business. It’s interesting, I am in
full agreement with Warren. He has a stake in his philosophy, he eats his own cooking. I am
real happy to say that I do the same. I have learned to put my money, side by side with my
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clients. It really feels good for me. Yet, I say that in times when our portfolios long term
performance has been what I consider to be much greater than acceptable. I wonder how it
will feel if the tide turns. I was speaking with a friend earlier today. I mentioned how in year
2001, I traded some optics, and really blew a lot of my own money. I was happy the money I
incinerated was my own and not my clients. I knew that Ben Graham did the same, but I
certainly was concerned that unlike Graham, I would never recover. I did, and some time
back, I put my money in the same fashions as everyone else. The paragraph above is in no
way any type of solicitation or assurance that my future investments will be profitable as my
past has been.
Now the Interview goes to June 2006, whereas a few investments were made since the
prior discussion with Rose and Buffett above. He discussed Pacificorp and Iscar. He said he is
looking for elephants. He mentioned that he spent $10b so far this year. Warren said he has
never made a move based on economic situations. He will invest in both easy and tough
years. As he mentions this, I am reminded on the virtue of patience. Warren reaffirms that
he is looking at criteria such as very simple business, management in place and seller who
knows the price of the business. Warren says the decision to buy or not is very quick.
They discuss the value of Coke. Warren now says, looking back, he should have sold Coke.
Incidentally, when Coke was at 50+ earnings, we were short. It was always difficult to short a
company that Berkshire was long. Nevertheless, I always referred to the fundamentals, and I
felt that Warren did not want to own Coke then. I suspected taxes was the reason he
continued to own it.
Finally in June 2006, Warren admits he wish he sold Coke in 1999. That is so different than a
few paragraphs above. I don’t find Warren to be contradictory, just an ever evolving process
of learning and understanding a situation.
6. Warren reaffirms that he will over reach on the safe side in having money around for
Berkshire. He wants Berkshire to be seen as the Rock of Gibraltar. Warren says that
insurance still fits him well. Charlie asked if terrorism and increased hurricanes make
insurance less of a business than it used to be. Warren mentioned that the recent events just
makes the predictions more difficult. Warren claims he still enjoys insurance, and hopes that
he will continue to be a good predictor of odds. Warren claims that he expects Berkshire will
continue to focus on insurance, and that insurance will be the most important aspect for
Berkshire, for a long time after he is gone.
7. Charlie asks about the economy today. Warren claims it is “pretty good, with plenty of
problems, but the problems have not manifested themselves in business today.” He
mentions how people have extracted appreciation and equity out of their appreciated real
estate. I gather that he considers that to be one of the “problems.”
8. Warren thinks that over time, US Dollar will go down. He primarily believes US policies will
cause that. He mentions that consuming more than we produce, we need to trade the rest of
the world for that. He feels we are trading away assets in order to over consume. Trades a
little piece of the big farm. “It adds up and has consequences.” Warren claims that national
debt to GDP is not dangerously high.
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9. He hints of a hedge fund catastrophe. At least that is my interpretation, as he discussed
constant trading, with huge imbalances, leading to a potentially catastrophic day.
10. Warren mentions that we have to change some previous promises. He doesn’t expect a
change in Social Security, maybe Medicare. I interpreted Warren’s discussion as one of
concern over promises that were based on situations similar to his current view of GM. There
might be legacy issues that were not designed for elderly luxury, and if that is the case,
perhaps a change is in order.
Part 3 – Warren, Bill and Melinda Gates are Interviewed

Part 3 of the episode was a lot of fun. I learned a lot, observed a lot and just had fun
watching it. Once again, here are my notes, they are hardly concise, but these are notes that
are important for me. There is no substitute for watching these interviews for yourselves,
and you will be able to feel your own important data points.
1. WEB discussed how the idea of giving to the foundations was in place, yet he had to look
out for the beneficiaries and the Berkshire shareholders as well.
2. WEB mentioned that the goals of the Gates Foundation were similar to his own. He felt the
time to do this was now. Later in the interview, Rose asked WEB if he regretted not making
the gift sooner. WEB was emphatic in saying, “absolutely not.” He investigated the
possibilities, researched the foundation, was able to see how Gates co-operators worked in
the foundation, and realized that the diligence process was over and at the same time, WEB
could make meaningful contributions to the foundations, while at the same time keeping an
eye out for Berkshire shareholders.
3. Gates discussed meeting WEB. He remembers their second meeting and how WEB got a
bunch of people together. The objective of the meeting was to look at great companies of
the 50’s, 60’s, 70’s, 80’s and 90’s, and to see how some lost their greatness, others became
great. The goal was to determine if people could have foreseen such paradigm shifts. I do
not know what their conclusions were. I will have to research to see if there are any known
conclusions.
4. Gates discussed a fun practical joke he played on WEB. Basically he planted a few actors in
a position of having dinner with WEB, Susan and the Gates’. The actors proceeded to get
drunk and taunt and insult WEB. Rose laughed, and asked WEB if he ever paid back the
prank. The answer by WEB is what I loved. He did not want to disclose the future payback.
Like everything else, WEB is in stealth mode, and indicated that one day there will be a
payback. Reminds me of the old adage, “expect it when you least expect it.”
5. Another real interesting comment for me was WEB discussing bridge. He loves the game,
got Gates addicted. He mentioned that bridge does not take an hour or two to learn. It
requires about a 30 hour commitment, and then the pieces start to fit together. I am glad I
heard that, as I hope to one day take up Bridge. Now I know a quick rule of thumb of time
allowed for the initial steps of learning to play the game. I have seen this in life in my hobby
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of running. I always disliked running. I would try on occasion for my first 43 years. Finally at
43 ½ I decided to stick with running at all costs. As I built up my mileage, I read a book given
to me by my sister (an Utlra marathon runner). The book was called “Jeff Galloway’s
Complete Book of Running.” http://www.jeffgalloway.com Galloway described that in the first
3 to 6 weeks of running, you will not necessarily see or feel positive results. In fact, he
explained that the brain will try and feed you excuses for not running. Excuses like, “I do not
have a runners body,” or “this is so boring,” or “I think I am getting sick because of running.” I
was feeling those noises from my brain, ignored them, remembered that I gave up in week 3
or 4 of all previous attempts, and now it is 3 ½ years later. I am training for my 3rd marathon,
have lost a ton of weight, and just love the relaxation and thinking during those long runs.
Incidentally, I am a firm believer that if you want to lose weight, just run or run/walk 45
minutes every other day. I lost 32 lbs doing that.
6. Gates most admired WEB for his use of the calendar. Or lack of use. I mentioned in part 1,
that I have admired WEB for that, I strive to not be a slave to a calendar, and to hear Gates
say the same, sure does a lot of good for me. Value your free time.
7. Rose asked Buffett about never investing in Microsoft. WEB acknowledges and Gates
agrees, “it does not fit my model.” With that said, WEB mentioned “if there is any company
that I would have bet on, Microsoft would be the one. I just can’t see 10 years out. I am 65%
sure that Microsoft will be successful in the future, but I typically like to be 90% sure.” Gates
agreed with WEB. He indicated that there are just different strategies. Gates explained in
technology the “possibility of phenomenal returns are possible.”
8. WEB was asked about other smart people, and why success doesn’t follow them in a
similar manner. WEB said something like a lot of people have high IQ’s, they are similar to a
500 pound motor and getting 100 horse power out of it. He describes they get a lot of sand
in their gears. “It’s amazing that people get tied up in self destructive elements of nature.” It
seems to me that if a smart person can recognize the sand in the machine, they can focus on
correcting that inefficiency and move towards greatness. I have a close friend, who I hope
can understand this and become exponentially greater than he already is, by curing this
simple flaw.
9. Very funny section on Gates buying Melinda an engagement ring. Gates asked WEB for
advice (as they were going to Borsheims Fine Jewelers
http://shop.borsheims.com/Borsheims/Default.aspx (owned by Berkshire). WEB kidded
Gates, saying when he proposed to Susan in the late 50’s, he used the rule of thumb of
spending 6% of your net worth on an engagement ring. WEB was hoping that Gates would
spend $5 billion on a ring.
10. Rose asked Gates if he felt USA had an optimistic future. Gates responded that he did
feel that USA has an optimistic future, as he also feels the world has an optimistic future.
WEB stepped in and said, “Gates is a citizen of the USA as well as a citizen of the world.”
11. Buffett talked of “dynastic wealth.” I searched “dynastic” at Wikipedia, and found this
explanation. “Dynastic union refers to the union of two titles or rulerships in one ruler or
titleholder. That is, the titles have not merged, the realms have not merged, but the same
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person holds each.” Buffett was cool with the leaving of a small business or farm to a family
member, and they could cultivate that business or farm. Yet, he talks of distaste for the
“lucky sperm club” or “winning of the ovarian lottery”, and how that lucky draw should not be
the wealth of future generations just because they were born into a specific family.
12. WEB was asked what Munger thought of the charitable act. WEB claims that Munger said,
“ You finally had a good idea.” I would like to know what Munger feels about the Gates
Foundation.
13. WEB feels that Gates Foundation can be a better allocater of funds than WEB for the sake
of mankind. WEB explains that people will invest with a specific money manager because
they think that manager will be a better accumulator of money than they would be.
14. WEB would like the foundations to continue to hold Berkshire. He won’t direct them to do
so, but does think that Berkshire is the best investment for the future. WEB said something
very interesting and new for me. He said, “ I think Berkshire shares will be worth more every
year. I want the shares to be worth more every year.” The greater Berkshire grows, the
greater funds to charity. Many students of Berkshire and Buffett realize that this is the first
time that WEB has mentioned his views of future value of Berkshire.
15. WEB mentioned that over the next 50 years, the world is going to change a great deal,
“and it might not be good changes either.”
16. The Theme of the Gates Foundation is “Global Health and Poverty” first, and 2nd is
education.
17. Gates mentioned Andrew Carnegie’s “Gospel of Wealth.” I recently read this short book,
and will look to read it again. I didn’t realize at the time of reading that both Gates and
Buffett admired the book, and perhaps I will read it in a different light this time.
I am so thankful that I have two wonderful role models in life, one being Warren Buffett, the
other being “The Boss,” Bruce Springsteen. I have studied both for so long, and I am
convinced they share the same moral compass. Thank you for reading this, if you have any
comments feel free to email me at rredfield@rbcpa.com
Respectfully Submitted,
Ronald R. Redfield CPA, PFS
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Warren Buffett's Complete CNBC Interview: Video and Transcript
(1 of 2)
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Warren Buffett's Complete CNBC Interview: Video and Transcript (1 of 2) Alex Crippen | @alexcrippen Published 12:53 PM ET
Tue, 11 Dec 2007 Updated 3:54 PM ET Thu, 5 Aug 2010 CNBC.com
December 11, 2007
This is a transcript and video clip of the first part of Warren Buffett's live interview this morning on
Squawk on the Street with CNBC's Becky Quick, in which he talks about the Federal Reserve, the
U.S. dollar, the economy, and how his retail businesses are doing this holiday season.
CLICK HERE FOR THE VIDEO AND TRANSCRIPT OF THE SECOND PART OF THE BUFFETT
INTERVIEW
Buffett on Politics, Economy, Pt. 1 10:07 AM ET Tue, 11 Dec 2007
Becky: I'm here with a very special guest today - Warren Buffett. Warren, we know it's hard
to get you out of Omaha, but very once in a while he does leave Nebraska. Today's he's in
San Francisco, and he's here for a very special cause, campaigning, or actually trying to raise
money for Hillary Clinton who is running for president.
We're going to get to all of that in a moment, but, Warren, first off, I just want to start off
talking about the Fed. We spoke last night, talked a little bit about what the Fed rate decision
means. Tell us again what it means to you as an investor.
Buffett: As an investor, the Fed action today means nothing. We will buy a stock that we like
today if the Fed raised rates or if they lowered them 50 basis points. We wouldn't sell
anything based on it. It just isn't important to somebody that's going to own a business, or a
part of a business through a stock, what the Fed does. If you were going to buy a farm today,
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if you were going to buy an apartment house today, and you looked at it as a good
investment, you would not sit around, you know, on pins and needles, waiting to see what
the Fed did.
We bought Washington Post stock in 1973 and it's worked out over one-hundred for one and
I don't know what the Fed was doing then. So it's not a factor in our thinking on investment
decisions.
Becky: Still, when you're looking at broader issues, something like a bet on the dollar or
against the dollar, as you've done in the past, it is something you have to pay attention to,
what the Fed is doing.
Buffett: Well, it's a big macro factor. The Fed is not the primary determiner of what happens
to the dollar. Now it's true that when you have a weak dollar like we do now, if they take the
rates way down, it will put more pressure on the dollar. But the real determinant is the
current account balance, the trade balance. And over time, if you keep shipping two billion
dollars a day out of the country, as we do of assets, you put pressure on the dollar and that's
what's happened.
Becky: There are some people who, for the most part all of the economists we've spoken to
say they expect a 25 basis point cut from the Fed today. There are some people, especially
some market players, who are pushing for a 50 basis point cut. Is there any risk to cutting
that, especially when you look at all the bad news that's out there today?
Buffett: Well, there's some .. it does have some effect on the foreign exchange market. But I
really leave Fed policy to the Fed governors. Easier money obviously stimulates the economy
and it depends how much they think it needs stimulation. But it will not make any difference.
If you buy or sell a stock today and you look back five years from now, the important thing
will not be what the Fed did today. The important thing will be what that company did.
Becky: Well, what about the economy from your perspective? How does it stand right now?
Buffett: It's sort of amazing. We have this enormous weakness in housing. That effects an
awful lot of people. There's a wealth effect to it, everything. So far, it hasn't spilled over into
employment. Now we have a set of dominoes in line that there could be some real effect
from if unemployment rose. But so far, you know, it's been at 4.7, well, it won't make any
difference if it goes to 4.8 or 4.9, but if unemployment really took off, there are a lot of
dominoes in the economy that probably would get hit by that.
Becky: What did you think about the jobs number that we got on Friday? It was stronger than
some economists had expected but not as strong as ADP had predicted.
Buffett: Well that's true, but it's still been amazingly strong when you think about what's
going on in the housing-related industries. I mean, we're in the brick business, we're in the
carpet business, we're in insulation, we're in paint. And those areas have really gotten hit. So,
you've got a situation where tens of millions of Americans feel poorer because they thought
that their house would automatically appreciate every year. And many of them have lived off
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re-fies. That's been taken out of the picture. So far it hasn't affected employment that much
and if it doesn't I don't think we would have a recession, but if it does, I think there are some
big dominoes out there.
Becky: Now you mention that a lot of your businesses are very directly involved in this.
Everything from bricks to carpeting to insulation. I know you speak with the managers of the
companies pretty frequently. What are they telling you? Are things better or worse than they
were six months ago?
Buffett: Well, in the construction-related industries, I would say, if anything, they're worse.
And they weren't so hot six months ago. I get daily figures around Christmas-time at all our
retail operations, jewelry. And what's happened there is right after Thanksgiving, you know,
supposed Black Friday and all that, sales were huge for a couple of days. They've tapered off
a lot and I'm adjusting for the calendar and everything. But they've been pretty soft since
those first couple of days. So, we'll see what happens in the Christmas season, but I would
say so far it is not looking very buoyant to me.
Becky: You know, Britt Beamer is one of the strategists and retail analysts we speak with
every week. He said that he thinks consumers are really holding out, waiting for big bargains.
They're not going to shop until that last weekend.
Buffett: Yeah, well, they always do that. They've been trained to do it. But our retailers like to
think that, and then every day I look at the figures and they haven't moved yet. Every year
there's a huge rush toward the end, particularly in something like jewelry, and I'm sure we'll
get it, but I'm not so sure we're going to be beating last year's figures.
Becky: That's the most concerning view I've heard from you as long as I can remember
talking to you.
Buffett: Yeah, but .. We will have ... I hope I live long enough to see a couple of recessions in
this country. (Laughs.) At your age, you'll see 6 or 7 in your lifetime. It is the nature of
capitalism to periodically have recessions. People overshoot. So, it isn't the end of the world.
I mean, as a matter of fact, for an investor, you know, it turns out to be the times when you
make your best buys. I made by far the best buys I've ever made in my lifetime in 1974. And
that was a time of great pessimism and the oil shock and stagflation and all those sort of
things. But stocks were cheap.
The real thing to look at is how much you're getting for your money and not worry about
what they're going to do next year. The American economy is going to do fine over time.
Becky: But when you start talking about that, are you comparing what's happening right now
to 1974?
Buffett: No.
Becky: Do you think prices are as cheap?
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Buffett: No, no, they're not remotely .. oh no, they're not within miles as cheap. But, you
know, they may get cheaper. We'll find out. But if they get cheaper .. as long as you're a net
buyer of stocks, which we are at Berkshire, we want them to be cheaper. I mean, if they
reduce the price of hamburgers at McDonald's today I feel terrific. Now I don't go back and
think, gee, I paid a little more yesterday. I think I'm going to be buying them cheaper today.
Anything you're going to be buying in the future, you want to have get cheaper.
Becky: You know, Larry Bossidy was a guest host of Squawk Box this morning. He said, when
he looks out at the market and looks at financials, he can't believe how much they've been
beaten down and he says that could be the best-performing sector next year. Is that a view
you might share with him?
Buffett: Well, we own a few. What you'll see in the financials, I think you'll see an enormous
divergence in the performance. I wouldn't want to be, I wouldn't think in terms of the group
there, because some of them have done some very dumb things. John Stumpf (CEO) of Wells
Fargohad the best quote. He said it's puzzling to him why bankers have come up with these
new ways to lose money when the old ways were working so well. (Laughs.) But they have.
And in some places it's really been brutal. Other places, it doesn't make much difference. So I
think if the group gets knocked down and you can pick out the better companies, the ones
that really haven't gone crazy in recent years, particularly in the real-estate field, it would be a
very good place to look.
CLICK HERE FOR THE VIDEO AND TRANSCRIPT OF THE SECOND PART OF THE BUFFETT
INTERVIEW
Questions? Comments? Email me at buffettwatch@cnbc.com
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Warren Buffett's Complete CNBC Interview: Video and Transcript
(2 of 2)
Warren Buffett's Complete CNBC Interview: Video and Transcript (2 of 2) Alex Crippen | @alexcrippen Published 2:51 PM ET
Tue, 11 Dec 2007 Updated 3:54 PM ET Thu, 5 Aug 2010 CNBC.com
December 26, 2007
This is a transcript and video clip of the second part of Warren Buffett's live interview this morning
on Squawk on the Street with CNBC's Becky Quick. In this section, Buffett talks about the super-SIV
proposal, the Bush administration's plan to encourage lenders to freeze some variable mortgage
rates and about why he supports Hillary Clinton and Barack Obama for president.
CLICK HERE FOR THE VIDEO AND TRANSCRIPT OF THE FIRST PART OF THE BUFFETT
INTERVIEW
Buffett on Politics, Economy, Pt. 2 10:15 AM ET Tue, 11 Dec 2007
Becky: We keep hearing all these big companies, like UBS yesterday, coming up with these
write-downs, and the market's starting to look around and say, OK, is this finally it? Is it the
last shoe to drop? Is there any way to know when it's the last shoe to drop?
Buffett: No. No. When people start dropping shoes you really don't know whether they're a
one-legged guy or a centipede. (Laughs.)
Becky: You said you own a couple of names, though. What are those?
Buffett: Well, we've owned Wells Fargo a long time. We've owned USB. Some of them are
black boxes. Some of them are too hard to figure. If they have enormous positions in
mortgage-backed, or CDOs, or even in some forms of derivatives, they may be fine but I can't
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know that. I like 'em fairly simple and somebody's characterized what's going on now as a
flight to simplicity. And there's a good reason for that. You should only buy what you
understand. And I can only understand simple things, so, ergo, I look at simple businesses.
Becky: All right, if you want to talk about something complicated, let's talk about that Super-
SIV plan. Has anybody explained this to you in a way that actually makes sense? Do you think
this is a good idea?
Buffett: Well, it's been explained to me. And, I don't think it accomplishes a whole lot. What
it's designed to do is to get assets over in a place where people will buy the commercial
paper against them. And they'll buy that if the banks are backing it. So, right now you have a
whole bunch of funds, particularly money market funds, that have financed these SIVs and
they financed them in many cases because of the bank that was sponsoring them. And the
SIVs do not have the liquidity and they don't have the assets at market value to pay off the
commercial paper. So, there's a freeze in the financing of them.
The super-SIV would solve that by having the banks, in effect, back up the commercial paper,
the super-SIV. But it doesn't make the assets better. I mean, one fundamental proposition is
that even though we were taught when we were young that a princess could kiss a toad and
it would turn into a prince, it didn't really work out. (Laughs.)
You can't turn a financial toad into a prince by kissing it, or by securitizing it. Or by
transferring its ownership to somebody else. If there are problems with an instrument, there
are problems with an instrument. And some of the SIVs own things where the market value
is down significantly and if sold presently, they couldn't pay off the commercial paper.
Becky: So that's the problem? It's not the market that's setting a price on it, we're setting an
artificial price?
Buffett: The market is the market. Yeah, an artificial price is a price you don't like. (Laughs.)
Becky: Speaking of that, why don't we get into the (Bush) administration's plan for freezing
some of the mortgages that are going to come through with some of the subprime things.
What's your take on that?
Buffett: Well, it's a real problem to change contracts. I'm not a Constitutional lawyer, but if I
hold your mortgage, I'm not sure anyone can come along and change the terms of it. Now,
most of the mortgages are being serviced by servicers, who are, in effect, agents of
somebody else who owns them who is the principal. There's a lot of law about agency and
principal.
The servicers generally have the right to do what they regard is in the best interests of the
principal. So if they think it's wise to adjust them in some way, or to have forebearance or to
reduce the rate temporarily, they have that right. Now what the government is doing is
encouraging them to do it. But I don't think the government can make them change
contracts.
Becky: No, and the government said they're not doing that ...
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Buffett: They're not doing that.
Becky: They're just recommending that. What I don't understand is if this is something that's
in the best interest of those people who are servicing it, why don't they come up with this
idea themselves?
Buffett: Well, and they do. And it may be that they'll be more aggressive about doing it. But if
I was servicing mortgages for somebody who's got a CDO over in Europe or something of the
sort ... It does make sense to keep people in houses as long as they're making payments. I
mean, you do not want an empty house. If I could reduce the rate temporarily from six
percent to four percent or something of the sort, and, ah, keep the people in the house and
they could make the payments, and I knew they wanted to do it, and they were keeping up
the house, as a servicer I would do that. And I would feel I was acting in the best interest.
Becky: But do you think the government's plan is a good one or a bad one?
Buffett: I think it's, it's, it's a good course of action that should be taken anyway by servicers
and this may stiffen their backbone a little bit by doing it. It's not revolutionary and it
shouldn't be used to tell them to let people stay in houses at any cost. But all the
government's really saying to the servicer is do what's in the best interest of your principal.
And they would presumably do that anyway. They might do it a little more vigorously with
this encouragement.
Becky: Let's talk about why you're here today. You're fund-raising for Senator Hillary Clinton.
What brings you to San Francisco?
Buffett: Well, I'm here on business on something else. But I am also participating in a
number of fund-raisers today for Senator Clinton. I support her. I did one in New York. I told
her before she ran, I told her I would support her if she ran for president. I told Barack
Obama the same thing. And her schedule and mine worked in terms of getting here in San
Francisco, so now we have four events today.
Becky: Four events, and it sounds like it's been heavily subscribed so far. You're meeting with
50 people for breakfast right now?
Buffett: Yeah, 50 or so people. Twelve-hundred or so, maybe more, later on. We're going to
raise, well as of a couple of days ago, we'd already raised over a million dollars, which would
set a record here. So, we're pleased. Somebody's done a lot of work. Not me. (Laughs.)
Becky: There are a lot of people who are still wondering, OK, you're still supporting Hillary
Clinton, you're still supporting Barack Obama. Is there a point where you make a decision
and support one over the other?
Buffett: No. I told both before they ran, before they declared, that I would support them
both if they ran for president, and then they both ran. (Laughs.) So I will suport both of them
throughout the primaries and until a candidate is selected. And I certainly hope it's one of
the two of them.
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Becky: Do you have more fund-raisers planned for either of them at this point?
Buffett: I told both of them I would participate in fund-raisers. Their schedules are pretty
much dominated by a state called Iowa, (laughs), and Nebraska is close to Iowa, but it has to
be where we connect in the same place. I did one for Barack in Omaha, I did one for Hillary
in New York and I'm doing one here in San Francisco. I made the offer.
Becky: When you start thinking about Iowa and what's been happening there, Barack
Obama has made some strides in the polls, when you start looking at what's been
happening in Iowa. People are also talking about the Oprah factorand whether this has
juiced his campaign. What do you think about that? Is his campaign seeing a surge?
Buffett: Is his campaign what?
Becky: Is his campaign seeing a surge?
Buffett: Well, all I know is the polls I read in the paper. But I would say it certainly helps to
have Oprah. Oprah's a friend of mine, I mean, and she believes in the same kind of America I
do. So we have no quarrel politically. And she's got to be a significant help. She's working for
him. I've read the polls, so clearly they've changed, just like with Huckabee they've changed
on the Republican side. It's very unpredictable though. The weather on January third, the
weather can make a big difference. It decided an election in Nebraska not so long ago.
Getting people to turn out for a caucus, I don't know whether there's a big football game that
day, or anything of the sort, but ..
Becky: There is a big football gamethat day.
Buffett: You know, if it goes into overtime, who knows what happens. It's a very small vote. I
think it was 140-thousand in the Democratic caucuses last time and then you have this
viability test where people can shift over if the candidate doesn't get 15 percent, so the
second choice becomes important. It's a real crap shoot.
Becky: There are a lot of people who have said, OK, Hillary Clinton is leading on the
Democratic side. Rudy Giuliani is leading on the Republican side. Do you think it's too soon to
call any sure things at this point?
Buffett: Sure. It's way too soon. A lot of funny things happen in politics, they have
historically. You know, at one time in 1992, Jerry Brown was leading .. Gary Hart was leading
in 1988 and Mario Cuomo was second. I mean, all kinds of strange things happen. People do
not firmly make up their mind this early.
Becky: One of the reasons you're here, though, there's a lot of big VC (venture capital)
money, a lot of big tech money that comes in, and those are some of the people who are
going to be here supporting Hillary today. Is that part of the reason of choosing San
Francisco, or did it really have to do ...
Buffett: No, it had to do with logistics. But there's going to be money in San Francisco, so we
set out to get some of it. (Laughs.)
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Becky: If you had to pick one or two of the most important issues for why you're supporting
both these candidates, where would you go?
Buffett: Well, I think they both understand what's made this country as prosperous as it is.
They are not going to kill the golden goose. Every now and then you get a candidate you
think does not understand that. They know we've got a wonderful country and we've got a
wonderful economic machine. So, they will build on that, but they will look to an America, in
my view, that makes more people share in that prosperity, without in any way dampening it.
They have the view that 300 million Americans in a country with $45,000 of GDP per person
ought to have decent healthcare, ought to be progress made in education. And I think they
both share the view that we need to .. more respect around the world. I think this country
has really lost its moral leadership around the world. And I think that both of them, either of
them, will restore it.
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Warren Buffett and NBC's Tom Brokaw: The Complete Interview
Warren Buffett and NBC's Tom Brokaw: The Complete Interview Alex Crippen | @alexcrippen Published 12:08 AM ET Wed, 31
Oct 2007 Updated 3:39 PM ET Thu, 5 Aug 2010 CNBC.com
October 31, 2007
The Tom Brokaw piece on NBC Nightly News Monday night highlighting Warren Buffett's call
for a higher tax rate on very wealthy Americans includes an excerpt from a sit-down interview
with Buffett.
You can see the Nightly piece and read the transcript in the Warren Buffett Watch post NBC's
Tom Brokaw Puts Spotlight on Warren Buffett's Call to "Tax the Rich!"
Brokaw appeared on CNBC's Squawk Box the next morning with a few more minutes of the
interview and for a discussion with the Squawk team that turned into a semi-debate between
Joe Kernen and Brokaw. WBW post:CNBC's Kernen Challenges Buffett's Call for Higher Tax
Rates on the Rich.
With many thanks to our colleagues at NBC Nightly News working with CNBC's Patti Domm
(who also writes the always informative Market Insider blog on CNBC.com), Warren Buffett
Watch is now able to bring you Brokaw's complete interview with Buffett.
Along with tax rates, the two also discuss:
Threats to the U.S. economy

A million dollar challenge to Buffett's "fellow rich guys"
Investing in China and human rights
CEO compensation
The interview is presented here in two parts. The first part appears below.
The second part is on a continuation page.
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PART ONE: BUFFETT and BROKAW
Brokaw & Buffett, Pt. 1 12:02 AM ET Tue, 30 Oct 2007
Tom: Mr. Buffett, everyone's obviously concerned about what's going to happen to the
American stock market and to the economy for that reason. Is there reason to be concerned
about the fundamentals of the American economy?
Warren: Not over the long term. I mean, in the last century-- American standard of living in
real terms improved seven for one. We've-- we've got a system that works well. But we will
have recessions from time to time. There-- we had 'em in that century. We had the Great
Depression in that century.
But still at the end of the century, seven for one is not bad. And-- we could be-- we could be
heading into a recession now. I don't know. But certainly there are some signs of that. And--
and there are certain fundamentals that are out of whack for-- temporarily. But they will get
solved over time.
Tom: Is the housing crisis as serious as a lot of people think it is?
Warren: I think it probably is. There-- there are a lot of people that-- have mortgage
payments that they simply aren't going to meet. Housing price appreciation which was built
on everybody's model a few years ago is not going to occur for a few years. In fact, it could
well be depreciation. And that changes the game a lot. It'll get solved eventually. We've got a
growing population, which helps us if we get out of whack in terms of the-- the houses
available. Population solves that. But it doesn't solve it next month, or even next year.
Tom: Well, you've got some businesses that are attached to housing. Furniture, for example.
Warren: Right.
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Tom: When something goes wrong in housing, it really does drop down through the
economy. Appliances, furniture--
Warren: You bet. (LAUGHTER) We-- we have-- we have furniture stores in a number of cities,
and what you see is in a Las Vegas, where-- where the foreclosure rate is very high, sales are
way off there. On the other hand, in Omaha, in Kansas City, they're up.
Tom: Are you surprised there's not more talk in this presidential campaign about economic
fairness and economic justice?
Warren: Yeah. I-- I-- I am surprised-- it may be that everybody wants to be cautious-- while
they're looking to get nominated, but-- but the degree to which the-- economic-- well, the
taxation system has tilted toward the rich and away from the middle class in the last ten
years is-- is dramatic, and I don't think it's appreciated. And I think it should be addressed.
Tom: You've gone very public with this.
Warren: Right.
Tom: You've talked about in your office, for example, you pay a much lower tax rate with all
of your wealth than, say, a receptionist does.
Warren: That's exactly right, Tom. And I-- I think the only way to do it is with specifics, and--
and - and in our office, 15 people cooperated in a survey out of 18. I didn't make anybody do
it. And my total taxes paid-- payroll taxes plus income tax-- and the payroll tax is an income
tax. It's based on income.
Tom: Yeah.
Warren: Mine came to-- 17.7 percent. That-- that was the-- that was line 61 I think-- or, no,
line 43-- is the percent of taxable income, plus payroll taxes, 17.7 percent. The average for
the office was 32.9 percent. There wasn't anybody in the office from the receptionist on that
paid as low a tax rate. And I have no tax planning. I don't have an-- I don't have a-- an
accountant. I don't have tax shelters. I just follow what the U.S. Congress tells me to do.
Tom: Why do you think that there's not more outrage about that?
Warren: I-- I don't think people understand it. For one thing, you'll see a lot of surveys that
say the rich, the top one percent pay this much of the income tax. Now I think what people
don't realize is that almost one third of the entire budget comes from payroll taxes. And
payroll taxes on income, just like income taxes are taxes on income.
And the payroll tax is over $800 billion out of two and a trillion, or something like that. And
people don't understand-- they-- they-- that the rich pay practically no payroll tax. I mean, I
paid payroll tax last year on $90 odd thousand, whatever the number is. I paid income tax on
$66 million. But my double income tax, one of 'em quits at $90,000. And the remaining $66
million does not get taxed with payroll tax. So, the person who makes $60,000 in our office
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gets ta-- taxed in full on the payroll tax, and taxed in full on the income tax. And-- and all the
statistics you read, particularly the one don't like taxes, well now, they totally ignore the
payroll tax. And it's huge now.
Tom: Of all the tax lines that you've seen proposed over the years, a flat tax, a consumption
tax, a more progressive income tax, which is the one that appeals to you the most?
Warren: Well, in theory a progressive consumption tax makes the most sense. I mean, if you
tax the people who use the resources of society rather than ones who-- who-- who provide
the resources of society, that makes more sense. And a consumption tax can be very
progressive.
You can have just an unlimited IRA. As long as you invest money, and don't actually spend it
for yourself, or your kids don't spend it, or whatever-- you don't get taxed. As soon as you
start making withdrawals from society's bank, start using the resources, the-- the sweat of
other people to-- benefit yourself, you would pay on that. That-- that's the one that makes
the most sense. I don't-- it isn't gonna happen-- in all likelihood.
Certainly the worst taxes-- is something like a sales tax. I would say that we've got a pretty
bad system, when we tax the person who-- who cleans out my office, the receptionist. They
are paying 15-- payroll taxes, over 15 percent now, just for openers.
Most of my income is taxed at 15 percent, and-- and doesn't pay a payroll. Mainly it’s
dividends and capital gains. And if you look at the For-- Forbes 400, a bunch of my fellow rich
guys-- they will-- their tax rate overall to the federal government will be less than that of their
receptionist. And I challenge anybody. If they want to make me a bet on that, and I've urged
Congress, both the Senate and the House, to get the figures anonymously from the IRS. Just
look at that Forbes 400. Takes a billion three to get on the Forbes 400 this year. And the
aggregate wealth is just staggering. And those people are paying less percentage of their
total income to the federal government than their receptionists are.
Tom: Will you put some money on the table on this one?
Warren: What--
Tom: You said-- you said you'd pay a million dollars to somebody.
Warren: I'll-- I'll bet-- I'll bet a million dollars against any member of the Forbes 400 who
challenges-- me that the average for the Forbes 400 will be less than the average of their
receptionists. So, I'm-- I'm-- I'm-- I'll give 'em an 800 number. They can call me. And the
million will go to whichever charity the winner-- designates.
Tom: How much are you hearing from your fellow rich fellows, as you describe them?
Warren: I don't hear anything. They're happy. They are not paying the tax rate their
receptionists are.
Tom: Why do you think that is? I mean, Congress took a look at this this year with the hedge
fund operators.
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Warren: Right.
Tom: Who are getting taxed at about 15 percent.
Warren: And they-- and they're screaming about that. And they-- and-- and it-- and they're
often deferring taxes by-- by using-- foreign tax statements. And what happens--
Tom: But why-- why won't Congress step up on this in your opinion?
Warren: Well, I-- I-- I don't know the answer to that. I do know that the hedge fund operators
made a record amount lobbying-- in recent months, so they give money to the political
campaign and-- and who represents the cleaning lady?
Tom: The hedge fund operators and the U.S. Chamber of Commerce and others have said,
"It's going too far." In fact, the hedge fund operators have created enormous wealth for the
little guy as well, pension funds and other people who participate in those private equity
partnerships. And so in the end it really does spread the wealth in a way.
Warren: Well, they say they work hard and that in the process of working hard they make
other people money. And-- and that's true of you. That's true of a whole bunch people in the
world. But that doesn't entitle them to a preferential tax rate. And the-- and the truth is that
their occupation is going to work everyday. Working on the companies they buy, or working
on trying to find what securities are cheap.
And when they get-- the day is done, they are taxed at a lower rate on-- on so-called carried
interest and that sort of thing, they are taxed at a lower rate than the beginning rate for their
cleaning lady and the payroll tax, forgetting about our income tax.
And the truth is that-- that-- that group, and really all the rich in one way or another-- have
lobbyists, you know, coming out of their ears. And are down there-- whenever-- whenever
something threatens their favored status, they are in Washington, you know-- en mass. And
who is there representing the person that pays the payroll tax? I don't know of any group
that is going around saying the-- that is saying, "It's too tough for these people who-- barely
eke out a living to be paying 15 percent on payroll taxes."
Tom: Well, the Senator just across the state line here, Charles Grassley, of Iowa has spoken
out about this.
Warren: I'm for him. He's a terrific guy. I mean, he-- he really wants to do something about it.
But he's a very lonely man.
Tom: On the Democratic side where you would think this would be a hot issue, there hasn't
been a lot of people-- there haven't been a lot of people …
Warren: No. They-- they talk about it some. But they-- they feel the pressure of money and
politics, and-- and you know how-- how the number of-- of-- of lobbyists has mushroomed.
And a number of the hedge-- or the private equity people were down there personally
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lobbying going from one Senator to another. And-- and these people make campaign
contributions. They hire lobbyists. And I just don't know who's lobbying on behalf of-- of the
person-- the people in my office.
Tom: Grover Norquist, who is-- the anti-tax guy, mostly on the Republican side. Why isn't
there a Grover Norquist representing the receptionist and the cleaning lady?
Warren: Well-- maybe I'm trying to be that, but maybe I'm-- ineffective. And-- and it-- it's--
you know, people-- it's that old story, you know, don't-- don't tax you. Tax-- don't tax me. Tax
the fellow behind the tree. Everybody hates taxes, and-- yeah. But if we're gonna raise two
and a half trillion, we've gotta get it from somebody. And-- and it's-- it's very nice to say that,
you know, that "I'm too heavily taxed and they should get it from somebody else." But they
get-- they get almost a third of that money from the payroll tax now. And nobody ever talks
about it.
PART TWO OF THE COMPLETE BUFFETT-BROKAW INTERVIEW

PART TWO: BUFFETT and BROKAW - (Part One appears on the first page of this post)
Brokaw & Buffett, Pt. 2 12:03 AM ET Tue, 30 Oct 2007
Tom: On the other hand-- you'd have members of this administration and others who are
adherents of this administration saying, "The great lesson-- of the last 20 years has been: cut
taxes. Fewer taxes, especially for the wealthy. That helps the whole economy. We wouldn't
have gotten through the post-9/11 period without the tax cuts that George Bush pushed
through."
Warren: Tom, I've been around rich people all my life. And I have seen capital gains taxes
close to 40 percent. No one went home at 3 in the afternoon and said, "I've worked enough,
and because tax rates are so high, I think I'll-- I'll go to the movies." I mean, people-- people
want to maximize their after tax income, and there's two ways to do it. In-- increase their
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income, or get Congress to lower the tax rates for them. But I have never seen anybody with
capital say, "I'm going on strike. I won't invest." I-- I've been managing capital for 50 years for
other people. No one left and said, you know, "This-- the taxation system's too tough. I-- I
think I'll just stick it all under my mattress." They can't stick under their mattress. They're
going to invest their money regardless.
Tom: When you talk to presidential candidates-- and you-- you've been now outspoken
about your preference for Democrats--
Warren: Yeah.
Tom: --when you put this before Hillary Clinton, or Obama, or the people who come to see
you--
Warren: Both the people you mention have heard me talk about it--
Tom: Right.
Warren: Yeah, probably more than they'd like to.
Tom: But they haven't moved it to the top of their agenda.
Warren: Well, it's-- if you read-- if you read Obama's book, for example--
Tom: Yeah.
Warren: --it's in there. And if you talk to Hillary-- no. I think-- I-- I think in general they feel
that the middle class and-- and-- and really the lower class in terms of income have-- have
gotten too much shoved on them. And-- and it's been-- it's been to benefit the rich. It-- but it--
it has not been the main thrust of anybody's campaign.
Tom: Have you ever seen a tougher time in many ways for the middle class in this country?
Warren: Well, the middle class is a lot better off than it was 50 years ago, or 100 years ago. I
mean, it-- it is true that if the economy improves, everybody benefits. So-- so it is-- it was a lot
tougher, you know, 50 years ago. It was tougher 30 years ago. They-- people have improved
their standard of living. But-- but if you look at the cutoff point on the Forbes 400 20 years
ago, 21 years ago I think, it was a hu-- it was $190 million. It's now a-- a-- a billion three
hundred million. I mean, it's up roughly seven for one. I will guarantee you that the working
stiff is not up seven for one in the last 20 years.
Tom: You have some interest in China… Has that been complicated for you, your
investments in China and the kind of attention that you've gotten with it?
Warren: Well, not-- not really. I mean, we-- we bought PetroChina stock when it wasn't so
well known. Last week at one day, it was the second most highly valued company in the
world next to Exxon Mobile. It was above General Electric. I mean, it was number two in the
world. So, the Chinese have made enormous progress in the last ten or 15 years. And-- and--
and they'll continue to make progress. What they're doing is they're finding out what the
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human potential is. I mean, they've always had an incredible number of smart people,
energetic people. But their system didn't allow those people to develop their potential. And
now they're doing it.
Tom: They're taking a look at Bear Stearns. You've got a lot of friends at that-- house on Wall
Street. That make you nervous at all that the Chinese will become involved in our capital
markets in such a direct fashion?
Warren: Well, Tom, everyday-- net we're going to buy about $250 billion worth of goods and
services from China beyond what we sell to them. So, we're handing them, call it $700 million
a day. And what are they gonna do with it? We don't expect them to stick it under the
mattress. They have to invest in something. They can buy stock in Bear Stearns. They can buy
U.S. government bonds. They can buy real estate here. But we are force feeding dollars to
them, and we're taking their goods in exchange. And for them to want to do something with
those dollars-- it's perfectly understandable.
Tom: Does it make you anxious?
Warren: No. Well, it-- there are things about the whole foreign exchange situation that make
me a little anxious. But it-- it is not specific to the Chinese at all. We are making free decisions
everyday to buy their furniture, or buy their-- buy their shoes, or whatever it may be.
And we give them-- we give them a little piece of America in exchange. That's the nature,
because you gotta give 'em something in exchange for it. And-- and-- we're not giving 'em
enough products.
Tom: You've got a lot of fans out there, but some people have said you could have a lot
greater influence on social justice in China in the human rights area, if you use the leverage
of your investment—there, in that fashion. Is that tempting to you?
Warren: No. I-- I don't seem to be able to use the leverage of my investment in the United
States (LAUGHTER) to do anything about tax policy. So, I-- the-- the Chinese government is
going to behave in their own self interest to a great degree like the U.S. Government. When
our values clash with theirs, that's something to be worked out basically government to
government.
But-- we have been treated very well in terms of our investment in PetroChina. Twenty-nine
of the 30 largest companies that are publicly owned in China are controlled by the Chinese
government. That's a fact of life in China.
So-- all-- the three major oil companies, they're all-- they all have a majority of their stock
owned by the Chinese government. And you can go up and down the lines, the banks, and
the life insurance companies and everybody else. So, you are-- you are going into a state
controlled company when you buy stock in China. But-- they've done pretty well by their-- by
their investors. And-- and-- they don't like some of our policies, and we don't like some of
their policies. And--
Tom: Do you-- do you raise that with them?

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Warren: No. No. No. I-- if I-- if I raised with-- take the stock. It's something we own in the
United States, I raise tax policy with them, do you think (LAUGHTER) is that gonna change
what the U.S. government does? No. It's-- it's determined by other factors.
Tom: Do you think the 21st century will be the century of China?
Warren: Well, certainly China is going to gain economically relative to the rest of the world in
this-- in this century. There's no question it that. They're galloping forward. They come from a
very low base, and-- and-- and that's gonna cause a lot of problems for people.
I mean, we-- we worry about, you know, global warming or something like that. But we're
using 12 times as much oil per capita-- as China. Now as they use more, if we start pointing
fingers at them, I think they're entitled to point fingers back at us. We're the ones that have
been using up the resources of this planet-- at a-- a clip far beyond-- you know, our per
capita-- position in the world.
So-- I-- I think China is going to be-- I think they're going to be moving pretty fast in terms of--
economics. And it'll take 'em a long time, because the base is so low. But-- they will be a big
story.
Tom: When you look at China as an investment, however, don't you have to factor in more
fully the politics of China than you do-- when you're making an investment in this country--
Warren: Sure.
Tom: Or in western Europe?
Warren: Sure. No. You're going into a different society. And-- and they aren't gonna change
their society dramatically to-- adapt to us. But we're still delighted to go in there. But they--
that's true around the world generally. But obviously in China, there you've got a-- you've got
a planned society in effect. And-- and-- and it's different than the United States.
Tom: A lot of wealthy people that I've talked to have said about this, "But Warren doesn't
factor in how much we pay in state taxes, you know." Those who live in New York-- face a
very heavy tax burden. Their estate taxes in New York, to some of them, seem confiscatory.
So, it balances out over the long haul.
Warren: Well, the state taxes go to states. But we still have $2.6--
Tom: Yeah.
Warren: --trillion raised for the federal government. And-- and the state taxes obviously vary
enormously. But the disparity-- the rich-- the-- the very-- the super rich at the federal level
are paying lower tax rates to the federal government. That is not true on the-- on the state
level. But that-- you know, if somebody pays a high tax rate in-- in-- in New York, they can
always move. I think there's close to a dozen states that don't have an income tax. My friend,
Bill Gra-- Gates, was in Washington. They don't have a state income tax. So, there-- there are
options available on that. There are not options available to the poor on the federal income
tax.
9/11
Tom: If the taxes get raised on the super wealthy, do you think it'll cut into philanthropy?
Warren: No. No. If you look at philanthropy in this country, it's been about two percent of
GDP. We've had 70 percent tax rates. We've had 40 percent almost tax rates on capital. We've
all kinds of different tax rates. Two percent of GDP end up going to philanthropy. It won't
change things.
Now the estate tax, incidentally, I mean, the estate tax raises about $30 billion a year. That
$30 billion, which some people want to get rid of, that would provide a $1,000 a family to 30
million families. If you take the 30 million poorest families in the United States, a $1,000 each
would make a difference to every one of 'em. The $30 billion raised through estate taxes--
just guess how many people die in the United States every year. It's a little over 2.4 million.
How many people will pay an estate tax this year? How many estates will pay a tax? About
12,000. One out of every 200.
So, by letting one out of every 200 off the hook, you get rid of a sum which would give a
$1,000 to every one of 30 million poor families. I mean, I think it's an outrage that-- that
people talk about, you know, getting rid of an estate tax that only gets one out of every 200
to start with.
Tom: Executive compensation. You feeling any better about it?
Warren: (LAUGHTER) Well, I-- I-- I feel fine with people making a lot of money for doing a
great job. I mean, you know, the people in your field that do a great job make a lot of money.
(LAUGHTER) ….
Yeah. But-- what-- what I object to is the people that the-- the biggest payday of their life is
the day that they leave a company from which they failed, or-- or where they get paid
automatically big sums. If you want the shot at the brass ring-- if you want a shot at making
tens of millions of dollars a year, if you flop, why in the world should you be making $5
million a year, or $3 million a year? That-- it's-- pay for performance is fine, you know. Pay for
showing up is not-- with the-- with the huge goodbye present, you know-- or-- or bonuses
that are not tied to real performance, I think that's terrible.
Tom: But, again, that's not getting very much attention. I mean, it was hot for a while.
Warren: It was hot for a while.
Tom: It's gone away.
Warren: Now, well-- the CEO cares enormously. The comp committee doesn't care …. I mean,
if you-- you-- if-- if-- if the CEO is negotiating with a labor union, they stay up 'til 3 in the
morning, and they do it over the weekends and everything else. And they worry about a few
cents per hour. The comp committee meets for a couple of hours. I've never heard of a comp
committee meeting at 3:00 in the morning, you know.
Tom: Right.
10/11
Warren: Or staying there over the weekend to negotiate with the CEO. So, you've got this
intensity of-- of caring on the part of one party to the negotiation. And you've got people on
the other side to whom often it's play money.
11/11
Warren Buffett’s discussion on CNBC in regards to Mars – Wrigley
deal
rbcpa.com/warren-e-buffett/warren-buffetts-discussion-on-cnbc-in-regards-to-mars-wrigley-deal/
This is a transcript of Warren Buffett’s discussion on CNBC in regards to Mars – Wrigley

deal on April 28, 2008
Becky Quick: Warren, thanks for joining us this morning. Appreciate it.
Warren Buffett: My pleasure.
Becky: People are always trying to figure out what you’re doing with your cash. Why
would you look at Wrigley right now? Why this deal right now?
Buffett: Well, I’ve been conducting a 70-year taste test, Becky, since I was about seven
years old, on the products. I’ve done the same thing with Mars products. And they met
the 70-year taste test (laughs.) But to tell you the truth, the Mars people asked me
about participating in this, and we are financing. But we are a very, very junior
partner, although we will have about 6-1/2 billion dollars in it. But we are a financing
partner, in effect, for Mars in this acquisition.
Becky: Six-and-a-half billion dollars, though. That’s still a substantial take. What do
you look at beyond just the taste test? Do you think that this is the type of a bet that
makes a good deal when you’re looking at economic hardship times? Is this a
recession-proof play?
Buffett: Yeah. Both companies have great brands. When I talk to classes of university
students, for a dozen years or more I’ve used Wrigley as an example … I haven’t known
about Mars except that they’re a provate company. But there is really nothing that can
go wrong with something like the Wrigley or the Mars brands. It’s literally true that
they have, ah, faced the test of time over decades and decades and people use more
and more of their products every day.
Joe Kernen: Warren, this is Joe. You’re not going to operate this, or exert any influence
operating ..
Buffett: No.
Joe: .. So it’s not like we’re going to see See’s (Candies) somehow with a Mars, or a
Wrigley. You’ve got Dairy Queen. I see synergies with Coca-Cola. I mean, I see a lot of
things happening here, Warren, none of them good for my waistline, but I see a lot of
things you could do here. But that’s not what’s in the cards?
Warren: That’s not what’s in the cards at all. No. In matter of fact Mars has had a
boxed chocolate operation that they started, I don’t know, thirty years ago, to
compete with See’s, so we’re in different ends of the game. There will be no connection
at all.
1/8
Joe: I see once again that your 6-1/2 billion is going into something like this and not
going into a financial on Wall Street. But a lot of people think they’ve bottomed now.
Are you finally ready to think now that maybe it’s safe to put your toe in the water?
Buffett: Well, I understand a Wrigley or a Mars a whole lot better than I understand
the balance sheet of some of the big banks. I know what I’m getting in this, and some
of the larger financial institutions, I really don’t know what’s there.
Joe: Do you feel a lessening of some of the pressures and some of the angst, some of
the credit crunch? Do you think we’re over the hump, Warren?
Buffett: Well, I think that what the Fed did, and I think it was proper, what the Fed did
with Bear Stearns was a big line in the sand. That changed the game. At that point, the
world is looking kind of different in the financial world.
Carl Quintanilla: Warren, we all know that a lot of the companies in this space are
leveraged to the price of commodities, whether it’s cocoa, or what have you. Do you
have a comment on what we’ve just been talking about the past week, whether it’s
grains, or just global commodities in general. Does it feel toppy to you?
Buffett: Well, I’ve got a son that’s a farmer. He’s a very happy fellow. They used to tell
the story out here in Nebraska about the farmer that won the lottery, and they sent a
television crew out to see him. And the television interviewer said, ‘You know, you’ve
just won twenty million dollars in the lottery, what are you going to do with it? And
the farmer said, ‘Well, I think I’ll just keep farming until it’s all gone.’ (Laughter.) Well,
that was the situation in farming until the last year or so, but it’s a different world
now. And I don’t know how much ethanol contributed to it, but, you know, you get
twelve dollar soybeans and six dollar corn and that sort of thing, and it’s going to have
an effect. I’m amazed we haven’t seen more inflationary effect so far with the CPI,
when you consider what steel is doing, what oil is doing, what grains are doing, there
is a lot of potential inflation down the road.
Becky: Hey Warren, we’ve been talking this morning about whether or not we’re in a
recession at this point. The last we talked with you was a couple of months ago, and
you said it looked by any sort of relevant manner, if you’re trying to measure this, by
any sort of real estimate it looked like we’re in a recession. But there are some people
who are saying, yeah, it doesn’t look like a recession to them. We’ve got GDP this
week. Do you still stand by that idea that it looks like we’re in a recession?
Buffett: Yeah. I think we’re in a recession. I mean, a recession is defined in a certain

way by the National Bureau of Economic Research, but I think it’s defined by the man
in the street a little differently than whether there have been two quarters of
reported (negative) GDP growth. And incidentally, when GDP growth is below 1% a
year it’s really falling on a per capita basis because our population increases about one
percent. So even though the National Bureau uses an absolute figure, it’s up one-tenth
they don’t count that as a recessionary quarter, but the GDP per capita has gone down
in a quarter where the gain is half a percent or something of the sort. We are in a
2/8
recession, unless you want to stick strictly to the technical definition, which I really
don’t think has much meaning to the fellow who has lost his job or is facing a money-
market fund that isn’t paying him out, or whatever it might be.
Steve Liesman: What does it say about credit markets that you guys are acting as a
financier in this case, and is this a new role for Berkshire that you see yourself
increasingly playing with the considerable cash on your books?
Buffett: Yeah, it’s not a common role for us but it’s something we have done before
and we’ll probably do again. I think in this particular case, we fit very well as a partner
for what the Mars family wanted to achieve in this purchase. They needed somebody
they felt comfortable with, they knew the check would clear, that wouldn’t interfere
in any real way. So we’ve done it differently than most people would have done it. We
did it the way they wanted it done.
Michael Farr, CNBC Squawk Box Guest Host: Mr. Buffett, good morning, it’s Michael
Farr.
Buffett: Hi, Michael.
Farr: When you look at this deal, why now? The economy, if things are contracting and
we’ve got rates where they are, why is this a good time for an acquisition? And do you
have any integration concerns as Mars begins to take on this public company?
Buffett: Well, I think a good time to buy a really great business is when you can do it.
Many, many years ago, as I remember, Herman Lay offered the Frito-Lay company to
Coca-Cola. And he offered them the company first, as I understand it, and they decided
for one reason or another they didn’t want to do it then. And of course Pepsico bought
it and it’s the best thing they ever did. So if you get a chance to buy a wonderful
business, then my advice is, grab it. As Yogi Berra would say, ‘When you come to a fork
in the road, take it.”
Carl: Warren, it seems like it’s been 72 hours or so since the bottom of the dollar has
pretty much become conventional wisdom. Do you want to either join that camp or
fight against the tide?
Buffett: I never have any idea what the foreign exchange or the stock market or the
bond market is going to do in any given week or month or year. I do think over time, if
we keep following the policies we’ve following on trade, the dollar will become weaker.
But I’m talking about a ten-year period. And incidentally, let’s make sure … I think it’s
going to become worth less, over time. (Laughter.)
Becky: Not the ‘worthless.’
Joe: That was going to be my question, whether you have a position right now and
whether you’re covering any of your shorts, at least short-term, in the dollar, Warren?
3/8
Buffett: Well, as I mentioned in the annual report, we only have one small direct
foreign currency position, very small. But we have built up more earning power
abroad through the ownership of businesses that earn a lot of money abroad. Some
company like Coca-Cola earns a very high percentage of its money abroad. So we have
an indirect position in currencies through earning power. We do not have any
significant direct position, nor have we had for some time.
Carl: But the (Brazilian) real has treated you pretty well, hasn’t it?
Buffett: It’s interesting, the real has more than doubled in value over the past five or
six years. Who thought you would get rich owning a South American currency?
Joe: You know when you answer the phone or you come on, you know we’re going to
keep talking until you pretend to do one of those commercials where it cuts out and
your phone goes off. My next one, are you talking about policies…let’s quickly talk –
you’re well-known to have helped the campaigns of both Senator Clinton and Senator
Obama. This is going on and on and on. I tell you, I cannot pick who the nominee is
going to be. I still think it’s going to be Hillary Clinton.
Carl: If you were Warren, you wouldn’t have had to.
Joe: You would have picked it both. Has it gotten to the point yet where it’s hurting the
chances for the Democrats do you think in November, Mr. Buffett?
Buffett: It can’t help. I mean, some people are going to go away from this race with ill
feelings. Whether the ill feelings translate into them staying home, I doubt if the ill
feelings translate into them voting for McCain. But you want an enthusiastic
electorate when you get to November and to the extent that people on either side feel
that their candidate hasn’t quite gotten a fair shot or been subject to too much
mudslinging or something, that’s a minus in the general campaign. I’m just sitting here
unequivocally with a foot in both camps.
Carl: We remember when you came out in favor of both, and the question was to you
at the time, ‘Why aren’t you choosing?’ Did you have an inkling it was going to end up
like this?
Buffett: No, I thought they were the two best candidates. And well before they
declared, I promised each of them that I would support them, which a lot of people
have gotten in trouble doing that in a romantic way and I’ve gotten in trouble doing it
in a political way.
Becky: Back to what’s happening with Wrigley. We had Sam Zell on about six weeks
ago and asked him about Wrigley Stadium. He said, hey. it’s been free all this time to
have that name on the stadium but he wouldn’t mind charging for it. You’re a baseball
fan. Would you pay up to keep Wrigley on Wrigley stadium?
4/8
Buffett: I’ve never been a big fan — We’ve got a lot of propositions at Berkshire for
sticking our name on sports stadiums. Based on the prices asked, I’ve never been a big
fan of doing that. I did go to my first baseball game at Wrigley Stadium in 1939. But the
Wrigley company sold their interest in the Cubs, which meant the stadium as well in
1981. So they really haven’t been involved there for a long time.
Carl: Dark days for those of us who used to live in Chicago.
Steve: The idea that you have two companies combining who are big users of inputs
that are increasing in cost big-time right now, is that something we can expect to see?
Is there something of an attempt to push back against the suppliers here. I’ve got to
think corn syrup has to be one of the big costs of what Mars and Wrigley’s pay for
these days.
Buffett: I don’t think you have enormous power as a – commodity markets are bigger
than any one company. So just like if you’re going to be buying oil or something of the
sort, you’re going to pay the market price. The nice thing about it is your competitor is
going to be paying the market price, as well. And, you, know, sugar is a big element
and sugar hasn’t moved. But I think, you know, whether it’s Kraft or Kellogg, you name
the company, they’re going to be paying more for their raw materials.
Joe: You haven’t bought a fertilizer company, I don’t think, have you Warren?
Buffett: No, I haven’t.
Joe: Seed company?
Buffett: No.
Joe: And I know, you have a lot of utilities. And you had a big Petrochina investment in
China. You sold out. Should we read into that, that maybe you’re not as active in that
area as the situation seems to dictate at this point? Are we getting toppy? That’s the
question I’m trying to ask you. I guess nobody knows. But is it crazy right now in
commodities or is this the state of the world?
Buffett: Well, who knows on that? But I don’t play sectors, Joe. When I — the thing that
makes my job fun is when I go to work in the morning, I don’t really know what’s going
to happen. So, two months ago, I didn’t have the faintest idea I would be investing 6-
1/2 billion of Berkshire’s money in this particular transaction. You know, and then the
phone rings. I love it when the phone rings. Usually it’s the wrong number but every
now and then something happens.
Becky: Although Warren, you have played some sectors in the past, with the
transports playing on the rails, and other areas. You have not made broad
commodities plays. Is there a reason for that?
5/8
Buffett: Well, it’s probably because I don’t know what commodities are going to do.
The thing about commodities, if I knew what commodities were going to do, I wouldn’t
have to play them through stocks. I could just go on the commodity market and do it.
So, I, I don’t know what oil or wheat or soybeans or cocoa or anything like that’s going
to be selling for next week or next month or next year. I do know people are going to
be chewing Wrigley gum and eating Mars bars.
Carl: You know, last week was Earth Day. You missed it, Joe, and we had a big …
Joe: I was around on the planet for that day, but I missed your coverage.
Carl: But one of the things that Abby Joseph Cohen from Goldman said, Warren, is
she’s seen more VC money go into green initiatives than pretty much anything else.
Does that hold any interest for you?
Buffett: Well, what holds an interest for me is a business I can understand and one
that’s got durable long-term competitive advantage and the good management and
the price makes sense. If I can find that any place, I’ll do it. And a lot of times, things
are just beyond my competence. Somebody can have a wonderful idea that I don’t
understand and God bless them. I’ll stick with stuff I understand.
Joe: Have you ever looked at Hershey, Warren? Ever gotten close to anything because
it’s a family trust there. Do you think something happens there now?
Buffett: Well, I followed that for a long time. When I was 13 years old and living in
Washington, D.C., I ran away to Hershey, Pennsylvania, and got picked up by the state
police. So I’ve done a little in-depth research on Hershey that way. (Laughs). But you
know, it’s been very interesting to follow the Hershey trust story.
Joe: You have looked at buying Hershey?
Buffett: No, not really, not really.
Joe: Not really.
Carl: But you really did run away from home?
Buffett: That I did, right. But I only got about 100 miles.
Carl: That’s pretty good.
Becky: Warren, if you took a look at all of your businesses, because you have a lot of
consumer-driven businesses and took a look at all of that, how have things changed
over the last couple months or have they?
Buffett: I would say that in the retail businesses, we’re in jewelry, in furniture, that
sort of thing, I would say that if anything, they’ve gotten a little worse. And, of course,
the things connected with housing, whether it’s in brick or whether it’s in carpet,
those businesses have shown no uptick at all. And jewelry had a bad Christmas.
6/8
Everyplace, including places like Wal-Mart and Costco, and it stayed that way. So I
think — I think consumers are feeling gas and food prices and not feeling they’ve got a
lot of money for other things.
Carl: You know, the bulls of course, Warren, as you know, are going to point to the
stimulus checks that are going to go out today, starting today. They’re looking at some
of the housing starts for the past couple months and saying at least we’re working our
way toward selling more homes than we’re building. Do you take solace in any of those
two things?
Buffett: Well, that’s what you have to do. And it’s going to have to go for sometime to
get rid of the overhang. We do form, you know, whatever it is, a million households
every year in this country. And as long as they don’t build a million housing units, we’ll
eat away to some extent at the surplus. But the problems were very — I mean the
bubble in housing was huge. There was, in 2006, there was $330 billion of cash out,
mortgages just in the primaries. So that was a lot of stimulus in 2006 just from people
taking equity out of their homes. I think this is going to be fairly long and fairly deep
but who knows?
Michael Farr, CNBC Squawk Box Guest Host: Mr. Buffett, it’s Michael Farr again. We’re
hearing from traders on the street and other strategists that perhaps we’ve seen the
worst and we’ve seen the bottom and that we’re going to have this shallow recession
and it’s going to be over with quickly. You’ve said we’re in recession. Do you think this
is going to be, sort of, one of these short rebounds? Can we start buying now?
Buffett: Well, I don’t know about the stock market in terms of what it will do. My
general feeling, and this is not a field of specialty for me, but my general feeling is that
the recession will be longer and deeper than most people think. But what the stock
market, the stock market often does not behave in sync with what’s going on in
business. So, I wouldn’t want to predict what the stock market might do. My feeling
from what I see in the economy is that this will not be short and shallow.
Becky: All right. Warren, want to thank you again for joining us this morning. Warren
Buffett again with the news on Berkshire Hathaway and Mars teaming up to close a
deal to acquire Wrigley. And Warren, thank you very much for coming on today.
Buffett: Thank you, and I’ll get back to chewing my gum and eating candy.
Becky: Is there a favorite you have with Wrigley?
Buffett: Yeah, I’m an old-timer. I like spearmint and Juicy Fruit.
Joe: You look at Mars, too. Snickers.
Buffett: Snickers, yeah, I love the new Dove bar and I’ve even gotten into Skittles
lately.
Joe: You have?
7/8
Becky: Those are my favorite.
Carl: I love Skittles, too.
Joe: You guys are young, but you know, my fillings. They pull my fillings out, Warren.
Buffett: That’s okay. Just buy an interest in a dentist firm.
Becky: Thanks, Warren.
8/8
TRANSCRIPT/VIDEO PART ONE: Three Hours With Warren Buffett -
Live From Omaha
TRANSCRIPT/VIDEO PART ONE: Three Hours With Warren Buffett - Live From Omaha Alex Crippen | @alexcrippen Published
10:08 AM ET Fri, 22 Aug 2008 Updated 1:21 PM ET Thu, 5 Aug 2010 CNBC.com
August 22, 2008
THIS IS PART ONE OF "THREE HOURS WITH WARREN BUFFETT - LIVE FROM OMAHA" ON
CNBC'S SQUAWK BOX WITH BECKY QUICK, FRIDAY, AUGUST 22, 2008.
IT IS AN UNEDITED TRANSCRIPT AS PROVIDED BY BURRELLESLUCE.
BECKY QUICK: Good morning, everybody and welcome to SQUAWK BOX right here on CNBC.
This morning we have quite a show in store for you coming up today. As you probably know,
our special guest for the next three hours is a man who needs no introduction. We are
talking about Warren Buffett. And, Warren, good morning. Thank you for joining us this
morning.
WARREN BUFFETT (Berkshire Hathaway Chairman & CEO): Yeah, early morning, right.
QUICK: Very early morning. You've only had a couple of complaints about that, right?
BUFFETT: No, I try not to complain too much.
QUICK: Well, good morning. Thank you for joining us today. We have an awful lot to talk
about this morning. Also, this is a worldwide, around-the-world show this morning. From the
world's most famous investor, we're being--going to be going to the world's most celebrated
athletes. Carl, you know, the Summer Games are coming to a close. You've been there
covering the whole thing and what are your feelings as we get to this final end of the entire
Olympic Games?
CARL QUINTANILLA, co-anchor (Beijing): I was just going to say, Becky, this has got to be the
first ever broadcast of split anchor Beijing-Omaha show in the history of television. We've got
a lot going on here. We've had--we've had pretty good success, the Americans winning gold in
soccer, beach volleyball, going for the gold in volleyball. We'll bring you up to speed on all the
Olympic action. But as we're closing down here, into the closing ceremony on Sunday night,
we're just beginning an amazing three hours with Warren. Warren, it's great to have you.
BUFFETT: Nice to be here.
QUICK: You know, we were--we were joking about that this morning with Ross that we are
now trying to make SQUAWK look just like "World Wide Exchange." We're going to be picking
new places around the globe and doing this from time to time. Right, Carl?
QUINTANILLA: That's--exactly. And if the satellite delay gets any worse, we could have entire
blocks of the show in which we're just waiting for the other to respond.
1/12
Buffett on Big News 6:02 AM ET Fri, 22 Aug 2008
QUICK: All right. That sounds perfect. You know, Carl, we're going to check back in with you
in just a few minutes because we have a lot of things about the Olympics to talk about with
Warren Buffett as well, everything from Coca-Cola to sponsorships. But, folks, we are in
Omaha today because last night there was a groundbreaking event in the world of finance
and politics that took place right here. It was the world premiere of a documentary called
"I.O.U.S.A." Now, the film takes a look at what it says are America's four key deficits. It
explores the risks to the future of this country and of its citizens. And, Warren, you were in
the documentary, so let's take a look at one of the clips from that right now.
BUFFETT: Yes.
(Clip of "I.O.U.S.A." courtesy Roadside Attractions)
QUICK: The film premiered on hundreds of movie screens across the country last night,
including right here in Omaha. After the debut, I got the chance to moderate a town hall
meeting with the men who were behind the movie, Blackstone's Pete Peterson and former
US Comptroller General David Walker. Warren, this was a discussion with five of the brightest
minds of people who are looking out there at the economy, and there is some debate as to
how big of a problem this is.
BUFFETT: Yeah. There was a debate last night as a matter of fact.
QUICK: Right.
BUFFETT: And the film takes the position pretty universally throughout the film that it's an
enormous problem, and I probably represented the group that thinks this is quite a bit less
of a problem than the film portrayed. But I admire the people that did it in that there's so
little thinking done beyond the next electoral event that there are important policy matters
2/12
that do extend way out into the future and--whether it's energy, whether it's the question of
weapons of mass destruction, certainly in terms of fiscal policies. So I admire the fact they
tackled the subject. I don't--I don't agree with many of the conclusions in the movie.
QUICK: But we did have a huge discussion on this last night. And, in fact, we'll be joined by
both Pete Peterson and Dave Walker a little later this morning to talk more about what they
see happening in the economy, and it's something we're going to be talking about
throughout the morning. So again, Warren, we're thrilled to have you here this morning for
three hours, and we do have a lot to talk about today. One of the things we'd like to get
straight to, though, is what you see happening in the economy right now. We've been talking
to you for some time about what you see as some significant problems in the economy. And,
from your perspective, have things gotten any better? Have they gotten any worse?
BUFFETT: No, they've rippled out some, and that's what you'd expect. So the excesses in
credit, the deleveraging that was required, the weak credits that are exposed, all that is--
we're seeing manifestations out as the ripples go out, and I think I said one time that, you
know, you only find out who's been swimming naked when the tide goes out. Well, we found
out that Wall Street has been kind of a nudist beach. There's--it's just one discovery after
another of firms that either didn't know what they were doing or that did things that they
shouldn't have knowingly. And all of the troubles have not been revealed the first time
around, usually, so there's considerable disillusionment that's set in in terms of are these
guys telling us the truth now or maybe they just don't know what the truth is. So all of that's
having an effect, and what we're seeing in business, in our retail businesses...
QUICK: Mm-hmm.
BUFFETT: ...certainly, anything to do with housing is even a further slowing down. I mean,
June and July, both in terms of credit experience with people that first got into trouble of
house payments and now on credit card payments and so on. And retail trade, it's not over
by a long shot.
3/12
QUICK: Does that make you think that things are going to continue to decline over the next,
let's say, six months?
BUFFETT: Oh, I think they could easily go beyond that, yeah.
QUICK: What's your prognosis, or what's your best guess or your best estimate of what...
BUFFETT: You never know. I've said in the past it ought to be longer and deeper, and I think
it is going to be longer and deeper, but no one knows when--what you do know is that it will
turn around. I mean, the country will be doing far better five years from now than it is now,
but it won't be, in my judgment, it probably won't be doing better five months from now.
QUICK: You talk about how this has rippled out and it's affecting the consumer at this point.
Have the credit markets themselves gotten any better?
BUFFETT: Well, the credit markets have had this situation where periodically it's seemed like
they were getting better and then something else comes along. So the bankers feel a little bit
better for a while and then something comes along and then they want to deleverage
further. They find out they've got more trouble. Right now, for example, they're taking back
all these auction rate securities. Well, they don't want to take things out of their balance
sheet. So it's just one more problem for them, and you've seen these waves of problems and
sometimes they create their own momentum. I mean, if the stock prices go down enough of
the banks, then they feel like they can't sell securities. Of course, the extreme example was
Freddie Mac was--has sort of been chasing a rabbit down the hill...
QUICK: Right.
BUFFETT: ...and promised they would raise additional money and of course the price of the
stock got to the point where it became ridiculous. So troubles feed on themselves.
QUICK: Let's talk about Fannie Mae and Freddie Mac, specifically. These are two stocks that
it seems like every time you turn around are touching new low levels. There's a lot of concern
out there on the market about these two stocks right now. What's your general take on how
they got here and what you think's going to happen next?
BUFFETT: Well, how they got here was they had two businesses, basically.
QUICK: Mm-hmm.
BUFFETT: They insured mortgages on a huge scale, trillions, and then they ran sort of a
hedge fund, a carry trade where they bought mortgages and borrowed extensively against
them. And because they had really the backing of the United States government--and
everybody assumed they had the backing. I assumed it. And the truth is they do have the
backing of the United States government in terms of their debt, not in terms of their equity--
they were able to borrow without any normal restraints in terms of capital or margin
requirements or anything of the sort. They had a by-check from the federal government.
QUICK: Mm-hmm.
4/12
BUFFETT: And they also had an added problem in that they had a dual mission. The
government expected them to promote housing and the stockholders expected them to
raise the earnings substantially every year. And as the years went by, they emphasized the
latter more and more. They started talking about "steady Freddie," and Fannie Mae said,
`We're going to increase the earnings at 15 percent a year.' Any large financial institution
that tells you that sort of thing is giving you a line of baloney. I mean, they may do it for a
while, but when they can't do it with operations, they do it with accounting and they cheat.
And that's what happened at both those places on a huge, huge scale. And we have this--
they're so wound up with national housing policy, that they're a national problem and, with
this dual situation, you know, Lincoln said a house divided against itself, you know, must fall.
And they existed half-slave, half-free for a long time, and then the motivations became in
conflict, and when they got on the 15 percent a year merry-go-round and said, you know,
`We're going to deliver earnings up every quarter, and we'll meet them to the penny,' when
they can't do it operationally, they do it with accounting.
QUICK: So what happens now? You mentioned that this is all tied up with the national
housing situation now. Are they two big to fail, and what does that mean?
BUFFETT: Yeah, they're too big to fail.
QUICK: Yeah.
BUFFETT: So that doesn't mean that the equity can't get wiped out, and it almost has in the
stock market, and in practical sense as institutions, they don't have any net worth. I mean, if
you look at their obligations and look at the fact they have big deferred tax assets as assets.
They would've been gone in any market where the government wasn't behind them long,
long ago. But the government is behind them, and they will stay behind them, and people
that own insured mortgages or who own their debt, I think--nothing's going to happen to
them. The equity and the preferred stock is another question and I think you'll see some
action fairly soon. You've already seen it in the fact that the Treasury has made pretty much
explicit what was formerly implicit.
QUICK: Do you say that knowing anything? Do you know there's a behind-the-scenes plan?
BUFFETT: No. I don't know. No. They--I'm not getting called on it.
QUICK: OK. You're not getting called on this, but you do...(unintelligible).
BUFFETT: I'm not getting called on that specific aspect of it.
QUICK: All right. Now you're telling me we're warm.
BUFFETT: They're looking--they're looking for help, obviously.
QUICK: Right.
BUFFETT: And the scale of help needed is such that I don't think it can come from the private
sector.
5/12
QUICK: So there could have been a situation where you've been called in the past and you
passed on any involvement?
BUFFETT: Yes. They were looking for--they, obviously, had been looking for money. They say
that.
QUICK: Mm-hmm.
BUFFETT: And they were told to look for money and--but even the amount of money they
were told to look for would be inadequate. I mean, 5 1/2 billion at Freddie would be, you
know, that'd be like taking a spoonful out of the Atlantic to try and save the Titanic.
QUICK: How much to you think they need?
BUFFETT: They need a lot. But to get back to the confidence that they had and all of that, it
takes far more now. I mean, an ounce of prevention really is worth a pound of cure.
QUICK: If you imagine where things will go with Fannie and Freddie, and you think about the
regulators, where were the regulators for what was happening, and can something like this
be prevented from happening again?
BUFFETT: Well, it's really an incredible case study in regulation because something called
OFHEO was set up in 1992 by Congress, and the sole job of OFHEO was to watch over Fannie
and Freddie, someone to watch over them. And they were there to evaluate the soundness
and the accounting and all of that. Two companies were all they had to regulate. OFHEO has
over 200 employees now. They have a budget now that's $65 million a year, and all they have
to do is look at two companies. I mean, you know, I look at more than two companies.
QUICK: Mm-hmm.
BUFFETT: And they sat there, made reports to the Congress, you can get them on the
Internet, every year. And, in fact, they reported to Sarbanes and Oxley every year. And they
went--wrote 100 page reports, and they said, `We've looked at these people and their
6/12
standards are fine and their directors are fine and everything was fine.' And then all of a
sudden you had two of the greatest accounting misstatements in history. You had all kinds
of management malfeasance, and it all came out. And, of course, the classic thing was that
after it all came out, OFHEO wrote a 350--340 page report examining what went wrong, and
they blamed the management, they blamed the directors, they blamed the audit committee.
They didn't have a word in there about themselves, and they're the ones that 200 people
were going to work every day with just two companies to think about. It just shows the
problems of regulation.
QUICK: That sounds like an argument against regulation, though. Is that what you're saying?
BUFFETT: It's an argument explaining--it's an argument that managing complex financial

institutions where the management wants to deceive you can be very, very difficult. Or even
when the management doesn't know what's going on, and--just take Bear Stearns. Bear
Stearns had--I read it, anyway--750,000 derivative contracts. Now, you know, I could clone
Albert Einstein, you know, and--many, many times and have him work 12-hour days for me
and he would not be able to keep track of what's going on in an institution like that. It's--the
ones that are too big to fail may be too big to manage, in some cases. And they're particularly
difficult to manage if they're promising Wall Street and their investors that they're going to
do things that can't be done.
QUICK: You've come out and said derivatives are the weapons of financial mass destruction
before. But you use derivatives, too.
BUFFETT: That's right. I don't say they're evil, per se.
QUICK: Yeah.
BUFFETT: I just say that once the genie opened the bottle on those many years ago, that
their proliferation, their variation, their inability to be valued and their ability to allow
institutions to pile up leverage like the world has never seen can cause great systemic
problems. And that doesn't mean, you know--it's like gun powder or water. You can do
damage with a lot of things, but these have systemic--they pose systemic risks. And
incidentally, the government recognizes this. I mean, you've had a task force working on, you
know, what do we do to prevent these things from causing a real problems? But they have
caused problems so far. I don't think they're going to cause problems at Berkshire Hathaway.
I know every single derivative contract we have. Now, when we bought Gen Re, they had
23,000 plus contracts.
QUICK: Mm-hmm.
BUFFETT: There was no way in the world I can get my mind around that. I mean, if I--if I had
spent full time and had all kinds of assistants and everything, I never would've known what
was in those contracts. We had one contract that was due in 100 years, so that meant that
for 100 years some guy at our place put a mark on it every day and some guy at another
place put a mark and they got their bonuses based on it. I mean, that is a system that is
guaranteed to cause trouble. And so I got out of the business. It took me four years under
7/12
benign market conditions, and we lost $400 some million in the process. So they are
dangerous things. The ones we put on may be dangerous things, too, but I do know every
contract, and I know what my gain-loss arrangement is and nobody else marks them. I mean,
I keep track of it.
QUICK: You do it yourself on every one. OK. Warren, we have a lot more to talk about with
you this morning. We'd like to get to some of your holdings, more on the economy, but we
also are going to take a very quick pause right now for a quick break. When we come back,
Carl's going to be joining us again from China and Carl, what's on your mind?
QUINTANILLA: Becky, if that's the A-block, I cannot wait to see the rest of the show. Wow.
What--that's great insight from Mr. Buffett from OFHEO to derivatives, you name it. We'll get
more from the world's most successful investor and an Olympic update as we head into
closing ceremony on Sunday night. Becky's in Omaha, I'm in Beijing. This very special edition
of SQUAWK BOX continues in just a moment.
(Announcements)
WAS THAT BUFFETT IN BEIJING?

QUICK: All right, welcome back, everybody. You know, Warren, we know that you are a huge
sports fan. You're somebody who watches all sorts of things, and, of course, one of your
major holdings, Coca-Cola, so what better way to tie all this up than Coca-Cola, sports, you've
got one of the major sponsors of the Olympics here. Let's bring Carl back into this
conversation from Beijing. And appropriately, yeah, Warren is holding up his Coca-Cola just
right now, Carl. So, as always, he's got a cherry Coke by his side.
CARL QUINTANILLA, co-host: Cherry Coke, yes.
Warren Buffett on the Olympics 6:16 AM ET Fri, 22 Aug 2008
8/12
QUICK: Yeah, cherry Coke by his side. And, Warren, we've been talking all things Olympics
the whole way through. What do you think about Coca-Cola and the major sponsorship that
it has with the Olympics?
BUFFETT: Well, it has a long, long history with the Olympics, and it--it's very important. I
mean, Coca-Cola wants to be associated with happiness around the world. Every major
event they want to be here. And it's important--with a brand, there's something in the mind
about a brand. I mean, you have something in your mind about Coca-Cola or--but you don't
have anything in your mind about RC Cola because they've never been, you know. So we
want that--we want that brand to be associated with something like the Olympics where
there's happiness, where there's competition, where the nations are getting together. It's a
venue we could not skip.
QUICK: There have been people in the past who have said, `Hey, these sponsorships get
more and more expensive.' There are guerilla ways that other companies can kind of make
their way in...
BUFFETT: Yeah.
QUICK: ...without paying. Is that an option for Coca-Cola down the road?
BUFFETT: No, I--Coca-Cola would never be going on a country road when the interstate's
available. And it's--we're not--we're not there to be around the edges, we're there to be front
and center.
QUICK: You know, Carl, we've been talking earlier in the week about what some of the
Chinese media had been reporting about Buffett, about Bill Gates. What have people been
saying?
QUINTANILLA: Well, I think--I think the Coke comments are interesting, Warren. We
interviewed the chief marketing officer from Coke here last week, and of all the Olympic
sponsors, right, the global sponsors, the GEs of the world, the Lenovos, in China the poll
numbers show that they associate the Olympics the most of all the sponsors with Coke. So
the marketing machine is obviously working. We did--we did talk earlier in the week back--
maybe it was last week--about Pangu Plaza, the big hotel and office park...
QUICK: Right.
QUINTANILLA: ...and shopping mall that's over my shoulder here. And The Times did that
story earlier in the week about whether or not Bill Gates had rented out a penthouse for a
year, and whether or not Warren was staying there. Any truth to that at all, Warren?
BUFFETT: No, I'd actually talked about going to the Olympics a little bit with Bill, but I'm the
kind of guy that has to have it explained to me on television what happened, you know, that I
just saw. So I enjoy it enormously watching it on television, and Bill was over there for a
week. Although the day or two before he went over he was playing at a bridge tournament in
Omaha and then he came back to Omaha almost directly from the Olympics after about a
week over there.
9/12
QUICK: So that wasn't you? You weren't--you weren't the one they spotted walking around in
Beijing?
BUFFETT: No, that must be my double, George Clooney, actually that was spotted.
QUINTANILLA: Has--Warren, has the--have the games, in all seriousness, have the games
made you think any differently about this part of the world--the world, western China,
growth opportunities, the ability for American companies to operate effectively within a
different government structure?
BUFFETT: Yeah, well, I was over there almost a year ago--Becky was with me--and I was
blown away by what I saw. I'd been there--the time before that was 1995, and I really had
never seen a country change so much in a--in a 12 or so year period, and clearly, when you
think of the size of the country, to effect that sort of change. So I--no I've been a big believer
in China before the Olympics and certainly they've put on a marvelous show during the
Olympics. And--but I would have expected that. You get--you get a bunch of very, very bright
people who care enormously about putting on a wonderful event, they're going to get the job
done.
QUICK: What about Chinese stocks? Does--do those--does the stock market there interest
you? You've been looking around the globe?
BUFFETT: Yeah, you know, you still can't buy stocks within China except under special
circumstances.
QUICK: Right.
BUFFETT: But, yeah, I--we owned that PetroChina stock at one time. There's one other stock
over there that we actually made a bid on here not so long ago, and it wasn't accepted. But
it's a terrific--it's going to be a terrific area for business. So, under the right circumstances,
you could see us with a lot of money there.
QUICK: What was the stock that you made the bid on?
BUFFETT: Oh, surprise, surprise. I never thought you'd ask.
QUINTANILLA: Nice, Beck.
BUFFETT: No, that--I have sort of a mind blankout after I learned...
QUICK: But it's not--it's not impossible to say that, yeah, you are continuing to look at stocks
and you would make a bid from time to time if you found something that interested you.
BUFFETT: We made--we made a half a billion dollar bid on something, right.
QUICK: You made a half a billion dollar bid?
BUFFETT: Dollar bid, right.
10/12
QUICK: OK, if you don't remember the--if you don't remember the stock, what was the
industry?
QUINTANILLA: Oh sure, now you tell us.
BUFFETT: Yeah, it's bigger than, yeah--you're good, but...
QUICK: But not that good. No dice on this one? All right, well, Carl...
BUFFETT: She thought she'd get me at 5 in the morning, folks, and I'd be punchy.
QUICK: Yes, and maybe you wouldn't quite be on the defensive just yet. But, Carl, we do
have about two and a half more hours where we can try and work on him and squeeze more
details out, so...
QUINTANILLA: Yeah, I've heard--I've heard that if you get enough cherry Cokes in him, he
will spill everything.
QUICK: We've got them lined up.
BUFFETT: It acts like truth serum, yeah. There's no question about that.
QUICK: Yeah, well we've got those cherry Cokes lined up, and we'll keep them coming. All
right, folks, coming up, we're going to go from Wall Street to Washington, as a new movie is
out there creating some shock waves this morning. This movie is all about debt and why it
could be putting the future of our country at risk. We'll get to the men behind the film who'll
be joining us when SQUAWK BOX returns live from America's heartland.
QUICK: Welcome back, everybody, to this very special edition of SQUAWK BOX. Yeah, you
hear the "Love Boat" music playing today. We are in Omaha where last night we got to watch
a new movie premier that came out. We're going to be talking about that more. But we
figured while we had Warren Buffett here and we're in this movie theater of sorts, Warren,
we'd ask you about the first time you ever took a date to a movie theater.
BUFFETT: It was in eighth grade right here in Omaha, and a friend of mine wanted
particularly to ask out one girl and he was afraid to go by himself, so he talked two others of
us to each asking a girl. And we picked these girls up sequentially to go to the streetcar, and
they lived miles apart. By the time we got to the streetcar they were all exhausted, and we
came downtown to the movie. We picked a movie called "The Cat Woman" with Simone
Simon and "The Mummy's Hand" with Lon Chaney. And we felt that the girls would get
terrified and jump onto our laps or something of the sort. And what happened is, instead, we
got terrified, and the boys jumped on each other's laps. The girls were very cool. We finally
got them home, and I don't think anybody ever when on another date for about two years
after that.
QUICK: All right, so it cured you the first time out. We'll take it as that. You know, Warren, we
have a lot more to talk about with you today. That was a quick little fun one, but we also want
to start asking you about some of the holdings of Berkshire Hathaway and where you see
the economy going. We're going to get to all of that in just a few minutes.
11/12
CLICK HERE FOR PART TWO OF THE TRANSCRIPT
Current Berkshire stock prices:
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12/12
TRANSCRIPT/VIDEO PART TWO: Three Hours With Warren Buffett -
Live From Omaha
TRANSCRIPT/VIDEO PART TWO: Three Hours With Warren Buffett - Live From Omaha Alex Crippen | @alexcrippen Published
August 22, 2008
THIS IS PART TWO OF "THREE HOURS WITH WARREN BUFFETT - LIVE FROM OMAHA" ON
GO TO PART ONE OF THE TRANSCRIPT
BECKY QUICK, co-anchor (Omaha, Nebraska): But we're in Omaha this morning, folks, for the
world premiere of a new documentary that's resonating with Americans from Wall Street to
Main Street. It is appropriately titled "I.O.U.S.A." Let's take a look.
(Clip from "I.O.U.S.A.")
QUICK: The man you just heard is David Walker. He served as comptroller general, and he
plays a major part in this documentary. He's joining us this morning on set. And, Mr. Walker,
thank you for being here today.
Inside IOUSA 6:36 AM ET Fri, 22 Aug 2008
DAVID WALKER (Former U.S. Comptroller General): Good to be with both of you this
morning.
QUICK: All right. Well, we were just listening to what you were talking about, a major problem
that you've laid out. How serious and drastic is this problem, in your view?
1/10
WALKER: Well, I--it talks about four deficits, the film does. The budget deficit, the savings
deficit, the balance of payment/trade and the leadership. I think they're all a problem. But
the biggest problem's the leadership deficit. We have too many people today focusing on
short-term issues, not enough trying to take on structural problems to try to help make sure
that our future is better than our past.
QUICK: Mm-hmm. Warren, you said at the beginning of the show you didn't necessarily
agree with everything, but you do agree with taking a longer term look at some major
problems out there.
WARREN BUFFETT: Absolutely. I admire what Dave's doing, that he--the future does not--has
not had much of a constituency in this country in recent years and, you know, it's because
the electoral cycle's shorter than the policy cycle on many issues, and it's hard to get worried
about what's going to happen 10 or 20 or 30 years out. And we're feeling the effects of that in
energy and, obviously, every fiscal decision you make today has an impact forever, really...
QUICK: Yeah.
BUFFETT: ...in the country. So I--like I say, I admire--I admire Dave and Pete Peterson in
terms of what they've done here.
QUICK: David, you've been looking at the budget and studying these things for about a
decade and a half and being really aware of every single thing that happened as the nation's
chief auditor. When did you really get worried that things were headed down a terrible path?
WALKER: You know, I came in as auditor general of the United States, or the comptroller
general, in 1988, and things were going pretty well. You know, we had tough budget controls
in place, the economy was doing pretty well, we were moving to surplus, we had surpluses
for four years in a row--although only one of them without the Social Security surplus. In
2002 the budget controls, the statutory ones that were in place that helped us take us from
deficits to surpluses expired, and Washington totally lost control. It was more spending,
enhanced entitlements, more tax cuts. Out of control.
QUICK: Is there a sense that right now--with American people facing some tougher times,
with an economy that's in crisis, is there a sense that this is a message that's starting to
resonate?
WALKER: Well, first, I've had the good fortune of being able to go to over half the states, over
40 cities...
QUICK: Right.
WALKER: ...over the last two years talking directly to the American people with others about
this. They get it. The question is, do people in Washington get it? The risk is, is that, clearly, as
Warren said, there are things that need to be done today. We do have challenges today.
People are hurting today, and we need to do some things to deal with that. But we must also
deal with our structural, systemic problems and not exacerbate the long range by doing
things that might be good today but further mortgage our future.
2/10
QUICK: What--in short order, what would you like to see done if you had a wish list, maybe
three things that could get done right away?
WALKER: Well, for the presidential candidates, I'll give them two things.
QUICK: OK.
WALKER: Number one, publicly acknowledge that we're in a $53 trillion hole that gets
deeper 2 to 3 trillion a year even if we balance the budget--unfortunately, we're headed the
wrong way--and that they'll make addressing that a priority. And secondly, for them to
endorse the need for a capable, credible and bipartisan commission to make
recommendations to the next president and the next Congress for an up or down vote;
things like budget controls, Social Security reform, round one of tax reform and round one of
health care reform. That would be a tremendous positive step.
QUICK: Warren, what do you think about that?
BUFFETT: Well, I think I--probably the second point I agree with more fully. I think that you've
had situations like the Greenspan commission on Social Security...
QUICK: Right.
BUFFETT: ...back in 1982. There are times--usually commissions are a waste of time. I mean,
you know, the report goes in a drawer someplace and--I mean, just think of the last six or
eight that you can recall and how much came out of them. But there are occasions and,
frankly, a time of recession would make the country more receptive. And you would need--
you would need people on them that, in effect, the president couldn't ignore after the report
came in. But there's--it makes perfectly good sense to have people that are smart, that care
about the future of the country sit down. There are things we can do to improve ourselves
always, and the time might be ripe for something like that.
QUICK: Mm-hmm. Dave ..
3/10
WALKER: You know, we've got to learn how to walk and chew gum in Washington. You know,
we need to be able to do more than one thing at a time. And that's why a commission is
particularly critical, because we need to make progress on reinstituting budget controls.
Social Security reform is easy. We can do that if we go about it the right way. Health care is
the real challenge. And we do need tax reform, too. So if we had the right kind of commission
with an up or down vote--and that's what's different from a number of the other recent
commissions--then we could make progress on multiple fronts, and that's what we need.
QUICK: Have you reached out to the two campaigns? I mean, you said you've been across
more than half the country. What about the two political candidates right now?
WALKER: Yes. I met with the top economic policy advisers of both of the campaigns--they
both happen to be friends of mine--to help them understand where we're coming from in
the foundation, what we believe is important. And I'm hopeful that the general election
campaign will make fiscal responsibility and intergenerational equity a higher priority. But
we'll wait and see.
QUICK: OK. You say that you're hopeful that the campaign will push that. Does that mean
you didn't get a great reception from either one of these two when you sat down with them?
WALKER: Well, you know, that means most politicians like to gain votes rather than lose
votes, OK? And that's why I think it's unrealistic to expect that they're going to get to a great
level of specificity about, `Well, this is exactly what we're going to do to Social Security or
taxes or health care.' That's why this proposal acknowledging the problem, endorsing this
type of commission is the right way for both of them, because then they don't have to get
into the specifics but yet they then have an ability to take on the issues after they're
president. And for the sake of our country, our children and grandchildren, they need to.
QUICK: All right, Dave, we're going to talk more about the film later this morning. We'll also
be joined by Pete Peterson coming up. But thank you for getting up early with us to talk
about this right off the bat. And we'll get back to you just a little bit later this morning.
WALKER: Great.
QUICK: Again, we also have Warren Buffett who's with you this morning. We'll be talking
more about "I.O.U.S.A.," but also the state of the economy. We're going to talk about the
"Oracle of Omaha," where he's investing in the stock market right now--at least we'll try and
get that out of him. Some of his investments, his thoughts on the state of the banking
system. Stay tuned, this is a very special edition of SQUAWK BOX right here on CNBC.
WHAT HAPPENED TO FANNIE & FREDDIE?

QUICK: All right, welcome back, everybody. As we mentioned a little earlier, the movie
"I.O.U.S.A." premiered across the country last night, and we got the chance to host a live town
hall in Omaha that was simulcast to theaters across the country last night. Our CNBC team
was on the ground at some of those theaters across the country. They got the chance to
catch up with crowds from the East Coast to the West Coast. And, Warren, a lot of them
heard you were going to be at this town hall meeting, and so we had our cameras ask some
4/10
of those people some questions that they wanted to pose to you. Are you ready?
BUFFETT: I'm ready.
Ask the Oracle 6:48 AM ET Fri, 22 Aug 2008
QUICK: All right. Let's get to some...
BUFFETT: Where's the popcorn?
QUICK: Oh, there--they didn't provide popcorn quite this early...
BUFFETT: All right.
QUICK: ...but we do have some questions that are coming up. Let's get to the first question
for Mr. Buffett.
Unidentified Man #1: Do you think there's a characteristic about American democracy that
leads to American debt?
QUICK: A characteristic about American democracy that leads to American debt. What do
you think?
BUFFETT: Well, there's nothing inappropriate about having debt in America. I mean,
Berkshire has debt, and it's helped us grow over time. And it's when debt gets out of control
that you worry. But the American democracy, it's always fun to spend a little more than you
take in, and that applies to individuals, it applies to governments. And in a $14 trillion
economy, having debt that's 60-odd percent of GDP is not inappropriate. It wasn't
inappropriate when we had 120 percent of GDP in debt after World War II, because we had
to fight a war.
QUICK: Although you can't expect to maintain deficits like that endlessly.
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BUFFETT: Yeah, you can expect to maintain a deficit that's a given percentage of the GDP. I
mean, Berkshire can expect to have debt forever, and the larger we get in terms of our
equity and earning power, the more debt we can sustain. And I don't think our shareholders
would want us to operate--take on some rule where we're going to operate debt-free in the
future. So it's--what you worry about is when the debt starts spiraling out of control, when it
goes up year after year after year as a percentage of GDP, because eventually when that
occurs people--if you try to borrow money around the world in your own currency, the world
will say no. That's what happened in South America in the past, it happened in the--in the
Asian arena. We are able to borrow money in dollars. The world trusts the dollar. If we tried
to run our debt up to 3- or 400 percent of GDP, nobody would want debt denominated in
dollars.
QUICK: OK. Let's take another question. This one comes from Irvine, California.
Unidentified Man #2: Hey, Mr. Buffett, I would like to know what is going to happen with
Fannie Mae. Are they going under?
QUICK: That was, again, what would be the best investment to hedge against the upcoming
debt crisis?
BUFFETT: Yeah. Well, I would say I don't think there's going to be an upcoming debt crisis,
but if you believe that fiscal activities that the government will get out of control and that we
will get on a situation where the debt skyrockets, you will have, obviously, you'll have
inflation--significant inflation. No government likes to pay back its debt in dollars that are
equivalent to the kind they took in. The best thing you're going to have is develop your own
talent. I mean, if you're the best doctor in town, if you're the best teacher in town, if you're,
you know, the best salesman in town, you'll do well no matter what the currency does.
QUICK: Mm-hmm.
BUFFETT: I mean, you will get your share. So investing in yourself is always the best thing.
Now, second best thing is to own products or stocks that have products that don't require
much capital investment, because you don't want to be--have a lot of required capital
investment during inflation; where they have very little capital investment but they are sort of
a royalty on whatever the current price level is in the country. I mean, if you take--I don't
know what product you might buy regularly, but what--whatever you use for your hair or...
QUICK: (Unintelligible)
BUFFETT: You're not going to change that if the price level doubles.
QUICK: Right.
BUFFETT: And if they don't have to build new plants or anything, they just ride along that
curve.
6/10
QUICK: OK. And very quickly, that Irvine, California, question, I think we heard the wrong
one. The Irvine question, another one he was just asking about was what's going to happen
with Fannie Mae? Are they going under?
BUFFETT: Well, in a sense they've gone under in that--in that they only are existing because
the federal government has said that they're going to back up their obligations, so that...
QUICK: Right.
BUFFETT: ...from a standpoint of an independent entity, it--it's--the game is over on that,

pretty much. And that does not mean the Fannie debt or the guarantee on Fannie mortgages
is bad. Fannie Mae's an important institution in the--in the United States. But they priced risk
wrong.
QUICK: Mm-hmm.
BUFFETT: They did some things in accounting that were bad, they tried to obtain goals that
couldn't be achieved, and in the--and they leveraged up to an extent that was kind of crazy
and certainly was crazy to do it with the assets that they were using the leverage for. So
essentially the equity got wiped out.
QUICK: OK. We're going to take a quick break right now, but folks, when we come back we're
going to talk about Warren and Bill's excellent adventure. We'll get the inside story of your
summer expedition with Bill Gates. You just went this week to look at the tar sands.
BUFFETT: True.
QUICK: All right. We're going to talk about all of that when we come up, and we'll be checking
in with questions from more viewers across the country, too.
Unidentified Man #3: I was very curious, in your recent 10-Q, that you had not purchased
any bank stocks, very surprised that you had not jumped on that in July. I was wondering
how low they have to go before you're interested.
BUFFETT'S TRIP TO THE CANADIAN OIL SANDS

Announcer: This is a special edition of SQUAWK BOX live from the Holland Performing Arts
Center in the heart of beautiful Omaha, Nebraska. Now, once again, here's Warren Buffett
and Becky Quick.
QUICK: Welcome back, everybody, to this special edition of SQUAWK BOX. We've been
talking all morning long with Warren Buffett of Omaha, Nebraska, since we're live in Omaha
today. And, Warren, we've covered a range of topics, but there has been an awful lot of
people who are interested in the trip you made this week. On Monday you headed up with
Bill Gates and you got to take a look at the tar sands. What happened?
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Buffett/Gates Energy Tour 6:51 AM ET Fri, 22 Aug 2008
BUFFETT: Well, what happened was Bill and I talked some months ago about just how
interesting the whole thing was from a geology standpoint and from the standpoint that that
represents one of the few big upcoming sources of more oil production in the world, or very
few. And we both thought we'd understand a little bit better if we went up and looked at it
than simply by reading about it. So on Monday six of us, Bill and a few other fellows--the
Kiewit company arranged it. They're--they've done a lot of construction up there. And we
went up to northern Alberta and we saw a very big mining-type project. There are two ways
that they recover oil from the tar sands. And then we went to this in situ project also, and we
had some perfect people explain a lot about how it worked both from a economic
standpoint and from a physical standpoint.
QUICK: Uh-huh. And was this something that you came up with, that Bill came up with, your
friend, Walter Scott, from the Kiewit company? Who came up with the idea?
BUFFETT: Well, Walter Scott arranged it for us.
QUICK: Right.
BUFFETT: Walter's a whole lot smarter than I am about what goes on in mining and all of--
anything to do with the real world. I'm good with numbers. And so he arranged the trip for
us. But it was something that Bill and I cooked up by--a couple of months ago when we were
talking about the tar sands. We said why don't we go up and take a look? And so we found a
date when six of us could do it. Walter arranged the trip. We had some wonderful people up
there in Alberta at both projects that explained how the things really work, the costs
involved. And they just couldn't have been more helpful.
QUICK: OK. So having seen that, there's already been a lot of people who've been
speculating that you must be interested in investing in this arena. Are you?
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BUFFETT: No, no. I go to the movies, but I don't buy movie companies. I mean, I--I'm always
interested in understanding the math of things and understanding as much as I can about all
aspects of business. And what I learn today may be useful to me two years from now. I mean,
if I understand the tar stands today and oil prices change or whatever may happen, I'm--I've
got that filed away and I can--I can use it at some later date. And that's really the wonderful
thing about investments is your knowledge is cumulative. So if you learn about coal or you
learn about retailing or something, 40 years you--it's useful at some point.
QUICK: Wait, does that make you think that an investment in a tar sands company,
somebody who's making--taking advantage of that would not be worth it at $120 a barrel for
oil?
BUFFETT: Well, the biggest variable in whether it's a good investment is the price of oil. Now,
it's important to know how much they can get out and what their costs are going to be and
what the capital costs--all of that is important and that fits into it. But you still have to figure
out what your own feeling is about what oil's going to be selling for three years from now or
five years from now. Because you could be the world's greatest mining engineer, but if you
were wrong about the price of oil in a big way it would negate all that knowledge. So it--I can
tell you that if 100--if you had $120 oil from now till, you know, 50 years from now, that the
tar sands would be--would work out very well. But I don't know the answer to that. And I may
form an opinion at some point, and I've got it--I'm prepared to form that opinion now.
QUICK: But you are not actively looking right now to invest in any of these companies?
BUFFETT: Do I have a buy order this morning? The answer's no.
QUICK: OK. Warren, we have a lot more to get to with you this morning. When we return,
we're going to be speaking more with Warren Buffett. Again, this is a big day. We've still got
two hours left and we've still got two big stories coming up. Again, I'm here live with Warren
Buffett in Omaha. We're also going to be covering everything that's happening with the
Olympics. Carl is standing by live in Beijing. This is day 13 of the Olympics, coming to an end.
We'll have more SQUAWK in two minutes.
9/10
CLICK HERE FOR PART THREE
Class A:
Class B:
10/10
TRANSCRIPT/VIDEO PART THREE: Three Hours With Warren Buffett
- Live From Omaha
TRANSCRIPT/VIDEO PART THREE: Three Hours With Warren Buffett - Live From Omaha Alex Crippen | @alexcrippen Published
August 22, 2008
THIS IS PART THREE OF "THREE HOURS WITH WARREN BUFFETT - LIVE FROM OMAHA"
ON CNBC'S SQUAWK BOX WITH BECKY QUICK, FRIDAY, AUGUST 22, 2008.
GO TO PART ONE OR PART TWO OF THE TRANSCRIPT
CARL QUINTANILLA, co-anchor (Beijing): But first we're going to start with the man of the
hour, Beck--actually, he's the man of three hours--Warren Buffett with you in Omaha.
BECKY QUICK, co-anchor (Omaha, Nebraska): That's right, Carl. We are live in Omaha today
because last night there was a groundbreaking event in the world of finance and politics and
it took place right here. This was the world premiere of a documentary that's called
"I.O.U.S.A." This film takes a look at what it thinks are America's four key deficits and it
explores into all the risks of these deficits, what it means to the future of this country and its
citizens. Now, Warren, you were in the documentary last night right along with Robert Rubin,
with Paul Volcker and with Alan Greenspan. So let's take a quick look at a brief clip from the
film last night.
(Clip from "I.O.U.S.A.")
QUICK: OK. Again, that was a clip with Alan Greenspan from the movie last night. It
premiered on hundreds of movie screens across the country last night, including right here
in Omaha. After the debut, I got the chance to moderate a town hall meeting with the men
who were behind the movie, Blackstone's Pete Peterson and the former US Comptroller
General David Walker. This is a quick look from that. And Warren, we did have a big
discussion last night about what the big problems are and exactly where things are going at
this moment. In your--in your view, we just heard from Alan Greenspan, he said that you
need to be looking at what's happening down the road. What do you think about that?
WARREN BUFFETT (Berkshire Hathaway Chairman & CEO): Well, I think in any personal
activity, business activity or certainly governmental activity, you know, there should be--you
should be thinking plenty about what happens down the road. That's one of the jobs of
government is to think about what is going to be our energy situation if we don't change 20
or 30 years from now.
QUICK: Mm-hmm.
BUFFETT: What's going to be the fiscal situation. And so unfortunately, you have a many--the
most important things in society, the policy cycle is longer than the electoral cycle.
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QUICK: Mm-hmm.
BUFFETT: So it's very tough to elect people every two years and ask them to be thinking
about something 20 years down the road.
QUICK: OK. We're going to talking more about this film in just a little bit. David Walker will be
joining us again, Pete Peterson, to talk about some of these issues. We also, though, have you
here for a lot of things that are happening right now in the economy. And at the top of the
last hour you talked about where you think the economy is headed. You still think that the
trouble in the economy, it could get much deeper from here?
BUFFETT: Well, I think you're seeing the ripples go out from what's started as a crisis in home
lending and the fact that we had a--we had a housing boom fueled by a lot of lending by
people who didn't know what they were lending on. And that's caused enormous problems
in the financial markets as people have started looking at these instruments which they
thought were triple-A and they're finding out they're about triple-F and--but those problem--
problems have a way of spreading, and that caused the banks to start want--starting to want
to start deleveraging in a big way. And when banks start deleveraging, that has--sends ripples
out. So there's consequences to every pebble that's dropped in the ocean and we had a
pretty big pebble dropped in.
QUICK: Now, you--your view of the economy comes not only from your own holdings, all the
companies that you own outright--everything from GEICO to Dairy Queen to Gen Re to Acme
Brick Company, all the companies that you hold--but also the holdings that you have in other
big companies, correct?
BUFFETT: Right.
QUICK: What sort of insight does that give you?
BUFFETT: Well, it--obviously, I pay a lot of attention to what's happening. And we'll say at
American Express--and Ken Chenault talked about that here a month ago--but they are
experiencing credit deterioration and they're experiencing it sort of in all segments. So
they're seeing the rich customers slow down in payments, slow down in purchases. And
American Express can describe that rather than I, but I pay a lot of attention to that sort of
thing. And incidentally, it will get cured at some time in the future, but right now the situation
is getting worse and I would say I don't see any early end to that.
QUICK: We want to talk to you about...
BUFFETT: But I do see an end.
QUICK: You do see an end, but no early end. I mean, is that six months, is that 12 months, is
that 18 months?
BUFFETT: I don't know.
QUICK: Can you put a time?
2/10
BUFFETT: Yeah, I don't know the answer to that. All I know is that it's not--I don't think it's
going to be really soon. I think that--my candidate is Obama, so I think President Obama is
going to have plenty on his plate in January.
QUICK: OK. Let's talk about your most recent disclosures for some of your holdings. When
we saw the last numbers, your shares in Anheuser-Busch, a lot of people were surprised to
see that you had gotten out of those shares before a deal went through with InBev.
BUFFETT: That's right. I sold about 60 percent of them in the second quarter.
QUICK: Why?
BUFFETT: Well, I wasn't--it was an evaluation of whether I thought the deal would go through
and the desire to sell at least some of the shares. I mean, Anheuser-Busch did not want the
deal to go through and they hired investment bankers, very expensive. They spent $72
million with two investment banking firms. And believe me, most of that was spent with the
idea of trying to keep InBev away. So who knew how it was going to come out? And InBev
persevered, they raised their price and on the remaining shares we'll do somewhat better;
although there's still a time factor and we've used the money for other things. But in
retrospect, I was wrong to decide to partially sell the holdings.
QUICK: What...
BUFFETT: But that--that's not news. I'm often wrong.
QUICK: What price did you sell at? It did not say in the filings.
BUFFETT: Oh, I--we probably averaged around 61 or 2, something like that.
QUICK: OK, 61 or 62, you still had a third. Are you--do you still hold that position?
BUFFETT: Yeah. We--yeah. We hold the shares, yeah. You didn't ask me that last time, so
yeah.
QUICK: I know, I didn't. I had to circle back this time a lot. So you still have those shares. One
of the other things from that filing that Berkshire filed with the SEC noted that you weren't
talking at that point about what's going on with ConocoPhillips.
BUFFETT: That's right.
QUICK: OK. Well, we have you here right now. That means a lot of people are out there
assuming that you're either buying or selling shares of Conoco and...
BUFFETT: That's certainly correct.
QUICK: And if I was a betting man, would it be right to think that maybe you were selling and
taking profits based on where oil prices have gone?
BUFFETT: Well, if you were a betting man, you'd be betting.
QUICK: Oh, so you're not going to necessarily come out there on that. Let's talk about the
3/10
price of oil in general.
BUFFETT: Sure.
QUICK: Price of oil has gone rapidly higher in the last few days. Once again, about 120, still
down from where it was...
BUFFETT: Mm-hmm.
QUICK: ...just a month ago. But 120, you think that that's a comfortable price for oil?
BUFFETT: It's very hard to tell, but what you do know is that the situation in respect to supply
and demand in oil has changed dramatically in the last five or six years from what has
existed ever since World War II. I mean, ever since World War II we've always had a significant
amount of producible capacity beyond the demand that existed. Now, maybe for one reason
or another it wasn't being produced. The Texas Railroad Commission used to--which was
kind of--kind of a domestic OPEC--used to shut down the wells in Texas because there was so
much producing capacity and they didn't want to knock down the price, which was $3 a
barrel then. So we've always had the situation post World War II where it's been a lot more
supply could come on than there was demand. In the last 10 years, the first five years oil
demand went up around four million barrels a day, and then in the next five years it went up
another eight million barrels a day. That's 12 million barrels a day. We did not bring on, in the
world, anything like that in terms of productive capacity. So at 86 million barrels a day, which
is the present demand, roughly...
QUICK: Mm-hmm.
BUFFETT: ...the world that has no real buffer stock in terms of the--you can't turn the tap on
and get 90 or 95. And that means that prices have been and will be quite volatile and
probably--well, they have been at a--certainly at a higher level. It is a different world in terms
of supply and demand on oil than existed five years ago.
QUICK: What's your thought as to what the nation needs to be doing right now? I know
you've spoken with Boone Pickens about his plan.
BUFFETT: Yeah. Well, Boone's on the right track. And then one way or another, you know,
we're using 20 million barrels or so a day of oil, we're using a quarter of the oil, roughly, in
the world. We and the world cannot certainly keep increasing our demand for oil. If we--if we
required another 10 million or 12 million barrels a day in the next 10 years, I'm not sure
where it would come from or at what price it would come from. We just don't have that. The
tar sands would actually--will increase some, but oil depletes, production of oil depletes.
QUICK: Hm.
BUFFETT: And so one way or another, we're going to have to learn to use a lot less oil. And
my guess is we're using less oil right now in the United States because of price factors.
QUICK: Yes.
4/10
BUFFETT: But I'm not sure that the world demand is--maybe it's decreased a million barrels a
day or something like that, but that isn't going to do it over 10 years. We're going to have to
use less oil.
QUICK: OK, Warren, we're going to be checking in with you again after we come back. We'll
have more from Omaha, folks. But we're also going to be checking in with Carl. He's got
plenty more coming up in Beijing. Carl:
QUINTANILLA: Becky, if Warren breaks any more news we're going to have to just go off the
air here, our heads are going to explode for all he information that's coming from him.
IS AMERICA GOING BROKE?

BUFFETT: (From town hall meeting) Every line in the tax code is important to some
constituency. I'm not sure every line in the Bible is, though. The--and actually, you know,
you've got thousands of lobbyists there protecting each line in the tax code and I'm--again,
I'm not sure about whether the Bible has an equal army of people in--on K Street.
The Debt Debate 7:15 AM ET Fri, 22 Aug 2008
QUICK: All right, that was Warren Buffett answering a question on taxes during our town hall
right here in Omaha last night. Again, this was a town hall that was celebrating and looking
into the opening of "I.O.U.S.A.," that's a new documentary that opened and premiered last
night in theaters across the country. That question that came was from someone who wrote
in asking why the tax code is longer than the Bible. Well, it's something we got to talk about
with plenty of our participants last night. In fact, we're joined right now by some of the other
participants in that conversation. Pete Peterson is here with us this morning. Also David
Walker and Bill Novelli, the CEO of the AARP. And gentlemen, thank you for being here once
again this morning on the same stage where we were last night. I'm guessing everybody is
working on adrenaline at this point, practically all-nighters for everybody involved. Pete, let's
start out with you. The movie last night, "I.O.U.S.A.," is something that the Peter G. Peter--
5/10
Peter G. Peterson Foundation did put some financial backing into. Why did you get
interested in it? What's important that you think in the message?
PETE PETERSON (Peter G. Peterson Foundation): Well, Dave and I have concluded
unanimously, the two of us, that the country faces some long-term challenges that if we
don't address them are undeniable, at least in our opinion, unsustainable, and yet they're,
politically speaking, not touchable.
QUICK: Mm-hmm.
PETERSON: And our job, we think, in a democracy like ours is to use every means we can,
and this film is only part of a much broader program to educate the American public and to
activate them and motivate them to do something about it. And the doing something about
it is essentially to let our elected representatives know that this is serious and they want
action. At the present time they feel--that is, our representatives feel that if they confront
some of these long-term problems, since all of them involve somebody either giving up
something or paying more for something, that it will result--not only being politically
incorrect, but politically terminal.
QUICK: Mm-hmm.
PETERSON: And we've got to change that around so that they feel that if they don't do
anything, then they're going to be in re-election trouble.
QUICK: David Walker, we spoke with you earlier this morning. Again, David Walker who's the
former comptroller general of the United States. If you have to look and put your finger on
one issue that you think is the most pressing thing, what is it?
DAVID WALKER (Peter G. Peterson Foundation): Health care costs are totally out of control.
Health care costs represent 34 trillion, just Medicare alone, 34 trillion of our $53 trillion hole.
The United States is the only country on the face of the earth that's dumb enough not to
have a budget for health care. Every other country does. We need to engage in fundamental
6/10
reform of health care to achieve universal coverage for basic and essential health care, have
a budget for health care. We need universal practice standards, evidence-based practice
standards, and we need to enhance personal responsibility and accountability.
QUICK: All right. Bill, you represent the AARP, and some people have said in the past that
seniors get very concerned when you start taking away benefits or changing things that have
been set up. What are--what does your constituency think about the plan presented here?
WILLIAM NOVELLI (AARP CEO): Well, we've done a tremendous amount of research among
our 40 million members and the rest of the public down to 18 years old, and we're pretty
sure that the public is ahead of the politicians. People do want change. The generations in
this country are very closely connected to each other and they have one thing in common,
they want this country to be strong for the future, for their children and their grandchildren.
And so what we have here is a big opportunity. This video that has been done here is a good
kind of wake-up call, and from an AARP standpoint we can do town hall meetings across the
country, thousands of them. So this is an opportunity to make change.
QUICK: Warren, you're not convinced that things are quite as dire.
BUFFETT: No, I--the short-term outlook is not. But we've had a number of recessions in this
country; in fact, we had a Great Depression, we had--we've got world wars. And throughout,
the genius of the American economy, our emphasis on a meritocracy and a market system
and a rule of law has enabled generation after generation to live better than their parents
did. And, I mean, most of the people in this room, practically all of them last night, lived
better than John D. Rockefeller lived. I mean, all kinds of things have happened. And in the
20th century alone, the standard of living of the average American went up seven for one.
There's never been a period like it in history. And that's not an accident. It's because we
unleash human potential and will continue to do that in the future. And we'll always have
challenges and we'll always have disputes between different demographic groups and
income groups. The rich don't want to pay their share of the taxes. The poor probably, you
7/10
know, they--in the last 20 years, the net worth of the Forbes 400 has gone from 220 billion to
a trillion five hundred and forty billion. So you'll always have fights within the family about
who gets what of the pie, but the pie will grow.
QUICK: But there are points that all four of you agree on. What's the closest point where, I
mean, you say, `Yes, this is something the American people need to hear?'
BUFFETT: Well, I think you should always be thinking about the future. I mean, I think you're
crazy if you're not--if you're not planning out where you'll be in 10 and 20 or 30 years. You'll
get surprises in those plans.
QUICK: Mm-hmm.
BUFFETT: And frankly, American ingenuity will tend to surprise on the upside much of the
time. I also think that it's dangerous politically over time. It doesn't endanger the economy in
a huge way, but it's dangerous politically over time to run very large current account deficits
whereby there's a massive transfer of assets or IOUs to the rest of the world from America. I
think that will cause a lot of demagoguery and potentially some real problems 20 years down
the road. We'd still have a more prosperous society.
QUICK: Mm-hmm.
BUFFETT: But it wouldn't be--wouldn't be as good as if we didn't do it.
QUICK: David?
WALKER: I think we agree on two things. I believe all four of us do, based on listening last
night and talking this morning. Number one, we need to focus on the future.
QUICK: Hm.
WALKER: We're a great country, we need to do a number of things to make sure we stay
great. And secondly, we support a capable, credible and bipartisan commission to be able to
make recommendations to the next president and the next Congress to deal with some of
these challenges so we can start making a down payment on our big hole and try to increase
the likelihood that our future will be better than our past.
QUICK: You've had conversations with both campaigns, with the McCain and the Obama
campaigns. What's been your takeaway from those conversations?
WALKER: Well, the takeaway is there's a difference between getting elected and governing,
and there's a tendency for people not to want to talk with too much specificity with regard to
some of these challenges in order to get elected.
QUICK: Mm-hmm. Right.
WALKER: The challenge is this: If they don't at least acknowledge the problem and figure a--
figure a path for it, like a commission, then you don't have a mandate to be able to do
something after you're elected. And so that's why I think acknowledging the problem,
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endorsing a capable, credible and bipartisan commission is the right thing to do for them
and the right thing for the country.
QUICK: Mr. Peterson, you put some financing into this film. Would you consider doing a
debate with the two political candidates that focuses specifically on the economic issues out
there?
PETERSON: I'm just the aging founder of this. We have the CEO sitting here. We're exploring
all kinds of possibilities.
BUFFETT: The one thing you won't find, Becky, you won't--you won't find either candidate
telling you that if we're going to spend $3.1 trillion next year, the federal government will tell
you how they're going to raise 3.1 trillion. They just aren't going to come up with it. They...
QUICK: Long on promises, short on ways on how to do it right now.
WALKER: Maybe if you invited them, they'd come. But they would have some trepidation, I
think. And I think we'd find some ways to come up with some funding for it if it was
necessary.
QUICK: But...
PETERSON: The other big audience that we're going to focus on are the young people. And
I'm one of these old fogies that doesn't even do e-mail, so I'm hardly the person to plan it.
But we've got a bunch of young people who are experts looking at Facebook and MySpace
and MTV and so forth, because it's going to be very important to get these young people
aware of their future, incidentally, not mine. Buffett and I'll do pretty well, if we don't live...
BUFFETT: I hope so.
PETERSON: If we don't live too long.
BUFFETT: Yeah.
QUICK: David, if you had, again, to take a look and go out to Congress, do you think this is a
message that plays back? You're in an election season, it's a tricky time. But what's been the
push back? What's been the...
WALKER: Well, I agree with what Bill Novelli said.
QUICK: Mm-hmm.
WALKER: I mean, the American people are ahead of the politicians.
QUICK: Hm.
WALKER: They're not accustomed to hearing the truth from the politicians and they're
looking for two things. They want truth and they want leadership.
QUICK: Mm-hmm.
9/10
WALKER: And they need--we need more of both right now. So I think that if we can get the
American people engaged, involved, if we can get the presidential candidates to
acknowledge the problem, to be able to endorse the type of commission we're talking about
as a way forward, there's hope.
QUICK: OK.
NOVELLI: Becky, you got a question last night from a woman who said, Ì'm a boomer and
I'm worried about my adult daughter.'
QUICK: Yeah. Mm-hmm.
NOVELLI: This is true all over the country. You know, the majority of adults in this country
think that their children are going to be worse off than they were. This would be the
American dream going backwards. We can't let this happen.
QUICK: All right, gentlemen, I want to thank you all for joining us this morning. It's a topic
we'll be discussing through this morning as well. But also coming up, this is something you've
never heard Warren Buffett talk about ever before. We're going to be back in two minutes.
I'm as intrigued as you are.
BUFFETT: (Unintelligible)
QUICK: So is he, you should see his face. We're going to be spending the morning with the
world's most famous investor and we have much more SQUAWK right after this.
CLICK HERE FOR PART FOUR
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10/10
TRANSCRIPT/VIDEO PART FOUR: Three Hours With Warren Buffett
- Live From Omaha
TRANSCRIPT/VIDEO PART FOUR: Three Hours With Warren Buffett - Live From Omaha Alex Crippen | @alexcrippen Published
August 22, 2008
THIS IS PART FOUR OF "THREE HOURS WITH WARREN BUFFETT - LIVE FROM OMAHA" ON
GO TO PART ONE, PART TWO, OR PART THREE OF THE TRANSCRIPT
BECKY QUICK, co-anchor (Omaha, Nebraska): Coming up, we will have much more from the
"Oracle of Omaha." He has lots of wisdom to share with all of us. In fact, just listen to this.
WARREN BUFFETT ON TAPE FROM LAST NIGHT: It has not paid to sell America short since
1776, and the time to start is not 2008.
(Announcements)
QUICK: All right. Welcome back, everyone, to this special edition of SQUAWK BOX. We are live
in Omaha, Nebraska, and we are fortunate enough to be joined this morning with Warren
Buffett. He's got to be the world's most celebrated investor. Warren, we want to thank you
for joining us here this morning.
BUFFETT: I'm enjoying it.
Questions for Buffett 7:38 AM ET Fri, 22 Aug 2008
1/10
QUICK: Well, we have a lot to talk about. If you take a look at what's been happening with the
Federal Reserve, with the challenges they've been facing, what kind of job, what kind of
ratings would you give the Federal Reserve up to this point?
BUFFETT: Well, I--I'm inclined to give anybody that takes on a tough job like that a pretty
good rating. I mean, they get the toughest problems of the world thrown at them. And in my
job, I wait for easy pitches. I mean, I--you know, somebody can say Microsoft at 27 or General
Motors at 10 and I don't have to swing. I--there's no called strike in my business. So I wait--I
could wait a year and get one pitch I like and swing. And so I wait for the easy ones. And in
the Federal Reserve position, you have to take on the toughest problems. There are no
obvious answers, there's trade-offs. And when I--when somebody that's very bright, very
public-spirited takes on the job, I'm disinclined to ever criticize.
QUICK: Do you think the Federal Reserve has gotten inflation under control? Do you think
that they've focused a fair amount on the economy?
BUFFETT: No, they've got a tough problem. I mean, with these dual goals of essentially
stimulating growth and at the same time containing inflation, they're in direct conflict. And
the temptation is, since the lack of growth is apparent today and the inflation tends to kick in
later on, to ignore the inflation aspects. It's a very tough balancing act and it can't be done
perfectly. And like I say, I couldn't do it perfectly and I don't think anybody can, but I admire
the people that take on the job. I admire Bernanke, I admire Greenspan. That doesn't mean I
think they were always right. It's--I think they're thought to have more power than they really
do have. I mean, Ben Bernanke does not have any magic wand that's going to create--enable
people that have borrowed too much money on their homes or people who've lent unwisely
or the banks that are too leveraged, that doesn't go away easily.
QUICK: We talked earlier this morning about Fannie Mae and Freddie Mac and some of the
major problems facing those two institutions right now. In your opinion do these stocks, you
think, get wiped out?
2/10
BUFFETT: Well, there's certainly a reasonable chance of that because they wrote insurance at
the wrong price. And if you write insurance and write--we write insurance at the wrong price,
you know, we're going to go broke. I mean, it--when you write insurance, you make a
promise. In their case, they guaranteed the credit of trillions of dollars worth of mortgages
and they charged a service fee for doing it--an insurance premium you can call it--and they
got the wrong price for it. And then they--their other activity, which is to run a very large sort
of hedge fund with a carry, where they lend money long and they borrow money in various
ways, they had a spread on that. And that works fine as long as the spread's maintained and
they've done some things to protect that, but it doesn't do well if the assets crumble on
them, and they've had some crumbling. So they got into trouble the way people have
historically got into trouble both in terms of running a carry trade and both in--and in terms
of writing insurance at the wrong prices. And there is no easy cure. You can't tear up your old
insurance contracts. And they can--they keep existing because they've got the federal
government behind them. And the federal government should be behind them, excluding
the equity portion.
QUICK: You own shares of Fannie Mae, Berkshire Hathaway did, up until when, about 2001?
BUFFETT: We were the largest shareholders of Freddie Mac in the--in the United States, and
around 2000 or 2001...
QUICK: Yeah.
BUFFETT: ...it became so apparent to me that they were intent on trying to report quarterly
gains to please Wall Street, and there are all--if you've got the government behind you and
you can borrow money in unlimited amounts, you can report earnings for any given quarter
that you want to. I mean, the chickens don't come home to roost till later. And the
management was intent on that. They started doing things on the asset side they shouldn't
have done, they made promises they shouldn't have made, and so we got out.
QUICK: All right. If--is there anything that would ever convince to you get back in, or would
these companies have to be completely recapitalized and reset up?
BUFFETT: It would--it would--it would take a much different situation.
QUICK: (Unintelligible)
BUFFETT: You need--if you run an institution with enormous leverage, you need somebody
with a fiduciary gene running it. And they had a peculiar problem in that they were trying to
serve two masters. And then Congress was telling them push the money out and foster
housing in every way you can, don't require as much in down payments, make--you know, all
kinds of things, take on projects that they wouldn't have taken on for an economic reason.
And Wall Street was saying deliver us 15 percent earnings gains every quarter. And they tried
to do both of those things, and in the end they're going to do neither.
QUICK: When you take a look at the United States and its stock market compared to what
you see overseas right now, where--what makes you most excited when...
3/10
BUFFETT: Well, I see values in all arenas. I mean, we try to look for the best ones, but there's
no magic to any given market and things are cheaper than they were a year ago in markets
here and in markets around the world. So everything is more attractive, generally speaking,
both here and in Germany and the UK and Korea and you name it. And I just try to look for
the things I understand the best and that also are selling for less than I think they're worth.
QUICK: The dollar has gotten much stronger over the last month.
BUFFETT: Right.
QUICK: Is that a trend that you think can or will continue?
BUFFETT: Well, it won't continue if over the next five or 10 years we run very large current
account deficits. Now, exports have been doing well lately. I mean, the country is remarkably
innovative and resilient. I mean, we are going to export 12 percent of our GDP this year, and
in 1970 it was 5 percent.
QUICK: Mm-hmm.
BUFFETT: So people who think that America is not in the game are totally wrong. But we
have been importing like 17 percent of GDP. If we have that gap and it continues, the dollar
over time will get weaker. Not necessarily next week or next month or next year, but it will
get weaker over time. You can't run persistent, huge current account deficits for decades and
not have consequences.
QUICK: But you don't have any bets against the dollar right now.
BUFFETT: Not right now.
QUICK: You've taken them in the past. At the moment, nothing?
QUICK: You have any currency plays right now?
BUFFETT: None--no direct currency play. We own stocks in companies in other countries, but
no currency plays.
QUICK: OK, let's take a couple questions from people that we were listening from last night.
Again, we've been spending the morning with you, but last night we did have CNBC crews
who went out to some of the theaters across the country that were previewing "I.O.U.S.A."
We got a chance to catch up with some of the people there and ask them a few questions.
Let's start out with one question that's coming from Chicago.
Unidentified Woman: Hi, Warren. Identifying the debt problem and coming up with a
solution seems like an easier task than motivating Congress. What would you suggest that
we do to help motivate a shortsighted Congress?
QUICK: OK. That's, again, going back to how do you motivate a shortsighted congress. What
would you suggest?
4/10
BUFFETT: It's very tough. I mean, in the end, can I name a politician in the last 20 years that
said, `My campaign is I'm going to increase your taxes a lot and come close to closing the
budget deficit.' And since nobody wants spending cut--they all want the other guy's spending
cut...
QUICK: Mm-hmm.
BUFFETT: ...and, you know, we'll have to increase taxes. I--Walter Mondale tried it in 1984
without much success. Now, what I do with politicians is I ask them what they believe in and
will work for that a majority of their constituents oppose. Now, if they give me an answer to
that, I know they really believe that. I mean, I don't get long answers to that question. But
what they...
QUICK: I bet you don't.
BUFFETT: Yeah, no. But that's the real test of what they believe in. Anybody's for anything
that gets them elected, so if they--if they say, Ì'm for lowering your taxes,' or Ì'm for
bringing all kinds of things to my district,' or èarmarking things,' you know, of course they're
going to say that. And they'll say that whether they believe in it or not because it keeps their
jobs. Now, the question is what do they believe in that might endanger their job if in--if done?
QUICK: What did Barack Obama say when you asked him that question? You're supporting
him.
BUFFETT: Yeah. I'm not going to ask him that question.
QUICK: You haven't asked him that question.
BUFFETT: No, I didn't--I didn't--I didn't put that one to him.
QUICK: Why not?
BUFFETT: I didn't feel like putting him on the spot that way.
5/10
QUICK: But he got your support anyways.
BUFFETT: Well, I have a choice of two candidates...
QUICK: Right.
BUFFETT: ...and I support Barack and I think that on balance he will be better for America.
Although I admire John McCain as an individual, but I think that Barack would be better. But I
will--I can tell you that both candidates are not addressing things in the campaign that are
important issues, because they feel it'll cost them votes.
QUICK: What do you think is the most important issue that's not being addressed by either
campaign?
BUFFETT: Well, I think in the--certainly in the financial area. Now, they've both made certain
proposals on taxes, but in terms of the realism of what would happen in terms of closing
budget deficits or something of the sort, I don't think they really want to get that specific
about it now.
QUICK: OK. I think we're going to have more on this conversation--a little bit more about
what's happening in the election, what you think about the ideas of a windfall profits tax,
and we'll talk about all of those issues in just a little bit coming up. Meantime, though, we're
going to take a very quick break and let you catch your breath. You can have a sip of your
Cherry Coke. You, too. Anyway, folks, we'll be right back with much more from Warren Buffett
on his home turf right here in Omaha, Nebraska.
WHO WILL BE BUFFETT'S CATCHER AT FENWAY?

QUICK: Warren, you couldn't hear what Steve had just been talking about, but he did say
that one point coming out of Jackson Hole is that this rise we've seen again in the dollar--rise
that we've seen again in oil is clear evidence that the Fed does not have everything under
control when it comes to inflation. What do you think about that?
6/10
Buffett & The Fed 7:51 AM ET Fri, 22 Aug 2008
BUFFETT: Well, the Fed doesn't have--but even without that fact, I mean, the Fed's got real
problems with inflation and have got it in commodity prices. I--every business we have, but
some of them in a dramatic way, are getting cost increases thrown at us. I just was looking at
the reports for July on certain businesses, and we're trying to push through price increases
ourselves. And our margins are getting squeezed in certain major businesses simply because
we don't get price increases as fast as we're getting them. But we're pushing up prices.
QUICK: So you see it going right through? Which...
BUFFETT: Sure it's going to go through.
QUICK: Which businesses are the toughest to get them through?
BUFFETT: Well, it's tough, and we're in various things connected with residential housing.
QUICK: Right.
BUFFETT: Take carpet, for example...
QUICK: Right.
BUFFETT: ...or insulation. These things all have a huge energy base to them. I mean, carpet is
oil, and weekly we get these price increases thrown at us and they're usually effective
immediately, whereas we have trouble with our retailers getting them to say, well, 30 days
from now or 60 days from now. And we don't want to--we don't like telling a retailer that you
can have your price increase tomorrow. So there have been increase after increase in prices
and our margins are still going down, and that's happening--if you take brick, that's natural
gas. I mean, there's all kinds of areas where it's happening. Food it's just--it's pouring
through.
7/10
QUICK: But does that mean you were not surprised by that very hot PPI number that we
just...
BUFFETT: No, I wasn't surprised at all.
QUICK: You weren't.
BUFFETT: No. I--in fact, if anything I feel that the CPI has been sort of understating what's
been going on. We are in an--we are in a economy that is going to see significant--and is
seeing significant inflation. The only--the only people who aren't getting much inflation are
blue-collar workers and the middle class in terms of their income. So they are getting
squeezed like crazy.
QUICK: Would it--does that mean you expect to see more PPI increases and eventually see
that showing up in the CPI as well?
BUFFETT: It has to, but--yeah. They--the cost of living is going up and, you know,
unfortunately, the prices of houses going down and there's--there are problems in the
economy. We will get through this. But as Paul Volcker mentioned in the movie last night, the
problem with inflation is if it gets ignited, it gets very hard to put at a--at a--at a point. I mean,
Paul Volcker had to go in with a 2x4 to the economy in the early '80s and we had inflationary
expectations built in to a terrific degree.
QUICK: Mm-hmm.
BUFFETT: And if that happens again, we've got lots of troubles.
QUICK: Warren, we teased earlier that we were going to mention something nobody had
heard about just yet. We know that you're a huge baseball fan, but you also have a big day
coming up. What is that big day?
BUFFETT: It's a--it's a huge day for all of baseball, actually. On September 9th in Fenway Park
I will be starting. And--but more important than that--because I've thrown out the first pitch
other times--but this time I brought my secret weapon.
8/10
Warren Buffett throws out the ceremonial first pitch before tonight's game between the
Kansas City Royals and the Texas Rangers
QUICK: Which is?
BUFFETT: Jack Welch is going to be my catcher.
QUICK: Jack Welch is your catcher.
BUFFETT: Yeah. I mean, can you imagine being able to pitch with Jack calling the pitches?
And, I mean, anything he calls for. I've got--I've got a fastball, a curve, a sinker, you know, a
spitball, a knuckleball, a sidearm delivery. And if Jack calls for any pitch, including the ball that
bounces four or five times before it gets to the plate, I'm going to throw it.
QUICK: You're going to throw exactly what he calls for.
BUFFETT: So if I--if that's the pitch, it's because Jack called it.
QUICK: All right, we'll all be watching that. That's coming up, again, you said September 9th.
BUFFETT: September 9th, right.
QUICK: OK. Folks, we still have a lot more to come this morning. You have not heard the last
from Warren Buffett yet. We'll get much more on his holdings, what he's thinking about
buying and selling, maybe. We'll also talk to him about the economy. We'll get to the election
and much, much more. Plus, don't forget, Carl is live in Beijing as day 13 of the Olympics
comes to an end. We are going for the gold this morning. This is a special split edition of
SQUAWK BOX live from America's heartland and from China. It's all coming up when we
come right back.
CLICK HERE FOR PART FIVE
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9/10
Class B:
10/10
TRANSCRIPT/VIDEO PART FIVE: Three Hours With Warren Buffett -
Live From Omaha
TRANSCRIPT/VIDEO PART FIVE: Three Hours With Warren Buffett - Live From Omaha Alex Crippen | @alexcrippen Published
11:52 AM ET Fri, 22 Aug 2008 Updated 4:59 PM ET Mon, 2 Aug 2010 CNBC.com
August 22, 2008
THIS IS PART FIVE OF "THREE HOURS WITH WARREN BUFFETT - LIVE FROM OMAHA" ON
GO TO PART ONE, PART TWO, PART THREE, OR PART FOUR OF THE TRANSCRIPT
Announcer: This is a special edition of SQUAWK BOX, live from the Holland Performing Arts
Center in the heart of beautiful Omaha, Nebraska. Billionaire investor Warren Buffett in his
hometown talking markets.
WARREN BUFFETT: It's a different world in terms of supply and demand on oil than existed
five years ago.
Announcer: The economy.
BUFFETT: It's not over by a longshot.
Announcer: And everything in between.
BUFFETT: Coca-Cola would never be going on a country road when the Interstate's available.
Announcer: Only with us. SQUAWK BOX begins right now.
BECKY QUICK, co-anchor (Omaha, Nebraska): Good morning, everybody. Welcome back to
SQUAWK BOX right here on CNBC. As you know we have quite a show in store for you today.
Our special guest, who's been with us for two hours already, is a man who needs no
introduction. We're talking about Warren Buffett. And, Warren, thank you again for hosting
us in your hometown. It's great to be here with you in Omaha.
BUFFETT: Thank you.
(Carl Quintanilla airs from the Olympics)
(Clips from "I.O.U.S.A.")
QUICK: All right. Warren, let's get back to the state of the economy right here and around the
globe. When you look around, what do you worry about most when it comes to the
economy?
1/9
Warren Buffett on Financials 8:00 AM ET Fri, 22 Aug 2008
BUFFETT: Well, I don't worry that much in the sense that we've been through lots of
recessions in the past, and that the country always comes out stronger, and so I expect--I
expect stock markets to go down from time to time. I expect there to be uncovered--I expect
that we will uncover credit mistakes. I expect that we'll have recessions. But I also expect,
and I'm totally convinced, that your children will live better than you and your grandchildren
will live better. So I don't--I don't get upset about, day-to-day, what's happening in the
market. It may offer--in fact, it does offer chances to buy things more attractively. I mean, if I
go to a supermarket and things are on sale, I feel better.
QUICK: All right. So let's talk about that. Are there bargains out there right now?
BUFFETT: Well, there are certainly things that are a lot cheaper than they were a few years
ago, and the businesses are better. Now, that doesn't mean they're doing better today, but
they are fundamentally worth more money than they were a couple of years ago, and people
are just looking at the glass being half empty rather than half full now.
QUICK: When we talked to you a few months ago, you talked about how you get a lot of
phone calls, people call you up with deals. How many phone calls are you getting now?
Would you say it's more or fewer than you got three months ago?
BUFFETT: It's probably a little more, but I was getting calls then, too. But I don't get loads of
calls, but they sometimes are talking about fairly good-sized deals, and we get the calls from
the people that have run out of money. Those are not--some guy calls me up and says, Ì just
lost $5 billion and will you replenish it,' I don't get quite as excited about that as if
somebody's got a good idea and is making money with it. But there have been more calls
that have been sort of distress-type calls than opportunity calls, and what we've told them is
to call sovereign wealth funds or somebody like that.
QUICK: So you're saying call the money that you think is dumb money on Wall Street?
2/9
BUFFETT: We'll call it innocent money, yeah.
QUICK: And--yeah.
BUFFETT: Yeah, and incidentally, that's what happens.
QUICK: Yeah.
BUFFETT: I mean, if you've got a great deal in this country, you don't have to go to Beijing,
you know, or the Middle East to find somebody with money to fund it. It's like when oil
prospectors would come up here from Texas and they'd say, `We got a wonderful deal for
you in Texas,' I always thought, there are all these oil men in Texas, you know, why didn't
they call on them?
QUICK: So you think the sovereign wealth funds are getting the raw end of the deal when
they buy into some of the financials?
BUFFETT: I think that they are buying what is being sold to them, and in securities you should
not buy what's being sold to you. You should buy what comes from your own analysis and
looks the cheapest. The idea that somebody is going to come and call on you and say, you
know, `Buy $2 billion worth--this is the best thing to buy in the world,' it isn't the best thing
to buy in the world. The best thing to buy in the world is something that you've dug out and
that people aren't talking about and that, you know, you find yourself. Securities that are
being sold to you have a special push in it. Usually, there's extra commissions in them or all
kinds of things. So I don't--I don't want to get ideas from other people, basically. I want to get
ideas from a bunch of facts that I uncover someplace.
QUICK: A lot of people recently have been talking about the financials, which, once again,
people are saying, `Hey, they are reaching levels that inherently make these stocks cheap.'
You own some of the financials.
3/9
BUFFETT: Yeah, we own--we own some businesses that we think are good businesses and
that if the stock market closed for the next three years I'd be happy owning. That's the real
test. I mean, if you buy a farm, you don't get a quote on it every day. If you buy an apartment
house, you don't get a quote on it every day. You look to the rents or you looked at the crop
in the case of the farm. We look to the business. So if I buy stock in a financial, what I'm--what
I'm looking at is where I think they'll be in five or 10 years, and I can't pick bottoms. I don't
think anybody can. I do want to stay away from the ones that I think are kind of dumbly
managed.
QUICK: American Express, Wells Fargo, those are two of your big holdings...
BUFFETT: Right.
QUICK: ...in the financial arena. If you see prices come down and something you've already
decided you like this business, if the prices come down, do you buy more?
BUFFETT: Sure.
QUICK: Are you buying more?
BUFFETT: Well, I bought more of one of those, you know, in recent--in recent months.
QUICK: Either American Express or Wells Fargo?
BUFFETT: Now you've got it narrowed down. They--incidentally, both of those companies
were started by the same guy, as I--Wells and Fargo started American Express.
QUICK: What makes you look around and think, `Hey, things are getting better'? What would
it take to convince you that, ÒK, this is'--or is it just simply prices are too cheap and they
shouldn't get there?
BUFFETT: Yeah, I don't--if I were going to buy a farm, I know they're going to have a drought,
we'll say, two years out of 10. I know prices are going to be lousy, we'll say, two years out of
10. I would rather buy it during the drought, you know, and--or when prices are bad because,
you know, I know what it's going to do over time, and the test is to buy it as cheap as you can,
something that--where you really have a pretty good fix on what it's going to look like over 10
years. And you're much more likely to buy it when times are bad then when times are good.
QUICK: Is now a time, though, when you'd be looking around at financials you'd never
owned a stake in before? Simply because prices have come down, do you start doing more
homework? Not something that's getting pitched at you, but do you start looking around to
see if anything says, ÒK, this one's getting unfairly tarnished'?
BUFFETT: I'm reading far more 10-Ks in the last few months than I've been reading--far more
than I was reading three years ago. Yeah, there's--there are more potentially good ideas out
there than there were three years ago, and some them are in financials. I mean, I'm looking
all the time. And the cheaper they get, the harder I'll look.
QUICK: And you're not just talking about companies here in the United States.
4/9
BUFFETT: No.
QUICK: You're looking outside the United States as well.
BUFFETT: Right. Yeah.
QUICK: Is there a particular country that you think is inherently--like with South Korea a few
years ago, you said, `Hey, there's got to be some bargains.' Is there another particular
country that you look at and say, `Hey, I don't know what they are, but there's got to be
something good in there?'
BUFFETT: Well, it's not like South Korea a few years ago. South Korea, you could just turn the
page--you could throw darts, you know, with South Korea, and those stocks were really,
really cheap. I mean, it's astounding how cheap they were and the world ignored it.
PetroChina was ridiculously cheap a few years back, but I--we need to find big things, so I
have to look at market caps that are large, and that rules out a whole bunch of countries,
because the businesses just aren't that large. And I have to feel I sort of understand the
political climate, the taxation climate, that sort of thing, and the attitude towards
shareholders. But there's a lot of countries on that, but there's none--nothing--there's
nothing like South Korea was five years ago.
QUICK: All right. When you look at what's happening with commodities, we saw a huge
boom in commodity prices. We've seen a huge retracement. Oil prices all of a sudden back
up around $120 a barrel. But do you think this volatility in commodities prices, has any of
that caught you by surprise?
BUFFETT: Well, the dollar's become worth less.
QUICK: Yeah.
BUFFETT: So to the extent that they're quoted in dollars, they haven't gone up as much in
Euros or some other kind--in Brazil, the Brazilian currency, you know, has more than doubled
against the American currency, so when we look at soybean prices, which happens to be a
big product there, it hasn't changed relatively the same way. But, you know, the surprising
thing may be that commodities stayed down as low as they were for as long as they did.
What happened in oil, we had a change in the supply and demand balance, and that's big in
markets. That's what you had in the rail industry, for example. I mean, anytime you get those
fundamental changes where, in the case of the rail industry, over a 25-year period the
amount of actual rail in the United States declined by 20-odd percent while the ton miles
increased 60-some percent. Well, that changes the pricing dynamics, and, you know, that's
gone on in oil. It changed the dynamics that there's not a buffer supply like there was five
years ago.
QUICK: Which is why you've also bought in to some of the railroad stocks.
BUFFETT: That--I should have done it much earlier. I really missed it entirely. I mean, you
could just sit there and watch ton miles go up, rail go down, at some point the pricing power
shifts. And, you know, it was ridiculous what the whole rail industry was selling for 10 years
5/9
ago, and it was also ridiculous that I didn't spot it.
QUICK: But you think that this is still a good place for an investment. You're there for the
long haul?
BUFFETT: Well, I'm, as we say in the rail industry, I'm there for the long haul. No, I--we'll be--
we've got a big position in Burlington Northern .
QUICK: Burlington, right.
BUFFETT: We'll own it a long time.
QUICK: Warren, we're going to have much more coming up. Again, folks, if you are just
tuning in, we are live with the legendary investor in his hometown of Omaha, Nebraska.
Much more to discuss this morning. A lot of ground to cover, including what has him a little
hot under the collar this morning. Yeah, you don't want to miss a minute of this.
WHY CONTRIBUTORS SHOULD SUE JOHN EDWARDS

QUICK: All right. Welcome back, everybody, once again, we are live in Omaha, Nebraska this
morning. You know, one of the things that the nation is watching is next week, the first of the
conventions kicks off, the Democratic National Convention. Originally, John Edwards was
expected to be speaking at that convention, but after some revelations and a spectacular fall
about--some revelations about his private life, he will no longer be speaking at the
convention. Warren, you're somebody who has been supporting Barack Obama. Did you
ever give money to John Edwards along the way?
Buffett on John Edwards 8:19 AM ET Fri, 22 Aug 2008
BUFFETT: No, I didn't--I didn't give money to John Edwards. And, in fact, I think if I'd given
money to him, I'd probably be asking for it back now. It's an interesting situation because
John Edwards essentially was soliciting money from people to further his ambitions for the
6/9
presidency, and, you know, people sent him 50, $100, $200, and I would say that they sent it
in while they were being misled by the person who was soliciting the money from them. And,
you know, I think if I were Edwards, I might give up a haircut or two and refund at least, you
know, the people that gave the 50 or $100, $200 items, because they-- if they had known the
facts, they wouldn't have sent him the money, and he is the guy that didn't give them the
facts. I mean, he knew that, in effect, he wouldn't be elected president. I mean, the story was
out there during the campaign. He denied it, but it was out there. And, in fact, I've never
heard of it, but it might be kind of interesting if somebody, some contributor, would bring a
class-action suit on behalf of all these people who essentially were led to send money to a
man under totally false circumstances, false pretenses, and where he knew it and didn't tell
them the truth.
QUICK: Hm, that'd be ironic for a trial lawyer...
BUFFETT: Yeah.
QUICK: ...to have a class-action lawsuit brought against him.
BUFFETT: I've seen a lot of class-action suits with less to it than this particular case. The facts
are clear. I mean, he solicited money and he wasn't telling the truth to the people he was
soliciting it from.
QUICK: How--have you had any discussions? I mean, obviously, you talked to a lot of people
who are high ranked in the Democratic Party. Is that something that's been thrown around
out there, or did you cook this up yourself?
BUFFETT: No, I don't think--I don't think I've heard of that. The--I don't talk to a lot of class-
action lawyers, but I really think--I think those people were defrauded. They sent money
under--with the person who was soliciting the money from them misinforming them even
when the National Enquirer came out with it during his campaign, he kept soliciting money
and saying it isn't true. I would think that they--it might be a pretty good class-action suit.
QUICK: Even to this day, he says that he--they had 99 percent of it wrong, even in the most
recent interview John Edwards came up with, although he admits that he did have an affair
with a woman.
BUFFETT: Well, he would have a chance at a class-action suit to respond to that.
QUICK: All right. Again, you've been supporting Obama, though.
BUFFETT: Absolutely.
QUICK: Are you going to the convention next week?
BUFFETT: No, I'm going to be in Denver one night, but I won't actually be at the convention at
all, no.
QUICK: OK, but Obama has been somebody you've been supporting. Obama has some
policies that don't necessarily jive with your views, specifically windfall profits tax.
7/9
BUFFETT: Yeah.
QUICK: What do you think about the windfall profit...
BUFFETT: Well, the only way you get somebody that jives with all your views is to run
yourself, and I have no interest in that. The test is between two people.
QUICK: Mm-hmm.
BUFFETT: But I think--I think a windfall profits tax on oil does not make any sense. I mean, I--
soybeans have gone up. Wheat's gone up. Iron ore's gone up, and those are commodities
that are going up because the commodity markets have driven the prices up, and nobody's
suggesting a tax, a special tax on some farmer because his corn has gone up in price or on a
wheat farmer in Kansas because his wheat has gone up in price or an iron ore producer. And
the oil companies are easy to pick on, but it's a world price. It isn't--is not set by ExxonMobil
or anybody else. And I'm sure they're happy to have it, but the idea of taxing somebody just
because their services of what they sell have gone up in price a lot, taxing them in some
special way doesn't make sense to me.
QUICK: It's been an idea that's been thrown out there. Do you believe that Obama's
campaign and Obama himself actually will push that through, or is this something that gets
thrown to the wayside?
BUFFETT: Well, a lot of things get thrown to the wayside, and that'll be true of things put out
by both candidates. I mean, I do not expect perfection in candidates. I mean, it--you know,
every saint has a past, every sinner has a future, you know, so--it's a terrible mistake to
expect perfection. What you do--what you do hope to get is very high-grade, very intelligent
people who have the public interest at heart, who have to make various compromises in
terms of getting into office, and you hope to--you hope to attract those kind of people. I think
we've got two of those in this campaign, but I much prefer Obama.
QUICK: OK. We'll have more on this topic a little later. Warren Buffett, again, is going to be
with us for the rest of the hour, so we do have much more to talk about. We are live from his
hometown of Omaha, Nebraska.
BUFFETT ON THE OLYMPICS

CARL QUINTANILLA, co-anchor (Beijing):
Warren, I know you've been a fan of the games. You've probably been watching somewhat.
Is there an event that appeals to you the most? I mean, are you--do you want baseball to
come back in a big way as an Olympic sport?
BUFFETT: I love it all, but it's hard to beat a race that's decided by 1/100th of a second, and...
QUINTANILLA: Yes.
BUFFETT: ...and actually, the 100 meter, even though it's over so fast, I mean, it--to watch a
guy sort of breeze across there in a time like Bolt did it, it's an unbelievable event.
8/9
QUICK: Hey, Darren, we were watching the clips, Darren, we were watching the clips here,
and Warren had something to say when we watched you in your Speedo diving into the pool.
Warren, what did you give him?
BUFFETT: I gave him a 4.3.
QUICK: A 4.3.
BUFFETT: But I'm an easy grader.
QUICK: Guys...
DARREN ROVELL: Well, I didn't try too hard. I didn't try too hard there.
QUINTANILLA: Yeah.
ROVELL: It was for effect.
QUINTANILLA: Becky...
BUFFETT: The degree of difficulty was minus one.
QUICK: OK.
QUINTANILLA: There you go. That's right. And that--touche. Give me one second, Bec, just to
say one thing.
(Quintanilla thanks CNBC and NBC people on Olympics coverage, Becky and Warren thank
Quintanilla and Rovell)
CLICK HERE FOR PART SIX
Class A:
Class B:
9/9
TRANSCRIPT/VIDEO PART SIX: Three Hours With Warren Buffett -
Live From Omaha
TRANSCRIPT/VIDEO PART SIX: Three Hours With Warren Buffett - Live From Omaha Alex Crippen | @alexcrippen Published
12:18 PM ET Fri, 22 Aug 2008 Updated 1:21 PM ET Thu, 5 Aug 2010 CNBC.com
August 22, 2008
THIS IS PART SIX OF "THREE HOURS WITH WARREN BUFFETT - LIVE FROM OMAHA" ON
GO TO PART ONE, PART TWO, PART THREE, PART FOUR, OR PART FIVE OF THE TRANSCRIPT
Announcer: This is a special edition of SQUAWK BOX live from the Holland Performing Arts
Center in the heart of beautiful Omaha, Nebraska. Now, once again, here's Warren Buffett
and Becky Quick.
BECKY QUICK, co-anchor (Omaha, Nebraska): Welcome back, everyone, to SQUAWK BOX
here on CNBC, first in business worldwide. We are just one hour away from the opening bell
right now. Again, we've been watching the futures higher through the morning. We've been
spending a lot of time this morning with Warren Buffett and he's been answering questions
from followers across the country. If you see right now, the Dow futures are, in fact, close to
100 points above fair value, but let's head back to California to get a question of--from one of
you at home.
Unidentified Man #1: What are the odds that we could have a bank failure similar to the
1929 era?
QUICK: Warren, that question was, again, what are the odds that we could have a bank
failure similar to what we saw in 1929?
1/11
Buffett on Housing 8:44 AM ET Fri, 22 Aug 2008
WARREN BUFFETT (Berkshire Hathaway CEO): Well, that's quite unlikely, partly because of
the FDIC. People--you had failures in the Great Depression where the failure of Bank A
caused the failure of Bank B. When they saw a line at Bank A, everybody lined up at Bank B
and then they lined up at Bank C. And the FDIC was one of the great ideas of the Depression.
You've got terrific woman, Sheila Bair, running that. So we won't see failures simply because
there's a wave of failures elsewhere. What we'll see here are failures where the banks were
dumb in what they did and you will see a fair number of those. We had a huge number of
bank failures in this Midwest area, including Nebraska, in the early 1980s when there was a
farm bubble. Where there's been a real estate bubble and the bankers have participated big
time, you'll see some bank failures, but you will not see any losses to anybody that--in terms
of FDIC covered accounts of 100,000 or under, so nobody needs to worry about their $80,000
account at any bank, even though the bank may have been run in a dumb way.
QUICK: Although you've said it before that the financial system is much more intertwined
and linked than it had been in the past, especially when you start looking at some of the
investment banks and beyond. Do you worry about that?
BUFFETT: Well, that's why the Fed had to rush in on Bear Stearns.
QUICK: Right.
BUFFETT: I mean, they weren't--they weren't worried about Bear Stearns, they were worried
about the consequences of Bear Stearns toppling and then the domino action following,
which would've happened in my view. I think they made exactly the right decision. There's
enormous interconnection and derivatives have accentuated that in a big way so that trouble
spread. And even if you made sound loans getting 10 or 20 percent down, if the other guy
made a bunch of dumb loans and that causes a huge supply of houses and house prices,
appreciation, and even the better loans can get impaired to some degree. So nobody gets
insulated from the problems of the economy. And if you're a bank, you feel some of those
effects no matter how prudent you've been over time. But there's not going to be a wise--
there's not going to be bank failures happening just because there's other banks fail.
QUICK: Could there be another Bear Stearns this time around, though?
BUFFETT: Sure. People--and I've said that you only find out who's been swimming naked
when the tide goes out.
QUICK: Mm-hmm.
BUFFETT: Well, Wall Street has turned out to be a nudist beach. I mean, there's--there've
been plenty of people that pushed balance sheets extremely hard. I mean, there was virtually
no limit on credit. People, anything was going in the credit market and they were mispricing
credit, they were--they were overleveraging and now the truth comes out as people start
looking with, you know, some care at what's really on the liability side and the asset side of
these banks. A long time ago there was a movie producer holding an annual meeting and
one of his shareholders said in the film, you know, Ì don't understand all these figures, Mr.
2/11
Scurus,' or whatever his name was. `What do they mean?' And the CEO said, `Well,' he said,
Ì don't really understand them very well, either.' But he said, `But I can tell you this, the
liabilities are good.' Well, that's what you find out in a period like this. The assets may not be
so hot, but the liabilities are good and then that's when the trouble begins.
QUICK: When people start looking around to find the next potential Bear Stearns, Lehman
Brothers is the name that comes up again and again. Should people be concerned about
what's happening at Lehman?
BUFFETT: I don't think it's appropriate, really, to talk about financials.
QUICK: Financials, in particular, banks.
BUFFETT: No. I think that--I really think that's inappropriate to talk about them.
QUICK: Do you think that's caused...
BUFFETT: I have no problem talking about Fannie and Freddie because the government
stands behind them.
QUICK: Do you think that's part of what caused the problems with Bear Stearns, though?
Once the rumors get out, once the media picks up on it, once the names came back again
and again? Is that...
BUFFETT: If you had a $400 billion balance sheet and 400 or so billion of stated equity
underneath it, that means that you're dependent on the kindness of strangers every day.
QUICK: Mm-hmm.
BUFFETT: And you know, it--if the strangers aren't there, you don't have a way of paying back
the 400 billion. And so if your name is bandied--if you--in the case of the kindness of
strangers, if your virtue is questioned, you know, you've got a problem. And there is no bank,
investment bank, that can pay all its liabilities tomorrow, and if people present those
liabilities and say we don't want to have anything to do with you, even if you offer us a little
3/11
more on the repos or something of the sort, the game is over and it's a--I think Jamie Dimon
said, you know, Ànybody who spreads rumors about financial institutions ought to be--
ought to be put in jail.' It's--you can cause trouble. If I were to say XYZ is in trouble, they are
in trouble.
QUICK: Right.
BUFFETT: I mean, you create your own fire in this case.
QUICK: Do you agree with Jamie Dimon that people should be going after the people who
are spreading rumors about these financial institutions?
BUFFETT: It's hard to do. I mean, to find out where a rumor starts or anything. But I mean, it
is--it's very serious business to question the integrity of a financial institution when you can't
possibly pay all your liabilities the next day or the next week. And a rung--or a question
creates its own dynamic and you can do a lot of harm to a financial institutions just by
spreading rumors. So there ought to be penalties attached.
QUICK: I know it's hard to prove, but would your gut tell you that that's partially what
happened with Bear Stearns?
BUFFETT: Well, it's partially, but there--it isn't the whole story, but Bear Stearns, you know,
they had problems and their balance sheet was too big and the assets were too illiquid and--
but the rumors moved it along. I mean, and it comes like that.
QUICK: Mm-hmm.
BUFFETT: You know, I ran Salomon in 1991 for a little while and we could've been put out of
business. As it was, our balance sheet was shrinking every day. There was a lot of pressure.
But one big story in the paper that says, you know, Salomon did go out of business tomorrow
or something of the sort would have meant we would have gone out of business. I mean,
everybody would have pulled their lines from us.
QUICK: OK. OK. Warren, we're going to have a lot more coming up. We've got more questions
from people back home and we've got more questions from right here as well. Again, folks, if
you are just joining us we, are live with Warren Buffett from Omaha, Nebraska. We'll have
more SQUAWK right after this.
TIME TO BUY THE HOMEBUILDERS?

QUICK: Welcome back, everybody. We are in Omaha, Nebraska. Last night it was the
premiere of the "I.O.U.S.A." movie and after that debut we got the chance to moderate a
town hall meeting right here with the men behind the movie, Blackstone's Pete Peterson and
former US Comptroller General David Walker. Warren Buffett was also on that prestigious
panel and in the movie and we had a chance to send people out to go around the country to
get questions, Warren, from people around the country that they'd like to have come back to
you. These are people who were at the "I.O.U.S.A." premiere, but right now we do have a
question from Chicago. So why don't we listen to this.
4/11
Questions for the Oracle 8:30 AM ET Fri, 22 Aug 2008
Unidentified Man #2: Hi, Warren. Given the state of the US credit markets and the way that
banks are withholding lending from retail customers essentially, how do you see the housing
market playing out over the next 18 to 24 months?
QUICK: Hm. That's a great question. How do you see the housing market playing out, given
how banks are lending right now?
BUFFETT: Hm. It will be pretty tough. The, you know, we had a very, very big bubble and we
had a lot of people do things they shouldn't have done as borrowers in terms of either
counting on making payments they couldn't make or lying about their financial
circumstances. We had a lot of mortgage lenders that were doing bad things and we had a
lot of investors that were doing stupid things. So you put all that together and you put it into
an $11 trillion mortgage market and you've got lots of pain for the investors and you've got
pain for the people that can't make their payments. Now the nice thing about borrowing on a
house is if you make your payments, you keep it. And so if you signed up for payments you
could handle, you're fine unless you lose your job or there's a divorce or death or something
of that sort. But a lot of people speculated on houses and bought them with no down
payments. And the consequences of that won't get washed out in the next month or two.
They will last, in my view, a considerable period of time. But the good thing about it is we
have--we have household formation growth in this country. We're not a stagnant economy
and we will work our way out of it, but it took--with the farm crisis here in the early '80s, it
took years to work our way out of it.
QUICK: There are people who will point to statistics like with housing starts that we saw
earlier this week. People said, hey, it's still down, but the rate of decline is decreasing. Is that
about the best thing people can find to say about this? Or is the best...
5/11
BUFFETT: Well, the best thing they could find is if there weren't any housing starts, then we
would clear up the inventory much quicker.
QUICK: Right.
BUFFETT: I mean, in the end, housing starts work against the housing recovery. So it's going
to--it will take time. I mean, there--the losses are huge with the home builders and then the
losses of people losing homes but, again, only if they don't make the payments. And lenders
are losing a lot of money. People are finding out they didn't have any idea what they were
doing when they bought the CDOs and that sort of thing. And the rating agencies did not
cover themselves with glory and frankly Wall Street didn't either. So it's--there's a lot of
blame to go around and we probably shouldn't worry too much about that. We should--we
should worry about really creating enough households so that the excess supply gets sopped
up. There's a lot of vacant homes now. And the market won't really come back until you get a
normal--a close to normal ratio of vacant homes, homes up for sale compared to current
sales, and that's a ways off.
QUICK: We get anecdotal evidence all the time from people who say they are having a really
tough time even though they have great credit. They can't get a mortgage. Other people
saying I can't get a second mortgage, I can't find something for a second home. Is it your
sense from what you know about lending right now that lending has gotten that much
tighter?
BUFFETT: Well, I don't know about every area in the country.
QUICK: Mm-hmm.
BUFFETT: But I think if you have a significant down payment and you have a job and your
income covers the payments by the old traditional yard sticks, I don't think there's a problem
getting a loan. I mean, Wells Fargo is lending a lot of money.
QUICK: Mm-hmm.
BUFFETT: And they're looking for more loans. But they're not going to lend it to you for
nothing down. They're not going to lend you so that you have payments that are 50 percent
of your income and that stuff--you've got to get the bad practices out of the system and then
we won't have these problems.
QUICK: Fair to say that since you think these problems could stick around for a long period
of time that maybe the home builders don't look that cheap and you haven't been looking
there for bargains?
BUFFETT: No. The home builders still have plenty of problems and that doesn't mean--you
know, the time to buy the stocks is not necessarily when they've already--their business has
already turned up.
QUICK: Sure.
BUFFETT: I don't look--I don't try to pick turns in any kind of an industry in terms of buying
6/11
stocks. I just like to buy them when I think they're cheap relative to their long-term earning
power and I don't happen to have that conviction about home builders now, but it very well
may be the case. It's just I don't have the conviction.
QUICK: OK. Warren, we have more to come. It's been a long morning already but, hey, time is
flying by.
BUFFETT: You're paying me by the hour. I mean, why should I complain?
QUICK: OK. We'll have much more with Warren Buffett when we return and more from Carl
in Beijing. Stick around folks, SQUAWK BOX is coming right back.
WILL WARREN LEARN MANDARIN?

QUICK: No, it's not in his ear, folks. Welcome back, everybody. Let's get back to our
conversation with Warren Buffett. Carl is also joining us right now from Beijing, and Carl,
we've been chatting all through the morning talking about a lot of different things.
CARL QUINTANILLA, co-anchor (Beijing): Yes.
Buffett Sees Stronger Economic Future 8:49 AM ET Fri, 22 Aug 2008
QUICK: But actually, we're going to have a conversation with Warren, too. One of the things
he'd been wondering. Warren, do you want to toss out to Carl, what you've been thinking
about?
BUFFETT: Well, I wonder what he enjoys the most over there. I mean, he has seen these
terrific athletes. What one memory are you going to come back with, Carl?
QUINTANILLA: That's a good--that's a good question, Warren. You know, I was here last
summer and we did a documentary about McDonald's and the city at the time was full of
cranes, was very dirty, very polluted, and I still can't get over even 20 days later how the
7/11
Chinese marshaled whatever resources they had to get the city to look like it does right now.
They figured out some way to do big projects in a short amount of time and I think that's
going to be interesting to see how they leverage that as they go west to all those big cities
that we really have no idea what they look like, what the infrastructure's like there. Pictures
that come in over the next year from there, I think, are going to be fascinating. My question
to you is if you had to guess at this moment, how--what is your investment in China, if there
is going to be one, going to look like? Is it going to be individual companies? Is it going to be
currency plays, debt? Have you--have you sorted that out in your own mind?
BUFFETT: It will certainly be extensions of the businesses that we already have. We opened
that plant in Dalian for Iscar almost a year ago. I was amazed when I saw what has been
accomplished in Dalian at the time. But we will be there with our businesses. But I like buying
securities and I like buying companies, and I'm open to doing either one. And I would be
surprised if we don't do something in the next few years.
QUINTANILLA: Yeah.
QUICK: You would be surprised if you don't do something and then...
QUINTANILLA: I think it's interesting, too...
QUICK: Go ahead, Carl.
QUINTANILLA: In fact, I think it's interesting, Warren, you know, we walked in here and
everyone worries about China slowing down as the global economy slows. You know, will
their exports be bought? You know, is their economy dependent on exports? And the lesson
we got from a lot of companies here was there is a self-contained economy here. There are
Chinese businessmen doing business with other Chinese, and I wonder if you think that
decoupling is significant or not?
BUFFETT: Well, I think their economy is going to do fine. Who knows whether it gets
overheated or the inflation picks up or something, but it's like the United States. It really isn't
important what happens in the next six months or a year. It's what's going to happen over
8/11
the next 10 years. We're going to do well. The truth is, the Chinese will do better, because
they're starting from a lower base, but they have learned a tremendous amount about
business in the last 20 years, and about how to unleash the human potential, and that's
something that our country learned earlier. And--but they're picking it up very, very, very fast.
QUICK: You know, Warren, we had Jim Chanos on the program several months ago, and he
had said when we asked him, what's the one thing you worry about that you think could be
the next big drop? He had pointed out, well, maybe you look at this endless infrastructure
play when it comes to the Indias, the Chinas of the world. Maybe that is not going to be as
strong as some people think. What do you think about that idea?
BUFFETT: I don't know whether it will be or not, but I know that 10 years from now, 20 years
from now, China and India are going to be a long way ahead of where they are now. So I
don't really--I don't worry too much about whether there's going to be a sudden interruption
or something. I wouldn't be able to predict it anyway, and if I did, I still want to be in
wonderful businesses bought at the right price and have them in the right place. So I don't--I
don't worry about the things that I really am not going to understand anyway. I worry about
what's important and knowable. And if I can find a few things that are important and
knowable, I play in that box and I don't worry about what's unimportant and I don't worry
about what's unknowable.
QUICK: Mm-hmm.
QUINTANILLA: Warren, are you--are you going to try to learn Mandarin at this stage of the
game?
BUFFETT: No, no, I'm not even going to try to learn how to eat the food. I am--if I can't make a
deal while eating at McDonald's, I'm in trouble.
QUICK: Hey, Warren, you have a little bit of insight into the Olympics, too, right? You were in
Las Vegas just before the United States basketball team left to go over.
BUFFETT: Right.
QUICK: They were in Las Vegas at the same time. They were playing the Canadian team as
they warmed up. What insight can you tell us about the Redeem Team?
BUFFETT: Well, they were--we had dinner, a good many of them. LeBron was there, it was on
a Thursday night, I think, and they played the Canadians the next day. And they are--they
were determined to win. I mean, enough of this being humiliated stuff. So, that was a team
that I would have bet a lot of money on in terms of how they were going to do when they got
there, and they're a remarkable group. I was a little disappointed. I went to the Canadian
game, and they had me on the sidelines, so I thought this was going to be my big moment,
right? No chance. So I left at the half. I mean, if they weren't going to put me in the game, the
hell with it.
9/11
QUICK: The only guy who walked away from that game early. Hey, Carl, we just want to say
thank you again for everything, all your coverage, all your hard work over the last few weeks,
you and your entire team out there. I know you're on your way home. We want to make sure
you have a safe trip, and I can't wait for you to come home. Hurry back, OK?
QUINTANILLA: It's going to be--it's going to be fun to be back at the desk, Beck. I'll see you
next week.
QUICK: OK. Carl and the entire team who are out there in Beijing, we thank you all. When we
come back, folks, we have a quick parting shot from Warren Buffett. Stay right here.
BUFFETT CHOICE FOR OBAMA'S VP

QUICK: Welcome back, everybody. We are in Omaha this morning with Warren Buffett.
Warren, we are headed into the heavy, heavy political season. Next week you've got the
Democratic National Convention, and Barack Obama is expected to name a vice presidential
candidate to go along with him today, tomorrow, sometime coming up. Who would you like
to see Barack Obama pick?
Parting Shots 8:57 AM ET Fri, 22 Aug 2008
BUFFETT: My first choice would be Sam Nunn. I think he'd be absolutely terrific. I have no
notion of who Barack's going to pick, but he's the man, that if anything should happen to
Barack, would be president of the United States. So he'd be my pick.
QUICK: OK. We are also at the Holland Performing Arts Center. You point out an interesting
note. This center was built with money from Dick Holland.
BUFFETT: Yeah. Dick Holland and Dick became a partner of mine in 1958 and he gave a very,
very large contribution to the--to make this possible and my guess is that the stock that he
gave, it was Berkshire Hathaway. It cost about $5,000.
10/11
QUICK: OK. Again, Warren, we'd like to thank you very much for being with us for these three
hours. We have completely appreciated this time.
BUFFETT: It's been fun.
QUICK: OK. Folks, that does it for us today. Again, we've been here for three hours in Omaha.
Make sure you join us on Monday, though. Joe's going to be back and we're all set for you to
come in. SQUAWK ON THE STREET starts right now.
END OF TRANSCRIPT
Class A:
Class B:
11/11
Warren Buffett Answers Your Emails on Squawk Box: Transcript
(Part 1)
Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 1) Alex Crippen | @alexcrippen Published 12:17 PM ET
Mon, 3 March 2008 Updated 2:23 PM ET Thu, 5 Aug 2010 CNBC.com
March 3, 2008
THIS IS THE FIRST PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE

APPEARANCES THIS MORNING (MONDAY, MARCH 3) ON CNBC'S SQUAWK BOX.
JOE KERNEN, co-anchor: Good morning. Wealth in America. An exclusive CNBC survey on
the state of the US consumer and a forecast for the country's economy. Under pressure, the
world taking its cue from Wall Street this morning. After Friday's sell-off, Asian equities
dropping overnight, European stocks opening in the red. Plus, Becky reporting live from the
heartland. Beck.
BECKY QUICK, co-anchor: You know, Joe, with times as tenuous as these, we are turning to
the world's most watched investor for a little bit of guidance this morning. The "Oracle of
Omaha" joins us live this morning as SQUAWK BOX begins right now.
ANNOUNCER: This is a special presentation of SQUAWK BOX with Joe Kernen and Carl
Quintanilla at CNBC's global headquarters, and Becky Quick live from Omaha with billionaire
investor Warren Buffett.
CARL QUINTANILLA, co-anchor: Good morning for a Monday, March 3rd. Welcome to
SQUAWK BOX here on CNBC, I'm Carl Quintanilla along with Joe Kernen and Becky Quick.
And Beck, what a way to start the week. We have an amazing show on tap today.
QUICK: Yeah, guys, it sounds like we have a lot to talk about, and especially with the markets,
everything that we've seen happening both on Friday and then overnight in Japan. A lot of
questions about exactly how stable things are going to be this morning, so we're very lucky to
have Warren Buffett standing right by to guide us through everything that's happening this
morning, guys.
KERNEN: Indeed. Yeah, it's going to be interesting, Becky. I want to--you know, especially
from the guy who coined the term "weapons of mass destruction" and "financial weapons of
mass estruction."
QUICK: Right.
KERNEN: And...
QUINTANILLA: And following the letter on Friday.
KERNEN: Yeah, yeah.
QUICK: For derivatives.
1/10
KERNEN: And don't we know it. And he doesn't, you know, he doesn't make calls overall on
the economy too much, what the Fed should do. He likes to buy businesses that are going to
be worth more in the future. But we still are going to have to ask him today, what about--is
this different? How much pain do we need to get out from under all these weapons of mass
destruction? Look what it's done so far. What kind of slowdown will it be? It's going to be
great.
CNBC has scheduled a one-hour special program on Buffett's unprecedented Squawk Box
appearences.
It's called Warren Buffett - The Billionaire Next Door: Face to Face. It will be hosted by Becky
Quick and airs tonight, Monday, March 3 at 9pm ET.
QUINTANILLA: Yeah. And given...
QUICK: All right.
QUINTANILLA: ...sort of the data we had last week, is this a matter of reality setting in, or is
the situation actually getting worse than we thought it was going to be?
KERNEN: You don't like hearing a huge owner of insurance companies that the party's over,
either...
QUINTANILLA: The party's over.
KERNEN: ...from someone who would know, I think. Right, Beck?
QUICK: Right. Right. That all came from the annual letter that Mr. Buffett put out to
shareholders on Friday afternoon. And, guys, now that we've given a little bit of a hint of what
we might be starting off talking about, why don't we bring him in right now.
Warren, I want to thank you very much for joining us today. Again, Warren Buffett, Berkshire
Hathaway, joining us, guys. I should point out, we are live at the Nebraska Furniture Mart.
Behind us and all around us, this is the brand-new electronics store that they just opened up
last year. And so they've opened up early for us and given us a little bit of time to be sitting
here. But, Mr. Buffett, thank you very much for joining us this morning.
WARREN BUFFETT (Berkshire Hathaway Chairman and CEO): Even if it's early, you can
buy something if you'd like, Becky.
QUICK: Yeah, they'll open up the cash registers right away.
BUFFETT: Your credit's good.
QUICK: Well, as you know, we have a lot to talk about today.
BUFFETT: True.
2/10
QUICK: We want to get through the annual letter, we want to talk about what's been
happening with Berkshire's earnings. But we also want to start off talking about what's
happening in the global markets right now, and what's happening with the economy. Where
do you think things stand right now in terms of the global strength of the markets?
BUFFETT: Well, you're getting sort of waves of deleveraging going on in different areas, and
last week we had some deleveraging of the municipal bond market, which is not a market
you would normally expect to get hit by that sort of thing. But we've had it--they really
haven't deleveraged as much as they wanted, things like leveraged loans at the banks.
They've been trying to sell them, and they haven't found the levels yet at which they'll move.
But that's--you got a very leveraged world, and it's getting somewhat deleveraged.
And unfortunately for the people that are deleveraging, it was leveraged at crazy valuations
in many cases. So people that are out--have been out on a limb financially are having the
limb sawed off.
QUICK: Well, in the past we've--you've spoken with us, and Joe's asked you about this, the
number of calls that you're getting on deals. What have you been hearing the last couple of
weeks, and how would you judge exactly how chaotic things are based on the number of
calls you're getting?
BUFFETT: Well, late last week it was pretty chaotic. I mean, we were getting calls on large
portfolios of various fixed income type instruments, and even on municipals where
multibillion dollar portfolios had been leveraged. And people set that position up because
municipals look cheap relative to governments, and then they got a whole lot cheaper, and
that happened day after day after day. And it--really, in 1998, the Treasury was sort of the
other side of every trade on convergence trades. People shorted the Treasury and were long
on other kinds of other things. Same thing's happened this time, only it's extended to
something like municipals.
QUICK: OK. It's extended to something like municipals, and you're getting calls on all of these
deals. And I take it they're not calling you and offering to sell them at 95 cents or 99 cents on
the dollar?
3/10
BUFFETT: Well, it depends on the instrument. Some they're calling at 75 cents on the dollar.
But--and we'll buy some, at some point. But there's a--there's a lot of merchandise out there
that people are getting margin calls on, and they're not the small guy getting a margin call on
stocks. These are big guys getting calls on billions and billions of dollars of fixed income
positions.
QUICK: You know, there are suddenly a lot of people wondering what's going to happen with
this economy and trying to pin it back to a time that we've seen in the recent past or maybe
not so recent past. Some people say this is like 2001, some people say this is like 1989. Other
people say this is like 1973 to 1974. What do you think?
BUFFETT: Well, it's nothing like '73, '74 yet. I mean, that doesn't mean it couldn't be. But in
'73, '74 we had this stagflation situation, and we really had a meltdown in equity prices as
really good companies got down to three and four times earnings and they weren't phony
earnings. So nothing like that's happened in this situation. But of course in '73, '74, at some
point during that, it didn't look like it had happened either. So every day is a new day, and
we are seeing more fixed income type forced liquidations.
We're seeing more indigestion at banks with a lot of loans we don't want to have. So you're
seeing a time of easy money in terms of price, but not so easy money in terms of availability.
QUICK: We also have talked an awful lot about what's been happening with the bond
insurers. You made a deal that you brought up on our air a couple of weeks ago, where you
said you would take over the municipal bond portfolios for Ambac, for MBIA, for FGIC if they
came to you. Did you hear from any of them? Did any of them take you up on that deal?
BUFFETT: Well, we heard from them, but we tossed our hat in the ring, and they tossed the
hat back. But fortunately--it's been fortunate for us, because we've been writing business
that they insured, and we're getting a far better rate than we offered to take it over from
them. So here--we've written 206 transactions in the last three weeks, and we have been
paid an average of 3 1/2 percent to take on business that they wrote at 1 percent. But we
don't pay until they go broke. So in effect, the municipality has to quit paying, and over here
4/10
I've got the bond insurers. And it's just--it's the three you named plus a few others. And they
have to go broke, and then we pay. So we're getting paid 3 1/2 percent to be in a secondary
position when we offered to do it for 1 1/2 percent in a primary position.
QUICK: And we're still talking about municipalities.
BUFFETT: Municipals.
QUICK: We're not talking about CDO business or any of the other portfolios.
BUFFETT: Oh, no. We're not--no. These are all A-rated or better municipals insured--202 of
the 206 are insured. And we've received $69 million of premiums for two billion of a par
amount. The original insurer received about 20 million. And they're still primarily on the
hook. So our price was all wrong.
QUICK: Why would this happen? I mean, why don't they come back to you at this point and
say, `We'll take that 1 1/2 percent deal'?
BUFFETT: Well, it--they don't have much motivation to do it from the directors' level or the
shareholders' level, and what they're hoping for is new money, you know, and I hope for new
money too. I mean, who doesn't? And they may get it. In fact, MBIA has gotten a fair amount
of money. But they--in the end, they--they're not really--they really haven't, in a sense, totally
faced up to the mistakes that they've made.
QUICK: You say that they hope--you hope they get new money, as well, put in?
BUFFETT: Well, if they get new money, as long as they stay solvent we can't pay a claim on
this. We get $69 million, there's no way we pay a claim because they are primarily liable if the
municipalities go broke. Now, municipalities do go broke, or tax exempt issuing entities.
People say it's risk free. Vallejo, California, town of 120,000, last Thursday the city council was
scheduled to vote on going into Chapter 9 and going broke. And the thing about
municipalities, if they decide it's the easier way to go, it could be contagious. Now, I don't
think that necessarily will happen. It's unlikely to happen, but it's not impossible it would
happen.
QUICK: OK. Warren, I know the guys have some questions from back in the studio as well.
Joe, Carl, you guys want to jump in?
KERNEN: Yeah, I got a--we both want to jump in at some point. Can you hear me, Mr.
Buffett?
BUFFETT: I can hear you fine, Joe.
KERNEN: Good, great. So last week, one of the things that threw the market for a loop was
this new figure for the size of these weapons of mass destruction, $600 billion. And I'm just
wondering--you know, you go back a ways, we both do--S and L crises, LDC debt. You
remember all the times in the past when we've, you know, when we saw numbers like this.
5/10
How does 600 billion compare? And is it the kind of thing that can throw our economy for a
loop for an extended period of time, worse than our, you know, shallow recessions that
we've become accustomed to?
BUFFETT: Well, it sure could. I don't know the answer on it, but it--nobody knows what the
economy's going to look like a year from now or two years from now. But you have certain
things in motion that could possibly lead to that, or it may not. But I--you can't rule it out.
There's no way you can--you can say that the trouble we've experienced and the trouble
we're likely to experience can't lead to something pretty severe. And maybe we'll be lucky
and it won't happen. I've never made any money out of economic forecasting.
KERNEN: Right.
BUFFETT: I've made money by staying out of trouble.
KERNEN: But yet you were early with the weapon--you know, you knew that these--all these
structured products, that sooner or later there would be a day of reckoning. The other thing I
was thinking when you were talking about where we haven't gotten to those levels in--that
we saw in the '70s, but as a person that epitomizes Graham and Dodd type investing, what--
we've had a long, secular bull since the early '80s. We have not gotten to the extended part
of, you know, where you get dividend yields at 4 percent, you get a priced earnings multiple
that it--drops well below 10. When now that we see inflation in commodities like they are, is
this the beginning of that cycle where we do get to a really stretched valuation on, I guess
you'd call it a secular bear?
BUFFETT: Yeah, Joe, I don't know the answer. It's always a possibility. And--but, you know,
I've never really been able to predict the stock market. I--when things get very cheap, I know
it. When they get very high, I know it. And in between, I really don't know much about what's
going to happen.
KERNEN: And--we're in between, I guess.
BUFFETT: I will--I will recognize it...
QUICK: Does that mean we're in between right now?
BUFFETT: Well, yeah. Thirteen hundred-plus on the S&P, you know. Stocks are not cheap. As
it--as a group they're not in some bubble price. But they go to extremes every now and then,
and when they do go to extremes you have to be prepared to act.
QUINTANILLA: Warren, it's Carl. You talk about munis. The...
BUFFETT: Hi, Carl.
QUINTANILLA: Good morning. The Journal this morning tries to interview a few muni bond
fund managers, saying this is the kind of market they've been waiting for, where something
goes from paying 5 percent to nearly 6 in a couple of weeks. You just said you will buy some.
Are you champing at the bit, or are you going to wait for everything to come to you?
6/10
BUFFETT: I never try to--I try to avoid getting excited, you know. But there's no question that
I salivate a bit more as the rates get higher. We made a bid on a $3 1/2 billion portfolio on
Friday; we didn't get it. I don't think it sold either. So--and, you know, I may go to the office
this morning, and if there's a large portfolio--and it can be five billion, it could be one billion,
could be 10 billion--we would make a bid on it. But we try to have it reflect what's really going
on in the market. And it's been pretty chaotic.
QUICK: Warren, at times like this, when you get an offer, how easy is it to come up--when
somebody calls you, how easy is it to come up with that offer price, and how long does that
last?
BUFFETT: Well, it--if it isn't easy to come up with the offer price, I don't make an offer. I mean,
I have to--I have to decide myself where I'm willing to buy it. And--but, in this kind of a
market, if somebody calls us and they say, `We have this list of 200 munis, and it's three
billion' or something like that, we give them an offer that's, you know, it's basically--like the
used car salesmen used to say on their warranties, 20-20. It was 20 seconds or 20 feet. Well,
we're more or less that way in the municipal bond business. We--we'll give an offer good for
a minute or something. We--there's no--we are not offering puts to the rest of the world for
nothing. And a bid is a put as long as it's outstanding, and puts you're supposed to get paid
for in this world. So we put them out for, you know, basically a minute or two. We want the
fellow on the other end to be able and prepared to act, and we do not want him to use our
price to out and shop with somebody else.
QUICK: Well, speaking of that offer you made on our air to the municipal bond insurers--or
to the bond insurers to take over their municipal portfolios, is that deal still on the table?
BUFFETT: No, it's not on the table because you pay for puts in this world. And what we did
offer to do at that time--people got this kind of mixed up, although it was--it was right on the
program. We said they could take our offer and have 30 days to shop it, and then have--pay
us a 1 1/2 percent kill fee if they found a better deal. So they could have used our offer for 30
days to go out all over the world and see if anybody'd make them a better deal. What they
did was they said it was a terrible offer, but they didn't go out and try to get a better deal on
it. So we--no, we don't leave offers on the table for--we don't leave them on the table for an
hour in a market like this. You don't want to go down on the New York Stock Exchange floor
and say--if General Motors is at 24, and say, `For the next hour I'll pay 24 if anybody wants
to sell it to me.' I mean, you'll get it if it goes to 23, and you won't if it goes to 25.
QUICK: Right. Guys?
KERNEN: Go ahead.
QUINTANILLA: Now--and--well, we got so many--where to start is the question.
KERNEN: I've got it, I've got it. I've got a lot of other ones that they're just asking. You know,
we had this--we had Charlie Gasparino say a week ago Friday say the Ambac deal was close,
and then this past Friday part of the reason we saw the big sell-off was because there were
significant stumbling blocks I guess. I haven't heard what Charlie's going to say today.
7/10
Knowing, as you do, that there's no free lunches and things--you know, people don't enter
into transactions out of--well, not usually out of stupidity, but how's this--is it going to be
possible to structure something for Ambac that's going to, you know, cause someone putting
the equity in to feel comfortable with the situation, given the looming CDO exposure that the
company still has?
BUFFETT: Yeah, it may be possible. There may be people that feel that they understand the
risk that's already in the portfolio and see enough opportunity in the future that they're
willing to take on that risk. It's not possible for me to do that. But who knows? You know,
there's money all over the world, and I would not be surprised if they were able to raise
money. I would not be surprised if they weren't able to do it. If they raise money, like I say,
we've made an easy $69 million in the last three weeks, because if any of those bonds go
bad, and some will, they pay--they pay first. So, in a sense, I should be out trying to help them
raise money.
QUICK: Warren, in your annual letter to shareholders on Friday, one of the big attacks that
you took was on companies and how they are expecting their pension plans to grow over the
next several decades and beyond that. What caught your attention on that? Why are you
focused on that?
BUFFETT: Well, I--actually, I've written about it before, too.
QUICK: Hm.
BUFFETT: The pension fund assumption--you can take your earnings up or down by
changing your pension fund assumptions. And within a fairly wide range, the professionals,
the auditors will let you pick different numbers. So you have companies--if you look at the
S&P 500, you have companies picking lots of different numbers. And the higher the number
you pick for an investment return, the lower the charge that's made against your earnings.
And if you go back far enough, 30 or 40 years ago in accounting, they didn't make you make
any charge. And they soon found out that was folly. And General Motors has been living with
that, you know, in terms of particularly in the health plans, since. I say that most companies
and a great many municipalities or public bodies are using rates that are really a little crazy.
And a year like this may dramatize that. Now, you're not supposed to look at one year
returns in setting these rates, but we set--we have some public utilities, and they have
pension plans, and in those cases, the states tell us what rates we have to use. We argue for
lower rates, but they won't let us go as low as I'd like. With our own pension plans, we use a 6
1/2 percent return, and the world is generally using 8. And that doesn't sound like much of a
difference, but it's a huge difference.
QUICK: It's a huge difference when you roll it out and annualize the compound interest over
a number of years.
BUFFETT: Yeah.
QUICK: You asked our viewers last week on cnbc.com...
BUFFETT: Right.
8/10
QUICK: ...where they expected the Dow to close at the end of the century, December 31st,
2099. For those of you who haven't seen this yet, we'll show you the poll results. It came back
that somewhere close to 34 percent were looking for that level of 100,000, another 33
percent were looking for over a million, and about 23 percent were looking at a level of quite
a bit more than that.
BUFFETT: Mm-hmm.
QUICK: Ten million, or the third question that you had was 10 million.
BUFFETT: Mm-hmm.
QUICK: So where should people be looking? Here's the number that you see right now.
(Graphic on screen)
DJIA at Dec. 31, 2009
100,00 34%
1 million 33%
10 million 23%
100 million 10%
Source: CNBC.com Poll
BUFFETT: Well, I'm not sure where they should look, but the--but if it turns out to be 100,000,
that means that people in this century, from the start of the century, will have had a return,
including dividends, of about 4.2, 4.3 percent. That's before expenses. Now, commissions,
investment adviser services, all of that comes out of that 4.3 percent.
QUICK: Right.
BUFFETT: So that's a gross return. And I would say that most people think that if the Dow
went to 100,000 by the end of the century that they'd have had maybe double-digit returns
or something like that. If the Dow is at 10 million at the end of the period, you still haven't
had double-digit returns, believe it or not. So people can get kind of careless with numbers.
Most people aren't too numeric.
QUICK: But this is a word of warning to investors out there, and, Warren, you've been
gracious enough to offer to stay with us throughout the entire show this morning.
Throughout the morning, we're going to be getting to some of those answers from the
questions that you all have been sending in, our viewers. We've gotten thousands of
questions. And in the next half-hour we'll be getting to a lot of the answers of those
questions. But right now, Joe, I'll throw it back over to you.
KERNEN: All right, Beck, thank you. Let's hope that furniture store in the middle of the day
doesn't look like that. I don't know. You know, we've been...
9/10
QUINTANILLA: It's going to get busy.
BUFFETT: This store did 400 million last year, Joe.
KERNEN: All right. All right. I'm not worried about you. I'm not worried about you. Your
businesses, but...
QUINTANILLA: He's going to be behind the counter.
KERNEN: Yeah, exactly.
GO TO PART TWO OF THE "ASK WARREN" SQUAWK BOX TRANSCRIPT
Transcript prepared by BurrellesLuce
10/10
(Part 2)
March 3, 2008
THIS IS THE SECOND PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE

ANNOUNCER: Live from Omaha, Nebraska, here again, Becky Quick with special guest
Warren Buffett.
QUICK: Welcome back, everyone, to this very special edition of SQUAWK BOX. We're live in
Omaha, Nebraska, and we're standing by at the Nebraska Furniture Mart. This store is the
largest home furnishing store in the entire country. We're standing by right now in the
electronics store which just opened up last year. Nebraska Furniture Mart, if you don't know,
folks, is one of the 76 holding companies--or operational companies of Berkshire Hathaway.
And we are very fortunate to be joined this morning by Warren Buffett, the "Oracle of
Omaha," who has been gracious enough to offer--to take questions from our viewers this
morning. And, Warren, I have to tell you, the demand was overwhelming, thousands of e-
mails coming in, and we've tried to narrow them down a little bit. Why don't we jump straight
to it.
BUFFETT: Just give me the easy ones.
QUICK: Yeah, just give you the easy ones. I have to tell you, there were some very, very
thoughtful questions that came in.
BUFFETT: Mm-hmm.
EMAIL TEXT: In your annual letters you make it very clear you are not a fan of hedge funds
and think they destroy wealth. Do you think hedge funds have an edge which justifies their
huge fees? Brad Alford, Atlanta, GA
QUICK: I want to start off with a question from Brad in Atlanta, Georgia, and he asks, Ìn
your annual letters you make it very clear that you are not a fan of the hedge funds and you
think they destroy wealth. Do you think hedge funds have an edge which justifies their huge
fees?'
BUFFETT: Well, the answer is an aggregate no. When there were very few of them and a lot
of talent, but not a lot of competition with each other, it's very likely that they did. But in Wall
Street you have this progression from the innovators to the imitators to the swarming
incompetents. And what happens is that the results achieved by the innovators enable the
product to be sold by a lot of people simply because the record of a few people was good. So
the idea that billions--well, trillions of dollars can be managed to get above average results
while charging fees that are way higher than normal just defies the--just defies the logic. So,
1/6
in aggregate, people are going to be disappointed with the results you get from hedge funds.
But there will be ones that do terrifically, but it's--I would not want to buy them across the
board.
QUICK: OK. Jake Kamm from Cleveland, Ohio, writes in and he says, Àmong the CEOs within
the universe of publicly traded companies in which Berkshire doesn't have an ownership
position, which CEO do you believe is doing the best job on behalf of shareholders?' Tricky.
BUFFETT: Well, there's a number of them. The fellow at Fastenal has done a very good job.
QUICK: I'm sorry. Which company?
appearences.
BUFFETT: Fastenal. I mean he, all you have to do is look at the record on it. Jim Senegal has
done a terrific job of running Costco. We own a tiny bit of it, but I don't think that's warped
my view. There are a lot of good CEOs in the country that--I'm thinking right now a few where
we own them, but I think Jeff Immelt at GE. We have some in a pension fund, we don't have
anything at Berkshire, has done a first class job. Some of these people got handed the baton
at the wrong time.
QUICK: Right.
BUFFETT: Jeff got handed the baton at kind of a bad time. There are--there are a lot of
outstanding--there are a lot of outstanding CEOs. I may think of some more that I want to
name as we go along.
QUICK: OK. If you think of more, you can jump in with them.
BUFFETT: Yeah. I've got to think of who I'm playing golf with next week.
QUICK: Let's move on to David from Defiance, Ohio. He asks, `How would you define a
recession?' This is something we talk an awful lot about on the show, but he says, Ì've been
listening to a lot of discussions on CNBC, some of which can be very annoying because they
tend to be so outrageously vocal and the experts believe two quarters of negative growth
qualifies as a recession.' Is that the surest definition of it? Or do you think it's broader than
just that?
2/6
BUFFETT: Well, it's the standard definition, but if you think about it, population grows 1
percent of year. So you could have growth of GDP of a 1/2 a percent, but GDP per capita
would be going down. So the very definition, you might say, is a little bit flawed if it--if it
doesn't allow for the fact that GDP per capita can go down while growth GDP's going up.
Beyond that, I would say by any common sense definition, we are in a recession. And...
QUICK: You would?
BUFFETT: Yeah, we wouldn't--we haven't had two consecutive quarters of GDP growth, but I
will tell you that, on balance, most people's situation, certainly their net worth has been
heading south now for a considerable period of time. And if you owned a house, and you
had an 80 percent mortgage on it, and so you had 20 percent equity a year ago, you might
not have any equity now. And millions of people are in positions somewhat similar to that,
and people would--people that own municipal bonds feel poorer today than they did a few
months ago.
QUICK: Mm-hmm.
BUFFETT: So business is slowing down. We have--we have retail stores in candy and home
furnishings and jewelry; across the board I'm seeing a significant slowdown and, of course...
QUICK: That's the first time I've heard you say you think we're actually in a recession right
now.
BUFFETT: Yeah, well, I think, when we talked earlier, I said we might be.
QUICK: Right.
BUFFETT: But it--no, I would--I would say that--but when I say we're in a recession, it doesn't
meet the technical definition. We aren't in the second quarter of--we can't be because we
don't know what the fourth quarter of last year was. But I think that, from a commonsense
standpoint, we're in a recession now.
3/6
QUICK: OK. Let's get to one from Don in Atlanta, Georgia. Ìf Ben Bernanke's a company,
would you be interested in owning it?'
EMAIL TEXT: If Ben Bernanke is a company, would you be interested in owning it? Don Sitec,
Atlanta, GA
BUFFETT: Well, I think that Bernanke's very able, and I'm not sure I'd want to be in any--own
any company that an economist was running, though, so he gets disqualified by profession,
but not personally at all.
QUICK: OK. Roy writes in from Maple Glen, Pennsylvania. He says, `Would you please
characterize, in general terms, the breakdown of shareholders in Berkshire class A. Are there
a lot of single share owners, and what would be the average number of shares owned per
shareholder? And by the way, does Bill Gates own your shares?'
EMAIL TEXT: Would you please characterize, in general terms, the breakdown of
shareholders in BRK-A. Are there a lot of single share owners? What would be the average
number of shares owned per shareholder? Does Bill Gates own your shares? Roy
Stephenson, Maple Glen, PA
BUFFETT: Oh yeah, Bill Gates owns a lot of shares. As a matter of fact, when he joined--I
didn't know how many shares he owned when he joined the board, so I had to put him on
the board to find out. So he had to make a filing so I could find out how many shares he
owned. And he owned about, as I remember, about $300 million worth, and then he bought
another pretty good size chunk of stock. And somebody asked him why he bought it, and he
said, well, everybody else on the board had a higher percentage of their net worth in the
stock than he did, so he felt like kind of a picker, and he had to do something about it. We
have about 400,000 shareholders. We have--I believe we have the lowest turnover of our
stock relative to the shares outstanding of any company on the Big Board, which means we
have more real investors. We don't want anybody to buy our stock to sell it in a month or six
months or something. We really want it to be a holding like buying a farm or buying an
apartment house. We want it to be a real investment. So we try, by our policies and by our
communications, to attract those people.
QUICK: Mm-hmm.
BUFFETT: Because, you know, it's like running a restaurant. If you put hamburgers on the
outside, and you'll get a crowd that wants hamburgers. If you put French food, you'll get a
crowd that wants French food. We try to be very clear we have investors out there. We don't
want anybody--we don't want all shareholders. We don't go out and make presentations to
analysts' societies or anything like that because the idea that every shareholder we could
add would be a plus is ridiculous. I mean, it would be like measuring a church, you know,
with high turnover and every week you had a different congregation sitting in the thousand
seats. Well, we've got a 1,500,000 seats out there, and we really like the idea of talking to the
same congregation every week. So we have a lot of one share class A shareholders, we have
4/6
a lot of one share class B shareholders. What we do have is a lot of individual shareholders. I
used to have something like 100 shareholders in my zip code here. So when I would take the
kids out trick or treating on, you know, on Halloween, I mean, we scored big time.
QUICK: You know exactly where to show up for all the candy.
BUFFETT: I knew where to go.
QUICK: Warren, we have a lot of e-mailers that came in from the viewers. We also solicited a
couple from some of your well-known friends, and we get one that I want to bring up, too.
LeBron James of the Cleveland Cavaliers writes in.
BUFFETT: Ah.
QUICK: And he asks, Ìf you were ever to buy a professional sports franchise, what would it
be?'
BUFFETT: It would, well, if I lived in a big city that had a--that had a top team, I'd want to buy
it there. I mean...
QUICK: You would?
BUFFETT: Yeah. Well, I own a quarter of the Omaha Royals, which is just a minor league
team, but if--but it--I grew up in Washington, DC. My dream might have been to buy the
Washington Redskins, although they were playing baseball then, the Washington Senators.
I'm not sure you would want to--they used to say, you know, `First in war, first in peace and
last in the American League' about the Washington. But the--I would--sure, if I lived in Dallas,
I'd want to own the Cowboys or something like that. So that would be the team I would buy.
But...
QUICK: I guess the question would be is are you planning on moving anytime soon?
BUFFETT: No, no. I went to Cleveland for a game to watch LeBron, and, when I was a kid, I
thought for sure if I ever got rich that I would be buying a sports team, but I'd rather play on
one now. So if there's anybody out there who would like to sign me up, I'm ready.
QUICK: OK. We have a lot more questions to get to this morning, but we also have to get in a
quick break, and so, Carl, I'll send it back over to you and figure out where we stand right
now.
QUINTANILLA: I can imagine Warren playing a power forward. Joe, can't you? Maybe some
elbows in the paint?
KERNEN: Will he put on...
QUICK: There you go. Sharp elbows, Warren?
BUFFETT: Yeah. You bet. KERNEN: Will you put on one of those Will Ferrell wigs, Warren?
"Semi-Pro" wigs? I don't know if you've seen that.
5/6
QUICK: Darren Rovell ran around dressed up like this new Will Ferrell character last week.
QUINTANILLA: Yes.
QUICK: And he had the big wig, he had everything going on. Shorty shorts, remember that?
BUFFETT: I took on LeBron last year, one on one, and I noticed he hasn't asked for a
rematch.
QUINTANILLA: He's not going to take that mistake twice. We're going to take a quick break.
We've got a lot more with Becky and Warren Buffett when we return live. We're back in just a
second.
GO TO PART THREE OF THE "ASK WARREN" SQUAWK BOX TRANSCRIPT
6/6
(Part 3)
March 3, 2008
WARREN BUFFETT'S SERIES OF LIVE APPEARANCES THIS MORNING (MONDAY, MARCH 3) ON

CNBC'S SQUAWK BOX.
ERIC JONES (question on tape): My name is Eric Jones from Los Angeles, California. Mr.
Buffett, with spring football right around the corner, what's your prediction with Nebraska
football?
QUICK: OK, there's the question for you, Warren.
BUFFETT: That's an easy one. We've got Tom Osborne back as athletic director, Bo Pelini,
we've got a lot of talent. We should win at least eight games. If--it was getting kind of
desperate around here a year or two ago. The coach was asking for a fullback prospect that
was 6'4" and weighed 120 pounds. And people said, `Well, that's kind of a strange definition
for a fullback.' And it is the only kind of guy that can get through the holes when the line
opens up. Well, we have a little stronger team this year. We'll do all right.
QUICK: OK. Another question from a viewer. This comes from Tony in Springfield, New
Jersey. He says, Ì'm getting a tax rebate and I would like to invest it. Which of these do you
think is the better bet? Number one, bet it all on the hard eight,' straight at Atlantic City, I
guess. `Number two, buy a lottery ticket. Or number three, invest in Ambac.
appearences.
1/2
BUFFETT: Well, OK, I'll give him the answer. The answer's number four. Buy a no-load neutral
fund with very low costs.
QUICK: OK. That's the question for him. And finally, Cara Bruder from Oklahoma City,
Oklahoma, says, `My favorite charity is my children, and yours is the Gates Foundation.
When I give over $12,000 to my children, I am taxed at about a 50 percent rate, yet you were
taxed at nothing for giving to Gates. Why shouldn't you be taxed the same rate? Or why
shouldn't I be taxed at your 0 percent rate?'
BUFFETT: Well, he's only taxed at all if he's used up his lifetime exemption. And the lifetime
exemption, I think, next year goes to $3 1/2 million, and that's man and wife. So you can
actually give your children, next year, over a lifetime, you can give them $7 million, and there
is no tax whatsoever. So if anybody's told them that, unless he's already given $7 million, he
can give a lot of money to his children. Or to his dog, like Leona Helmsley did, you would out-
-without paying tax. But the idea is that in one case you're doing it essentially for personal
benefit, and the other you're doing it for the benefit of society.
QUICK: OK, we're going to get to a lot more questions like these. There are people who had
questions about the estate tax and other issues. Plus, we have Mr. Buffett here on a very
fortunate day. There's been some chaos in the markets. He's going to tell us what he's seeing
right now, both in terms of the markets and the economy, from the perspective of his
businesses. We have much more live from Omaha, Nebraska, with Warren Buffett right after
this.
GO TO PART FOUR OF THE "ASK WARREN" SQUAWK BOX TRANSCRIPT
2/2
(Part 4)
March 3, 2008
THIS IS THE FOURTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE

QUINTANILLA: And today's not a good day for the greenback, Joe.
KERNEN: Nope. It's a good day to have Buffett on, though, when we're talking about the
dollar. As Carl said, this is a special morning for SQUAWK BOX. We're live with Warren Buffett
in Omaha, Nebraska, answering e-mails. Just go to cnbc.com. Send them in. We'll still get
them. Becky's with Mr. Buffett right now. And I know he has an earpiece in, Becky, probably
just heard about where the dollar is.
QUICK: Yeah.
KERNEN: We're going to talk to him about that, no doubt, at length today.
QUICK: Yeah, that's perfect, Joe. It's a--it's a great stepping off point for this, because when
you see this kind of chaos and turmoil in the markets, well, who better to ask than probably
the world's most watched investor, Warren Buffett, who's here with us today. And, Mr.
Buffett, let's go over some of these exact things. Joe uses this as a perfect jumping off spot.
You've made some negative comments about the dollar in the past. You see where it trades
right now. What do you think?
BUFFETT: Well, for five years we've talked about it. It--we were following policies which were,
in my view, five years ago, were certain to produce a weaker dollar over time. I never know
what it's going to do in a month or a year, and maybe I don't know what it's going to do in five
years, but I think I know what it's going to do in five years. And we--as long as we force-feed a
couple of billion dollars a day to the rest of the world--they take it whether they like it or not,
because we buy goods--buy two billion a day more than we well goods to the rest of the
world...
QUICK: Mm-hmm.
BUFFETT: ...the dollar's going to get weaker over time. And the government can talk about
how it's in our interest to have a strong dollar, but we're not following policies that lead to
that, and it's just a consequence and it'll just continue to be. If you do the same thing over
and over again, you're going to get the same result...
QUICK: Mm-hmm.
BUFFETT: ...and we are doing the same thing now that we were doing two, three, five years
ago, and the dollar will weaken in an irregular basis, in my view, for some time to come.
1/7
QUICK: Now, you mention all this in the annual letter to shareholders.
BUFFETT: Right. QUICK: You also talk about how you are long the Brazilian real. If you think
the dollar's going to get weaker, why aren't you short the dollar at this point?
appearences.
BUFFETT: Well, we bought more--we bought companies that have more and more of their
earnings in those other dollars. So if we have a company that's earning money in Japan, one
or two, in the end, we're earning more dollars than before. But the carrying costs, with low
interest rates in the United States and higher rates elsewhere, there's a real carrying cost to
maintaining an outright foreign currency position, whereas if we do it through future earning
power in other areas, it looks to me like a more intelligent way to do it. But you can make
money in, you know, you can make money even with low interest rates here if the--if the--if
the spread keeps widening over time. But right now, the Brazilian real was a relatively small
position, and I almost did it kind of as a commentary on what was going on because for
decades people thought you put your money in South America any place, then you were
going to lose it. And the South Americans actually parked their money here. But in the last
five years, the Brazilian real has more than doubled against the dollar. If you were a
Brazilian, you put your money in dollars you lost half your net worth, and that's continued
since the end of the year.
QUICK: But it hasn't stopped you from betting against the dollar in the past. What changed
your mind on that?
BUFFETT: Well, we had a positive carry. When we had...
QUICK: Yeah.
BUFFETT: ...the 22 billion of foreign currency positions, we not only made money because
those currencies appreciated, but there actually was a positive carry because of the interest
factor on most of the currency. So we were picking up a couple hundred million dollars a year
on positive carry. That's gone to a negative carry now, and that makes it expensive to hold
certain foreign currency positions. If you want to hold a position in the euro, and you buy a
euro out six months, it has to go up for you to break even.
QUICK: OK. We've been talking an awful lot about the economy today, and in the last half-
hour, you mentioned that you think we very well might be in a recession. That's the first time
I've heard you say that. What gets you to that point?
BUFFETT: Well, I see the figures coming in on all our retail operations, I see what's going on
in terms of the wealth of Americans and how they feel about their houses. I see--I see
purchasing power declin--obviously, when somebody forecloses on a home, the purchasing
2/7
power of that family is not going to be very much. I see unemployment increasing a little bit
although it's still relatively low. So I just--I think it's clear. What isn't clear is how far it goes.
QUICK: And so--and that's the question. You can't see how far out...
BUFFETT: No.
QUICK: ...this lasts, if it's something we pull out of quickly.
BUFFETT: I didn't see it--in '73 and '74, I didn't see how bad things were going to get. I kept
buying more as I got worse, but I--if I'd seen in '73 what was going to happen in '74, I wouldn't
have bought anything in '73. You can't predict. We don't try and time anything or predict. We
just look for where there are good values, and if we find them, we buy them, and if we don't,
we don't buy anything.
QUICK: OK. Another issue we've been talking about an awful lot with you is the bond
insurers and where things stand. On Friday on SQUAWK BOX Wilbur Ross came in and talked
about how he was buying into AGO, Assured Guarantee. He says that he's in direct
competition with you right now because he's writing a lot of reinsurance as well with--
through AGO. What do you think of the competition?
BUFFETT: Well, I always prefer no competition, but that's hard to find in this world. So there
will be competition in bond insurance, it's the nature of it. And what people have to decide,
though, we just insured a bond that comes due in the year 2054. Now if you're--if you're
going to buy insurance from somebody and the test will be whether somebody pays in 2054,
I personally think Berkshire Hathaway is the best bet around. I--it isn't where--credit analysis
or insurance analysis isn't where you are today, it's like Wayne Gretzky says, you know,
`Don't go to the puck, go to where the puck's going to be.' Well, the payment needs to be
there in 2054. The question is, is Berkshire Hathaway the one that's likely to be there in
2054?
QUICK: OK. I know the guys have some questions in the studio as well.
3/7
BUFFETT: Yeah.
QUICK: Joe and Carl?
KERNEN: Yeah, I have a follow-up for Warren on the policies we've been pursuing and what
we can do about it. Warren, obviously we're consumers to the rest of the world because we
have a lot of prosperity here, obviously. And I'm trying to figure out how we were--we should
reverse the policies that caused us to consume so much and send all this money abroad. Do
you think that free trade is a hindrance to what we're doing? Is NAFTA, has that been a
negative for us? It seems like we're going to consume no matter what, and that's good for the
rest of the world, and we're not going to export as much. How should we change our policy?
What would make sense?
BUFFETT: Well, actually, we, you know, in the last 30-plus years, we've increased our exports
from 5 percent of GDP to about 11 1/2 percent of GDP. We exported a trillion, six hundred
billion dollars worth of goods last year, but the problem is that over the last 35 years our
imports have also gone from 5 percent to GDP up to about 16 1/2 percent of GDP. So we've
been prosperous ever since World War II and the trade deficit only has become really
significant with the current account deficit in the last six or seven years. I wrote an article for
Fortune about three years ago where I suggested one solution in terms of import certificates.
I belive in free trade. In fact, I would have no barriers to countries or products or anything of
the sort. But I do think the only true trade we had last year was the 1.6 trillion which we
imported and exported and then on top of that we imported 700 billion more, and that was
unreciprocated trade. So that creates problems over time because we do hand these little
pieces of paper over to other countries, and we keep force-feeding those countries, and after
a while they're not so enthusiastic about getting the money.
QUINTANILLA: In the letter, Warren, on Friday, you talk about how the weaker dollar's not
done a lot bring our trade activity into balance, and yet all we hear about is the benefit of--to
exporters, to manufacturing in this country that comes from a weaker dollar. Is the weaker
dollar a net benefit or not?
BUFFETT: Well, a weaker dollar helps exports, but even despite that, as I put in the annual
report, in the last five years, when the euro has gone from, I think, an average of 90-odd
cents to today $1.51 or something like that, our trade deficit with Germany--and people don't
think of us as having a trade deficit with Germany--but it's number five on the list, and that
trade deficit has increased significantly with Germany. The Canadian dollar's gone from 60-
odd cents to roughly par, and with Canada our trade deficit's increased. So a cheaper dollar
does help exports, but you just saw that contract that didn't go to Boeing but partly went
abroad. And, you know, that's with the euro at 1.51 and classic economics will tell you that
that isn't supposed to happen, but it's happening.
QUICK: Do you think there'll be a backlash? We've already heard from several different
congressman and congresswomen who were upset that that--that this is going to an
overseas company and that some of those jobs will not be right here at home. What do you
say to that?
4/7
BUFFETT: No. Well, it's a problem that--it's a real problem when, with the euro at $1.51 or
whatever it is today, that still a competitive market sends those jobs abroad. I mean, it
shows--you know, the whole world is living according to what David Ricardo said, you know,
back in 1820 or thereabouts, and he was not contemplating this kind of a world. A
cheapening dollar is not solving the problem, and that's why I wrote this article about import
certificates a few years ago.
QUICK: You know, Warren, also in the letter to shareholders--I'm sorry, Joe. I'll ask this real
quick and then I'll...
KERNEN: OK.
QUICK: ...throw it back to you. But in the letter to shareholders you also talked about how
you are now looking at four potential successors for the chief investment officer position at
Berkshire Hathaway.
BUFFETT: It's Joe and three others actually.
QUICK: Joe and three other people who are looking at this. You mentioned...
KERNEN: Three others?
QUICK: ...that they are middle-aged--yeah, three others, he's upset about that...
BUFFETT: Yeah, they're way behind you, Joe.
QUICK: You mentioned that these people are young to middle-age, that they're well-to-do to
wealthy. These are all people outside Berkshire Hathaway. If we took a stab at it, are any of
them women?
BUFFETT: Actually, none of--that's more than I usually tell, but yeah, none of them are
women.
QUICK: OK.
BUFFETT: But that's a good question, because I didn't hear from many women. I would say
that I didn't hear--I would say the hunters, really, up to 1,000, I'll bet there weren't more than
3 percent women. I know some very good women inventors, but I'm not sure. Yeah.
QUICK: Hm. Only about 3 percent who wrote in to you.
BUFFETT: Wrote in, the applicants. I--that's a guess, but it was something like that.
QUICK: OK. And, Joe, I'm sorry. I interrupted you before. What was your question?
KERNEN: Yeah, I have a bunch of them. Going back to the--trying to figure out how we solve
this trade problem. I know a lot of what we send--we send a lot of money over there for
energy, obviously. Be good to bring more of that domestically, Warren, but you're a free-
trader, you're positive on free trade. You back Senator Clinton and Senator Obama. I was
5/7
wondering whether their positions, their recent positions--maybe it's to win Ohio, I don't
know what you'd attribute it to--but the protectionist rhetoric from both candidates, are you
in sync with that in terms of NAFTA and free trade?
BUFFETT: I'm not going to get too specific on the eve of the election tomorrow, whether or
not I agree with them. I will say this, I don't agree with them on everything. But the--what I'm
protectionist, I would like to protect us essentially selling close to as much to the rest of the
world as we import from them. I think it's in our national interest. I don't care whether we
have $100 billion current account deficit or 50 billion or 200 billion, but to have one that's 5-
plus percent of GDP. Alan Greenspan said many years ago it was unsustainable. Ben
Bernanke said last summer it was unsustainable.
KERNEN: Yeah.
BUFFETT: Everybody says it's unsustainable, and yet we keep doing it.
KERNEN: Are we--are we living beyond our means? Are we just consuming and consuming
and driving SUVs and just, you know, we're just gluttonous, is that part of it? Do we need to
tighten our belts?
BUFFETT: Well, in the end we have an enormous amount of assets in this country, which the
world is willing to take. I mean, Indonesia or Thailand couldn't do this because they couldn't
issue--they couldn't issue debt in their own currency and have people keep accepting it. But
we--we're like a country that has a farm the size of Texas, or we're a family farm the size of
Texas, and it beings all kinds of goods and services to us, but we want to consume 5 or 6
percent more than the farm produces, so we sell off a little bit of the farm every day or we
mortgage a little bit of the farm every day. And we can't even see it because the farm is so
big, and that we can--we can give a little mortgage and nobody notices, put an IOU on it. Or
we can sell a little bit of it like when the sovereign wealth funds come in and we don't even
hardly see it. But over time, it's like eating an extra 100 calories at every meal. I mean, you
don't sit down at the table and then get up and everybody says, `My god, you're fat.' But if
you keep doing it over time pretty soon they'll say, `My god, he's gotten fat.'
QUICK: And ver...
KERNEN: I wish you'd take something--I wish you'd take a different analogy there.
QUINTANILLA: Joe didn't know there was an alternative.
BUFFETT: Nothing--Joe, nothing personal--nothing personal.
KERNEN: No, no. Maybe you don't have a monitor, but it is personal, Warren.
BUFFETT: OK. If you've got a monitor, you can--you can retaliate. QUINTANILLA: They say the
camera...
QUICK: OK, guys, we will--oh, go ahead, Carl.
QUINTANILLA: Go ahead--I was going to say they say camera adds 10 pounds, Joe.
6/7
KERNEN: Yes.
QUINTANILLA: Although you don't see it on Warren--you don't see it on Warren. I don't
know what your problem is.
KERNEN: I know what my problem is, he just described it. Eating, you know...
QUINTANILLA: We'll take a break here, Beck, and come back in a little bit.
GO TO PART FIVE OF THE "ASK WARREN" SQUAWK BOX TRANSCRIPT
7/7
(Part 5)
March 3, 2008
THIS IS THE FIFTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE

STEVE LIESMAN: And one bright spot: While Wall Street, they're panicked over the credit
crunch, three quarters of Americans say, `Credit crunch? What credit crunch?' They're
reporting no trouble getting a loan, and that is unchanged from our survey in October. And
just 16 percent of Americans say they have a lot of debt. So while the economic pundits may
worry about American debt levels, Americans themselves aren't too concerned. Who better
to ask about this than Warren Buffett? Good morning, Mr. Buffett. Steve Liesman here.
BUFFETT: Hi, Steve.
LIESMAN: So let me ask you what this means from a stock market perspective when we find
such tremendously widespread negative attitudes. Does that signal a buying opportunity to
you?
BUFFETT: Well, at some point it will. I--but I don't buy based on what I really think the market
will do in the next, you know, month, six months or a year. If things--if I buy something at an
attractive price, I don't care what the stock does. You know, if I buy a farm, I don't get a quote
on it every day. If I buy an apartment house, I don't get a quote on it every day. And if I buy a
stock, I want it to be a stock that I'm happy owning. If they close the stock market for a couple
of years--they--back in 1914 they did close the stock market for many months and, you know,
it's what the business does over time that's going to determine how I do. So I don't really--I
don't try and time stock prices, I try to price stock prices. And it is true--and there's a lot of
negative sentiment around--I'm more likely to find good things to buy than if everybody's in a
very bullish mood.
LIESMAN: Is that one of the...
QUICK: So, Warren, that actually...
LIESMAN: Go ahead, Becky.
QUICK: Go ahead, Steve, I'm sorry.
LIESMAN: No, I was going to say, is that one of those times right now? Are you finding more
things to buy in the stock market, and are those negative attitudes helping depress prices
and creating buying opportunities for you?
1/4
BUFFETT: I'm--certainly I find more things to look at now than I did six months or a year ago.
But I would say that it's changed more dramatically in the fixed income market than it has in
the equity market, so that I may--that may be where I find the opportunities.
LIESMAN: Warren, one...
BUFFETT: You just--you go to work every--you go to work every day and you just look at--the
nice thing about securities is that they change in price every day, and you don't have to pay
any attention to it except if you--if you have borrowed money, it can--somebody pays a lot of
attention to it. Or if you have fresh money to invest you--you know, when you get--when you
find something you like at the right price, you buy it, and you don't think about whether it's
going to go up or down next week or next month.
LIESMAN: One of the most striking things in this poll is for the first time--we've done this for
four quarters now--Americans now look for a decline in their home values. What's the
significance of that from an economic point of view, Mr. Buffett?
appearences.
BUFFETT: Well, it has a huge effect because, you know, with 60 percent-plus of the American
people being homeowners, as being a huge asset--and in many cases it's a leverage asset--it
obviously is going to be on their mind big time. And I get the figures every month. We have a
number of real estate brokerage operations around the country, and I get the--I get the
figures from many markets on listings and sales, and I've seen something like Dade and
Broward County go from 6,000 listings and 3600 sales a month to where they're now, I think,
82,000 listings and about 1500 sales a month. So unless there's some major intervention by
the government in some way, or something of the sort, home prices have not stopped going
down. Now, they will at some point.
QUICK: Any of the intervention plans we've seen from the government strike you as being a
good idea?
BUFFETT: Well, that--I haven't seen the details on many of them, but I think it's very hard to
start interfering with markets without having a whole lot of unintended consequences.
2/4
KERNEN: Hey, Warren, always there's a backdrop to the things you say. You always end with,
Ì know that in the future things are'--you know, `the United States is going to do great and
US businesses are going to do great.' That's always sort of the backdrop, you don't know
when it's going to happen. I just wonder, you know, with your view on the dollar and knowing
what we still have to work through in terms of all the--what you referred to as financial
weapons of mass destruction--and there was a time where you actually said that--we
believed you when you said the dollar was going to be worthless. You actually said worth
less. You actually said worth less, but I mean, you are saying five years from now it probably
is going to continue to go down. I mean, is--are you more negative now than you have been
in recent years, would you say? Or tell me we're going to be OK down the road.
BUFFETT: No, no. No, I--you know, we'll be--we'll be fine. I mean, the factories don't go away,
the people and their talents don't go away, the houses don't go away, the population grows.
No, over time, you know, my children are going to live better than I do, although they don't
seem to think so. They'd like to hasten it a little bit. My--and my grandchildren will live better
than they do. And the same with you. This--in the--in the 20th century, the real standard of
living in the United States went up seven for one, and a great many of the--of the factors that
went into producing that really unprecedented gain in how people--improvement in how
people live, those factors are still present. I mean, we have a market system, we have a
meritocracy, we have the rule of law. None of them perfect, but they have combined in the
past to move one generation after another ahead of the one that preceded them. That will
continue to be the case. But it will also be the case that markets will do very wild,
unpredictable things and you will see things you haven't seen before in markets. That's the
way--people make markets, and they're not rational much of the time.
KERNEN: Hm. All right. Thanks, Beck. And we'll be back with you, Mr. Buffett, in just a second.
If you're just tuning in, yeah, this is a very special morning. Becky Quick is live in Omaha with-
-in Nebraska with Warren Buffett, and he's fielding whatever we can throw at him, whatever
you can throw at him, whatever Liesman, Carl, Becky, all of us and all of our viewers. He's
answering your questions on cnbc.com. We like it.
3/4
GO TO PART SIX OF THE "ASK WARREN" SQUAWK BOX TRANSCRIPT
4/4
(Part 6)
March 3, 2008
THIS IS THE SIXTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE

Warren Buffett.
QUICK: Welcome back, everyone. As you know, we are taking your viewer e-mail questions.
They've been coming in, and we haven't shown Mr. Buffett any of these questions. We've
been catching him by surprise, asking him on the fly. So I'd like to go back to one of the
questions from earlier because Warren said he's been thinking about it and has another
answer for him. This is from Jake again from Cleveland, Ohio. And again, if you missed this
earlier he'd asked him, Àmong the CEOs within the universe of publicly traded companies in
which Berkshire doesn't have an ownership position, which CEO do you believe is doing the
best job on behalf of shareholders?' Now Warren, you mentioned some CEOs, but you told
me you just thought of another.
BUFFETT: Yeah, I think Bob Iger at Disney has done an absolutely terrific job since coming in
a couple of years ago, and he--it's a--it's not an easy company to manage and he is--he's
done a first class job. He's shareholder oriented. He works well--extraordinarily well with the
people that are involved. He understands his business. He's moved them into new areas, so I
give Bob high marks. And actually, Jim Kilts, who was at Gillette when we were there, he's not
running the company now, but if I find out he's going to run a company, I'm going to buy
stock in it.
QUICK: Well, let me ask you that. You mentioned both Disney, and you mentioned Jeff
Immelt of General Electric. Why don't you own those stocks if you think they're doing such a
great job?
BUFFETT: Well, unfortunately, the market recognizes the fact they're doing that job, to some
degree, although neither one of them think that, incidentally. They both think their stocks
way underpriced, and it may well be, but I have to--I have a universe of $20 trillion worth of
stocks and bonds and everything to decide where to put the money, and every day I look at
what's going to make the most sense for us. And they're close.
QUICK: They're close. OK. Stephen Battaglia writes in from Alexandria, Virginia. He asks,
`Why do you think that you are afforded the exemption from the SEC to avoid revealing
certain positions when others in your same position have to reveal theirs?' He also points out
that he's a professional investor.
1/8
BUFFETT: Yeah, well, I think there are actually certainly many, many dozens, if not hundreds--
you're entitled to get an exemption if you're in the--if you have a purchasing or a selling
program going on. That's not a special rule for us at all. So if we--if we're buying X, Y, Z at the
end of the quarter, we or any other institution that reports to the SEC is entitled to ask for an
exemption for that, and they grant it. So it's not a special exemption at all for Berkshire.
QUICK: OK. We also got a lot of e-mails that came in from international places. This one
came in from Switzerland and D.L. Frischnecht writes in, he says in regards to the subprime
loan and banking crisis, he says, Ìn physics we know the fundamental principle of
conservation of energy, so where did all these billions go? Was it burned in heaps at the Pall
Mall, or is economics maybe not really a science?'
BUFFETT: Well, he's a little beyond me there, but the mistake was in lending, you know,
unwisely, as Shakespeare would say. There were a lot of dumb lending practices that were
dumb lending practices in private equity financing, and that's why the banks are hung up
with the loans. It isn't that the companies are terrible, but if you loan too much money on
anything, you're going to lose money. And if a house has doubled in price, and somebody
lends 95 percent of the price that's doubled in a couple of years, there's a good chance
they're going to lose money. If they--if they lend money to people where their income isn't
going to make the payments--allow them to make the payments, they're going to lose
money. So there's of ways to lose money, and for a while people thought houses could do
nothing but go up, so they paid no attention to any other factor. They didn't pay attention to
borrowers' income, they didn't, you know, and you know...
QUICK: But somebody's making that money, right? Somebody's on the other side of the
train.
BUFFETT: Well, the person who--the person who buys the house--well, the person who sold
the house got a bubble-type price. The person who buys the house now buys it cheaper than
other ways. I mean, every time anybody tells about somebody losing a lot of money by selling
a house, there's somebody else that's buying it at a more attractive price than they would've
paid a year or two ago.
QUICK: OK. Here's an easier one for you.
BUFFETT: OK.
QUICK: Gordon writes in from Meadville, Pennsylvania and he asks, `What do you put on
your hamburgers?'
EMAIL TEXT: What do you put on your hamburgers? Gordon Barrett, Meadville, PA
BUFFETT: I put a lot of salt.
QUICK: Serious?
2/8
BUFFETT: Oh, yeah, well, I salt everything a lot, and I--sometimes I put tomato and
mayonnaise, sometimes I put pickles and, you know, and then I top it all off with a little See's
Candy, wash it down with Cherry Coke.
QUICK: Well, happy breakfast everyone for anybody who's looking at home. Sam from
Tarnation, Texas, writes in, Ìn December on CNBC, you said that if unemployment rose to 5+
percent, some quote "very large dominoes" would start to fall. So what are those dominoes
and have they started to fall?'
BUFFETT: Well, I think--I don't think 5, I said it was at 4.7 then, but if it started moving up
significantly.
QUICK: Mm-hmm.
BUFFETT: Five is still not a really high level at all, but it's going the wrong direction, and some
factors are in play that I think will keep it going that way, but when people aren't employed,
then a lot of bad things happen.
QUICK: Right.
BUFFETT: And we're closer to seeing that now than we were when we talked in December.
QUICK: OK. Tory from Bellevue, Nebraska, writes in and said, `You support Barack Obama
and Hillary Clinton to be President and Chief Executive of the United States. Would you
support either one of them to your successor as President and Chief Executive of Berkshire
Hathaway?'
EMAIL TEXT: You support Barack Obama and Hillary Clinton to be the President and Chief
Executive of the United States. Would you support either one to be your successor as
President and Chief Executive of Berkshire Hathaway? Tory L. Lucas, Bellevue, NE
3/8
BUFFETT: Well, I would certainly employ them to run a business, but running a business is a
little bit different form my job. I couldn't run the Furniture Mart very well, but I've got the best
people in the world in the Blumkin boys running this place. So I would them--I would put
either one of them in charge of a business. I don't think I'd give them my specific job, which
is strictly allocation of capital. I've got a little different job. But if they're looking, one of them
will probably be looking for a job here in a few weeks. I would be glad to hire either one of
them. !
QUICK: OK. Douglas from Alexandria, Virginia writes in and says, `You stated that people,
including you, aren't paying enough taxes. OK. So why don't you send some of your billions
to the government?'
EMAIL TEXT: You have stated that people, including you, aren't paying enough taxes. OK. So
why don't you send some of your billions to the government? Douglas Smith, Alexandria, VA
BUFFETT: Well, I don't--I don't say generally people. I think the lower class, the middle class,
even the upper middle class are paying more than they should be paying. I think that the
super rich, like myself, you know, my tax rate was 17 and a fraction percent in 2006, and
everybody else in the office was paying way more. I'm not advocating tax increases across
the board at all. I'm advocating a redistribution to the super rich. In the last 20 years, the
total wealth of the Forbes 400 has gone from 220,000,000,000 to a 1,540,000,000, seven for
one. The average wage has gone no place in real terms, it's up about 80, 85 percent and
that's exactly what inflation is. So the world has gotten tilted to the super rich, and I think
that the middle class and even the upper middle class, I think they've been getting a very raw
deal. So I would change their taxes and move them over to people like me.
appearences.
QUICK: Back to the point, we've got a lot of questions like this from viewers saying...
BUFFETT: Yeah.
QUICK: ...why don't you send your billions in? Here's the address.
BUFFETT: Well, my billions will go to society. Every share of stock I've got. And, on balance, I
think that the five foundations I'm giving to will probably get a better result than sending to
the government, but I wouldn't have any objection to sending to the government. This
society has showered everything on me. I've gotten everything in life I've wanted, and I will
spend less than 1 percent of my net worth, I and my family, during my lifetime. If the only
choice were to give it to the government or to give it to create a dynasty of Buffetts, I would
give it to the government.
QUICK: OK. Fair enough. We have a lot more questions that have come in from you, the
viewers, and we'll have many more of them when we come right back after this.
4/8
(Announcements)
JIM CRAMER (ON TAPE): Asking the icon. Sir, isn't it true that we have an energy policy
backing ethanol that is creating so much inflation that perhaps it would be better to stop the
emphasis on ethanol, allowing inflation to come down and the Federal Reserve to cut more?
Am I wrong that mankind is being crucified upon a cross of ethanol right now, and it's killing
the poorer nations and the people in our country who can't afford anymore to eat chicken or
beef?
QUICK: Warren, what do you think?
BUFFETT: I wouldn't put it exactly in those terms, but I would say that ethanol is a relatively
inefficient way of creating gasoline--gasoline equivalent, and it uses a lot of energy in the
process of raising the corn that does it. And, as correctly pointed out, it has a by-product of
raising agricultural products elsewhere. In economics you can never do one thing. Anytime
anybody tells you they're doing something in economics, then you have to say, Ànd then
what?' And the ànd then what' in the case of ethanol is A, if you use it to plant more corn,
you're going to use--in terms of fertilizer and everything, you're going to use a lot of energy.
And secondly, you're going to raise the prices, on balance, you'll raise the prices of other
agricultural products. So there's no question that that--that's a fairly correct statement of the
problem.
QUICK: Those are very brave words when you realize we're standing in the "Cornhusker
State."
BUFFETT: Yeah.
QUICK: Do you get pushback from that?
BUFFETT: My son was head of the Nebraska Ethanol Commission. He is a farmer. He lives $5
1/2 corn, he loves $12 soy beans, I don't blame him. But I'm not running for anything,
fortunately, and, you know, I can call them as I see them.
QUICK: OK. Let's get back to some of our viewer e-mail questions.
BUFFETT: Sure.
QUICK: This one comes in from George Greene in Wilmington, North Carolina. He says, `Do
you believe the media sensationalizing news events has caused the turmoil in the market as
well as driven up the price of oil due to constantly talking about $100 a barrel?' He's talking
about the `fog in Houston for two days, it shouldn't cause an increase due to a possible
supply disruption.' Is this our fault?
BUFFETT: Yeah. In other words, if you just keep people ignorant, will markets work better?
QUICK: Right.
BUFFETT: You know, the nature of it, you are reporting spot news all the time, but you're
going to get spot news one way or another, and the problem is the way people react. And--
5/8
but they're going to react--they reacted too much to short term news, and if it doesn't come
from you, it'll come from somebody else. So just do the most reliable job you can of
reporting.
QUICK: Whoo! We got a pass. We got a pass from you on that one.
BUFFETT: Yeah.
QUICK: We'll take it.
BUFFETT: Yeah. People have themselves to blame for crazy markets. You know, we're
talking--if you talk about apartment houses, you talk about farms, normally or something like
that. Prices move very gently and people don't get quotes on them every day. You don't have
to look at the price of the stock market. I don't even look at--I don't look at the price of
Berkshire's...
QUICK: You don't look at Berkshire share every day?
BUFFETT: No. What difference does it make? I haven't bought or sold a share in, you know,
25 or 30 years. I mean, it's the business that counts.
QUICK: Wait a second, come on. You have to have a rough idea for where you stock is
trading.
BUFFETT: Oh sure, I've got a rough idea and some days I look at it, but I don't feel like it's a
necessity to look at it. It doesn't tell me anything. The market is there to serve you and not to
instruct you. That's the most important lesson in investing. And when it gives you the chance
to do something because it's doing something silly, you do it and otherwise you ignore it.
QUICK: Can you remember the last day you didn't know exactly where Berkshire share was.
Was this in the last week, maybe?
BUFFETT: Yeah.
QUICK: Yeah?
BUFFETT: Mm-hmm.
QUICK: Wow. OK.
BUFFETT: Yeah.
QUICK: Jerry in Chicago, Illinois, writes in. He says, Ìn recent letters, you mentioned
investment management "Helpers" and hedge fund "Hyper-Helpers." You say fee
arrangements and costs work to the detriment of the investor. So what type of investment
management fee structure do you think is fair? And if you were still running the Buffett
Partnership, how would you determine fees?'
BUFFETT: Yeah. I--overall in terms of that--I think everybody should read Jack Bogle's book.
Low--what you really want to do is you want to own an American industry which is going to
6/8
do fine over time, but you want to make sure you don't put all your money in at once
because you might pick just the wrong point.
QUICK: Mm-hmm.
BUFFETT: But if you buy in over time into a wonderful business, which is American industry,
and you make sure you don't go in at just the wrong times, when people get excited, and you
get to keep your costs low, you're going--you're going to beat 90 percent of the people
because they're going to run up unnecessary costs. And if you have the whole world running
hedge funds, and they're all charging you 2 and 20 or something of the sort, believe me, it
doesn't make the cars, you know, Toyotas sell for any more money. It doesn't make the
Furniture Mart make any more money. It just--it just transfers the profits of those enterprises
to a bunch of people who are essentially telling you to buy and sell.
QUICK: OK. There's a question that came in from Kim Johnson in Spring, Texas. He said--this
is a good question, I really like this one. `Would you be the same man you are today if you'd
been accepted into Harvard Business School?'
BUFFETT: Well, no, because I wouldn't have gotten hired by Ben Graham later on, and I'd
probably wouldn't have married my wife, because events would've been different. It was a
two-year school there, and I got out in one year, therefore I had some time to put on a full
court press on the romantic side. And--so, no, it was very fortunate for me. I didn't feel that
way at the time. It was very fortunate for me they turned me down. So maybe they should be
soliciting me for their alumni fund based on the fact they turned me down.
QUICK: OK. Melvin writes in from Manila. He says that `You mentioned in your annual letter
to shareholders that Berkshire would be experiencing slower growth in the future and
definitely would not be able to match the high growth rates of the past. So do you think the
present price of Berkshire Hathaway stock reflects that outlook as well?'
EMAIL TEXT: You mentioned in your annual letter to shareholders that Berkshire would be
experiencing slower growth in the future and will definitely not be able to match the high
growth rates of the past years. Do you think the present price of Berkshire Hathaway stock
reflects this outlook at well? Melvin Olivan, Manila, Philippines
BUFFETT: Well, we certainly try and explain the facts to everybody, so the price should reflect
all of the facts that we give them, including my views about the fact that the past is not
replicable. Well, if we knew we were going to compound at 21 percent a year for the next 40-
some years...
QUICK: Mm-hmm.
BUFFETT: ...you know, a much higher price would be justified, but that is a total--that would
be a totally crazy assumption.
QUICK: OK, guys, I'm going to throw you off in the control room here because I'm going to go
out of order. I want to go to the Reed in Canton, Michigan. He wrote a question that says
`You seem like the guy next door. Do you sit down and pay your own bills? Things like
7/8
electric, heat, phone, credit cards, etc. It would be great to know that one of the richest men
on the planet sits down and writes out his own checks every month or goes to the Quickie
Mart and picks up a gallon of milk.' Do you do those things?
BUFFETT: Well, I like to go to supermarkets. I like to buy things there and roam the aisles and
see what there is. Actually, my assistant writes out the checks, you know. So I do sign checks,
but I don't--I do not make them out anymore.
QUICK: OK. All right. We have a lot more viewer e-mail that we will get through throughout
the show. Also, Carl, when we return, when we come back on this, we're going to be talking
about some of the news of the day and Mr. Buffett's particular thoughts on derivatives. He's
got some new ideas he'd like to share, and we'll get to all of that when we come back.
QUINTANILLA: All right, Beck. As she said, a lot more with Warren Buffett coming up in the
next hour of SQUAWK. We're also going to find out how politics and the economy are playing
out in the CNBC Wealth in America report, and Charlie Gasparino going to join us. Also--did
we mention?--more e-mails for Warren Buffett as this special edition of SQUAWK BOX
continues.
GO TO PART SEVEN OF THE "ASK WARREN" SQUAWK BOX TRANSCRIPT
8/8
(Part 7)
March 3, 2008
THIS IS THE SEVENTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE

KERNEN: Welcome back to SQUAWK BOX here on CNBC, first in business worldwide. I'm Joe
Kernen, along with Carl Quintanilla and Becky Quick, who's in Omaha this morning with the
man himself, Warren Buffett. It's a perfect day to have him on with everything going on in the
markets and the economy. Becky, I don't know if you've gotten access to the wire services,
but they truly...
QUICK: I don't.
KERNEN: Well, they truly are hanging on every word. I mean, I'll see a flash, you know, the
ones you would think of: Buffett, common sense, we're in a recession. But also, Buffett says
he has not--a woman is not on the list for CIO. They have another one that says Buffett would
not put Obama or Clinton in charge of Berkshire. So they're putting everything on there.
Nothing about me being the main guy for CIO, though. Nothing about Joe being in the--in
the...
QUINTANILLA: One of the four candidates.
KERNEN: And I challenge Reuters and Dow Jones to, if he said it--they're putting everything
else on. J-O-E, right?
QUINTANILLA: K-E-R...
KERNEN: Even just my first name is OK. I'm mad.
QUICK: And Joe, did they pick up--did they pick up what he puts on his hamburgers? The
mayo and ketchup?
QUINTANILLA: That also has not been on the wires.
KERNEN: That has not been picked up, either. It's like, you know, they're trying to judge
what's important and what isn't and, you know, someone--they're like 22 years old, they're
misspelling everything. But--no, they're not. They're...
BUFFETT: I'm doing my best to make news, but...
KERNEN: You are--you are making a lot of news.
QUINTANILLA: Yes, you are.
KERNEN: And I got so many follow-ups, Beck, but let's get to--there--you know, earlier it was
1/6
quiet. There are so many e-mails at this point that have come in, I'm sure they're very similar
to the ones that you already have ready to go. So you want to take it away, Beck, and do
some more?
QUICK: Sure. And guys, jump in as you want. You know, you tell us when you want in on
these things, and...
KERNEN: We want in at--we want in whenever you can let us.
QUICK: ...it's hard when we're far apart, but you guys jump right in.
KERNEN: Yeah, we want in whenever...
QUICK: All right, you guys jump in. You guys are listening. You hear any points you want to
jump in on, go right ahead because...
KERNEN: OK.
QUICK: ...we're OK with this. We're working. We can hear everything.
KERNEN: Good.
QUICK: But we're going to start off with a question about derivatives, because Joe, you
brought this up earlier. You were talking about those comments that Mr. Buffett's made in
the past about these being weapons of financial mass destruction. And Warren, you said you
had a couple other thoughts on derivatives.
BUFFETT: Well, you know, the ways you get into trouble in markets is doing things you don't
understand, and then doing them with a lot of borrowed money. And derivatives combine
those things. And--but the really important illustration that has never gotten picked up on
much was that a couple of years ago Freddie and Fannie got into big trouble, billions and
billions and billions of dollars of--that they had to restate. Now, Freddie and Fannie had
auditors like everybody else, but they also had a government agency called OFHEO that had
200 people in it whose sole job was to oversee Freddie and Fannie. Two hundred people
going to work every day, and those people did not pick up at all on all of these problems that
Freddie and Fannie had. I mean, they were looking at complex financial instruments, you
know, all kinds of swaptions and all that sort of thing. The auditors didn't pick up on it, but
more important, 200 full-time--they didn't have to think about General Motors, they didn't
have to think about AT&T. They had two companies to think about. And they issued a report
later on telling about the failing of all--everybody else.
QUICK: Mm-hmm.
BUFFETT: But it shows you--when things get that complex, you're going to have a lot of
problems. And CDO squared--I figured out, on a CDO squared you had to read 750,000 pages
to understand the instruments that were underneath it.
QUICK: Oh, my gosh.
2/6
BUFFETT: Yeah. Well, you start with the RMB, that's the residential mortgage-backed
securities, and that would have 30 tranches. And then you'd take--and that would be a 300-
page document--you'd take a tranche from each one of that and create a CDO, 50 of those
times three--300, you know, it becomes 15,000. Then you take a CDO squared with 50 more,
and now you're up to 750,000 pages. QUICK: You have to read through it.
BUFFETT: And the mind can't comprehend that. What people did comprehend was that the
fees were terrific in selling them to the people.
QUICK: Yeah. It raises some questions, too, when you talk about people who are looking at
oversight for these very particular things, about what's been happening with the rating
agencies as well, and there's been some viewer e-mail. I'd like to bring in another one right
here. In fact, Brad Osterloo from Mitchell, South Dakota, writes in and says, Ì was surprised
to see no mention of the municipal bond rating crisis nor a mention of Berkshire entering
that market in the annual report--how come?'
BUFFETT: Well, we entered it very late. I write--I write the report in November, December, we
didn't even enter in the--and we're still very small in it. We'll undoubtedly have something to
say about it at the annual meeting and in the report next year. But, you know, as I
mentioned, we only have had 69 million of premiums. We've written 206 contracts so far. So
it's something we've just started in. We were admitted in New York about a month ago, we've
been admitted in five more states. The states have been terrific about responding very
quickly. But we got into Maryland the other day, so it's moving, but it isn't yet a big item.
QUICK: OK. Joe:
KERNEN: You know, Warren, I was--your comments about insurance, the party being over, I
don't think you were talking about monoline. And typically property casualty, P and C
companies, there's these big macrocycles that have to do with--I don't know whether there
were a lot of disasters in one year, and being able to raise premiums. What are your
thoughts on what makes it such a difficult time right now for the entire insurance industry?
Why did you say that, that the party's over? Because of the credit crisis?
BUFFETT: Well, it's been a--it's been a--it's been a--no. It's been a wonderful time up to now.
Now, if they happen to own the wrong assets, they could lose some money on that. But on
their peer insurance underwriting, we've had two very, very good years, partly because rates
were very good and partly because natural disasters in the United States were almost absent
on a big scale. So we're now going into a year where rates will be somewhat lower. Exposures
grow every year, and some years we'll be lucky on natural disasters and some years we
won't. But I would bet a lot of money that the--that the underwriting profit margin--or loss,
perhaps--but underwriting profit margin of the US property casualty industry decreases in
2008, but it's decreasing from a very good level. So it--but it's going to be worse.
QUICK: Carl:
3/6
QUINTANILLA: Warren, we've talked a lot about growth concerns this morning, inflation
concerns. Page two of the Journal, Greg Ip, big Fed watcher, has a story about how for the
Fed it is recession, not inflation, that poses the greater threat. If you were in the chair, and
Chairman Buffett was giving Humphrey-Hawkins on the Hill, would you be framing it the
same way?
BUFFETT: I'd probably arrange to get an emergency call so I had to leave the place. Hey, it's a
very tough position. I never--I don't like to second guess Fed chairmen, because they have a
very, very tough problem. They don't--and they don't have all the answers. They know they
don't all have the answers. And, of course, people like to think they do. And the problem with
inflation is that it's very easy to ignite it and it's very hard to put it out. And you needed a Paul
Volcker to do it 25 years ago. So I think Bernanke's got a very tough balancing act and I think
there's a pretty fair chance that the country will react in such a way as to ignite inflation in a
serious way.
QUINTANILLA: I don't want to put words in your mouth, but one could take that and say,
`Well, Buffett's suggesting they're on the wrong side of the trade.'
appearences.
BUFFETT: No. The trouble is they have--they've got a problem on the other side. You know,
it's like Woody Allen in that movie many years ago, where he said, you know, `We face a fork
in the road. One leads to death and pestilence and the other leads to total destruction. May
God grant us the wisdom to make the right choice.' I mean, it is not an--it's not an easy game.
KERNEN: I was thinking of Yogi. Ìf you get to a fork in the road, you should take it' is what--
that was much--that was much easier one to...
BUFFETT: Yeah, absolutely take it. Yeah.
KERNEN: Warren, real quickly on--I wanted to follow up, a long time ago, on your comments
about hedge funds. I don't know the exact numbers, but let's say 10, 12 years ago there were
X hedge funds, now let's say that there's 50 X, or whatever it is. And you're not a big fan,
obviously. How do you foresee the scenario where we go back to something between X and
50 X? Does the market--does a bad market take us there? Does bad performance across the
board take us there? How do we see the end of this--of this explosion in hedge fund mania?
4/6
BUFFETT: Over time there will be a disillusionment when the--and incidentally, it won't be
disastrous or anything of the sort. There'll be--there'll be the occasional blowups here and
there. But over time, when people find out that it's not the holy grail, you know, the money
will flow elsewhere. You know, people will--people always go through the rearview mirror,
what's been popular and has worked recently, and this will be like all the rest.
KERNEN: Hm.
QUICK: You know, Warren, in your annual letter you laid out an argument not only against
companies and how they're not really thinking correctly about their pension right now, the
pension plans and how they're funding them, but you also said that the public sector faces a
much bigger problem; that municipalities are even in a worse situation, because they're
promising people they can retire in their 40s and different things, making promises that
they're never going to be able to keep.
BUFFETT: Sure.
QUICK: Floyd Norris over the weekend, of The New York Times, pointed out yes, but at the
same time you're very willing to underwrite a lot of those same municipalities for the
promises they're making right now. Why is that?
BUFFETT: Well, that could be a tough problem. I mean, they won't walk--they won't walk away
from the pension problems. It's going to be easier to walk away from their bonds than it
would be their pension problems. But it's a--it's an incremental problem. And it's so easy, if
you come up for election next year, to increase pension promises. You know it'll get you
votes and you don't--you're never have to--going to have to pay if you're on the city council
or if you're a governor or a state legislator. So those promises--you know, when I was in New
York, I knew some guys that retired in their early 40s and they worked a lot of extra hours in
the last year and all of that. And they were going to be getting pensions for 40 or 50 years. So
they worked for 20 years and they're going to get paid 40 or 50 years for not working. And
that creates a lot of problems on their own. And it's much more so in the--in the public sector
than it is with corporations.
5/6
QUICK: OK. Another viewer e-mail here, a gentleman named Bo Mann writes in. He says,
`You usually advise the younger crowd. But what would an ideal portfolio consist of for a 55-
year-old man with two kids entering college and $1 million to invest? Should it be 100
percent Berkshire?' That's what he asks, not me.
BUFFETT: I'm only 99 percent Berkshire myself, so I never go 100 percent. Well, I think if you
buy equities across the board, which means an index fund, and if you do it over time so that
you don't put all your money at the wrong time, and it's a low cost index fund, that's
probably the best investment that most people could make. Mm-hmm.
QUICK: OK. Now, Carl and Joe, we will get back to you guys in the studio. Again, we'll be
here--and I should point out, we are at the Nebraska Furniture Mart right now in Omaha. You
wonder why we're sitting in the middle of a store. This is one of Berkshire Hathaway's many
companies and this store that we're sitting in right now is one that they just redid this year
and opened up this brand-new store. So if you wonder why we're sitting in the middle of a
store, that's why. And we'll get to a lot more questions with the Oracle coming up.
QUINTANILLA: That's a great shot, Beck. We'll see you in a couple of minutes.
GO TO PART EIGHT OF THE "ASK WARREN" SQUAWK BOX TRANSCRIPT
6/6
(Part 8)
March 3, 2008
THIS IS THE EIGHTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE

QUINTANILLA: We do have--thank you, Charlie. We do have Becky and Warren, of course, in

Omaha, listening to all of this.
GASPARINO: OK.
QUINTANILLA: And there's a lot--a lot of cross currents here, Becky. Any thoughts from that
part of the country?
QUICK: Mm-hmm. Yeah. Actually, Charlie, Warren was just listening in to what you were
talking about, and we started talking about Moody's because Berkshire owns about one sixth
of Moody's. And that was a question that came in from a lot of--from viewers, as well,
Warren, is what do you think about the value of Moody's? Was this a mistake to jump in and
buy this stake?
BUFFETT: Well, it wasn't a mistake at the price we bought it. But in terms of the--the intrinsic
business value of Moody's decreased last year. I mean, Wells Fargo stock was down last year.
I don't think the intrinsic business value shrunk. In fact, I said I thought it probably increased
a touch. And there's a lot of companies whose stock went down where the intrinsic business
value did not go down, or maybe went up. But I--our holding a Moody's, which is a significant
holding, they're--I don't think there's any question that the intrinsic business value of a
Moody's shrunk last year, just as McGraw-Hill owns S&P and the S&P component of McGraw-
Hill, it--they have less of a moat around them and they're going to be affected for a long time
by the experience of the last couple years.
QUICK: OK. And, you know, that's something interesting, though. Does that mean you would
sell this stock and try and get out of it, or do you hold onto it through this time?
BUFFETT: Well, we own 48 million shares, so we have not seen a lot of bids for 48 million
share blocks. We have a much more difficult problem either buying or selling stocks than the
average investor. I mean, moving big blocks of stocks around, it's very difficult for us to sell,
except on the way up, and it's difficult for us to buy except on the way down just because of
the quantities involved.
QUICK: OK. Charlie, that's Warren weighing in on what he'd just heard you reporting about.
BUFFETT: Mm-hmm.
QUICK: And, guys, we'll toss it back to you.

1/5
KERNEN: All right. Warren, I may lighten up on that a little bit if I--if I do come in and start
running--I mean, maybe a million here, a million there. You're not going to--I mean, you're not
going to come in and tell me what to do, right, once I become CIO, right?
BUFFETT: Well, I don't know how many million shares you've got, Joe, but we'll let you go
first.
KERNEN: Well, no, I got--I'm going to sell some of yours when I'm running the place. Forty-
eight...
BUFFETT: Oh, I see. Well, you...
KERNEN: If we got--if we got 48 million, I'm going to start lightening up. I just--I don't want
you looking over my shoulder every...
BUFFETT: You...
KERNEN: ...you know, every time I do something.
QUINTANILLA: Joe, have you started looking at homes? Have you started looking at homes
in Omaha?
KERNEN: Oh, yeah, I forgot about that. That--I won't be able to buy a sports team, either.
Charlie, you want to get back in here?
GASPARINO: Yeah. I mean, you know, listen, we've been writing--I've been covering the bond
rating issues for a long time, and every now and then you have this huge flare up where
everybody says they haven't done their job and, you know, there should be more
competition. And basically nothing has really changed much. This--if we--we were talking
about bond insurance as a license to steal. Well, let me tell you something: The rating
agencies is--you know, multiply that by 10. I mean, these guys have an entrenched--it's not a
monopoly, because it's three of them. What is that, a triopoly? Those generally aren't bad
businesses to invest in, unless, of course, you think there's going to be regulation out there.
And this SEC does not seem to want to regulate the rating agencies. It's not really--it's not
really--it keeps saying that it wants to open up the competition, but the types of competition
it's opening up to doesn't seem to--these are not--these are not companies that could really
compete against big companies like Moody's, S&P and Fitch, which is a growing company. So,
you know, we've sang their--you know, we've said in the past that they're not great
investments. Whenever we hit these sort of bump in the road, like now, they've obviously
missed the subprime market. But, you know, they're there for a reason, and three of them,
and it's hard to break in. And I guess Warren Buffett would agree with everything I say.
KERNEN: Yeah, and I would...
BUFFETT: Yeah, I--can I?
QUICK: Yeah, go ahead.
2/5
BUFFETT: I do agree with that. But they have--certainly structured finance rating has been a--
quite a profitable--everything's profitable at the rating agencies.
GASPARINO: Right.
QUICK: Mm-hmm.
BUFFETT: But structured finance has been very profitable, and certainly that stream of
revenue probably has diminished dramatically for quite a while.
GASPARINO: Gone.
KERNEN: Mm-hmm.
QUICK: OK. I...
KERNEN: All right, thanks...(unintelligible).
QUICK: Warren--thanks, Charlie. Guys, I'd like to bring in a few more viewer e-mails that have
been coming in, as well. This one comes from Shan Ausaf in Katy, Texas, who writes in: `How
do you know when you're dealing with an honest and capable person?'
appearences.
BUFFETT: Well, it's a great question, and I would say this: If you--if we get 100 possible sellers
to us of businesses, I don't think I can make a correct judgment all--on all of the 100. But I
only have to be right on the ones I make an affirmative judgment on. So I think I can be right
a high percentage of the time on the six or eight that I might pick out from there, and I think I
can sort of pick out the obvious thieves, you know, of the six and eight. But in between, I
think, I can't grade everybody in that 100. And--but we have had--I mean, when we bought
the Furniture Mart from the Blumkin family, I'd seen them operate for 20 or 30 years. I knew
them personally. There wasn't any doubt in my mind whatsoever that they would work
harder and more--you know, for me than they had when they owned it all themselves. And
we've had good luck in that. But we've not batted 100 percent. Every now and then I make a
mistake.
QUICK: In terms of the management that you're betting on?
BUFFETT: Yeah, yeah. It--human beings sometimes change. Sometimes they change with
age. I hope not, but I kind of feel it myself some days, the--but you can be right most of the
time. We love buying businesses from people who are second and third generation. You've
really got to--you've got a scorecard on them then. Buying them from a financial operator,
we've never done it.
3/5
QUICK: OK. Steve Cady from Charlottesville, Virginia, writes in: `With the obvious
understanding that you have of economics and of business, how in the world can you be a
Democrat?'
BUFFETT: Well, I think--I first became a--I was president of the Young Republicans Club at the
University of Pennsylvania. My dad was a Republican congressman. We used to sit around
the dinner table thinking that if Roosevelt won again that the country would disappear and
all that sort of thing. But civil rights in the early '60s probably changed my view. I just felt--it
wasn't exclusively a Democrat vs. Republican issue, but I felt the Democrats cared more
about it. I feel the Democrats--I feel people like me can take care of ourselves. The
Democrats, I think, have some more concern on average, but it's not universal. I vote for
Republicans. But I think they worry a little bit about--more about the people that get the
short stick in life.
QUICK: OK, we had a viewer write in from Zimbabwe--I believe the name's Mfaro Hove--who
writes: `What approach would you use to invest in a country where inflation is at more than
100,000 percent a year?'
BUFFETT: The only--the only defense you have in--when money is turning into confetti is
basically your own talents and earning power. If you're the best brain surgeon, if you're the
best meat cutter in town, if you're, you know, the best professional football player, whatever
it may be, if you have your own talent, whether the currency becomes, you know, totally
devalued or they go--they go to sharks' teeth or seashells for currency, you'll command your
share if you have personal talent. So the best investment you can make is always in yourself.
I tell students that all the time. If they learn how to communicate better, all the--all the things
they--they develop their own talents, they don't have to worry--they don't have to worry as
much about the currency. It's when you're trying to store wealth that you have to worry
enormously about what a currency does.
QUICK: OK. Warren, I have stacks of more e-mails that we're going to try and get to
throughout the morning. And what I haven't told you yet is we also have another celebrity e-
mail that's coming up, too...
4/5
BUFFETT: Oh. QUICK: ...from one of your famous friends. And, guys, we're going to get to all
of that when we return.
GO TO PART NINE OF THE "ASK WARREN" SQUAWK BOX TRANSCRIPT
5/5
(Part 9)
March 3, 2008
THIS IS THE NINTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE

QUICK: Welcome back to SQUAWK BOX here on CNBC, first in business worldwide. Folks, we
are just one hour away from the opening bell and we have a very special SQUAWK BOX
today. We are live in Omaha, Nebraska, at the Nebraska Furniture Mart. Our special guest
this morning is Warren Buffett. He has been answering all kinds of questions we've been
throwing at him. He's got a lot of e-mail questions from you he's going to be getting to. But
first, Joe, I think you have a question for Mr. Buffett, as well.
KERNEN: Want to just try to get some insight into how he decides to do certain things.
Warren, you recently bought some Glaxo, some Sanofi. I don't know whether the--whether
you make that decision, but I'm trying to--OK, you got Merck or you've got Schering or Lilly,
you got some domestic company. You bought Sanofi and Glaxo. Is it the pipeline? Do you--do
you look into what the pipeline of upcoming drugs is? How do you make that decision? Or is
it you that makes the decision to go with the Glaxo, Sanofi vs. somebody else?
BUFFETT: Yeah, it's me that makes the decision. And I would say this: with drug companies, I
feel I know less specifically about a given company's future than I might if I were buying a
candy company or whatever it might be, because it's very difficult to say who will have the
winners five or six years from now. I think--I think if you buy drug companies that you
probably want to buy those with--that--you probably want to buy them somewhat across the
board. You know, it would be hard for me to make a bet on any specific company based on
something that was in the pipeline that might come out in two or three years. You know the
ones that are coming off protection, so you'll see--in a Sanofi, you'll see certain things that
are going to cause the earnings to go down, and what's going--what will cause the earnings
to go up is in the pipeline, you're sort of guessing at. If you have a group of them, I think
you'll probably do OK if you buy in at sort of a multiple for the group. And actually, the drug
companies have gotten in some cases quite a bit cheaper in recent years.
KERNEN: So we shouldn't be surprised to see you--then it wasn't that you were picking
nondomestic drug companies, you might end up with a stake in one of the domestics at
some point.
BUFFETT: Yeah, very easily. And, of course, the domestics have a lot of earnings coming from
abroad, too. I do like earnings coming from abroad better than earnings coming from the
United States. So if they're doing business--but most of them are doing business all over the
world, so there's not a huge difference in that. We own some Johnson & Johnson and, you
know, half the earnings, roughly, will come from abroad. And we think we probably have
1/4
some currency play. We've already had some, but it hasn't been reflected that much in the
stock. But there will be a J&J, a Sanofi, you name it, they will earn a lot of money abroad and
they'll come up with some drugs that surprise you and they'll have plenty of them that are
earning a lot of money now that'll--won't be earning any money for them or anything to
speak of 10 years from now.
KERNEN: Let me--you want to go back? Or I had a real...
QUICK: No, go ahead.
appearences.
KERNEN: I had a theoretical question. Alternative energy, Warren; I mean, you seem to buy
things you know. Utilities. Obviously, utilities are going to deliver energy to communities all
around the globe. It seems like there's a huge potential in alternative energy. Is that just too
out there, or maybe the fundamentals get ahead--or the stock price gets ahead of the
fundamentals? It seems--are there any earth-changing areas that you're considering right
now or do the stocks just get ahead of themselves?
BUFFETT: Well, I don't--I don't try to--I usually don't try to make money by guessing that
something will be doing enormously well 10 years from now, that is sort of a dream...
KERNEN: Yeah.
BUFFETT: ...at the present time. I look for things I can understand. I mean, here's our own
See's candy, I might add. And See's candy will be--will be popular 10 years from now or 20
years from now. People will keep eating it. They'll keep chewing gum, they'll keep doing all
kinds of things that are obvious.
KERNEN: See's.
BUFFETT: They'll shave with Gillette razors and, you know, they'll use Tide in the washing
machines and so on. And I can't pick--I can't pick the winners. There were 2,000 auto
companies started in the United States and you've got three of them hanging on by their
fingernails now. So it was a tremendous industry, it changed the world, but 2,000 of them
disappeared.
QUICK: Hey, Warren, you mentioned earlier--and you wrote about this in the annual letter to
shareholders, too--the sovereign wealth funds. So these guys have come out of nowhere.
When you made these comments earlier, we were talking about the strength or the
weakness of the dollar. But are sovereign wealth funds a bad thing, necessarily?
2/4
BUFFETT: Well, they're inevitable. I mean, we are creating the sovereign wealth funds in the
United States. We have--when we ship $2 billion today to the rest of the world, it has to go
into stocks or bonds or direct investment in the US or something. But we are forcing
investment in the United States by our consumption pattern. So when we--if we run a
negative trade balance with China of 250 billion this year or something of the sort, they're
going to have 250 billion of US somethings. And they're picking equities now, and in the end--
you know, it's kind of interesting. They produce the 250 billion net of goods. People work
hard over there, they work extra hours to send us shoes and send us a lot of the things you
see in the store, and we send them little pieces of paper, you know. And they're not as
excited about getting those pieces of paper, but we ought to expect them to do with those
pieces of paper whatever's the most intelligent. That's what we would do. And so sovereign
wealth funds are simply a result of a large trade deficit here, large current account deficit,
and they're going to get larger and larger and larger. And, you know, we may hope that they
buy government bonds instead of buying equities, but they should have the right to make
that choice.
QUICK: You know, very quickly, you mentioned that they are less excited about getting those
little pieces of paper.
BUFFETT: Sure.
QUICK: Our dollars. Right now, everything trades in dollars, from gold to oil, anything else
out there. You think that that will change in the next five to 10 years?
BUFFETT: I don't think so. I think--I think people will keep using it. The dollar will become
somewhat less important over time, but it's a very, very, very important currency so people
will think in dollars for a long time.
QUICK: OK. We have a lot more of your questions that you've been sending in to us through
the e-mail, and folks, we're going to get to a lot more of those when SQUAWK BOX comes
right back.
3/4
GO TO PART TEN OF "ASK WARREN" SQUAWK BOX TRANSCRIPT
4/4
(Part 10)
March 3, 2008
THIS IS THE TENTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE

Warren Buffett.
QUICK: Welcome back, everyone. We are live in Omaha, Nebraska, at the Nebraska Furniture
Mart, which is one of the many companies that Berkshire Hathaway owns. We've been
asking Mr. Buffett questions all morning long, and at this point we're turning the show over,
once again, to you. Warren, we have a lot of questions that are coming in, and one of them
comes from Larry Beckler from New York. He asks that, `Given the board of directors are
normally quite chummy with their CEOs, how can shareholders get some kind of
accountability for CEO pay, particularly when the company's stock has not appreciated or
decreased in value?'
BUFFETT: The only real way, in my view, is to have a few of the very largest shareholders--I
mean, you would need--you would need the CalPERS, the Vanguards, the Fidelities. If a half a
dozen of those, when they saw something really that they felt was outrageous, would simply
withhold their votes and explain why, that would get through. You know, the--you've got a
bunch of big shots on the board, and they don't--they don't like criticism. And they
particularly--they don't like criticism when it would come from a group that would not look
like a bunch of hot heads or anything of the sort.
QUICK: Mm-hmm.
BUFFETT: So I would--I would say that if four or five of the largest institutional investors--and
they don't have to give an opinion on every one or anything like that. If they saw something
really egregious, they just simply said, `We're withholding our votes,' and...
QUICK: They do that from time to time, right?
BUFFETT: They--but they don't--they don't speak out. It just would take four or five of them,
practice would change, then, in some cases. I'm a big fan of pay for performance. We pay
people a lot of money at Berkshire when they perform. But we don't--we don't let them--we
don't let them shoot the arrow and then paint the bull's-eye after it lands.
QUICK: OK, Allan from Manchester writes in with a question--Manchester, New Hampshire, I
should say--writes in with a question that we heard in a lot of different forms. He says, Ì'm a
shareholder of Berkshire. How can you assure me that Berkshire Hathaway will not change
1/6
the way it is now after you're gone? In other words, will corporate culture change or will the
company be split into different entities when you're no longer in charge?'
BUFFETT: Yeah. I think it's--I think there's more chance of our corporate culture being
maintained intact for many decades than any company I can think of. I mean, we have a
board that's bought into it entirely. They're big owners themselves in almost every case.
They've seen it work. We've got 70 managers at 76 businesses out of--out there. They've
come to us because of that culture, in many cases. They've seen it work, too. So you've had
this--you've had it communicated through annual reports, at annual meetings. I mean, it is--I
think it's as strong a culture as you could possibly have. And I think that anybody that tried to
fool with it would not be around here very long.
QUICK: Because of the board and everyone else involved.
BUFFETT: Because of the board, and the fact that I would come back and haunt them, too.
QUICK: Peter Knoll writes in from Minneapolis, and this is another question that we got a lot
of similar questions. He says, Às shown in your appearance on CNBC, you've been taking a
much more public role in the past few years. Why, and what's the benefit to shareholders?'
BUFFETT: Yeah. Well, I think, you know, today is a good chance to explain things that I may
not have communicated perfectly in the annual report. And people can ask questions about
it, and I like talking about Berkshire. I like--at the annual meeting, you know, they have to use
a hook to pull me off. I mean, it--so I've always been very open about talking about Berkshire.
I haven't gone out to sell it to anybody, I never will, but I like--I think you should be able to
defend your policies. I think you can do it through various kinds of communications. And if
you--if you can't defend them, you know, you better--you better re-examine them. So I kind
of enjoy it in that respect.
I am not saying that Berkshire stock is a buy. I never--you know, I don't know whether it is or
not. And I--and I never will get into that. But if anybody wants to understand the philosophy,
we have a section in the back of our annual report, the economic principles of Berkshire
Hathaway. We've run that now for over 25 years and they don't change, because they're
principles. And I want people to know what Berkshire's all about, and I--frankly,, I want
people that might sell us their business to know what Berkshire's all about, because for some
people we are the right choice.
2/6
QUICK: OK. Another question that came in came from Brent in Fountain Valley, California.
He's got an offbeat question. He says, "Why Coke and not Pepsi?"
BUFFETT: Well, the--I bought the Coke in 1988 and we bought what's become 8 percent of
the company. And I thought--it's a business I like very well. I like Pepsi, incidentally, as a
business, too. I mean, Frito-Lay is a terrific business. It's better than the--it's probably better
than their soft drink business. But Pepsi's been a wonderful investment to own. But Coke's
been a wonderful investment to own. So just put me down as having made a mistake for not
having bought both.
QUICK: Although I see you're drinking Cherry Coke today.
BUFFETT: We drink--this stuff'll do wonders for you, folks.
QUICK: Joe's got a question for you, too. Hey, Joe.
KERNEN: Hey, Beck. You know, Mr. Buffett made some news earlier about the common
sense recession, and from some of the--some of the businesses in the Berkshire portfolio,
how about your rail holdings, Mr. Buffett? Slowdown reflected in rail volume?
BUFFETT: Yeah. You can get rail volume--you can--you can go to the Internet and every week
get car loadings as to each railroad. And so I click on there every week and look at--look at
car loadings. Car loadings were down last year, but we're particularly seeing it in things like
our brick business, the carpet business. Haven't seen it so much in paint and insulation,
although we've seen it. But I can tell you that those businesses, on balance, are getting
worse. The--you know, it--we have not hit bottom at all in construction-related businesses.
But that's OK. I mean, we knew that when we bought them, that they would be cyclical
business. So that doesn't bother me in the least. I would buy another business like that
tomorrow if I had the right management and the right competitive position and the right
price on the business.
QUICK: But we haven't hit bottom? You just said we are not near the bottom.
3/6
BUFFETT: Yeah, but I wouldn't try and--but I wouldn't worry about hitting bottom in terms of
when I'd buy them. I think if you knew exactly the bottom for the business, you would not
know the bottom for the stock.
QUICK: OK. Carl?
QUINTANILLA: Warren, with that in mind--and we talk about, you know, Berkshire's
exposure to housing here in the states--we've seen you buy Iscar in Israel, we've seen you
now get into the real in Brazil. You've gone to China with Becky. Would you guess that your
next big purchase would be overseas or domestic?
BUFFETT: Well, it'll be whatever I get the call on. I hope I get it from overseas, but, you know,
I just go down to the office in the morning and wait for the phone to ring and hope it isn't a
wrong number, you know. So...
QUINTANILLA: Why would you hope for an overseas offer?
BUFFETT: I...
QUINTANILLA: Because of--because of the currency?
BUFFETT: Well, yeah. I would--that would be a factor in some--in some situations. And
frankly, we're way more on the radar screen in the United States than we are around the
world. So the more I can feel that an owner that cares enormously about their business
thinks of us in the UK or Germany or wherever it might be, you know, that would be
encouraging if I started getting more calls from abroad. But the one I'm really waiting from--
for is from Sophia Loren in Italy, but I haven't gotten that one yet, either.
QUINTANILLA: Well, you--she's been trying to reach you.
KERNEN: Yeah, she has. Warren, you...
BUFFETT: Yeah, well...
KERNEN: Yeah. You--for some reason we think of all that big cash horde you had. I don't
know, what is it now, 40, $50 billion? We think that you'd like to do something with it, but you
just really haven't felt that comfortable over the past five, 10 years with what you've had to
choose from. Is that a fair assessment?
BUFFETT: Well...
KERNEN: I mean, do you expect to be down--could you be ever down to having $10 billion in
cash?
appearences.
4/6
BUFFETT: I think so. We probably wouldn't go much below that. But we did--we've contracted
to buy eventually 100 percent of Marmon, which would cost us at least 7 1/2 billion. We're
going to write a check for 4 1/2 billion some time--at least 4 1/2 billion sometime this month
for 60 percent of it. We've bought a lot of businesses in the last--in the last five years, but the
money's come in even faster. Basically, we'll have a couple hundred million dollars a week
coming in to Berkshire, and some weeks I spend it and some weeks I don't. But I like to spend
it.
QUICK: Hey, Warren, we haven't heard from Sophia Loren yet, but we have heard from
another one of your famous friends, Alex Rodriguez of the New York Yankees.
BUFFETT: Oh.
QUICK: He wrote in an e-mail, as well, and here's his questions, guys. He said, "If you were
starting in the business world today, what sector do you believe has the most potential?"
BUFFETT: Well, I still think money management would have the most potential for me. I
mean, if I were starting today, I would--I would--exactly what I did, you know, whatever it was,
50-odd years ago. And I would--I think--I think I'm better at that than I'm at other things. I
mean, I don't think I can sell television sets or--you know, or vacuum cleaners as well as some
of the people here--right here, you know, in the store. So--and I'm not going to be a research
scientist. I'm just--I'm a little bit better at money management than anything else. And it's a
big, profitable field. I mean, there will always be lots of opportunities in it. So I would--I would
go right back doing that, unless I could hit a baseball like A-Rod, in which case I would talk to
the Yankees.
QUICK: We also got an e-mail from a viewer who wrote in, K.A.--don't know any more than
that--but this person wrote in, "Would you consider creating a Class C share for Berkshire
Hathaway?" Probably what they mean is a lower...
BUFFETT: Yeah, we have a Class A and a Class B...
QUICK: And a Class B.
BUFFETT: ...and it's not impossible. I mean, it would...
QUICK: It's not?
BUFFETT: Well, anything a little goofy like that kind of appeals to me in some extent. We
created the Class B because we kind of got forced into it. But--and the Class A and Class B
served us well. I mean, I'm very happy with that. I wasn't happy that I was forced into doing it,
but I'm happy with it. But it's not inconceivable.
QUICK: All right, Class A right now is $140,000. The Class B, like we're looking at on the
screen, is closer to $4600. Class C, what would you set that up, maybe $1,000 or less? How
would--how would you do that?
BUFFETT: Well, we probably wouldn't get much below that, but...
5/6
QUICK: Yeah.
BUFFETT: ...we don't want anybody to buy Berkshire stock based on what they think some
corporate event will be, or whether we'll split the stock or do this sort of thing.
QUICK: Right.
BUFFETT: So I don't--I want to have something that makes people really think they're
investing in a business. And when you--when you buy a $3 stock or something like that, I
think most people think they're buying a $3 stock that might go to 5. We want--we want to
discourage those people from buying our stock and we want to encourage the people that
are buying it because they think it's a good investment to hold for 10 or 20 years.
QUICK: OK. An Vo writes in from Edmonton in Alberta, Canada: `What do you think is the
most complicated out of the three? Is it A, love; B, science or C, business?
BUFFETT: The most complicated?
QUICK: Yeah.
BUFFETT: Well, I think anything involving human emotions is the most complicated. But it's
the most rewarding, too. So I would--I would pick love as being the most rewarding and the
most complicated.
QUICK: OK. We have a lot more questions to get to, and we will do just that when we come
right back from a very quick break. Stay right here. SQUAWK BOX live in Omaha, Nebraska,
with Warren Buffett.
GO TO PART 11 (FINAL) OF "ASK WARREN" SQUAWK BOX TRANSCRIPT
6/6
(Part 11 and Final)
Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 11 and Final) Alex Crippen | @alexcrippen Published 2:39
PM ET Mon, 3 March 2008 Updated 2:23 PM ET Thu, 5 Aug 2010 CNBC.com
March 3, 2008
THIS IS THE ELEVENTH AND FINAL PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF
LIVE APPEARANCES THIS MORNING (MONDAY, MARCH 3) ON CNBC'S SQUAWK BOX.
STEVE (on tape): I'm Steve, and I'm wondering why Warren Buffett isn't running for
president.
QUICK: Well, Warren, go ahead.
BUFFETT: Bill Buckley, who just died a few days ago, ran for New York mayor many, many
years ago. And they said, Ìf elected, what's the first thing you'll do?' He says, Ì'll demand a
recount.' And that's sort of the way I would feel about running for president. It requires a
whole different set of talents than I've got. I wouldn't like the job, so, you know, and I love
what I do. I mean, I would do this if I had to pay to do it. But don't tell the shareholders that.
But the job of being president, the compromises you'd have to make, it just wouldn't appeal
to me at all.
QUICK: OK. Joe, I know you have another question from back in the studio.
KERNEN: I have to. And it just has to do--Warren, over the years you see commodity cycles
and supercycles. I'm just wondering, this time around--and not worried about the dollar. The
dollar notwithstanding, because that's the excuse everyone uses. But have we now passed
the point of no return in terms of what we have on this planet and what we're using as--is the
Malthusian nightmare finally here, or will we go back to where wheat doesn't cost, you know,
$50 a bushel?
BUFFETT: Well, ag commodities are a little tough. You know, if I had to on--where ag
commodities would be three years from now, up or down, I wouldn't know which way to bet.
But they look like they've had quite a run. But if you take something like oil, I mean, we have
been sticking straws in the ground now since, what, Titusville in 1850-something with Colonel
Drake. And we have--we have--we have found a lot of the oil that's to be found. And if we're
going to produce--or use 85 million barrels a day now and the rest of the world probably is
going to increase its demand in the--in the--in the next five or 10 years, we're going to have--
we're going to have a tough time maintaining production that satisfies those at this price,
even. So I think something like oil, six and a half million humans--or six and a half billion
humans are going to use a lot more oil than a lot fewer used 20 years ago or 30 years ago.
KERNEN: So that goes for metals, too? You're saying things that we can grow, we can grow
more of. But things that are in the ground are...
1/4
BUFFETT: Well, we--yeah, we're using--my son is turning out considerably more bushels of
corn or soybeans per acre than 20 or 30 or 40 years ago. So land can get more productive.
But oil is finite. There's actually some school that says it isn't, but I think it's pretty finite. And,
you know, we have 500,000 producing oil wells in the United States. The average production
is 11 barrels a day. Five hundred thousand times we've actually hit. But if you look at our
production vs. 30 years ago, it's way down. And most, you know, most fields are depleting at
a pretty good rate. And with demand--if demand grows a million or a million and a half
barrels a day from year to year and the present fields deplete and we don't find the
elephants in the future...
KERNEN: Right.
BUFFETT: ...you know, who knows what the equilibrium price will be.
QUICK: Carl:
QUINTANILLA: Well, with that in mind, some of the biggest bets, Warren, that get talked
about on this show are from the likes of Boone Pickens, who says that he likes wind. Or it's
the tar sands or it's a play on water here at GE. When it comes to energy, is there a next
generation play, an alternative play that at least has caught your eye?
BUFFETT: Well, we're using more and more wind. We have a big energy company and--for
example, in Iowa, we have a lot of wind farms and we're going to have more. So sure, the
world is going to attempt to do that, but that is--that is not a big answer to the kind of energy
demand that--that's coming along. So I think we've got to do everything we can in alternative
areas, but I don't--I do not see that as a cure-all at all.
QUICK: OK. Warren, I'll try and get through several quick e-mails from viewers. And guys,
jump--follow with me in the control room. This is from Ivan in Voorhees, New Jersey. He says,
`We know there's a succession plan for Berkshire, but will there be a succession plan for
writing your annual letters?'
2/4
BUFFETT: Well, my guess is my successor will have studied how much pain I go through in
writing it and decide he's not going to quite do the same amount of work. But I hope that his
goals are the same, which are to tell his fellow owners as much as possible and as accurately
as possible, really, the things he worries about, the upside, the downside and accurately
report, you know, where he's flopped in the past and all that. I think we've set a tone for that,
I'm sure he'll do it somewhat differently.
QUICK: OK. Phil Nielsen from Durham, Connecticut, writes in, `Have you ever bought and
sold a stock on the same day?'
appearences.
BUFFETT: Maybe sometime. In 50--I bought my first stock when I was 11, so that's 66 years
ago. I got a late start, but, you know, I've been making up for it since. I probably--maybe I've
done it once or twice. I don't remember.
QUICK: You don't remember ever doing it? Celeste from Bridgeport, Connecticut, writes in
and says, Àside from you, who's one of the smartest minds in finance today and someone
you would listen to?'
EMAIL TEXT: Aside from you, who's one of the smartest minds in finance today, and
someone you would listen to? Celeste Pagano, Bridgeport, CT
BUFFETT: Well, there's some very smart people out there. Bill Gross is a very smart person.
Charlie Munger is about as smart as they get. I listen to him even when I don't want to,
sometimes. The--obviously these four candidates that I've--I think are very smart.
QUICK: For the CIO job at Berkshire.
BUFFETT: For the CIO job. I don't know the 30 and 40 and 50-year-olds like I did when I was
that age myself, so I--I've got--I do not have the same fix on the universe of investment
managers I might've had in the past. I will guarantee you there's some plenty smart ones out
there. We have a number of them that show up at our annual meeting, actually.
QUICK: Mm-hmm. And Warren, just thoughts for anyone who's watching the market today,
the futures have been under pressure. What would you tell somebody? Do we need to worry
about this?
BUFFETT: I would tell people if they worry what the market does on any given day, they
shouldn't be buying stocks.
QUICK: OK. Warren, I want to thank you very, very much for joining us for these three hours
on SQUAWK BOX. We've been getting e-mails, guys, coming in, including from Jack Welch,
writing in saying this is the greatest SQUAWK BOX ever.
3/4
KERNEN: Yeah, great.
QUICK: So Warren, thank you so much for joining us today. We all appreciate you being here.
QUINTANILLA: Although I think--I think next time he's on, he's going to want to read
headlines, he's going to want to do stocks to watch, right?
KERNEN: I just thought--Warren, your stock was City Service, that right?
BUFFETT: That's right. City Service--City Service Preferred.
KERNEN: Oil company. Yeah.
BUFFETT: It was a $6 preferred with a lot of--a lot of arrearages,$100 worth of arrearages.
KERNEN: I remember hearing that story before. This is--this is awesome. Great. Thank you,
Becky. Thank you, Warren Buffett...
QUICK: Thanks, guys.
KERNEN: ...for so much of your time. It was great.
QUINTANILLA: Amazing, amazing.
KERNEN: Awesome.
BUFFETT: Thank you.
4/4
Warren Buffett: I Haven't Seen As Much Economic Fear In My Adult
Lifetime - Charlie Rose Interview
Warren Buffett: I Haven't Seen As Much Economic Fear In My Adult Lifetime - Charlie Rose Interview Alex Crippen |
@alexcrippen Published 8:46 PM ET Wed, 1 Oct 2008 Updated 1:31 PM ET Thu, 5 Aug 2010 CNBC.com
October 1, 2008
In an interview tonight (Wednesday) with Charlie Rose on PBS, Warren Buffett says, "In my
adult lifetime I don't think I've ever seen people as fearful, economically, as they are now...
The economy is going to be getting worse for a while."
Bloomberg also reports Buffett tells Rose that the freezing of credit markets is "sucking
blood" from the U.S. economy, which he compares to a heart attack victim "flat on the floor."
Earlier today, in a telephone interview with CNBC following the announcement that Berkshire
Hathaway is investing $3 billion in General Electric , Buffett criticized Congress for not acting
sooner on a financial rescue plan:
"You've had an economy that's like a great athlete that's had a heart attack, cardiac arrest, and the
paramedics that have come, (and are) arguing (about) who was at fault, the athlete should have been
checking his blood pressure more carefully. The important thing is to apply the resuscitator. It doesn't
help spending time worrying about who is to blame for the patient having the heart attack."
Buffett told us he still thinks Congress will "do the right thing" but will "feel better after the
votes have been counted." He warned that there will be "terrible, terrible" problems if
Congress doesn't take action, sooner rather than later.
COMPLETE TRANSCRIPT OF BUFFETT'S INTERVIEW WITH CHARLIE ROSE

Here is a complete transcript of tonight's Warren Buffett interview with Charlie Rose,
airing on PBS. It was provided to CNBC by theCharlie Rose program.
Charlie Rose:
We are in San Diego, California this afternoon for a conversation with Warren Buffett. He is a
man congressional leaders, the administration, and the Federal Reserve want to talk and talk
to. He is the legendary chairman and CEO of Berkshire Hathaway. Its success has made him
the world's richest man. He's admired for his investment results over a long period of time.
He is trusted for his common sense and the fact that he's warned over the years, in his
annual letter to stockholders, about some of the things that are contributing to the crisis
facing America and the global economy. For all those reasons, we have come to see him in
San Diego where he is attending the Fortune Magazine's most powerful women's summit.
Later, he will be interviewed at a conference by the Fortune reporter and long time friend,
Carol Loomis. We come this evening from the studios of our public television affiliate in San
Diego, KPBS. I thank my friend, Warren Buffet, for taking time in a busy schedule to talk to us.
1/36
Warren Buffett:
My pleasure, Charlie.
Charlie Rose:
Let me talk of the news of today. You have announced an investment of $3 billion in General
Electric, along the same terms as the the Goldman Sachs --
Warren Buffett:
Yeah, almost identical.
Charlie Rose:
Why GE?
Warren Buffett:
Well, I got a call this morning from a friend of mine at Goldman Sachs saying they might be
interested in such an investment. I'm familiar with the company. I've known the
management, the current management, Jack Welch before Jeff Immelt. I've known him for
decades. And so I understand their businesses. We do lot of business with him, and GE has
been -- I think it's the longest running stock in the Dow Jones industrial average. It will be 100
years now it will be around. I hope I'm around then, too. And it was an attractive investment.
And we have had a lot of money around, over the last two years, and we're seeing things that
are attractive now.
Charlie Rose:
Are you looking at other things?
Warren Buffett:
I look at everything, Charlie. That's my job. I really do. I mean every day, I think about
everything, yeah.
Charlie Rose:
I know, but cash is said to be king now. Are you sitting on a lot of cash so that this is the time
for Berkshire Hathaway and Warren Buffet to look carefully at a lot of opportunities.
2/36
Warren Buffett:
Yeah, we want to use cash. The reason we haven't used our cash two years ago, we just
didn't find things that were that attractive. But when people talk about cash being king, it's
not king if it just sits there and never does anything. There are times when cash buys more
than other times, and this is one of the other times when it buys a fair amount more, so we
use it.
Charlie Rose:
There is a time to accumulate and a time to spend.
Warren Buffett:
Absolutely. You want to be greedy when others are fearful. You want to be fearful when
others are greedy. It's that simple.
Charlie Rose:
What are they now?
Warren Buffett:
They're pretty fearful. In fact, in my adult lifetime, I don't think I've ever seen people as fearful
economically as they are right now.
Charlie Rose:
Why is that, do you think?
Warren Buffett:
Well, it's because they -- they have seen the credit market seize up. They're worried about
money market funds, although the latest proposition from government should take care of
that. They've seen eight percent of the bank deposits in the United States get moved very
skillfully, I might say, within the last couple of weeks from institutions that they thought were
fine a few months ago to other institutions. They are not wrong to be worried.
Charlie Rose:
Is it being felt as people often point out on Main Street?
3/36
Warren Buffett:
Well, I've read about all the sales today. If you're an auto dealer, you're feeling it. If you're a
furniture retailer like we are, you're feeling it. If you're a jewelry retailer, you're feeling it. I
know some of these businesses because we're in them. Yeah, it's being felt, but it will be felt
big time more if we don't do something about it, what's going on.
Charlie Rose:
The Senate will vote sometime this evening.
Warren Buffett:
Right.
Charlie Rose:
Are you satisfied with that rescue plan?
Warren Buffett:
Well, I don't think it's perfect, but I don't know that I could draw one that's perfect. But I'd
rather by approximately right than precisely wrong, and it would be precisely wrong to turn it
down. We need -- we have a terrific economy -- it's like a great athlete that's had a cardiac
arrest. It's flat on the floor, and the paramedics have arrived. And they shouldn't argue about
whether they put the resuscitation equipment a quarter of an inch this way or a quarter of an
inch this way, or they shouldn't start criticizing the patient, because he didn't have a blood
pressure test or something like that. They should do what's needed right now. And I think
they will. I think the Congress will do the right thing. I think that they've -- you know, they got
into certain arguments and they start worrying about assessing blame, and there is a little
demagoguery, but in the end, something this important, they'll do the right thing. So this
really is an economic Pearl Harbor. That sounds melodramatic, but I've never used that
phrase before. And this really is one.
Charlie Rose:
Go through why that is true beyond the fact that there is a freeze on credit, beyond the fact
that nobody is making loans, beyond the fact that banks don't lend to backs beyond the fact
that treasury bills are at a low.
Warren Buffett:
Yeah. When 40 billion of treasury bills are sold like they were last week, seven day treasury
bills, at a yield of 1/20th of one percent, that means the whole country is basically at the
point virtually, or a lot of the country is at the point of putting the money under the mattress.
One twentieth of one percent away from where it's betting to put it under the mattress. You
don't want 300 million Americans putting their money under the mattress. This economy
doesn't work well without the lubrication of credit and trust. And that's been lost. It's a huge
problem. What you have is you have the major institutions of the world all wanting to
4/36
deleverage. They want to take down their assets and liabilities. What seemed so easy to
borrow against a year ago now looks like rat poison to them. So they're trying to deleverage.
There is only one institution in the world that can leverage up in a way that's all a
countervailing force to that, and that's the United States Treasury.
Charlie Rose:
Are you approving of what has been taking place along the stages that got us to where we
are now, whether it's Bear Stearns or Lehman Brothers or AIG, Freddie Mac and Fannie, or
what you've done with Goldman Sachs and the rest?
Warren Buffett:
Yeah, I think basically the right things have been done. But no one saw the tsunami coming
fully. And so when Bear Stearns came along, it looked like if you stopped the flood at that
point, you didn't have to worry about being downstream from it. And I think the Fed did the
right thing there. And I really thought that would probably halt runs on other major
institutions, but it didn't. We have seen wave after wave. And admittedly, there's been
somewhat of an ad hoc response. I'd rather have an ad hoc response than no response at all.
And I don't think -- I don't think the treasury could remotely have gone to Congress three or
four months ago and laid out that scenario of what's happened and been credible and
gotten the necessary tools. I think it took a crisis like this --
Charlie Rose:
And asking for the power he is asking for and the level that he was asking for.
Warren Buffett:
No, they wouldn't have gotten it. So I think it's been, you know, kind of like a tragic play to
this point. But at this point, I think it's clear, and will be clear to the majority of the Congress. I
think it's clear to the American people that there is only one countervailing force to a world
where financial institutions are trying to sell instruments every day and where credit has
dried up, and that's the United States Treasury.
Charlie Rose:
But at the same time, there has been, and Congressmen and women will tell you this, a
resistance across the country because they think, as you well know, it's a bailout of Wall
Street and that they are sitting there in their own economic life, and nobody's coming along
to say, We're here to help you. We're from the government.
5/36
Warren Buffett:
Well, the patient that's on the floor with the cardiac arrest is not Wall Street. It's the American
economy. I mean, that's --
Charlie Rose:
Do you think they understand that yet? Because that's --
[talking simultaneously]
Charlie Rose:
-- communication.
Warren Buffett:
Yeah. I think they probably don't. And I think any time you couple the term "Wall Street" with
"bailout" or something like that, you know -- I don't like what's going on in Wall Street. I don't
like what's going on with the executive compensation. You know, but I don't want to give a
lecture to this body that's out there. You know, I mean, having had the heart attack, I want to
get it back functioning. And as a practical matter, I mean if you were Bear Stearns, and you
were a shareholder, you know, you lost 90 to 95 percent of your money. A good many lost
their jobs. They lost very cushy lives, many of them.
Charlie Rose:
Right.
Warren Buffett:
If you were at Lehman, the same thing happened. If you were at AIG, the shareholders are
getting creamed on these things. And those shareholders are not just a bunch of big shots in
Wall Street. Those are pension funds, and those are investors all over the country. I wouldn't
worry too much about that. Justice won't be perfect on it. I mean, you may be very mad at
some guy that walked away with a huge golden parachute, but that really isn't the important
thing. I mean, if Pearl Harbor came along, you could have said the planning was wrong by
the military ahead of time or maybe the battleships shouldn't have all been in the harbor and
all that kind of thing.
Charlie Rose:
Right.
6/36
Warren Buffett:
It doesn't make any difference.
Charlie Rose:
It's Pearl Harbor. [unintelligible]
Warren Buffett:
I mean, the job is Pearl Harbor. And you better not spends weeks and weeks and weeks
trying to assign blame or deciding on a complete plan for fighting the whole war, you know,
and letting a committee decide where the battleships should go and all of that. You better
spring into action with the best people you have.
Charlie Rose:
You have never seen anything like this in your life.
Warren Buffett:
No, I haven't.
Charlie Rose:
There are those who argue that we are headed for a recession, you know? And they look at
depression as the great fear.
Warren Buffett:
Sure.
Charlie Rose:
Is that a possibility if this plan doesn't work?
Warren Buffett:
Yeah, it's a possibility, yeah. We have about 6.1 percent unemployment now. I mean, we've
been in a recession, by any common sense definition, because if you look at the American
public, they've got 20 billion -- 20 trillion, I should say, worth of residential homes. They've got
20 trillion worth of stocks, very roughly. Those are the two big assets of American families.
They are both down dramatically for different families. But 95 percent of the people at least
7/36
are worse off in terms of their residential wealth plus stock wealth from a year ago or two
years ago. That is bleeding into the real economy. I mean, that's bleeding into auto sales and
jewelry sales and furniture sales and all that. But that wave is just starting to hit. And if the
paralysis we have in the credit markets, if every company continues to feel all we want to do
is get our balance sheet down, sell assets, you know, it's just the start of what can happen.
Unemployment's going to go up under any circumstances. I mean, it's the 6.1 is going to go
higher. But whether it goes and quits at 7 or whether it quits as 10 or 11 or 12 depends on,
among other things, the wisdom of Congress, and then the wisdom of, in terms of carrying
out the plan that Congress authorizes.
Charlie Rose:
Would you say that this plan which you have argued very strongly the Senate ought to pass
and the House ought to pass is simply the plan that we have, and I don't have a better idea.
But it's essential for the confidence of the nation and the system?
Warren Buffett:
Yeah. I just worry about whether it's enough. But I think it is --
Charlie Rose:
Enough what?
Warren Buffett:
Every day that goes by, I mean, if you don't react to Pearl Harbor for a week or two weeks or
three weeks, you're behind in the war that you otherwise would have fought. But it's very
important that the determination of the US Congress to do what is is needed be made
evident this week and by the actions of most of the members. I mean, you're not going to get
total assent.
Charlie Rose:
What makes you confident that this plan will work? I mean --
Warren Buffett:
Well, I think you've got -- I don't think you can have a better secretary of the Treasury than
Hank Paulson, you know. I mean, he is in there at the wrong time, probably shouldn’t have
taken the job. He’s a friend of mine. But he knows markets, he knows corporations’ work, he
knows money, and he’s got the interests of the country at heart. And so, you’ve got the right -
- you’ve got a wonderful person with Sheila Bair, most of the viewers have never heard of
8/36
Sheila Bair. Sheila Bair, in the last two weeks, has taken eight percent of the deposits in the
United States and seamlessly moved those over to sound institutions which in turn have
gotten more capital, ended up, it’s been a magnificent job. Eight percent of the deposits in
the United States, 10s of millions of depositors. And nobody’s ever heard of her. She’ll never
get a golden parachute or any severance pay or anything. She’s done a great job. We’ve got
some great public servants. We have I think the right people in there to get the job done, and
then they need more tools.
Charlie Rose:
And those more tools might be in addition to what’s in this plan?
Warren Buffett:
Well, they need plenty of money and they really need plenty of flexibility to carry out this
plan. They also need in my view to very much tie it to market prices. I have said, Charlie, that
the 700 billion, if they buy mortgage-related securities or mortgages themselves at current
market prices, they’re going to make money over time because the United States
government has staying power and it has a low cost of borrowing. And if I could take one
percent of that 700 billion pot and take the gain or loss from it and be their partner, and they
would buy the stuff at market, I'd make a lot of money. It’s -- I mean you have hedge funds
and people like that buying these assets to yield 15 or 20 percent, I mean, that’s the buyer for
these people that are trying to unload them. The U.S. Treasury has got borrowing costs like
nobody else has. They can borrow basically unlimited amounts. They can stay there for years
and years. These assets will be worth more money over time. So when Merrill Lynch sells a
bunch of mortgage-related assets at 22 cents on the dollar like they did a month or so ago,
the buyer goes -- is going to make money, and he’s going to make a lot more money if it
happens to be an institution like the U.S. government which has very, very cheap borrowing
costs.
Charlie Rose:
So you are saying to those taxpayers who are worried about what’s going to happen to the
$700 billion, chances are good that when these securities are purchased and sold, you’ll get a
lot of your money back.
Warren Buffett:
I think [inaudible].
Charlie Rose:
Or all of your money back, and maybe something else [spelled phonetically].
Warren Buffett:
I would bet on it. I mean, if I got a chance to take one percent of the deal either way, I would
make that bet. When Berkshire Hathaway laid out three billion dollars for GE today, we didn’t
spend it, we invested it. When the Federal government buys the mortgages, they’re not
9/36
spending it, they’re investing it. Now, they’re investing it in distress type assets but they’re
buying them at distress prices if they buy them at market. It’s the kind of stuff I love to do. I
just don’t have 700 million. Maybe we could go in it together.
[laughter]
You know, with your money and my brains, I mean, there’s no telling how far we’d go.
Charlie Rose:
Whatever, I’ll take the deal, whatever you want to do. There is this, though, I mean, in terms
of alternatives, some people have suggested for example that why don’t we -- why isn’t
America doing what Berkshire Hathaway is doing? Why isn’t that a better deal for America?
Warren Buffett:
I don’t think it would be crazy to have a model or an entity model on the Reconstruction
Finance Corp. That goes back to 1932, although it was really implemented in ’33 under Jesse
Jones, and it invested in mostly banks initially and preferred stock and that sort of thing. So
there are two things needed in the system, the one that’s needed overwhelmingly is liquidity.
I mean, when people are trying to [unintelligible], there has to be somebody there to buy.
And they don’t have to buy at a fancy prices, but to buy. And then there’s also a capital
problem with some of the institutions. We have provided capital here with a couple of
institutions recently. The Federal government did that in the ‘30s for the RFC and I think
there could well be a proper role for government in that.
Charlie Rose:
Would that have been a better idea today?
Warren Buffett:
It wouldn’t have been big enough today. And it wouldn’t have been -- you couldn’t have -- if
you’d set up at RFC today and you gave them $100 billion invested in the [spelled
phonetically] capital, there’d be a very cumbersome type of application process and
everything, these assets are getting shoved out day by day, and loans are coming to a
commercial papers not being renewed. I mean, the commercial paper market, when that
dries up, you know, that’s just like sucking the blood out of the economic body of the United
States. And that’s happening. So I would say that an RFC-like thing might make sense. I
probably would do it myself. But I don’t think trying to combine that with what’s going
through now, I think what is needed now is liquidity.
Charlie Rose:
All right. There are those who -- you just said you would do it yourself -- there are those who
believe and it has been suggested, you know, that this is the time for Warren Buffett to
answer the call of his government in a country that’s been very good to him. I mean what are
you prepared to do yourself beyond run Berkshire Hathaway well is this.
10/36
Warren Buffett:
That's my job. But any time I can be of help to the government in terms of giving advice -- I've
given a little advice, actually. [talking simultaneously] anyway, no. I obviously am willing to do
that. I'm here tonight talking about this for that reason. It isn't going to do anything for
Berkshire Hathaway. Well, that isn't really true. I mean anything that enables this economy to
run in the manner that it should -- I mean we've got the same clients out there we had two
years ago. We have the houses, we've got people -- more productive than they've ever been
in the history of this country. We've got a wonderful economic formula in this country, but
right now, it is being -- it's been brought to a halt by some events --
Charlie Rose:
By?
Warren Buffett:
Well, it's the deleveraging that's going on right now that has caused the credit crisis.
Charlie Rose:
I mentioned earlier in this introduction do you, if you read your letters to your stockholders
which you write, and Carol Loomis edits every year, and you think of your sister as the
person [talking simultaneously]
Warren Buffett:
Two sisters, yeah.
Charlie Rose:
You have talked about derivatives. Derivatives are, in part, at the core of this problem, yes?
Warren Buffett:
AIG would be doing fine today. It was one of the ten largest companies in the United States
in terms of market value, over 200 billion, the most respected insurer and everything in the
world. If they never heard of the word derivatives, they'd be doing fine. They'd be going to
work in the morning and they would have no troubles. But they -- they -- it was very easy to
do, because it's very tempting to write numbers on little pieces of paper and you can report
the profit you want to, and there is no limit on it. I mean there is no capital requirements to it
11/36
or anything of the sort. And basically, I said there were possibly financial weapons of mass
destruction, and they had them. They destroyed AIG. They certainly contributed to the
destruction of Bear Sterns and Lehman. Although Lehman had other problems, too.
Charlie Rose:
I'm interested in this because people are asking, did people get away with murder here?
Were there people who simply gained the system and took advantage and made huge
amounts of profit, and we had accesses that inevitably led to where we are today?
Warren Buffett:
Well, we had all of that. But I would say the biggest single cause was we had an incredible
residential real estate bubble. I mean you can go back to tulip bulbs in Holland 400 years
ago. The human beings going through combinations of fear and greed and all of that sort of
thing, their behavior can lead to bubbles. And it may have had and Internet bubble at one
time, you've had a farm bubble, farmland bubble in the Midwest which resulted in all kinds
of tragedy in the early '80s. But 300 million Americans, their lending institutions, their
government, their media, all believed that house prices were going to go up consistently. And
that got billed into a $20 trillion residential home market. Lending was done based on it, and
everybody did a lot of foolish things. And people really behaved in a fraudulent way or
something, we'll go back and find the culprits later on. But that really isn't the problem we
have. I mean that's where it came from, though. We leveraged up and if you have a 20
percent fall in value of a $20 trillion asset, that's $4 trillion. And when $4 trillion lands --
losses land in the wrong part of this economy, it can gum up the whole place.
Charlie Rose:
And it continues with respect to the housing market.
Warren Buffett:
It continues.
Charlie Rose:
And some will argue that we have to do something about that in terms of a long-term
recovery of the American economy.
Warren Buffett:
Well, there is no question we have an access stock. The good thing is, we have household
formation in this country. We have a country where I don't know whether it's a million
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households a year or more, but good form. So we can eat off an [unintelligible], but too big,
and house prices just soared beyond -- beyond reason in many places and they got financed
in silly ways, and people lied about loans, all kinds of accesses entered into it. But that is
what -- that is the single biggest cause of why we're here.
Charlie Rose:
And should wise people have known better?
Warren Buffett:
People should always know better.
Charlie Rose:
Yeah.
Warren Buffett:
I mean people -- people don't get -- they don't get smarter about things that get as basic as
greed and you can't stand to see your neighbor getting rich. You know you're smarter than
he is, and he's doing these things, you know, and he's getting rich, and your spouse is getting
unhappy with you because you aren't doing -- pretty soon you start doing it. And so you get
what I call the natural progression, the three Is. The innovators, the imitators, and the idiots.
And that's what happens. Everybody just kind of goes along. And you look kind of silly if you
disagree. I mean, you know, you could have these crazy Internet valuations in the late 1990s,
but they prove themselves out in the market. The next day they were selling for more than
they were the day before, and people said, you know, you're crazy if you don't get in on this.
So it's very human. Now, with housing it's something even more dramatic than that, because
most people aspire to own their own home. And if you really think that houses prices are
going to go up next year and the year after, you feel if I don't buy it this year, I'm going to
have to buy it next year. That's not true of an Internet stock. But it's true of a home. And
when somebody makes it very easy for you to do it by saying you don't really have to put up
my money, you can lie about your income a little, or we'll give you 100 percent mortgage,
you're going to do it, because everybody that's done it has been proven right. You have what
they call social tools, and, you know, you're going to feel like an idiot if you didn't do it,
because the house cost more.
Charlie Rose:
It's sound money.
Warren Buffett:
It's sound money, sure.
13/36
Charlie Rose:
And so when you look at where we are going, there seems to be two issues that are
apparent to me at least, risk and leverage. We just lost sight of risk and leverage of what was
appropriate?
Warren Buffett:
Yeah. Again, because it pays off for a while. You know, you can lose leverage, and it's the only
way a smart guy can go broke. If you owe money, you can't pay them out. You just pay for
everything, you do smart things, you eventually get very rich. If you do smart things and use
leverage and do one wrong thing along the way, it could wipe you out, because anything
times zero is zero. But it's reinforcing when the people around you are doing it successfully,
you're doing it successfully, and it's a lot like Cinderella at the ball. I mean you know at
midnight everything is going to turn to pumpkins and mice; right? But if the evening goes
along, I mean, you know, the guys look better all the time, the music sounds better, it's more
and more fun, you think why the hell should I leave at quarter of 12. I'll leave at two minutes
to 12. But the trouble is, there are no clocks on the wall. And everybody thinks they're going
to leave at two minutes to 12.
Charlie Rose:
And you're having a good time.
Warren Buffett:
Yeah, sure.
Charlie Rose:
So if this plan -- you hope it will do what? It will loosen credit. It will stop the slide and the
panic. People will have more confidence --
Warren Buffett:
Confidence is key. Confidence is key. You're not going to leave your money with me unless
you're confident I'm going to give it back to you. And at this point, when treasury bills, seven
day treasury bills at 1/20th of one percent, it's not because people want to earn 1/20th of
one percent, it's because they trust the fact the treasury will give it back to them next week.
And I'm sitting with six and a half billion dollars we're going to use to close the Mars-Wrigley
deal on October 6. I've got to hand over that six and a half billion on October 6. Now, I have
to be very careful about who I leave it in between now and then, because they're expecting
that he show up. But I lose confidence in other people, all kinds of institutions. And there are
plenty of them that I've lost confidence in. Then they get -- their funds aren't available. They
don't have it for the next -- I mean the whole economy just comes to a grinding halt.
Competence in markets and in institutions, it's a lot like oxygen. When you have it, you don't
even think about it. Indispensable. You can go years without thinking about it. When it's gone
for five minutes, it's the only thing you think about. And the oxygen has been sucked out of
the credit markets, and confidence, and there has to be -- it'
And that's what this --
Warren Buffett:
That's what I hope gets done.
14/36
Charlie Rose:
And if it doesn't work?
Warren Buffett:
You turn the spigot. But you -- I've argued with the senators and congressmen I've talked to.
You don't want to be too little too late. They're being somewhat too late, in my view, and --
but that's okay. We're going to argue for a few weeks after Pearl Harbor to decide whether
the Japanese attacked or whether we should actually commit a few battle ships. But the too
little part, you know, it could be a mistake. I mean this has to be done on a --
Charlie Rose:
Too little meaning in terms of dramatic steps, or the amount of money you're spending --
Warren Buffett:
It's whether people think it's too little, when you get all through with it. I mean in the end,
700 billion is a lot of money. And it will buy a lot of distressed property. And if you buy them
at the right price, you may be buying two trillion of face value. The one thing you don't want
to do -- [unintelligible] paid for it what you're paying it from or what his carrying value is, you
got to buy it at market. And one way to do that is if some institution wants to sell you a
billion dollars worth of mortgages, they might have to sell 100 million in the market, and then
you'll buy the other 900 million on the same terms. Now, the very fact that this has been
authorized or will be authorized, I hope, will firm up the market to some degree. And that's
fine. But you don't want to have artificial prices being paid.
Charlie Rose:
What do you believe might never be the same?
Warren Buffett:
Oh, I think confidence will come back. I will tell you this. This country is going -- be living
better ten years from now than it is now. It will be living better in 20 years from now than ten
years from now. The ingredients that made this country, you know, the miracle of the world -
- I mean we had a seven for one improvement in the average American standard of living in
the 20th century. Now, we had the great depression, we had two world wars, we had the flu
epidemic. You know, we had oil shock. You know, we had all these terrible things happen.
But something about the American system unleashed more and of a potential to human
beings over that hundred years so that we had a seven for one improvement in -- there's
never been any -- I mean, you have centuries where if you've got a 1 percent improvement,
then it's something. So we've got a great system. And we've got more productive capacity
now than we ever have. The American worker is more productive than he's ever been. We've
got more people to do it. We've got all the ingredients for a sensational future. It's just that
right now the athlete's on the floor. But we -- this is a super athlete.
Charlie Rose:
And what's the impact of the athlete being on the floor around the globe?
15/36
Warren Buffett:
Plenty. Plenty, and we're finding that out. And the same things happen to quite an extent
around the globe. I mean, the European banks were doing what the American banks were.
Charlie Rose:
And they're failing now, too.
Warren Buffett:
Yeah. I mean, they were getting the mortgage of some guy in Omaha, you know, securitized a
couple of times. I mean he had all these -- they had all these types from Wall Street, you
know, and they had advanced degrees, and they look very alert, and they came with these --
they came with these things that said gamma and alpha and sigma and all that. And all I can
say is beware of geeks, you know, bearing formulas. They've heard that in Europe.
Charlie Rose:
Have we learned something about decoupling or the American economy in terms of its
impact, for example, China, a place where you've had investments, and you know well.
Warren Buffett:
Yeah. We just made a new one a couple days ago.
Charlie Rose:
Where was that?
Warren Buffett:
In a company called BYD, and they develop a really good electric car, I hope.
Charlie Rose:
Is there an operative narrative to the kinds of investments you are making other than you
look at and you buy on value, look at advantagement [spelled phonetically] you look at a
place that can absorbed the amount of money you want to invest, and you look at its
prospects, and you look at price.
Warren Buffett:
Yeah. They have to be pretty good size for us now to have -- to move the needle. But we look
for fairly large situations. We look for things I can understand. A lot of businesses I don't
understand. So some guy may know how to make money in cocoa beans, but I don't so I just
let him have that. But it's got to be something I understand. It's got to be a business with
fundamentally good economics. It's got to be a management that I like and trust and admire.
And it's got to be a price that makes sense. And lately the price --
Charlie Rose:
Prices make sense.
16/36
Warren Buffett:
Prices make a lot more sense now, yeah.
Charlie Rose:
Now, is it --
Warren Buffett:
And I'm not worried they're all about the investments we make. I mean, listen, this country --
we've got $46,000 or $47,000 of GDP per capita. Now, we've done pretty darn well. We'll do
better in the future. I am not worried about the country. I'm just worried about anything that
gums up the potential of the country. And right now, it's pretty gummed up.
Charlie Rose:
Okay. But we do this emergency, urgent rescue.
Warren Buffett:
Right.
Charlie Rose:
Come January, we have a new president. We have a new treasury secretary.
Warren Buffett:
Right.
Charlie Rose:
We have a new legislature. What's there in parity? What will be the challenge for them
because they then can take a little bit of a longer term, look, maybe the patient's getting up
off the ground. And but you want to get him or her moving faster.
Warren Buffett:
Yeah. Well, I think it will get moving faster. I mean once you get it off the -- once credit flows -
- now the recession is going to get worse. I mean, I don't want to hold out false hopes that
17/36
the -- by some magic moment, that things will turn around in a couple months because they
wouldn't, Charlie. I mean, and it's a big mistake to try and mislead people. They will turn
around. I don't know whether it will be six months or whether it'll be two years.
Charlie Rose:
It's more likely two years than six months.
Warren Buffett:
I don't know. It isn't going to be one month or to months, no matter what happens. All I can --
Charlie Rose:
Can you imagine six months from now, it's beginning to turn around? With the condition that
you know their --
Warren Buffett:
That's sort of the best case, yeah. That's sort of the best case.
Charlie Rose:
And the worst case?
Warren Buffett:
Worst case is a long time. And I would say that if they --
Charlie Rose:
Worst case is five years or --
Warren Buffett:
If we don't do the things we should do, it could be five years, sure.
Charlie Rose:
Okay. We should do, though, beyond where we are now. What are those things?
18/36
Warren Buffett:
Well, I would say this, if it becomes evident that -- I understand the latest bill, they're talking
about 350 billion early and then going back.
Charlie Rose:
Right, right.
Warren Buffett:
But we need to throw the resources at this that are necessary. But like I say, we are not
spending money. I mean, if we buy these assets intelligently, the United States Treasury will
make money. I mean, it's borrowing money. It's just a few percent a year. And these assets
are better than that.
Charlie Rose:
Okay. But that's a very big if.
Warren Buffett:
And it makes a difference who the treasury secretary is.
Charlie Rose:
Okay. So that's the important question in terms of whether we buy these assets wisely.
Warren Buffett:
I would say it's more important who the treasury secretary is than who the vice president is.
If you want to have a debate here, I'd like a debate between potential treasury secretaries
than the vice presidential debate.
Charlie Rose:
Well, might it be a good thing for the presidential candidates to tell it who it is they're going
to be listening to and who might be a potential treasury secretary?
Warren Buffett:
Well, presidential candidates which I know listen to you.
19/36
Charlie Rose:
That's because they tell you that, aren't they?
Warren Buffett:
Well, no, but I mean it's not their job to know the candidacy of people.
Charlie Rose:
When all these people call you up, what are they asking you? I mean, you’re hearing from
your friends and people at the Fed, you’ve been through this before too I mean you were
that long term capital , a lot of other times you have had to face difficult crisis.
Warren Buffett:
I’ve seen a lot of things happen.
Charlie Rose:
So they come to you and they say “You’ve fought wars before, Warren, we’d like to talk to
you.” But what’s the question they’re asking? What is it they want to know? And I’m talking
about smart people who are charged with fixing it.
Warren Buffett:
Yeah. Well, lately they’ve been asking will this work.
Charlie Rose:
Right. Yeah.
Warren Buffett:
And you’re assuring them that if they do it --
Charlie Rose:
I will.
Warren Buffett:
-- if they do it, I -- I [talking simultaneously] Treasury Secretary [unintelligible] I would say this,
I would -- they hate this term in Washington, obviously, but I would hand something pretty
close to a blank check to a fellow like Hank Paulson to fight --
Charlie Rose:
Would you, really?
Warren Buffett:
20/36
Yeah. Well --
Charlie Rose:
A blank check, $700 billion, go spend it?
Warren Buffett:
Yeah, go invest it. Go invest it. And maybe put up a little of your own money up beside it, I
mean, I might ask Hank to go invest with me.
[laughter]
Charlie Rose:
That’s right.
Warren Buffett:
But, no I think that trying to invest through 535 people is a tough job, you know, and so I
would give more latitude. That isn’t going to happen and I -- you know, I [inaudible] --
Charlie Rose:
-- go with oversight? I mean, that’s what [inaudible], go with oversight.
Warren Buffett:
[inaudible], I think --
Charlie Rose:
But don’t try to make the decision --
Warren Buffett:
No, I think the oversight is great, and I think that oversight ought to be devoted almost
entirely to the question is this being done at market you know. In other words, you want to
make sure that the government isn’t investing foolishly. But you don’t want to care about
which congressional districts it goes to or whether banks get favored over --
Charlie Rose:
But how do we determine whether it’s being done wisely?
Warren Buffett:
Well, I think --
21/36
Charlie Rose:
That’s a big question.
Warren Buffett:
Yeah, I think you’ll have plenty of scrutiny as how the money’s invested. I mean, just like the
RFC. When the RFC operated, people knew which institutions they were buying preferred
stock in. And it worked very well.
Charlie Rose:
But is this different from the Resolution Trust Company because they are talking about
securities, not real estate?
Warren Buffett:
Yeah, well Resolution Trust Company was set up to liquidate a bunch of assets that the
government had inherited because the savings and loans went broke. So the savings and
loans went broke, the government stepped in, paid off depositors, and now they’re left with
this mass of assets to sell. We’re not talking about selling here, we’re talking about buying
intelligently. They were selling what they got handed to them by a bunch of savings and loan
operators that had in many cases had done some very dumb thing. But their job was to
liquidate it. And they liquidated. This is an entirely different proposition.
Charlie Rose:
You have said to me before that capitalism is not a perfect system. It may be better than all
the other systems, but it’s not a perfect system. You talked about it in terms of some of its
failings. People are looking at this now and saying, you know, excesses of capitalism, number
one, markets that don’t work. And there’s some people in certain countries are pointing a
finger at us and saying, “See, we told you, the markets will not always deliver for you.”
Warren Buffett:
Markets aren’t -- people do, as long as you have markets, you’ll have excesses. People went
crazy with tulip bulbs. They went crazy with the South Sea Bubble, they went crazy internet
stocks, they went crazy with the uranium stocks back when I was first getting started. I mean,
you know, you’re not going to change the human animal. And the human animal really
doesn’t get a lot smarter. Now, you can you know you can have institutions that put curbs on
that in various ways, and actually what the banks, you know, they have various capital ratios
and that sort of thing, but the banks got around them, I mean, they set up sieves and that
sort of thing just to get more leverage. People love leverage when it’s working. I mean, it’s so
easy to borrow money from a guy at X and put it out at X [inaudible].
Charlie Rose:
22/36
-- going up, you’re --
Warren Buffett:
Yeah, but you don’t get the X plus one back, if you still have the X on the other side you’re in
trouble.
Charlie Rose:
There is this, too, accounting. You have strong feelings about accounting and mark [spelled
phonetically] to market. Tell me where you are on that issue.
Warren Buffett:
A lot of people disagree with me on this, I believe in mark to market. I think that accounting in
1974 Charlie, it was either 1974 or ’75, we owned a bunch of common stocks at Berkshire
Hathaway. I told our shareholders what the market was. And we used that. I said I think
these things are worth a lot more than market. And I think we’re going to make a lot of
money out of it. But this is what they’re worth today. And I don't think anybody gets hurt by
telling the truth on that sort of thing. And I think that once you start saying we’re going to peg
these things at some price that isn’t market, God knows what a financial [talking
simultaneously].
Charlie Rose:
[inaudible] these people make that argue against you will say the assets are worth much
more than mark to market says and therefore --
Warren Buffett:
They’re not worth it today.
Charlie Rose:
-- therefore we’re not seeing a reality.
Warren Buffett:
Well, but that is the reality. And that’s the reality of what they’re going to sell them to the
Treasury for. You know, I --
Charlie Rose:
You get market.
Warren Buffett:
You get in a lot of trouble when you start putting fictitious numbers --
Charlie Rose:
On value.
23/36
Warren Buffett:
-- on value. I mean, you can explain the fact that these are depressed prices, you know. We
think these assets are going to be worth a lot more. And I think that case can be made in
certain situations. But I think to just say, you know, we're going to say a dollar of cash is
worth $2 all of a sudden, it isn't worth $2. It's worth a dollar today. And I think once you start
putting phony figures into financial statements, you get in a lot of trouble. And we've seen so
much of that in the last 20 years.
Charlie Rose:
Is it getting worse?
Warren Buffett:
I don't think it's getting worse. I think people -- what people want to do is make it get worse.
[laughter]
Charlie Rose:
But what would you reform about that in terms of the way the accounting process -- you'd
keep mark to market?
Warren Buffett:
The rule [unintelligible]. I mean it's -- it's a nightmare to administer some of this sort of thing,
but I want to tell the shareholders of Berkshire, to the percent we own marketable securities
or things for which there are market, even if those markets -- I want to tell them what it's all
about. As a matter of fact, I've already written a section in the annual report for next year
explaining why I think in one case that the figures on our balance sheet as calculated are
wrong. But it's the standard way of doing it. It's holy writ. The SEC wants us to do it that way,
and we'll do it that way, and I'll explain why I think it's wrong and shareholders can read it
and see whether they agree with my logic or don't.
Charlie Rose:
You -- when you look at the prospects for this country, there are other people who argue,
you know, that America, as good as it is, lives in a world today and there are books being
written in which our supremacy, our primacy will now have to be shared. That we may still
own as much of the pie as we had, but other people will own a lot more.
24/36
Warren Buffett:
That's great. You know, I want our -- I want our pie to grow all the people, but if some other
guy's pie is growing a little faster, that's terrific. It will be good for us in the long run, and I
mean there are, you know, six and a half billion people in this world. And it's great for 300
million to keep enjoying more and more property, but I think it's terrific if, you know, the
remainder do. And I think if they can learn something from us in terms of our system, and I
think they have, they are learning more about how to unleash the potential of their citizenry
to turn out more goods and services that their citizens want or that we want, I think that's
terrific. And that's -- you know, I think it's much better to live in the world where those
around you, particularly when some of them have nuclear bombs, I think it's much better to
live in a world where their lives are getting better also.
Charlie Rose:
Yeah. But you mean you look at that. So when you look at China today, and you look at some
Asian countries and the amount of American debt they have, how much does that concern
you in today's economic circumstances? And are they losing some of their confidence in
America? And does that pose a huge problem for us?
Warren Buffett:
Well, somebody's buying these treasury bills at 1/20th of one percent. I mean the -- we --
[talking simultaneously] consuming about $2 billion a day of goods and services beyond
what we're producing. In other words, the rest of the world sends about $2 billion a day net
of something. We got to send them something in return, don't we. So we send them little
pieces of paper. That would be nice if they stuck them all under a mattress, but they got to
buy something with them. Sometimes they buy a treasury note, sometimes they set up
sovereign wealth funds. They can do all kinds of things. They can buy our companies here.
As long as we consume more than we produce, and we trade away little pieces of the country
daily, they're going to own something. Now, they can't run from American assets. I mean
every day the rest of the world is going to have about two billion more of American assets
than we have, as long as they sell us these goods.
Charlie Rose:
Because we're borrowing two million dollars --
Warren Buffett:
Yeah, and they want to sell us these goods.
25/36
Charlie Rose:
But you don't believe that's good. I mean you believe that an increasing current accounts
deficit is bad.
Warren Buffett:
I think it's bad.
Charlie Rose:
And it reflects American's consumption ideas rather than its savings ideas.
Warren Buffett:
Yeah.
Charlie Rose:
But how does that change?
Warren Buffett:
Well, I laid out -- it's kind of a Rube Goldberg plan a few years ago, which I don't like myself,
except I like it better than the alternative, which is what we're doing. But we've actually been
pretty good on exports. I mean we are exporting 12% of our GDP now roughly. That was five
percent many years ago, a much smaller GDP. So the rest of the world really likes our stuff
pretty well. It's just we buy so damn much of what they produce. And I think -- I think that
should be something addressed by -- I don't think it's the most pressing problem now at all.
We are trading away a little bit of our country all the time for this access consumption that
we have over what we've produced. That is not good. I think it's terrible over time. But our
country's productive grows enough so we actually can do that, and we'll still be better off. We
just don't be as well off as if we hadn't done it.
Charlie Rose:
What's all this going to do to the price of the dollar?
Warren Buffett:
It could be very tough on -- inflation could be a very -- is a likely consequence out of what's
going on now. Right now, we are in effect making a -- to some extent, making a choice
between future inflation and getting our -- getting off the floor. And we're likely -- we're likely
to have more inflation in the future as a consequence of the things we do to fight the present
situation.
Charlie Rose:
Senator Obama, who you support, I think, I don't want -- to be clear on this, but made an
economic speech today, talks about another stimulus program. Is that essential at this time?
26/36
Warren Buffett:
I think the biggest thing we need now is to unclog the credit markets, and we may need
another stimulus -- if we do, it's -- it should go to the lower and middle-income people. I
mean the truth is, I've never had it so good in terms of taxes. I am paying the lowest tax rate
that I've ever paid in my life. Now, that's crazy. And if you look at the Forbes 400, they are
paying a lower rate, accounting payroll taxes, than their secretary or -- whomever around
their office. On average. And so I think that actually people in my situation should be paying
more tax. I think the rest of the country should be paying less, the 95 percent that Obama
talks about or maybe even a little higher than that. But I think that a stimulus plan should
really be geared to the people. You know, you've got -- you've got, what, 24 million
households, 1/5th of the households of the United States, you have earning $21,000 a year
or less, on average of close to four people, three people in those households. Two and a half
they will actually probably. But just imagine living on 21,000 a year, Charlie, 22,000 a year. I
mean you have 20 percent of the population doing that. So you don't have to worry about
guys like me. I would push purchasing power -- you push out $1,000 of purchasing to those
people, it's going to get -- it's going to get spent. And it needs to be spent. They need it. And it
should come, to some extent, from guys like me.
Charlie Rose:
… what about the capital gains tax?
Warren Buffett:
Well, you know, the capital gains tax is 15 percent now. So I sit there in my office and I make
a lot of money by capital gains, and I pay 15 percent, and I pay no payroll tax on it.
Charlie Rose:
Right.
Warren Buffett:
The woman that comes in, takes the wastebasket away, she's paying 15.3 or whatever it is on
payroll tax alone. I mean it is -- I never had it so good.
Charlie Rose:
So therefore the capital gains tax should be changed to 18, 25, 30?
27/36
Warren Buffett:
I think it's terrible for people in effect to say that income from investment should be taxed at
a much lower rate than income from labor. I mean I just think that you're going to -- we're
going to spend 3.1 trillion, something like that, this year. We're going to only raise about 2.6
trillion or something like -- you're going to raise it from somebody. You know. Now, who
you're going to get it from, you're going to get it from me and you, or you're going to get it
from, you know, the people that drive the taxis, bring me here. Whatever. Maybe. I mean you
got to get it from somebody. And, you know, everybody is against paying tax. I feel the same,
everybody feels that way. But if you want a government that's going to do the things we ask
our government to do, you've got to get it from somebody. And over the years, the last --
particularly the last six or eight years, they've taken less and less from a guy like me. Now,
you know, everybody likes to talk about how the top one percent pays this percent in
income, but the income tax, we'll say 1.3 trillion. The payroll taxes are over 900 billion. That
900 billion, that doesn't come from me. I pay it on the first hundred thousand or something
like that. But that comes from the people in my office. And they are paying 900 billion --
nobody ever talked about that when they talk about what the one percent is paying. I love to
tell how I'm suffering because one percent we're paying 25 percent of the total. We're not
paying 25 percent of the total taxes on individuals. We're paying maybe 25 percent of the
income tax, but the payroll tax is over a third of the receipts of the federal government. And
they don't take that from me on capital gains. They don't take that from me on dividends.
They take from the woman who comes in and takes the wastebaskets out.
Charlie Rose:
You mentioned inflation. The possibilities of inflation. Are you therefore -- do you have a
position on what interest rates -- what the fed should do about interest rates?
Warren Buffett:
Well, I think that's almost -- for the time being, just put that aside and we'll get to that after
the patient is up and walking. It's interesting, though. I mean we are -- what's going to
happen -- things we're doing are going to have some inflationary consequences. But, you
see, interest rates, you know, very low levels, including the long rates.
Charlie Rose:
When we watch this, I mean you and I are having this conversation today. The senate votes
tonight. House may vote. People I talked to today believe it's going to pass. Whatever
happened to change minds either in the combination of what they did with the plan and
tweaking the plan, or B, some people got so scared by the failure of the vote last time that it
brought home a danger of not doing anything.
28/36
Warren Buffett:
Yeah.
Charlie Rose:
All right. How will we measure the progress, whether this is working or not? What's the
indicia?
Warren Buffett:
Yeah. It's going to be tough because the economy is going to be getting worse for a while.
And it might fall off a cliff if this doesn't pass. But nobody will ever know that if it does. And
so what they will not see immediate reaction. I mean, we'll be pounding on the guy's chest,
you know, on the floor, and you know, he's not going to just jump up all of a sudden. So it
makes it tough. I mean, it's tough to be in the legislature, you know, and vote for something
and then people say, well, you voted all this money and you know, it's all getting spent. It isn't
getting spent. It's getting invested. But it's all getting spent. Nothing's happening. You know,
how could you have done that? You haven't done anything for me. I mean, you go through all
of that. And that's going to be tough. And it takes -- what it really takes is leadership that
knows what it's all about and can explain what it's all about. And that people will believe --
Charlie Rose:
But hasn't that been missing, though --
Warren Buffett:
Sure.
Charlie Rose:
-- leadership that can explain what it's all about?
Warren Buffett:
Absolutely.
Charlie Rose:
And the reason you're here and the reason I want to have a kind of fireside chat with you, it
is that somehow it hadn't gotten through, the idea --
29/36
Warren Buffett:
When the president of the United States goes out at, you know, 8:00 o'clock in the morning
and then his own party votes gets him 2 to 1 in the house, you know that somehow a
message isn't getting out. It takes real leadership. I mean Roosevelt didn't -- you know, when
he came in, he didn't print any money. Well, he actually may have done [unintelligible], but
he -- it wasn't like, you know, you've got the greatest economics professor in the world or
anything else. But he did restore confidence. And they did a lot of thing. And you needed it.
You needed to jump-start the economy. It took a long time. I mean, the world did not change,
you know, in 1933 or '4. But we put in things like the FDIC. I think the FDIC was one of the
great inventions of the American [unintelligible].
Charlie Rose:
Well, they had to tweak that in terms of his bill, did they not?
Warren Buffett:
Yeah. They were -- and --
Charlie Rose:
[unintelligible] extended five-year.
Warren Buffett:
They're going the right direction, yeah.
Charlie Rose:
Roosevelt also said the only thing we have to fear is fear itself, which is clearly the fear that
exists in the country. Tell me when you worried the most of all the things that you have seen
over the last three weeks, say. I mean how about in the last month, when did you say, my
God, I never knew it could get to this point?
Warren Buffett:
Well, I don't get that afraid in a sense because I really do have faith in both -- I know the
country works extremely well. You know, but when it isn't clogged up. And I know that
Congress will do the right thing. But I will tell you, when I watched the House vote the other
day, I wasn't afraid because I -- I still felt something would pass. But I -- we are going through
a very, very tough period. And, you know, I did not think I would see the day when, you know,
an AIG would not be able to have its checks clear.
30/36
Charlie Rose:
If AIG had failed, would fold man sacks have been exposed and at risk, JP Morgan would have
been --
Warren Buffett:
Everybody would have been exposed, Charlie. Everybody.
Charlie Rose:
So why was there even a question of not rescuing AIG at that time?
Warren Buffett:
Well, I think what people understand there probably -- well, they were hoping the private
sector would do it.
Charlie Rose:
Right.
Warren Buffett:
I mean, that's the same way I would behave. If I were the treasury secretary or head of the
Fed, you know, I would try to scare the hell the out of the private sector and say, you better
save this because you're going down with the ship. So you guys save it. And I went as long as
I could worrying if they didn't save it, I'd come in.
Charlie Rose:
Well, did that in fact happen during this crisis in which the secretary of the treasury said you
better save this or we'll all going down?
Warren Buffett:
I think certainly --
Charlie Rose:
You better put up some cash right now.
31/36
Warren Buffett:
I think that they hoped the private sector would come in. And the private sector tried to come
in until they saw the size of the problem. I mean, from were people on that weekend that
thought they'd had a solution. And then the hole kept getting bigger and bigger. And all of a
sudden became apparent that 20 billion wouldn't do it and 30 billion wouldn't do it and 40
billion wouldn't do it. So it got beyond anybody's ability to certainly to do it in a short period
of time.
Charlie Rose:
There was not enough capital available other than from the government.
Warren Buffett:
It's an unknown situation. You have the derivative book, [unintelligible] AIG financial
products, you know. Nobody's every heard of it except it was a terrific profit center. You
know, you could manufacturer earnings out of it, do all these things. And I will guarantee that
you the top management -- and I'm not knocking them for this. I don't think I could have
done it. They couldn't get their minds around it. I bought a company called General
Reinsurance in 1998 that had a similar but much smaller operation, had 23,000 contracts in
it.
Charlie Rose:
And you had to get rid of it.
Warren Buffett:
I got to get out of this. It cost me 400-and-some million dollars in benign -- in a benign
situation. But when this was not a benign situation. If AIG had tried to unwind their
derivatives books. I don't know. It would have hit every institution in the world.
Charlie Rose:
And there was no private capital to come in and do that.
Warren Buffett:
Not big enough.
32/36
Charlie Rose:
Not even Berkshire Hathaway.
Warren Buffett:
No. Not even Berkshire Hathaway. I mean, if I thought 5 or 10 billion would have bought me a
good deal, and I could have done that, I'd have done it.
Charlie Rose:
They were --
Warren Buffett:
I'm not bashful.
Charlie Rose:
[unintelligible] was within reach.
Warren Buffett:
Yeah.
Charlie Rose:
But 85 billion might not have been.
Warren Buffett:
No, no. And the Fed structured that thing very, very well. I mean, they have put themselves in
a position --
Charlie Rose:
Yeah.
Warren Buffett:
-- where they are very likely to get their money back; maybe more. They participate 80
percent -- I mean, they drove tough terms. I mean I want to hire the guy that made that deal.
He’d fit in well at Berkshire.
Charlie Rose:
33/36
A lot of people look at you and Goldman Sachs and GE saying I want to hire the guy that
made that deal for you.
Warren Buffett:
No, Tim Geithner did a better job on this one.
[laughter]
Charlie Rose:
So we come down to the close of this conversation and you have been warning us about
certain kinds of things. I hear from this conversation too this plan is essential now. Otherwise
we’re in a very, very difficult place and each week we go beyond not doing something we get
deeper and it becomes more irreversible.
Warren Buffett:
And, yeah, whoever said, you know, an ounce of prevention is worth a pound of cure
understated it and I you know a pound of cure that’s delayed another six months is going to
need a ton of cure later on I mean it would be crazy not to do this. It will not produce
dramatic results though in the economy. That’s what people have to understand. You’re
going to see unemployment go up. You know, you’re going to see lousy earnings in many
businesses. And they’re not --
Charlie Rose:
You’re going to see people unemployed.
Warren Buffett:
You’re going to see more people unemployed. But the difference Charlie if we bottom this
thing out at seven percent unemployed versus nine percent, that’s three million people,
that’s three million people that if we do it wrong you know lose their jobs unnecessarily in my
view I mean you know I’ve never been unemployed. I’ve never been very fully employed
either but just think of what it’s like, you know, to go home with a mortgage payment you
know and kids and everything else. My dad had that happen to him in the early ‘30s. It you
know you don’t want to create three million people more unnecessarily. But I don’t think you
--
Charlie Rose:
That’s the depression --
Warren Buffett:
34/36
It really is. And you can’t help some increase from this point. I don’t want any viewer to go
away think a magic wand exists in Congress. So they’re going to see some more bad news.
But if we do this, we’re doing the right thing. And if -- the system will work over time. There’s
no -- we got a wonderful system.
Charlie Rose:
Okay, but I mean let me come to that in the end. Do we need to do anything about the
system? And beyond the emergency of the moment, the urgency of the moment, come
January, about the system, lots of talk about regulation as you know and finding the right
balance, lots of talk about whether government involvement is an idea we need more of
rather than less of, rethinking sort of what President Reagan brought to fore.
Warren Buffett:
Once we get the [unintelligible] back, we can [unintelligible] changes [unintelligible],

exercising [unintelligible], we can do all of that sort of thing. And you know if I got any good
ideas out of that or I think they’re good ideas, I’ll be glad to contribute them but the system
will probably overdo some other things. I mean, the nature of democracy is such that when
there’s this -- there’ll be this revulsion, obviously, toward -- that’s never going to happen
again, so we’ll probably attack it in various ways that don’t make sense. But I -- that’s what
Congress is for. And that’s what advisors are for. And I’m all for getting the best minds you
can get to work on that kind of thing. Like I say, I don’t think it’ll be done perfectly. Maybe
we’ll end up with a little bit better system. But the end, we had a pretty good system over
time. But when we went crazy, and we did go crazy on residential real estate, it set things in
motion that just -- the dominoes started toppling.
Charlie Rose:
Thank you for coming.
Warren Buffett:
Thank you, Charlie.
Charlie Rose:
Pleasure to see you.
Warren Buffett:
Enjoyed it.
Charlie Rose:
Warren Buffett. We’re in San Diego. My thanks to the people at KPBS here. A conversation
here about the crisis that we all face, and hearing from a man that a lot of people want to
hear from. And I’m pleased that we were able to join with him here. Thank you for joining us.
See you next time.
35/36
Class A:
Class B:
36/36
WEB talks about Goldman Investment and Financial Crisis on
CNBC on September 24, 2008
rbcpa.com/warren-e-buffett/web-talks-about-goldman-investment-and-financial-crisis-on-cnbc-on-september-24-2008/
This is a transcript of Warren Buffett’s discussion on CNBC in regards to Goldman

Investment and the Financial Crisis
Warren Buffett was interviewed live by telephone on CNBC’s Squawk Box this morning
about his surprise investment of at least $5 billion in Goldman Sachs.
BECKY QUICK: We know you get all kinds of deals, all kinds of people who come knocking
asking you to jump in. You’ve said no to everything to this point. Why is this the right deal at
the right time?
WARREN BUFFETT: Well, I can’t tell you it’s exactly the right time. I don’t try to time things,
but I do try to price things. And I’ve got a formula that says bet on brains, and bet of them
when it’s the right type of deal. And in this case, there’s no better firm on Wall Street. We’ve
done business with them for years, with Goldman, and the price was right, the terms were
right, the people were right. I decided to write a check.
BECKY: Does the backdrop of the Federal government potentially getting involved with a
massive bailout plan for Wall Street, does that have anything to do with this deal?
BUFFETT: Well, I would say this. If I didn’t think the government was going to act, I would not
be doing anything this week. I might be trying to undo things this week. I am, to some extent,
betting on the fact that the government will do the rational thing here and act promptly. It
would be a mistake to be buying anything now if the government was going to walk away
from the Paulson proposal.
BECKY: Why would that be a mistake? Because the institutions would collapse, or because
you could get a better price?
BUFFETT: Well, there’s just no telling what would happen. Last week we were at the brink of
something that would have made anything that’s happened in financial history look pale. We
were very, very close to a system that was totally dysfunctional and would have not only
gummed up the financial markets, but gummed up the economy in a way that would take us
years and years to repair. We’ve got enough problems to deal with anyway. I’m not saying
the Paulson plan eliminates those problems. But it was absolutely, and is absolutely
necessary, in my view, to really avoid going over the precipice.
CARL QUINTANILLA: Warren, we can almost hear you measuring your words as you speak,
because what we’re talking about has such gravity. There are people out there who either
don’t, or are unwilling, to acknowledge what exactly, how serious the situation was last week.
And I’m hearing you say is that, was it the most frightening experience you’ve had in your
lifetime, in terms of evaluating where this economy stands?
1/11
BUFFETT: Yeah, well, both the economy and the financial markets, but there’re so
intertwined that what happens, they’re joined at the hip. And it doesn’t pay to get into horror
stories in terms of naming institutions or anything. But I will tell you that the market could
not have, in my view, could not have taken another week like what was developing last week.
And setting forth the Paulson plan, it was the last thing, I think, that Hank Paulson wanted to
do. there’s no Plan B for this.
BECKY: Warren, you mentioned that Wall Street could not have taken another week like that.
But what does that mean to the American taxpayer who’s sitting at home saying, ‘Why is this
my problem?’
BUFFETT: Yeah, well, it’s everybody’s problem. Unfortunately, the economy is a little like a
bathtub. You can’t have cold water in the front and hot water in the back. And what was
happening on Wall Street was going to immerse that bathtub very, very quickly in terms of
business. Look, right now business is having trouble throughout the economy. But a collapse
of the kind of institutions that were threatened last week, and their inability to fund, would
have caused industry and retail and everything else to grind to something close to a halt. It
was, and still is, a very, very dangerous situation. No plan is going to be perfect, but thanks
heavens that Paulson had the imagination to step up with something that is of the scope
that can really do something about it. And what he did with the money market funds, that
was not an idea that I had, but as soon as I heard about it, that was an important stroke.
Because the money, pulling out of the money market funds and going to Treasuries, and
driving Treasury yields down to zero. That — a few more days of that and people would have
been reading about lots and lots of troubles.
JOE KERNEN: People listen, Warren, when you speak. And I don’t know if you watched the
hearings yesterday …
BUFFETT: I got to watch some of them.
JOE: But when the more dire it looked, in terms of communicating, with some of these
Senators, the three-month or one-month bill, again, started acting similar to what was
happening on Thursday. Now we averted that disaster on Thursday, but it’s already been
three or four days. It’s almost as if these guys already forgot about the position that we were
in. Do you think that accounted — we’re still susceptible to that happening again if it looked
like they’re not going to go through with this?
BUFFETT: No, it would get worse. Last week will look like Nirvana (laughs) if they don’t do
something. I think they will. I understand where they’re very mad about what’s happened in
the past, but this isn’t the time to vent your spleen about that. This is the time to do
something that gets this country back on the right track. What you have, Joe, you have all the
major institutions in the world trying to deleverage. And we want them to deleverage, but
they’re trying to deleverage at the same time. Well, if huge institutions are trying to
deleverage, you need someone in the world that’s willing to leverage up. And there’s no one
that can leverage up except the United States government. And what they’re talking about is
leveraging up to the tune of 700 billion, to in effect, offset the deleveraging that’s going on
through all the financial institutions. And I might add, if they do it right, and I think they will
2/11
do it reasonably right, they won’t do it perfectly right, I think they’ll make a lot of money.
Because if they don’t — they shouldn’t buy these debt instruments at what the institutions
paid. They shouldn’t buy them at what they’re carrying, what the carrying value is,
necessarily. They should buy them at the kind of prices that are available in the market.
People who are buying these instruments in the market are expecting to make 15 to 20
percent on those instruments. If the government makes anything over its cost of borrowing,
this deal will come out with a profit. And I would bet it will come out with a profit, actually.
BECKY: Are you buying instruments like these in the market?
BUFFETT: Well, I don’t want to leverage up. No one wants to leverage up in this thing. So, if I
could buy a hundred billion of these kinds of instruments at today’s prices, and borrow non-
recourse 90 billion, which I can’t, but if I could do that, I would do that with the expectation of
significant profit.
JOE: But the government can do that. You can’t. And that’s why the private sector can’t, even
you, can’t save the system.
BUFFETT: I can’t come close to it. But they have the ability to borrow. They can borrow much
cheaper than I can borrow. They can borrow unlimited. They don’t have covenants. They
don’t have — I mean, they are in the ideal position. So, for example, if I were hiring advisers,
as I talked about doing to buy these things, I would tell those advisers, ‘Look it! People are
buying these instruments to make 15 percent. So if you’re going to charge me any fees, I’m
going to defer those fees until I get rid of these instruments later on. If I don’t make at least
ten percent on my assets, you know, your fee goes down the drain. Because it should be a
lead-pipe cinch to make 10 percent at the kind of prices that exist now. I wouldn’t try to write
that into the legislation. I don’t think you should — I think they should punish, in many cases,
the people — I would think they might insist on the directors of the institutions that
participate in this program waiving all director’s fees for a couple of years. They should,
maybe, eliminate bonues. They may wish to do some of those things. I don’t think you should
try to write it into the instrument, though. I think that gets so damn complicated and ties
people’s hands. But if I were administering the program, I think I’d be fairly tough about
some of those things, and I’d make sure that the advisers earned me a return that was well
above my cost of borrowing before they got paid a dime.
BECKY: Would you administer the program?
JOE: Yeah, can you be on the oversight board? (Buffett laughs.) Can you be on the oversight
board?
BUFFETT: I’d love to administer (laughs). I’d love to administer it for nothing, but I would
really love to administer and get some kind of an override in terms of the profits, which is
naturally the way Wall Street thinks. No, it’s not my game to do that, but I will tell you that the
buyers of the instruments these days are going to do better than the sellers. And the big
buyer, if they — they shouldn’t pay any attention to the cost of these instruments to the
selling institutions. They shouldn’t pay any attention to the carrying value. In fact, one thing
you might do, is if someone wants to sell a hundred billion of these instruments to the
3/11
Treasury, let them sell two or three billion in the market and then have the Treasury match
that, for what they pay. You don’t want the Treasury to be a patsy. But I’ll tell you, with Hank
Paulson on top of it, you couldn’t have any better guy to do that. The important thing is that
if this program extends into the next administration is to have somebody in the next
administration that has similar market savvy.
CARL QUINTANILLA: Separate from the bailout, Warren, people obviously this morning want
to look at the Goldman deal, I guess on top of Mitsubishi-Morgan, which happened yesterday
and wasn’t nearly as popular, at least from a market point of view. But they want to point to
you as the ‘canary in the coal mine.’ Is that fair? Do you have a problem with that?
WARREN BUFFETT: Well, as long as the canary lives, I’m fine. (Laughs.)
CARL: I’m guessing you’re going to live. At least, you’re guessing you’re going to live?
BUFFETT: Yeah, I think so. (Laughs.) This is, you know, from our standpoint, we’ve had a
lot of cash. And we now are seeing things that, you know, give us a chance to use that
cash sensibly. And this was a five billion dollar opportunity to, I think, deploy cash
sensibly. I understand, incidentally, that there will be another five billion. In other
words, they mentioned 2-1/2 billion, but I think they’re going to allocate it down to five
billion additional. So Goldman will have ten billion, I believe, of new money coming in.
BECKY: In that capital offering. In the release, they said 2-1/2 billion (of common stock
would be offered in addition to Buffett’s investment.) You’re saying you understand
it’s five billion?
BUFFETT: Yeah, I think they have quite an outpouring of orders, so I think — They’ll be
allocating it down, but I think from all over the world. So I think there will be five
billion of additional common stock sold. That will be determined and announced, I
believe, before the opening.
JOE: How much do you know about AIG and their books right now, Warren?
BUFFETT: Well, I think I know a fair amount, but I don’t think anybody knew what they
needed to know, including the management. the troubles there were in the subsidiary,
AIG Financial Products, and they had hundreds of thousands, I’m sure, hundreds and
thousands of derivative contracts. And I think that top management did not have
their mind around what was involved with those contracts. And you can do a lot of
damage on Wall Street with a pen and a piece of paper.
JOE: How many of those units are going to end up under the Berkshire umbrella?
BUFFETT: Well, we would have an interest in a couple of ’em. And actually over that
weekend I expressed an interest in one or two, but the pressures were such, and the
hole was deep enough, that they simply couldn’t get it worked out. And some of those
units, most of those units, I believe, will be for sale over the next year or two. And we
would be interested in a couple of them. I think they’ll probably do a pretty intelligent
job of selling them, which means we won’t be as good a buyer.
4/11
BECKY: You know, Warren, we’ve been trying to figure out — I have to admit that I was
shocked when I heard the news yesterday about this deal with Goldman, because you
haven’t put any money into an investment bank since 1987, Salomon. And that was a
deal you had to get personally involved with later in 1991 when you went to run the
company for almost a year. It was a very difficult experience. I’m shocked that you
would get back in with another investment bank. Why do it?
BUFFETT: (Laughs.) Well, the pain has worn off. That won’t be happening with
Goldman, but I — That was a very unfortunate experience, and it was actually caused
by just a couple of people out of a workforce of 8000 that got the company into big
trouble. And I had the help of a lot of people at Salomon in getting out of it. But I don’t
think this experience will be similar. Goldman has been extremely well run. My
experience with Goldman goes back, when I was nine or ten years old my parents took
me back to the New York World’s Fair, and by an odd chance I got to sit down with
Sidney Weinberg, who was the dean of Wall Street then, and he talked to me as if I was
a grown-up for 45 minutes. I’ve never forgotten the experience. Gus Levy (who later
ran Goldman in the 1970s) was a good friend of mine when I worked in Wall Street. In
1955, we only had four wires to Wall Street firms and one of them was to Goldman
Sachs and Gus was on the other end of the phone. So I’ve had a long experience with
Goldman and they’ve done a lot of things for me recently.
JOE: I just assume you know what was going on at all of these firms because I know
everybody probably came to you and you made your decisions one-by-one on what to
do. When you look at the way some of these assets were marked, could you tell that,
for example, Lehman still wasn’t facing reality and perhaps Merrill Lynch was more in
the real world?
BUFFETT: Well, I think that turned out to be the case. I was apprached on Lehman back
in, I think, maybe it was April or March. But the first round of financing when they
raised the four billion, and, yeah, it looked to me like it was pretty unrealistic where
they were marking things. I feel good about the Goldman marks, incidentally, that’s
one of the discussions I’ve had. And — You can be pretty fanciful in marking positions
in Wall Street, particularly when things aren’t trading. The one thing you want to make
sure, when the Treasury is buying things, is the marks they have don’t make any
difference. Like I said, it wouldn’t be a bad idea, if you’re buying ten billion of a
security and you’re the Treasury, to have them sell five-hundred million, or something
like that into the market, so you find out what the real market price is and then buy
the other 9-1/2 billion at that price. I really think, I really think the Treasury will make
— I think they’ll pay back the 700 billion and make a considerable amount of money, if
they approach it in that manner. But I don’t believe in trying to write that into some
legislation. I think it gets so unworkable. I think you have a smart person in charge,
and have them treat it like it’s their own money, and the taxpayers’ money, in terms of
behavior, and I think it will work out very well. I think it’s not comparable to the RTC.
5/11
CARL: A lot of people who are watching us Warren, and even people who have just
started watching us over the past week or two, look at the stock market every day and
are confused. They want to use it as a metric for how we’re doing, or at least the
progress we’re making on big issues. I’m guessing you don’t think it’s reflective of
anything that’s based in reality right now?
BUFFETT: Well, the stock market in the short — my old boss Ben Graham said that in
the short-run the stock market is a voting machine, in the long-run it’s a weighing
machine. As a voting machine, it responds to people’s emotions. There’s no literacy
test for voting. You vote according to how much money you have, not according to
how smart you (are.) So the stock market does some very silly things in the short-run.
Over the long-run, it behaves quite rationally. And, you know, five years from now, ten
years from now, we’ll look back on this period and we’ll see that you could have made
some extraordinary buys. That doesn’t mean it won’t get more extraordinary a week
or a month from now. I have no idea what the stock market is going to do next month
or six months from now. I do know that the American economy, over a period of time,
will do very well, and people who own a piece of it will do well. But they shouldn’t own
it on leverage. That’s what people have learned in this period, that you’ve got to be
able to play out your hand and it’s a big mistake to let somebody else be in a position
where they can sell you out.
BECKY: Warren, when you first invested back in ’87 in Salomon, I believe your partner,
Charile Munger, was not as enthusiastic about the idea as you were. Is that true?
BUFFETT: That’s true. Of course, he’s never as enthusiastic about my ideas as I am. But
I would say he was even less enthusiastic. (Laughs.)
BECKY: How does he feel about the Goldman deal?
BUFFETT: Well, I’m glad you asked because I, (laughs), didn’t tell him about it until after
it was done. (Laughs.)
CARL: How rude!
BUFFETT: (Laughs.) Yeah, it is kind of rude. But Charlie’s wife had a bad fall and he’s
(inaudible) and I called him last night about an hour after I committed it, or
something, and I called kinda like a little boy … (laughs) … bringing into the house
something he was a little worried about. But, Charlie’s all for it. (Laughs.)
BECKY: He’s all for it.
BUFFETT: Yeah. Now I’m really worried.
BECKY: Uh-oh. For the last nine months, Berkshire has spent a lot of that cash it’s been
hoarding over the last several years.
BUFFETT: That’s right.
6/11
BECKY: I was trying to figure it out. I think it’s about 24 billion dollars you’ve spent in
the last nine months?
BUFFETT: Yeah, we’ve spent a lot of money. The money, the money we’ve spent, you
know, we’ve found things we like to do. It’s nice to have a lot of money, but you don’t
want to keep it around forever. I prefer buying things. Otherwise it’s a little like saving
up sex for your old age. (Laughs.) At some point, you’ve got to use it. (Laughter.)
JOE: Uh-oh.
BECKY: Twenty-four billion dollars. Is that a right guess and how much cash do you
have left?
BUFFETT: You know, it would be 6-1/2 for the Mars deal, there’s five for this, there’s five
for Constellation, there’s a couple of other things. So, yeah, your addition is fine,
Becky.
BECKY: How much cash do you have left?
BUFFETT: Well, I’ve got enough. (Laughs.) I don’t really look at it every day. I look for
opportunities every day, and then if I find opportunities, I see if I’ve got enough cash
around to take care of them.
JOE: Well, by my calculation, if you lever that up thirty times, Warren, you can really
get serious here. (Laughter.) Maybe you don’t want to do that, I don’t know.
(Laughter.) What about, how are we going to deal with this looming 50 — we just had
(New York State Insurance Commissioner) Eric Dinallo on, I don’t know if you were
watching, Mr. Buffett. He talked about, he can, maybe New York and his unit can look
at the twelve billion, or trillion, jeez, we’ve got to add a T. I’m finally getting used to Bs,
now we have to add a T. But what we are going to do with that 50 trillion and how,
having that still around, all these credit default swaps, how serious is that, and how
are we going to unwind it and deal with it?
BUFFETT: Yeah, well, it goes beyond credit default swaps into all forms of derivatives.
But the derivative genie got out of the bottle, and it’s a huge genie, and it will never
get back into the bottle. It is a terribly tough problem because they are not
homogeneous items. It’s one thing to have a clearing house for the futures in Chicago,
or something, and every morning have everybody post to market and that’s a very
efficient system. It’s very hard to do that with derivatives where you can derivatives
based on the New Zealand money supply or the number of babies born in Japan, and
all kinds of things as the variables. And they’re often very complicated. I applaud
Dinallo. He is an outstanding insurance comimssioner. But getting regulation around
the entire derivatives market is really tough. I’ve thought a lot about it. But it’s
important. Derivatives have been an important part of the problem in financial
markets. And they continue to be part of it. And in AIG’s case — AIG would be doing
fine now, I think, if they’d never heard of the word derivative.
BECKY QUICK: Mr. Buffett, the front page of the Wall Street Journal and other media
7/11
organizations around the globe have been picking this up, your move yesterday into
Goldman Sachs, as a vote of confidence in the banking institutions across the globe. Is that
fair?
BUFFETT: Well, I’m not buying a cross-section of banking institutions. But I certainly have
confidence in Goldman. And you can say it’s a vote of confidence in the Congress to do the
right thing with something that’s being debated before them right now.
CARL QUINTANILLA: You know, Warren, some might say, ‘OK, we know Buffett is a pure
capitalist. he’s in this to make money and nothing else.’ But also you’re a philanthropist, you
have interests in seeing the country do well over time. Some might say he’s doing this, he’s
timed this to help get the package through. Is there anything — is that even close to reality?
BUFFETT: No. I timed this because Goldman Sachs yesterday came up with something that
made sense to me. I’m not brave enough, to try and influence the Congress. The other way
around, they influence me. And I am betting on the Congress doing the right thing for the
American public by passing this bill and not trying to doctor it up with a hundred things that,
you know, emotionally they feel should be on the bill but as a practical matter will gum things
up.
CARL: When do you think, Warren — I don’t know if you even have an answer to this
question — When is the absolute deadline by which you think this needs to happen? Is it this
weekend? Can you be that specific? Or if this thing were to bleed into next week, or if they
had to reconvene a special session, would that be disastrous?
BUFFETT: Well, I think anything that makes it look like it’s in doubt is what causes the
problem. So if they said on Friday we’re absolutely having a vote on Monday, or something of
the sort, I don’t think that would be a problem. But if they went home on Friday and there
was doubt about whether they were going to do something on Monday, I think you’d see
some things you don’t want to see in the markets and they would have some effects on the
economy.
JOE: You were watching yesterday, and I don’t know, maybe I don’t know the ways of
Washington. Maybe they say one thing and maybe they’re really planning — you know, they
have to look good for their constituents. But I wasn’t convinced they really understood the
seriousness of the situation, Warren, and that was after they said, look, Greenspan says we
need this, Volcker says we need this, Bernanke, Paulson. Now we have you. I don’t know. Do
you think they get it?
BUFFETT: Well, I think they will get it. I think enough of them will get it. You know, it’s not like
Pearl Harbor where you could look at what happened with your own eyes and decide you
had to do something that day. But this is sort of an economic Pearl Harbor we’re going
through. And I think most of them will get it. And I do believe they will do what’s right for the
country. They may vent their spleen a little bit by getting mad about the people that brought
us into that, and I don’t blame them for that. I might do that privately, too. But in the end,
you know, Republican, Democrat, I think they’ve got the interest of the country at heart and I
think they will do the right thing. But I hope they do it soon. (Laughs.)
8/11
BECKY: Warren, how long were you talking to Goldman Sachs and how significantly did they
have to change the terms of the deal to get you interested?
BUFFETT: Well, what they — they had talked with me — almost every financial institution has
talked with me, that you read about, over the past few weeks. But, but, they were serious
yesterday about doing something. They said, in effect said, ‘What would you do? What would
Berkshire do? And I laid out something. And they said, ‘That makes sense to us.’ And we had
a deal. It doesn’t take long.
JOE: You were kidding Becky when you said that you did this just ’cause you knew we were
going to ask you when you were going to do something in financials again and you wanted to
have an answer.
BUFFETT: Joe, Joe, I was not — you know, I was trembling with the thought of you asking me
again, ‘When are you finally going to do something?’ (Laughs.) So this was definitely an
attempt to get you off my back.
JOE: It was a cheap way, a mere five billion, so you’d have something to show us this time.
BUFFETT: That’s right. I mean, your withering questioning is just too tough for me. (Laughs.)
BECKY: You know, you mentioned earlier, in the grand scheme of things, it’s going to matter
who the next Treasury Secretary is going to be. Are there names of people you think would
be sound in either administration.
BUFFETT: Becky, if I were running things, Republican or Democrat, I would ask Hank to stay
on. I mean, you don’t get talent like that very often in any administrative job. And the guy
pays an enormous price to do it. He’s probably sleeping three or four hours a night. He
knows the market. He’s got the interests of the country at heart. So I think if I were either
Barack Obama or John McCain and found myself in the White House in January, I would go
down there and say, ‘Hank, do me a favor, stick around another year.’
CARL: And Warren, if you believe, as a lot of people do, that we are in for several years of
this unwinding process, the government’s going to play a huge role. If you were called to do
something on the public side, would you do it?
BUFFETT: Well, I would certainly be glad to help in any way that I could. You know, I would be
looked at as having conflicts-of-interest, I’m sure. But anytime I can be helpful on something
— For example, in terms of what you might do with institutions that participated in this
program, I think the Treasury can, they can lay down some terms for these people. I don’t
think they should be in the legislation, but I think — And if anybody wants my opinion on it,
I’d be glad to help them out.
BECKY: Warren, if …
BUFFETT: They can make money on this deal. I can tell you this. I would love to have 700-
billion at Treasury rates to be able to buy fixed-income securities now that they’re in distress.
There’s a lot of money to be made.
9/11
JOE: It’s just that, you know, they want these details, Warren. They said — Paulson says
there’s the hold-to-maturity price and there’s the firesale price. We’re going to go somewhere
in between, get a much better price but still leave enough for the people that are buying it to
make some money. That can be done in principle? There’s a way to do that, do you think?
BUFFETT: I think what I would be looking for — I heard that hold-to-maturity price. I’m not as
excited about that. I basically like a market, or something very close to a market-related
price. And there are ways to determine that and I don’t think that Uncle Sam should be in the
business of paying somebody a whole lot more than it’s worth in the market today. And if the
guy that bought it doesn’t like it, he doesn’t have to sell it, and it was his problem, he bought
it in the first place. I think a market price will enable people to be leveraged. The problem
they have now is that some of the institutions, they’re loaded with this stuff, they’re having
trouble funding, and they’re worried about being able to sell a ton of it. But take the Merrill
Lynch deal. Merrill Lynch had to take back 75 percent of the sales price. Well, they didn’t
want to take back that 75 percent. I would let ’em sell it for the same price, but I’d pay them
the whole thing in cash. So they’d be a lot better off if they could have sold the whole thing at
that same price but gotten paid a hundred percent in cash instead of having to take back 75
percent. And I see the government fulfilling that kind of a function.
JOE: All the outrage we’re seeing in these comments from viewers, and obviously the
senators are hearing from constituents. If we take your word for it, that the government
could even break-even, or only lose 50 billion, that 700 billion dollar number is out there in
the public, and people think that we’re spending that.
BUFFETT: Yeah, they think that, yeah.
JOE: It seems crucially important to get the point across that, in your view, we could, the
government could actually end up making money and saving the taxpayer from much worse,
a much worse outcome if we didn’t do this.
BUFFETT: The government is getting 700 billion worth of assets, assuming they spend the
700 billion, they’re getting 700 billion of assets at what I regard as attractive prices. And
they’ve got the staying power to hold those things. If I could get 700 billion, if I could borrow
700 billion on the government’s terms and buy these assets I’d be doing it myself. But
unfortunately I’m tapped out. (Laughs.)
BECKY: And yet, Warren, Mayor Mike Bloomberg, I heard him making comments this
morning, and he’s someone I know you’ve spoken very highly of ..
BUFFETT: I admire him.
BECKY: You admire him. he says this morning we should not be giving a blank check to have
something passed in the dead of night. How dire is this situation?
BUFFETT: Well, I’m sure we didn’t want to go to war on December 7, 1941, maybe, in the
dead of night, or whenever we did it, in the middle of the afternoon actually. But there are
time when events force timetables on you, and force action, and you have to be — You know,
it’s just like in my business. I might like to think over buying something for a month, I’m not
10/11
that type anyway. But in the end, if somebody offers me something that makes sense, I
better decide whether to act or not. And if it makes sense to me, I usually don’t attach
unnecessary conditions, you know. It would be nice to have the luxury of thinking about this
for three months. But I will tell you, if you think about this for three months, you’re going to
have a situation where — If you think about it for three weeks, you’re going to be facing a
situation that’s far different, and far more difficult, than if you do something now.
END OF TRANSCRIPT
11/11
Transcript of Warren Buffett’s discussion on CNBC on July 9, 2009,
with Julia Boorstin
rbcpa.com/warren-e-buffett/transcript-of-warren-buffetts-discussion-on-cnbc-on-july-9-2009-with-julia-boorstin/
This is a transcript of Warren Buffett’s discussion on CNBC on July 9, 2009, with Julia
Boorstin
JULIA BOORSTIN: Warren Buffett, thank you so much for talking to us here in Sun Valley. I
want to start off with a question about what happened today. We got some same-store sales
numbers. And Costco’s numbers were down despite some of those rebate checks, and I was
wondering, you have a lot of consumer-facing businesses, what’s your take on the consumer
economy? Is it as bad as it seems?
WARREN BUFFETT: I think it is. I haven’t seen the figures you’re referring to but I had heard
ahead of time, not from Costco, they were going to be very poor. Over Father’s Day, I don’t
know whether America’s families rebelled against their fathers that day, but sales were bad.
Apparel sales were bad. We’re in the underwear business. We see how they’re moving every
day and, wives are not buying underwear for their husbands. (Laughs.) It’s still very, very soft.
JULIA: The underwear indicator is bad.
BUFFETT: Yeah, right, underwear is going down. (Laughs.)
JULIA: Looking across the consumer businesses you own, do you have a sense of when the
consumer economy will pick up?
BUFFETT: No. I will know when it does. I get very, very contemporaneous figures on it. So
when it happens, I’ll know. But there’s nothing in the figures today that tells me what’s going
to happen tomorrow. What they do tell me is that today it hasn’t picked up yet.
JULIA: The global economic downturn is a big topic of conversation here. Yesterday I know
there was a big panel discussion on it. From everything I’ve heard, it sounds like the mood
was very glum. I’ve heard somber. I’ve heard glum. It was not a positive mood. Do you agree
with that sentiment?
BUFFETT: Well, I would say that right now we’re in a very, very tough period. We’ve been in it
– it really took off last September, mid-September, when it hit the financial world like nothing
we’ve ever seen, and that’s gotten spilled over into the economy. And it’s a tough period
now. On the other hand, this movie will have a good ending.
JULIA: Now, good ending over what sort of time period?
BUFFETT: (Laughs). I don’t know how long the movie will be. I know the ending will be good
but I don’t know whether its a two-hour movie or a four-hour movie.
JULIA: Well, you’ve said that the stimulus has done little, not enough, to get the economy
moving. Do you think that people here agree with you on that?
1/6
BUFFETT: Well, I don’t know about people agreeing with me, but yeah, I think they probably,
generally. But the stimulus was never designed to act fast. People hoped it would start
trickling in. In general, I think, and this is no criticism of the administration because I believe
in the stimulus and would probably believe in another one, they may be overrated in terms
of their ability to end the recession fast.
JULIA: But if you’re advocating another one, are they overrated?
BUFFETT: I think they’re useful, but I think that anybody who looks on them as a panacea is
making a mistake. But they’re useful, they’re useful.
JULIA: What do you think should be done now in terms of, do you think there should be
another stimulus right now?
BUFFETT: I think there probably should be. But I wouldn’t expect miracles out of it.
JULIA: But so little of the 800-billion dollar stimulus has already been spent. Does it make
sense to do another stimulus now, or do we want until some of that money, or more of that
money, is out there?
BUFFETT: Well, I would. If you had another one you’d try to load as little on the Christmas
tree as possible for specific constituencies, and you would try to get it spent fast. But the
President said that originally, let’s try to go with the shovel-ready projects. And then
Congress got into the act and I think watered it down some.
JULIA: So if the stimulus is, a stimulus is, multiple stimuli, not a panacea, what is the solution?
BUFFETT: There is no silver bullet. I mean, the original cause of this was the housing bubble.
Now a lot of things were contributing to it and flowed out of it and all of that. We built a
couple million housing units a year. We formed a million, three-hundred thousand
households a year, surprise, we had too many houses at a point. You can’t work that off in a
day, or a week, or a month. The best thing we can do is not to be building a lot of new houses
now. I mean, we will work off the excess inventory faster. If you want to end the recession as
soon as possible, you do nothing to encourage new housing construction. Very tough on the
home builders but that is the prescription for getting supply and demand back into balance.
JULIA: And so what does that mean in terms of interest rates?
BUFFETT: Well, you want low interest rates. The more affordable houses are, I mean people
have to have a job too, but low interest rates are a boon to housing in that they mean people
qualify for owning housing of a given type that wouldn’t otherwise. But we still have too
many houses. And the only way to do that, we can either form more households, get all the
14-year-olds to start living together, which they would probably like, (laughs), or we can blow
up a bunch of houses, which I don’t think any of us would like, or we can produce more than
the household formation and we will use up the inventory and we will get back to a vibrant
economy.
JULIA: You supported President Obama –
2/6
BUFFETT: 100 percent.
JULIA: And what do you think of his behavior, his decisions since he’s been in office?
BUFFETT: He’s been terrific. I think it’s very important that the people in the country, just as
in the 30’s, that they have a leader they believe in. And they’ve got good reason to believe in
him. Plus he communicates extraordinarily well so they can understand what he’s doing and
why he’s doing it and what the timetables may be and all that sort of thing. So we have the
right person in the White House.
JULIA: But you feel like the stimulus hasn’t done enough, so do you agree with the way he’s
handled the financial crisis?
BUFFETT: Well, the Congress wrote the stimulus bill. Yeah. (Smiles.)
JULIA: You’ve mentioned that you’re not worried about inflation right now. You’re concerned
about inflation down the line. What can the government and the Fed do right now to
minimize that risk?
BUFFETT: Well, right now they’re pouring the medicine on. Unfortunately the medicine will
have an after-effect, and it will be inflation, and the question is how much and how extreme?
We’re going to apply a lot of medicine, and we’re likely to get a lot of inflation down the road.
But it’s better to have the patient recover than to sit there and say I’m worried about the
after-effects of the medicine so we’ll just ignore it.
JULIA: Oil prices have come way down over the past six weeks. I think they’re now around 60
dollars. Will that help the situation?
BUFFETT: Well, it always helps. I mean, we are importing 10-million plus barrels a day of oil
and that’s a tax that the rest of the world imposes on us. We give them goods and services
that we produce, or IOUs, in exchange for that. And the cheaper we buy oil, the better off we
are.
JULIA: And where do you think oil prices are going to head in another year?
BUFFETT: (Laughs.) If I knew it, I wouldn’t tell you, but I don’t know it. (Laughs.)
JULIA: So President Obama spent a lot of time recently overseas dealing with international
relations. Obviously he has a lot of issues on his plate. Is that where he should be focusing
his attention?
BUFFETT: Well, it’s important that he do that, obviously. The number one job is the economy
but that doesn’t mean you ignore the rest of the world. Plus he has this, he is favorably
regarded by the rest of the world and he should take advantage of that. He should establish
relationships that are better with important countries than has been the case in the last
eight years.
JULIA: So do you think the biggest issue that Obama is facing right now is the U.S. economy?
3/6
BUFFETT: For sure. I mean, if you’re unemployed, your most important job is to get another
job, and get an income. And the country is becoming unemployed to a degree. And it’s very
important the economy gets, comes back. It will come back. Government has less influence
on how fast that happens than a lot of people would like to hope that it would. But
government is a player, but it has no silver bullet. The economy will come back, though.
JULIA: It seems like one of the big issues facing the economy, and also a big topic of
discussion here, is health care. I know that there were a number of panels on health care
here today. How grave a problem do you think is, do you think the U.S. health care system is,
and what do you think the solution is?
BUFFETT: Well, (laughs), I know how big a problem it is but I don’t know what the solution is.
If I knew the solution I wouldn’t hesitate to offer it. But I don’t bring anything to that party
that hundreds of thousands of other people don’t know as much or more about it than I do.
But it’s obviously a huge problem when it’s using up whatever it may be, some people say it’s
as high as 17 percent of GDP. But we can’t go on with health care accelerating at a faster rate
than GDP. We’ve done it for a long time, but we need a solution, and there are better people,
people better qualified than I.
JULIA: One of the ideas that Senate Democrats are talking about is a surcharge tax on
individuals earning over 200-hundred thousand dollars. What do you think of that as an idea
to help address the health care cost issue?
BUFFETT: Well, I wouldn’t do it in respect necessarily to the health care specifically, but I
think that on balance the rich have been undertaxed compared to the middle class and the
lower class. I mean, over the last decade in particular, the tax law has been tilted in favor of
guys like me and we don’t need any help. And there are plenty of people in this country that
do.
JULIA: So what would you advocate in terms of the future of taxes?
BUFFETT: I would have something that hits guys like me harder and hits the people that
served us breakfast this morning a little less.
JULIA: So where is that dividing line? Is it 200-hundred thousand dollars? Does that make
sense as a –
BUFFETT: I think it should be more progressive the higher up you go. But I think it’s ridiculous
when my tax on capital gains is less than the payroll tax on what you’re earning today.
JULIA: What do you think some of the other people here would say about that?
BUFFETT: Well, you’ll have to ask them. (Smiles.) Some of them would agree. No, a lot of
them would agree. They wouldn’t like it. Nobody likes having their taxes increase. I don’t like
having my taxes increase. But on the other hand, we’re raising 2.3, something like that,
trillion. We may spend four-trillion. There’s going to have to be some adjustment made
someplace and I think it’s better to adjust it, to some degree, on guys like me rather than on
the people who gave me breakfast this morning.
4/6
JULIA: How long — do you think taxes will go up in the near future?
BUFFETT: I don’t know about the near future, but they will go up over time because we’re not
going to bring spending down from four-trillion to 2.3 trillion, and we’re not going to take up
revenues unless we — it will be helped some when we get a recovery, but we’ll need
somewhat higher taxes someplace.
JULIA: So back to the health care issue. Speaking of taxes, one of the questions is whether to
tax employer-provided health care. And this is a big issue of debate. What do you think?
BUFFETT: It will all be, there will be so many tradeoffs involved, it won’t be a perfect bill.
Nobody could design a perfect bill. So, you can’t really look at one part of it until you’re
looking at other parts of it. So I don’t have any magic answer on that.
JULIA: Another thing that we’re hearing a lot about is the hospital industry has agreed to a
lot of cost cuts. We’ve seen the pharmaceutical industry agree to a lot of discounts. Together,
that amounts to hundreds of millions of dollars. How much are those kinds of compromises
going to be to finding a health care solution?
BUFFETT: Well, they’re going to be important. But they problem you have is you have a
health care situation now where more than two-trillion dollars a year is being spent. That
means two-trillion dollars is going to somebody, whether its doctors, nurses, hospitals,
pharmaceutical companies, you name it. Everyone is going to look at that bill and they’re
going to say, ‘Am I getting more or less?’ It’s like a tax law change. Every line in the tax code
has a constituency. Well, every dollar in medical expenses has a constituency, and that’s the
tough thing at the end. It will take a lot of leadership and some statesmanship on the part of
people to get something. But it is a question that needs to be addressed.
JULIA: Now, in addition to health care, this year digital media and distribution of media and
monetization of media has been a big topic of conversation here. Last year we talked about
the Kindle and you were really enjoying your Kindle. What do you think is the big topic this
year?
BUFFETT: Well, I’m here as part of their outreach program. I’m the village idiot in terms of
this stuff. So they try everything out on me, if it gets past me any three-year-old can do it. I’m
the wrong guy to ask ..
JULIA: Have they tried to get you to use something this year?
BUFFETT: People are always trying to get me to use things. Like I say, I will be the last guy
around using a landline phone and reading a newspaper and doing all those things.
BUFFETT: I have not tried Twitter, although I met the fellow who, one of the co-founders of it,
he’s from a little town in Nebraska called Clark and he went to the University of Nebraska for
a couple of years. So can’t be all bad. (Laughs.)
JULIA: It can’t be all bad. Now one question, since we’re hearing a lot about watching
television on the internet, have you ever watched TV on the internet?
5/6
BUFFETT: I haven’t watch TV on the internet, but I have used the internet a lot. A lot.
JULIA: So, here, talking to media CEOs, talking to CEOs from a big range of businesses, the
CEO of Coca-Cola , American Express , they’re all here, what is the sense you’re getting from
them about the state of the economy?
BUFFETT: Well, they would see it the same way. The economy, they would probably say that
the decline has stopped, most of them would say this in their business, but there’s been no
rebound. Now that doesn’t mean there wouldn’t be a further decline. It doesn’t mean the
rebound won’t start tomorrow. But what they are seeing in their businesses is sort of a flat
line after a big descent.
JULIA: Is there anything that you’ve heard here from these CEOs that surprised you?
BUFFETT: No, I wouldn’t say that at all. They’re seeing the same things I see. We’re in about
70 businesses ourselves, and I’ve got CEOs of every one of those companies , so I’ve already
talked to a lot of them before I got here.
JULIA: So I have to ask you a question —
BUFFETT: Uh oh. (Laughs.)
JULIA: I know that you are friends with LeBron James. I know he’s a huge fan of your’s.
Yesterday I was chatting with him and he said he’d be game for a game of pickup basketball
with any CEO, anyone here who is interested. Are you going to play pickup basketball with
LeBron James?
BUFFETT: I’ve already done it. I played him in basketball a couple of year ago. We played for
hours, and maybe I’ll even reveal the results of that —
JULIA: Who won?
BUFFETT: Well, I will play him any game he wants to play as long as I get to keep score.
(Laughs.) But I won’t tell him my scoring method ahead of time.
JULIA: So there’s no match here that’s been planned?
BUFFETT: We’re going to play golf, but not basketball.
JULIA: Is he a good golf player?
BUFFETT: He tells me he’s never played. I’ve played 65 years and if you want to place a bet on
either one of us, bet on him. (Laughs.) He’s got a special set of clubs, though. Phil Knight at
Nike gave him this special set of clubs, so who knows what it’s going to be like.
JULIA: Maybe he’ll be a big pro. Well, thank you so much for talking with us. I really
appreciate it.
BUFFETT: It’s been a pleasure. Thanks.
6/6
Transcript of Warren Buffett’s discussion on CNBC on June 24,
2009, with Becky Quick
rbcpa.com/warren-e-buffett/transcript-of-warren-buffetts-discussion-on-cnbc-on-june-24-2009-with-becky-quick/
This is a transcript of Warren Buffett’s discussion on CNBC on June 24, 2009, with Becky
Quick.
BECKY QUICK: We are here at Smith & Wollensky where Warren Buffett is paying off last
year’s winner for this auction. This is, right now there’s another auction underway. And this is
the tenth year in a row he’s been doing this. Warren, we want to thank you very much for
joining us.
WARREN BUFFETT: It’s a pleasure.
BECKY: You’ve been doing this for 10 years, raising money for the Glide Foundation. Why the
Glide Foundation?
BUFFETT: I think it’s probably as remarkable a social organization as there is in the country,
and it’s run by Cecil Williams, who, for 45 years, has taken people that have hit bottom and
said, ‘You’re still a worthwhile individual and we’re going to do what we can for you in terms
of housing, medicine, vocational training and you’re going to become the kind of person that
you can become.’ He believes in people and he carries it out every day and I’ve never found
a more effective place at lifting people from bottom.
BECKY: This year’s winner, last year’s winner showing up today, Zhao Danyang, who is
someone who paid 2.1 million dollars. That’s a remarkable amount of money that’s out there.
Last year, obviously, the markets were in a very different place than they are this year. The
auction is underway. I know the bidding goes through Sunday. (Note: Bidding actually ends
this coming Friday at 10p ET). Do you think someone can bid as much as you saw last year?
BUFFETT: (Laughs.) Well it surprised me last year. They have qualified a number of bidders
that are good for very big figures. They make sure of that beforehand. So we’ll see what
happens. (Laughs.) Two-point-one million is a pretty good number to shoot for. I hope I don’t
have to leave a 10 percent tip at the end of the lunch. (Laughs.)
BECKY: The last time we sat down to talk to you was on May 4, and at that point you told us
that you think we’re in an economic war right now. How much progress do you think we’ve
made in that war?
BUFFETT: Well, it’s been pretty flat. I get figures on 70-odd businesses, a lot of them daily.
Everything that I see about the economy is that we’ve had no bounce. The financial system
was really where the crisis was last September and October, and that’s been surmounted
and that’s enormously important. But in terms of the economy coming back, it takes a while.
There were a lot of excesses to be wrung out and that process is still underway and it looks
to me like it will be underway for quite a while. In the (Berkshire Hathaway) annual report, I
said the economy would be in a shambles this year and probably well beyond. I’m afraid
that’s true.
1/6
BECKY: We hear people on our air all the time who talk about the ‘green shoots’ that they’re
seeing. Are you seeing any of those green shoots?
BUFFETT: (Laughs.) I looked. I wasn’t seeing anything. I had a cataract operation on my left
eye about a month ago and I thought maybe now I’ll be able to see green shoots. We’re not
seeing them. Whether it’s retailing, manufacturing, wherever. We have a big utility operation.
Industrial demand is down like we’ve never seen it for a simple thing like electricity. So it
hasn’t happened yet. It will happen. I want to emphasize that. But it hasn’t happened yet.
BECKY: Earlier this year you also told us that you think Washington and the Obama
administration should be paying attention to jobs, that’s the number one, jobs and the
economy is the number one, the number two, and the number three job that they should be
doing. Has there been progress made at all on that front?
BUFFETT: Well, they’re doing thing but they take awhile to have an effect. They’re doing things
on a lot of fronts. But you can’t produce a baby in one month by getting nine women
pregnant, you know. (Laughs.) It just doesn’t work that way. So you can be throwing things at
the economy and they will have an impact, but they haven’t had much impact yet. And
unemployment will go high and it will lag the turn up of the economy.
BECKY: But has Washington done enough that you think they can turn their sights to other
problems that exist?
BUFFETT: Well, they’ve turned their sights to other problems, but this problem is not yet
solved. And it’s the most important problem we have.
BECKY: It continues to be? You don’t think any of the urgency has come away?
BUFFETT: No, I don’t think the urgency has come away. The urgency has moved away from a
total meltdown of the financial sector which we faced last fall. I’ve never seen anything like
that. But I would give enormous credit to the people there. (Federal Reserve Chairman)
Bernanke did a fabulous job. We were right at the point where people lost faith in money-
market funds, when commercial paper stopped being issued. People would be having a
problem meeting their payroll, very big companies, if that hadn’t gotten addressed very
quickly. And I give credit to people for doing that. So that part, we’ve moved past that
particular period. We haven’t got the economy going again.
BECKY: You mentioned that you think Ben Bernanke did a good job. Today is an FOMC
meeting day. We’re going to be hearing more about that at 2:15 today. Do you think Ben
Bernanke should be reappointed to a second term?
BUFFETT: I don’t see how you could do better. Yeah. He has taken decisive action at a time
when really decisive action was needed, and extraordinary action, things that we hadn’t done
before. If he hadn’t of done — I give the Bush administration credit on this. (Former Treasury
Secretary) Hank Paulson. They don’t do everything perfectly. Nobody does. And we were
2/6
getting balls thrown at your head by the hour. You’re going to make some mistakes. But they
got us through a period that, if we had different people in those jobs, I’m not so sure we
would have gotten through.
BECKY: Well now you do have different people on those jobs. You have (National Economic
Council Director) Larry Summers, who is advising the president. You have (Treasury
Secretary) Tim Geithner who’s there. You have Ben Bernanke. What do you think of the troika
today?
BUFFETT: I think you’ve got three very, the people you named are very, very good. And I think
Bernanke is very much the key. The Fed came through for us.
BECKY: You haven’t commented since the Obama administration rolled out these new
regulatory overhaul plans that they’ve been looking at. What do you think overall about it?
There’s a consumer protection agency that’s involved with this. There’s a lot of other different
arenas. But is this the right, is this a step in the right direction?
BUFFETT: We’ll see how the statute reads. But basically we got way overleveraged in the
financial arena. And the American public got overleveraged too. We do need something to
address that. We do need something to address institutions where the wrong incentives are
in place so that their personal incentives are at real variance with what our national
incentives should be. We need something to make sure we don’t get into the situation again
that we were in last September. And leverage is a big key to it. Now that’s a huge problem to
attack and how it’s written and how it’s administered is not an easy job.
BECKY: Can you lay that down as a rule? Should it be that you can’t be levered more than 10-
to-1? You can’t be leveraged up more than 20-to-1? How do you figure out?
BUFFETT: And it’s very difficult. And you can’t lay down a rule like that, unfortunately.
Because just through derivatives you can have an enormous amount of leverage that doesn’t
show and you can have an inter-connectedness that causes one domino to hit the next. It is
not a simple problem. You don’t just write down leverage of 10 or 20 to one or something of
the sort. There’s all kinds of different leverage. You can leverage against home mortgages
with big down payments and that will be relatively safe. You can leverage against somebody
else who’s leveraged and you’ve got troubles getting compounded. So it’s not a simple
problem but it is an important problem.
BECKY: Is it one that can be tackled? Is there a solution, a potential solution?
BUFFETT: It’s not easy. It’s not easy. You need somebody – you need reasonable rules, and
you need a very, very good administrator or group of administrators doing it. It’s not an easy
problem. People like to go to excesses. And the incentives are, in a market system, to
overshoot. And it’s happened over the years. America’s genius has not been in avoiding
problems, it’s been in surmounting them once they happen. And fortunately, you know,
we’ve come through again on that.
BECKY: So you’re not saying it’s an impossible task but it doesn’t sound like you’re very
hopeful we can prevent something like this from happening again?
3/6
BUFFETT: I think that what started out with a tulip, maybe four-hundred years ago, and
continued through the South Sea Bubble and all of those sorts of things, it’s in human nature
to go to excess. And it’s very hard, in a country of 300-million people and a 14-trillion dollar
GDP and all of that, to set up a set of rules that will prevent excesses in a market system. But
I think there can be improvements made and I think that’s what we’re shooting for.
BECKY: When we sat down with you here last year, you said inflation was a very big worry for
you. What do you see today? Do you worry about inflation or deflation?
BUFFETT: Well, I don’t worry about deflation at all. We won’t see deflation in any significant
amount in your lifetime, which is more relevant than my lifetime. We’ve taken action in
fighting the economic war that we face that certainly sows the seeds of substantial inflation
down the road. Not in the next six months or year or two years, but we have done things
that raise the probability of really high rates of inflation at some point. We’re flooding the
system with dollars. We’re monitizing debt. We’re doing all the things that lead to that. Now
those are appropriate things to do. Our economy was like a fellow going down in quicksand
last September and up to his shoulders, and somebody tosses a rope. You can tie it around
and yank him out with a truck, you may dislocate a couple of shoulders but it’s still pays to
get him out. And we may dislocate the economy in certain ways. There’s really no choice. But
we could see a lot of inflation.
BECKY: You mentioned that the financial system was in tatters just last year. It’s turned
around quite a bit. In fact, some of the big banks have been paying back TARP money, or
have made plans to pay back that TARP money. One of your big investments, though, Wells
Fargo [WFC 23.49 0.32 (+1.38%) ], has not. Does that put Wells Fargo at a disadvantage?
BUFFETT: Well, it doesn’t put them at a disadvantage with the person on the street that’s
putting in deposits. And they’ve got the widest spreads, really, in terms of interest income of
anybody. But I’m sure they would like to get out of TARP. There’s been unanimity among the
people in the TARP plan that they want to get out as fast as possible, so I’m sure they’d like to
get out at Wells. But from my standpoint, the earning power of Wells is dramatic with or
without the TARP money.
BECKY: So, with or without, it doesn’t matter to you as an investor?
BUFFETT: It doesn’t really, no, no. I wish they didn’t have the warrants outstanding that came
with the TARP money because that’s a call on the future profits of it, but the government set
the terms on it. They just signed a blank piece of paper.
BECKY: Over the last few days, Steve Jobs and Apple’s [AAPL 139.07 2.85 (+2.09%) ] board
have gotten a lot of attention because of the disclosure, or lack of disclosure of the liver
transplant that he had while he was out. You’re someone who has also gotten some criticism
about your succession plans. What do you think about how the Apple board went about it
and do you think that criticism there has been fair?
4/6
BUFFETT: Well, I think it probably has. I think if I have any serious illness, or something
coming up of an important nature, an operation or anything like that, I think the thing to do
is just tell the American, the Berkshire shareholders about it. I work for ’em.
Some people might think I’m important to the company. Certainly Steve Jobs is important to
Apple. So it’s a material fact. Whether he is facing serious surgery or not is a material fact.
Whether I’m facing serious surgery is a material fact. Whether (General Electric CEO) Jeff
Immelt is, I mean, so I think that’s important to get out. They’re going to find out about it
anyway so I don’t see a big privacy issue or anything of the sort.
BECKY: Just this past week, the Class B shares of Berkshire were able to start trading options
on them. What happened? Why did you do that and what’s it mean?
BUFFETT: They didn’t ask me.
BECKY: What does it mean for the stock though?
BUFFETT: Well, it means people can speculate on it instead of invest in it and I’m basically not
for it. We have the lowest turnover of any stock in the New York Stock Exchange by far. We’ve
got more real owners. People buy our stock to own a piece of the business. The people that
buy puts or calls, or sell puts or calls, are just betting on what it’s going to do in the short
term. So it’s no plus to us. It is no big minus either. I don’t think there will be a lot of trading in
it.
BECKY: It doesn’t bother you?
BUFFETT: No. If I had my choice it wouldn’t happen, but it doesn’t bother me.
BECKY: You know, cap and trade is something we talked about when we spoke with you back
in May as well. And you raised some of the issues and concerns you have about cap and
trade. It does look like it is still on the agenda for right now. So is health care. Does it concern
you to see Washington, Congress and the administration, moving on some of these big
initiatives while you’re still concerned about the economy?
BUFFETT: Well, I think if they’re important issues and they get well thought out solutions. It is
important that we move on carbon emissions. It’s important we move on health care. But I
don’t think they should be jammed through in a hurry. But those are issues that should be
addressed by America. But I do think the economy is number one.
BECKY: You said you didn’t like cap and trade especially in this economy though, because it
puts a tax on people.
BUFFETT: I think if you get into the way it was written, it’s a huge tax and there’s no sense
calling it anything else. I mean, it is a tax. And it’s a fairly regressive tax. If we buy permits,
essentially, at our utilities, that goes right into the bills of the utility customers and an awful
lot of people in Iowa, in Oregon, and Utah, and places where we are, very poor people are
going to pay a lot more money for electricity. So I think that can be improved.
5/6
BECKY: And finally, the last question. You’ve written about the economy and where you see
the stock market in the past. You wrote an op-ed for the New York Times. How are your
thoughts on where the stock market stands right now compared to where you saw it then?
BUFFETT: Well, I think it’s attractive over the next ten years compared to alternatives. If your
alternative is buying some fixed-dollar investment, I think inflation will eat away at that. I
think it’s almost certain over a ten-year period that equities will do better than fixed-dollar
investments. So, if people are keeping their money in cash and getting virtually nothing for it
they may feel comfortable, but it will be very expensive for them over time.
6/6
TRANSCRIPT & VIDEO: Ask Warren Buffett on CNBC's Squawk Box
- Part 1
TRANSCRIPT & VIDEO: Ask Warren Buffett on CNBC's Squawk Box - Part 1 Alex Crippen | @alexcrippen Published 8:47 AM ET
Mon, 9 March 2009 Updated 11:49 AM ET Thu, 5 Aug 2010 CNBC.com
March 9, 2009
This is part one of the preliminary transcript and video clips of Warren Buffett's
appearances on CNBC's Squawk Box on Monday, March 9, 2009.
ANNOUNCER: This is a special presentation of SQUAWK BOX: ASK WARREN BUFFETT. The
legendary investor will answer your e-mails, fixing the economy, restoring trust, searching for
value. Your chance to connect with the "Oracle of Omaha." Squawk Box begins right now.
BECKY QUICK: Good morning, everybody, and welcome to SQUAWK BOX right here on
CNBC. I'm Becky Quick along with Joe Kernen. Carl's off today, but Joe, we have a very special
guest with us this morning. We are talking about Warren Buffett. He's here with us, and he is
here with us for the next three hours. We are very excited to be spending this time. We are
here at the Nebraska Furniture Mart. And, Warren, it's great to have you here. Thank you
very much for joining us this morning.
1/10
Warren Buffett: U.S. Economy Has Fallen Off a Cliff 6:00 AM ET Mon, 9 March 2009
WARREN BUFFETT: I enjoy everything about it except the hour.
BECKY: "Except the hour," and we do appreciate your getting up extra early. We should point
out it's 5 AM here in Omaha, so you are quite the trooper for coming out.
BUFFETT: Thanks.
BECKY: I know we've got the next three hours to spend with you, and, in most instances, I
might think, three hours is an incredibly long time, but I have to tell you, given everything
with the state of the economy right now, three hours may not be enough time. So, again, we
appreciate your time with us today.
BUFFETT: Thanks. Mm-hmm.
BECKY: Warren, why don't we start off talking right away about the economy? Because that's
what people are wondering right now. What's happening with the economy? We hear all the
time from people who are very concerned and, frankly, quite frightened about what's
happening right now.
BUFFETT: Yeah. Well, when we talked in September.
JOE KERNEN: Warren, hold on.
BUFFETT: Yeah?
JOE: I'm sorry to break in. Merck and Schering-Plough are merging, Warren.
BECKY: Whoa.
BUFFETT: Hm.
2/10
BECKY: All right.
JOE: I'm sorry.
BECKY: Merck and Schering-Plough merging. We thought we already had enough to talk
about with you this morning, Warren, but why don't we start off with some news?
JOE: I would never presume to jump in like that on the Oracle; but, I'm sorry, board of
directors unanimously approving a definitive merger under which the companies will
combine under the name Merck in a stock and cash transaction. Schering-Plough
shareholders will receive .5767 shares of Merck and $10.50 in cash for each share of
Schering-Plough. Each Merck share will obviously be a--become a share of the combined
company. Richard Clark, the chairman, president and CEO of Merck will lead the combined
company. This is--this is a real blockbuster and right at 6 AM on a Monday. And I think you'd
have to say, Warren, as far as animal spirits, this could be--you know, this may not--this may
not solve all of our problems, but it certainly is an endorsement of American business and--in
that M&A is alive and well.
BUFFETT: Yeah. Animals spirits are always there. The only question is who has the funds to
kind of carry out the ideas that the animal spirits come up with? But, particularly in pharma,
they have good balance sheets, generally, and they can make deals.
JOE: I...
BECKY: Are you surprised to see a deal of this size right now, though?
BUFFETT: Well, I'm surprised at any deal this size even now, sure. That's true. It's very hard to
make deals for companies in most industries.
JOE: Guys...
BECKY: Joe?
JOE: Yeah. Schering-Plough closed at $17.63, and, at current values, this is $23.61 for
Schering-Plough for a total of $41.1 billion for this deal. I guess you'd also have to say that the
whole Vioxx controversy. We can lay that to rest now for the them to be feeling comfortable
enough to acquire Schering-Plough for $41 billion, but...
BUFFETT: Yep.
JOE: ...this is a pleasant, pleasant ride. And, Warren, you own--you're all over the place with--
you own foreign drug companies, you own stakes in--stakes in foreign drug companies and
in some domestic companies as well. It's always been one of your favorites.
BUFFETT: But we don't own any Schering, that's why you see these tears coming down my
face.
BECKY: What about Merck? Do you own any Merck either?
BUFFETT: No, not any Merck.

3/10
BECKY: Not in your private account either?
BUFFETT: No.
CNBC.com
Warren Buffett
BECKY: OK. What is...
JOE: What's your biggest holding? You do have some--I know you--what are your foreign drug
company that you have stakes in, Warren?
BUFFETT: Sanofi and the biggest one is Sanofi-Aventis , and we have J&J domestically.
JOE: Right. OK. All right, Beck.
BECKY: OK. So, Warren, we're going to talk more about this merger and what this means. I
mean, do you expect to see other deals that would come as a result of this?
BUFFETT: Well, every deal does tend to brew another deal, I mean.
BECKY: Hm.
BUFFETT: Particularly with people in the industry. If, you know, if Coca-Cola buys something,
Pepsi thinks about something in the same arena.
BECKY: Hm.
BUFFETT: I've been in enough board meetings to hear that. There's a--there's a lot of--every
CEO has, you know, has a little bit of that àll the other kids are doing it,' you know.
BECKY: Right. We'll talk a lot more about this, but let's get back to the state of the economy...
BUFFETT: Sure.
4/10
BECKY: ...in general as well. What do you see right now? You spooked a lot of people last
week when you talked about how the economy was in tatters and would be there for quite
some time.
: Yeah. The economy, ever since we talked in September, we talked about it being an
economic Pearl Harbor and how--what was happening in the financial world would move
over to the real world very quickly. It's fallen off a cliff, and not only has the economy slowed
down a lot, people have really changed their behavior like nothing I've ever seen. Luxury
goods and that sort of thing have just sort of stopped, and that's why Wal-Mart is doing well
and you know, and I won't name the ones that are doing poorly. But there's been a reset in
people's minds, and we see that in something like (Berkshire subsidiary) Geico where year
after year after year we say you can save some money insuring with Geico, and year after
year there's been a certain number of people who have said, `You know, I've got this pal,
Rotary Joe, and I've been insuring with him and for 100 bucks, why should I shift?' Every week
we're just seeing it build and build. More and more people are calling. Our price differentials
haven't widened, our advertising isn't that much different, but the American public really has
changed their buying habits. On the reverse side, our jewelry stores just get killed in a period
like this. And high end gets hurt the most, next down gets hurt the second most, and the
lowest people get hurt the least.
BECKY: What's happening? What--you knew--you told us a while ago, you told us this was an
economic Pearl Harbor about six months ago, but did this happen more quickly or more
severely than even you expected?
BUFFETT: It certainly happened clofse to the worst case. I mean, you never know what's
going to happen, but I would not have--I would not have thought there could've been a much
worse case than what has happened. Although, I will say this, the Fed did some things in
September when it happened...
BECKY: Mm-hmm.
BUFFETT: ...that were vital in keeping the place going. I mean, when the--if they hadn't have
insured money market accounts and, in effect, commercial paper, you know, you and I would
be meeting at McDonald's this morning.
BECKY: Instead.
BUFFETT: Yeah. Right.
BECKY: So why do you think consumers have gotten as frightened as they have?
BUFFETT: Well...
BECKY: The fear doesn't like too strong of a word.
BUFFETT: No. They're scared, and fear is very contagious.
BECKY: Hm.
5/10
BUFFETT: And I've never seen the consumer or the Americans just generally more fearful
than this. And they're also confused. And you can get fearful very quickly, but you don't get
confident, you know, in five minutes. You can get fearful in five minutes, but you won't get
confident for some time. And government is going to play an enormous factor in how fast it
comes back. And if you're confused and fearful, you don't get over being fearful till you
aren't confused. I mean, the message has to be very, very clear as to what government will be
doing. And I think we've had--and it's the nature of the political process, somewhat, but we've
had muddled messages, and the American public does not know what--they feel that they
don't know what's going on and their reaction, then, is to absolutely pull back.
BECKY: So there've been a lot of fingers of blame that have pointed in a lot of different
directions. But you're saying the message from Washington has been confused or...
BUFFETT: Well, I think it's the nature of things.
BECKY: Right.
BUFFETT: I mean, I think people watch 535 members of Congress each give their view of
what every player is doing and all of that sort of thing, and I think that, you know, you had a
change of administrations and you're dealing with things that people don't understand. I
mean, when you first brought up the term SIV or something like that or when you talk about
credit default swaps or you talk about--it's--when the public hears that, they just, they think
something's wrong and they don't understand it.
BECKY: And still, this is the worst case scenario from what you had imagined. What went
wrong? Why did we wind up in that worst case scenario?
BUFFETT: Well, we went wrong originally because we had a belief that--and everybody had
the belief. I had it, the government had it, mortgage lenders had it, borrowers had it, media
had it, everybody thought house prices could go nothing but up and--or at least they couldn't
go down a lot. And once you had that belief--and it was nationwide--it didn't make any
difference what you lent on the house because if the guy couldn't pay, you'd sell it at a profit
anyway or you wouldn't lose much money. So you had 11 trillion of residential mortgage
debt built on this theory that who was borrowing it, what their income was really wasn't that
important because the house itself had to go up in price. And when that tumbled and houses
which might've been worth 22 trillion at the peak are worth maybe four or five trillion less, A,
it's a huge amount out of people's net worth. It's the biggest asset most people have. And
then secondarily, all of these instruments that were built on it, which people didn't
understand too well, started toppling to various degrees in value and then that exposed
other things. I mean, it was like, you know, some kid saying, `The emperor has no clothes.'
And then after he says that, he said, Òn top of that, the emperor doesn't have any
underwear either.' You know. I mean, various layers have been--and they interact. When
people get scared, they change their buying habits. When they quit buying as much, people
lay off. We are in a very, very vicious negative feedback cycle. It will end, but, believe me, I
mean, I don't want this to be the last line of the movie, the last line of my annual report that
America's best days lie ahead. And we can talk about why that is, but--and that is the final
answer.
6/10
But how fast we get there depends enormously on not only the wisdom of government
policy, but the degree in which it's communicated properly. People--when you have a Pearl
Harbor, you have to know the nation is going to be united on December 8th to take care of
whatever comes up. And we have little squabbles, otherwise we put them aside and
everybody goes to work on defense plans, we start building planes, we start building ships,
even though they're not going to be ready tomorrow, people join. The Army doesn't blame
the Navy because there were too many ships in Pearl Harbor, and it shouldn't have
happened. The Army doesn't say, `Well, it was your fault, so we're not going to send our
troops.' None of that sort of thing. We got united, and we really need that now.
BECKY: Do you think that there has not been that to that extent? There's not enough of the
united front right now?
BUFFETT: Yeah, I think--and I can understand why because, economically--Pearl Harbor itself,
you knew exactly what had happened and we wiped out a good bit of the fleet and all of that
and people knew in a general way what had to be done and they knew who they had to
respond to a leader who was unquestionably the commander and chief. And so you didn't
have--start congressional hearings on December 8th, you know, that were going to last for
weeks while all of the commanders and the various people were in various ways pilloried or
taunted or whatever about `Why in the world did they let this happen?' and the Republicans
didn't say, `You Democrats have been in since 1933, and it's all your fault.' None of that. I
mean, people said, `We've got to get something done.' And they--and they trusted their
leadership to do it and put aside mostly the partisan stuff and the--and we went--and
everybody, incidentally, felt we'd win the war, even though we, you know, for the first six
months, we were--Corregidor fell and we had the death march of Bataan, all kinds of--there
was terrible, terrible news, but we knew that if we stuck together and we followed
leadership, we would--we would prevail.
BECKY: We're going to have a lot more time to talk about solutions this morning, but in terms
of the economy, where do you think it goes from here? What's the best case scenario and
the worst case scenario?
BUFFETT: Well, it can't turn around on a dime. That doesn't happen. I mean, it--a lot of stuff
works this way. When 600,000 more people become unemployed last month, that not only
affects those 600,000, it affects them terribly, but it affects everybody else. They get scared
about losing their jobs. The percentage of people are scared about losing their jobs in this
country is way higher than the actual numbers that are going to lose them, but they're
behaving in an entirely different manner. I mean, they are not--they are not going to go into
a--even at Costco or Walmart, their jewelry departments are way down, but other
departments are up. People, they started saving money. For years we told them to save
money, and now they're saving money, and that's a double whammy. So we've had this great
economic machine like nothing the world's ever seen, and it started sputtering a little, and
we said, `Well, maybe we should kind of slow it down and see what happens.' And it sputters
7/10
more. And what we may not realize is that there's interaction, that the slower you run the
machine at, the more it sputters. So it's a job to get it working again, and it won't happen fast,
Becky, I mean--and unemployment will lag at the end, the actual turn around.
BECKY: We're already talking about unemployment at 8 percent. Where do you see it
headed?
BUFFETT: I can't name a number because, frankly, it depends to an extent on the wisdom of
government policies. It's going to go higher. It's probably going to go a fair amount higher,
but on the other hand, five years from now I can guarantee you that the machine will be
running fine, but I'd like to get there a lot faster than five years. And we can.
BECKY: And, Joe, did you want to jump in here, too?
JOE: I want to--you just said something interesting, Mr. Buffett, and that is it depends on the
wisdom of our policies. And I understand, you know, in a time of war everyone rallying
behind the commander and chief. But, obviously, there are differences on what the wisdom
of our polices should be from here on out. Now, the "loyal opposition" is going to be about,
as it's called, will be behind the president, but certainly you could see that if we--if people
think there's some wrong-minded policies that are being rushed into law at this point
because of the crisis, I mean, that's--it's the loyal opposition's duty to say what they feel,
right?
BUFFETT: Right. And, Joe, it--if you're in a war, and we really are on an economic war, there's
a obligation to the majority to behave in ways that don't go around inflaming the minority. If
on December 8th when--maybe it's December 7th, when Roosevelt convened Congress to
have a vote on the war, he didn't say, Ì'm throwing in about 10 of my pet projects,' and you
didn't have congress people putting on 8,000 earmarks onto the declaration of war in 1941.
BUFFETT: So I think--I think that the minority has--they really do have an obligation to
support things that in general are clearly designed to fight the war in a big way. And I don't
think you should--I don't think before D-Day on June--on June 5th you ought to have--or June
1st, maybe, have a congressional hearing and have 535 people give their opinion about
where the troops should land and, you know, what the weather should be and how many
troops should land and all of that. And I think after June 6th you don't--you don't have
another hearing that says, `Gee, if we'd just landed a mile north.'
JOE: Yeah, but you might--might not have fixed...
8/10
BUFFETT: But I say...
JOE: You might not--you might not have fixed global warming the day after--the day after D-
Day, Warren.
BUFFETT: Absolutely. And I think that the--I think that the Republicans have an obligation to
regard this as an economic war and to realize you need one leader and, in general, support
of that. But I think that the--I think that the Democrats--and I voted for Obama and I strongly
support him, and I think he's the right guy--but I think they should not use this--when they're
calling for unity on a question this important, they should not use it to roll the Republicans
all.
JOE: Hm.
BUFFETT: I think--I think a lot of things should be--job one is to win the war, job--the
economic war, job two is to win the economic war, and job three. And you can't expect
people to unite behind you if you're trying to jam a whole bunch of things down their throat.
So I would--I would absolutely say for the--for the interim, till we get this one solved, I would
not be pushing a lot of things that are--you know are contentious, and I also--I also would do
no finger-pointing whatsoever. I would--you know, I would not say, you know, `George'--`the
previous administration got us into this.' Forget it. I mean, you know, the Navy made a
mistake at Pearl Harbor and had too many ships there. But the idea that we'd spend our
time after that, you know, pointing fingers at the Navy, we needed the Navy. So I would--I
would--I would--no finger-pointing, no vengeance, none of that stuff. Just look forward.
ASK WARREN TRANSCRIPT CONTINUES WITH PART TWO
Class A:
Class B:
9/10
For more Buffett Watch updates .
10/10
- Part 2
March 9, 2009
This is part two of the preliminary transcript and video clips of Warren Buffett's appearances
on CNBC's Squawk Box on Monday, March 9, 2009.
Previous transcripts:Part One
E-mail for Warren Buffett 6:18 AM ET Mon, 9 March 2009
1/5
BECKY: We are back with Warren Buffett. We've got a lot of viewer e-mails that have been
coming in. We've got thousands of them, so we're going to get to those right away. But,
Warren, you had one thing you wanted to clarify?
BUFFETT: Well, I was going to mention to Joe that you've heard this comment recently from
some Democrats recently that a `crisis is a terrible thing to waste.'
BECKY: Yeah.
BUFFETT: Now, just rephrase that and since it's, in my view, it's an economic war, and--I don't
think anybody on December 7th would have said a `war is a terrible thing to waste, and
therefore we're going to try and ram through a whole bunch of things and--but we expect to-
-expect the other party to unite behind us on the--on the big problem.' It's just a mistake, I
think, when you've got one overriding objective, to try and muddle it up with a bunch of
other things.
BECKY: OK, so that's your point...
KERNEN: Great.
BECKY: ...is that on both sides people should be coming back in and...
KERNEN: Yeah.
BUFFETT: Absolutely. We need them. We need them.
BECKY: OK. Let's get to some of these viewer e-mails, because we do have a lot of them that
have come in. Steve from Minneapolis writes in, and his question is, "Do you believe that the
following statement is still true today? `So far as I can discover, paper money systems have
always wound up with collapse and economic chaos.'" By the way, that was a statement from
Congressman Howard Buffett, your father.
BUFFETT: Sounds like my dad, yeah.
2/5
BECKY: Yeah.
BUFFETT: I heard that every night at the dinner table for a long time. Well, I would say this.
It's going to be a very, very rare paper money that appreciates over time. I mean, the--and we
are doing things now that are potentially very inflationary. I mean, that--it's the nature of
fighting the war we're in. And, incidentally, when we fought World War II it was very, very
inflationary, and we--and we took all kinds of activities to try and minimize that impact. But,
you know, if you--if you look at this bill that--and I didn't know Steve was going to ask you
that. But, you know, on the back it says, "In God we trust," right?
BECKY: Yeah, right.
BUFFETT: And on the front it says, Ìn the Federal Reserve, we trust,' basically.
BECKY: Right.
BUFFETT: It's a Federal Reserve note. Now, if you go down to the Federal Reserve bank and
you say, Ì'd like to exchange this for something else,' the nice lady there will say, `Would
you--would you like,' what is it? Two 10s or four 5s?
BECKY: Right.
BUFFETT: I mean, you--it just--it is paper money, and if you keep issuing more of it--and M2
has been growing very rapidly if you go to the Federal Reserve site and see that, and should
be in a period like this. But that is inflationary. The more of these you have out compared to
the economic activity, the less it's worth.
BECKY: All right. Well, let me jump ahead based on that...
BUFFETT: I'd better get this off the table before you grab it. Yeah.
BECKY: Yeah, before I take it from you. Let's jump ahead. Guys in the control room, this may
throw you off a little bit. We're going to go to number 33. This is from Joey in Brooklyn, New
York, and I want to ask this question because it plays into what you just talked about. He
3/5
asks, "Do you think that the inflation of the late 1970s was worse than the inflation we are
about to have? Why or why not?"
BUFFETT: Well, it--again, it depends on the wisdom of federal policies. But--because what we
do with the money supply and different--and how we behave later in relation to what we're
creating now will determine the answer to that. It certainly has the potential of being worse.
We are going--we are fighting a big war, and there--we're using--we're going to use money to
fight it. And the whole world is leveraging down. The only party that can leverage up is the
US government. They have the ability to take on anything because they can print money as
long as people will do business in US dollars. So it could be--it could be worse. And, you know,
in economics there's no free lunch.
BECKY: Right.
BUFFETT: There still are lunches it's better to have even if you're going to pay later. I mean,
it's better than no lunch if--even if you have to pay for the lunch. And we are having--we're--
we are going to attempt to have a lunch; to some extent we're going to pay for it later.
BECKY: All right. We have more questions from people wondering what all that inflation
means. We'll get to that in the next hour, and what that means for the markets and some of
their investments. But, meantime, Carmen from New York writes in, he says, "Do you believe
that the ratings agencies could have single-handedly prevented the current financial turmoil
by refusing to rate the exotic products coming out of Wall Street that they apparently did not
understand?"
BUFFETT: It would have helped a lot. And--but the rating agencies were populated by people
who believed exactly what you and I did, you know, all of the people that come to the
Nebraska Furniture Mart and the people that are in Washington and the--you know, when
Congress was urging Fannie and Freddie to expand their activities. Everybody believed
house prices were not--would never take a real tumble. And that got built into what the
rating agencies did as well. But there's no question that if somebody there had taken a stand
for some reason, they would have been--they would have been derided for that stand. But if
they'd taken a stand, said, `We're going to assume that house prices can fall 25 or 30
percent, and therefore we have to rate this stuff all differently,' it would have--it would have
been--they probably would have gone to the other rating agencies and got it anyway. People
wouldn't have accepted it. But they did make a--they made a mistake in rating them the way
that they did.
BECKY: All right. T. Tidwell from Louisville, Kentucky, writes in and wants to know, "What one
thing have you resigned yourself to be a `shocking probable truth' in 2009 that investors
would certainly be surprised about now?"
BUFFETT: Hm.
4/5
BECKY: That's a tough one.
BUFFETT: I wish I knew. I mean, it was--I'd be acting on it now. No, I think most people's
expectations about 2009--well, I would say this. I would say to the extent that--I think we
already have the policies in place, but to the extent they get communicated better it will help.
But the banking system, if properly handled, is not going to--that's not going to be the
problem for the economy. Fear that the banking system may be a problem enters into how
the economy behaves. But we have a system that can take care of the banks, and most of the
banks are in pretty good shape.
BECKY: So would the one shocking truth potentially be things wind up being better than
people expect?
BUFFETT: Well, that...
BECKY: Or you wouldn't go that far?
BUFFETT: No, I won't go that far.
ASK WARREN TRANSCRIPT CONTINUES WITH PART THREE
Class A:
Class B:
5/5
- Part 3
March 9, 2009
This is part three of the preliminary transcript and video clips of Warren Buffett's
Previous transcripts:Part One, Part Two
BECKY: The front page of the (Wall Street) Journal
Warren Buffett: Fear Affects Everyone 6:32 AM ET Mon, 9 March 2009
BUFFETT: Yeah, I've seen that. It's not like it got a worse of the situation in September, but
when people lose confidence, yeah, I don't care whether they're big shots, you know, running
big companies, or big banks, or whether they're the guy on the street, they behave exactly
the same way. I mean, this goes back to the human--you know, the "Naked Ape" type of
thing, reaction. The fear or flight stuff comes in and where they flee is something this
government guaranteed. And you've seen it, yeah, and you'll continue to see it. They have--
people have to be confident. The system doesn't work without confidence and they are--
they're not confident now and they are confused and the government has to speak with real
clarity. Government's done a lot of good things in terms of the banking system...
BECKY: Mm-hmm.
1/9
BUFFETT: ...but frankly when you have changes of administration, when you have--when you
have 535 members of Congress criticizing maybe various policies and maybe taunting even
people, the reaction of the public to that is, you know, Ì'm going to go to something this
government guaranteed,' and the world won't work if that continues to be the case.
BECKY: Well, let's get back to that, though. How could the administration possibly rein in 535
members of Congress, not to mention it's a 24-hour news cycle and we put just about
anybody and everybody on to spout their views?
BUFFETT: Well, I think that the first--you have to recognize that it is an economic Pearl
Harbor. If you don't believe that, then why should members of Congress not, you know, why
shouldn't they throw in 8,000 earmarks or do what they've been doing? Congress, and I think
I said this six months ago, I mean, they're a patriotic group of people. I don't think maybe
they understood fully, some of them, the gravity of the situation and what is required. What
is required is a commander in chief that is looked at as being the commander in chief in a
time of war and the support that generally he needs and other things that have to be given
up. When we get all this solved and go back to yelling at each other, you know, and putting in
pet projects and doing all that sort of thing. But for the time being we should put that, as
much as we can, aside and then frankly, nobody but the president now will be believable to
the American people.
2/9
I mean, you can't--people have heard--they don't--names like Paulson, Geithner, Bernanke,
those--that's just a muddle to them. The only authoritative voice in the United States who
says, `This is what we're going to do, this is what we're not going to do,' and very specifically,
is the president of the United States.
BECKY: Joe:
JOE: Yeah, I--really quickly on that--on that Merck dividend I want to--I said they're going to
try. They're committed to maintaining it. I'm hearing from work--or from Merck. They're
committed to maintaining that dividend. So it's about 6.7 percent.
I want to get back quickly, Mr. Buffett, we were talking about this article in the Journal. Look
at your Berkshire AAA bonds, look at General Electric, which is still AAA. Look at those bonds.
Look at Goldman Sachs bonds. The thrust of this piece is that when you're not sure what the
government's going to do eventually to fix things, even senior debt holders aren't sure that
they'd end up with the assets of the firm. How do you expect this to work itself out? What
does the government need to do? You--Mr.--or President Obama needs to speak for the
government obviously, but we're not really sure how--you know, what steps are going to be
taken in the financial system.
BUFFETT: Well, if I've got just a minute, I'll back up a little. In the 19th century you had at least
six huge financial panics. They were--and they caused in many cases by people losing
confidence in banks. So if somebody lost confidence in a bank in Omaha they got in a line
and as soon as somebody got in the line at the First National there was a line at the Second
National and so on. We learn time after time--and they called them panics. The reason they
called them panics was because if you went to the bank and couldn't get your money out
you panicked. And that same situation will continue to exist forever. People, if they've got
their money someplace and they get worried about it they want to get it out fast and if they
see other people wanting to get it out, they want to do the same thing. So along came the
20th century. We put in the Fed and we thought that would calm down people. But when the
'30s came along, we recognized that without faith in the banking system this economy was
never going to get well. So we formed the FDIC. Now, this is an interesting group of pages
3/9
here. This has 3600 banks that the FDIC has assisted. Three thousand six hundred. There's
only about 7,000 banks in the United States, another 1400 savings institutions. No depositor
of an insured deposit has ever lost a penny since 1934. It was a huge factor in making this
economy work to be one of the greatest--well, the greatest economy that's ever existed.
Thirty-six hundred times the FDIC has come in. In the last year, they have moved, I think,
something close to 8 percent of the deposits in the United States. It hasn't cost the taxpayer
one dime, no depositor has lost one dime. Now, what the American people have to be sure
of is that when organizations as big as the ones that have been in the news, like a Citigroup...
BECKY: Right.
BUFFETT: ...where people know the FDIC can't come over and move it to the Second National
Bank of Omaha or something overnight, they have to be sure that all deposits, really, all debt
liabilities of Citigroup are going be met. There's--and the truth is we're going to do that.
People say they're too big to fail, but you really need somebody that's totally authoritative
who can say, `Just forget about the problems of ever worrying about having your money or
actually a debt instrument of a bank.' It's too important that--to be left ambiguous on that
subject. And all of the--the FDIC's raising more money now. But the FDIC will take care of
banks. They talk about nationalizing banks, they nationalized for a nanosecond 20 banks this
year, roughly 20 last year. They moved it overnight, it's all working fine. Nobody loses a dime.
And people have to feel that way about the entire banking system. And if they don't, we will
have--you'll have more articles like the one you talked about in the Journal.
BECKY: Yesterday, Senator Richard Shelby and Senator John McCain both made comments
on the morning news programs and said things to the extent that they should let some of
these banks fail. "Close them down, get them out of the business. If they're dead they ought
to be buried," Shelby was commenting.
BUFFETT: Here's 3600. Not all of these got--but overwhelmingly these did die and get buried.
And we have had--we had one over the weekend in Georgia, I believe. We had about 20 this
year, we had 20 last year. The peak year we had over 500 and the country went on fine
because they didn't panic about banks. So there's no question that a bank that's going to go
4/9
broke should be allowed to go broke. You know, the thing you have to make sure of is that
the people that gave their money to that bank--the shareholders can get wiped out. The
shareholders have gotten wiped out of thousands of banks over the years. That--but...
BECKY: Shelby also said those Citi has also been--has always been a problem child. Can you
do that with a bank the size of Citigroup ?
BUFFETT: Well, Citi is--Citi's probably going to keep shrinking, but in the end nobody should
be worried about having their money in Citi. On the other hand, there's really no moral
hazard to that. When your stock goes from $50 to $1, I don't think you create way more
moral hazard than when it goes from $50 to zero. I mean, you know, we have a system that
penalizes enormously the shareholders of banks where the management screw up. But we
have to make it very clear, you know, no Fed-speak type stuff or anything. We have to make it
very clear that people are not going to lose money. That doesn't say they're not going to fail.
We're going--we're going to have--we'll have more pages of this stuff as we go along. It's the
nature. But we provided for it.
BECKY: Welcome back to this special edition of SQUAWK BOX. We are live at the Nebraska
Furniture Mart with Warren Buffett and we've been getting thousands and thousands of e-
mails from our viewers. Warren, we'd like to start with one that echoes a theme we heard
again and again. This comes from Terry in San Antonio, Texas, who asks, "Will everything be
all right?"
Ask Warren: Banks Should Get Back to Banking 6:48 AM ET Mon, 9 March 2009
BUFFETT: Everything will be all right. We do have the greatest economic machine that man
has ever created, I believe. We started with four million people back in 1790 and look where
we've come and it wasn't because we were smarter than other people, it wasn't because our
land was more fertile or we had more minerals or our climate was more favorable. We had a
system that worked. It unleashed the human potential. Didn't work every year, we had six
5/9
panics in the 19th century, in the 20th century we had the Great Depression and World
Wars, all kinds of things. But we have a system, largely free market, rule of law, equality of
opportunity, all of those things that cause the potential of humans to get unleashed, and
we're far from done. So I think your kids will live better than mine, your grandchildren will
live better than your kids. There's no question about that. But the machine gets gummed up
from time to time and it's--if you take the bulk of those centuries, probably 15 years were
bad years, but we go forward.
BECKY: Which brings us to another question. A lot of people have been trying to figure out is
this different from what we saw back in the Great Depression. I'm going to jump ahead to
one from Dan from Shohola, Pennsylvania, who asks a question very pointedly about this.
"How is the market better off today than when we were in the 1929 to 1933 period?"
BUFFETT: Well, we certainly--it's different. I mean, there's a lot of similarities between all
recessions or in this case depressions or call them panics like they did back in the 19th
century, and there's always differences. One key similarity is that there was a paralysis of
confidence in banks and--which is silly now because of the FDIC. I mean, we--but if you went
back, my dad, on August 15th, 1931, worked at a bank and he went there and it was closed
and he had no job and he had his savings--small savings in there. I mean, if you don't trust
where you have your money, the world stops. And they recognized that, but it was a little
belatedly. They didn't put in deposit insurance until it was started in 1934 in the Glass-
Steagall Act. We have a system that's far better organized to deal with that.
The trouble is that a lot of people don't believe in the system. It needs to be clarified. Actually,
the head of the New York Fed, Mr. (William) Dudley, on Friday, you can go to their Web site
and read it, he describes it perfectly. But nobody's going to listen to Mr. Dudley very much
throughout the United States. The people coming to Furniture Mart today don't know who
he is and they're not going to go to his Web site. You really need--you need the president of
the United States enunciating it.
BECKY: Enunciating it. It seems like Barack Obama talks pretty frequently about what he
sees, what he'd like to have happen. What's wrong with the message that he's put out to this
point?
BUFFETT: Well, I don't think there's anything wrong with the message at all and I think he's--
he speak wonderfully, but I think--and I think there should be--there's a necessity that
Congress takes the attitude that this is a war and that he is the commander and chief and
that--and that a lot of the normal things that go on in Washington are really inappropriate in
this setting. But I think--I think basically that it has to be as clear as possibly can be made, and
I think only the president can do it, that no one, and, you know, the FDIC limit is $250,000,
but I think--I think absolutely that no one should be worried about having their money in a
bank in the United States or actually owning their debt.
BECKY: OK. You talk about how this was an economic Pearl Harbor. Dan from Spring Lake
Heights in New Jersey writes in, he wants to know was our financial system just hours, days
away from collapse?
6/9
BUFFETT: In September, I think it was. If there was a week where 200 billion, as I remember,
in the first three days or so poured out of the money market funds, which had about 3 trillion
in them, the money was just gushing out when Reserve broke the buck. That meant that the
commercial paper market was disappearing. You know, the blood was being drained from
the American economic body and we had some very prompt, wise, action. Chairman
Bernanke, the Fed, I mean, they stepped in and said the commercial paper market is going to
work. That made a huge difference. People came in and said the money market funds, you
know, you weren't going to lose money in money market funds. They said the same thing
about money market funds we should now say about the whole banking system. And
actually, we've said it in various ways. If you read that Federal Reserve New York chairman
speech, it says it, but it doesn't say it the way the American people will get it. The president of
the United States has to say it very clearly that you just don't have to worry about that.
BECKY: Joe?
JOE: Yeah, thanks. Returning for one second, Warren, you know, when you speak, the wires
just start hitting. I'm going to read two of them to you. One is "Buffett says that the parties
need to unite behind Obama." Then the next one is, "Dems should--Buffett says that the
Democrats should keep pet projects out of the economic rescue efforts." It just seems like it's
nice to say we all need to get along, but we're right back where we started. Who's more at
fault here? Is it 50/50?
BUFFETT: Well...
JOE: Did the Dems put too much in or is it just more partisanship from the Republicans?
BUFFETT: Well, I have--I have taken a vow not to point fingers at anybody. I have taken a few-
-I have taken a few swipes in the past. I will just say that patriotic Democrats, patriotic
Americans will realize that this is a war and if they didn't realize it immediately, I can
understand it. It's not--it's not as dramatic as a physical war where the news comes over and
you know you're under attack. But it is--it is virtually as serious and I think that once the
degree of that seriousness becomes apparent to both parties, I think they will--I think
overwhelmingly they will behave well. But that does mean that the Democrats have to
behave just as well as the--you can't ask the Republicans to cooperate in the spirit of this and
then at the same time try and steamroll them on a whole bunch of other things. You ought
to agree that this is the job to get done and when we get done, that doesn't mean you don't
do anything else in government. But in terms of the contentious things, just let them wait
until we get the economy working. Because if we don't get the economy working...
JOE: Yeah.
BUFFETT: ...just forget about the other things.
JOE: There's the rub. There's the rub, though, Warren. You know, there's where we need
details on what is absolutely essential and what isn't. And that's where the contentiousness
comes in, unfortunately. We--can you just go down...
BUFFETT: Well...
7/9
JOE: Can you go down the list of things and say we need this, we don't need this, we need
this, we don't need this, we need this and then we can send it to...
BUFFETT: Right.
JOE: We can send it to Washington so I can say Warren Buffett says this?
BUFFETT: We need clarity on the financial system, on exact--on what will be done. And bank--
incidentally, regulators hate that. When I ran Salomon (in the 1990s), I told everybody, don't
ever say we're too big to fail. I mean, it's like waving about 12 red flags in front of a bull to say
that to a regulator. He doesn't want to be told he doesn't have any choice. So it's a--it's a
phrase they hate to use. I can understand that. But the answer is, the American banking
system, overall, is too big to fail and you have to apply that. And incidentally, we have quasi-
banks that have very large liabilities and where they would impact the system dramatically if
left alone. It may be unfortunate we have them, it may be that we need corrective legislation
so it doesn't come up again, but we have to deal with the situation we have now. And frankly,
that was recognized in AIG. I mean, everybody hates, you know, what they had to do in that,
but the problems they would've had if they just said, `Well, this isn't a bank and the hell with
them, they made their mistakes,' that's crazy. We have to deal with all large quasi-financial
institutions as well as all of the banks and people can't be worried about them and we can't
have a contagion like we almost had in September. I mean, the world did come almost to a
stop in September.
BECKY: One person wrote in and this e-mail is one we had prepared for later, but somebody
asked about Glass-Steagall. Should it be brought back?
BUFFETT: Well, I think there--you need legislation. I mean, whether it's exactly Glass-Steagall.
Glass-Steagall brought in the FDIC. It was a wonderful thing. We need banks to get back to
banking. I mean, we have learned that handing these people, you know, exotic instruments
and all kinds of ability to do things off balance sheet and this desire to improve your earnings
a little every quarter, you can't run a financial institution and show nice, smooth growth and
earnings. One way or another, you're going to cheat. And there was a lot of that that went on
and we need--we need banks to get back to banking. But we need to get through this
situation. We should not be giving lectures to people. And incidentally, the one thing that's
very important now is banks--and this may come as a surprise to you. Banking has never
been better in one sense. I mean, the banks are getting their money very cheaply, deposits
are coming in, spreads have never been wider, all the new business they're doing is terrific.
They will earn their way out of it, in most cases, overwhelming number of cases. And they
should not be spooked by the idea they're going to have to issue tons of stock at some very
low price under the circumstances where the very actions of--that that may be coming keep
pushing down the price. So that's spooking, you know, people in the banking business. But
the banks can earn their way out of this. I mean, the average cost of funds for Wells Fargo,
for example, the fourth quarter last year, was 1.44 percent. I can earn money with money at
1.44 percent. I mean, it's cheap. It's abundant and the spreads are terrific.
BECKY: But Warren, you say that as a way of reassuring shareholders, people who should be
looking at the financial system, people who are worried about it. But how do you say that
8/9
without stoking populist anger, that the banks are making money hand over fist? Why should
we keep helping them out?
BUFFETT: Yeah. Well, the ship builders made money during World War II. I mean, you know,
I--nobody went around saying Henry Kaiser's making too much money because he's turning
out all these ships, or Curtiss-Wright's making too much money because they're turning out
plane. They did put in excess profits taxes and all that thing. That was fine. But the focus was
on what do we need to do? And if that's kept in mind and Joe asked me about these
comments, I am--I am going to take no shots at anybody. It just isn't important. The
important thing is we do the right thing going forward.
BECKY: All right. Let's hold that thought, and Joe, we'll be back in just a moment with more.
ASK WARREN TRANSCRIPTS AND VIDEOS CONTINUE WITH PART FOUR
Class A:
Class B:
9/9
- Part 4
March 9, 2009
This is part four of the preliminary transcript and video clips of Warren Buffett's appearances on
CNBC's Squawk Box on Monday, March 9, 2009.
Previous transcripts: Part One, Part Two, Part Three
BECKY: We do have thousands of e-mails that have been coming in, Warren, so we're going
to ask you some of these e-mails just right off the bat. There have been a lot of concerns
about what's happened with the stock market. We've also heard about some major scams,
and that has shaken people's confidence. One investor wrote in--his name is Bruce, he's from
Cincinnati, Ohio--and he says, "How do we know that you are not another Bernie Madoff?"
Viewers Ask Buffett: Crooks & Investment Advice 7:02 AM ET Mon, 9 March 2009
BUFFETT: Well, that's a good question. I would say this. I--it is a problem with investment
advisers. I mean, it--there are going to be a certain number of crooks in the world. And
sometimes they're smooth-talking, and the best ones are the ones that kind of don't look like
crooks. So I would say I'm saving up for my big score, if I'm doing it, because I've been doing
this for a long, long time. I haven't run off yet, you know, to South America. But it is a
problem who you put your trust in.
BECKY: Yeah. And on a serious note, there are people who look at the stock market and
wonder how do they know the whole thing's not a Ponzi scheme?
BUFFETT: Well, the whole thing's not a Ponzi scheme.
BECKY: What--how do they know who to trust?

1/11
BUFFETT: We're talking about, you know--we're talking about American businesses that
employ, just the ones on the stock market, tens and tens and tens of millions of people.
They're real companies. Nebraska Furniture Mart will do 400 million in business this year.
Owning--you've got a choice in this world. You can own some real estate directly, you can
own a farm directly, you can own apartment house, you can have your money in a savings
account, you can have your money in government bonds, you can have it in American
business. American business has been a very, very good place overall. People have made
mistakes on individual stocks. But in the 20th century, the Dow went from 66 to 11,000, you
know, 400. And we had all kinds of problems during that period. Business works overall. It
doesn't work every day or every week or every month, and sometimes it really gets gummed
up. And then you need government invention sometimes to get the machines back working
smoothly. But the machine works.
JOE: Warren...
BUFFETT: And equities, over time, are the way to do it.
JOE: Warren, do you think that--you made a couple of points just now, and one, I think, is
that you can't catch--regulations can't necessarily catch every one of these guys. And I just
thought it was funny, because you said that the guy would be very smooth-talking and he
won't look like a crook. And I was looking at you, thinking, `Wow, you're very smooth and
you don't look like'--and I was thinking, `Wow, he said'--but no, you see what I'm saying? You
can't use--you can't use regulations...
BUFFETT: No.
JOE: ...necessarily. And do you worry that in this environment that, once again, we're going to
overshoot?
BUFFETT: Well, I think that's--we're going to overshoot in some ways. But we need--we need
to shoot anyway.
JOE: Yeah.
BUFFETT: And, you know, and my partner Charlie Munger says we will get conned some day
by a guy that goes to work on the bus and carries a little lunch sack. We'll never--the guy with
the suede shoes and all that will not take us. But crooks do come in different--in different
forms and, you know, you're protected with CPIC if you've got your securities with a
brokerage firm, up to an extent. I think that for the duration you ought to be--I think you
ought to be protected for all deposits at all banks. I mean, I just think that's a move to take,
just like we needed to do it for $2500 in 1934. We can't have people worried basically about
banks. And we--and--but, you know, overwhelmingly people are honest, but you should
guard against the one that's--that isn't. I mean, you should--you should--you should have
your own possession of your own security. I mean, that's one good way to do it.
JOE: Mm-hmm.
2/11
BUFFETT: I still--I still have a safety deposit box with my securities in it. There's only one or
two securities, just a few securities in it. But we'll always have crooks.
BECKY: You know, Warren, right now the Dow is sitting just above 6600, 6626. Five months
ago you wrote an opinion piece for The New York Times where you told people--or least the
headline said, "Buy American. I Am."
BUFFETT: Yeah.
BECKY: People now look at that and think, OK, market's come down significantly since then.
Do you wish that you'd held off on writing that op-ed?
(Graphic on screen)
The New York Times: The financial world is a mess, both in the United States and abroad. Its
problems, moreover, have been leaking into the general economy, and the leaks are now turning into
a gusher. In the near term, unemployment will rise, business activity will falter and headlines will
continue to be scary. So... I've been buying American stocks.
BUFFETT: Well, I wish I could pick the bottom, but I didn't write the headline.
BECKY: Yeah.
BUFFETT: I'm responsible for everything but the headlines. And within the body of that
article I said things are--I started off saying things are a mess and they're going to get worse
in the economy and all of that. But I did say--and I said I can't predict the stock market. I
don't know the bottom. I mean, if I knew the bottom, you know, I wouldn't have to look up
10-Ks and do all that stuff, I'd just buy the S&P 500 at the bottoms . So I have no idea what
the stock market's going to do tomorrow or next week or next month or next year. And I
actually said it twice in the article, and the editor said, `You're not supposed to say things
twice.' I said, Ì want to say this twice.' But what I did say, and I'd say it absolutely today, is
that you will--over a 10-year period you will do considerably better owning a group of
equities and don't--not just one stock, but a group of equities than you will either owning
short-term Treasuries and rolling them, in which case you get virtually nothing, or owning a
10-year Treasury that gets a few percent.
(Graphic on screen)
The New York Times: A simple rule dictates my buying: Be fearful when others are greedy, and be
greedy when others are fearful. Let me be clear on one point: I can't predict the short-term
movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower
a month--or a year--from now. What is likely, however, is that the market will move higher, perhaps
substantially so, well before either sentiment or the economy turns up. So if you wait for the robins,
spring will be over. -- Warren Buffett Op-Ed Oct. 17, 2008
BUFFETT: I mean, equities will do better than that. I don't know whether they'll do better
than that over a year. And I didn't know then, and that's been proven. But that's not my
game. And, overall, equities are going to do far better than US government bonds at these
3/11
prices. The US government bond is guaranteed to lose purchasing power. I mean, it--there's
no way we follow the policies we're following without money becoming worth less over time.
That's been true of governments every place, you know, forever. So I stand by the article; I
just wish I'd run it a few months later.
BECKY: Well, they're--a very smart person asked me, they said you knew that the economy
was going to get worse.
BUFFETT: Sure.
BECKY: So why did you make the major investments you made in a General Electric, in a
Goldman Sachs at the time that you did instead of waiting? Why buy then?
BUFFETT: Well, both--in those cases, I got 10 percent preferred that I don't think I could get
now. So, I mean, actually--I don't think Goldman would issue me a 10 percent preferred now.
Although they--if they did and there were warrants attached, the warrants would be cheaper.
But that was a time when both of those companies wanted money immediately and we could
structure a preferred that was attractive. But the fact that business is going to get worse
does not mean you should wait to buy stocks. I mean, if...
JOE: But, Warren, I...
BUFFETT: It doesn't--it doesn't--go ahead, Joe. I'm sorry.
JOE: I was thinking about, you know, you did and that was the attractiveness, I guess, the 10
percent yield. But I think a lot of your long-term--your long-term holdings--for example,
American Express you can now pick up almost for single digits.
BUFFETT: Right.
JOE: Wells Fargo, one of your favorites, is single digits, 8.60. Goldman Sachs, you liked it, you
said it's going to be around; GE, you like it, you say it's going to be--I can't remember, maybe
100 years or it's going to be a great company. That's at $7. It would seem to me that maybe
by the end of this quarter we're going to hear that you were buying a lot of these things.
BUFFETT: Well, I'm glad you know, Joe, because...
JOE: But if you liked them--if you like these things and you've held American Express for $50
or whatever for a long time, that would give us a lot of confidence if you saw it at 10 and
decided I'm going to--I'm going to buy a lot more here and just lower my average price.
BUFFETT: Yeah. American Express is a special case, Joe, because it's a--it has become a bank
holding company. And if you own over--we own over 10 percent of American Express. If you
own over 10 percent of it--if you own over 9.9 something percent of a bank holding
company, you need the permission, I believe, of the Federal Reserve to buy another share. So
they--they're becoming a bank holding company I believe. As I understand the law, it
precludes us buying another share of that because we are at that percentage already.
JOE: But...
4/11
BUFFETT: But I would--American Express, for example, you know, it's very clear that
American Express' losses in 2009 on their receivables will be, you know, considerably higher
than last year. And their earnings will suffer to some degree accordingly. But that doesn't
mean that American Express isn't a hell of a buy at $10. American Express is going to be
around forever. They've got the cream of cardholders. Unfortunately, they have some
cardholders that aren't the cream, too.
JOE: But you're not--you're not a 10 percent in GE, I don't think, yet.
BUFFETT: No. No, I--and--no. And we--but we bought the preferred of GE. You know, we--
there are things I like to buy, but I also want to be absolutely sure--I mean, my job is to be
sure that Berkshire does not need the help of anybody in getting through the toughest of
times. So we keep a lot of cash. But I don't like to keep more cash than's necessary, but I
regard necessary as always way more than other people regard as necessary because I
always think in terms of worst cases.
BECKY: In the past, you've said $10 billion you like to keep around. Is that still there?
BUFFETT: Well, $10 billion is an absolute minimum. So if I'm going--I'm going to say $10
billion is a minimum, I always have to have quite a bit more than that to be sure that I don't
go below that. Because we could have a hurricane tomorrow or something of the sort in our
insurance business or, you know, who knows? So I leave--I leave a cushion above that.
BECKY: Is the cushion bigger than it used to be, or is...
BUFFETT: No.
BECKY: ...this the same as always?
BUFFETT: The cushion--what is--what has changed is that we will do less cat insure--
catastrophe insurance business this year than we would have done in a year when we had
way--even way more cash. I look in--you know, I look, I say to myself if there's a 9.0
earthquake in Los Angeles or San Francisco or the Pacific Northwest or something, I want to
be prepared to have a lot of money afterwards. And, you know, it--I have to err on the side of
caution. But that doesn't mean I go into a cave either. And when we got the chance to buy,
we did the Wrigley deal, we did GE, we did--we did--we did Goldman, a lot of money went out
then. In fact, when we did the GE deal I actually simultaneously made a deal with a base price
on selling a couple billion dollars' worth of J&J. I didn't want to sell J&J. I mean, I like J&J. But I
just, you know, I didn't--I didn't want to--I didn't want to commit that much money without
having a couple billion coming in at the same time. And that's my job, though, is to be--I don't
want--we can't depend on anybody.
BECKY: There's a question that came in from Kevin in Tifton, Georgia. He says, "I keep
hearing people like Doug Kass say that your style of buy and hold investing is dead. Do you
think that's true?"
BUFFETT: Well, it depends what you buy and hold. It's--if you buy the right businesses at the
right price--you know, we own 70 businesses. We own See's Candy.
5/11
BECKY: Right.
BUFFETT: So we have bought and hold See's Candy since 1972. It's a very good business.
Now, does that mean that if it's stock was quoted every day I couldn't have danced in and out
with 100 shares or 500 shares? But if you're in the right business--Coca-Cola, 1886 or
something like that, you know. Per capita's probably gone up of their products virtually every
year. So, if we own a good business--if some another guy can buy one stock today, sell
another--sell it tomorrow, buy another stock--if you--he may be able to make more money
doing that than I can do with buy and hold. All I know is if I buy the right businesses, I'll do
very well.
Ask Buffett: Investment Regrets 7:13 AM ET Mon, 9 March 2009
BECKY: OK, let's get to some more questions right now. Joe's right, we have had thousands
that have been coming in, Warren, so we'd like to get you back to one from Adam in
Springfield, Virginia. He writes and he wants to know, "If you could take back one investment
you've made in the last year, what would it be and why?"
: Well, there'd be quite a few in terms--well, I mentioned in the annual reportthat, you know, I
bought ConocoPhillips when oil was selling well above 100, and I was wrong about oil and
therefore that made me wrong about that stock big time. I bought a couple of--smaller, but I
bought a couple stocks in the--stocks in a couple banks in Ireland. I did not do my homework
sufficiently on that, and I was just dead wrong. So I make plenty of mistakes. The interesting
thing is--and I'll make plenty more mistakes, too. That's part of the game. You just got to
make sure that the right things overcome the wrong ones.
BECKY: We're trying to focus this hour on your investment strategy.
6/11
Doug Kass
And Doug Kass of Seabreeze Partners has written in in the past, he's been critical of your
investment style recently, and he had a question for you as well. He says, "Mr. Buffett, your
long-held investment philosophy has been importantly based on one, successfully identifying
companies whose business franchises were protected by moats, and two, holding--a holding
period of forever. So do you think the moats of your financial holdings have been flooded,
and in light of a business world that's now changing more rapidly than the past, do you plan
to alter your holding period of forever to a lesser period of time?"
BUFFETT: Yeah, well, I--in terms of our businesses, the ones we buy, like See's Candy or
those, we really do plan to hold them forever. I mean, our stocks we plan to hold a very long
time. Washington Post stock we've held since 1973, I believe, and Coke's been long time. But
overall I like to buy them with the idea of owning forever. And the quotes don't make much
difference. I own three things outside stocks. I own--I own--I own a quarter of the baseball
team here in town. I don't get a quote on it every day. I've had it 15 years. I own a farm near
here, bought it 20 years--I don't get a quote on it every day. I look to the performance of the
asset.
Now, if I looked at the performance of Wells Fargo, we'll say, I see that, you know, in a couple
years--and management doesn't have anything to do with what I'm saying here. I--these are
not from them. But I would expect $40 billion a year pre-provision income. And under
normal conditions I would expect maybe 10 to $12 billion a year of losses. I mean, you lose
money in banking, you just try not to lose too much. So, you know, you get to very interesting
figures. I mean, the spreads are enormous on what they're doing. They're getting the money
at bargain rates. So I--if there were no quote on Wells Fargo and I just owned it like I own my
farm, I would look at the way the business is developing, and I would say, you know, it's--
`These are a couple of tough years for losses in the banking business, but you expect a
couple tough years every now and then.' And that the earning power is never--is going to be
greater by far than it's ever been when you get all through with it. The only worry in that is
7/11
the government will force you to sell shares at some terribly low price. And I hope they're
wise enough not to do that. That would--that's what--that's what's spooking the banking
market to a big extent.
BECKY: You worry about that, too.
BUFFETT: Yeah, sure.
BECKY: That's why you'd like some clarity out of Washington on what they're planning to do...
BUFFETT: I--that's one of the reasons. I particular--I think clarity is a good thing for the whole
country on a--on a lot of--any issue to do with people's money, clarity's important. People
want to be clear about their money. But I would say that if--if we own US Bancorp, which we
do, or Wells Fargo, their prospects three years out have been better than ever.
BECKY: Mm-hmm.
BUFFETT: And if they weren't quoted, you know, people would feel fine owning the business
and I think they would say that, you know, they're going to lose more--way more money than
usual that--maybe this year and the next year, but they've built the provisions and all that
sort of thing. They're going to come out fine unless they have to issue a ton more shares.
BECKY: But the back and forth in the administration right now has been which plan to follow.
There's been a lot of confusion. There was this idea that the TARP money was going to be
used to take the toxic assets off of their hands.
BUFFETT: Sure.
BECKY: There was the idea that maybe they should just be buying shares outright. There's
the idea of nationalization out there. What's the right answer?
BUFFETT: The right answer--the right answer for me is the president to clarify things as only
he can, because you have heard so many different things. And, you know, they're doing their
best to communicate, but the person that the people of the United States gave their trust to
8/11
not that long ago was Barack Obama. He speaks very well. He has--he is the commander in
chief on this, and it has to be clarified. Like I say, the head of the New York Fed gave a talk,
explained a lot of it, but nobody's going to pay that much attention to what he says. You
need the president of the United States to make it very clear. Because if people aren't clear,
they're going to be confused. And if they're going to be confused, they are going to be scared
stiff. And that has to end.
BECKY: Does that--you make it sound almost like it doesn't matter what he says, as long as
he picks one of those.
BUFFETT: Well, it matters...
BECKY: That's--you've got to--you've got to be leaning one direction.
BUFFETT: It matters somewhat. But we know that the Battle of Midway was the, you know,
the important battle, you know, or that, you know, in terms of when the Philippines fell, all
the--I mean, you've got to--you've got to assume that you need a commander in chief. They'll
be intelligent, they've got the interests of the country at heart. And then you can't expect to
agree with them on every point. And if you don't, you still get behind the effort.
BECKY: Joe.
JOE: Hey, Warren, you're talking about some of the investments maybe you regret. This
wasn't made last year, but your what was it, a sale of puts, a long-term bet on the S&P that I
think you have to mark at least a little bit to market once in a while, and it's up in the billions
now. Do you regret that? Is that going to work out in the future? How long do you have now,
where does the S&P have to end up?
BUFFETT: Well, the S&P has to end up 15 or 20 years from the time we did the deals at the
price at which we did them. Although, if the S&P actually ends up, you know, 15 percent
below or so, we still break even and we've had the use of the money for 15 or 20 years. So
we're holding about $4.8 billion. The first one comes due in the latter part of 2019. And
obviously I would rather put those positions on now than having put them on a few years
ago. But if you--if you gave me the choice of not having the positions at all, and not being
able to put them on or sticking with the positions we have, I would stick with the positions
we have. I think--I think we will--the odds are good we will make money. And the thing I know
for sure is we'll hold almost $5 billion for between 15 and 20 years in conjunction with it.
JOE: Hm.
BUFFETT: So I like...
JOE: Those are derivatives. You don't like derivatives, but you used them in that case, right?
BUFFETT: I--well, we've used derivatives for many, many years. I don't think derivatives are
evil, per se, I think they are dangerous. I've always said they're dangerous. I said they were
financial weapons of mass destruction. But uranium is dangerous, and I just went through a
nuclear electric plant about two weeks ago. Cars are dangerous.
9/11
JOE: Yeah.
BUFFETT: But I mean, every American wants to have one. You know, the--a lot of things can
be dangerous, but generally we regulate how they're used. I mean, there was a--there was
some guard up there with a machine gun on me, you know, when I was at the nuclear plant
the other day. So we use lots of things daily that are dangerous, but we generally pay some
attention to how they're used.
JOE: Hm.
BUFFETT: We tell the cars how fast they can go.
JOE: Yeah, yeah. Good. Well...
BECKY: David--go ahead, Joe.
JOE: Well, hopefully, Beck, we'll have a chance to talk about, you know, AIG and what we need
to do...
BECKY: Mm-hmm.
JOE: ...because to be able to, you know, to write that many insurance contracts, Warren, and
not put up any collateral, that's got to be something that regulators at this point, right? I
mean, that is--that's why we're in this mess right now.
BUFFETT: I wrote--I wrote Congressman Dingell in 1981 about it, when they--you know, these
are--they are dangerous.
BECKY: About AIG, or about derivatives in general?
BUFFETT: Oh, they were--it was--well, it was actually about trading the S&P 500 and what--
the dangers you get into when you allow people to leverage up like crazy, which derivatives
allow you to do. We put margin requirements in in the United States after 1929. We said that
'29 was a terrible crash, it was partly brought on by the stock market and that was partly
brought on by the fact that people were buying stocks with very little down payments. So the
United States Congress said to the Fed, `You regulate this thing.' That's been 75 years ago.
They still regulate it, but derivatives enable people entirely to get around margin regulations.
They made them meaningless. And so we leveraged up the system and we are now feeling
the pain and the spread out of the pain to people who had nothing to do with it from the
deleveraging the system. And it's massive. So we do need--we need something new.
BECKY: Part of the reason AIG was able to do that was because its high credit rating at that
point.
BUFFETT: Absolutely. Yeah.
BECKY: You're not suggesting necessarily they change the rules on how much people have to
put down based on their credit ratings, right? Because you benefit from your AAA credit
rating.
10/11
BUFFETT: Yeah. Although we benefit less these days than before. But AIG had this AIG
financial products. I--when I bought Gen Re, they had something called GenRe financial
products.
BECKY: Right.
BUFFETT: They had 23,800 contracts. Hell, I, you know, I couldn't understand 22,000 of them,
probably. I spent--and I know I couldn't get my mind around it. You--that--and people
recorded profit every--you know, that section made a profit every year, supposedly, and the
guy that ran it made a lot of money and everything. You know, it probably would have
busted the company if they--if they'd kept it around. Anything where you use the credit of a
great institution to go out and start doing all kinds of things that--enormous leverage gets
you in trouble. Citigroup could do SIVs because everybody trusted Citigroup, you know, and
nobody knew that, you know, all this stuff was off balance sheet. It was a way of getting
around capital requirements. You have to watch people that had all big sums of money.
TRANSCRIPT AND VIDEOS CONTINUE WITH PART FIVE
Class A:
Class B:
11/11
- Part 5
March 9, 2009
This is part five of the preliminary transcript and video clips of Warren Buffett's appearances
Previous transcripts: Part One, Part Two, Part Three,
JOE: Let's get back to Becky Quick who's live in Omaha this morning with the legendary
investor Warren Buffett. Becky ...
Warren Buffett: Bailing Out the Big Three 7:25 AM ET Mon, 9 March 2009
BECKY: You know, Joe, one of the other big stories of the morning is what's been happening
with the Big Three in Detroit. A lot of questions there and President Obama's car czars are
meeting there today to try and get a handle on whether or not they're going to be loaning
more money to GM and to Chrysler. There were some comments made over the weekend,
Warren. Senator McCain, again, on the Sunday morning talk shows, talked a little bit about
GM and his opinion was to let GM go bankrupt. This is a huge question. What would you do if
you were in President Obama's shoes right now with GM?
BUFFETT: Can I use a lifeline? Phone a friend...
BECKY: Phone a friend at this point?
BUFFETT: ...that's a tough one. I mean, that is very tough.
BECKY: Yeah.
1/11
BUFFETT: But you have this situation where we have 250 million cars and light trucks on the
road. Year after year we produce maybe 15 million or something like that because there's a
lifetime to the 250 million, sort of a normal cycle. But we got down last month, you know, a
little over nine million. So you are in a terrible, terrible, terrible period for the--for the
carmakers every place. GM has a lot of--or the auto industry, the domestic auto industry has
a lot of legacy costs. They did some dumb things in the past because they had a business
model in mind that doesn't exist anymore. The union bargained for those things, you know,
they feel entitled to them, they made a deal, you know, and they've got hundreds of
thousands of retirees dependent on it and all sorts of things. So you need a new business
model somewhat. You also need a recovery. It isn't just the business model. And I would say
net I would come down on--if they modify the business model to adapt to the reality of a 13
million car a year and we'll do better than that in the future in some years. If they adapt, have
a business model that works with that I would get them through this period. I would not
expect to have a business model that works at nine million units because it isn't going to
work at nine million. On the other hand, we are going to sell 13, 14, 15 million units a year
sometime in the future.
BECKY: But you think you can get that business model, one that works without going into
bankruptcy?
BUFFETT: That's the tough thing, and that's the challenge of the administration, the
management and the unions working together. And I understand--the present
managements didn't get us into this situation. There's no use getting mad at, you know, at
the people now running the Big Three. There's no use getting mad at the union. They
bargained for what they've got and, you know, these people, they counted on it. It won't work
going forward and there have to be modifications made and people at all levels have to have
a stake in that if--they should--they should try to accomplish it outside of bankruptcy. I mean,
the American people do not need, you know, America's sort of hometown industry going into
bankruptcy now. But I--they need a--they need a new business plan. It shouldn't have to be a
business plan that works at nine or 10 or even 11 million units. It has to be a business plan
that works at 13 million. We'll get back to that. It's the same thing as in housing, Becky.
BECKY: Mm-hmm.
BUFFETT: You know, we have a million and a half too many houses around now, you know.
You own--you have household formation over here creating demand for houses, and you
have people building houses. For a while we were building a million and three-quarters or
something like that and household formation was a million three, and two-thirds of the
people that form houses want to live in their own house so maybe you had demand for a
million, and guess what happened? We had too many houses. Now we've got the housing
construction down to 500,000 new permits or something like that. We're using up the million
and a half units. But we have to work our way out of it and we have to work our way out of
the car situation.
2/11
BECKY: Well, you bring--you bring up the housing situation. And Bob from Seattle,
Washington, wrote in. He's got a question where he says, "Do you believe that the American
economy of the last 10 to 15 years has been a house of cards? Won't the cries for more
lending and more borrowing just rebuild that same house?"
BUFFETT: It was--it was not a house of cards, but it was an economy that was benefiting from
leverage--leveraging up.
BECKY: Right.
BUFFETT: And when you leverage up, it's very pleasant. I mean, you can build more houses
than people are buying, you know, and--or the natural demand is for and you'll get people
speculating in them and you'll get people lying in order to get into houses they can't afford.
And so the percentage of people besides the American households that lived in their own
house went a little bit and it went up a little bit because those people really didn't have the
income to do it. Now it has to go down. But it was not a house of cards at all. I mean, we have
an economy that really works. We're in a store where a woman walked out of Russia, you
know, 90 years ago almost and she came to the United States, saved $500--it took her 16
years to do it--this is the largest home furnishing store in the United States, it does $400
million. Nobody walked out of the United States to go to Russia and ended up with a $400
million store with $500. This woman couldn't read or write, but she worked within the
American system. She gave better--people better deals, she worked harder than anybody
else, she was smart and she built an enormous success that employs thousands of people.
America works, and America was--has been working the last 10 years, but we just did some
very dumb things in terms of leveraging up.
BECKY: You're talking about Rose Blumkin who built the Nebraska Furniture Market.
BUFFETT: Yeah, market--yeah. Nobody walks out of the United States to go to Russia.
BECKY: Let's talk a a little bit about the housing industry itself. There are people who say this
entire crisis started because of the housing industry.
BUFFETT: I agree.
BECKY: David Paterson, the governor of New York, wrote an opinion piece in The Wall Street
Journal over the weekend, and he said, "The mortgage plan that the president has proposed
is the right one." Do you agree with that?
BUFFETT: Well, I don't even know all the details, but I would say that the administration
ought to be willing to listen to very prompt suggestions on ways to make it a little bit better.
But--and I don't know that he even needs it, but I'm just saying they ought to be open-
minded about that. But they ought to have a plan. And the idea that it benefits some people
that maybe shouldn't be benefited, you know, to me that's, again, like after Pearl Harbor
saying it was the Navy's fault so the Army and the Marines and all aren't going to join in and
help, and the American people shouldn't do it because the Navy should stew in their own
juice or something like that. We need to get the housing situation straightened out. Now the
biggest--the big problem is we've got about a million and a half too many houses sitting
3/11
around now. And the vacancy rate is up a couple percentage points on that and 2 percent of
80 million homes is a million six or something like that. We have to work through that. And
we will work through it, but we'll work through it--we can't--we can't create a lot more
households. We can't tell the 14 year olds to all get married and start having children so we
can have more households. So we got to--got to sort of work with the normal demographics
here. But we will have a million three hundred thousand households for them. Nine hundred
thousand of those will want to move into their own houses netting everything out and we'll
have some housing destroyed. So we can sop up the demand. We're lucky we have
population growth. When Japan gets--got in trouble, they didn't have population growth. We
have population growth. There's going to be demand, there's going to be more houses in the
United State five years from now than now. There'll be more in 10 years than five years. So
we can sop it up. But we can't do it in a week or a month or a year. It just doesn't happen.
We--and I think that having a mortgage plan somehow gets payments for those who can
make them down to a reasonable percentage of their income, which is where it should have
been in the first place, is not crazy. I mean, we have an interest in solving that particular
problem. And we shouldn't finger-point.
BECKY: Does that mean we're not the next Japan? We're not talking about 20 years of a
stagnant market?
BUFFETT: Not 20 years at all, no.
BECKY: Are we talking about 10 years? What...
BUFFETT: Well, it just--it depends. Frankly, the best thing that could happen--I'm in the brick
business, I'm been in the carpet business, I'm in all these businesses which are getting hurt
by the lack of new construction. But the lack of new construction is an important ingredient
to this. If you've got too many houses and you've got a certain growth and demand--if
demand is going to grow by X per year, and if you...(unintelligible)...the next houses you're
going to--you're going to improve the situation and we--you got a choice. You can either--you
can either blow up a billion and a half houses or you can create few houses than natural
demand sops up. And I would say that, you know, you can work your way out of it in a couple
of years probably, two to three years.
BECKY: Two to three years, which is very different than what...
BUFFETT: Don't--well, it just depends how many are constructed. We really...
BECKY: Yeah.
BUFFETT: ...the new housing starts have really gone down. I think the last figure's around
500,000 or something like that annual. And that makes a big difference. That didn't happen
for a while. I mean, it was--they had to slow down the machine.
BECKY: Joe, I'm sorry, did you want to a question in here?
4/11
JOE: Yeah, I want to go back to something Warren said quickly, Becky, and that was that--and
we don't hear this enough--that in the past 10 years, Warren, you said that things basically
did work in the economy. That the free-market economy--we seem to look back now and
think that over the past 10 years that every step we made was a misstep that led to this crisis
where we are right now. And I know you weren't a big fan of the Bush tax cuts, but you can't
throw out the baby with the bathwater, can you, in terms of--maybe there needed to be
more regulation, but overall why are we in this mess right now?
BUFFETT: Well, we're--the biggest reason we're in the mess, you know, is we did leverage up
the country and we essentially made a huge bet on housing, but that led to all kinds of other
instruments. And--but net over the 10 years a lot of things were--happened that were right
and over the next 10 years a lot of things will happen that are right. The--this machine is
gummed up right now and it's gummed up by a lack of confidence and that makes people
scared and, I mean, it feeds back and forth and it's a vicious cycle.
JOE: Did...
BUFFETT: That will be broken--that will be broken. I'll guarantee it'll be broken, Joe. I think it'll
just be broken...
JOE: Doesn't...
BUFFETT: ...sooner if...
JOE: Doesn't the freedom inherent in a free market give you enough rope to hang yourself a
lot of times? And maybe we can look at it that way? I mean, how do we make sure that greed-
-greed has been involved with every bubble that we've had over the past 500 years and
we've had a lot of them. And if...
BUFFETT: Yes.
JOE: ...you're in a free market, you're going to have enough rope to hang yourself, no?
BUFFETT: Yeah. Well, you--yeah, you want me to have enough free rope to hang myself, you
just don't want me to have enough rope to hang the whole country. And...
JOE: Right.
BUFFETT: ...we'll always--I mean, failure is part of the American system. But you don't want to
create conditions where failure becomes--of such large institutions becomes contagious,
produces fear, all of those sort of things. But that'll happen occasionally. There's no question
about it. Free markets overshoot, they do some things that are wrong. They work better than
anything else, but they have to--in certain arenas they have to be looked at because there are
areas where people--where what you--what you do that's stupid can be contagious
throughout an economy.
JOE: Hm.
5/11
BUFFETT: You don't--you don't--you don't want--I have no desire to leave the market system
at all. But you do need government and you particularly need government at a time like this.
"STOCKS WILL BE WORTH MORE OVER TIME"

BECKY: That's right, we do. We also have questions from lots and lots of viewers so we'd like
to get back to some of those e-mails. They've been coming in all morning long.
Ask Warren: Deals & Investment Opportunities 7:46 AM ET Mon, 9 March 2009
And Warren, I'd like to start with one right now from Tom in Vero Beach, Florida. His question
is, "Given that Berkshire Hathaway primarily buys stocks, if you felt the Dow was going to
slide to 2,000 would you state your thoughts publicly, or would you feel an obligation to keep
those thoughts private?"
BUFFETT: I would never have a feeling that the Dow is going to go to 2,000 or 12,000 or 4300
or 20,200. I don't--I know over time it will go higher. I mean, American business will be worth
more over time. The dollar will be worth less. They'll be retained earnings that build up
values. There will be more people in this country and they'll have more buying power. Stocks
will be worth more over time. I have no idea where they'll go in between. For all I know, that
farm I bought, you know, 20 years ago, it may have bobbed around 8, you know, $1800 an
acre, 1200, I don't even know anything about that. I just know that the farm, over time, will
produce 120 bushels of corn, you know, per acre, etc. So I've never tried to predict stock
prices.
BECKY: You know, it was interesting. I made a comment earlier that the Dow was at 6626
and when I did, you made a comment about it, too.
BUFFETT: Yeah. When it was at 6626, at the start of 19--the last century, 1900, it was at 66.
So it's gone up 100 for one. And we had the Great Depression, two world wars, the flu
epidemic, the nuclear bomb, the cold war. I mean, you name it. At least 15 years in that 100
6/11
years looked terrible and five or six of them looked, you know, almost disastrous. And in the
end, this system works extremely well. And--but it doesn't work well every day or every week
or every month and there are times when government needs to be a very big factor to make
sure it starts getting back on the tracks. But it will work. I will guarantee you that the Dow will
be a lot higher. I'll have no idea about the numbers or anything else, 10 or 20 years from
now. I have no idea. You know, 2,000, 8,000, they're all numbers.
BECKY: A lot of viewers wrote in and had specific questions about your investments. David
wrote in and says, "You've committed financing for Dow Chemical's acquisition of Rohm and
Haas Company. What are your thought on the upcoming lawsuit and whether or not the deal
should continue to move forward?"
BUFFETT: Yeah. Well, I can't comment on that. The lawsuit will either happen or it won't
happen. I guess they're going to decide pretty soon on that. I mean, any deal that was made
last summer, you know, like they say in golf, every putt makes someone happy. But all of the
sellers are happy and all of the buyers are unhappy. And you know, the deal would not be at
the same terms now and incidentally, we committed to buy $3 billion worth of preferred.
That is not a good commitment. I mean, it's good in the sense that we're going to do it, as I've
told the CEO of Dow, I said, you know, our 3 billion will be there if Ben Bernanke runs off to
South America with Paris Hilton. I mean, they'll have the money. I mean, but the--was that--is
that a smart deal today? No. No. But conditions have changed and conditions change for
Dow and Rohm and Haas in a huge way. And what looked like a deal that was--they liked at
Dow and that it could be financed reasonably well and the Kuwaitis were going to enter into
a partnership with Dow, all kinds of things. But the world has changed like nobody ever
believed it would and so obviously, it's not only, you know, not only not a good deal now, I
mean, it may not be a doable deal now. Our commitment, which was--looked smart at the
time, looks dumb at the present time. But that's the way the world is.
BECKY: OK. One of the changes in the world has been what we've seen in the treasury
markets and K. Hart writes in and says, "If the much talked about bubble in the Treasury
market burst, would money market accounts, which are exposed to Treasuries, be adversely
affected?"
BUFFETT: No. The--you'll always--you'll get your dollar back, it just won't buy as much and if
we get enough dollars out there and you can go to a Web site and look at what is happening
with M1 and M2, they don't talk about it anymore, but the--we are going--we are doing things
that are going to put a lot of inflationary pressure on at some later date and we're going to
do more things like that and that's the right thing to do, actually. I wish we didn't have to do
it, but it's the right thing to do and--but in economics, you can never just do one thing. I
mean, if you do something, it has consequences and that's why they always say you never
get a free lunch. But it's better to have the lunch we're having now even if we pay later than
have no lunch at all.
BECKY: All right. Brian from Santa Rosa, California, writes in. He says, "I'm a 33-year-old
lawyer who has never taken a business class in my life. Nevertheless, am I crazy to think that
many, if not most, blue chip stocks at current valuations represent the opportunity of a
7/11
lifetime?"
BUFFETT: Well, I don't know if I would say the opportunity of a lifetime, but I would say that
most people who buy companies, believe they're well capitalized. You don't want to buy
somebody that's leveraged to the hilt in this situation because they may not to get to play out
their hand.
BECKY: Mm-hmm.
BUFFETT: But if you buy a cross section of good equities, generally well capitalized
companies, you'll make money over 10 or 20 years. I haven't the faintest idea where you'll be
in 10 months, but it really doesn't make any difference. When I bought that farm, I have not
gotten a quote on it yet. I bought a quarter of interest in the Omaha Royals, I've never got a
quote on it. I look at the attendance figures, I look at see if the billboards have ads on them
and all that sort of thing, but I took to the performance of the Omaha Royals or the farm to
determine whether I made a decent investment. That's the way people really ought to look
at stocks. They have a hard time doing it because they get these quotes thrown at them
every day. Forget the quotes. Look at the business.
BECKY: Although right now a lot of people are facing--focusing on those quotes.
BUFFETT: Sure.
BECKY: Richard from New York City writes in. He says, "In the annual report for 2008, you say
that `Now our book value far understates Berkshire's intrinsic value.'" He wants to know,
"would you care to be more specific how `far understates' should be interpreted?" For
example, do you mean 30 percent?
BUFFETT: Do we have a number? Yeah. Well, the answer is I won't give you a number, but I
will tell you, for example, that here's See's Candy that we bought in 1972 and we paid $25
million for it.
BECKY: Mm-hmm.
8/11
BUFFETT: It's worth a lot more than 25 million. But in terms of knowing numbers on different
businesses, you know, Geico's worth far more than we paid for it, but others aren't worth far
more. On balance, book value does understate intrinsic value, but I--who knows how much?
BECKY: OK. Harold from Williamsville, New York, writes in. He says, "You said recently that
Treasury Bonds and cash equivalents are going to have very bad times in the not too distant
future. Does that imply that you like gold and silver and the equities underlying them?"
BUFFETT: No. It applies I like good businesses.
BECKY: Mm-hmm.
BUFFETT: You know, if the dollar becomes way--worth way less, we will sell See's Candy for
more money. I mean, it won't be more real dollars, but we--if somebody's willing to give up
15 minutes of their labor or half to buy a pound of this or to buy six cans of this, they'll do
the same thing and it won't make any difference whether shark's teeth are being used for
money, basically. So the best--well, the best assets you can have during inflation is your
abilities. I mean, because if you're the best doctor in town or the best lawyer in town or the
best broadcaster in town or whatever it may be, you will always command a certain
percentage of the resources of society. So your own talents are the most important thing.
But if you don't have any talent like I do, you try to buy into other people's talents. And you
know, this is the best candy. This is the best soft drink, as far as I'm concerned, and it will be
that way 10 years from now. And whatever the value currency is, we'll get our share in that--
in terms of that value at that time.
BECKY: You mentioned before when we were talking about the mortgage plan that it may
help some people that it shouldn't.
BUFFETT: Of course.
BECKY: But that's something we need to suck up and understand at this point. But it does
lead to other people who have questions about whether they're being penalized for doing
the right thing. In fact, Bob and Lani in Rapid City, South Dakota, write in. They say, "We are
conservative South Dakotans. We are now saving more, but the government wants us to
spend more. Are you `short' or `long' on our strategy to `pay all your personal bills
promptly and always live within your means'?"
BUFFETT: Well, I've always followed that myself, so I'm with them 100 percent on that. But in
terms of 100 percent, I mean, you don't want to get behind the eight ball. I mean, if you are,
you've got to work your way out, but it's always better. You know, Ben Franklin wrote that,
you know, hundreds of years ago, the--you know, earn a dollar, spend 99 cents, result
happiness, you know. Earn 99 cents, spend a dollar, result misery. And--but in terms of the
inequities, if I were a--had been a client of Bernie Madoff's and fortunately I never heard of
him, but let's say I was a client of Bernie Madoff's. I'm in the middle of Lake Michigan with
him. We're in a boat together. Bernie's at the other end. I've just lost all my net worth. I see
this hole spring up at his end of the boat. Am I supposed to cheer? No. I mean, in the end,
you know, I want to save Bernie, too. I mean, not because I really want to save him, but I--you
9/11
know, there is no way to divorce myself from what's happening on the other end of the boat.
And this thing is covering--going to cover the whole boat. There's no question about it. So the
people who have behaved well are going to find themselves taking care, to some extent, of
the people who didn't behave well.
BECKY: Right.
BUFFETT: And in Pearl Harbor, the Army, you know, undoubtedly was not as responsible for
those boats being in the harbor there all exposed to an attack and kind of sleeping through it
as the Navy. But does that mean the Army holds back? No. You've got to be in there.
JOE: Hey, hey, Warren, Becky's really, you know, she's nice and deferential to you and
everything. I just want to let you know that there are times she gets really mad because she's
been one of the people that have paid her mortgage and she always points out she's never
bought new bedroom furniture because she...
BECKY: Oh, stop already.
JOE: And you're in a furniture store! You and Warren are...
BUFFETT: We're not going to last--we've locked the doors, Joe.
JOE: You can...
BUFFETT: We've locked the doors, Joe. She is not getting out of here until we clean her out.
JOE: Becky, tell Warren you're mad that you've done all the right things and all these other
people are going to get bailed out.
BECKY: Oh. I'm not nearly as mad as is as many times you've complained for me. But yes.
BUFFETT: There's nothing wrong with being mad, Joe. It's just you can't--there's times when
you're made about something that you've got to overcome the emotion because...
JOE: Give her a deal on a new bedroom set and then we won't have to hear it anymore.
You're in a furniture store.
BUFFETT: We give deals to everybody, even including guys named Joe Kernen.
JOE: All right.
BUFFETT: We'll open an account for you.
JOE: All right. Thank you.
TRANSCRIPT AND VIDEOS CONTINUE WITH PART SIX
Class A:
Class B:
10/11
11/11
- Part 6
March 9, 2009
This is part six of the preliminary transcript and video clips of Warren Buffett's appearances
Previous transcripts: Part One, Part Two, Part Three, Part Four, Part Five
BECKY: Good morning, everybody and welcome back to SQUAWK BOX right here on CNBC.
I'm Becky Quick along with Joe Kernen. Carl is off today. This morning we are live in Omaha at
the Nebraska Furniture Mart with a very special guest. Of course, we're talking about Warren
Buffett. He has been answering our questions and your e-mails as well. We've received
thousands of e-mails and there is still time to get yours in right now, so viewers you can go
ahead and write in at AskWarren@CNBC.com.
Buffett: Finding the Right Solution 8:00 AM ET Mon, 9 March 2009
We also have this morning some major news, $41 billion merger between Merck and
Schering-Plough. Joe is going to have more on those details in just a few minutes, tell you
exactly what's happening with that. But meantime, let's get back to Mr. Buffett. This hour
we're going to be trying to look to solutions. What should President Obama and Congress be
doing right now, how does the president's budget play into the nation's economic recovery?
These are all some major questions and fortunately we have someone with a lot of brain
power here today to try and answer some of those. So let's get straight to it.
Mr. Buffett, again, I know we've talked about some solutions through the course of the
morning, but this is a time when Americans are frightened about what's happening out
there. There are a lot of different solutions being batted around and people just wonder
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what is the best way to go.
BUFFETT: Well, I think they--they're going to have to hear that from the president of the
United States. I think there's--six months ago when we talked about it it's an economic Pearl
Harbor. And I think that you need a commander in chief at that point. I think that people are
confused and scared and they won't quit being scared until--and it doesn't go away fast. It
comes on fast, but it doesn't go away fast. Until the confusion is cleared up. But the biggest
thing they need clarity on now, I think, is the bank just as they needed it in the early '30s
when we put in the FDIC, just as they needed it after the panics of the 19th century when we
put in the Federal Reserve. People have to trust banks. And incidentally they should trust
banks, but it should be made very, very, very clear that not just the $250,000, but--FDIC limit--
but that anybody that has their money in an American bank or anybody that has the debt of
American bank it's going to work out. That doesn't mean banks won't fail. The FDIC will keep
taking over banks as they--they've taken over 3600 banks, or savings institutions, since it was
set up. Nobody's lost a dime, never cost the government a dime.
BECKY: Mm-hmm.
BUFFETT: So we need clarity on that point. And they can't hear it from Treasury officials or
that sort of thing. People need to--at this point they're scared enough so they need to hear it
from the American president.
BECKY: I feel like I have heard that from the president, that we will stand behind the banking
system and it will be here. What can he say more specifically than that?
BUFFETT: I'm not sure he said it quite that way, and it--incidentally, when it's said, it shouldn't
be said, you know, about these guys are all a bunch of bums, but we're going to make sure
you--and basically, it's a message that has to come out very clearly. And you know, in the end
whether Citigroup ends up being worth $1 a share--it was worth $50 a share some time back-
-the shareholders, their money may be gone. You know, I mean, there is no moral hazard
when you go from 50 to $1, believe me, to being creative. So that--you don't need to worry
about that. And the government really doesn't need to put in more money, they just have to
say it's good and then if it fails, it fails and then they do what they've done with other failed
institutions, they place the deposits elsewhere. I mean, you had Wachovia, I think it was
maybe the fifth largest bank at the time in the country. The next morning it was Wells Fargo.
Nobody lost a dime in that. You had WAMU and the next morning it was JPMorgan. So we
have transferred 8 percent of the assets--deposits successfully, or thereabouts in the last
year. So it--but the message has to be--people should not--can't be worried about banks. And
they--and a lot of them are.
BECKY: We've gotten mixed messages on what's going to be done with TARP money. A lot of
mixed messages. Why do you think that's happened lately? Is it just that it's too difficult of a
problem to fix? Is it that there's too many cooks in the kitchen? What's going on?
BUFFETT: Yeah, well there's too many cooks in the kitchen. I mean, if this really is economic
Pearl Harbor, you know, Roosevelt on December 8th should not have called in--started
holding hearings for three weeks and had 535 members of Congress each giving their own
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views and in a certain number of cases posing for their local cameras or anything. Now,
incidentally, I don't think that Congress would do that if they realized that this was the
economic equivalent of Pearl Harbor. I mean, they're patriotic. But you can't have 535 people
planning war strategy and criticizing people and finger-pointing and all of that. If you do, you
destroy confidence. I mean, people--the American public partly is scared because they see all
these different actions going on and they don't--confuse the players and people are
criticizing every activity that comes along. I don't think that's very useful in a time of war.
BECKY: Congress might shoot back that this is American taxpayers' money and it's my job to
protect the interests of the people who voted me into office.
BUFFETT: Yeah, and it was American--you know, American taxpayers who were paying for
the landing at D-Day, too, but we did not hold congressional hearings for a couple of weeks
before that with everybody debating where we should land and how many troops we should
send in and what day we should come. And nor did we have in the two weeks after people
saying too many people died and you know, we should have sent in more troops or less
troops or we should have waited a week to leave. You know, basically, Congress has
responsibility, I mean the Constitution defines it, but they ought to realize that there are
times when a commander in chief really has to be able to speak with a good bit of both
parties behind him. At the same time, when you demand--when you really need that it
means that essentially the majority party can't push around a minority party. So you can't
use that as an excuse to push through all kinds of things and then expect unity, or
substantial unity from both parties in supporting you in the really important war, and this is
an important war.
JOE: Hey.
BECKY: Joe?
JOE: Thanks, Beck. Warren, you remember when you made those buys of Goldman and GE,
you said that you--it was contingent really on TARP, on the original perception of what we
thought TARP was, and that was to get some of these toxic assets off the books. We never--
3/10
we never did that. We're still waiting. And when the president said, `You're going to hear
about some details from Secretary Geithner,' and then our hopes were dashed when we
didn't hear any details, that's really--a lot of people point to that day as where we started a
renewed downturn. Would you urge the president to really focus with Secretary Geithner on
this plan, on the toxic asset plan on some type of private/public partnership to get rid of
those? That's what people are waiting for and not seeing.
BUFFETT: Yeah, the interesting thing is that the toxic assets, if they're priced at market, are
probably the best assets the banks has, because those toxic assets presently are being
priced based on unleveraged buyers buying a fairly speculative asset. So the returns from
this market value are probably better than almost anything else, assuming they've got a
market-to-market value, you know, they have the best prospects for return going forward of
anything the banks own. The problems of the banks are overwhelmingly not toxic assets,
you know. They may have been one or two at the top banks, but they are not going to do in--
if you take those 20 banks that are subject to the stresses, they're not going to do those
banks in. Those banks have the earning power which has never been better on new business
going out of this to build capital positions even if they pay low dividends which they're
starting to do now.
JOE: Hm.
BUFFETT: Toxic assets really are not the problem they were. Now, when I said it was
contingent--I didn't remember being exactly contingent on TARP, but it was contingent on
the government jumping in.
JOE: Right.
BUFFETT: The government needed to act big time in September, I will tell you that.
JOE: So...
BUFFETT: And they did act big time.
JOE: So you are OK with the shift to providing the banks with capital as opposed to the
original intention of the TARP for actually getting the toxic assets off the books?
BUFFETT: Yeah, and interestingly enough, they don't need to supply the banks, in my view,
with lots of capital. They need to let almost all of--I mean, the right prescription with most of
the banks is just let them pay very little in the way of dividends and build up capital for
awhile, and they will build up a lot of capital. The government has needed to say--what the
government needs to say is nobody's going to lose a dime by having their deposits in these
banks. They're going to make lots of money with the deposits.
JOE: Hm.
BUFFETT: The spreads have never been wider. This is a great time to be in banking, you
know, if you just get past the past and they are getting past the past. I mean, right now every
time a loan is made to somebody to buy a house--and we're making, you know, making
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millions of loans--four and a half million houses will change hands this year out of a total
stock of less than 80 million. So those people are making good mortgages. You want those
assets on your books and you get a great spread in putting them on now. So it's a great time
to be in banking, but you do have to get past this past. But the toxic assets, in my view, you
know, if they've been written down to market, I'd rather buy those assets from the bank than
any other assets they've got.
JOE: Hm. OK...
BECKY: Goes to Joe's point about the private...
JOE: ...hey, Beck...
BECKY: Huh?
JOE: Hey, Beck, I want to run something by both of you real quickly. The McDonald's same-
store sales we've been waiting for globally, Beck, because this is very interesting. Increased
1.4 percent, which sounds like below recent numbers that McDonald's has been able to post.
BECKY: Mm-hmm.
JOE: You know what February 2008 was? It was a leap year.
BECKY: What?
JOE: It was a leap year and that extra day in February of 2008 accounted for 4 percentage
points. So if you factor that in...
BECKY: Wow.
JOE: ...you add them back in it would be 5.4 percent. So the actual number of 1.4 is actually
above the consensus, which was .4. US was up 2.8, which was above the consensus of down
.6. Europe was down .2. That's actually above the consensus of down .4. So across the board,
except for Asia Pacific and Middle East and Africa, that was a little bit below. That was up .7
percent vs. the estimate of up 3.8. But just at first blush, that 1.4 looks like not as good as
what McDonald's has been able to post. But in one day--one day is a 4 percentage point
difference. See, it would be like being--you're having your birthday. It's like how many
presents you get.
BUFFETT: Joe, I'll give you--I'll give you breaking news. Dairy Queen same-store sales have
been right up through this, too. But I would hate to own a luxury restaurant in Manhattan or
something of the sort. The--we have three classes of jewelry stores, they overlap to some
degree, but our high-end jewelry store is down a whole lot. Our--call it the mama bear is
down a lot. And the baby bear is down some. I mean, you just go right--you can just see what
the American public doing. The American public has had a reset of their buying habits like
you can't believe.
BECKY: Then why did you make your investment in Tiffany?
5/10
BUFFETT: Well, we lent Tiffany money at 10 percent. We did not buy the equity. But I think
the chances of Tiffany not paying us back--and Tiffany's going to have a bad year now.
BECKY: Right.
BUFFETT: I mean, anybody that's in luxury goods is going to have a bad year now and then,
and they may have a couple of bad years in a row. But the American economy's going to be
stronger five, 10, 20 years from now. And if a guy can bring home a blue box and have
somebody kiss him, I mean, you know, that all--there's always a market for that.
Ask Warren: Advice for Obama 8:15 AM ET Mon, 9 March 2009
President BARACK OBAMA (on tape): My friend and Hillary's friend, Warren Buffett... It is
true that my friend and supporter Warren Buffett, for example... Let me tell you who I
associate with. On economic policy, I associate with Warren Buffett...
BECKY: Welcome back, everybody. Again, we are live with Warren Buffett this morning at the
Nebraska Furniture Mart in Omaha. And, Mr. Buffett, you may have just heard that sound. It
was candidate Obama, before he was elected, talking about his relationship with you. We
know that you supported him, that you voted for him, that you raised money for him. But we
also have a question that came in from Robert this morning in New York, and he writes in,
"Mr. Buffett, please describe in what capacity or role are you advising President Obama or
his staff?"
BUFFETT: I've had a conversation or two with people--or not his staff, exactly, but in the
administration. I've not had, aside from just seeing him at an occasion and just saying hello.
But I've not had any real conversations with the president. He is the right president. And
incidentally, this is the right country. I mean, we've got the right president, we've got the right
country. You know, we're gummed up at the moment, but this is the place to be. And this is
the right time. I mean, I wish I was 21 now instead of 78. So this is--the best days of America
really do lie ahead. And President Obama is--he's very, very smart. He's got, I think, exactly
6/10
the right goals. He's articulate and I--you know, he will be the right person to be the
commander in chief in this economic crisis. But it is an economic crisis.
BECKY: It is an economic crisis. And in an earlier hour you talked about how we were hours
or days away from the cliff with the economy.
BUFFETT: In September.
BECKY: Back in September.
BUFFETT: In September.
BECKY: Where are we now?
BUFFETT: Well, we have done a lot of things that should have been done. I mean, when the--
when we--when we guaranteed money market funds, if we hadn't have done that, I mean, it
would have been--we would have been going over Niagara Falls instead of--instead of riding
up there just above it. If we hadn't done the commercial paper action where the Federal
Reserve got into the picture--and their participation has gone down substantially now, but
they stabilized that market. We were losing blood by the bucketful in terms of funding and
liquidity in September, and the government basically did the right things in order to stem the
flow of blood and get the patient so at least you didn't have to work on that aspect of it. And
that was vital. I mean, that was--that was Pearl Harbor. And now there's a lot of things to be
done. And they can't happen instantly. But the biggest thing right now is clarity as to what will
be done in terms of the financial system. And there's been enough mix up with different
people saying different things that I think that the--that President Obama is the person to
give real clarity to that.
BECKY: We have people asking questions about things that the administration has already
put out. In fact, Bob wrote in from Baltimore, Bob Knott, who says, "On a scale from one to
10, how would you assess the value to the US economy of President Obama's recently
enacted stimulus plan?"
BUFFETT: Oh, well, the stimulus plan's going to take a long time to kick in. I mean, there'll be
certain things kick in fast. But the stimulus plan is part of the recovery, but it's not the most--
it's important to put it in, but there's other things that need to be done now to restore
confidence. You're not going to--you're just not going to see that much happen. I mean,
there'll be things on TV and all of that. But when you're talking about a $14 trillion economy
and you're talking about all the things that are worried--people are worried about and
scared--and scared is a better word, because that's what they are. There are things that need
to be done up front that actually are more important. But I'm still in favor of having a
stimulus bill.
BECKY: There are people who are looking for quick solutions. Theodore in Woodstock,
Georgia, writes in with the question a lot of people have asked. He says, "Should the SEC
suspend mark-to-market accounting?"
7/10
BUFFETT: Well, that's a--you know, I've always been theological on mark-to-market
accounting, because I've seen so much of what people do when they're allowed to use their
imagination on balance sheets or income statements. And frankly, American business
misbehaved in a big way, particularly in the '90s. But people did play games with numbers.
And they probably still do. But it--there was--it was almost accepted as a way of doing
business. So I've always been suspicious when you give a CEO a pen and tell him it's the
honor system. And anything other than mark-to-market works in that direction.
Now, it's true, I think, that mark-to-market has had a--it's been some gasoline on the fire in
terms of financial institutions. The markets are, on certain things, are pretty unrealistic,
which is why I said just a little while ago that I would like to--I would rather buy the toxic
assets at market from a bank than their good--than their best assets. There's more money to
be made in those and they've been marked to a level where there's a lot of--you know,
where they're probably below fair value, in my opinion. So I'm sympathetic. I think the best
way to handle that, though, probably still, is to have the mark-to-market figures, but not have
the regulators say, `We're going to force you to put a lot more capital based in on these
mark-to-market figures.' I say in our annual report, I mark some--we mark everything to
market. I say I don't agree with it in certain cases, and I explain my reasons and shareholders
can decide whether they think the reasons are valid or not. I hate to give it up.
BECKY: Joe:
JOE: Thanks. I want to drill down on a couple of things, Mr. Buffett. We talk about the--you
talk about 535 members of Congress, and that you don't think necessarily that, given a crisis,
that you should steamroll or have a lot of things put through just because there's a crisis,
you mentioned. I'm just trying to drill down on some of these things that are in the budget,
and I'm not necessarily sure they're from Congress. I think President Obama knows what's in
that budget and definitely, you know, they have his signature on them. And I'm talking about,
for example, the carbon tax. Does that make sense here? Does--which ones do, which ones
don't? He was talking about the card check--he was talking about card check in EFCA last
week. Does that make sense to you, Mr. Buffett?
BUFFETT: I think the most--the more contentious of it, certainly card check is contentious,
but I would defer pushing a big agenda. And you know, there's this phrase that a crisis, you
know, should not be wasted. Well, I think if you said a war should not be wasted and use that
as an excuse to push--try to push through everything in sight, I think--I really think it's a
mistake. I don't want to try and call from unity among all our managers while at the same--at
Berkshire while at the same time imposing all kinds of new actions on them, many of which
they disagree with. You know, that's not an argument for doing absolutely nothing but it's a--
it is an argument for deferring some of the things that are going to cause...
JOE: I'm just--which things? Which things, though, Mr. Buffett? I mean, what would you tell...
BUFFETT: Well...
JOE: You know the president and he takes your advice and he use--he uses your name in
talking about who he talks to about the economy.
8/10
BUFFETT: Yeah.
JOE: Which things would you urge him to put on the back burner right now? Because they're
trying to do everything all at once.
BUFFETT: I know, and I don't think that's a good idea. But I also don't think it's a good idea to
use CNBC as a way to talk to the president of the United States too much. Although I've done
a little of that.
JOE: All right. I have--I have to--I have to ask you, though. I have to ask you which of the
things. I know that they're watching, and I--and I know that they're hearing this from you.
But--and I think, you know, there are some people that think they need to hear it.
BUFFETT: I would--I would err on the side of doing too much on the--if I--you're going to err
on the side of doing--like if you're going to land on Normandy, you know, how many troops
do you send in? You probably send in more than you think are needed. I mean, and I would
say I would err on the side of doing too much on the economy and I would err on doing too
little on the side of a whole bunch of other things I cared about.
JOE: You mean the banking system in the--in the economy is what you're talking about. OK.
BUFFETT: I--yeah, yeah, right.
JOE: All right.
BUFFETT: I--yeah. The job is to get--the job is to get that fixed.
BECKY: All right, you counted on--you commented on mark-to-market. What about the uptick
rule? We've had several people who've written in about that.
BUFFETT: Yeah. Yeah, I--there's no--there's no question that it--there's something wrong with
people buying stocks and saying untrue things, and there's something wrong with people
shorting stocks and saying untrue things. And sometimes it seems like the shorts are a little
more eager to spread negative stories than the longs. But I've seen a lot of people on the
long side do a lot of things they shouldn't have done, too. I think--I think probably the uptick
rule is a good idea. I mean, we had it for decades and the--it--on balance, I probably would
have it in. I don't think it's the key to things at all. I mean, I think that--I mean, you can--you
can do bear raids of a sort through credit defaults, swaps and all that sort of thing now, and
there'll always be people trying to push the bear case. There are people trying to push the
bull case all the time. In the end, if you don't owe money on stocks and you own a good
business, a good business will not be ruined by somebody selling stock short on an uptick or
otherwise. I welcome people shorting Berkshire. I mean, you know what I mean? They're the-
-they're the sure buyers later on. They have to buy someday, right?
BECKY: Right.
BUFFETT: Again, doesn't make any difference to me, you know, who--there could be a lot of
people sell Berkshire every day, there's going to be a lot of people buy Berkshire every day. If
somebody wants to sell it short, buy it later on, that's fine with me. I mean, they're going to
9/10
have to buy it someday.
BECKY: Here's a question from Michael in Mystic, Connecticut. He says, "After showing
support and advising President Obama, what are your thoughts on the president openly
criticizing the use of corporate jets by CEOs considering the fact that Berkshire Hathaway
owns NetJets..."
BUFFETT: Yeah.
BECKY: "...and that some of those CEOs are your largest clients?"
BUFFETT: Yeah. Well, when you say considering the fact we own it means that I do have a
dog in this fight, and so I--put me down as biased. But I do think--I use a jet both personally
and with business. I mean, I have my own things I pay for, but I use it in business. I would say
that net--and I'm probably a biased observer, maybe--but Berkshire has been better off by
me having a plane available to go and do deals or whatever it may be. A lot of times it doesn't
work out. But net, it's a plus. We have done things I wouldn't have done if we hadn't have had
a plane. And I think it's--I think he made a mistake in--I think--I think it's--I think it's a big
mistake to start demonizing anybody in this game. I just think that it causes the American
people to look backwards. And we don't want villains, we want victory.
TRANSCRIPT AND VIDEOS CONCLUDE IN PART SEVEN
Class A:
Class B:
10/10
- Part 7
March 9, 2009
This is part seven of the preliminary transcript and video clips of Warren Buffett's
Previous transcripts: Part One, Part Two, Part Three,
ANNOUNCER: He's the world's most famous investor, and today Warren Buffett is
answering your questions. This is a special presentation of SQUAWK BOX, live from Omaha,
Nebraska.
BECKY: Welcome back to SQUAWK BOX here on CNBC, first in business worldwide. We are
just one hour away from the opening bell on Wall Street. The futures are under some
pressure this morning, but we are letting our viewers get a chance this morning to ask
Warren Buffett their questions on everything that's been happening out there, from the
economy to investing. And right now we'd like to get to some more of your e-mail questions.
Mr. Buffett, again, thank you for all your time this morning.
Ask Warren: Raise Taxes, Save Economy? 8:34 AM ET Mon, 9 March 2009
BUFFETT: Mm-hmm.
BECKY: Brent from Morrison, Colorado writes in, he's got a question very specifically about
what's happening with taxes. He says, "Which do you think's more valuable to the economy
right now? Raising taxes or lowering them?"
BUFFETT: Well, I think that on people making anything less than a lot of money, I think
lowering taxes is a good idea. Now, bear in mind, we're going to spend 3.6 trillion or
1/11
something like that in the next year. I mean, somebody has to get taxed, and nobody likes to
be taxed, so--and I've expressed my views probably in the past that I think that guys like me
have gotten off too light and they--just generally, and the IRS just came out with something
the other day that the 400 top Americans in 2006 in terms of their taxable income paid at a
rate of 17 point something percent, which was the lowest since they've ever started the
figures, and they had 29 percent about 12 or 13 years earlier. So I think that too much has
been done for me and too little has been done for the people that work here at the
Nebraska Furniture Mart. But I don't--we're going to be huge gap in revenue and another 100
billion that helps the people at the lower end I am basically all for whatever the number may
be. I don't think anything that helps me is needed one bit in terms of this economy. So I think
that, as we move forward, I hope that the tax system gets more equitable, at least as I see it,
in terms of treating the people that don't happen to be born just wired the right way and
everything. They're paying higher rates than I pay just because I'm good at capital allocation.
BECKY: Is that something that you think should be taken on immediately? Or do you think it
needs to wait until the economy gets through the roughest patches?
BUFFETT: I think, on balance, we ought to defer most of the things that cause people to get
very riled up. I think we ought to--I think the message out to continuously be, `We are in an
economic war. We're going to solve this together. We're not going to use it as a way to get all
kinds of changes made.' And I might like to see a change in the tax code and maybe--but
right now I'm for doing the part that helps the people that are the worst off and whatever
doesn't cause--whatever doesn't pull us apart. And I don't think we should have lots of things
now that cause us to become disunited. We have a common interest and a huge objective,
which is to get this economy working well, and that will take people working together.
BECKY: Richard from Forestdale, Massachusetts, writes in his question, number 334 is "Some
have opined that the Federal Reserve must, at times, be the lender of last resort. Are the Fed
and the Treasury now the spenders of last resort?'
BUFFETT: Well, the Fed--that's a good question. The Fed has become--I think the Fed of New
York, for example, had 9 billion of deposits from banks throughout the country a year ago.
Now they have 450 billion. I mean, they have become--can you imagine that? That is a huge
change in behavior by banks. They have become the intermediary, almost, for banks. I mean,
the Fed is the one place where everybody goes. They can print money, you know.
BECKY: Sure.
BUFFETT: I mean, basically, so the--they are the--they have a huge role to play in this, and I
think they've been playing it well. I congratulate Chairman Bernanke. I mean, he did some
important things when he needed to do them, and he should be given a lot of credit for that.
BECKY: Joe, you have a question as well?
JOE: Yeah. I'm just thinking of other things.
BECKY: I know where you're going.
2/11
JOE: No. I kind of feel like I'm a pesky little gnat. I've got one more--one more thought, Mr.
Buffett, and that has to do with, you know, trying to narrow the--what we've seen between
the haves and have nots, and I know that you think that, you know, that certain people have
been treated too well, others not enough. Some say that EFCA and card check would narrow
the disparity. In other words, having unions have more of a say, more companies unionized.
Is that a good idea? Or do you think, as a business owner, it would be a negative for the
economy?
BUFFETT: I think the secret ballot's pretty important in the country. You know, I'm against
card check, to make a perfectly flat statement.
JOE: OK.
BECKY: Wow.
JOE: That's great, thank you. Appreciate it. OK, Beck.
BECKY: I didn't expect that short of an answer either.
JOE: I know. I liked it. I mean, I liked that he gave me an answer. I'm not saying either way
how I feel, but I liked that we got it from Warren.
BECKY: (Unintelligible).
BUFFETT: We have loads of unions at Berkshire, and I mean, dozens and dozens and dozens
at our various companies, and I understand the reasons for unionization, I mean. And by and
large, I think certainly the people that are in unions have not been well treated by the tax
code that we've had all the time. I think card check is a mistake. I think that...
JOE: I think it's important for--to hear from things like that. We all support the president,
obviously, and we all want to get out of this mess that we're in right now, but that doesn't
mean that people like you and people that he admires and listens to can't point to certain
things and say maybe that's not such a great idea and that's why we have this dialogue.
Right?
BUFFETT: Right.
BECKY: All right.
BUFFETT: Yes, sir.
JOE: Very good.
BECKY: All right. Let's bring in another question from a viewer. Steven from Brookeville, New
York, writes in, and this is circling back in a way to some of your comments on the banks
earlier, but he says, "President Obama recently stated that buying stocks is a potentially
good deal if you've got a long-term perspective on it. So if President Obama were asked
3/11
about whether buying bank stocks," and Steven lists stocks like Citibank, Bank of America,
Wells Fargo, JP Morgan, "Is it a potentially good deal for those with a long-term perspective?
What do you think he would say about that, and how would you respond to that question?"
BUFFETT: Well, I don't know what he would say.
BECKY: Yeah.
BUFFETT: He doesn't consult me on his portfolio. I would say that if--well, there's certain
banks that are basket cases. I mean, here are--here are 3600 banks since 1934 that the FDIC,
one way or another, banks and saving institutions, they've had to bail out.
BECKY: Hm.
BUFFETT: But they didn't bail out the stockholders. So you can--you can lose everything if
you buy stock in a bank, and you should be able to lose everything. You just shouldn't lose
anything if you loan them money or a deposit. So the question is, whether banks, which have
terrific earning power going forward, will be forced to sell stock at ridiculously low prices.
And if you take the great majority of banks, which will do fine earning their way out of it,
although they'll be more names on this list, you know, a year from now. But if they don't have
to sell stock at distressed prices, I think a number of them will do very, very well. I mean, and
we own some bank stocks, and I like owning them and I like owning them in the quantities
we own them. And the only fear I have, frankly, is that in some kind of a situation, they might
be forced to issue a lot of common stock and they don't need to do it. They've reduced their
dividends, so they can build equity and they'll build equity at a very rapid rate with the
spreads that exist now. So the banking system largely will cure itself. Citigroup may be a
special case. I mean, and I'm afraid that in a sense, the American public has sort of taken its
view of all banks from what they read about Citigroup all the time. But there are 7,400 banks
or something like that in the United States and most of them are just fine. You look at the
banks around Omaha, you know, they are not going broke. We had a bank in Loup City,
Nebraska, go broke about a month ago, and we'll have another bank go broke someplace in
Nebraska, you know, in the next two or three months. But, by and large, they're in good
shape, and they are putting on assets with spreads that are terrific.
BECKY: You said that the banking system will take care of itself, that it will earn its way out of
this.
BUFFETT: Most of it.
BECKY: Does that mean you think the American taxpayer money that's already been spent
on these banks is good? That we'll get that money back?
BUFFETT: I think it's good with overwhelmingly most of the banks, but I think that we're--a
good bit of the money is, you know, I think, I think it's--it can be questionable in a few cases,
yeah. It can be questionable in a few.
BECKY: You're talking about AIG and Citigroup are some of the names.
4/11
BUFFETT: Well, you're--we're talking about anything you want to talk about.
BECKY: AIG and Citigroup are the big names that pop up.
BUFFETT: Yeah. Well, AIG isn't a bank, but there's a lot of money in there.
BECKY: (Unintelligible).
BUFFETT: And it was a huge risk to the system, and it shouldn't be--conditions shouldn't be
allowed to recreate itself in the future. But the very fact it shouldn't be allowed to recreate
itself in the future, does not that mean that the wrong thing was done in terms of stepping in
there in September. That was the right thing. That weekend, you know, we had Lehman and
Citi--I'm sorry, AIG was the same weekend Merrill, which got bought by B of A that weekend,
but the dominos were lined up. They were lined up and they were huge dominoes, and it's a
good thing that they didn't start toppling.
BECKY: OK. I want to get to a question that came from an investment club of seventh and
eighth graders who invest $1 million in fake money every year. This is the Grizzell Middle
School Investment Club in Dublin, Ohio, and the question is, where do you think gold will be
in five years and should that be a part of value investing?
BUFFETT: I have no views as to where it will be, but the one thing I can tell you is it won't do
anything between now and then except look at you. Whereas, you know, Coca-Cola will be
making money, and I think Wells Fargo will be making a lot of money and there will be a lot--
and it's a lot--it's a lot better to have a goose that keeps laying eggs than a goose that just sits
there and eats insurance and storage and a few things like that. The idea of digging
something up out of the ground, you know, in South Africa or someplace and then
transporting it to the United States and putting into the ground, you know, in the Federal
Reserve of New York, does not strike me as a terrific asset.
BECKY: There's another question that came in from Keith in Rolla, Missouri. We talked a little
bit earlier about GM. You said there needs to be a different plan that's put into place. Do you
think it can happen outside of bankruptcy? But his question is, "If GM files for bankruptcy,
how will that affect Ford and Chrysler?"
BUFFETT: It would be tough. I mean, Ford has tried very hard to stay out of the government
operation, but it would affect the whole economy and I--and particularly now. And I--that's
why net I think it would be a mistake to let it go that way, but I think the government ought to
hammer out everything it can to make the business model viable at a 12 or 13 million unit a
year, and we'll see what they do on that.
BECKY: OK. If we want to get back to some questions, again, about TARP and things that have
gone through, there's a question that came in from Jeff in Stockton, New York, who said,
"Wouldn't it have been a better idea when the $700 billion TARP was passed by Congress to
give it to us?" He means, we the people. "Example, if $30,000 for married couples, 15,000 to
singles, get put back into our economy, it'd be up and running." He thinks he can buy a
house, purchase an automobile, put money in our banks. People have asked a lot of
questions like that. Would it have been better to give everybody $30,000, $100,000?
5/11
BUFFETT: Well, the math is a little off because there's close to 120 million households and
TARP was 700 billion, so if you divide 120 million, it comes out to a little less than $6,000. But
if you could've restored--it was essential that people believe in the financial system. The
machine won't work without that. If they believe in that and you're just going to send out
$6,000 to every household in the United States, I'm not sure that would've been better for
economic activity. But I am not inclined to look back and say this would've been better than
that. I mean, if there had been four fewer ships in the Pearl Harbor, then Pearl Harbor
would've been better, probably so. We'd have four more to go out, you know, the next day.
But forget it. You know, we've got to go forward.
REDUCE CHARITABLE TAX DEDUCTIONS?

BECKY: Welcome back, everybody, to this special edition of SQUAWK BOX. We are live in
Omaha, Nebraska, at the Nebraska Furniture Mart with Warren Buffett. And by the way, we
do have a programming note for you. Coming up this evening we have a special with the
highlights of today's Ask Warren edition of SQUAWK BOX. You can tune in to CNBC Reports.
This is The Billionaire Next Door: Restoring Trust. That's coming up tonight at 8 PM Eastern
time.
Warren Buffett: Billionaire Next Door 8:48 AM ET Mon, 9 March 2009
In the meantime, though, we have plenty more questions that have come in, and, Mr. Buffett,
we'd like to get to some of those, as well. Starting off with this, there's a question that came
in from Greg Martin in Roswell, Georgia. He says, "How do we best prepare for the inflation
that will result from the stimulus, and how severe do you expect it to be?"
BUFFETT: It's hard to tell how severe it'll be. There will be things that government and
Federal Reserve can do years from now that will try to counteract it. But we are certainly
doing things that could lead to a lot of inflation, and the best asset during inflation is your
own earning power. Anything you do to improve your own talents and make yourself more
6/11
valuable will get paid off in terms of appropriate real purchasing power. If you do something
well, whether you're a major league baseball player, you know, whatever it may be, if you're
a good assistant, whatever it may be, that's the best asset. The--in my view, the second best
asset is a good business. And you might own one yourself, but you might own it through
equities.
BECKY: All right. Hendrick writes in from Del Ray Beach, Florida, and says, "Is America
considered cheap in the eye of international investors when considering products, whether it
be retail, wholesale or goods in general?" And they want to know if now is a time to export.
BUFFETT: Well, you...
BECKY: Yeah.
BUFFETT: You want exports, obviously, to grow. And incidentally, people lose it because the
trade balance figures and how much we import. The exports of the United States were 5
percent of GDP if you go back to about 1970. You know, they're about--they got up to about
12 percent. So we make a lot of things the world likes. A lot. Twelve percent of 14 trillion is
not a small number. We--we've been very good at that and it's important that we stay good
at it, and it's important that, you know, we also import from other countries. But we want to
do things to encourage trade and exports. And like I say, we haven't done a bad job on that,
it's just we went kind of import crazy and consumption crazy over the last 10 years.
BECKY: All right. Bill writes in from Louisiana. He's got a question about the new tax policy.
He says, "Giving to charities is such an important issue for both you and Bill Gates. I know
you don't base your giving on tax policy, but the new policy seems to penalize charitable
giving." What's your thought on that?
BUFFETT: Well, it'd be--the proposal, I think, reduces the value of deductions to some extent.
BECKY: Right.
BUFFETT: Interest deductions and everything. I think you have to look at the whole
integrated policy. And in the end if people can only deduct 28 percent, you know, instead of
36 percent or whatever it may be...
BECKY: Right.
BUFFETT: ...on charitable deductions, you know, I--everything has a--I don't think that's the
end of the world. I don't think it'll change--that'll change charitable giving. I think how well
the economy works will change charitable giving big time, and I think the best thing for
charities in this country is to get the economy working well. And I--the people I know
generally, it is not a huge factor, the amount of the deduction. Some people play games with
it and all that. I've got $6 billion of carryover--$5 billion of carryovers on charitable
deductions. I'm not going to get to use any of them. I mean, it doesn't make--but it doesn't
make any difference. I mean, if you're inclined toward philanthropy, I--the difference
between 28 and 35 or 6 is going to make a difference, you weren't going to be very charitable
anyway.
7/11
BECKY: Right. Joe, I know you have a question, as well.
JOE: And along the same line, we can pick and choose different things. And a lot of the e-
mailers, actually, and Becky's probably seen them, too, have asked this: Mr. Buffett, on cap
and trade, a lot of people think that that's going to hurt the overall economy. And I know
you've got Conoco--a stake in Conoco, you've got utilities. Is that the right--do you support
cap and trade, that provision of the--of the budget?
BUFFETT: Well, yeah. As you know, that hasn't been enacted yet or anything. But it is part of
the budget that was put out the other day that--giving effect to it. Anything you put in that
effectively taxes carbon emissions is--somebody's going to bear the brunt of it. In the case of
a regulated utility, the utility customers are going to pay for it. I mean, it's going to become, in
effect, a tax which we have decided is needed because the market system doesn't really
appropriately penalize something that hurts the future but doesn't really hurt us tomorrow
morning. But that tax is probably going to be pretty regressive. It'll be determined by
individual public utility commissions state by state what customers it gets passed through to.
But if you put a cost of issuing--putting carbon into the atmosphere, it--in the utility business
it's going to be born by customers. And it's a tax like anything else. If--in terms of
ConocoPhillips, it would be less direct, anything of that sort. Or in terms of industry generally.
JOE: Yeah.
BUFFETT: But in terms of the utility industry, it'll be passed through.
JOE: And the coal industry, make it tougher. Are--then are you saying that we should not do
that at this point?
BUFFETT: Well, I think--I think we should evaluate it in terms of the economy when we get to
that point, but I think we should get the economy straightened. I think job one, job two and
job three is the economy, Joe. I think--I think the future does have to have a constituency. I
mean, if the market system is going to produce something that over 100 years or 150 years
really will change the world in a big way, you better have something that forces the market
8/11
system to adapt to that reality in the future. Whether the cap and trade--our own guys at
MidAmerican Energy, I--who are very smart fellows and who you could have on to talk to
about it, generally do not lean in favor of cap and trade. But they would be better to explain
the reasons than I. One way or another, society will pay for it, though.
JOE: Yeah. I'm going to take that as against cap and trade.
BECKY: Warren, there's another question that came in from Vishal in India, who writes in,
"Charlie Munger describes you as a learning machine. What would be the biggest lesson
you've learned in 2008?"
BUFFETT: Well, I've learned that--I would say in 2008 it's been re-emphasized to me the
dangers of extreme leverage, whether it's on an individual basis or whether it's societal. And
leverage is a lot of fun on the way up, and what it produces on the way down when carried to
extremes, whether individual--I mean--I mean the tragedy of somebody on a credit card,
which is leverage, what it does to marriages, all kinds of things. Now, when you get where
the entire economy, or much of the economy leverages up in a way that embodies societal
dangers when it has to deleverage, I think we should have learned a lesson on that. And if
you're--if you're dealing--there are a lot of things in life where you don't know whether it's
just a little too much or a little too little, but I think we've learned that we want to err on the
side, next time, of not allowing people to go on--or big institutions to get as unchecked on
leverage as we have allowed them to do here recently.
BECKY: Warren, there are many people who have written in and asked a question
somewhere along the lines of do you worry about the idea that we have scared away an
entire generation of investors? Will they be afraid to get back in and invest after everything
they've seen that's happened?
BUFFETT: We have changed people's consuming behavior and investing behavior big time
with what's happened since the economic Pearl Harbor, and there's no question it's going to
take people time to get over that. So the answer is they're going to--they're going to spend
their money somewhat differently for quite a while, they're going to invest their money
somewhat differently for quite a while. In the end, in--if you--if you're a saver, you have--
you're going to invest. Now, if you decide to put it in the government securities at practically
no yield, you're going to lose in terms of purchasing power. I mean, you still face the
problem. So I would hope people would draw the right lessons from this, but there's no
question they've had a scar on their psyche, which affects how they're going to behave for a
while. And you're seeing that right now.
BECKY: You've talked about what you would like to see President Obama and Congress do to
solve this problem. What would you like to see corporate America do, CEOs?
BUFFETT: Well, you know, I think corporate America--you know, I think the idea of
complaining about taxes, complaining about this and that and all of it, I think corporate
America has plenty of room to behave better. Now, actually, I think they hit bottom in the
1990s. I think there has been some improvement in behavior since then. But corporate--part
of the reason, and it's just, you know, maybe a small part, but part of the reason that
9/11
companies leveraged up like crazy and all that sort of thing is they started--big financial
institutions said, `We can increase our earnings X percent a year, and we can--every quarter
will be better than the corresponding quarter here.' You can't do it. It--you know, you're
going to play games if you do that, and you're going to create SIVs and things to get around
capital requirements, and you're going to get into liquidity put options. You're going to get
into all these things to play games to get better numbers. You're going to have black boxes,
you know, whether it's at AIG, which turned into black holes later on, because you can pull
numbers out of those black boxes and you don't have--and for a long--for a while you can
get away with it. But I think corporate America has behaved terribly in terms of their attitude
toward the sanctity of the numbers they report, and I--it was worse in the 1990s, but I hope
they get over that.
BECKY: What about average Americans? What should we be doing?
BUFFETT: I think the average American should be doing everything he can to keep his head
above water, basically. I--we have changed the savings pattern just dramatically by the six--
the American people just changed it themselves. They didn't get any admonition from the
president or anybody else to do it, they just got scared so they're saving. I think that by and
large people, to the extent they can, should--they certainly should avoid credit card debt. You
know, I mean, I can't make money borrowing money at 18 or 20 percent. We have credit
cards. I mean, the American public wants credit cards. So our furniture store issues credit
cards and, you know, it's part of the landscape. Just don't be part of it yourself. They--there's-
-I tell students this all the time. You can't borrow money at 18 or 20 percent and come out
ahead. I can't--I'd go broke. So the stay away from debt as much as possible. When you get
amount for a reasonable down payment, you find a home you like, buy it. But don't do it till
you can handle it. And take on obligations you can handle, avoid the others.
BECKY: Very quickly, are you more optimistic or less optimistic than you were just over six
months ago when you told us we were in our economic Pearl Harbor?
BUFFETT: Well, I'm optimistic in the sense that we got past that, and the government did
some of the things that were really needed and they did them fast. I am somewhat
pessimistic--I'm not pessimistic about it long term. This country will work fine even if we
screw it up. But it's important in terms of the speed with which we get back to our potential,
it's very important that people work together. And I think the divisiveness and everything
bothers me, and the idea of--I understand Congress and their responsibilities, but they really
have to realize this is something different. And the--and the president has to do his part in
respect to that, too. And so I--I've been--I've been very pleased, actually, in September with
the immediate response, because it saved the system to some degree. I've been kind of
disappointed as we've gone along in sort of we can't quite get our act together and we can't
really get the American public to understand what's happened, what needs to be done and
all of that. So I think there's a communications job to be done.
BECKY: All right, Mr. Buffett, we want to thank you very much with your time for us today.
You've been very generous.
BUFFETT: Thank you.

10/11
BECKY: We appreciate it. And our thanks again to Warren Buffett. That's it from Omaha. We'll
see you tonight on CNBC Reports. And, Joe, see you very soon, too.
JOE: All right, thank Mr. Buffett very much for me, too, for all that time. Appreciate it, Becky.
Make sure you join us tomorrow. "Squawk on the Street" is next.
Class A:
Class B:
11/11
CNBC TRANSCRIPT: Warren Buffett & Bill Gates - Keeping America
Great
CNBC TRANSCRIPT: Warren Buffett & Bill Gates - Keeping America Great Alex Crippen | @alexcrippen Published 12:09 AM ET
Fri, 13 Nov 2009 Updated 12:03 AM ET Thu, 18 March 2010 CNBC.com
November 13, 2009
This is the unofficial transcript of the CNBC Town Hall event Warren Buffett and Bill Gates:
Keeping America Great, taped Thursday, November 12, 2009 at Columbia University in New
York City.
It was prepared for CNBC by Realtime Transcription Inc.
The transcript is alsoavailable for downloading as an Adobe Acrobat PDF document.
ANNOUNCER: The embodiment of the American dream, Warren Buffett and Bill Gates, self-
made billionaires whose values run as deep as their wealth. One redefined an industry, the
other the modern investor. But both put their stock in America, and by investing in business
and humanity, reaped the rewards of this great country's capitalist tradition. Today that
tradition is under siege, our way of life questioned. And with America at an inflection point, a
future generation looks for guidance from the world's two greatest capitalists. Now, they are
going back to school, not to learn, but to teach. Showing the next generation of business
leaders that wealth is not about the money you amass, but the number of lives you enrich.
Tonight in a CNBC town hall event, Warren Buffett and Bill Gates share their secrets to
keeping America great.
BECKY QUICK: A special CNBC town hall. I am Becky Quick at Columbia Business School at
Columbia University. Let's hear it, guys. [CHEERS AND APPLAUSE] We are in the heart of New
York City. This is the world's center of capitalism and this is the place where dreams really do
come true. In fact, right now, look at all these people here today. We could be surrounded --
[CHEERS AND APPLAUSE] -- We could be surrounded by the next Warren Buffett or Bill
Gates. How about you? You ready to go?
STUDENT: We are so excited to all be here today. You wouldn't believe how much tickets are
being sold for out front.
BECKY: I know you're not telling the truth. You had to get in with your I.D., right?
STUDENT: Yes, this is true.
BECKY: We're ready to go tonight. Tonight it is all about Keeping America Great. [CHEERS
AND APPLAUSE]
1/25
No people have done that better than Warren Buffett and Bill Gates. Folks, let's please
welcome Warren Buffett and Bill Gates. [CHEERS AND APPLAUSE]
I see Warren is trying to work the home crowd here with Columbia. [CHEERS AND APPLAUSE]
Gentlemen, thank you so much for joining us tonight. This has been, as you know, an
extraordinary year. This is a year where the rules have been completely rewritten, where we
have thrown out the rule books, and we have seen icons collapse. This is also a time when a
lot of people have probably wondered about our way of life. People in this very room. That's
going to be our focus in just a minute. Gentlemen, before we get to that, the two of you may
seem like an odd pair. For anybody who doesn't know you two well --
BUFFETT: You'll think more odd when we get through. [LAUGHTER]
BECKY: What brings you two together tonight? Why you two and why here with these
business students here at Columbia?
WARREN BUFFETT: Well, we enjoy working together. Actually, when I left Columbia, they told
me I would probably have to come back and repeat a few classes. So here I am.
BECKY: Bill, what about you? You are ready to go with the students?
BILL GATES: Yeah, it will be a lot of fun. Warren and I love getting the questions and talking
about our optimism. [APPLAUSE]
BECKY: The reason you two are here tonight is this is a pivotal moment in history. People
have questions about the economy, about our entire system of capitalism. And, gentlemen,
let me ask each of you, over the course of the last year, was there ever a time that you had
doubts about capitalism and about our way of life?
BUFFETT: No, there was not a time. If there had been, last September when we invested a lot
of money, that was when the country was looking into the abyss. The money was flowing out
of money market funds. The commercial paper market died and everything. We put $8
2/25
billion to work in just a matter of a few days then. So I never lost confidence in the system.
This country works, you know. We've got 200 years of proof. And it's going to continue to
work. [APPLAUSE]
BECKY: Bill, what do you think, Bill?
GATES: Well, we have a complex financial system which we have proven that we can make
mistakes. But more fundamental than that is the innovation, the fact that you can create
new companies, that people are willing to take risk and invest, that there's great science
going on. This country still has the best universities, the best science, and we're going to tune
our system of capitalism, you know. The idea that you have a lot of short-term loans covering
long-term needs, the amount of leverage that was there, there are definitely some lessons.
But the fundamentals of the system, a marketplace-driven system where we invest in
education and a great infrastructure for the long-term, that's continued. And, you know, I'll
bet there are some inventions that took place in that fall in the darkest hour: People were
working on new drugs, new chips, new robots and things to make life better for everyone in
the decades ahead. [APPLAUSE]
BECKY: All right. Tonight is all about the students and why don't we start out and get right to
it. Why don't you start out. You ready to go?
QUESTION: We are honored to have you here at the university. [APPLAUSE] My question for
you is directed to both of you, Mr. Gates and Mr. Buffett. I'd like to know your perspective on
whether greed and immoral behavior, unethical behavior, were key causes of the recent
financial crisis.
BUFFETT: You went out toward the end, Becky.
BECKY: Just wondering whether greed and corruption were behind what happened.
BUFFETT: It certainly played a part. We have always had greed. That didn't get invented in
the last few years. And greed, fear in the third quarter -- I mean, the American people were
really panicked there for a while. And it affected their -- it started out on Wall Street but then
spilled over into the general economy subsequently. But we're never going to get rid of
greed. We're never going to get rid of fear. What we do have is a system, as Bill said, a market
system where we have the quality of opportunity and the rule of law combined to unleash
human potential in this country over the last couple of hundred years to the degree nobody
would have believed possible a few centuries before that. There's nothing that's gone wrong
with that system. Our economy was sputtering and still is sputtering some. But we've got the
greatest engine ever devised. And it's just beginning. Greed will continue. Don't worry about
that. Oliver Stone is putting out a second film here pretty soon. Probably get mentioned
again in this one with Gordon Gekko making a return. But that is not what drives the
American system. What drives the American system is the quality of opportunity in a market
system and the knowledge that when you get out of here, you're going to enjoy the fruits of
the knowledge you have gained. And it will keep working. I'd love to trade places with any of
you.
3/25
BECKY: Bill, do you have any extra thoughts on that?
GATES: Well, the best systems are ones where you have good short-term metrics, great
accounting, looking at profits, looking at risk and willing to do things long-term. Investing in
new research, letting people build new companies. I was a huge beneficiary of this country's
unique willingness to take risk on a young person. And, you know, I got to hire people who
were older. I got to sell to people who were older. And it was kind of a dream come true. And
that kind of thing is -- other countries have seen it and they are trying to create that same
dynamic. And that's good for the world. It's excellent that China and India will borrow our
ideas about universities, about entrepreneurship, simplification of business. None of us want
to borrow this extreme leverage that we got into. But in a sense, that's kind of a -- I don't
want to say minor, but it doesn't speak to the heart of why things have worked so well.
BECKY: All right. Let's get to another question. How about right here?
QUESTION: Hello. My name is Accosia Bagima. I am from the Northern Virginia area and I'm
a first-year student here at Columbia. And I want to thank, once again, both of you for
coming. It's an honor. My question is directed toward Mr. Gates. Mr. Gates, I know you're not
in the finance industry, but can you tell us what you were feeling when you first heard that
Lehman was filing for bankruptcy?
GATES: I don't follow investment banks, you know, very closely. So it didn't strike me as
fundamentally a terrible thing. In the technology business, the two companies I admired the
most, Wang Industries and Digital Equipment, had both basically gone bankrupt. Digital
actually got bought. And so the fact that there's these ups and downs, certain firms get
knocked out, I didn't have any sentimentality over that particular firm. Now, this knock-on
effect where other people had debts to them and those were going to be very hard to settle
and that complexity might cause things to freeze up, that I called up Warren and I said,
"Should I be worried?" And he said, "A little bit." [LAUGHTER]
BECKY: Warren, was it a mistake for the government to allow Lehman to go under?
BUFFETT: It may have been. But I would say overall, the officials in Washington did a terrific
job of dealing with really what was an economic Pearl Harbor, as we talked about. So I would
say that if Merrill hadn't been bought by the B of A, Merrill would have gone very quickly. And
the dominoes were really lined up. And I don't think it was fully appreciated, perhaps, what a
big domino Lehman was or how close it was to the next big dominoes. But overall, I give
(former Treasury Secretary Henry) Paulson, I give (Federal Reserve Chairman Ben)Bernanke, I
give (FDIC Chairman) Sheila Bair, I give (Treasury Secretary) Tim Geithner, I give them very
high marks for the fact they took unprecedented action. [APPLAUSE]
BECKY: Let's get to another question. Right back here at the microphone. Go ahead.
QUESTION: I hope this works.
BECKY: It does. It sounds like it.
QUESTION: Hi, my name is Greg Letter. I grew up in Ohio and I'm also a current student,
4/25
obviously. My question was with Lehman Brothers and Goldman Sachs, this relates to Mr.
Buffett, you had the opportunity to invest. I was wondering how you chose to invest in
Goldman Sachs and why you chose not to maybe invest in both, or what made you not
decide to invest in Lehman Brothers.
BUFFETT: I had more confidence in both the numbers and the management of Goldman
Sachs than any other major firm in Wall Street at that time. Now, there could have been
things happened that would have made Goldman Sachs be next in line. (Goldman CEO) Roy
Blankfein had said I worked 30 seconds behind Morgan Stanley. This is covered very well in
the book called "Too Big To Fail" by Andrew Ross Sorken. But I did not think the system was
going to go under. I felt Washington in the end would do the right thing. I thought if they did
the right thing, Goldman Sachs was -- I thought it was the best-run operation. I thought its
figures were the most solid and I thought they would prosper the most in the future ahead.
Plus I liked the terms, too. [LAUGHTER]
BECKY: Warren, you said at that time they had the best management and a lot of other
things. Did you change your mind since then?
BUFFETT: Pardon me?
BECKY: Have you changed your mind since then? You said at that time they had the best
management.
BUFFETT: Goldman, my experience with Goldman goes back to when I met Sidney Weinberg
in 1940. I followed the company a long time. They have a discipline around there that I think
particularly in their marking to market and all of that, I think probably is the best among the
firms in Wall Street. And I thought Roy Blankfein had a very strong appreciation of risk. Now,
if the system went down, everybody gets hit. But I felt to a great extent they had factored the
best people into the business. So they were my number one choice. I had a few other choices
that were offered to me. [APPLAUSE]
BECKY: Let's get to another question, everybody. Another question.
QUESTION: It's a pleasure to be here with both of you today. My name is John Lemley. I'm
originally from Scarsdale, New York. Given the severity of the economic downturn, which
some attribute to systemic breakdown in risk allegation and underwriting standards, a
fiercely partisan debate has ensued regarding the appropriate role of government. Can this
role be positive and if so, how?
BECKY: What do you guys think about big government?
GATES: Well, there's clearly a role for the government in business cycles. And over time,
that's been tuned, you know, mistakes have been made. Now, the question is -- and that's
largely measured through inflation and interest rates. Now, there's a question of could there
be a measure of risk that would cause them to step in and maybe tax transactions, make the
bigger firms put more money aside. That is still really a question of whether you can
recognize these situations and actually have government play a very positive role. Now, as
things start to fall apart, we know there are ways that taking firms that are going down and
5/25
handling those in a more expedited way -- there's a lot that can be done there. But the basic
idea of, can you spot bubbles? Can the government spot bubbles? That's a great question.
Some great economists have some ideas. But it is not a proven territory.
BUFFETT: Last September, only the government could have saved things. The whole world
wanted to deleverage. And they were deleveraging under conditions of extreme haste and
with guns to their head in some cases. And the only entity that could possibly leverage up at
the same time that everybody else wanted to deleverage was the Federal government. And
when 200 billion flowed out of money market funds in a couple of days, when commercial
paper stopped, only the Federal government could act then. And fortunately we had the
people there who recognized that and acted promptly. The government has a huge role. And
now going forward, it's a very tricky thing to figure out how to prevent excessive leverage and
prevent off-balance sheet arrangements from getting in trouble or for just having people at
the top of major institutions that run risks they shouldn't be running. But we're wrestling with
that right now. There should be more down side to the head of any institution that has to go
to the federal government to be saved for reasons of the greater society. And so far, we have
been better at carrots and sticks in rewarding CEOs at the top. But I think some more sticks
are called for.
BECKY: All right. Let's get to another question. [APPLAUSE]
QUESTION: My name is Brian, first-year student here at Columbia. And I run a business
school right now and seems to me a lot of the villains in the full credit crisis were business
school graduates. To what extent do you guys think that business schools like Columbia were
in some sense responsible for what transpired in the credit crisis?
GATES: Well, remember that capitalism has been massively successful, you know. Standard
of life, medicine, all these great things have come out of it. And business schools play a role
in training people to think about value, leadership. There's wonderful skills that are taught at
great schools like this. And so the fact that, yes, we have had a crisis and we have dropped
back, maybe we wasted two or three years net because of the things that were done wrong,
that doesn't say that business schools aren't performing a great service, you know. The case
studies of this crisis will be taught here for decades to come. And so at least we'll get that
benefit out of the pain we went through. Leverage is a very dangerous thing. And perhaps,
you know, Warren talked about derivatives as weapons of mass destruction. That wasn't
much heeded. And yet at the end of the day, what happened here, particularly in the real
estate sector, the notion of risk that price would drop down and what that meant
systematically for those instruments, it wasn't well understood. And the mass destruction
followed as predicted.
BECKY: Warren, can you teach ethics in a business school? Does it have to come from
somewhere else?
BUFFETT: Come back now?
BECKY: Can you teach ethics at a business school?
6/25
BUFFETT: Well, I think the best place to learn ethics is in the home. I think most of us get our
values from what we see around us before we get to business school. I think that it's
important to emphasize them, but I think that if I had a choice of having great education and
ethics fully on in the home or as a course in a school later on, I would choose the home. The
wonderful thing about it is in this country, is you can succeed magnificently with ethics. It's
not a hindrance. It's a help sometimes. It's a neutral sometimes. But it's not a hindrance at
all. And to cut corners, you know, everybody here has a wonderful future. I mean, this is an
economy you're going into that is so much -- [APPLAUSE] If you look back on the 19th
Century, we had seven great bank panics. If you look back at the 20th Century, we had the
Great Depression and world wars and flu epidemics. This country doesn't avoid problems. It
just solves them. And in the next 100 years, our machine will sputter again, you know. Maybe
15 years will be so-so years, but there will be 85 great years. And during the 20th Century the
Dow went from 66 to 11,400, so this is fertile soil that you're working in and there's no
reasons to cut corners.
BECKY: All right. Let's get another question. [APPLAUSE]
QUESTION: Hi. My name is Katrina Gankena, and I was born in Russia. And I'm a second-year
student at Columbia Business School. My question is for Mr. Gates. What industry do you
think is going to produce the next Bill Gates? Because that's the industry I want to get a job
in. [LAUGHTER] [APPLAUSE]
GATES: Industries do have different paces of innovation. So the IT industry, driven by the
magic of software, the magic of the optic fiber, magic of the chip which doubles in power
every couple of years, it's been the industry that has not only been the most exciting, it's also
changed the rules for many other industries. The idea of information being available, what
the online world is like, that's incredible. I'll tell you, there are a few other industries that will
compete for being exciting in the decades ahead. The energy business, some approach will
provide cheaper energy that's environmentally friendly. And there's a lot of science, a lot of
business. That's a global thing. There will be some great careers there. Medicine, you know.
We haven't solved Parkinson's or Alzheimer's or about 20 diseases of these poor countries,
and yet we can be sure that we're on track to do that. And so those three industries I think
you would do great in. There's many others, but those are the ones that have the strongest
appeal to me.
BUFFETT: Find what turns you on. Find what you have a passion for. If somebody said to me
when I was getting out of Columbia, you know, that Bill's business was going to be the one
that would be exciting, you know, I don't think I'd have done so well. [LAUGHTER] But I knew
what turned me on. I had a professor, Ben Graham, I offered to go to work for him for
nothing. He said, "You're overpriced." Nonetheless, I went into the business. [APPLAUSE] I will
guarantee, you will do well at whatever turns you on. There's no question about that. Don't
let anybody else tell you what to do. You figure out what you are doing. [APPLAUSE]
BECKY: All right. We actually got the chance to poll these students. And we asked them if
there would ever be a company as transformative as Microsoft in their lifetime. You might be
surprised at their response. We will tell you right after this break.
7/25
LOOKING FOR THE NEXT BILL GATES
BECKY: Welcome back to CNBC's town hall. We are with Bill Gates and Warren Buffett at the
Columbia School of Business at Columbia University. We're in the heart of New York City.
And before we went to that break, we asked one of our students -- one of our students
actually asked, which industry is going to be producing the next Bill Gates. Now, as we
mentioned, we got the chance to take a poll of the students in this room and we asked them
if they thought they would ever see a company as transformative as Microsoft in their
lifetimes again. Gentlemen, eight out of 10 said yes. That's 80% saying yes, they do think this
will be another issue. You guys are a very enthusiastic bunch. Bill, do you share that sense of
optimism?
GATES: Absolutely. Capitalism is great and having thousands of things going on in parallel.
And a lot of them fail. Some are just mediocre. But the ones that are special can grow and,
you know, stun everybody. And in all those fields I mentioned, there is going to be several
companies that kind of take your breath away.
BECKY: All right. Let's get to another student question. [APPLAUSE]
QUESTION: Hi, my name is Lisa Williams. I'm from South Orange, New Jersey. I'm currently a
first-year at the MBA program. Glad to have you both here. My question is actually for Mr.
Buffett. There has been a lost of discussion around the true drivers with the recent deal with
Burlington Northern . I was wondering if you could share with us your key motivation for
wanting to increase exposure to the railroad sector at this time.
BUFFETT: You know, when I was six, I wanted a railroad set and my dad didn't get it.
[APPLAUSE] You think about it. The railroads are tied to the future prosperity of this country.
You can't move a railroad to China or India or anyplace else. We start out with the premise,
and I can't think of a more sound premise, that there will be more people in this country, 10,
20, 30 years from now. They will be moving more and more goods back and forth to each
other. And you have the most environmentally friendly and the most cost-efficient way of
doing that on the railroads. The Burlington Northern last year moved -- on average it moved
8/25
a ton of freight, 470 miles on one gallon of diesel. That is far, far more efficient than what
takes place over the highways. You have the situation where overall they use 1/3 less fuel,
they put far fewer pollutants into the atmosphere than trucks will. One train will supplant
280 trucks are so on the road. So the rails are in tune with the future. I like the West. I like
the 30-some-thousand miles of roadway that Burlington has. And, you know, if this country
has a poor future, the rails have a poor future. I'm willing to bet a lot of money, 34 billion to
be specific -- [LAUGHTER] -- on the fact that 10 years from now, 20 years from now, 50 years
from now, there will be more and more goods being moved by rail and better for the country
and it will be better for the shareholders of the Burlington Northern.
BECKY: OK. [APPLAUSE] Another question.
QUESTION: Hi. My name is Josh Porter. I'm a first-year from North Reading, Massachusetts.
It's an honor to have you both here. So we just went through the worst financial crisis of
hopefully all of our lifetime. And I know it keeps a lot of Americans up at night, you know,
worrying about their future. What, if anything, keeps either of you up at night?
BUFFETT: I try to live my life so nothing keeps me up at night. [APPLAUSE] I don't like to
sound, you know, like a mortician during an epidemic or anything, but last fall was really
quite exciting for me. [LAUGHTER] I don't wish it on anybody, but there were things being
offered. There are opportunities for us to do things that didn't exist a year or two earlier. So I
really don't -- I don't want to be in a position where I am leveraged or something of the sort
that does keep me up at night. I did not worry about the ultimate survival of our economic
system. We were messed up. Wasn't any question about that. But the plants haven't gone
away. The cornfields haven't gone away. The talent of the American people hasn't gone
away. The innovativeness of the next Bill Gates hasn't gone away. This country was going to
do fine. I knew that. We just had to get things straightened out. And we're well on the way to
having that happen.
BECKY: Bill, you mentioned -- [APPLAUSE] You mentioned before that you called Warren and
he said, ‘Yeah, we should maybe be a little worried.’ Did you stay up late that night worrying
about it?
GATES: No. The financial system, fortunately, good leadership has a lot of self-correction
built into it. I think there are a few things that could surprise us that are negative. You know,
big terrorist event sometime in the next 20 years, that would be a big negative. And a
pandemic, which we're actually having in terms of the rate of spread of a new flu, one right
now. And fortunately, its actual impact is very modest, way less than any such thing. So you
have to keep your eye out for a few outliers like that. Those are the two that I would point to.
But overwhelmingly, the rest of the system, you know, there is self-correction built into it.
The long-term thing that I don't lose sleep over but I worry about is that we do have our
education system, particularly the K through 12 part, not improving as much as we should.
And it's an important system for opportunity, it's an important system for the economic
strength of the country, and since it hasn't improved that much, that's a bit scary and needs
a lot more attention.
BUFFETT: Becky, if you had a wonderful farm and you knew the next 50 years there would
9/25
be five droughts but there would be 45 good years, I mean, you would not become paralyzed
thinking about the five drought years. You would recognize that you've got a system that
works very well over time, and that's our American economic system.
BECKY: Since we just had the drought year, does that make it less likely for the --
BUFFETT: No. If you study statistics at Columbia, you'd recognize that -- [APPLAUSE]
BECKY: OK. Let's get to another question. Right back here.
QUESTION: I'm Peter Lawrence, first-year student from Columbia. And, first of all, thank you
both so much for coming here. Mr. Buffett, the recent runup in the market has been historic.
And it seems that many people question the sustainability of the current price level. Do you
think the rally is for real?
BUFFETT: What's going to happen tomorrow, huh? [APPLAUSE] Let me give you an
illustration. I bought my first stock in 1942. I was 11. I had been dillydallying up until then. I
got serious. [LAUGHTER] What do you think the best year for the market has been since
1942? Best calendar year from 1942 to the present time. Well, there's no reason for you to
know the answer. The answer is 1954. In 1954, the Dow … dividends was up 50%. Now if you
look at 1954, we were in a recession a good bit of that time. The recession started in July of
'53. Unemployment peaked in September of '54. So until November of '54 you hadn't seen an
uptick in the employment figure. And the unemployment figure more than doubled during
that period. It was the best year there was for the market. So it's a terrible mistake to look at
what's going on in the economy today and then decide whether to buy or sell stocks based
on it. You should decide whether to buy or sell stocks based on how much you're getting for
your money, long-term value you're getting for your money at any given time. And next week
doesn't make any difference because next week, next week is going to be a week further
away. And the important thing is to have the right long-term outlook, evaluate the
businesses you are buying. And then a terrible market or a terrible economy is your friend. I
don't care, in making a purchase of the Burlington Northern, I don't care whether next week,
or next month or even next year there is a big revival in car loadings or any of that sort of
thing. A period like this gives me a chance to do things. It's silly to wait. I wrote an article. If
you wait until you see the robin, spring will be over.
10/25
BECKY: But at the same time -- [APPLAUSE] Warren, you have repeatedly said over the last
year that investing in American areas is a bet on the future of America. But you have also
invested overseas, companies like BYD. You both spent some time in China. Are there more
opportunities overseas or right here in America?
BUFFETT: I see more opportunity in the United States. We're the biggest economy and we're
looking for big deals. But I am delighted to find something, you know, whether it's in China or
whether it's in Israel, like Iscar or whatever it may be. There are more opportunities in the
United States than anyplace else.
BECKY: Bill, you agree with that?
GATES: Well, yes. The U.S. benefits as the globe benefits. You're not going to have a case
where the rest of the world does poorly and the U.S. does well. Our fate is tied to open
trade, innovation everywhere. You know, even the Burlington, some of the stuff that's on
those railroads might come from other countries.
BUFFETT: I hope so.
GATES: It's exciting to see what's going on in China. It's great for us. If we had a choice for all
the people in China to be as rich as we are versus be as poor as they were back in 1979, we'd
be way better off to say, you know, let's have them be consumers and inventors just like we
are. They are a long ways away from that. But they are a large enough population that great
things are happening there. And, you know, many countries that we thought of as basket
cases and we sent lots of aid to, like Brazil or Mexico or Thailand, are now big contributors.
So it's good for the world that it's not as dependent just on the U.S. But the U.S. is where the
energy revolution is likely to happen, the IT revolution will continue. We are expected to lead
the way.
BECKY: All right. We're going to be back with another question in just a moment. [APPLAUSE]
And by the way, if you have the chance, how would you like to have Warren Buffett or Bill
Gates as your career counselor? Well, we're going to have that when we come right back.
11/25
[APPLAUSE]
BUFFETT'S $100,000 OFFER
BECKY: Welcome back, everybody. We have more questions for Bill Gates and Warren
Buffett. And we are running through them, but let's keep them going. Got a question right
over here.
QUESTION: My name is Erica Braley and I am a second-year student. My question is for Mr.
Gates. What is the most important thing you do every day?
GATES: Hmmm. [LAUGHTER] [APPLAUSE] Well, I do a lot of variety. I think reading a lot, you
know, and continuing to learn. I'm in a lot of new areas in the Foundation, education, health.
And I love reading a lot. So I think, you know, arming myself with that knowledge and sitting
down with people who live the topic and brainstorming with them, that's what helps me back
the right people and make sure I know what's going on. So I guess I'd say learning is what is
the key thing. [LAUGHTER] [APPLAUSE]
BECKY: What was that? Let's get to another question.
QUESTION: Mr. Buffett, Mr. Gates, thank you for being here today. My name is Justin
Heyman, I'm a second-year MBA, as I get ready to graduate, I was wondering, what's the one
thing that your MBA didn't prepare you for when you got out into the real world?
BUFFETT: Well, I was -- it prepared me very well, not the whole degree, but specific
professors prepared me very well for what I wanted to go into. I knew I was interested in
investing, like I say, from the time I was six or seven years of age. So I was lucky that I found
what turned me on early on. And I had these two marvelous professors here at Columbia
that just being around -- I had read all the stuff they had written. So it wasn't I was acquiring
lots of incremental knowledge but I was getting inspired. They were terrific for me. They
treated me like a son. They would take me out to dinner. Ben Graham did the same thing for
me. So it gave me confidence in myself. It just propelled me into a field I already love with a
12/25
terrific tailwind from these professors that believed in me. [APPLAUSE] But let me add one
point because -- to the MBA situation. Right now, I would pay $100,000 for 10% of the future
earnings of any of you. So anybody that wants to see me after this is over -- [LAUGHTER]
[APPLAUSE] If that's true, you are a million-dollar asset right now, right, if 10% of you is worth
100,000? You could improve -- many of you, and I certainly could have when I got out, just in
terms of learning communication skills. You know, it's not something that is taught. I actually
went to a Dale Carnegie course later on in terms of public speaking. But if you improve your
value 50% by having better communication skills, that's another $500,000 in terms of capital
value. See me after the class and I'll pay you 150-thousand. [APPLAUSE]
BECKY: Warren, you bring up your time here. I don't know if you can see the monitors back
here, but we did take a look at your yearbook and steal your picture from 1951 year.
BUFFETT: Uh-oh.
QUICK: I think we have a picture in the back. There you are. [APPLAUSE]
BUFFETT: I don't think I'd pay $100,000 for 10% of that guy. [LAUGHTER]
BECKY: Another question right here.
BUFFETT: Hi. My name is Oleg Cheesh. I'm a second-year MBA student here. My question is
for Mr. Gates. You obviously worked very hard to get to where you are. Could you reflect on
what role pure luck played in your success?
GATES: Well, I was lucky in many ways. I was lucky to be born with certain skills. I was lucky to
have parents that created an environment where they shared what they were working on
and let me buy as many books as I wanted to. And I was lucky in terms of the timing. The
invention of the microprocessor was something profound. And it turned out only if you were
kind of young and looking at that could you appreciate what it meant. And then I had been
obsessed with writing software. It turned out that was the key missing thing that would allow
the microprocessor to have this incredible impact. So in timing and skill set, in some of the
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people I was lucky enough to meet, you know, meeting Warren and talking to him, learning
from him, it is unusual to have so much luck in one life, I think. But it's been a major factor in
what I have been able to do.
BECKY: All right. Another question right here.
QUESTION: Hello, my name is Ugin Quinn, I'm from Deerfield, Illinois. And I'm a first-year
student at Columbia Business School. I'd like to direct my question to both Mr. Buffett and
Mr. Gates. In the context of both your professional relationship and unique friendship, what
do you admire most about each other?
BECKY: OK. Who wants to take that one first? [LAUGHTER]
BUFFETT: My athletic ability. Say that. [APPLAUSE] Well, I would say what I really most admire
about Bill is the view he has about what he should do with the wealth he's accumulated. I
mean, as he said, he was very lucky. He was born in the right country, at the right time, with
the right wiring and all of that sort of thing. In the end, he knows he's a beneficiary of a
terrific society, and not everybody gets the long straws like he and I did. So he is -- and he
has this view that every human life worldwide is the equivalent of every other human life,
and he's backing it up not only with money, but backing it up with his time. And his wife,
Melinda, is backing it up with her time. And they are really going to spend, you know, the last
half of their lives or so using both money, talent, energy, imagination, all improving the lives
of 6.5 billion people around the world. That's what I admire the most. [APPLAUSE]
BECKY: Bill.
GATES: With Warren, there are a lot of things you could pick, you know, his integrity as an
example for the world. His sense of humor. But I think I'd pick his desire to teach, his desire
to teach things that are complex and put them in a simple form so that people can
understand and get the benefit of all his experience, all his models of how the world works.
He loves to teach. And he does it meeting with students. He does it in his annual newsletter.
He does it when he's talking to me on the phone. It's a real gift that I admire incredibly.
[APPLAUSE]
BECKY: Let's take another question right here.
QUESTION: Mr. Buffett, Mr. Gates, thank you for being here tonight. I am Ibrahim Dolly, first
year here at Columbia. I came from Portugal. I have a question for both of you. You both
knew early in your careers what you wanted to do in your life. What advice do you have for
those of us who are a little bit unclear?
GATES: Well, finding the thing that you are passionate about and that you are good at can
sometimes take a period of years. I think Warren and I were lucky we kind of ran into it. I
wasn't even sure it was software. I was kind of obsessed with it but then it wasn't clear it
could be a career. When that happened, it was great. I think most other people get into their
20s and have to try out some different experiences. And some things will expose you to a lot
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of different businesses, a lot of different work opportunities. And I think you can make your
first few jobs optimized for getting that exposure. And then when you want it, see the thing
that you want to be fanatical about and just jump on to that.
BECKY: All right.
BUFFETT: First of all, I'd say marry the right person. [LAUGHTER] And I'm serious about that.
[APPLAUSE] It will make more difference in your life. It will change your aspiration, all kind of
things. It's enormously important who you marry. Beyond that, I would say that do what you
would do if you were in my position, where the money means nothing to you. At 79, ... I work
every day. And it's what I want to do more than anything else in the world. The closer you
can come to that early on in your life, you know the more fun you're going to have in life and
really the better you're going to do. So don't be driven where you think the last dollar is
presently or anything of that sort. And then also go to work, if possible, for an organization or
an individual that you admire. I mean I offered to go to work for Ben Graham because there
was nobody I admired more in the business than him. I didn't care what he paid me. When
he finally did hire me in 1954, I moved from Omaha to New York and I didn't know what I was
getting paid until I got my first paycheck. But I knew I wanted to work for Ben Graham. And I
knew I would jump out of bed every morning and be excited about what I would do and I
would go home at night smarter than I was in the morning. Go to work at a job that turns
you on and a person that turns you on and institution. [APPLAUSE]
BECKY: Stay right here. We will be right back.
WHY CASH ISN'T 'KING'
BECKY: All right. Class continues, everybody. We are back with the two greatest capitalists
out there with Investing 101, back to more students’ questions. Why don't we start right
here?
QUESTION: My name is Adam Van Dam and I'm a first-year student here. This question is for
Mr. Buffett. If the Burlington Northern acquisition is any indication of your long-term buy
15/25
and hold forever investment philosophy, I am wondering if the financial crisis has impacted
that philosophy or your investment process in any way?
BUFFETT: No. It hasn't changed at all. We like products like this. How is this for shameless
products? [APPLAUSE] This started in 1886. It's gone through all of these events. And the end
will be 1.6 billion eight-ounce servings of Coca-Cola products come today and there will be
more next year. We want to be in business with a durable competitive advantage with
managements we like and trust and do them at a price we like. It hasn't changed a 1/10 of a
degree. Incidentally, we own Fruit of the Loom, too, but I'm not going to do a product.
[APPLAUSE]
BECKY: OK. Our next question right here.
QUESTION: Hi, I'm Brian Seedabalker. I'm a second-year student. Mr. Buffett, it's great to see
you again. I was on the trip to Omaha last month. Thank you for hosting us. My question is,
how would you recommend an individual investor who follows the Graham and Dodd
philosophy to allocate their capital today?
BUFFETT: Well, it depends whether they are going to be an active investor. Graham
distinguished between the defensive and the enterprising and that. So if you are going to
spend a lot of time on investment, you know I just advise looking at as many things as
possible and you will find some bargains. And when you find them, you have to act. It doesn't
-- it hasn't changed at all since I was here in 1950, 1951. And it won't change the rest of my
life. You start turning pages. When I got out of school, I turned every page in Moody's 10,000-
some pages twice, looking for companies. And you have to find them yourself. The world
isn't going to tell you about great deals. You have to find them yourself. And that takes a fair
amount of time. So if you are not going to do that, if you are just going to be a passive
investor, then I just advise an index fund more consistently over a long period of time. The
one thing I will tell you is the worst investment you can have is cash. Everybody is talking
about cash being king and all that sort of thing. Most of you don't look like you are
overburdened with cash anyway. [LAUGHTER] Cash is going to become worth less over time.
But good businesses are going to become worth more over time. And you don't want to pay
too much for them so you have to have some discipline about what you pay. But the thing to
do is find a good business and stick with it.
BECKY: Does that mean you think we are through the roughest times? You had always kept
the cash word around, too.
BUFFETT: We always keep enough cash around so I feel very comfortable and don't worry
about sleeping at night. But it's not because I like cash as an investment. Cash is a bad
investment over time. But you always want to have enough so that nobody else can
determine your future essentially. The worst -- the financial panic is behind us. The
economic spillout which came to some extent from that financial panic is still with us. It will
end. I don't know if it will end tomorrow or next week or next month. Or maybe a year. But it
won't go on forever. And to sit around and try and pick the bottom, people were trying to do
that last March and the bottom hadn't come in unemployment and the bottom hadn't come
in business but the bottom had come in stocks. Don't pass up something that's attractive
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today because you think you will find something way more attractive tomorrow.
QUESTION: Mr. Buffett and Mr. Gates, my name is Antionette Genevieve. I am a first-year
executive MBA student. And I actually work at Goldman Sachs, so thank you for your
investment. [APPLAUSE]
BUFFETT: Why aren't you at work? [LAUGHTER] [APPLAUSE]
QUESTION: My question to you is I'd like both of your thoughts on the investment of
alternative energy as for developing our economy and getting it back on track.
BECKY: Bill, you touched on this earlier.
BILL: Well, there are many, many ideas. And there's enough that we can say most of them
will turn out to be dead ends. You know, the solar-thermal, solar-electric, nuclear is going to
go through some of the revival and see if it can solve some of its cost challenges. As a
country, we want to make sure all of those get lots of R&D and regulatory enablement
because one of them is going to give us much cheaper power without causing any problem.
We don't know which one it is. And we don't have quite as much R&D going into those things
as I'd like to see. We have quite a bit, but I think the government policies could drive for
more. But it is one of these areas that is somewhat faddish in nature. When you have a lot of
energy focusing on a field, the amount of money that goes in is very large. And the overall
return on capital is often quite large. The car industry in its heyday was a disaster. The airline
industry, even the software industry because people don't remember all the non-Microsofts
that don't exist until today. When something is hot, you get kind of a bubble. So energy,
you're going to have to be a bit careful to make sure it's one that's really got its cost structure
in line and it's not just being pushed along by subsidies and there will be scientific surprises.
So a very hot area, but not necessarily a good area for investment.
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BECKY: All right. Why don't we leave it there for now? When we come back, we will have more
with Bill Gates and Warren Buffett. [APPLAUSE] We'll be talking about leadership and
President Obama right after this break. [APPLAUSE]
HOW TO RUN A BUSINESS
BECKY: All right. Welcome back, everybody. We are at Columbia University. And right now
we're going straight to the top of Columbia Business School. We are joined by Dean
Hubbard. [CHEERS AND APPLAUSE] Glenn Hubbard, by the way, is not only the head of the
Business School here, he also happened to serve at the White House where he was chairman
of the Council of Economic Advisors. So this is a man who knows not only about what's
happening in the economy, but also what's happening with these students. You talk to them
all the time. What's the question that you'd like to pose to Mr. Gates and Mr. Buffett?
HUBBARD: Thanks, Becky, and thanks to both of you for being here today. And, Warren,
welcome home.
BUFFETT: Thank you. [APPLAUSE]
HUBBARD: Warren, one thing you said years ago that's always stuck with me is you never
know who is swimming naked until the tide goes out. And that, of course, says maybe there's
some value in knowing when it's going to be low tide. It also says there's value in knowing
context. How do we develop -- how do we encourage business leaders who understand
context and connect the dots?
BUFFETT: Well, I think they have learned a lot about that in the last year. Some never learn,
you know. At Berkshire, we have actually 70-some managers. I think most of them are a fair
amount smarter than they were 15 months ago but they were plenty smart to go in. But, you
know, I think that what I learned from a Ben Graham, who came up here every Thursday
afternoon. He didn't need to do it, you know. He donated whatever he got paid back to the
school and all of that. But having sound principles takes you through everything. And the
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bedrock principles that really I learned from Graham and Dodd, I haven't had to do anything
with them. They take me through good periods. They take me through bad periods. In the
end, I don't worry about them because I know they work.
BECKY: Bill, what do you think is the most important character for a business leader to have?
GATES: Well, it's surprising that the fundamentals of business are pretty straightforward, you
know. You try to take more in income than you spend in cost. That's a pretty straightforward
subtraction. But it's surprising in terms of projecting out into the years ahead that, you know,
are we making the right investments, are we gaining on the competition, are we making it a
little bit harder for people to replace what we're doing? That kind of common sense, I guess
you've got to develop it through experience. And I think it's neat if you are young and you
can see that in a small scale and be hands on with it because a lot of people who start with
large businesses may have a hard time with it. So, you know, the basics are pretty
straightforward. Learning how it works and doesn't work in a variety of industries, by reading
a lot, I think that's something that comes with time and a business school is an intense
period where you can get ahead of the game.
BUFFETT: I send one message out every year and a half or two years. They get one letter
from me every couple of years. And basically it says, run this business like it's the only
business that your family can own for the next 100 years. You can't sell it. But every year
don't measure it by the earnings in the quarter that year. Measure it by whether the moat
around that business, what gives it competitive advantage over time has widened or
narrowed. If you keep doing that for 100 years, it's going to work out very well. Then I tell
them basically if the reason for doing something is everybody else is doing it, it's not good
enough. If you have to use that as a reason, forget it. You don't have a good reason for doing
something. Never use that.
BECKY: Let's get to some student questions. [APPLAUSE]
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QUESTION: Mr. Buffett, Mr. Gates, it is absolutely fantastic having you here. Thanks a lot. My
name is Kata Cafunka. I am a second-year MBA student here at Columbia. Actually, my
question is really related to what you were asking. Many of us and many people in general
aspire to become somebody like you. But actually only a few people got that height, right? So
what do you think were the major qualities that you have that distinguish you from the
majority?
BECKY: All right. Bill, Warren, what makes you stand out from the crowd?
BUFFETT: It's always interesting when Bill and I appear together, they don't figure they can
do what Bill does, but they know they can do what I do. [LAUGHTER] [APPLAUSE] We did both
have a passion. We were doing what we did because we loved it. We weren't doing it to get
rich. We probably felt if we did it well, we would get rich. But we'd have done it, you know, if
somebody was slipping bread in under the door, you know, to keep us going. And so I think
that passion for it is enormously important. I was lucky enough to have a couple of great
teachers, particularly one great teacher. I had a great teacher in life in my father. But I had
another great teacher in terms of profession in terms of Ben Graham. I was lucky enough to
get the right foundation very early on. And then basically I didn't listen to anybody else. I just
look in the mirror every morning and the mirror always agrees with me. And I go out and do
what I believe I should be doing. And I'm not influenced by what other people think.
BECKY: All right. We'll get to Bill's answer on this in just a minute. [APPLAUSE] Bill Gates and
Warren Buffett right after this break.
'BELIEVE IN YOURSELF'
BECKY: All right. Welcome back, everybody. Welcome back to class. We have left that last
break waiting for an answer from Bill Gates. Bill, if you had to pick one thing that makes you
stand out from everyone else, what would that be?
GATES: Well, we talked about some of the basics, having great people around you, reading a
lot, thinking long-term. I also think, though, there become a few magic moments where you
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have to have confidence in yourself. You know, Warren when he set off on his own, he could
have gone and taken a job as an analyst somewhere. But he knew that he had the skill, that
he was going to raise money and have his own partnership. When I dropped out of Harvard
and said to my friends, ‘Come work for me,’ there was a certain kind of brass self-confidence
in that. You have a few moments like that where trusting yourself and saying yes, this can
come together -- you have to seize on those because not many come along.
BECKY: All right. Great advice. Believe in yourself. Guys, we're going to try and go into a cram
session and get in some answers pretty rapid fire. Let's get right back here. We have a
question.
QUESTION: My name is Nikki Shelton from Roseville, New York. I'm a second-year student
here at the school. First, I just want to thank you guys for being great philanthropists. You
guys have done a great job in the world. [APPLAUSE] And my question is for Mr. Buffett. You
recently made a huge contribution to the Bill and Melinda Gates Foundation. If you can talk
to us a little bit about what your reasoning was and how you'd like to see those funds used.
BUFFETT: Well, I wouldn't have given it to them unless I was 100% in sync with their
objective, which is do the most good for the most people, wherever they may be, male or
female, whatever their color, whatever their religion or so on. They believe every human life
is equal to every other one. I am very good at making money. If you read what Adam Smith
wrote in 1776 about specialization of labor, you know, he said if you need to deliver a baby,
don't try to learn to do it yourself. Get an obstetrician. So Bill and Melinda will be better and
my children who will also have foundations will be better at doing it than I would be. And
that's fine. I'll work at what I'm good at and I'll let them do it. And they are doing it 100% in
accord with my wishes.
QUESTION: Mr. Buffett and Mr. Gates, welcome to Columbia Business School. My name is
Chris. I'm from Pennsylvania and I'm a first-year MBA student. My question is, who have been
some of your most important mentors? And what lessons have you learned from them?
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BECKY: Bill.
GATES: Well, I benefited from my dad and mom who set a great example. My dad was a
lawyer and shared what he was doing at work. I have had some business partners that we
have learned together, Steve Balmer in particular. And then I pick Warren as somebody I
have learned an immense amount from, just hearing his stories of how he dealt with tough
situations, how he thought long-term, how he models the world. If you get a chance to spend
time with people like that, it's fantastic.
BECKY: All right. We will be right back. Stay right here.
BECKY: All right. Ready? Welcome back, everybody. This is real crunch time. Let's get right to
it. You got it question?
QUESTION: Yeah. Welcome. My name is Steven Matthews. I am in the executive Business

School here. Thanks for coming here. My question is on Apple . Mr. Gates, if you could just
comment and tell us what your thoughts are on the job Steve Jobs has done as the CEO of
Apple. [LAUGHTER]
GATES: Well, he's done a fantastic job. And Apple is in a bit of a different business where they
make hardware and software together. But when Steve was coming back to Apple, which
was actually through an acquisition of NeXT that he ran, Apple was in very tough shape. In
fact, most likely, it wasn't going to survive. And he brought in a team. He brought in
inspiration about great products and design that's made Apple back into being an incredible
force in doing good things. And it's, you know, great to have competitors like that. We write
software for Apple, Microsoft does. They compete with Apple. But he, of all the leaders in the
industry that I have worked with, he showed more inspiration and he saved the company.
BECKY: OK. Tag, you're it.
QUESTION: Thank you. My name is Michael. I'm a first year MBA student. The question is for
Mr. Gates. I was wondering if you think Google at all resembles Microsoft during Microsoft's
early years.
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GATES: Well, they have some of the same problems we had. [LAUGHTER] [APPLAUSE] It's
another fine competitor. They are hiring a lot of smart people. They have gotten into the lead
position in search, which is incredibly profitable to be number one in that. They may get a
little competition as time goes forward. But they are a great example of what can happen,
you know, two young guys who got together, pursued an idea and created a success that's
absolutely gigantic. And we all, you know, hopefully use search engines, maybe a variety.
[LAUGHTER] And we benefit from that.
BECKY: Right here.
QUESTION: Hi, I'm Josh Austin. I'm a second-year MBA student. My question is for you, Mr.
Buffett. Value investors, such as yourself, believe that fundamental analysis, deep
fundamental analysis is critical to intelligent investing. However, you have said several times
in the past that you have made very rapid capital allocation decisions, sometimes in less than
five minutes. I was wondering exactly which data gave you confidence in your decision.
BUFFETT: Well, that's 50 years of preparation and five (minutes) of decision making.
[APPLAUSE]
BECKY: Can you just look at the spreadsheet? Can you look at an annual report and make a
decision like that?
BUFFETT: Yeah. Sometimes I can. Just take Coca-Cola, for example. I sampled the product for
60 years and then I saw a couple of key ingredients, you know, that essentially tipped the
scale in terms of buying it back in 1988. But the good big decisions, they don't take any time
at all. If they take time, you're in trouble.
BECKY: All right. We will have more with Bill Gates and Warren Buffett, when we come right
back.
IF AMERICA WAS A STOCK...?
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BECKY: All right. Welcome back, everybody. Gentlemen, last question today. If America was a
stock, would you buy it? Bill.
GATES: You bet.
BECKY: Warren.
BUFFETT: On margin. [LAUGHTER]
BECKY: Gentlemen, we want to thank you very much for your time. You've been wonderful.
Bill, Warren, we really appreciate it. Let's give them a big round of applause, guys.
[APPLAUSE] And we want to thank all of you, too. Columbia University, the Business School,
Dean Hubbard, thank you, guys. We really appreciate it. It's been fantastic. That does it for us
today. I'm Becky Quick, and if you want to watch this, you can go to CNBC.com and we will
see you back here very soon.
24/25
Class A:
Class B:
Microsoft:
Email comments to buffettwatch@cnbc.com
25/25
Charlie Rose Interview with Warren Buffett on November 13, 2009
rbcpa.com/warren-e-buffett/charlie-rose-interview-with-warren-buffett-on-november-13-2009/
Warren Buffett was interviewed by Charlie Rose on November 13, 2009. Here is a transcript
of event.
Here is a link to the transcript http://www.charlierose.com/download/transcript/10711
The following is the transcript of the interview.
CHARLIE ROSE: Warren Buffett is here. As you know, he is perhaps the
world’s most respected investor. He’s also chairman and CEO of Berkshire
Hathaway.
He has been on this program many times. I last spoke with him over a
year ago at the peak of the worst economic crisis since the Great
Depression. At that time, he said that America had been struck by an
economic Pearl Harbor, but much has changed since then, and he’s here to
tell us how he views a global and American economy in recovery.
His own company reflects the progress made in recent months. Last week,
Berkshire Hathaway struck a $26 billion deal to buy all of Burlington
Northern Santa Fe railroad, the largest acquisition in company history. He
called the deal an all-in wager on the American economy. He is in New York
for a town hall event that he held with Bill Gates at Columbia University
yesterday. He graciously agreed to stay over in New York an extra night,
and I am pleased to have a good friend of this program and a good friend of
mine back at this table. Welcome.
WARREN BUFFETT: Thank you, Charlie. Pleased to be here.
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CHARLIE ROSE: Great to see you. It has been, certainly from the
middle of 2008 to the middle of 2009, one incredible year.
WARREN BUFFETT: One incredible year. One to a lifetime, I hope.
CHARLIE ROSE: Yes. Tell me about it for you.
WARREN BUFFETT: Well, it was– it really was an extraordinary time in
this country. We came closer to a financial meltdown than certainly any
time I have ever seen, and probably in certain respects even — there was
even more panic than the Great Depression, because it came on so fast and
so unexpected.
And the whole country wanted to deleverage, corporations, individuals,
and fortunately we had a government that responded. It was — when we
talked last, it was a little question of whether Congress would respond
like they should. They finally did, and I — I felt they would in the end.
I mean, in the end, they come together for things that are this vital to
the country. But we had the right people in Washington. If we’d had a
group that behaved like a deer in the headlines, that deer would have
gotten run over.
CHARLIE ROSE: So Paulson and Bernanke and Geithner were the right
people at the right time, and you don’t know what might have happened if
others had been in those positions of power.
WARREN BUFFETT: I can think of others– I’m not going to name them–
but I can think of others where the ending would have been with us in the
abyss rather than just peering down into it.
CHARLIE ROSE: You made some investments during that period.

2/47
WARREN BUFFETT: Right.
CHARLIE ROSE: General Electric, Goldman Sachs.
WARREN BUFFETT: Goldman Sachs.
CHARLIE ROSE: But you just pulled out the big elephant gun.
WARREN BUFFETT: Well, we may have used most of our powder on that
one.
(LAUGHTER)
CHARLIE ROSE: You said I stretched to the last nickel for this one.
WARREN BUFFETT: Yes.
CHARLIE ROSE: Why did you do it?
WARREN BUFFETT: Well, I felt it was an opportunity to buy a business
that is going to be around for 100 or 200 years, that’s interwoven with the
American economy in a way that if the American economy prospers, the
business will prosper. It is the most efficient way of moving goods in the
country. It is the most environmentally friendly way of moving goods, and
both those things are going to be very important.
But the biggest thing is the United States is going to do well. I
mean, we can’t move the railroad to China or India. They haven’t figured
out how to do that. So you know, it’s sort of like if you remember that
song about New York– we have to make it here or we can’t make it anywhere.
CHARLIE ROSE: Frank Sinatra.
(LAUGHTER)
WARREN BUFFETT: But it does move 400 — it moves a ton of goods 470
miles on one gallon of diesel. It replaces — a train replaces 280 trucks
on the road. It emits far less into the atmosphere that’s damaging than
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trucking, and it moves– I’m talking about the whole rail industry– it
moves 40 percent of the goods.
CHARLIE ROSE: And you have new ports of entry like Houston that are
bringing a lot of goods…
WARREN BUFFETT: Oh, sure.
CHARLIE ROSE: … through the Panama canal.
WARREN BUFFETT: And we’re going to have more people in this country
and they’re going to be using more goods over time. And sure, there’s a
bad year from time to time. In the next 100 years, there will probably be
15 bad years, and I don’t know what order they’ll appear, but I also know
the railroads will be essential to the country.
CHARLIE ROSE: Now, when you called Charlie Munger and said I’m
thinking about this, did he say right on, Warren? Or did he say, how about
this?
WARREN BUFFETT: Well, if Charlie said “right on, Warren,” I would
figure I had the wrong number. No, that would be a wrong number.
CHARLIE ROSE: That’s not the likely reply.
WARREN BUFFETT: That might be my wife or my, you know — but Charlie
gave kind of a low-level grumble, and that is a real endorsement from
Charlie.
CHARLIE ROSE: But I mean, he also pointed out, it is said, that, you
know, there was– this was a regulated industry.
WARREN BUFFETT: Sure.
CHARLIE ROSE: This was an industry that was capital-intensive.
4/47
WARREN BUFFETT: Very capital-intensive.
CHARLIE ROSE: This was an industry…
WARREN BUFFETT: You spend money…
CHARLIE ROSE: That was unionized.
WARREN BUFFETT: It was unionized. You spend money in this business
regularly every day. You’re spending a lot of money to repair track, add
rolling stock, whatever it may be. So it’s capital-intensive, and it is
regulated, and it will continue to be regulated, and it will continue to be
capital-intensive.
I think that what the service provided by railroads is so important in
many ways. I mean, it’s the right way to move goods around the country to
the extent that you can do it. And it’s far, far more attractive in terms
of global warming than using trucks, for example. So it will be here, and
if we get a reasonable return on the added capital investment– because it
will take added capital investment– we’ll do OK.
CHARLIE ROSE: Reasonable return is good enough?
WARREN BUFFETT: Reasonable return is good enough, Charlie. I mean,
50 years ago, I was looking for spectacular returns, but I can’t– I can’t
get them. We have– we have eight or $10 billion to invest every year.
And we’re in the utility business, and it’s the same thing there. When we
build electric generation or something of the sort, we shouldn’t expect a
spectacular return. We’re building things that are essential to society,
and people need our services. They really don’t have any choice in the
case of the electric utilities, for example, and sometimes in case of rail.
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And we should get a decent return on that. Enough to encourage us to keep
putting money into the business, but we’re not entitled to spectacular
returns.
CHARLIE ROSE: You carry coal?
WARREN BUFFETT: Well, that’s a big one in terms of tonnage, yes.
CHARLIE ROSE: And if, in fact, we wean ourselves off coal, is that a
big problem?
WARREN BUFFETT: Well, we will wean ourselves off coal over time. We
can’t change 40 percent of electric generation that goes– that comes from
coal. We can’t change that next week or next month or next year, but we
will reduce it over times, and we should reduce it over time.
CHARLIE ROSE: And you can add other things to carry and changes will
be…
WARREN BUFFETT: There will be more grain to move, and there will be
more all kinds — chemicals– or whatever it may be. There will be more
things moving around this country 10 or 20 or 30 years from now.
CHARLIE ROSE: Knowing your idea about moats, is it a pleasing idea
that no one is likely to get into the railroad business?
WARREN BUFFETT: If they wanted to reproduce the Burlington Northern
Santa Fe, it might take $100 billion or so.
CHARLIE ROSE: And 100 billion years.
WARREN BUFFETT: They’d have to be a real sport.
(LAUGHTER)
CHARLIE ROSE: And they are also modernized today, are they not?
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WARREN BUFFETT: Enormously. Enormously. The railroads– take a
railroad like BNSF. They’re moving far more ton miles of product with less
in the way of people, less in the way of fuel. Railroads have become far
more efficient over the years. There were a million and a half people
employed in the rail industry after World War II. Now there are about–
less than 200,000 in the United States, and they’re moving far more goods.
So it’s really become efficient. You watch those 130-unit trains double
stacked…
CHARLIE ROSE: You had other railroad companies in your portfolio.
CHARLIE ROSE: You’re selling them?
WARREN BUFFETT: I’ve already sold them. Yes. I’ve done that just to
facilitate the transaction. I think they’re good investments, but I would
have held them if this hadn’t happened.
CHARLIE ROSE: When you look at the future, there’s also the argument
made that this is something that goes with your philosophy today– get out
of cash and get into assets. Because we don’t know what’s going to happen
to the dollar.
WARREN BUFFETT: Well, cash is always a bad investment. I mean, when
people say cash is king a year ago, I mean that’s crazy. I mean, cash
wasn’t producing anything, and it was sure to go down in value over time.
And then you always want to be sure you have enough. It’s like — like
oxygen — you want to be sure it’s around, you know. But you don’t need to
have — you don’t need to have excessive amounts of it around. And cash,
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we will always have enough cash around.
CHARLIE ROSE: Yes.
WARREN BUFFETT: But anytime we have surplus cash around, I’m unhappy.
I mean, I would much rather have good businesses than cash. And we found a
chance in the last year, thereabouts, to deploy — we came in with
something over $40 billion in cash …
CHARLIE ROSE: Right.
WARREN BUFFETT: … and we have got about $20 billion now, and we’ve
had some earnings. So, we — we’ve put a lot of cash to work. And I like
that. No, I’d much rather own a good business than have cash.
CHARLIE ROSE: And it is a hedge against the dollar?
WARREN BUFFETT: Well, you can say all assets are a hedge against the
dollar. I mean, but — all you know is that the dollar is going to be
worth less 10, 20, 30 years from now. I say “worth less.” Not worthless.
(LAUGHTER)
WARREN BUFFETT: You want to watch that. But it will be — you know,
and that’s true of almost every currency that I can think of. The question
is how much it depreciates in value. But cash — cash is not a place…
CHARLIE ROSE: Now, why is that?
WARREN BUFFETT: Well, because …
CHARLIE ROSE: … that the dollar is going to be worth less?
WARREN BUFFETT: Because we’ll print more of them in relation to the
amount of goods that are moving. You know, if we dropped — if we dropped
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a million dollars of cash into every household in the United States today,
everybody would feel very good except the people that invested in things
that were denominated in dollars. You know …
CHARLIE ROSE: Exactly. Got it.
WARREN BUFFETT: There will be no tendency toward deflation in this
country over time or — or virtually …
CHARLIE ROSE: A tendency towards inflation.
WARREN BUFFETT: Absolutely.
CHARLIE ROSE: OK.
CHARLIE ROSE: In all the conversations we’ve had, I never thought
that I would sit with you and we would talk about a 50:1 split of a class B
stock.
WARREN BUFFETT: Right. Right.
CHARLIE ROSE: I mean, this had to be a hard one or not?
WARREN BUFFETT: I think I had a lobotomy one night and I didn’t know
about it. It is — it is not — it is not natural for me, but it was
needed to facilitate the small shareholders of BNSF getting the same deal
as the big shareholders.
CHARLIE ROSE: Right. Right. Right. Will it also qualify you for
the S&P index?
WARREN BUFFETT: Well, it probably makes it a little less — a little
more likely over time that we get in there (ph). It makes it easier for
S&P, because we’re by far the largest company that’s not in the index …
CHARLIE ROSE: Yeah.
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WARREN BUFFETT: … and — and we’ll probably– my guess is that
they’ll consider us for it.
CHARLIE ROSE: And you’d like that?
WARREN BUFFETT: I certainly wouldn’t mind it. But I don’t — but I
don’t — I mean, it’s not — it’s not on my wish list for Christmas.
CHARLIE ROSE: It is not on your high lust list.
WARREN BUFFETT: No, no, no. The big thing is what happens to the
value of the company. And the shares will take care of themselves if we
build value.
CHARLIE ROSE: Yeah. When you — when you look at the railroad
business, it has a romance to it. You had a railroad track, I guess, in
your attic, didn’t you or some …
WARREN BUFFETT: I still do. I still do. I hope they don’t make me
sell it for antitrust reasons.
(LAUGHTER)
CHARLIE ROSE: Take a look at this tape.
(VIDEO CLIP)
WARREN BUFFETT: My heart’s beating faster after watching that.
Throwing Grace Kelly in the middle of the road, I would have paid more.
(LAUGHTER)
CHARLIE ROSE: J.P. Morgan also owned the railroads, didn’t he?
WARREN BUFFETT: Yeah, and he was — he …
(CROSSTALK)
WARREN BUFFETT: In fact, there was a huge fight over the Northern
Pacific …
10/47
WARREN BUFFETT: … which is one of the predecessor roads. And —
and you had — you had two factions, and Morgan was lined up on one side.
Yeah, he was — he was very involved.
CHARLIE ROSE: Last night at Columbia, you said that the economic
panic is over.
CHARLIE ROSE: Where do you think we are?
WARREN BUFFETT: Well, I can tell you where we are today. I can’t
tell you, you know, what’s going to happen tomorrow. But we’ve got 70-some
businesses — so I get a lot of — the panic is over. I mean, now money’s
flowing. I mean, because we’re in a recession, there’s not as much demand
for money, and money isn’t flowing to really dumb projects like it was a
few years ago, but money is available now. And the panic is gone, and
credit defaults spreads have come down dramatically.
But that panic that spilled over into the real economy last fall,
really, has — it’s left — it’s left real scars on the American public
psyche. I mean, the reset of how they spend their money and how they’re
thinking about their future changed in a big way last fall, and that —
that has not come back. And so in our businesses, they’ve bottomed. But
they’re not — there are very few upticks. It’s more or less flat right
now. But it will come back, Charlie. I want to emphasize that. But it
has not changed much since so far.
CHARLIE ROSE: Do you have any sense of timing about that?

11/47
WARREN BUFFETT: I really don’t. I mean, you know, it — I keep
watching, and it will come back. And people are not panicked anymore, but
they’re behaving differently than they did a year ago.
CHARLIE ROSE: Saving more, taking less risk.
WARREN BUFFETT: They’re taking less risk, and they’re more worried
about …
CHARLIE ROSE: Budgeting better.
WARREN BUFFETT: They’re worried about their future, more people are.
You know, they have — they have seen something happen that they didn’t —
wasn’t really in their — in the scope of what they thought was possible.
CHARLIE ROSE: You have said for a long time that we are too much of a
consuming society, not enough of a saving society. Will we now become a
saving society?
WARREN BUFFETT: Yeah, we’ll probably become a saving society, but of
course the government demands for borrowing will be such that even with a
lot of borrowing from abroad, there will be a lot of borrowing required
from within the country.
CHARLIE ROSE: And where is the consumer demand going to come from?
WARREN BUFFETT: Well, it will come back eventually. I mean, we —
you know, our system will still work. But we have — you know, we talked
last year about the patient, you know, being on the floor with a cardiac
arrest …
CHARLIE ROSE: Yeah. Right.
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WARREN BUFFETT: … and we’re not out of the hospital yet. But we
will come out of the hospital. This — the things that made America what
it is have not disappeared, and they will — they will assert themselves
with time. But if you have way too many houses, you know, it’s going to
take time to work that off. If you’ve got a commercial real estate problem
where people just borrowed too much money and bought in at too low cap
rates and all of that, that does take time to work off. That’s happened to
us in the past, though, too. It happened in the 19th century, it happened
in the 20th century at various times, and we’ve always come back stronger.
CHARLIE ROSE: Commercial real estate is really in trouble.
WARREN BUFFETT: It’s a mess.
CHARLIE ROSE: You’re in the underwear business, you’re in the ice
cream business. You’re also in utilities.
CHARLIE ROSE: There was even a depreciation in demand on the part of
— for electricity?
WARREN BUFFETT: It’s amazing. We’re — in both Iowa, Midwest, and
then we also have the Pacific Northwest and the mountain states, and
everywhere you expected to see a big drop in industrial demand, but if you
take weather-adjusted behavior of residential customers, it fell off. And
it was like nothing we’ve seen since World War II. You know, it doesn’t
mean that it goes down 20 percent in residential or anything, but this was
an absolutely different experience than anything we’ve seen since World War
II in residential usage.
13/47
CHARLIE ROSE: Is one of the things that is going to come out of this
crisis, that the demand for products, somebody else is going to have to
shoulder that demand, create that demand, other than the American economy?
WARREN BUFFETT: No, the American — the American economy will come
back. It won’t be tomorrow, and, you know, it won’t be exactly the same.
But in the end, we have not — we’ve not changed the American people in
their capacity to innovate or their excitement about — about becoming more
prosperous, and coming up with new ideas. There are — businesses will be
formed. Businesses will expand. But not much tomorrow.
CHARLIE ROSE: You have said we may need more medicine. Meaning more
stimulus? More what?
WARREN BUFFETT: No, we had a lot of medicine, and we’re going to have
a lot of after-effects from the medicine.
CHARLIE ROSE: We’ll talk about that in a minute. Yes.
WARREN BUFFETT: Yes, but they — the stimulus was not perfectly
executed. Nothing’s perfectly executed, I mean. I shouldn’t be
criticizing. But …
CHARLIE ROSE: Why shouldn’t you be criticizing? Don’t we learn from
that? I mean …
WARREN BUFFETT: Well, oh, yeah, no, but I mean, overall, if they get
the job done, I don’t believe in picking too much at given — given
actions. But, you know, there should have been more infrastructure in
there, and they hung a Christmas tree under it — as I said, sort of like
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mixing half a tablet of Viagra with candy. I mean, it would have been
better to leave out the candy and have the full take — full dose of
Viagra.
(LAUGHTER)
CHARLIE ROSE: But do you think we need a new stimulus, and because
the other one — the previous one, the only one was flawed?
WARREN BUFFETT: No, I think we can reserve judgment on that. I think
just the holiday season will tell us something when it comes. And I would
say that so far from what I’ve seen, you know, I don’t think it’s going to
be that big of a holiday season, but we’ll know — we’ll know that in a
month. And let’s see what happens on that.
CHARLIE ROSE: You’ve also said that America will still be the best
place to invest your money.
CHARLIE ROSE: In terms of American companies, in terms of everything.
WARREN BUFFETT: Everything. You know, if you look back a couple of
hundred years, we’ve gotten where we are not because we’ve gotten smarter
or not because we work harder. We’ve got it because we found ways to
unleash more of the human potential. And what does that? Well, a rule of
law helps. A market system helps. Equality of opportunity helps. All of
these things that are still a fundamental part of the American system. As
a matter of fact, the American system is now better than it was a couple of
hundred years ago, because until the 19th Amendment, you know, we’ve had
15/47
half the talent in the United States that wasn’t entitled to do much. So
we’ve got a great system.
CHARLIE ROSE: But what’s happened is that the rest of the world,
especially China and India and places like that, have grown and have
enormous potential now and that are growing faster than we are.
WARREN BUFFETT: That’s terrific.
CHARLIE ROSE: That’s terrific? It means the pie’s bigger?
WARREN BUFFETT: Sure. The world is not a zero-sum game. I mean, if
we had our choice of being an island of prosperity in a world of 6.5
billion people, most of whom were struggling, or being the same country
with other people prospering, the latter is much the better choice,
particularly in the nuclear world. You do not want — you don’t want
billions of people with nuclear capacity …
CHARLIE ROSE: Right. Right. Right.
WARREN BUFFETT: … envying you and feeling that somehow you’ve
gotten all the goodies of the world. So, we will grow slower relative to a
China, significantly slower, but they’re starting from much of lower base.
CHARLIE ROSE: But at some point, mid-century, they’ll have a larger
economy than we will.
WARREN BUFFETT: It’s going to be a long time.
CHARLIE ROSE: You don’t believe that, though?
WARREN BUFFETT: Well, larger on a per-capita basis is a long way …
CHARLIE ROSE: I don’t mean per capita, but a larger growth economy.
WARREN BUFFETT: That’s true.
16/47
CHARLIE ROSE: They’ll have a larger growth domestic product than we
will.
WARREN BUFFETT: They have four times as many people as we have,
they’re going to — they will have a larger overall economy. You know,
they will grow faster than we will grow, but they’re starting from a much
lower base. I mean, you know, I’ll meet some guy in the street today whose
net worth will be growing faster than mine on a percentage basis, but if I
start with a big enough number, it will be a while before they catch me.
CHARLIE ROSE: Oh, yes. This is also different for China. They now,
you know, have certainly — you are invested in a Chinese automotive and
battery company …
CHARLIE ROSE: … of which the founder, a 43-year-old entrepreneur,
is somebody that you would admire wherever he was from.
WARREN BUFFETT: That’s right. And some of the things …
CHARLIE ROSE: And he has a bit of you in him.
WARREN BUFFETT: Well, yeah. He speaks Chinese, I don’t. Yeah. That
fellow is probably going to do remarkable things.
CHARLIE ROSE: He’s the richest man in China now.
WARREN BUFFETT: That’s right. But I think if he does remarkable
things, that’s going to be good for the United States. I mean, if he
develops better battery technology, we will get it, believe me.
CHARLIE ROSE: OK, but there’s the question that has been raised. In
the past the United States has always been on the cutting edge of
17/47
technology. Your great friend Bill Gates is testament to that.
CHARLIE ROSE: But are they developing the capacity — he’s going to
lead in batteries. Somewhere else they say China is going to lead in solar
technology. Somewhere else say, they do more — is this …
WARREN BUFFETT: Well, we don’t know…
CHARLIE ROSE: Are we looking at that hard reality?
WARREN BUFFETT: Well, it’s better to have the whole world, the talent
of the whole world working on things like battery technology or whatever it
may be. I mean, I’d like — you know if we’re going to add the resources
of a whole bunch of other people to help solve our problems, I’m all for
it. If we get there first and they copy us, fine. If we get there first
and we copy them, fine. I mean, it is not like they’re going to be able to
horde the technology and we’ll never see it.
So, you know, I’d like to see — I’d like to see the United States come in
first on everything, but I don’t — I don’t think it will be terrible if
somebody in China or India comes up with something that enables this
country to deal with its problems. We’ll get the technology.
CHARLIE ROSE: It may very well be that this — the world will be
waking up. I saw today that President Medvedev basically said in a sort of
stern message to the Russians, that we can’t just depend on the export of
oil and energy. We have to begin to think about how we restructure — all
the things — sounding like an American …
18/47
CHARLIE ROSE: … speaking about the economic reality of today.
WARREN BUFFETT: And the reason he’s saying that, it is because it’s
so darn obvious. I mean, you know, they did count on oil. They’ve been
counting on it too much. And — but the beauty of it is, you know, we
don’t have a monopoly on the system. I mean, we can — a market system can
exist elsewhere. And that does cause people to work on things that other
people want. I mean, you know, it’s much better than having a central
planner.
CHARLIE ROSE: When you look at today and what we face in terms of the
job reality, are we going to have the capacity to create the kind of jobs
or will we have to settle at a new unemployment rate that we’re not
familiar with?
WARREN BUFFETT: No. We’ll create new jobs. I mean, we’ve been
through all kinds of tough unemployment cycles. In the early ‘80s being
probably the toughest. It really looked tougher for the — not in the
financial world. But in 1981, 1982,you know, we were at 10 percent
unemployment, and Volcker was applying, you know, a battle axe to the
economy, and people said, you know, Germany and Japan are going to produce
everything, what will happen to this country.
We’ve created millions and millions and millions of jobs since then. But,
you know, who would have thought when Paul Allen and Bill Gates were in
Albuquerque, you know, eating pizza and drinking coke at 2:00 in the
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morning, you know, that they were a big part of our future. But that’s
going on right now. I mean, who would have thought the Google guys were
doing what they were doing, you know, a few years back?
We have — we can’t predict what it will be. I sat there in that room in
Columbia last night with 1,000 people. If we’d had that same 1,000 people
back in 1790 and I gave them some pep talk like this and they’d leave the
place and they’d all go back to their farms and say, that’s fine, but, you
know, what the hell are we going to do, you know. If farm implements get
better, well, there is no jobs. But they wouldn’t have been thinking about
the automobile and the airplane and the electric — all of that. I can’t
tell you what it will be, but I can tell you it will happen.
CHARLIE ROSE: You have also said and been very clear that you think
in this conversation and every other one, you know, that we had to pour a
lot of money at a crisis, and we may very well have presented ourselves
with a problem that is as difficult as the crisis.
WARREN BUFFETT: Well, when you — when you use old medicines in
unprecedented dosages, and even invent some new medicines as we had to do
last fall — you know, there are side effects and after-effects. And
probably they’re somewhat proportional in certain ways to the extreme
nature of the dosages. So, you know, we cannot keep running fiscal
deficits like we are currently without having a lot of consequences over
time. And …
CHARLIE ROSE: $1.4 trillion for 2009.
20/47
WARREN BUFFETT: Yeah, a lot — you know, that’s just, you know, even
for a guy like me, I mean …
CHARLIE ROSE: Those are real numbers.
WARREN BUFFETT: Trillion gets my attention. So, you know, that has
consequences. And we are not saving $1.4 trillion to finance that deficit.
And we faced huge deficits in World War II. I mean, relative to GDP then,
to fight a war, and there were inflationary consequences after, even a
little bit during the war.
CHARLIE ROSE: So inflation will be inevitable because of the amount
of money we …
(CROSSTALK)
WARREN BUFFETT: And then the question is whether — and basically,
it’s Congress. I mean in the end, Congress is the one that determines the
value of the dollar over time. They — if they follow policies that
require us printing too much of it, monetizing debt and all of that sort of
thing, dollars — dollars will become worth a lot less.
CHARLIE ROSE: So Congress has to do what?
WARREN BUFFETT: They — they have to, once the economy is rolling
again, they’ve got to — they’ve got to apply some, you know, they’ve got
to raise taxes now that income will go up as the recession ends anyway, but
they’re going to have to — they’re going to have to close the gap between
expenditures.
CHARLIE ROSE: They’ve got to find more revenues.
WARREN BUFFETT: They’ve got to …
21/47
CHARLIE ROSE: The expenditures is a harder thing to do than the —
finding the revenues. Isn’t it?
CHARLIE ROSE: I mean — go ahead, tell me. Which is easier, cutting
expenditures or raising the revenues?
WARREN BUFFETT: They have got to do one of the two, because the gap
between the two, you know, is as wide as the percentage of GDP — is wider
as a percentage of GDP than we’ve ever seen except in wartime.
CHARLIE ROSE: It’s now what, ten percent?
WARREN BUFFETT: Yes. That’s exactly. Just a touch over ten percent
is the gap. And that’s huge.
CHARLIE ROSE: And what’s acceptable? Six?
WARREN BUFFETT: Well …
CHARLIE ROSE: It was six during Reagan. It was six …
WARREN BUFFETT: We can work — if we have a gap of about 2, 2.5
percent and we have sort of normal growth, then debt as a percentage of GDP
doesn’t grow. So, the country gets more valuable over time and we have
more productive capacity, and all. So we can handle more debt, but it
should not be — it should be proportional to, in a sense, the wealth and
earnings of the country. And — and we can take a couple of percent gap
over time, and have that debt not grow proportionally.
WARREN BUFFETT: It’s about — the net outstanding is about 55 percent
of GDP now. There’s nothing wrong with that. But you don’t want to just
22/47
keep climbing. And at a point it gets out of control and interest on debt
compounds and all of that sort of thing. But of course, in good years, if
you’re going to average 2 percent, you’d better not have 2 percent be the
base, because you’ll get into years like this with ten percent, and it will
pull the average up a lot.
CHARLIE ROSE: This question is asked frequently. Will at some point
the deficit and the debt and the decline of the dollar get to a point that
people who hold our debt will no longer want to buy and then we’re in a
crisis?
WARREN BUFFETT: Well, the rest of the world doesn’t have much choice,
in a sense. I mean, if we — if our current account surplus — deficit, is
$400 billion, we’re handing $400 billion to the rest of the world. They’ve
got to buy something with it, and one way or another they have to buy
something in dollars. I mean, if they get those dollars and they buy
government bonds of the United States and they decide to sell them to buy
stocks, you know, they still get dollars when they sell the government
bonds. They can — they can choose among assets. They can’t really choose
not to invest in the United States.
CHARLIE ROSE: But they can choose as to where else they go for new
investments, can they not?
WARREN BUFFETT: Well, they — in effect, if we’re running a $400
billion deficit figure, the rest of the world is getting $400 billion worth
of I.O.U.’s of one sort or another from the United States.
23/47
CHARLIE ROSE: Right. Right.
WARREN BUFFETT: Now, if they invest that in France — because some
say the Chinese buy stuff from France — now France has got the dollars.
The only way you can bring down that is to actually get rid of the current
account deficit over time. And — but in any event …
CHARLIE ROSE: And that’s having to do with the costs and savings, the
consumption savings rate.
WARREN BUFFETT: But if you are running a $1.4 trillion deficit, even
if you are exporting $400 billion of I.O.U.’s in effect to the rest of the
world, that leaves another trillion. And, you know, the domestic savers
are not going to come up with a trillion. I mean, so these numbers are
unsustainable over time, what we’re doing. It is true, though, that if you
keep flooding the world with your debt and people see your fiscal policies
are sort of out of control, they’re going to get less and less and less
enthused about your debt, and then one of two things happen. Either you
keep paying more and more to roll over that debt or you start monetizing it
like crazy. And I mean, the Federal Reserve can buy the debt and issue —
issue currency for it, but then the currency gets worth less.
CHARLIE ROSE: But is what you just described the reality we’re facing
if we don’t do something dramatic soon?
WARREN BUFFETT: Fairly soon. And we still want the economy to come
back. I mean, we want to put out the fire. You know, but then make sure
CHARLIE ROSE: You worry about that later after we put out that fire.
24/47
WARREN BUFFETT: Then we don’t — (inaudible) just squirting water on
those buildings. We have to know when the fire is out.
CHARLIE ROSE: Yeah, but how do we know that? That’s my question.
WARREN BUFFETT: Oh, well, well, we will know — unemployment will top
out late. But we’ll know when the economy is really coming back.
CHARLIE ROSE: What will be the indication of that for us?
WARREN BUFFETT: Well, it will be — it will be retail sales. It will
be automobile sales. It will be when home construction starts coming back.
It’ll be — there’ll be plenty of economic signs — they may be a little
late in getting recognized. There’s you know, the depth (ph) comes a
little late.
WARREN BUFFETT: But we’ll know. We’ll know. We won’t know — we
won’t know when the turn happens, but three or four months later, we will
know it’s happened.
CHARLIE ROSE: And it’s inevitable that’s going to happen in the next
year or two or later?
WARREN BUFFETT: Well, I like two better than one. But when you say
inevitable, that doesn’t mean it can’t happen earlier.
CHARLIE ROSE: But I mean — what would you worry about that might —
that we might not come back the way we ought to, that somehow there have
been repercussions from this that will have lasting impact?
WARREN BUFFETT: Well, there will be some lasting impacts of certain
types, but in terms of coming out of it, I don’t worry. If you had some
25/47
big exogenous event — if you had a major– either by a country or by
terrorists — sort of a 9/11 squared or something …
WARREN BUFFETT: … a huge anthrax attack or something like that, you
know.
CHARLIE ROSE: Or oil went to $250 a barrel or something like that.
WARREN BUFFETT: If oil rose to $250 a barrel, there can be certain
exogenous effects that could …
CHARLIE ROSE: So, that kind of thing would worry you the most that’s
likely to happen. Otherwise …
WARREN BUFFETT: I mean, for some reason or another, 5 million barrels
a day of oil out of the 85 million barrels, you know, got shut off, and
more or less looked like permanently at the time, you know, there would be
a lot of disruption in this world.
CHARLIE ROSE: When you look at the lessons we have learned, one was
as you have suggested, way overleveraged.
CHARLIE ROSE: We also experienced a bubble, a housing bubble. We
will have other bubbles.
WARREN BUFFETT: We’ll have other bubbles. I’ll guarantee you.
CHARLIE ROSE: Are we going to go back to the same kind of leverage?
WARREN BUFFETT: Not for a while. We learn lessons and they last for
a while, and the deeper the wounds, to some extent, the longer they last.
I was a beneficiary of that. I mean, I got out of school in 1951, and all
26/47
of my competitors were still worried about the Great Depression, and my
memory wasn’t good enough so I had forgotten. So, this — this will have –
– this will have an impact on thinking for quite a while in certain
respects. But fear, greed, folly …
CHARLIE ROSE: Not going to change.
WARREN BUFFETT: No, we haven’t — we haven’t gotten rid of those. We
get smarter in all kinds of ways. We don’t get smarter emotionally.
CHARLIE ROSE: Why is that?
WARREN BUFFETT: It’s just the way the human animal is put together.
You know I mean …
CHARLIE ROSE: The memory fades and all of a sudden the new temptation
is there.
WARREN BUFFETT: Yeah, you know, and plus, you know, plus being greedy
can be fun for a while, I guess. You know, leverage can be fun when it
works.
CHARLIE ROSE: Yes.
WARREN BUFFETT: Leverage — leverage is one of those things that
works 99 times out of 100, and when it doesn’t, you know, it’s all over.
CHARLIE ROSE: How do you explain the fact that you always enjoyed
making it more than even spending it? You enjoy making it and investing
it, but not necessarily spending it.
WARREN BUFFETT: Well, I have everything I want in life, so there’s
nothing to spend it on. I mean, I could have 10 houses instead of one,
would I be happier? No way. I could have 10 cars instead of, you know, two
27/47
in the house. I wouldn’t be happier. You know, it would drive me crazy.
I could have a 400-foot boat, you know, and then I’ve got to have a crew of
50 or 60, and some of them (inaudible), sleeping together — I mean, who
knows what would be going on. So I don’t — if I wanted to be a ship’s
captain, you know, I’d have gone into a different profession. I have
everything in life I want.
CHARLIE ROSE: And what you enjoy doing is studying where we are,
understanding, doing the kind of analysis through conversations and reading
WARREN BUFFETT: I love working — I love working with the people I
work with. I love just viewing the human scene, but I mean, I have an
ideal life. I get to do what I want to do every day. So, you know, and
money can’t — can’t buy any more than that.
CHARLIE ROSE: What do you think of a value added tax?
WARREN BUFFETT: Well, I don’t — I basically don’t like it because
it’s somewhat akin, it is not the same, but it’s somewhat akin to a sales
tax. I mean it has — it has …
CHARLIE ROSE: It’s regressive.
WARREN BUFFETT: Yeah, it’s regressive, and, you know, we don’t need
more regressive taxes in the United States.
CHARLIE ROSE: That’s why you don’t like cap and trade.
WARREN BUFFETT: Yeah, well, that’s right. In terms of the way it
falls on people, absolutely. I think that if we’re looking for more money,
we ought to look to guys like me. I mean, I am still paying a lower rate
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on dividends and capital gains than my cleaning lady. It’s, you know, in
terms of her payroll tax, just to start with. And so, I just think that
we’ve gotten so far out of whack in terms of who’s been prosperous in
recent years, and most of the economy — most people have been left behind,
you know. So we learn that a rising tide lifts all yachts.
(LAUGHTER)
CHARLIE ROSE: But there are not a lot of guys like you to start with.
WARREN BUFFETT: Well, there are some.
CHARLIE ROSE: Well, but you’re the top of the list there with — you
and Bill. But there is also this — what is an appropriate rate of
taxation of people like you before, as some conservatives and supply-siders
argue, you begin to somehow inhibit growth?
WARREN BUFFETT: Yeah. Well, I — I worked through all kinds of
systems of taxation.
WARREN BUFFETT: And I worked with rich people, you know, even in the
‘50s and the ‘60s, and I worked with them when the top rate was 70 percent.
I worked with them when capital gains rates were 39.6 percent, and not one
of them said, you know, it’s 1:00, and instead of working this afternoon I
think I’ll go to the movies because my marginal rate is so high. I mean,
if anything, they worked harder, Charlie.
CHARLIE ROSE: The reason they got rich is because they worked hard.
WARREN BUFFETT: I never had one person — I had hundreds of people
…
29/47
CHARLIE ROSE: Yeah.
WARREN BUFFETT: … you know, in the partnership …
WARREN BUFFETT: … and not one of them ever came to me and said,
“Warren, I decided to hell with it. 39.6 percent, I’m not going to invest
my money.” What would they do with it, stick it under the mattress?
CHARLIE ROSE: Does that mean that the American system is in a sense a
bit unfair and geared to the rich?
WARREN BUFFETT: Well, I think it has become more geared to the rich
as time has gone by, and I think that the rich have, you know, obviously a
disproportionate impact, you know, on how Congress behaves, and…
CHARLIE ROSE: Money in politics.
WARREN BUFFETT: You basically have to — if you have a very rich
country with a great number of superrich, you have to fight against a
plutocracy. I mean, you know, the Congress has to be your bore (ph) — for
the principles of democracy to win out over a plutocracy, and we’ve done
that well in this country. But it’s a constant fight. I mean, you know, K
Street is not populated by a whole people — a whole bunch of people who
represent my cleaning woman. And if you look at the Forbes 400, you’ll
find that, you know, they find their way to K Street, and it finds their
way to them.
CHARLIE ROSE: Sure. They have multiple voices on K Street.
WARREN BUFFETT: They care. Sure. They care.
CHARLIE ROSE: So, what would you do about that?
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WARREN BUFFETT: Well, it’s always a problem.
CHARLIE ROSE: Yeah.
WARREN BUFFETT: And you want a prosperous country so you want a whole
bunch of rich people, but you also want everybody to do reasonably well in
something as prosperous as we have. We have $45,000 of GDP per capita in
the United States …
CHARLIE ROSE: Yes.
WARREN BUFFETT: … but we’ve got — we’ve got almost 60 million
people living in households where 20 — the top income is $21,000 or less.
That’s the top of the 60 million people. So we can do better. Now, we
have done better over time. I mean, we put in Social Security and we’ve
done things in the country that have worked in the direction …
CHARLIE ROSE: Medicare and Medicaid.
WARREN BUFFETT: Yeah.
CHARLIE ROSE: Yeah.
WARREN BUFFETT: But a prosperous country should not just be
prosperous for the people like me who are wired in a particular way at
birth — no credit to me — but I happen to know something about capital
allocation. It wasn’t, you know, I could have instead — I could have been
— I could have been wired, you know, so I was, you know, I don’t know — a
great ukulele player. But there’s more money …
CHARLIE ROSE: Sometimes you can be both.
WARREN BUFFETT: Yeah, well, not often. Not in this case anyway. But
there’s more money in what I do.
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CHARLIE ROSE: Yes.
WARREN BUFFETT: And you don’t want to mess up the market system that
works to bring out of people what their best talents are, but the market
system is not perfect in any kind of distribution of wealth. And taxation
is a way where you get to the excesses of what the market system produces
and where you take care of the people that get the short straws. In a
country as prosperous as we are, nobody should get a really short straw.
CHARLIE ROSE: You know, some people are going to hear you say that
and they’ll say, “Warren is talking about sharing the wealth. There he
goes ..”
WARREN BUFFETT: Well, I’m talking about sharing the prosperity.
CHARLIE ROSE: You’re …
(CROSSTALK)
WARREN BUFFETT: I’m prosperous because of the society around me.
Stick me down in some poor country and I’ll walk around and say I allocate
capital, you know, and they’ll say, so what? What we need is a guy with a
strong back. You know, and I don’t have a strong back.
CHARLIE ROSE: But can you row a boat or something?
WARREN BUFFETT: Yeah. Something like that.
WARREN BUFFETT: So — so society — listen, when a couple of
middleweights fight it out on Pay Per View this weekend and get $49.95 from
me, or whatever it maybe, and I can’t remember their names two weeks later,
you know, they are benefiting not because of their own talent that much,
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but because some guy invented television and then invented cable
television, and learned how to change a stadium of 15,000 people into a
stadium of 300 million. So they benefit from society. We all do. And
some like me benefit enormously from society, you know. I can’t do it by
myself. Stick me on a desert island, you know, you do not want to be on
the same island.
CHARLIE ROSE: There is this, also. The Bush administration says that
when the economic crisis came, they treated it with a tactic, which was
doing what they did. They worry that what the Obama administration is
doing is a strategy to put in place a different attitude about the
relationship between the government and the economy.
WARREN BUFFETT: Yeah, I don’t think the Obama administration wants
the government to take over the economy. But they did — they took on a
situation — and incidentally, I can give credit to the Bush administration
in that last four or five months of 2008. I mean, a lot of right things
were done. I mean, when George Bush said, you know, if money doesn’t ease
up — if money doesn’t ease up, this sucker can go down. That was one of
the most profound economic statements ever made. He became the economist
in chief as far as I was concerned at that point.
But so I give them credit, too. But the Obama administration, they’re not
running General Motors because they want to run General Motors. I mean, it
isn’t like that Barack Obama grew up wanting to run the whole American
economy. They’re doing well…
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CHARLIE ROSE: Although he might want to buy a railroad, though.
WARREN BUFFETT: Yeah, well.
(LAUGHTER)
CHARLIE ROSE: That’s going to be …
(CROSSTALK)
WARREN BUFFETT: He’ll buy it from me.
CHARLIE ROSE: But go ahead. It’s a good — but …
WARREN BUFFETT: They are doing what is necessary in their view to get
this economy righted. Nobody makes perfect decisions on this. And they’re
doing things I’m sure they don’t like to do. I don’t think they want to
run General Motors, you know, or Chrysler or anything of the sort …
CHARLIE ROSE: Or own AIG?
WARREN BUFFETT: No.
(CROSSTALK)
WARREN BUFFETT: That is no fun. Or prop up Freddie and Fannie.
CHARLIE ROSE: So, all these people who think that somehow there’s
some new idea about — they use the word “socialism,” but something else in
terms of …
WARREN BUFFETT: Yeah, Barack Obama …
CHARLIE ROSE: You don’t buy that.
WARREN BUFFETT: Barack Obama wants a much more prosperous economy,
embodying the principles that have made it prosperous, but I think he does
want to make sure that the bottom 20 or 30 percent does better than it has
done in the last 20 years while the top has prospered so much.
34/47
CHARLIE ROSE: That brings us to the question beyond whether Congress
has the will or not, there is this idea, which is how do you create a new
regulatory platform and architecture. And you’ve got on the one hand the
administration comes in and says let the Federal Reserve do it, then you
have Chris Dodd who says no, no, no, don’t do that. And then Barney Frank
says I’m somewhere halfway in between. Where is Warren Buffett?
WARREN BUFFETT: I am 100 percent for the independence of the Fed.
WARREN BUFFETT: I mean, if you have a central bank that is bowing to
the will of Congress, either directly or indirectly, through some of the
various (ph) mechanisms, it would be a disaster.
CHARLIE ROSE: Who wants to be in on their monetary decisions or
oversight or whatever…
WARREN BUFFETT: Yeah, you’ve got to hope you’ve got a good Fed
chairman and some good members, but — and we’ve done that generally. If
Paul Volcker was — you know, he was essential to this country coming out
of that 1979-’82 period like we did. Ben Bernanke was essential to keeping
us from going into the abyss last September. We need — we need an
independent Fed, and I think every country needs an independent federal
bank.
CHARLIE ROSE: But does that mean they should be the regulator as
well?
WARREN BUFFETT: Somebody has to regulate, and banks do need
regulation.
35/47
CHARLIE ROSE: Do we need one regulator, one big regulator that will
WARREN BUFFETT: Well, if it was me, I would like it. I mean I — I –
– because you need — you need somebody that does have a big stick.
CHARLIE ROSE: Yes.
WARREN BUFFETT: I mean, left to their own devices, people will take
on too much leverage. They may not this year or next year, but the
financial institutions, particularly if they’re promising they’re going to
increase their earnings per share every quarter, and they’ll do off-balance
sheets, things — all of these sins that were committed a few years ago.
WARREN BUFFETT: You know, Freddie and Fannie did a lot of them, too,
and they were regulated by Congress.
CHARLIE ROSE: And they had 200 regulators marching into the office
every day.
WARREN BUFFETT: So we’ve had Congress regulate the two of the five or
six most important financial institutions in the United States, and it was
a total flop. So it’s tough being a regulator, and — but you want
somebody that is independent, somebody that has got real muscle, and
hopefully somebody that, you know, who has an understanding of what you
need to do to keep the system working well.
CHARLIE ROSE: And that’s the Federal Reserve.
WARREN BUFFETT: I think they’re good at it. Yes. You know, they
weren’t perfect this time around, and, you know, but Congress wasn’t
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perfect, either.
CHARLIE ROSE: But once the problem came, they responded, and you had
untold admiration for Bernanke.
WARREN BUFFETT: If he hadn’t have had the authority he had…
CHARLIE ROSE: Yeah.
WARREN BUFFETT: … and maybe — maybe if he even had and thought he
had a little more authority than he even did have last fall — I mean,
there’s something to that, you know. I mean, you had to have somebody that
would step up and guarantee money market funds, you know, keep commercial
paper flowing, do these things that not many people could have done. And
certainly Congress couldn’t have done them with the speed — you know, and
speed was absolutely essential. I mean, you did not have a lot of time to
save this patient.
CHARLIE ROSE: And they understood that, too.
WARREN BUFFETT: And they really understood it.
CHARLIE ROSE: And reacted. And gained a lot of power and used it.
There’s also this — you cannot establish a particular leverage ratio, can
you? You can’t say that 15:1 is as far as it should ever be.
WARREN BUFFETT: No, if you have a bank that owns nothing but short-
term government bonds, they can have 50:1, and if you got them, you know,
they’ve got a whole bunch of money lent out to other guys who were
leveraged in various ways, in various speculative things, five to one is
too much, so pure numbers don’t work.
CHARLIE ROSE: So what works?

37/47
WARREN BUFFETT: That is the problem. That is the problem.
CHARLIE ROSE: That’s why…
WARREN BUFFETT: No, I mean, if you could just stick a bunch of ratios
out there, it would be all over.
CHARLIE ROSE: But what works? I mean, it’s the problem, give me a
possible way of dealing with the problem.
WARREN BUFFETT: I would like to have a very smart, strong regulator
that understood the nuances of different kinds of leverage and what it
might mean. And one who would be willing not only to use those rules of
individual institutions, but who would speak out to the country. You can’t
speak out too often and have it meaningful, but who would speak out to the
country about a generalized problem. Because that’s what we needed. It
wasn’t — it wasn’t the fact that it was bank “A” or bank “B” or bank “C.”
What was happening was that you were having a bubble that everybody was
joining in, and speaking out on that — which requires a lot of guts and
may even get ignored, although if it comes from somebody that is running
the Fed, you know, or whomever, or the president of the United States, I
mean there can be people that will have an impact on that.
CHARLIE ROSE: You’ve said that you’re not in favor of too much
coddling and that you’d like to see the stick used more.
CHARLIE ROSE: Tell us what you meant.
WARREN BUFFETT: Well, what I mean is, that if you run a financial
institution — and it’s financial institutions overwhelmingly that do tend

38/47
to create the problems because there’s this aggregation of capital — if
you run a financial institution that in effect can bring down the system,
unless the federal government steps in …
WARREN BUFFETT: If you get to that point, I think something very bad
should happen to you. I don’t think you should walk away with a lot of
money or even with 10 percent of your previous net worth or anything of the
sort. And I think the directors who selected you and let you operate in
that manner should have some real downside. You know, I’m not for shooting
them, but I’m for …
CHARLIE ROSE: But the threat of it would be…
WARREN BUFFETT: I want to make it painful for them. I mean, seriously
CHARLIE ROSE: Painful would be they — what, they can’t buy
insurance?
WARREN BUFFETT: No, yeah, well, I would probably have in terms of the
very large financial institutions, if they have to go to the government,
you know, and the government had to act — because there are going to
always be too big to fail institutions.
WARREN BUFFETT: It drives regulators crazy, but that’s the reality of
it– and if an institution comes in and says, “If we go down, we’re pulling
the whole country down with us,” I think that the directors and the CEO of
39/47
an institution like that, I think the directors say — should certainly
have to give back — you know, they should — five times the highest fee
they’ve received in the previous year, because you’re sitting around those
places now getting $200,000 to $300,000 a year, you know. And for the —
all I want from my $200,000 to $300,000 a year is somebody that is
selecting and designing a compensation system for the person they put in
charge, the CEO, who should be the chief risk officer. I want them to have
a system that penalizes that person very, very significantly, and if they
don’t — they don’t create that kind — if they pick the wrong person or
they let that person go off the reservation, I want them to pay, also.
CHARLIE ROSE: All right. So, let me just –you want there to be a
penalty for directors who do not do their job.
CHARLIE ROSE: But you recognize that there are going to be financial
institutions that are too big to fail. It has been and will continue to
be.
WARREN BUFFETT: It will continue to be.
CHARLIE ROSE: You can’t simply say we’re going to let anybody fail no
matter how big, no matter what the consequences.
WARREN BUFFETT: No, we’re just going to have a mom and pop bank on
every corner, and it isn’t going to work.
CHARLIE ROSE: Do you think that the financial community has any sense
of I’m sorry?
40/47
WARREN BUFFETT: Well, most of them didn’t do it, I mean, in the sense
that– if you take the leaders of these institutions that got them in, a
lot of them are gone. Now, they’re gone with more money than I would like
to have them gone with. And I think what’s infuriating to the American
public — if you take the people in Omaha, you know, they have seen lots of
unemployment. They’ve seen in many cases their homes or friends’ homes
foreclosed. They’ve seen all these things happen to them, and nobody’s
going to jail. And as far as they’re concerned, the leaders of institution
A, B, or C, that have in a big way contributed to these problems, you know,
they may be worth — they may be worth $10 million instead of $100 million
or something like that, but they don’t see anybody going to jail. They
don’t see — they don’t see anybody being held very responsible for it.
CHARLIE ROSE: And they don’t believe that if they were in the same
place, a much lower investment, that anybody would have come along and
taken care of them.
WARREN BUFFETT: Well, yeah, and they’re right about that. I mean, if
I have a tiny little business that fails, it doesn’t affect the United
States. But if you have Freddie Mac and — Mac and Fannie Mae …
CHARLIE ROSE: Or AIG.
WARREN BUFFETT: Or AIG.
CHARLIE ROSE: Or Citicorp.
WARREN BUFFETT: Yeah, they — and they — it would have affected us.
I mean, we could not stand those dominoes falling. And it drives people
crazy that we couldn’t, but we couldn’t. I mean, if those — if a few more

41/47
dominoes had fallen, if that weekend of September 12 to 14th, or whatever
it was, if one more domino then, you know, Merrill Lynch going, Morgan
Stanley would have been next — if the dominoes were so lined up, and they
were so big that …
CHARLIE ROSE: Without the government, they would have gone down.
WARREN BUFFETT: They would have gone down. But bear this in mind —
they talk about moral hazard on this. There isn’t any moral hazard. If
you look at Citi, 90 percent of the market value has disappeared. If you
look at Freddie Mac, 90 percent of the market value — more than that.
CHARLIE ROSE: Look at AIG.
WARREN BUFFETT: Fannie Mae, AIG, all of them. So, the stockholders
have gotten totally creamed. The owners have gotten totally creamed. So,
it’s not like anybody who was a stockholder of Citi or Freddie, or Fannie,
or AIG or you name it, is thinking, ha-ha, you know, the system is going to
save me. Because it didn’t save them. They got killed. But the guys at
the top did not get — you know, in most cases, did not get killed. And
they’re the ones that made the mistakes.
CHARLIE ROSE: And should they have gotten killed, so to speak?
WARREN BUFFETT: It should have been harder for them.
CHARLIE ROSE: And so, how would the government have done that?
WARREN BUFFETT: I would probably have something with those kinds of
institution where no one got rich from running an institution like that
until about five years after they left. I mean …
CHARLIE ROSE: Yeah.

42/47
WARREN BUFFETT: And I’d have had a very restricted and I’d have
clawbacks, and I’d be plenty tough, and I’d be tough on the directors if
they hadn’t put in those kind of arrangements.
CHARLIE ROSE: And they say that now, if you listen to the financial
executives today, they say we’re in favor of clawbacks, and we’ve
instituted those kinds of things. I don’t know whether they have or not…
WARREN BUFFETT: Well, they’ve done some, but I’d probably square it.
CHARLIE ROSE: Make it exponentially.
WARREN BUFFETT: Well — and I wouldn’t let them buy — against this
sort of risk, I wouldn’t let them buy directors officers insurance —
liability insurance.
WARREN BUFFETT: We don’t have that at Berkshire. I mean, if our
shareholders are going to go down, I want me to go down with them and the
directors to go down with them. You know, we’ve taken on the job. And,
you know, if the ship goes down, we should not get the first lifeboat.
CHARLIE ROSE: When you look at that year — this is a book by Andrew
Ross Sorkin …
WARREN BUFFETT: It’s a very good …
CHARLIE ROSE: It’s a very good book.
WARREN BUFFETT: It’s a very good book.
CHARLIE ROSE: And you’re in there. Moments for you, I mean you were
at the other end of phone calls from people who …
WARREN BUFFETT: Who wanted money.
(LAUGHTER)
43/47
CHARLIE ROSE: Who wanted money. And in some cases advice, but mostly
money.
WARREN BUFFETT: Mostly — yeah, they’d take money before — if there
was a choice between money and advice, right…
CHARLIE ROSE: They’ll take money. So, they mostly wanted money. Are
there moments you look back in which you said no that you might have said
yes? I mean, do you have any sense of …
WARREN BUFFETT: You just ….
CHARLIE ROSE: I know you do.
(CROSSTALK)
WARREN BUFFETT: I mean, it’s just like standing at that plate and the
pitch comes in and you have got a half a second to decide whether to swing.
CHARLIE ROSE: Yeah.
WARREN BUFFETT: You know. No.
CHARLIE ROSE: I know you’re not a man to agonize, but I mean have —
I mean …
WARREN BUFFETT: Or, I could have done way smarter things.
CHARLIE ROSE: Like?
WARREN BUFFETT: I did not optimize the period.
CHARLIE ROSE: Right. Because you had money and they needed money and
they would have given up a lot for that money.
WARREN BUFFETT: Yeah, plus, the bottom of the market was six months
later, I mean, and it was significantly lower. So if I just saved the
money, just put it in the market six months later, I would have done way
better than making these deals.
44/47
WARREN BUFFETT: But I didn’t know that at the time.
CHARLIE ROSE: So you said I’m optimistic, but I’m not sure my
optimism is justified.
WARREN BUFFETT: Well, I don’t try to pick bottoms. No, I really —
when something — when I get a call and it makes sense and I’ve got the
money, I do it. You know.
CHARLIE ROSE: Yes.
WARREN BUFFETT: And I don’t think I can do this better tomorrow or
the next day, or that sort of thing. But most of the things didn’t make
sense.
CHARLIE ROSE: But here’s something else you taught me as well — you
don’t get that many swings at the bat.
WARREN BUFFETT: Not with big sums.
CHARLIE ROSE: With big sums.
WARREN BUFFETT: Yes, with big sums.
CHARLIE ROSE: So if you look at Burlington Northern, is that– that
was a big – that was a big sum.
WARREN BUFFETT: Yeah. And you don’t get bargains on things like
that. It’s not cheap.
CHARLIE ROSE: But that was a bargain?
WARREN BUFFETT: No, it’s not a bargain.
CHARLIE ROSE: I didn’t think so. That’s what I’m asking you.
WARREN BUFFETT: No, but it’s a good asset to own for Berkshire over
the next century.
45/47
CHARLIE ROSE: But does it restrict how many — suppose tomorrow a
great thing came along that you didn’t know. Would you say, “oh, my
God…”
WARREN BUFFETT: Well, it could happen. I mean, if the Union Pacific
came along at half the price – you know, but I don’t worry about that sort
of thing at all, Charlie.
CHARLIE ROSE: So when we look back at this time, for one who loves–
who loves understanding what’s going on and where it’s going — you said to
me before, you know, you might sacrifice the last year of your life if
somebody would come along and say, “Warren, I can tell you what the next 40
years are going to look like. All the questions you have, I can answer.”
WARREN BUFFETT: Or just let me watch. Just let me watch the next 40
years. The last year, you know, you don’t get to be here, but the next 40
years you get to watch. Kind of like Chauncey Gardiner, he liked to watch.
CHARLIE ROSE: So as we put a cap on this, we’re going to come out of
this OK.
CHARLIE ROSE: We’ve got some real problems we have to deal with. The
deficit is one. How we learn the lessons of this in terms of finding some
kind of regulation that works. And have confidence that we got here
because we had unique kinds of skills. Go back to 1776 and see what a few
group of people did and where we are today, makes you an optimistic about
America, but also optimistic about the world.
(CROSSTALK)
46/47
CHARLIE ROSE: As the center of gravity moves to Asia.
WARREN BUFFETT: It’s wonderful that the lessons we learned over the
last couple of hundred years are being absorbed in many parts of the world.
I mean, people have seen success and they’ve had the sense to copy some of
it, and get into their own system those ingredients that have done it for
us. But we haven’t lost the ingredients. The fact that they’re able to
use the ingredients does not take it away from us.
And every year of my life, I could sit down at the start of the year
and write on a pad a dozen things that were looming over the economy. When
people say, “I’m not buying stocks now because times are uncertain,” I say
to them, so, I say to them, “well, on September 10th, 2001, were times
certain?” You thought they were certain, but you found out the next day
they weren’t. On October 18th, 1987, before the — the day the Dow took
that 22 percent — things are always uncertain in the short term. What
really is certain is the things that worked over time will continue to work
over time. So the next day is always uncertain. The next hour is always
uncertain. The longer term is pretty darn certain.
CHARLIE ROSE: Warren, thank you.
WARREN BUFFETT: Thank you.
CHARLIE ROSE: It’s always great to see you. Warren Buffett for the
hour.
Thank you very much for joining us. We’ll see you next time.
47/47
Transcript: Warren Buffett on What’s Next in the Payments
Industry – October 10, 2009
rbcpa.com/warren-e-buffett/transcript-warren-buffett-on-whats-next-in-the-payments-industry-october-10-2009/
Oct 20, 2009, 10:00am

Transcript: Warren Buffett on What’s Next in the Payments Industry
To kick off the launch of PYMNTS.com, the “Oracle from Omaha” weighs in on what’s next in
the payment industry and the economy at large. Business Wire CEO Cathy Baron Tamraz sits
down with Mr. Buffett in an exclusive interview. The following is a transcript of the video.
CATHY BARON TAMRAZ: Greetings from San Diego, where we have just completed the
Fortune Most Powerful Women’s Summit. I am Cathy Baron Tamraz, CEO of Business Wire,
and I am here with the only male that is allowed into this conference and that is Warren
Buffett, Chairman of Berkshire Hathaway, which is also the parent company of Business
Wire. Warren has graciously agreed to answer some questions today, and kick off a
conference that Business Wire and Market Platform Dynamics are holding in New York City,
to launch a new Web site about the payment industry callexd PYMNTS.com. We are really
excited about this new portal, which will be a primary source of news for the payments
industry. It will havebreaking news and regulatory news in the payment industry, new
technology and new products.
Because the payment industry is so vital to the economy, we thought it would be relevant to
talk to Warren and hear his views on the state of the economy and what we can do to
revitalize it. So thank you, Warren, for speaking with us today and agreeing to be interviewed
by me.
WARREN BUFFETT: You are my favorite interviewer!
CBT: Thank you very much. That’s on tape, by the way. So, the first question I have for you is
about the near-term future of our economy. The last 12 months feels like a really bad dream.
This year has been the year that shook the world. It’s been a year since the bankruptcy of
Lehman Brothers and it almost sent the economy over a cliff. We had the Bear Stearns
fallout, Merrill Lynch sold to Bank of America, the AIG crisis, Fannie and Freddie falling under
government control. It’s been a really difficult year. So, what do you think is going to happen
now in the fourth quarter of 2009 and also in 2010?
WB: I am not sure about exact quarters or anything of the sort. Who knows about next week
or next month? We made enormous progress since a year ago. We had a real panic. And if
you didn’t panic, you didn’t understand what was going on. What happened in September
and October of 2008 will particularly be remembered for a long, long time. And while the
governmental authorities malign things sometimes, they fortunately did some very right
things, very important things. They did them properly, and they kept us from going over the
cliff. The fallout from that financial panic hit the regular economy in the fourth quarter like a
ton of bricks. We are coming back from that. The patient really went into the emergency
room and it won’t come out of the hospital entirely for a while.
1/6
There are things that have to be cured in the system, but this system works. If you look at
this country, we have gone through the Great Depression, we have gone through world wars,
we have gone through civil war, and we have progressed like no country in the world. We
have the right system. It doesn’t avoid all the problems, but it overcomes all the problems.
CBT: Do you see consumer-spending increasing in the near term?
WB: No, and not for a while. I think people had an experience a year ago that they are not
going to get over quickly. But the factories are there, the human potential is there, the
system is there. It works over time. Your kids will live better than you and I live, and our
grandchildren will live better than they do. This country moves forward.
If you take the 20th century, we had a Great Depression, world wars, a nuclear bomb, a flu
epidemic. We had all these things, and at the end of the 20th century, the average American
was living seven times better than at the start of the century. It’s amazing. The Dow Jones
Average had gone from 66 to 11,400. So the country works, you don’t have to worry about
that.
CBT: This latest debacle has also been called a “crisis of confidence.” Five trillion dollars of
American wealth has vanished. If confidence is what’s needed to stimulate the economy,
how do we put trust back into the financial system? Does the government need to retain a
stronger hand?
WB: Well, people became afraid a year ago, and confidence is not going to exist when fear
exists. Fear is very contagious. It spreads very quickly, and that’s what happened in the start
of the fourth quarter last year. The confidence doesn’t come back as fast as it’s lost, but it
does come back. It’s come back a long way already, but it has a ways to go. As people see and
really get re‑affirmed about the fact that this system works. We are still tossing out 14 trillion
worth of product a year. It will return. It’s already returned with most people in most ways,
but it’s not back 100%. It’ll get there.
CBT: Do you have any comment on the unemployment rate?
WB: Well, the unemployment rate will turn around late. It always lags. People who have gone
through a period like this are slow to rehire until they really have to. On the other hand, the
time will come when they have to. There will be more people working in housing a year or
two from now. We have a brick company. We have companies in the carpet business. We
have had to let people go in those businesses in the last year, year and a half. We will be
adding people at some point, but we won’t do it until we see the demand come back. It’ll be a
little slow because we don’t want to go through what we did before. Although, I will
guarantee you that three years from now, our brick companies, our carpet company, and our
insulation company will all be employing far more people than now.
CBT: That’s good to hear. The next question is about the government. Congress and the
administration have been working on reforming financial regulation. Do you think they are
on the right track? And will reforms and new rules to protect consumers help restore
confidence?
2/6
WB: Well, the new rules won out, so the things they have done during the last year fell pretty
short of confidence. Not everything is done perfectly, but nobody can do them perfectly. The
important thing is that they got things done and people do believe in them, and they’ll
believe in them more and more as it goes along. Government has a real role to play and it
will not prevent bubbles forever. Human beings do crazy things from time to time, and the
real question is how they recover from it. You and I have done things in our life, and the
truth is that we came back from them. That’s the important thing.
You can’t rule out human emotions. When people get greedy as a pack, strange things
happen. When they get fearful as a pack, strange things happen. That isn’t the way they exist
most of the time, but they do give into that. So rules will help us avoid some of the problems.
They’ll help us modify some of the problems, but they won’t eliminate all future problems.
CBT: I was watching a little TV this week and I was listening to William Cohen, who is the
author of “The House of Cards.” He said that if you don’t change compensation and how Wall
Street is incented, the same thing is going happen all over again. And yet, I recently heard
that Wall Street is hiring, and they are also guaranteeing big bonuses and compensation
packages, which is a little bit alarming if you ask me. What’s your view is on that?
WB: Well, Wall Street is about trying to make a lot of money. It’s the nature of the system.
You get a huge capitalist system, and it raises lots of money and it makes lots of big deals
and people – some people get paid very well for it. What you have to change in Wall Street is
you have to make sure that in addition to carrots, there are sticks. And it can’t be a one‑way
street where they are making ungodly amounts of money when things are good and then
they move on to someplace else for a while when things are bad. You have to create a
downside. I hope there are some practices put into place – and I’ll have a few thoughts on
them myself – but Congress undoubtedly will have a few thoughts too. You have to put in
something where there is downside to people who really mess up large institutions and we
need some new help in that. Too many people have walked away from the troubles they
have created for society, not just for their own institution, and they have walked away rich.
They may not be as rich as they were before, but they have walked away better than they
should have. There have to be incentives – not only to get rich, but to behave well.
CBT: President Obama said this week that the financial firms “owe a debt to the American
people.” And I wasn’t exactly sure how, how they could pay that back to the American people.
WB: It’s interesting. Exactly a year ago when I was at this conference, I had a proposal for the
so‑called “toxic assets.” I called three people in the financial world who were going to write
Secretary Paulson about it. I wrote them on October 6th. I called three people to help out on
this, and it would have required a lot of effort on their part and some commitment of money
and time and energy. I asked all three of them if this went forward to do it absolutely
pro‑bono. I asked them not to make one dime out of it. And they all said yes to me. So, they
are good people. Many are motivated by greed. None of us are perfect, you know? I always
say that, “Every saint has a past, every sinner has a future.” We have got some sinners back
there, but they are not all bad. They went along with a bubble that they helped create – but
the whole American public did. You still have to have the right rewards and penalties for
3/6
behavior. That’s how you get decent behavior. So, I don’t look at Wall Street as “evil.” I look at
Wall Street as given to huge excess sometimes. I don’t want to get rid of it. We need
something to allocate capital and distribute securities and all of that throughout the system.
We have got a big capitalist system and we have to have a big capital market – but there is
plenty of room for improvement.
CBT: Looking into your crystal ball, what will the stock market look like a year from now?
WB: Well, I don’t know about a year from now. Five years from now, it’ll be higher, yeah. Ten
years from now, it’ll be higher. One year from now, I don’t know.
CBT: Fair enough. Moving a little bit more closely to the payment and card system. On
September 3rd, the The Wall Street Journal had an articled titled “Wal‑Mart to Pay via Check
Cards.” Wal‑Mart isn’t going to issue paychecks anymore. So it’s all going to be through a card
system, which is actually good for the payment industry and the card industry. And it seems
to be a growing movement to use cards to dispense payments. I noticed that on some
airlines, if you don’t have a card – a credit card of some kind – you can’t eat or drink anything
if you are sitting in economy because they don’t take cash anymore. So that, that’s kind of
interesting…
WB: Some restaurant just announced that in New York too, that they weren’t going to take
cash.
CBT: That brings us to the next question: Do you think cash is ever going to disappear as a
form of payment?
WB: It won’t disappear, but in the end – and that’s the genius of the American system – we
do give the consumer what they want. If people want to use the convenience of cards, they
will do it. Now there will be enough people that want to use cash, so consumers won’t turn
their back on it entirely. They haven’t given up landline phones entirely for cell phones. The
American consumer – in the end – is king. You can push them around for a week or a month
maybe, but you either figure out what’s in your customers’ mind and decide you are going to
serve them; or you are not going to be in business. They are right, and you are wrong. It’s
what made this country, to some extent, what it is. Our market system where the customer –
300 million Americans – tell people what to make, where to serve them, and how to do
business. Compare that to some totalitarian system, where somebody decides what people
are going eat for lunch and we win.
CBT: Well, we are certainly not used to that…
WB: Oh yeah. Mm‑hmm.
CBT: The credit card industry is about 50 years old, and it’s pretty safe to say that it’s going to
transform in the next 10 or 15 years. Sometimes I think we’ll have chips in our hands to scan
and pay for things. All kinds of things will be transacted electronically.
4/6
WB: Cathy, I met Ralph Schneider who was the founder of the Diners Club back in the 1950s.
He had just designed an IRA, and they are just using it around New York. They used to charge
the merchants 10 percent and the card was very low priced then. American Express went
into the business originally defensively. They had the Travelers Check and they were worried
about what the credit card would do to it. In 1964, when American Express had what they
called the great Salad Oil Scandal, we became this little outfit in Omaha and became the
largest shareholders of the American Express Company. I went around to restaurants and
service stations, and asked people about whether the Card was losing its appeal because of
the scandal that was going around. They said the Card wasn’t losing it but that it was growing
in appeal. So, I watched the credit card industry almost from the beginning in that respect.
We got in early. I could see it was a powerful tool. First Data was in Omaha, and I have
watched them all. Carte Blanche, the Hilton Card – some of those have disappeared over the
years. Of course, Visa and MasterCard have been successful. There have been all kinds of
developments, but the truth is, the American public likes to be able to go into their pocket
and pull out a card.
CBT: Well, that was a really great lead into a question I had about American Express.
Everyone knows here that Berkshire Hathaway has an investment in American Express, as
you just said. So, you obviously know a lot about the payment industry and that company in
particular. Can you tell us what attracted you to that company?
WB: Well, what originally attracted me back in 1964 was that Diners Club got the jump. They
were way ahead of American Express. American Express came in with a very interesting
market and concept. People already were carrying Diners Club, and American Express
wanted to enter the field. They charged more than Diners Club did for their product. Diners
Club had this card that had a bunch of flashy little symbols and everything on it. American
Express brought out that centurion, and originally it was the green card with the guy that
looked like Mr. Integrity. If you went into a restaurant, and you were buying dinner for
somebody, and you had a choice of pulling out this Diners Club card that looked like you
were giving a check from your mother or pulling out this centurion that made it look you
were J.P. Morgan or something – you went with Mr. Integrity. They actually took over the field
by establishing themselves not as the low‑priced competitor but, but as the class competitor.
It was a great marketing arrangement. Then it swept the country. The card I carry in my
pocket says, “Member Since 1964.”
CBT: Mine says “Member Since 1983.”
WB: Well, that was the year you were born, I was 40 years old or something when I did this.
CBT: Last question. We would like you to impart a little bit of advice and tell us what is the
one lesson that we should take away from this economic Pearl Harbor?
WB: Well, I think that it goes back what I have told my manager to do: Just keep taking care of
the customer. We have got a lot of customers in this country. Since 1886, Coca‑Cola has been
selling a product that people like, and they just keep taking care of them. It’s what you have
done at Business Wire. In the end, nobody that’s ever taken good care of the customer has
ever lost; I mean, that, that is the name of the game.
5/6
CBT: That is great advice. I want to thank you for your time, Warren, it’s been a pleasure
talking to you, and allowing me to interview you.
WB: It’s been fun. Thanks, Cathy.
http://pymnts.com/transcript-warren-buffett-on-what-s-next-in-the-payments-industry/
6/6
This is a transcript of Warren Buffett’s taped interview with CNBC’s Becky Quick at Fortune’s
Most Powerful Women Summit in Carlsbad, California. It was recorded on September 14, 2009
to mark the one-year anniversary of the height of the financial crisis. Portions aired on CNBC
TV on September 15 and 16, 2009.
BECKY QUICK: Welcome everyone. We are here at Fortune's Most Powerful Women conference
with Warren Buffet, who is one of just three men who made it into this conference. Warren, thank you
very much for joining us today.
WARREN BUFFETT: That's right. Thank you.
BECKY: How'd you-- how'd you make it into the women's conference? (LAUGHTER)
BUFFETT: Nobody knows. I mean-- for a guy that couldn't get a date in high school this is Heaven, I
can tell you that. (LAUGHTER)
BECKY: You know, we've been looking back at a year later. We are one year out from Lehman's
and a lot of people are trying to figure out whether it was the right choice, whether it was the wrong
choice. There are some people who say if Lehman didn't fail the rest of the-- the capital markets
would not have survived. What do you think?
BUFFETT: Well, I think -- I think Lehman was destined to fail unless the government came in big
time. And -- you know, for one reason or another the -- they generally said they didn't have the
authority. My experience usually is it that whatever the government wants to do, they find the
authority, but if -- if -- listen, if Merrill Lynch hadn't gotten sold on -- on -- on -- on Sunday -- what
would have happened Monday would have been off the charts.
BECKY: So the –
BUFFETT: We'll –
BECKY: -- more important –
BUFFETT: -- we're –
BECKY: -- one to save?

BUFFETT: Lehman -- Lehman probably should have been -- not saved isn't the right world -- word,
but transferred in some kind of an orderly manner. I mean it was -- it was the chaos that came after
the fact that it just -- it just happened and there was total disorder. And I think the trustee for Lehman
has said between $50 and $75 billion at Lehman itself was lost unnecessarily because of the
disorderly way that the liquidation took place.
BECKY: Obviously there were a lot of calls that were going on behind the scenes at that point. Were
you a part of any of those calls?
BUFFETT: Oh, I -- I got a call. I was in Edmonton -- at a social event that -- I was at the hotel about
6 o’clock or so Edmonton time. And I did get a call from -- from -- the head of -- the head of Barclay's
-- Bob Diamond and -- and Michael Klein, who was an investment banker. And they had just learned
apparently that the British authorities would not allow them to take over all of Lehman. This was not
just the part that they took over later. But they were -- they were talking about -- about coming in and
taking over Lehman. And the British authorities had said if -- if it involved more than three billion
pounds, as I remember, it needed the vote of shareholders and that couldn't take place 'til sometime
later so they were asking if we would write an insurance contract that would protect everybody on the
other side of trades until they got that shareholder approval. So they were looking for a solution I can
tell you at about 8 o’clock on —
BECKY: On Saturday?
BUFFETT: -- on Saturday. And – 8 o’clock in the evening. And -- they didn't find one.
BECKY: Were you surprised? I mean it -- what happened? Did you turn down this offer? What
happened?
BUFFETT: Well, what happened is they described the transaction to me that I really couldn't grasp --
quickly. And so I asked them to send me a fax at the hotel. I was gonna go to the social affair that
would break up around midnight. Send me a fax, that explains the transaction in detail so I could
understand it. Tell me how much of a limit they needed and -- how much of a premium they would
pay. And then I would get back to them promptly. I'd call 'em that night. And -- 'cause it was a
complicated transaction they were describing. I didn' t -- I didn't fully understand it and people were
waiting for me downstairs. (CHUCKLES) Anyway -- when I got back to the hotel that night around
midnight, but there was no fax. Apparently it blew up at some point in that period.
BECKY: What -- what did you hear afterwards? That -- did they explain to you why or what?
BUFFETT: Well, I -- no, I -- I don't know why they felt the transaction was unfeasible or I don't know if
for some other reason that Barclay's decided they couldn't go ahead with Lehman at that point. And
as you know, a few days later they actually made a transaction with the broker-dealer arrangement.
But -- the way I understood it on Saturday at 8 o’clock New York time or so was that -- that -- one of
the authorities in -- in England had ruled essentially that if it involved more than, I think, three billion
pounds that they couldn't do it without shareholder approval.
BECKY: Did you get other phone calls that weekend?
BUFFETT: I (LAUGHS) got a lot of phone calls. I had a phone call on Friday night -- the Friday --
late Friday afternoon -- on AIG. And they -- they were gonna need many, many billions of dollars by
the following Wednesday, so I went down to the office on Friday night and looked hard at whether we
might possibly buy a very large property casualty operation from them. And -- spent a few hours
then. And then I called (AIG CEO) Bob Willumstad and I said, "Unfortunately -- I can't do this deal.
And don't waste your time with me, so go someplace else." Then on Sunday after I got back from
Edmonton, AIG was in the picture again and they were looking for an insurance policy in connection
with an offer that was being made for AIG. I think it was by Chris Flowers and perhaps KKR, a few
people.
BECKY: Right.
BUFFETT: A few people. And they said they were gonna get goin' to a board meeting and decide
whether they were going to accept this. But if they did accept it would we be good on a certain type
of reinsurance transaction. I said I thought we would. But then that blew up on Sunday night, so it
was -- a lot of action.
BECKY: Is this different than any time you'd ever experienced before?
BUFFETT: It was --
BECKY: That were --
BUFFETT: -- it was -- except for the Solomon experience I had in 1991, when I was more directly
involved. This was a very extraordinary weekend.
BECKY: What did you see in the AIG deal, in the offer there that you -- that you thought, "Forget
about it. This is not gonna work?"
BUFFETT: I just -- we were talking about buying a property casualty operation that might have sold
in the $25 billion range. And what I saw indicated to me I wouldn't have wanted to pay that in the first
place. And beyond that it would have required New York State Insurance Department approval and
who knows was else. And I just -- there was no way to hand a lot of money by Wednesday the next --
the next week.
BECKY: And in hindsight do you have any regrets about any of the decisions you made that
weekend?
BUFFETT: No. I -- I mean the -- the -- I should have been probably doing other things too. No, I --
I'm -- I am -- I am glad we didn't buy that particular insurance operation. I would have done the
reinsurance transaction that was involved on Sunday night. The Lehman thing I still don't understand,
even (CHUCKLES) to this day, exactly what the transaction was. No, it was -- it was -- it was a movie
to see but not to -- participate in. (LAUGHS)
BECKY: We are one year out. When-- in-- in the worst of it last year, what was-- the worst possible
thing you could imagine happening that didn't happen?
BUFFETT: Well, I think if-- if the-- country and the Fed. I mean if Bernanke and Paulson and
whoever else was involved with the decision, but if they hadn't have stepped up to guarantee-- in
effect guarantee commercial paper and guarantee the money market funds-- the meltdown would
have been immediate. I mean it-- I don't-- it-- it's hard to tell how far it would have gone. But it would
have gone-- it would have gone further than anybody would have wanted to-- to see. And that-- you
can argue, (LAUGHS) if Bank of America hadn't bought Merrill Lynch on Sunday, on Monday I think
Merrill would have gone. I mean-- and so if you had Lehman and Merrill go in the same day-- who
knows what would have happened.
BECKY: Who do you think the biggest heroes are?
BUFFETT: Well, I think the heroes are-- are—(Federal Reserve Chairman) Bernanke. I think (former
Treasury Secretary) Paulson's a hero. I think (current Treasury Secretary) Geithner’s a hero are-- I--
I-- you know, you can look back and say you could have done this a little differently or that a little
differently, but at the time I called it an economic Pearl Harbor and in the end we got through Pearl
Harbor. And-- and it could have turned out a lot differently.
BECKY: There are some people, including (bank analyst) Meredith Whitney, who say-- we've just
kicked things down the road. That the banks-- are-- are still struggling. That we have a lot of
problems that could still come up from credit cards, from other areas, from consumers getting pinched
for-- needing credit. Are we through the worst of it? And--
BUFFETT: Oh, I think we're certainly—we’re through the worst of it in residential real estate in all
probability. And-- and-- and the reason is we're building a lot fewer houses and we're-- and we're
forming households, so that solves itself over time. Doesn't do it in a day or a week, but it solves
itself. So we're further on that. We're gonna have unusual losses in credit cards and in commercial
real estate, all of that. But we're a lot better off than we were a year ago. I mean for one thing on
some of the-- some of the toxic assets have been flushed through. There's been capital raised.
There’s -- we're immeasurably better than we were-- off than we were a year ago.
BECKY: But is there a risk of a second downturn? Will unemployment levels climb to a point where
it becomes a leading indicator rather than a lagging indicator?
BUFFETT: I-- I think the odds are very much against getting significantly worse. It's sort of plateaued
at the-- at the bottom right now, but if you got some horrible exogenous event, some-- some, you
know, 9/11-- type event or worse-- you know, you could have something that would be dis-- really
disruptive and start things all over again. But in terms of problems that we've identified and are
working with, we've got more to come. But we're-- we're-- we're past the-- we're past the critical
point.
BECKY: What are the most important economic indicators that you watch? Is there a series of
numbers? Are there-- some statistics that you look at most closely?
BUFFETT: Well, I look at our businesses every day. But I-- I look at everything. I mean I-- I-- I look
at car loadings. I look at the Fed's balance sheet. Whatever it may be. I mean I-- and-- and we have
not bounced-- but we've quit going down. I'm and-- and it—the world will come back. I've never been
able to tell whether it's gonna be a week or a month or-- six months. But we are on the mend. And--
and if you look at-- at housing prices and activity in the mid to lower price range, it changed
dramatically from a year ago. We're seeing some stability.
BECKY: All right. Let me go at this another way. Let's pretend you're on a desert island for a month.
There's only one set of numbers you can get. What would it be?
BUFFETT: Well, I would probably look at-- perhaps freight car loadings and-- perhaps-- and-- and
truck tonnage moved and-- but I’d want to look at a lot of figures. (LAUGHTER)
BECKY: You are the biggest shareholder-- Berkshire Hathaway is the biggest shareholder in Kraft.
Is the Kraft bid to go after Cadbury a good one?
BUFFETT: Well, it's a pretty full one. I mean-- the-- Kraft-- Kraft has got-- anytime you're in a
takeover, you know, that-- the animal spirits run high and all of that. But Kraft has the disadvantage
of using an undervalued stock. So if you-- if part of your currency is a stock that's worth more money
than it's selling for and you're-- you're paying full negotiated value for the other guy’s property and you
wouldn't sell your own property for anything like the market price, it's-- it's a-- it makes it a tough
game. So it's-- it's a full price.
BECKY: Are-- that makes it sound like as if you're not in favor of this bid?
BUFFETT: No, I-- I've got a lot of confidence in (Kraft CEO) Irene Rosenfeld. She'll-- but they have
to do a lot of things right to justify this price.
BECKY: You know, Warren-- at the last filings released for the SEC it showed that you were selling--
some of your healthcare holdings. WellPoint, United Healthcare. Is that because you worry that the
healthcare proposals out there in Washington might now affect the business?
BUFFETT: No, those are not my holdings. Those are Lou Simpson’s. I've never bought a
healthcare shock that I-- any-- well, jobs-- jobs in a healthcare stock. But in terms of the-- of the-- of
the insurers or providers-- those are not my holdings. I-- I've never bought a share in WellPoint or
United Health.
BECKY: What do you think about the-- the talk towards health care and where things are headed
right now?
BUFFETT: Well, I think that-- unfortunately, I think that the -- what-- what-- we're really talking about
reforming health insurance more than health care. So I-- the incentives that produce the 16 or so
percent of GDP that's going to health care, I think unfortunately they're getting-- they're going to get
changed. But-- so I think that we really-- and I'm talking as much about reforming health care as
we're talking about reforming the insurance. And I think that will be an opportunity missed if we don't
do more about looking at what-- what the incentives are in the present system and what they would
be in an ideal system.
BECKY: And then finally, if-- if you had to-- give a gauge of where you stand on the economy again
right now-- versus what you were thinking three months ago, is it the same? Is it better?
BUFFETT: It-- it hasn't gotten worse. It hasn't gotten much better either. But the very fact that time
is passing, it's-- it's gotten better in residential real estate. That’s important. Certain things haven't hit
much yet. Commercial real estate, for example. But we are moving through a recession. And-- and-
- and I see nothing that makes me worry about the fact that it's going to be worse than I would have
thought three months ago.
BECKY: And, again, Warren, we want to thank you for your time for joining us today.
BUFFETT: Thank you.

1
CNBC Transcript: Warren Buffett's 'Stock Split' Interview - Part

One
Posted By: Alex Crippen | Executive Producer
cnbc.com
| 20 Jan 2010 | 11:08 AM ET
In a live interview on CNBC's Squawk Box this morning

(Wednesday) ahead of a special Berkshire Hathaway shareholders
meeting, Warren Buffett made news by strongly criticizing Kraft's
planned acquisition of Cadbury.
He also told us Berkshire Hathaway's proposed split of its Class B

shares does not mean that he has dropped his overall dislike of stock
splits and share issuances, comparing the process to "preparing for a
colonoscopy."
WARREN BUFFETT TO CNBC: I WOULD HAVE VOTED AGAINST KRAFT-CADBURY DEAL
This is the first part of an unofficial transcript of the entire one-hour interview conducted by Becky
Quick.
BECKY QUICK: I don't know how much you heard of the Wells Fargo (earnings) numbers that we
were just --
WARREN BUFFETT: I heard a little bit.
BECKY: What was your immediate takeaway, and I know all you heard is --
BUFFETT: I didn't get the earnings at all. But I got the charge-offs at 5.4 billion. That's exactly what I
would have expected. I think they expect them to peak toward the end of 2010, but that number is exactly
what I would expect.
BECKY: What other headlines would you like us to pull up? What else would you be interested in
hearing about?
BUFFETT: Well, my guess is that the revenue and all of that is more or less like I expected. I mean,
Wells, right straight through this period has done pretty much exactly what they said they would do and
they've made money consistently through it. They've run into much larger losses than anybody
anticipated three or four years ago but they can handle them very easily. Last year we talked about 'em
having 40 billion of pre-provision income in 2009, and you know, they had it, and that easily handles 20
billion, roughly, of losses.
BECKY: They also issued a lot more shares though, to pay back the government. What did you think of
that?
BUFFETT: I didn't like it. (Laughs.) No, I mean, the government forced them to issue the shares. The
government's done a lot of good things for the economy and net I'm a beneficiary and Berkshire
Hathaway is a beneficiary of the things overall they've done. But they cost us real money at Wells Fargo.
2
BECKY: But was it the right move by the government or not?
BUFFETT: Well, it was the right move by the government to enter - to show that they were willing to
act very promptly and decisively. The key actions by the government actually were in September and
October of 2008. At that point, if the government had showed any hesitation about stepping in and doing
whatever it took to get us past a financial panic, you know, things would be a lot different today. So the
government did the right thing in acting - They didn't have to do this A, action A or action B or action C
perfectly. What they did have to show is that it was not going to be a Herbert Hoover type situation and
that they were going to jump in and do whatever it took.
BECKY: Before we get to a lot of the other questions, because this brings us to a jumping off point
about many things the government is doing right now. I want to talk a little bit about why we're here
today. And that's for Berkshire Hathaway's special shareholders meeting. This is a very unusual event.
The idea of splitting the Class B shares 50-for-1. Why are you doing this?
BUFFETT: It shows you what happens when you get to be 79. (Laughs.)
BECKY: Some people are asking if you are completely changing your stance on a lot of different issues.
BUFFETT: No.
BECKY: Some people are saying, 'Is this going to mean a dividend's coming soon, too?'
BUFFETT: No, I don't think it means that. It made sense in terms of the Burlington Northern
acquisition, because otherwise - We wanted to give a stock and cash option to their shareholders and to
really effectively give it to the smaller shareholder we had to have something with a lower denomination
in our Class B shares which were in the three-thousand dollar-plus range. The big shareholder would
have gotten a different deal than the small shareholder otherwise. So it was an easy decision, actually.
BECKY: Do you think this is going to be an easy vote as well?
BUFFETT: Yeah, I'm sure of that. (Laughs.) I'm like a politician in Chicago. I've got the votes.
(Laughs.)
BECKY: So you're going into this today knowing you have the votes. There are some people who say,
hey, this could mean that Berkshire Hathaway could now become a member of the S&P 500. What do
you think of that?
BUFFETT: Well, I don't know. I've never talked to S&P about it. I do know that we're probably four
times as large in market cap as any company that isn't in it. And we will have - when we get through with
this we could have like 700,000 shareholders or something of that sort. We'll have a lot of trading
volume. But that's up to S&P.
BECKY: Would you like to be in?
BUFFETT: Well, I think probably for our shareholders it's a net plus, yeah.
BECKY: I know Joe's got some of those numbers that you were asking about for Wells Fargo. Joe?
3
JOE KERNEN: Berkshire could be a Dow component. I don't - don't stop at the S&P. We'll get rid of
Alcoa or something, ah, I know - that would be great. Hey Warren, the revenue number on Wells was
22.7 and the estimate was I think 21.9. So unlike any of the other banks, I think that's the first one, I
mean I didn't look at US Bancorp, but the major ones that we reported on, this is the first one that's beat
on the revenue and it was also a profit of eight cents with the TARP repayment, even though the Street
was looking for a loss of a penny. So, seems to be a little bit better and the stock is now 29, it's almost up
a dollar at this point.
BUFFETT: Wells runs a terrific bank. They're a very customer-oriented bank. They're almost like
thousands of community banks when you get right down to it. They have a lot of services they sell for
each customer. So their revenues are going to come through. And actually when the stress test was done
in the spring of last year, that's where the people evaluating them were way off, was on the revenue
number. Wells did not disagree with them on the possible losses number, but they felt that the people just
didn't understand the revenue potential, that were looking at them, and I agreed with them. But
unfortunately they had to issue a lot of shares in conjunction with that stress test. I don't think Wells was
ever going to disappoint on revenue. They have a lot of customers and those customers do a lot of
business with them.
JOE: We've got so many things to go over, I've got - I don't even know where - I think of Wells and I
think about the bank tax. Is that a good idea to pay for the GM bailout with a bank tax, Warren?
BUFFETT: No, I don't understand that. If it's some kind of a guilt tax or something of that sort because
banks were among the whole United States that were saved back in 2008, everybody was taken care of
then. And the banks, basically, somebody like Wells, it's cost them a lot of money to be in the TARP and
it was basically forced upon them. (They) didn't want to take the money, but really had no choice. So
that's cost Wells a lot of money. The government's made a lot of money off Wells. They've made a lot of
money off Goldman. They've made a lot of money off J.P. Morgan. And where they're going to lose
money, at least where its possible they'll lose money, is in the auto companies. So if you're going after
the people you saved, you might say GM shareholders didn't get saved, the GM bondholders didn't get
saved. What happened there is they kept employment. I'm the last guy to suggest that you should go and
put a special tax on autoworkers. (Laughs.) If you're really looking for the people who benefited from
government losses, you'd have to look there. Or if you look at Fannie or Freddie. Are you going to go
and tax the members of Congress who ran Freddie and Fannie --
JOE: That's what I said! I can't believe you just said that. That's exactly what I - You could almost tax
any company that was in business that wasn't going to be able to float any commercial paper, you could
tax them too. Because they were saved - -
BUFFETT: Absolutely. In September of 2008 --
JOE: Don't give them any ideas! Warren, don't give them any ideas! They will, that'll be next.
BUFFETT: (Laughs.) No, what was done in the fall of 2008 was designed to save the American
economy. It wasn't designed to save the banks, it wasn't designed to save me. It was designed to 309
million Americans and a good job was done. But the banks are the ones, you know, particularly I just
named a few, they paid it back with huge interest. The government's made a lot of money on that. And to
say that they should be paying for the fact that the government lost a lot, or may lose a lot of money in
Freddie and Fannie and perhaps with the auto companies, it just doesn't make any sense to me.
4
BECKY: What about AIG, though? Goldman Sachs and a lot of the other banks did make a lot of
money back from AIG. Is that a different category?
BUFFETT: Well, they got paid what they were owed, but so did millions of policy holders. I mean, if
you look at AIG, AIG, primarily through its subsidiaries, but they had contracts with millions of people
who were counting on getting paid on their life insurance, getting paid on annuities, getting paid on
property and casualty claims. And the government's actions enabled AIG to live up to millions of
contracts. And it makes them mad that they lived up to a good contract with Goldman Sachs, although
Goldman was very protected. But I'm just not sure why - Goldman paid, I think, a billion-one for the
warrants to buy them back. They are not the problem. The banks have generally done a pretty good job.
CARL QUINTANILLA: AIG, other insurance companies, Warren, likely to fall under that taxing
category, people worry that the real fear is not just the feel-good measure that the tax will take but the
distraction it will create in dealing with financial reform in a real way in this country.
BUFFETT: Yeah, and it's a popular tax to propose now, obviously. The American people love the idea
of Goldman or AIG or anybody like that, those are bad names. They don't think so much about Freddie
or Fannie which are that expensive and which Congress ran. But I just think a tax that's enacted with the
idea that the headlines will be appealing and that a certain amount of vengeance will be achieved, I don't
think that's the greatest form of tax policy.

Two: Frustrated Americans
cnbc.com
| 20 Jan 2010 | 02:20 PM ET
Warren Buffett was interviewed live this morning (Wednesday) on

CNBC's Squawk Box, ahead of a special Berkshire Hathaway
shareholders meeting to approve the company's proposed Class B
stock split. This is the second part of an unofficial transcript of the
entire one-hour interview conducted by Becky Quick.
In this section, Buffett discusses compensation of bank CEOs, restricting leverage, Americans'
frustration with their government, and why businesses aren't hiring.
BECKY QUICK: In terms of going after a debate with Massachusetts, the President went up and
actually campaigned for (the Democratic Senate candidate Martha) Coakley and started saying things
about the banks. About how (Republican candidate Scott) Brown is for the Wall Street banks and she's
not.
WARREN BUFFETT: Well, banks - Maybe if I was running for office today I'd be chewing out banks,
too. But basically the government is going to get back its money overwhelmingly for banks. The FDIC,
which is funded entirely by banks, is taking care of the failed banks. There were 140 banks that failed last
5
year. Most of them were small community banks which everybody, you know, the hero of things
generally. And in the end, that's been taken care of by the FDIC and the FDIC is funded by the banks.
The banks are cleaning up their own mess, in effect, on that. Like they say, the banks have come through
this very strongly. But they're not earning - they talk about obscene profits - well let's just, J.P. Morgan,
you know, their earnings on equity were less than the average of the last ten years last year. You take
Wells Fargo, their earnings on equity were less than the average of the last ten years. B of A and Citi, I
mean if you want to call their profits obscene you may be thinking of a different sort of obscenity.
(Laughs.)
BECKY: At the same time, though, compensation is coming back to the levels that we haven't seen in
the past.
BUFFETT: Compensation at the investment banks. I don't think that if you look at the commercial
banks that you will find their compensation practices are significantly different than a few years back. I
would love to have no compensation at banks because we own some banks and then it would all go to the
shareholders. (Laughs.) I mean, the choice isn't the Federal government or bonuses, the choice is the
stockholders or bonuses.
BECKY: But people say that the real difference is should the government be backstopping, not just the
safe banks that are doing loans, doing things that need to be done, but also the investment banks at the
same time. Should they be in the same house, and should the government be backstopping the investment
banks as well when they can turn around and pay out these high compensations.
BUFFETT: I don't think they should be backstopping them.
BECKY: But how do you split them, short of doing something like Glass-Steagal?
BUFFETT: Well, if you look at Morgan Stanley and Goldman Sachs, the two big investment banks,
independently, I don't think they should be backstopped, backstopping them. Incidentally, in September
of 2008, Goldman went out to raise their own money. They saw the situation that was developing and
they raised 12 billion dollars there in September of 2008, which we participated in. They felt that they
needed capital because they didn't know if the world was going to come to an end or not and they went
out and raised it. They were a participant then in the TARP subsequently, but they were given no choice.
BECKY: I don't want to put words in your mouth, though. When you say the government shouldn't be
backstopping those investment banks, how do you get around this idea of if the commercial bank is with
the investment bank, how do you get around backstopping that if these are so important to our nation and
we have to keep them supported, this notion of too big to fail?
BUFFETT: I think, and I'm not even sure how you draft this into statutes, but the banks that got into big
trouble, it was management at the top. And a number of those went away rich. They didn't go away as
rich as they were earlier, but I think that's terrible. I think, if I were on the board of directors of a bank,
and you do this in conjunction with the government, but I think you should have something so that if a
bank ever has to go to the Federal government, not to the FDIC because that's a form of insurance, but if
they have to go to the Federal government to be saved, the CEO and any CEO of the previous two years
before that, and his wife, they sign something so that they are essentially wiped out. If an institution that's
so important to this country really causes the country great difficulty, I think the CEO, I want that CEO's
equation to be that if this place goes down or needs government help, I'm busted. And I can't put it all in
my wife's name and she's busted, too. And then I would have strict penalties for directors, probably five
6
times their average compensation or something. I think that would do more to change behavior, the kind
of behavior that gets us into trouble, then anything else you could do.
BECKY: So you're talking about the guys like Chuck Prince -
BUFFETT: Yeah -
BECKY: - and others who walked away?
BUFFETT: When they walk away I don't want - We've got unemployment insurance. Millions of
people are on it now and certainly anybody that causes that kind of trouble, and I would have it extend for
two years after they left or something of the sort. And like I say, if they want to sign, I would just, as a
member of the board of some super-large institution like that, I would just say that's part of taking the
deal. If you can't keep this place away from needing the Federal government for help, you're going to be
broke.
BECKY: But back to this idea, and I'm sorry to keep harping on this, but back to this idea of the
investment banks teamed up with the regular boring bank side of things, should there be a split there that's
forced by Congress, or do you think this idea of attaching it to the CEOs and directors would handle that
problem?
BUFFETT: I think - Well, I would like what I just suggested but I do think that - I think when very large
banks that are really, if anything happens to them they have to go to the government, I think they should
be reined in on leverage and I think they should be reined in on some of the kind of activities they've
engaged in, yes.
BECKY: What do you like that you see in the proposals for national financial reform right now and what
do you think is missing?
BUFFETT: Well, I think the hard part is to restrict leverage. I mean, leverage is what gets people into
trouble. And the trouble is you can't measure it by a single ratio. There's all kinds. I mean you can have
a lot of leverage on government bonds and then you can do other things where 2-for-1 leverage is too
strong. I think you do need a regulator that can draw up some kind of sensible regulations as to different
kinds of instruments, and maybe prohibit some in terms of the activities of commercial banks.
BECKY: You need a new regulator or the existing ones?
BUFFETT: I think I would trust the Fed.
BECKY: You would trust the Federal Reserve? But there are a lot of movements in Congress right now,
both from the right and the left, to go after the Federal Reserve and strip some of its powers.
BUFFETT: I think that's a mistake. I think that an independent Fed is incredibly important to the
economic future of the country.
BECKY: Ben Bernanke is looking for this reconfirmation. They say a vote could come as early as this
Friday. Should he be reconfirmed?
7
BUFFETT: If I could vote twice, I would. He should be, I mean, he did a magnificent job over this
period. Now, everybody can do it somewhat better. We could sit here and armchair quarterback him, but
when I look back at particularly September and October of 2008, he took some extraordinary actions that,
if they hadn't been taken, willingness to act like that, and even stretch his authority some. But he did what
you do, and we talked about it being an economic Pearl Harbor, he did what should have been done in
response to that Pearl Harbor. And I think he's done a stellar job.
BECKY: What happens if he's not reconfirmed? What's at risk?
BUFFETT: Well, just tell me a day ahead of time so I can sell some stocks. (Laughs.)
BECKY: You think there would be a strong selloff?
BUFFETT: Oh, I think so, sure.
BECKY: Across the board?
BUFFETT: Yeah. I think it'd be justified.
BECKY: You do?
BUFFETT: Yeah, I think - I think one of the - I think Congress generally is the worry of the American
people, particularly what they've seen over the last 12, 18 months. If Congress essentially said we can do
this better then a Ben Banana, and we think we know, I would get very worried.
BECKY: You mentioned Americans' frustration with Congress. Do you read this vote in Massachusetts
last night as some sort of a referendum on the job Congress is doing right now? The job the White House
is doing right now? On the health care reform bill? Or something else?
BUFFETT: No, it's those three things plus the economy. I mean, it's some mix. Who knows what goes
on in someone's mind when they enter a ballot box. Somebody said the word 'motivation' should never
be used in the singular, because you get these things all mixed up in your mind. But certainly, people
generally in the country do not like the health bill. Whether it's a good thing or not. But they don't like it,
and they don't feel good about Congress and they feel less good about the Administration than they did a
year ago, clearly. And they feel like the economy is dragging on for a long time. So all of those factors
converged, and probably to some extent the particular candidates, you know. If Vicki Kennedy had been
the Democratic candidate I don't think there's any question she would have won, probably three-to-two or
something. But it was referendum of sorts, sure. It was a big one.
BECKY: You say American people are less happy with the Administration, they're frustrated with
Congress, they don't like the health care bill. What about you? You're a big supporter -
BUFFETT: Well, going back to the American people, I think their expectations were probably too high
on the economy. And I think, incidentally, to President ABM's credit, he tried to dampen those. Every
time I heard him speak, he would say we didn't get into this in a short period and we're not going to get
out of it in a short period. But, he's attempted to do that, but when it grinds along, you know, people are
hurting. A lot of people are hurting and they, perhaps unreasonably, I would say it would be
unreasonable, but they expected better things by this point and that wasn't in the cards.
8
BECKY: You talk a little bit about what has happened with the economy. Is there anything different the
Administration could of, or should have, done?
BUFFETT: It's, you know, probably if you're going to spend close to 800 billion on a stimulus, I think it
could have been done in a way that had more immediate impact. But, you know, what we saw with the
stimulus bill, 8000 earmarks or something. I mean, that is the sort of thing that is depressing to the
American public. It's depressing to me. That is old-style Washington squared. And so I think in a sense
even on the stimulus bill, some of the benefits of the stimulus were lost by the fact that it was Washington
as usual.
JOE: Hey, Warren.
BECKY: Joe, you have a question as well?
JOE: I did. I ask it in the converse, Warren. OK, that's something that they did do that maybe could
have been done differently, but are there things that were done that actually hurt the economy? We hear it
all the time, about the uncertainty of a lot of the pending legislation. Tax policy, cap and trade, health
care, down the line. There are people who say that is causing corporate managers not to hire and that
we're actually lengthening the slowdown. Is that your view, too?
BUFFETT: Well, I hear that, Joe. I would say this. At Berkshire we're down 25-thousand, maybe, or
something in employment from 245-thousand.
BECKY: Off what base?
BUFFETT: Off a base, in the last year, year and a half. Take our carpet business. Our carpet business is
down 65-hundred people and that's concentrated in a fairly small, not all of it, but a lot of it is
concentrated in a small area of Georgia. We will hire people when the orders come in. I get the orders
every day, the incoming orders. I look at them. And we want to hire people but we're not going to hire
people just to stand around. So, we're not reluctant to hire people in Georgia at our - or at ACME Brick
in our brick business, which ran up the worst year in many, many decades. We've got a thousand people,
perhaps from the peak, that we're down at the brick business. It's not because we're losing share of
market. We're gaining share of market in these cases. But we're not reluctant to hire at ACME Brick or
Shaw Carpet because of what's going on in Washington. We're worried about hiring there because of
what's going on in our order book. If we get orders for brick, if we get orders for carpet, we're going to
put people back to work tomorrow, but we're not getting orders yet.
JOE: But it's possible to bite off more than you can chew. And maybe a lot of Americans would have
been content with economy, security. The economy and security. Maybe that would have been enough.
BUFFETT: You're not going to have people feeling good until jobs come back. I mean, it's that simple.
And jobs haven't come back. And one of the problems we have is that we have these people who are
dropping out of the workforce. Normally you need about 100,000 a month in jobs just to stay even in
unemployment. We've got people dropping out of the workforce. But those people may very well come
back in, in addition to the normal gain, in the year or two, in the next two years to come. So
unemployment is going to be a tough figure. That's going to determine the mood of the American people.
CARL: Warren --
BUFFETT: The mood of the American people is going to be - Go ahead.

9
CARL: Warren, Joe talks about economy, security, and those are really our short-term concerns. But
you've talked a lot about the longer-term structural issues the government needs to address. And when
you can't get health care reform through, will you have the White House, a majority in the House and a
supermajority in the Senate, how in the world do you think we're going to tackle things like Medicare,
Social Security?
BUFFETT: Well, that's one of the things that bothers the American people, when they see how
government is functioning, not just in the last year but prior thereto. But I think people who are expecting
a year ago with the new administration that you were going to see a different style of behavior in
Congress, probably have become pretty disillusioned in the last year. Incidentally, over the longer term,
it's going to work extraordinarily well. I mean, we have not come close to fulfilling the potential of this
country or our people. But we are going through a rough patch now and it ties in very directly with what
you said in terms of jobs. Until you get jobs, a better jobs picture, you're not going to have a happy
American public.
JOE: As a Cornhusker, did you not like that, what did they call it, the Cornhusker Husk or whatever it
is? Were you embarrassed by that as well?
BUFFETT: I don't think it was that popular out here. I think the whole idea, if you look at that, you can
call that a special form of earmark. And people don't like the idea that if you pass a bill like the stimulus
bill that various Congressmen and Senators find 8000, or whatever it was, items that they want to stick on
it. I mean, this Christmas tree approach, and of course, bad behavior begets bad behavior. After a while
even the guys who say I don't want to do this sort of thing on principle, they feel kind of silly facing their
constituents when everybody else is doing it. So if the other guy's doing it, that becomes an argument for
it and it gets to be, you know, it gets to be that K Street and lobbyists get terribly important and sticking
little special items on bills as they go along. And I think our Cornhusker thing was one example of that.
But it wasn't the only example. As I remember, Louisiana, Massachusetts, it --
JOE: Union.
BUFFETT: It's not - What you've seen in the last year has not been encouraging, I'll put it that way.
BECKY: You know, you mentioned that there's more the Administration maybe could have done even
though the American people had expectations that are out of whack. Paul Krugman wrote this week in
the New York Times that all of these bad things happened, the failure of the Democratic candidate in
Massachusetts, it all because they didn't spend more on the stimulus. Is that something you agree with?
BUFFETT: I don't think it would have made that much difference. People talk about the stimulus
having created a million-and-a-half, or saving a million-and-a-half. I generally am very skeptical of
figures that economists talk around, or even sometimes even projections of CEOs that they toss around.
(Laughs.) We have a lot to work through. It really goes back to what we talked about almost two years
ago. This country got very, very leveraged-up in a lot of respects. It got leveraged at the individual level
and housing and the government levels, everyplace. And deleveraging is a painful project, process. And
it takes a long time and we're not done.

Three: Kraft-Cadbury
10

cnbc.com
| 20 Jan 2010 | 05:19 PM ET
BECKY QUICK: We haven't even gotten a chance to talk about one of the issues that people really
have been waiting to hear from you on. Kraft yesterday raising its bid for Cadbury and Cadbury
accepting that raised offer. You voted 'no' when they asked you if they could be issuing more shares. But
what do you think about the bid now?
WARREN BUFFETT: I feel poorer. (Laughs.) Kraft, in my judgment, well just in the past two weeks
there's been two things that caused me to feel poorer. They sold a very fine pizza business and they said
they got 3.7 billion for it. But, because it had practically no tax basis, they really got about 2.5 billion.
They sold a business for 2.5 billion that Nestle is willing to pay 3.7 billion. Now can Nestle run it that
much better than Kraft? I doubt it. But that business that was sold for 2.5 billion earned 280 million pre-
tax last year. But they sold that at less, right around nine times pre-tax earnings in terms of their own
figure. Now they mentioned paying 13 times EBITDA for Cadbury, but they're paying more than that.
For one thing, EBITDA is not the same as earnings. Depreciation is a very real expense. But on top of
that, they've got a billion-three they're going to spend of various rearrangements of Cadbury. They've got
390 million dollars of deal expenses. They are using their own stock, 260 million shares or something
like that, that their own directors say is significantly undervalued. And when they calculate that 13,
they're calculating Kraft at market price, not at what their own directors think the stock is worth. So, the
actual multiple, if you look at the value of the Kraft stock, is more like 16 or 17 and they sold earnings at
nine times. So, it's hard to get rich doing that. And I've got a lot of doubts about the deal.
BECKY: You are the largest shareholder at 9.9 percent of the company. You don't get the chance to
vote this deal up or down. What do you do?
BUFFETT: (Laughs.) They took that away. They needed the vote originally but if they get a
consensual arrangement sort of thing with Cadbury, and that may be, you know, if they paid up enough
they were going to get it. So, who knows whether the last 20 pence or something - What it did was
eliminate my chance to vote on it.
JOE: There's another way to vote, Warren, and that's with your feet. Is that what you're telling us you're
going to do.
BUFFETT: That gets expensive. (Laughs.) Well, if I don't like what's going on in the government, that
doesn't mean I have to leave the country either, Joe.
JOE: Fine. But I can't believe what I just --
BUFFETT: But, it's --
JOE: It was a peak -- I know --
CARL: We've got to stop you because we have breaking news to bring you, and it is almost eight-thirty.
-------------------
11
CARL: Warren, Joe and I, our jaws are agape at the comments you just made about Kraft. We're
watching --
JOE: The stock's down
CARL: We had (Bill) Ackman on in the past couple of hours and we talked about the deal and assumed
because it would appear to be going through pretty well, that it had your tacit consent. That's clearly not
the case.
BUFFETT: No. If I had a chance to vote on it, I'd vote no, but I don't have a chance. One of the things
particularly interesting for the people that pay attention to corporate governance, Kraft issued a 78-page
proxy statement close to a month ago. And the sole issue was the issuance of 370 million shares of Kraft
stock. That was the only thing to be voted on. And in 78 pages, they told you about a deal that wasn't
going to happen, and they told you a lot of other things about how the directors recommended this and
everything else. There's one thing that they didn't tell you. They didn't tell you what the directors -- how
the directors felt about the value of Kraft stock. Now, after I came out and said Kraft stock was
significantly undervalued, the directors immediately came out and said they thought it was significantly
undervalued, too. What point could possibly be more important when asking shareholders to vote on
issuing 370 million shares is the director's views on whether they were going to get fairer value for these
shares? In other words, if the directors thought those shares were significantly undervalued, when they
issued that proxy statement, I think they had the duty to tell shareholders that they felt that way.
Otherwise, you know, the shareholders could assume that they were getting fairer value for the shares.
JOE: Warren, I know at management, you go into a company and you talk about you're comfortable with
management, you love the company's business, things like that. This is the hallmark of (CEO) Irene
Rosenfeld's stewardship of Kraft. You're just saying it's a bad deal. Is that not going to cause you to
reevaluate your stake in Kraft down the road if the manager, in the most significant decision she makes,
goes directly against what you think is the right thing to do?
BUFFETT: Well, I think -- I think Kraft has got a wonderful portfolio of businesses including their pizza
business which Nestle now has, having paid $1.2 billion more for it than we received in terms of cash. I
think the products -- you know, I'd love to own Oreo cookies or A-1 Sauce or whatever it may be
personally. And I think Irene has done a good job in operations. I like Irene. I mean, she's been
straightforward with me. We just disagree. She thinks it's a good deal. I think it's a bad deal. I think
she's a decent person. She could be a trustee under my will. I just don't want her making this particular
deal.
BECKY: We called Ackman the activist investor today. Hello.
BUFFETT: I'll go back into my shell. This may be Groundhog Day or something. Who knows?
JOE: I told you about that pizza deal, but with me it was, Kraft makes cheese. Pizza has cheese. Then
there's chocolate. And it just didn't seem to be this, you know, Smucker's with Jif peanut butter. I
understood that one, peanut butter and jelly.
CARL: I said your analysis was a little more astute than based on what flavors go well together.
JOE: You talk multiples and all this other stuff and pre-tax. But, I mean, it is telling that selling a very
good business to be able to do it, you know, looks like a good idea unless you look closely, right?
12
BUFFETT: Well, when you look closely, you find $3.7 billion becomes $2.5 billion. And it was an
enormously tax inefficient way to get rid of it. If you wanted to sell it, it was tax inefficient. Back when
Kraft got rid of Post cereals, they did it in a tax-efficient way. It's not that they don't know how to do it,
but in this case, they did it in an enormously tax-inefficient way. When you have a business with
virtually no basis, Procter & Gamble's gone through this, Kraft, other people. There are ways to handle
spinoffs that avoid cutting the government in for almost one-third ownership of the business. And
unfortunately they headlined the $3.7 billion. I don't think I've read anyplace about the fact that they're
only getting $2.5 billion. And it was Nestle that pointed out that this business does $2.1 billion in sales
and makes $280 million. And giving up $280 million of earnings in a business that's been growing over
the years for $2.5 billion of cash, I think, is a big mistake and I think it's a bigger mistake when you're
paying -- probably counting all of the costs involved including the undervaluation of the Kraft shared
given, you're probably paying in the range of maybe 17 times earnings for Cadbury, I think is a big
mistake.
BECKY: You said at this point you don't have a vote in this. The only way you can vote is with your feet
to sell the shares. You said that gets expensive. Does that mean you're staying in this despite the fact that
you hate the deal?
BUFFETT: I think Kraft is still undervalued. I just don't think it's as undervalued as three weeks ago.
BECKY: We showed a bid/ask, the shares are off by more than 2%. Based on your comments today,
people will think you're off your rocker. You're shooting yourself in the foot.
BUFFETT: No, Kraft is, in my view, and probably Bill Ackman's view, Kraft was significantly
undervalued. It's just less undervalued because it's issuing a bunch of stock at a cheap price, and it's
paying a full price and it's sold a good business. That hurts the value. Now, how much it's hurt the
value? Does it hurt at the $2, $3 a share? I thought it was worth a lot more than $27 or $28.
JOE: How does the Cadbury valuation measure up with the Wrigley Mars valuation, Warren?
BUFFETT: Well, the Wrigley Mars valuation was a very high valuation. We were a financing partner in
that. There's no question that the Wrigley valuation was a high valuation. Mars --
JOE: That's the difference, though, as a financing partner.
BUFFETT: But that is no reason -- that is no reason to pay the same price for something else. I mean, I
have investment bankers come around me all the time and say this thing sold at 14 times earnings and
therefore you could pay 13. I say, you know, we set our own standards for what makes sense.
BECKY: Why does Burlington northern make sense? If you're going to be splitting the stock and paying
for part of the deal in stock which you traditionally hate doing.
BUFFETT: I hate it. I've written the annual report and I say that I enjoy issuing shares at Berkshire about
as much as I enjoy prepping for a colonoscopy. This is not my idea of fun. And truthfully, Burlington
shares -- shareholders are receiving $100 a share. It's costing us somewhat more than that because I do
consider Berkshire at selling lower ratios to book value than it has in many years. We are giving up
something that I don't like to give up in which I think is somewhat underpriced. So it's costing us a little
more. On the other hand, we already own 22.6% which we bought for cash. We gave the minimum
amount of stock we can do in this. We're getting $22 billion deployed in cash that I like overall. But it
was a very, very close thing. If we had to give any more stock, we wouldn't have done the deal. I've never
13
said this is a bargain deal. I think it's a great long-term asset for us to own. And I think it's something
where we'll get a chance to use cash intelligently over the next century. But it is no bargain deal. I wish I
would have bought the pizza business at nine times pretax earnings. But one doesn't preclude the other.
BECKY: Wow! Does Irene Rosenfeld -- you said you've had conversations with her. She knows exactly
how you feel?
BUFFETT: Sure, I know how she feels. It's very cordial. She's a very decent person. And she is saying
exactly what she believes. There's no question about that. I'm saying what I believe, as you can tell, too.
It's a difference of opinion. You know, they may evaluate money. Of course, you get investment bankers
in the picture. Everybody basically, there's a deal momentum that gets created in any transaction. That's
not unique to Kraft. I've seen that -- I've been on 19 boards. I've seen it for 50 years. Maybe I'm
susceptible to it, too. Maybe when I hear that choo choo, I get carried away myself. We did pay right up
to the absolute hilt for Burlington, no question.
BECKY: Have you heard from any of you other companies you own major stakes in, once they see you
taking this activist bent, does that worry them?
BUFFETT: They figure I've gotten it out of my system so they don't have to worry, and they're right.
No, we feel good -- I feel good about Irene as an operator. She will do as good a job with this as can be
done. It's just what was paid for.
BECKY: You recognize the irony that when you came out and voted no against the issuance of stock for
Kraft so that they could go ahead with this deal, you drove up Kraft's share value. People thought, okay,
they're not going to overpay for this. And that, in turn, allowed Kraft to go ahead and make this higher
bid without having to ask your permission on stuff.
BUFFETT: It's worked out that way. I mean, I guess they would have gone up anyway.
BECKY: They would have.
BUFFETT: I don't know that and nobody knows. Clearly, they want the deal, you know. I've seen this so
many times. If you really want the deal, you know, you'll have all the people that work for you telling you
to do -- you know, it's team spirit. It's winning. It really isn't a win. Whenever a company makes a deal, I
go to the store and I buy a congratulations card and I buy a sympathy card. And then five years later I
decide which one to send.
BECKY: Let's talk about a couple of your other holdings. There was some news, I think it was
yesterday, POSCO, the Korean steel company, put out a press release and said Warren buffett plans to
buy more shares in the future. Is that true?
BUFFETT: I think I have to brush up on my Korean a little bit. I said that I like the company a lot. I said
I wished I had bought more when it was a lot cheaper within the past year. It got way down in terms of
price. It's a wonderful company, but I don't have plans to buy more. If it went down significantly, I
might very well buy more. Certainly I have no plans to sell any. But no, we have no buy orders in.
BECKY: So that could be lost in translation?
BUFFETT: I think it was, yeah.

14
BECKY: Another deal that was a big talk this week was Swiss Re, your taking on a little over $1.25
billion worth of business for them?
BUFFETT: Over time, that contract will probably result in perhaps $50 billion of premiums. It's the
largest -- to my knowledge, it's the largest insurance contract ever written.
BECKY: The largest insurance contract ever written.
BUFFETT: I wouldn't be surprised. I can't prove that.
BECKY: I read the Swiss release, and it said that they are doing this because they think that they can get
more for their money in other arenas. I think their goal is to get more than 14 times. Right, 14%., 14% for
the investment they're putting in. What's your reason for why you take it on?
BUFFETT: I think we'll make money. It's very simple. Now, if there's something terrible, pandemic or
if there were some incredible terrorist attack that resulted in mortality in the United States, increasing by a
dramatic amount because this is U.S. life business, it's spread all over. I t's not just a few policies. It's
millions of policies. Probably hundreds of thousands, certainly. But anything that would change the
mortality rate of the United States dramatically upward for any sustained period would be bad for us on
this. But if mortality is more or less normal, and particularly if there's some improvement due to
medicine over the years and so on so that mortality improves in the country, then we've got a decent,
long-term deal. But they've got their own reasons in deploying capital in other areas. It can be a good
deal for both sides.
BECKY: We talked with Dave Sokol before you came on about an hour ago. He was talking a little bit
about what he sees in the housing market. Obviously, Berkshire has a pretty good feel from a number of
its different businesses on where things are headed.
BUFFETT: It was interesting. I heard Rich a few minutes ago talk about the housing numbers -- housing
starts being a bad number. You want a bad number for a while. The only way you clean up an excess
inventory is to have more demand than supply. We had more supply than demand for three or four years
in housing. We produced 2 million housing units a year. We created 1.3 million households. Result:
trouble. And the longer you do it, the more overhang in inventory you have. The only way to clean it up,
one way, you can start getting 13-year-olds to start co-habiting and create more households that way. I'm
sure we'd get a lot of volunteers among 13-year-olds. But if you're going to have normal household
formation, you've got to have subnormal housing production to work off the inventory. The lower the
number is temporarily, the better. It's bad for our brick business. It's bad for our carpet, it's bad for our
insulation business, all kinds of things.
BECKY: It's bad for jobs and that presents a problem for the administration.
BUFFETT: We created the problem. We could have a cash for clunkers program on houses. If we would
blow up 3 or 4 million houses today the housing shortage would be over, it would be in the right place. It
wouldn't be my house or your house. But if you have an inventory overhang, you have to have demand
be greater than supply for a significant period of time to work it out. And we're well on the way to that. A
lot of the housing problem is behind us. The commercial real estate problem is not behind us. But the
housing is.
15
BECKY: But are you saying that the administration should not have put in some of these programs to try
and ease the pain along the way? Like a cash for clunkers, like the mortgage tax deduction that you can
get?
BUFFETT: Well, cash for clunkers, the idea is if you destroy a bunch of cars, people will need to buy
more cars. You could have cash for cream puffs. Bring in your brand-new car you bought yesterday and
blow it up, destroy it, and then you'd have demand for one more car. You can always create demand in
something like cars, you know, just say half the cars in the United States have to be destroyed tomorrow
morning. You'd have the biggest car deal you've ever seen. So those kind of programs -- and we did some
of that in the New Deal. You do it when you force farmland to become fallow for a while. You decrease
the output of crops. All kinds of ways of interfering with, you know, with changing the supply/demand
situation. But overall, I think particularly if you go back to the fall of 2008, overall, our government has
warded off something that would have been very, very, very much worse. I mean, I give the government
credit overall. I can knock this program or that program. But overall, the government's done a good job.
JOE: Warren, we've come back -- the market's come back a long way, as you know. And you've
commented, and I know on any given day you're not going to say whether it's expensive or cheap or
whatever. But have we fixed enough of what got us into the mess to warrant being back at 10,700, or is
this a bit of a bubble from all of the Fed accommodations and in all the things that the extraordinary
measures we've taken? Do you have a feeling for whether this is real and supported?
BUFFETT: Well, I have no feeling at all, you know. As you've said, I don't know where the market's
going to be in a day, week, month or year. I do know that if I had a choice between holding cash or 30-
year bonds or owning equities, I wouldn't hesitate for a second to own equities. You know, the market is
up quite a bit from march. But it's down a lot from three or four years ago. And if I were going to buy a
farm, Joe, and somebody said, well, with great certainty, they said, you know, this is going to be a terrible
year in terms of weather, I wouldn't say, well, I'll only pay $1,100 an acre, but I'll pay $1,500 an acre if
you'll give me a favorable forecast if I am going to own a farm for 50 years. I am going to have a few
lousy years in terms of weather. I'll have a few good years and a lot of pretty good years. And the idea
that you try to time purchases based on what you think business is going to do in the next year or two, I
think that's the greatest mistake that investors make because it's always uncertain. People say it's a time
of uncertainty. It was uncertain on September 10th, 2001, people just didn't know it. It's uncertain every
single day. So take uncertainty as part of being involved in investment at all. But uncertainty can be your
friend. I mean, when people are scared, they pay less for things. We try to price. We don't try to time at
all. And pricing, I would rather own equities today --
JOE: People say all the toxics -- people say all the problems that we had in March at 666 on the S&P that
nothing's changed. Toxic assets are still somewhere. We're still overleveraged. You hear that all the
time. That nothing's changed, and here we are 70% higher than where we were. They say it's just not
supportable.
BUFFETT: Well, I would say they're making a mistake in terms what they were selling for in March. I
mean, you know, if, like I say, if I buy a farm near here, you know, and it turns out to be a terrible year
and pests come in and there's no rain and all that sort of thing, am I going to sell it for half the price it was
selling for a year earlier when I know over the next 100 years there's going to be 90 years that are pretty
good and a few bad ones? It doesn't make any sense to try and time things that way. Nobody knows
what's going to happen tomorrow, ever. The only thing is they get very apprehensive about it at certain
times, particularly when other people are apprehensive. When people get scared, they get scared as a
group. The confidence comes back sort of one at a time. There has been a lot of things that have been
cleaned up in the economy in the last 18 months. A lot of the toxic assets are in better shape. There are
16
going to be 4.5 million homes or thereabouts sold in year. There are 80 million homes roughly in the
country. 25 million don't even have a mortgage. Of the 4.5 million homes that are sold, the people that
are buying those are putting down reasonable down payments in many cases, buying much more cheaply,
covering it better with their income, so the liars' loans have just disappeared to a great extent, so every
day those homes are going into better hands. 4.5 million homes will be in better, stronger hands, people
that can handle payments better at the end of the year than the start of the year. So the system is cleansing
itself but it doesn't do it in a day, a week, a month, or even a year.
CARL: Warren, there are those out there who argue that the economy is being held together in a way
with tape and glue,right? With NBS purchases and stimulus measures and cash for clunkers. Bill Dudley
of the New York Fed is out this morning and he says the prospect of another financial collapse, in his
words, sort of a reiteration of what he said before, is extremely remote. Do we have the cushion to
withstand another big shock or would you side with what Dudley is saying this morning?
BUFFETT: Well, I think we have the conditions in place to take care of any normal shocks. If you talk
about some, you know, major terrorist activity that is carried off or something, I mean, there are
exogenous factors that could cause problems now just like they could have five or ten or 20 years ago.
And we didn't know them ahead of time. But if you're talking about a world where there is nothing of an
extraordinary nature, I think the chances of a second financial panic are extremely low.
BECKY: Warren, when you talk, people listen and people are watching right now. In fact, Jamie Dimon
wrote in. He is watching. He says he agrees with most of what you're saying. He wrote in when you
were talking about Washington.
BUFFETT: I feel good. Jamie is a very smart guy and he has run a bank the right way.
BECKY: Well, when you start talking about some of these issues, do you talk to other CEOs, especially
who are involved in the financial institutions? What's their take on what's happening in Washington and
how much of this, I guess, political rhetoric and the back and forth about the enemies on Wall Street, how
big of a concern is that?
BUFFETT: Well, they don't like it, obviously. But Washington doesn't like them-- I mean, it's, you
know, bankers get pointed at, whenever there are problems bankers get pointed at and there are some
things to point to but I don't think, you know, that's affecting jobs now. I mean, people say, you know, I
don't think anybody is not hiring. If Wells Fargo needs people they're going to hire people, you know. If
they have five or six more percent customers this year than last year, they'll need more people. They'll
need more people in their mortgage department because it's increased their share of market. Businessmen
make self-interested decisions, you know, just like all of us, and they're not going to expand if they don't
see demand. On the other hand, if the orders come in, and they will at some point, I mean, I will
guarantee you that our brick business and carpet business will be doing a lot better five years from now. I
won't guarantee five months from now. I don't know when it will change. When it does we'll be
employing more people.
BECKY: Are banks lending money or is it simply what you're saying, people aren't looking to take more
money out because they don't see the demand?
BUFFETT: Yeah, well, there are relatively few businesses that need more capital now to support more
business. Now, there certainly is an economy where that wouldn't be true, but the people that need
business, that need loans to take care of operating losses are -- that's a mistake to lend them money in
most cases and there's all kinds of people that are having financial troubles that would like to borrow
17
money to get their way out of financial troubles. Most of the time that doesn't work. There are times
when it does but most of the time it doesn't. People wanting money for expansion, where they've got
profitable businesses, I don't think are having any trouble getting -- but there are -- you do not want to go
around lending money to people using it to cover operating losses. And there are plenty of people that
want you to do it. I -- the bankers I talked to are dying to get loans. I mean, the last thing they want to do
is sit around with money at Fed Funds rates or Libor. There is no money in that. They want loans. But
they want loans where they're going to get paid back. They took out a lot of loans a few years ago that
weren't so good. I do not think there is a general reluctance at all among banks to lend.
BECKY: Short of an extreme act like a terrorist act, what's your biggest concern when you look out over
let's say the next year and the economy?
BUFFETT: Well, that would be my biggest -- it's going to take time. You know, next day -- these things
take their way to work through. I mean, people don't have to buy carpet tomorrow. They don't have to
buy brick from us tomorrow. They don't have to buy insulation from us tomorrow. Now we're doing
business but not the kind of business we will be doing when things get back to normal. And that will
happen, but we are working off excesses. And huge excesses in the leveraging field and it was the first
thing I talked about when this happened, that the world was going to deleverage and the only party that
could really leverage help was the U.S. government. Thank God it did. I mean, Ben Bernanke has taken
on a trillion of mortgages, you know, I mean, he's got a great hedge fund now. I mean, he's got these 5%
assets and no cost on the liability side of it. He should have negotiated a better deal. He had to buy that
trillion. I mean, things are getting righted. Balance sheets are cleaning up. You can take a Goldman
Sachs or, you know, the leverage ratio is in half. Their capital is like it's never been before. So it's
getting righted but, you know, it goes through the wringer and State Farm does wonderfully. The world
will go on and we will have a better world five and ten years from now, but five months from now who
knows what it'll be?
CARL: Warren, there is a -- there is a school of thought along those lines that you could have stubbornly
high unemployment and could have consumers reluctant to spend but you have companies in the sweet
spot of the profit cycle where margins are going up and cash levels are high and productivity is through
the moon and you could have the markets diverge somewhat from the overall economy over the next 12
months, don't you think?
BUFFETT: Well, I think markets frequently will diverge from the economy. That's why I think it's a big
mistake for people to start when they think about buying a stock, I think it's a big mistake to start, to think
about what's going to happen in the next 12 months or the next six months either to the company or to the
-- or to the economy generally. I do not -- if I'm buying XYZ company I am not concerned about what
they're going to earn in the next year. The next year is going to be over and then people are going to be
looking at the year after that. If I'm right about where they're going to be in five or ten years we'll make a
lot of money but I can't time stocks based on what they're going to do this quarter and next quarter. I
don't know anybody else that can, but maybe they can.
BECKY: You know, we are just about out of time today, but you've got the shareholders that are going to
be coming in here in just about an hour, hour and a half, this morning. This meeting today, you say you
think you already have the votes.
BUFFETT: We have the votes, yeah.
BECKY: You feel pretty confident about that. Will the shareholders be asking other questions?
18
BUFFETT: No. This meeting is just about the split because we didn't want to turn this into a second
annual meeting. We'll have the annual meeting on May 1st. We'll have so many people here you won't
be able to believe it and we're going to take questions even a half-hour longer than normal and go from
9:30 to 3:30 even and then, you know, the press the next day and all of that sort of thing. So this is --
limited today.
BECKY: This vote, you say you have the votes going into it. Burlington Northern shareholders vote next
month.
BUFFETT: Right. Their vote is tougher because they need -- because we own the shares we do already
-- they need 66-2/3% of all shares not owned by Berkshire, not just the ones at the meeting. So they have
a pretty high hurdle right now. But the vote is coming in well, but this vote is a lot easier.
BECKY: There's been some legislation proposed in Congress that would regulate more of the railroads.
Do you have any concerns?
BUFFETT: Well, the railroads are regulated, should be regulated. On the other hand, it should be what I
would call enlightened regulation. The country needs both our utility business and our railroad business
to make investments for the future. We should earn a decent return on the capital employed. We
shouldn't earn a fabulous return. We're not entitled to it, but we should earn a decent return and I think
regulation over time will provide that and we'll do our share. We'll invest billions and billions and
billions to have our facilities prepared for the society of tomorrow.
BECKY: All right. Well, Warren, thank you very much for joining us this morning. We'll be here
through the day talking a little bit more about what happens at the meeting today but, again, thank you for
being so generous with your time.
BUFFETT: Thanks for having me.
http://www.cnbc.com/id/34961653/
FULL CNBC TRANSCRIPT: Ask Warren Buffett on CNBC's Squawk
Box
Posted: 01 Mar 2010 01:16 PM PST
Monday, 1 Mar 2010 8:42 AM ET
This is the full preliminary transcript of Warren Buffett's 'Ask Warren' appearance
Announcer: This is a special presentation of SQUAWK BOX. The world's most famous investor
live from Omaha, Nebraska; you ask, Warren Buffett will answer. A unique, interactive three-
hour-long conversation not to be missed as SQUAWK BOX begins right now.
BECKY QUICK, co-host: Good morning, everybody and welcome to SQUAWK BOX right here on
CNBC. I'm Becky Quick, and we are this morning at Piccolo Pete's restaurant in Omaha,
Nebraska. This is a favorite hangout of Warren Buffett. He's going to be talking to us for the next
three hours. Of course, Joe Kernen and Carl Quintanilla are back at CNBC's world headquarters
live this morning. And, guys, we have plenty to be talking about this morning. We are joined by
the "Oracle of Omaha" himself this morning, Warren Buffett. And he made it here early, guys, he
is sitting down and he is ready to go. He is ready to take questions. So good morning, everybody.
JOE KERNEN, co-host: It's 4 AM?
QUICK: It's--yeah. It's 5 AM here.
KERNEN: It's 5 AM.
CARL QUINTANILLA, co-host: Yeah.
QUICK: It was 4:45 when he showed up, yeah.
KERNEN: Five AM, wow.
QUICK: Five AM here.
KERNEN: Wow.
QUICK: So he's ready to go.
KERNEN: What is...

QUICK: He is ready for your questions this morning, too, guys.
KERNEN: What is...
Mr. WARREN BUFFETT: Omaha's in--Omaha's in the middle of the country, Joe. That's why it's
5, yeah.
KERNEN: Middle, because Colorado's right around there, right?
QUINTANILLA: Right. We're a little farther west.
KERNEN: A little further and that's two hours, right?
QUINTANILLA: Mm-hmm.
Mr. BUFFETT: It's 4:00 in Colorado, right, 4:00 in Colorado.
KERNEN: It's so complicated, isn't it?
QUINTANILLA: Yeah.
KERNEN: What is Piccolo Pete's--what is the real specialty there? Is it appetizers? Is it big
portions?
QUICK: I...
KERNEN: Is it drinks?
QUICK: No, I'm glad you--I'm glad you asked. This is a steak house, and they've got great steaks,
they've got great Italian food that they bring alongside it. And Piccolo Pete's is a place that
Warren's been coming for many years and also bringing some of his big out of town guests into as
well. In fact, Joe, if you stick around for a minute, I want to show you a few pictures of people who
have been to Piccolo Pete's. You wonder, you know, they come to Omaha, they want to see
Warren, so they want to come down and get a good meal, and this is where he brings a lot of his
people.
KERNEN: But he never--he never bought it.
QUICK: People like A-Rod, who's shown up.
KERNEN: He never bought it. He never just decided, Ì like this business, I...'
QUICK: Do you buy? Oh, the business, itself. I thought you meant buy dinner for everybody when
they come in.
KERNEN: I know--I know he...
QUINTANILLA: I think--I think he generally picks up the tab.
Mr. BUFFETT: (Unintelligible)
KERNEN: I don't think he does pick up the tab.
QUINTANILLA: Really?
KERNEN: Unless you pay $700,000. I think he'll sit down with you, but, otherwise, he won't even
get the tip, really. Do you? I mean, you're frugal. You're known to be fairly...
QUINTANILLA: That's how you become a billionaire.
KERNEN: You're known to be fairly frugal, which is--which is--but why not buy it?
Mr. BUFFETT: Jeff and I sat--Jeff and I sat here for two hours, each waiting for the other to pick
up the check.
QUICK: Jeff, you know he's talking about, Joe, who's in town just a few weeks ago and also who, I
think, had dinner with him then, too. So we're talking A-Rod, Jeff Immelt, who have come in,
you're talking Bill Gates, you're talking Charlie Rose.
Mr. BUFFETT: Yeah, yeah.
QUICK: Ben Stein was here.
Mr. BUFFETT: Ben Stein. Yeah. Everybody comes here. And last Friday I had 189 students from
seven schools here. I bring--I bring the schools that come in for the day, we come down here for
lunch and I get more letters, frankly, about how good the food was than how good the teaching
was.
QUICK: All right, so gentlemen, we are here this morning, and we've got three hours to do it,
plenty of things to talk about, so why don't we start right off the top. We've got a lot of questions
from viewers and we're going to get to as many as we can through it. But, Warren, we're here
because you came out with your annual shareholders letter...
Mr. BUFFETT: Right.

QUICK: ...and--over the weekend, and this is a little different. You were addressing about 65,000
new shareholders this time around, added to the 500,000 you already had on the books because
of the acquisition of Burlington Northern. So this shareholders letter was really written as a how-
to guide, an owner's manual, if you want to call it, for owning Berkshire-Hathaway. Why'd you set
it up that way?
Mr. BUFFETT: Well, it was--it was a freshman orientation course, in effect, because we not only
gained at least 65,000, maybe quite a bit more from the Burlington deal, but we also gained--
during the year, we think we gained almost 100,000 now. In another couple of months, I'm going
to actually run something with street name holders to find out how many holders we have. But I--
it looks to me like we're gaining really many tens of thousands a month because the A is getting
converted into B and it--that would indicate that's going on.
QUICK: Because the B shares were split 50 for one, so you've got a much lower price point for
people to be able to get into this stock.
Mr. BUFFETT: Right.
QUICK: Also, it was added into the S&P 500.
Mr. BUFFETT: Yes. We--we'll know in a couple of months exactly how many we have, but I know
we--I know that there's probably 150,000 people reading the report this year that haven't ever
read it the report before. So I wanted to go through sort of the basics of Berkshire and make sure
that everybody was on the same page.
QUICK: You know, a lot of people will wonder what happened with this new influx of
shareholders who are there. You've always said that you don't want people to be short-time
investors.
Mr. BUFFETT: Right.
QUICK: You're not interested in people jumping in and out of the stock, that you want them to be
long-term holders, but how much of a risk is there to the culture when you have such a sea change
in the investors who are coming in?
Mr. BUFFETT: Well, that's my job. I mean, I am there to tell them what sort of a restaurant it is. I
mean, it--you know, when we come to Piccolo's, we know what kind of food is going to be here;
and if they were serving fancy French food or something like that, I'd be very disappointed when I
got inside. So I come for this very basic food, and that's--and I'm satisfied when I walk out. I do--I
want to do the same thing with Berkshire. I want--I want to make sure that people know the kind
of organization they're joining, what our goals are, what our time horizons are and all of that. And
then I have to deliver. But at least they're in sync with me when they enter the door, and that's
true of all the new shareholders that are coming in, too.
QUICK: You know, we have a lot of questions from shareholders that have been coming in and
many of them have questions about Berkshire, some very basic things and some very thoughtful
ideas that they put through. We're going to get to a lot of those questions through the show, but
why don't we start out this morning talking a little bit about where you see the economy. When
you sat down and talked to us, I guess it was back in the fall of 2008, you talked about how we
were in an economic Pearl Harbor. Where do you see things right now based on all the businesses
that you have?
Mr. BUFFETT: Well, we got past Pearl Harbor, but we will win the war, but--and it's going slightly
our way at the present time, but the spill-over from the financial panic into the real economy was
huge and particularly things like housing had to stop because we had this huge over supply. I--
we've got about 80 businesses now, and I get figures on them on a very real time basis. And I
would say that there's a few businesses that really have had a fair amount of bounce, in terms of
electronic components and that sort of stuff...
QUICK: Mm-hmm.
Mr. BUFFETT: ...which we distribute. There's others that've had no bounce at all. And I would say
that, if anything, it's getting better but at a very, very slow rate.
QUICK: Is it the consumer businesses that are struggling the most?
Mr. BUFFETT: Consumer businesses are struggling. The--they're--the American public is

deleveraging to some degree. They can't refi anymore. I mean, they have a whole different
mindset about buying things than they had a couple of years ago and that means that business in
many areas is slow. It's particularly--you have to be a little careful about the comparisons now
because if you're into February and March, you're comparing with a period when we were in free-
fall last year. So I compared it two years ago, and our businesses are not doing as well, in--on
average, are not doing anywhere near as well as two years ago.
QUICK: Does that mean this idea that people think jobs are going to start coming back, do you
think that's further off than other people are forecasting at this point?
Mr. BUFFETT: I think they'll be slow to come back. But we're going to hire more people. We let go
a lot of people last year. If you take our carpet business, we're going to sell a lot of carpet over the
years, but our employment from the peak is down 6,500 people. Now that's a lot on a base of
around 30,000 or a little larger. I get the orders every day on carpet and see what they are. When
we get--when the orders come in, we will hire people. I mean, we're dying to hire people, but we're
not going to hire people if--to stand around. So jobs will respond to demand, and that's why, in
effect, the government in typical, you know, Keynesian fashion, feels you have to kick-start
demand. Jobs don't come--I mean, you can have various jobs, programs and offer me a tax credit
of $1,000 or forgive payroll taxes or something of the sort, but that's not really a good reason to
hire somebody. The reason to hire somebody is because you have a customer out there that needs
that somebody.
QUICK: Is the government doing the right thing? You say it's a Keynesian response, but the jobs
bill that they've just passed, is that the right way to get jobs moving?
Mr. BUFFETT: We're doing the conventional things, but that doesn't mean that they'll have huge
effects or instant effects. I mean, it is important that the government step in with demand when
private demand falls off, but it's no miracle worker. And we're going to be testing Keynesian
principles pretty severely here. This is not exactly like anything we've had before. And we don't
have anything better to go with, but we should not expect miracles.
QUICK: Carl has a question as well. Carl.
QUINTANILLA: Yeah, Warren, I--looking at your letter over the weekend, a lot of various things
made their way into the headlines. You talk about some of your construction businesses bouncing
along the bottom, as you put it, but you also say that in a year, the worst of our housing troubles
may be behind us. Can you sort of elaborate on where you see housing and how that effects the
rest of the broad economy?
Mr. BUFFETT: Yeah. Residential construction, we got way ahead of ourselves a few years back.
We built more houses than there was true demand for and it was fueled by financing and all that
sort of thing. And that just--that--you might call that an inventory correction that's needed. We
have to use up that inventory, and we're creating households every day in this country, and those
households are going to want places to live. So with housing starts down to 550,000, that chews
up the inventory, but it takes time. You know, we build inventory for years, so you don't create--
you don't correct the inventory situation in a day or a week or a month, but we are correcting it in
a very significant way. We will still have at the high end supply and demand situations way
different than if you get into medium-priced and lower-priced houses, and there's a few areas of
the country that are going to still be very over built a couple of years--a year from now, but I
would--my best guess is that within about a year, for 80 percent of the housing market, you're
going to have a reasonable balance between supply and demand. That doesn't mean prices are
going to shoot up, but it does mean that houses will be moving and there won't be further
deterioration.
QUINTANILLA: Right. Unless, as you say...

QUICK: But what about if interest rates are rising?
QUINTANILLA: I mean, I was going to say, unless, I don't know if you read this, Joe, in the letter,
unless we let teenagers cohabitate, in which case household formation goes to the moon, right?
Mr. BUFFETT: Well, yes. Yeah, I--yeah--and actually I--that may have started a trend when I
wrote about that. I didn't realize the degree at which that would get picked up, but I'm getting a
lot of support for that idea.
QUICK: Warren, what about the idea, though, that interest rates are very likely going to be rising;
they're not going any lower. And if you start to see the housing tax credits go away, if you see
interest rates rise, will that put a crimp into this recovery in housing?
Mr. BUFFETT: It has--it will have some effect, but there's some doubling up that occurs during a
recession. I mean, but...
QUICK: Doubling up in households, you mean? Where...
Mr. BUFFETT: Yeah. But if your in-laws are moving in with you, I mean, you may want to get
them out of there as fast as you can, too. So basically, it's household formation measured against
the inventory of houses and the new ones that are being created that determine it, but there's no
question if interest rates go up, it makes it tougher. It means you can buy a little less house. And,
in the past, we let people buy houses they couldn't afford to stay in on the theory they'd refi them
or something like that, but that day is probably over for quite a while. So if you buy--if you're
going to buy a house and you're going to devote 31 or 32 percent of your income to monthly
payments and interest rates go up, you can't buy as much of a house. And, of course, in the last
year, the Federal Reserve has bought over a trillion dollars worth of residential mortgages. Now, if
you think about it, normal--in a normal year, there's only a couple trillion created. So that--
they've been a huge factor in the market, and they've announced that they're not going beyond a
certain point.
QUICK: Not going to buy.
Mr. BUFFETT: Yeah.
QUICK: Joe:
KERNEN: Thanks. Warren, I read something kind of disturbing over the weekend about what's
still on the average bank's balance sheet, that one out of--I think it was one out of 10 dollars
earned bad loans or something like that and I'm just wondering whether you describe an economy
now that obviously is better, but it's not gangbusters. Do you buy into this new normal idea that
it's really going to take a while and that there will be a line drawn during the financial crisis that
from there on out for at least 10 years we're going to have sub-par economic growth? Or is this
going to be like everything else, and we come back quicker than we thought?
Mr. BUFFETT: Well, it's going to come back a lot quicker than 10 years, Joe, but it--I don't think
it's going to bounce back fast. The banks are in better shape than they were a year or two ago.
Although a lot of smaller banks have got troubles. They've got particular troubles in commercial
real estate. So the FDIC puts out this list of problem banks and that list, we had 140 banks fail last
year, we'll probably have more than that fail this year. To put that in perspective, there are about
7,000 banks, so about 2 percent of the banks failed last year. I think that number will be up some
this year. It's mainly concentrated in smaller banks that themselves got very concentrated in bad
areas of lending, particularly in commercial real estate. But I don't--the banks are in a lot better
shape than they were a year, a year and a half ago.
QUICK: You also said in the past, though, that this was a great time to be a bank because you're
being handed money, essentially, free...
Mr. BUFFETT: Yeah.
QUICK: ...and turning around and loaning it. As rates go up, does that change the outlook for
some of these banks?
Mr. BUFFETT: It doesn't. It probably won't change the spread much because most banks,
particularly larger banks, tend to be fairly asset and liability neutral. They have about as much
that's going to fluctuate in terms of rate on the asset side as they have on the liability side. So, if
their liability side goes up 100 basis points in terms of what they're paying for deposits, the
chances are the loan side is about that much is getting adjusted as well. So it has an effect to a
moderate degree, but it's not a big element.
QUICK: Joe...
Mr. BUFFETT: It's tougher--it's tougher for the customers, though...
QUICK: It is.
Mr. BUFFETT: ...the higher the rates go, obviously.
QUICK: It is, it is. Joe:
KERNEN: Thanks. Like I think back to the--what--some of the stuff you said, Warren, about how
you wish you had done even more, and I guess you're talking about in the investment in Goldman,
I think about that, the investment in GE, but I think about all the ones you passed up. You passed
up some companies that are gone, and it would've been bad if you bought Bear Stearns, some of
the falling knives, Lehman Brothers, things like that.
Mr. BUFFETT: Yeah.
ANNOUNCER: This is a special presentation of SQUAWK BOX. The world's most famous
investor live from Omaha, Nebraska. You ask Warren Buffett, we'll answer. A unique, interactive
three-hour-long conversation not to be missed, as SQUAWK BOX begins right now.
KERNEN: Yeah, there's orange on top of our SQUAWK BOX logo. It used to be blue--it used to
be blue. There's orange there. And good morning, and welcome back to SQUAWK BOX here on
CNBC. I'm Joe Kernen, along with Carl Quintanilla. Becky Quick reporting life from Omaha
today. More from Becky and Warren Buffett in just a minute. First, though, a check of the
SQUAWK Newswire, as only Carl, I think, can do.
(News headlines followed by discussion about new Squawk Box set elements)
QUICK: No, I haven't seen that one.
QUINTANILLA: This one right here.
QUICK: No, oh, OK, you're right, that's spooky.
QUINTANILLA: Yeah, that's all new.
KERNEN: That is new. That's cool.
QUICK: That is new.
KERNEN: But the...
BUFFETT: Joe, if you're unhappy you can get--if you're unhappy, get some Benjamin Moore
paint. We'll have it fixed for you today.
KERNEN: You are--you are...
QUICK: Ever the salesman.
KERNEN: ...you are unbelievable. It's a good idea, though. Let's get some Benjamin--all right.
QUICK: Well, we do want to ask you about another one of your companies, Warren. Coca-Cola
came out and surprised a lot of people with this news that it's going to be buying the North
American bottling operations. This is different than what they'd been talking about in the past.
BUFFETT: Right.
QUICK: And it follows what Pepsi did about a year ago; in fact, follows very closely what they'd
been doing. What do you think about this deal?
BUFFETT: Well, I think on balance I like it. I mean, Muhtar Kent has done a fabulous job with
Coke, and there's a lot of execution problems in doing anything like that. Pepsi will have them and
we'll have them at Coke. But with Muhtar, I feel confident in the fact that it will get carried off
right now. The bottling business is very different than what they call the concentrate business,
which is making the Cola-Cola concentrate, gets turned into syrup, gets turned into Cola-Cola.
The bottling business is very capital intensive and has low margins. The concentrate business is
not capital intensive and has very wide margins. Literally, Coca-Cola with 5 billion of capital could
make 8 or 9 billion pre-tax just from the concentrate business. But the bottling business is an
entirely different business. So long-term, I like being in the concentrate business much more than
the bottling business. But the bottling business, Coca-Cola has what they call a fountain division
that sells direct. They have the bottlers. Any time they get a new product there's a question of how
it comes under this contract that originally goes back to 1899. It needed rationalization and this
move is a big, big step toward rationalizing it, make it so it's more--it's more friendly to the big
box retailers of Walmart or some--Costco or somebody like that. And it--but it will--there will be
some real execution time involved in it and over time, you would hope that Coca-Cola would have
less money involved in the bottling business, because it's a less attractive business.
QUICK: Obviously, you're a long-term shareholder, but when you say that there are very likely to
be come execution steps, some difficulties along the way, maybe some stumbles, how much
patience do you have as an investor? You talking about year or two?
BUFFETT: I--well, no, I just say that--whenever you're doing anything this big you better--you
have to have a lot of confidence in the management and I have confidence in Muhtar to carry this
off.
QUICK: You know, that brings us to one of the shareholder questions that came in. This is from
Carlos Alvarez in Houston, Texas. He says, "Can Berkshire really be another Coca-Cola in the
sense that even a ham sandwich can run it after you're gone? What kind of checks and balances
will you leave in place to prevent major mistakes by the next CEO?"
BUFFETT: Yeah. Well, the culture's all important and the culture of Berkshire, I think, is more
embedded than you could find in any--in any company virtually in the world. You've got
managers by the dozens that have bought into it when they sold us the business. You have
directors who have bought into it who've come on board because they believe in that culture, not--
they get directors fees of $900 a year. So they are not there to collect directors fees or for
importance. They're there because they think of Berkshire as something special and they'll keep it
special. On top of that, at least for a while after I die, my A shares will represent a huge voting
piece of the company, and I hope that a member of the Buffett family is involved. Not in
management, but just as a--as a custodian of the--of the culture, as a non-executive chairman.
There's all kinds of things in place that will--that will keep it running the way it's run. It would--
the organization would thrust out anybody that tried to go in a different direction, just like they
would have thrust out anybody that tried to take Walmart in a different direction after Sam
Walton died.
QUICK: Speaking of who would be running the place after you, The Wall Street Journal had an
article over the weekend that focused on Dave Sokol, and says many people are betting that he is
the lead candidate to be running the place after you're gone.
BUFFETT: Well, there are three candidates that the--we spend over half our time at every board
meeting talking about who runs it after I'm gone. It's a little morbid. I mean, it's like they look at
me and they think "who's going to run this place tomorrow?" But the--and we discuss the
strengths and weaknesses of those three. If something happened to me tonight, tomorrow
morning the board knows exactly who they would put in charge and they feel very comfortable
with it, I feel comfortable with it. I just don't feel comfortable with it happening tomorrow
morning. But--and actually as we acquire companies, that pool of outstanding managers even
grows. So we have--there is no problem finding somebody who not only has got all the abilities to
run this place after I'm not around, but basically he has the culture embedded as strongly in
themselves as I do in myself.
QUICK: As you acquire companies. Are you talking about Matt Rose from Burlington?
BUFFETT: Well, certainly you're getting an out--a fabulous manager in Matt Rose from--and,
you know, and he's young. I mean, we will--the pool grows basically over time.
QUICK: But you say there's three people that you've had that you've been watching for some
time.
BUFFETT: Right.
QUICK: Does that change, the three people who are on that list?
BUFFETT: It's different than it was 10 years ago. It doesn't change very fast, but the one--the
one way it would change for sure is based on age. I mean, if I'm running this place at 100, which I
won't be, but obviously, there'd be a different three around at that time. Anybody that takes over
after me should have a long run. I mean, there's a huge advantage in a lot of continuity in this
place. It's really like a very big family and so you don't want somebody to come who'll run it for
five years and then hand it off to someone else. So I would--age factor alone could cause
somebody to drop off the list after a period of time. But we've never had anybody drop off the list
because they've left us or anything like that. We've--it's a terrific group. You could pick the name
out of a hat from the three and you'd get a terrific manager and--but the board knows exactly
which one they would prefer at this time.
QUICK: Mm-hmm. Joe.
KERNEN: Thanks. Warren, along the same line with Dave Sokol, you know, I talked about the
new normal and I can't imagine that a fractional ownership of a jet is ever going to go away, but
you know the conspicuous consumption, the flying private, it's a little bit different than it was two
or three years ago. And NetJets has been--I don't know if you call it struggling. For one of your
assets I guess you would call it struggling.
BUFFETT: Sure.
KERNEN: And you'd like it to be profitable. Do--are you--do you have ideas on what to do there,
or is that something that Sokol is going to have to just figure out himself and if he does it really
well, maybe that does line him up to be the guy.
BUFFETT: Yeah, he's doing it really well. The situation with NetJets, and this is true both in
Europe and the United States, is the number of planes owned by our owners is down maybe 15
percent or so. Now it's stabilized in the last few months. I mean, the number of people that are
getting rid of their fractional ownership is being matched by new ones. The interesting thing is,
flying per owner fell off dramatically a little over a year ago. I mean, when the recession hit, our
owners, even though they'd already--they were paying for the hours, they were paying the
management fee, when Thanksgiving came, when Christmas came, whatever it might be, when
the Kentucky Derby came, the--their flying fell off quite dramatically, maybe by 25 percent. And
like I say, they were paying the management fee anyway. That has come back a fair amount in the
last couple of months. Flying per owner has increased somewhat. NetJets is, actually, as I put in
the report, solidly profitable now. What Dave has done there has been miraculous. I mean, he is--
he went--he went in there of August of last year and in terms of getting the balance sheet
straightened out, our debt is down $500 million in terms of getting our operating costs in line
with revenues. In all respects, NetJets is working very well now. But you're right, there are--
compared to five years ago, or four years ago, you know, we're not seeing the same demand as we
did then. And like I say, it's about equal in Europe and the United States.
KERNEN: It's solidly profitable now, though, you said. They--that fact wasn't made clear in the
piece over the weekend, I don't think.
BUFFETT: Well, it--I actually used that term in the annual report. But yeah, it may not have
been picked up that way. But, listen, for the whole year last year it lost $711 million pre-tax.
KERNEN: You know...
BUFFETT: I mean, that is huge.
KERNEN: ...a lot of people think of NetJets they think of--I see all the golfers. It says NetJets,
but the Marquis thing is even--the Marquis Jet is even a bigger seems brand on some of the--with
some of these athletes than the NetJets. What's the relationship there?
BUFFETT: Yeah.
KERNEN: What will the relationship be in the future?
BUFFETT: The relationship with Marquis is exactly as it's always been. Marquis is a customer of
NetJets. They buy--they buy planes, they sign up for the management fee and the hourly fee just
like other customers. Then they subdivide it in effect by selling cards to people and they sold I
think 2200 cards or something like that last year. So they sell a lot of cards. And you're right, it's
interesting. They're both in the entertainment and the--and the professional sports field. The
Marquis card is relatively more important than the direct ownership. I'm not sure why that's the
same, but we want Marquis to do well. But they're a separate business and they just buy from us
and then they resell.
QUICK: Hey, Warren, just on that point, we have a note that came in from one of the
shareholders, one of their questions from Jack Harris in Rome City, Indiana. It's number 42,
guys, in the control room if you want to follow. On that point he says, "With NetJets losing about
three quarters of a billion dollars last year, this company to me really doesn't fit the Berkshire
mold. What's the future of NetJets? Is there a chance that in the future you would sell the
company?"
BUFFETT: No, we will not sell the company. And it's true that our guarantee of their debt is
what kept them alive last year, and--but I don't see any reason why NetJets, unless private
aviation was banned in some way or something, but I see no reason--NetJets is going to make
money and it makes money even during a period like this when sale of planes are not very high.
So it is by far the dominant factor in the--in the business. It has--the value of its fleet is well over
that of the next three competitors combined. So we own the business, in effect. We're--and it's a
profitable business. It just got out of control a year ago and it has this huge loss. The year before
that it was profitable.
QUICK: OK, Carl has a question, too.

QUINTANILLA: Yeah. Warren, we got started on the NetJets issue by talking about Sokol and I
wanted to ask you about the section in your letter where you talk about a Ajit Jain, who obviously
has a job that involves managing big portfolios of risk, as you do. And you say, "If Charlie, I and
Ajit are ever in a sinking boat and you can only save one of us, swim to Ajit." What should we
make of that?
BUFFETT: No question. What we make of that is Ajit is incredibly valuable to the Berkshire. He
is--he's been--single-handedly, he's been responsible for a huge part of Berkshire's success ever
since he came with us in 1985. He runs a business in his special reinsurance area really unlike any
in the world. He built it all by himself and he's built--you know, we have over, as I remember, we
have over $20 billion afloat that is in our hands that we're using to buy other businesses and that
float has cost us less than nothing because of the skills...
QUINTANILLA: Right.
BUFFETT: ...of Ajit that has as an underwriter. Incidentally, one of the things that he just
underwrote, if France wins the World Cup, I think we're going to lose about 30 million bucks or
something like that. We get all kinds of risks that come into Berkshire.
QUINTANILLA: But when it comes to the succession issue, that's high praise. And when you
say the board knows who it would be if something were to happen tomorrow, this--reading this
makes you think this--that he might be the guy.
BUFFETT: Well, you're the guy reading it, so I'll let you answer the question.
QUINTANILLA: Right, thanks. That's helpful.
BUFFETT: But I will say this. Ajit incidentally, it--you--I couldn't have a closer relationship with
anybody than Ajit. We talk every day. This is a fellow that one time when there was a question on
some long-term compensation that I'd made arrangement with on, and there was a reason to pay
it immediately, I called up Ajit and I said, you know, `What do you think the figure should be.'
And we're talking in the millions of dollars. And Ajit said, you know, `Whatever you say, Warren.'
And I came up with a number, and I said, you know, `But if you think this is wrong, you tell me.'
And he said--he said, `Warren, whatever you--it's your number.' And all of our relationship has
been that way ever since he came in 1985. He's a fantastic human being.
QUICK: Warren, there's a shareholder who wrote in, Eric Soo, from Chicago, Illinois. He said,
"You said that Charlie has the quickest business mind you've ever seen. You've said Bill Gates
solves a dice riddle that only three other people have solved that you've ever seen, one being a
logician or something. And you've touched on Ajit's intelligence." You just talked about him. But
this shareholder wants to know your impressions of these three and which of the three is smarter.
BUFFETT: Well, if you add up the ideal of the three people you just mentioned, we're talking
national debt figures. I mean, I--those guys--I mean, I--you know, I get an inferiority complex
being around any of them. They have different types of minds. They're--they have ungodly levels
of general intelligence. But they each have somewhat different special abilities. Charlie does have-
-he has the best--he's 86 years old now and he has the best 30-second mind in the world. If I call
him and describe a problem to him, any kind of a situation, he gets to the essence of it
immediately. I mean, he doesn't--he doesn't stop at the first 28 stops. He goes right around the
board all the way to Boardwalk, you know, with one big move. And Bill, Bill has this knowledge
that encompasses everything in the world. I mean, he devours subjects, whether it's physics or
you know, or medicine, or you name it. And Ajit is unbelievably good at evaluating probabilities,
and he's a great salesperson, too. I mean, he--people like us after we make money.
QUICK: Joe:
KERNEN: Yeah. Hey, Warren, it was--it was TXU week back here with the major papers. I think,
what is it, Energy Future or something is the--is the name.
BUFFETT: Right.
KERNEN: And I know you have a--an investment there, and you've got a lot of utilities. Can you
just comment on what the heck happened? I guess it's natural gas, I guess it's the economy in
Texas. What do you think they need to do? Are they asking you? You've got--I mean, it matters to
you how this thing works out. And what do you...
BUFFETT: Yeah. We...
KERNEN: Go ahead.
BUFFETT: We own some bonds. We don't--you know, there's several equity holders. I'm not
sure whether there's been any change in the equity holders. But KKR and Tex Pacific and TBG
and Goldman, at least, were among the equity holders, big equity holders. I have not talked to
anybody, equity holder about it. We own some bonds, and we paid in the low 90s for those bonds,
and I think they're selling in the 70s. So--but they've been paying us 10 1/2 percent or
thereabouts. So they haven't been a terrible investment but they certainly haven't been a great
investment. TXU, the old TXU, the price they received for electric--electricity, in effect, is a
function, to some extent, of natural gas prices. And when they made the deal originally, they
hedged themselves with natural gas futures out quite a ways. But that doesn't go forever. And
then they had these huge maturities in the year 2014. So that's a case of people getting very
exuberant at the top, paying a lot of money. My understanding is that at least one of those
participants carry their equity at 40 percent of their costs. But I would bet a lot that--and I don't
know at all, but I would bet that Goldman carries their holdings lower. But that's just a guess on
my part.
QUICK: Another question from a shareholder. We mentioned earlier that you've got at least
65,000 new shareholders, maybe another 100,000 that you've been watching, and you say that
you're trying to teach them that they're there for the long haul. But just so you get a sense of what
some--of something shareholders are thinking, Anthony Tate writes in. He's from Clinton,
Maryland. He says, "I recently purchased 10 shares of Berkshire B shares as a rookie investor."
He's just curious, "Where do you see this stock in, say, about six months in terms of value? My
plan is to hold on to it long-term. So I just want some insight as to whether this is a good stock to
hold on to. Is six months a long-term investor in your mind?"
BUFFETT: No, no. I have no idea where it will be in six months. None, just zero.
QUICK: Right.
BUFFETT: I mean, my son's bidding on a farm in Illinois. He's already farming a lot of acres. Is
he buying that with the idea that he's going to sell it in six months, you know? Six months is not
an investment period. There's no one in any--there isn't one stock I own, whether it's Coca-Cola or
Wells Fargo or Berkshire Hathaway or--I don't have any idea whether they're going to be up 20
percent, down 20 percent. Just no idea at all. If they go down a lot and I have some money, I'll
buy some more of them, you know. But it's very interesting. People who buy farms are much more
logical about it, usually, than people that buy stocks. They buy a farm, they don't get a quote on it
the next day or the day after. They don't buy it at 11 in the morning and think Ì'm going to sell it
at 4 in the afternoon.' They look at what the farm's going to do over time. And that's what I try to
talk about to Berkshire shareholders. And not everybody feels that way about stocks. And I'm not
quarreling with them, they just shouldn't own Berkshire unless they have a very long time
horizon.
QUICK: Well, on that point, though, with all these new shareholders, it's going to lead to some
changes. Plenty of questions came in, like this one from Ray Herverford in Highland, Illinois, who
says, "I've been attending the annual meeting for many years but lately it's been increasingly
difficult to get to Omaha to get a seat. There were 35,000 people attending the meeting last year
and the Quest Center's Web site states that it only seats 17,000. The last two years I watched in an
overflow room. If I'm going to watch on a TV screen, it's crazy to get on a plane to get to the TV.
Can we either move the meeting to a city that can accommodate the crowds or carry it live on a
Web cast or CNBC or something?"
BUFFETT: Yeah. One of the--if we moved it to another city, I'm not sure what would happen to
the taxes on my home here in Omaha. And I know I wouldn't do well when I go out trick or
treating on Halloween. So I don't really have an option about moving it from Omaha, and it's a
real problem on crowds. And I've thought about--obviously, I've thought about webcasting or
something of the sort. It's true that people pick up on a transcript of what takes place on the
meeting usually very quickly on the Web or something of the sort. I do like--I do like the personal
interaction. I mean, I have a lot of fun with the crowds, and I think they have fun coming here.
But it is--you know, we can probably hold 40,000 in Omaha. There will be overflow rooms, that
main room does only hold about 17,000. People don't seem to mind that too much. They're
milling around buying things, I might add, you know, that we have in our--in our display area.
We've got 200,000 square feet, roughly, of display. But, you know, there's not a great answer to it.
QUICK: All right. Carl.
QUINTANILLA: Warren, just listening to you a second ago, I think our eyebrows were raised
when you said, Òh, if the stock goes down 20 percent, I have some money, I'll buy some more of
it.' Hope you'll forgive the broad stock question, but has your appetite for new stock purchases of
any company been whetted because of the rise in markets or are you as optimistic now about
stocks as you were when you wrote in The Times last year, year before?
BUFFETT: My enthusiasm for stocks is in direct proportion to how far they go down. I like it
when things I like go down in price. Incidentally, if you own a farm in Nebraska and you've been
waiting for your neighbor, you know, something to happen so you can buy the farm next to you,
you hope farm prices are down when he decides to move or he dies or whatever it may be. And
similarly, we are going to have money to invest forever. Money keeps coming in to Berkshire. Am
I better off if I have to pay high prices or low prices? So it's not bad news for us when stocks go
down at all. Now, you know, it's bad news for us when something goes wrong with a company. But
the fact that something gets cheaper, I mean, if I walked into McDonald's tomorrow and they've
cut the prices of hamburgers by half, you know, I will be happy because I'm going to be buying
hamburgers for a long time.
QUINTANILLA: Sure. But...
BUFFETT: And if they double, you know--go ahead.
QUINTANILLA: Does that mean--does that mean there are--you see fewer bargains right now,
obviously, given the rise since March of last year?
BUFFETT: Sure. There's--stocks are a lot less attractive now then they were a year ago. Far less
attractive.
KERNEN: Hey, Warren, when...
BUFFETT: And bonds are less attractive. Bonds are less attractive, too.
KERNEN: One of the reasons I brought up that TXU situation was because in the piece it said
there's a lot of really great companies that--in the private equity universe that have really lousy
balance sheets based on the bubble that was around in 2007. So there's going to be some
problems. But is that somewhere where you can look to try to help work out some of the
situations? There must be some real gems in there that just, for whatever reason, I look at the fees
that the PE firms take, and I look at the dividends that they pay out, and it used to work, but now
they actually got to manage some of these things. I mean, couldn't you find some nuggets in
there?
BUFFETT: It's possible, Joe, but on balance, if you notice, the private equity firms are very
reluctant, it seems to me, to come forth with anything that involves big losses. I mean, they--what
they usually try and do is get bond holders to make concessions or something. But I've not seen
them wanting to sell the businesses at large losses. Now, you know, if they go into bankruptcy,
then you buy them for the bankruptcy process. I mean, if the old TXU gets to 2,014 and they can't
meet the maturities that they have at that time or they haven't done it earlier, you know, we may
buy--we might think about buying the whole place, you know. But we'll--we might buy it cheaper
after a bond default than we would buy it from a private equity place.
KERNEN: Well, you know how to run utilities, and you might get the chance with, I forget how
much is coming due.
BUFFETT: We might get the chance.
KERNEN: Yeah, 20 billion or something.
BUFFETT: Yeah, we might get the chance.
QUINTANILLA: We're going to take a quick break. A lot more with Warren coming up this
morning. And we'll get some top stories as well, including AIG moving to sell a major business
unit, pay back some of the money they own the US government. A lot more, of course, with the
Oracle at Omaha. At 8 Eastern time this morning, Pepsi CEO Indra Nooyi will join us. We'll get
her take on the global economy and her company's bottling deal later on this morning.
ANNOUNCER: You're watching SQUAWK BOX on CNBC, live today from Piccolo Pete's
restaurant in Omaha, Nebraska. Stay tuned.
ANNOUNCER: This is a special edition of SQUAWK BOX, your chance to ask Warren Buffett
your investment questions. We're live from Buffett's stomping ground in Omaha, Piccolo's
restaurant. Buffett's thoughts on the economy, the future of Berkshire Hathaway and answers to
the questions you submitted are just ahead. The second hour of SQUAWK BOX begins right now.
QUICK: Welcome back to SQUAWK BOX on CNBC. Good morning again, everyone. I'm Becky
Quick and I am in Omaha, Nebraska, this morning at Piccolo Pete's restaurant. This is Warren
Buffett's favorite eatery. Joe and Carl, of course, are holding down the fort back at CNBC
headquarters. They've been playing in on this whole interview as well. And for the next two hours
we're going to be speaking to the man himself, Warren Buffett, Berkshire Hathaway's Chairman
and CEO. We've gotten a lot of ground covered already. But, Warren, we'd like to change the focus
a little bit.
BUFFETT: Sure.
QUICK: We've covered ground looking at the economy and where things are headed. We've
talked a little bit about Coca-Cola. What we have not touched on yet is where the government
stands right now. We--you mentioned briefly about the jobs report, but there are so many other
bills that are moving through that have captured the people's attention, including the health care
bill and...
BUFFETT: Yeah. Or not moving through.
QUICK: Or not moving through. Nancy Pelosi said at this point she does not think that there's
going to be any bipartisan support. What do you think about the idea of taking this into
reconciliation and cramming it through?
BUFFETT: Well, the health--the health situation, what we have now is untenable over time. I
mean, it--call what we're doing now plan A, and plan A has taken us from 5 percent of GDP to 17
or close to 17 percent of GDP. And that kind of a cost compared to the rest of the world is really a-
-it's like a tapeworm eating, you know, at our economic body. Every--everything we produce for
export, everything we compete with that comes imported in this country, everything is bearing
that cost, and it's a cost that the rest of the world isn't bearing. And the--tops around the world,
you find 10 percent of GDP. We have fewer doctors than many--we have two and a half--a little
over two and a half doctors per thousand, much of the world has well over three doctors. We have
11 nurses per thousand, much of the world has far more nurses per thousand. We have three beds
per thousand, hospital beds per thousand, much of the world has six or seven beds per thousand.
We have higher infant mortality than most places, or many places. We have higher--we have
shorter overall mortality. So we have a health system that, in terms of costs, is really out of
control. And if you take this line and you project what has been happening into the future, we will
get less and less competitive. So we need something else. Unfortunately, we came up with a bill
that really doesn't attack the cost situation that much. And we have to have a fundamental
change. We have to have something that will end the constant increase in medical costs as a
percentage of GDP.
QUICK: Then are you in favor of scrapping this and going back to start over?
BUFFETT: I would be--if I were President Obama, I would just show this chart of what's been
happening and say this is the tapeworm that's eating at American competitiveness. And I would
say that one way or another, we're going to attack costs, costs, costs, just like they talk about jobs,
jobs, jobs in the...(unintelligible). It's cost, cost, cost on this side. That's a tough job. I mean, we're
spending maybe $2.3 trillion on health care in the United States, and every one of those dollars is
going to somebody and they're going to yell if that dollar becomes 90 cents or 80 cents. So it take-
-but I would--I would try to get a unified effort, say this is a national emergency to do something
about this. We need the Republicans, we need the Democrats. We're going to cut off all the kinds
of things like the 800,000 special people in Florida or the Cornhusker kickback, as they called it,
or the Louisiana Purchase, and we're going to--we're going to get rid of the nonsense. We're just
going to focus on costs and we're not going to dream up 2,000 pages of other things. And I would
say, as president, Ì'm going to come back to you with something that's going to do something
about this, because we have to do it.'
QUICK: Just focus on cost, or focus on cost while insuring more people? Those are two different
problems.
BUFFETT: Well, yeah, universality, I--no, I believe in insuring more people. But I don't believe
in insuring more people till you attack the cost aspect of this. And there is no reason for us to be
spending 17 percent or thereabouts when all--many other developed countries are spending, we'll
say, 9 or 10. They have more beds, they have more nurses, they have more doctors, they even have
more consultations by far. We have about four consultations per person in the United States with
doctor interaction per year. Other countries have far more than that. I mean, we spend a lot of
money on equipment here. I mean, if you want to get the very best, I mean, if you want to spend a
million dollars to prolong your life another three months, you know, in some coma or something,
you can probably do it better here in the United States than any place else. But we need a
fundamental reform. And, you know, I admire people for tackling it, because it's so tough
politically. But I would--I would like to see them really get the job done.
KERNEN: But I--can I follow up, Beck?
QUICK: Wait a second. This is different than what you've said--hold on one sec, Joe.
KERNEN: All right.
QUICK: This is different than what you've said when we've talked to you in the past. I mean, even
a couple months ago when I sat down and talked to you, you said that you would vote, I believe,
for the bill if it were in front of you.
BUFFETT: I--if it's a choice...
QUICK: When did you change your mind?
BUFFETT: No, if it was a choice today between plan A, which is what we've got, or plan B, what
is in front of--the Senate bill, I would vote for the Senate bill. But I would much rather see a plan
C that really attacks costs. And I think that's what the American public want to see. I mean, the
American public is not behind this bill. And we need the American public behind the bill, because
it's going to have to do some tough things. But in--if it doesn't bring down costs significantly--and
you can say, well, you're bringing down costs by raising a tax over here or cutting--improving
Medicare, but you can do those things anyway. That's got nothing to do with what's being
proposed in the bill. So I--if the only choice I had in the world was the present system or the
present bill, I would take the bill. But I think it'd be far better to say cost is it. We're going to go
back and we're not going to come back to the American people until we have something that is
going to take this 16 or fraction and it's going to bring it down somewhat toward what other
countries are doing. Because otherwise, you remember when the auto companies said, `We've got
$1500 of health care built into a car'?
QUICK: Right.
BUFFETT: You're not going to sell cars against other people if you've got $1500 of extra costs.
But you're not going to sell airplanes from Boeing and you're not going to sell all kinds of things if
you have this huge cost which only the United States is incurring. We are not going to be
competitive worldwide.
QUICK: Joe:
KERNEN: Yeah. Well, that--I was going to look at the--sort of the corollary of what you were
saying, Warren, and that is if you look at the way that costs are rising now with Medicare or with
some of the other entitlements, if you meet--what would be the consequence of adding 30 million
people before you address a system that's already broken?
BUFFETT: That's why you want--you want to address costs. I agree with you. But I do think--you
know, I--and maybe the very fact that 30 million more would be coming might--it should force
people to think we've got to bring down the cost per capita. I mean, it--but I think those people
should be covered, Joe. I--but I...
KERNEN: I--we all do. But...
BUFFETT: I like--I like--I like a plan C better than plan A and plan B.
KERNEN: Well, you know, you're kind of dancing around it.
BUFFETT: And plan...
KERNEN: But you're saying start over and do it on a bar--bipartisan basis is what you just said.
BUFFETT: I would--I would call in the smartest people in the health care field. I mean, you
know, people like the fellow out of Kaiser Permanente or Mayos or this fellow the...
KERNEN: Mayo, Cleveland Clinic, Safeway...
BUFFETT: Or Gawande, the doctor--yeah, yeah. Cosgrove at...
KERNEN: Whole Foods.
BUFFETT: ...Cleveland Clinic and...
KERNEN: There's a bunch of smart--there's a bunch of people that have some great private
market--or free market ideas. And to do it...
BUFFETT: I'd lock them--I'd lock them in a room, Joe, and I'd tell them, you know, come out
when you figure out how--some way to get this going in the other direction toward 13 or 14
percent. And it can be done. It can be done.
QUINTANILLA: Although...
BUFFETT: But it won't be done, you know, if you're trying to write a 2400-page bill that satisfies
everybody in the world and all private...
QUINTANILLA: Yeah.
BUFFETT: ...all these private groups.
QUINTANILLA: Warren, to what degree...
QUICK: Carl:
QUINTANILLA: ...to what degree is lowering cost based on bringing more--bringing the
uninsured into coverage? Isn't part of expanding coverage part of the mission of lowering costs
overall? We're all paying for them anyway.
BUFFETT: Well, yeah, we're certainly paying for a lot of them. And they go to the emergency
room and that becomes their primary visit. So there's--a lot of the costs of the uninsured is built
into the system, there's no question about that. But we need different incentives. I mean, if you try
something--we were--we were spending--in 1960, we were spending the equivalent of about $150
a person in the country, you know. It's getting up--it's well over $7,000 now. Incidentally,
Switzerland was paying more in those days, but we've just soared past them. They've got more
beds per person, they've got more doctors per person. But we--our costs have gone up far, far
more. And when you've got a system that isn't working, you know, you just got to look at the
components of it and say, `What the hell do we do about it?'
QUINTANILLA: When...
QUICK: There's a question that came...
QUINTANILLA: Sorry, Beck.
QUICK: Go ahead, Carl.
QUINTANILLA: I was just going to ask Warren, when they pull Angela Brawley in front of
Congress, or when the president takes some of these insurers to task for raising premiums 39
percent, do those companies have a--have reason to complain about their own risk pools? Are
those new premiums deserved?
BUFFETT: Well, they--the problem--the rhetoric has gotten tilted very big toward insurance.
And incidentally, I'm not in the health insurance business. We do a little health reinsurance, but
our business is property, casualty, and so we do not...
QUINTANILLA: But you--but you know how premiums work.
BUFFETT: Oh, sure. And the truth is the--insurance is not the problem. The problem is
incentives. And the problem is at the--is at--is at the care level. Hospitals in the United States, the
American Hospital Association, you know, reports $700 billion. That's 5 percent of GDP just on
hospital expenses. And like I say, we got way fewer beds per capita than many of the countries
around the world. So insurance, if you look at the largest health insurers, you look at their profit
margins, if you look at their return on equity, they're--it is--that is not the problem. You can find
individual problems, I'm sure, with any--in any arena. But that is not the reason we have 17--or 16
or the 17 percent of our GDP going to health care.
QUINTANILLA: Yeah.
QUICK: What is the reason?
BUFFETT: Well, the reason--the reason is we're doing an awful lot of things that don't need to be
done, probably.
KERNEN: Warren, what's the...
BUFFETT: And we're--we've got a--we've got payment--we've got payment for procedures and
not payment for results, but...
KERNEN: What's your margins in property/casualty vs.--I've read that margins in some
managed care. What--do you know what's the average margin in managed care and what's the
average margin for property/casualty?
BUFFETT: I've seen numbers where--I've seen numbers on health care, I believe, where it's like
3 1/2 percent of revenues or something like that.
KERNEN: And what's profit--what's P and C?
BUFFETT: Well, that depends on the year a lot.
KERNEN: Right. It can be better than that, though, right?
BUFFETT: Yeah.
KERNEN: I mean, there's a lot of other parts of the health care--I mean, just no one is at 3 1/2
percent. That's about the lowest in health care, isn't it?
BUFFETT: Let--let's put it this way, Joe. I'm in the PC business and I'm not in the health care
business. Draw your own conclusion.
KERNEN: Yeah. That's about all you'll say, yeah. Obviously, it's a little bit better than--well, then
a lot of this rhetoric, I guess you need it, but it's not really maybe that helpful. I mean, you're--it's
another example of any means to satisfy that end, you know. You lambaste an entire industry
when it's really not relevant to do it that way, and not fair.
BUFFETT: No. The 2.3 trillion or whatever the number may be totally going into health care, I
mean, the amount of that is insurance company profits is very, very little.
KERNEN: (Unintelligible)
BUFFETT: Yeah. If you're going to--but you--the problem you do have, whether it's 2.3 trillion
or 2-4, the problem you have is every dollar of that has a constituency. And the big dollars are
organized, and they're not going to want to change. I mean, it's very simple. It's like the tax code. I
mean, every line of the tax code has a constituency, and the constituency for that line in the tax
code is very focused on it. The fallout to the general public, you know, obody even knows about it.
QUICK: Right. Warren, very quickly, so a viewer wrote in, Greg Robinson from Portland,
Oregon, on this subject, said, "Wouldn't a better fix for health care be a system similar to auto
insurance? Could you give a specific--a simple scenario of how Geico would insure a large
portion--population of people, perhaps having them pay a portion of the bill themselves so they
will police the doctors? I'm a big believer in catastrophic care, but paying for your own
maintenance." Does that sound like a feasible idea?
BUFFETT: Yeah, it probably does. But the truth is, I would get people that know a lot more
about it than I do. And, I mean, it--if you get the fellow that's written on health care recently in
the New Yorker, Gawande. I mean, he had--he had an article last summer that was absolutely
magnificent. My partner Charlie Munger sat down and wrote out a check for $20,000 to him and
he's never met him, never had any correspondence with it, he just mailed it to the New Yorker and
he said, `This article is so useful socially.' He says, `Just give this as a gift to the--to Dr. Gawande.'
It compared medical costs in McAllen, Texas, to El Paso, and it just showed how, with no better
results, that in McAllen they were, you know, they were spending close to twice as much per
person. And you have these enormous variances around the country. And, you know, if you had
some really smart people running it that knew a lot about medicine, they're going to--they could
do a lot about it.
QUICK: All right, Warren, we've got a lot more questions that have come in from viewers as well,
and we'll get to those in just a moment. First, though, why don't we get to Carl, who has a look at
this morning's headlines.
KERNEN: Comments, questions about anything you see here on SQUAWK, e-mail us at
squawk@cnbc.com. Still ahead on SQUAWK BOX, PepsiCo CEO Indra Nooyi--it's going to be a
smackdown, yeah--joining Coke's largest shareholder, Warren Buffett.
QUINTANILLA: Isn't it true?
KERNEN: Yeah, to try to win him over. It's the true Pepsi challenge. The smartest names in
business--not including me--are only on SQUAWK BOX. Stick around.
ANNOUNCER: Up next, the Oracle of Omaha answers your e-mail questions. SQUAWK BOX,
live from Omaha, continues after the break
ANNOUNCER: Welcome back to SQUAWK BOX. Here now from Piccolo's restaurant in Omaha,
Nebraska, Becky Quick and Warren Buffett.
QUICK: All right, welcome back, everybody. We are live in Omaha this morning, speaking to
Berkshire-Hathaway chairman and CEO Warren Buffett. We have received thousands of
questions from viewers. And now it's time, Warren, to get to a few more of these questions and try
and see what people are thinking about. The first question I want to touch on still stays on the
government theme because we did receive a lot of shareholder questions on that. This comes from
Hank Durany, who's in Pompton Lakes, New Jersey. He says, "I did not vote for Mr. Obama, but
the moment he was elected, he became my president [as well]. Your upport for Mr. Obama prior
to the election was well known, given what transpired over the last 12 months. At what level
would you rate your approval of his results on a scale from one to 10, assuming it was a 10 prior to
the election."
BUFFETT: Yeah, well, I'm very glad I voted for him.
QUICK: Mm-hmm.
BUFFETT: That has not changed. I think the problems he's run into are, you know, are
monumental and particularly in terms of the economy. I mean, you know, we're running huge
deficits now that--which we should be running from a Keynesian standpoint to try and get this
economy moving, but they have consequences, too. I mean, I do not envy the job of being
president, but I give Obama high marks.
QUICK: You do? OK. Here's another question that came in from Kevin Loken in Minneapolis,
Minnesota, and this has to do with the Tea Party that we've heard so much about. "Does the Tea
Party have it correct, reduce the size of the government? It seems if you give someone, a man or a
woman, an unlimited amount of funds like the government, they're bound to screw things up."
BUFFETT: Well, that's--we've worried about that for a couple of hundred years and, overall,
we've done OK with it.
QUICK: Mm-hmm.
BUFFETT: I mean, the government has disappointed people, I'm sure, many of times over the
200 years. But, overall, I mean, just look at our country now compared to what it's been in the
past. We've always had these motivations of people worrying about the next election and all that
sort of thing. But if I'm going to comment on the Tea Party, I'll have to look at my notes here.
QUICK: On exactly what happened with that. All right, here's another question from Henry
Solomon in New York who says, "Should governments phase out Social Security and health
entitlements?"
BUFFETT: Oh no. Social Security is one of the most important things that our country has done.
I mean, if you look back to the '30s, if I were to pick the two most important economic things that
came out of the '30s, I would say the FDIC and Social Security and both of them had the same
goal, which was to relieve people of unnecessary fears. And our country was $45,000 plus of GDP
per capita is rich enough to make sure that those who get the short straws in life have some
minimum level of subsistence once they get past their productive years, so...
QUICK: But Social Security, you could be looking at it, Medicare too, these are programs that
could be insolvent in the not-too-distant future, especially when you look at demographics and
the number of people who will be retiring and who will be working to pay for that. How do you fix
it?
BUFFETT: Social Security is now about 4 and a fraction percent, the payout, as I remember, in
terms of GDP. Even projecting out 50 years, it gets up to 6 percent or something like that, and
that's a vastly increased GDP. So if we treat our seniors to 4 1/2 percent of GDP now, when they're
past their productive years or even 6 percent 50 years from now, we take care of our young. I
mean, in this country, the people in their productive years take care of the young. They educate
them, they do all of these things, even if you don't have any children or anything of the sort, and
we take care of our old, and a rich society should do that.
QUICK: A question comes in from Mark Blizzard in Mooresville, North Carolina. It's number 17,
"In your opinion, do you feel that the tax incentives being offered to businesses to create jobs will
be effective? Can you offer another approach?" You touched on this, but we've got a lot of people
who wrote in.
BUFFETT: Yeah. It's very tough. I don't think job incentives do that much. What creates jobs is
demand, and, you know, it does go back to Keynes and the economists on that. And, you know,
we--if we have 10,000 fewer people or close to it working on a railroad now than we had a couple
of years ago, it's because, you know, the box cars aren't moving. If we have 6500 people fewer in
our--in our carpet business, it's because the orders for carpet aren't coming in. And so it isn't like
you go out and hire a bunch of people and then that creates orders. Orders create jobs, jobs don't
create orders.
QUICK: So what can the government really do? When people are so focused on jobs,
unemployment at 10 percent, what can the government really do?
BUFFETT: They should do various stimulative things. They should put money in the pockets of
people who are going to go spend it.
QUICK: Like we got with the original stimulus package...
BUFFETT: Some of that.

QUICK: ...(unintelligible).
BUFFETT: It doesn't work perfectly.
QUICK: Right.
BUFFETT: I mean, you know, these are not easy problems in that there's a quick solution to. But
basically, you don't want more money in my pocket. I'm not going to change my spending habits
at all. If my--if my taxes are higher, I'll still, you know, I'll buy the same things I bought anyway.
But...
QUICK: Yeah, but you're the second richest man in the world.
BUFFETT: Well, I know that, but if you take wealthy generally. If you take--if you take people at
the lower end, if they have more money, they'll spend it.
QUICK: And that's what you think needs to be focused on?
BUFFETT: Well, you need--if you're going to stimulate, you need to stimulate buying.
QUICK: Hm.
BUFFETT: And buying comes from people who can't buy what they want to buy because they
don't have enough dollars in their pocket.
QUICK: OK. We're going to have more from Warren Buffett in just a few moments. In the
meantime, though, we're going to take a very quick break and Joe, I'll send it back to you for a
look at what we've been seeing in the markets right now.
KERNEN: OK. Beck, thanks. We will be back to Omaha and our interview with Warren Buffett in
just a minute. But first, let's look at some of these headlines, though, this morning.
(News headlines)
QUINTANILLA: When we come back this morning, we'll go back to Omaha, back to Piccolo
Pete's. We'll talk investment strategy, stock ideas and a lot more with the Oracle of Omaha,
Warren Buffett and Becky, who's on camera. SQUAWK continues in a moment.
KERNEN: Welcome back to SQUAWK BOX. Still to come in the next hour, PepsiCo CEO Indra
Nooyi, that's coming up at 8:10. Let's get back to Omaha, that's where we find our very own Becky
Quick with Warren Buffett. Beck, I was thinking about Matt Rose and Burlington and using stock
and Warren with Kraft and Cadbury and I love to get him talking about that, to try to figure out
why stock was a good idea for Burlington, that it wasn't a good idea for Kraft and I love it when
you say you don't like that deal, even though you love management. Go into that again. What was
the difference between Kraft using stock and you using stock, other than maybe valuation on the
company being acquired?
BUFFETT: Yeah, well, we hate using stock. No question about it, Joe. And because we already
owned some Burlington beforehand, it turned it we had to use about 30 percent stock and as I put
in the annual report, even though the Burlington holders were getting $100 a share, we felt it cost
us more than that because we thought our stock at the time we made the deal was somewhat
underpriced. We'd have done all cash if I'd felt comfortable in terms of our balance sheet, using all
cash. But I never want to put us in a position where we've--we're stretched in the least. So to make
the deal, I had to do it. And I came to the conclusion that using 30 percent stock, which was about
6 percent of all the shares we had outstanding, still left us with a deal that made sense. But if it
had to have been all stock or 50 percent stock, we couldn't have done it and if I'd had enough cash
around to do it, so I could've done it all cash, I would've liked it better.
KERNEN: How about Kraft? You warming up to that finally? Or are you still--you still don't like
it. You don't get to vote, I guess, do you?
BUFFETT: No, we didn't get to vote. And it wasn't just--it wasn't just the stock that was being
used, although that was a terrible currency to use, just as our own stock is a terrible currency to
use. But it wasn't just the stock, it was the price being paid and it was the fact that the pizza
business was sold in a very tax inefficient manner to partly fund the purchase. And it just--in the
end, I felt poor after the deal was made. But I, you know, I wish Irene the best on executing well
on it and I hope it works out. We'll be a lot better off financially if it does, but I wouldn't have
done it.
QUICK: Warren, that question that Joe raised is one that we got from a lot of viewers, too. In
fact, Todd in Parker, Colorado, wrote in and said, "In your annual report, you say that you'll
consider issuing stock when we receive as much in intrinsic business value as we give up. When
exchanging Berkshire shares for Burlington Northern, did Berkshire shareholders receive less,
equal or more in intrinsic value?"
BUFFETT: Well, we felt, Charlie and I, felt that we received as much or a tiny bit more in
intrinsic value as we gave up. But we factored into that some other things I mentioned in the
annual report. Namely, that putting $22 billion of cash to work made good sense for us in this
business and that the opportunities over the next 40 or 50 years to keep putting more and more
cash at reasonable returns in, just like we do in our utility business, also was an attractive
opportunity. We're going to generate lots of cash over the years and we don't always have great
places to put that. This offers one vehicle where we can put it at decent rates of return. Not great
rates of return, but decent rates of return.
QUICK: Carl:
QUINTANILLA: Warren, you go--we know this is--you're passionate about this from the letter,
you go into a long hypothetical about company A buying company B whose stock is undervalued.
You say that CEOs long on confidence and short on smarts, wants to buy company B for the
prestige and maybe the compensation. Is that a--is that a veiled slight at Rosenfeld?
BUFFETT: No, it's 50 years of being in board rooms and just seeing what happens. And you
know, Keynes talked about--probably the best--the best chapters written on investing were
chapters eight and 20 in "The Intelligent Investor" for individual investing. The best chapter ever
written in sort of describing how the world works in markets is chapter 12 of "The General
Theory" written by Keynes and in it he talks about animal spirits and what causes people to do the
deals and all of that. It's a marvelous chapter. And I'm not sure that he had Kraft in mind, but he
had a lot of the companies that I've experienced over the years in mind. It's a very normal thing. I
mean, you know, everything looks--everything looks rosy, you know, when you first are looking at
a deal. You don't see the downsides. You don't see the execution problems, you don't see the
people who are going to leave. You don't see--you don't see all kinds of things. And I'm guilty of
that, too, incidentally. I've made some dumb deals in my life and I'll make some more dumb deals
and animal spirits will enter into those dumb deals. I guarantee you that. I just try to keep them
under control and if I don't, I count on Charlie to keep me under control.
QUICK: You know, there was a viewer who wrote in and I can't find the question right now, but
there was a viewer who wrote in and said do you ever have buyer's remorse when you get through
a deal?
BUFFETT: I never have buyer's remorse immediately after a deal because I--the facts look the
same to me the day after than they did the day before. But I've made big mistakes on deals. I
mean, I laid out one for example, Dexter Shoe in the report. I mean, I've made lots of mistakes
and that's the nature of making a lot of decisions. You've got to make sure that the mistakes don't
kill you and you hope the big ones work out. But I never--I've never bought something and felt
terrible the next day. That doesn't--or the next week.
QUICK: So you're not like some of us normal human beings out there.
BUFFETT: No, when I do something, I feel good about it.
QUICK: OK. We got a lot of questions from viewers regarding your investments, as well, and one
came in from Aly Dya in Vancouver, British Columbia. `Would you still buy Goldman Sachs stock
even with all the problems they face politically?'
BUFFETT: Well, I would buy the instrument we bought. We bought a $5 billion issue of
preferred with 5 billion, roughly, of warrants attached. And I hadn't been--I had not been a buyer
of Goldman stock--Goldman Sachs common stock, you know, a month before, six months before
and--but I would buy the instrument we bought under the circumstances we bought it, yeah. And
I think that it's--I think that the company has very good prospects. But I bought very few
investment banking or brokerage stocks over the years. This was a situation where they needed
money and validation that day and we were the only ones around, you know, with that kind of
money, and so it was an opportunity to buy on favorable terms. Those favorable terms were
justified in that--in the chaos that was going on, but I can't buy it today under those conditions.
QUICK: The question maybe points to this idea that Goldman Sachs is now blamed for every
single problem that exists out there, including Greece, potentially defaulting at this point.
BUFFETT: Oh, yeah, no, no. It's...
QUICK: Would you still, given the political backlash, buy into this company, own stock, be
associated with it and do you think it's a fair rap?
BUFFETT: Yeah. No, no, you're right. I mean, they're going to rewrite Genesis and have
Goldman Sachs offering the apple, I mean, pretty soon. But no, I feel--I feel good about their
business prospects. I mean, it is a--it's a very, very strong, well-run business. It's got a place in the
universe and there are fewer big investment banks around than there were a few years ago
worldwide, you know, they--when we did the Burlington Northern deal, they were called in for an
advisory opinion and they got a $35 million fee. I don't like that. But they have that sort of market
position and it's a terrific--it's just like Coca-Cola has a terrific market position. Goldman Sachs
has a very strong market position. Lloyd Blankfein, you cannot find a better manager.
QUICK: All right. There's another question that came in from Steve in Charlotte, North Carolina.
BUFFETT: Mm-hmm.
QUICK: Touches on this same issue but says he's a Berkshire shareholder and is concerned about
its ownership positions in Goldman Sachs and Moody's. "It seems that both of these two
companies share a lot of the blame for the problems we've had over the last few years. What are
you telling the management of these companies and how are you holding them accountable?"
BUFFETT: Yeah. I don't tell the management anything. I never have. We've owned stocks for--
you know, I bought my first stock when I was 11. I, you know, I can't recall telling management,
unless I've been a director of the company, very much about any of them. That would be like
marrying somebody to change them. It's really not a very good idea. You know, and--but it's--we
own stock in Costco, you know.
QUICK: Mm-hmm.
BUFFETT: Costco sells cigarettes. Cigarettes, you know, I'm not sure are good for people. I'm
not telling them not to sell cigarettes. You know, it's--I'm not telling Walmart not to sell cigarettes
or I'm not--there's--every company probably has something that if you were running it, you might
feel a little differently about, but there's no question in my mind, Goldman Sachs is a first class,
you know, operation. Moody's, you know, the rating agencies, I've said over the years, that we
don't follow the ratings of the ratings agencies. I don't think--I think people should make their
own judgments about credit quality and we've always done that. And frankly, we like it if we think
something's misrated because that's--just like we like it when we think something's mispriced
and--but we--I don't think I've ever--I've never been in Moody's. I've never--I've never--they've
been out here once or twice when the investor relations people were around, but I don't pay any
attention to that anyway. So we have nothing to do with running those companies, you see. You'll
see--you'll see on our--on our list of investments, you know, 15 or 20 companies, but we don't buy
them to change them. And if I want to--if I want to become a director of some company, then I--
then I--then I might have a voice in them.
QUICK: And maybe you talk with your feet, like you've been selling shares in Moody's?
BUFFETT: Well, we--it's a matter of record we've sold shares in Moody's, right.
QUICK: So is that your way of doing things? Either you sit by passively...
BUFFETT: No...
QUICK: ...get involved on the board or?
BUFFETT: ...we sell companies when we think they're fully priced, when we think that there's
better uses for the money elsewhere. We've sold a lot of stocks in the last year.
QUICK: Mm-hmm.
BUFFETT: The first part of the year we sold it to buy--we had a commitment to buy three billion
of Dow Chemical and a couple of billion in Swiss--or a billion in Swiss REI later in the year. When
once I made the deal to buy Burlington, you know, I was going to have to come up with some
money and I wanted to have a lot of money left over after I came up with the money. So I'm
always--I'm always--I want to--I want to operate from a position of strength. So we will share
things that I still like to do things--if it's going to leave me a little bit barren on cash.
QUICK: Things like Proctor & Gamble and Johnson & Johnson.
BUFFETT: Yeah, yeah.

QUICK: That you pointed out in the letter.
BUFFETT: Those are great companies. I don't, you know, anybody who owns Proctor & Gamble
or Johnson & Johnson is going to hold them for 10 years, in my view is going to make a bit of
money. And on the other hand, we had to come up with 8 billion of cash. We had to borrow
another 8 billion to do Burlington and I wanted to end with 20 billion in cash.
QUICK: OK. Another shareholder writes in, or I'm not sure if this is a shareholder or a viewer,
but Larry from Mount Prospect, Illinois, says, "Normally, you're a long-term holder. Yet you
bought Exxon in the third quarter of 2009, and sold it the following quarter. Why did you change
your mind so quick?" And several other shareholders wanted to know if it had to do with the XTO
deal.
BUFFETT: No. The answer is no to that. Sometimes I'll start in buying something and not got a
full position. I would tend if I'm--if I'm going to buy something like Burlington, if I had a--started
in on something and I had a small amount, I'd probably just kick out that sort of thing because it--
I just wouldn't keep it around.
QUICK: OK. Alex...
BUFFETT: Incidentally, I should mention one thing.
QUICK: OK.
KERNEN: Warren...
BUFFETT: A lot of--yeah.
QUICK: Go ahead, Joe.
KERNEN: Oh, OK.
BUFFETT: Yeah.
KERNEN: I was just sitting back--I was thinking about this Goldman question and if you want to
finish your thought on what you were just talking about, that's fine, but I want to take it this way.
I'm trying to figure out what your views are on how we regulate or reregulate the financial
industry. And as an example, let's say a client by the name of Greece comes to the best--one of the
best investments on the street, Goldman Sachs, says you know, we'd like to spend some more
money, we don't want to have it on our balance sheet. Design a way for us to raise more money
and keep our credit rating. Goldman Sachs does that, acts as an agent, and then at some point in
the future, thinks that Greece is vulnerable and buys some credit default swaps betting on the
possible--or insuring against the insolvency of that company's debt. Is there anything right there
that you think they're liable for? And should financial regulation, considering it's going to be
brought up in the--in the common media that that is like, you know, starting your neighbor's
house on fire after you bought insurance, that's how it's being characterized. How do you--how do
you not regulate--over-regulate things when it appears that there's a huge conflict?
BUFFETT: Yeah. Well, if you've got a trading department, you know, there's going to be tens of
thousands of trades going on. I mean, you have traders all over the world trading all kinds of
things. And on the other hand, if you have an investment banking department, you know, you are
working, supposedly, for what the client tells you they want to do and you measure that against
the laws, you know, of what you're doing. So I don't see how you'll ever have your trading
department entirely shut off from transactions that involve anything that you've been involved in
in investment banking over the previous five or 10 years. I do think that people that have their
liabilities in effect guaranteed by the federal government, I mean, I think if you are attracting
money from the world because you have a government guarantee, I think there should be quite a
few limitations on what you're able to do. I mean, with--if you can get money simply because the
United States government says if you don't pay, they'll pay, you know, I think there's--I think
there should be a lot of regulation of that and I think that...
KERNEN: So that's how we--that's how we should address, the implied too big to fail, you know,
taking risks that you know the government's going to cover. Is that the main thing we should try
to get rid of with the regulatory reform?
BUFFETT: Well, I think that's a big thing, but I also think when you--there are going to be too
big to fail institutions. I mean, we can't get away from it. This is a world of scale. So we're going to
have to those and the rest of the world's going to have them. Now the--you--what you have to do
is you have to get the equation of the fellow at the top or the woman at the top, but usually it's a
fellow who gets us in trouble, you have to have a fellow at the top so that--so that he's got to
downsize...
KERNEN: Not at Kraft. Not at Kraft.
BUFFETT: You've got to have a--you've got to have that person so they've got a real downside in
it and you've got to have a focus primarily on not--on doing--on running that place so that they'll
never have to go to the government for help. I mean, that is--and we have had the wrong, in my
opinion, we have had the wrong equation for people that run these super large institutions. They
get the upside and the stockholders and the government gets the downside. And I would--I just--I
think there should be fundamental change there. I wrote a little bit about it in the annual report
so that directors and the top officer are on the hook when a company gets--is so big and has such
a connection with society that its failure causes all kinds of disruptions throughout society. I
wanted to have a little disruption for the CEO that got us into that position.
KERNEN: What about Volck...
QUICK: On that...
KERNEN: Sorry, Beck.
QUICK: Go ahead.
KERNEN: I just wondered about...
QUICK: I think we're going to the same place, Joe.
KERNEN: Yeah, I think we are, but I just wonder, you look at how this is bogged down and the
Volcker proposal, that got bogged down on both sides. It--it's another illustration of how hard it is
to do anything, but how do you get--what's the most important things you tell Chris Dodd? What
do we need to do?
BUFFETT: I--it is hard to take on vested interests. There's no question about it. And you know,
and the money is on the side of, you know, of the present--of continuing with past sins. But I
would have something so that the--if an institution had to go to society and say save me because if
I--because if you don't save me, I'm going to topple society, I would have it so that that person,
the CEO and his spouse, you know, at least come away broke, you know. And I would have the
directors pay a heavy price for having somebody in there with the wrong incentives and having
the wrong person, perhaps, and having that happen. I wouldn't cause them to go broke, but I
would have them pay significant penalties that could not be covered by insurance or by the
corporation. I mean, they have--if you screw up in such a way that society starts quaking, I think
there should be a real downside to that and I think it would change behavior.
QUICK: The financial regulatory reform, though, looks like it's reached a bit of a deadlock right
now. Last night, apparently, or over the weekend, I guess, you got to a situation where Dodd put
out this idea and said the consumer protection agency should be a part of the Treasury. He also
said that it should have rule-making authority, and that's something that made Corker and Shelby
both back out. To this point, Corker had been crossing the aisles trying to work with Dodd and get
that agreement in there. Is the consumer protection agency, is that an idea that you think is
important and needs to be part of this regulatory reform?
BUFFETT: To tell you the truth, I haven't followed it that much, Becky. I did make suggestions
in terms of things like ARM mortgages and things like that. I sent along a draft to the Treasury a
couple of years ago as what I thought they ought to do to make it much simpler and just have
something that said, Ùnder the worst case, your payments could go to this much,' you know, and
have it all just on one page, not dozens of pages of fine print. But consumer protection I really
don't know that much about. I want societal protection big time. I mean, you know, we have seen
what some--what you might call semi-rogue institutions, you know, have done, and starting,
incidentally, you know, with the two that are run by Congress, Freddie and Fannie.
QUICK: There was a viewer who wrote in and asked specifically about Fannie and Freddie, what
needs to be done. What should the government be doing right now about that?
BUFFETT: We're going to have to come up with a whole mortgage policy for the country. Right
now we've got--we've sort of stumbled into, because of events, I mean, forced them upon us. But
we have Freddie, Fannie and FHA making 90 percent of the mortgages in the United States. So
the federal government is the mortgage instrument for the United States. And they've botched it
somewhat in the past, and it's time to think through, you know, whether you really want to have
mortgage standards that will assure that we don't go through a period like has happened in the
last three or four years. And I would think that's a good idea. Exactly how it gets implemented, I
don't have a great idea.
QUICK: You may not thought an awful lot about financial regulatory reform and exactly how that
is flowing through the halls of Congress, but what about carbon emissions and the cap and trade?
I mean, that's something you followed pretty closely because of MidAmerican Energy Holdings,
correct?
BUFFETT: Yeah. Well, I follow generally as a citizen. I mean, I...
QUICK: Yeah.
BUFFETT: I'm not a physicist, but if--it may be that odds are 90 percent that the global warming
people are right. It may be 95 percent, it may be 50 percent. But if it's 20 percent, you still have to
act like they're right, because, I mean, if you're betting on the future of the planet, you know, you
do not want to say, you know, `Well, I'm not sure about it,' when the problem keeps increasing
year by year. So we have to do something significant to reduce carbon emissions. I didn't think--
the cap and trade thing was a big wealth transfer, basically, from the Midwest to the coast. But we
can--we can dictate that X percent of electric generation by 2020, by 2030, by 2040, you know,
has to be--you have to get rid of the stuff that's polluting the atmosphere. And the utility industry
will do that. It'll be expensive. Consumers will pay for it. I mean, it's the nature of utilities.
Consumers will pay for it. But it's the price we pay for the planet. The big problem, of course, is
it's a worldwide problem and the United States can't do it by itself.
QUICK: That sounds like a shift from what you were telling us about a year, a year and a half ago
when we asked you about some of these questions as it was moving through, because you said at
that point the consumers, the American consumer couldn't handle another tax. Do you think the
consumer's getting to the point where it may be able to pay for it?
BUFFETT: Well, I don't think you would do it by--the tax comes through the costs over the
years...
QUICK: Sure.
BUFFETT: ...of abandoning--no, I think that's going to--that's inevitable.
QUICK: It's inevitable, so it's something that should be taken on at this point.
BUFFETT: I think that there ought to be something that firmly reduces carbon emissions. And I
think we ought to get the cooperation of the world. We ought to--I mean, we should go to China
and say, `Look, we have sinned like no other country. We've been putting out more pollutants per
capita into the atmosphere by far than you have and, you know, we apologize. Unfortunately we
can't undo the past, but we can change the future. And here--we're going to do something drastic
in our country on that, and we need--we need you to cooperate.' But it won't do any good if we do
it by ourselves.
QUICK: And what about Copenhagen? Things kind of fell apart there.
BUFFETT: Yeah, well it's...
QUICK: Didn't...
BUFFETT: ...these things aren't easy.
QUICK: Yeah.
BUFFETT: You know, I mean, if you're--if you're Chinese, you say, `Well, wait a second.' You
know, you're like the guy that moves into a forest and then rolls out the--takes up the drawbridge
and says, `We don't want anybody else here,' you know? I mean, `Just because you got there first
in terms of polluting, you got--you got away with it, now you're telling us we can't do the same
thing in China.' So it's a tough--it's a tough negotiation, but I would go there and say, `Lookit, we
were wrong. You know, we didn't see this problem coming early enough. We want to do
something big time about it, and it won't do any good for the world unless you help us and talk to
the major'--and--but China's the big one on that.
QUICK: You know, Warren, I'm not sure if you saw it over the weekend, but Senators Kerry,
Lieberman and Graham said that they are going to be introducing legislation in the Senate as
early as this week. They said cap and trade's dead, in their opinion. They're going to be
introducing legislation that would do something similar, I think, to what you've talked about,
which is to put caps on different industries...
BUFFETT: Yeah.
QUICK: ...starting with the utilities and eventually working its way to industrial--the industrial
sector as well. That's an idea that you would get behind and support...
BUFFETT: Yeah.
QUICK: ...without having seen the details?
BUFFETT: Yeah, in a general way I would, but I would try to--if we're going to make changes, I
would--I would--I would try to bring along as much of the rest of the world as possible, and I
would--I would--but I would do it in the spirit of going forth and saying, you know, Ì have
sinned,' and I would go to the front of the church and say, Ì have sinned' and hope other people
start following.
QUICK: All right. Let's get to some more questions that came in from shareholders. There's one
guy's--number 184 for the control room. This came from Scott Deller in New York. He says, "How
much debt would sink the United States? If the answer's unknown, isn't it risky to race at top
speed toward that line?" There were a lot of questions like this that came in.
BUFFETT: Yeah. Well, we are doing things that are causing the debt to rise at a very rapid rate, I
mean, when you're running, you know, a fiscal deficit like we are. As long as you issue debt in
your own currency, debt doesn't sink you. Now it--what it does is it destroys the value of money
over time. So you can make--you can make it so that the person who lent you money, 10 years
from now or 20 years from now gets back dollars that aren't worth very much. But you can--as
long as you've got a printing press, you can--you can issue any amount of debt in your own
currency. It's when the world says to you, `We don't want debt in your currency any more, issue it
in something that's more solid,' and that's what they do--they've done to various developing
countries. That's what they used to do to South American countries and so on. And then the music
stops. The IMF comes in and whatever they take. We have this great reputation for 200 years, and
people will accept dollars for a long time. But if the printing presses would run at a sufficient rate,
people after a while would say, `Wait a second. We're going to get stuck.' You know, it's
interesting, when we talk about what's happened in the last year or two how the taxpayers paid for
this or the taxpayers paid for that, taxpayer hasn't paid for any of it. We haven't raised taxes on
anybody. What we've done is the lenders have paid for it. So it's...
QUICK: Well don't those--don't those costs eventually get passed onto the consumer too,
though?
BUFFETT: Not--the costs really get passed on--generally speaking, they get passed onto the
saver. They just--inflation steals from savers, and inflation is the logical consequences of printing
too much money.
QUICK: And seniors who are living on fixed incomes.
BUFFETT: Anybody that's living on any kind of fixed income. I mean, you know...
QUICK: And small businesses that are maybe hoping to get a loan from a bank that can't give it
at this point.
BUFFETT: ...anybody that has their money--anybody that has their money in a money market
fund or anything like that, you know, if we issue enough--if we keep printing enough--if we keep a
large enough fiscal deficits we will eventually print a lot of money and money will be worthless.
And incidentally, if the United States runs up trillions and trillions and trillions of debt to the rest
of the world, you know, I will guarantee you that the politicians of 10 or 20 years ago will not want
to pay that back in hard money. It just doesn't--it doesn't make any sense.
QUICK: When you look at the situation in Greece right now and what's happening with the
trouble they've gotten into, do you believe that contagion spreads to not only other EU nations,
but potentially other states here in the United States? Is that a huge worry for you?
BUFFETT: There's a huge incentive for the EU to handle something like Greece and, of course,
that's what you're seeing now. I mean, it isn't--it isn't because the rest of--the other 15 countries in
the EU have suddenly developed this great affinity for Greeks. They just--they know the
consequences of, you know, if A is going to lead to B and you can't stand B, solve A. And that is
essentially the situation. That's what we went through a year and a half ago, you know, after--
when we stepped in and guaranteed money market funds and commercial paper and all of those
things. We saw a run on the country developing, and, believe me, it was developing. And no one
has to lend money to country A or country B or country C. And if they lose money with country A
they're going to get more worried about country B and country C just like the same experience we
had with financial institutions in the fall of 2008. The time to stop runs is early on.
QUICK: But do you think that this is something that could happen here in the United States, if
you look at California or New York, if you start looking at some of the states that have very large
financial problems?
BUFFETT: Yeah, and they can't print money.
QUICK: They can't.
BUFFETT: No, no. What they can do is one of three things. They can cut expenses, they can raise
income, or they can go to Washington eventually.
QUICK: And you think Washington would cover all of those problems?
BUFFETT: It would be very tough if you're in Congress and they say, `Well, you bailed out
General Motors, and you did this and that. And are you going to say, "People in the largest state in
the union or whatever it is, that we're not going to take care of you? I mean, the political problem
would be huge. But there's no question that states and municipalities the fiscal--the financial
situation for them has deteriorated dramatically. We did not write any municipal insurance to
speak of in 2009. The risk got higher and the premiums got lower and that just--it made it a dumb
sort of thing to do in our view.
QUICK: Tying this back to Europe and if Europe and Germany do step in and provide for Greece,
as it looks like they very--may very well do at this point...
BUFFETT: Almost have to, yeah.
QUICK: ...does that make you think that all these hedge funds that are betting against the Euro
are on the wrong side of this fence?
BUFFETT: Well, I don't know what happens to the euro exactly, but I mean, there are--I'm sure
there are hedge funds that are betting against the euro that are hoping that for one reason the
Germans gets mad at the Greeks, or whatever it may be, you know, they are--let's say there are
two banks in town. You own a bank and I own a bank. Now, if I want to put you out of business
what do I do? I go out and hire 50 bums on the street and get them to stand in line in front of your
bank. You know, that's all I have to do. You know, and those 50 will become 100. And after a
while, I can let the 50 bums and go, and it will create its own dynamic. You do not want that to
happen with countries. So you better stop it, you know, right off the bat. And everybody realizes
that. The only question is whether it gets it gets bogged down in something or other.
QUICK: OK. We're going to have more with Warren Buffett in just a moment. Remember, Mr.
Buffett is Coca-Cola's largest shareholder through Berkshire Hathaway. We're going to get his
first comments on the beverage giant's deal with its largest bottler. We talked a little bit about it,
but guess what, Mr. Coke will meet Ms. Pepsi. Pepsico's CEO Indra Nooyi has a deal of her own.
She's going to tell us all about that and mix it up with the Oracle of Omaha. Stick around.
QUICK: Good morning again, everyone, and welcome back to SQUAWK BOX here on CNBC,
first in business worldwide. I'm Becky Quick in Omaha, Nebraska, this morning. This is Piccolo
Pete's restaurant, and that means we are on Warren Buffett's home turf. This is a place that
Warren brings many of his friends, names you know; people like Bill Gates and GE CEO and
chairman Jeff Immelt. Joe Kernen and Carl Quintanilla are back at CNBC world headquarters this
morning, and we have one more hour left to get most of your e-mail questions for the legendary
investors, following up on that annual Berkshire Hathaway shareholder letter. We've covered a lot
of topics so far, a lot of ground, everything from the markets, the government and Coca-Cola's
bottling deal. But, Joe, we have much more to come.
KERNEN: Yeah, we do. Warren is Coke's largest shareholder. We're going to introduce him to
Ms. Pepsi in a moment. PepsiCo CEO Indra Nooyi will talk to us exclusively after just,
coincidentally, those bottling deals, PepsiAmericas and PBG, both closed today.
QUINTANILLA: Yeah, reaffirmed guidance. Or affirmed guidance.
KERNEN: And this was--I know she may take a little bit of a victory lap. I mean, she won--she's
already closing the deal, as Coke is barely scratching...
QUINTANILLA: Where have you guys been?
KERNEN: Yeah. You know, they're trying to catch up.
QUINTANILLA: Copycat.
KERNEN: I don't--yeah, yeah. Oh, `What's Indra doing? Let's--what else can we'--no. You've got
the headlines, though, for us, right?
QUINTANILLA: I do, a couple quick headlines today.
(News headlines)
KERNEN: Let's get to this, PepsiCo [PEP 63.27 0.80 (+1.28%) ] announcing the completion of
its mergers with its two largest bottlers, Pepsi Bottling Group and PepsiAmericas. Joining us now
in a special SQUAWK exclusive, live from their headquarters in Purchase, New York, Indra Nooyi,
PepsiCo chairman and CEO. It's always great to see you, Ms. Nooyi, and...
INDRA NOOYI (PepsiCo Chairman and CEO): Good to be here, Joe.
KERNEN: And do I--can--I guess I congratulate you, not only on the completion of the merger,
but, you know, on doing it so much sooner then Coke [KO 52.8401 0.1201 (+0.23%) ]. Can you--
can you go into some details on what it does for Pepsi and how it's going to help, I guess,
rationalize the assets? That's what Warren called it.
NOOYI: Well, you know, Joe, as you know, we announced this deal in April of last year, and we
are bringing in Pepsi Bottling Group and PepsiAmericas into PepsiCo. Today's the first day of the
new PepsiCo--the new PepsiCo, which is about $60 billion in revenue. And, you know, it's full
operational control of almost 80 percent of the bottling system. And as we mentioned in our call
in April when we first announced the deal, the beverage business in North America has changed
substantially over the last decade or two. It's not growing as much. And the nature of the business
itself has gone from a few megabrands to a bunch of fragmented new products, noncarbonated vs.
just carbonated drinks. And the old model of separating the franchise company from the
operating company became almost a relic of the past. And last year, when we were looking at the
dynamics of the industry and looking at where it was evolving to, it became clear to us that this
separation of the franchised company and the bottling company wouldn't last. And a franchised
company cannot grow at the expense of the bottling company, and a bottling company clearly
cannot grow unless it has the support of the franchise company. So we decided to put the profit
pools back together. The good news is as of Friday the deal as closed, which means today is the
birth of a new PepsiCo, and we are very optimistic about our prospects. Our press release this
morning indicated that for the next three years we expect low double-digit EPS growth, which in
today's times is pretty good. And in 2010 we reiterated 11 to 13 percent EPS guidance.
KERNEN: All right. I kind of understand a lot of that, how, you know, you don't want the two
companies competing. But there was a rationale at one point to do it that way, and Mr. Buffett
had pointed out the different--you know, it's a low margin bottling business vs. a high margin
syrup business. What exactly changed? Why--you are going to deploy more capital--or you have
deployed more to own the bottlers. Why not leave them owned by someone else with a lower
margin business? What's changed? You say something's changed to make it make more sense.
NOOYI: Yeah, that's a great question, Joe. So 10, 20 years ago, the market--the beverage market
in North America was essentially carbonated soft drinks, and there were a few megabrands that
controlled the business, and the market was growing 6, 7 percent in terms of volume. Fast-
forward to today. Carbonated soft drinks are now less than 50 percent of the total market, and
that's a very highly profitable part of the whole market. And the overall liquid refreshment
beverage business is growing in volume about minus 2 percent and in value about 1 percent
positive. So this is not a huge growth business. It's a big market, it's about $100 billion category.
But it's not growing in leaps and bounds like it used to a couple of decades ago. When you have
one or two publicly listed companies positioned as growth companies trying to fight over a profit
pool, that's not a very good situation, especially if the profit pool is not growing enough to feed the
appetites of two or three publicly listed companies. So the only way to compete and stay ahead of
competition in this environment is to bring the profit pools back together and figure out how to
operate more efficiently. And I go back to a point that Warren made, and if I may digress for just a
bit, it's a privilege to be on this show with the Oracle of Omaha. Warren, it's unfortunate that you
and I haven't met, but I know everybody around you, so I feel like I know you. It's an absolute joy
and privilege to be on the show with you. And thank you for sharing some of your time with me.
But let's come back to the bottling transaction. Warren said something very important in one of
the early segments. He said it's a operating intensive business and it's a lower margin business.
And, you know, companies will have trouble integrating the bottling company into the franchise
company. I think the big advantage PepsiCo has here is because of Frito-Lay North America and
the overall salty snack business around the world, we are an operating company. We operate
18,000, 20,000 routes in Frito-Lay. We never lost that operating discipline. And so the
post...(unintelligible)...integration of bottling into PepsiCo was a breeze. We got it done flawlessly.
And we had the wonderful advantage of retaining Eric Foss to run our bottling business. Eric used
to be the CEO of PBG. We retained him. And so it's almost like bringing all the bottling people
back home to PepsiCo. So we feel great about our prospects, and we think it's just reuniting a
company that was always peripherally part of PepsiCo.
KERNEN: Yeah, I want to definitely get Becky and Warren Buffett in on this. You know, Warren,
if you didn't have such a long and fruitful relationship with Coke, Pepsi's right in your
wheelhouse. I think the way the company's run, the products that it has. Are you precluded in
some kind of anti-trust from owning both, or?
BUFFETT: No, I don't think the government would come after me. It--Pepsi--it's a wonderful
company. And particularly, I mean, Frito-Lay is a fabulous business. I'd love to own it. I eat
Fritos, I eat Cheetos, I eat their potato chips; I even eat Munchos, which are kind of hard to find.
But I always drink Coca-Cola with them.
NOOYI: You know, Warren, I read your book, the biography on you, and it said that you started
life drinking Pepsi, and those were the most joyful moments in your life. I loved that. I think that's
what keeps you so youthful, because Pepsi's about youthful cultures.
BUFFETT: Well, I happen--I have to say, Indra, that I started drinking Pepsi when I was about
six or seven years of age in the '30s. And if you remember, at that time it was twice as much for a
nickel, too. Pepsi gave you 12 ounces for a nickel...
NOOYI: Uh-huh.
BUFFETT: ...and Coke gave you six and a half ounces. So I would definitely say that at half the
price, it--Pepsi was a good buy at that time, marked down 50 percent.
KERNEN: I...
NOOYI: Warren, let me assure you, at any price, Pepsi's a great product.
KERNEN: Yeah. All right, now I--now I understand, you were able to--Warren, you're going to
buy the--to drink you're going to buy the cheaper soft drink, but to buy the company, you're going
to buy the one that charges twice as much. It makes perfect sense now, now that I see how your--
how your mind is working.
BUFFETT: Joe, let me--Joe, there's a comic book--Action Comics was the first Superman book
that sold for a dime in 1938, and it now sells for a million dollars. And if Pepsi were half the price,
you know, I--all I had to do was at, you know, in effect, save an extra nickel there twice. And that
10 percent--that 10 cents turning into a million, though, incidentally, is only a 25 percent
compound. It's kind of interesting. If you'd bought that comic book in 1938 and compounded your
money at 10 cents at 25 percent, you'd have a million dollars now without owning the Superman
comic.
KERNEN: Wow, that's...
BUFFETT: So I had a very good reason to try and save money when I was eight years of age. And
12 ounces for a nickel was different than six and a half ounces.
KERNEN: Hey, Indra, you know, Coca-Cola I think is leaving the--some of the nondomestic
bottling assets separate. Is that because over in Europe and Asia, that things are still growing
quickly enough? Is it the same with Pepsi, where you still have the--that rapid growth which
allows that model to make sense?
NOOYI: Well, Joe, you know...
BUFFETT: Are you asking--go ahead.
NOOYI: ...east of the Middle East, as I said, the--go ahead, Warren.
BUFFETT: No, I think he was directing at you, Indra. No, go ahead.
NOOYI: No, east...
BUFFETT: I'm saying...
NOOYI: I'm sorry.
KERNEN: I want both of you to answer.
NOOYI: East of the Middle East, the markets--east of the Middle East, the markets are still
growing extremely rapidly, Joe. And, you know, the first thing I should say to you, the companies
are very different. We are a large food and snack business in addition to beverages, so the two
companies, you really can't compare them directly. East of the Middle East, the economies are
doing quite well. How long that'll continue, we'll have to watch and see, but they're doing very,
very well. I think Western Europe and Eastern Europe are still troubled markets. GDP's down,
unemployment rates are extremely high, and I don't think you can link a bottling transaction to
the economy. You know, they had a different strategy, we had a different strategy. But in Europe
we are a very, very large food and beverage company because we have a large snack business, we
have a huge juice business. We are huge in Russia, we're huge in Western Europe. So I think the
companies are very different and our strategies, fundamental strategies are very different.
KERNEN: Warren, you were going to talk about the Coke strategy abroad, right, with their--I
guess they're not buying in those assets, right?
BUFFETT: Well, the--no. The franchise operation works extremely well around the--around the
world. And, I mean, you take somebody like Coca-Cola FEMSA in Mexico, I mean, the per capitas
there are incredible. I think they're up close to 500 or thereabouts. And so the franchise system in
just country after country, 200 countries around the world, has developed the market in a way
that's been very good for the bottlers and very good for Coca-Cola. And actually, in many
countries the bottling operation has been considerably more profitable than it has been in the
United States, partly because of the growth aspect that Indra mentioned. So it's not a system that
needs fixing at all around the world. There can be an occasional spot where the bottler isn't doing
the job and the Coca-Cola company will buy it and then--and put it back on its feet and then resell
it to somebody in that country. But having local bottlers really works pretty darn well around the
globe.
QUINTANILLA: Warren, some people...
QUICK: Warren, there--right.
QUINTANILLA: Some people have been saying that you--people historically bought Coke as an
international growth play. Now all the sudden North America's an awfully bigger piece of the pie.
Does it dilute some of the reasons that people got into the stock in the first place?
BUFFETT: No. In terms of where the money is being made, you know, Coke makes, I don't know
exact percentage, but 80 percent of its money around the globe, and it's growing and just in
country after country. Coke has been gaining share really quarter after quarter around the world.
And add--none of that volume's going away, or none of that growth is going away because they're
integrating the bottling system in the United States. It does--it means a concentration more of
assets in the United States, but it does not take away from the profit growth that is occurring
around the--around the world. I think Coke earned like 9 billion pretax last year, and I think well
over 7 billion of that was from outside of North America. And that 7 billion is going to have the
same kind of growth rate, which has been substantial, whether or not--you know, wherever the
bottling system in the United States is owned.
KERNEN: Mm-hmm.
QUINTANILLA: And, Indra, the other--I guess the other concern, if there are concerns about
these types of deals, is the degree to which big companies like yours now have to worry about the
logistics of getting bottles around the--around the country, perhaps distracting you from investing
in and nurturing the magic of the brand. Any truth to that?
NOOYI: Not really. I mean, PepsiCo, as I said, is an operating company. We know how to focus
on brands and operations. We've done it extremely well with Frito-Lay around the world. So we
don't see any issues in terms of focusing on the franchise company and the bottling company,
which are now both under PepsiCo ownership. In fact, we think this is the right strategy. And,
Warren, I'll just come back to a point you made about the franchise system around the world. I
think the franchise system works as long as the market and the category are growing. When the
market slows down, when the category growth rates slow down, the franchise system always runs
into issues because there are two companies that are fighting over a very, very limited profit pool.
Now, if the bottling companies can be repositioned as utilities, that's a whole different issue,
because they essentially are utilities. But if you position a bottling company as a growth company
and the franchise company as a growth company, I think when the category slows down you're
running into issues.
BUFFETT: Well, fortunately, the category's not slowing down in most parts of the world. It's just
amazing, the growth. I--Mexico is an extreme example. China, I mean, I think in the last quarter
of 2009, there was 29 percent unit growth for Coke in a place like China and 22 percent in India.
So the rest of the world, they like the same thing I like. And they like Pepsi, too. I don't...
NOOYI: No, I--Warren, I agree with you.
BUFFETT: And they love Frito-Lay.
NOOYI: No, I agree, and I appreciate your consuming our Frito-Lay products. I think you're
right, China's growing very rapidly. India grew 50 percent for us last year, so we feel very good
about our prospects there. I'd worry a bit about Western and Eastern Europe, because there, the
category growth rates are sluggish right now with the economy. And one has to worry about the
health of the bottling system because, you know, both companies are fighting over a limited profit
pool. So these are just, you know, watchouts that one has to keep in mind as we look at the
troubled economies around the world.
KERNEN: Indra, you had to deal with--you had to deal with some private label competition. I
think about just the overall competition from all these, I don't know, new age drinks, whether it's
tea or water or, you know, what is that, acai berry something. There's so many strange things out
there...
NOOYI: Acai.
KERNEN: ...that aren't sugary soda that, you know, I wonder about the long-term prospects,
long, long term for both Pepsi and Coke. I guess, you know, they've been sold short before...
NOOYI: Yeah.
KERNEN: ...but certainly the sugary soda isn't--that market isn't what it used to be.
NOOYI: Yeah, I mean, I wish you wouldn't just call it sugary soda. Let's just talk about soda.
Used to be 80, 90 percent of the market. It's now down to, you know, 40 percent of the market. So
noncarbonated drinks are growing much more rapidly than carbonated soft drinks. And even
carbonated soft drinks, I mean, you've got diet sodas, you've got a whole range of flavors. You've
got lightly sparkling soda, well sparkling sodas, you've a whole range of innovation coming there.
But let's stay with the noncarbonated beverages. That's--it's true. I mean, acai berry, all these new
products are coming into the marketplace. I think owning the bottling system is most strategic in
this new environment because, in the past, every time you wanted to launch a new product, the
bottling system would look at it and say is it as profitable as my core soda? Will it sell, you know,
tens of millions of cases? And then this negotiation would start between the franchise company
and the bottling company that would last months before you actually brought a product to
market--to the marketplace. I think that time spent on unproductive discussions with the bottling
system is now going to be a thing of the past. The franchise company, which continues to innovate
rapidly--I mean, I taste top products in our laboratories. We have more innovation ready to go for
the next three, five years than I've ever seen in the history of our company. So now we can start
bringing these products to market quite rapidly, especially more niche products, which tend to be
more health and wellness focused. So Joe, Carl, Becky, and Warren, please stay tuned for the
innovation from Pepsi and PepsiCo. And, Warren, you know what? Just as you talked about
eating Cheetos and Fritos and Lay's potato chips...
BUFFETT: Well...
NOOYI: ...I hope I can get you on TV one day to say you drank one of our Pepsi products and
loved it.
BUFFETT: Well, I will probably--I will eat some Cheetos and Fritos today, but I will--I will also
drink five Cokes.
QUINTANILLA: One thing's for sure, Beck...
QUICK: You just touched on a point...
QUINTANILLA: Beck, you, me and Joe, we have got to get into that testing lab at Pepsi, right?
QUICK: Oh yeah.
QUINTANILLA: We would have a blast.

QUICK: That's right. I can see us all there.
QUINTANILLA: I would just go crazy.
KERNEN: I was just actually fantasizing about a way to make a nutri-salt, something that didn't
hurt you, but would have a salt taste...
QUINTANILLA: Mm-hmm.
KERNEN: ...like a sweetener, like a fake sweetener, because--but I'm not even convinced...
QUICK: That sounds like Olestra.
KERNEN: Yeah.
QUICK: And you know what Olestra does to you, Joe.
KERNEN: Ooh, that's right, that's right, that's right.
NOOYI: Joe, if you came to our laboratories, you'd be like a kid in a candy store.
KERNEN: It's true.
NOOYI: I assure you.
KERNEN: It's true.
QUINTANILLA: Come hungry and come thirsty.
BUFFETT: We've got a real candy--Joe, we've got a real candy store for you, See's Candies.
KERNEN: I love you two...
BUFFETT: Don't settle for anything except See's candy.
KERNEN: I love you two fight, though.
QUINTANILLA: Yes.
KERNEN: I can come--I have time. I can come to See's and to--and to Frito Land. There should
be a theme park for me.
BUFFETT: Yeah, we'll fly you back--we'll fly you back and forth in a NetJet too, Joe.
KERNEN: Now you're talking.
QUINTANILLA: At the end, there's a doctor waiting for you.
KERNEN: Yeah.
QUICK: Indra, you brought up a point where you just said please don't call these things sugary
sodas, though. And both to Indra and Warren, do you feel like you are under assault from
governments that now are looking at sugary drinks or carbonated drinks or beyond and thinking
of ways to tax? I think of the state of New York, and I think about Muhtar Kent's op-ed piece that
he wrote last year, towards the end of last year, where he said that governments are looking at this
the wrong way. You can't just blame the soda companies, you have to look at the kids who aren't
exercising, the way we set up some of these issues. Do you feel like you're under assault, Indra?
NOOYI: You know, look, I think governments are looking for ways to raise revenue.
Governments are looking for ways to reduce childhood obesity in particular. And I think it's
important that we encourage governments to look at the problem holistically because it's a very
complex issue. Clearly, the sedentary lifestyle has had an impact and what they eat and drink has
had an impact. So I think it would be irresponsible for us to say we're not the problem or we are
the problem. I think what we have to do is work constructively with governments to come up with
a solution, and that's why we were co-leaders in forming this healthy weight commitment, which
is a consortium of manufacturers and retailers working with the Robert Wood Johnson
Foundation as an independent evaluator to really look at options to transform all of our portfolios
to reduce salt and sugar levels, take out the fat in our products so that products can taste great,
yet are healthier than fun-for-you products. We're talking about nutrition education, calorie
labeling. We're looking at a whole range of options. The other thing I tell you, Becky, is the food
and beverage industry in the United States, in particular, is a very responsible industry. And I
think we're looking to work with governments, the federal government, state government, all of
the organizations to come up with the right solutions for the American consumer.
KERNEN: OK. I think we're almost done.
QUICK: Warren, same question.
KERNEN: Oh, sorry.
QUICK: Go ahead.
KERNEN: They told me we were done.
QUINTANILLA: (Unintelligible).
KERNEN: You got something more?
QUINTANILLA: I got one more.
KERNEN: You go ahead.
QUINTANILLA: Indra...
QUICK: Well, can I just get a real quick question, same question.
BUFFETT: If I eat more than 2500 calories a day, I'm going to gain weight. If I eat less than
2500 a day I'm going to lose weight. I'd like to choose the 2500 calories that I eat, and if, you
know, if I--it's just a question of how many calories you stuff in your mouth, basically, and there's
a lot of ways to do it.
QUICK: Hm.
BUFFETT: And if somebody told me that I live a year longer by eating nothing but broccoli and
asparagus from now on, I would just say, it would just feel like I'm--every day will seem like as
long. I'll stick with--I'll stick with the Cheetos and the Coke. QUINTANILLA: Indra, I hope you
won't mind a quick macro question. The last week or so we here who sort of pay attention to
markets on a day-by-day basis have seen some pretty lousy data on housing and consumer
confidence. We sometimes rely on you and your radar. Are you--are you seeing echoes of that in
at least the very concurrent data when it comes to convenience stores and so forth? Is the
consumer nervous again?
NOOYI: I think the consumer, (clears throat) excuse me, I think the consumer environment is
very, very soft. And I think what we have is people still don't have the confidence to go out and
spend money, and they're just waiting to see what's going to happen before they open their
wallets. Savings rates are going up, which is a good thing. The question is, when is it too high?
And we want people to spend, not just spend, you know, borrow and spend. And I don't think the
consumer's there today. So I am a bit worried about the next 12, 18 months because unless we get
those jobs back and the hourly worker, the construction worker, back on his feet, I'm just worried
that consumer confidence won't come back. So I like what the government is doing about long-
term programs, fixing health care, addressing energy, talking about the overall taxation. I like all
of these long-term programs. My concern remains, you know, on the next 12, 24 months because
you need those jobs back to get the engine of the economy going, but you need that to get
consumer confidence up. And let me just say one thing to Warren. Warren, Cheetos, Fritos and
Doritos taste fantastic and even better with Pepsi.
KERNEN: Boy, this is--this is kind of a smackdown.

QUINTANILLA: Yes.
QUICK: It is a smackdown.
QUINTANILLA: A hard sell.
KERNEN: Warren, it is too bad that Coke never, you know, you do have to go out of the Coke
family to get a snack, and I wonder why they didn't realize salty snacks, drinks, salty--I mean,
that's like--that's like peanut butter and jelly. That seems like a slam dunk to have thought of that.
BUFFETT: Indra may know this better than I am. My understanding's that Herman Lay went
to Coke, I don't know, 40 years ago or so, and if a deal had been made, he would've owned more
stock than Mr. Woodruff, and Mr. Woodruff didn't like it. But I don't know whether that's an old
wives' tale or not. Indra, do you know the answer on that?
NOOYI: I think the answer is that PepsiCo has always been strategically much better than
anybody else out there.
KERNEN: Oh, I love it. All right, we've got to go. We've got to go.
QUINTANILLA: Ouch!
KERNEN: We've got to go, Indra, but just--we asked pharmaceutical companies, what's the most
exciting drug in your pipeline? What's the most exciting new salty snack at that testing place you
were talking about? Do you have one in particular?
NOOYI: Yeah, Joe, I'll make a deal with you.
KERNEN: All right.
NOOYI: You come and host your SQUAWK BOX out of Frito-Lay and we will let you taste all of
our new products. How's that?
KERNEN: I hate to hear people talking with their mouth full, but we may have to--we may have
to do that because that would be the problem. Thank you very much, Ms. Nooyi.
NOOYI: Thank you.
KERNEN: It was great to have you on the show for an extended period of time and seeing you
and Warren Buffett in that two box, it's just a cool looking thing, isn't it?
QUINTANILLA: Other shows have...

NOOYI: And, Warren, I look forward to meeting you sometime.
BUFFETT: Good enough. I'm looking forward to it, too.
KERNEN: There it is again. I love that.
NOOYI: Thank you.
KERNEN: All right, Beck.
QUICK: All right, Indra, thank you very much. And we've got just a few minutes left before we
have some data that comes out. Warren, I thought we could do some rapid fire questions that
have come in from shareholders, too.
BUFFETT: OK. Yeah.
QUICK: All right. Here's the first one. This comes from Bojan in Phoenix, Arizona. "If you had to
change all cash from the US dollar, which currency would you buy?"
BUFFETT: That's a tough question. It might be the Swiss franc.
QUICK: It might be the Swiss franc?
BUFFETT: Well, if you're--if you're saying I have to do it.
QUICK: Yeah, you have to.
BUFFETT: We have our money in dollars, overwhelmingly, but if I had to pick one, I might pick
that.
QUICK: All right. I'm going to break from rapid fire. Why?
BUFFETT: Well, I just--I worry--I worry about all currencies. So I mean, currencies are the
prospect--the future of a currency is a product of governmental action and I--the real question is,
how disciplined governments will be over a long period of time. Our government has been pretty
darn good. On the other hand, you know, I was born in 1930 and the price level is probably 15
times what it was then, so currencies depreciate over time. And the real question is where are they
likely to depreciate the least. And I--but I'm--I'm not making that bet. I'm just--you asked me a
question, and I gave you a fast answer.
QUICK: We forced it on you.

KERNEN: If we...
QUICK: Go ahead. Go ahead, Joe.
KERNEN: Becky, if Warren--have you covered any of your dollars short, Warren? Because I
don't know if you saw this--what happened with the euro recently, but you've been short the
dollar for years, right? Did you cover any? Or have you lost some money in the last three months?
BUFFETT: No, we have no real foreign currency. We haven't had any foreign currency
transactions as foreign currency transactions themselves for some years. Now, we own a lot of
things in dollars, we own--we own a utility business in England, which makes us money in
pounds. We own Cologne Re in Germany, and so we have earnings in different currencies around
the world. Well, we've had no explicit currency transactions...
KERNEN: Oh, you used--because there was a couple of years ago, then. Because you used to,
right?
BUFFETT: It was a couple of years ago, yeah, right.
KERNEN: You were short--you were short the dollar. OK. So you got--you don't have that
position anymore.
BUFFETT: No. We were long about 10 different currencies against the dollar, maybe, I don't
know, three or four years ago...
KERNEN: OK.
BUFFETT: ...and we closed all those positions up. But the best thing to own, you know, the best
thing to have is your own talent. They can't take that away from you. But the best thing to own is a
good business. A good business, you know, you know, whether it's Frito-Lay or whether it's Coca-
Cola or whatever it may be, they will retain their value in real terms in my judgment over time no
matter what governments do to currency.
QUICK: You said, though, that a bet either for or against a currency is a bet for or against that
government. If you were worried, and let's say you're worry level and let's just measure a couple of
things against each other, euro vs. the dollar, which worries you more?
BUFFETT: That's a tough--that's a tough call. I mean, both the euro, European Union countries
and the United States are running very large deficits. I mean, they--both of those currencies in
terms of purchasing power will decline in value over time in my judgment.
QUICK: British pound vs. the dollar. Is that the same story?
BUFFETT: Same way. I--there are all--they are all following policies that will cause their
currencies to lose value. Which one will lose more value than the other, it's so hard to tell.
QUICK: Yen vs. the dollar? Same story?
BUFFETT: The yen is--Japan is the great mystery of all time. I mean, in terms of the policies
they follow, what happens, you know, low interest rates, huge deficits and all of that sort of thing.
That one is a mystery I don't even try to think about solving.
QUICK: OK. Let's get back to rapid fire, some of these questions from our viewers. Peter in New
York writes in, "How many annual reports do you read a year?"
BUFFETT: Oh, I read hundreds. I just over--you mentioned AIG. I read a 550-page 10K. That's
550 pages printed out. I don't know how many go in, but I read that on Friday night, for example.
And I read--I read a lot of reports. I keep looking for a centerfold or something in these reports, I
never find one.
QUICK: All right. Here's a question from Bulgaria. "Have you ever thought about buying a
country?"
BUFFETT: I don't think I want to own a country. That is not financially very good, although the
power to tax would be kind of interesting.
QUICK: All right. And this is a real--this is a really mean one from Eric in Chicago.
BUFFETT: Ah.
QUICK: He says, "On air live, in front of the camera, what's a 173 times 192?"
BUFFETT: I don't know the answer to that. I could square numbers up to 100 very easily in my
head, but above 100 it gets hard.
QUICK: So what's 200--or 2,350,000 worth in 15 years if it compounds at 13 percent?
BUFFETT: Well, it would--it would--it's--in 13 years?
QUICK: Yeah.
BUFFETT: It would be--it would be something...
KERNEN: I'll get that one.

BUFFETT: ...is two million--about 10...
QUICK: Two million, three-hundred and fifty-thousand.
BUFFETT: It would be around 10 million, yeah.
QUICK: All right. Well done. OK. Carl, we'll send it back to you.
QUINTANILLA: That was...
QUICK: I know we have some data coming up very quickly.
QUINTANILLA: There's a new reality show, "Are You Smarter Than Warren Buffett?"
KERNEN: Yeah.
QUINTANILLA: Don't you think?
KERNEN: Hey, Warren, Warren, were you using the rule of 72 there? You were, weren't you?
BUFFETT: No, actually, I was calculating the distance of the moon and dividing by the speed of
sound.
QUINTANILLA: That was the best part of TV so far this morning. A lot more, in fact, and
Warren in Omaha in a little bit.
QUICK: And we've got just a few minutes left before we have some data that comes out. Warren,
I thought we could do some rapid fire questions that have come in from shareholders, too.
BUFFETT: OK. Yeah.
QUICK: All right. Here's the first one. This comes from Bojan in Phoenix, Arizona. "If you had to
change all cash from the US dollar, which currency would you buy?"
BUFFETT: That's a tough question. It might be the Swiss franc.
QUICK: It might be the Swiss franc?
BUFFETT: Well, if you're--if you're saying I have to do it.
QUICK: Yeah, you have to.
BUFFETT: We have our money in dollars, overwhelmingly, but if I had to pick one, I might pick
that.
QUICK: All right. I'm going to break from rapid fire. Why?
BUFFETT: Well, I just--I worry--I worry about all currencies. So I mean, currencies are the
prospect--the future of a currency is a product of governmental action and I--the real question is,
how disciplined governments will be over a long period of time. Our government has been pretty
darn good. On the other hand, you know, I was born in 1930 and the price level is probably 15
times what it was then, so currencies depreciate over time. And the real question is where are they
likely to depreciate the least. And I--but I'm--I'm not making that bet. I'm just--you asked me a
question, and I gave you a fast answer.
QUICK: We forced it on you.
KERNEN: If we...
QUICK: Go ahead. Go ahead, Joe.
KERNEN: Becky, if Warren--have you covered any of your dollars short, Warren? Because I
don't know if you saw this--what happened with the euro recently, but you've been short the
dollar for years, right? Did you cover any? Or have you lost some money in the last three months?
BUFFETT: No, we have no real foreign currency. We haven't had any foreign currency
transactions as foreign currency transactions themselves for some years. Now, we own a lot of
things in dollars, we own--we own a utility business in England, which makes us money in
pounds. We own Cologne Re in Germany, and so we have earnings in different currencies around
the world. Well, we've had no explicit currency transactions...
KERNEN: Oh, you used--because there was a couple of years ago, then. Because you used to,
right?
BUFFETT: It was a couple of years ago, yeah, right.
KERNEN: You were short--you were short the dollar. OK. So you got--you don't have that
position anymore.
BUFFETT: No. We were long about 10 different currencies against the dollar, maybe, I don't
know, three or four years ago...
KERNEN: OK.
BUFFETT: ...and we closed all those positions up. But the best thing to own, you know, the best
thing to have is your own talent. They can't take that away from you. But the best thing to own is a
good business. A good business, you know, you know, whether it's Frito-Lay or whether it's Coca-
Cola or whatever it may be, they will retain their value in real terms in my judgment over time no
matter what governments do to currency.
QUICK: You said, though, that a bet either for or against a currency is a bet for or against that
government. If you were worried, and let's say you're worry level and let's just measure a couple of
things against each other, euro vs. the dollar, which worries you more?
BUFFETT: That's a tough--that's a tough call. I mean, both the euro, European Union countries
and the United States are running very large deficits. I mean, they--both of those currencies in
terms of purchasing power will decline in value over time in my judgment.
QUICK: British pound vs. the dollar. Is that the same story?
BUFFETT: Same way. I--there are all--they are all following policies that will cause their
currencies to lose value. Which one will lose more value than the other, it's so hard to tell.
QUICK: Yen vs. the dollar? Same story?
BUFFETT: The yen is--Japan is the great mystery of all time. I mean, in terms of the policies
they follow, what happens, you know, low interest rates, huge deficits and all of that sort of thing.
That one is a mystery I don't even try to think about solving.
QUICK: OK. Let's get back to rapid fire, some of these questions from our viewers. Peter in New
York writes in, "How many annual reports do you read a year?"
BUFFETT: Oh, I read hundreds. I just over--you mentioned AIG. I read a 550-page 10K. That's
550 pages printed out. I don't know how many go in, but I read that on Friday night, for example.
And I read--I read a lot of reports. I keep looking for a centerfold or something in these reports, I
never find one.
QUICK: All right. Here's a question from Bulgaria. "Have you ever thought about buying a
country?"
BUFFETT: I don't think I want to own a country. That is not financially very good, although the
power to tax would be kind of interesting.
QUICK: All right. And this is a real--this is a really mean one from Eric in Chicago.
BUFFETT: Ah.
QUICK: He says, "On air live, in front of the camera, what's a 173 times 192?"
BUFFETT: I don't know the answer to that. I could square numbers up to 100 very easily in my
head, but above 100 it gets hard.
QUICK: So what's 200--or 2,350,000 worth in 15 years if it compounds at 13 percent?
BUFFETT: Well, it would--it would--it's--in 13 years?
QUICK: Yeah.
BUFFETT: It would be--it would be something...
KERNEN: I'll get that one.
BUFFETT: ...is two million--about 10...
QUICK: Two million, three-hundred and fifty-thousand.
BUFFETT: It would be around 10 million, yeah.
QUICK: All right. Well done. OK. Carl, we'll send it back to you.
QUINTANILLA: That was...
QUICK: I know we have some data coming up very quickly.
QUINTANILLA: There's a new reality show, "Are You Smarter Than Warren Buffett?"
KERNEN: Yeah.
QUINTANILLA: Don't you think?
KERNEN: Hey, Warren, Warren, were you using the rule of 72 there? You were, weren't you?
BUFFETT: No, actually, I was calculating the distance of the moon and dividing by the speed of
sound.
QUINTANILLA: That was the best part of TV so far this morning. A lot more, in fact, and
Warren in Omaha in a little bit.
QUICK: You know, Carl, we were just talking while that information was coming out, and
Warren said there is a currency that maybe he would look at a little more strongly. We were trying
to weigh all those currencies against each other. What--Warren, what currency is it?
BUFFETT: Well, I mentioned the Chinese yuan, which you can't--renminbi.
QUICK: Right.
BUFFETT: But you--that's not freely transferable. But we actually did a bond issue here not so
long ago that's by an American company but it's--it floats with the renminbi so that in effect it's a
renminbi denominated instrument.
QUICK: Are any stakes you might own in a Chinese company, like you've bought in with BYD? Is
that a bet, also, on that same?
BUFFETT: Well, it--that's not primarily the bet, but--at all. But I would say that having--putting
an investment into a Chinese company at the present conversion rates, I would figure I might
have a currency play as well.
QUICK: That brings us to one of the questions we got from some of our viewers, too. Let's start
out with question 1663. It--this comes from James Wood in Bartlesville, Oklahoma. He says,
`Since emerging market economies are growing at two to three times faster than those of
developed countries, what percent of one's equity portfolio should be in emerging markets?'
BUFFETT: You know, your portfolio ought to be in businesses you understand, where you
understand their future economics. And they may be in emerging countries, they may be in the
United States, and you're likely to understand them better in the United States. But the--sticking
the name "emerging country" after a stock does not make it better. I mean, you have to know what
you're buying, you have to know the business, you have to feel good about the management and
you have to feel good about the price you're buying into it. And I would not--I would not--
wouldn't make any difference to me if I had zero of my money in emerging markets, I want to
have it in things that I understand and I think are attractive and I think are going to earn more
money five years from now and 10 years from now than they are now.
QUICK: You know, you mentioned China as an area that's obviously very rapidly growing.
Several years ago you looked at South Korea as a place where you had...
BUFFETT: Right.
QUICK: ...not paid attention before and you saw that. Would you say China is your favorite
overseas market right now?
BUFFETT: Well...
QUICK: If you had to generalize.
BUFFETT: ...you can't buy it yet. Yeah, we--the only Chinese stock we own is BYD.
QUICK: Is BYD.
BUFFETT: But certainly, the--I think the Chinese economy will do very well over the next as far
as the eye can see. That doesn't mean it'll do well next year, or that their stock market will go up
or anything like that. They'll have bubbles and they'll have all the same kind of interruptions that
we've had in the last 200 years. But they're going to go places over time.
QUICK: OK, let's get to some more shareholder questions, or some more viewer questions. This
comes from Zanesville, Ohio, Robert Shackelford. He says, "Would you be greedy or fearful in
today's market?" You talk all the time about how you should be greedy when others are fearful,
and fearful when others are greedy.
BUFFETT: Yeah.
QUICK: Well, what are you?
BUFFETT: Well, I always start from a position of fear. And then when I see something that looks
attractive, I start getting greedy. So--but I'm always looking at the downside on something first. I
mean, if you can't lose money, you're going to make money. And we--one reason we've done
reasonably well, and this really go--goes back to when I was age 20 and learned from Graham,
because my first 10 years were the best, is we've never lost a lot of money as a percentage of our
net worth. I mean, and--in terms of permanent loss. Now, things may go down 50 percent.
Berkshire's stock has gone down 50 percent four times in the time that I've owned it. But in terms
of permanent loss, we've never--we've had plenty of losses, but they've never been the kind that
really are destructive. And I always look at the downside first in anything.
QUICK: But in the broad sense of the markets, I mean, if you're looking at late 2008, early 2009,
there was so much fear out there.
BUFFETT: That's...
QUICK: When you measure now, if you had to put a tipping scale on more greedy investors right
now or more fearful investors, which way would the scale tip?
BUFFETT: Over a long period of time--I mean, if you're investing, and you should invest for the
long term, I would rather own equities than have fixed-dollar investments and have--or keep my
money rolling short-term.
QUICK: OK. This question comes from David in Los Angeles. He says, "Do you feel the uptick
rule is beneficial for investors in the market as a whole? And if so, why?"
BUFFETT: On balance, I probably favor it. It's not something that makes a lot of difference to an
investor. It really doesn't make any difference to an investor. If you--if you're an investor and you
buy a stock, I don't know whether there's an uptick rule in farms, you know, or in apartment
houses. The important thing is to buy the right company. And the uptick rule should be of no
concern to real investors.
QUICK: Unless you're somebody who's maybe a hedge fund, who's used to shorting things, and
you get worried that your strategy's not going to work in the future.
BUFFETT: Shorting isn't investing. That doesn't mean you can't make money doing it and all of
that, but that--if you're talking to the American public about what they do with their money, they
ought to forget all about shorting and they should--they should not buy an invest--they should
buy an investment with the idea that if the stock exchange closed tomorrow for two or three years,
they'd be very happy, you know, with the business.
QUICK: OK. William Olsen writes in from Windham, Maine, and he says, "What suggestions
would you make to Toyota's president, Akio Toyoda, to help him deal with the drop in consumer
confidence and the tarnished brand?"
BUFFETT: I'd have him go see the movie "Groundhog Day," just hoping it'd start all over again. I
mean, this is pretty far down the road. In crisis management--I did that one time at Salomon a
little bit--the--as far as I'm concerned, there's just four rules, you know: get it right, get it fast, get
it out, get it over. You know, and you want to get it right as fast as you can, get it fast, get it out
and get it over. And that--and if you skip--if you--if you try and eliminate one of those steps,
you've got troubles.
QUICK: You know, Geico is now the third largest car insurer in the United States. I know that
Congress has asked State Farm and Allstate for information about whether the number of Toyota
incidents had climbed over the last several years in terms of accidents and problems that they
were finding. Do you know if Geico has seen any increase in the number of accidents of Toyota?
BUFFETT: I don't know the answer to it. I know we'd be glad to supply it to any congressional
committee, but I do not know the answer to that.
QUICK: You don't know the answer. OK, let's jump to question 255. This comes from a
gentleman in Princeton, New Jersey, who says, `Warren, I feel lucky to have witnessed such a
massive recession at the young age of 22 years, where I fortunately did not have as much money
to lose in the markets, but everything to gain in terms of knowledge. As I start my career in
finance, what would you say are some lessons I should take away from these past two years?'
BUFFETT: You know, the lessons are the same that--you go back to "The Intelligent Investor," it
was written in 1949, read chapters eight and 20. I mean, think of--think of buying a stock as
buying a piece of a business. If you buy the right business at the right price and hold it, you know,
you do fine. I mean, it's when you start thinking of stocks as little things that wiggle around and
the charts and all that sort of thing that you get in trouble. But buy a good business, buy it at a
price that seems reasonable, buy only the kind of business you understand and then forget about
it for years.
QUICK: OK, Carl's got a question as well. Carl.
QUINTANILLA: Warren, we haven't spent too much time talking about Fed policy, exit policy.
But given the commentary you've heard from the chairman, any--give us a sense of how you're
feeling on how they're going to land this jumbo jet in the next few months...
BUFFETT: I...
QUINTANILLA: ...and over the course of the coming year.
BUFFETT: I think that the chairman has an extraordinarily difficult job ahead of him because of
the fiscal policies that are taking place in the country. I don't think you could have anybody more
able than Ben Bernanke running the federal reserve. You know, he's--but it is going to be a very
tough job to have huge fiscal deficits and essentially work with monetary policy and the other
tools that are available to the Fed to avoid inflationary consequence--I mean, he's got a lot of
problems ahead of him, but he's the guy to handle them.
QUINTANILLA: Yeah. Do you think the market is...
BUFFETT: I do not--I don't want his job.
QUINTANILLA: I don't--I don't know anybody who does. Do you think the market has the legs
to withstand the end of MBS at the end of the month? People keep talking about how much of a
surprise that'll bring us, given the end of the purchasing. But then on the other hand, we've
known it's been--it's coming for some time. Do you see shocks as a result of the withdrawal of
policy?
BUFFETT: I doubt that. But what--you know, you have had this huge purchaser in there in the
Fed, you know, over a trillion dollars of those securities, and that's obviously had some market
effect. And, you know, the Fed has a very big balance sheet. Here, I'll give you a quick quiz. You
know, what's the most profitable entity in the United States, you know?
QUINTANILLA: I think I know the answer, yeah.
BUFFETT: Yeah, the Federal Reserve. It made 45 billion last year. I mean, it is the greatest carry
operation in the world. Money costs nothing and you've got all these assets, and now you've got a
trillion of MBSs, you know, earning this money. Bernanke gets paid about $200,000 a year. If he
had a two and 20 deal, I would want my daughter to marry him, I can tell you that.
KERNEN: Warren, are you--are you done with--are you done with media, you think, and media
investing? I don't know where you are in Washington Post right now. And the reason I ask, you
know, Comcast decided NBCU fit with its business model. Is this--for you, is it just you're not
smart enough, even you, to figure out which way media goes into the future? Is--are railroads just
easier at this point?
BUFFETT: Yeah, they are easier. But media's enormously important, and there'll be a lot of
money made in media. Figuring out, you know, who's going to make it, certainly newspapers
aren't going to make it, you know, and magazines won't do that well. But there--people want to be
entertained, they want to be informed. You know, the eyeballs will be focused on something, and
wherever they're focused there will be money to be made. But I--there's too many things I can't
figure out. I did not see, you know, 15 years ago, I--you know, I didn't see eBay or YouTube or
Hulu or you name it. And all these things come along and they're terrific for me as a consumer.
But I want--I want things I can figure out like, you know, Coca-Cola. I--I've got a pretty good idea
where Coca-Cola will be in 10 years, or Proctor & Gamble, or companies of that sort. I do not
know how the media landscape shakes out. But there will--it's a very interesting landscape, it's
just that I'll let somebody else make the money in it.
QUICK: Warren, there's a question that comes from David Herendine in St. Louis, Missouri. He
says, À large portion of the jobs created this last decade were either housing or mortgage related.
Many of these jobs have evaporated. Where do you see job growth for the next decade? And is
green technology legitimate?'
BUFFETT: Well, housing will come back. I mean, right now we have a company called Acme
Brick. We make about 10 percent of the brick in the United States. Three or four years ago, we
were making 100 million bricks a month. We're making 40 million bricks a month now. Half our
brick plants are closed down. Those employees have been laid off. When housing construction
comes back to a million-one or a million-two, we'll hire a lot of people back. I mean, those
industries aren't gone. The problem was we produced two million houses a year and we were
eating up, in effect, a million-two or a million-three. And we have to work off that excess
inventory. But people are going to want houses, they're going to want brick houses. We're going to
sell 100 million brick a year again at some point. And when we do, we'll be employing another
1,000 or 1500 people. So the sooner we get through this period, the better. And we have moved a
fair distance through the residential construction problem. We have--the commercial real estate
problem is yet to hit big time.
BUFFETT: We have--the commercial real estate problem is yet to hit big time.
QUICK: Well, let me ask David's second question again. "Is green technology legitimate?"
BUFFETT: Well, there's all kinds of green technology that makes sense, sure. We're using it in
carpet, I mean, and insulation, all kinds of things, sure.
KERNEN: But Warren, Warren...
QUICK: A lot of--oh, go ahead.
KERNEN: ...is it really called Acme Brick, Warren? I mean, is that--that--is that's like the coyote
bought something and put it up on a ledge when the Road--and it was Acme Brick wasn't it that--
is it really called Acme Brick? Is that a joke?
BUFFETT: Acme Brick is probably the best-known brick in the United States. If you go to Texas
and you ask people to name a brick, they will name Acme. And try doing that in New York and see
what they come up with.
KERNEN: Yeah, I thought you were--I thought you were joking. I thought...
BUFFETT: It's very hard...
QUINTANILLA: I think they also sell those holes that you put down on the ground and they
create a hole in the ground.
KERNEN: I think that these can suspend in midair, too, and if you pull--if you look over you
don't fall till you look over. Sorry.
BUFFETT: We guarantee our brick for our 100--we guarantee our brick for 100 years, Joe.
KERNEN: All right. After three hours, I'm sorry, that's my only--that's the only one I've done.
But I think--I love cartoons. All right, go ahead.
BUFFETT: I'll mail--I'll mail you a brick--I'll mail you a brick as a birthday present.
KERNEN: Send me an...
QUINTANILLA: Throw it in the window.

KERNEN: You know, that's about what I'd expect you to send me. What is that worth, about 12
cents, one brick? Probably.
BUFFETT: Well, I'll say closer to 32 cents.
KERNEN: Thirty-two cents.
QUICK: Thirty-two cents, there you go.
KERNEN: Thirty-two cents. Thank you.
BUFFETT: Yeah, we'll send it COD.
QUICK: That costs a lot to--cash on delivery. Nice. Warren, a lot of people wrote in about jobs,
though. That is a huge issue that people are focused on.
BUFFETT: It is.
QUICK: Brian Howe in Boston, Massachusetts, says, "Many economists have indicated that we
will have a jobless recovery. How is that possible with unemployment at 10% and underemployed
adding another 10% to 15% to that undervalued statistic?" You can quibble with the math on that,
but you are talking about some very high numbers. It would seem to me that the drag of
nonworking, underemployed people at that high rate would significantly hold any recovery at bay.
BUFFETT: That's the problem. That's what, you know, Keynesianism addresses the fact that you
need--you need to feed in demand from government. But we will--the jobs--the jobs will come
back, but they're not--it's not going to be fast, Becky. I mean, we will have more people employed
in the carpet business three years from now than we have now. We'll have more people employed
in the brick business three years from now than now. But not necessarily six months from now.
QUICK: Another question on this same subject is from Nick Adena in Lebanon, Tennessee, who
says, "How do we correct the massive bleed-off in blue-collar jobs specifically? If those people
don't work then they can't spend." Same question.
BUFFETT: Yeah, it's a terrible spiral and, you know, we--in the 1980s we said we were going to
lose all our jobs, you know, to Germany and Japan and, you know, in the next 10 or 15 years we
created 20 million jobs. You don't know where they're coming from. And when this country--if
you go back a couple hundred years you had 90 percent of the people on farms. And if you'd said
somehow looking at--you had a crystal ball and said 200 years from now we'll get all of this food
produced for 3 or 4 percent of the people you'd say, you know, the country's going to fall apart.
But things happen. I mean, we are a creative people, and we'll continue to be a creative people.
QUICK: All right. Why don't we go ahead and take a quick break. When we come back, we'll have
more of your e-mails for Warren Buffett, so stick around. SQUAWK BOX will be back right after
this.
QUICK: All right, welcome back everybody. We are live in Omaha, Nebraska, with Warren
Buffett. We've been going through the questions that you've been sending in. We've got more to
get to. And, Warren, I want to start out with a question from Jason Gould in Waco, Texas, who
says, "Charlie Munger recently released an op-ed parable titled, `Basically, It's Over.' Is Charlie
too pessimistic?"
BUFFETT: He's talking about the fact that when a country gets too occupied with being--with
the casino aspects of the--of the economy and forgets about the rest that it's headed in to
somewhat of decadence. That is what (economist John Maynard) Keynes wrote about back in
1935 in Chapter 12, and Charlie's more pessimistic than I am. This country is not an accident. I
mean, 200 years ago look what we had and look what we have now. It isn't like we've forgotten
any secrets or anything of the sort. So the country has a bright future.
QUICK: Another viewer had written in, and I don't have the e-mail here right now, but another
viewer had written in and said, `What do you do when you and Charlie disagree fundamentally on
a point? How do you make that decision?'
BUFFETT: Well, what Charlie always says to me is he's--when we disagree--he says, "Well,
Warren," he says, "you'll see it my way because you're smart and I'm right." That's his technique.
But pretty much in--if we really disagree on something, we're not going to do it. But if I like
something, he just grumbles and mumbles and, you know, says, "That's kind of a dumb idea,"
where I go ahead and do it.
QUICK: What's the last thing that you disagreed on fundamentally so much that you didn't do it?
BUFFETT: Hm, there have been some like that. I can't pick them right out of the air at the
moment. Certainly nothing in the last six months or I would recall it.
QUICK: OK. Let's get to question--a question from Streamwood, Illinois. "If you were Ben
Bernanke or Tim Geithner, what specific monetary or fiscal policy would you recommend that
would have an immediate impact on job creations?"
BUFFETT: That's very tough. I mean, if you really, you know, if you want to do something, you'd
go out and--you would drop a $1 million in every household.
QUICK: Mm-hmm.
BUFFETT: But, of course, money would be worth nothing. The real trick is to--is to get the--have
them drop a million in every household and have me be the only--have me think that nobody else
got it except me. Now I think the money's really valuable. It--you--you're trying to stimulate and
you stimulate by putting money in people's pockets who are going to spend it. But that has
consequences down the line. I mean, we--you have to deal with the illness and then,
unfortunately, you have to deal with the medicine, and the medicine is very strong this time. So
there's going to be a lot of medicine to deal with.
QUICK: Has the government done enough already and now it's time to just and wait?
BUFFETT: It's hard to tell. It--I think it's--I think there's a political dissatisfaction element that
enters into what government does. I mean, obviously, if people expect results next month they're
not going to get them next month. But if they get--you know, want some kind of action if they get
upset enough and they'll--you know, with an election coming up in November, you're going to see
more and more people saying, you know, `Why isn't this working faster?'
QUICK: Although, you're probably talking about two disgruntled groups. One, who are people
who are very worried who don't have jobs, they're worried about losing their jobs who'd like to see
more done. The other like the Tea Party coalitions that are being formed that would like to see the
government step out of it and not spend any more taxpayer dollars.
BUFFETT: And that's why out government's always been messy and it's going to continue to be
messy, but it'll work in the end.
QUICK: All right, let's get to another e-mail question. This one comes from Dana in Fort Smith,
Arkansas. She says, "Mr. Buffett, I've always used the trucking industry as a gauge on how the
U.S. economy is doing. I've become more concerned lately as I see our country's major trucking
companies struggling. Are my concerns legitimate?"
BUFFETT: Yeah, well, trucking is struggling and the railroads. I mean, the railroad carloadings
last week or the week before, whenever it was, were down--they were up from last year, but they
were down 16 and a fraction percent, as I remember from two years ago. And trucking is having
the same experience. There are just less goods moving than there were a few years ago because
the economy has slowed down very significantly. Trucking will come back, railroads will come
back, but this economy has slowed down a lot from a few years ago. And...
QUICK: You haven't seen any pickup at all?
BUFFETT: Very, very, very little, and that's true of trucking. There's just the slightest uptick and-
-but who knows what it'll be six months from now. It will come back, but it's not--it's not roaring
back on--there's no way that you can look at the figures and say that it's coming back fast.
QUICK: Do you worry about a double-dip in the--in the recession and the downturn? Or do you
think that this is just a very slow recovery?
BUFFETT: It's a slow recovery. The only thing--I mean, if you had some big exogenous event, I
mean if you had something go wrong in the European Union or--I mean, there--if something--a
huge terrorist attack, I mean, you can--you can think of things that would cause another jolt to the
economy like that jolt we had in September of 2008. But absent something really big from an
exogenous nature to the United States, no, I think we will continue moving upward but not at a
very fast rate.
QUICK: All right. Here's some questions that came in, too. Clayton Jennings in Greenville, South
Carolina, "After so many years of limited media exposure, why have you been so accessible to the
media in the last few years?" That's a question I get a lot, too.
BUFFETT: Yeah, well, it--for years I just wrote the annual report and that was pretty much it.
And, you know, people kept inviting me on, and I didn't go on, and it's fine to go on. I mean, I'm
perfecting happy to express my opinions on certain subjects that don't relate directly to Berkshire,
which I probably wouldn't want to use the Berkshire vehicle to talk about. And, you know, it--
nobody pays me very well for doing this, I must say, if you're listening.
QUICK: If you're listening, you're taking offers?
BUFFETT: Yeah. Yeah. But, you know, it's things I talk about privately so why not talk about
them publicly.
QUICK: OK. David Gordon from Farmingdale, New York, says, "Do you watch the Olympics?"
BUFFETT: Yeah, but I like summer Olympics better than winter Olympics. I mean, because the
sports are more the type of things that, you know, I identify with. I've never been a skier, an ice
skater, but I've been a terrible basketball player, or something of the sort. So the summer
Olympics are more interesting. But the winter Olympics have been terrific. I know more about
curling than I knew a month ago. In the first 79 years of my life I never learned as much about
curling as I have in the last month.
QUICK: OK. You know, Jay Leno is coming back to late-night television. Today is the day for it.
Do you watch Leno? Do you--have you had interactions with him? I think he's reached out to you.
BUFFETT: I talked to him once or twice. He called me once about going on the show, and we
talked a little about old cars. I had a Rolls Royce when I was in high school and--but, no, I've
never gone on any of those shows, and I won't.
QUICK: You won't? OK.
BUFFETT: No.
QUICK: There's another question that came in from the Kingdom of Bahrain, Hussain Bushehri,
"Citigroup was trading well below book value. As a value investor, why haven't you built up a
position in the bank?"
BUFFETT: In which bank?
QUICK: In Citi--in Citigroup [C 3.38 -0.02 (-0.59%) ].
BUFFETT: Oh, Citi. Well, I mean the question isn't what the book value of what a bank is. The
question is its future earning power, and it's harder for me to figure out the future earning power
of a Citi than it is for me to figure out the future earning power of a Wells Fargo [WFC 27.325 -
0.015 (-0.05%) ]. Citi may be better, for all I know, but I--it is a much more mixed up situation.
Their funds cost them a lot more than somebody like Wells Fargo, so their raw material has a
higher cost, and I love the idea of being into the low-cost producer. But we have a lot of money in
Wells Fargo and we have some money in US Bancorp [USB 24.53 -0.08 (-0.33%) ]. So it isn't like
we're unexposed to it. I think Wells Fargo, you know, having the low cost of money, that's huge.
It--it's like them being a low-cost copper producer or something of the sort, and they've done a
great job of developing their business.
QUICK: OK. Joe:
KERNEN: You could have bought Ford [F 12.2801 0.5401 (+4.6%) ] at $1, Warren. It's now 11
or so. GM's going to come public again. Barrons thinks it's going to be big, it's going to be back.
Would you ever buy one of the automakers? You got a shot here with Toyota with all these
problems.
BUFFETT: It's very hard to figure out the future of those--I mean, you know, the Americans are
going to be driving a lot of cars 10 years from now.
KERNEN: Yeah.
BUFFETT: I'd rather be insured--I'd rather--I'd rather bet on who's going to be insuring them
than who's going to be building them.
KERNEN: Yeah, that's a good point.
QUINTANILLA: Yeah, that's paid off nicely, the Geico bet. Warren, you talk about, in the letter,
being willing to buy companies now that require big capital investments. Can you...
BUFFETT: Right.
QUINTANILLA: ...characterize how big the playing field, or the potential playing field, has
gotten? What are you willing to consider now in the way of industries or companies that you
weren't before?
BUFFETT: Well, it is true, the capital intensive business, like our utility business or our railroad
business, we are willing to consider now. But we'd, you know, we'd love to buy a very big business
in almost any field that we understand that we think has got the right kind of management and
right kind of economic future and the right kind of price. So I am, you know, I am optimistic that
there are bigger fish in the sea than we've yet pulled out, and I intend to be out there looking for
them.
QUICK: But you've also said that you like to have at least $20 billion on cash at hand...
BUFFETT: That's true.
QUICK: ...and you're sitting right at about that level. Should we assume that you're out of the
business of deal making at least for another few months until you start getting some cash flow
back?
BUFFETT: Just try me out with, one and I'll try and figure out how to do it.
QUICK: So you're actively looking, no matter what, all the time?
BUFFETT: Oh yeah, I love looking, yeah.
QUICK: All right. Well, Warren, we want to thank you very much for joining us here today, for
being so generous with your time and taking so many viewer e-mails. We really appreciate your
time today.
BUFFETT: Thanks for coming to Omaha.
QUICK: Yeah, of course. And Joe and Carl, I will see you back there again tomorrow or the day
after. But, right now, I'll send it back to you guys.
QUINTANILLA: Depending on how you get back. We were just saying...
KERNEN: Yeah, stamina.
QUICK: Yeah.
QUINTANILLA: How old--how old, Warren, 79?
BUFFETT: Seventy-nine and your brick is on the way, Joe.
QUINTANILLA: Seventy-nine and...
BUFFETT: What color would you like?
KERNEN: Could you send me some kind of peanut butter brick or something from See's. Don't
send me a brick, Warren. Please don't send me a brick. I don't want a brick. Please. Send me some
kind of candy.
BUFFETT: You're going to get a brick, believe me.
KERNEN: Send me a candy brick. I know there's a peanut butter or something or other. Yeah,
his stamina amazing.
QUINTANILLA: Unbelievable.
KERNEN: Thank you for your time.
QUINTANILLA: I think he could go for another three hours.
KERNEN: Yeah, yeah.
QUINTANILLA: And we know we couldn't.
KERNEN: Yeah. Perfect. Let's do this next Monday again.
QUICK: Yes.
KERNEN: Every Monday.
BUFFETT: I want a negotiate. OK. You'll have your brick.
QUINTANILLA: All right, Becky, thanks as always.
QUICK: Thanks, guys.
QUINTANILLA: All right, safe travels back. We'll see you when you can get back from Omaha.
Flight frequency sometimes an issue getting back to New York, but we look forward to having her
back at the desk. That does it for us today on this Monday morning. Have a great day.
Class A: [BRK.A 119162.00 -638.00 (-0.53%) ]
Class B: [BRK.B 79.47 -0.66 (-0.82%) ]
Share Investor Links

Warren Buffett on CNBC's "Squawk Box"
May 3, 2010
Transcription by www.RealtimeTranscription.com
ANNOUNCER: Fresh from the annual meeting where thousands and thousands of his faithful gather to
hear his every word.
WARREN BUFFETT: Get it right, get it fast, get it out and get it over. That's easier said than done.
ANNOUNCER: All aboard. 60 minutes of investing wisdom from the Oracle of Omaha starts right now.
BECKY QUICK: All right. Welcome back to "Squawk Box" here on CNBC where we are first in business
worldwide. I'm Becky Quick along with Joe Kernen, Melissa Lee and our guest host today, Senator Kit
Bond. Carl's off, but our guest host for the next hour is Berkshire Hathaway chairman and CEO Warren
Buffett. We've got a lot to talk about. And, Warren, thank you for joining us this morning.
WARREN BUFFETT: It's a pleasure.
BECKY QUICK: Okay. We've got plenty to talk about. Let's get ready. We're going to get to it in one
moment. In the meantime, Melissa Lee, why don't you give us a run-down of today's top stories?
[TOP STORIES]
JOE KERNEN: Let's see how the markets are reacting to all this news. The futures have been higher all
morning long, up about 36 points, after a tough day on Friday, whether it was -- I think it was mostly
Goldman on Friday.
MELISSA LEE: Absolutely.
JOE KERNEN: I do, too. And just the idea of there aren't too many Wall Street firms left, when you think
of Wall Street. And you take the preeminent 140-year-old Wall Street firm and now there's questions.
You know, once the government has got you in its sights.
MELISSA LEE: Right. We're talking about possibly Goldman losing major sources of its business because
of all this, because of financial regulation, and the talk is growing that CEO Lloyd Blankfein could be out
by the end of the year.
JOE KERNEN: We'll all feel a lot better.
Anyway, let's get back to Becky in Omaha. Hey, Beck.
BECKY QUICK: Hey, Joe. You know, you picked up perfectly with the perfect segue for us to be stepping
in. Our guest host for the next hour is Warren Buffett. He's the Berkshire Hathaway chairman and CEO.
And, Mr. Buffet, thank you for joining us this morning.
WARREN BUFFETT: It's a real pleasure.
BECKY QUICK: Did you hear this conversation about Goldman Sachs?
WARREN BUFFETT: I did, yeah.
BECKY QUICK: Now, Goldman was obviously one of the huge headlines here this weekend. There are --
right now the SEC considering these charges. And a lot of concern about whether Goldman not only
followed the letter of the law, but the spirit of the law. What do you think?
WARREN BUFFETT: Well, from everything I've seen of the Abacus transaction, which was the one the
SEC put out the complaint on, I do not see a problem with that transaction. We're a bond insurer, ACA
was a bond insurer, MBIA, FGIC, Ambac, and all those companies started out insuring municipal bonds
and then the profit margins got squeezed in the municipal bonds and they started drifting over and
insuring other structured deals and so on.
ACA had probably dozens of people analyzing bonds. Many of the reports don't even explain that they
were bond insured, but that was their job. Their job was to look at credits and stick a proper premium
on if they wanted to insure them. If they didn't know what the proper premium was, they should have
skipped insuring them. And almost all of the bond insurers got in trouble during that period because
they drifted over into areas where they really weren't that good.
BECKY QUICK: But the SEC complaint focuses on fraud and says in large part it's because Goldman, the
SEC alleges, did not let on that John Paulson was on the short side, betting against this, and he was
helping structure the deal.
WARREN BUFFETT: Becky, we had many deals presented to us. But, for example, there was a municipal
bond deal that was presented to Berkshire. And 8 billion of municipal bonds and a Wall Street house
came to us and they said, "We'd like you to insure these bonds." And we said, "We'll do it for $160
million." And you'll see that the state of California is a couple of hundred million and Texas is a billion.
And when that firm came to us, it happened to be Lehman Brothers two years ago, and we were to
insure these bonds for 10 years. There were four possibilities. Lehman had these bonds and was
hedging them. Lehman had an opinion that municipal bonds were overpriced and they were shorting
them. They had a customer on the bonds that was hedging them, or the customers were shorting them.
We didn't care. Our job was to decide whether to insure the bonds. I never asked who was on the other
side of the transaction. Obviously, somebody is on the other side of the transaction. But if Ben
Bernanke was on the other side of the transaction, I still would have insured the bonds. It was my job to
figure out what I wanted to insure. And there's always somebody on the other side of the transaction.
And John Paulson could have been on the other side of that transaction and we still would have insured
the bonds.
On the other hand, if the premium was wrong, we wouldn't have insured the bonds. So a bond insurer
runs the risk of loss when they insure bonds. It shouldn't make any difference to them who owns them,
who is hedging them, who is shorting them. They should decide what the risk is and charge an
appropriate premium. And ACA charged the wrong premium.
BECKY QUICK: Lloyd Blankfein went before senators last week and a lot of them made it sound like he
had intentionally misled his customers, told them one thing and then acted another way.
WARREN BUFFETT: Well, I've been doing business with Goldman for 44 years. They have raised a lot of
capital for us that enabled us to deploy a lot of people. They have been involved in more acquisitions
than any other Wall Street firm by far in connection with Berkshire. We're a much larger company
because of Goldman Sachs. And we trade with them.
Now, I don't hire them for investment advice or services. People do. They have got a big investment
advisory business, but I don't pay them for that. What I do do is frequently is I trade with them. When I
buy something from them, they may be selling it for a customer. They may be shorting it to me. You
know, it's not their responsibility to manage my money. I could hire them to manage my money, if I
want to. But I don't. And I often buy something from them that my guess is that they are shorting to
me. But, you know, that's the name of the game.
BECKY QUICK: Melissa Lee mentioned that talk is growing that Lloyd Blankfein may end up losing his job
over this. What do you think about how Lloyd Blankfein has performed?
WARREN BUFFETT: I think Lloyd Blankfein has done a great job of leading Goldman Sachs. I mean, I
have known the people who run Goldman Sachs ever since Gus Levy, every one of them. And Goldman
has had a history of picking first class people to run the business, people that are the sort of people that,
you know, feel fine about having marry your daughter and people who are plenty smart about running a
business.
BECKY QUICK: Some people would say you are defending Goldman Sachs because you have a major
investment with them. You're talking your book. What do you say to them?
WARREN BUFFETT: Well, I'd say you're asking me the questions and I'm responding to your questions.
But I am talking my belief. And we do have a major investment in them. And if you put $5 billion in a
company, you ought to feel pretty good about it and we felt pretty good about it when we did it. And
we feel pretty good about it now.
BECKY QUICK: Do you think Lloyd Blankfein should continue in his job?
WARREN BUFFETT: Absolutely. Absolutely. I'd rather have him running it than anybody else.
BECKY QUICK: Have you had conversations with him this, about the transaction, about the SEC
complaint, about what he needs to be doing in response?
WARREN BUFFETT: Probably had three or four conversations, each one of them maybe five to ten
minutes. He's bringing me up-to-date on some development. And he's asked me whether I've got any
great ideas on this in terms of how to handle essentially what is a tsunami of press opinion. But I have
had no conversation with him in any way about him stepping down. And if he asked me, which he
hasn't, I would say by all means stay.
BECKY QUICK: You mentioned on Saturday that of the 40,000 expected shareholders, probably 39,900
of them did not understand this transaction or what was happening at Goldman. Do you think you were
able to help them understand it this weekend?
WARREN BUFFETT: I have been told by a lot of them. I mean, I have literally had, dozens including some
of our directors. And they said they had never heard the transaction explained. ABN AMRO actually is
the one that ended up paying the dollars out. ABN AMRO, now part of Royal Bank of Scotland, they paid
out 900 million, or close to it, and got paid -- they paid out because they were a credit guarantor of ACA.
They took on that risk. We sometimes guarantee the credit of other people. ABN AMRO got -- it's in the
SEC complaint, they got paid 17 basis points, that's about a million six, to guarantee 900 million of
credit. If ACA hadn't gotten in trouble they would have pocketed a million six and felt like they made a
good deal. But sometimes banks lose money guaranteeing credit and sometimes they don't. ABN
AMRO lost that money. ACA originally lost the money because they rolled bond insurance on something
they didn't understand very well.
But bear in mind, MBIA was writing insurance like that at the time. Ambac was writing insurance like
that at the time. FSA was writing insurance like that at the time. And all of them lost money on it. I
mean, the housing situation in February of 2008 looked a lot different than the housing situation a year
earlier. And many people were wrong, including Fannie Mae, Freddie Mac, you know, companies with
huge involvements with the society, managed by Congress essentially through an agency that had 200
people overseeing them. And they were the biggest losers of all. So a lot of people were wrong about
housing.
BECKY QUICK: Do you think this is a situation where it's some big banks that made some bad bets and
now it's sour grapes?
WARREN BUFFETT: Well, big banks made bad bets. And lots of people made bad bets. The American
people made a bad bet on housing. I mean, you know, at the peak, housing was worth 22 billion and
people thought housing could do nothing but go up. And everybody virtually believed it. I mean, I
believed it, you know, people in my block believed it. Rating agencies believed it, Freddie and Fannie
believed it, Congress believed it, Wall Street believed it, mortgage bankers believed it. Housing had kept
going up and up and up, so they built these models in their minds. They might not have thought of them
as models, but they basically didn't think housing prices could get cracked a lot. And when they did get
cracked, a lot of people looked awfully foolish and a lot of people lost money.
BECKY QUICK: Do you think we have -- I guess the biggest problem with the Goldman situation with that
back at Abacus deal is that the taxpayers eventually ended up paying for it because ABN AMRO may
have made the bad bet but essentially at one point between that and ACA, it was soaked up by taxpayer
dollars. And that's what has people so angry.
WARREN BUFFETT: Well, the biggest taxpayer loss apparently is Fannie and Freddie, and they were
supervised by Congress. And as a matter of fact, they reported to Sarbanes and Oxley, of all the irony.
So that's where the big money was lost. But banks can lose money on loans that are guaranteeing
credits. They make decisions that sometimes are wrong initially and sometimes events make them
wrong, as they turn out.
But this transaction was not unique in any way. A lot of people bet on the bullish side of housing. There
weren't many people on the bearish side. And John Paulson was not regarded as a genius in 2007. But
if John Paulson came to me with a deal today to insure, I would look at what I was being asked to insure,
and if I thought I understood it, I would quote him a price and if he took it, he'd have an insurance
policy. I don't worry about doing business with John Paulson.
BECKY QUICK: Okay. Joe, you have a question as well?
JOE KERNEN: Just listening to Warren. Hi, Warren, thank you for joining us today.
WARREN BUFFETT: Hi, Joe.
JOE KERNEN: But listening to the way you explained it, the American -- really, we were all long on
housing. And with the benefit of hindsight, to see the way it's been portrayed not only in the media, but
I know you probably saw those Senate hearings. And you've been around a while, Warren. You know
the ways of Washington. But when do you decide that Washington really is a bigger part of the problem
than the problem itself? And where this -- you know, if you really beat up on Wall Street and not beat
up on Goldman, beat up on capitalism and beat up on the free market, should we just write it off to, ah,
that's just the politicians?
I have one here. Senator Kit Bond, maybe you can weigh in, too. They can eventually do some real
damage, can't they, Warren? That was a travesty and a witch-hunt and an inquisition. Were you
uncomfortable?
WARREN BUFFETT: Well, it wasn't anything unexpected. I mean when something goes wrong on a very,
very major scale and lots of people participated in it. I mean the whole country was involved in
essentially what turned out to be a fantasy. Now, we all believed it, we all want houses. And it was very
easy to say if houses are going to go up every year, you better buy it this year because it will cost you
more next year. And that became kind of a self-fulfilling mania for a while. Because housing became 22
trillion out of the American public's 50 to 60 trillion of wealth and it was the one that you can margin the
most, borrow the most against, you know, when the crash came, it really had consequences and nobody
likes to say, "It's my fault."
JOE KERNEN: Guess we have to go to break, Beck. And then we'll continue along, I guess, some of this
stuff, right?
BECKY QUICK: That's right. And we'll let Senator Bond jump in on that as well and get his response.
We're going to sneak a quick break right now. But as Joe mentioned, we have a lot more to cover with
Warren Buffett. We have got 45 more minutes. We're going to be talking about whether the consumer
is back in full force, what he's seeing and other signs in the economy, plus we've got a run-down of the
morning's top stories. So stay right here. "Squawk Box" will be right back.
[COMMERCIAL BREAK]
[TOP STORIES]
BECKY QUICK: Melissa, thank you. We are back in Omaha. And we've been talking about what
happened with the housing crisis, who was to blame, with Warren Buffett, who is the chairman and CEO
of Berkshire Hathaway.
And, Warren, you were just getting ready to talk a little bit about who is to blame and whether the
politicians were to blame as well. I thought maybe you could say that and we could bring Senator Bond
in as well.
WARREN BUFFETT: Well, when there's a delusion, a mass delusion, you can say everybody is to blame. I
mean, you can say I should have spotted it, you can say the feds should have spotted it, you can say the
mortgage brokers should have, Wall Street should have spotted it and blown the whistle. I'm not sure if
they had blown the whistle how much good it would have done. People were having so much fun. And
it's a little bit like Cinderella at the ball. People may have some feeling that at midnight it's going to turn
to pumpkin and mice, but it's so darn much fun, you know, when the wine is flowing and the guys get
better looking all the time and the music sounds better and you think you'll leave at five of twelve and
all of a sudden you look up and you see there are no clocks on the wall and bingo, you know. It does
turn to pumpkins and mice.
BECKY QUICK: Go ahead.
WARREN BUFFETT: It's hard to blame the band. It's hard to blame the guy you're dancing with. There's
plenty of blame to go around.
BECKY QUICK: And alcohol.
WARREN BUFFETT: There's no villain.
BECKY QUICK: Well, let's talk about what Washington is doing right now with financial regulatory
reform. Are the issues that are on the table things that can prevent this from happening again?
WARREN BUFFETT: Well, they can't prevent bubbles from happening again. People do that. The human
beings go to extreme and when your neighbor makes a lot of money doing something, you know, you
feel like you ought to be doing the same thing, too. And they do feed on themselves periodically,
whether it's the Internet boom. You have had it all. You had two bubbles, you know, 400 years ago.
You had South Sea bubbles. So people will get delusionary from time to time.
And you might say it's the job of the government or the Fed to try to talk them down or something of
the sort. It's not very effective. If people really see easy money being made by someone else that they
think is dumber than they are, it gets very tempting to be out there trying to do it yourself.
So bubbles will happen again. What you want to try and do is contain the damage from them. And, you
know, we did that after 1929. Now, after 1929, we decided that people buying stocks on 10 percent
margin was dangerous for the economy and we passed a law that said the feds should set margin
requirements. And then what did we do in 1982? We validated an S&P 500 contract which let people
gamble in untold numbers on tiny margins, all the while maintaining 50 percent margins with the Fed. It
was crazy. But we took -- we took the safety net of high -- of high margins away from the stock market
and nobody said a word.
BECKY QUICK: So you're in favor of limiting some derivatives trading?
WARREN BUFFETT: I'm in favor of having leverage limited with organizations that can produce
dangerous for the system. And I actually think leverage ought to be -- extreme leverage ought to be
prevented for individuals speculating in the market. We decided that was dangerous back in 1934 and I
still think it's dangerous and we totally negated the benefit of that legislation when we let the S&P 500
and the derivatives come in to the game bigtime.
I wrote a letter to Congressman Dingell in 1982, saying this would turn the market into more of a casino.
And there were plenty of people that said, yeah, but it's more fun having a casino.
BECKY QUICK: The idea of limiting leverage for investment banks is a good one. But then when you
have all of these off-balance sheet transactions, it's very difficult to know how what the real leverage is.
How do you get your arms around it?
WARREN BUFFETT: They were terrible. I mean, the auditors failed, in my view, bigtime when they let,
for example, SIVs, be set up, special investment vehicles, with the big banks. Citigroup had those by the
tens of millions. And what were they trying to do? They were trying to get around the leverage
restrictions that the banks normally had to follow and they were trying to pile up a little more earnings
so they could report better quarterly earnings. So they stuck all this stuff off balance sheet and talked
about liquidity puts and all that sort of thing. And that should be not only just a yellow light, that's a red
light to auditors and should have been highlighted but it wasn't.
BECKY QUICK: But what in the current financial regulatory reform can prevent any of those things?
WARREN BUFFETT: Well, I haven't read 1500 and some pages. But I have the feeling from what I've
read about it that Congress is going in the right direction. I do think -- I think that people that have the
ability to attract money with an FDIC guarantee, so they feel it's a government guarantee, if you have
the right to do that, there better be some pretty tough rules on what you can do once you gather that
money from the public. Because you are getting it because you have a government guarantee.
BECKY QUICK: Senator Bond, you are one of the 100 people who will be voting on that financial
regulatory reform. Do you think that the bill is the proper bill and that it will be able to prevent some of
these extreme situations in the future.
SENATOR KIT BOND: Not yet, Becky. But, Mr. Buffett, I agree with you, we saw a situation where they
all get better looking at closing time in the housing market, but the housing market was a team effort.
The administrations, both Republican and Democrat and Congress, pushed for no down payment home
loans, nonrecourse loans. That was an invitation for disaster. There were a few of us who fought
against it unsuccessfully. But there are certain bad practices that really should be stopped.
And I think you're totally right. There needs to be regulation of liquidity. There needs to be regulation
of some of these devices. And, you know, the computer game derivatives that are not based in reality I
think deserve to be covered. But I know you have spoken out about the end users who are in the
Heartland, where you and I live, who have to hedge their risk, whether they're farmers, manufacturers,
transportation companies. How should we distinguish between the legitimate hedging activities in
financial institutions and the gambling derivatives which you have decried in the past as weapons of
mass destruction.
WARREN BUFFETT: In distinguishing, it's really tough. But it's a job that has to be done because you talk
about end users. I read an article in Business Week a couple of weeks ago about Anheuser-Busch in
your state of Missouri. They use them for hedging purposes. We're on the Burlington Northern Santa
Fe right now. We use them for hedging purposes with diesel fuel. And to the extent that people like
Anheuser-Busch or Burlington Northern, for example, have to put up a lot of collateral, that is money
that is not being used in their own business. I mean, it's being deposited back in Wall Street. So I think
it is very important to have something that makes sure that end users aren't put in the same category as
casino operators.
SENATOR KIT BOND: Well, I know you have utility. And I talked to a regional utility in my state that has
$100 million in derivatives every day to hedge the cost over the energy input. And if they had to clear it,
it would cost them a billion dollars.
[CROSS TALK]
WARREN BUFFETT: And sure, Senator. If they put the money up there, that money is not being used to
build wind farms. And so there are hundreds of end users that have signed on to an appeal to make
sure they aren't put in the same category as people who are just basically gambling on them, you have a
way that you have got bear traps out there, but they don't catch rabbits.
SENATOR KIT BOND: Sheila Bair just said that you shouldn't have -- you can't take derivatives out of
FDIC-insured institutions without increasing their risk.
BECKY QUICK: Yes, Sheila Bair, over the weekend, I don't know if you have seen these comments yet, is
saying exactly that. She does not want to see the banks not allowed to do derivatives because it will
only drive the derivatives and risky business to other institutions that are less regulated. Do you agree
with that or should the banks be limited in what they can do with derivatives?
WARREN BUFFETT: I don't really know the answer to that. I mean, certainly, banks can use derivatives
in ways that makes sense for the society, just in terms of floating rate to fixed-rate loans. There are
various ways of doing it that have a very proper business purpose. But I think if they are betting on the
price at some variable 20 years from now -- when I took over GenRe, there was one derivator contract
that lasted 100 years, and that meant for 100 years, no money changed hands, people put marks on it
every three months and the trader got paid based on it and people got to report earnings based on it,
and so it's hard for me to see that that is serving a wonderful social purpose.
BECKY QUICK: Charlie Munger has a much tougher view on derivatives. We heard from him earlier. He
says that they should only be allowed on things like energies, commodities and currencies, I believe, or
maybe metals. How do you pair up what you think with what he thinks?
WARREN BUFFETT: Well, Charlie is a little more Old Testament than I am. I've got a lot of Old
Testament in me, too. But Charlie is right and I'm usually wrong. But I think that there can be proper
uses of beyond the areas he named, but I would agree with Charlie that -- well, the S&P 500 contract is
the ultimate derivative. I mean, it's a bet on an index and it trades by the billions of dollars on tiny
margins and it isn't dealing with professional investors all the time. It's dealing with people that don't
know a thing about stocks and bonds and are betting on whether the market is going to be higher 10
minutes later, an hour later. And it's really hard to imagine what the useful purpose is of dragging in
people on tiny margins to gamble on what the stock market is going to do that day.
BECKY QUICK: We have much more to get with with Warren Buffett. We're going to talk more about
the economy because Mr. Buffett, through his businesses, has seen a turn coming in the economy. We'll
get the specifics on that and his read on the strength of the American consumer. "Squawk Box" will be
right back.
[COMMERCIAL BREAK]
[TOP STORIES]
BECKY QUICK: All right, Melissa. Thank you very much. We are live in Omaha with Warren Buffett.
We've been talking about a lot of the issues facing Wall Street, facing financial regulatory reform. But
we have also been looking at the economy over the weekend here. Over the weekend, we got the
chance to speak with Matt Rose who is the CEO of Burlington Northern Santa Fe. We're sitting on one of
his rail cars right now. The railroad is one of the first that sees turns in the economy. They talk about
the coal shipments moving as they see retailers ordering more or less.
And over the weekend, we got to speak with Mr. Rose to ask him what he is seeing right now in the
railroads. Listen in.
MATT ROSE: We monitor 22 commodity groups across the railroad. Everything from iron, steel, metals,
containers, coal, chemicals, automobiles. And if you look at last year, every one of those commodity
groups were negative. If you look at last week, every one of those 22 were positive.
BECKY QUICK: That tells us a little bit about how far we've come in this economy. But, warren, you look
at a lot of different factors in the economy. This is a particularly difficult time to try and figure out
what's going on. Where do you think we stand right now in the economy?
WARREN BUFFETT: Well, actually, it may not be quite so difficult. A couple of months ago when we
talked, I said we were seeing little bits of improvement here and there, but it was pretty spotty. In the
last couple of months, in most of our basic businesses, we have seen real strength, so the economy has
picked up I think a lot of strength in March and April. It won't be translated into huge changes in
unemployment soon, but the economy is starting to move.
BECKY QUICK: Where do you see it? Which businesses?
WARREN BUFFETT: Well, we see it particularly in our businesses that supply other businesses across the
spectrum. Now, IGCAR, we sell these small cutting tools that are used in big machine tools whether at
Boeing or General Motors or heavy industry all over the world. And we have seen a really huge pickup
in March, started in December. It was gradually improving just a little bit. And it really has taken off.
And we have a company that handles the distribution of electronic components down in Fort Worth. It
sells all over to everybody in sight. It has been booming. I mean it's huge. We're glad we've got
inventory because it's flying out the door. And that's going to thousands of customers all over. So there
has been a real change in the last few months.
BECKY QUICK: This is more than just rebuilding inventories?
WARREN BUFFETT: Yeah, it is more. We can't rebuild our own inventories because it's moving so fast.
No, it's much more. Nobody wants a big inventory of cutting tools or even electronic components
because they are putting them into products right now. They are manufacturing right now. So there's a
big pickup. I don't mean we're back to where we were three years ago or anything of the sort. But the
economy is moving. Incidentally, that's what I would have expected in this world.
The American economy is an amazing engine of growth over time. And we may try to mess it up
occasionally. And we go to excesses and we make mistakes and all of that. But if you look at the history
of the country, I mean this country works. It's a mistake to bet against it.
BECKY QUICK: Is this a sharp "V" snapback recovery?
WARREN BUFFETT: It's a pretty big snapback. "V" conveys you get back to the top quickly. But it's a
long way -- it's very different than some saucer-like thing that is very elongated. It's a real movement.
BECKY QUICK: Most of what you have mentioned, though, these businesses are industrial businesses.
Do you see it in your consumer lines as well?
WARREN BUFFETT: We see it to a degree in consumer lines. I mean at NetJets, our jewelry business and
all, those are coming back. People have regained confidence. They were paralyzed, you know, a little
over a year ago. And our customers flying on NetJets, they still own the planes, they were still paying
the monthly fee. They just weren't flying as much. They weren't buying jewelry.
All that, we're seeing a pickup in. It's not back to where it was, you know, two or three years ago, but
behavior has really changed.
BECKY QUICK: We talked to Mohamed El-Erian and you know him.
WARREN BUFFETT: Yeah, sure.
BECKY QUICK: He's got a theory that PIMCO has been focusing on about the new normal, about
consumers not going back to the same rate of spending. They have got a lot of debt they have taken on.
Their house prices have not come back. Is that a fair and valid assessment of the economy as well? And
how do you match that up with what you are talking about?
WARREN BUFFETT: Well, for years what you might call the normal was just leveraging up more and
more, so it was getting to higher layers. I don't think that's going to happen. But consumers, you know,
the ones that can handle like to spend. I mean we saw them this weekend at our furniture store, you
know. In a week, we sold $35 million worth of goods. That's a lot of goods to move in Omaha, Nebraska
in a week in a home furnishing store. We saw a lot of jewelry sales. The American public over time is
going to spend money. What we don't want them to do is keep leveraging up like they did and
everybody refy-ing houses and taking money out of their houses and using it to consume. I don't think
you need to worry about the American consumer over time.
BECKY QUICK: Not worry about them over time. But you just mentioned that you don't think the
unemployment picture is going to improve drastically any time soon.
WARREN BUFFETT: It takes a while. I mean we are net hiring people at Berkshire. Last year we were
letting people go every month. I don't know toward the end of the year exactly the figures. Now, we're
hiring people. But, you know, they talk about jobs. We have jobs when we have demand for our goods.
We're not going to hire somebody to stand around. So the best jobs program is demand. And demand
is coming back. And that means we hire people.
BECKY QUICK: Corporations were dealing with incredibly high productivity numbers where they were
squeezing more and more out of their employees. Do you think businesses across America are in a
position where they have to hire?
WARREN BUFFETT: Well, we have to hire sometimes. I mean when the Burlington is moving 173,000
carloads, they need more people than at 155. I hope it goes to 200,000 and we'll need a lot more. But
that's happening at some of our businesses. Not all of our businesses, but some of our businesses.
But the unemployment rate comes down slower than the rate at which business improves. So it's going
to take a while on that. And residential housing is still very poor. I mean our brick business, our
insulation business, those businesses have not taken off because, as I said in the end report, there's an
overhang of inventory in residential housing. I think that will be gone within a year.
BECKY QUICK: Senator Bond has a question as well. Senator.
SENATOR KIT BOND: Thank you, Becky. Mr. Buffett, you talked about we're doing well lest somebody
messes up. And you're right and I agree with you. There's basic strength in the economy. But I'm very
worried that the small businesses are not hiring and growing. They are worried about taxes going up.
They are worried about the interest rates. And I would appreciate your view on whether we are looking
at paying much higher interest rates on the debt we're running up. We just saw that advisers are saying
that governments that are running deficits are going to have to start paying higher interest rates.
When are the Chinese going to start demanding significantly higher interest rates on U.S. credit
spreading high interest rates throughout the economy?
WARREN BUFFETT: It's certainly hard to imagine deficits like we have been running or other countries
have been running being consistent with low interest rates over time. So, you know, if you could really
run deficits of 10 percent on GDP and not have anything bad happen, people would have figured that
out a long time ago. It's too much fun to do.
But there will be a price to be paid for the medicine that we used in order to break out of our panic
situation, the huge deficits. And, you know, our Congress, but governments around the world are going
to have to come to grips with how they bring down those deficits or people will get very afraid of
lending money. Who wants to lend money to somebody that is going to follow a long-term policy of
running deficits 10 percent? It's unsustainable over time.
And if you can borrow in your own money, what you have is you sowed the seeds of terrific inflation
down the road. And if you borrow in other currency, eventually people quit lending you money.
SENATOR KIT BOND: That message needs to go to the administration as well as Congress. I hope they
will listen to you.
BECKY QUICK: I believe Melissa has a question as well. Melissa.
MELISSA LEE: Yeah. Mr. Buffett, I wanted to get back to the issue of Lloyd Blankfein, if we can for just a
moment. I understand that you have confidence in him as a CEO. And he certainly has done a lot for
shareholders during the financial crisis. But is it possible at this point in time in Goldman's history when
it's soul-searching and trying to signal a culture change at the company that perhaps it would be best for
the company to have a new CEO?
WARREN BUFFETT: You know, he's going through a tough period. But incidentally, Goldman Sachs, as I
remember back around 1970, there was, you know, a big problem about Penn Central and the
commercial paper and there was another problem when Gus Levy was in charge then. John Weinberg
was in charge some years back when something connected with the Boesky Trading caused a problem
with Goldman Sachs.
I mean you run a business for 140 years, you're going to have problems from time to time. But listen,
I'm sure we've got problems at Berkshire. We have 260,000 people working for Berkshire. Can you
imagine that, you know, we can have a city of 260,000 people and nobody is doing anything wrong?
MELISSA LEE: Sure.

WARREN BUFFETT: All we hope is we find -- I think it would be a terrible mistake to do anything with
Lloyd.
MELISSA LEE: Well, it is interesting because he is the only financial company CEO to sort of have
survived the financial crisis. You had said earlier to Becky that if Lloyd came to you, you'd say absolutely
stay on. If Goldman's board came on and said we are thinking about replacing Lloyd, you would say no,
keep him?
WARREN BUFFETT: I would disagree with them.
MELISSA LEE: You would disagree with the board?
WARREN BUFFETT: I don't think Goldman's board has any notion of doing that. And, you know, when
we put $5 billion into Goldman in September of 2008, which was not the easiest time to invest in
anybody, we had been approached by the management of numerous other large financial institutions,
including large investment banks and we turned them down.
MELISSA LEE: Sure.
WARREN BUFFETT: So I felt the best about Goldman in terms of not only its business operation but in its
risk control.
MELISSA LEE: Some observers, Mr. Buffett, might compare this to your investment in Solomon in 1987
when you took a 12 percent stake. Is that fair? Because that certainly is going around the trading floors.
There are comparisons of Goldman's structure versus Solomon's structure during the crisis in 1991.
WARREN BUFFETT: Well, in the case of Solomon, there was no question when I got called back there in
August of 1991, there was no question something very wrong had been done, but it had been done by a
bond trader. And then the top management did not report promptly at all the transgressions of this
particular trader. And the real problem at Solomon was to essentially take away the stain that was on
8,000 people and place it properly on the stain of a bond trader that had broken a bunch of government
rules.
But we knew exactly what happened. We found out exactly what he had done. He clearly had broken
the rules. And we went down and presented all the evidence to the proper authorities. And we got rid
of the guy and he went to jail for a short period of time. That's a different case than this.
JOE KERNEN: Warren, the FT seems to think that Goldman at this point is making some moves to
overhaul some of its practices as a precursor to a possible settlement. Do you think the SEC would like
to settle? When you talk to Blankfein, has he asked you, do you think a settlement is the right move to
make? Do you think it is?
WARREN BUFFETT: Well, sometimes it gets into a business decision regardless of how you feel about
the merits of a case. But I have not talked to Lloyd about a settlement whatsoever. The SEC,
historically, I think they'd like to settle most things rather than try them. But generally, in the judicial
system, judges like you to settle rather than go to trial. So who knows how it will play out. But I do not
see anything in the Abacus transaction -- and I have looked at it. I do not see anything in the Abacus
transaction that would cause me to want to settle simply on the legal aspects of it. If it becomes a
business decision, that's something for the board of directors of Goldman Sachs to figure out.
BECKY QUICK: Warren, over the weekend, you said if you had to bet your life on either higher inflation
or lower inflation, you'd take higher inflation and potentially much higher.
WARREN BUFFETT: Yeah. We are following policies which will lead to inflation accelerating. There's no
question about that. The question is whether we will change those policies before, you know -- you lit
this fuse basically. And it's a long fuse. And you can change policies and, therefore, blow out this fuse
that's going toward the dynamite. But if you don't, the dynamite -- it will get to the dynamite
eventually. And countries that borrow larger and larger amounts of money in relation to their output, in
their own currency, pretty soon -- at some point decide they don't want to pay it back with currency at
the same purchasing powers. And the problem about inflation is it creates its own dynamic once it gets
going. And we had that in late 1970s and it took Paul Volcker and a meat axe to stop it. And he was
probably the most unpopular man in the United States for a period of time.
But we got to 15 percent or so interest rates for governments in a 21 percent prime rate. If Volcker
hadn't come along, who knows what would have happened. So you don't want to play around with
inflationary gain.
BECKY QUICK: But you were very much in support of the government taking the actions it did to stop
and stem the financial crisis when it occurred. What have they done that you think has been too much?
Or have they done anything?
WARREN BUFFETT: No, I think they went all in. And the American public needed to see they were going
to go all in. When the whole world wants to deleverage, the only party that can leverage is the
government. And the United States government did something perfectly proper. Whether they did it
perfectly, nobody knows. But what became clear in the fall of 2008 is that the chairman of the fed and
the secretary of the treasury and Sheila Bair at FDIC were willing to do extraordinary things to essentially
prevent a panic. And they were the only ones that could do it. And I cheer them mightily for that. That
was the medicine applied to a cardiac. And now we have to deal with the aftereffects of the medicine.
We had unprecedented amounts of medicine so we may have unprecedented difficulties in weaning us
away from the problems that result from that medicine.
BECKY QUICK: Jim Owens is the CEO of caterpillar. He has an Op Ed in today's "Wall Street Journal"
where he lays out some of the things he thinks should happen to make sure America gets back on the
right path. One of those is making sure we have a very strong and independent Federal Reserve.
Another is that American companies should only be paying taxes on their American profits that they are
kicking out. And that that would mean companies that have international operations could bring more
back to the United States. Do you think that that is a good theory?
WARREN BUFFETT: Well, the second part of it, if you are talking about reducing taxes on corporations,
which is what that is, you know, we have a huge gap between taxes and expenditures. And somehow
that has to be narrowed. And it probably won't be narrowed by tax cuts. So I respect him enormously.
And I know what he's talking about. But in the end, we are taxing 15 percent, not much more than 15
percent at GDP and we're spending 25 percent of GDP. That is not sustainable.
And the idea of cutting taxes on anyone or any entities from this level, you know, I mean I think that
would be sending the wrong message about what we regard as the sanctity of our currency over time. If
I were a bondholder in the United States and I saw that we were widening the gap by cutting taxes, that
would bother me a great deal.
BECKY QUICK: If you -- I would say most people in this country realize taxes are going higher. But the
debate is how much higher and who exactly is paying their share of the taxes.
WARREN BUFFETT: True.
BECKY QUICK: Is there a point where you get worried if taxes are raised to a certain level, whether that
be against American corporations, whether that be taxes that are levied against the wealthiest
Americans? Is there a point where you think there's a tipping point?
WARREN BUFFETT: Well, we have to eventually get the gap between expenditures and receipts down to
maybe 2 percent of GDP. We can handle 2 percent of GDP and growth takes care of that over time, or 3
percent perhaps. But you can't have 10 or 12 percent.
And taxes, you know, everybody is going to scream. And if you cut expenditures, everybody is going to
scream. And the question is whether Congress will have the will to do what needs to be done. And it
won't be easy. I mean, you know, Russell Long said it, you know. Don't tax you, don't tax me, tax that
fellow behind the tree. And that's the way we all feel.
But over time, we have been pretty responsible in this country. Since World War II, we came out with
120 percent debt to GDP. And we have brought that down into the 30s. I mean we were willing to keep
our expenditures under control and tax. And we did exactly what is proper in the last two years, year
and a half. We had to stem the panic. We had to restart the engine of America and we did. And now
we've got to figure out what we do next.
BECKY QUICK: You mentioned two things, though. Also bringing down expenditures. And since that
time, there have been a lot of new proposals that have either been put on the table or have actually
passed and been put into action. Are those new expenditures going to get in the way of being fiscally
responsible?
WARREN BUFFETT: Sure. You know, I mean it's easy to promise. And you can promise away the entire
GDP, you know. But your promises don't grow more corn or turn out more automobiles. In the end,
somehow like a family, like any kind of organization, you have to figure out a way so that your
expenditures are in reasonable balance with your income.
And like I say, you can run a couple percent of GDP. But we have gone through a war of sorts, just like
when we went through World War II. We ran up the debt enormously in World War II. Enormously.
But we then followed the proper procedures after World War II to get it back in line with where it
should be. We have to do the same thing after this economic war.
BECKY QUICK: Do you think we're on the right track?
WARREN BUFFETT: Well, I think it's just now is about the time to get started. I'd probably let the
recovery go a little further. I'd want to be sure that we were gaining strength. And I would want the
American public to feel we were gaining strength. I mean you need that to get the popular will. But it's
something that has to be addressed soon.
BECKY QUICK: We are watching what happens when it's not addressed play out right now in Greece.
There was an agreement over the weekend that the IMF and the EU will be stepping in to make those
loans. It will come with some very strict austerity measures from the Greeks. But there are people
today saying it still won't matter, it still won't be enough. The contagion will continue to spread and at
the end of the day, this is just a Band-Aid on a problem that will continue to fester. What do you think?
WARREN BUFFETT: It's hard to tell. You have this unusual situation in the European Union where
individual countries are sovereign in determining their budgets. They may get pressured by others, but
they are sovereign in terms of their budgets but they can't print their own currency. We can print our
own currency. We can always pay our debts in the United States as long as we borrow in dollars. We
just keep printing more dollars. The Greeks can't do that or other members because they are tied to the
euro, but they determine their own budget. It's going to be very interesting to see how this plays out
because, you know, if you can sort of behave irresponsibly as one member and expect the other
members to bail you out, that's an inducement, real inducement for everybody not to behave so well.
So I don't know how it's going to come out in Europe.
BECKY QUICK: What about Portugal and Spain and even potentially Italy?
WARREN BUFFETT: Well, I don't know the countries involved. But you can say every member -- once
one member sort of gets away with misbehaving to some degree in terms of their own budget and
others bail them out, you know, that is the ultimate in moral hazard. That's what we talk about all the
time in this country. And it's happening on a big scale in Europe. I don't know what will happen there.
It's going to be an interesting movie to watch, but I don't know the ending.
BECKY QUICK: You have made bets on currencies in the past. How confident and comfortable would
you feel with making a bet on the euro?
WARREN BUFFETT: I don't feel confident now in making a bet on any currency versus another, in other
words, the euro, the pound, the yen, the dollar. I think all currencies are likely to lose value in terms of
purchasing value. And if you are betting on one versus the other, you essentially are trying to guess
which one will depreciate in value the most. But I don't like betting on the future purchasing power of
any currency.
BECKY QUICK: You don't like betting on the future purchasing power of any currency. But would you
say that the IMF and the EU have dealt with this properly to this point to try and jump in?
WARREN BUFFETT: I don't know how it's going to play out. They have to do something. And what they
have to avoid is contagion and moral hazard. And who knows what's going on in the mind of bond
investors all over the world. As we said here, when they see a situation where the credit defaults went
to where they were went in Greece and all that, you know, predicting economic behavior gets very
tough when you get into sort of uncharted territory like this. And like I say, I don't know the answer, so,
therefore, I'm not making any bets.
BECKY QUICK: Warren, I'd like to play some sound from Charlie Munger. We spoke with him over the
weekend. Charlie has a way of putting things.
WARREN BUFFETT: He does.
BECKY QUICK: To drive home points quite well. He talked a little bit about envy. He was talking about
where the Street is headed, what can be done to try and bring the Street back into line. And I believe his
comment -- again, I'm not sure if we have this right now in the control room. But this comment on envy
that he had is one -- I'll read it to you if we can't find it. He said -- you have it right now? Let's play that
soundbyte from Charlie Munger. And, Warren, you can listen in and see what he said.
CHARLIE MUNGER: Envy is a much more serious mischief-maker than greed.
BECKY QUICK: How so?
CHARLIE MUNGER: There's something in human nature that just can't stand even if you are making $5
million a year, that dumb bastard down the street is making 7.
BECKY QUICK: So those were his comments. He thinks envy is the biggest problem, not greed.
WARREN BUFFETT: Yeah. We saw a lot of that at Solomon. I mean you'd say how could a guy that's
making 3 or $4 million a year be unhappy? And he's not unhappy until he finds the guy next to him who
he thinks he's smarter than making a few dollars more. And as I always said, envy seems to me the
silliest of the seven deadly sins. The other guy doesn't feel it. You just feel worse. You are sitting there
with your stomach churning because you are envious. It doesn't make a lot sense.
I have always said, you know, if you are going to pick some sins from the seven deadly sins, go with
gluttony and lust and you can have a hell of a weekend.
BECKY QUICK: But is there any way to legislate or regulate human emotions like that?
WARREN BUFFETT: No.
BECKY QUICK: Is there anything Washington can do?

WARREN BUFFETT: No, you can't do much. I tried on envy, various ways on compensation at Solomon.
And I'm a failure at controlling envy. And you have to decide and you have to devise incentive systems
for everybody that you work with.
And incidentally, that's one of the objections I have to the new bill on derivatives. I think it's a good
thing overall, but I think that unless you change the incentives for the CEO and the directors of really
large financial institutions, they have got all the upside and they don't have downside.
What director of any one of a half a dozen institutions we could name that have cost shareholders
hundreds and hundreds and hundreds of billions of dollars who is really suffering financially? They may
suffer in terms of losing prestige, but they are go away rich. The directors are still getting 200 or
$300,000 a year. The CEO's still have their multiple houses and everything.
I would have something there if you run a large financial institution and you end up having to get saved
by the U.S. Government, that you and your spouse are broke and that the directors pay a significant
price themselves, not that drastic. And then you will change human behavior that way. You can change
behavior by incentives, but you can't usually change behavior by sermons, although people try every
Sunday.
BECKY QUICK: Do you have directors and officers insurance at Berkshire Hathaway?
WARREN BUFFETT: No. If Berkshire goes down, everybody goes down, and they should.
BECKY QUICK: Warren, just a final thought. Again, Goldman has been the biggest headline over the last
several weeks. Where do you think we head next? What happens next at Goldman?
WARREN BUFFETT: Well, it's conceivable there's some settlement. There always is when two parties
disagree on something like this. Otherwise, it plays out over a long period of time probably. You know,
our Solomon -- Solomon took us nine months and four days. Nine months and four days. It felt like nine
months and four days. Every day was painful. But it does play out over time.
BECKY QUICK: It does play out over time. Okay. Another question. One thing to take a look at is your
thoughts on Moody's and the ratings agencies. You defended the ratings agencies or at least their
business model over the weekend. Is this --
WARREN BUFFETT: Well, I said they have got a great business model. I mean they charge us a lot of
money, and I can't negotiate it downward. I mean I can't say if Moody’s and Standard & Poor's want to
rate Berkshire or I need their rating, I can't go to them and say: How about doing it for 10 percent less
or I'll go to XYZ? They have got me. So they have pricing strength. And it's a business that requires no
capital whatsoever. So here is a business with zero capital in it that has great pricing power. That
doesn't mean I defend all their actions or anything, but it does mean that they have a terrific business
unless it, you know, gets changed in some way by legislation.
I think they made the same mistakes that everybody else made. I think they had a model in their mind
and actually a model on paper that said residential real estate can't fall off a cliff. And once they have
the wrong model, they have got the wrong answer. But they were no smarter and probably no more
stupid than most of the American public. And people may feel that they should have been smarter. I
mean that was their business.
BECKY QUICK: All right. Well, warren, we want to thank you very much for joining us today. We
appreciate your time. And, Joe, we'll send it back to you in the studio.
JOE KERNEN: Very good. Thank you, Becky. All right, Senator. You have heard Mr. Buffett talk a lot
about what we need to do. Any final, closing comment?
SENATOR KIT BOND: Lots of good thoughts he had. But when he talks about us spending 25 percent of
GDP, we used to spend 18 to 20 percent. We need to cut that spending and it needs to start with the
Administration and Congress.
And frankly, when he talks about taxing overseas, we're the only country that does that. We don't -- we
haven't taken any steps to open up free trade with Korea, Colombia or our Asian partners. We need to
do that. We can't tax exports. We can't tax foreign investment. That's where we are falling short.
And raising taxes or keeping taxes high will stifle the job-creating engine which is small business. I think
we showed that after 2003. We need a dose of that now. I'd like to engage Mr. Buffett in a discussion
about that sometime in the future.
JOE KERNEN: It was great having you today, Senator.

CNBC Interview September 22, 2010
rbcpa.com/warren-e-buffett/cnbc-interview-september-22-2010/
September 23, 2010

http://www.cnbc.com
This is a transcript of Warren Buffett’s complete interview with CNBC’s Becky Quick on
Wednesday, September 22, 2010.
Buffett was in New York for a Goldman Sachs event celebrating the first graduates
from the firm’s “10,000 Small Businesses” initiative.
BECKY QUICK: Warren, thank you for joining us today.
WARREN BUFFETT: My pleasure.
BECKY: This is– the event the 10,000 Small Businesses– it’s– been hosted by Goldman Sachs.
You’re one of the co-chairs of that. But– you can talk about small business all day long. What
is this really about?
BUFFETT: Well, this is really about giving these– in this case, 23 students– sort of a crash
course in a lot of subjects they– that– are gonna be useful to them in running their small
businesses. Now, these people are already successful. I mean, they– they– during the time to
the course– a number of them added employees. And so, we’re not talking about hotdog
stands here. We’re talking about– about real businesses.
But they learn things like negotiations. How many– how many people have had a chance
really– if you had a parent that could teach you something, that would be one thing. But– but
it’s important. And I had two of ‘em– told me earlier, one of ‘em negotiated down her lease,
another one’s negotiating up her franchise payment. I mean, it– it– it’s– they’re learning
important skills. But they’ve got the motivation to do it, too. These people are self-starters.
BECKY: Why– why did you get involved with this program?
BUFFETT: Well, I just think it’s terrific. I mean, the idea– you know, I had all kinds of lucky
things going for me. And my people– that taught me a lot of stuff when I was eight or ten
years old– been useful subsequently. And– and some of these people have had some of that.
But– but there’s nothing like combining education, in this case, they get mentoring, and then
they get financing. So, that’s– that’s– a big push towards success.
BECKY: What’s the state of small business right now? We hear an awful lot– from some
arenas that small businesses are having trouble getting credit. We hear in other places, that’s
not the case.
BUFFETT: Yeah.
BECKY: What do you think’s happening?
1/5
BUFFETT: Well, my experience is that they– they– they really– the business has reasonable
equity, reasonable prospects. Now, you– if you want to start a business and have no equity,
you can try and borrow the whole thing, you– you shouldn’t get the money. I mean, it– it– so,
a lot of dumb loans were made three, four, and five years ago. And not only in real estate,
but– but in– commercial businesses.
But the– the banks I know are dying to get the money out. Right now, there’s over a trillion
dollars of the banks, and they only have deposits of $7 or $8 trillion, there’s over a trillion
dollars on deposit with the Federal Reserve, earning a quarter of one percent. You go broke
with a bank earning a quarter of one percent on your money, even if it doesn’t cost you
anything. Your operating expenses will eat up. So, you want to get it out in loans. And– there
is– there is– there is money available.
BECKY: So– how are small businesses faring right now, if you had to– look overall? Obviously,
everyone’s in a different position. But overall, how do you think they’re doing?
BUFFETT: I think they’re doing about like the economy is. That they– they’ve been through– a
terrible period. And I know some in Omaha, and Omaha hasn’t been as hard hit as many
others, but all businesses went through a terrible period. And– and basically, the
government did the right thing in– in terms of– of getting the economy going again. It can’t
do it overnight or anything of the sort. I think most small businesses have come back
somewhat. But they’ve– they– they’re nowhere near their peaks.
BECKY: The NBER said this week that the– recession officially ended back in June of last year.
BUFFETT: Well, they define it differently. (Laughs.) But I– I mean, I– I define it– I think we’re in
a recession until real per capita GDP gets back up to where it was– before. That is not the
way the National Bureau of Economic Research measures it. But I will tell you that to any– on
any common sense definition, the average American is below where he was before, or his
family, in terms of real income, GDP. We’re still in a recession. And– and we’re not gonna be
out of it for awhile, but we will get out of it.
BECKY: We’re not gonna be out of it for awhile meaning, you can see what? A quarter, two
quarters, a year down the road? Just from your businesses are telling you?
BUFFETT: Our businesses are coming back– on average, we’ve got 70-some businesses. But
most of them– the great majority are coming back slowly. If you take our railroad business
(Burlington Northern Santa Fe), and our railroad business is typical of the other railroads in
the company. If you take the peak period for shipments and then you go all the way down to
the bottom, we’re 61 percent of the way back up. That’s better, I think, than most businesses
are in the country. I don’t think most businesses are 61 percent– our– our carpet business,
our brick business, our insulation business, they’re not back 61 percent, but they are moving
back.
BECKY: What about– from an employment perspective. We still have nine and a half percent
unemployment in the country. What– what are your businesses doing right now in terms of
hiring?
2/5
BUFFETT: Adding– very few people. But the– the– the railroad will have added a fair number
of people, because if you’ve come back 61 percent, you’ve come back a fair amount
unemployment. But if you take our carpet business, it fell from 13 million yards a week, we’ll
say, to seven million yards a week. And with that cost 6,500 jobs. We’re back up to maybe
nine million yards a week. But we haven’t had to add yet. If we get to ten million, we’ll start
adding people. But it– it’s lagging and it’ll continue to lag.
BECKY: The Fed’s Federal Open Market Committee also met this week and came out with a
statement that has many looking at it saying the Fed is now poised to go ahead with QE2,
quantitative easing, if– the economy doesn’t improve, at this point. Is that your
understanding of that? And you think that’s the right call?
BUFFETT: We’ve got three tools really in fighting a recession. And the ones you read about
are monetary policy, which is the Fed. And, of course, fiscal policy. I think the most important
factor in getting out of the recession actually is just the regenerative capacity of– of American
capitalism. And we had many recessions in the history of this country when nobody even
heard of fiscal policy or monetary policy. The country always comes back.
There are 309 million people out there that are trying to improve their lot in life. And we’ve
got a system that allows them to do it. It doesn’t allow things to get changed overnight,
though. And– and– it’s– it’s important to have the right monetary policy. It’s important for– to
have the right fiscal policy. But it’s nowhere near as important as just the normal
regenerative capacity of American capitalism.
BECKY: It sounds like you’re– asking for patience. That that’s what it takes to get through this.
BUFFETT: Well, unfortunately, I just– I don’t know how to do it. I mean, if– if it was a question
of, you know, I think the Fed is paying those banks a quarter of a percent now. I thought
maybe– maybe they ought to charge them a quarter of a percent to leave their money on
deposit and that would really push it out. (Laughter.) But– but I mean, we’ve used up a lot of
bullets. And we talk about stimulus. But the truth is, we’re running a– federal deficit that’s
nine percent of GDP. That is stimulative as all get out. I mean, that is more stimulative than
any policy we’ve followed since World War II.
And, of course, World War II, we had a huge stimulus and it– it took us out of– a depression.
But we are– it doesn’t depend on calling it the ‘Stimulus Bill’ to be stimulating. I mean, if– if– if
the government is spending $3 for every $2 it takes in, that is– that is fiscal stimulus. And it
isn’t kick-starting things as much as the American public would like. I’m sure as much as the
Administration or Congress would like. It’s probably had some effect, probably less than the
economists thought it would have going into this.
What will take us out of this is people like these 23 people that– that we gave a diploma to
today. And big business. I mean, everybody glorifies small business. God bless ’em, you
know? And– and I’m not supposed to talk about mother on Father’s Day. But– but I would say
that– that– remember, the jobs that– medium-sized businesses, large businesses, giant
businesses, they’re all important.
3/5
BECKY: For all of those businesses to be hiring, has Washington done enough at this point?
Would you like to see more done? It sounds like from a stimulus perspective, you’ve seen
enough. Maybe from the Fed’s perspective, you’ve seen enough. Is there anything you’d like
to see different in tax structure?
BUFFETT: Well, I– I think for one reason or another, and everybody has their own
explanation, sentiment has turned very sour in the last three or four or five months. It’s been
generally sour on Congress and Washington, but it seems to have taken a turn for the worse.
I — I hope we get over it pretty soon, because it’s — it’s not productive. We will come back
regardless of how people feel about Washington. But– but it’s not helpful to– to have
people– as unhappy as they are about what’s– what’s going on in Washington. And– I’m– I’m
not sure exactly what’s gonna get us out of that, but we’ll get out of it.
BECKY: Larry Summers announcing this week that he’ll be leaving the White House. He is the
third of the four key economic advisors for Obama’s White House. What do you think about
his departure? And where do you think they should be looking for his successor? Would it be
someone who’s a CEO? Would it be an economist?
BUFFETT: It would be– it would be nice if he– if you could find somebody that the American
people, and American business, felt good about. On the other hand, you can’t have
somebody that goes off– totally off the reservation, if you put ’em in there. I mean, you
know, (former General Electric Chairman) Jack Welsh might be a wonderful guy, but I think–
you’d be a little nervous if you were the administration and you put him in that position. But–
you need somebody that– of that stature going in. And I don’t think it’s– I don’t think it’s that
important whether they’re a trained economist or not. But no, they may disagree with me on
that.
BECKY: So, you would like to see someone with a business background, who’s been a leader
in business?
BUFFETT: Yeah. And who has the respect, not only of business, but the American people
generally. I think that– I just think it’s important that– that people feel better about their
government and they’ve got to be given some reason to feel better about their government.
BECKY: Any–
BUFFETT: You know, people talk about this being an uncertain time. You know, all time is
uncertain. I mean, it was uncertain back in– in 2007, we just didn’t know it was uncertain. It
was– uncertain on September 10th, 2001. It was uncertain on October 18th, 1987, you just
didn’t know it. We always live in an uncertain world. What is certain is that the United States
will go forward over time.
BECKY: Tax policy has been another huge topic– as the tax cuts– are due to expire….
BUFFETT: Right.
4/5
BECKY: … if they’re not renewed. The President has put forth his– his position. Which is that–
they should be extended only for the middle class and not for the upper three percent. Peter
Orszag, his outgoing budget director, said that he’d like to see that, too. But if it’s not
politically feasible, he’d rather see tax cuts passed for everyone– than for no one. What do
you think?
BUFFETT: Well, I don’t think they’ll end up being passed for no one. So, I– I think that– but
Peter did put the argument that way. He– he didn’t say this is the most desirable policy, he
just said this is the most politically feasible policy. But– the– way the tax system has gotten
tilted toward guys like me over the last 20 years is– as opposed to the middle class, you
know, in my view, is a little obscene. So, I– I think– I’m not saying $250,000 necessarily. But–
but– at the– at the high end– and– and the people who are getting their huge incomes
through capital gains and– I just– I just think that– when a country needs more income and
we do, we’re only taking in 15 percent of GDP, I mean, that– that– when a country needs
more income, they should get it from the people that have it.
BECKY: You think it’s okay to raise taxes at a time when the economy’s uncertain?
BUFFETT: I think– sure. On some people. Yeah. I– I don’t want to raise ’em on 90– you know,
98 percent of the people, but– but– no, I think the inequities that have gone into the tax code
in the last 20 or 30 years compared to the situation that existed when this country was very
prosperous in 1960, 1970, 1980 and so on, I– I think it’s– I just think it’s been tilted toward the
rich.
BECKY: You said that you think it is politically feasible to get something passed, but if the
President– President has to compromise to get something through, do you think he should?
BUFFETT: In the end, he has to do something. I mean– that– the laws expire by– by their
nature. No, I– but– I– I play pretty tough if I was him — (LAUGHS)
BECKY: Warren, I want to thank you for your time.
BUFFETT: Thanks. Thanks for inviting me.
BECKY: Thanks.
5/5
CNBC Transcript: Warren Buffett on Russian Roulette, Tax Breaks for
Corporate Jets, and America's Bright Future
CNBC Transcript: Warren Buffett on Russian Roulette, Tax Breaks for Corporate Jets, and America's Bright Future Alex Crippen |
@alexcrippen Published 1:07 PM ET Thu, 7 July 2011 Updated 3:21 PM ET Thu, 7 July 2011 CNBC.com
July 7, 2011
CNBC
CNBC's Becky Quick with Warren Buffett
This is a transcript of Warren Buffett's live interview with Becky Quick on CNBC's Squawk Box,
Thursday, July 7, 2011.
The transcript is also available here for downloadas a PDF.
CARL QUINTANILLA: We want to go live to Becky in Sun Valley, Idaho, who joins us this morning
with a very special guest. Becky, still dark there? Good morning to you. —
BECKY QUICK: Good morning, Carl. Good morning, Joe. It's great to see you guys and we do
have a very special guest who's joining us this morning. Warren Buffett, who's the chairman and
CEO of Berkshire Hathaway has climbed up the mountain to join us this morning and talk a little
bit about a lot of the issues that we've been discussing for weeks, if not months at this point. In
fact, we were just listening in to what some of what Eric Cantor had to say.
And Warren, probably the best place to start this conversation is what's happening in
Washington right now. These discussions over the debt ceiling seem to be front and center, not
only for Washington, but for Wall Street as well. How big of an issue is this and how dangerous
is it— how dangerous is it really if they don't raise the debt ceiling?
1/29
Buffett: No Russian Roulette With Debt Ceiling 7:51 AM ET Thu, 7 July 2011
WARREN BUFFETT (Berkshire Hathaway Chairman & CEO): Well, we don't know exactly
what'll happen. I mean, but if you gave me a six shooter and stuck a gun in— a bullet in one
chamber and said spin it and five times out of six nothing bad's going to happen, but we haven't
done this before, so we're not sure what's going to happen if the sixth one's pulled. It's just silly
to do and we raised the debt ceiling seven times during the Bush administration and now in this
administration, they're using it as a hostage and you really don't have any business by playing
Russian roulette to get your way in some other matter. We should be more grown up than that.
BECKY: Although the argument is at this point we're at a very different level. We are facing some
massive deficits. We've taken off on some spending in incredibly high amounts over the last
couple of years. And if you can take a phrase from Rahm Emanuel, why put a crisis— why waste
a good crisis if you can actually get something done that could be, in the longer term, good for
the economy?
BUFFETT: Well, whether it would be good for the economy to have— to have policy...
BECKY: Or the nation, I should say.
BUFFETT: ...under conditions like this is another question. I mean, when you have somebody
with a gun to your head, you know, do you really come out with the greatest— the most
properly reasoned solution to something? And we had— we had— we had debt at 120 percent
of GDP, far higher than this after World War II and no one went around threatening we're going
to ruin the credit of the United States or something in order to get a better balance of debt to
GDP. We just went about our business and people did it in a cooperative way, but they didn't do
it by sticking guns at each other's heads.
BECKY: What do you think would happen if we get past this August 2nd deadline or a date when
the Treasury really has run out of money? What happens?
BUFFETT: Yeah. And Becky, nobody knows.
BECKY: Yeah.
BUFFETT: I mean, the odds are very good that people would assume we get things straightened
out within a few days and that nothing dramatic would happen. On the other hand, you're
playing with fire when you don't need to play with fire. And we don't need to tell the rest of the
world that any time people in Congress start throwing a tantrum that we're not going to pay our
bills. But we're going to pay our bills in the end. Now you've got two ways of paying your bills.
You can pay your bills on time and not make a big fuss of it, and you'll have the world regard
you on way. And you can pay your bills only at the threat of a gun and the world is going to
regard you differently. So it is not— it is not a great pattern to project to the rest of the world.
BECKY: Republicans have argued, a great number of them have argued, that even if we get to
2/29
that point, the Treasury could decide which bills to pay and which not to pay, that they could go
ahead and pay off those who own Treasuries, pay off the bond holders, and find cuts in the
government to make sure that they're still, technically, not in default. Is that a proper solution?
BUFFETT: Well, if they don't get an increase in the authorization, they're going to have to spend
$4 billion a day less than is coming in. Now who makes that decision as to what 4 billion doesn't
get paid, but I will tell you when you don't spend $4 billion a day that you promised to pay, it'll
be noticeable. And you'll have— you'll have enormous disruption. I mean, you can pay the
interest on the debt and not pay Social Security. You could pay Social Security and not pay the
interest on the debt. There's a lot of options, but you are in this country spending about 3.7
trillion a year and you're raising about 2.3 trillion a year and there is no magic that keeps a lot of
people from looking for checks in the mail the next day when you've— when you face up to that
and can't borrow.
BECKY: I saw something like three million checks go out every day from the US government.
BUFFETT: Yeah.
BECKY: And that even trying to stop the— they'd have to rewrite all the computer code to try to
come up with a way to not send out that much money every day.
BUFFETT: Yeah. Well, I hope that they decide to cut Social Security, they pay it alphabetically.
BECKY: Well, there are a lot of people who say that's the problem, though. Why is Social Security
not means tested? Why is Medicare not means tested? Why aren't we doing something to solve
some of these long-term problems at this point?
BUFFETT: And that's a real question and the question is whether you're better off making
decisions on those things at the point of a gun or whether there's enough maturity in a
Congress that they face this, just like they faced 120 percent debt of GDP back after World War
II. You know, we've got...
BECKY: But these problems— these problems aren't new. These problems aren't problems that
have built up over decades and there hasn't been a Congress that's been mature enough or a
president that's been mature enough to take this head on.
BUFFETT: I can— I can— I can end the deficit in five minutes.
BECKY: How?
BUFFETT: You just pass a law that says that any time there's a deficit of more than 3 percent of
GDP, all sitting members of Congress are ineligible for re-election. Yeah. Yeah. Now you've got
the incentives in the right place, right? So it's capable of being done. And they're trying to use
the incentive now we're going to blow your brains out, America, you know, in terms of your— of
your— in terms of your debt worthiness over time, and that's being used as a threat. A more
3/29
effective threat would be just to say if you guys can't get it done, we'll get some other guys to get
it down. And incidentally, we had— we had Simpson-Bowles, you know, almost eight or 10
months ago.
BECKY: Right.
BUFFETT: It's a perfectly rational start and you had 11 out of 18 sign onto it and then this
Congress that seems so concerned about things now, totally ignored that situation, you know.
BECKY: All this people will say it was the president's commission and he ignored it, too, and he
went with a plan that handed more money to constituencies to make everybody happy.
BUFFETT: Well, there's plenty of blame to go around.
BECKY: Is there anything that corporate America can do or should be doing to help out?
BUFFETT: Well, I think that corporate American probably should convey the same message I'm
conveying, that shame on all of you. I mean, I'm not talking about Republicans or Democrats,
that the idea that the credit worthiness of the United States, sure, we'd pay the bills later on and
everything. But somebody that's disrupted payment has a different payment history than
somebody that's always paid on time. And you know, if you have a habit of paying all your bills
late, you know, that will have an effect on how people regard you in the credit market later on.
So...
BECKY: Even if it's not— even if it's not the bond holders who are getting the short end of the
stick, even if it's other areas of government, whether it be veterans or Social Security?
BUFFETT: I think if you have it— if you're the secretary of the Treasury and you have a choice
the day after August 2nd of shorting somebody 4 billion each day and one of the choices is to
not send out Social Security checks and the other checks, the other choice is not to make a big
payment to the Federal Reserve, which owns a whole bunch of bonds, I think the checks will go
to the Social Security people. That's who I would send them to.
BECKY: Why?
BUFFETT: Oh, because I would just figure that those people are more vulnerable than the— if
the Federal Reserve, which owns 2 1/2 trillion of federal obligations now does not get a check
tomorrow, they can handle it.
BECKY: Mm-hmm.
BUFFETT: They just print more money. But if people all over the country, they spend their Social
Security check sometimes, you know, within hours of when they get it. And they're living hand to
mouth, don't get it, there's no question in my mind who I'd send the checks to.
4/29
BECKY: Although isn't that part of the catastrophic concerns that if you miss a payment to the
bond holders, to the Treasury, that you automatically trigger a downgrade? And that's the
unknown. If the United States is no longer at a AAA, no argument that Social Security...
BUFFETT: No.
BECKY: The retirees who are waiting on their checks who need this money need this money. But
if you trigger a downgrade, that that has all kinds of unforeseen consequences, that that's the
big concern?
BUFFETT: That has implications, but I would say if you don't send out Social Security checks, I
would— I would hate to think about the credit meeting at S&P and Moody's the next morning.
BECKY: Right.
BUFFETT: You are not AAA— if you're not paying millions and millions and millions of people
that range in age from 65 on up, money you promised them, you are not a AAA.
DEFENDING TAX BREAKS FOR CORP JETS

PART TWO - DEFENDING TAX BREAKS FOR CORPORATE JETS
BECKY: You mentioned something at a dinner the other night that you could see if there was
almost a deal in place as you get up to August 2nd. What could you do?
BUFFETT: Well, you could have corporations like Berkshire Hathaway voluntarily prepay some of
the corporate tax they're going to owe in a few months anyway and if you really knew that was
the case, that you just had a one-day gap or a two-day gap, you'd have to be fairly sure of it. I
mean, we're going to be paying a lot of taxes, I think, on September 15th and January 15th or
December 15th. And individuals are, too, but that's— that'd be too hard to organize. But it would
now be— I don't think there'd be a problem in getting a number of corporations to prepay a
couple of their quarterly payments if they— if they tell they're doing something patriotic and
they really felt that the crisis would be over in a few days, that would be something that would
be sensible to do.
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Buffett: Battle Over Debt Ceiling is Silly 8:10 AM ET Thu, 7 July 2011
BECKY: You'd do that, though?
BUFFETT: Yeah. Berkshire Hathaway would do it and I'd make a few phone calls.
BECKY: To?
BUFFETT: It wouldn't be to you. Don't worry.
BECKY: But that— I mean, what kind of money are we talking? What did Berkshire Hathaway
pay in taxes last year?
BUFFETT: Well, oh, we perhaps paid $3 billion last year or something like that. But you could do
it for a few days. But it would be kind of crazy. On the other hand, it might— it might actually—
I'm not suggesting this at all, but it might actually be— have a positive implication for, you know,
how corporate America felt about the credit of the United States.
BECKY: Right. There had been some talk last night from Senator Kyl's office, was the word, and
from Eric Cantor's office again that the Republicans were potentially looking at the idea of some
revenue raisers coming into this equation. At this point, it's been the Republicans saying
absolutely no taxes, it's been the Democrats saying no way we're looking at the long-term
problems of Medicare and dealing with it at this point. What do you think the most reasonable
solution is?
BUFFETT: Well, the most reasonable solution, you have to start with one factor, though. What
we have now, we are deficit running 10 percent of GDP. We have an enormous stimulus plan
going on. We don't call it stimulus but this is Keynesian stimulus by any definition.
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BECKY: Yeah.
BUFFETT: So we are talking about cutting stimulus. That may be quite appropriate in— where
this recovery is now but you should realize we're cutting a stimulus plan, not the one that was
enacted back then. But we're cutting stimulus when we close the gap, and I think that's due now.
But it's— but it is something to consider. But the— in the end it's going to take— it's going to
take activity on both sides. There is plenty of room on the— on the revenue side with wealthy
people like me. We've never had it so good. I mean, our tax rates have never been lower than
this, and we've had it for 10 years, and it's shown in the great disparity of wealth that's occurred
in the last decade or so. So that doesn't solve the problem, but it does raise revenue. People
say, well, that won't solve it if you just tax the rich. Of course it won't solve it. But nothing by
itself is going to solve it. It's going to take a number of steps. And it's going to take steps in terms
of changing the terms of Social Security over time and means testing it and doing various things.
It's going to require— the biggest thing it's going to require is an attack on medical costs. Not on
Medicare. I mean, Medicare is part of it. But we have a system that's taking 2.7 trillion out of the
economy, and the very nature of medical costs is the government's going to participate one way
or another in a big way. So if our medical costs are 17 percent of GDP, and other countries are
10 percent, that is the biggest problem we have.
BECKY: Warren, when you say tax on the rich, I mean, that's the argument, too. Who's rich? Is it
$250,000, as the Obama...
BUFFETT: No, 250— 250,000 isn't rich. But I'm rich.
BECKY: So where do you draw the line? Where would you draw the line?
BUFFETT: Oh, I would— well, you certainly change it on capital gains and dividends. I mean, if
you take the 400 richest Americans and the 400 people who paid the greatest income tax— the
Treasury's been putting those figures out for 15 years or so. If you go back 15 years, the average
income of the 400 top people— the 400 top people's around 45 million. They paid about 27
percent. Now it grew, the most recent figures, to 350 million. That is incredible. And that's
nothing like's happened to the rest of the world. The tax then was 16.6. So while they've gotten
ungodly richer, the rate has come down 11 points. Now, that is a big tilt in the world. And I
would go after the very rich.
BECKY: All right. Joe and Carl I think are back in studio, and Joe has a question too.
JOE: Yeah, it's interesting, Warren, yeah, and you're talking capital gains and dividends. That is a
— that's an interesting notion.
I want to go back to when you were talking about corporate taxes and Berkshire, and it made
me think, you've got so many different businesses at Berkshire, and there must be so many of
the loopholes that either insurance or depreciation for a lot of the companies that you own. I'm
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wondering if you would be all right, and whether you think it's a good idea to get rid of all
loopholes and go to 25 percent. Is that what we should do?
BUFFETT: Well, we certainly should do something that brings the tax rate of the big corporations
in America to a— to more of a parity. Now, you know, we pay a fairly high rate compared to
most corporations, higher than most. Wal-Mart pays a higher rate than Berkshire does. You
know, we pay a higher rate than a good many other companies do, some of whom we own stock
in. But the— if you look at what Berkshire gets a benefit from, currently you have— in the
current year you have 100 percent depreciation being allowed on capital investment, and that
reduces our tax bill in this year quite substantially. Now, we don't have the depreciation in
future years. It doesn't change the eventual tax we pay on the— on those assets, but it does— it
— or on income that— where we would get depreciation to offset income. It doesn't change that
over time, but it does give it to us all up front, which makes a real difference because money—
there's a time value to money.
We also get the benefit of owning some tax-exempt bonds and some dividend-paying stocks,
and there's a tax— there's a tax differential for income received from corporate dividends
because it's already been taxed by the corporations. But the tax law has been shaped not by
logic, but by— but by K Street. I mean, over time the...
JOE: Yeah.
BUFFETT: ...the best invest— the best investment most companies could make is not in a bunch
of railroad equipment, you know, or a bunch of aircraft...
JOE: Right.
BUFFETT: ...or a bunch of plants. The best investment is obviously in —
BECKY: That was part of the stimulus package.
BUFFETT: Now, that means you don't get a write-off later. Pardon me?
BECKY: That was part of the stimulus plan at that point.
BUFFETT: Yeah, it was— it was— it was— it was a follow on. Yeah, that was— that was a first act
back in the stimulus plan.
BECKY: Right.
BUFFETT: But that's the law now. We are going to spend, at Berkshire, $7 billion this year,
practically all in the United States, on plant equipment, productive equipment.
BECKY: Mm-hmm.
BUFFETT: And we will get to write off 100 percent— a very high percentage of that. There's a few
exemptions for things, but overwhelmingly. So I don't really see where a business aircraft is
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different than a business locomotive.
BECKY: Yeah, that makes sense. You know, Warren, it's 10 after right now.
JOE: Yeah, so— oh, I'm sorry. Sorry, Beck. I...
BECKY: No, go ahead.
JOE: I was just trying to— so what— I'm trying to figure out, then, Warren, what are you saying,
that this is— this is just political theater, that the— I mean, you're discounting it, you don't think
it's a good thing to be bringing up the— to continually be throwing in Republicans' faces about
the corporate jets, it's just political theater?
BUFFETT: I think— I know what you're trying to get me to say, Joe. But I...
JOE: Well, you already said it.
BUFFETT: I think— I think— I— well, you're trying to get me to repeat it, then. But...
JOE: Well, yeah, no. Actually, what was I was just going to...
BUFFETT: I would say— I would...
JOE: Go ahead.
CARL: Repeat after Joe.
BUFFETT: I would say this. I would say this. The capital gains rate at 15 percent, the— if you buy
a future, S&P future in Chicago and it goes up 10 seconds later, you resell it, it's 60 percent long-
term capital gain and 40 percent short-term gain. Now, I'm not sure, you know, how anybody
can come up with the logic of that.
JOE: Yeah.
BUFFETT: But I certainly know who's in favor of it.
JOE: No, but I...
BUFFETT: I would...
JOE: Actually, I was just leading into because you are a big— you know, you own NetJets,
obviously, and you have a— obviously, a horse in the game. But also, I have a lighter thing to
just show you, the way you're doing your product placements. I don't know if you've— if you
know that part of this, but that's a NetJet. Apparently Vinnie— can you see that, Carl?
CARL: Yes.
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JOE:: Vinnie buys a quarter share of a NetJet, Vinnie Chase on "Entourage." And you've got your
NetJets in this season's "Entourage," Warren. And I wondered, did you do— how did— how did
you swing that?
BUFFETT: No, Joe. Actually, what I've been working on, I've been reading about how successful
your daughter is with her book. And I've had no luck with you, but I have a very little starter kit
for your daughter because she's going to be rolling in money with these royalties. And if I could
just— if you would just give me her phone number, you know, you could ride in her jet.
JOE: Oh, great. Yeah, that's— so we don't have a Squawk jet, but— now, you're going to charge
her for the jet, too, for the quarter— what, I got to talk to Dictor about this?
BUFFETT: I'll give— I'll give her a demo ride myself.
JOE: All right.
BECKY: Hey, Warren, we are just two minutes away from ADP, so we're going to have to go to
that number when we get it. But very quickly before we do, is the Greek situation solved, or is
this just a Band-Aid, the situation we saw last week?
BUFFETT: No, the Greek situation and I would say the European situation is not solved. I mean
— and they wouldn't say it's solved. There is a— they've got real problems in Europe. That
doesn't mean they can't surmount them. But just yesterday with Portugal, you know, I think— I
think their spread's widened out a couple hundred basis points. When you have 17 countries
that all have the same currency, and the yields on their bonds are dramatically different, the
situation is not solved.
BECKY: What does it mean for the future of the euro?
BUFFETT: It means that they got a lot of work today. And how it comes out is anybody's guess.
They linked 17 countries together. It's like 17 people holding hands, and they start walking
toward a cliff and some guy on the end is going to go over the cliff and he said it won't make any
difference because this guy's going to keep holding my hand. And then you got two of them over
the cliff. And the real question is whether the guy in the center, the big heavyweight, decides,
you know, that— whether he wants to keep holding hands with this group.
BECKY: You know, you're always risk averse. That's why you did so well during the financial
crisis, is you believe in this heavy moat that you built around Berkshire. Do you have exposure
to any of the sovereign bonds in Europe?
BUFFETT: Well, we don't have any direct exposure, no. We've written no credit default swaps.
We sold— we sold over a billion dollars worth of bonds a year ago in some of these countries
abroad because— that's the problem with sovereign bonds. Nobody has to own bonds. And the
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reason you own them usually is you think they're risk-free. And now people have found out
they're not risk-free, and so then they're starting to question whether the second guy in the line
or the third guy in the line is also risk-free, and it— contagion's a real problem.
BECKY: A year ago, though, Berkshire sold out of some of these European sovereign bonds as a
result of what you saw coming?
BUFFETT: Yes.
BECKY: OK.
We have a number coming up right now. Carl, we'll send it back over to you for ADP.
CARL: All right, thank you very much, Beck. We're going to take a quick break from our
conversation with Warren to bring you the release of the ADP number.
WHY CONSTRUCTION IS THE KEY TO RECOVERY

PART THREE: WHY CONSTRUCTION IS THE KEY TO RECOVERY
CARL: So we'll see how the market digests that number, and in the meantime we'll get back our
conversation with you and Warren in Sun Valley.
BECKY: All right, Carl, thank you very much. And, Warren, you heard these numbers. It was a
better than expected ADP report and the futures are turning a little bit stronger this morning
based on this. What do you think's happening in the jobs market right now?
BUFFETT: Well, what's happening in the whole economic picture, and it's been happening since
the fall of 2009, is business has been getting better consistently in every area except
construction. And some of our businesses are getting better at a really rapid rate and others are
at a slow rate. But with 70-some businesses every business except the ones that are connected
to retail can— to home construction are getting better. I think people vastly underestimate the
amount of unemployment that is attached to these very subnormal construction— home
construction figures and I think when home construction moves up you will be amazed at how
fast employment will improve and how fast the unemployment rate will drop. But I'm not
surprised by the— figures are getting better. I mean, we see it in every business we're in. We
have more people working for Berkshire Hathaway than we had two months ago, four months
ago, six months ago. But not in home construction. And when that comes back, and it will come
back— I may be— I predicted by the end of this year you'd start seeing it.
BECKY: OK.
BUFFETT: I don't know whether that's going to be true or not. I know it's going to come back.
You're not going to have 500,000 housing starts a year for a lot of years in the United States.
We're growing faster than that. But we had way, way too many houses in the— I can't measure
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exactly when that inflection point will be hit where it'll turn up. I said by the end of the year and I
wouldn't be surprised if it's by the end of the year.
BECKY: How much more hiring has Berkshire done percentagewise over the last two or four or
six months?
BUFFETT: It moves at all of the companies except for the six or eight that are connected to
home construction.
BECKY: Are we talking 2 percent increases or are we...
BUFFETT: Well I would say since the start of the year, yeah, maybe a couple of percent. And if—
but if— it would— it would take a real jump if home construction started moving up. And I think
that'll happen. Like I say, I actually think it'll happen by the end of the year, but I mean I could
well be wrong on that.
BECKY: But it's not just home construction and those related areas where we've seen some
concern, it's also small businesses. And if you talk to anybody who's on the president's council
on jobs and competitiveness they will tell you what they've heard from small businesses time
and time again is that they can't get access to some of the lending and that's where the real
pressure points come down.
BUFFETT: Well, I'm part of something called 10,000 Small Businesses...
BECKY: Right.
BUFFETT: ...and we check with our graduates. We had 30 graduates or so down in New Orleans
the other day and we had 23 up in New York last fall. It's— and overwhelmingly their businesses
are improving and they're adding people. And in terms of lending, the banks I know of are dying
to get more money out. I mean, they're sitting with a trillion...
BECKY: Well, big banks are. I mean, what I've heard is that the community banks are sitting
under a lot more pressure perhaps because they have a lot of real estate loans that are sitting
on books, too.
BUFFETT: It's— if the bank is in bad shape, they're not going to be good on lending. I mean, you
want to do business with a bank that's in good shape. But there are all kinds of banks in good
shape. Now, no, you do not want to go onto a bank that's teetering itself and expect them to be
open-handed with you. But if you've— Wells would love to have 100 billion more of loans out. I
just can tell you that. It's costing them a lot of money in income to not have that money out
because they get a quarter of 1 percent at the Fed and there is no money in lending at a quarter
of 1 percent. US Bank is the same thing, M&T Bank. So there are— there is money to lend. What
the Fed has found out is they've been pushing on a string, you know.
BECKY: Yeah, and that the banks are keeping all the money at the Federal Reserve waiting.
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BUFFETT: But only because they loan demand isn't there. And one good indication of that,
Becky, is that there are all kinds of banks with lines outstanding. I mean, all the big banks have
lines outstanding. Line usage is— and those loans are already approved. I mean— and line
usage is right toward rock bottom.
BECKY: Mm-hmm. You know, we've got a number— another number that's going to be coming
up on the jobs situation, jobless claims, the weekly jobless claims is coming out. And the huge
concern is that that number's been building. The jobs report that we'll get tomorrow from the
government has not shown the growth needed. And I think the number that went around
yesterday was that was that you would need 217,000 jobs created every month between now
and the election in order to get that number below 8 1/2 or 8 percent unemployment rate. How
likely do you think it is that when we get to the election next year we'll be looking at
unemployment below 8 percent?
BUFFETT: I've got a bet with a fellow that it will be. And he's a very smart fellow, so he— if you
asked any economist who you should bet on they would bet on the other fellow. But I've got—
I've got a bet with a fellow that— it's only for $1— I've got a bet with him that it'll be below that
figure. But I— that's because I think housing will come back before that. If I'm wrong about
housing, I lose the bet.
BECKY: Who's the guy?
BUFFETT: Peter Orszag.
BECKY: OK. So he thinks it's going to be above 8 percent, you think it's going to be below?
BUFFETT: Well, I didn't give you the exact figure.
BECKY: OK.
BUFFETT: But the figure that we used is one below 8 percent.
BECKY: OK.
BUFFETT: It's quite a bit below 8 percent. He's a— he's probably a favorite to win now, but if we
get the bounce in housing I think we will get— but I could well be wrong on timing on that. I
won't be wrong about whether it happens.
BECKY: Carl has a question for you, too. CARL:
CARL: Yeah, I— just to follow on that, Warren, we had— we had John Rogers on the show from
Ariel the other day, he's buying some housing stocks. Some have talked about the way rents
have gone, rental prices have gone in this country.
BUFFETT: Yeah.
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CARL: Maybe it's pushing some people into buying because they simply can't justify the cost of
renting. You look at what starts have done, kind of jittery here and there, prices a little bit the
same way. But I don't know, you could argue— you could easily argue that your bet on a
housing recovery may be sooner than a lot of people think.
BUFFETT: Yeah. Well, it is sort of the most— my bet is sooner than most people think and I
would say this. I really— it's not that I have some ax to grind in this. If I love the dollar I'll lose the
dollar. But the— I think it— I personally think if you know where you're going to live and you
have a family and you can afford a reasonable down payment that this— and you find a house
that you like— I mean, the mortgage terms you can get now you may not see mortgage terms
like this three years from now or five years from now. And you change interest rates by a few
hundred basis points and that changes the cost of a house to you by a dramatic amount for— if
you're going to pay out— pay for it over 30 years. So I personally think that in most parts of the
country, not all parts of the country, but in most parts of the country that if I were— if I were
looking to buy a house, if I were renting now and I had the down payment and I had a job I was
comfortable with, I would buy a house in a minute, I'd get a 30-year loan.
BECKY: Those are a lot of ifs, though. Especially if you're uncomfortable...
BUFFETT: Yeah, they are a lot of ifs.
BECKY: ...that you're going to have your job a year from now.
BUFFETT: Yeah. Well, I would say this, that virtually everybody— we got 216,000-plus people
working at Berkshire Hathaway. I would say that virtually every one of those is going to have a
job a year from now or three years from now. I mean, we are not going down in employment at
Berkshire. We'll be going up.
BECKY: Well, let me ask you this. Did you hear yesterday that the president did something of a
Twitter town hall where people tweeted questions that he was answering?
BUFFETT: No, I didn't hear— anything connected with Twitter, my mind shuts off. I...
BECKY: Well, OK, then you're going to be in for a shocker because we did go to Twitter ourselves
and we asked people to write in questions that they might have for you. And I've got a couple of
those questions. One that I want to take is right now. It's question number two for the control
room. This comes from @roger_meyers. He's got a question related to his housing situation. He
says, "What's the current capacity utilization and growth trend at Acme Brick? Direct barometer
for housing." And he's very curious about this, too.
BUFFETT: Yeah. Yeah, Acme Brick, Johns Manville Insulation, carpet, Shaw Carpet, but we'll take
Acme Brick. Acme Brick is turning out— we bought a brick company in Alabama...
BECKY: Mm-hmm.
14/29
BUFFETT: ...but our like for like basis we're turning out 40 million brick a month. We were
turning out 100 million brick a month three years ago. There has been no bounce in brick
whether it's the new operation we bought in Alabama, whether it's our present operation. No
one's going to buy brick until they need it. You don't— you don't need to speculate in brick, I can
tell you that. So when the— when the demand comes for new construction we will sell brick and
the demand has not come. On the other hand, we happen to be down in Texas. Texas is
growing, the Southeast is growing, they've built too many houses, but the household formations
are taking place and it will come. I don't have— I don't have any worries about that at all. I can't
predict the exact time I said in the annual report. By the end of the year, I think it will probably
be by then. But I can tell you that our brick people sometimes argue with me.
BECKY: OK, so that's where you're watching the situation right now. Let me slide in more quick
Twitter question for you. This is question number one. It comes from @bjbolduk, I guess is how
you pronounce it. He wants to know "Did you get the job to replace Michael Scott on the office?"
BUFFETT: I think I asked for too much money. I wanted a 27-cent a mile car allowance and they
balked over that.
BECKY: OK. And, guys, I know we only have a few minutes before the jobless claims come up. Is
there another question that you wanted to ask before we get to that number?
JOE: Just an off the subject question real quick. Is that a golf course— is that— is that a bunker I
see behind you, Becky?
BECKY: It is. It is.
JOE: That's the— that is the...
BECKY: There's a golf course this direction.
JOE: ...that's the Dick Fuld Lehman Outing Sun Valley Golf Course, I think right there where old
Dick Fuld used to play on those fairways all the time. I don't think he does anymore.
BUFFETT: Joe, just hop in your NetJet and come out and we'll play this afternoon.
JOE: You know what? You're the one that controls that. You've controlled that for years and
years and you know what I have? I have a brick. I have an Acme brick. That's all you've ever sent
me is a brick. A brick with my name on it.
BUFFETT: But it's...
JOE: So I can't— I can't ride the brick out there.
BUFFETT: No one else has a brick like that, though. That is your personal brick.
CARL: Well, actually I have a brick that's very similar.
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JOE: Yeah, actually Carl does have one that's like that. It's not— and so does Becky. So it's not
even unique.
BECKY: Yeah, but ours doesn't say Joe on it.
JOE: That's right. No, but...
BUFFETT: Well...
JOE: ...Warren do you think— I did have a question earlier. I was saying, Paulson— Jim Paulson
made the point that to really cut back on spending right now is the same, you know, that the
Republicans argue, we can't raise taxes in a— in a— in a weakened economy, to cut back that
much on spending is not exactly stimulative to an economy. You don't worry about that? You
said there's room because we have, you know, so much.
BUFFETT: Well, I wrote an article in the summer of 2009 and said that stimulus then was
perfectly proper, but you would have to wean yourself off of it at some point. But weaning off of
it, it's both uncomfortable and perhaps dangerous. I mean, we are— we have an economy now
that is being stimulated by 10 percent of GDP, by government spending in excess of revenues.
That's a huge stimulus. It's never happened in the United States except during wartime. And we
may get surprised if we— if we reduce the deficit dramatically in our— I mean, that is a— it's a
removal of stimulus, there's no question about it.
BECKY: Is higher taxes at the same threat right now?
BUFFETT: They— anything that reduces the deficit is reducing the stimulus that goes in— I don't
know how effective that is. I mean, you get all kinds of arguments about that. I mean, people
that are not— Keynesians might say that there's none whatsoever, that all you're doing is taxing
them here instead— I mean borrowing here, the money that you'd otherwise tax. But I would
say that most economists believe that stimulus is helpful to the economy. If they're right and we
cut spending a lot we are taking away one prong from the economy. I think the economy can
take that, incidentally. I mean, we've got to do that over time and I think we are far enough along
in the healing process that can be done now. But that is a gamble of a sort.
BECKY: But you think it's something that has to be gradual, not necessarily what they're doing in
England, or what they have been doing in England?
BUFFETT: Well, I don't know the English situation perfectly. I know what I read about it. But I
think that's risking— that's what people say Hoover did. Hoover raised taxes and— as we know
in the Great Depression and we did not have this same theory then and people believe in
Keynesian theory would say that to remove a dramatic amount of stimulus in a hurry while the
economy's still healing could be a big mistake.
BECKY: All right. Joe, we're going to get back to you. I know we have another number coming
out.
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COKE'S CEO ON THE ECONOMY
PART FOUR: COKE'S CEO ON THE ECONOMY
JOE: Anyway, we'll get back. We've got another special guest out there as well, now, Becky, in Sun
Valley.
BECKY: We do, indeed, Joe. Joining us right now is Muhtar Kent, he is the head of Coca-Cola and
right now between Warren Buffett and Muhtar Kent, we have two people who probably are
some of the best people in the globe who can talk to us about what's happening right now in
the economy. And Muhtar, thank you very much for joining us this morning.
MUHTAR KENT (Coca-Cola Chairman and CEO): Thank you. My pleasure, thank you.
BECKY: We've been talking about a lot of different things, but the economy, obviously, is front
and center for the markets. We've got these two big jobs numbers that have come in; we have
another one that's coming tomorrow. And we're just trying to get a handle on what the economy
looks like here in the United States and around the globe. What do you see from where you sit?
KENT: Certainly, a lot better than 18 months ago. There's a lot more understanding of what's
happening. The consumers have settled, but it's mixed. There's no question. It's mixed. The
recovery is as mixed here in the United States, the recovery is mixed in Europe and Japan,
particularly in the Western world. And then you've got those that have just whizzed past like the
emerging markets of China, India. Latin America is doing very well, Eurasia. Africa's doing
exceedingly well. All African economies are growing. So it's a— it's a mixed environment out
there. The consumer is still a little confused. And small things like the rise in the price of
gasoline, two, three months, four months ago, it impacts the consumers in a much more
stronger way, in a negative way in this case, in the case of the gasoline prices. So then there's
some time that passes that— and time is the best medicine, and consumers get used to it. And
then, again, businesses are investing. We see that. We're investing in the United States, in the
Western world, as well as the emerging world. And investment invariably always leads to jobs.
BECKY: Where are you investing in the United States? And how?
KENT: Across everywhere. We build new facilities, we renew facilities, we reinvent distribution
systems. That requires investment. We invest in our brands, in marketing. We invest in
infrastructure. And we're building facilities as we speak. And, again, there's a lot of responsibility,
I think, on governors, you know, to attract investment, to provide the level— the playing field
and the right incentives and the right atmosphere in that state for pulling investments in. And
Texas is a great example...
BECKY: I was going to say, what states are doing the best job?
KENT: Texas is a great state. New Jersey, we're just building a major facility and— which will
keep another thousand jobs in New Jersey and grow those jobs over time as a result of some of
the progressive policies of the governor and also of the state, so. But the key is in this mixed
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environment, it is incumbent on business, on business leaders to find the code for growth.
BECKY: Mm-hmm.
KENT: How do you find that code for growth? Through new ways of doing business, through
new networks, through a new way of engaging with your stakeholders, through innovation and
through reinvention. How do you find that code for growth? Because you can't stay where you
are. You either go down or you grow.
BECKY: So when you talk about hiring being on an increase, Warren's already told us in the last
half-hour that Berkshire probably since the beginning of the year has increased jobs by about 2
percent of the company. Where does Coca-Cola stand?
KENT: In terms of?
BECKY: In terms of job hire, in terms of hiring, I guess on a global basis and on a basis of the
United States.
KENT: Well, Coca-Cola globally is definitely hiring. every— all the time. Last— when 2009 ended,
we were about 700,000 global employees as a system. Probably in the first top 10 private
employers in the world, and when this year finishes, we'll be about 770,000.
BECKY: OK.
KENT: So Coca-Cola is definitely hiring at a big pace.
BECKY: That...
KENT: But also hiring in the Western world.
BECKY: That's a fast...
KENT: I have to make sure that I say that.
BECKY: OK.
KENT: Because you— we're investing in the Western world, in the emerging world. Growth rates
are different, but the key is to be able to grow on a balanced way, in the West as well as in the
emerging world, and that's what we're doing. And that's— the investments are paying off, and
the investments are leading to jobs.
BECKY: I mean, that's a massive growth. That's 10 percent growth that you're looking at
worldwide.
KENT: Globally, yeah.
BECKY: Globally. But how much would you say in the United States?
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KENT: I'd say a moderate probably in the couple of thousands in the United States over that
same period of time, 18 months or so.
BECKY: OK. And, Warren, obviously Coca-Cola is one of your major investments.
BUFFETT: Yeah. When Muhtar feels good, I feel good.
KENT: Well, thanks for bringing me together here on this beautiful mountain top, Becky, with
our largest shareholder.
BECKY: Yeah, no, it's great to have you here too. But one of the things you mentioned is
innovation, and that's been a key. Finding that recipe for growth, what do you think it is when
you start looking around?
KENT: I think it is first having a real good long-term vision of where the world is heading. In our
case, no matter what happens, there's ups and downs, but in the next 10 years, this— end of
this decade, 2020, there's going to be a billion new people coming into the middle class. Middle
class in this case is defined as people that can own things— cars, houses, durable consumer
goods. That— those billion new consumers are going to have an increased demand for ready-to-
drink, non-alcoholic beverages, which is our business. And in addition to that, we're going to see
a massive urbanization still taking place. Probably another 800 million coming in to the cities.
Those new urban lifestyles lead to more demand. So once you have that vision and— then you
have— you put together your template for growth with your stakeholders, in our case, with our
wonderful 300 bottling partners around the world, local— the fusion of the local and the global
brands.
BECKY: Mm-hmm. You know, Warren, that's a pretty optimistic outlook and, obviously, Coca-
Cola is one of the companies you pay a lot of attention to. You're also a major stakeholder in
Procter & Gamble, Johnson & Johnson, American Express. You own Burlington Northern, so you
see a lot of different inputs to the economy.
BUFFETT: I do.
BECKY: There was another question that came in on the Twitter feed.
And guys, if you can call up the question number three.
This is from @vikramsingh. He says, `Does Buffett agree with Pimco's "new normal"
characterization for the U.S. economy?' Is this going to be problems with the consumer, very
slow growth? Or do you think we actually start to see a better rebound?
BUFFETT: I think— I think you actually may see, when residential construction comes back, I
think you may see a spurt. No, I— there's always a new normal. I mean, if the normal of my
youth is gone now, in terms of the economy. So that the world is evolving all the time. I think it's
evolving at a very positive way. I think the luckiest person around is the baby that's born in the
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United States today. I don't think there's any question about it. I mean, I— it— that person is
going, on average, to enjoy a far better life, you know, than John D. Rockefeller had many years
ago or that I have now. I mean, just look at— just look at the improvements in the last 15 or 20
years, you know, in terms of what people have.
You mentioned Twitter, you know, for example. I didn't know what the word meant. But there's
all kinds of things have come along. I, you know, if I didn't have any money, I would live better
than John D. Rockefeller lived. I mean, I can— I can watch the Super Bowl brought to me by, you
know, Coca-Cola or something. It's what— the world gets better, and so I think if there's a new
normal, it will be a higher normal in terms of the average person of how they lived 20 years from
now and 50 years from now.
BECKY: And yet, when you look at unemployment at above 9 percent and you look at the
number of workers who have been out of work for over a year and you look at the pushback
when it comes to people who are concerned about having their entitlements cut, who are
worried about health care and different issues, what do you— what do you tell people that—
how do explain that disparity?
KENT: I couldn't agree with Warren— I couldn't agree with Warren more because I think the
United States should not be discounted as a— as a growth environment going— looking into the
future. You know, we've gotten— first, we have a growing demographic. We have a young
population. By 2040, in terms of the number of people over 60, the United States is going to be
a lower percentage than China or certainly Japan and Western Europe. We have a young
population.
We've got a very enterprising demographic and population, diverse, multicultural, more than 50
percent of the educated immigrants around the world are coming to the United States.
Innovative, you know, we've got— we register more than 50 percent of the patents around the
world. The women entrepreneurs in the United States account for $4 trillion. That's the same
economy— size as the Chinese economy.
And then we're a giving nation. You know, $300 billion of giving takes place in the United States,
by far the biggest in the world. That— those are the, actually, pretty good foundations for a
great society, good society. And we see the United States as a growth market. We see that,
obviously, it's not going to be the same growth as Vietnam or Indonesia or Africa or other places,
but it is going to be a growth market. Now, the short-term issues because there's, for the first
time, I guess, divergence between growth and jobs, this never happened before. All the time the
regression analysis was a perfect one. Growth leads to jobs. Now there's a divergence. We've got
to solve that through innovative policies. I just recently wrote an op-ed with Ram Charan about
the role that states can play here.
BECKY: Right.
KENT: There's a huge role and there's— you don't need to reinvent the wheel. Texas is a great
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example, you know, of small- and medium-size enterprises, the way that those should be linked
to larger businesses and also to the world through a bridge mechanism of integration of
networking and so that they can export. I mean, small- and medium-size enterprises export $70
billion worth of goods out of Texas. That's the total exports of a major— of a pretty big country.
BUFFETT: When has it made sense to bet against America? Yeah. I mean, it's looked dimmed, I
mean, Civil War, Pearl Harbor, the Great Depression and all that. And we've come through a—
an enormous financial and economic panic a few years ago. But look how far we've come since
then. To expect a cure in a week or a month is just unrealistic. When we rebuilt the country after
World War II, it took— it took a long time. But this country, the ingredients that have led to, you
know, a Sun Valley or whatever, maybe— just look around you. The ingredients that have led— I
mean, look at the— look at the machinery and the trucks and everything here. It's
extraordinary. And we haven't used up our potential.
BECKY: Is that an argument for going long the dollar and short the euro? Because I've been
shocked at how strong the euro has been in the face of everything.
BUFFETT: Well, dollars are different things. Dollars— you print enough dollars, it could do a lot
of things to them. No, it's— for going long America, but, you know, the dollar— the dollar's going
to get worth less over time.
BECKY: Not worthless. Those were two separate words.
BUFFETT: No. Not worthless. We've gone through that. Is going— but the fate of paper money,
generally speaking, is to bet— become less valuable over time.
BECKY: Carl's back in the studio, and he has a question for you as well. Carl.
CARL: Warren, I mean, obviously Joe and I are listening to what you're saying about the country
and nodding in approval. I mean, it's a great message. It's a true message, I think, we can
probably agree. But you started the interview by saying just because you put five bullets in a—
you play Russian roulette five times doesn't mean the sixth time is going to go your way. How do
you know that the cynics, the bears on America, on global markets, those who are really betting
on a new normal are wrong? Just because you...
BUFFETT: Well...
CARL: ...you've never seen a black swan, doesn't mean that black swans don't exist.
BUFFETT: Oh, and we will have black swans, but we'll overcome black swans. The— Carl, I was
born in August of 1930. You know, if a genie had come to me and said, `Warren, in the next— in
the next two years, the Dow is going to go from 180 down to 40, there's going to be 4,000 banks
close. You know, there's going to be a dust bowl in Nebraska where you live, and farm prices are
going to go to hell, and in another 10 years we're going to have a surprise attack by an enemy
that looks like it's going to win the war for a while, we're going to have nuclear bombs, you know,
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I'm not sure I would have come out, you know? But the truth was that America, in the 80 years
since I've been born, the average person lives six times better than when I was born. It's
unbelievable what this country delivers. And we haven't— we haven't lost the magic potion at all.
If anything, we've got more opportunity now than we've ever had.
JOE: Hm. That— so yeah, I...
BECKY: You talk...
BUFFETT: Yeah.
JOE: Yeah, I love listening to— I know, America— and truly, truly, American exceptionalism is
alive and well, and it's— you know, you could— so many cliches, Warren, but it's always morning
in America, and it will always be like a shining city on a hill, I think. And what you...
BUFFETT: And, Joe...
JOE: Yeah, what you said about the Rockefellers, the— an average guy is— can go down and be
in St. Lucia or whatever it is, drinking bottled water, walking along the beach with his wife. The
Rockefellers didn't live like this and the guy's got an iPhone and he's watching, you know, an NBC
show.
BUFFETT: Yeah.
JOE: Yeah.
BUFFETT: And then you watch the Super Bowl and everything. You know, you've got that young
daughter that's written this brilliant bookthat you're riding along on her coattails, and— but you
wouldn't have her being raised in any other country in the world, or at any other time.
JOE: And that's why I decided to even do is to let her know that what she has and not take it for
granted. I don't think she's hearing it enough. And also, I've put in a few things about a profit
incentive not being a dirty word, and thanks for bringing it up. I only have one other— are you
going out to dinner tonight, Becky? Are you staying there?
BECKY: Yeah, I am staying here.
JOE: Have you been to the Pio yet? Are you going to go? Did you take Buffett there?
BECKY: No, I haven't been to the Pioneer yet. I've been there in years past, it's been a little crazy,
but it's on my list. I will get there.
JOE: Say hi to Duffy. And look at— Western stuff, a big bear with a head his big. I mean, that was
my— that was my...
BECKY: I will.
22/29
JOE: That was only my last plug. That's all I want to get in because I wish I were...
BECKY: I'm on my way.
JOE: I wish I was there. Well, bring Buffett and let him pick up the tab, although I'll bet you got to
turn him upside down and shake him to get him to pick up the tab, I think.
BUFFETT: Yeah. We waited two hours the other day for me to pick up a check.
BUFFETT'S TAX CODE PRESCRIPTION

PART FIVE: BUFFETT'S TAX CODE PRESCRIPTION
BECKY: Well, on this— on this theme, though, of where America's going, the two of you sitting
down sound incredibly optimistic in the face of a lot of bad headline news that we've seen over
the last couple of months.
KENT: Look, there's going to be head— those kind of headline news and there's going to be ups
and downs. Let's not think that this is one straight line.
BECKY: Sure.
KENT: And then there's going to be a lot of experiments, new experiments. I mean, the Chinese
experiment of creating, you know, three-, 400 middle class in a decade is a huge experiment. It's
never been done before. And there's always going to be learning, correcting, reinventing going
forward. The European experiment, you know, where you have economic integration but no
political integration...
BECKY: Right.
KENT: ...is a huge experiment that is, you know, going to have to adjust, fine-tune and go
forward because, you know, one— some— one of the issues in Europe today is that you've got
economic integration that in some parts went awry and didn't go right without the political
integration. So there's adjustments that are taking place, indigestion right now taking place. And
that's what we're seeing. But again, you know, at the last minute Greece did get the loan, and
they're free from— pretty much from default until two— 2014, and that period is going to be a
period where they need some oxygen to make the necessary changes and go forward. There'll
be experiments here.
BECKY: But we talked— we talked about that in the last half-hour with Warren, and his concern
is that this is a Band-Aid and it's still not a full-time fix, and you still, as you mentioned, have
some serious concerns when you have this monetary system built up without the political
system to back it up.
KENT: Sure, sure. And you've got, you know, tax policies, policy policies all in the hands of
individual governments, and then a lot of stuff that is outsourced to the European commission.
And there— but that's an experiment. Had it ever happened before? No. Europe actually has an
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overpopulation not in people, but in the number of states per square kilometer, rich states. And
that's a— that's a fairly new experiment.
BECKY: Let me ask you about something else we talked about in the last half-hour, the idea of
the taxation considerations in Washington right now. One idea that's been floated is allowing
major global companies to repatriate money and bring it back to the United States. Are— what
do you think about that? Because Coca-Cola obviously has huge profits that it makes overseas.
KENT: Sure, sure. Well, I think that would be another Band-Aid. I think the real necessity right
now is to reform tax altogether in the United States so that the US corporations small, medium-
sized and large can have a level playing field. You know, today if we— if I invest and create a
business in a— in a foreign land and the taxation there is 30 percent, I pay that— or 25 percent, I
pay that— I make profit, I pay the tax. And if I want to bring that money back here, I have to pay
substantial amount of more tax compared to my competitors in other parts of the world that
have a territorial tax system. I think it is long due to have tax reform in the United States. And so
whilst I think that would be a good thing in a very short period of time, it would— we need to
really solve the— from the long-term perspective, a tax reform that keeps the United States
competitive, the US corporations on a level playing field with their competitors around the
world. And I believe that's what's needed.
BECKY: What corporate tax rate did Coca-Cola pay last year in America?
KENT: Roughly in the mid-20s.
BECKY: OK. So when you hear arguments of lowering the tax rate to let's say 22, 23 percent and
getting rid of loopholes and deductions, is that something that you'd go along with?
KENT: I would because there— you know, you've got— you've got a book that thick about all the
different ways of interpretation and all the different exceptions to the tax code today. You've—
we've— the future of the world belongs to simplification. We have to simplify bureaucracy, we
have to make life less cumbersome and business less cumbersome so that it can be competitive.
BECKY: You know, Warren, I talk to CEOs, I've talked to some here, and anybody who's paying in
the mid 20s or higher thinks that we need to reform the tax code.
BUFFETT: That's the problem.
BECKY: My— because my thought is that any corporation that paid less than 20 percent last
year is going to fight this tooth and nail...
BECKY: ...and send the lobbyists to go try and change anything from getting done in
Washington.
24/29
BUFFETT: Well, you majored in political science, as I remember. And, you know, we give you an A
on that one.
BECKY: So is there a real opportunity for change, or is this something that is going to get held
hostage by lobbyists in Washington?
BUFFETT: It takes a combination of leadership and outrage, and whether we've arrived at
sufficient quantities of both to get— a major revision of the tax code means hurting a lot of
people from their present situation. It also means helping a lot. It means hopefully that going
more toward fairness and something that makes the economy work better. But the effort...
KENT: And with simplification.
BUFFETT: Yeah. And— but the effort is huge to do that because every line in the tax code has a
protector to whom it's enormously important, and that protector hires lobbyists. And the other
side is diffused, you know. The people that care about having stock futures held 10 seconds
straight at 60— treated 60 percent long-term gains, believe me, they will care about that
sentence to an extreme degree. The people that are actually where that revenue's being
diverted, and they pay a little more because they're not getting it in that area, their interest is
totally diffused. They don't— they don't— they're not going to organize a group, you know, to
change the tax law in stock futures or something of this sort. So it's a terrific problem, it requires
a lot of will, a lot of leadership and a lot of outrage. And maybe we're at that point.
BECKY: Well, it's one— it's one thing to try and attack the corporate tax law. That's going to be
difficult enough. Trying to change the personal tax laws and get to a situation where people
think it's equitable, the rich are paying their fair share, but at this point you also have about half
of Americans who aren't paying any national...
BUFFETT: Well, they're paying— they're paying payroll taxes.
BECKY: They're paying payroll taxes, but they're not paying the national income tax.
BUFFETT: No. But payroll taxes are 40 percent of— 40 percent of the revenue in the United
States comes from payroll taxes, 40 percent. And they're being— my cleaning lady is being
charged a payroll tax. Her payroll tax, counting the portion her employer pays, is higher than my
capital gains tax.
BECKY: So that's your argument for capital gains, why it needs to be— the rates there need to be
raised.
BUFFETT: Oh, yeah. I mean, I am treated like I am— I am, you know, the bald eagle or
something, that I have to be protected at all costs, you know, and they— I'm nurtured. I am
paying— that's the reason that the 400 largest incomes in the United States paid an average of
25/29
16.6 percent last year, and they did not pay much payroll tax, I mean, just by the nature of it.
That is so out of whack with our past history that, you know, it's no wonder that people get
upset.
BECKY: You know, every time you say this on our air we have people who write in and say if
you're so outraged about your tax rate, why don't you just pay more instead of giving your
money to charities?
BUFFETT: Yeah. Well— yeah. Well, in the end, I just looked it up the other day, you can— you
can check how much is voluntarily given to the United States every year by people, and that
number in the last 15 years has ranged from $700,000 a year to $3 million a year.
BECKY: In total?
BUFFETT: In total, the whole...
BECKY: From everybody?
BUFFETT: The whole United States. You can look it up. And the highest year's been $3 million,
the lowest year's been 700,000. So I would say that anybody that's advocating a tax system
based on volunteerism is living in Never Never Land.
BECKY: Again, Muhtar, if you were asked, what's the most important thing that could make
Coca-Cola and other major corporations create jobs right here right now, what would you tell
them?
KENT: I would say we need a closer networking and collaboration with government, business
and civil society than we have today. We need— I don't think that we often think that it's all
resting with federal government; state and local governments have a huge role to play. And I do
believe that we have the low-hanging fruit in terms of what still can be done for small and
medium-size enterprises which is really the backbone, you know. Three out of— two out of
three jobs in the United States has been created by companies that— small companies that
have not been around for the last— you know, are only five years and younger, in the last sort of
two, three years.
BECKY: Hm.
KENT: So I think much more can be done there. And large companies like mine have a very close
relationship with their supply chain, and there's a multiplier effect. When we create one job,
usually there's about 10 jobs created down the supply chain in advertising, in manufacturing
refrigerators, in manufacturing racks, in components for our plants, in the building that goes on,
etc., etc. So that— there's a— we need to make sure that that multiplier effect is much stronger
than it is.
BECKY: Mm-hmm.
26/29
KENT: And a lot still can be done, I believe, with governors and states promoting a closer
relationship between large corporations. And then allowing— making sure that the networks
are there for small companies to export out of the United States. And that's what Germany did.
The fact that Germany's— Germany is the second largest exporting company today, it's all about
the middle...(unintelligible)...and it's all back to the courageous policies that were taken—
decision that were taken by Schroeder back in two— five years ago when he had the agenda
2010 program that he implemented, and then he lost the election, of course.
BUFFETT: Becky, you can cut my tax rate to zero and I'll still drink five of these a day. But...
JOE: Hey, Beck...
BUFFETT: But if you cut my— if you get— if you cut my cleaning lady's rate on payroll taxes, she
can drink one of these that she couldn't afford now.
BECKY: Oh.
JOE: All right, Becky...
BECKY:JOE:
JOE: Yeah, one more time— one more time, Warren. All right, just because nobody else does it
and it's only 700,000 or 3 million, that's not stopping you from doing it. Now, you could easily
write a check...
BUFFETT: Yeah.
JOE: ...you could write a check for a billion dollars a year easily to the government, but you have
chosen to give it to charity. Do you— does that at least indicate that you think the dollars will be
better spent by charity, because it's a better way to do it, than the inefficient government, or is
there another reason...
BUFFETT: I think...
JOE: ...or is there another— do you like the deductions that you get to not pay taxes? I mean, I
still don't know why you don't do it.
BUFFETT: No, the deductions I get— incidentally, I just— yesterday, I just gave— I made my
annual gifts of, I don't know, a billion-seven or something of Berkshire stock. I've got a $10 billion
charitable contribution carry forward. I've used 1/10th of 1 percent of all I've given as a
deduction.
JOE: OK.
BUFFETT: So the deductions don't amount to anything.
JOE: Then that's not it.

27/29
BUFFETT: I do think there's something— I do think there are things that— in terms of medicine,
in terms of all kinds of things, education, that certainly new ideas can be brought in in the— in
the— through philanthropic organizations that are unlikely to get done through government.
JOE: Yeah, I agree. Agreed.
BUFFETT: But I think that the idea of saying we should do something on a voluntary basis is
crazy. I mean, it isn't going to happen. A tax system is based on having a law and having some
guys come around saying if you don't pay your taxes you go to jail.
JOE: Right.
BECKY: Carl, you have a question, too.
CARL: Yeah. Muhtar, I've got one last question here. We've talked about so many big things. The
kind of question that Warren hates to answer because it's short-sighted and superficial. Do you
think, if you were looking at North America, you could, at this point, declare an end, for at least
for now, to the soft patch that we saw this spring?
KENT: I'm sorry? I couldn't hear the last part.
CARL: Do you think we could call an end to the soft patch we saw this spring, at least for now, in
North America?
KENT: I think probably. I would say yes to that. I think that generally speaking, I would agree with
that.
CARL: That's...
BECKY: And Muhtar, I know you mentioned at the beginning that when your consumers that
you see here in America, they react very quickly to rises in gas prices. As gas prices have come
back down, have they responded as quickly to that are they more hesitant?
KENT: I don't think they've come back down to where they were before the increase. I think it's a
question of adjustment, getting used to things. They've come down a little bit. But as I said, the
recovery is mixed. The consumer is still a little confused.
BECKY: Mm-hmm.
KENT: Fragile is a good word. But certainly as everyone— every segment of society currently
looks into the future, they don't see as bleak a picture as they did 18 months ago. And I think
that is really important from the point of view of the mind-set, also from the point of view of
investment in the United States that will continue to create jobs. So businesses need to be—
when they look into the tunnel, they need to see something that makes them invest and believe
in the future. And I think that's coming— beginning to come back.
28/29
BECKY: And, Carl, I'm sorry, did you have a follow-up that you were asking on that?
CARL: No, no, no. Other than to say what a great hour it's been. A SQUAWK for the ages, as I
think Joe would agree.
JOE: Mm-hmm. Absolutely.
CARL: Great work.
BECKY: They were. Gentlemen, thank you very much for joining us here this this morning.
KENT: You bet. Thanks.
BECKY: Again, Muhtar Kent and Warren Buffett. And we really appreciate your time. And guys, I
miss both of you and we'll see you back there very soon.
----
Class B:
Class A:
29/29
Warren Buffett appeared live on
CNBC's Squawk Box Wednesday
morning, March 2, 2011 for Ask
Warren.
This is a transcript of his

comments.
ANNOUNCER: This is a special

presentation of Squawk Box, a three-
hour conversation with the "Oracle of
Omaha," Warren Buffett, the wit and
wisdom of an investing legend.
BECKY QUICK: Good morning, everybody. Welcome to Squawk Box here in CNBC. I'm
Becky Quick in Omaha. Joe Kernen and Carl Quintanilla are back at headquarters at
CNBC. And we are live this morning in Omaha at the Durham Museum in front of a
very special store. This is the Ernest Buffett store. Of course, Ernest Buffett is the
grandfather of a very famous son of Omaha, Warren Buffett. As always, we have a lot to
talk about with him. Warren, it's great to see you this morning.
WARREN BUFFETT (Berkshire Hathaway Chairman and CEO): It's good to have you
here.
BECKY: Thanks for coming down and being in front of the store with us.
BUFFETT: Yeah, well, it makes me feel at home.
BECKY: Yeah. This is, again, a mock-up of your grandfather's store where you worked,
yourself.
BUFFETT: Yeah, actually this is my great-grandfather's...
BECKY: Your great-grandfather.
BUFFETT: Yeah. Because my grandfather didn't work at this store. But it was originally
Sidney Buffett & Sons. And he had two sons that worked with him, Ernest and Frank, and
then they fell in love with the same woman who worked in the store. She married one of
them, and the other one didn't speak to the guy for 20 years.
BECKY: Which is why it's only the Ernest Buffett store.
BUFFETT: Yeah, that's right. That's right.
BECKY: Well, want to thank you very much for being here and for agreeing to take
questions from our viewers today.
BUFFETT: That'll be fun.
BECKY: It will be fun. We have a lot to get to this morning, but before we do, we'd like
to get to a few of those hundreds of e-mails. We're going to get to those in just a little
CNBC SQUAWK BOX TRANSCRIPT: MARCH 2, 2011

PAGE 1 OF 1
bit. First, though, Carl's going to bring us up to speed on what's been happening. He's
got the morning's top headlines.
And, Carl, good morning.
CARL QUINTANILLA, co-host: All right. Good morning to you, Beck. It's going to be
great.
***
QUINTANILLA: But we've got a lot going on this morning, Becky, as you know, and
we'll send it back to you in Omaha. Gorgeous live shot this morning, by the way.
BECKY: Oh, thank you very much, Carl. We are again here spending the morning with
Warren Buffett and, as we mentioned, we're at the Durham Museum here in Omaha.
We're in front of a mock-up of the Ernest Buffett grocery store, which is a store Mr.
Buffett knows well. He worked there himself as a youngster. And, Warren, thank you
again for being with us this morning.
BUFFETT: Oh, thank you. That was the last time I did any real work, actually.
BECKY: Since then it's gotten a little easier?
BUFFETT: It's much easier. I—the only thing I learned from that store was I didn't like
hard work.
BECKY: Well, that's a good way to grow up and a good way to figure things out.
BUFFETT: Yeah.
BECKY: You know, I don't know if you just heard Carl and Joe talking a little bit about
the markets and the situation yesterday. Oil prices seemed to have been dictating where
the market's been headed for the last week and a half or so. Do you worry about oil
prices? Do you worry about what's happening in the Middle East?
BUFFETT: Well, you may worry as a citizen about what's happening, but in terms of our
investments, it—no. It doesn't have anything to do with where or Coca-Cola are going to
be in five years from now. But I am just no good on day-to-day or week-to-week, month-
to-month stock prices and, fortunately, I don't have to be.
BECKY: Yeah. Joe just mentioned that we spoke with someone yesterday who said the
oil market's doing exactly what it should be, which is overreacting. He used to run Saudi
Aramco, and it's an interesting position. Even though you look at these prices, we've
heard from Ben Bernanke and others that this is not something we need to be concerned
about yet. Is that where you come in on this?
BUFFETT: Well, I just don't know the answer on that. I mean, that would depend on
events in the future. Six months or eight months ago, we weren't worried about cotton
prices at Fruit of the Loom and, you know, they've gone from 80, 90 cents to $1.90. So
it's—you just don't know about commodities. If they get short and people need them, I
mean, we have to make T-shirts and briefs and that sort of thing, and if there isn't

PAGE 2 OF 2
enough cotton around in a given month, we buy it regardless of price. And oil is the same
way. The demand is pretty inelastic in the short run, so if you get any real interruptions
in big supplies of oil—and I know there's excess capacity around—but a big enough
interruption could cause a big change in price.
BECKY: We have not seen a significant interruption yet, though.
BUFFETT: Right.
BECKY: The Libyan oil market may be — it's 2 percent of the global supply and maybe
about half of that has been cut at one point or another.
BUFFETT: Yeah.
BECKY: And yet you see oil prices running back up above $100. That's where they were
trading yesterday in the extended hours.
BUFFETT: Yeah.
BECKY: Is that something that you think is tied to speculation? Is that something that is
or could be prevented? Or is this a real supply situation?
BUFFETT: Well, it isn't a real supply situation yet, but markets anticipate.
BECKY: Yeah.
BUFFETT: And if—people are not worried about Libya getting cut off, what they're
worried about is that the unrest spreads and that some three or four million barrels a day
would get cut off. And that's a rational thing to worry about. What the probability is of it
happening, who knows? But it isn't zero, and it looks higher now than it would've looked
two months ago, so that starts to get reflected in prices. Markets anticipate.
BECKY: Your annual shareholders letter that you just came out with on Saturday painted
a much more optimistic picture of America than many people had been thinking to this
point. Why is that? And why are you so positive about things?
BUFFETT: Well, I've been optimistic on America right along, as you know. I mean, I was
optimistic when I knew things were going to go to hell. But things do—America gets off
the track from time to time, and it was particularly so in the fall of 2008. But you can't
stop this country. I mean, we have gone through, I don't know, 15 recessions, you know,
world wars, civil war, you name it. And there is a resiliency to the American system. It
does work. And it sputters from time to time. It'll sputter from time to time in the future,
but you don't want to get too concerned about that. It's kind of like having a bad crop in
farming. If you've got some good land here in the Midwest, you're going to have a bad
crop occasionally. But you know you're going to have mostly good crops and we have
great soil for this country, metaphorically. And it works over time.
BECKY: So what are you seeing in your businesses right now? You said that we're back
on track, but are we chugging along? Are we inching a long? How are things coming?

PAGE 3 OF 3
BUFFETT: It's probably closer to inching in most businesses. And in residential
construction, it's not inching. It's not going at all. But so you do have this uneven
situation. We have a few businesses that are—that are really kind of booming, but—and
we have a great many businesses that are moving forward, and then we have some—a
few that are stuck. And—but I think that's true of the economy. So—but what we've seen
now for almost two years is we've seen it getting better. Rather consistently, but not in a
dramatic—at a dramatic pace. And what has been interesting to me is that the sentiment
has gone up and down quite a bit during a period when you really haven't seen all that
much change in the underlying trend.
BECKY: And in terms of your businesses, you say you have some that are booming.
Which ones are those?
BUFFETT: Well, I mentioned the annual report. We've got an electronic component
distributorship...
BECKY: Mm-hmm.
BUFFETT: ...in a company called TTI, and they're booming in Asia, they're booming in
Europe, and they're booming in this country. And they sell these little things that cost,
you know, a couple of pennies. It's like selling jelly beans or something of the sort. But
they go to all kinds of customers. And their business has never been this strong. The
railroad business has picked up. It's about 60 percent of the way back from the bottom.
If you take the top, and car loadings take it down to the bottom, we've got about 60
percent of the way back. So there's a—there's a considerable ways to go there, but it's a
different business than it was two years ago. And it gets better by the quarter, as we go
along. We see at our machine tools, small little tools that go in big tools, a company
called Iscar.
BUFFETT: I just got the January figures and January was a record month. And now not
by a huge margin, but it just keeps getting better month by month. So—and nobody's
buying those to put them in their homes, you know, or for speculation.
BECKY: Right.
BUFFETT: They're buying them because they're using them.
BECKY: When do we see that actually play out in the jobs market? That's been the huge
concern. We've got another jobs report that's coming up on Friday.
BUFFETT: Yeah. Our business at Berkshire was quite a bit better in 2010 than 2009, but
we only added 3,000 jobs, you know, from 260,000 roughly, on a base. So we added 1
percent to jobs net and yet our business really improved quite a bit more than that.
BECKY: Mm-hmm.
BUFFETT: And there were real gains in productivity achieved on the downside. People, at
least when they really had to tighten their belts, they found out they could do it. And I
think that period is largely over. I think the gains in business will be much more reflected
by gains in employment going from this point forward than they have in the first year and
a half or two years of this recovery.

PAGE 4 OF 4
BECKY: Does that mean good news by the end of this year? Or does that mean good
news by next year because depending on whose forecast you're watching, the
employment number could go down significantly.
BECKY: This year, or it might take two years.
BUFFETT: I'm not a—I really don't know the answer on that, but if you ask me just to
guess...
BECKY: Mm-hmm.
BUFFETT: ...I would guess that that by the—by close to the election of 2012 that
unemployment would be probably in the low 7s.
BECKY: OK.
BUFFETT: And then how good that'll look to people, I don't know at the time. But that
would be my guess from what I see in business.
BECKY: You mentioned that the housing businesses that you have are not inching along,
they're stuck. You also said, though, in your annual letter that you think housing is at a
position where a year from now things might look considerably better. (Treasury
Secretary) Tim Geithner was on the Hill yesterday. He said there's still a lot of pain to
work out in housing. And you had 9400 employees that you had laid off in those
businesses that cater to housing.
BUFFETT: Right.
BECKY: So when do you think it—you can actually start hiring back there?
BUFFETT: Well, we'll hire when housing starts to pick up.
BECKY: Right.
BUFFETT: And they've been now in this 550,000 a year or 600,000 range for quite a
while. And they needed to be. The demand for housing comes from household
formations. I mean, and household formations are running considerably higher than
housing starts. So they are—the excess housing supply is being sopped up. Not at an
incredible rate, but at a significant rate. And that's a counterbalance to the fact that we
were building two million housing units, you know, and people were—they weren't
creating two million families a year at that time. So we were—we were just building too
darn many houses. And they don't go away. So the only way to solve that is to
underproduce compared to household formations. And we've been doing that for a couple
of years, and that's why my guess is that, in about a year, that we will have sopped up
the excess supply. Now, that doesn't mean there's not all kinds of people who want to
sell their house for what they paid for it five years ago.
BECKY: Mm-hmm. Right, right.

PAGE 5 OF 5
BUFFETT: But that's a whole different question. I think it's—I think it's—I know housing
will pick up at some point, and it seems logical to me that it should pick up on about a
year based on the—on the number of units that are getting sopped up. And it was—it's a
good thing. I mean, we had that one incentive there for a while to try to move housing.
BECKY: A tax break for first-time buyers.
BUFFETT: The real thing to do is clean out the excess inventory, and the only way you
clean out excess inventory, you either—you either blow up the houses or you produce
fewer than households are getting formed.
BECKY: Mm-hmm.
BUFFETT: And any artificial acceleration of demand, it just means disappointment later
on.
BECKY: So you didn't think the government should've made those moves?
BUFFETT: I don't think—yeah, I don't think that trying to move the fourth quarter's
demand into the first quarter is a—probably not a good idea. It—we had to clean out the
excess.
BECKY: You know, we're just getting to the end of a lot of government programs like
that. Not only what we saw with Cash for Clunkers, with the first time hire—buyers tax
credit or tax deduction that would go in. You also are getting to the point where QE2 is
nearing a point where it's going to end. Now, (Federal Reserve Chairman) Ben Bernanke
was on Capitol Hill yesterday, too, and he did not give any indication that they'd be
ending QE2 early, but it only goes through June. So what happens to the markets as, you
said they're very forward looking, as they come to the recognition that the Treasury's not
going to be there, or the Fed's not going to be there to prop up the Treasury market
anymore.
BUFFETT: Well, I do not like—I do not like short-term bonds, and I do not like long-term
bonds. And if you push me, I'm sure that I don't like intermediate-term bonds either. I
just think it's a terrible mistake to buy into fixed dollar investments at these kind of
rates, and I've thought so, you know, for several years now. When people ran to cash
because they were afraid of everything, they were really going to the worst investment,
you know, that's possible. I don't know what'll happen with Treasury markets, but we
have had—I don't think people necessarily realize we've had monetary policy with its foot
to the floor for a couple of years.
BECKY: Mm-hmm.
BUFFETT: And we needed that to get out of where we were. How long we need it for is
another question. But the idea of overdosing the patient two years ago was a terrific
idea. The patient needed every bit of morphine or whatever you put in them that they
could take. We came on with fiscal policy very strong, and what people don't realize
about fiscal policy, we talked about a stimulus bill a couple of years ago.
QUICK: Mm-hmm.

PAGE 6 OF 6
BUFFETT: But a stimulus bill isn't a stimulus bill because you stick the word stimulus on
it. I mean, you can call any bill that spends money in Washington a stimulus bill.
Stimulus is spending more money by the government than it's taking in. We are going to
do that to the tune of 10 percent of GDP this year. We have massive stimulus going on in
the United States. Stimulus like you haven't seen since World War II. We just don't call it
a stimulus bill. But stimulus is the federal government spending way more money than it
takes in, and you can call it a stimulus bill, you can— you can— you can, you know, you
can call it the green flowers bill, but whatever causes the government to spend a lot
more money than it's taking in is stimulus. And when you get to 10 percent of GDP
you've got massive stimulus. So you've got massive monetary activity, you've got
massive stimulus activity. And then what I think is the most important factor in coming
out of the recession is sort of the natural regenerative capacity of capitalism. I think
that's— now I think the other two can be important, and I think they're psychologically
important because people expect the government to do that, and they don't— they
wouldn't have confidence if the government wasn't doing it. But I think the main thing
that makes the economy come back is 300 and some million people trying to figure out
how to live better tomorrow than they're living today.
QUICK: That sounds like an argument for an end to this. You said— is there too much?
You said we needed it then. Have we needed QE2 in some of the latest doses?
BUFFETT: Yeah. I don't— I don't think we need as much either monetary or fiscal
stimulus as is going on. I think— I think we needed— the American public, the whole
world needed to see two years ago that the federal government when the— when the
world was going to try and deleverage and people were panicked over every kind of
financial instrument, they needed to see the federal government there big time, and the
government really did its job there in the fall of 2008. They threw in— they threw in
everything and that was hugely important in getting across to the American people that
they are— was not going to stand idly by while the whole machine came to a stop.
QUICK: Mm-hmm.
BUFFETT: But in terms of the recovery going on now, that recovery is going on because
we've got 70-something managers at, you know, Berkshire trying to figure out how to do
more business tomorrow than yesterday. And, you know, just look at what Apple does, or
you name the company, or Amazon. They are thinking all the time of how to— how to get
their customers to do more things with them.
QUICK: Let me ask you real quickly— Joe has a question, too— but I just want to pin
you down on this and make sure I'm not making assumptions or putting words in your
mouth. You think QE2 should end now?
BUFFETT: If I were— yeah, I have enormous respect for Ben Bernanke. He knows way—
you know, he knows more about the Fed than I do by a factor of 100 to one. But in the
end, I don't— I don't think we need more of that now.
BECKY QUICK: Joe, you had a question as well.
JOE KERNEN: I did. And I want to thank Warren for joining us and giving us all his time.
Three hours is— it benefits us, obviously benefits viewers. If you were Charlie Sheen, I
just figured out you'd make $12 million in three hours. So you're doing this— I don't
think we're paying you that. So...

PAGE 7 OF 7
BUFFETT: No, but Charlie Sheen is— Charlie Sheen is paying me for being his media
adviser, so I guess I'm actually doing very well.
JOE: Some of those— I— when I saw— when he said, "Gnarly," I said, `That has got
Buffett's fingerprints on it,' just because you say gnarly.
BUFFETT: Yeah.
JOE: Here's, you know, listening to you talk, though, Warren, when you say with your
comments about bonds, that makes me think of financial assets in general, which
includes stocks. And I think about the printing presses not only in this country, but
around the world. You've seen the commercial, cha-chung, cha-chung, cha-chung, with
the central banks. And there are periods where financial assets are great from the like
early '80s to 2000. And I just wonder if there's then periods where hard assets are great.
And you see Paulson and gold and some of these other guys and gold or commodities.
Are you just not comfortable with commodities? Are there times where you should be
downplaying maybe stocks or businesses and going totally full-bore into commodities but
you're just not comfortable doing that?
BUFFETT: No, the alternative with me, Joe, the alternative— I don't like— I don't like
fixed dollar investments at all. I don't like short-term bonds, I don't like long-term bonds.
We own a lot of short-term bonds, but that is not because we like them, that's just a
parking place.
But the alternative in my view, I mean, certainly commodities can be an alternative, but
the alternative is income-producing assets of one sort or another that are not fixed dollar
type investments. And so I— I've said consistently for the last few years I would vastly
prefer to own common stocks than fixed dollar investments over a five or 10-year period.
I don't know any about the next five hours or five days. And that might very well extend
to rental real estate, it might extend to farms. I mean, an investment you're looking for
something where you put out money now and that asset that you buy gives you back
more money over time. Now, the problem with commodities is that you're betting on
what somebody else will pay for them in six months. The commodity itself isn't going to
do anything for you.
So there's two types of assets to buy. One is where the asset itself delivers a return to
you, such as, you know, rental properties, stocks, a farm. And then there's assets that
you buy where you hope somebody else pays you more later on, but the asset itself
doesn't produce anything. And those are two different games. I regard the second game
as speculation. Now there's nothing immoral or illegal or fattening about speculation, but
it is an entirely different game to buy a lump of something and hope that somebody else
pays you more for that lump two years from now than it is to buy something you expect
to produce income for you over time. I bought a farm 30 years ago, not far from here.
I've never had a quote on it since. What I do is I look at what it produces every year, and
it produces a very satisfactory amount relative to what I paid for it.
If they closed the stock market for 10 years and we owned Coca-Cola and Wells Fargo
and some other businesses, it wouldn't bother me because I'm looking at what the
business produces. If I buy a McDonald's stand, I don't get a quote on it every day. I look
at how my business is every day. So those are the kind of assets I like to own, something
that actually is going to deliver, and hopefully deliver to meet my expectations over time.
A piece of art, you know, may go from $1,000 to $50 million, but it's dependent on what
the next guy wants to pay me. The art itself— the painting itself is not going to dispense

PAGE 8 OF 8
cash. So I have to find somebody that's going to like it more. And with most— with an
asset like gold, for example, you know, basically gold is a way of going along on fear, and
it's been a pretty good way of going along on fear from time to time. But you really have
to hope people become more afraid in the year or two years than they are now. And if
they become more afraid you make money, if they become less afraid you lose money.
But the gold itself doesn't produce anything.
BECKY: Well, speaking of gold, though, we're looking at gold prices and they were at
another record high. They're up another $3 today, $1,434 an ounce. And there have been
some big fat hedge fund managers, like a Paulson or a David Einhorn, who have really
buckled down on these bids. Why would you steer clear? And do you think what they're
doing is the wrong thing?
BUFFETT: Well, I just don't know. I don't know whether cotton's going to go up.
BECKY: OK.
BUFFETT: I mean, we use a lot of cotton. I've watched it go from 80 cents to $1.90. You
know, we use a lot of copper and I've watched it go from $2 to $4-plus, so I mean there's
all kinds of things in this world that are going to go up and down in price. You know,
maybe hamburgers will tomorrow. And— but I— I'm— I don't know how to judge that. I
do know how to judge to some extent the earning power of some businesses. And the
real test of whether you would like it as an investment is whether you would be happy if
it never got quoted again, and just in terms of what the asset did for you. But that
doesn't— I will say this about gold, if you took all of the gold in the world it would
roughly make a cube 67 feet on a side. So if you took all the gold in the world, we could
have a cube that went down there 67 feet...
BECKY: Uh-huh.
BUFFETT: ...67 feet high and that would be the whole thing. Now for that same cube of
gold it would be worth at today's market prices about $7 trillion. That's probably about a
third of the value of all the stocks in the United States. So you could have a choice of
owning a third of all the stocks in the United States or you could have a choice of owning
that little block of gold, which can't do anything but kind of shine there and make you
feel like Midas or Croesus or something of the sort.
Now, for $7 trillion, there are roughly a billion of farm— acres of farmland in the United
States. They're valued at about $2 1/2 trillion. It's about half the continental United
States, this farmland. You could have all the farmland in the United States, you could
have about seven ExxonMobiles, and you could have $1 trillion of walking around money.
And if you offered me the choice of looking at some 67-foot cube of gold and looking at it
all day, you know, I mean touching it and fondling it occasionally, you know, and then
saying, you know, `Do something for me,' and it says, Ì don't do anything. I just stand
here and look pretty.' And the alternative to that was to have all the farmland of the
country, everything, cotton, corn, soybeans, seven ExxonMobiles. Just think of that. Add
$1 trillion of walking around money. I, you know, maybe call me crazy but I'll take the
farmland and the ExxonMobiles.
BECKY: All right, that makes sense. Carl, you've got a question, too?
CARL: I'm still trying to get the image of Warren fondling a giant block of gold out of my
mind.

PAGE 9 OF 9
JOE: Yeah, and his fondling it occasionally was what stuck with me.
BUFFETT: Well, bring me a giant— bring me a giant block— bring me a giant block of
gold and you'll see me fondle like you've never seen before.
CARL: Warren, one question about— my favorite line in your letter, and I'm guessing
everybody's favorite line is about your elephant gun being reloaded and that your trigger
finger is itchy...
BUFFETT: Yeah.
CARL: ...teasing some investors, as some said, about your appetite for acquisitions. One
of the— one of the immediate follow-ups for a lot of investors is, `Well, if he's so ready
what's holding him back?' And with the cash levels that you have, some read into that,
that at these levels, these multiples, Buffett's simply not interested. He wants things to
really go on sale. Is that a coded message that you think stocks need to come down in
order for you to buy?
BUFFETT: No, but it makes it easier if they would come by— come down. But it— we're
looking— you know, as I said, we're looking for elephants. Well, for one thing, there
aren't very many elephants out there, and all of the elephants don't want to go in my zoo
either, you know. So I have to find an elephant that thinks being in the Omaha zoo is,
you know, the greatest thing there is in life, which of course it is. And then I have to
have a feasible price for it, and obviously, the lower stock prices are, generally the more
chance of that happening will be.
But, you know, it's going to be rare that we're going to find something selling in the tens
of billions of dollars where I understand the business, where the management wants to
join up with Berkshire, where the price makes the deal feasible. But it will happen from
time to time, and it'll happen more often when stocks are depressed than where they're
buoyant. But I don't— we are not— even though stocks have gone up close to double
from where we were here two years ago, stocks were really cheap then, and we talked
about it then. Now, that, you know, people were scared but they— stocks were cheap.
They're not as cheap now as they were then. But compared to most assets, they look
attractive. And so it is not the level of the stock market that's scaring me off, it does
make it more difficult to make deals now than it would have been two years ago. But we
only need one.
JOE: Do we— do we still have more time, Beck, or do we got to— do you know? For
this...
BECKY: I know they want to go to a break in just a minute to come back, but we're
going to continue this conversation because this is obviously pretty fertile ground.
JOE: Yeah.
BECKY: A lot of our viewers have questions about this, and I know, Joe, Carl and I have
quite a few questions, too.
JOE: Yeah, I want to ask him just a quick— a follow-up, too, on...
BECKY: Yeah.

PAGE 10 OF 10
JOE: ...because, yeah, let's just wait and I'll ask him a follow-up to. Because you do get
paid back with your investments in dollars. And if those dollars are, you know, are going
to be worth much less in the future then I figure you must— you must figure
policymakers are going to get it together eventually, Warren, or else, you know, paper
money's not going to be worth anything.
BUFFETT: Well, but that's true of— if you're— if you're trained to be a lawyer or you're
trained to be on cable or anything else you're going to get paid in dollars. Now, the
question is, if you have something valuable to offer even if the dollar gets worth less, you
will retain earning power that's commensurate with purchasing power.
JOE: Ooh.
BUFFETT: And if— I mean, Coca-Cola, the— in the year since I've— was born the dollar
has depreciated 94 percent. I mean, it's 16-for-1 in terms of inflation. But if you owned
Coca-Cola in 1930, you've still done pretty well. Or if you owned a lot of good business in
1930. Because they have the ability to extract real earnings in terms of what they deliver
to people. And your doctor is able to charge 16 times as much as in 1930 because his
services are still as valuable. So, as the currency gets worth less, it does not make— it
does not penalize the service or the good that is really needed by other people. The world
adapts.
JOE: Hm.
BUFFETT: And that's why I like businesses or I like my own earning power as the best
assets in a time of inflation. They really can't be taken away.
JOE: Hm.
BECKY: Warren, you started talking about how your— you've got an itchy trigger finger.
I even saw you kind of moving your finger around like you're ready to shoot something.
Do you have any irons in the fire right now?
BUFFETT: We had an iron in the fire that got taken out of the fire just a day or two ago,
which did— a deal that did not— somebody else beat us out on it. And I've always got a
gleam in my eye, you know. I'm always looking at the girl, but the girl may not be
looking at me. I mean, that's my problem. And we— but we will always have something
that is at least a very, very, very low possibility; somebody that's talked to me and said,
you know, Ì'll see what my board things,' or who knows. But we certainly have nothing
that's a high probability at the— at the moment.
BECKY: Was this thing that you just talked about, the— this deal that was potentially
there, was it a— an elephant?
BUFFETT: It was a— it was a— hm, maybe a zebra, you know. Sort of— I mean, it was
big enough to fit a— to make the zoo more interesting, but it— but it wasn't one to
cause, you know, new crowds to come out.
BECKY: OK. So it's not as big as Burlington Northern.
BUFFETT: No, no.

PAGE 11 OF 11
BECKY: But it was something that was substantial.
BUFFETT: It was something that caused my heart to beat faster.
BECKY: OK. We're going to talk a lot more about this because ever since you mentioned
that you have an itchy trigger finger in your annual letter, it's got all kinds of people
trying to speculate, figure out what you might be interested in.
BUFFETT: Yeah. But I would say this, Becky. I've had an itchy trigger finger all my life. I
mean, I just, I got a free ad out of it in the annual report this year.
BECKY: OK. We'll talk more about that when we come back. Carl ..
CARL: OK, Beck, a lot more still to come with Warren. What a great first 30 minutes of
the show. Joe, you were saying it's like— it's like a lesson with Graham and Dodd, right?
JOE: Right. I said that yesterday.
CARL: I mean, it's the basics of investing.
JOE: Someone made me tweet. He's the closest thing to the living epitome of, like— and
you can't argue with it. There's $60 billion behind saying that.
CARL: The scoreboard doesn't lie.
JOE: The scoreboard doesn't lie, no.
CARL: Winning.
JOE: Right. Winning. He's a warlock.
CARL: Winning. He is a warlock. He is a god.
JOE: He is a warlock, and he likes to fondle gold occasionally, apparently.
CARL: When we come back, you asked for it, now Squawk is delivering. Buffett answers
your e-mails when we return live from Omaha.
***
BECKY QUICK: Welcome back, everybody. This is a special edition of Squawk Box.
We're live in Omaha with Warren Buffett, who's taken the time to sit down with us today
and not only answer our questions, but also the questions that you've been sending in as
well. And, Warren, we appreciate that. We got lots and lots of questions that came in.
Carl mentioned that the probably most intriguing line of your letter was this idea that
your elephant gun is loaded and you are ready, got an itchy trigger finger. That's what
sparked a lot of the questions that came in. So do you mind if we play rapid fire real
quickly with some of these questions?
BUFFETT: OK, go to it.

PAGE 12 OF 12
BECKY: All right, the first one, let's say, comes in from Miykael in Canada, who writes in,
"With articles mentioning that you're looking for major acquisitions, with the economy
favoring the low-cost segment, wouldn't Family Dollar be an ideal fit?"
BUFFETT: Well, there are a lot of

companies that would be a fit at a
price. It's easier for us to buy
businesses that are privately
owned than ones that are trading
on the market because people— I
don't care what the market price
is in terms of what they're worth
to us. But generally speaking,
people, in evaluating mergers and
acquisitions, look at the premium
pay to the market price and
decide whether that's a fair price
or not. A fair price to us is one
that— where we think we're going
to get our money's worth in terms
of future earnings, and I would say that we will generally have more luck with private
businesses than public businesses, although Burlington was a public company, yeah.
BECKY: Mm-hmm.
BUFFETT: Most companies— most good companies sell at prices where if we were to pay
a 20 percent premium to market, I would not want to buy them.
BECKY: Right.
BUFFETT: I mean, if you look at 50 large companies that would sort of fit the elephant
category, if you add 20 percent to that price, I don't want to pay that for the business.
There's a few exceptions to that, but not very many.
BECKY: All right. Well, let's talk about a private company. We had Whitney Tilson on our
air earlier this week. He said he knows nothing, but it struck him that Mars might be an
interesting company.
BUFFETT: Well, Mars is a wonderful business, and we're their partners in Wrigley. And if
the Mars family were to ask me about selling their business, I would say keep it.
BECKY: Mm-hmm.
BUFFETT: I mean, if you own a wonderful business in life, the best thing to do is keep it.
All you're going to do is trade your wonderful business for a whole bunch of cash, which
isn't as good as the business, and now you got the problem of investing in other
businesses, and you probably paid a tax in between. So my advice to anybody who owns
a wonderful business is keep it. Now, sometimes there's a— some reason in terms of
taxes or family situations or whatever it may be that a wonderful business is for sale. But
I have told a number of people who've come to me who have wonderful businesses, if
you can figure out a way to keep it, keep it, because all you're going to do is take that
billion dollars you get, or 5 billion, you're going to pay some tax on it, now you're going
to go out and buy some stocks, and most of those stocks you buy are not as wonderful as

PAGE 13 OF 13
the business that you already owned, and you don't know as much about it and, you
know, so sometimes it pays to know when you're well off.
BECKY: So why does anybody ever sell to you?
BUFFETT: Well, they sell because families subdivide, procreate or whatever you want to
call it, and sometimes people lose interest in the business. We bought a company called
See's Candy, one of our very first purchases back in 1972. Mary See had several
grandchildren, and one of the grandchildren— grandsons was very interested in running
the business, and one was less interested. And the one that was interested died, and the
one that was less interested then decided to sell. It's lots— there's human dynamics that
enter into it. But you should never sell a good business just to get money. That does not
make sense.
BECKY: OK, let's take a few more viewer questions. This one's number 96, and he—
again, this is Paul in Thailand, who wants to know, on this unloading the elephant gun,
are you planning to unload in the United States or outside of the United States?
BUFFETT: Anyplace I can buy. I can't afford to be picky. There are so few chances out
there that, you know, four or five years ago I was very lucky because I got a letter from
Israel about Iscar.
BECKY: Mm-hmm.
BUFFETT: And I'd never heard of the company before, but I could tell it was our sort of
business and our sort of management. So I would hope to get another letter like that
tomorrow, and I don't care whether it comes from the UK or Germany or France or
wherever. It's more likely to be the United States than any other place. But we have
certainly not bought our last international company.
BECKY: Well, someone else writes in— Sergio from Mexico, he wants to know, "Is there
some reason not to use the elephant gun on the stock market? For instance, increasing
Wells Fargo to the 10 percent limit, or buying a lot more Wal-Mart?"
BUFFETT: Yeah. Well, we've done— in the last year we've done both of those things. We
bought some more Wal-Mart, some more Wells Fargo.
BECKY: Mm-hmm.
BUFFETT: And I like those businesses, and I like the prices at which they sell, and I like
the managements. But if I had my choice, I would rather buy a big business if it's all our
criterion. But we have 60-plus billion in common stocks, and those are pieces of
businesses that I like. And most of those businesses— now, Wells Fargo we couldn't buy.
We can't buy a bank. You know, Coca-Cola isn't going to sell out to us, Wal-Mart isn't
going to sell out to us. So we would be very happy owning 100 percent of those
businesses at the prices at which they sell, or otherwise I wouldn't buy the stock.
BECKY: OK. Roman from Pittsburgh writes in, and I think I know the answer to this one,
but he wants to know if you'd be interested in purchasing more US-based railroads at the
right price. You can't do that, right?

PAGE 14 OF 14
BUFFETT: That would be pretty tough, yeah. In fact, when we bought the BNSF, it
wasn't actually required by law, but we thought it was advisable to sell our holdings in
the Norfolk Southern and the Union Pacific. And that probably cost me at least a billion
dollars. I liked those stocks. I mean, I knew those companies were going to do well. And
legally we didn't have to do it, but we thought that probably was a good idea. And now I
think it's a bad idea.
BECKY: But it's not a reflection of your vision for the rest of these railroads?
BUFFETT: Oh, no, no. I thought— I would have— I would have bought more of those
railroads. That— those— the railroads have a common future. The big railroads in the
United States have a common future now. I like the ones in the West a little bit better
than the East, but there are fundamental reasons why railroads were going to do well,
and— no, if I could be loaded with— at least at the prices of a year ago, if I could have
been loaded with other railroad stocks as well as buy the BNSF, I would have done it.
BECKY: Carl, you have a question, too?
CARL: I do, Warren, and I hope you won't mind me again plumbing through the letter,
which obviously has a lot of information and a lot of insight. You talk in one area about
your managers and how they love to work at Berkshire in part because they're not
subjected to meetings at headquarters, or— nor financing worries, nor Wall Street
harassment. And I know you pick your words carefully. Do you think bankers have been
harassed, and do you sort of agree with what (JPMorgan Chase CEO) Jamie Dimon said in
Davos, that he's tired of hearing about blame being placed on, as he put it, bankers,
bankers, bankers?
BUFFETT: Well, I wasn't thinking specifically of bankers or JPMorgan on that, but I

think— I would say that in talking to managers of publicly traded companies, I find— I
would say that the great majority of them do not particularly enjoy the interaction with
Wall Street. I mean, they do not like the quarterly conference calls and everything. That's
not to say they shouldn't do it, but I'm just saying that is a part of their job that if they
didn't have it, they would be happier in life. They do not like spending, you know, 15 or
20 percent of the time— I spend no time, for example, with any specific analyst. We
spend all the weekend of the annual meeting, you know, we're there to answer questions
for hours and hours and hours, and I try to answer all questions that I think are
important than I can think of in the annual report. But I have never sat down— I never
sit down with a big investor. They write and say, you know, `We own $500 million worth
of stock, you have to sit down with us.' And I say, listen, I'm not going to sit down with
you. We got, as far as I'm concerned, one share of me owned by some, you know,
woman in my neighborhood is just as important as yours. And— but most managements
kowtow to large investors. In fact, they call me— some of the things we own, they call
me and they want to come from thousands of miles away to talk to me. And I say listen,
if I need to talk to you, I shouldn't own your stock. I mean, I don't— I don't need to be
schmoozed, you know? I mean— and the investor relations guys hate that because their
job is dependent on, you know, making the boss feel it's very important to go around and
stroke these big investors. But I'm not looking for that. And I would say that most
managements don't enjoy it, and it does spend— they do spend a significant part of time
when I would rather have them out there figuring out ways to cut costs or sell more
goods or whatever it may be. And our managers do not have to spend any time on that
sort of thing.

PAGE 15 OF 15
CARL: So that's more of a— that's just more— it's a function of being public, or having
investor relations to deal with, period.
BUFFETT: It's a— yeah, it's a function of succumbing to what investor relations people
and Wall Street generally tells you is important. I don't think it's important to schmooze
investors. I think in the end you get a class of investors— what you want is people that
understand you and your business and what you're about.
JOE: Right.
BUFFETT: And the idea of trying to cultivate new people all the time, you know, there's
only so many seats in the church. And at Berkshire, in terms of the A stock, we have a
million, 600 and some thousand seats. The only way a guy gets a seat is for somebody
else to leave. I'd rather— I'd rather keep the person that's there than to try and induce
somebody else to, you know, go out a thousand miles on a trip and tell them, you know,
things are wonderful and sort of dodge around the problems of the business. I'd much
rather do that than— I'd rather keep the person that's there already, have people that
know and understand Berkshire, and not look for a revolving door constituency.
BECKY: Hey, Warren, real quickly, Joe has a question too. But on that point, William
Anderson writes in from Salem, Oregon, and he says that, "We often hear that Berkshire
shares are undervalued. You indicated that it was painful, comparable to `preparing for a
colonoscopy,' to issue Berkshire stock, such as for the purchase of BNSF. With so much
money in the bank, why are you opposed to having invest— to investing Berkshire money
into a stock buyback and reducing the flow of the Berkshire stock?"
BUFFETT: Yeah, we announced one buyback some years ago when the stock, A stock
was down in the low 40,000s. And by announcing, it was self-defeating. I mean, the
stock went up. And there are times when I've— would have liked to have bought a
significant percentage of Berkshire in the market because I thought it was— it would
have been— increased the per-share value of the remaining shares.
If I'm going to buy you out in order to benefit Joe and me, I want to tell you first that I
think I'm buying you out cheap. Now, if you still want to sell to me, you know, that's fine
and you've been warned and— but the very act of me telling you that, particularly in a
stock like Berkshire, is probably going to make the whole exercise self-defeating. It
certainly did a couple of years ago. So it isn't much of a tool for us. I think it's a great
thing to do if your stock is selling well below intrinsic value. Now, 40 years ago, most
buybacks— when Henry Singleton was buying back Teledyne, when Paul Getty was
buying back Tidewater Oil, all of those stocks, they were buying them because they were
cheap. They were buying dollar bills for 60 cents. I would say that my experience with
managements in the last 20 years is that they like buying their stocks when they're high.
They, you know, just look at the buybacks that took place in 2006 and 2007 and then
look at what those companies were doing in 2008 and '9. They were not buying back
their stocks at a small fraction of what they'd been selling for earlier. Managements—
many managements just like the idea of having their stocks sell as high as they can,
except when they're issuing options to themselves, they like it low then, and the— my
attitude is entirely different. You buy your stock back when you think you're buying it for
less than it's worth, and you tell the people that you're buying it from that that's the
reason you're buying it. If they want to sell it to you, then, you know, both sides benefit.
BECKY: OK. Joe.

PAGE 16 OF 16
JOE: Thanks, Beck. Hey, so Warren, I'm sitting there thinking about, there's more than
one way to skin a cat, and I'll get some mail on that, I know, but I think about the way
you do things and then, just for an example, I think about Ron Baron, and the way he
has— he'll identify something, I don't know how the heck he does it, Apple or Netflix, and
then he'll ride that baby and it will turn into like a grand slam. And I don't usually see you
buying First Solar or some battery company for lithium cars, I— you know, it's just not
your thing. And I wonder whether that's because— I thought about it, if you get a single
every time— and you love baseball— if you get a single every time you're up at the plate,
you— and you just keep getting singles, you will score more runs than if you get a home
run every four or five innings or something. And maybe that's your attitude, but I think
about what the government tries to do in picking these home runs, these alternative
energy investments, and you don't do it. And I wonder why is it that you do don't do it?
You need a real business before you'll put your money down.
BUFFETT: Yeah, I'm not— I'm not smart enough, Joe. I have enough trouble seeing the
past; seeing the future's really difficult for me. So I can look at something like Wrigley's
chewing gum, you know, which started, I think, around 1892 or something, or Coca-Cola,
1886, and if a product since 1886 has increased its per capita consumption every year for
124 years, almost, I, you know, I can figure that one out. I'm not— I'm not good at
picking things for the future. Now, interestingly enough, the one company that you might
say I was reasonably good at doing that at was GEICO, where I went there 60 years ago,
I've got a 60-year pin here from a month ago. I had it explained to me by a remarkable
man when I was 20 years old why GEICO had an extraordinary future, and the basic
reasons he explained to me then are still operative today. So that is something, literally,
where we have ridden out our own form of Amazon or Netflix or whatever it might be
because I understood the reason why they had a fundamental advantage which would
last forever. The competitors would not figure out how to take it away from us. But that's
a hard thing for me to figure out about some new product. I mean, you know, Becky
could show me some instrument she's carrying around that, you know, keeps her in
touch...
BECKY: Not me. Maybe Carl.
BUFFETT: Well, maybe Carl, but it keeps her in constant touch with, you know, Carl and
you. I'm not sure why she'd want to, but that's another question. The— and— but I
won't— I won't under— I won't understand it, you know. But I can understand why
people drink Coca-Cola and I can understand why they chew gum and I can understand
why they insure with GEICO. And so I am limited by the things I can understand. And I
understand things that happened in the past and which ones are likely to repeat and
which ones are hula hoops or pet rocks. I can— I can make those decisions reasonably
well. I am not good at listening to 20 guys who've got great new ideas about things that
are going to change the future...
JOE: Well...
BUFFETT: ...and figuring out which one of the 20 is right.
JOE: But I wasn't headed to a political question, but I just— if you can't do it, that's why
I just wonder whether assets are well-spent by a government trying to decide what the
next— what's going to power the world 10 or 15 or 20 years from now. That was my
point. If you can't do it, why do they think they can do it?
BUFFETT: Well, you're in charge of politics this hour, Joe, so I'll let you make that point.

PAGE 17 OF 17
JOE: Yeah.
CARL: You...
BUFFETT: But, no, I share some of your doubts, I share some of your doubts, Joe.
JOE: You dip your toe— you dip your toe into it. I'm going to get you going, believe me.
We've got three hours.
BUFFETT: I can go to it.
JOE: You signed on for it.
BUFFETT: Yeah.
JOE: I'm going to get you going on some of this stuff because you are...
BUFFETT: OK.
JOE: You are as...
BUFFETT: I've been warned.
JOE: You are— you are as die-hard a capitalist is anyone on the planet, and in some, you
know, I— some people use you— you're used by both sides of the political aisle to move
the, you know, to prove a point, so.
BUFFETT: Hm.
JOE: I know you know that.
BUFFETT: OK.
JOE: All right.
BUFFETT: I've been warned.
CARL: We'll come back to you guys in a little bit. Of course, Warren and Becky talking
there in Omaha with us this morning.
***
CARL: Speaking of cars, someone who knows an awful lot about that business from
multiple directions, Becky, is the man who's with you this morning, Warren, in Omaha.
BECKY: That's right. In fact, he was glad to hear Mike Jackson just talking. He said this
is important and he'd like to talk about it. What are you thinking?
BUFFETT: Well, it— what Mike talked about is— gets back to that regenerative capacity
of capitalism. We were sorting out 16 million cars a year not so many years ago. When it

PAGE 18 OF 18
fell to nine and fraction million, when people were panicked, it was going to come back
from that. We were— the scrappage rate was higher. Americans haven't lost their love
affair with cars. More Americans were going to be in the country every year. So now it's
back to, is— I think he said 12.4 or something like that in February.
BECKY: Mm-hmm.
BUFFETT: And it's going to come back beyond that. I mean, it— well beyond that. And
that really isn't a function of saying cash for clunkers or isn't a function of monetary
policy or fiscal policy, it's a— it's a function of the fact that Mike is out there trying to
figure out ways to sell more cars, people want to buy more cars, money is cheap, the
economy is coming back, and it feeds on itself over time. And you will see 12.4 look like
a very low number in a— in a few years.
BECKY: Mm-hmm.
BUFFETT: And that is happening throughout America. It happens in different places at

different times. It hasn't happened in homes yet because there was a bigger surplus to
clean out. But in the case of cars, you can postpone it a day or a week or a month buying
it, but scrappage rates count over time.
BECKY: Sure.
BUFFETT: And there is a normal number of cars on the road for a given population in a
place like the United States, and we fell below that for a while and now we're coming
back, and we're going to keep coming back.
BECKY: Somebody just wrote in, wanted to know if you'd be interested in buying Auto
Nation.
BUFFETT: Well, it's a good business.
BECKY: Yeah.
BUFFETT: It's a good business.
BECKY: All right. Warren's going be with us again for the rest of the program. We've got
a lot more to talk about and a lot more of your questions to get to. Our conversation is
just getting started this morning. More on the economy, politics and the best investment
bets right now. Again, much more from Warren Buffett, Squawk Box will be right back.
***
CARL: Welcome back to Squawk here on CNBC. I'm Carl Quintanilla along with Joe
Kernen; Becky Quick this morning is at the Durham Museum in Omaha, Nebraska, with
the Oracle of Omaha, Warren Buffett, who's with us for the entire show. We've already
gotten one hour down, Joseph. You look like you've learned a lot already.
JOE: Yes. I've learned a lot and I've got--and I'm...
CARL: Your elephant gun is loaded with questions still.

PAGE 19 OF 19
JOE: Yeah. Yeah, it...
CARL: And your--and your...
JOE: Or do I just like you? I--and I'm craving more--I have more questions...
CARL: Yeah.
JOE: ...and I'm craving more answers.
CARL: We've gotten a lot so far.
JOE: Right.
CARL: We'll get to Becky and Warren in just a minute.
***
CARL: Want to get back to Omaha, where Becky is this morning, fielding questions not
just from herself and Joe and me, but from viewers. How many--how many questions do
you think, Becky, we've gotten total?
BECKY: Oh, thousands of them at this point, and I know they're still coming in fast and
furious this morning. We're trying to go through those ones this morning as they're
coming in. But we got some really thoughtful questions. This is the fourth year in a row
that we've sat down with the Oracle of Omaha and talked to him about that annual letter
just after it's come out. This time, though, we did it a little differently. We're here on a
Wednesday instead of a Monday. And, Warren, that actually gave the shareholders and
the viewers a lot more time to go through this letter and come up with some pretty
thoughtful questions. So we want to work in as many of these as we can today.
BUFFETT: We may have to go back to the old system, I think. They're tougher.
BECKY: These are tougher questions. One thing I do want to bring up, though, from the
annual letter. You wrote about how capital spending at Berkshire is going to be up above
$7 billion this year.
BUFFETT: Yeah, eight billion. Yeah.
BECKY: And that's--and more than a billion dollars above where it was last year.
BUFFETT: Yeah.
BECKY: So the--that's some pretty significant spending. You also said that all that
spending is going to be taking place right here in America.
BUFFETT: Yeah. We spent about six billion last year, 90 percent of which was in
America, 5.4 billion.
BECKY: Mm-hmm.

PAGE 20 OF 20
BUFFETT: This year it'll be up two billion, roughly, to eight billion, and all of that
increase will be in this country. We--there are plenty of things to do in the United States
that make--that make good economic sense. And, you know, we've got the money to do
it and it--particularly true in our capital-intensive businesses like the railroad and I--like
our utility businesses. But we're spending money in the residential home construction
business not because we see the orders today, but it takes time to build a plant for Johns
Manville and, like, we want a brick plant in Alabama. That brick plant's going to lose
money this month, it's going to lose money next month, it'll lose money the month after.
But we are buying the ninth largest brick producer, and we know that one year, two
years, five years from now people are going to be using a lot of brick in houses. And we
could buy it at an advantageous price, so we're...
BECKY: You think that that's a general sense in business right now? Because Jack Welch
was with us yesterday, and he pointed out that in the businesses he knows--at Hertz, for
example, if you look at the S&P 100 companies, the spending with Hertz that they're
doing is up 15 percent from a year ago. If you look at the S&P 1000, it's only up by 6
percent. And if you look at the S&P 2000, it's only up by 2 percent. Do you get that same
sense of this graduated confidence about the economy, depending on how big the
business is?
BUFFETT: Well, I think it's more what you're seeing in your own industry. Men...
BECKY: Mm-hmm.
BUFFETT: But we aren't seeing it in residential homes. And I mean--or I'm not buying a
brick plant because I see a demand for brick next month.
BECKY: Mm-hmm.
BUFFETT: But this country used 10 billion brick a year five years ago when we were
building a couple million homes, we're using about three billion brick a year. But it isn't
because people have lost their interest in brick or its utility or anything has changed, it's
just residential construction's down a lot. But that's not going to happen forever. And a
brick plant is going to be more costly to construct five years from now than now. So if
we're getting something that's state of the art, you know, now's the time to buy it if
you've got the money. And we've got the money.
BECKY: Well, let's talk about a big announcement that just came out late last night,
NetJets is going to be buying, it looks like, 50 global business jets valued at about $2.8
billion dollars from Bombardier, and you've got options for another 70 global aircraft. If
you buy all these, it's going to be retail price exceeding $6.7 billion, and that'd be the
largest aircraft purchase in the history of private aviation.
BUFFETT: That's true. Yeah. We--and we did the same thing in small cabin aircraft with
Embraer some months ago. So we have committed in two of the three categories, they're
still the midcap, and--but we've committed huge amounts in the anticipation of demand
that occurs over the next 10 years. Now, you don't build planes overnight, you don't get
demand for them overnight. But there will be an increase in general aviation over the
next decade, and we have--we think this is a good time to make those commitments. We
can make a commitment better now than when the people are selling planes by the--by
the--by the bucketload. So there will be--there's some anticipatory activity that we
engage in, and some companies may not do that. They may not have the money to do it.
But as demand comes on, you will see--you're going to see a pick-up this year. And those

PAGE 21 OF 21
figures you quoted about capital expenditures, my guess is that that expands as the year
goes along.
BECKY: Right.
BUFFETT: I mean, people--a lot of people don't respond--and you can understand it--
until the order comes in the door. But as business picks up, everybody wants to start
playing again.
BECKY: Right. Joe:
JOE: Yeah. Oh, I'm just--I'm not going to--not even going to make the comment that
he's not investing a lot in any high-speed rail company. But never mind. Not that--that's
neither...
BUFFETT: Our trains--our trains--our trains go pretty fast, Joe.
JOE: But--I know. I know. Not that--that's neither here nor there. But aviation does have
a pretty good--that's a better way to--you know, if you're going to go between Fargo and
Milwaukee, Carl, you don't need to get on a high-speed rail, right?
CARL: How about Tampa-Fort Lauderdale?
JOE: No! No! No! You do not!
CARL: Now, that's just crying out for high rail.
JOE: You do not! Hey, I didn't hear your...
BUFFETT: Joe, let me get...
JOE: Go ahead.
BUFFETT: Joe, let me give you an interesting fig--let me give you an interesting figure.
The 800-and-some miles of rail they're talking about in California, high-speed rail, I think
they've talked about a cost of 43 billion for that. We bought the Burlington with 23,000
miles of main route railroad and tens of thousands in sidings and all of that, 6,000-plus
locomotives, how many cars I don't know, tunnels, bridges--we bought the whole thing,
counting debt, for about 43 billion. So as you can see, there's--it's pretty expensive to
build that stuff.
JOE: Don't--I understand. It almost sounds like you're agreeing with me. I don't want--I
don't want that. Hey. I didn't hear your answer on Auto Nation, Warren, because they
were in our ear. Do--you say that's a pretty good business? Is that--did you...
BUFFETT: Yeah.
JOE: Yeah?
BUFFETT: Yeah, my impression--I don't know it in detail, but my impression is that's a

pretty good business.

PAGE 22 OF 22
JOE: Becky, did Mike Jackson sign that e-mail, or did he--what...
BECKY: No. It actually came from--it actually came from somebody in our--in--our
Washington bureau chief.
JOE: Oh. Oh, oh. I thought he wrote in, do you want to buy...
CARL: Because Mike is in Washington today.
JOE: Yeah. I thought it was signed, `Do you want to buy Auto Nation?' signed Mike
Jackson.
CARL: Right.
JOE: Which would have been...
BECKY: No, no, no.
JOE: That--oh, OK. All right.
BUFFETT: No. I would...
JOE: Never mind.
BUFFETT: I would--I would have--I would have sent a car for him if it did.
JOE: Hey, the other thing I was thinking, Warren, I love the phrase "morning in America"
and "America's best days are ahead," and you say that all the time. And I--you fervently
believe it, I fervently believe it. I'm wondering whether you think American
exceptionalism is real, or whether capitalism and the way we practice it here imbues
America with that exceptionalism. Is it us, or is it the system itself?
BUFFETT: It's--well, it's overwhelmingly the system itself because human beings had
desires to live better lives three or four or 500 years ago, and they were natively
intelligent and they worked like hell, they worked harder than we did. So there's always
been the human input, but the output really wasn't commensurate with, you know, the
quality and the intensity of the input. And then a system came along in the United States
which, to a significant extent, believed in a rule of law, it believed in the rule of the
marketplace, it believed in equality of opportunity--none of these were perfect, but that
system unleashed human potential like never before. And now what you've seen is you've
seen other countries around the world in their own way copy it to some degree. And they
haven't had to get smarter in a native sense, they haven't had to work harder. They've
simply had to have something that let a 500-horsepower motor in the human body churn
out something like 500 horsepower instead of only turning out 50 horsepower like it did
for millennia.
JOE: But are we declining--is it morning in China? Is it--is it--is it midday here?
BUFFETT: Yeah. It's morning in China, but it's morning in America. I mean, China will
grow faster than we're growing, obviously, because they're coming from a lower base.
And that'll be true of other countries around the world. But the fact that we can't--you

PAGE 23 OF 23
know, it's a little problem I have with Berkshire. I can't--I can't grow Berkshire with a
$200 billion market value the same way--at the same percentage rate as I could when it
was a few hundred million. But it can still be plenty satisfactory. It--the percentages can't
be as great. And the United States cannot grow at the same rate as a China can, but they
start from a far, far lower base. And we ought to be happy that they're doing well. It's
not a zero sum game in the world. We do not want to be an island of prosperity in--
among seven billion people, and have 300 billion people doing very well here and have
the rest of the world in--you know, in squalor because that's not a good idea under any
circumstances, it's probably not a good idea as a humanitarian. But beyond that, it's not
a good idea when some of these other guys have nuclear weapons.
BECKY: You know, real quickly, on that point, Warren, we got a question from a viewer,
Ivan in Germantown--I don't know if that's Germantown, Wisconsin. He wrote in, "How
concerned are you about the possibility of the dollar losing its status as the world's
reserve currency? And how rapid and how severe would you expect the impact of such a
change to be?"
BUFFETT: Yeah. Well, the

dollar will become less
important over time because
the--America's dominance of
the world economic system
will diminish. It doesn't mean
we aren't going to be the
leading player 25 years from
now, we will be. But what--
this overwhelming dominance
that we've--post-World War II
that we--that we've exhibited
throughout the world, other
countries have caught on to
some degree. And, like I say,
we should be glad they've caught on. Their people are going to live better because
they've caught on. You know, it--the people in China are not smarter than they were 50
years ago natively, they are not working harder. But they have learned how to unleash
their potential, and it's a marvelous thing. But the United States is the example to the
world.
BECKY: OK. Carl:
CARL: Just sticking with the China theme, Warren, we--everybody's watched you with
BYD and trying to gauge your experience in doing business over there. What's the
biggest lesson you've learned about Chinese culture when it comes to business, and what
is your response to those who really see a property bubble in China that will--that will
end in tears at some point down the road?
BUFFETT: Well, yeah, I don't know about their specific markets. I mean, almost any
company--any country that flourishes over time will have hiccups, and sometimes major
hiccups. I mean, look at the United States. We've probably had 15 recessions since the
country was formed, and we've had--you know, we had a very major one here in the last
few years with all of our development of thinking we know all about economics and all
that. So any--countries are going to have hiccups. The main thing is whether they go
totally off the rails or not.

PAGE 24 OF 24
But if you look at China and you look at the physical assets that have been put together
in the last few decades, I mean, it just blows your mind to look at the roads and the
tunnels and the railroads and the buildings. All of that's been put together. And at the
same time, they have accumulated 2.7 trillion of reserves on the rest of the world. Now,
think about the United States. When we were building the United States, building the
railroads and--right here in this area where I am, we were borrowing money from Europe
to do that. It was the smartest thing we ever could do to build capital investment here,
borrow the money and then pay them back later as we became more productive. But in
the case of China, they have built this incredible amount of wealth, and they have not
done it with borrowed money, they have done it while building up 2.7 trillion more than
any country in the world in terms of claims on the rest of the world. So it's a remarkable
situation. Now, it--whether they have booms and busts in their stock market or their real
estate market, I'd be amazed if they didn't. I mean, every developed country that's, you
know, whether it's Germany, whether it's the United States, whether it's the UK, whether
it's Japan, we've all have significant ups and downs. But if you look at where we are
compared to 50 years ago or 100 years ago or 200 years ago, there's really been nothing
like it in the history of mankind.
BECKY: Warren, we've got a couple of viewer questions, actually several of them, but I
want to bring two up right now about BYD...
BUFFETT: Mm-hmm.
BECKY: ...since Carl mentioned this in his introduction to that question. Ray from
Westminster, Maryland, writes in. He says, "Everyone seems to be aware of your
investment at BYD--that's the Chinese electric car company. The stock's deteriorated of
late and I can't seem to get a handle on the firm's profitability. Are they trying to
compete on pricing only, or does their battery technology give them a clear advantage?"
BUFFETT: Well, the battery technology, if it works out like they hope it will, will give
them a clear advantage. But battery technology is a evolving and tough game. And my
partner Charlie particularly thinks that we've got the right fellow to make the
breakthroughs in that--in that area. But it isn't like you get it tomorrow or the next day.
And, you know, there are a lot of smart people working on battery technology. And, you
know, I--in the--in the end, what I hope is the world gets a great answer on it very
quickly...
BECKY: Mm-hmm.
BUFFETT: ...and if it says--if it says "made in Japan," "made in China," "made in the
United States," the important thing for humanity is that--is that we get great battery
technology. Now, like I say, my--Wang Chuanfu is an amazing guy. I'm impressed with
him.
BECKY: The gentleman who heads BYD.
BUFFETT: Who runs BYD.
BECKY: Right.
BUFFETT: And my friend, Charlie, who knows a lot more about batteries than I do,
thinks that this guy is the second coming, more or less. So we'll see what happens on

PAGE 25 OF 25
that. It's not easy. I mean, when you're dealing with batteries, you know, the weight, the
cost, there's all--there are plenty of problems involved, but I will bet significant progress
is made by BYD, but there may be more significant progress made by somebody else in
the next few years.
BECKY: Tony in San Diego writes in and says that, "BYD has lost more than 60 percent
from its peak in 2010. Do you consider buying more shares because of the current
discount?"
BUFFETT: No. Well, who knows?
BECKY: OK.
BUFFETT: With the one thing I--you know, you can talk about everything in my life
virtually except for what we're buying or selling.
BECKY: OK. So that's a non-answer.
BUFFETT: Yeah.
BECKY: But, Joe, you've got another question, too.
JOE: All right, we'll always have--always have more. Warren, I'm trying to figure out
whether you--we're--since we're on the subject of energy, it's fascinating how we're
going to do this as we need more and more. And are you going to play it through utilities
and not really think about what the input is for the--for the energy it's going to come
from? You're not--you're not smart enough to figure that out, or...
BUFFETT: You've got it. You got it. I'm not--I mean, I'm not good at that. I got through
physics OK in college, but that's just because I memorized the formulas. I really never
knew why when you, you know, turned a little switch lights went on or the television
went on. And I still don't know. So I do not have a mind that really has any special
abilities at all, in terms of things physical. So I leave that to others, and I--you know, I
just try and figure out whether people are likely to drink more Coca-Cola next year than
last year.
JOE: But...
BUFFETT: And I can under--I can understand certain--I mean, I can understand if you're
the low-cost guy in auto insurance that--and people have to buy it, that you're going to
do very well over time. But I am not good at insights about the future products. And I do
not sit and try and figure out trends or any of that sort of thing. And I don't--and I don't
pay any attention to people that talk about them because I don't--I don't know enough to
evaluate them myself.
JOE: Yeah, but utilities are going to be there delivering whatever it is that generates the
energy.
BUFFETT: Sure.
JOE: And so that's your--that's the way you're going to participate in that.

PAGE 26 OF 26
BUFFETT: Yeah.
JOE: Because you have...
BUFFETT: Yeah, they're...
JOE: ...you haven't bought natural...
BUFFETT: They're fundamental.
JOE: You haven't really bought natural gas or oil in the ground or--typically, right?
BUFFETT: Not very often, no. And, you know, it--I don't know--the oil picture five years
from now will be to, you know, may be much more dependent on politics than whether I
can pick the best geologist in the United States. And, you know, I know we'll be using
more natural gas, I know it's got all kinds of advantages and it's cheap on a BTU
equivalent to oil and it's cleaner and all kinds of things. But in the end the price depends
on supply and demand. And even though demand will go up some, I don't know whether
supply's going to go up even faster than that. And so far it's been--the last few years I
should say that, you know, natural gas has been pretty disappointing. It hasn't been
disappointing in terms of finding it, hasn't been disappointing in terms of its performance,
it's just been--there's been too much of it around. And I don't know--I'm not good at
figuring out, you know, whether that will change a year from now, or five years from
now, and I'm not in that game.
CARL: I do like your point, though, about batteries. And a big--it's a tough hill to storm,
but if you could--if you could take that hill and turn batteries into something other than
what they are today, that has implications for solar, certainly for BYD. Would you say,
Warren, that battery--the evolution of batteries is where you are most leveraged to
innovation and tech?
BUFFETT: Well, perhaps. And, Carl, you're 100 percent right. I mean, it--and it's going
to happen. It may happen at BYD, it may happen, you know, with General Motors, it may
happen in Japan. Lots of smart people are working on it, and you know it's a tough
problem because you're got to many smart people and it is proving tough to get
accomplished, but it's going to happen. It will happen. And I'm not the kind of a guy
normally that makes a bet on who's going to make it happen. I'm just not that--I'm not
that good at picking the winner in something like that. I know who's going to win in soft
drinks, I know who's going to win in chewing gum, you know, I know who's going to win
in auto insurance. But that doesn't really take any great insights. My partner, Charlie
Munger, believes very strongly that BYD is the most likely winner in this. He's got a--and
he is a lot smarter than I am on this subject and a lot of other subjects. But that doesn't
mean I'd shove all my chips out in the table just because Charlie feels that way.
BECKY: Hey, Warren, before we go to a break, I do want to ask you about one more
headline that came out yesterday and that does concern Berkshire in a very offhanded
way. There's a gentleman named Rajat Gupta...
BUFFETT: Right.
BECKY: ...who was on the board at Goldman Sachs. Apparently he tipped off Raj
Rajaratnam about your investment in Goldman Sachs, that it was coming, that big

PAGE 27 OF 27
investment during the financial crisis. And Rajaratnam made about 900,000 to $1 million
on that trade. The bigger question--I'm assuming you knew nothing about that...
BUFFETT: No, no.
BECKY: ...but the bigger question is, how frequently do you think things like this
happened?
BUFFETT: Well, I think they've happened, you know, I've got no idea in the sense of
any--but they happen. And one of the things I feel the best about is that, in all of the
Berkshire acquisitions we've made, I mean, whether it was Dairy Queen or Flight Safety
or Burlington Northern or you name it, or when Disney--when we acquired ABC and then
when Disney acquired ABC, if you take the whole record of all the ones that Berkshire's
directly involved in, the stocks of the acquired company have actually underperformed in
the week before the announcement. Now, we make a point of trying to get deals done
fast. I mean, and when we did Burlington, it was from a Friday when I made an offer that
Matt Rose conveyed to his directors, and I told them that I wanted a contract by the
following Sunday and I wanted to be able to announce it on Monday morning because I--
if enough time goes by and enough people get exposed to it, somebody's going to talk.
And so far at Berkshire we've been able to do that, but it always worries me because
this--as--and when a deal starts out, the circle enlarges and who knows about. That
Goldman deal, for example.
BECKY: Mm-hmm.
BUFFETT: The time between when I said I would do that deal and when it was
announced was very, very, very short.
BECKY: How short?
BUFFETT: Oh, it was, you know, hours. I mean, and as opposed to a merger or
something that might take a couple of weeks. But it's alleged, I think, that the fellow
heard about it and then went right out and made a phone call. I mean, if they're going to
do that, you know, you're going to have--you're going to have a problem. And I would
say that, you know, it's all kind of--just what you hear from other people, but there's
been a fair amount of trading on inside information, I think, in Wall Street. There's
money in it, you know, and it's tempting to people.
BECKY: Hm.
BUFFETT: It could be a secretary in a law firm, it can be a--it can be somebody at a

printer. I mean, it's--there's just--you can't make a deal without a certain number of
people hearing about it. Now, at Berkshire, you know, I don't even tell the directors. I
mean, I--Mark Hamburg, our CFO, knows about it if I'm working on something. Charlie
may know about it. But I just--I'm paranoid about the idea that if we have 20 people that
know about something, you know, one of them's going to tell somebody. And they may
do it not even to make money or anything like that, they may do it just to show off that
they, you know, that they got all this knowledge or something of the sort.
BECKY: Mm-hmm. OK. Well, again, Warren, thank you very much. And we're going to
continue this conversation in just a moment. Carl:

PAGE 28 OF 28
CARL: All right, Beck. When we come back, a lot more form Warren and Becky in
Omaha. By the way, if you still want to e-mail us, you can today. It's
askwarren@cnbc.com. We'll answer some of your questions right after the break.
***
BECKY QUICK: Welcome back to Squawk Box here on CNBC. We are in Omaha,
Nebraska, this morning at the Durham Museum with Warren Buffett. We're going to be
answering some of your e-mail questions. And, Warren, just again for people who are
coming in late, we're in the Durham Museum in front of the Ernest Buffett Grocery Store.
And this is pretty important to you.
BUFFETT: Yeah. That store was founded my--founded by my great-grandfather,

Sidney...
BECKY: Mm-hmm.
BUFFETT: ...in 1869, which is when the transcontinental railroad was completed. That's
when the UP hooked up with the Central Pacific at Promontory Point, Utah. And my
grandfather had two sons that worked with him, Ernest and Frank, and unfortunately
they both fell in love with the same woman at the store. So she married my grandfather,
and for about 20 or 30 years Frank didn't speak to him and opened up another grocery
store, but not that we carry grudges in the Buffett family. But Charlie Munger and I
ended up working there.
BECKY: Yeah.
BUFFETT: He worked there in the late 1930s, I worked there around 1940, and we never
knew each other. But we did have this experience of working for my grandfather, which,
believe me was an experience. He believes in hard work.
BECKY: Yeah, you wrote about that in the annual letter, as well, and said that the thing
that you learned coming out of that is the importance of liquidity and not getting
overleveraged.
BUFFETT: Yeah. My grandfather left--gave $1,000 eventually, at 10 years after the

marriage of each of his children and my aunt didn't marry, but he gave her $1,000 as
well and he sent them this letter and he said, `Put this money away.' He said, `Don't get
tempted to invest it because some day you may need money and who knows what you're
can do with your investment then.' So you'll always want to have some cash. He gave me
a $2 bill when I was a kid and he said carry this around and he said you'll, you know,
you'll never be broke.
BECKY: Now Berkshire has how much in cash?
BUFFETT: Well, we probably have about--I think we had about 38 billion at the end of
the year, so.
BECKY: It's a lesson you took to heart.
BUFFETT: Yeah. He would be happy.

PAGE 29 OF 29
BECKY: OK. Let's get to some of the viewer e-mails and a significant number of those e-
mails that came in had to do with Berkshire's investments. You spent a lot of time talking
about that in your annual letter. But one that came in from J.P. in Delaware says that
"Given that Wells Fargo is your second-largest equity holding, how concerned are you
with the resignation of the CFO and the manner in which the company disclosed this?"
BUFFETT: Yeah, I don't think the manner in which they disclosed it was very good. The--
but Howard Atkins was a terrific CEO or CFO.
BECKY: CFO, yeah.
BUFFETT: And you know, I didn't know him personally, I never met him personally, but
I--but I watched him on television, I saw what he wrote and everything. It has nothing to
do with their financials.
BECKY: Mm-hmm.
BUFFETT: I spent about four hours last Saturday reading the 10-K and I feel very good
about the whole Wells operation. Obviously, there's something there beyond what was in
the news release and it's a tough thing. If you've got something that neither side wants
to talk about, they're not going to talk about it. And I don't--I don't know the answer
myself. I know it has nothing to do with financials, though, and...
BECKY: That was another viewer question that came in from Clif in Alabama.
BUFFETT: Yeah. Nothing.
BECKY: That--there was at least one analyst who wrote that this did have something to
do with that.
BUFFETT: Yeah.
BECKY: You are 100 percent convinced it did not?
BUFFETT: I'd bet a lot of money that he's wrong.
BECKY: OK. That's one of many questions that have come in, but we also have questions
that have come in about Moody's . Achit in Arizona writes in, "In your FCIC interview,
you spoke of the inherent advantages of a duopoly that Moody's and S&P share. Why
does Berkshire continue to reduce its interest in Moody's? Is there too much headline
risk" for you?
BUFFETT: Well, I think that duopoly is in somewhat more danger than it was simply
because people are mad at the ratings agencies and the ratings agencies totally missed
what was going on in the mortgage market and that was a huge, huge miss. I don't think
they were, you know--I think they were just wrong, like a lot of people were wrong about
in thinking that housing prices couldn't go down a lot, but they were rating agencies and
they've gotten a lot of criticism for it and their business model is sensational when it's a
duopoly. I mean, I have no bargaining power. I'm going to see Moody's in the week or I
think or something about our ratings.

PAGE 30 OF 30
BECKY: Mm-hmm.
BUFFETT: And you know, I dress up and do everything I can to, you know, talk about
my balance sheet. But they--they're God in the ratings field and Standard & Poor's, and I
need their ratings. And if they tell me the bill is X, I pay that, and if they tell me the bill is
X plus 10 percent, I pay that. You know, if Coca-Cola charges too much, you know, you
may think about drinking Pepsi Cola, but in the rating agency business, you need those
two. and if that--either people get so upset with them or whatever it may be, or Congress
gets upset, that could disappear. It won't disappear from natural reasons. I mean, it is a
natural duopoly, just like--it's a little different than Freddie and Fannie were, but they
also had some specific advantage. Sometimes you find situations where you get a
natural--well, you used to have that in the newspaper business. You had a natural
monopoly in big cities. It wasn't--it wasn't illegal, it just worked out that way.
BECKY: Mm-hmm.
BUFFETT: And that's what happened in ratings agencies. But it's not as bullet-proof as it
was. Although, I will say that...
BECKY: Does that explain why you've been selling?
BUFFETT: Well, we haven't sold that aggressively.
BECKY: Mm-hmm.
BUFFETT: I mean, if you look at it during the course of 2010, we sold a very small
amount of the--it looked to me that that threat was receding to some degree. But it's
different than it was five years ago.
BECKY: OK. Another question comes in from Christian in Germany who writes, "You're
invested in American Express, but you don't like credit cards. How does this match?" And
I'm guessing Christian is referring to what you were talking about in your grandfather's
letter.
BUFFETT: Yeah. No, I think--we offer credit cards at our furniture store, our jewelry
store, I mean, the American public is going to use credit cards. I mean, if you say you're
not going to accept credit cards, you might as well say you're not going to accept money
if you're a retailer. But I tell every student class I get, high school students, university
students, you know, they'd be better off if they never used credit cards now.
BECKY: Mm-hmm.
BUFFETT: Now if you use them and you pay at the end of the month so you don't start
revolving, that's another question. But I can't make money if I'm out borrowing, you
know, at whatever the rate may be, 12 percent, 14 percent, 16 percent, when you know,
Libor's a quarter of a percent. I mean, the world isn't that inefficient. So...
BECKY: Right.
BUFFETT: ...I--if I'm going to go broke, if I borrow at credit card rates, you know, what
kind of--they're going to get in trouble. I get all kinds of letters from people who've

PAGE 31 OF 31
gotten in trouble on credit cards. So I think it isn't going to happen, but I think if credit
cards didn't exist, I think probably the economy would be better off.
BECKY: Wow. Does American Express know you feel that way?
BUFFETT: It isn't going to happen. It isn't going to happen. I mean, you know, people
are going to do it. I mean, you know, and I understand why they do it. You know, it's so
nice to think that you know, I want this today and I'll pay for it tomorrow.
BECKY: Mm-hmm.
BUFFETT: But it gets a lot of people in trouble and it's expensive. And it isn't because
the credit card companies are getting rich, incidentally.
BECKY: Sure.
BUFFETT: I mean, I went into the credit card business at GEICO, I thought I was this
genius a couple of years ago and I was going to sell--have credit cards for GEICO
customers because we have them at the furniture mart and other places and I lost about,
I don't know, $60 million later on. Our losses were quite significant. I mean, credit card
companies run big credit losses, it's an expensive sort of business. So it isn't that they're
getting rich, necessarily, at 12 to 14 percent, but that doesn't do their customer any good
that's paying that amount.
BECKY: Let me ask you one more about American Express and then Joe has a question,
too. But David from London writes in, that "as AMEX's largest shareholder, are you
concerned that Congress will reduce the credit interchanges fees as they have done for
debit interchanges? Those account for the vast majority of AMEX's revenue."
BUFFETT: Yeah. Well, American Express has a very special card. I mean, it. The average
American Express card holder, I think, I think they're probably charging, I don't know,
13, $14,000 a year. That's four times of what--or five times, maybe, I don't have the
exact figures, what they're charging at Visa. And the American Express card carries more
cachet, by far, than a Visa and it has more utility in many different ways. American--I
decided the American Express card was special, actually, back in the early 1960s. The
first credit card was the Diners Club card.
BECKY: Mm-hmm.
BUFFETT: And the Diners Club card kind of swept through. It was a--it was a hot stock
and all of that.
BECKY: Mm-hmm.
BUFFETT: And then American Express came in as a defensive measure, they thought it
was going to knock out their traveler's checks. And they priced their card higher than the
Diners Club. Now imagine coming in against the leading guy and charging more. But they
established their card as something special and it is something special. So it is--it is a--it
is a superior card for somebody, particularly, that's a big spender. My wife had one of
those cards that was, you know, one of those black cards that cost a lot of money and
everything. I still carry the green card.

PAGE 32 OF 32
BECKY: OK, Joe.
JOE: Yeah, thanks. So Warren, so I've been sitting here thinking, I understand that
chewing gum, people like to chew gum, I got that, and See's and make--you know, See's
candy. I was thinking, you know, maybe a dental chain might be good, too. But what I'm
getting at--where I'm going with this is I think about media and I think about the
prospects for media and I don't know whether people keep chewing gum. I don't chew
that much, but media is so pervasive and I just look at the outlook for media and I think
about 1.2 billion people in China, but I don't know how to play it right now and I don't
know whether you know how. I just see a huge opportunity.
BUFFETT: I...
JOE: I see a huge opportunity, but I don't know what to do with it. And I'm wondering if
you could help me.
BUFFETT: People want to be entertained and they want to be informed. I mean, the
demand for that is huge, is worldwide, it's going to go on forever. So you know,
newspapers satisfy that in a very important way, particularly on a local basis. And the
nature of newspapers was that you didn't want to subscribe to five of them, you
subscribed to one and if there were two in town and one had 1,000 ads and one had 200
ads, you were going to buy the one with 1,000 ads because it told you were more jobs
were available, more apartments were available, it gave you more sports news and
whatever. So it lent itself to a single product. Now you have media where you go to the
Internet and you can go--you can essentially hop from one source to another, you know,
in a--in a fraction of a second. So it's a different--it's a whole different equation. It isn't--
the desire for entertainment and information, you know, is--will be around forever. It's
insatiable. How to get paid for it appropriately, you know, the world has changed and it's
changed dramatically, and I do not consider myself an expert in the least about where
media is going to go in the next 10 or 20 years. I do not know where the money is going
to be made. Somebody will make a lot of money, but I'm just not that good at picking
the future on it. I understood the past on that. I understood the big network television
station. I mean, back when there were three networks only in the '60s, you could have
run a test pattern, you know, on your television station and made a lot of money. It was-
-it was--it was a cinch. The orders came in over the transom. But all of a sudden they
started putting more highways out there, more electronic highways and the fact that you
had one of the three electronic highways diminished in importance enormously, so now
you've got a network that is getting a 10 percent share, losing tons of money, and you'll
have a network with, you know, a 2 share, like ESPN, making a fortune because of the
way the dynamics have worked out. I don't have any great insights on that for the future.
If I did, I'd--it's just--I'm just not smart enough.
JOE: I hear what you're saying, it's the same problem everyone has. I don't even know,
is it content? Is that king? Or is it delivery, like Apple? I mean, you look at, Apple might
be the perfect company for when I--when I, you know, with all these mobile devices.
BUFFETT: Yeah.
JOE: But I don't even know whether it's content or the distribution that is--that win.
BUFFETT: Well, if you're the best heavyweight fighter in the world, which is the way I
often think of you, Joe, actually, but if you're the best heavyweight fighter in the world, if
you're the best singer in the world, you know, whatever it may be, you've got the

PAGE 33 OF 33
ultimate asset. I mean, the delivery mechanism will pay you one way or another and you
can command it from them. But obviously, I'm not--I'm not in a position to compete in
that game. So the only way I can compete is in the delivery mechanisms and all that and
I'm just not that smart. But the answer is I don't have to be right about everything or
even understand everything, I don't have to know what cocoa beans are going to do or
what cotton's going to do, I just have to right on the decisions I make. So I stay with the
simple things. Now a simple thing many years ago, back in 1965 I owned 5 percent of
Disney and the whole Disney company was selling for $80 million, so at 4 million bucks
bought 5 percent of the company. Well, Disney had a tremendous franchise and they
could bring out "Snow White" every seven years or "Mary Poppins" or whatever it might
be and wrote them down to zero, initially. Well, that was an easy decision. But I don't see
easy decisions like that now and if I don't see an easy decision, I don't play.
BECKY: Warren, let me bring up a question from Pierce in Greenwich, Connecticut. He

writes in about Apple, since you just mentioned it. "Do you feel the Steve Jobs saga has
already taken its toll on Apple's stock price or do you feel it has yet to make its mark?"
BUFFETT: Oh, I don't--I don't know that much about Apple. I mean, all I know is Apple
is an absolutely phenomenal company. I mean, to think of where they were 10 or 15
years ago and where they are now.
BECKY: Mm-hmm.
BUFFETT: And that's been done by innovation. I mean, and I think Steve Jobs has had a
whole lot to do with that. But...
BECKY: I think that's the big question is how important is Steve Jobs to that company?
BUFFETT: Well, he's enormously important to Apple. And you know, Walt Disney was
important to Walt Disney, a company. I mean, there's certain talents that are really rare
and Steven Spielberg is important, you know, to his business. I mean, it--there--people
who can read the needs of the American public before the American public even realizes
that it has those needs, and then have the genius to create a product that satisfies those
needs and gets there fast, and then is attractive, you know, in terms of all kinds of
things, functionality that you can't believe, they deserve to get very rich. I mean, they--
he saw something that I didn't see five years ago or 10 years ago.
BECKY: Mm-hmm.
CARL: I think--it kind of sounds like you're describing Squawk Box.
JOE: Yeah, Squawk Box. We're fast, we're entertaining, but then I also thought, I
thought you were--when you were talking about me, I thought you were eventually going
to end up with either a News Corp or a Comcast, you know, just to pull a name out of
the--out of the thin air.
CARL: Warren knows...
BUFFETT: Yeah.
CARL: Warren knows something of Comcast.

PAGE 34 OF 34
JOE: Or a--or a Disney or something. I mean, I don't know, I'm just--one of those--the
big companies, I think--I think it helps to have some size and some diversity with all your
assets, but...
BUFFETT: Well, but of course, the big companies, you know, if you go back 30 years
ago, they started going for diversity with CBS. I mean, CBS ruled the--it was the Tiffany
network and it even owned the New York Yankees at one point. So it's very tough.
General Motors ruled the world, you know, when I was a young investor. It--Sears ruled
the world of merchandise. It's not so easy to pick the winners. It looks easy in retrospect
always.
JOE: Yeah.
BUFFETT: You know there will be winners. I mean, in media there will be huge winners.
I mean, somebody that can figure out a way to attract millions of users, like just take a
Facebook or something.
JOE: Mm-hmm.
BUFFETT: Imagine that, you know, being in the mind of a guy five years ago and now
millions, hundreds of millions of people, you know, build their lives around it to some
degree. That's amazing. But I am not the guy that can do that, and I'm not the guy who
can spot the guys who can do that. But fortunately, I don't have to be.
BECKY: OK, guys, we're going to continue this conversation, but for now we'll send it
back to you, Joe and Carl, in the studio.
CARL: I still like Warren calling Joe a prize fighter because I picture you at a--at a weigh-
in in your underwear on the scale.
JOE: Oh my God. I got some advice...
BUFFETT: He's--he is...
JOE: I don't--you know what?
BUFFETT: He's known as the Mike--he's the Mike Tyson of cable.
CARL: Yeah. He'll bite your ear off.
JOE: Bite your ear off. I might get one of those--one of those tat--do you think that
would work, one of those tattoos on my...
CARL: Yeah, it would look good. That's a good look for you.
JOE: I don't know.
CARL: Anyway.

PAGE 35 OF 35
BECKY: Hey, guys, before you go, real quickly, let me point out one other thing. We
didn't get a chance to mention this earlier, but I know, Joe and Carl, you have both gone
back and forth, boxers and briefs, boxers and briefs.
JOE: Yeah.
BECKY: Today Warren wore in a special tie which shows some of his interests as well.
CARL: Really?
BUFFETT: Yeah, this is a--I don't know whether you can see this, this is a Fruit of the
Loom tie, and I actually have this for airplanes and GEICO and a bunch of others. But I
thought in honor of you, Joe, I would wear my underwear tie today. At Fruit of the Loom,
you know, our motto is "we cover the asses of the masses," and I thought of you when
we--I put this tie on.
JOE: That is--you know what?

We could not see it, but we just
did. I really--I like that. But I--
Carl's got the right...
BUFFETT: You like that one?
JOE: Carl, you don't have to

choose. You are a boxers
combo brief guy, right?
CARL: Yes.
JOE: And they make

something...
CARL: And you are a tighty whities guy because--you even have the underwear for the
hands, remember? Jane Wells brought you...
JOE: I have underwear--I have underwear...
CARL: ...hand underwear.
JOE: No, I'm a...
BUFFETT: I wish I hadn't started this!
CARL: I know.
JOE: Yeah, I know. I know. But you did.
CARL: Thanks for nothing.
BECKY: You brought it up.

PAGE 36 OF 36
JOE: But you did. And it doesn't take much to get us to talk about this, Warren. Yeah,
we'll...
BUFFETT: I can tell that.
JOE: Oh, yeah, OK, we've got...
CARL: A lot more still to come from Omaha. We still got the ADP number coming, we'll
get that number and the reaction ahead of Friday's jobs number. A lot more from the
Oracle of Omaha as well when we come back.
***
BECKY: All right, welcome back, everybody. We are live in Omaha, Nebraska, at the
Durham Museum. We're speaking to the one and only Warren Buffett all morning long,
and now it's time to get back to some of your e-mails. You've been sending them in, and
we do appreciate them. They've been thoughtful e-mails. Got a lot to get through. And,
Warren, why don't we jump right into this?
BUFFETT: OK.
BECKY: There were a lot of questions that came in regarding Berkshire, people who still
had questions after they read the letter. This came in from Steve in Dallas, Texas. He
writes, "After a year of full ownership of BNSF," the Burlington Northern, "is there
anything you know now about the company that you didn't know from reading the annual
reports, 10-Ks and other public information? In other words, does full ownership confer
additional information advantages that you did not have when you were a minority
shareholder?"
BUFFETT: Well, it would if I dug into it. And, you know, I will learn something
occasionally about--I probably know a little bit more about the Rail Labor Act than I did
earlier. You know, but nothing material. I mean, it--I've only been to the company once
since we bought it, and I get--I look at a few more figures than I might otherwise. But I--
but if I didn't know enough before I wrote the check for 34 billion, I mean, you know, I
was making a mistake. You know, I really have not--I've learned nothing of significance
specific to the railroad. Now, I would say that over the last year my appreciation of the
competitive position of the rail industry vis-a-vis trucking has improved somewhat.
There's--just the other day the truckers announced they're going to have to spend--or
they're going to have to raise prices significantly this year. And so I think if anything, my
appreciation for the competitive advantages of railroad both for the owner and for society
have increased significantly.
BECKY: OK. Let's bring in a question from Richard in Tucson, Arizona, who says, "How
do you evaluate the effectiveness of the $900 million spent on advertising last year at
GEICO?"
BUFFETT: That's a good question. Yeah, people have been asking that question ever
since they started advertising. I think it was John Dorrance at Campbell's Soup 75 years
ago or so when it was a big advertiser, and they said, you know, Ìsn't half your money
wasted in--on advertising?' He says, `Yeah,' he says, Ì just don't know which half.' Well,
we can measure certain types of advertising. I mean, when we do direct mail advertising,
you know, we get a response which gets measured. And we do cold phone numbers and

PAGE 37 OF 37
that sort of thing. But now with three-quarters almost of our quotes coming from people
who come to the Internet, you know, what drives them to geico.com, who knows? I
mean, certainly our television advertising does it. All I know is it's working. In February
we had the greatest gain in policyholders of any month in our history. And it blows me
away.
BECKY: Hm.
BUFFETT: I mean, we had a gain of about 130,000 policyholders in one month. If you
think of 130,000 households, that's like a town of 300,000 just getting added in one
month. And why they come, you know, what--that little gecko does wonders and, you
know, we get in people's minds that they're going--they might save money by checking
with us. And it's a big, expensive item for most people, auto insurance, and if they can
save a few hundred dollars, it's meaningful. So--but exactly why we get more inquiries in
February than we were getting last October, you know, I don't know the answer. All I
know is if I thought spending another billion dollars this year would work in an
appreciable way, I would write a check so fast. I mean, I love advertising.
BECKY: You think the gecko works better than that catchy name, Government
Employees Insurance Company?
BUFFETT: It--who knows what does it. It--one way or another--I mean, we were
spending about 20 million a year when I took over in 1995, and now we're spending 900
million. And all I know is every month I urge them to spend more. I mean, it--we want
every American to at least give us a try. And what we have seen is that of the people
that call us, you know, if they phone us, we're going to get--over 40 percent of those
people are going to become our customers. And when you get that kind of a response,
you know, you better be out there talking to people.
BECKY: OK, let's bring in another question. Robert from Potomac, Maryland, writes in--
and this is something that a lot of people are confused on, so hopefully you can clear this
up. But, "Why did you allow, I assume, the new manager to liquidate many of Lou
Simpson's stocks? If they met your `forever' holding period criteria with Simpson, why
sell? Simpson's record is long-term proven. The new manager has no record long enough
to show a similar competency or that his results are just luck. These stock sales are
inconsistent with your forever holding period advice." So maybe you could clarify what's
really happening there.
BUFFETT: Yeah. Well, we buy--when I say I, I buy stocks with the idea I'd be happy
holding them forever. We don't end up owning them forever, obviously, in many cases,
because you find something else that's more attractive and--or sometimes managements
change and who knows what. But Lou Simpson was managing his own portfolio. He
managed it for 21 years, did a sensational job. But when he said he was going to leave in
June, he and I both decided he was going to liquidate his portfolio between then and the
end of the year. In other words, I never inherit any investment decision from somebody
else. If Charlie Munger made me a gift of 100 shares of some stock, I would sell it then--
and then--I would then decide whether I wanted to buy it again myself. But I do not
believe in default-type decisions on investments. So when Lou left, his portfolio left.
When a new man comes in, his portfolio comes in.
BECKY: And the two aren't related.

PAGE 38 OF 38
BUFFETT: They're not related at all. Lou had maybe 15 or so stocks, generally in the 3-
to $400 million range, and he just sold them proportionally throughout the rest of the
year. He wasn't going to be managing them anymore, and I knew they were probably
good companies, but I didn't want to buy them myself. And there's no reason, if I don't
want to buy them myself, I should tell the next manager at Berkshire--of GEICO to
manage them. Todd is going to be responsible for his decisions, and--just as Lou was
when he was there. And I want it to be Todd's portfolio.
BECKY: OK. Carl, you have a question, too?
CARL: I was just wondering, Warren, earlier you talked about searching--hunting for
elephants or even any business, and occasionally some businesses do not want to sell to
you for a variety of reasons. Does that ever take you by surprise? Do you ever say,
Èxcuse me, I'm Warren Buffett. I'm kind of a big deal, and the opportunity to be owned
by Berkshire doesn't--is kind of a golden ring that may not come around too much'?
BUFFETT: That isn't exactly the way I present it to people. No, it's very--a really good
business, like I say, if it's owned privately, they shouldn't sell. I mean, I--I've been called
in by lots of families, and I--and they're usually good businesses. And I--the first thing I
tell them is that you should keep this business unless there's some compelling reason
other than the dollars you'll get from it. Because you'll get a lot of dollars from me, but
those dollars are not going to buy a better business than the one you've got already. I
mean, I--you know, that's why I'm buying it. So I don't think--the question usually--the
question is now is finding big businesses. I mean, there aren't that many big businesses
in the world, and then I want big good businesses, and that narrows it down further. And
then you have to have people who for some reason or another want to sell on the other
side. And that happens from time to time in America.
I've--I had a fellow come to see me a few years ago, and he loves his business, it's a
wonderful business, and he said, `Warren, I want to sell you this business.' And he said,
Ì want to sell you this business because I'm 61 years old and I'm in good health and I
love running it, but I don't know, you know, what would happen if something happened
to me tonight.' He said, Ì've seen'--he'd bought another business where the family had
fallen apart when the--when the owner had died, and he said, Ì don't want to leave my
wife with that kind of a problem, and my children, and they wouldn't know what to do
with it. So as long as I get to keep running the business, I've got all the money in the
world, and so I want to have the joy of running the business and I do not want to have
the worry of what happens if I'm not around tomorrow.' And he said, `You're the only
guy that can solve that.' So that's the only way I win beauty contests is when I'm the
only guy in them.
CARL: All right, we're going to...
BECKY: All right, I think--go ahead.
CARL: Beck, we'll continue the conversation after we reset at the top of the hour. A lot
more coming up with Warren Buffett and your e-mail questions, plus the countdown to
jobs Friday is ongoing. It includes the ADP number in about 17 minutes' time. We'll get
that number and the instant reaction when Squawk Box comes right back.
JOE: Ho, oh, hey, I thought we would be in...(unintelligible). Welcome back to Squawk
Box here on CNBC, first in business worldwide. I'm Joe Kernen. I'm with Carl Quintanilla
at CNBC headquarters. And Becky, who looks really beautiful.

PAGE 39 OF 39
CARL: Ravishing.
JOE: What'd you do, bring a--who'd you bring--who's out there with you?
BECKY: I have great people out there.
JOE: And Warren looks--yeah--Warren looks good, too. That is Warren Buffett.
CARL: Ravishing.
JOE: Yeah, ravishing. A legendary investor, Warren Buffett, with his--he's wearing an
underwear tie. If you missed it, you should have been tuned in. He's been answering--
he's been answering...
CARL: I think the term was asses to the masses.
JOE: Yeah, asses to the masses. He said that, yeah.
CARL: Yes.
BECKY: Cover the asses of the masses.
CARL: Right.
JOE: Right. All right, answering viewer e-mails for the past two hours. We have many
more questions or e-mails to go. I've got more, Carl has more, Becky has more. Plenty to
discuss with him over the next 60 minutes. First, though, Carl is going to bring us up to
speed, as only he can do, on the morning's top headlines. Carl..
CARL: Joe, thanks.
JOE: You're welcome.
***
CARL: Equity futures meanwhile holding onto some moderate gains, although Europe
continues to be in the red. And, Beck, the market also responding, reacting to some of
the calls that Warren has made in our first couple of hours. Some of them, I think,
relatively bold, right, looking for unemployment in the low sevens by Election Day and
other things like that.
BECKY: Yeah, that's right. You know, Carl, we've gotten through a lot of ground this
morning. In case you missed some of the earlier points, why don't we talk very quickly
about the economy and unemployment. As Joe and Carl mentioned, we do have ADP
report. That report coming up at 8:15. And, Warren, we watch the ADP every month
because we figure it'll give us some indication about what's happening with the big jobs
report on Friday. It hasn't been great in tracking that lately, but do you watch the ADP?
BUFFETT: Well, I don't really. I watch our own businesses. And we've got so many of
them, I get a lot of data coming in all the time, and, you know I don't know how accurate
those surveys are. I do know how many people we've got on the Union Pacific working

PAGE 40 OF 40
every day, or how many people's at Geico. And I was surprised incidentally last year that
our employment only went up 1 percent, whereas our businesses really did a lot more
volume overall. And I don't think we're going to be able to continue that. And there was--
I think as our businesses increase this year our employment will go up much more in
tandem with the rate of increase.
BECKY: What businesses do you expect to see more hiring within the Berkshire family?
BUFFETT: Well, I think most of--I think most of our businesses will hire more people.
And I mean I think our railroad, you know, our railroad during January hired more
people. But I know Geico will hire more people this year. But I think you'll see it. At
Marmon, for example, one of our main businesses there is leasing--building and leasing
rail tank cars. Now, when you see those trains going down the tracks, you think those
cars all belong to the railroads. They don't. The tank cars all belong to shippers or to
people like us who lease them to shippers. We are--and we make those cars down in
Alexandria, Virginia. We are seeing more people interested in buying tank cars for various
things, whether it's--I mean, it could be for ethanol, it could be--could be for all kinds of
things that get carried in tank cars. We're seeing more interest in that in just the last
month or two. We will add people at Alexandria, Virginia, to our tank car line. I don't
know whether it'll be this month or three months from now or two months from now, but
the orders are coming in. And you see that in one area after another in our businesses.
So I think we will--I would be surprised if we don't add more--quite a bit more than
3,000 people this year to our overall employment.
BECKY: You know, you talked in the annual letter about optimism for this country.
BUFFETT: Sure.
BECKY: You've talked about how the economy is improving and how the investing
outlook, you've said, is getting back to a normal situation, that things look very good in
terms of the dividends you expect to be getting paid back from a lot of your major
investments. You also, though, wrote in the annual letter about GE and Goldman . Those
are two companies that you made major investments in preferred shares, and you did
mention that by the end of this year you expect both of those companies to call you on
those.
BUFFETT: Yeah, I made a mistake on those. I should have--I should have snuck in one
sentence that said, "You have to find me if you're going to pay me off." And then, you
know, I would have gone in the witness protection program and Immelt and Blankfein
would have had these people out looking for me. But they know where to find me, and as
soon as Goldman can pay me off, which is determined by the Federal Reserve, my guess
is that they will. GE, by contract, can't pay me off till sometime in October and I think
they will--they've said they will pay us off as quickly as possible. So that--you know, I--
Goldman, I think, I mentioned we get $15 a second as a dividend. So tick, tick, tick,
that's 15 bucks every time. And I love to hear those ticks, but they don't like to hear
those ticks. And as soon as--when the Fed gives them the green light, I have a feeling
that Lloyd will charter a NetJets plane and fly that check out to me.
BECKY: OK. Joe, you have a question, too?
JOE: Yeah, I do. And a--I should say I probably have a follow-up, too, because I'm going
to get to where I'm going, but it always takes a while. I know that. Warren, we think
about jobs in the country and how to get jobs. And then we also think about how to run

PAGE 41 OF 41
businesses. And that huge--or that jet acquisition you made from Bombardier, you could
have bought Gulfstream. Do you--do you ever think about social responsibility in terms of
where the jobs will be--will be generated? That could have gone to Gulfstream, but it
didn't, it went to Bombardier, right?
BUFFETT: Yeah, we think about what will be the best deal for our customers in terms of
what they're going to want in terms of a wide cabin, long-range plane. And in the end the
customer drives every decision we make on something of that sort.
JOE: That's a global--are you're buying--is that plane you're talking about?
BUFFETT: It's a series of four planes over the next decade or so. Eventually they'll bring
in a 7,000 and an 8,000, so there's--and incidentally Gulfstream will be bringing in new
planes over the next decade, too. But we evaluated the options just as we did in the
small cabin planes, tried to decide what, in terms of the demands of our owners, what
they want in terms of range, in terms of cabin width, in terms of all kinds of things, cost,
and made that decision, because in the end we can buy planes, but we also have to sell
planes, and the customer's going to make that decision.
JOE: We--I guess this indicates that both business travel, which I figure use the big
cabin ones, and also--you bought--you bought in Marquis jet, right? That goes more to,
what?
BUFFETT: Right.
JOE: Pleasure? How's that acquisition going, and are we seeing then, you're saying, a
bounce in both business travel and individuals?
BUFFETT: Yeah. And we bought Marquis late last year, and Kenny Dichter, who runs that
operation, is doing a terrific job for us. Our sales of Marquis cards in the month since we
bought it are appreciably ahead of the same months a year ago, and it made sense for us
to buy Marquis and I'm glad we own it. We're seeing--we're seeing increases in both
personal use and in business use. And sometimes it's hard to tell. Sometimes in small
businesses an owner will have $100 or something, and we don't really know whether he's
using it for personal or business use.
But we have seen--we have not seen a surge in demand at all. We have seen our present
customers using more hours per month by a considerable margin than they were two
years ago. They're usage right after Lehman fell off dramatically. They were still paying
us the monthly management fee and all of it. They had the right to the same number of
hours, but they weren't using them. It was amazing to me, because you had these very
wealthy people and they had homes and, you know, that they went to at Christmas or
Thanksgiving. But maybe they started going to them by bus. But our usage really fell off
there significantly in the six months following Lehman. It's come back quite a ways. Our
sales have picked up, but they're not remotely like they were four or five years ago when
everybody was feeling flush. JOE: Well, you're making a huge bet on the future of this.
And, you know, you--sometimes you lessen investments like Washington Post or
something, that it looks like even though NetJets has never--has it been a big
moneymaker for you? You're going in, you know, full bore at this point.
BUFFETT: Yeah. Well, Net, since we bought it, we made a couple hundred million dollars
last year and that brought it--brought us back to where for the full 11 years we more or
less broke even.

PAGE 42 OF 42
JOE: Right.
BUFFETT: So it has not been a satisfactory investment financially. It's been--it's been a
significant winner in the marketplace. We have five times the market share of our leading
competitor. Nobody's gained market share on us, nobody gets the customer satisfaction
reports that we get. But we have not--we have not made money. We were spending
more money than we were taking in, which catches up with you eventually. Under Dave
Sokol, it's now doing very well. But it is now--we have not gone back to a period like
2005 and '06 and '07 when the hedge fund operators and everybody were signing up
hand over fist. We're selling more than we were a year ago and are using more than a
year ago, but it's not dramatic.
JOE: Well, it looks like you're expecting it to be.
BECKY: Hey, Warren, real quickly.
JOE: I'm sorry, Beck, but...
BUFFETT: Well, I...
BECKY: Oh, that's OK. Go ahead, Joe.
BUFFETT: Joe, I just feel if we could get you in the fold that millions would follow you. I
mean, you're a trendsetter. So...
JOE: I have asked you many times for one of the--I don't know how we can swing it,
Warren, but a Squawk jet has been on our list of things to have. You want one, too? A
Liesman jet or a Squawk?
STEVE LIESMAN: Squawk...(unintelligible).
BUFFETT: If you'll just--if you'll just let me garnish your wages I could promise you
you'll be in the--you'll be in the pilot's seat.
JOE: You--can you garnish into the hereafter? Because that's what it would take, I think.
CARL: How about we just put it on a credit card.
JOE: Yeah. Put it on a credit card, that's right.
BECKY: Put it on our AmEx.
BUFFETT: Maybe you and Carl ought to go in together.
CARL: He did send us a brick, and we will never forget that.
BECKY: Warren, let...
JOE: No, you sent--you sent--you sent me a brick and put my name on it.

PAGE 43 OF 43
BUFFETT: Yeah, and I do not remember a thank you note, but maybe I...
BECKY: Warren, I want to ask real quickly, we just put up the picture of Dave Sokol.
He's one of the managers who is repeatedly mentioned as a potential successor. You said
in your annual letter that there's a manager you talk to every single day. Is that Dave
Sokol? Is that a Ajit?
BUFFETT: It's Ajit. I try--I talk to Dave very frequently, but I talk to Ajit every day. We
have a lot of fun talking every day. I forget what the deal was he was--we were talking
about yesterday, but it was--it was some insurance over--as you know, they've had two
earthquakes in New Zealand and then floods in Australia, so that part of the world has
been hit very hard by catastrophe. So there's a demand for more catastrophe insurance,
for example, over there. And so Ajit and I just sit down and try and figure out what the
chances are of another earthquake in New Zealand. And who better than us?
BECKY: You also just saw--we saw some headlines crossing about how Berkshire's going
to be getting into the India insurance sector. That's a new move. Is that what this is...
BUFFETT: Yeah, that just happened. And I think we just got approved within maybe the
last 48 hours. And we are going to have an agency over there that will be selling--I think
it's going to be called Berkshire Direct.
BECKY: Mm-hmm.
BUFFETT: And I'll be over there in about three weeks, and I think by then we will be up
and running. We just got the permit the other day, and so we're hiring people for the
phones and all of that. So that should be fun.
BECKY: Hmm. All right, real quickly, just to bring this back to jobs because we do have
ADP coming out in just a moment, there are a lot of economists who are not expecting
any significant decline in the unemployment rate this year; some who aren't even
expecting any until the end of next year. What's your own personal prediction?
BUFFETT: I think we'll create more jobs this year than we did last year. Now, the
unemployment rate bounces around in kind of a funny way depending on who declares
themselves in the--in the labor force. But I think we will have better luck creating jobs in
2011 than 2010. Just--I just see businesses improving. And I think--I think they were
very reluctant to hired when they first--saw the first robin or two.
BECKY: Mm-hmm.
BUFFETT: I mean, they--they've been through such a painful period...
BECKY: Mm-hmm.
BUFFETT: ...that they just, they were not going to bring a bunch of people back on until
they really needed to bring them on.
BECKY: Mm-hmm.
BUFFETT: But they need to bring them on now.

PAGE 44 OF 44
BECKY: OK. And, Carl, I think you have more on that right now.
CARL: We do. We're going to get ADP, Beck, in about 40 seconds.
***
CARL: Let's send it back to Becky in Omaha. Beck ...
BECKY: Hey, Carl, thank you. You know, Warren, we just heard the ADP numbers here,
and obviously they were a little stronger than had been expected. Everybody's playing
this guessing game right now, though, trying to figure out where the economy stands.
And that brings us back to a discussion we had earlier this morning, trying to figure out
what the Fed does next with its monetary policy. You said if you were Ben Bernanke,
you'd end QE2 right now based on how you think the economy's doing.
BUFFETT: I think the economy is coming back, and I think that we'll never know. There's
probably three big variables in the economy's development, and we like to think of
monetary policy and fiscal policy because we all learn about them in school and all that. I
think the most important factor by far is just this underlying regenerative capacity of
capitalism. I mean, if you go back a century or so, nobody ever heard of monetary policy
or fiscal policy. And we had recessions, and they cured themselves. And they cured
themselves because millions of Americans were trying how to--figure out how to do
things better the next day. I mean, capitalism works. And I think in this particular
recession, I think it was enormously important what the Fed and the Treasury and
government did immediately. They had to end the panic. But I think if you talk about
what's happened in the last year, I think that who knows the importance of the variables
of fiscal and monetary policy. If you--if you ask me, they're number two and three
compared to this natural regenerative capacity. And I--we've had foot to the floor, as I've
said, on monetary policy, we've had foot to the floor on fiscal policy. But I think what's
really getting job--the job done is the imagination, creativity, the energy of the American
public in terms of keeping a system going that's worked marvelously for several hundred
years.
BECKY: Hey, Joe, you have a question, too?
JOE: Yeah, I got a specific one, shifting gears a little bit. Warren, you like--you love
Wells Fargo. You talk about it a lot. You were in...
BUFFETT: Yep.
JOE: Berkshire was in Bank of America , and it wasn't a good experience, and you're out
now. I think you lost two-thirds or something. But, I mean, obviously the financial crisis
hit. But that--that's making some--you're voting with your feet there, I think, what, on
management, on the prospects for B of A? I mean, you like Well--you're staying in
another bank, why would you get out with a loss instead of the...
BUFFETT: Yeah.
JOE: Go ahead.

PAGE 45 OF 45
BUFFETT: I never--Joe, I never bought a share of Bank of America. That was one of the
15 or so positions of Lou Simpson. So he did not make a decision to sell Bank of America
in the second half of last year.
JOE: OK.
BUFFETT: He just--he was liquidating his entire portfolio. He sold a--he sold Nike. He
hated to sell Nike. He loved Nike. But he was cleaning out his portfolio, and Todd's
bringing in a new one. But I...
JOE: OK.
BUFFETT: Bank of America was never part of a portfolio I managed.
JOE: OK. So when you see Berkshire liquidates its entire stake in Bank of America, you
can't say, oh my God, they don't like the prospects--or Warren doesn't like the prospects
for Merrill Lynch...
BUFFETT: No.
JOE: ...or (CEO Brian) Moynihan...
BUFFETT: No.
JOE: ...or you can't draw any conclusions from that.
BUFFETT: No.
JOE: OK.
BUFFETT: Zero, zero. I never bought a share and I never sold a share personally.
JOE: All right. OK.
BECKY: Warren, let's go back just to Fed policy and some of the things that are
happening. Joe mentioned earlier about the idea that the government, not just this
government's printing money.
BECKY: Is it about to overtake us? You start to worry about inflation?
BUFFETT: Yeah. It--you know, in--I think, you know, we've got major problems. And
we're--and I said, we're always going to have problems, so this does not mean I'm
bearish on America or anything. But we have a situation in Congress where we have a 10
percent deficit in terms of GDP, and we may be drifting into even larger numbers. I
mean, we've made promises that--for the future that are really kind of inconsistent with
the revenue streams we'll have. There are three ways of solving that: breaking the
promises of modifying them, taxing a whole lot more, or inflating your way out of it. And
inflation is the--is the ultimate tax. I mean, it taxes people who don't know they're being
taxed. It taxes people who believed in paper money, who believed in their government.

PAGE 46 OF 46
It's a particularly--you know, I find it--it's almost a--it's not the way government should
be behave, but they do behave that way. Ad it's the easiest thing to do. I mean, we...
BECKY: Do you think we're intentionally doing that right now? Do you...
BUFFETT: Oh, I don't think it's so much intentional, but it's the fact we don't want to do
the other things, and so it becomes the default option. And we are doing things--we are
following policies that will lead to lots of inflation down the road unless changes are
made. And once--inflation is the kind of thing, when it gets started, you don't even--you
don't particularly notice it. It's a little like a guy, you know, jumping off a 50-floor--out of
a 50-story building. The first 45 stories, he really doesn't notice a lot of change, you
know, in his circumstances.
BECKY: Mm-hmm.
BUFFETT: But eventually you hit the ground. And there is no way you can run the kind
of deficits we're running and following other policies, and this is true around the world,
without it being enormously inflationary. And no politician is going to come out and say
we're really going to solve this by making our money worth less. But--I mean, it'd be
suicide to do it. But that is--that's the practical effect of the policies that are being
followed now. You know, they're not written in stone, they can--they can be changed. But
the easier course for governments to follow always is to inflate, and that's why paper
money--and I don't disagree with your viewer that wrote in. I mean, paper money
generally has a lousy future.
BECKY: Mm-hmm.
BUFFETT: And I, you know, a couple of years ago when people were running to cash, I
said, you know, it's the worst thing you can have. I mean, there--the one thing I can
guarantee will not work well as an investment is cash.
BECKY: Is cash a worse investment now than it was two years ago?
BUFFETT: It--it's a--no, it's a--it's a little less worse because then the option was to buy
so many other assets so cheap.
BECKY: Mm-hmm.
BUFFETT: I mean, you wanted to use cash then. People said cash is king. The ability to
use cash then was king, but having the actual cash was the dumbest thing you could do.
And--but people run to cash and they run, you know--but paper money is not a good bet.
And the more of it that you issue--I mean, there have to be consequences to issuing
paper money. There are consequences to the--to the Fed buying lots and lots and lots of
securities and giving credits to the banking system in return. If it was all that easy, you
know, we'd be doing it all the time.
BECKY: But you sound a little different than you have on this point the last few times
we've checked in with you. It sounds like this is a time, maybe an inflection point where
you're getting a little uncomfortable with this.
BUFFETT: Yeah, I wrote an op-ed piece in The New York Times and--over a year
ago--and I said this is--this is OK now, but it's--but it is morphine, and you've got to get

PAGE 47 OF 47
off of it. And we haven't shown much tendency to get off of it so far. I mean, this--you
know, the Simpson-Bowles thing came in, and those are two terrific people, they worked
hard at it. They got 11 out of 18 votes, you know, and nothing's been heard since. And
that's wrong, in my opinion.
BECKY: That disappoint you?
BUFFETT: Yeah.
BECKY: What would you like to see happen? Would you like to see the panel's
recommendations be adopted?
BUFFETT: I would like to see something seriously adopted that leaves us in a situation
down the road that is tenable in terms of having a money that will retain its value to a
very high extent. The fact that inflation now is 1 or 2 percent, you know, doesn't mean
anything. I mean, that--you know, I--if you jump off the 50th floor, I mean, at the 45th
floor, you know, you should not judge the success of your effort by where you are at that
point.
BECKY: But addressing this growing problem, you don't think is something that can wait
till after the 2012 elections?
BUFFETT: No, well, then there'll be a 2014 election. I mean, no, I think--I think if you've
got a very important problem, whether it's in business, whether it's in your personal life,
wherever it may be, you know, you address it promptly.
BECKY: OK. Carl, you have a question, too?
CARL: Yeah. Warren, I mean, we're into some important stuff here now, talking about
Simpson-Bowles and what needs to be done. There's also this report out of Goldman that
suggests that the 61 billion that the Congress is considering in cuts for the fiscal year
could take a couple percentage points off GDP in the--in the second and third quarter,
perhaps as many as 700,000 jobs. Whether or not you agree with that, does the
momentum that the economy have, is there enough cushion that we can sustain so-
called austerity? And what do you make of the UK's situation, where they implemented
something tough, and right away their fourth quarter GDP went negative?
BUFFETT: Well, a 10 percent deficit of GDP, changing that in a small way does not lead
you to austerity, believe me.
CARL: OK.
BUFFETT: That is a number we haven't had since World War II. And, no, I'm very
suspicious of all economic forecasts, including my own, incidentally. No, I think these
people who toss out numbers and say this bill, you know, saved us three billion jobs, I
think that is total--I just don't think they know what they're talking about. I don't think I-
-I don't think I know what I'm talking about either when I--it isn't that I think I have a
better number, but I can assure you that I've seen so much of that that I'm very
skeptical. I think it--no, I think when you give somebody the stature of Alan Simpson and
Erskine Bowles, and you put together a first-class committee and they work very, very,
very hard to get a compromise that 11 of the 18 sign onto when they have vastly
different political beliefs, I think you ought to take it pretty seriously. And the real

PAGE 48 OF 48
question isn't the 61 billion now or so, the real question is whether right now you're
willing to say, `Here is what we're going to do so that these promises'--where--you've
really got to start modifying promises you've made for the future, or you've got to admit
you're going to inflate your way into solving those problems. But we really haven't done
that.
CARL: So you are not--you...
BECKY: Does that mean...
CARL: I was going to--just a quick follow-up, Becky.
BECKY: Go ahead, Carl.
CARL: You are--you're not worried about spending cuts, shrinking government
expenditures, taking a big bite out of GDP, that the more important--the more important
motive is the long-term solution, right?
BUFFETT: I think the difference between having 10 percent of GDP as your deficit and 9
percent is not going to be the difference in a recovery going on. But incidentally, I have
some thoughts on taxes, too, I mean, in terms of the distribution of--there--if you look at
the top level people in the country, people like me, I mean, we are paying our lowest tax
rates in a long, long time, at--and, well, really forever. And so I think there actually could
be something done on the revenue side, but it would be at the very top levels. I mean,
I'm not talking 250,000, I'm talking people of incomes a lot larger than that. But I don't
know whether you can actually see this, it's the one thing I brought along. But--well, I
guess I brought two things along, since I pulled out the wrong one. Here's a table, the
IRS puts it out, and if you go back to 1992...
BECKY: Here, I'll take that.
BUFFETT: If you go back to 1992 at the bottom, you'll find that the--of the 400 top
income tax returns filed in the United States, I think the income was around 45 million
per person, and now in the last year shown there it's 340 million. Think of that, from 40
million to 340 million, while the average American worker was going no place.
BECKY: I think it's down here.
BUFFETT: Now, if you go to the last page there...
BECKY: The last page?
BUFFETT: Yeah. You'll see the tax rate of those same four--not--of the 400 each year,
over on the right-hand side, it starts at around 26 or 28 percent and it works its way
steadily down to 16 percent. So while these people were having their incomes on average
go from 40 million a year to 340 million a year...
BECKY: (Unintelligible)

PAGE 49 OF 49
BUFFETT: ...their tax rate was going down from 26 to 16. And believe me, that is not
the experience of the average American. So there are things that can be done, and in my
view should be done, and they will not slow down the American economy at all.
BECKY: You know what? Let me ask a question from the...
JOE: Yeah. Four--that won't be enough--that won't be enough money...
BECKY: Go ahead, Joe.
JOE: ...right, Warren? And you said that. Because they--it's got to--you got to go to the
middle class or--if you're going to do it on a--on the revenue side, on the--I mean, it
would help a little, but you need to go down to maybe 250,000 or even below that to
really make a dent if you don't address the spending side, right?
BUFFETT: Well, you can do tens and tens of billions on people with a million and up--and
up of income, but you--but the bigger thing actually over time--but you have to say--you
have to do it now. I mean, just saying, `Well, we're going to solve this in five years or 10
years,' yeah...
JOE: We...
BUFFETT: You really have to do something about the promises you've made on spending
because we're--it isn't--if it doesn't happen in 2011, it isn't going to happen in 2012 and
it isn't going to happen...
JOE: I mean, it's--yeah. It's entitlements, Warren. And there's a--there's a piece today...
BUFFETT: Yeah, sure.
JOE: ...I think it was in Politico, people in this country...
BECKY: Yeah. In the Tarrance Group poll, right?
JOE: Yeah. People still think...
BECKY: The--yeah.
JOE: ...that you can cut waste and save, or they think you can cut defense, that we're
spending all the money on defense. And it...
BECKY: Here's the numbers on the...
JOE: Yeah. What is it, Beck?
BECKY: The numbers on that poll that Joe's referencing is a majority of voters incorrectly
believe the federal government spends more on defense and foreign aid than it does on
Medicare and Social Security.
BUFFETT: Yeah.

PAGE 50 OF 50
BECKY: Sixty-three percent of people they polled thought that. Another 60 percent
incorrectly believes problems with federal budgets can be fixed by just eliminating waste,
fraud and abuse.
BUFFETT: Yeah.
BECKY: And it's not just casual beliefs on this. Forty percent of them strongly agree with
these beliefs. Less than half of them, just 44 percent, believe that Medicare, Social
Security are the major source of problems for the federal budget. Only 49 percent
disagree. So what--how do politicians deal with poll numbers like that?
BUFFETT: Well, they deal with it by ignoring--essentially ignoring the problem. I mean,
it's the same problem you had with state and municipalities on pensions. It was so easy--
it was easy for General Motors back in the '60s to promise pensions and health benefits
that later, you know, brought the company to bankruptcy. It's--it was easy for state and
municipalities, you know, in--when they were negotiating contracts 20 or 30 years ago to
put in cost of living adjustments and retirement after 20 years and back-end loading in
terms of the last few years of employment. And all of those things and those promises
come due so much later, long after the politicians left office, that it's a tremendous
problem. But the future does arrive. And when the future arrives and you've made a lot
of promises, you're either going to break the promises, you're going to raise taxes
dramatically, or you're going to inflate. And basically, I think...
BECKY: So wait a second. Are you on the side of some of the Republican governors right
now who are saying, `We can't afford to keep up with the promises we've made, we
certainly can't continue these promises down the road,' and, in some cases, as in the
case of Scott Walker, saying, `We need to get rid of collective bargaining as a result'?
BUFFETT: Well, I think--I don't want to--I'm not going to say about the collective
bargaining. I do think that many states and municipalities--including Omaha, we just
have had this--have made promises on benefits that really can't be fulfilled if you
continue to keep making them. I think it's--listen, I would identify with the municipal
employee who said, `Look, if you made the deal with me. I mean, you know, I came to
work here because you said I was going to get this.' So--but I--the one thing I think you
do is you quit making new promises. I mean, you may--you may have--be able to fulfill
the ones that you've got up to this point, but you say, `Look it, this is going to bust us.
And I'm going to make no more new promises.' And, you know, that's a tough thing for a
politician to say.
JOE: Warren...
BECKY: What about asking...
JOE: If the public employees at the state and local levels are installing the people that
give them the benefits through collective bargaining, maybe that's something you need
to change.
BUFFETT: Well, I--yeah, but you could say every constituency sort of votes its own
interests. I mean, you know, there--you've got people--you've got the rich capitalists
who are trying to keep down the rate on capital gains, and...

PAGE 51 OF 51
JOE: Yeah, but those--but those--yeah, but those companies can go bankrupt. I mean,
the private unions are negotiating with...
BUFFETT: Yeah.
JOE: If they get too much, they know that they won't have a job anymore. The others
are negotiating--or they're aligned against the taxpayers. The states and the local
municipalities can never go bankrupt. So they--you know, that's why there's no reason
for them to mitigate their demands, right?
BUFFETT: Well, people are going to make the best deal they can. I mean, when you--
you know, when you come up to negotiate your next contract with CNBC, you'll try and
make the best deal you can. But you've got to have people on both sides--and hopefully
you've got people on both sides that are mathematically intelligent. And, of course, the
big problem, you know, with pensions, with postretirement medical care and all of that, is
that the guy that makes the promise is not the guy that has to make the payment. Yeah.
JOE: You saw--Welch yesterday, Warren, brought--and it was in the Journal, too,
brought up a speech given by Corzine--Governor Corzine in 2006 to the public unions
that said, `We are going to fight for a better set of benefits for you.' He was the guy
giving the benefits to the public--how do you negotiate with someone who's giving a
speech saying, `We're going to give you'--and he knows that that might help him get
elected the next time, having the public unions on his side?
BUFFETT: Yeah. Well, I haven't read that speech, but if it says what you said, it was a
mistake. It was a big mistake. I--yeah, and not only that, but they use unrealistic
assumptions even in determining how much they have to put in the pension funds to
meet the obligations. I mean, the pension fund assumptions of most municipalities, in
my--in my view are nuts, you know. And--but there's no incentive to change them. I
mean, it's much easier to get a friendly actuary than it is to face, you know, an unhappy
public.
BECKY: Well, so who's right? Because this has gotten to be such a huge debate, and you
have two sides that are painting two very different pictures and using two very different
sets of numbers to say how bad of a situation different municipalities, different states are
in at this point. Who do we believe? Is there a set of numbers that tells the absolute
truth?
BUFFETT: Well, I--actually, I've seen some pretty good numbers on that. But the--I
would say that when they have pension assumptions that assuming they're going to earn
8 percent or something like that when bonds are yielding what they are now, you know,
that's crazy. And...
BECKY: I told somebody that who deals with pension funds a couple of weeks ago, and
they said, `Well, you're just wrong because if you look at where things could go over the
next 10 years, you're just wrong.'
BUFFETT: Yeah.
BECKY: What's a safe assumption for pension returns?

PAGE 52 OF 52
BUFFETT: Well, I use--we're required, with our utilities, to use certain pension
assumptions I don't want to use. But we've used about as low as--anyway, but I think
this. I think that--well, I think it's nonsense, for example, when a company has
subsidiaries in Europe and then they have them here, and they have an assumption for
their pension fund in Europe that says we're going to earn 4 percent over there and we're
going to earn 8 percent in the United States. I would say let's give the money to the
United States. The pension fund accounting has been terrible over the years. And many
managements, I don't think, understand it very well themselves, and many, you know, in
a sense prefer not to understand it. You know, they care about their own pension, too.
We could--we could use a real overhaul of pension assumptions in this country. There's
been some of that, but I've been writing about it for years. You know, it--nobody's really
got an incentive to do it, you know, that's one of the problems. But...
BECKY: Mm-hmm. But it sounds like you do have some sympathies with some of the
Republican governors who are trying to make slashes.
BUFFETT: Well, I have sympathy for anybody that's trying to deal financially today with
a whole bunch of promises made by somebody years ago.
BECKY: Yeah.
BUFFETT: But I also have sympathy for the guys that said, `Listen, I took the job
because of those promises.'
BECKY: Sure. Right. And 40 years later, these are the promises that were made.
BUFFETT: Yeah.
BECKY: What about the idea of asking state employees to play***(as spoken)***20, 30,
40 percent of their health care costs from here on out?
BUFFETT: Yeah. Well, some of them--actually, there's more contributory payments into
pension funds in the--in the public arena than in the private arena. If you look at the
old...
BECKY: I mean in health care, in health care situations.
BUFFETT: Yeah, well...
BECKY: There's a lot--that's where some of the sticking points are, too.
BUFFETT: ...that's changing the promise. You know, and I--and it's very tough. But I
think we have done that in some of our private plants at Berkshire.
BECKY: Mm-hmm.
BUFFETT: And I think that--but when you're doing it, you're breaking a promise. I mean,
people worked for 30 years in an auto plant or something of the sort, and they said
you're going to have your health care taken care of when you're--when you're out of
here. And then if you say you're going to pay 30 percent of it, that's--that is changing the

PAGE 53 OF 53
game somewhat. I think absolutely they ought to change the game on--from this point
forward, I mean, in terms of hires they're making and, you know. And if somebody wants
to leave the public sector because now they're not going to get benefits from this point
forward because they--fine, let them do it. But I--every year that ticks away on this stuff,
you know, the obligation gets larger.
CARL: And, Warren, just on that...
BECKY: Mm-hmm. Carl:
CARL: ...I wonder, I mean, the problems we're talking about are so huge, so structural,
right, so intractable, how do you reconcile them with the optimism in your letter, and the
notion that America's best days are ahead?
BUFFETT: Because...
CARL: Because a lot of the people who read the letter and are skeptical of markets,
skeptical of government, say the points you're making prove that we may not actually be
able to win this time.
BUFFETT: Oh, we'll win. We'll win. I mean, bear in mind this: You can make promises
about what will happen in 2020 to somebody, but you--we can't eat the food that's going
to be produced in 2020, we can't use the cars. As long as the economy grows, we will
have a larger pie. The problem is we've promised so much of that pie away to different
people. But as long as the pie grows, you know, overall the country will do well. We'll
have enormous tension between various classes of people. But if you go back to when I
was born in 1930, just look at what you could've predicted. You could've predicted, you
know, that stocks would go down--from the moment I was born, they'd go down another
75 percent. You could predict 25 percent unemployment. You could predict a surprise
attack, you know, that looked like we were going to lose the war in 1941. All of these
things happened. And what happened in 1941? You had an economy that'd been kind of
moribund through the '40s--or through the '30s, and everybody went back to work and
we were turning out battleships, we were turning out planes.
This country has enormous potential, and we will be turning out more goods and services
per capita five or 10 years from now than we are now. The problem is whether we've
overpromised those to too many parties. The pie will get bigger, and that is a huge
advantage over time. And it just means that the members of the family fight over who
gets how much of the pie, and maybe part of that pie has been overpromised to people.
But the pie getting larger solves a lot of things; and it solved things from a couple
hundred years in this country,
and it'll continue to do so.
BECKY: Warren, we got lots and

lots of questions that came in
from Berkshire shareholders,
from viewers. We also got one
that came in from (Pimco's)
Mohamed El-Erian, who I know
you're friends with, too. He asks
a broad question that talks about
this high unemployment rate.
Let's call this up right now. It's,

PAGE 54 OF 54
"The persistence of high unemployment and, within that, large youth unemployment, is
leading some to worry about skill atrophy, expertise mismatches and lower future
productivity. So how valid are these concerns? And if they are valid, what should the
government and companies do to try and counter this trend?"
BUFFETT: Yeah. Well, actually, productivity's been terrific in the last few years.
BECKY: Mm-hmm.
BUFFETT: I mean, that's the reason that we are doing a lot more business than a year
ago and we only have 1 percent more employees. We're--productivity has improved very
significantly. And, you know, that's--that--if productivity hadn't improved, though, we'd
have--we'd have less unemployment right now.
BECKY: Mm-hmm.
BUFFETT: But productivity is great over time. It's terrible for the guy that loses his job
because somebody's figured out a machine that does it better, given time, but we want
gains in productivity. They give us more output. More output is what really solves
problems over time. We want more output per capita. Then we'll fight like hell about who
gets it, you know. And the rich people say, `Well, we don't want you to take any of that
away from us.' And other people say, `We've been promised it.' And you'll have all these
fights about it. But having more output solves a lot of thing. A family that has greater
and greater income may still have fights within the family about who gets to spend it, but
it's--those fights are a lot easier to solve than if the income is shrinking.
BECKY: Let me ask you a question that was sent in by a viewer. This is--control room,
I'm jumping out of order--number six from Mark in Illinois. And this was written tongue
in cheek, but he says, "You and Bill Gates have recently been trying to get extremely rich
individuals to give half their wealth to charity. I was wondering about all the concern over
our nation's serious debt issue. If the US citizens on the Forbes 400 list gave half their
wealth to paying down the debt, how much of a dent would you put in it?"
BUFFETT: Well, the Forbes 400 had, I think, about 1.3 trillion last year, so that'd be
about 650 billion. So in terms of the--in terms of the net debt, it would knock off about 7
or 8 percent.
BECKY: So you are talking about a serious dent with that. And I guess the question he
maybe is asking in a more roundabout way is, why not give that money to the
government instead of private charities?
BUFFETT: It would--it would--it would take about--it would wipe out about six months of
the deficit, and then we'd back--we'd be back where we started. I do think that that
group should be paying much higher taxes than they are, you know, and I think they--
there should be higher estate taxes, too. But I don't think--I don't think you should have
a tax system based on free will contributions. I'm not sure that would be the most
successful tax system ever devised.
BECKY: OK. All right, well, we do have more to come. In fact, when we come back, we'll
have a final go-round with Warren Buffett, a rapid-fire session to get through some of
your last questions, and ours as well. Squawk Box will be right back.

PAGE 55 OF 55
***
BECKY: Welcome back, everybody. It's time for a final round with Warren Buffett, so
let's get right to some of the e-mails that you've been sending in. And, Warren, the
questions that came in this year were extremely thoughtful. One that came in from
Duane in Tribune, Kansas, writes in, "What do you think about the rapidly increasing
prices paid for farmland across the country, and where do you see this trend going?"
BUFFETT: Well, my son is the farmer, and I'm not the big expert on it. But obviously,
commodity prices have gone up significantly. And if they...
BECKY: Mm-hmm.
BUFFETT: If that represents a permanent factor, I mean, if you're really talking about $7
corn and $12 soybeans and so on, it makes the farmland worth more money. And of
course, farmland does become more productive year after year. So, you know, a farm is
a decent long-term investment. Generally they've sold on the fairly low yield basis, but
good farmland is not a terrible investment.
BECKY: Yeah. You've seen prices crash, though, for some of these things very rapidly
before.
BUFFETT: I don't know what will happen with commodities.
BECKY: Yeah.
BUFFETT: But what you're seeing with commodities to some extent is the--is the
converse to the--to paper money. I mean, it...
BECKY: Mm-hmm.
BUFFETT: If money becomes worth less and less, copper and cotton and soybeans are
going to be worth more and more, measured by dollars.
BECKY: Mm-hmm. Let's get to another question. Lindsay writes in from Cedar Rapids
that, "Risk managers within many firms got it wrong, as evidenced by the financial
failures and required government bailouts. Beyond the answer of maintaining a strong
capital position like that of Berkshire Hathaway--obviously, not every company has the
balance sheet of Berkshire--what's the most important advice you can provide with
regard to risk management so that companies don't repeat the financial failures of the
recent past?"
BUFFETT: Yeah, Well, financial companies always have--the CEO has to be the chief risk
officer. And I think the boards of directors should have compensation policies that make
sure that if the CEO fails in the risk job that that CEO goes away poor. I mean, I think
that it's been disgusting, frankly, with huge financial institutions having--needing
government assistance, all the disruption that's caused both in the institutions, the
economy and everything else, and people walking away rich. So incentives matter
enormously, and incentives have all been to the upside with managers. I mean, you have
stock options, all of these things that if it works out they do great, and if it doesn't work
out they still are very rich and they leave and, you know, it's goodbye, and then you
need government money. So I think boards have been very derelict in the big financial

PAGE 56 OF 56
institutions in the way they designed compensation packages. But they've been
encouraged to do so by comp consultants and just by prevailing practice.
BECKY: Can we count on anything the government may do or has tried to do to this
point with stopping that, or is this just always going to be a ticking time bomb?
BUFFETT: Well, the two big problems of the period were leverage and bad incentives.
BECKY: Mm-hmm.
BUFFETT: They've done some things about leverage, quite a bit. And the temptation is
always just to leverage up more and more if you've got a financial institution. If you're--if
you've got a government guarantee behind you, in effect, which the FDIC has been, or
with Freddie and Fannie, you can print money. And when people get the ability to print
money, they enjoy it. And then when you get the incentives wrong so that if things work
they get paid off incredibly, and if things work they still get paid off incredibly, it--you're
going to--you're going to have people do crazy things. So you got to have the incentives
right, and you've got to have some limits on leverage.
BECKY: All right, we've only got...
BUFFETT: And we've made some progress on that.
BECKY: We have made some progress.
BUFFETT: Yeah.
BECKY: We've only got a few minutes left, but I'm hoping you can solve the problem
with Fannie and Freddie and home mortgage issues while you're here. You did write
about that in the shareholders letter this year.
BUFFETT: Hm.
BECKY: You wrote about your experiences through Clayton, and why Clayton has not
had the types of bad loans that we've seen so prevalently through other areas in home
mortgage.
BUFFETT: Yeah. Yeah. Well, we lent to people who put up reasonable down payments,
and we verified their income. And these were people living on the edge, in many cases. I
mean, these were not people with great FICO scores, everything, but they were buying
homes not to flip them, they were not refinancing to try and take the money out to--they
were--they were--they were keeping their monthly payments in line. And we were
keeping the mortgages. We kept 11 billion or so of mortgages, three--200,000 of them.
So we cared whether the people were going to pay us in the future. If you have a
government-guaranteed mortgage, you know, you don't care whether the person's any
good or not. I mean, you know--well, you care whether the government's good or not,
but you don't care. So when Freddie and Fannie guaranteed mortgages, the only person
that could care was Freddie and Fannie. The people that bought them knew they were
going to get paid because they knew, in effect, they were government guaranteed. Now,
having government guarantees in there brings down the cost of financing to rock-bottom
levels. I mean, it does reduce the cost of homeownership because you've got a
government-guaranteed obligation.

PAGE 57 OF 57
I think going forth in the future, you may need some system where private guys--guys
like me, guys like JPMorgan or whomever--have large mortgage guarantee operations
backstopped by the federal government. So you get the benefit of the cost of that, but
you have the discipline of the private market in terms of pricing these things and
determining what you take and don't take. And you get it away from congressional
pressure.
BECKY: So that nothing like a Fannie or a Freddie exists?
BUFFETT: You--I don't think you necessarily need Fannie or Freddie, but what you
might--you might--let's just say you had a company capitalized at $10 billion and we own
it. We couldn't take any money out of it for at least five years. And we guaranteed
mortgages, and we took 80 percent of the guarantee, and the federal government took
the 20 percent. But the government also said if for any reason this $10 billion company
couldn't pay, they would pay. Now, we would have an interest in getting decent loans,
we'd have an interest in getting paid reasonably. The government guarantee would
probably never be called on, it would keep the price low. So you get the discipline of the
private market, and you wouldn't have a whole bunch of lobbyists coming around to us
and saying, `We want you to give money to anybody that shows up and, you know, can
show a faint pulse.'
BECKY: Do you--do you think that that's actually a likely scenario, though? Do you think
that there's the political will or desire to get the government entirely out of it?
BUFFETT: Well, I think--I think there's desire to get some answer to Freddie and Fannie.
They all want to sweep it under the rug. It's the only thing, incidentally, that's cost the
government a lot of money out of this whole panic.
BECKY: Right.
BUFFETT: The banks have pretty well paid things back, the FDIC didn't have to come up
for any money, and the--even General Motors is doing reasonably well. So--AIG is going
to get the money paid back. The big losers are Freddie and Fannie. And they were the
ones run by government, and they were subject to government pressures. So I think that
there's a desire for a solution that keeps the cost down--which government guarantees,
too--but also imposes market discipline.
JOE: Hey...
BECKY: Joe:
JOE: Hey, Warren, is too big to fail--we keep hearing that it--that that wasn't fixed, that
obviously the banks have gotten even bigger, the big ones. If you get their--the leverage
better in order and make them, you know, keep more capital, and if you get the
compensation or the incentives in order, is it OK to--in a capitalist system, to have things
that're too big to fail, that would be bailed out? I--it seems like that's still a problem and
we still have it.
BUFFETT: Yeah, you don't--but you don't want to bail out the managements. I mean,
you know, in the case of--you know, Fannie and Freddie stockholders lost all their
money. You know, the--AIG and Citi, you know, they're down--I don't know whether

PAGE 58 OF 58
they're down 80 percent or what. The stockholders at WaMu lost all their money. The
stockholders at Wachovia lost a very high percentage of their money.
JOE: Yeah.
BUFFETT: So they failed. Now, the--they didn't fail in the sense that you had a
liquidation sale.
JOE: Right.
BUFFETT: And we tried that with Lehman and that didn't work out too well. There will
always be, in my view, places that're too big to fail. But you could make it so that the
incentives are that the people running them, if they...
JOE: Right.
BUFFETT: ...if the institution fails, they fail. That's enormously important, in my view.
CARL: Warren, I don't know if you saw...
BECKY: Carl:
CARL: I don't know if you saw the Oscars this past weekend, but the winner of Best
Documentary was this film called "Inside Job," which paints a very dark picture of the
crisis. And in his acceptance speech, the producer said that the--three years after a crisis
that he says was caused by a massive fraud, in his words, not a single executive has
gone to jail, and he says that's wrong. Is it?
BUFFETT: Well, I would say that what's really wrong is that the chief executives of most
those companies walked away extraordinarily rich. Now, whether they should've gone to
jail or not's a--you know, that's a question of statutes and whether you could prove it and
so on. But I think the idea that they were allowed, by the terms of their contracts that
they'd made and the boards of directors allowed to be put into place, that they could
walk away with hundreds of millions of dollars while the country suffered the
consequences of really some terrible actions. Like I said, I don't know whether it should
put them in jail, but it should--it should not put them in Cadillacs.
BECKY: And, Warren, just wrapping things up again quickly, you are incredibly optimistic
not only about America's futures, but about the stock market's future. Is that fair to say?
BUFFETT: I think--I think--I would--certainly fair to say that I would--if you asked me
for owning equities vs. fixed dollars, either long-term or short-term...
BECKY: Mm-hmm.
BUFFETT: ...governments or anything, I know--I don't think there's a chance that

governments will outperform equities over any, say, 10 or 20 or 30-year period. So I...
BECKY: Even with the big runs we've seen recent--oh, you're looking over the longer
term. Yeah.

PAGE 59 OF 59
BUFFETT: Yeah, over the longer--I have no idea what'll happen in the next year.
BECKY: OK.
BUFFETT: But the--but I think it would be very, very foolish to have your money in long-
term fixed-dollar investments or short-term fixed-dollar investments when you could--if
you had the ability to own equities and own them for a--and hold them for a considerable
period of time. You shouldn't own them with borrowed money.
BECKY: OK. Well, Warren, again, we want to thank you very much for your time here
today, for being so generous with your time and taking so many of our questions and so
many of our viewer questions as well.
BUFFETT: OK. I hope your viewers come out and look at the Durham Museum
sometime, you know, enjoy it.
BECKY: That's right. Again, we're at the Durham Museum, for anybody who missed it.
We're standing in front of the Ernest Buffett grocery store. Ernest Buffett, of course, was
Warren Buffett's grandfather. And if you haven't read it already, check out the annual
letter that he wrote. It tells you a little bit about a lesson that his grandfather taught him.
But again, Warren, thank you.
BUFFETT: Thank you.
BECKY: Appreciate it. And, Carl, we'll send it back over to you.
CARL: OK. All right, thanks to Warren from both me and Joe.
JOE: Thank you, Warren. Yes.

PAGE 60 OF 60
This is a transcript of Warren Buffett's three-
hour long live appearance on CNBC's Squawk
Box, Monday, November 14, 2011.
Among many other topics covered, Buffett

revealed that Berkshire Hathaway has bought
almost $11 billion worth of IBM common stock
this year. He also said it is "not clear" that
Europe has the will or ability to do "whatever is
necessary" to fix its debt problems.
JOE KERNEN: Good morning. The "full Monti." Mario Monti takes over the Italian
government after Silvio Berlusconi leaves to a chorus of hallelujah. Boeing lands one
of the biggest deals in aviation history. And legendary investor Warren Buffett joins
us live for the next three hours to tackle Europe, the markets, and the Super
Committee. It's Monday, November 14th, 2011. Squawk Box begins right now.
***
JOE: Is he there with you right now?
BECKY QUICK in Omaha, Nebraska: He is. He's sitting right here and he's
listening.
JOE: Excellent.
WARREN BUFFETT: What's a synonym—what's a synonym for "gravitas"?
JOE: Yeah.
BECKY: What's a synonym? That's a good question.
BUFFETT: I was thinking some other words.
JOE: Yes. Wow, he looks—God, you look—you look—you look healthy and rosy
cheeks.
ANDREW ROSS ANDREW: He looks great, doesn't he?
BECKY: Thank you.
JOE: It's like 5:00 or 4:00 out there, isn't it?
BECKY: It's 5:00 out here, and we are, and we're ready to go. And we were just
talking about it and, Warren, you had your thinking cap on early this morning, right?
BUFFETT: Been up for hours, was thinking in the bathtub.
CNBC SQUAWK BOX TRANSCRIPT

Monday, November 14, 2011 – Page 1
BECKY: And we know what happens when he thinks in the bathtub. The last time he
did this he came up with the Bank of America investment, so, guys, we've got a
lot of different things we're going to be covering over the next three hours. And,
Warren, you're ready to go, right?
BUFFETT: Sure.
BECKY: OK.
BUFFETT: Fire away.
JOE: Has he—has he seen pictures of (Becky's baby boy) Kyle?
BUFFETT: I have...
BECKY: I didn't show him any new pictures this morning, no.
JOE: It's...
BECKY: I haven't but I will.
JOE: Has he taken care of college yet?
BECKY: No, unfortunately not.
JOE: That was a nervous laugh.
BECKY: But I will show him some of those pictures...
JOE: That was a nervous laugh I just heard from you. Just an idea. I mean, it's not—
you know, you're doing this for us. Actually, we owe you anyway. You're right.
BECKY: Yeah, I paid Joe to slip that in for me.
BUFFETT: I see. OK.
JOE: That was pretty...
BUFFETT: Yeah.
JOE: You know what you'll get, Becky?
BECKY: What?
JOE: One of those boxes of See's candies.
ANDREW: Right.
JOE: That's what—that's usually—or a brick. That's what he sent me, a brick.

BUFFETT: Yeah.
JOE: I'm not sure what that was supposed to mean. Anyway, let's check...
BUFFETT: Joe, you're in my will. It says, "To my friend Joe Kernen, who wanted to
be mentioned in my will: hi, Joe."
JOE: "Hi, Joe."
ANDREW: "Hi, Joe."
JOE: Yeah, I'm going to use your—I already stole your epitaph, though, on the
tombstone, Warren, and that is, "He lived to be really, really, really old." That's the
one I'm going to use.
BUFFETT: I like that one.
JOE: Yeah, that's a good one. All right, we'll get back to you. Let's check on the
markets this morning.
BECKY: Come on, we're going to play right in. We're going to jump right into these
questions. Warren Buffett is with us for the next three hours. And, Warren, we just
heard Ross talking about the situation in Europe. That's been driving the markets for
quite a while at this point, and a lot of people feel better now that they see Mario
Monti in (Italy) and Lucas Papademos in Greece. Do you feel better about the
situation at this point?
BUFFETT: Well, I feel better about those two developments, but they have a
situation that—where they found a—kind of a fundamental flaw, which is that they
can't print money. And when you have a loss of confidence, that begins a run, which
has occurred to some degree on both sovereign debt and banks over there. And
it's—in 2008 we had our own run in the United States, and it took—it took the full
power of the United States and some very strong action. The ability—or the belief
that the authorities would do whatever it took, and we did believe that, and it led us
out. But it's not clear who can say, 'We'll do whatever it takes,' over there and that
they've got the ability to do whatever it takes. It's going to have to become much
more clear as to—as to who can do what and that they will do it, that—they need
both the will and the ability.
BECKY: (German Chancellor) Angela Merkel is already pushing for reforms to the
EU to deal with exactly that problem. She's hoping to get changes in place and voted
on by all the countries that are involved by next year some time. Short of that, do
you worry what happens to the euro?
BUFFETT: Yeah, well, runs don't necessarily—markets are stronger than everything.
I mean, when you—we've seen that time after time. And used to be when you had a
run on banks, you know, that the tellers started paying out slowly and they piled up
gold in the teller window. But now you do it electronically and, in effect, just by not

rolling over debt, you have runs. I mean, the—there's tens of billions of euros
coming due every month in Italy, and you not only need to take care of any added
deficit but you have to take care of the rollover. And stopping a run is tough. You
don't get half your confidence back. And what would it take if—for you to put your
savings in an Italian bank or...
BECKY: Well, I was going to ask you that. You've sold all of...
BUFFETT: We sold—we sold everything. Yeah.
BECKY: ...everything you had in European sovereign debt.
BUFFETT: More than a year ago, yeah.
BECKY: So what would it take for you to go back into these markets?
BUFFETT: Well, we haven't done it. I mean—and it's something I look at every day.
And I'm sure people in Italy that have deposits in euros in Italy think, you know,
there's something rather strange here when I can get 5X and—or close to a—well,
3X, essentially, in Italy and get X in Germany and they're both denominated in
euros. And whether Germans are deciding they'll put their money in Italy, I—you
know, I doubt it. It's very, very tough to stop a run. It takes—it takes a belief,
widespread belief, that the people in authority will do whatever it takes to stop it and
they have the ability to do whatever it takes. We believed Bernanke and Paulson and
the president of the United States when they said that in September of 2008 even
though the issue was somewhat in doubt. There's no one with comparable authority.
And getting 17 people to agree to reforms next year is not necessarily a great
answer.
BECKY: You know, you first talked to us about this—I believe it was last spring when
we were in India. And you mentioned that you had some serious concerns about the
euro and some questions about whether it would break apart. Do you feel better
about the euro at this point or more concerned than you were last spring?
BUFFETT: Well, time works against you in this situation because people have
become more worried and the spread between everybody else and Germany, even
France against Germany, has widened, so that just means the world is seeing the
line getting a little longer. And that means, you know, people react with emotion, but
emotion becomes reality in a situation like this. So I would say that they're doing
some things. And Europe's got all kinds of strengths. I mean, Europe is not going to
go away. Ten years from now we will be selling more goods and buying—to Europe
and buying more goods from Europe, and they will have more GDP per capita. But
getting from here to there may be a problem.
BECKY: You think it's officially a run on Europe at this point?
BUFFETT: Well, it's partially. I mean, you are—European banks are losing US
funding, and therefore they're disposing of US assets. They depend more on
wholesale funding than on deposits, compared to the United States' banks. They're
larger relative to their economies than most US banks. We think our banks are too
big, many people. But those banks are even bigger relative to their economies, and

they do depend on wholesale funding; and wholesale funding, you know, is not
sentimental. And our money market funds have had large investments in European
banks, are pulling them down. European banks need more capital, and the sooner
they get it, the better.
BECKY: Where can they get it? I mean, if you're talking about a loss in confidence,
can they get it from anywhere in the private sector?
BUFFETT: Well, they're stocks are selling at X. Can they sell more stocks—stock at
90 percent of X or 80 percent of X? That was forced on the banks here in the United
States. They didn't like it. I didn't like it as a stockholder of banks, but we had—on a
Monday, we had Bernanke and Paulson come in and say to, I think it was 11 banks,
`You're going to take,' you know, `X billions of dollars.' And before they left the
room they did it. Whether they've got that kind of muscle over there, you know, can
speak with a—that strong a single voice is another question. But they—the banks
can't raise capital. And the government could always say, `Look it, you raise capital
or we'll supply the capital, and we'll put it in at one euro per share so you better do
it at two euros per share.'
BECKY: Would you be a buyer of some of the banks if they started trying to raise
additional capital?
BUFFETT: I'd look. But I—whether I'd be a buyer, I'd have to understand the banks
better than I understand them. I—we do not own stock in any banks that are
members of the euro zone.
BECKY: Have you been looking at any of these banks?
BUFFETT: I look. Anytime something goes down a lot, I look.
BECKY: Did you see anything you like so far?
BUFFETT: Not enough to write a check. That's the test.
BECKY: So there are a lot of concerns about what happens in Europe right now and
how this is going to affect the United States. We spoke with Mohamed El-Erian
on Friday and his big concern is that the United States is already nearing a sort of
stall level in the economy and that these problems in Europe could really push us
into an all-out stall.
BUFFETT: Well, I'd like to comment on the first thing first.
BECKY: OK.
BUFFETT: I think, to some extent, we're not looking at this economy quite correctly
in that we have, as you know, more than 70 businesses and some of those
businesses have many businesses. So we've really got a cross section of American
business. Of the 70 plus businesses, all but about five are doing considerably better
than was the case a year ago, and they were doing better then than two years ago.
They've been in a steady recovery.

BECKY: What's "considerably better"?
BUFFETT: Well, if you take our five largest businesses outside of insurance...
BECKY: Mm-hmm.
BUFFETT: ...that would be the Burlington Northern Railroad, that would be

MidAmerican Energy, that would be Marmon, which has over 110 businesses
serving basic industry, it would ISCAR, which makes cutting tools for—used
throughout the world—I mean, it's a barometer of industry—and it would take our
new acquisition, Lubrizol. Every one of those companies will set a record for
earnings this year. In aggregate they will earn $9 billion pretaxed, and it's a record
for all five. And they—and they cut across industry. And if you look at many of our
smaller businesses, our recreational vehicle business, our farm business, you name
it, they're all doing well.
What is getting killed and what is in a—not in a recession but in a depression is

anything connected with residential construction. And that includes things like our
carpet business, our insulation business, our brick business. Those businesses are in
a depression. You have a huge segment of the American economy that's doing really
quite well. Then you have this other segment which is in a depression, and that
depression has much more effect on unemployment, I believe, than is generally
realized. When that comes back, and it will come back—I don't know when, but it will
come back—when that comes back, when we get a million housing units, annually,
started, I think unemployment will go down a lot.
BECKY: When you first started looking at some of these things earlier this year, you
had said maybe by the end of this year we'd start to see a turn in housing.
BUFFETT: Looks like I was wrong. That—that's one of the problems of appearing on
these shows. No, I—we don't see any evidence, but that's—in a sense that's good. I
mean, we have—we have households, and we have housing units. We built way too
many housing units compared to households. Surprise, we had this huge inventory.
We're now creating more households than housing units. We're drawing down on the
inventory every day. I don't know how long that takes. I know when it's through,
when we've reached something close to a balance, that we will have at least a million
households being formed annually. We'll have at least a million housing units being
created, and unemployment, in my view, will be a lot lower.
BECKY: OK. I think Joe has a question for you from Studio 2. Joe?
JOE: Yeah, Warren, it—based on this piece [subscription required] in The Journal
today about all the developers that bought all this farmland. Like, they were paying,
like, 90,000 an acre for it, so now all the farmers are coming around and they're
buying it back for—this is perfect. You know, sell high, buy low. They're buying it
back for 10, 15, 20,000 an acre instead of 90. You have said many times that if you
could own, vs. gold, all the farmland in the United States, you'd rather have that
than all the gold in the world. Have you gone in and looked at any farmland, any real
estate like that?

BUFFETT: No. I own one farm that I bought about 25 years ago my son farms, and
so we're exposed to farming in the Buffett family. He's going to take care of me if it
turns out that farms are really the thing to have instead of businesses. But I believe
in owning productive assets...
JOE: Yeah.
BUFFETT: ...whether it's farms, apartment houses or businesses. And they'll do very
well over time, and sometimes one class is doing better than another. But if you own
any of those things over the next 20 years in the United States, I think you'll do well.
JOE: I'm wondering if you've decided how to play also—and it would be a big help—
maybe you haven't because it just—there's so many political considerations, but
the—you're big in utilities. I understand that. That makes a lot of sense. But whether
it would be renewable or natural gas or clean coal or just buying oil assets, is there a
way to just—to game the system for the future of what we use for energy?
BUFFETT: Well, through that American energy—I believe that our two utilities are
the top two industrial utilities in the United States in terms of their ownership in wind
generation, and we are just in the process of negotiating a contract on some solar. I
got a call on Saturday that we just got approved in Iowa for some additional wind
generation as well, so we're in that field. In terms of oil, it's kind of interesting. If it
turns out that oil becomes worth far more money, that helps our railroad enormously
because trucks use approximately three times as much diesel fuel per ton mile
carried...
JOE: Yeah.
BUFFETT: ...as railroad. So we might—we would be a huge beneficiary if it turns out

that oil rises in price...
JOE: Yeah, it would...
BUFFETT: ...but I—go ahead.
JOE: No, it was just based on the (delay of TransCanada's planned Keystone) XL
last week, I've seen now that Canada might go to Asia with a lot of the oil, and I was
just wondering what you thought of the, you know, delaying that XL pipeline and
whether that factored into any investments you have.
BUFFETT: Well, it doesn't factor in to anything. It's a very hot issue, obviously, in
Nebraska. I am no geologist. I don't understand, you know, what the effects might
be, so I stay out of that one just because I—there's all kinds of things I don't
understand.
JOE: Yeah.
BUFFETT: And you've just hit on one of them.
JOE: Yeah.

BECKY: Although the question became that was laid out in the Journal on Friday last
week is this is 20,000 potential jobs vs. the environmental impact and with that
prism, do you think that the administration focuses on jobs as much as you think
they should be?
BUFFETT: Well, you can say if you build anything—if you build a tomb for me, you
know, if I start building a huge tomb, and I employ 20,000 people to haul granite
blocks across the plains of Nebraska to build this tomb, which will make everybody
forget about Egypt, that creates jobs, too. But everybody cloaks everything in job
creation.
BECKY: Mm-hmm.
BUFFETT: So I'm very suspicious when people say, you know, `This will create
jobs,' and Ìf I open up a hamburger stand, it'll create jobs.' So it—there's a lot of
rhetoric there that gets a little loose. If you're really seriously hurting the
environment, you know, you can—you can have those 20,000 people start building
me a tomb.
BECKY: Instead. OK. Andrew's got a question for you, too. Andrew?
ANDREW: Hey, Warren, I want to go back to housing for a second. Given your
views on where you had hoped housing would be at the end of this year, and the fact
that we're not there yet, do you think there's a role either for government or that the
banks need to be playing it a different way than they are to either refi or to modify
the way these loans have been put together?
BUFFETT: Yeah. Well, refi doesn't really change the number of housing units or
change the number of households, but it certainly changes the burden of the
payments on somebody that, you know, is financing at 6 and could finance at 4. So I
think things that help people refi that have good credit histories and all of that sort
of thing, I think—I think that could be quite useful. It doesn't change the basic
equation. The one that...
ANDREW: Do you think the banks aren't being helpful enough?
BUFFETT: Well, it isn't so much the banks. I mean, Freddie (Mac) and Fannie (Mae)
are, you know, have guaranteed close to half the mortgages. You would need them
more than anybody else to have a policy on refis. They—they're the ones that affect
a very high percentage of the smaller mortgages. The banks may service those
mortgages for Frannie—for Fannie and Freddie, but they're just their agents.
ANDREW: Would you like to see Fannie and Freddie take a more aggressive
approach? Would you like to see the president try to mandate some kind of approach
for Fannie and Freddie in terms of how they deal with these mortgages?
BUFFETT: I would be in favor of anything that took people who had been making
payments regularly, but because their house doesn't qualify in terms of value to get
refied, but to let them make similar payments, for example, and have a greater
amount apply against principal, but I—you've got to be very careful with these
programs because people learn how to game them very quickly. So it makes it very

important how you—how you draft them. But certainly somebody that's paying 6 1/2
or 7 percent interest pays it straight through, their house is under water, and they're
going to keep making the payments, I would—I would try to get them in a market
rate, if I could figure out a way to do it without having a whole bunch of people
game the system.
BECKY: Hm. You know, there are a lot of questions around how you can fix the
housing market, if there's any way to fix it, aside from just waiting. Ben Bernanke is
another key player in this and maybe we can talk about that in just a moment, but
we have a new mandate here on Squawk Box, we have to take commercial breaks.
BUFFETT: Oh, how capitalistic.
BECKY: Exactly. How unfortunate and how capitalistic. So let's slip in a quick break
and when we come back, we can talk a little bit more about that. And, Joe, I'll let
you take things away from here.
JOE: Yeah, I do remember—we used to not with Buffett, we wouldn't...
BECKY: Yeah. I think we got caught on that.
JOE: Yeah, he could—he could buy all the advertising on the show. I'm trying to get,
you know, I've got a lot of ideas for spending more Warren's today.
ANDREW: Yeah.
JOE: I don't know why. Anyway, coming up, much more from Warren Buffett live
from Omaha.
BECKY: We were just talking about housing and the issues there, and I figured we'd
pick it up with some more questions about how to potentially fix housing. Warren,
one of the big questions out there is what could the Fed do, if anything? Because Ben
Bernanke recently said that if there's need, they'd consider QE3. Now, you already
told us that you didn't like QE2, so what do you think about a potential QE3?
BUFFETT: Well, I don't think it's stimulus that's needed in housing. What's needed in
housing is to create more households than housing units. And as soon as that gets
tight—and, obviously, it's a local situation, so it's not going to be the same in Omaha
as south Florida. But every day we are reducing the housing stock. We are creating
more households than housing units at this 600,000 pace of housing starts. You
know the answer is coming, you just don't know exactly when. When it comes, it will
be a big change. It would be a terrible mistake to try and do some cash for clunkers
type thing that would create a whole bunch of houses down the—Schumer had this
bill with bipartisan support a few weeks ago that talked about letting people come
into the country if they would make a short investment in an owner-occupied house.
That could actually change the number of households in the United States. It might
not be a big factor, but that is the basic equation. And it is going in our favor, but

this wasn't created in a week or a month. Then it won't, you know, it won't be solved
in a week or a month, and it won't even be solved this year like I said it might be.
BECKY: Do you think the—do you think the Schumer Bill is a good idea?
BUFFETT: I think, yeah, I think it could be a good idea. I haven't read all the details
of the bill, but assuming—I mean, you would want other—perhaps other
qualifications as well, but if you could bring households into this country that can
afford to buy housing units and that have a source of income, sopping up those units
is—you can blow up the units. That's one of the alternatives is to get rid of the
supply, but increasing the demand is a good thing. And we're doing that. One of the
things you have to understand is that in a recession, initially, household formation
goes way down.
BECKY: Mm-hmm.
BUFFETT: So in 2009, we had very little household formation, but that doesn't
continue. The age cohorts were built in 25 years ago went burst, so when hormones
still kick in.
BECKY: Right.
BUFFETT: I mean, and we'll form households.
BECKY: So QE3, there are a lot of people speculating that if it did come it would be
the Fed buying mortgage securities instead of Treasury securities, securities like they
did with the other QEs. But you're saying that's not a good idea? Just in general in
terms of stimulating housing?
BUFFETT: Well, I—well, what we have done is we've had two conventional tools to
fight recessions.
BECKY: Right.
BUFFETT: And one, you know, one is fiscal policy and we've run huge deficits for
that. The second is monetary policy, which the chairman is in charge of, and we have
pushed that pedal to the floor. I don't think either one of those is going to very
much. But incidentally, I think they've done a lot. I think in this non-housing
segment, we have a pretty healthy economy. Just look at profits thorough industry
after industry after industry.
BECKY: Mm-hmm.
BUFFETT: They're terrific.
BECKY: You're talking away from the point, though. Is it a big mistake if Ben
Bernanke increases this income after—with QE3?
BUFFETT: I wouldn't do it.

BECKY: Would you be concerned about the market's reaction if he did do it?
BUFFETT: Not necessarily. I don't worry about the market. If the market goes down,
you know, I buy things cheaper. So I—go to it, Ben.
BECKY: But we have seen the market react already in terms of higher oil prices and
other commodities that have jumped. Is—what is this telling us?
BUFFETT: If you create more money and credit, prices are going to go up at some
point. They may not go up tomorrow or next week or next month, but, you know,
you can go back to the helicopter, Ben's speech in Minneapolis. I mean, they—if you
drop money on households or you drop money on banks or you let—in this case, we
build up huge credit balances with the Fed at—by banks; if you do that, eventually
you'll get an increase in prices, and if you do enough of it, you get a big increase in
prices.
BECKY: Hm. Let's talk a little bit about what we've seen from politics recently. Have
you been keeping track of what's been happening with some of these debates, these
presidential debates for the Republicans?
BUFFETT: Education, Commerce, Energy. I've got it. I practiced in the bathtub this
morning. I'm ready.
BECKY: So you saw the flub from (GOP presidential candidate Rick) Perry, do
you—do you think that this takes him out of the race?
BUFFETT: No, I don't think so. I don't—listen, I've been on this program, and I've
said billions instead of millions, you know, I—people—they're going to—they're going
to get involved in tongue twisters from time to time, or short memory lapses and...
BECKY: Yeah. We talked about this, too.
BUFFETT: Yeah.
BECKY: Joe, you mentioned how it's a real human reaction when you see somebody
forget and you actually feel bad for them.
BUFFETT: Sure, sure.
BECKY: You do the same?
BUFFETT: I do not change my opinion of Governor Perry by one iota because the
guy forgets on national television a third point.
BECKY: So what do you think of him?
BUFFETT: I don't want him to be president.
BECKY: OK. What do you think of the other Republican contenders who are out
there? You've got a lot of situations with a lot of different people. Looks like

(Herman) Cain has fallen off a little bit, although he's still hanging in. Gingrich had
been picking up...
BUFFETT: He's a local product.
BECKY: Yeah. And (Newt) Gingrich has been picking up steam.
BUFFETT: Yeah.
BECKY: But Mitt Romney looks like he is leading the pack by far at this point.
BUFFETT: Yeah.
BECKY: You think he's going to be...
BUFFETT: I think he's likely to be the nominee. I think the primary process and the—
even superimposed with all the debates, tends to push the entire field. And it would
do the same with Democrats. It pushes them to more extreme positions. I mean, it
just has that nature that 'I'm more of a Republican than you are.' And it would do
the same with Democrats, and we're seeing that. It's kind of fun to watch. I don't
know whether it's necessarily good for the republic.
BECKY: Who do you think is the best or the strongest candidate to go up against
President Obama?
BUFFETT: I think it would probably be Romney.
BECKY: I...
BUFFETT: I think in the primaries, people tend more to go for extremes. In the
general election, they move back to the middle to some degree. And those are the
people that turn out. And you need the independents and all of that. And I think,
from the Republican standpoint, therefore, Romney would probably be the best
choice.
BECKY: The lead story in The New York Times today talks about how the special
deficit committee from Congress is, at this point, looking like they may be trying to
punt and not come up with any solution by the November 23rd deadline. Does that
surprise you?
BUFFETT: Well, we'll see if the approval—we'll see if the approval of Congress will
go in to minus territory. Maybe down to 9 percent or something now. The—well, I
would say this. I wouldn't judge it too soon because I think the committee did
something very smart in terms of staying private for a long time. If you go up there
after the first sessions and plant your feet firmly in cement, it makes it much tougher
to negotiate more because you go along. Almost any big important negotiation
where people have strong feelings on both sides and that has a deadline, the action
takes place very shortly before the deadline. So I would not—I would not rule out
them doing something significant. I wouldn't bet on it, but I don't think the fact that
they haven't walked out arm-in-arm, you know, singing, should necessarily

discourage you. I've seen labor negotiations, I've seen negotiations on purchases.
When things get down to a deadline time, that is when people start making
concessions.
BECKY: OK. Joe:
JOE: All right, thanks. Hey, Warren, back to Romney. I was wondering whether you
saw the—one of the lead pieces yesterday in the—in The New York Times about
Romney's career in private equity at Bain Capital. And Andrew and I both...
BUFFETT: I did read that.
JOE: Yeah. We were both talking about it and, I mean, the specific instance that
they mentioned, I didn't even think that cast Romney necessarily in a—in a bad light
because eventually that company was sold for like $7 billion. But his business skill,
Warren, in reading that, they said that he was really concerned with not screwing up
for the guy, for Bain. And, as it turned out, his due diligence on a lot of those deals
was phenomenal. You're a businessman that's done similar things, and I just wonder
if you—if you were impressed by the piece or—and also, you've probably had to, you
know, in Buffett-owned companies or Berkshire-owned companies, lay off sometimes
as part of streamlining a company to make it—make it more profitable.
BUFFETT: Sure.
JOE: And I wonder if you think that's going to be used in an unfair way when he
tries to portray himself as a job creator.
BUFFETT: I think a lot of things in the campaign are going to be used in unfair
ways.
JOE: Yeah.
BUFFETT: I mean, that's what they call opposition research. No, we've laid off
people in the last year. We've hired a lot of people. In those five companies that set
records, we probably hired 10,000 people, but in our housing-related businesses,
we've laid off thousands of people. The only part of the story, frankly, that—I mean,
I—that I would—that I wouldn't like myself is the degree to which they tried to pull
money out all of the time.
JOE: Yes.
BUFFETT: That's part of it. But as you mentioned, the company was sold for 7 billion
later on and...
JOE: He was gone. He was gone by—he was in the Salt Lake City Olympics by the
time they paid those—Andrew pointed that out to me. He was—right, Andrew?
That's...
BUFFETT: Yeah.

ANDREW: That was the—yeah, the one thing that was unclear about the piece was
it seemed like...
JOE: He's already gone.
ANDREW: It seemed like he had already left at the time they made the payments.
BUFFETT: Yeah.
ANDREW: Unclear to me is whether he participated in the decision to make those

payments or not.
JOE: Right.
BUFFETT: Many, many businesses can be run a lot better, and my guess is that
the—a number of the ones that Bain went in to and that Romney was responsible
for, my guess is that he ran them better. And part of—part of running a business
better is getting more output for the same people or getting the same output with
less people. That's a basic function of capitalism, and I would not quarrel with them
at all if he had—was working toward those ends. Like I said, the only thing—I read
the whole story, and it was an interesting story, but yeah, I don't like the way
private equity firms take on more debt so they can pay out dividends to the owners
and sort of keep operating on the edge all the time. But there are plenty of good
things done by private equity firms, including, I'm sure, Bain and including, I'm sure,
by Romney that—where businesses can be improved. I mean, as I remember, that
company was owned by Baxter and they kind of throw in—threw in the towel.
JOE: Right, right. Yeah.
ANDREW: Hey, Warren, if you weren't supporting Obama and you were forced to
support a Republican candidate, which one would you support?
BECKY: Hm.
BUFFETT: Well, this will be the kiss of death, but I would—I would say Romney.
ANDREW: OK. Worth...
JOE: Right?
ANDREW: Worth putting out there, I was curious.
JOE: All right. I agree.
BECKY: That's...
JOE: I've got some...
BECKY: Yeah.

JOE: How much time do we—I'm going to talk to Warren at 7. I got—I got some
questions, but I—do we have time now or should we—should I...
BECKY: Go ahead, yeah. Go ahead.
JOE: ...should I save it? OK. Because I've been thinking about this all weekend,
Warren, and that is the Buffett tax and things like that and how we should do this.
And I've been trying to figure out, if we were to go to 90 percent marginal rates on
ordinary income would that change your 17 percent tax rate that's been so
publicized? If just ordinary income went up to 90 percent, would that change yours
at all from 17?
BUFFETT: I think it would, but it wouldn't—it wouldn't change it dramatically. And

I'm not 100—I'd want to make the calculation. It wouldn't—it certainly—if you left
dividends and capital gains at 15 percent...
JOE: Then it wouldn't.
BUFFETT: ...I don't think it would change it, no.
JOE: OK.
BUFFETT: What would change my rate and what I advocate—what—and what would
change my rate is a minimum rate on incomes of a million or an over...
JOE: Right.
BUFFETT: ...on taxable income, not adjusted gross income, but taxable income.
JOE: Because I—I'm trying to figure out how we really do get at people that really
have—it would—really millionaires and billionaires. And I'm not even sure that I
would consider someone that has income of $1 million, I'm not sure that they're the
ones that are able to take—I don't know many people that make $1 million that are
paying 17 percent in taxes. Most people...
BUFFETT: That—I think you're right—I think you're right, Joe. There are quite—I
mean, there are quite a few, but they're not a majority.
JOE: Right, so...
BUFFETT: And anybody that makes—anybody that makes $1 million playing—or five
million making center—playing center field for the Yankees or whatever it may be,
they're paying perfectly appropriate rates in my view.
JOE: Right, right.
BUFFETT: It’s guys like—it's guys like me you want.
JOE: OK, so—but then I think, all right, so we got to do something maybe with
dividends and capital gains. But then we have a whole group of people that think

that the capital formation would be hurt. We had some people last week talking
about dividend-paying stocks being a great place to go right now. But if you were to
raise the after-tax—or lower the after-tax yield on those, that might hurt things. I
mean, there is an argument made by certain people that you got to be careful what
you do with capital gains and dividends. So my idea...
BUFFETT: That's that...
JOE: OK, go ahead.
BUFFETT: OK, go ahead.
JOE: All right, go ahead. So is that true, too? There is a—there are certain people
that say that.
BUFFETT: Yeah, well, and somebody that's getting $100,000 or $200,000 dividends,
if you—if you put a minimum tax on incomes, we'll say, of over a million and then
a—maybe a little higher one on incomes of over 10 million, you will not hit the
people who makes lots of income from ordinary income.
JOE: That's what I mean. Yeah. Why don't...
BUFFETT: And you will not hit the—you will not hit the people who get dividends in
capital gains that live in Omaha or, you know, live in your hometown. You'll hit—
you'll—because those people will not be—they won't be getting $1 million of
dividends or something of the sort.
JOE: Right. OK, so...
BUFFETT: If they have a 401(k), they won't be paying anything.
JOE: If we really want to do it, if we really want to say that the wealth of—wealthy
have gotten too wealthy over the past 30 years or whatever, what do you think,
Warren, of a wealth tax? And let's take a modest...
BUFFETT: Yeah.
JOE: ...let's take a modest number. Let's say—I think for someone who makes—who
has a net worth of $100 million. Let's say you have $100 million. If you were to do
10 percent, I mean that's modest. You could even do 20 percent on $100 million.
And just—if we're going to redistribute, let's just do it and say what we're doing. For
a guy like you, I don't know what you got, 50, 60 billion, I mean would you be
willing to write a $12 billion check under a wealth tax and having—in one fell swoop
we would take 30 years of perhaps a growing income disparity and just move it right
over on the—on the ledger. Is that something that would make sense?
BUFFETT: Well, we'll call that the Kernen tax and...
JOE: Because it won't affect me.

BUFFETT: It's kind of—it's pretty difficult to enforce. But—although there is one
good way to enforce it, you might have thought of—you might think about this, Joe.
You know, the problem is, is how do you figure out what everybody's worth when
they got houses and private businesses and all that sort of thing.
JOE: Yeah.
BUFFETT: But what you can do is let everybody self-declare, and then for 30 days
thereafter anybody can buy all of their assets minus their liabilities for that amount
by self-declared. Now, that would be—that would enable you to get an honest figure.
But I—and so I think you can call that the Kernen tax corollary.
JOE: I wonder what we'd raise...
BUFFETT: I think it's pretty...
JOE: Do you know what kind of number we're talking about, Warren, that if you took
anybody who's got at least 100 million in assets, how many people—are we talking
trillions of dollars there?
BUFFETT: Well, just on the top 400 you're talking about a trillion and a half,
assuming—one and a half trillion assuming that Forbes is correct. Because the
Forbes 400 had an aggregate sum based on Forbes of a trillion. I think 523 billion,
something like that. So that's your...(unintelligible).
JOE: OK, so then we're talking—we're probably talking 3 or $4 trillion then, so if we

did a 10 or a 20 percent wealth tax...
BUFFETT: No, you wouldn't be—no.
JOE: No?
BUFFETT: No, you wouldn't be talking quite that much. But 10 percent of a trillion
and a half would be 150 billion.
JOE: That's not—even that's not that much. That's not going to help us that much
either. That's...
BUFFETT: No. Joe, the problem is we're going to have to get 15 percent of GDP
that's coming in in revenue up to 19, and we're going to have to get 25 percent
spending of GDP down to around 21. And what I've talked about will not solve the
revenue side. What anybody's talking about will not, in any one event, solve either
the revenue or the expense side. But we should be going in the right direction...
JOE: Yeah.
BUFFETT: ...and we're going to ask people to sacrifice plenty on promises that have
been made to them. So I just say it won't kill us to have a 30 or 35 percent
minimum tax on the super-rich.

JOE: Right. I'm trying to figure out the best way to—I wish you could do that. I wish
we'd get—so you think we could get rid of a lot of deductions and 33 percent. Get rid
of all deductions, everybody pays 33 percent no matter what. That would do it? I
mean, that would raise some serious dough, wouldn't it?
BUFFETT: That would raise a lot of money. I don't know that I would—I still believe
in a progressive rate. And I—and I believe that at the—the ultra-rich should pay a
rate that's equal to what people think they're paying, which is the highest marginal
rate.
JOE: But if you had no deductions and it was—it went up in a progressive way like
we do now with no deductions, then maybe that would probably be revenue-
generating, not revenue neutral.
BUFFETT: I think you've got to look at the figures and tell me the numbers that you
plan.
JOE: All right. All right.
BECKY: Warren, what's it feel like to have a tax law or a tax proposal named after
you?
BUFFETT: Well, it was a boyhood dream. No, I guess I could think of other things.
You know, I'd rather have some home run that was hit in Yankee Stadium named
after me. You know, 'That was the Buffett home run' or something of the sort. But
the tax that I'm talking about hasn't really been named after me. I'm really talking
about...
BECKY: Right.
BUFFETT: ...a minimum...
JOE: I don't even know what the tax—I don't even know what it is. I'm still not sure
what...
ANDREW: I don't think anyone is.
BUFFETT: It's a—it's a—it would be a minimum tax on incomes of a million and
over, we'll say, of 30 percent...
JOE: Right.
BUFFETT: ...and counting payroll taxes, and probably on incomes of 10 million and
over it would be 35 percent.
ANDREW: Yeah.
BUFFETT: And anybody that's making that amount from ordinary income wouldn't
pay a dime. And it wouldn't change...

BECKY: People are already paying that if they're making it from ordinary income.
JOE: Right, more than that.
BUFFETT: Yeah, and if—and anybody that's getting hundreds of thousands of capital
gains that are—or dividends it would not change their rates at all. It's merely to
ensure that when you're talking about shared sacrifice that the 400 people at the top
who averaged a rate of 19 percent in 2008 that about 80,000 of those, according to
the congressional office that made a study out of the 250,000, would pay this
minimum tax. Eighty thousand people. that's the number we get in the football
stadium at Lincoln on Saturday.
JOE: Why wouldn't you want a St. Louis Cardinal home run? I don't know why you
went right to the Yankees? I mean, after the year...
BUFFETT: Well, I would want a St.—I would want a St. Louis Cardinal.
JOE: OK, well, be more specific. After this year, I mean...
BUFFETT: OK. And I get careless when I talk with you sometimes.
JOE: I know you do, I make you nervous probably. All right.
ANDREW: OK. We're going to slip in a quick break and we're going to come back to
Mr. Buffett out in Omaha. If you've got comments or questions about anything you
see here on Squawk, shoot us an email at squawk@cnbc.com. Or follow us on
Twitter, our handle, @squawk@cnbc—or @squawkcnbc, I apologize. And still ahead
much more with Warren Buffett live from Omaha. And our Becky's Back Week rolls
on.
ANDREW: Let's get back to Becky in Omaha with the "Oracle of Omaha." Becky.
BECKY: Hey, thanks, Andrew. You know, we've been talking about a lot of different
things, and we've been asking for your questions coming into the Squawk email box
and coming to the Squawk Twitter feed, which I'm still trying to learn. I think it's
@squawkcnbc.
But, Warren, we did get some questions that have already been coming in through
the weekend on that. And I want to bring you one that comes from @bigskywalker.
He asks the question--I'm assuming it's a he, it could be a she. "Why do events like
MF Global continue to happen? And are the penalties too light for the officers and
directors?"
BUFFETT: Yeah, the penalties are too light. They--they'll always happen. I mean, as
long as human beings run institutions, including financial institutions, there will be
people that take undue risks, there will sometimes be people that steal, there will
be--you know, there will be people that don't understand the risks they're taking. It's
just the nature of business. That happens with small businesses, it happens with big

businesses. There should be--and I've written--I put this in the annual report--there
should be much more extreme penalties for the CEOs, or the departing CEOs, of
companies that are important enough to require society to intervene. The idea that
huge institutions fail and the taxpayers have to--their representatives have to rush in
and that royal markets and all of that sort of thing. And the CEOs walk away rich is, I
think--I think it's--I think it's a terrible thing morally; but, beyond that, I think it
encourages bad behavior. You don't have to worry--the moral risk does not come
about with the shareholders of you name the institution, whether it's WAMU or
Wakovia or Freddie...
BECKY: Mm-hmm.
BUFFETT: ...or Fannie. They shareholders get creamed, but the managers walk
away rich. And there should be strong changes made in my view. I don't think
anybody that runs an institution that needs the government to intervene later on for,
for society's sake, I don't think any of them should walk away with a dime.
BECKY: With the case of MF Global in particular, is this entirely Jon Corzine's fault?
BUFFETT: I don't know. I mean somebody made a big bet. I would say this. If you
have an institution that has a net worth of a billion and some of that's in furniture
and fixtures and some of that's--I looked up their 10K, and they--and you take a
position of six billion so that--in a--in a credit that could run into big trouble I--it
certainly--you know, that's a risk that shouldn't be taken.
BECKY: Why didn't the New York Federal Reserve Bank stop them? I mean, this is a
primary broker. This was a primary broker. Why weren't the regulators more on top
of this and after what we went through in 2008?
BUFFETT: Well, to some extent, they're making the same mistake that regulators
have made all over the world about sovereign debt. Sovereign debt is pretty
generally regarded as risk-free, and that's why the European banks loaded up on it.
They didn't have to count it for capital requirements, and it was a way they could
leverage up further without having the leverage rules called into play. And sovereign
debt still represents a promise to pay. And if you've got a promise to pay by
somebody that doesn't have a printing press, sovereign--you know, you can have
problems. And when you've got a printing press, you know, you can pay your debts.
If you ever have a printing press, don't give it up, Becky. But if you don't have one,
be careful about how much money you borrow. And the regulators in my view were
very lax in terms of just regarding all sovereign debt as terrific, even when the
spread started widening out.
BECKY: Andrew, I know you've got some questions on this. I have some more
questions on this topic, too. But I think we're coming up against a hard break, and I
think we've got that top of the hour to hit.
ANDREW: Yeah.
BECKY: I know we have a lot more to talk about with this, too. Plus, today is the
day, Warren, that you've got to file your SEC filings to talk about what you've been

buying. I know that you bought about $7 billion worth of equities last quarter, and
we're going to ask you about that when we come back, too.
BUFFETT: Yeah, it'll be an interesting answer, and we'll have a little quiz maybe for
Joe and Andrew.
BECKY: All right. Guys.
ANDREW: Hey, thanks, Beck. We are going to slip in that break and we're going to
have more with Warren Buffet. Plus, today's top stories, and the latest out of Rome.
Squawk Box coming back right after this.
JOE: Good morning and welcome back to Squawk Box on CNBC, I'm Joe Kernen
along with Andrew Ross Sorkin. Becky is back, but she's in Omaha this morning with
the Oracle of Omaha.
BECKY: Yes.
JOE: Before we get to her and Mr. Buffett, who is going to build a—did you hear, I
wasn't listening that closely but he's planning a big tomb or something that's going
to employ 20,000.
ANDREW: No, he isn't. No, he isn't.
JOE: What? That was like a—that I didn't even see the wires pick up on that at. That
is a—that's some interesting infrastructure. But—and you know what it's going to
take 30 years to build, and he's going to wait until it's finished.
ANDREW: Oh, of course.
JOE: Which I like his—I like his style.
BUFFETT: Yeah, right.
JOE: I like his style. Andrew.
JOE: All right, we are on Buffett watch this morning and Becky Trip made—or Becky
Quick made the trip to Omaha she joins us now with Berkshire Hathaway chairman
and CEO Warren Buffet. I used to say to Welch that the last in-flight movie he saw
on a commercial flight was "Sound of Music." For Buffett it wasn't even a—it must
of—it wasn't even a talkie I don't think, the last one that he saw off.
BECKY: Yeah.
BUFFETT: I'm going to get even on that now in just a second.

BECKY: Whoa, he says he's going to get even with you now, Joe. Look out.
JOE: Actually, I've got—should I—are you going to lead, do you want me to? Can I
ask him a question, Becky, or do you want to start?
BECKY: Yeah, go ahead, jump in.
JOE: OK.
BECKY: Go ahead jump in, Joe.
JOE: I'm going to let you get even with me, too, Warren, but...
BUFFETT: OK.
JOE: ...I want to talk—and this is Andrew's, I mean, "Too Big to Fail," great book,
and that—everybody associates that with Andrew. But I've got—I've got a—sort of
a—my view has evolved and you pointed that out last week. And I have real
problems with too big to fail, and I think that the Occupy Wall Street movement,
they may not know exactly why they're upset but the notion that you can—I was
talking about it over this weekend. If you—let's say that you're a public employee
and you went to Las Vegas with tax money, and you were allowed to put as much
tax money that you want on blue—on black, or red, or on blackjack. And if you lost
it, the taxpayers lost it, and you didn't care, but if you made it you got to keep it.
That's basically what too big to fail institutions are able to do, and to leave, you
know, to leave with taxpayer money, with the profits. And I see why Occupy Wall
Street is—has a problem with that, although I'm not sure that they understand it.
Can we have enough regulations for these big institutions to keep them honest,
Warren, or do we need to break them up?
BUFFETT: Well, I would, I would use this example what happened is that some of
these—the people you refer to went to Las Vegas and they didn't go with taxpayer
money, they went with shareholder money, and they were making a bunch of bets
where heads they won and tails the shareholders lost. And if the shareholders lost all
of their money, one of the reasons they could make those bets was because people
felt the government would come in to back up those shareholders. But they were
losing the shareholders money. As a matter of fact as you know on the banks, on
TARP, the government will a profit. Now, they didn't—you know, it didn't have to
turn out that way, but it did turn out that way. But the shareholders still lost tons of
money.
JOE: Right.
BUFFETT: And I say the guy who goes to Las Vegas and loses the money should
leave broke himself, and—but I don't think—it isn't that everybody got off light.
JOE: No.
BUFFETT: The owners of the bank got killed.

JOE: But you have a vested interest in too big to fail, Warren, I mean you were able
to you knew—go, you were able to buy Goldman Sachs, you were able to buy GE,
you were able buy Bank of America recently, so it implied you've almost got a put
there with some of your purchases.
BUFFETT: No, I'm a shareholder—I'm a shareholder. The shareholders got wiped

out at WaMu, Wakovia, Freddie, Fannie, almost at Citi, almost at AIG, going down
the line, I mean the—so as a shareholder I'm not protected.
JOE: OK.
BUFFETT: If I were—if I were the CEO, I might be protected but not as a

shareholder.
JOE: OK, but it's not fixed yet, is it?
BUFFETT: No, there's parts of it that are definitely not fixed, and I've written about
that. I think—I think you've got to—you've got to make it so the CEO of an
institution that requires society to bail out its institution, that CEO goes away broke
and his wife goes away broke.
JOE: But we still have...
BUFFETT: And the directors pay...
JOE: That...
BUFFETT: The directors pay a big penalty, too.
JOE: That still might not help, though. If they're that big and that systemically
important, then they're still going to get bailed out. And you know, that's the
problem. All right, I mean, we need to make it so that they're not that systemically
important because they're still going to get bailed out at this point.
BUFFETT: Well, the ones that—actually if you look at the—if you look at the banks,
you know, they have not cost the taxpayer anything.
JOE: No, I know.
BUFFETT: Now, Freddie and Fannie have cost—Freddie and Fannie have cost the
taxpayer plenty.
JOE: But, yeah. But it's still—the moral has it that's been built up. Who knows how
badly that damages some of the decisions that are being made right now even
though we got our money back?
BUFFETT: Well, I would say this, when I—when we buy our BofA preferred, we do
not expect the government ever to pay off our preferred. We do expect the
government to pay off depositors.

BECKY: Hm.
BUFFETT: But we do not expect the government to pay off our preferred.
JOE: OK. Andrew:
ANDREW: Hey, Warren one other question, and it—and it evolves from the financial
crisis and the too big to fail issue. It goes back to the question about derivatives...
BUFFETT: Mm-hmm.
ANDREW: ...and their impact on the crisis, but also their role going forward. You've
called derivatives weapons of mass destruction. And, as I was looking through the
earnings report from last quarter, however, Berkshire lost $2 billion in part
because of derivatives. Is there a way to square that circle for you?
BUFFETT: Well, yeah, we have entered in about 200 plus derivative contracts, I
have, and I expect we will make money on those. We have the use of substantial
amounts of money, and they are—they are very, very small compared to either our
assets or our earning power. I mean we could handle any of those, any transaction
we have without any, any discomfort whatsoever, and very few of them require any
collateral, but even if they did we would have the collateral so we...
ANDREW: That's what I was going to ask, do you have to post collateral for the $2
billion loss in the third quarter...
BUFFETT: No.
ANDREW: ...do you have to post $2 billion...
BUFFETT: No, no.
ANDREW: No? OK.
BUFFETT: No, no.
ANDREW: And why is that?
BUFFETT: No, no we won't—we won't—we won't enter into any contract that we
think could cause me to lose five minutes of sleep if the Dow would go down 2,000
points tomorrow.
BECKY: Those contracts, though, those derivative contracts are long-term bets that
several of the major stock indexes, like the S&P 500, will go up over the course of
10, 12 years.
BUFFETT: For the—what the—really they're bets that they won't go down a lot.
BECKY: That they won't go down a lot.

BUFFETT: Over that time. And we get the whole—we're holding $4 1/2 billion that
we've had the use of now for five years, and we have the use of for another 10 or so
years, which we get to make money with, and if we settle the contracts today at the
levels of the index, they would be settled for a whole lot less than the liability that
we show.
BECKY: And...
BUFFETT: I'm happy with all the contracts.
BECKY: And the earliest contract is it 2018?
BUFFETT: 2018.
BECKY: 2018.
BUFFETT: But that's not the late—I mean, they go out to 2026, I think.
BECKY: Is there—do you think there's a chance that the indices could go down from
where they are today because the Europe problems are still overhanging in six
years?
BUFFETT: Oh, sure they can go down, but they can go up, too.
BECKY: Right.
BUFFETT: Yeah, and if they stay the same, our liability would be quite a bit less
than we show on our balance sheet.
BECKY: OK. Why don't we talk a little bit more about some of the earnings. You
mentioned already the strength of some of those businesses that you've seen and
how strong the American economy is as a result. You also spent a lot of time in the
last quarter buying equities, $7 billion.
BUFFETT: You noticed.
BECKY: Yeah, we did notice.
BUFFETT: Yeah.
BECKY: A lot of people have been paying attention to this.
BUFFETT: Yeah.
BECKY: You've got a file with the SEC today...
BUFFETT: Tonight, tonight.
BECKY: ...tonight to say what you were buying in the last quarter.

BUFFETT: Right.
BECKY: Can you tell us now what you were buying?
BUFFETT: Yeah, but I would like to make interesting. And Joe and Andrew and you
are always torturing me with these quizzes that you give. You know, you send Scott
Cohn out some place and have him issue some enigmatic word or something, and
I'm supposed to figure out where he is in all that. So I would like, you mentioned
movies.
BECKY: Mm-hmm.
BUFFETT: If you remember in "The Graduate" when Mr. McGuire called Benjamin
into the work—into his—at the party very early, and he said, `Now just one word.'
BECKY: Plastics.
JOE: Mm.
BUFFETT: Plastics.
ANDREW: Yeah.
BUFFETT: Put his arm around him, "Plastics." So I'm going to say one word, and I
want you to figure out where we put all that money and the word is Harold.
BECKY: Harold?
BUFFETT: Harold. Think about it. Harold.
ANDREW: Harold the name or?
BUFFETT: That's what Benjamin—Benjamin, Benjamin didn't do...
BECKY: Yeah, Harold the name or H-E-R-A-L-D?
BUFFETT: Yeah, Harold the name. H-A-R-O-L-D. It's like plastics.
JOE: OK, now, OK.
ANDREW: Look I'm on Google, so I'm going...
JOE: No, no, Harold and Kumar that's a...
BUFFETT: Yeah, now the only thing I—Joe and Andrew, I'm attaching one condition
to this. You can't look at the emails that are coming because some of your viewers
are going to...

JOE: No, I'm not. But Harold and Kumar, they're making the sequel, what studio is
that? Are you—are you investing in a movie studio? Is that what you're talking
about?
ANDREW: No.
BUFFETT: Now, just think about it. Harold just think about it, OK.
JOE: Harold.
BECKY: Harold and Kumar that's...
BUFFETT: And I will—we'll talk, I'll give you a little time on this one, but billions...
ANDREW: Oh, boy.
BUFFETT: ...and billions of dollars are riding on this, so, now.
BECKY: Seriously?
BUFFETT: Yeah.
JOE: All right, I'm looking this up.
BECKY: Billions and billions of dollars that you invested in the last quarter, and the
clue is Harold.
BUFFETT: Write it.
ANDREW: I'm looking at.
BUFFETT: Not plastics. Is it any...
BECKY: I think.
BUFFETT: ...how much older do you think Mrs. Robinson actually was, Anne
Bancroft, than Dustin Hoffman.
JOE: Oh, I know that. It's six years.
BECKY: I know the answer, too, she was like 35 right?
JOE: Thirty-seven, I think.
ANDREW: Oh.
BECKY: Or was she, 37?
BUFFETT: She was—she was six years older than he was.

JOE: He was 31, yeah.
BECKY: Dustin Hoffman.
BUFFETT: But not—but if you looked in that hotel room, you thought there were
more numbers than that.
BECKY: Yeah.
BUFFETT: I actually started laughing uncontrollably during that to the point where
my family practically led me out of the theater.
BECKY: Wait a second, back to Harold, can you give us another clue?
BUFFETT: I've given you multiple clues.
BECKY: Harold?
JOE: I can't imagine you'd buy into a movie company, Warren, would you? Is that
Lionsgate who's doing that?
BECKY: I.
ANDREW: I'm looking here.
BECKY: I always think of consumer products. Is it—is it...
BUFFETT: Well, we can talk about something else while you think about it. Or
whatever you'd like to do.
BECKY: Oh, no.
ANDREW: OK, give us, give us a little bit of time, Warren.
BECKY: Will you really tell us if we guess it?
BUFFETT: Oh, I'll tell you.
ANDREW: We're literally...
BUFFETT: I'll bet—I'll bet...
ANDREW: We're working the computers here.
BECKY: You'll tell us.
BUFFETT: Oh, I'm going to tell you.
ANDREW: Hold on, hold on. Does it have anything to—no.

BUFFETT: But I'm—but I'm sitting here with three people with IQs of least 450 in
aggregate.
ANDREW: Is this?
BUFFETT: I won't, I won't give you a—I won't give you the subdivision how I...
BECKY: The breakdown.
BUFFETT: I won't give you the breakdown, no.
ANDREW: Is it Southwestern Energy?
BECKY: Are you using Google to look up Harold?
ANDREW: Yes, I am. I am. Is that—is that an OK guess?
BUFFETT: No.
ANDREW: No, OK, OK, I'm trying.
BECKY: Can you give us another hint?
BUFFETT: I've given you a lot—I've given you multiple hints.
BECKY: What's the other hint?
ANDREW: Multiple? You gave us one and I got.
JOE: Multiple? You gave us Harold.
BUFFETT: And that you have to figure out, too.
BECKY: Is it...
ANDREW: I don't.
JOE: Mm.
BECKY: Harold and the Graduate is that the other hint?
ANDREW: Does "The Graduate" have anything to do with it?
JOE: What about Time Warner?
BUFFETT: It sort of—sort of indirectly.
BECKY: Time Warner, Joeses?

JOE: You don't—you wouldn't buy—you wouldn't buy Time Warner stock, would you?
ANDREW: Where are you getting Harold from with Time Warner?
JOE: Because it's a Time Warner—it's a Warner Brothers, Harold and Kumar.
BECKY: Oh Harold and Kumar is a—is a Warner Brothers movie. That's a good
guess.
JOE: As soon as he sad it is, all I know about Harold is Harold and Kumar.
ANDREW: McGraw Hill?
BECKY: Ah.
BUFFETT: Nope.
ANDREW: OK, we're going to think about it during the break.
BECKY: All right.
BUFFETT: Are you ready for it?
BECKY: Are you going to tell us?
BUFFETT: I'll tell you if you like.
JOE: OK. After the break, after the break.
ANDREW: Hold on, why don't you tell us after the break?
BECKY: After the break, OK, all right we're going to keep this going around. Can we
look at the viewer email over the—over the break?
BUFFETT: OK, you can you look at the viewer email over the break. I'll bet
somebody sent it in already.
BECKY: OK. We're going to keep working away at this. We've got a quick two
minute break to try and figure this out. When we come back, you'll tell us?
BUFFETT: Yeah.
BECKY: All right, when we come back, go ahead, send us your guesses on this to
mailto:squawk@cnbc.com or you can tweet us @squawkcnbc. Hopefully, we'll
figure this out before the end of the break. But when we come back, we'll get the
answer from Warren Buffet. Stick around we've got plenty more to come this
morning. Squawk Box will be right back.

BECKY: All right. Welcome back, everybody. This is Squawk Box, and we're
speaking with Berkshire Hathaway chairman and CEO Warren Buffett this morning.
And he just gave us the best tease we've probably ever had in the history of Squawk
Box. We said that he would tell us what he's been buying over the last quarter when
we came back from the break.
JOE: I have no audio.
BECKY: You don't hear, Joe? I hear you. But...
JOE: OK, now I've got it.
BECKY: ...we've been trying to figure it out. Tell us again—tell us again your...
JOE: How do you spell...
BECKY: ...clue?
JOE: How do you spell Harold?
BUFFETT: Harold...
JOE: How do you spell Harold?
BUFFETT: Harold was spelled H-A-R-O-L-D.
JOE: So it's not Macy's.
BECKY: All right, there was—there was a tweet that came in—oh, that's good.
Herald Square from Macy's. There was a tweet that came in guessing that maybe
it's Halliburton because the ticker...
JOE: Right.
BECKY: ...symbol is HAL.
BUFFETT: Well, it's—that's a good guess, and it actually may be going in the right
direction, but it's not correct.
BECKY: Oil and services?
JOE: Well, then it's not Harold Hamm? It doesn't have anything to do with Harold
Hamm, does it?
BUFFETT: No, he's a friend of mine, but...
JOE: It doesn't have anything to do with him.
BECKY: All right, tell...

BUFFETT: Have you given me your best shot, Joe?
JOE: No, I'm still thinking. I don't want to give up yet.
ANDREW: I think we're going to have to give up.
BUFFETT: Well, keep thinking.
ANDREW: Oh, come on, let's just...
JOE: I'm going to hurt myself.
BECKY: Give us one more hint.
ANDREW: One more hint. Come on, Warren.
BUFFETT: No, I've—the next hint would give it away, so I'll just tell myself.
JOE: OK, then tell us. OK, I'm ready.
ANDREW: OK, so tell us. We'll—we're OK.
BUFFETT: OK, well, what I would have told you is that we have bought about—and
it extends over more than the three months, but it's all been this year, but it was
more in the third quarter than in the earlier two quarters. We bought about $10.7
billion worth of one stock, and there were several clues in what I said to you. First of
all, I referenced a movie. Harold is somebody that's known as the abbreviation—or
the common shortening of that is Hal. Now, if you think about movies...
ANDREW: Oh, wait...
BUFFETT: ...with Hal...
ANDREW: Oh, I know this.
BUFFETT: ...if you go back to "2001...
ANDREW: 2001.
BUFFETT: ...A Space Odyssey"...
BECKY: I know this!
BUFFETT: ...2001...
BECKY: Yeah, yeah.
BUFFETT: ...Hal was the computer, right?

BECKY: IBM. It's...
BUFFETT: And Hal, if you take H plus one letter is I, A plus one letter is B, and L
plus one letter is M.
JOE: Yeah. IBM.
BUFFETT: IBM.
BECKY: You—wait, you bought over $10 billion in IBM?
BUFFETT: That's correct. But I also told you multiple times, `Think about it.' And if
you remember, "Think" was the slogan of IBM for decades. And every desk of an
IBM...
JOE: Ah, jeez. That's too—that's too many—too many dots. Go from Harold to
shorten it to Hal, add a letter to get the IBM. That's—oh, boy!
BUFFETT: Well, but that was—"Space Odyssey 2001" was—or "2001 Space"—was—
they referenced many times in that, in writing about it, that Hal was thought...
ANDREW: Right. You're right.
BUFFETT: ...to be IBM.
ANDREW: You're right.
BECKY: Wait. Wait a second, IBM is a tech company, and you don't buy tech
companies. Why have you been buying IBM?
BUFFETT: Well, I didn't buy railroad companies for a long time either. I—it's
interesting. I have probably—I've had two interesting incidents in my life connected
with IBM, but I've probably read the annual report of IBM every year for 50 years.
And this year it came in on a Saturday, and I read it. And I got a different slant on it,
which I then proceeded to do some checking out of. But I just—I read it through a
different lens.
JOE: What's the different lens? What's the different slant?
BUFFETT: Well, just like—just like I did with—just like I did with the railroads. And
incidentally, the company laid it out extremely well. I don't think there's any
company that's—that I can think of, big company, that's done a better job of laying
out where they're going to go and then having gone there. They have laid out a road
map and I should have paid more attention to it five years ago where they were
going to go in five years ending in 2010. Now they've laid out another road map for
2015. They've done an incredible job. First, Lou Gerstner, when he came in, he
saved the company from bankruptcy. I read his book a second time, actually, after I
read the annual report. You know, "Who Said Elephants Can't Dance?" I read it
when it first came out and then I went back and reread it. And then we went around
to all of our companies to see how their IT departments functioned and why they

made the decisions they made. And I just came away with a different view of the
position that IBM holds within IT departments and why they hold it and the stickiness
and a whole bunch of things. And also, I read very carefully what Sam Palmisamo...
JOE: Palmisano.
BECKY: Palmisano.
BUFFETT: ...Palmisano, yes, has said about where they're going to be and he's
delivered big time on his—on his—on his first venture along those lines.
JOE: Incredible.
BUFFETT: But anyway, we...
JOE: And...
BUFFETT: ...bought about 64 million shares and it cost us about $10.6 or 7 billion.
JOE: Have you spent time with Sam?
BECKY: What does that mean, yeah?
JOE: (Unintelligible)
BECKY: What—how much—how much of the—how much of the company do you

own?
BUFFETT: We own about 5 1/2 percent of the company.
BECKY: OK.
BUFFETT: The other thing I would say about IBM, too, is that a few years back, they
had 240 million options outstanding. Now they probably are down to about 30
million. They treat their stock with reverence which I find is unusual among big
companies. Or they really—they are thinking about the shareholder.
BECKY: We...
JOE: But you're buying this, Warren, you're buying this on a high, which is really—
most people think you got to buy things when they're down. They look at 52-week
high and lows, say, oh, I'm not going to buy it, it's on a high, but stocks that are on
highs hit new highs. I don't know how many Dow components are at all-time highs,
but IBM is one, maybe McDonald's.
BUFFETT: No.

JOE: But you're buying this after it's really broken out the new highs this year, new
all-time highs.
BUFFETT: We bought—we bought railroads on highs, too.
JOE: Yeah? They sent it—you know, stocks at new lows that, you know, can hit new
lows where they...
BUFFETT: Right. I bought—I bought control of—I bought control of GEICO at its all-
time high.
JOE: Yeah? Well, Warren...
BECKY: Yeah, we're looking...
JOE: ...have you talked to Sam or to—or to Ginni, the new CEO?
BUFFETT: No, I never talked to Sam. I've never talked to Sam. I've got this—I
competed with IBM 50 years ago, believe it or not. I was chairman of a company,
had, and I testified for IBM in 1980 when the government was attacking about on
the antitrust situation. But I've never—I have not talked to Sam or now Ginni.
JOE: And you have a view on the...
BECKY: Wait a second. The company's finding out right now that you own 5 percent
of the company by...
BUFFETT: Yeah, 5 1/5, yeah, yeah.
BECKY: ...5 1/2 percent by you talking about this right now?
BUFFETT: Yeah, right, right. I have not talked to the company.
JOE: And do you have a view...
BECKY: We've been watching the stock and it's been—it's been jumping on this. It's
up about 1 percent right now. I've seen it up as much as 1.5 percent. Would you
continue to buy more?
BUFFETT: Yeah. No, I wouldn't be talking about it if we weren't pretty much done. I
set out to buy about $10 billion worth and we bought a little more than that. We
started in March. I got the annual report I think very early in March and then I did
some work and then we started—we bought a little in the first quarter and more in
the second and third quarter.
BECKY: I...

BUFFETT: And we—and we bought some in the fourth quarter. We bought some in
the—our report that we will file tonight will not show the whole 64 million. Probably
show 57 million or something like that because we bought some in October.
BECKY: Because you bought more since this quarter. So, how do you keep that
hidden that you're buying that much stock over that long of a period of time?
BUFFETT: I avoid talking to you.
BECKY: No, really, how do you—how do you hide that?
BUFFETT: Well, it's important to us that we do. And what's very interesting is here
in a—what is it, seven-month period or something like that, eight months, maybe,
we buy 5 1/2 percent of the company. At the same time, the company bought pretty
much an equal amount. So here you have 11 percent of a huge company change
hands and all kinds of people who've owned IBM forever. I mean, it's an old—it's an
old company, it's a big company, it's amazing to me how much turnover there is in
stocks, which means that, you know, investment has kind of gone by the boards and
people just basically look at stocks as things to speculate in. But if you can buy 11
percent of a wonderful company in eight months or have that much trade just the
two buyers without—of course, who knows how much we affected the price. We try
not to affect the price. We usually buy a given percentage of what trades every day.
BECKY: You—this is the second time in the last several months that you've told us
about a purchase you've made of a company you've been the reading annual reports
for years.
BUFFETT: Right.
BECKY: Bank of America was the first.
BUFFETT: Right. I read those for 50 years.
BECKY: Read those for 50 years and you're looking at companies a little differently.
You never really bought tech stocks before. You had always said you don't
understand technology stocks.
BUFFETT: Right.
BECKY: Does this mean that this is a new era and you're going to be looking at a lot
of tech stocks and I guess chief among them, would you consider Microsoft?
BUFFETT: I—well, Microsoft is a special case because Microsoft is off bounds to us

because of my friendship with Bill and if we spent seven months buying Microsoft
stock and during that period they announced a repurchase or increase of the
dividend or an acquisition, people would say you've been getting inside information
from Bill. So I have told Todd and Ted and I apply it myself that we do not ever buy
a share of Microsoft. I think Microsoft is attractive but that—but we will never buy
Microsoft. It—people would just assume I knew something and I don't, but they

would assume it and they would assume Bill talked to me and he wouldn't have. But
there's no sense putting yourself in that position.
BECKY: But...
BUFFETT: I can say I've never met Sam but I can't say I've never met Bill.
BECKY: But does this change the rules of the game that you would actually look at
technology stocks now?
BUFFETT: I look at everything but most things I decide I can't figure out their
future.
JOE: Warren...
BUFFETT: Their economic future.
JOE: This is more of a...
BUFFETT: And I decided...
JOE: Do you look at this more of a—almost as a service company now rather than a
hardware/software company, though?
BUFFETT: Yeah. It...
JOE: It's almost not...
BUFFETT: It is...
JOE: It's not high-tech anymore, almost.
BUFFETT: Yeah, it's a—it's a company that helps IT departments do their job better.
JOE: Yeah.
BUFFETT: And if you think about it, I don't want to push the analogy too far
because it could be pushed too far. But, you know, we work with a given auditor, we
work with a given law firm. That doesn't mean we're happy every minute of every
day about everything they do but it is a big deal for a big company to change
auditors, change law firms. The IT departments, I—you know, we've got dozens and
dozens of IT departments at Berkshire. I don't know how they run. I mean, but we
went around and asked them and you find out that there's—they very much get
working hand in glove with suppliers. And that doesn't—that doesn't mean things
won't change but it does mean that there's a lot of continuity to it. And then I think
as you go around the world, IBM, in the most recent quarter, reported double-digit
gains in 40 countries. Now, I would imagine if you're in some country around the
world and you're developing your IT department, you're probably going to feel more
comfortable with IBM than with many companies.

JOE: Well...
BUFFETT: I said I competed with IBM 50 years ago.
BECKY: Yeah.
BUFFETT: We actually started—I was chairman of the board, believe it or not, of a

tech company one time, and computers used to use zillions of tab cards and IBM in
1956 or '7 signed a consent decree and they had to get rid of half the capacity. So
two friends of mine, one was a lawyer and one was an insurance agent, read the
newspaper and they went into the tab card business and I went in with them. And
we did a terrific job and built a nice little company. But every time we went into a
place to sell them our tab cards at a lower price and with better delivery than IBM,
the purchasing agent would say, nobody's ever gotten fired from buying—by buying
from IBM. I mean, we probably heard that about a thousand times. That's not as
strong now, but I imagine as you go around the world that there are—there's a fair
amount of presumption in many places that if you're with IBM, that you stick with
them, and that if you haven't been with anybody, you're developing things, that you
certainly give them a fair shot at the business. And I think they've done a terrific job
of developing that. And if you read their reports—if you read what they wrote five
years ago they were going to do and the next five years, they've done it, you know,
and now they tell you what they're going to do in the next five years, and as I say,
they have this terrific reverence for the shareholder, which I think is very, very
important.
And I want to give full credit, incidentally, to Lou Gerstner because when he came in,
I was a friend of Tom Murphy's and Jim Burke's, and they were on the search
committee to find a solution when IBM was almost broke in 1992, and everybody
thought they were going pretty far afield when they went to Lou Gerstner. And look
what...
JOE: I know, a McKinsey guy. That's like the most successful McKinsey guy in
history, I think.
BUFFETT: It...
JOE: I try to think of one other one and I can't. Leo Mullin, I can't think of...
BUFFETT: Well, you don't have to think of—you don't have to think of another one,
Joe. And if you read his book, you know, "Who Said Elephants Can't Dance?" it's a
great management book. Like I said, I read it twice.
JOE: I would think, Warren, that HP is in a similar sort of situation in terms of being
a service company, and if once you're in with HP you might stay with them. Oracle is
trying to do the same. Would this open up your eyes and the potential of looking—I
think Becky was trying to get out that whether this is actually going to be where you
start to embrace technology more, or is IBM that unique vs. because there's...
BUFFETT: Well...

JOE: ...three major alliances with these guys trying to service all the IT needs and
even Dell or something. But IBM is unique, you think?
BUFFETT: Sure. Well, it isn't that but it's—if you compare it to HP or—I wasn't smart
enough to do it when Lou first came in. In other words, I—everybody says they're
going to do it. I was smart enough, if you want to call that, we'll find out whether it's
smart or not, but to recognize that after it's been done, and then way too late. I
was—it was the same way with the railroads. I mean, I—something I should have
spotted years earlier, you know, finally be—just hit me between the eyes and it was
there.
ANDREW: What was it that you read that...
BUFFETT: But I had this...
ANDREW: What was it when you're reading the report? I mean, most investors who
are trying to invest like you, they're reading annual—what is it in the report that you
said, ah, I missed it?
BUFFETT: Well, it was—it was a lot of interesting facts and you know, I recommend
you read the report, you know. And I didn't look at the pictures and I'm not sure
there were any pictures. I kind of like that, too. But there were—there were lots of
things in that report but the truth is, there were probably lots of things in the report
a year earlier or two years earlier that you say, why didn't I spot it then? And I think
it was Keynes or somebody that said that the problem is not the new ideas, it's
escaping from old ones. And, you know, I've had that many times in my life and I
plead guilty to it.
BECKY: You know, IBM is another Dow component, too, and you've been making
some major purchases of Dow components. Is this another indication of the change
in the investing style? You've got so much cash on hand, you have to look for big,
big purchases and that means looking at big, big companies.
BUFFETT: Well, but it also means that some great big strong American companies
look very cheap compared to investment alternatives. I mean, in the end, you know,
you're sitting with money in your pocket. Do you leave it in your pocket, you get
zero on, do you put it in a money market fund, you still get zero on it, do you buy
10-year Treasuries and get 2 percent, or do you buy American businesses that are
earning very good money, that have high returns on equity, have high returns on
incremental capital, are buying in their stock at a rapid rate so that your ownership
in the business increases significantly? I love all those things. Now, you measure one
vs. the other. But in the end, you have—you know, you do something. Doing nothing
is doing something.
BECKY: You have been buying a lot of stock and you made that point. I think you
told Charlie Rose earlier this year, September, a day in early September you
bought more than you had at any day to that point.
BUFFETT: Yeah. I think I bought $200 million worth that day. That was practically
all IBM, maybe a little Wells Fargo.

BECKY: Are you still buying equities like that? If it's—you said you're about done
with IBM but are you still buying other stocks like that?
BUFFETT: We bought—we bought another stock last week.
BECKY: A new one?
BUFFETT: Not a new one last week.
BECKY: You added to a position of another stock last week?
BUFFETT: Right, right.
JOE: All right, what's a clue?
BECKY: A stock we know about?
JOE: What's the clue?
BUFFETT: Well, I...
BUFFETT: I've given you one. I mean...
BUFFETT: No, it'll show up in our—we bought more Wells Fargo just month after
month, year after year. I mean, it's a good business and I like the price and, you
know, doesn't mean it's going to go up or—I—the stocks I'm talking about have got
just as much chance of going down tomorrow as up tomorrow. But we like the
businesses over a five or 10 years stretch.
JOE: Warren, it's...
BECKY: And...
JOE: ...interesting with IBM—sorry, Beck—it's interesting with IBM how many times
I've read that their top-line growth, they haven't had any for 10 years, and the only
way they get earnings per share to go up, they're buying back stock so they're
reducing the number of shares outstanding. So EPS goes up and it's all financial
sleight of hand. They've moved some facilities offshore so they've got a lower tax
rate. Every time they beat expectations or had higher earnings, I always saw the
analysts say, yeah, but it was because there's fewer shares outstanding and because
of a lower tax rate. It was—and it's amazing that after all that, here we are with you
at this very bullish case.
BUFFETT: Yeah. And, Joe, there's nothing wrong with fewer shares outstanding.

JOE: No.
BUFFETT: If they get it down to where there's 64 million shares outstanding, I'll be
very happy.
JOE: Yeah, and you got a 3 percent yield. That's 50 percent higher than you got on
the 10 year plus upside with the stock. I see it. But that was a—that was a crummy
clue, Harold. If you had given us HAL, I'm still—not one emailer got it, by the way.
But if I—if I—if I had thought HAL, I think I would have gotten it. I'm hurt that I
didn't, you know, because we talk about that movie all the time.
BUFFETT: I was going to say, did you see the movie?
JOE: Oh, of course.
BUFFETT: Did you—yeah.
JOE: When Watson was on "Jeopardy!" I made all kinds of comments...
ANDREW: Right.
JOE: ...about how this evil Watson is eventually going to be like "Terminator." It's
going to take over—and IBM got mad because I was saying that Watson is going to
be the rise of the machines from HAL. And we play HAL sound and all this stuff. So
I'm a little—I take it a little personally that I was unable to come up with that.
BUFFETT: Yeah, but you'll zing me some other way, don't worry.
BECKY: You know, Warren, you said that you've been buying big American
companies and that's the place to go. There was a report recently from some
European analysts saying come to Europe, we've got some great deals over here,
too. Have you been looking abroad and at Europe specifically?
BUFFETT: Sure. I look around the world but we have to look at big things by there—
just because to move the needle at Berkshire we need big investments. But I think
there's some very attractive stocks that are outside the United States. But I
happened to like IBM and Wells better in the third quarter when we were buying
them. But there are attractive stocks outside the United States. We all—you know,
this is a matter of record. But we own and bought a little, because they announced
it, Tesco, for example.
BECKY: Right.
BUFFETT: But there's lots—there are a lot of attractive stocks. I can't think of a lot
of attractive bonds and I certainly can't think of a lot of attractive currencies to stick
in my pocket.
BECKY: All right. Wow, you want to tell us any more or is that all you...
BUFFETT: No, I...

JOE: I want another clue.
BECKY: Wow.
BUFFETT: I shouldn't get up this early in the morning.
BECKY: Yeah, no. We like the—we like the quiz, we like the games.
BECKY: And we want—we want to feel smart instead of having to be told this stuff.
JOE: Yeah.
BECKY: I think we have to take a break very quickly.
ANDREW: Yup.
JOE: I don't think Watson would have gotten it, Becky, I really don't. I think you
could have plugged this into Watson and there wasn't enough. Harold—Harry—
Harold could be Harry. It's not necessarily HAL even. I mean, this is—I'm—I don't
know.
BECKY: We're trying to make ourselves feel better for not figuring it out.
BUFFETT: I will tell you one very smart thing that Thomas Watson Sr. said. I
knew Thomas Watson Jr. just a little bit. Tom Watson Sr., this applies to stocks.
He said, "I'm no genius but I'm smart in spots and I stay around those spots." And
that's terrific advice.
JOE: That is good.
ANDREW: OK. We are going to slip in a break. Coming up, we've got plenty more
with Warren Buffett. And check out the lineup for the rest of the week. Tomorrow,
we've got Larry Fink of BlackRock. Wednesday, we've got Boone Pickens, Donald
Trump and Steve Forbes. Thursday, Fed president James Bullard. Friday, Steven
Ross, the CEO of related companies and Richard LeFrak. A big week to come right
here on Squawk Box. We're coming right back.
ANDREW: Welcome back to Squawk Box. Joining us now for a look at the economic
outlook and the considerable uncertainty around next year is senior economics
reporter Steve Liesman, the professor.
STEVE LIESMAN reporting: You're demoted again? What...

ANDREW: Demoted from where?
LIESMAN: From what?
JOE: Chief economist.
LIESMAN: Oh, chief economist, chief economist.
ANDREW: We'll upgrade or downgrade.
JOE: Senior economic reporter.
LIESMAN: Do you guys know what the smart money's buying right now?
ANDREW: I heard IBM.
LIESMAN: No. Johnson Controls.
ANDREW: Johnson Controls.
LIESMAN: Think about why.
ANDREW: For...
JOE: For our...
LIESMAN: Think about why, think about why. Amid all the—do you want to...
ANDREW: Is this like you're trying to...
LIESMAN: It's a clue, it's a clue.
JOE: You're not Buffett. You're not Warren Buffett.
ANDREW: It's a quiz like Buffett.
LIESMAN: I know. But...
JOE: Who's buying...
LIESMAN: But just—Warren, do you—is Warren there? Warren, do you know why
people would be buying Johnson Controls?
ANDREW: Who's buying Johnson Controls?
JOE: How do you know people are buying it?
LIESMAN: I'm just joking around here.

JOE: Oh.
LIESMAN: But if there's a clue in there.
BECKY: Are we serious?
LIESMAN: There's a clue.
BUFFETT: That's the one we sold half of a while back.
BECKY: Oh, wait, we're back on air.
LIESMAN: Oh, OK. JCN.
ANDREW: Nobody...
LIESMAN: HAL, two letters added to HAL.
JOE: No, not the—OK, but the symbol's JCI, dude.
LIESMAN: That—JCN, I thought.
JOE: No.
LIESMAN: Oh. JCN.
JOE: You know what, I should have known better than to let you go off on this with
your economics joke.
LIESMAN: That's what I looked up, JCN was Johnson Controls.
JOE: No, it's JCI. Go ahead.
LIESMAN: And if I could ask Warren a question, Warren, how do you process all this
uncertainty? You've got this forecast out there and it could go down to zero or it
could be 2. Do you ignore all that uncertainty or is it something that you process it
and make investment decisions on?
BUFFETT: The world's always uncertain. The world was uncertain on December 6th,
1941, we just didn't know it. The world was uncertain on October 18th, 1987, you
know, we just didn't know it. The world was uncertain on September 10th, 2001, we
just didn't know it. The world—there's always uncertainty. Now the question is, what
do you do with your money? And if you—the one thing is if you leave it in your
pocket, it'll become worth less—not worthless—worth less over time. That's certain—
that's almost certain. You can put it in bonds and then you can get a certain 2
percent for 10 years and that's almost certain to be less than the decline and the
purchasing power. You can put it in farms and the farms will probably keep growing

corn and soybeans and they'll grow it whether, you know, whether Italy has trouble
tomorrow or not. It's very interesting to me, if you own a farm and somebody said,
you know, Italy's got problems. Do you sell your farm tomorrow?
BECKY: Hm.
BUFFETT: If you own a good business locally in Omaha and somebody says Italy's
got problems tomorrow, do you sell your—do you sell your business? Do you sell
your apartment house? No. But for some reason, people think if they own wonderful
businesses indirectly through stocks, they've got to make a decision every five
minutes. So I do not think if Ben Bernanke comes up and whispers to me that he's
going to do X, Y or Z tomorrow, I'm not going to change my view about what
businesses I want to own. I want—I'm going to own those businesses for years just
like I would own a farm or an apartment house and they'll be all kinds of events and
there'll be all kinds of uncertainties and in the end, what will really count is how that
business or farm or apartment house does over the years.
BECKY: Hm.
BUFFETT: And I can't time the buying and selling of it.
BECKY: All right.
JOE: You know, I had to, Liesman, you know, I had to go all the way out to S, I had
to go 10 spaces to add one letter before I got an actual symbol.
LIESMAN: Can I just ask Warren another question?
JOE: We've got to go.
LIESMAN: We've got to go. Just one quick question, Warren, about at some point,
the uncertainty fades away and the banks have to be something that's of interest to
you. Is there—is there a point in time where you might—you might take a bigger
stake in some of these banks out there? I know you did B of A.
BUFFETT: Yeah, well, I've bought Wells Fargo in the last quarter and the quarter
before that and the quarter before that. And I also bought it about 20 years ago, so
I—if I find a good business, if I own privately a good McDonald's stand, I own 40
percent of it and somebody wanted to sell me 10 percent more at an attractive price,
I'd buy 10 percent more and I wouldn't worry about the news headlines that day. I'm
going to own these businesses five or 10 or 20 years from now and they'll be all
kinds of good news and all kinds of bad news, but the good businesses, they do
wonders for you over time.
BECKY: All right. We're going to continue this conversation with Berkshire Hathaway
chairman and CEO Warren Buffett. We'll have much more Squawk Box.

JOE: OK. More with Warren. I'm going to just ask one thing and then I'm going to
let you ask some more things.
ANDREW: Go for it.
JOE: Is that cool? All right. So, Warren, I'm thinking back to the pipeline and to
infrastructure in general. And I'm trying to figure out how you—what you feel about
infrastructure because the way you answer that question about the pipeline in that,
well, you know, they talk about jobs here, they talk about jobs there. See, to me,
that seems like just crucial infrastructure that if we're going to do something, that
would be great, to bring oil in from our friendly to the north, it helps with our
relations with Canada, we're not going to get off carbon any time soon, so it made a
lot of sense to me. I'm wondering, because of your answer to that, do you think
other infrastructure projects are sort of the same? Because that seems like one we
could actually use. Building trains, you know, building high-speed rail between cities
where people don't even want to go or some of these other ideas, Solyndra, I don't
know, that type of infrastructure seems even less—makes less economic sense than
the pipeline did.
BUFFETT: Yeah. We will—we will spend at BNSF 3.7 billion this year on the railroad
and a lot of this what you'd call infrastructure, in fact. And that's by a large margin
more than we've ever spent. One thing you'll get a kick out of, you talk about
infrastructure, we actually had to build six bridges in connection with the—because of
the floods that look place here. The floods were really tough this year, particularly on
our railroad. And Matt Rose who runs BNSF, knowing how Charlie kind of grimaces
whenever he hears about capital expenditures, he has named one of those bridges in
Iowa the Charles T. Munger Bridge. We've even got a plaque put up there. So Charlie
now has a bridge named after him. I don't have a bridge named after me yet.
JOE: Well, how much—well, how much of a role—it's amazing that it's so—a private
company's building all that infrastructure. But what's the role of the government in
terms of stimulus and the jobs plan? What's the role there for infrastructure? If you
didn't think the pipeline makes sense, what makes sense for the government to be
involved?
BUFFETT: I'm not saying the pipeline doesn't—I just don't know—I don't know the
weight of the two arguments. I don't know that much about soil. I—it's just a subject
that I...
JOE: Oh, OK.
BUFFETT: ...you know, like a whole lot of things that I don't know much about. But
certainly, in terms of stimulus, infrastructure is a very, very logical place to spend
real money. I mean, if you decide you're going to run a government deficit and large
one and to act as a stimulus and you've got the kind of needs we have in this
country in terms of all kinds of infrastructure...
JOE: Yeah.
BUFFETT: ...that's basically a good idea. Now I will say this. We bought the entire
BNSF equity, we paid about 33 billion for, about maybe 10 billion of debt. So call it

a $43 billion total purchase. For that we got 32,000 miles of track, we got 6,000
locomotives, we got 13,000 bridges, all kinds of things. I think in California and now
the number's up to 90 billion or something like that for 800 and some miles of track.
So you can do the math.
ANDREW: Hey, Warren, just a—just to change topics real quick. While you've been
on the broadcast, Bank of America just announced this morning that it sold 10.4
billion shares of China Construction Bank for a pre-tax profit of $2.9 billion. You're an
investor in the preferred shares, of course. I'm curious what you think of about the
future of the company and also, more importantly, investors who watch you and
watch you make these investments in preferred shares, should they be following you
into the common shares?
BUFFETT: Not necessarily. Go back to the sale of the Chinese stock. Brian
Moynihan, I think, is doing a terrific job in going back to basics. Bank of America,
you know, went off in a hundred different directions and a couple of them, such as
Countrywide, are going to be ungodly expensive before they get all through with it.
That's got nothing to do with the present management and Brian has the job of
cleaning up some of the problems of the past. Not that the Chinese bank itself was a
problem, but in terms of getting the capital in line with the total assets, he does have
a problem that needs working on and he's been working on it. And one way to do it
is to sell extraneous assets. To bring down the liabilities to some degree, you can
bring up the capital, but you can also bring down the liabilities. He's been doing
both. He is following a very logical path. He can't do it all in a week or a month or
even a year. I mean, the legacy problems that he got handed are significant and
they're not, in many cases, they're not capable of immediate resolution. But he is
doing the things quite promptly that he can do things about promptly—where he can
do things promptly. I think he's making a lot of good decisions.
BECKY: The Wall Street Journal criticized him in an article last week for flip-
flopping on a lot of these issues, for decided to pull back on the ATM fees, the $5
ATM fees, for deciding to go ahead and buy shares after saying they wouldn't...
BUFFETT: To issue shares.
BECKY: Or to issue shares after saying they would not issue additional shares. They
said in the end it was the right decision, but he should've gotten to those decisions
more quickly.
BUFFETT: Well, he's had a dynamic problem. I know when I went into Solomon, I
found out a lot of things in the third month I didn't know in the first month. And
when you have problems to clean up, when American Express had problems in the
1960s to clean up, when GEICO had problems in the 1970s to clean up, when
Solomon had problems in the 1990s to clean up, usually the problems are bigger and
more longer-lasting than you think, but they also are solvable. And it takes time, it
takes a lot of effort, it takes—it takes a lot of grief, you know. But if you have a
wonderful underlying business, which the B of A does, which GEICO did, which
American Express did, you know, you'll get them resolved.
ANDREW: Right.

BUFFETT: If you have somebody there who puts their nose to the grindstone and
does it.
ANDREW: Hey, Warren...
BUFFETT: In terms of the—go ahead.
ANDREW: Well, Warren, I just wanted to go back quickly to the preferred vs.
common issuant and you said something very interesting, which is that when you
make an investment in preferred shares, it doesn't necessarily mean that
shareholders should rush to go buy the common. Is that right? And I ask it only
because so many people who do give you these tremendous deals do it in part to
quote unquote "rent the Buffett name." I know that when you...
BUFFETT: Now they...
ANDREW: I know that when you invested in Bank of America, my mother said,
`Can you believe Warren Buffett just invested in Bank of America? Maybe I should
buy shares.' And I said, `Mom, you don't understand. He's buying a different share
than you would be buying.'
BUFFETT: Yeah, but I'm buying a different share in several ways, though, too, than
she buys in that I was buying something for $5 billion, where we had no—where we
contractually we're not allowed to resell it for five years. So in the sense, we were
putting money in where we couldn't change our mind next week or hope that it
bounced up or anything like that. We were putting money in saying that in five
years, we think this is plenty good. And that is a real vote of confidence. I mean, it's
not a vote of confidence to go out and buy, you know, to buy 100 shares of XYZ and
sell it the next day. But when you put $5 billion in and you can't take it out, you
can't touch it for five years, I think that is a valid vote of confidence. It doesn't mean
that the common is a buy or a sell or a hold or, you know, anything else, but it does
mean that we felt very strongly that the B of A was going to do get rid of its legacy
problems over time and it'll take plenty of time and that the underlying deposit
franchise and business they have is a terrific business.
BECKY: OK.
ANDREW: Great.
BUFFETT: And that the right fellow is running it to get that job done.
ANDREW: Thanks, Warren. We are going to slip in another break. As we head into
the final hour of Squawk for this Monday morning, a lot more with Warren Buffett.
That's coming up after the break.
JOE: Welcome back. Squawk Box here on CNBC—where's Warren?—first in

business—we should just have him in a four box. He's a—he's such a part of—I'm Joe

Kernen along with Andrew—oh, there he is—along with Andrew Ross Sorkin—there
we go. Becky Quick is in Omaha with Warren Buffett.
BECKY: Mm-hmm.
JOE: We're going to get back to Warren in just a minute.
JOE: Anyway, let's get to Becky. And we probably should talk to Warren at some
point, whenever you want, Becky, about China.
BECKY: Yeah.
JOE: I read, I can't remember where it was, over the weekend—it was either in the
weekend Wall Street Journal or The Times that there is—you can't help it, with the
social media, 1.3 billion people are finding out more and more about property rights
and freedom, and they're trying to figure out ways to censor a lot of this. I saw Gary
Locke was over there. He's like a welcoming hero. He comes in there and people—
they've—you know, when Huntsman was there, no one did anything.
ANDREW: Right.
JOE: But there's crowds showing up to see Gary Locke, and now the government is
issuing all these press reports about `This guy,' you know, `he's a fake. He isn't—he
is Chinese, but don't think that this is the way we should be.' And it's causing a lot of
angst among the Chinese leadership that an American who is, you know, a couple of
generations removed from China, is being so—sort of the adulation he's getting. So I
don't know, we got to talk to Warren about whether that's really imploding at some
point.
BECKY: Yeah, well, forget about all that. No, just kidding. Now that we've brought it
up, why don't we go ahead and start on that? We've got some other stuff to talk to
him about, too, and we'll recap some of the ground we've already covered over the
last two hours. But Joe brings up a great point, Warren. When you start looking at
what happened with the Arab Spring and you look at China and the country, the way
it's been run to this point and the way it's very likely going to change, what do—what
do you think? You've spent a lot of time in China recently, too.
BUFFETT: Yeah, well, I—I'm no great expert on it. I—they—they're going to have
tensions within China just like we have tensions within this country. We—you know,
our income disparities and the widening income disparity may cause a lot of tensions
in the United States. Who knows? But China and the United States are going to be
the two big factors in the world over the—over decades to come. And they'll be
unhappy with some things we do when we tell them they can't buy Unical or
something of the sort, and we'll be unhappy with things they do. There's things in
our society that took us centuries, really, to get straightened out. I mean, you know,
the 19th Amendment passed what, in 1920 or something like that.
BECKY: Hm.

BUFFETT: You know, blacks were three-fifths of a person. I mean, we—it took us a
lot of time to work out things, and a civil war even in one case. So don't expect the
progress of any huge society to be, you know, totally without some bumps here and
there. But China and the United States, over time, will largely get along. We largely
have the same interests. We both have nuclear bombs...
BECKY: Hm.
BUFFETT: ...so it's not in our interest to start getting really furious with each other.
And there will be tensions. They'll—we'll want to play the game our way, and they'll
want to play the game their way, and we'll both have to give in some cases.
BECKY: You know, I've been to China with you and with Boone Pickens in the
past, and common threads for an American businessman going overseas, going to
China is that, wow, it's a lot easier to get things done here.
BUFFETT: That's for sure.
BECKY: You can get through regulation quickly. The central planning is a big boost if
you're trying to get something done very quickly. If that starts to be affected or
impacted by the changes that are taking place in China, is China a less attractive
investment area?
BUFFETT: Well, they will have more difficulty with that as they go along. But they
do have—when they want to get something done and you get the government and
business and labor all on the same page ready to do it, you'll build over there things
in the period that would take us three or four times as long. And we've built factories
over there and seen it happen.
So, as people get wealthy here, you know, they start casting their eyes about, and
they don't get more satisfied. Sometimes they get more dissatisfied. That's
happened in the United States. Right now we have six times the GDP per capita, in
real terms, as when I was born. Now, I don't know whether people are happier now
or more discontent or what than they were in 1930. But people have a way of
adjusting very quickly to things becoming better, and then any little tiny adjustment
downward they can get quite unhappy about. So they—they'll have—they'll have
plenty of strains in their society, we'll have plenty of strains in our society.
BECKY: We should mention while we're talking about China that BYD shares—you
may not have seen this yet, but they were up about 26 percent today on news that
the Chinese government is making it a little easier for some of these new fuel
vehicles that are out there.
BUFFETT: I didn't know that. Hm.
BECKY: Obviously, the BYD has been a very volatile investment, has been up and
down and all over the place. Is it a good investment without the government pushing
for some of these new-fuel economy—or new fuel vehicles?

BUFFETT: Well, Charlie's the expert on that, my partner Charlie Munger. But he
would—I think he would answer that it would be—it would depend on how successful
they are in perfecting certain technologies that he—that they're working very hard
on. And he thinks that the—Wang Chuanfu, who runs that, is a—is a combination of
Edison and Ford and who knows who else. And I—and the fellow has done
remarkable things, so there's some—there are probably more remarkable things to
be done, and there may be some remarkable things that can't be done, I don't know.
BECKY: Mm-hmm.
BUFFETT: But he—Charlie feels he's a very good bet.
BECKY: Joe, did you want to follow up on the China angle with that, too?
JOE: Oh, I mean, I—there's a couple of answers Warren gives I find a little bit
unsatisfying, but I understand what he's saying. I don't know if I'd ever compare the
income disparity issues that are front and center in this country with sort of what the
Chinese people have to live with on a daily basis, Warren. It seems—but then again,
they—it's a totally different culture. It's very—it's impossible for me to really—I've
never been there, so I can't put myself in that place. Maybe it is a big a deal—as big
a deal. I was thinking, you know, Tiananmen Square and bullets and total censorship
and no property rights and 1/10th, maybe, the GDP per capita that we have, I—
there's no way that I could ever say that our problems were in any way as bad as
what some of the average Chinese have to put up with. That was what I was
thinking, Warren, when you said that.
BUFFETT: Yeah, well, and I...(unintelligible).
JOE: I mean, I—seems to really minimize—I mean, sooner or later they're going to
have a much bigger—want to have a much bigger say in their own lives than—I
mean, we've got our problems, but I just can't imagine you'd say that it's similar to
what—our income disparity's equivalent to the absolute human rights disaster in
China right now.
BUFFETT: No, but we had our own human rights disasters. I mean...
JOE: Oh, I remember. I know.
BUFFETT: Yeah.
JOE: I know. But we're talking about now.
BUFFETT: Yeah. Yeah, and they're—and—well, no, but I—but I would say they're
really—they're really coming off 40 years, essentially, of a real history. I mean, for
centuries they were stuck in the same place...
JOE: Right.

BUFFETT: ...and they are 40 years—they're 40 years into the life of what I would
consider the present Chinese country. And 40 years into our country, you know, we
had slavery, we—you know.
JOE: Right.
BUFFETT: We had a—we had a—so I wouldn't expect them to accomplish...
JOE: Right.
BUFFETT: ...in 40 years what it's taken us 200 years to accomplish.
JOE: But they're—but they're—it's being thrust upon them by technology. It—and
they—you know, we—back during the Civil War we probably had—how long did it
take to get news, you know, travel a couple of hundred miles? I mean, look the
way—look what they're dealing with, right? They got 1.2 billion people that are
coming right into the 21st century, boom, like that. And I just wonder whether that's
a bigger problem for them to try to—to try to manage. But like I said, I think a lot
of—a lot of people are happy with the pace of the progress already over there. And it
is staggering how—I mean, you can't grow much faster than 10 percent a year.
BUFFETT: No, no. And we were—you know, we were 70 years into our country
before we tackled a very big problem, and we tackled it in a very tough way. I—no,
I—listen, all countries keep evolving, and I think we've evolved in—obviously in the
right way over the years. But it took us a long time to do it in many—in many areas.
BECKY: Mm-hmm.
BUFFETT: Yeah, I changed my...
JOE: But if the Arab—if something like the Arab Spring ever did get started, though,
I just don't know—but, you know, whether they—there's so many local, I guess,
political officials there that are sort of—have a vested interest. I mean, one of—in
that Gary Locke piece, I was amazed. The Chinese people were amazed that he
would take a normal car, that he would wait in line to do something.
BECKY: Hm.
JOE: These bureaucrats in China are riding around in limos, their kids have Ferraris.
I mean, there is still a lot of things that the Chinese people are—for Gary Locke to
look like almost a—you know, a paragon of where they'd like to be someday, I mean,
that shows that—you know, the entrenched political system over there has still got—
I mean, there's going to be a day of reckoning.
BUFFETT: Yeah, well, there was a day of reckoning in—you know, in the South
during the civil rights movement, you know, in the '60s, too, and that was 170 years
after we started. And there was Bull Connor and—you know, and...
JOE: So where are you—where are you dating China's—I mean, they were—you
know, they were a civilization long before we were.

BUFFETT: Yeah, but...
JOE: I mean, you know, you're giving them the benefit of—what, you're—Mao is
when they started?
BUFFETT: Yeah, I—they were stuck. It's fascinating. I mean, they were as smart as
we were, and they worked as hard and they went no place for centuries while this
country, you know, went from nothing to 25 percent of the world GDP. Yeah, but we
had a wonderful, wonderful system. There were flaws in it...
JOE: Right.
BUFFETT: ...but there—it was a wonderful system. It was a market system and
equality of opportunity, rule of law, all these things we aspired to. And our
aspirations led us into reality over time.
JOE: We...
BUFFETT: But they really—the starting point with them is about 35 or 40 years ago.
JOE: Right.
BUFFETT: Before that they were basically a feudal society going no place.
JOE: This Niall Ferguson. I don't know if you got that book yet, "Civilization." But we
just had him on talking about this, that for 500 years these crummy little Western
countries just led the world when they should have killed us over in...
BUFFETT: Yeah. Right.
JOE: But now they've down—they've downloaded all of our killer apps, science.
BUFFETT: That's exactly right.
JOE: They had all the things that we've done. And now they're going to kick our
butts and—because they've downloaded all...
BUFFETT: Well, they—no, I...
JOE: No?
BUFFETT: I believe the first part of that but not the second part, yeah.
JOE: All right, wait, they're—Niall says the only way we can hope to compete is that
the one thing that they haven't downloaded, and that's property rights and the rule
of law, that that comes back to haunt them. And then on a—on a relative basis we'll
still be able to do OK. But they've got some—with the other five they have
downloaded, they're going to be a formidable force for the next 50 years, you'd
think.

BECKY: Yeah.
JOE: What's up, Andrew?
ANDREW: No, hey, Warren, just on this economic inequality bit—now you're looking
at me funny, Joe—I know I was curious...
JOE: Oh, you always say that, that I'm looking...
ANDREW: No, what I was curious about was actually if you had a view and whether
you were a supporter, ultimately, of the Occupy Wall Street folks. I think I saw
that your son said that he was a supporter of the movement.
BUFFETT: Yeah.
ANDREW: I should tell you, by the way, I went down and reported down in Zuccotti
Park and asked somebody what they thought of the Buffett rule, and they asked me,
`Who is Warren Buffett?' So I...
BUFFETT: Yeah. Well, they probably got a point there. No, I don't—it—that's not a
huge factor. I mean, that—I don't even know, you know—I don't think anybody
knows precisely what their major points would be or the leadership would be. That
isn't what is going to change things. What—but it is a fact that in the last 25 years
the Forbes 400 list has had its net worth increase nine for one, nine for one. In the
last 15 years, it's increased over three for one. That is not happening with the
American people generally, and it's happening during a time when those same rich
people have had their tax rates go down, down, down. And I think that when we're
talking to 312 million Americans about shared sacrifice and taking away things we
promised to them—because we're going to have to do that. We're going to have to
bring our expenditures down to 21 percent or so of GDP, and that's going to require
a lot of sacrifice around the country, a lot of breaking of promises we've made. And I
say that it's time for the ultra-rich to share in that sacrifice to some degree. They
won't even feel it. I mean, you change the Social Security rule somewhat and
millions of people will feel it and they'll really feel it. You change the Medicare rules
and millions of people will feel it. You get a minimum tax of 30 or 35 percent on
incomes of a million or 10 million or over, truth is those people won't even feel it.
But at least the American people, as a whole, will feel somehow that the ultra-rich
have been asked to participate to a small degree in this overall sacrifice that we're all
going to be asked to participate in.
BECKY: Isn't that what Occupy Wall Street is all about, though, this feeling that
there's a growing bridge between the haves and the have-nots?
BUFFETT: There—that's one of—that's certainly part of the feeling. But it's very hard
to tell...
BECKY: Yeah.
BUFFETT: ...because I never really heard anybody speak out and say, `These are
the'—with the civil rights movement, I knew what it was all about.

BECKY: Yeah.
BUFFETT: I'm not sure I know precisely what this...
BECKY: I guess there's not a leadership of Occupy Wall Street in the same sense.
BUFFETT: Yeah.
BECKY: There's just this feeling of discontent.
BUFFETT: Yeah, well, I think the American people feel, generally—well, in fact, 76
percent of that in the—in the recent Wall Street Journal/NBC poll, 76 percent
feel that it's wrong, what has happened in terms of the tilt in many ways, including
the tax law toward the rich.
BECKY: Let's talk some more about what was found in that NBC/Wall Street Journal
poll. Also, only 19 percent of those surveyed said that they think the country's
headed in the right direction.
BUFFETT: Uh-huh.
BECKY: And 47 percent—or I think it was 40 percent of them said that they think
things are going to get worse.
BUFFETT: Yeah.
BECKY: The worst is yet to come. And what does that tell you about the American
people's sense of what's happening in the economy vs. what you tell us you're seeing
in your companies?
BUFFETT: It's really fascinating, Becky, because it—that same poll—if you go back
to October of 2008, when it was clear that—you know, we talked about on this—on
this program that what was happening in the fashion world was going to hit into the
business world huge. At that time, more people thought things were going to get
better in six months than worse, in October 2008. Now they think things are going to
get worse in the next six months. What has really happened in the last two years,
and I'm seeing it in every bit of data I look at, is that the economy has generally
kept moving forward. Business after business, you know, Dairy Queens to jet
airplanes, it gets better. Except housing is in a depression. Now, you take housing
and put it in a depression, not a recession, a depression, and that has a big impact
and it—and it has a big psychological impact because everybody—you know, 66
percent of people live in their own homes, you know, and the person next door does
if they don't. And then, you know, throw that on top of the unemployment figures...
BECKY: Yeah.
BUFFETT: ...which I think are just disproportionately affected by what's going on in

construction, and you can see why people—and then throw in what's happening in
Washington, and people are discouraged. They'll get over it. I mean, that is not a

permanent condition. But what you're saying does accurately reflect, I think, what
the present mood is.
BECKY: You had told us earlier this year that you thought maybe we'd see a turn in
housing by the end of this year.
BUFFETT: Right.
BECKY: You're now saying it's not necessarily there just yet.
BUFFETT: It isn't there yet.
BECKY: So...
BUFFETT: Yeah, I was wrong.
BECKY: ...when do you see the turn at this point? Is it something that happens
before a year from now when we're—when we're looking at a presidential election?
BUFFETT: Well, certainly the president hopes so. Yeah. It's—you know every day it's
going in the right direction. When it turns, you know, I—obviously I thought you
would see the turn by the end of this year, and you haven't. In a sense that's good. I
mean, you would not want some artificial program in place that was causing extra
housing starts now. That—it would just delay the solution. We don't—the nice thing
about it is we're not Japan. We're not Italy.
BECKY: Mm-hmm.
BUFFETT: I mean, Italy has no population growth. We are a country where

households are formed daily in significant numbers. There was a slowdown in 2009
because of the first impact of the recession, but households are getting formed every
day faster than houses are being constructed. That solves itself. Now, it doesn't
solve itself as fast as people would like...
BECKY: Mm-hmm.
BUFFETT: ...but it does solve itself. And the economy, which is good in many areas,
will be very good when that—when that imbalance is worked off.
BECKY: OK, we're going to talk more about that. And Joe will also get back to the
breaking news of this morning. Warren Buffett sharing with us earlier what he's been
buying...
JOE: Yeah.
BECKY: ...not only over the last quarter, but earlier this year. We can talk more
about that when we come back, too.
JOE: Great. OK, we'll do that, Beck. Thanks. Coming up, more from The Oracle.

ANDREW: Let's get back to Becky who is in Omaha with the Oracle of Omaha.
Becky:
BECKY: Hey, Andrew, thanks very much. We've been live with Warren Buffett all
morning long. We've covered a lot of ground, but one bit of breaking news he gave
us this morning is talking about what he's been purchasing over the last quarter and
even before that. When the earnings came out, we knew that he had been spending
a lot of money on equities and this morning Warren Buffett shared with us what
exactly he's been spending, what the big part of that purchase has been. IBM, Big
Blue, that's an investment that Buffet's been making and making it very handily. Up
to this point he has invested just over $10 billion, 10 point...
BUFFETT: I'm not sure exactly. About probably 10.5, 10.6, something like that.
BECKY: All right, $10.5 or 10.6 billion. He now owns about 5 1/2 percent of the
shares outstanding of IBM. And, by the way, this is news not only for our viewers but
also for IBM. You have never spoken with IBM about the idea that you've been
coming into that stock?
BUFFETT: I haven't talked to any—anybody at IBM whatsoever, or written to them

or anything.
BECKY: So you say at this point you're about done, that you've bought what you
want to buy at this point?
BUFFETT: I wouldn't be talking otherwise.
BECKY: OK.
BUFFETT: That doesn't mean I want it to go up, though, because we do better if it

goes down because they are repurchasing stock all of the time. And if they're going
to spend $50 billion, some number that they announce in the next five years buying
it, the cheaper they buy it the greater our interest goes up. Very simple. If you're a
buyer of stocks, you want those stocks to go down. In fact, if I—if we had enough
money coming in and IBM went down we might buy more.
BECKY: For those who have just been joining us over the last few minutes who
didn't see in the last hour what you talked about, why don't you explain why you
bought in to IBM because this is an unusual purchase. It's something that will come
as a surprise.
BUFFETT: Well, I've been reading the annual reports for 50 years, I competed with
them 50 years ago. I—but the 2010 report came in on a Saturday, I read it as I
always do and instead of reading it through the old ones of glasses lens I read it
through a new glasses lens and then I set out to learn more about it. They laid out
some very specific things they expected to accomplish. I really compliment the
management on that. I don't know of any large company that really has been as
specific about what they intend to do and how they intend to do it as IBM. And they
did that five years ago when they did it and they've done it since. So they...

BECKY: What are—what are some of the specifics?
BUFFETT: Well, they give you a road map and they spend—you can read dozens
and dozens of pagers on—they explain it. You can go to their website and learn
about it. But then I went out and—or people in the office did before me, and we
looked at our own IT operations through many of our companies. We got lots and
lots of companies. I don't—I don't know anything about the IT operations. But
basically I was interested in learning how they came to the decisions they did, the
stickiness, you know, what they might be doing three years from now or five years
from now. And when I got all through I felt that IBM had a very good business and I
felt that they had this terrific reverence for shareholders. They tell the—they're
honest with their shareholders. They tell their shareholders what they expect...
BECKY: Mm-hmm.
BUFFETT: ...to accomplish. They expect to be held to it. They repurchase shares on
a big scale. They do not use those repurchased shares. They go out and issue the
same number of shares. They've taken down their overhang by 200 million shares.
Now the base is a billion 180. They've done all kinds of things right.
BECKY: Andrew, I head you have a question, too?
JOE: Yeah, Andrew, go ahead.
ANDREW: Hey, Warren, I'm having a little bit of trouble with the IFB, but what is
the average price that you paid for those IBM shares?
BUFFETT: Hundred and seventy roughly.
ANDREW: Hundred and seventy?
BUFFETT: Maybe just a touch under.
ANDREW: So it's trading at about 189—189 bucks now. So that's actually—and you
started buying, you said, in April?
BUFFETT: March.
ANDREW: March. OK.
JOE: OK.
ANDREW: We had a couple—we had a couple of viewers write in to find out that
answer.
BUFFETT: It takes—it takes a...
JOE: Mm-hmm.

ANDREW: So there are people who are...
BUFFETT: It takes—it takes a long time to buy a lot of stock.
BECKY: Yeah. What do you think about the new CEO, Virginia Rometty?
BUFFETT: Well, I don't know her but I've—but I've read things she's said and they
are batting a thousand in the last two CEOs they've come up with. So I've got no—
and she's been—she's explained these plans that they have for the next five years. I
have no reason to be anything other than positive.
BECKY: OK. Why don't we switch gears and talk a little bit about some of the other
news that we've been focusing around the Capitol. Jack Abramoff, the disgraced
lobbyist, is out with a new book, and he talks about how people on Capitol Hill,
specifically congressional staffers, have been trading based on inside information
that they know. Now it's not inside information that the SEC would necessarily crack
down on, but do you think its right that congressional staffers be trading on stocks
when they know that there are investigations from some of their committees that are
going into some of those companies?
BUFFETT: No, obviously it's wrong. I mean, I saw two different "60 Minute"
programs.
BECKY: Right.
BUFFETT: One last night that was on this trading. It focused more actually on
people in Congress themselves on that one. Abramoff was—I mean, when saw him a
week or go or so he was talking about the incredible power of lobbyists. And, of
course, that gets into this whole question of why the rich have low taxes. I mean,
you know, if there's a class war, you know, we're the ones that are waging it, the
rich. And our soldiers are the—are the lobbyists. And the poor have a bunch of little
toy soldiers and we've got these guys that have got the ins with the staffers and all
that sort of thing.
BECKY: Administration after administration has promised that they would crack
down on the lobbyists and lobbyists seem to be as powerful as ever.
BUFFETT: That's right. It serves the interests of the people on both sides.
BECKY: So what can be done?
BUFFETT: People have to get outraged enough that they hold congressional feet to
the fire. But this system works for the people involved. It works for the—it works for
the wealthy, it works for the special interests, it works for people in Congress and it
works for the lobbyists. And it may not work for my cleaning lady, but, you know,
what can she do about it?
BECKY: I guess one argument could be that if we actually saw a tax code that didn't
have the exemptions that we have now that you'd be looking at a much better

situation because the lobbyists are the ones who push for these exemptions and
they're pushing on behalf of the powerful corporations and people.
BUFFETT: They're powerful and often rich. But powerful people. Sometimes they're
powerful because they control a lot of votes, too.
BECKY: Right.
BUFFETT: I mean, it doesn't have to be money. But it often is money.
BECKY: So is that an argument for a tax code that is stripped down the way
Simpson and Bowles laid out?
BUFFETT: Well, it—you can go back to what, you know, Kemp-Roth and all of that,
too that we were working on. But it—I think what happened with Simpson-Bowles
was an absolute tragedy. I mean, here are two extremely high-grade people, they
have somewhat different ideas about government. But they're smart, they're decent,
they've got good senses of humor, too. They're good at working with people. They
work like the devil for 10 months or something like that. They compromise, they
bring in people as far apart as Durbin and Coburn to get them to sign on and then
they're totally ignored. I think that's a travesty.
BECKY: Why are we starting over with a new congressional committee?
BUFFETT: Well, because we ignored the last one. You know, Congress basically has
said put us in a position where something so unpleasant happens that it'll force us to
do something we don't want to do. And the sequester is supposedly that. Now they
talk about getting rid of the sequester if it—if action doesn't take place. People are
sick of it. And it—it's pretty transparent what takes place. And democracy is messy,
though. We will get to the—we will get to the answers eventually. We will not be
spending 25 percent of GDP and raising 15 percent of GDP 10 years from now. We'll
get there somehow.
But going back to the lobbyist question, you know, everybody in the country is trying
to figure out how to have somebody else pay for it. But some of them are better
equipped to fight that fight than others and they're the people with money that care
and that hire lobbyists.
BECKY: Do we get to that point? You say eventually we'll get to a position where we
figure it out and we're not spending 25 percent and bringing in 15 percent of GDP in
revenue. Do we get to that position on our own or does it take a crisis like we've
seen in Greece or Italy to make the United States government sit up and actually
pay attention?
BUFFETT: It probably takes a general feeling in Congress, and maybe in the

administration that they've got more to lose by sticking with the old system if
nothing happens and stalemate than they have of finally getting something done. In
other words, it takes a feeling that incumbents are going to get turned out unless
they get some action.

BECKY: We're not there yet.
BUFFETT: I don't know. We may be—we may be getting close. I think that's what
incumbents are worried about now.
BECKY: OK.
JOE: Hey, Warren...
BECKY: All right.
JOE: ...listening—I don't know whether we got to take a break—we got to take a
break? We don't have to take a break—we do? All right. All right, if we have to, we
have to. But, all right, then I'll hold my thought. But it has to do with what you were
just talking about. When we come back with more Warren Buffett we will continue
this conversation. SQUAWK will be right back.
JOE: Let's get back to Becky and Warren in Omaha. Here's what I was thinking,
Warren. Or let's say that we raise revenues, let's say that we do the Buffett tax. I'm
getting the feeling, and I don't know, you can answer for me, that you're not
necessarily talking about using the increased revenue to expand the size and scope
of government to include more social programs or more of a safety net. Would you
use most of the increased revenue to pay down the deficit that we're already
running? Or are you actually looking at becoming more like Europe in terms of a
welfare state and a social safety net?
BUFFETT: Oh, no. We need to reduce the deficit and I probably am for doing it. I
don't think the difference between 8 or 9 percent GDP stimulus and 4 percent is that
dramatic at this point. Most of the economy is recovering and the other is a matter of
time and not stimulus in my view. But no, I—spending's going to have to come
down. We are a very, very, very rich family. We have $120,000 of GDP per
household in this country. It's fabulous. It's, like I said, it was six times when I was
born. But even a rich family can promise too much. I mean, in the end you deal with
finite resources and it's easy to promise and you can overpromise and we've
overpromised. And that's why I feel terrible, frankly, that for people that will find
promises modified and/or broken and I—and I also feel that it's terrible to have a
situation like that exist when the rich are paying the lowest tax rates that they've
paid in my lifetime. I was paying higher tax rates back in the '50s and '60s when I
had very small income. So I—we are not—we're not paying down anything. We may
be reducing the size of the deficit. And, incidentally, we can run a 2, 2 1/2 percent of
GDP deficit indefinitely and not have GDP go up as a percentage—I mean not have—
not have the debt go up as a percentage of GDP. We've done it. We've done it for
the last 50 years since World War II. But the numbers we're running now are not
sustainable over time. And the only way to change something that's not sustainable
is to change it.
JOE: All right, but I mean the 15, 25 you talked about if we go—even if we met at
20, 20 you're talking about...

BUFFETT: We don't have to meet. Yeah, we don't have to meet, Joe.
JOE: Yeah. Right.
BUFFETT: It can be—it can—it can be 18 1/2, 20 1/2, 18 1/2, even 21.
JOE: But it's coming down from 25, Warren. I mean, you're—whatever you're
talking...
BUFFETT: Right.
JOE: ...about you are talking about so that's why a lot of people that say, `look,
we're just spending too much' and maybe, you know, both sides do have a point,
that it is a spending problem first and foremost that's going to have to come down
no matter what.
BUFFETT: It's not only a spending problem, it's a promise problem.
JOE: Right.
BECKY: I mean...
JOE: Right.
BECKY: Right.
BUFFETT: Yeah. But it's—but it's—but it's an income problem, too.
JOE: It is, but...
BUFFETT: Yeah.
JOE: ...you know, you've got—but then you come back to...
BUFFETT: It's an important income.
JOE: Yeah.
BUFFETT: It's an important income problem, but there's no question you've got to
go up three or three and a half points on the—on the income side and you've got to
come down four points or so on the expenditure side and you've got to modify the
promises or you'll never get it done on the expenditure side.
BECKY: The Republicans, though, have said that the way they can come about doing
this is that, A, we're in a recession that we've been coming out of and eventually as
the economy improves that will bring the revenue numbers back up. And B, that if
you cut back on some of the taxes that it would actually increase the economy even
further. Do you think that that's the case?

BUFFETT: Well, they—it's very interesting. They say if you increase taxes that will
hurt the economy, but they say you can cut expenditures without hurting the
economy. In other words, they say if you reduce the deficit one way it doesn't hurt,
and if you reduce the deficit the other way that you got...
JOE: But—but they're both destimulative. Which—it's probably not a great idea to do
both, Warren. In other words, cutting spending and raising taxes are both
destimulative. I mean, where would your priority be?
BUFFETT: It depends.
JOE: I mean...
BUFFETT: It depends who you raise them on. It depends who you raise them on.
JOE: Right, right, right.
BUFFETT: I mean, if you—I've got 6 or $7 million in my pocket right now...
BECKY: Really?
BUFFETT: ...just from last—just from last...
JOE: Wow.
BUFFETT: She got more interested.
JOE: Wow.
BUFFETT: Just from last year...
JOE: The baby...
ANDREW: Right.
BUFFETT: ...just from last year in terms of what the Republicans saved me, you
know. And I could have paid 34 percent just as easily as 17 percent. The
government would have 6 or 7 million more and I had six or seven million less. It
wouldn't change one thing I'd be doing.
JOE: Right.
BUFFETT: Our corporations are awash in cash. You know, we have spent...
JOE: Just...
BUFFETT: ...as I said, we spent 10 billion on IBM, we spent 5 billion on B of A, we

spent 7 1/2 billion on capital expenditures, a record this year.

JOE: So you do think—do you think corporations are undertaxed in this country,
Warren?
BUFFETT: I do not think tax rates are too high on corporations. No, not at all.
JOE: So you would—everybody says bring it down.
BECKY: What about the bigger argument?
JOE: Yeah, everybody says bring down the corporate taxes.
BUFFETT: Yeah, well, listen, I mean, Berkshire would love to have it brought down.
I mean, if you bring us down 10 points and we make billions more. But...
ANDREW: Well, what was your tax—your tax rate was 5 percent or something at
Berkshire, wasn't it?
BUFFETT: No, no, no, no, no.
JOE: What was it? What was it?
BUFFETT: No. Our—it'll—our accounting tax rate will be probably 32 or 3, something

like that.
JOE: What does that mean, accounting tax?
BUFFETT: We don't—well, I mean, I mean, if you look at—if you go back to the back
of our annual report and it shows the tax rate calculated. But that allows—that allows
for deferred taxes. But our tax rate is...
ANDREW: So the—the effect...
BUFFETT: Our tax rate is probably—it's—if you take the S&P 500, our tax rate would
probably be about 7 points higher.
ANDREW: So Warren, just to...
BECKY: Then the average across the S&P 500?
BUFFETT: Yeah.
ANDREW: Just to clarify...
BUFFETT: Right.
ANDREW: ...the effective rate you're saying is about 33?
BUFFETT: Something like that. If you got our annual report there, you can look it up
in the back.

ANDREW: OK. We'll take a look. By the way, just to switch gears because we've
got a number of viewers who've asked the question, you talk about what you loaded
up on and bought, including IBM, is there anything you've sold in the last quarter?
BUFFETT: Not much. We've—yeah. We may have trimmed a little here and there,
but we've had no massive selling of any kind. I like buying better.
BECKY: You know, you go back to the corporate tax rate, though, and for the people
who are saying you ought to lower that corporate tax rate, even Simpson-Bowles
talked about doing that, but getting rid of a lot of the deductions.
BUFFETT: You...
BECKY: It's the same situation. If you can make sure that people are actually paying
that rate, is that an effective way of doing it?
BUFFETT: Well, I—obviously...
BECKY: Reducing it, so let's say, 25 percent.
BUFFETT: Yeah. We can come up with a much fairer corporate tax arrangement
than we have now. I mean, there's no question about that. But generally speaking,
the proposals are you can take the rate down and make it revenue neutral by
knocking out all those special things. I have nothing against that. That would—that
would benefit Berkshire, frankly, but I will tell you, if it's going to be revenue neutral,
it means just as many people are going to have their taxes increased as decreased
and the ones that are going to have them increased are going to be flooding the
Capitol with lobbyists. I—if it's going to be revenue neutral, I will—you know, that
means billions and billions and billions more are going to come from some companies
because we're going to pay less at Berkshire.
BECKY: Right.
BUFFETT: That's—that will be hard to pass. And that's why you don't really see
much happen on that front.
BECKY: But again, the...
BUFFETT: It would be a desirable—it would be a desirable outcome, but I've got a—

I've got a dog in that fight. I mean, that—anything that brings down the rate and
gets rid of most of the loopholes, we benefit from.
BECKY: But that argument is the one that's being put forth. Do you think it's
possible to get not only a corporate tax rate, but a personal tax rate that gets rid of
a lot of those deductions and manages to still bring in revenue? Is that possible in
the Washington of today?
BUFFETT: I think it's very tough. I think the people who find—if something's
revenue neutral, I think the people who find their taxes going up are going to
complain and spend a whole lot more money fighting it than the people on the other

side. It may not be impossible, but I'm just saying that that's the reality of sort of
the functioning of Washington.
BECKY: But we have simplified the tax code in the past.
BUFFETT: We have.
BECKY: The last time was back in the '80s.
BUFFETT: Right.
BECKY: Is it possible to do that again?
BUFFETT: It's possible.
BECKY: But you don't sound hopeful.
BUFFETT: Well, I'm not real hopeful, no.
BECKY: Hm.
BUFFETT: But for one thing, it needs to raise more revenue, which makes it even
more difficult.
BECKY: Right.
BUFFETT: All right. Joe, I think we need to slip in another quick break here, but
when we come back we do have more to discuss with Warren.
JOE: Excellent. OK. Great. Coming up, we have more from Warren Buffett. Don't
miss Squawk Box tomorrow. Becky's back week continues with Mario Gabelli and
BlackRock's Larry Fink.
ANDREW: Let's get back to Becky and Warren Buffett now in Omaha. But before
you guys kick it off, I have a quick question for Warren, which is this: A couple of
weeks ago Rajat Gupta the Goldman's—former Goldman Sachs board member was
charged criminally with tipping off Raj Rajaratnam on what was your investment in
Goldman Sachs. And I was curious A, if you knew anything about it either directly or
indirectly; and B, your sort of larger view on the fact that a board member at a firm
like Goldman Sachs, which you do believe in, potentially might've been tipping off
and giving information to others.
BUFFETT: Well, I think that unfortunately people do that and when they do, I hope
they get caught and when they get caught, I hope they get prosecuted. It—you
know, the system has a lot of temptations in it and people succumb to temptations
and the only way that you reduce that kind of activity is you look very hard to find it
and then you do something about it when you do find it.

BECKY: Mm-hmm.
ANDREW: I was also curious, real quick, if I could, an update on the David Sokol
situation. Has there been any movement, have you heard back? I know at the time,
last time we talked about this back in May, you had not heard from the government.
Has the government moved on this or talked to you about it all?
BUFFETT: The only time, in June, the SEC, it wasn't—it wasn't formal or informal
and it was not a deposition, no court reporter, anything like that. But they asked me
to—well, they asked me a lot of questions and—which I gave them the answer to and
so I know nothing about what's—what they're doing beyond the fact that they
wanted to ascertain certain facts from Berkshire and from me as to what had taken
place.
ANDREW: You...
BUFFETT: And we cooperated—we cooperated 100 percent. Like I say, it was—it

was not a—it was not a—there was no court reporter, nothing like that.
JOE: Just seeing NetJets...
BECKY: No...
JOE: Seeing NetJets—sorry, Beck, seeing NetJets again, just reminds me of the—
you—are you on the record saying that you think it's a bad idea to—for—to get rid of
any type of tax breaks for corporate jets, Warren? I mean, you do have a horse in
that game, too.
BUFFETT: Yeah. Well, I can say this, we have a—I have a couple of personal NetJets
contracts. I get no tax breaks whatsoever. I don't get depreciation, I don't get
deduction of the expenses, I don't get anything.
JOE: Yeah.
BUFFETT: And if I have a loss when I sell my interest in the plane, I don't get a—I
don't get to deduct the loss or anything of the sort. It's just a personal expenditure.
You know, there's 100 percent bonus depreciation that exists this year on really all
sorts of assets. I mean, what we're—what we're spending money for on our utility,
what we're spending money for on our railroad. And that—I assume that applies to—
well, I know it applies to corporate aircraft or any kind of—any kind of aircraft used
for business purposes. But I don't—I don't think—I really—in terms of Berkshire, we
have a whatever depreciation schedule was allowed and we bought ours when there
was normal depreciation, our interest in NetJet and like I say I get no deductions
whatsoever on my own personal.
JOE: Yeah. Yeah.
BECKY: Now Warren, you've talked about—oh.
JOE: No, go ahead.

BECKY: You talked about how you—you OK, Joe?
JOE: Yeah, I'm OK. OK. The last time he flew a commercial, still, he never did
answer that. He never referenced...
BUFFETT: The last time I flew commercial?
BECKY: Flew a commercial jet.
BUFFETT: It was a long, long time ago. It won't happen again.
JOE: What was the—what was the in-flight—that's what I said, the in-flight movie?
The in-flight movie was Charlie Chaplin. It had just come out. It was still in theaters.
BUFFETT: Joe, I tell you, if—once you—once you've flown NetJets, going back to
commercial is like going back to holding hands.
JOE: Don't rub—don't rub it in.
BECKY: Yeah, I know. I tweeted about my experience getting here yesterday. I

won't repeat it on air. But Warren, you've talked an awful lot about how you're
optimistic about this country and where it's headed and you've been putting your
money where your mouth is by buying American stocks, but what we've seen with
the beginnings of earnings season or with the last earnings season are some pretty
concerning notes. When you look at what GM came out with, it talked about the
European slowdown and how that's going to be affecting them. Macy's came out and
gave guidance that was a little lower than the Street had been expecting for the
fourth quarter. And those are things that rippled through the stock market. I know
there's a lot of concern out there about the slowdown and what it could mean.
What...
BUFFETT: I don't have the faintest idea what the stock market's going to do and I
would say this, in the last 75 years, Macy's has probably been disappointed with
their sales at least 25 or 50 times and General Motors has seen a slowdown 20
times. It really doesn't make sense in my view to pay attention to that. I mean, the
luckiest person in the world, in the history of the world, is the baby that's being born
in the United States today.
BECKY: Hm.
BUFFETT: So your Kyle is a very, very—you know, that doesn't mean some of them
won't be born with bad health or anything, but overall, there's never been a better
time to be born than today and there's never been a better place to be born than the
United States. And we will have all kinds of problems. We've always had them.
Macy's has always had, you know, bad quarters. General Motors...
BECKY: It wasn't even a bad quarter, though. I was just saying that the numbers
could be a little below what the Street was expecting.
BUFFETT: Yeah.

BECKY: So I guess the question is, are the expectations getting ahead of where we
really are?
BUFFETT: Well, I—my—I don't think mine are. I mean, what I see is I see an
economy where most of the economy has been recovering quite steadily, although
the public opinion hasn't been as steady, but quite steadily for a couple of years
now. We should thank Bernanke and Paulson and President Bush and President
Obama and Tim Geithner for doing a lot of things that helped us get out of what
could've been a terrible, terrible mess. It was a mess.
BECKY: Hm.
BUFFETT: But we really were right at the abyss and we had—we had a government
that did the right things. Maybe they did some wrong things earlier, maybe they
didn't do it perfectly.
BECKY: Mm-hmm.
BUFFETT: But I give them great credit and this country's best days lie ahead,
believe me.
BECKY: I know that this is not something you pay attention to on a daily basis or
even a weekly or a monthly basis, but the market volatility has increased and you
talked a little earlier about how there's always uncertainty out there. But that
uncertainty seems to be something that is resonating with the public and with
investors right now. Do you see an end to that uncertainty or is this a slightly
different period where we're very worried about the headline risk coming out of
Europe?
BUFFETT: I wouldn't worry about the headline risk unless I was on leverage.
BECKY: Yeah.
BUFFETT: I mean, if I own a good business privately, am I worried about what the
headlines are tomorrow if I've got the best—if I've got the best restaurant in town? If
I've got the best dry-cleaning establishment in town? The best auto repair shop in
town? I'm not worried about the headlines tomorrow, I'm worried about taking care
of my customer.
BECKY: Hm.
BUFFETT: And it's the same with big companies. So I don't know what the stock
market's going to do and nobody else does, either. I mean, but forget about it. I
don't know what farm prices are going to do tomorrow, either, but I know a good
farm run by an honest tenant farmer and that there'll be improvements in
agriculture, so just own good assets run by decent and honest people and if you can
own all of them, you can own all of your own business is wonderful, you own a little
piece of it, it's wonderful, but don't pay any—volatility is good for you.
BECKY: Hm.

BUFFETT: I mean, if farm prices would vary from X to 3X in a given year, I'd make
a lot of money in farming. I just buy when people were depressed. They don't move
that much. Stocks overreact all the time and that's why a guy can keep his senses
about him can get very rich.
BECKY: You've been doing this for a long time. You're 81 years old now and
Whitney...
BUFFETT: You've noticed.
BECKY: Yeah, I did notice. Whitney Tilson came out with a report, I don't know,
maybe it was a month or two ago, and said that he thinks there's an 80 percent
chance that you'll still be the chairman and CEO of Berkshire in five years and a 50
percent chance that you'll still be doing this 10 years from now.
BUFFETT: I think he's right about the 80 percent chance. I'll have to go look at the
figures, but I'm in, you know, I'm in very good health, I love what I do and I'll go
gaga someday and they'll yank me out of here.
BECKY: But you feel good and you think that that's a reasonable 80 percent chance
that you'll be doing this five years from now?
BUFFETT: Yeah, if I'm lucky, sure.
BECKY: Joe Paterno is somebody else who's been doing his job a very long time.
BUFFETT: Don't bring him up.
BECKY: Well, there was some newspaper reports, I think the AP wrote a story about
how, you know, you're one of the few people who's been doing things almost as long
as he did. He had a longer tenure than you did and Nebraska beat Penn State over
this weekend.
BECKY: Did you watch the game?
BUFFETT: Sure. I enjoyed the game.
BECKY: But it does say something about long tenure.
BUFFETT: Age gets to you at some point.
BECKY: Yeah.
BUFFETT: It gets to different people at different points. I mean, we've had

managers that we've had to terminate, you know, in their low 70s.
BECKY: Mm-hmm.

BUFFETT: And others were better in their 70s than they were in their 40s or 50s. It
varies enormously and—but obviously, age takes its toll.
BECKY: Right.
BUFFETT: And the question is when it—when it becomes noticeable and as I've told
people, I said, you know, my three kids are supposed to come in as a group and say,
you know, you’re going gaga, dad. I tell them if only one comes in, they're out of the
will, so they have to come in as a group.
BECKY: You brought in new managers to manage some money and that has raised
some questions about things, too. You brought in Ted Seides and Todd who was
there before, but we haven't talked to you since you brought in Ted.
BUFFETT: Ted Weschler, yeah. Right.
BECKY: Ted—sorry, Ted Weschler.
BECKY: And that has people wondering are you looking at people to be running
these management or is this just part of building up your bench?
BUFFETT: Well, three or four years ago we said that we were going to build up a
management team that would—in investments, that would succeed me and hopefully
even be helpful to the CEO in acquisitions and on that sort of thing. And it wasn't any
hurry to do it. On the other hand, we had to get about it.
BECKY: Mm-hmm.
BUFFETT: And fortunately, I—we found two guys that are—that are home runs. And
I feel terrific about that. That job is done. That doesn't mean we won't add a third,
but that job is done. And they will handle—in fact, you'll see some of their
purchase—you'll see some of Todd's purchases in the third quarter. Any time
there's a $200 million purchase or something like that, that's very likely to be Todd
or Ted, that's not me because I look at bigger things. But those fellows have the
capability of running the whole portfolio.
BECKY: Mm-hmm.
BUFFETT: And they're getting a piece of it to run now.
BECKY: I feel bad for Rick Perry. Ted Weschler. I'm coming up with things. Guys, we
only have a couple of minutes left, so if you have any one-offs that you want to get
back to Warren.
ANDREW: Great. Warren, I had a question and Becky touched on it earlier, this idea
of the volatility in the market. We have Larry Fink coming on the broadcast
tomorrow, he owns iShares and is a big supporter of the ETF business.

BECKY: Mm-hmm.
ANDREW: Do you think that ETFs are ultimately creating some of this volatility? Are
they good or bad for the market?
BUFFETT: Well, I don't know about them specifically, but I would think anything
that causes people to think they can trade actively in stocks and do better than if
they sat on their rear is a terrible mistake. American business has done wonderful,
wonderfully for investors over the years, yet many investors have managed to turn
in bad performances. You can say to yourself if the Dow started the 20th century at
66 and is now at 12,000, how could anybody lose money? But people do lose money.
But they lose money by trying to jump in and out of this and that and think that, you
know, they should buy this stock because the earnings are going to surprise on the
upside or some crazy thing like that. If they just buy good businesses, they'll do fine.
Just like if they bought good farms 30 years ago they do fine or good apartment
houses 30 years ago, they do fine. So volatility is your friend, not your enemy. It—as
long as it creates cheap prices from time to time and it does.
ANDREW: All right.
BUFFETT: So it—the investing game is simpler than it looks, you know, and if
people would read "The Intelligent Investor" in chapter 8, they'd do fine.
ANDREW: Right. One of the other issues that may be creating volatility, people talk
about it, is credit default swaps and what role they've played, for example, in Europe
with some of the bonds there. And I'm curious, do you believe that credit default
swaps should exist? They should be outlawed? What should happen to them?
BUFFETT: Well, they can be a very destructive instrument. I mean, if you think
about it, you can't go out and insure my house against fire because you do not have
an insurable interest, as they call it in the trade. Because once you insure my house
against fire and you may decide that, you know, that maybe dropping a few matches
around my lawn might be a good idea. And credit default swaps, if you don't own
underlying debt and you buy a credit default swap, you have an interest in that place
getting into trouble.
BECKY: Yeah.
BUFFETT: And when a lot of people have an interest in a place getting in trouble,
they may start putting out misleading statements about it. I mean, if you had a
bank—if you were short the stock of a bank, you might hire—and there wasn't any
FDIC, you might go out and hire 100 movie extras to stand in front of that bank.
BECKY: Mm-hmm.
BUFFETT: And in effect, you would create your own reality. Now buying credit
default swaps and talking about them and causing the price of credit default swaps
to go up creates its own reality to some degree. So I think that they are potentially a
very anti-social instrument.

BECKY: Hm. You know we are down to just the last minute or two of time and I
know that you have the SEC filings for Berkshire that will come out tonight. You've
already told us that IBM is the big purchase that will be revealed in those. Are there
other big surprises we might see in those filings?
JOE: One last chance, Warren, come on. Give us something, one.
BUFFETT: There won't be surprises. I've mentioned that we increased our Wells
some and you'll probably see a few purchases that Todd—Ted has not gone to work
for us yet, but he will be coming in January.
BECKY: OK.
BUFFETT: You'll see a few purchases that Todd has made. And incidentally, he
doesn't—he doesn't check with me before making those purchases. He has a block of
money and he can do—he can be doing things while we sit here and it's entirely his
book.
BECKY: All right. Will you find out what they are when you get back to the office?
BUFFETT: No, no, I—sometimes I find out...
BECKY: Or do you find out when the SEC filings come in?
BUFFETT: I might find out a month later. That's the way it was with Lou Simpson,
too, when he worked for us.
BECKY: OK.
ANDREW: OK.
BECKY: Well, Warren, we want to thank you very much for being with us for this
program. It's been great talking to you.
JOE: Thank you, Warren.
ANDREW: Thank you.
JOE: Thanks for the brick.
BUFFETT: Thanks.
JOE: Thanks for the brick, too.
ANDREW: A big special thanks to Mr. Buffett.
BUFFETT: Yeah. I'll send you another one. Just give me the size.

JOE: Yeah.
ANDREW: Becky, safe travels back. We'll see you tomorrow.
BECKY: Thanks, guys.
ANDREW: Make sure you join us tomorrow, SQUAWK ON THE STREET is coming up
right now.
JOE: See you, Becky.
BECKY: Bye, guys.
For more Buffett Watch updates follow alexcrippen on Twitter.

CNBC Transcript: Warren Buffett on 'Fiscal Cliff' and Taxing the
Rich
CNBC Transcript: Warren Buffett on 'Fiscal Cliff' and Taxing the Rich Alex Crippen | @alexcrippen Published 9:14 AM ET Sat, 1
Dec 2012 CNBC.com
November 28, 2012
Warren Buffett and his long-time friend Carol Loomis, an editor at Fortune, appeared live on
CNBC's "Squawk Box" to promote a book that collects the magazine's past articles about the
Omaha billionaire.
During the interview, Buffett said he expects Congress to reach a "fiscal cliff" deal but thinks it
could happen after the December 31 deadline.
This is a transcript of the entire appearance on Wednesday, November 28, 2012 at 8a ET.
JOE KERNEN: We have a big line-up this morning. Warren Buffett — last time I saw Warren,
he had an ugly tie on, and he sent it to me. He brought—right?
ANDREW ROSS ANDREW: It's true.
(Read More: Buffett Expects 'Fiscal Cliff' Fix, but Not by December 31)
JOE: You brought it back—I have it up at my desk. It's an ugly tie. He sent me a brick so far,
which is pretty ugly, and a tie. That's it.
BECKY QUICK: Have you thanked him for either of those gifts?
JOE: When I get the NetJet card, I will—I will thank him appro—I will. Thanks, Warren, for the
brick. Warren Buffett's going to join us with biographer Carol Loomis in just a minute. Thanks
for coming on. We have plenty to talk about with the Oracle of Omaha.
***
ANDREW: Everything down. Not a great way to start the morning, but a great way to start the
morning since we do have Warren Buffett on the show.
BECKY: That's right. And red arrows. You know that Warren Buffett likes to buy when he sees
red arrows, so.
ANDREW: That is true. That is true.
BECKY: Warren Buffett, obviously, is a familiar face here on "Squawk Box". He is the subject
of a new business biography. He joins us this morning along with Carol Loomis, who is senior
editor-at-large at Fortune magazine. Carol's the author of the new book on Mr. Buffett, "Tap
Dancing to Work: Warren Buffett on Practically Everything, 1966-2012." And Warren and
Carol, thank you both for joining us this morning.
WARREN BUFFETT (Berkshire Hathaway Chairman and CEO): Thanks for having us.
1/18
CAROL LOOMIS (Fortune Magazine Senior Editor-At-Large): Great to be here.
BECKY: You know, Carol, you've known Warren Buffett for over 45 years. You have a long
friendship and you're somebody who knows probably his take on business better than
anybody out in the world. People have been waiting for a book like this...
LOOMIS: Great.
BECKY: ...but you talk to him every day and in putting this book together, is there anything
that you learned or anything that you were able to say, you know, 'This is something I hadn't
thought about in a while'?
LOOMIS: Well, first of all, I just learned all over again how good he is. You just see it all
through the book. He's—the brilliance and the new ideas that keep coming up. But I think
the thing I was most struck by was how consistent his thinking has been as he has gone
through these years. In the early part of the book when he is advising Grinnell College about
its—how to invest its investments—how to invest its endowment fund, he is staying off to the
side while Grinnell decides to invest not—to invest in Intel. Bob Noyce went to Grinnell. And
so Grinnell is making an investment in Intel, but Warren is just standing off to the side saying,
'I don't understand semiconductors, so I think you should just go ahead and do whatever you
do, but I'm not—I'm not getting into this one way or the other.' And that—and then he's
exactly the same when he gets to the bubble. And if we had another bubble, he'd be exactly
the same again.
BECKY: Wow. You know, Carol, when you first met him back in 1967, what was your first
impression? Did it jump out at the time that he was a great investor?
Why Warren Buffett is 'Tap Dancing to Work,' PT 1 2:29 PM ET Wed, 28 Nov 2012
2/18
LOOMIS: Well, my husband had already told me who had met him earlier that he thought he
was—he had met the greatest investor in the country. And, you know, I probably was a might
skeptical about that at that point. And then I met him with (Buffett's first wife) Susie. We all
had lunch in New York. And I realized that Warren was unlike anybody I'd ever met—more
impressive than anybody I'd ever met, knew more details about things that I was interested
in. And I thought, `No, this guy is really different,' and I must say we bought the stock. So—
and he was—he was really virtually unknown at that point.
JOE: Grinnell—who would've thought Grinnell College would be in the news? Did you write a
letter to that guy, Warren, or did you give him a dollar a point or $10 a point for those 138
points ? Did you see that? That kid? That was Grinnell.
BUFFETT: What?
LOOMIS: Oh, the one that had the basketball.
BUFFETT: The basketball player, yep.
JOE: One hundred and thirty—yeah.
LOOMIS: The big basketball—oh, sure.
JOE: This is the first time we have said Grinnell College twice in the last week and that has got
to be—I don't think that has ever...
BECKY: Happened on "Squawk" before?
JOE: Yeah. I would have never imagined that. It's amazing.
BECKY: Yeah.
BUFFETT: I think he got 70. He had a high percentage of three-pointers, too, I'm right.
LOOMIS: Yeah.
JOE: He did. Twenty-one out of 27, but taking 27 three-pointers...
BECKY: Three point shots. Right.
JOE: ...in one game is amazing. Warren, is that—that looks like the tie you sent me. Did you
have more than one or something?
BUFFETT: Joe, I have—I have lots of ties to send you, although the sort of plugs they get after
I send them to you, I'm not sure I'll keep doing this.
JOE: So that's what I see, bricks and—bricks and ties you don't really like...basically.
BUFFETT: What would—what would you like? Dilly Bars? We've got those. I mean, you name
it.
BECKY: Andy.
3/18
JOE: See, he's asking like he doesn't know what I really want. You know...
LOOMIS: My experience over the years, having known Warren this long, is he gets a favorite
tie, he sticks with it for quite a long time.
JOE: It works for him.
LOOMIS: It works for him. So he really doesn't change.
JOE: Carol, I just heard some stuff. Have you—have you ever played—do you play golf with
Warren, Carol?
LOOMIS: I have played golf with Warren.
JOE: Did you bring him to Winged Foot? Has he been—that course would kill either the east
or the west would kill him.
LOOMIS: Well, I don't think that we have tried out Winged Foot. We have mainly played in
Maine at a course called Prouts Neck.
BUFFETT: Yeah. We played on my 50th birthday, though, remember? We had the semi-
centennial tournament at Winged Foot.
LOOMIS: Oh, that's right.
BUFFETT: Yeah, George.
LOOMIS: Oh, I did forget—I did forget about that. So and also in Omaha, I've started to play a
little bit with him.
JOE: All right.
BECKY: Warren, when you first met Carol, what was your first impression?
BUFFETT: My first impression was that she was pregnant.
LOOMIS: It does stick with you.
JOE: Was she?
ANDREW: I hope she was, right? I mean, that's...
BUFFETT: I had a—I already had an impression. I knew she was a terrific writer. I'd been
reading her stuff, and, you know, she was the first—the first woman to become a writer for
Fortune, and they made a terrific choice. And ever since then, I mean, she's been the number
one read for me in the financial world.
ANDREW: So, Warren, Carol helps edit your annual report or your annual letter to investors .
When did that start and what inspired you to do it?
BUFFETT: Well, in 1977, I gave her a copy of the draft and asked her if she would edit it. She's
a terrific editor. And I'd been on a committee at the SEC on disclosure, and I really decided
4/18
that year I was going to step up the communication with shareholders, and so I thought I'd
let her take a look at it. And she made very few changes the first year, but she's sort of
gotten in the swing of it since.
LOOMIS: It's not—I wouldn't say it's accelerated every year, but there are a few more
comments, a few more suggestions.
BUFFETT: She's very diplomatic. When she doesn't like something, she says, 'This is my least
favorite part of the report,' which means it's a bunch of junk.
BECKY: Why don't we talk about some of the issues that are in the news today. And, Warren,
you've made newsthis week with your op-ed piece that you had earlier this week in The New
York Times about taxes. A lot of people have talked about what you've laid out, the "Buffett
Rule," and what you'd like to see. One thing that we may not have talked about a lot, though,
is in that, you laid out where you thought higher taxes should be raised on people. You
thought the starting point should be at 500,000 instead of the 250,000 that the president has
proposed. I know you spoke with the president last week, he put out a news release about
that. Did you tell him at that point that you thought the starting number was too low?
BUFFETT: Yeah. He—well, he knew my view on it because I had sent—they made a call on
Friday and said would I be available for a call on Saturday from the president. I've never
called him, but—and since I knew I was going to put out this op-ed piece, I sent him a copy
prior to the phone call on Saturday, of the piece. So he had seen the $500,000 figure when
we talked. He did not specifically bring it up.
BECKY: Did you bring it up to him?
BUFFETT: No, he'd seen it. I mean, I knew it was there in front of him. Since he—since he was
saying 250, I did not think it was a great subject to bring up.
BECKY: Did he make any comments about your op-ed piece?
BUFFETT: Well, he certainly didn't argue with any of it. I mean, he just briefly said that he's
seen it. He said something to the effect that he liked it. But we didn't get into a detailed
discussion of it.
BECKY: You know, you two have seen a lot of things that have happened in business and
seen a lot of things that have happened around the country, and we have been trying here to
try and find some sort of fit—fix to the fiscal cliff and the fiscal abyss. I know, Warren, in the
past you've told us if you sat down, you could figure out in a matter of minutes some sort of
solution that probably both sides could live with. Warren and Carol, if you could put up some
sort of a plan, having seen what's happened with politics in Washington, what would that
plan look like?
BUFFETT: Well...
LOOMIS: I'll defer to Warren.
5/18
BUFFETT: Well, the plan would have—would get us in the near future to having 18 1/2
percent of GDP as revenues and 21 percent of GDP as expenses. We've had that plan
basically in effect since World War II. I mean, it's bounced around a little bit, but that—those
two levels, 18 1/2 and 21 are sustainable in the sense that they will not increase the ratio of
the national debt to GDP. They'll run a deficit every year, but because our economy grows, 18
1/2 and 21 is a—is a very sustainable figure. In fact, it'll probably bring down the debt to GDP
over time. And...
BECKY: But...
BUFFETT: ...it's not just me, Becky, I mean, you know, all three of you, a lot of people among
the American public, have come up with a plan that worked its way to 18 1/2, and 21 and
most people could accept it. We'd all have a little—a few differences, but that's where we
have to get at.
BECKY: But, Warren, that's the logical approach and a commonsense approach, and what
we've been hearing from Washington these days is almost a winner take all, take no
prisoners sort of approach to this. 'It's my way or the highway' on both sides. I mean, do you
think, having lived in Washington and seeing what happens in Congress, that this group of
people is going to find some commonsense solution that does exactly what you just laid out?
BUFFETT: Yeah, I think they will. I'm not sure they'll do it by December 31st; but, you know, I
have seen Washington and they don't want to negotiate in public, obviously. So you're not
going to hear people come on—you're not going to hear Democrats talk a lot about what
expenditures they're willing to cut.
JOE: Yeah. Right.
BUFFETT: You're not going to hear Republicans talk a lot about what revenues they'll
increase. But at—and it's probably a good thing because then you get stuck in those
positions and your ego gets involved and your constituents say, 'Well, you said this and why
did you back off?' and all that. But in private, they will—they will—in my view, they'll get to
something like that, but it may not be by December 31st.
JOE: I wonder—I wonder, Warren, what we'd really need to do on both sides in a—in a 4
percent world of GDP growth if we could somehow get back there through pro-growth
policies, the 25 percent would be 25 because not as many people would need government
services and that. And then the tax—the revenue side wouldn't be 15 or whatever it is right
now. I mean, we could probably in a 4 percent world, we're almost there without doing
anything, I would think. So I wish we could figure out a way to do—to do growth.
BUFFETT: Yeah.
JOE: You know, and then we could—and then we could do what we needed to do on taxes
and cutting entitlements.
BUFFETT: And, Joe, we'll get growth. I mean, but 4 percent is a pretty lofty number. We'll...
6/18
JOE: Even 3 1/2—even...
BUFFETT: Yeah.
JOE: What would it be at 3 percent, Warren?
BUFFETT: Well...
JOE: We'd probably be at—we'd probably be at 17 1/2, 22.
BUFFETT: Yeah. Three percent would allow a bigger spread between revenue and
expenditures as a percentage of GDP.
JOE: Just where we are with the current tax rate and with the current...
BUFFETT: Yeah.
JOE: Even funding the entitlements we have now, we could get—we'd almost be there.
BUFFETT: But 3 percent growth, if you think about it, 3 percent growth with 1 percent
population growth, that means a 40 percent change upward in one generation, in 20 years,
to the—to the standard of living. That's a pretty lofty goal. We've hit it sometimes in the past,
but even at 2 percent growth, with 1 percent growth in population, the next generation lives
20 percent per capita better than the present generation, which is pretty remarkable. And
what I suggest will work even with 2 percent growth. Obviously, the more growth you get, you
know, the easier the problems become.
JOE: Yeah.
BUFFETT: I mean, the more your income grows, you know, the fewer problems you're going
to have in your family, Joe.
JOE: Yeah, well, still won't have a Marquis Jet card.
BUFFETT: Well, we can arrange that.
JOE: Oh yeah, you always say that, and I get a brick. Anyway. Thanks for the brick. Becky
wants me to thank you for the brick. Thanks for the brick.
BUFFETT: Well...
BECKY: We're trying to teach manners here.
BUFFETT: You're the only person I've sent a brick to, I want you to know.
JOE: What am I supposed to do with a brick? And don't say—don't answer that. Anyway, go
ahead, Andy.
ANDREW: We'll talk—we're going to continue this conversation with Warren Buffett and
Carol Loomis after the break. That's still ahead.
JOE: Let's get back to our discussion with Warren Buffett and Carol Loomis. Again, the book
7/18
is "Tap Dancing to Work." And I—I don't know—Carol, I was going to ask you if you've been
adding to your portfolio in any areas of the market, or whether you had any big acquisitions.
And then I think, you know what, I should—I should probably stick to Buffett with those type
of questions, right? I don't want to ignore you.
Why Warren Buffett is 'Tap Dancing to Work,' PT 2 10:58 AM ET Wed, 28 Nov 2012
LOOMIS: I think so. I don't think I'm going to rock the market.
JOE: Yeah, all...
LOOMIS: Like Warren might.
JOE: ...I'm not ignoring you, but I'm just going to...
LOOMIS: Oh no, no, no. That's all right. That's all right.
JOE: ...I'm going to talk—OK. Warren, a lot of times in the past you've said that guys like you
are coddled by the IRS; and you, you know, put forth the Buffett Rule, which I think of what,
one to 10, it's 30 percent, right, and over 10 it's 35 percent.
BUFFETT: Minimum tax.
JOE: Yeah, minimum tax. And I think about that and we're still not going to get—we're not
going to get you. We're not going to get what we need from you. And I think about over the
years what you've been able to do, and you're the one—one of the seven wonders of the—
of the universe, obviously, to accrue $50 billion. I don't think you've done it by being a patsy
in terms of paying taxes. I think you've known how to take advantage of structures and deals
to make sure that there's a degree of tax avoidance in the way you do things. If we were to
put the Buffett Rule in, we're still not going to get you, and since you've given it all to (the)
Gates (Foundation), we're not going to get you even when you give it away.
8/18
BUFFETT: You're going to get...
JOE: So we're real—we're never going to get what you want everybody else to do, we're
never going to get it from you, are we? And you said something about the middle class, a
morale-booster if rich people pay their taxes. You're not going to boost anyone's morale ever
by funding the federal government, are you?
BUFFETT: You're going to get—what you'll get from me under the—under this is you'll get 35
percent and...
JOE: If you pay yourself income from...
BUFFETT: Well, no, no. If I have—if I have...
JOE: Dividends.
BUFFETT: ...if I have—if I have investment income, which is where my main income comes
from...
JOE: Right.
BUFFETT: ...I will pay 35 percent. Right now my income is probably larger than Carol's. Carol
is paying more I'm sure in income...
JOE: I know, but...
BUFFETT: ...but I will pay...
JOE: You know my point. We're still not going to really get—you've been able to take
advantage of the system to accrue a huge amount of wealth, and you will never really fund
the federal government's operations like you would have it—and I—and I—God bless you
that you're giving it to charity. I think that's a—you have said on this—on the network that
that is a better use probably of your wealth than the government. But I just don't seem like
you've ever really, you know, paid your share, or what you would call your fair share of taxes.
BUFFETT: I, I—no, I agree. I certainly agree in the last 10 years that's been true. I used to pay
a much higher rate. But in the last 10 years, it's true. My rate—my rate has been down there,
you know, with Governor Romney's and, you know, and a whole bunch of other super-rich
people. And I would pay 35 percent under this, and I would pay 35 percent on all the money
that ever ends up in my pocket.
ANDREW: Right. Hey, Warren, along the same lines when you think about corporate taxes
and Berkshire's contribution to the system, I remember us talking a couple of years ago, we
were talking about the structure of Berkshire, and part of the structure of Berkshire has
been to take the profits from one entity and be able to reinvest it in another entity, and as a
result you're not being taxed on those profits.
9/18
BUFFETT: Well that's not true. That's not true. If we—if we earn money at See's Candy and
use that money to buy the BNSF Railroad, we pay taxes at all of the income made at See's
before it's used elsewhere. So we—on inter-corporate transfers of money, that has no effect
on Berkshire's tax rate. Berkshire pays normal taxes on whatever it makes at Marvin or
whatever it makes at See's, or even NetJets, Joe.
JOE: But not—that's Andrew now. I'm not—that's Andrew. He's the one that's saying all this
nasty stuff now. Don't say Joe. I'm done.
BUFFETT: It isn't nasty, it's just that...
JOE: I took—I took my shot.
ANDREW: No, but, Warren, though, but no, you guys pay taxes on the overall profits from
Berkshire every year, not the individual entities, right?
BUFFETT: Yeah, well the individual entities contribute to the consolidated tax return.
ANDREW: Right.
BUFFETT: But any money made at, you name the subsidiary, at BNSF or Mid-American
Energy, that gets taxed at normal rates even though we perhaps distribute and use it for
some other purpose.
ANDREW: Right. Do you think that there's a better way on corporate taxes, not only to
reduce the rate and close loopholes and all of that, but when you think about the success of
Berkshire, but to be able to better capture taxes effectively, the fair share issue on the
corporate side from companies like Berkshire, which I do believe pay their taxes fairly, but
you go and look at an Apple, for example, and you say, 'Look at all those profits,' and it's not
really clear that the U.S. government and taxpayers here have been a huge beneficiary of all
their success.
BUFFETT: Well, it's certainly true that the biggest decline among major categories of tax
revenues by the federal government has been the corporate tax. If you go back to the 1950s
and 1960s, about 4 percent of GDP was paid in corporate taxes and tax rates were 52
percent for a long period and then 48 percent. So 4 percent was going. Last year, in the fiscal
year that just ended, I think there were 242 billion of corporate taxes paid against 15.7 trillion
roughly of GDP rate at the end of the year. So it's fallen from 4 percent, over 4 percent of
GDP to the 1 1/2 percent range. So the biggest beneficiary of reductions in tax rates in the
last 30 or 40 years has been corporations. And the biggest increase has been in the payroll
tax. The payroll tax has gone up in...
ANDREW: Are you a believer in a territorial system then?
BUFFETT: Well, I believe that corporate taxes have not been a problem for corporate
America.
JOE: Hey, Warren, I—on another subject, I was reading in the, of all places, The New York
Times. I went back to it.
10/18
BUFFETT: Oh, Joe!
JOE: I'm reading—I'm reading it a little bit now. I'm reading it a little bit.
ANDREW: Now that Warren's writing for the Times again?
JOE: Yeah, yeah. Eduardo Porter makes—I mean, I was flabbergasted by what this is really
saying. He points out that income disparity, obviously, everybody knows how the rich have
gotten richer. In fact, the richest 1 percent of families earn 93 percent of the income growth
in the first two years of the economic recovery and the rest of us got 7 percent. But then he
goes on to concede we still have maybe the most progressive tax rate of all advanced
countries right now.
BUFFETT: I don't agree with that.
JOE: And—well, no. Let me just read it. "Many Americans may find it hard to believe, but the
United States already has one of the most progressive tax systems in the developed world,
according to several studies, raising proportionately more revenue from the wealthy than
other advanced countries do." But you can disagree with what I'm saying, but what he then
says is that that is not the key to reducing income disparity. It's not that—it's not how much—
it's not that you raise from the wealthy instead of others, but that we don't—simply don't
raise enough. We don't raise enough to actually help the middle class and the poor to
actually help narrow that disparity. And he's arguing that until you go back to the middle
class or go back to more taxpayers you're never going to do what you need to do in terms of
income disparity.
BUFFETT: Yeah, well, we're raising dramatic amounts from the middle class. I mean, if you
look at the payroll taxes, one-third of the entire revenue of the United States comes from
payroll taxes.
JOE: Should we really put Social Security in there all the time? We can't have—that mixes
things up so much. That's not apples to apples when you do it that way. That was not
designed as an income tax. It's an insurance system, right?
BUFFETT: Believe me, it's a tax, it's a tax...
JOE: I know—I know you have to pay it—I know you have to pay it.
BUFFETT: ...it's a tax on income.
JOE: But it...
BUFFETT: And you pay it based on your income and it quits at a little over $100,000.
JOE: And then the government—the government steals it and uses it anyway for expenses a
lot of times anyway. But if you were—if you weren't to have—if you were to just back out
your payroll tax point.
11/18
BUFFETT: Well, that's a third of—that's a third of the income of the federal government, so
it's $800 billion.
JOE: Right.
BUFFETT: And it's the regressive tax. In fact, if you have a couple that's each making about
100,000 they're paying it on 200,000. I'm paying practically no payroll tax.
JOE: Right.
BUFFETT: I pay it on my salary of 100,000 and, you know, it's a eight—it's a third of the
revenue of the country that basically comes from a very regressive tax.
JOE: Right. But people that do make—let's take people that make a million or $2 million that
pay 35 percent don't have a lot of deductions. If you make $2 million and you pay 700,000 in
federal taxes and then you also pay state and local income tax you get up close to 50
percent. Is that...
BUFFETT: No, you get—you get a deduction for your state taxes.
JOE: You do for your state. But if you add everything in you get up to a number that's
somewhere around 8 or $900,000, right?
BUFFETT: You get—you certainly can get to 40 if you deduct your federal...
JOE: Forty percent.
BUFFETT: ...of your state taxes and your—yeah.
JOE: Is that—are those people undertaxed?
BUFFETT: Well, but the point I made in the article, of course, is you take the 400 highest
taxpayers who average...
JOE: Yeah.
BUFFETT: ...$200 million apiece of income, very few of them are paying that rate you're
talking about.
JOE: Right. But no, I know. But...
BUFFETT: But the athletes pay it.
JOE: ...this—but these are people that haven't—you know, those people maybe they worked
their whole life to where they get—they have capital gains and dividends. We should have a
discussion...
BECKY: Or maybe they just inherited it.
JOE: Or maybe they inherited it. But we should have a discussion on—I don't know what the
right capital gains or dividend rate is.
12/18
BUFFETT: Well...
JOE: But just in terms of ordinary income that you get on your W2, if you make $1 million or
$2 million you're paying about 40 percent. Is that definitely—are those people undertaxed?
BUFFETT: No, I say that's about right.
JOE: Yeah, OK.
BUFFETT: But I say that the super rich are not paying that. I mean...
JOE: Yeah, I wish we could get more from them. We can only...
BUFFETT: Well, we can—we can. All we need is a minimum tax.
JOE: Yeah, but it doesn't help that much.
BECKY: But...
JOE: There was a study yesterday. You get 3 or $4 billion and that takes 500 years to pay off
when...
BUFFETT: No, no you get a whole lot more than 3 of $4 billion, I can tell you that. I mean, just
sit down and figure it. I mean, you've got—you've got people making $200 million a year, you
got to have six of them to pay no tax. I mean, they're part of—they're part of Governor
Romney's 47 percent. They're the moochers.
JOE: Right, right.
BECKY: Warren, if you—I know you've said in the past that you agree with plans like
Domenici-Rivlin and Simpson-Bowles, you've gone along with those things. In those plans,
they take ordinary income, they tax capital gains and dividends at the same levels as
ordinary income. They get rid of things like charitable deductions. You go along with all those
parts of the plan, too?
BUFFETT: Well I go along—they all have a little different—I can go along with any number of
plans that, in general, move up the revenue to 18 1/2 percent or so of GDP and move down
expenses to around 21. I mean, whether it's Rivlin-Domenici, whether it's Simpson-Bowles,
whether it's, you know, whether it's Quick-Kernen, I mean, you can—you can come up with a
lot of proposals...
JOE: But you left out .
BUFFETT: Well I, really I—there's all kinds of plans that generally make sense. And I—and
incidentally I think we'll come up with one. But one of the problems you have is I think you
could have a majority of Congress before a plan, but the far left would not, you know, would
have some votes that didn't like it. The far right would have some votes that didn't like it. And
if—and if the leadership of either party is worried that they're going to lose their leadership
13/18
because of that maybe minority within their own party, you might have something that a
majority of Congress would approve, but it still will not get to a vote. You know, I think we
may have had that problem with the grand bargain, you know, over a year ago.
BECKY: We had Roger Altman on yesterday, and he said he thinks that it's the equities
market that will eventually put pressure on the elected leaders, that you'd see a sell-off in
the stock market and that would be the thing that pushed them back, just like TARP.
BUFFETT: Well, it certainly happened with TARP, yeah.
BECKY: Do you think that that's a likely scenario? I mean, if you think there's a chance we
may not get a deal by December 31st, does the equity market react and does that in turn
force Congress and the president?
BUFFETT: Yeah. I don't know—I don't know what stock markets will do. They can do anything,
but I think that—I think that there will be a lot of pressure if they don't get an agreement by
December 31st. Whether it comes from the stock market or just letters pouring in or whether
it comes from, you know, CNBC and the media generally, but we are not going to go for
months after January 1st. But it wouldn't surprise me if we go past January 1st.
ANDREW: Warren...
BUFFETT: I don't think—incidentally, I don't think the world will come to an end. I will
guarantee you this, Berkshire has about, I don't know, 290,000 employees now. If there's not
a deal on December 31st, there's not an employee that we're going to lay off in January 1st or
2nd or 3rd or 4th. It just won't happen.
ANDREW: Hey, Warren, one question on charitable deductions that I've been thinking about.
If there was a real cap on deductions, do you think it would've changed either the way people
approach charity today or would've changed the way you approach over the years? You
know, by waiting, you're able to compound, which is a great thing.
BUFFETT: Well, it wouldn't change it...
ANDREW: But maybe without the deduction you would've done it differently?
BUFFETT: No, because I don't get the deduction on virtually everything I give away. I've got a
$10 billion charitable loss carry forward or charitable deduction carry forward, which I'll
never use. So I get to take a deduction for maybe—well, not more than 1 percent—less than
1 percent of the—of the value of what I give away every year.
JOE: You can send me that instead of a brick. I have a $10 billion loss carry—but you can't do
that.
BUFFETT: A charitable deduction carry forward.
JOE: You can't do that.
14/18
BUFFETT: What I give away to private foundations is limited to 20 percent of my adjusted
gross income.
JOE: Right.
BUFFETT: So the deduction has nothing—if there was no deduction allowed, it would not
change my charitable giving a penny. And that's true of a number of wealthy people, but
there's some other people that it's not true of.
ANDREW: Right.
JOE: You did like Simpson-Bowles, Warren.
BUFFETT: I said...
JOE: I mean, if we did—if they did that and did the 28 percent rate and then what would the
cap be for the maximum amount of deductions a person could take? Would it work that way?
You could take 15 and everything else is gone?
BUFFETT: I don't know the answer to that. But I...
JOE: Would it work?
BUFFETT: But I—there are a lot of things that will work, Joe. I mean, it—you know, we've had
all kinds of things that have worked over the last 50, 60 years.
JOE: But you'd be OK at 28 percent if it was a—there was no deductions, and you had to pay
28 percent on all your income, that would be OK?
BUFFETT: I'd be fine. I'd be fine.
JOE: OK. All right. Not everybody's fine with that. I think that's a...
BUFFETT: Well, we've had—listen, I mean, we've had—we've certainly had times when the
normal rate for a high-income person was at the 50 percent level.
JOE: Except they had—they had a bunch of other deductions and they...
BUFFETT: No, they didn't.
JOE: Really? At 90 percent they did, right?
BUFFETT: No, I mean, listen, I can show you my tax returns. I literally in the last 10 years, my
tax rate has averaged way less than when I was in my 30s and 40s, and believe me, I'm
making more money now.
ANDREW: Warren, one thing we haven't talked about is investing, and I wonder given the
fiscal cliff and the volatility that we've seen thus far and perhaps we may see even more,
what you're doing.
15/18
BUFFETT: It doesn't change anything. If you own a farm and you like the farm, are you going
to buy—are you going to sell the farm because of a fiscal cliff? Are you going to sell an
apartment house you have? Are you going to share your McDonald's franchise?
ANDREW: No, but if there's a couple of cheap farms out there, you might buy them.
BUFFETT: Well, you might buy them, sure. Well, I like to buy. But I...
ANDREW: What are you doing? Have you done anything interesting in the past couple of
weeks?
BUFFETT: The fiscal cliff has nothing to do with long-term investment decisions.
ANDREW: Have you doubled-up—doubled-down on anything, though? Given the price?
BUFFETT: Well, on balance, we buy. But we're buying just like we were buying six months ago
or so. I mean, the fiscal cliff does not enter into my investment decisions.
ANDREW: OK. But no new names to share.
BUFFETT: Not today. No. When I get another movie, I'll let you know.
ANDREW: We've got to try.
JOE: Carol, Carol, what about you? No new—oh no, I already did, I already said I wouldn't
answer that.
LOOMIS: No...(unintelligible).
ANDREW: Carol's a big investor, though. She's...
JOE: Oh, really?
ANDREW: Oh, she's a great investor.
LOOMIS: Oh, well, I wouldn't say great, but I've learned a lot from Warren over the years
about investing, and I don't panic. So many—so many people are very emotional, and when
the stock goes down, they are ready to sell and as Warren says, he buys when the stock goes
down. And I'm inclined to do that, too. So I'm not worried about that.
BUFFETT: How long have you held Berkshire?
LOOMIS: I've held Berkshire since the early—the early '70s.
JOE: Oh my God.
LOOMIS: I mean, we've never—we've never sold.
BECKY: Wow.
LOOMIS: Except for one trade when—in the first year that John bought originally. He did—he
did sell once in the first year, but other than that, we have never sold a share of stock.
16/18
BECKY: Wow.
JOE: Those aren't B shares, either, are they?
LOOMIS: Well, no, thankfully they're not.
JOE: Do you have a round lot? I'm trying to get to the bottom...
LOOMIS: No, no, no, no, no, no.
JOE: Trying to get to the bottom of this.
LOOMIS: No. I think we could not. As a matter of fact, I think I've forgotten a lot of the details,
so that's very good that I've forgotten them.
BECKY: Hey, Carol, you first wrote about Warren back in 1966. You put one line into a story
you were working on about Alfred Winslow Jones.
LOOMIS: That's right.
BECKY: And it was a story about hedge funds. And I just wonder, as you've watched hedge
funds over the years, what's surprised you about the way industry has evolved?
LOOMIS: Well, it's grown way beyond anything I could've expected. As a matter of fact, the
second time—we do need to mention the first time I wrote about Warren, I misspelled his
name.
BECKY: Ah.
JOE: Buffett.
BECKY: Yeah.
LOOMIS: I left off—I left off the second T.
JOE: Yeah.
LOOMIS: But then four years later, I was writing a story called "Hard Times Come to the
Hedge Funds," and it was a time, just a temporary one as it turned out, when they had
enormous problems. Warren was getting out at that point. And I could not have imagined
then that it would've—they would've grown to the importance that they have today. And I
think much of it is—or some of it is probably not good that it worked out that way.
BECKY: Yeah. I heard in another interview that "Tap Dancing to Work" was not the first name
you had come up with for the book. What were your first choices?
LOOMIS: Well, no, no, they—I think I'm not going to mention the first title that the publisher
wanted to use. It would—we might spend a lot of time talking about that. But no, no, actually,
I gathered that negotiation between the publisher and the author and Fortune, in this case,
is often a very important part of the—of the process by which a book gets named. And I
wasn't accustomed to that. Never written a book before, never really thought I was going to
17/18
write a book. And so it just—it took us a while, but not as long as you'd think. And then when I
came up with "Tap Dancing to Work," the publisher immediately said, 'That's it.' And it is,
because it's such a perfect discussion—perfect description of how Warren feels about going
to work every day at Berkshire Hathaway.
BECKY: Warren, what's your favorite story in the book? And you're not allowed to say any of
the ones that you wrote.
BUFFETT: Oh, not the ones I wrote. I—well, I think—no, I think the favorite story has the most
drama in it, certainly, is the story of Solomon. I mean, that—that would've made a good
movie at the time, and Carol knew all the details and I think she wrote about it brilliantly.
ANDREW: Hey, guys, I saw you guys yesterday and we were talking about preparations. You
were going on "The Daily Show" last night with Jon Stewart. I saw some of the clips, including
the reference to calling you communists. So I wanted to get a report card on the experience.
LOOMIS: Well, and Andrew, a nice shirt, by the way.
ANDREW: Thank you. Somebody likes it.
LOOMIS: It was—it was great fun. It really was. It's a whole new experience. My daughter was
in the audience. And you know, it's a different class of viewer, and we had a great time.
BUFFETT: We had a terrific time.
BECKY: All right. Warren, Carol, thank you both for joining us this morning. Again, the book
for anybody who hasn't seen it, it's called "Tap Dancing to Work." It's on sale now, and we
appreciate your time joining us today. We hope to see both of you again soon.
BUFFETT: Thanks for having us.
LOOMIS: Thanks for having us.
Class B:
Class A:
Keep up with Warren Buffett on CNBC.com and
18/18
Warren Buffett appeared live on CNBC's Squawk
Box, Monday, February 27, 2012, for his annual
"Ask Warren" three-hour marathon.
This is a transcript of his comments.
ANNOUNCER: This is a special presentation of

SQUAWK BOX. For the next three hours, the
"Oracle of Omaha." Warren Buffett answering your questions on the pressing issues
affecting the country and your wallet. Get the market-moving plays that could
change your financial future. It all starts now.
BECKY QUICK, co-host: Good Monday morning, everyone. Welcome to SQUAWK

BOX here on CNBC. I'm Becky Quick, reporting live from the printing press floor of
the Omaha World-Herald. We have a very special guest with us today, Warren
Buffett. He's going to be talking to us for the next three hours. Also, Joe Kernen and
Andrew Ross Sorkin are back at CNBC's headquarters. We do have a pretty exciting
and news-packed morning ahead of us. Warren Buffett will be answering your
questions this morning. But first, we do have a roundup at the top of the headlines
at the top of the hour. And, Joe, Andrew, good morning to both of you.
ANDREW ROSS SORKIN, co-host: Good morning.
JOE KERNEN, co-host: Good morning. Good morning to Mr. Buffett as well. It's
great to see him, and thank you very much. When you said printing press, I thought
you were at the Fed for a second. But you're at a different printing press this
morning, right?
BECKY: Yeah, a little different printing press this morning. This is the Omaha World-
Herald.
JOE: Because if it was the — if it was the— if it was the Fed we probably couldn't
hear you because it would be running right now I think.
BECKY: Because they'd be running.
JOE: Be like...(imitating sound of printing press).
BECKY: You're right, they would be running right now.
CNBC SQUAWK BOX TRANSCRIPT: February 27, 2012

PAGE 1 OF 73
JOE: All right, let's see these headlines.
JOE: (Referring to the Academy Awards) But there was nothing for me, I'm sorry.
There just was nothing for me and I didn't see any of it. So I'm glad you watched. So
you're one person who's in the know.
ANDREW: I will bet some money, but I could be wrong on this...
JOE: Go ahead.
ANDREW: ...that Mr. B., Warren Buffet, might have watched a bit of it just because
I know he likes movies.
BECKY: You're wrong.
ANDREW: I'm wrong? Warren, you didn't watch any?
BECKY: You're wrong. No, I didn't watch a minute and Warren...
WARREN BUFFETT (Berkshire Hathaway Chairman and CEO): No, when Ed

Asner did not get nominated for his role in "Too Big to Fail," I decided to boycott
them.
BECKY: Not a minute of it.
JOE: "Lou."
ANDREW: Perfect answer.
JOE: "Lou." All right. Well, Becky, enough about— I mean, is it fluff? Is it me? I
don't— I don't— it's my cranky, cynical old age I think.
BECKY: But, guys, let's start off our conversation this morning with Warren Buffet.
We do have some important topics to get to. And...(network audio difficulties)...of
all, we want to thank you very much for taking the time to join us.
BUFFETT: Thanks for coming.
BECKY: We should point out that we're here at the Omaha World-Herald because
this is Berkshire's most recent acquisition. Earlier— or last year, I should say— last
year you went ahead and you stepped in. And I guess one of the key questions I

PAGE 2 OF 73
have is why did you do that? Why don't we start off talking about that right at the
top.
BUFFETT: Well, the World-Herald, is— I should mention one thing. William Jennings
Bryan was the editor of the World-Herald, so if you go back to 1894 to '96, and then,
of course, he started running for president and he didn't have too much luck doing
that. He lost three times. The World-Herald— newspapers face three major problems
and two of them they can't do much about but the third they can. The first problem
they have is that— you know, the only reason you buy a newspaper is to find out
something you want to know that you don't know. I mean, news is what you don't
know that you want to know. And if you go back many years, if you wanted to know
the box score on your favorite baseball team, if you wanted to know the closing
prices on stocks, if you wanted to find an apartment, the newspaper was primary for
all those things. So it's lost primariness in certain major areas of news, but it still
retains primariness in a number of items that are extremely important to people.
And it's vital that they continue to be primary in those areas. As long as they're
primary in areas that are of interest to you that you can't find someplace else, you're
going to buy a newspaper.
BECKY: What do you mean? Is that classified, obituaries? What are the...
BUFFETT: Well, it can be— it can— yeah, obituaries are a good thing. I mean,
you're not going to find out whether your friends are alive or dead anyplace else. But
just take high school basketball. Take Nebraska football.
BECKY: Right.
BUFFETT: You will learn so much more about Nebraska football if you read the
World-Herald than you can get from any other source. Well, that's important not only
to me but everybody in Nebraska.
BECKY: Right.
BUFFETT: So the World-Herald will always be primary in that. They— you will know
10 times as much about Nebraska football if you read the Omaha World-Herald than
if you try to get your news from any other source on that. The same thing is true in
terms of local politics, and people— when there's a sense of community, people care
about that. Now, if you're in an area where there isn't that sense of community, it's
different.

PAGE 3 OF 73
Second problem they have— but they still are primary in plenty of areas, not as
many as 30 or 40 years ago. It's expensive to turn out a paper. I mean, you know,
you start with trees up in Canada and you end up with a kid, you know, throwing it
on the door. So very expensive. That doesn't go away, and electronic is not
expensive.
But the third thing is that newspapers have been giving away their product at the
same time they're selling it. And that is not a great business model. So when they
put papers up on the Internet and you get it free, you're competing with yourself.
And that— you're seeing throughout the industry— you're seeing a reaction to that
problem and an answer to it, and that's important for the...
BECKY: And the answer is charging people online?
BUFFETT: Yeah.
BECKY: Yeah.
BUFFETT: Yeah, in other words, you shouldn't— you shouldn't be giving away a
product that you're trying to sell.
BECKY: So Rupert Murdoch got there a long time ago and had said that this is
something we need to be doing. You agree with him on that aspect of it, that this is
something that you charge?
BUFFETT: Yeah. Actually, Dow Jones was doing it before Rupert, too.
BECKY: Right. Right.
BUFFETT: I mean— and— whereas The New York Times, you know, held off for a
long time, although they've instituted it recently. And it's being instituted in other
places in other ways. So that's key to the future of the newspaper. But newspapers
tell you a lot of things that you can't find out other places. And most citizens are
going to find them useful, it's just you can't give them away for nothing.
BECKY: All right, let's— we can talk more about this later.
But I also want to start off while we're here— at this point the market, the Dow and
the S&P, are sitting at just about the highest levels we've seen in four years. We
have seen an incredible run over the last several months, and you are somebody

PAGE 4 OF 73
who had stepped in four years ago— or I'm sorry, back in 2008 when you wrote that
op-ed piece for The New York Times. The headline was `Buy American Stocks. I Am.'
We've come a long way in the market since then. The Dow at that point was below
9,000. And I want to know what you think about stocks at these prices. Do you still
think that this is a great time to be buying stocks?
BUFFETT: Well, stocks are businesses and the question is you have to invest in
something. If you get your money in your wallet, it's invested. It's just invested at
zero. And, unfortunately, if you got your money in a bank these days, it's invested at
zero. Or if you have it in Treasury bills, it's invested at zero. I've got a section in the
report where I say that if held over a long period of time, there's no question in my
mind that equities generally, a diversified group of leading companies, is going to
outperform, in my view, dramatically, paper money or nonproductive assets such as
gold. That's no forecast for the next three months or six months or a year, but it— I
think it's obvious that owning really first-rate productive businesses— and there's
hundreds of them— you just— you know, you get a compound over time. They either
pay the money out to you, they reinvest it, they buy in shares so that your
ownership interest goes up. So equities are still cheap relative to any other asset
class.
BECKY: But they're not...
BUFFETT: I would say the single-family homes are cheap now, too.
BECKY: You would?
BUFFETT: Yeah, single-family homes— but if I had a way of buying a couple

hundred thousand single-family homes and had a way of managing— the
management is enormous— is really the problem because they're one by one.
They're not like apartment houses. So— but I would load up on them and I would— I
would take mortgages out at very, very low rates. But if anybody is thinking about
buying a home— five years ago they couldn't buy them fast enough because they
thought they were going to go up, and now they don't buy them because they think
they're going to go down. And interest are far lower. It's a way, in effect, to short
the dollar because you can— you can take a 30-year mortgage and if it turns out
your interest rate's too high, next week you refinance lower. And if it turns out it's
too low, the other guy's stuck with it for 30 years. So it's a very attractive asset class
now.

PAGE 5 OF 73
BECKY: If you are a young individual investor at home and you have your choice
between buying your first home or investing in stocks, where would you tell someone
is the better bet?
BUFFETT: Well, if I thought I was going to live— if I knew where I was going to
want to live the next five or 10 years I would— I would buy a home and I'd finance it
with a 30-year mortgage, and it's a terrific deal. And if I— literally, if I was an
investor that was a handy type, which I'm not, and I could buy a couple of them at
distressed prices and find renters, I think that's— and again take a 30-year
mortgage, it's a leveraged way of owning a very cheap asset now and I think that's
probably as an attractive an investment as you can make now. But I think equities
are very attractive compared to anything else.
BECKY: But, obviously, they've come up quite a bit since you first were telling
people you were buying them for your personal portfolio...
BUFFETT: Yeah.
BECKY: ...with both hands essentially.
BUFFETT: Right. Yeah, well, I wrote that article— I said if you— if you wait till you
see the first robin, spring'll be over. And— well, spring is over, but we're not in the
dead of winter yet either. And stocks— we were— we were here three years ago and
stocks have almost doubled exactly since we sat down three years ago. So they're
not as cheap as they were, but measured against the alternatives, would you rather
have cash, would you rather have Treasury bonds, would you rather have, you know,
you name it? I would rather own great businesses, and we own a lot of them through
stocks and we own a lot of them outright, and I'd love to buy another one this
afternoon.
BECKY: When you look at stocks, do you look at American stocks first?
BUFFETT: Yeah, I— but I look at stocks all over the world. But, sure, the big market
is here. I mean— and I know the companies better here. But we— well, at year-end
for example, we have a insurance subsidiary— reinsurance subsidiary in Germany. I
bought seven international stocks then. In fact, I may have bought— I put— I put
175 million euros in each, I guess, of eight stocks, and they were all European
stocks.
BECKY: When was this, at the— at year-end?

PAGE 6 OF 73
BUFFETT: Right toward the end of the year. Yeah, I just— I just picked eight of
them. I didn't— I do not know those eight companies as well as I know American
Express or Wells Fargo, but I know them well enough.
BECKY: You did this because you looked at the situation with the euro crisis and you
thought it was improving or at least they had started to make some progress on
that?
BUFFETT: I just thought these eight companies were terrific companies that were
cheap.
BECKY: But why did you focus on Europe? You've never really done that before.
BECKY: Well, I just— I just thought these eight companies were cheap. And they
obviously were affected by the European crisis. And in the end those eight companies
I bought are going to be there five, 10, 20, 50 years from now. And there may be
something else that's bothering the world 10 years or 20 years from now. There's
always going to be something that's bothering the world. These companies will do
fine regardless of what happens in Europe and there will probably be plenty that
happens in Europe.
BECKY: Did you buy that for Berkshire's portfolio...
BUFFETT: Sure.
BECKY: ...not for your own personal...
BUFFETT: Yeah, I don't have 175 million euros times eight, no.
BECKY: Euros times eight. What are you doing in your personal portfolio? Are you
continuing to buy stocks?
BUFFETT: Every now and then, yeah. Yeah. Then I— I don't think about my own
portfolio very much. I think a lot more about that portfolio of our German
reinsurance subsidiary. That...
BECKY: Yeah.
BUFFETT: That's what I spend my time thinking about.

PAGE 7 OF 73
BECKY: OK. When you take a look at the housing market, you had told us last year
when we sat down here that you thought last year could be the turning point, and
you pointed out in your annual report this year that you were dead wrong on that
call.
BUFFETT: Exactly.
BECKY: We didn't see the improvement last year, but you do think that we'll see it
this year?
BUFFETT: Well, I think we're likely to, but— and I'm somewhat chastened by the
fact that I sat a year ago and said it would happen by now. But what I do know is
that today there are more households being created than houses. Well, if that
continues— and it will continue— eventually it gets in balance. And when it gets in
balance— gets in balance in different geographies at different times. But when it gets
in balance, we will need more than a million residential housing units annually. And
when we're building a billion units, supply and demand will come into balance. Got
way out of balance five years ago and it's taken us a long time to work it off. But it
does get worked off, and households are now being formed. The first year after the
recession in 2000— after it hit— in 2009, household formation went like this. I mean,
that happens in recessions. But that's changed. I mean, you know, we have four
million people, roughly, hitting each age cohort every year, and we form households
and they want to be in houses.
BECKY: There was an article that was out today talking about what economists are
expecting for GDP, and most of them, even though they do see signs of
improvement, expect that we'll be growing at about 2.4 percent this year.
BUFFETT: Yeah.
BECKY: Does that fit with what you see with the businesses you manage?
BUFFETT: I see our businesses getting better month by month and I've seen that
ever since the summer of 2009. And the headlines have bounced around, the
economists' predictions have bounced around, and I will tell you that looking at some
70-some businesses, leaving out the housing-related businesses...
BECKY: Mm-hmm.

PAGE 8 OF 73
BUFFETT: ...that quarter by quarter, ever since the middle of 2009, regardless of
what the housing— headlines were saying, our businesses kept getting better. And
they continue to. Not at some rate like that...(gesturing upward)...
BECKY: Mm-hmm.
BUFFETT: ...but they keep getting better. And I see no reason why that changes. I
don't pay any attention to the GDP forecasts of economists.
BECKY: But corporate profits have risen, yet we haven't seen the jobs picture come
along and improve at the same sort of pace.
BUFFETT: Yeah. Well, that's— in my view, that's because of the housing-related

factor. This was a— this was not a recession for housing, this was a depression. This
was every bit the equal of anything we've ever seen in terms of a crash for housing.
And the ripples from that spread out and they spread out very quickly in September
of 2008. But it's taking a long time for that to— for that to come back. But the
housing-related figures— if you look at the composition of employment, construction
workers show up as a number, but that's not really the number. We have five
companies that are related to housing. Only one is directly in housing, Clayton
Housing. We're the largest home builder in the United States, believe it or not,
Berkshire Hathaway.
BECKY: Mm-hmm.
BUFFETT: Nobody think of us as that. But

we've got four other companies, Shaw Carpet,
Acme Brick...
JOE: Yeah.
BUFFETT: ...Johns Manville Insulation, MiTek, and those companies are— have been
affected enormously by this and they're employment has gone down from 58,000 at
the peak to 45,000 at the peak.
BECKY: Hm.
BUFFETT: When housing comes back, they will go back up and you will see that all
throughout the economy.

PAGE 9 OF 73
BECKY: Mm-hmm.
BUFFETT: We have a healthy economy except for housing, but housing is such a big
factor. Housing was 22 trillion or so of America's 60 trillion of wealth a few years
back. And when that goes— gets whacked and is held on leverage with mortgages...
BECKY: Mm-hmm.
BUFFETT: ...the effect is enormous.
BECKY: OK, I know Joe has a question as well. Joe:
JOE: Yeah, you know, he always— it's a sore subject, that stupid brick company that
he has. You know...
BUFFETT: Wait a second, I sent you the— I sent you a brick. Clearly it didn't have
any effect on you.
JOE: I asked for a Marquis Jet Card, you sent me a brick. One brick. One brick.
BUFFETT: One brick.
JOE: One brick.
BUFFETT: And what...
ANDREW: I've seen the brick. It's on your desk.
JOE: No, I took it— I actually took it— I actually took it home, but that's a sore
subject, Warren. So, you know, you can't— you can't win, though, Warren. I was
reading about Berkshire net income come down 30 percent because of derivatives,
and I'm like, how did you possibly lose money in derivatives? Because you wrote all
those S&P put— you didn't lose money. You made less than you made last year on
the S&P derivatives, on the puts, right? But you can't win.
BUFFETT: Yeah.
JOE: You make $300 million, they're still calling you a slouch for having those
derivatives.

PAGE 10 OF 73
BUFFETT: Yeah. Yeah, and actually, if you— if you— if you priced them today vs.
December 31st, because the market's gone up not only here but in Europe and
Japan, we would probably show something over a billion dollars of profit today. Now,
whether that'll be as true on March 31st, who knows?
JOE: Right.
BUFFETT: But it doesn't mean anything. I mean, we've got— we've got $4.8 billion
stuck in our pocket five years going.
JOE: I know.
BUFFETT: And this— you know, anyway, it— we wrote about it all.
JOE: Yeah, I know. So, but that's just the way the headline— the other headline
today that you knew was coming was Buffett's "trust me" on succession isn't cutting
it. And I— you know, the Journal's got an article and— saying that yeah, the board's
comfortable. What? Your shareholders are chopped liver? They can't be comfortable,
too? It creates instability. Why not just— why not just say who it is? Or are you still
worried about like a David Sokol thing where you— the guy that— maybe the guy
that you've— that you've identified, you know, maybe something— he falls out of
favor, so you still have the option of changing it at the last minute. Why not just tell
everyone?
BUFFETT: Yeah. Well, we have four stocks that we have $45 billion invested in:
American Express, Coca-Cola, Wells Fargo and IBM. Every one of those four
companies with 45 billion, every one of those four companies has changed
management since we bought our shares. I didn't have the faintest idea who the
successor of management would be in any of those four, but we've put billions and
billions of billions of dollars in there. In some cases, it's changed more than once. I
don't know who the next manager of those four companies will be, but I don't worry
about that. They're wonderful businesses, and they've got good boards of directors;
and when the time comes, they will pick the person that will do the best job. And if
they make a mistake, they'll make a change. And we've had that— like I say, if you
ask me who the next CEO of Coke or American Express or Wells Fargo or IBM would
be, I don't know the answer, and I don't care. I know they've got wonderful
businesses, and I know they're developing wonderful talent. Now, the interesting
thing at Berkshire is, normally if you run a business, you're look— you're looking for
somebody from production or manufacturing or sales or something to succeed the
CEO. At Berkshire, we have dozens of CEOs who are running businesses. We've got

PAGE 11 OF 73
people like Matt Rose running the BNSF. I mean, they are CEOs already. So we have
a choice of dozens of CEOs, which is a luxury that I don't know another company
that has it.
JOE: Hm.
BUFFETT: So you know, in the end, you know, it may be— it could be tonight, it
could be five years from now. The board of directors knows exactly who the person is
the next morning. And I don't know, for example, Amazon is now the— or I should
say Apple is now the largest company by market value in the country.
JOE: Yeah.
BUFFETT: Exxon's number two. I don't know whether you know who the successor
is to Tim Cook or Rex Tillerson.
JOE: But it's not Matt Rose. Now you just said it's not Matt Rose. So now I know it's
not Matt Rose.
BUFFETT: No.
JOE: Because you just said he's got a— he's got to run the railroads.
ANDREW: Right.
JOE: So he can't run Berkshire.
BUFFETT: Well...
JOE: So it's not— no. I was hoping it might be Matt. I like Matt. Now I realize it's...
BECKY: Is that universally it's definitely not?
BUFFETT: No, I think— I think you misread that. The person— the person who's
going to become CEO of Berkshire is probably a CEO of some operation within
Berkshire Hathaway.
JOE: Oh, so it is Matt Rose.
ANDREW: Right.

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BECKY: Well, you said...
BUFFETT: You're breaking news here, John.
BUFFETT: You're stretching to do it, but you're— yeah.
ANDREW: When you sit and talk to the board about a potential successor, and you
talk about the downsides of naming that person or naming a list of people, what are
those downsides? And I ask it only because there is all of this pressure, and it would
seem that, you know, you just mentioned Tim Cook, there was a sense, though I
don't know if it was said publicly, that he clearly was going to be the successor and
that gave some people a sense of stability around what was going to happen after, if
you will, a Steve Jobs.
BUFFETT: Yeah. I think that was probably made clear, though, after it was also
clear that Steve Jobs had a real health problem. I would ask you this, who's Tim
Cook's successor?
ANDREW: It's a good question, I have— you— you're...
BUFFETT: Yeah. No, no.
ANDREW: It's a great question.
BUFFETT: No, no, nobody knows. Yeah. I don't— I don't know. You know, who's—
you know, who's Jeff Immelt's successor? Who's Jamie Dimon's successor? It— all of
those people have decided— they've got somebody in mind. I will guarantee you
that. Their directors have discussed it. But for various reasons, one of the reasons
being that they don't know when it'll happen.
ANDREW: Right.
BUFFETT: And when it happens makes a difference. And they also probably don't
like the effect of having a crown prince.
ANDREW: Right. You...

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BUFFETT: They— you know.
ANDREW: You were much more...
BECKY: Warren, this is the first time...
ANDREW: Oh.
BECKY: This is the first time that in the annual letter you've actually laid out and
told the shareholders that there is one person in mind.
BUFFETT: Well...
BECKY: In the past, it was always this idea that it was one of three or one of four
people.
BUFFETT: Yeah. Well, you can blame me for that because I have said at annual
meetings that the board knows exactly which one they would pick the next morning.
But I probably haven't made that as clear as I should've that it's always been the
case that even though there were three possibilities or four possibilities, they knew
which one would be the designated one the next day, but they did have these
backup candidates. I probably should've made that more clear, and I tried to make
that clear this time. What— five years ago, if something happened to me five years
ago, the board had one person in mind, they had a couple of backups at that time,
always.
BECKY: Is— a year ago, was it a different person they had in mind than it is now?
BUFFETT: No, no.
BECKY: And I ask that because David Sokol has since left the company.
BUFFETT: Yeah. No. The same person— it would've been the same person a year
ago as now. And you can go back further.
BECKY: So it was not David Sokol.
BUFFETT: You can go back further than that.
BECKY: It was— it was not David Sokol a year ago or further back than that?

PAGE 14 OF 73
BUFFETT: No. Not the one they would've picked.
BECKY: Can you give us an update on what has happened with the Sokol situation?
BUFFETT: Well, I really don't know because it's being investigated by various
authorities, and they talked to me last June just— and not a deposition or anything
like that, it was just an informal...
BECKY: Who did?
BUFFETT: Well, I can tell you the SEC did.
BECKY: Mm-hmm.
BUFFETT: And they— and then that's the last I've heard. Now, unfortunately, I
know that it must be fairly active because we have to pay Dave's legal bills under
Delaware law, and we've paid, I think, something like a million four, so I assume
something is going on. I hate paying these legal bills, naturally. And now if he's
found guilty of a crime, we can claw those back at some point, but the bills just
come in. I read the other day where Fannie Mae, they have paid 99 point something
million dollars on three people, Frank Raines, Tim Howard and one other fellow, and
they're not done yet, either. And, of course, that's the American taxpayer paying
that. And it's a very awkward thing when you have somebody that's been charged
with something that was an employee and, under Delaware law, you basically have
this duty to defend them. Although you can claw it back if they're later found to
commit a— to have committed a crime. And Dave has plenty of money, so we would
not have a problem getting it back if that's the case. But I have no notion, I've not
talked to Dave, I've not talked to the authorities. I mean, it's their investigation, and
I'm on the sidelines but writing checks.
BECKY: Mm-hmm. Andrew, I'm sorry, did you have another question?
ANDREW: No, no, no. You asked the— you asked the exact question that we were
planning to ask.
BECKY: Just in terms of what had happened with that situation?
ANDREW: No, less on Sokol. No. I was more interested in the fact that in the— in
the report, he identified— he said that he had one candidate in mind, and I was

PAGE 15 OF 73
curious what had happened in the past year that was different from years past, but
he answered that question directly, so.
BECKY: Hm.
BUFFETT: Yeah. I started all this trouble five or 10 years ago, facetiously I
answered some question.
BECKY: Mm-hmm.
BUFFETT: I said, `Well, I've got this envelope.' I didn't have any envelope. But,
Ì've got this envelope,' and I made this crack that I said, "Well, I open the
envelope, and I pull out the slip inside, and it said, `Check my pulse again.'" But
somehow that all got into the fact that there really was an envelope, and I— for—
another one of my jokes that's gone astray.
BECKY: All right. Well, Warren, we're going to take time right now to go get a check
on the markets and when we come back, we'll have more of this conversation.
Andrew.
ANDREW: Absolutely. We're going to come back in just a moment. Are we going to
the markets right now? We are. We're going to go across the pond to see our good
friend Ross Westgate who's standing by with the Global Markets Report. Ross.
ROSS WESTGATE reporting: Hey, Andrew. Good morning to you. Everybody here
in Europe perking their ears up there when Warren says he bought eight European
stocks towards the end of last year. Well, if they were German stocks, he would've
done quite well because the Xtra Dax so far this year up around 16 percent.
BECKY: Warren Buffett sitting here, and he said that he's paying very close
attention to what you're saying, too, now that he has those eight European stocks
that he's watching.
All right. Right now we're going to pause for a break, but we have much more with
Warren Buffett when we come back. He'll be answering some of your email and
Twitter questions right after this.
Also, BUFFETT WATCH is not stopping there. A little later today, I'll be hosting a
Facebook Q&A session. That starts at 11:30 AM Eastern Time. Right now, though, as

PAGE 16 OF 73
we head to a break, check out the global market headlines. SQUAWK BOX will be
right back.
BECKY: Let's get back to some of our questions with Warren Buffett this
morning. Warren, Joe just mentioned that national average on oil prices climbing to
$3.69. Do you worry that higher oil prices, higher prices at the pump could cut off
any sort of economic rebound here in the United States?
BUFFETT: Well, they're a minus, but I don't see them stopping things. I mean, you
know, I'd rather have them a lot lower. Of course, we had them a lot lower when the
— when the panic hit. I mean, oil had been $147 a barrel, you know, prior to Obama
coming in.
BECKY: Mm-hmm.
BUFFETT: And then, when the panic hit, it hit everything. And then oil totally
tanked. But, no, I do not think it will derail what's been going on now for almost
three years, two and a half years. We've had a steady recovery.
BECKY: Does the price of oil make since given that economic recovery? Or is this
something where people are just a little too worried about what's happening in the
Middle East? Or is this a situation where you have speculators playing in the
commodities markets again?
BUFFETT: You know, I've got no position in oil, so I don't— I don't really have a
view. The one thing that's extraordinary in oil, which we've never seen and which
has probably caused some people to go broke, is you have this— you have 100-plus
dollar oil, $108 oil the other day, whatever it was, with $2.50 for natural gas.
BECKY: Right.
BUFFETT: Nothing like that's ever existed, and I mean, the BTU equivalent, you
know, people say that can't happen. So people that have gone long natural gas and
short oil are really feeling the pain. I wouldn't be surprised if even the unwinding of
some of those positions could cause some of what goes on in both markets, but this
is— this is extraordinary. I mean, and you would've said it couldn't happen, but
that's like saying before long-term capital management, you know, you couldn't have
had 30-year Treasurys and 29 1/2-year Treasurys with 30 basis point spread. You
never— you want to be very careful in markets saying something can't happen.

PAGE 17 OF 73
BECKY: In your annual letter, you actually said that you had guessed wrong on
where natural gas prices were going to be headed and that was one of the issues
that you wish you had done.
BUFFETT: Did I ever? Yeah. Yeah. Like a billion dollars worth plus.
BECKY: Let's get to some questions from viewers. We promised to bring some of
those up, and we were just talking about succession at Berkshire. You had a lot of
questions that came in both on Twitter and on our own email of people asking more
questions about that. One's from Max Rudolph who writes in that while you're very
careful generally about how you write your annual report, nowhere has it ever said
that the CEO that you have in mind is an internal candidate. It seems to leave open
the possibility that a board member could become CEO. Can you comment on that?
BUFFETT: Well, that would not be impossible. I mean, it— I don't think it's going to
be the case, but certainly we've got incredible business talent on the board, and
they're intimately familiar with Berkshire. I think it's very, very unlikely that we
wouldn't have somebody better for the position as a CEO of one of our companies,
but if we're on a— I was going to say a train trip, but I'll say a plane trip and the
plane went down, we had all of our managers on there, the board would not be a
bad place to look. But that isn't going to happen.
BECKY: OK. Another question comes in from Ed Polli in Bridgeport, Ohio, who wants
to know if the person that the board has chosen to be your successor, does he know
that he's been chosen?
BUFFETT: No.
BECKY: OK. Jeff Webb writes in from Washington and he says, "Will it be necessary
for the next Berkshire CEO to reside in Omaha. And will the annual shareholder
meeting remain in Omaha after" you leave?
BUFFETT: Well, that's a good question. I would certainly hope so, but I won't be
around to enforce it. I— well, maybe I will. I've left them all a Ouija board so they
can stay in contact with me. I've threatened them in various ways. But I would say
that there's every intention of the headquarters of Berkshire being in Omaha 50
years, 100 years from now and that— and it wouldn't make sense for the CEO not to
be located where the headquarters are. So I think that's a 99.9 percent answer, yes.

PAGE 18 OF 73
BECKY: All right. David Lund from Ogden, Utah, writes in and points out that when
Lou Simpson retired, his portfolio was liquidated.
BUFFETT: Right.
BECKY: What will happen to your portfolio when you retire?
BUFFETT: Well, I don't know. I mean, that will be for somebody else to decide. But
what will happen is that Todd Combs and Ted Weschler, who are already on board
now, will be managing the investments, and they will be managing counting the
cash. They'll be managing $160 billion, and they're totally capable of doing that. My
guess is that they would like some of the things
we own very well, but it will be their call. They
each, as I mentioned in the annual report,
they're managing about 1 3/4 billion now,
although that number will go up during 2012. I
don't know what they're buying. They don't have
to check that with me. They can be buying—
each buying the same stock. I think in one case,
they've done that. But it's their baby. I mean, I— they are getting paid based on
their results and it wouldn't mean anything if I— if I were second-guessing them or
they had to get approved by me. So they will buy stocks, and I will find out about it
later, even though they work in the same office. And when I'm not there, they will
just be managing a whole lot more money, and they're totally capable of doing that.
BECKY: They each have a few billion dollars right now?
BUFFETT: Right now. But that will go— that will even go up during this year.
BECKY: OK. Control room, I'd like to go to number 108, this is a question that came
in from Gary Watkins in Atlanta, Georgia. Since you bring up Todd Combs and Ted
Weschler, he writes in and says when you're talking about them, you say each of
them receives 80 percent of his performance compensation from his own investment
results and 20 percent from his partner's. He assumes that this is so they will help
each other. Can you elaborate?
BUFFETT: Yeah. Well, that's— the point is, I've seen investment organizations
where people are competing with each other. You know.
BECKY: Mm-hmm.

PAGE 19 OF 73
BUFFETT: And these fellows wouldn't anyway. But I do believe in having
compensation systems that reinforce the values that we value.
And we certainly value cooperation among two people doing that sort of thing. So—
and both of these fellows agreed with this arrangement. I mean, it made sense to
them. So they get paid 80 percent on their own performance and 20 percent on the
other person's performance. And performance is defined as doing better than the
S&P 500 over a period of time. Todd came on board a year ago, and he did very well
the first year, so he has earned a significant amount of performance compensation.
Ted didn't participate in that because he wasn't— he didn't come on board till this
year. But from this point forward, they will participate with each other.
BECKY: OK. Andrew, you have a question as well?
ANDREW: It's on this topic. Hey, Warren, I'm curious if you imagine bringing on
other investment managers still. I think I remember recalling you said something to
the effect that you were thinking of two to three to possibly more than that. And I'm
wondering have you— have you found the two that you love and that there's no
more, or you think that there might be additional?
BUFFETT: I certainly feel no need for any more. I feel terrific with these two, and
they could easily handle the whole place. So it may well be that we find a third, but
I'm not— I'm not— I'm not thinking about that actively. And if somebody came along
that I thought was absolutely terrific and I thought it would add something to the
picture, I wouldn't hesitate to do it. And Todd and Ted would not be surprised if I did
it. But you may very well be talking to me— I hope you are talking to me five years
from now, and it will be Todd and Ted. They're terrific human beings. I mean, these
are two fellows who were running, in effect, hedge funds. They were making more
money than they can make with Berkshire, and they were getting, A, an entirely
different tax treatment. They had a carried interest. So the money that Todd made
last year, which was substantial, he would have made that same money if he'd been
running his hedge fund. I mean— and he would have gone to work the same time in
the morning. He has a couple of assistants. They would have been the same people,
he would have been reading the same reports. But he would have been taxed at less
than half the rate that he was taxed at because we pay it to him as ordinary income.
And otherwise, he would have got it as long-term gain.
BECKY: Doesn't seem fair.
BUFFETT: It's a little crazy, isn't it?

PAGE 20 OF 73
BECKY: Yeah. It gets us to the topic of tax policy, and I know that's a big can of
worms that we're opening up this morning, too.
BUFFETT: Yeah.
BECKY: You have had a huge role in the discussion around taxes, and you've been
someone who's come out very sharply on President Obama's side. In fact, there's the
Buffett tax that's now named after you.
BUFFETT: Yeah. Well, that's because Alzheimer's had already been used. I always
wanted to have a disease named after me but...
BECKY: What— how do you feel about the turn that this has taken in the national
discourse and how it's put you front and center in a very contentious debate?
BUFFETT: Yeah. Well, maybe there's a lot of people— by definition, almost, if

you're— if you're into something where the Republicans tend to be on one side and
the Democrats on the other side, all you do is you make half the people of the United
States mad at you for coming out of the chute. But that's OK. The— you know, the
important thing, we've got an important problem in the United States, and a very
important problem, and it was man created and it can be solved by man. But it
needs analysis, it needs thought, and then it needs action. And to the extent that I
can contribute either in the, in the thought or the analysis or the action, you know,
I— I'll do it. But it isn't like I've got any magic facts that anyone else doesn't have. I
mean, I just go on the Internet and get facts and then— and see where they lead
me. But I don't think there's anyone— it's been very interesting to me. Republicans
and Democrats know we need more revenue and we need lower expenditures and...
BECKY: But that's not necessarily something they would all agree to. We have
plenty of people who come on the show who say that it's not necessarily a matter of
bringing in more revenue. You do that by lowering taxes and thereby growing the
pie. And that, as a result of growing the pie, you can actually lower people's tax
rates and still bring in more money.
BUFFETT: Yeah. Well, the pie is going to grow, and it's going to grow under the
present tax rates. It's growing at— I've got a table here that shows the tax rates all
back to, back to when I started in business. It's grown when tax rates were in the
30s on capital gains. It's grown when tax rates were 80 percent on ordinary— it's
grown under— we have a wonderful market system that works. And so we will have
a growing pie. But a growing pie isn't going to solve a deficit that's 9 percent or 8

PAGE 21 OF 73
percent of GDP. It never has and it never will. We— fortunately, the fact that we
have a growing pie does mean that we can have like a 2 point or 2 1/2 point gap
between revenues and expenditures and have a sustainable economic picture. So,
you know, the goal, and it should be taken up promptly, is to get the gap between
expenditures and revenues down to a 2 to 3 point gap. That's totally sustainable,
growth will work out fine, the economy will grow. Debt, as a percentage of GDP, will
not grow if we get into that range. And almost everybody realizes that and almost
everybody says some of it has to come from expenditures, some of it has to come
from revenues. And then they get to the specifics. And the real problem, of course,
the biggest problem you have, probably, because I've talked to Republicans and
Democrats on this, they agree on that. But they all want the other guy to go first.
The Republicans want the Democrats to go first on expenditures, and the Democrats
want the Republicans to go first on revenues. And they just feel there's a tactical
advantage in the other guy going first, then they can shoot at his stuff and say how
terrible it is. And so now we've gone into this dance where nobody'll get on the
dance floor.
BECKY: Joe.
JOE: Yeah, Warren, you've seen the figures if you let all the Bush tax cuts expire,
which they're going to do anyway. If you don't do anything about that, I don't know
how much of the deficit it solves, but it's a large part.
BUFFETT: Large part.
JOE: A large part of that. You don't see that coming from Democrats. They only
want to do it on 200 to 250 or whatever it is, which solves very little. Would you by—
I mean, is that the best thing to do, to let it, let all of the Bush tax cuts expire or
would that add to the income disparity or the fair— would that hurt on the fairness
debate that no one under 200 or 250 should shoulder any of the, of the deficit
cutting, or does it make sense to just let it go back to the Clinton years for
everyone?
BUFFETT: I think if we hired 535 people to run the government and to represent us
and that they should not in effect act on a default basis and just say, `Well, we'll just
let everything lapse back to where it was.' They would proactively say, `What is the
best way to get revenues up to 18 1/2 or 19 percent and what's the best way to get
expenditures down to 20 1/2 or thereabouts percent? And let's do it now.' And, you
know, this bit about, well, we can't do anything because it's an election year, well,

PAGE 22 OF 73
you know, if they're not going to do anything because it's an election year, why are
we paying them? They can all go home if it's an election year. We'll just pay them
three years out of four if you're only going to work three years out of four. So we've
got, you know, we've got a major, major problem, and the idea of putting it on some
default setting, you know, it's crazy. I can put it on default setting without hiring 535
guys. So, no, I wouldn't— I would approach it and say, look it, we've got serious
propositions out there, we've got Simpson-Bowles, you know. Come up with
something and get it for a vote. And if the people want to vote it— Congress wants
to vote it down, that's one thing. But just to sit there and say, `Well, we're paralyzed
because it's an election year' and then let things drift along till the end of the year
when, as you point out, all the stuff expires and the sequester kicks in and, you
know, and the payroll tax holiday ends and all of that, I think, I think that's a crazy
way to run a government.
BECKY: Warren, you bring up the idea of Simpson-Bowles and, interestingly enough,
you're quoted on the front page of The New York Times today in this story about
Simpson-Bowles. The Times puts forth this idea that President Obama has actually
taken, in their words, huge chunks of this. Let me find where it says, "Mr. Obama
has come to adopt most of the major tenets supported by a majority of the
commission's members, though his proposals do not go as far." They say that he has
quietly put forward Simpson-Bowles. Would you agree with that?
BUFFETT: Well, I haven't read the article and I— but I would say this. Alan Simpson
and Erskine Bowles, both of whom I know, I mean, they are high grade people.
One's a Republican and one's a Democrat. They disagree on some things. You won't
find people of greater integrity. They are smart, they worked, I don't know, for 10 or
11 months. They compromised. They got people with as diverse viewpoints as Tom
Coburn of Oklahoma, who's a very high grade guy but has differing views than Dick
Durbin, who's also a high grade guy from Illinois. And they got them to sign on.
Now, having put that effort forth, they came up with a plan. I would like to see that
plan voted on. I mean, what was, what was the reason for sending them out, you
know, to beat each other's heads for 10, 11 months. They got 11 out of 18
signatures. I understand that Simpson and Bowles are actually taking their
recommendations and crafting it into a legislative bill. I heard that a month ago. I
don't know whether for sure that that's true. I would hope that that bill just gets
presented. Bring it up next month. Let's see how Congress feels about it. If they
don't like it, they can come up with something different. But conscientious, smart,
decent people worked for months to come up with something. They were— they
were chartered to do it, and I think— I think Congress owes them a vote on that.

PAGE 23 OF 73
And I would— I would love to see that put up. And I would say this, I would say that
if I wrote a letter to the CEOs of the Fortune 500 companies and said, `Do you want
to vote on this now?' I think it would be almost unanimous. I think it would be the
same with labor leaders and church leaders, and you name it, up and down the line.
That doesn't mean they all agree with it. But the question is, do you think it's better
than what we're doing now? I mean, is it an appropriate response to a problem we
all recognize we have?
BECKY: And I guess the point being you can't cherry pick the items you like from
that and start breaking apart the plan?
BUFFETT: Once you start cherry picking, the whole thing disintegrates. Then K
Street comes out, you know, in full force, money pours in, you know, supporting this
little thing that helps this person or that person. In the end, we're going to have a
code that everybody— you, I, you know, everybody, your all— all your listeners—
they're not going to like some part of it. But I can guarantee you they don't like
some part of this. And this— and this particular code is leading us down a path that's
unsustainable. So why not have a code we don't like that at least is sustainable as
opposed to one that's unsustainable?
BECKY: Right. Andrew.
ANDREW: Warren, there's an op-ed in today's Wall Street Journal by Rick Santorum
laying out his economic agenda, and he proposes some new tax rates and policies on
corporate taxes. He's halving them down to 17 1/2 percent. And on personal, he's
doing just two brackets, 10 percent and 28 percent. I'm curious, beyond just the
Simpson-Bowles debate, what do you think the right numbers are? What are the
right brackets and what is probably the highest— what do you think from a
competitive perspective on a corporate basis the highest rate should be?
BUFFETT: Well, the rate— what the rate should be is— are rates that bring in about
18 1/2 or so percent of GDP as revenue. Now, we've had rates like that throughout
most of the post-World War II period. You know, we've managed to pull that off. It's
not impossible at all. And then we just knocked the heck out of rates, you know,
roughly 10 years ago or a little less. So the interesting thing about the corporate rate
is the corporate profits as a percentage of GDP last year were the highest or just
about the highest in the last 50 years. They were 10 and a fraction percent of GDP.
That's higher than we've seen in 50 years. The taxes as a percent— corporate taxes
as a percentage of GDP were 1.2 percent, 180 billion. That's just about the lowest

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we've seen. So our corporate tax rate last year effectively, in terms of taxes paid for
the United States, was around 12 percent, which is well below those existing in most
of the industrial— industrialized countries around the world. So it is a myth that the
American corporations are paying 35 percent or anything like it. Incidentally, you
know, it— 1.2 percent of GDP or 12 or so percent, 12 or 13 percent of corporate
profits actually paid, you know, that is— that's a rate far, far, far below what we've
seen in the United States. I've got a chart here that— can you put that up?
BECKY: There's a chart that we gave you guys.
BUFFETT: OK, yeah.
BECKY: It's— I think it's E1. It's the one you took a still shot of earlier Paul.
BUFFETT: It...
BECKY: Yeah, here it is.
BUFFETT: Yeah. Here's...
BECKY: OK, it's on the screen.
BUFFETT: Yeah. Here's the— here's what's happened over the last 60 years. As
percentage of GDP. That top blue line is individual income taxes. And you'll notice
that they've bounced around but been fairly steady. The yellow line that's
accelerated is payroll taxes. Payroll taxes have gone from a very small percentage of
GDP up dramatically. At the same time, that red line is corporate taxes as a
percentage of GDP, which were over 5 percent, if you go back a long period, and 4
percent, and now, like I say, they were 1.2 percent last year. So corporate taxes are
not strangling American competitors.
JOE: But, Warren...
BECKY: Warren, is that because people were able to write off— go ahead. Go ahead,
Joe.
JOE: You can— yeah, you can see that the finance— that last drop-off right there...
BECKY: Right.
JOE: ...is the financial crisis. If it were to go back...

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BUFFETT: Well...
JOE: I mean, right?
BUFFETT: No, but if you take 2011, 2011, corporate profits were a record. And...
JOE: But for example— you know, for example, GE, which, you know, is the poster
child because, you know, people can conflate what GE did.
BUFFETT: Yeah.
JOE: They had, you know, they paid taxes abroad, and they had a lot of tax loss
carried forwards, or, you know, from GE Capital and the losses in 2008 and 2009, it
reduced the tax bill in those subsequent years, 2010 and '11. So if you were to
normalize it on that chart, you normalize it without the financial crisis, it gets back to
4, 5 percent. I mean, using 1.9 per...
BUFFETT: Oh, no, no, no.
JOE: Where does it get back to?
BUFFETT: It doesn't get...
JOE: What does it get back to?
BUFFETT: Well, again, I mean, well, all I can do— you can normalize it all you want
but you can go back to 1980 and you haven't had a figure, you know, much above—
you've had three a couple times. So you've got all these numbers of 2 and 1 1/2. It
does not average anything like 4. When I was in the golden years of American
business, and it was pretty good for investing, too, the corporate tax rate was 52
percent in the United States and people paid it. Our tax rate at Berkshire, we didn't
have any loss/carry forwards or anything, we didn't have that much foreign income.
But our tax rate in terms of taxes paid last year, it was a little higher than the
national average. But because of 100 percent write-offs and various other things, our
tax rate came down, we paid $2 billion. We paid more than 1 percent of all the
corporate taxes in the United States. But our tax rate on US income, you know, got
down to taxes paid, got down to 15 or 16 percent. We're still above average.
BECKY: Warren, there are plenty of companies, though, especially small businesses,
who we hear from all the time that are paying much higher rates. The way the tax

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code is set up right now, they are the ones who get saddled with paying these
exorbitantly high rates.
BUFFETT: If they're— yeah, well, they can be paying— if they're S corporations and
they make a fair amount of money, they will be paying it at 35 percent. Now, they
may be getting accelerated appreciation, 100 percent depreciation on things, too. I
mean, if they're buying any kind of fixed assets, they really aren't paying at that
rate.
BECKY: But if you're somebody who is self-employed and maybe you have a couple
of employees working for you, you are in an incredibly difficult position to try and
find any loopholes that work for you.
BUFFETT: People making small amounts of money are at a huge disadvantage to

people making large amounts of money under our present tax system.
BECKY: Because not only that, they pay their own Social— their own payroll taxes,
too.
BUFFETT: They pay payroll.
BECKY: They have to pay 30 plus percent.
BUFFETT: No, no, they— the system— all you got to do is look at, you know, that
payroll tax has moved up dramatically and that is not paid by the super rich. My
payroll tax, you know, last year was, I guess in 2011 would have been $13,300. It
was nothing in relation to my tax liability.
JOE: Warren, as the world gets more competitive, could you argue that maybe— I
mean, maybe you don't even think that that's— that that's a fact, that the world's
gotten more competitive, but, you know, as we have to compete more with China
and a lot of emerging economies with their cheap labor, I mean, there are probably
some people would say that we need to— you know, that it's not 1930 or 1940 or
1950 anymore and that, you know, we want our corporations to be the best in the
world and the leanest and the quickest to move, and, you know, there could be an
argument. I mean, I've seen people argue that corporations shouldn't pay any taxes
because their shareholders pay taxes, their employees pay taxes. I mean, do you
just dismiss that out of hand or?
BUFFETT: Well, like I say, it was 1.2 percent of GDP.

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JOE: Right.
BUFFETT: And, incidentally, I mean, the place— the place where we are— the very
high cost compared to the rest of the world is CEO pay. Our CEO pay is considerably
higher than if you look around the rest of the world.
JOE: Right.
BUFFETT: Nobody ever mentions that in terms of competitiveness. The— you know,
we are exporting as a percentage of GDP twice as much as we were back in 1970.
Our goods and services have— we've really had a lot of export success. And the
other side of it is we like to import a lot, and of course we've been able to print
money, which lets us import. So we exchange little pieces of paper for goods from
around the world, and that's a lot of fun.
BECKY: You know, Warren, if you don't mind, we're going to slip in a quick break
here. But when we come back, we have much more to come from Omaha. Stick
around, a special edition of SQUAWK BOX right after this break.
JOE: Let's get to Becky who is in Omaha this morning. She's with Berkshire
Hathaway chairman and CEO Warren Buffett.
Becky, I was — I don't know — leading into the last break, I was thinking about, I
don't know whether you saw Barron's, there was a Jeremy Grantham piece that was
very troubling to me and I wanted to just at some point ask Warren about...
BECKY: Why don't you ask him now?
JOE: Yeah. OK. Warren, his basic thrust was that our middle class has been getting
more and more decimated over the years as a lot of the cheap labor is found in the
rest of the world where obviously the standard of living is not as high and it's just
been a natural progression to send a lot of the jobs overseas. As a result, the middle
class has had to borrow to fund a lifestyle and that's one of the reasons that the
consumer is so strapped at this point. And it's a very negative piece where basically
looking for another seven years or so of sub-par growth because of this and I don't
know what the answer is. I think he — re-education or more to try to become up to,
you know, more competitive or at least better than the rest of the world at doing
things for our labor force. Do you have an answer for that?

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BUFFETT: Yeah, the answer is, you know, our market system has worked well for
200-plus years. It's working well now in all areas except home construction, those
related to home construction. You know, we're sitting here where the market has
doubled from three years ago when we were sitting here. This country is remarkable.
I mean, you have — you have people at our own company, you've got Tony Nicely at
GEICO trying to figure out how to — how to serve customers better tomorrow, how
to bring down costs. You've got Matt Rose trying to plan for the future of railroads in
Fort Worth today and tomorrow. You've got people at Apple trying to come up with
new products that you and I haven't thought of yet. America — American capitalism
is dynamic, so anytime you look at it on a static basis, you can get very pessimistic.
And while I got out of school in 1951, the two people I revered most in the world,
my dad and Ben Graham, told me it was a bad time to start in business, you know.
It — you can sit down at the start of every year and write down 10 or 20 reasons
why it's, you know, things are terrible. But the truth is, this economy works
wonderfully. It's working wonderfully now. I mean, it isn't working for everybody at
this moment and it's coming back from a terrible shock that it received in the fall of
2008. But look how far it's come back and it continues to come back every day. It's
been doing it now since the fall of 2009. So it's, you know, it is — it is a terrible
mistake to get pessimistic on America. You know, it has not worked since 1776 and
it's not going to start working now.
BECKY: Warren, we touched on this in the last hour, but just the idea, you bring up
that the stock market has doubled over the last three years when we've been sitting
here and again, there are many people who now worry that the best and easiest
gains are over. You said yourself in the last hour that it's not springtime anymore.
BUFFETT: No.
BECKY: Does that change what people — the way that people should be looking at
the stock market as a potential investment?
BUFFETT: They should be looking at the funds they're going to save. I mean, that's
the — those are the only funds you save that you invest with, and figure out what's
the best thing to do with them. And they can buy farmland, they can buy apartment
houses, they can buy duplexes, they can buy businesses, they can buy businesses
through stocks, they can buy rare stamps, they can buy gold or they can stick it in
money market accounts and all. They've always got all those options. And I've
written a section in the annual report why I think that businesses are the best

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option. Now the nice thing about businesses is in this country is you can buy into all
the best businesses in the United States, virtually. You can buy a piece of them and
you don't have to buy, you know, if you don't understand company XYZ, you can buy
company ABC. And naturally, it would be like — nicer to buy them at the prices of
three years ago.
BECKY: Mm-hmm.
BUFFETT: But you know, they are attractive relative to other assets. That doesn't
mean they're going to go up, but I will guarantee you that over a 20 or 30 year
period, they're going to perform very well. And as I mentioned a little earlier,
actually single family houses bought on a distressed basis now and financed over a
long term at these interest rates may be the best investment of all. I mean, if I knew
anything about real estate and I just was working with a relatively small amount of
money and I was seeing distressed houses around me that I could rent out, I would
buy them and put on an 80 — a 4 percent mortgage for 30 years and you know, I —
three or four or five years, I'd probably sell it at a very substantial profit relative to
my equity.
BECKY: Mm-hmm. OK. You know, Warren, we left off in the last break talking about
taxes and your role in this tax debate has become very central and very polarizing.
And just the last week Governor Chris Christie of New Jersey weighed in on this and
weighed in on what you've been saying. Take a listen to what he had to say.
PIERS MORGAN, CNN (On tape): Warren Buffett keeps screaming to be taxed
more.
Governor CHRIS CHRISTIE (R-New Jersey): Yeah. Well, he should just write a
check and shut up. Really, and just contribute, OK? I mean, you know, the fact of
the matter is that I'm tired of hearing about it. If he wants to give the government
more money, he's got the ability to write a check. Go ahead and write it.
BECKY: He's not the only person who feels that way.
BUFFETT: Yeah.
BECKY: We've got a lot of viewer email that came in. We've been sitting down and
doing this Ask Warren session here for I guess the last four years or so.
BUFFETT: Mm-hmm. Yeah.

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BECKY: And this year more than any year there were a lot of emails that came in
that similarly echoed what Chris Christie had to say. What...
BUFFETT: Well, I hope they were a little more eloquent than that. But you know, it's
sort of a touching response to a $1.2 trillion deficit, isn't it, that somehow the
American people will just all send in checks and take care of it. That was first come
up with — first fellow to come up with that was Senator McConnell and I really — I —
it's sort of astounding to me that somebody that has the responsibility for being the
minority leader in the Senate would think that you attack a $1.2 trillion or so deficit
by asking for voluntary contributions. Since he
did, I offered to triple his, but that's a — that's a
side show. The real problem we have is we're
taking in too little money and we're spending too
much and that's not going to be solved by
voluntary contributions. What we need is a
policy, a tax policy. And to give you an idea of
how extreme it is, just take a look, take a look at
what I've labeled A1. And you can — you can find this on the Internet. And the
figures I've circled, the 1992 showed that the 400 largest incomes in the United
States that year, adjusted gross incomes, were 18 billion. Now that's about $45
million a person. And if you go down to 2008, it's 108 million. That's 270 million a
person. So from 1992, the 400 top incomes went from 45 million to 270 million,
which is not bad, I think. Now if you go over to A2...
BECKY: Mm-hmm.
BUFFETT: ...you will see that during the same period, those top 400 saw their tax
rates drop from 26.3 percent to 18.1 percent.
BECKY: Right.
BUFFETT: At the same time that was happening. But what's even more startling is if
you go to A3 and you will see that in 1992, six people among those 400 paid at a
rate that was less than 10 percent. That's just two-thirds of what the average person
pays on payroll taxes. And that six went up to 30 over that period. And the number
paying from 10 to 15 went from 10 to 101. So 131 of the 400 largest incomes
averaging $270 million each, 131 out of 400 were paying at a 15 percent rate or
below. And that — the payroll tax for people making less than 100,000 up until this
year was 15.3 percent, they were paying. So solving that problem — solving the

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problem of me paying the low tax rate I pay is not going to solve the fiscal problems
of the United States, but to ask other people to be making sacrifices during this
period and we're going to ask them to make sacrifices, we're going to ask them to
make it on the revenue side and on the expenditure side, and to leave this group
alone is a travesty.
BECKY: So to Joe's point, you can't fix the deficit by just going after...
BUFFETT: No. You can't — you can't fix the deficit by going after any one
expenditure or any one revenue item. And you certainly can't fix it by asking for
voluntary contributions.
BECKY: So this is something that you think for the optics of the situation or just for
the appearance of fairness, the president says all the time.
BUFFETT: I think it should be incorporated into a revision of — which is going to

have to happen on both the revenue side and the expenditure side. But I certainly
think it's important to incorporate this into a revision. And I think this is something
that can be done immediately.
BECKY: Mm-hmm.
BUFFETT: I mean, a minimum tax on people — there's 131 people that filed those
returns that showed 15 percent of less and my cleaning lady, Mary, you know, has a
payroll tax of 15 percent.
BECKY: Joe:
JOE: But — yeah, but what — I just don't know why — I don't know why you harp
on it so much, though, Warren, when you know that it's 1 percent — it's not going to
do any — it's not going to solve anything. Maybe we need to fix it for the optics of
the situation, but what — I guess, the real — the real question is what do we do with
dividend income and capital gains income?
BECKY: Mm-hmm.
JOE: Because it — let's say that you work your entire life paying ordinary income
and you're not a — let's say you're not getting carried interest. Let's say you pay —
under your normal situation, you're paying ordinary income at 30 or 35 percent. And
you — and you do very well and you're very successful. And at that point in your life,

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you're 60 years old, 65 years old, you invest in dividend-paying stocks and you have
capital gains, which lowers your taxes to that rate. You've paid taxes once already. I
mean, there — we need to decide what the correct rate for capital formation is for
long-term gains and for dividend income. It just seems — I don't know, just to keep
bringing it up as a — as a red — look at this, look at this, it's not fair, it's not fair.
When you know it has to do with long-term gains and dividend income. Let's do
something, let's find the right rates for dividend income and long-term gains and
stop pointing fingers at these people.
BUFFETT: One point — I don't think I've named an individual.
JOE: No, you haven't. But it's a matter of public record, you've only got to look up
130 of them.
BUFFETT: Well, no, but the real question is this a tax code the United States should
be proud of that produces these results?
JOE: I don't know whether we should be...
BUFFETT: (Unintelligible)...500...
JOE: But now that we're back to emotion again, we're proud, we're not fair, we're
not this. We've got a huge problem and this doesn't — this won't scratch the surface
of the problem. And carried interest?
BUFFETT: Oh, well, I was...
JOE: Carried interest, you need to do — you need to do something with carried
interest as well.
BUFFETT: I would say...
JOE: And maybe if there's an optical — if there's that optics there. But the real
problem and the reason Simpson-Bowles is so hard is that most people don't want
their entitlements to be touched, for Medicare or for Social Security and that's going
to be the hardest thing that we — that we try to do in dealing with the deficit, not
taxing 131 people that makes you feel better about yourself.
BUFFETT: Well, no, the numbers here, though, just think about it a second, Joe.
The numbers here probably come to 40 billion. Now that doesn't — that may not

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sound like a lot of money to you, but 40 billion is 2,000 — is almost $2,000 a piece
for 20 million families.
JOE: You — I know.
BUFFETT: If you take — if you take the bottom 20 percent in the United States,
there's 20 — almost 24 million households, households, and their top income is
$21,000, now if you — to those people, 40 billion divided by their 20-some million is
real money, it's 1,000 or $2,000. But I don't — I don't argue with you. It's going to
be tough to take away promises we've made. We — we're a rich family that's
overpromised. But to not start at the top. I mean, this is something we can do
something about right now and it is not an...
JOE: But how do we do it, Warren?
BUFFETT: It's not an...
JOE: Shouldn't we try to try to figure out what the...
JOE: ...what the best rate for the most competitive and the rate that brings
everyone the most benefit in dividends and capital? We've got to have that
discussion. Isn't that more important?
BUFFETT: Well...
JOE: Because that's how these — that's how these people are — to just like put a,
what do you, like a surtax or something, that — or we can do that. I've asked you
why can't we just tax you at 10 percent of your wealth and that didn't go over very
well. If you had a 10 percent of all this wealth would bring in quite a bit of money,
too. We'd get — I figure we get about 5 billion from you alone, right?
BUFFETT: Yeah, that's true and actually, you know, it's been — wealth tax is tough
to enforce. I mean, very hard to say what, you know, what every farm is worth or
you know, every business, private business is worth. I don't — I don't particularly
favor a wealth tax, but I would not — I would have no objection to it. I mean, if 10
percent of my wealth and 10 percent of everybody's wealth went to the government,
I don't think that's the best system, but...

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JOE: What should we do with capital gains? What do you think — you think is 30
percent OK? What about dividends? They're actually taxed the first time when a
company is in its operation — I guess you say it's taxed to 1.2 percent anyway for
corporations, but they do pay taxes once. What should the dividend rate be? I mean,
you must have an idea where capital gains and dividends should be right now. Tax
rates.
BUFFETT: Well, OK. Incidentally, that point about double taxation has been made,
but I just thought it would be fun to take a look at my own situation because it — if
you go back to — I did — I made these calculations in the office three times where
my rate was about half or everybody's rate. If you go back to 2004, if you put up
what would be that number on that, if you put up — well...
BECKY: Warren, let me ask you.
BUFFETT: Yeah.
BECKY: What do you think about dividends? Is there a rate that is acceptable? If
they went to 25 percent, if they went to 30 percent?
BUFFETT: Well, the best period we had in our — in post-war history, in the '50s and
'60s.
BECKY: Mm-hmm.
BUFFETT: And in the '50s and '60s the tax rate generally on capital gains was 25
percent.
BECKY: Mm-hmm.
BUFFETT: And the tax rate on ordinary income got up to 80 percent or thereabouts.
And our country prospered very substantially. I mean, the stock market did well,
investors did well, the economy did well. So that was — that was a rate that worked
very well. Corporate tax rates then were 52 percent.
BECKY: Should...
BUFFETT: And people paid them, incidentally.
BECKY: Should capital gains and dividends be the same rate as ordinary income?

PAGE 35 OF 73
BUFFETT: That depends on what the ordinary income rates are. I mean, you'll —
you can go that either way. I — that's what they were in 1986. I mean, that was —
under Reagan we went to 28 percent on everything. I don't have any problem with
that. I think that they're — I think that says every tax system is going to get
criticized. I would not have a problem with a 28 percent rate. There would be a lower
rate on people with lower incomes, but so it would still be a graduated rate.
BECKY: Mm-hmm.
BUFFETT: The but idea of taxing capital gains and dividends as — at the same rate,
we've done that in 1986 and people thought it was a wonderful improvement on the
tax code at that time.
BECKY: Mm-hmm. Joe, does that answer your question?
JOE: Yeah, I think now we're at least — now we're having the discussion, maybe
that's what we need to do. And then we need to just, you know, hear from certain
people that just say, you know, for competitive reasons, you don't want to raise
taxes on the job creators, blah, blah. You've heard all this stuff before, but at least
we can then have a...
BUFFETT: Sure.
JOE: We can have an actual discussion. Because that would take care of this whole
issue that your secretary pays less than you in taxes. That wouldn't happen if it — if
you were — if your income was taxed at ordinary income rates. That wouldn't
happen if it — if you were — if your income was taxed at ordinary income rates.
We'd be — we'd be finished with the discussion if it was 28 percent, Warren.
BUFFETT: Yeah, no, she wasn't paying — well, you've got to integrate payroll taxes
in there, too.
JOE: Well, I know, I know.
BUFFETT: But, yeah. But if you...
JOE: And you must — you must be — I mean...
BUFFETT: ...there's no question — but it's...

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JOE: ...it would be nice if you could give her a little bit of a raise then we wouldn't
have to worry about it all the time. You could probably pay her a half a million a
year, right? She does — I mean, she...
BUFFETT: Well, but...
JOE: ...dealing with you must be worth at least a half a million.
BUFFETT: Her tax rate — well, it is, there's no question, she's worth it. But her tax
rate then would not — it would still be double mine. It doesn't — that...
JOE: Well that's because — that's because yours is all on — that's because yours is
all dividend again. You don't pay yourself any ordinary income. I wouldn't pay myself
anything if I were you, either, but I sure would like $60 billion.
BUFFETT: Yeah, well, 131 out of those 400 people came in at below 15 percent.
JOE: I know. But have they got dividend — OK, now we're — now we're going in
circles. We're back to — we got to do — we got to figure out how to do that. And
then the carried interest thing, which is also — you know, when you say someone
has worked a lifetime and then is enjoying the fruits of their lower tax rates, if you
made your entire income from the carried interest then you got — you know, then
you got to explain that away. That makes it tough. That optically is bad.
BUFFETT: Joe, no we — we had — we had this fellow, Todd Combs, he came to

work for us last year. He was running a hedge fund before that. He made a lot of
money from us last year because his performance was terrific. He did exactly what
he was doing at the hedge fund before. He has people working for him. He came to
work at the same time, read the same papers, and he got taxed at more than twice
the rate that he would have if he'd done exactly the same activities at a hedge fund.
Now that does not strike me a making any sense.
JOE: Wow, we are — this is — I'm getting — you know, I'm getting...
ANDREW: A lot of emails.
JOE: ...a lot of emails coming in to me personally from — I've heard of some of
these people. Anyway, thanks, Warren. We'll be back to talk more with the Oracle of
Omaha, the chairman of Berkshire Hathaway, but right now data that could move

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the markets this week. We'll tell you what you need to be watching. SQUAWK BOX
will be right back.
BECKY: By the way, if you were listening to SQUAWK earlier this morning, you know
that Warren Buffett is bullish on housing.
Warren, you talked about how this is maybe the best place to put your money,
maybe even better than the stock market?
BUFFETT: Well, I think if you have a way to manage the single-family home —
yeah, single-family homes are selling at very attractive prices in many places and
the mortgage financing you can get is unbelievable.
BECKY: Right.
BUFFETT: It's a great way to short the dollar.
BECKY: All right, we're going to have a lot more on that conversation and much
more. SQUAWK BOX back right after this quick break.
ANDREW: I don't want to go there. Let's get back to Warren Buffett and Becky,
who's in Omaha this mooning. I got a question if you'd indulge me, Warren. I've
been doing a little bit of research while you've been talking. Now just about the tax
rate, which you've talked about the tax rate — higher tax rate in the '50s and '60s
being 52 percent, but the effective tax rate during that period on the .01 percent,
and there's a study — I'll send it to you — says the effective tax rate on a .01
percent back then was actually 71.4 percent in the 1960s and 74.6 percent in the
1970s. And my question is, would those rates fly today and what would the impact
on the economy be. And I ask that in the context that in the '50s and '60s some
people would argue — and we had a number of people emailing already —
suggesting that the wind was at our backs, if you will when you think about the
economy during that period.
BUFFETT: Well, I don't think they — they probably wouldn't fly today and I don't
think they necessarily need to fly today. What you really need to do is have tax rates
that people pay. And, you know, as I point out people — I think people have
generally thought that people with $270 million of average income were probably
paying a rate that was equal to — it isn't just the secretary in my office, it's
everybody in my office. I think they probably thought they were paying in the 30s or
something like that till you actually look up the figures. And incidentally if you go

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back to 1992, almost all of them were. It's just that the code has gotten to favor
more and more the extremely wealthy and that's why the wealthy have seen —
they've seen their net worth — the net worth of the Forbes 400 since 1992 has gone
from 300 billion to a trillion five, five for one. So it — you know, we have a system
that has drifted toward favoring the ultra-rich and...
JOE: You know, Warren...
BUFFETT: ...you know, we — but I don't — I don't — I don't think — I don't think
we ought to go back to 70 percent rates, no.
JOE: I keep getting — I keep getting this question. You own — you own roughly a
third of Berkshire Hathaway. Why don't you consider that the $2 billion that you pay
— that Berkshire pays a certain tax bill, you own a third, so basically that income
that Berkshire gets, the $2 billion, why don't you consider that as something that —
that would skew your tax rate a little bit higher. You include it in your net worth.
Why don't you include that $2 billion, your pro-rata share of Berkshire's tax bill since
you don't pay yourself any ordinary income or minimal why don't you consider that
as part of your tax bill?
BUFFETT: Well, I'm going to give away every share, every single share of Berkshire
I have so that really belongs to philanthropies. You can argue that philanthropies
may be paying it...
JOE: Or paying 2 billion.
BUFFETT: ...but I just — I've heard the double

taxation article — argument a lot and actually I
have — I have Governor Romney's tax returns
here as well as my own tax returns. And it's kind
of interesting. Here is, for example, in 2004 I
had 46 million of capital gains. And, Becky, you
can put up the last page of that return and you'll
see on that return that millions and millions of
dollars to capital gains and a few thousand of that was doubly taxed. I made a lot of
that, millions and millions of dollars, from profits and Treasury inflation-protected
bonds. There's no double taxation there. I made some of it from real estate
investment trusts. There's no double taxation there.

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Here are the same figures for 2006 when I had 40 million of capital gains and here's
the last page of my schedule D there. Every single one of those stocks in which I was
making millions of dollars was a Korean stock. They didn't pay a dime of United
States federal income tax. So, and if you look at Governor Romney's return you'll see
that he made substantial capital gains from companies where the companies
themselves went public, but they in some cases pay no federal income tax and in
other cases have paid very minor federal income taxes. So it is true there is some
double taxation. There's an enormous amount of double taxation though with my
secretary. If she gets a salary of X and we won't use her. We'll just use anybody who
gets a salary of $100,000. They are paying 13.3 this year, 15.3 in 2010. They're
paying 13.3 percent in payroll taxes and then that same income gets doubly taxes
and gets taxed for income tax purposes. They get no deduction for their Social
Security taxes in computing their federal income tax. So we have double taxation for
tens and tens and tens and tens of millions of people who are making very small
amounts of money.
BECKY: Warren, let me ask you this, though. By continuing to push this we did get a
lot of questions, presumably from shareholders. One that came in was from David
Evaul who said that having political positions are a part of public life. But for the life
of me "I cannot understand why the CEO of a publicly traded company would
antagonize roughly half of the political power in this country. Don't you have a
fiduciary responsibility to shareholders not to get into such a public and antagonistic
debates, no matter what your political views might be? It seems even Democratic
shareholders would prefer you move to the sidelines of the political debate."
BUFFETT: No, I don't think if you're a CEO that you put your beliefs in a blind trust.
I mean, I don't think you give up your citizenship. We have 270,000 people who
work for Berkshire. There's not one of them that I've ever asked about their political
views, or there's not one of them that I've told in any way to refrain from expressing
their beliefs whether they're religious beliefs or political beliefs. And I think that —
my cleaning lady, Mary, does not have voice. She doesn't have a super PAC, she
can't spend $10 million trying to influence, you know, under free speech. I mean,
free speech for her is something you can read about in the First Amendment. It
doesn't mean a thing. I do have some kind of ability to speak out and I think that if
you have an ability to speak out and you see things that you think are wrong I think
you ought to talk about them.
BECKY: Let me ask you how this has gotten played in the political debate, though.
There's another question that came in from Larry Polena in Cleveland, Ohio. Control

PAGE 40 OF 73
room, it's number 40. He says, "It seems like the president has expanded the tax
increase proposal you had, yet is still attaching your name to it. I thought the
proposal you made was much more narrow than what the president has talked about
when he talks about the Buffett tax proposal. Can you explain the idea you originally
had and how it is more narrow in scope in terms of the number of people affected
than what the president's talking about"?
We had a lot of people who said the 250,000 rate vs. the million.
BUFFETT: No. I never said 250. The Wall Street Journal sort of implied I said 250 in
an editorial there, so I can see how people may have gotten that idea. But I have
said above a million and I've said a minimum tax. And there are plenty of people
that make over a million, over 5 million, over 10 million that pay normal tax rates.
And I would not have — what I talk about would have no effect on them at all. It's
only the people who are paying very low tax rates like me, but like some of my
friends and like those 131 out of 400 who had an average income of 270 million who
are paying less than 15, those are the ones I'm talking about. So I would have a
minimum tax above a million and perhaps a different level of minimum tax above 10
million. Now Senator Whitehouse of Rhode Island has introduced a bill that is largely
along that line. But it is — it does not apply to people with 250, it does not apply to
everybody that makes 100 million.
BECKY: And what's your understanding of the president's understanding of the

Buffett rule?
BUFFETT: Well, there has not been a specific bill as I understand it. But Senator
Whitehouse has a specific bill. And his bill phases it in at a 30 percent minimum tax,
counting payroll taxes, starting at a million. Now it phases in so that if you make a
million and one dollar you're not worse off than if you made 999,000. But it — he
has a bill that incorporates the principle I've talked about. It's not exactly what I
would have, but you know...
BECKY: Something along those lines.
BUFFETT: ...that's always going to be the case.
BECKY: Although we get something like number 89, control room. This is a little bit
tongue-in-cheek. But is there a tax you don't like? This was a Twitter that came — a
tweet that came through. "When did this start and you're aware there's another side
of the balance sheet?" What do you say to people like that?

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BUFFETT: I don't like any tax. I've got my tax return here from when I was 13 and I
paid $7 and I can tell you that I did not like paying the $7 at that time. The — no —
but the reality is that we are going to have to raise 18.5 or 19 percent of GDP and
revenues and I certainly think that the people who are very wealthy should do more
than the people like my cleaning lady. And I'm not going to like it. You know, when I
sit down and write the check for whatever it may be I'm not going to like it. But I
also like this country and I think that what this country offers is wonderful and I
think a very rich country should take care of the people that get the short straws in
life. So I believe in things like Social Security, which is paid for by taxes. I believe in
a good public school system, which is paid for by taxes. Even people who have no
children, I think, should be paying, particularly if they're well to do, I think they
should be paying for the — for a good school system for society as a whole. I believe
in good medical systems. So, you know, that does not come free. And taxes are
what we pay.
BECKY: There are a lot of people who are trying to figure out the economy, and we
could talk more about this in a just a minute. But, overall, your view of the economy
is that it continues to improve.
BUFFETT: The economy has been getting better since late summer of 2009. I said it
was getting better then, and it's been getting better. And we see it in all our — we
have 70 plus businesses, and we're seeing it in every place except those related to
home construction.
BECKY: OK. Joe, we're going to talk more about that in just a moment, but I figure
this is a good time to kind of look at what the economy is seeing and what Mr.
Buffett sees in the stock market and other arenas, too.
JOE: All right, sounds good, Beck. A lot more with Warren Buffett right after break.
Let's check on the futures this morning. They've been trading lower most of the
session, the market session, a little bit better than they were, down about 50 points.
Now making headlines, US economists seeing more reasons for optimism this year. A
new survey from the National Association for Business Economics, that as forecasters
have raised their expectations for employment. Also for new home construction and
business spending this year. We're going to have more headlines and some stocks to
watch coming up in just a bit. SQUAWK BOX with three hours of Warren Buffett will
be right back.

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BECKY: Welcome back to SQUAWK BOX. We are live in Omaha this morning at the
World Herald Freedom Center. This is the printing presses for the Omaha World
Herald. We're speaking to Warren Buffett, who's the chairman and CEO of Berkshire
Hathaway.
And, Warren, for people who are just tuning in, we should tell them we're here
because the Omaha World Herald is an acquisition that Berkshire Hathaway recently
made.
BUFFETT: Yeah. In December of last year, just a couple months ago, Berkshire
bought the Omaha World Herald. I've been reading it since I was about six. I study
these things a while before I write a check and, you know, it's a terrific newspaper.
I've read it every day, you know, throughout my lifetime, and it was employee-
owned and there were some cash problems in terms of redemption of stock that was
built into the system, so it become advisable to look for a new owner, and I'm glad
they looked for me.
BECKY: Someone did write in and wanted to know if you had any say over the
editorial content.
BUFFETT: Zero, zero. No, my guess is that next year that they will probably endorse
somebody for president, and I'll probably vote for the other guy. But who knows?
BECKY: OK. Let's get back to the economy. We have talked an awful lot about how
you see things going along. And in Berkshire's 70 businesses or 70 some businesses,
you have continued to see slow and steady gains. Is there a sign in any of those
businesses yet that there really will be a turn in housing or is that just something
your gut tells you at this point?
BUFFETT: It — if you look — if you really were looking for it you might find some
little flicker someplace. But the important thing is if you take our five largest
businesses, and they're big.
BECKY: Yeah.
BUFFETT: They all — you know the aggregate earning are over $9 billion. And
they're basic businesses, you know, whether it's a...
BECKY: Outside of insurance.

PAGE 43 OF 73
BUFFETT: Outside of insurance, every one of them set an earnings record last year.
I think it's pretty likely that every one of them sets an earnings record this year. I
mean, these — you know, they earned over $9 billion pretax last year. So these are
big businesses. And, you know, the people — we're hiring in those businesses.
People don't have to worry about their jobs in those businesses. So it — the
economy is coming back every place except home construction, and it will come back
in home construction, I can guarantee you that. I just don't know when.
BECKY: There's an impression that businesses are not investing in the United
States, and that's something a lot of people have said. But you point out in your
annual letter that Berkshire is spending a lot of money on capital expenditures, $8
1/2 billion in 2011?
BUFFETT: Yeah. We spend — we spend 8.2 billion in — which was an all-time record
by — it broke our record by $2 billion. Ninety-five percent of that was in the United
States. And that 8.2 billion we spent last year, we'll break that record again this
year, and it'll almost all be spent in the United States. There are all kinds of
opportunities in the United States. And we have the cash to take advantage of those
opportunities, and American business has the cash to take advantage of the
opportunities. There is — there's not a shortage of investment funds in the United
States in any way, shape or form, and there's not a shortage of opportunities.
BECKY: Do you believe the recent jobs numbers that we've been getting a look at,
that indicate that hiring is starting to pick up a little bit and the unemployment rate
is starting to come down?
BUFFETT: Yeah. Hiring is picking up but — it's picked up in our businesses unless
they're related to housing construction. I pointed out in the report our housing
businesses are down from their peak of 58,000 people to 45,000 people. When
housing comes back, we'll be hiring at those five companies. But a lot of jobs that
aren't called construction jobs in the United States are tied to construction. So when
we go down 8,000 people or so at our carpet business, those are not called
construction jobs, but they're related to construction. Same thing with insulation and
other things.
BECKY: You know, Warren, we talked to the CEO of the Gallup organization, and he
pointed out some things that they've seen in their weekly and monthly polls that
they run. They're constantly talking to people. His concern is that we will see the

PAGE 44 OF 73
jobless rate or the unemployment rate pick back up to about 9 percent when we get
the next monthly report for jobs. Would that surprise you?
BUFFETT: Well, it would surprise me. But what counts is over the next year, two
years and three years. We've been coming back. I mean, we — you know, it was —
it was September of 2008 when I was on CNBC. I called it an economic Pearl Harbor.
I'd never used that term before. I mean, that — it isn't that I come up with that all
the time. I mean, we went through something that this country hasn't seen before in
the way of a financial panic. The country almost stopped. And that financial panic
bled over into the general economy very quickly and very severely. And we've been
coming back now for three years from that, and we continue to come back. But I will
predict that our businesses will have more people working for them at the end of this
year than at the start of the year.
BECKY: Joe, you have a question, too?
JOE: I do. I'm amazed at how much mail we're getting on a lot of this. Go back one
more second, Warren, and we'll get back to this current line of thinking. This
gentleman writes in, pretty interesting, "Why would I ever consider sending more
money to Washington, given the inept policies and investments of our government?
Would Warren continue to send money into a business black hole if it had a similar
track record?" And I was thinking, if the government was a business and Berkshire
was looking at it, there's no way Berkshire would even take a 1 percent stake in the
government with their track record of investments. And I've gotten you to admit in
the past that one of the reasons you think the Gates Foundation will do a lot better
with your 50 or 60 billion is because even charities have a better — a much better
reputation for watching how money is spend and for doing more good. So with all
that in mind, can you at least see how someone might be sort of just, on an
intellectual basis, opposed to just giving a blank check to such a profligate entity?
BUFFETT: Anytime an organization is as big as the US government or any other

government, they are not going to be as efficient, obviously, as smaller
organizations. But I've heard that argument since the late 1930s when my two
sisters and I sat around the dinner — the dining room table and my dad presented it
day after day. And it was true then, too. It's been true every year that I've been
alive. On the other hand, we have successfully defended the country, we've built the
greatest industrial machine the world's ever seen, we've built the richest population
the world's ever seen. We've done that with the government...

PAGE 45 OF 73
JOE: The government didn't — the government didn't do that, though. In that I
think the...
BUFFETT: Oh, no. Having — I think the government...
JOE: But the question, Warren, if there's only so much capital, there's only so much
capital in the world, and you look at where it's going to do the most good or where
it's going to be treated best, shouldn't we, at least in the back of our mind, think that
the private sector's a better place to keep it than in — than in the government
sector? Because every dime that you give to the government, it's not necessarily
going to help the people that are in need that you're talking about, Warren, for
education. It's going for political decisions benefiting cronies or benefiting ill-
conceived venture capital-type Solyndra investments. I mean, they're — there's just
a vast amount of waste.
BUFFETT: And, Joe, that's been true throughout your lifetime. And you take — you
take the 60 years or so since World War II, and we have sent 18 to 19 percent of our
resources to Washington and they've been treated just like you described.
JOE: Right.
BUFFETT: And we have had — we have had an economy that's been wonderful. It
has a market system. Capitalism works.
JOE: But is it in spite of — in spite of — in spite of or because of?
BUFFETT: Both, both, both.
JOE: Right.
BUFFETT: No, I'm not kidding. It's both. I mean, you know, you would not — you
would have — you would have loved what the government was doing, you know, on
December 8, 1941. You would have not seen...
JOE: I agree.
BUFFETT: ...less money to Washington.
JOE: I agree.

PAGE 46 OF 73
BUFFETT: And so it's in spite of and because. And — but the truth is, we can have a
country that works wonderfully with 19 percent or so of revenues going to
Washington and spending 21 percent.
JOE: It's just that there's so many different ways to get there. I mean, we were
there a couple — we were there in 18 or 19 percent in 2006 and 2007 even after
what you said decimated our revenue 10 years ago. So there was, even under the
current — even under the current, when we had a good economy and low — you
know, everybody was working at 4, 5 percent back in '06 and '07, we were getting
18 or 19 percent.
BUFFETT: The point is to average — the point is to average around 19 and spend
around 21.
JOE: Right, right.
BUFFETT: And to have policies in place that do that with the greatest degree — I
mean, one way or another you're going to get it — with the greatest degree of
fairness on the revenue side and the greatest degree of efficiency on the expenditure
side.
JOE: Right.
BUFFETT: And there's going to be a lot of slippage on both.
JOE: Ooh, slippage. That's like shrinkage or leakage. None of those are good.
BUFFETT: Well, that's true. Listen, Berkshire has some ways to — you know, it kills
me but it does. The bigger you get, generally speaking, you know, the less efficient
you get in many ways. Now, there's certain advantages to scale in other respects.
JOE: You're not — Andrew's got another — you're not going to want to...
ANDREW: I was going to...
JOE: You're not going to ask him if we should to go 100 percent, are you?
ANDREW: No. I was going to...
JOE: Seventy's not high enough for you.

PAGE 47 OF 73
ANDREW: I was going to save Warren — I was going to save Warren from you and
change the entire direction of the conversation.
JOE: Save him from me? How can you — you don't need to save a guy — you know
what? Never be — never feel sorry for someone who has a private jet. That was
someone that — someone told me that long ago and I — and it's what I live by.
JOE: Never feel sorry for someone who flies private.
ANDREW: OK. Warren, we don't have much time...
BUFFETT: Keep preaching — keep preaching that, Joe, I'm with you on that.
ANDREW: Warren, I wanted to get some thoughts about the banking business, and
I know we don't have that much time here, so I'll start with one question, maybe we
can bleed into the next hour on this. But as I was reading your letter and some of
your comments about Bank of America, I also noticed that you — and you've done
this now several times, you've praised Jamie Dimon at JPMorgan, and yet I realize
that you are not an investor in JPMorgan. And I'm curious why not.
BUFFETT: Well, we own stock in Wells Fargo, we got the Bank of America situation.
And I'll let you in on a little secret. I own some shares of JPMorgan.
BECKY: Personally, right?
BUFFETT: Personally, right, right. You just — you just got some news from me,
Andrew. But what I — what I specifically reference, and this is important, Jamie
Dimon, I think, writes the best annual letter in corporate America. I think you will
learn — I think every viewer will learn something by reading his annual — they'll
learn a lot by reading his annual report. He is a — he thinks well, and he writes
extremely well. And he works a lot on the report, he's told me that. And that's an
annual report worth reading. Most annual reports aren't worth reading, but that one
is.
BECKY: Why would you buy that stock for your personal account and not for
Berkshire?

PAGE 48 OF 73
BUFFETT: Well, because Berkshire doesn't own it, and it's one that I can buy
without having any possible problems about conflict.
BECKY: All right. We're going to take a quick break here. When we come back, we'll
have more from Warren Buffett after this very quick break. By the way, keep your
emails coming. We are going through them, taking — looking at all of them. Don't
forget, you can also tweet your comments and questions. Make sure, though, if you
do, that you include the hashtag askwarren. Right now, Warren is a trending topic on
Twitter. Wow. I didn't know that. As you've been talking, we've been picking it up
and apparently lighting up the Twitter universe. By the way, tomorrow on SQUAWK
BOX, we have another big lineup for you, including Pimco's Mohamed El-Arian, who'll
be sitting down with us for two hours. Also, Roger Altman of Evercore. And a new
segment that we're rolling out, Trump Tuesday. Donald Trump joins us to talk
markets, politics and much more. SQUAWK BOX will be right back.
ANDREW: Let's get back to Becky who is live in

Omaha. Becky, I have got stolen Joe's read.
He's giving me a look.
JOE: Thanks, Joe. Thanks, Joe.
ANDREW: Thanks, Joe. It's great.
JOE: You're here, it does...
BECKY: Thank you, Andrew. Thank you, Joe.
JOE: You're out there he does it, you're he does it. It's just...
ANDREW: It all ran together. I apologize.
BECKY: Oh, we're a big family. We all share. We all share, it's all good.
JOE: This is Freud — this is Freudian, though. This is — I mean, it's not really a slip.
I mean, you know, I'm just wondering whether it's accidental at this point, Becky.
But OK.
BECKY: No. He's doing it just to rattle you for the morning.

PAGE 49 OF 73
Anyway, guys, we are back with Warren Buffett and Warren, we've gotten a chance
to ask you about a lot of different things that have been going on. Andrew just
picked up with a line about some of the banks and this is a good time to ask you
about Wells Fargo, which you own a major, major stake.
BUFFETT: Yeah.
BECKY: How's big the — what's the percent of the shares outstanding you have?
BUFFETT: Well, we have — we have a little over 400 million shares, so we're well
over 7 percent of the company.
BECKY: We had John Stumpf in — John Stumpf in recently to talk about how things
are going at the bank, and a lot of people have said that they think that is the best
run bank in the country. We have analysts who were on that day that said that as
well. You own now a stake in Bank of America, too. If you had to match all these
banks up, what do you think is the best run bank?
BUFFETT: Well, banks are not going to earn as good of return on equity in the
future as they had — that they did about five years ago. Their leverage is being
restrained, for good reason in many cases. So banks earn on assets, but the ratio of
assets to equity, the leverage they have determines what they earn on equity. And if
you reduce leverage, you reduce earnings on equity. It's still a good business. And
the American banks are really probably, in many cases, in the best shape they've
ever been in. Around the world, banks are not in good shape, but the American
banking system has really had a remarkable comeback in the last three years.
BECKY: You didn't answer my question.
BUFFETT: What's your question?
BECKY: Which bank do you like the best? You invest in many of them.
BUFFETT: Which bank — you mean of the ones we own?
BECKY: Yeah, of the ones you own.
BUFFETT: Well, I would say that if I had to just own one bank, I would probably
own Wells.

PAGE 50 OF 73
BECKY: OK. Wells Fargo is in the news today. There's a story in the Financial Times
that says that the company is looking for acquisitions in terms of wealth
management, that they're looking to get into some of that higher income gain. Is
that a good move from your perspective?
BUFFETT: Well, if they execute it well, it's good. And what Wells has done very well
is to sell a wide variety of services to a huge deposit base. The biggest single asset
that Wells has is its deposit banks, as is true with the Bank of America.
BECKY: Mm-hmm.
BUFFETT: They have a consumer-based small business type base that's just huge,
more so than will be the case with Morgan or Citigroup. So that's a terrific asset. It
really isn't a big value now because you can't put money on it at any rate. But over
time, it's a terrific asset. And they sell other products to that group, and the more
products they have that they effectively can deliver to those clients, the better.
BECKY: Well, that brings us to a question that we got from our viewers. Again, we
have a lot of questions that have come in from our viewers. This one comes from
Charles in New York, New York. Control room, it's number 84. And he picks up on
this idea about the low rates. He says, "If the employment picks up substantially this
year, do you think it will prompt the Fed to reconsider its considerably low rates
policy?" And would that, in turn, end up helping those financials?
BUFFETT: Well, if it picks up enough.
BECKY: Mm-hmm.
BUFFETT: I mean, if the economy really started roaring, the Fed would act sooner
than 2014. They will respond to what they — what they see in the economy. I doubt
that it picks up at that rate. I think it will get better as the year goes along, but who
knows? You get a lot of surprises in economics.
BECKY: So you don't necessarily worry about inflation before that? I guess the Feds
looking at its best forecast and it says 2014. Does that jibe with what you see?
BUFFETT: Not necessarily. But I just — I don't think I'm great on some crystal ball.
BECKY: Mm-hmm.

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BUFFETT: I can tell you that business is getting better. Now, it's been getting better
for the last three years, and I think it'll keep getting better, barring some, you know,
bolt out of the blue. But I don't think anybody knows the pace at which — it'll really
start improving when housing construction picks up significantly.
BECKY: If you had to bet, again, you don't have a crystal ball in this, but if you had
to bet, do you think that it would pick up enough if you had to bet earlier or later,
that you'd say 2013 or 2015?
BUFFETT: I think it'll — I think it'll look strong before 2014.
BECKY: OK.
BUFFETT: And interest rates will pick up some, but we have, you know, we have —
we have sown the seeds of a lot of inflation for the future. Now, whether we can
unsow those seeds and dig them up again, that's not so easy to do. It's easy to talk
about, but it's a lot easier to sow the seeds than it is to replant.
BECKY: I know you said that you don't like gold or a lot of other places to put your
money, but John Merrill writes in with a pretty good question. He says, "Would you
rather have, if you had to have one of the two, all the gold ever mined or all the
paper dollars ever printed? The choice is between two monetary assets, either of
which could be used to buy Exxon or farmland." And what's your answer on that?
BUFFETT: I definitely don't like paper money. I like physical assets. So I would — I
— but I wouldn't buy gold or I wouldn't buy rare stamps, although I was a stamp
collector. I wouldn't buy paintings, although, you know, a number of them I
appreciate. I would buy something that's productive. I bought a farm in the mid-
1980s. You know, I mean, that farm is more productive now in terms of it actually —
farming techniques have improved somewhat, fertilizers and all that, and then prices
are somewhat higher. That farm will always be a good asset, and I don't get a quote.
I've never had a quote on it in 25 years. I've never turned into the farm channel, you
know. But it will be a productive asset. I would rather own that than own some asset
that just looks at me.
BECKY: Andrew, you have a question, too?
ANDREW: Hey, Warren. I — just going back to banking because I was listening to
some of your comments about Wells Fargo and some of your praise for Bank of
America, reading some of the things you said about Brian Moynihan. And one of the

PAGE 52 OF 73
companies that wasn't in there, though — I don't know, actually you may still be a
little bit invested in some of the...
BECKY: Mm-hm.
ANDREW: Well, the preferreds that were paid back. Goldman Sachs. I was curious
to sort of — how you see that business model and how you look at Lloyd Blankfein. I
know you've praised him in the past.
BUFFETT: I'm unequivocal in my praise of Lloyd. I think he did a terrific job in

bringing the company through a crisis. I — he's a fine human being. He's very smart.
He's straightforward, he's decent.
ANDREW: But what's your take on the larger business model?
BUFFETT: And we own — the business model is not as good as it was five years
ago. And that's true for all the investment banks, and it's true for the commercial
banks. You know, they are subject to much more scrutiny and particularly in terms
of leverage and in terms of the activities they can engage in and that will reduce the
profitability, the return on equities that they get now compared to what they can
earn five or six or seven years ago. Our position is that we own warrants on about
43 million shares or there about at 115 that are good in — for about a year and a
half, or just a little more.
JOE: Warren, why haven't — why haven't you just bought a whole fertilizer
company?
BUFFETT: Well, no one's offered...
JOE: I mean, not that — not that you don't manufacture enough yourself, as we've
seen today.
BUFFETT: Yeah.
JOE: But...
BUFFETT: I understand that one. I do.
ANDREW: Oh wow. Wow.
BUFFETT: I knew there was a reason for that question. Well, I...

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JOE: No, no, no, no, no, no. That came out — I really wasn't planning on saying
that, but I listen to you...
BUFFETT: Oh, I know that. But, listen, why don't — I'm in the factory.
JOE: No, but honestly, you look at everything I read and I'm back to that Grantham
piece in Barron's, I mean, you think about the long-term trends and demos for
fertilizer companies or any kind of ag-related company. I'm just wondering, you
know, you got all — you never know what to do. You have — money keeps building
up and you buy a whole railroad. I mean, I'm just surprised that at some point you
haven't decided to just do something like that.
BUFFETT: I don't rule it out. None has ever been offered to us. We tend to buy
businesses that are offered to us. I do not go out prospecting very often. But it is —
it's a commodity business, but it's a commodity business that it takes a long time to
bring on additional supply. The demand overall — but the demand overall for corn,
the demand for wheat and soy beans and all kinds of things. The real question is
whether the supply grows faster. That will determine the pricing. And as you know,
fertilizer prices have moved around a lot over the last 10 years.
BECKY: Mm-hmm. Warren, why don't we talk about something you've talked to us
about the last time you were on, IBM, a new company that you've been making
major acquisitions in. I believe you own about 5 1/2 percent?
BUFFETT: Five and a half — we call it HAL around the office, yeah.
BECKY: So...
BUFFETT: Five and a half percent, yeah.
BECKY: ...have you continued to buy shares of IBM since we spoke with you?
BUFFETT: Oh, we bought just the tiniest bit. We — you'll see in the first quarter, we
just bought a few shares. I was willing to buy a lot, and then it moved up. But
anything we own, with the few exceptions, we can't buy more American Express
because it's a bank holding company and it's against the rules. But anything we own
is at the top of our mind in terms of when we buy something additionally. In other
words, I measure any new purchase against what I like least in our portfolio now and
unless it — unless it meets that test, I'll just buy more of something in the portfolio.

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BECKY: So have you been buying more of Wells?
BUFFETT: And we bought more Wells — we bought more Wells. Yeah. We bought
more Wells just year after year. And we bought...
BECKY: Coca-Cola?
BUFFETT: We bought more Wells since year end, as a matter of fact. And we bought
just a few shares of IBM. But if we like something, you know, we're going to — the
money does keep coming in, so we will — we'll look first at the things we own.
BECKY: The new CEO of IBM, management changed.
BUFFETT: Yeah.
BECKY: Even since you began buying that stake.
BUFFETT: Right.
BECKY: Ginni Rometty, have you met with her or talked with her?
BUFFETT: Yeah. She was out here for lunch about a month ago, but she was also
making sales calls.
BECKY: And what did you think after meeting with her?
BUFFETT: I think she's terrific, you know. But I would expect that. I mean, you
know, IBM is a very well-run organization. I didn't know who she was, you know, a
year or 18 months ago. And I knew that Sam Palisanto was going — they tend to
retire early there. So I knew he was going to retire fairly early. I did not sit there
and, you know, write to Sam and say, Ì can't buy this stock unless I know who your
successor is going to be,' or anything of the sort. I knew they'd make a good choice,
and they did.
BECKY: Are there any other new companies you've been delving into?
BUFFETT: There are always things on the horizon.
BECKY: Would I be wrong in assuming — well, is IBM a one-off in the technology

field? Because there are a lot of people who did not expect that. You've never really

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invested in technology companies. Is that still — does that standard still apply for the
most part?
BUFFETT: It — probably for the most part, but if I think I understand enough about
the future of the business and I like the management and I like the price and it's big,
because we need sizeable ones, we would buy it. But, as I've told you in the past,
Microsoft is off limits because people would think I had some kind of inside
information if anything good happens, so it's a no-win situation from our standpoint.
But it's unlikely we do a lot in that area, but if I — if I felt a strong enough conviction
on something, and I liked the management and price, I would do it.
BECKY: OK. When you take a look at Bank of America, people have written in
wondering what you think about Brian Moynihan's performance there since you've
stepped into the stock.
BUFFETT: I think he got — he got handed a — it was a terrible situation he got

handed. I mean, it — you know, with the — all of the problems — particularly of
Countrywide more than anything else, but some of their own, too. So he was handed
a mess. And, fortunately, he was also handed, you know, as great a deposit basis as
exists in the world, and that deposit base continues to exist. You know, they have a
contact with a significant percentage of all of American homes, and that's a huge
asset. And what he has done is he's working through the problems he inherited, and
you can't do them in a day or in a week or a month, particularly ones that involve
litigation. He's pared off some of the assets that aren't central to it. He's done
exactly what I would do if I was in there, and it's going to take him a significant
amount of time from this point forward. Litigation can't be pushed. If you just say,
Ì'm willing to settle with anybody,' you're going to be a patsy, you know, so he has
to — he has to weigh the costs of diversion of time and all that's involved in litigation
against just being a patsy in terms of lawsuits.
BECKY: That stock right now, we just saw, is at $7.85. You bought in at 6 percent
preferred, but you've also got warrants.
BUFFETT: Yeah.
BECKY: Seven hundred million?
BUFFETT: Seven hundred million, yeah.
BECKY: To buy at below 7.50, I believe.

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BUFFETT: Seven fourteen.
BECKY: Seven fourteen, anytime between now and 2021?
BUFFETT: Yeah. They were 10 years from the time we got them.
BECKY: OK. So, again, you feel pretty confident in that investment, not necessarily
because you're buying on the open market, but because you have a different deal.
BUFFETT: No. We like the preferred and we like the warrants, and we will be there
for a long time. Now, you know, we are prohibited from selling. I mean, we do not
have something that we can turn around and sell tomorrow. Like somebody buys a
stock in the market, they can change their mind tomorrow if the stock goes up a
point, they can sell and make a quick profit. We can't do any of that. We have to
make our money out of the fact that the business really does well over time.
BECKY: Mm-hmm.
BUFFETT: And I think it will.
BECKY: You brought up Apple a little earlier today when you were talking about Tim
Cook as the successor there. You're not somebody who's ever bought Apple shares,
correct?
BUFFETT: No, I've never bought Apple.
BECKY: But you...
BUFFETT: I wish I had.
BECKY: But you have talked to Steve Jobs in the past.
BUFFETT: Yeah, Steve — I got — Steve went on the board of Grinnell College when
I...
BECKY: Mm-hmm.
BUFFETT: He was in his early 20s. He was a big admirer of Bob Noyce's, and Bob
was connected there. And so I saw him just a few times over time, but he called me
— he did call me a couple of years ago. It was an interesting conversation because I
hadn't talked to him for a long time, and he said `We've got all this cash, Warren,'

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and he says, `what should we do with it?' So we went over the alternatives, and it
was kind of interesting.
BECKY: What were the alternatives that you laid out? Stock buybacks, dividends?
BUFFETT: There's only four things you could do.
BECKY: Stock buybacks, dividends, acquisitions? What am I forgetting?
BUFFETT: And sitting with it.
BECKY: And sitting with it.
BUFFETT: And sitting with it, and he had many, many, many, many billions. And I
said — I went through the logic of each thing. Now, the — he told me they would not
have the chance to make big acquisitions that required lots of money. I mean, they
were internally, and that's exactly what they should be. And then I asked him the
question, I said, you know, Ì would use it for acquisitions if I thought my stock was
undervalued.' I mean, Ì would use it for repurchases if I thought my stock was
undervalued.' And I said how do you feel about that? Stock was around 200 and
something. He said, Ì think our stock's really undervalued.' I said, `Well, you know,
what better can you do with your money?' And then we talked a while, and he didn't
do anything. And, of course, he didn't want to do anything. He just liked having the
cash. It was very interesting to me because I later learned that he said that I agreed
with him to do nothing with the cash. But he just didn't want to — he didn't want to
repurchase stocks, although he absolutely thought his stock was significantly
underpriced at 200 and whatever it was.
BECKY: Well, he was right, it's over 500.
BUFFETT: Yeah. I said, look, you can buy dollar bills for 80 cents or 70 cents and
you know the dollar bill. I mean, it's not a counterfeit, it's your dollar bill. I said go to
it, and the truth was he didn't. He just didn't want to repurchase stock. But he was
certainly right about his stock being undervalued.
BECKY: You've said in the past that you would never do stock buybacks and you
would never issue a dividend at Berkshire. Last year you broke the idea of the stock
buybacks by laying out how and when you would buy back stock from Berkshire and
actually starting to buy some back.

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BUFFETT: Yeah, and I — but I never said we'd never buy stock back. As a matter of
fact, in the 2000 annual report, we announced we'd buy stock back. I've always said
buying stock back makes great sense when you're buying it at a significant discount.
Now there is that ethical question about you're buying it from your partners. I mean,
the first line we have in our economic principle is that although our form is
corporate, our attitude is partner — partnership. So we want to be sure if we're
buying it back from our partners at a discount from what it's worth that they
understand what it's worth and why we're doing it. But there's nothing like buying
your own stock back at a big discount. I mean, one of the things I like about IBM is
the fact that they have aggressively bought their stock back over time. That's made
their shareholders richer.
BECKY: Mm-hmm.
BUFFETT: And they've announced they'll continue to buy their stock back big time
and that will make their stockholders even richer. I love it.
BECKY: There is a viewer who wrote in on this exact question. Chris Sales from
Freeland, Michigan. He says "in the letter released on the 25th you indicate that you
don't enjoy cashing out partners at a discount when you rebought — when you
repurchase Berkshire shares, yet at the same letter you prefer IBM buying stock
from your fellow IBM partners at the lower — and he lower prices the better." Why
do you have the different views?
BUFFETT: Well, I say if we buy our own stock the lower the price the better.
BECKY: Yeah.
BUFFETT: I mean, we are running the company for the shareholders and I don't
think there's anything wrong with IBM buying their stock at all. And they have laid
out a plan — they laid one out five years ago, a road map and they've laid out
another road map. They've told their shareholders exactly what they expect to do
and if the shareholders elect to sell the stock at a price that's attractive for the
company to buy it, there is no moral stigma in the least attached to them buying it.
I'm — and I'm all for it.
BECKY: We've got a question from Hunts Point, Washington. A lot of people wrote in
similar questions. This one comes, it's number 31, control room. "Even though the
book value, as well as incremental stock prices increasing, why not now give a
dividend?"

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BUFFETT: Why...
BECKY: Why not give a dividend?
BUFFETT: Well, a dividend essentially would have hurt Berkshire at any time since
I've been there.
BECKY: Yeah.
BUFFETT: I mean, every dollar that's been reinvested in Berkshire has turned out to
have a greater than a $1 value. So what's the sense of paying out somebody a dollar
that's worth $1.10 or more in the business? And we say that we'll buy it at $1.10.
BECKY: All right, we've got more to get to. We're going to take a very quick break.
Guys, we'll send it back to you in the studio. When we come back we're going to talk
a little bit more about Simpson-Bowles and some other issues, too.
ANDREW: And as Becky just said, coming up we're going to get more from the
Oracle of Omaha. He's answering your emails and tweets and big news on the
Twitter front. Warren Buffett, he's trending in the US right now right behind "The
Artist" and Meryl Streep. And today's a very special day for our colleagues at
"Squawk on the Street." They're unveiling their new set at the New York Stock
Exchange. We're going to get a sneak peek of it in the next half-hour. SQUAWK is
coming right back after this.
BECKY: Welcome back to SQUAWK BOX, everyone. We are live this morning in
Omaha with Warren Buffett.
And, Warren, one of the subjects we've discussed this morning is Simpson-Bowles
and what needs to happen or what you think needs to happen. We've been talking to
CEOs, to business leaders and to personalities over the last several months and
asking them about Simpson-Bowles. I thought you might listen in for a moment
when we hear what Clint Eastwood had to say about Simpson-Bowles just after that
Super Bowl half-time ad that they had. Why don't you listen in right here.
BECKY (on tape): Have you seen Simpson-Bowles and some of the ideas
that they had put forth, the panel that the president convened...
CLINT EASTWOOD: Yes. Yes.

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BECKY: ...and then it's kind of gone away since then.
EASTWOOD: Yeah. Well, likely I did. In fact, I was kind of amazed when
they took the Simpson-Bowles and assigned them to this research and then
they came back with a recommendation which was exactly stop spending and
then everybody said that's enough, you guys, go home. And I thought that's
a waste of money, waste of time, wasted effort from everybody. It wasn't
very spirited for the country when people would see that. I think Simpson — I
think both those gentlemen are smart and they had — certainly worth
listening to if you've gone ahead and assigned them to this project.
BECKY: Warren, Clint Eastwood has been a longtime Republican, he ran as a

Republican for mayor of Carmel.
BUFFETT: Sure.
BECKY: But you've echoed some similar sentiments this morning.
BUFFETT: I agree with him 100 percent. I mean and I think that — I think that
Simpson — I hope they put it into — draft it into legislation or legislative form and I
think that — I think it ought to go to Congress and I think that Congress ought to
take a vote on it and we can see whether they like it or not. But the American public,
I think, are entitled to have that happen. And for Congress to say, you know, we
can't get anything done because it's an election year, I would just say if they feel
that way let's just skip paying them this year and let them come back next year but
— if they're not going to work on it. So I would — I would love the idea of the
American public, whether it's through business leaders, whether it's through Clint
Eastwood or saying, you know, let's just have a vote on this. These fellows worked
for 10 months, they're conscientious, they're smart, they're decent, they come from
both sides. They got people on both sides to agree on it. Let's have a vote on it and
everybody's going to dislike something in it but the question is, is it better than what
we're doing now?
BECKY: You think a vote like that would actually pass Congress?
BUFFETT: Yeah, I do. If there was enough pressure. If the motivation came because
— for Congress to take it up, came about because virtually every CEO in the country,
labor leaders, educators, everybody else was saying give us a vote on this and I
think if it went up there next month I think it would probably pass. Yeah.

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BECKY: So...
BUFFETT: I don't — I don't think they — I think they'd be thinking about the next
election. They think if they voted against it, you know, maybe if the people wanted it
and they voted against it they might not vote for those legislators.
BECKY: It sounded like you were blaming Congress just now for not bringing that
bill to a vote to this point. Other people have blamed Obama and his administration
for not forcing an issue.
BUFFETT: Well, Congress initiates legislation. That's their function under the
Constitution. You know, they take an oath to support the Constitution, it's their job
to bring forth legislation which they think is beneficial for the country. And here you
couldn't have had a better group work on it. They've come up with something.
Congress certainly hasn't come up with something, so let them take it up.
BECKY: OK. Is there anything that you would do to try and force that issue?
BUFFETT: Well, I think there may be some efforts going on in that. I'm not part of
them, but I — but I would certainly sign on to anything. If Clint Eastwood presented
something that said give us a vote, I'd sign it.
BECKY: OK. Let's talk a little bit more about some of the issues coming up this
November. I know that you are a supporter of President Obama's. You've raised
money for him. But you also told us when we sat down with you in November that
among the Republican candidates you liked Mitt Romney the most. Is that still the
way you feel?
BUFFETT: Yeah, I think — I would say that if I — among the four candidates the
Republicans have up, if one of them's going to be president I would probably prefer
it would be Mitt Romney.
BECKY: Why is that?
BUFFETT: I've looked at his tax returns, I've got his tax returns here. They're about
six times as long as mine. The — I just think that he would be more likely to makes
more sensible decisions and less — and less — fewer nonsensical decisions than any
of the other three.
BECKY: What did you find in his tax returns?

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BUFFETT: I found that he was paying a very low tax rate. His tax return and my tax
return are the only two that are out there...
BECKY: We knew that though.
BUFFETT: ...from the super-rich, so it's kind of a limited sample at the moment. And
his return, kind of interesting. We printed it on both sides of the paper. So here's —
this is on both sides of and take a look at it. It's a — it's a — it's a lot of pages. And I
don't fault him for anything in this tax return. He is doing exactly what the US
Congress told him to do. I do fault the US Congress for writing a tax code that allows
that kind of a return to be filed.
BECKY: And, again, this is some ground that we've covered earlier today already,
but your point is that the tax laws should be changed, especially for the very richest
Americans?
BUFFETT: Yeah. And if I don't fault him, though. But he is paying a much lower tax
rate counting payroll taxes than anybody in my office except for me, yeah.
BECKY: And...
BUFFETT: We will have people working on these presses here at the World Herald
and they will be paying a higher tax rate — they'll come here in the middle of the
night — they'll be paying a higher tax rate than Governor Romney or me.
BECKY: And that's what you would like to see changed.
BUFFETT: I think that should be changed. And these people have no voice in getting
that changed.
BECKY: All right, let's talk about some other issues, too. We have touched on a lot
of the different companies that you hold. Another major one is Johnson & Johnson.
And that's another company that you've been a shareholder in for a long time that's
also seen a management change recently. Bill Weldon...
BUFFETT: Right.
BECKY: ...is going to be the chairman but not the CEO. Alex Gorsky's going to be
stepping in there. How do you feel about that particular change and how do you feel
about Johnson & Johnson lately?

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BUFFETT: Well, Johnson & Johnson obviously is — has messed up in a lot of ways in
the last few years. You know, my friend Jim Burke used to run that and it does not
have the reputation now that it had, you know, a few years back. It's still got a lot of
wonderful products and it's got a wonderful balance sheet and all of that, but there
have been too many mistakes made at Johnson & Johnson.
BECKY: What went wrong?
BUFFETT: I don't know. I wasn't — but clearly they have not lived up to their own
standards.
BECKY: You have not been selling your stake though.
BUFFETT: No, we haven't been buying more, though, either.
BECKY: But why haven't you sold them?
BUFFETT: Well, we might. I mean, there are things I like better than J&J. The four
biggest ones I've named. And conceivably we've got a lot of cash around so I don't
need to sell things. We've got — still got 30-something billion cash around and so
I've got a lot of extra cash. So I don't focus on selling things that are — Johnson &
Johnson is still an attractive business at its price. But if I needed money that would
be on my — on my sell list as opposed to Wells Fargo or the others I've named.
BECKY: You still on the prowl for a major acquisition above $10 billion?
BUFFETT: You bet. You bet. Yeah, we — yeah, that's my job and the money does
keep coming in, and I like buying businesses better than anything else. Lubrizol was
a great buy for us, and you know, the best one we've made in recent years obviously
is BNSF. But I love the idea of buying big businesses for Berkshire that we can own
forever. As I mentioned in the annual report, we have — we know own eight
companies that each by itself would be on the Fortune 500 as a stand-alone
company. So there's 492 to go and I've got the names of every one of them in my
mind.
BECKY: OK. Andrew, you have a question?
ANDREW: Yeah. Warren, we've got a number of emails from people who've asked
why you haven't doubled down and bought more shares of Coca-Cola. You look at
the way the shares have moved, you know, ever over the past couple of years since

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the financial crisis is actually — it's obviously gone on a huge run. What's the
answer?
BUFFETT: It's a wonderful company. And it's our — at market it is our single biggest
investment. At market we've got almost $14 billion in it. So it already — I mean, it is
our number one investment. And it's not inconceivable we would buy more but in the
last year I bought primarily IBM. Among marketables I put almost $11 billion in that
and I put about a billion in Wells Fargo. I regarded those both as more attractive
then Coke last year, but that can change. I mean, I always think in terms of the ones
we own presently as to whether we should add to them. And Coca-Cola, Muhtar Kent
has done a terrific job at Coke. I mean, he's been a fabulous manager and Pepsi's
giving us a little help.
BECKY: Hm. You know, Warren, let's talk also about what's happening in Europe.
We've talked to you over the last year or so as we've watched the European situation
play out and you noticed that very early that it was going to be a big problem. Are
you convinced that Europe has turned the corner in terms of dealing with its financial
crisis?
BUFFETT: Well, it turned the corner in terms of its funding crisis for its banks a few
months ago when the ECB said they would give these three-year loans at 1 percent
and they gave almost — well, it was 400 and something billion euros, which
translates to maybe $600 billion.
I mean, they opened up their window. So they — the European banks were facing a
funding problem and they get less of their money from deposits and more from,
essentially, bonds...
BECKY: Mm-hmm.
BUFFETT: ...than the American banks, and they're in far different shape than the
American banks. So they had this huge funding problem that was really coming
down the pike pretty fast. The ECB solved that temporarily. But that does not solve
the solvency problems of European banks and it does not solve the imbalances of —
fiscal imbalances of countries that cannot print their own money. The basic problem
they have is they gave up their right to print their own money, the 17 countries that
are part of the Euro Union. So — monetary union — so you can't believe how
fundamental it is. If you owe money — the difference between being able to print
your own money to pay it and not being able to print is night and day. Now they are
wrestling with that and this action by the ECB to stave off funding problems for the

PAGE 65 OF 73
banks gives them more breathing space on that. But the problem hasn't been solved
yet.
BECKY: And the expectation is more money will be needed. This weekend the news
was that the G-20 kind of gave them the stiff arm in terms of looking for more
money there. They would like to see Germany and some of the other European
countries raise more money first.
BUFFETT: When you're spending more than you're taking in, which is true for the
European Monetary Union as a whole, big time, when you're spending more than
you're taking in and you can't print money, you have a problem. And you are
dependent on the confidence of the world to keep lending you more and more money
even though you don't — you're not able to print the stuff to pay them off. People
are very happy giving the United States government money because we can print it
to give it to them. How much it's worth is another question when you get it. The
danger is inflation, the danger is not getting back dollars. The danger in Europe is,
you know, how does a country that's spending more than it's taking in and can't
print money, how can it — if it loses the confidence of the market, the game is over.
BECKY: All right. Joe, you have a question, too?
JOE: Yeah. You got the — we got the big primaries coming up and one's in Michigan,
Warren, and I know you've seen the — all the debate being reignited about the auto
bailout, you've got, you know, Romney and Santorum talking about it in one respect,
we had Steve Ratner, you can't turn on the TV without seeing him somewhere
defending it and saying there would have been no DIP financing. The Wall Street
Journal weighed in over the weekend, I thought it was an interesting piece, the op-
ed piece, just talking about that maybe the whole bailout made the auto industry —
it's still there, the stocks are above zero, they're still running, but maybe didn't set
up the future that great for the auto industry here. Would you ever consider buying a
stake in GM or Ford at this point?
BUFFETT: Well, I've always felt it's too hard in the auto industry to predict who the
winners are going to be. There were 2,000 auto companies established in the United
States in the 20th century and what have we got left, you know, a couple. So it's
very hard to pick — to pick winners. I don't — there will be a big auto industry five,
10, 20 years from now that we will be selling lots of cars, I just don't know whose
cars they're going to be...
JOE: I mean, the...

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BUFFETT: ...any more...
JOE: ...the Journal...
BUFFETT: But I would say this.
JOE: Yeah, go ahead.
BUFFETT: Well, I would say this, I was kind of

on the fence about the auto bailout for quite a while. I mean, it kind of went against
my instincts, but I will tell you, Steve Ratner is 100 percent right when he says there
was not a dime of private capital that would have — would have been available for a
managed bankruptcy absent government help. I mean, look, it's very clear to me in
hindsight, it wasn't so clear to me at the time...
JOE: Right.
BUFFETT: ...but it's very clear to me in hindsight that the auto bailout was one of
the best things that have happened in this economy. The dominos that would have
fallen — you know, we saw dominos fall in September of 2008, we saw them fall so
fast and such big ones, you know, we did not need a repeat of that with what would
have started with the auto industry. But I do not claim any great foresight on that.
JOE: Yeah. Yeah.
BUFFETT: I have really mixed emotions.
JOE: The Journal delicately dances around that and says that, you know, in
hindsight it's tough to say if the government hadn't been there and there hadn't
been crowding out, nobody knows who might have come forward. They also go on to
say — they also go on to say that some of the foreign automakers that now build
cars in this country would have been interested in all of the assets if it had been
done in a — in a normal way and they'd be making — they may have bought, you
know, maybe we'd be making Toyotas in Detroit right now or something. But they
make the point...
BUFFETT: Mm-hmm.
JOE: ...that the steel industry was able to come back after the normal paths were
followed and it's been rationalized and that the future is much brighter because they

PAGE 67 OF 73
were able to deal with all the legacy issues. I guess Ratner and others say that a lot
of legacy issues were dealt with, but the Journal's point was that it would have even
been — all these balance sheet issues would have been rationalized even more, in
fact it may have had a better future. Now we've got CAFE standards that are going
to go to 50 miles per gallon, you know, very quickly and it's going to be a tough —
very tough future for our automakers here to try and hit those and give Americans
things they want to buy.
BUFFETT: I would just say this, Joe, if all of the steel — the big steelmakers, you
know, if 90 percent of the American steel capacity — if in March of 2009 it was all
running out of cash simultaneously, believe it, there would have been no private
solution. And I got a call in the spring — or maybe it was late winter — of 2009 and
— from one of the — one of the automakers and looking for capital, there wasn't any
place they were going to get a dime. I mean, it was — it would have been crazy to
put capital in unless an overall solution was going to be engineered by somebody
that really had the capacity to write checks, and that was the federal government.
And like I said, I didn't — that's not a philosophical answer, that is just a pragmatic
answer of what was going on in the world at that time. It would have been
devastating. It would have unwound the progress that we'd been making from the
fall of 2008.
JOE: Well, they're still too big to fail then, Warren, I mean we would have to do it
again. I mean, the precedent has been set, we will still — I mean they will never go
under. I don't know, you wonder — philosophically it's not good to talk about...
BUFFETT: No, they're...
JOE: ...but sometimes you do need to talk philosophically just because capitalism
doesn't work if we — if you know that it's going to happen every time.
BUFFETT: It's too big — it's too big to fail all at once. I mean it...
JOE: Yeah.
BUFFETT: ...it's just like — you know, General Electric was in line there...
JOE: I know.

PAGE 68 OF 73
BUFFETT: ...in September of 2008. Now they didn't — they didn't do anything
themselves, they were just one great big domino and they were right next to other
dominos that were toppling.
JOE: Yeah.
BUFFETT: But what we learned in 2008 is that when dominos topple in this society,
when big ones do, and when you start off with the two biggest institutions, Freddie
and Fannie, you know, of the United States government with 40 percent of the
mortgages insured and they go under conservatorship, you will find out that there
are an awful lot of dominos in line. And you've got to have a firewall someplace and
the only person that — the only entity that can come up with a firewall at that time
is the US government. And incidentally, there's not great moral hazard in doing what
they did. The shareholders of AIG, of Citi, of Freddie, of Fannie, you name it, they
got creamed. I mean, it isn't like they got rewarded for the fact that they had their
investment in it, they got totally creamed. They are not there sitting, `Goody,
goody, I want to do this again,' you know. So the moral hazard thing can get
misinterpreted.
BECKY: Joe, I think we have to sneak in a break here?
JOE: Oh, yeah, we definitely have to do that, or I will have moral hazard if we don't
— I've been told that personally.
Coming up, more from Warren Buffett. He's answering your emails and tweets, and
keep them coming, Warren Buffett is trending on — what does that mean?
ANDREW: It means that people are watching the show as we speak and they're
writing about this interview.
JOE: What does trending mean?
ANDREW: Trending means that there are thousands of people who are putting the
word "Buffett" in their tweets, which means that people are tracking it...
JOE: They're not...
ANDREW: ...and there suddenly is this trending.
JOE: ...they're not misspelling it, they're not headed to a buffet for sure? I mean...

PAGE 69 OF 73
ANDREW: They could be headed to a buffet, but more likely they're watching
SQUAWK.
JOE: I don't think any Twitter people go to buffets anymore, because old people —
right?
ANDREW: No, they're all in the buffet line tweeting at the same time.
JOE: All right. It's trending on Twitter big time, a lot of trending going on.
ANDREW: Yes.
JOE: Woo! Right behind "The Artist" and Meryl Streep.
ANDREW: Right.
JOE: Right. But first, we're going to get a — we got to get this — a sneak peek at
Squawk on the Street's new set at the New York Stock Exchange. High-tech
extraordinaire. SQUAWK BOX will be right back.
BECKY: We are back with Warren Buffett this morning. We've got a last few minutes
of questions before we are finished up here. And, Warren, Jim Cramer was just
making some comments about your view on stock buybacks, especially regarding
IBM. You now own about 5 1/2 percent of the stock of the shares outstanding for
that company and in your annual letter you laid out your cause for why you would be
happy to see them buying back stock and you're not necessarily looking for that
stock to go up over the last few years. That's a little controversial. You want to lay it
out?
BUFFETT: Well, I don't know whether it's going to go up or not.
BECKY: Yeah.
BUFFETT: I'm just saying that if they're going to buy back stock, they're going to
buy back a lot of stock, they've announced they're going to do that. If they buy it
cheaper and I'm a continuing shareholder, I'm better off. I mean, if three people own
a McDonald's stand and you can buy out a — one of the three for a fifth of the total
value of it, the other two are better off at the end. And any time you — any time you
buy your partner out at a discount, you benefit. Now there's no moral problem

PAGE 70 OF 73
attached to that in the stock market because markets set prices, you wouldn't want
to do that in a private partnership.
BECKY: Right.
BUFFETT: But I'll love it if IBM buys a ton of stock, and the cheaper they buy it, the
better I'll do over time.
BECKY: OK. Let's talk about gas prices once again, because we did have a lot of
people who wrote in who said that they are feeling the pinch of gas prices already.
BUFFETT: Sure.
BECKY: I guess gas price is up around $3.80, somewhere in that realm. We could
very likely see it push back above $4. There are people who, again, who are writing
in who say they feel it and it could end up cutting into what they spend in other
places. Could it eat into the economy?
BUFFETT: Well, it is a minus, there's no question about it.
BECKY: Mm-hmm.
BUFFETT: I mean, if you spend more on gas, you've got less to spend on other
things. We have — you know, we had $147 a barrel oil, too, so I mean, we've lived
through it in the past. And $30 oil was a shock in the 1970s and it had an effect on
the economy. So any time an important part of the American expenditures goes up
in price, whether it's food or whether it's gas, you know, it has an effect on
everything else, no question about it.
BECKY: I know that you look at a lot of different factors and that overall you are
very optimistic about the future not only of this country but also of the stock market.
But if you have a list of worries, what's at the top of that list?
BUFFETT: Well, the biggest worry is nuclear, chemical and biological attack of some
sort, whether by a government or by a rogue group, and that will happen someday
in our future and it'll be anything from a large tragedy to an unbelievable tragedy.
BECKY: Right now it's not — it's not on the forefront of Americans' minds, although
a lot of the things that are happening in the Middle East right now are creeping back
up there.

PAGE 71 OF 73
BUFFETT: Yeah. Well, it'll happen sometime when it isn't on their — on our minds,
just like the attack in — on 9/11. I mean, there are people that wish us ill and they
— and they wish us a lot of ill if they can pull it off. So nuclear, chemical and
biological knowledge has spread, and there are plenty of people that would like —
wish us ill, so that is the biggest worry we have. But in terms of the economy and all
of that, the luckiest person born in the history of the world is the baby being born
today in the United States. I mean, in terms of the outlook for their lives, they are
going to live better than John D. Rockefeller lived or better than I live and so on. I
mean, it — our country's future is just — it's fantastic.
BECKY: Warren, if you had to compare the stock market and how you feel about it
right now vs. where you did back in October of 2008 when you told people to buy
stocks, you were, how would you briefly sum that up?
BUFFETT: Well, they were cheaper at that time. It's become clear now that the
dominos aren't going to fall, so people are less worried now. But the time to buy
stocks is when people are most worried, and October of 2008 was a better time than
now. This is a better time than 10 years from now will be.
BECKY: OK. Warren, we want to thank you very much for joining us here this
morning and being so generous with your time.
BUFFETT: Thanks for coming.
BECKY: We appreciate it.
And, guys, we'll send it back to you in the studio.
JOE: So Warren, you won't come to the

correspondents' dinner with me, that's all right.
All right, that's fine.
BUFFETT: I'm sending — I'm sending another brick, Joe.
JOE: I'm going to...
BUFFETT: It's in the mail.

PAGE 72 OF 73
JOE: ...I'm going to — you know, I'm going to ask Bill Murray, then. If you're not
coming, I'm going to ask Bill — I'm going to ask Bill Murray. But I asked you first,
don't say that I didn't.
BUFFETT: Oh, I got it.
ANDREW: Warren, how would you — if I took Ed Asner, would that be OK, or is that
sort of off-limits? You know.
JOE: That's — you...
BUFFETT: I think Ed Asner got overlooked in the — in the Oscars. I'm amazed.
JOE: He's a little more conservative.
BUFFETT: Those people have no judgment of talent.
JOE: He's a little more conservative than you are.
ANDREW: Wait, you're going to say he's a little more conservative...
JOE: No, than you are, Andrew, yeah.
ANDREW: I'm not so sure about that.
JOE: You — but you guys can have a meeting of the minds.
ANDREW: OK, we got to run. Warren, thank you so much for a wonderful three
hours, a lot of news there.
JOE: A lot of time.
ANDREW: Make sure you join us tomorrow.
Transcription by BurrellesLuce
Photos by David Grogan for CNBC
©2012 CNBC

PAGE 73 OF 73
CNBC Transcript: Warren Buffett Says US Economic Growth
Slowing
CNBC Transcript: Warren Buffett Says US Economic Growth Slowing Alex Crippen | @alexcrippen Published 2:04 PM ET Thu, 12
July 2012 Updated 4:33 PM ET Sun, 2 Dec 2012 CNBC.com
July 12, 2012
This is a transcript of Warren Buffett's Sun Valley live interview on CNBC's Squawk Box, July
12, 2012, from 7:30am to 8:00am ET.
In his conversation with Becky Quick, Buffett says he now sees U.S. economic growth
slowing, but residential housing is picking up slightly.
He also says Europe has "been slipping pretty fast" over the past six weeks.
BECKY QUICK: Mr. Buffett, thank you for joining us this morning.
WARREN BUFFETT: It's good to be here.
Buffett Sees Pick-Up in Residential Housing 7:30 AM ET Thu, 12 July 2012
BECKY: It's great to see you. And we couldn't think of a better time to have you on because
there are so many questions about what's been going on with the economy, what's been
going on with the jobs picture. Why don't you tell us what you're seeing right now in your
businesses?
BUFFETT: Well, I've got a little different story this time. (Laughs.) For a couple years I've been
telling you everything except residential housing was improving at a moderate rate — not
crawling, but not galloping either — but that residential housing was flatlining. And the last
two months it's been just sort of the opposite. The general economy in the United States has
1/9
been more or less flat, and so the growth has tempered down. But the residential housing,
we're seeing a pickup. It's noticeable. It's from a very low base. It doesn't amount to a whole
lot yet, but it's getting better. So you've got a kind of flip-flop on that.
BECKY: What happened? When we talked in the past you had said that when housing turned
that would be when the U.S. economy would turn. What happened?
BUFFETT: Well, it hasn't changed all that much yet. But it is picking up. But at the same time
the rest of the economy is slowing down. It's not heading downward but it's not growing at
the rate that it was earlier. And then, it's kind of interesting in Europe. For a year or so, in
most places, forget about Greece for the moment, but generally in Europe you didn't have a
big slowdown. You had a lot of worry and all that. But in the last couple months in Europe,
particularly in the past month, it's pretty much across Europe, things have really started to
slip pretty fast.
BECKY: We've heard this from a lot of CEOs who joined us in the last several weeks. But what
business lines in particular do you look at and you see these things popping up?
BUFFETT: All of the businesses that we have, and then I talk to people in other businesses.
It's pretty clear that's what's going on right now. There are certain figures I can't tell you
where I get them. Europe is really — it's headed downward in the last, I don't know, six
weeks or so. And it wasn't going that way before. It wasn't doing that well, but it wasn't —
and then it hit the skids.
BECKY: Is that because of consumers or because of businesses, confidence really slowing

down and spending slowing down?
BUFFETT: Yeah, well, spending is slowing down and when spending slows down business
reacts. They're not seeing the same kind of spending so they pull in their horns some.
BECKY: What, of the things you can talk about, the numbers that you do see, concern you
the most?
BUFFETT: Well, it's pretty general, Becky. Like I say, it has not turned down yet in the United
States. Our freight car loadings are up week-by-week. I normally get them today but I'm not
home, so — but last week they're up — the eastern railroads were down moderately, but a
lot of that's coal. But nevertheless, just across the board, when you're looking at our retail
sales, jewelry or furniture or you name it — yards of carpet are down, our carpet business is
better. But on the other hand, if you look at — we're the largest home builder in the country,
Clayton Homes, and that's up, brick is picking up, but these are from low levels. But you are
seeing — in our real estate brokerage firm, which is the second largest in the country,
pending sales are up by a reasonable amount but from a very low base.
BECKY: Well with everything else — not a reversal, a slowdown in the growth, what
happened? What happened six weeks ago to spook people, to spook businesses?
2/9
BUFFETT: I don't know the answer to that. I know the result. You could argue in Europe, why
it was delayed so long? Because Europe has really been — you could see this coming for two
— it was two years ago we saw a lot of our Spanish and Italian and even French bonds. We
were overly cautious probably. But that was two years ago. Europe, with all that's going on, it
probably kept it from having any kind of gains but it didn't really seem to sink in. But I would
say the last, well I know the last couple months, with some acceleration, it's been hitting over
there.
BECKY: We've watched the jobs picture and the last employment numbers at 8.2 percent
from that government report last Friday. Is that a chicken and egg cycle? Are people watching
the jobs number and getting spooked by it, or is the jobs number kind of —
BUFFETT: Well, you're right. There is some circularity in it. I don't know the answer to exactly
why it's happening. And I don't know what it will be three months from now or six months
from now because three months ago I didn't know what it would be today. The U.S. economy
is doing better than virtually any big economy around the world. This economy has come
back a long way, with the exception of housing, from where it was a few years ago. And you
can see it in corporate profits. I thought it would take housing — I still think it would take
housing coming back to move us generally, significantly, upward and I still think that's true.
But so far the little pickup in housing has not been near enough to offset whatever is going
on in the world generally.
BECKY: The Fed came out with their minutes yesterday. Obviously they're concerned about
the economy. They say that they could step in to do something else. But I guess the question
becomes what would it take for them to step in and what do they do at that point?
BUFFETT: Yeah, I— I have my own doubts. I'm sure Chairman Bernanke would disagree with
me. And he knows a lot more about it than I do. But I— I do— I— you know, when you get—
when you have interest rates down to— to zero, not only here but— in the main— in the
major com— countries in Europe and— and you have the— you have a 15-year treasury
inflation— protected, so called TIPS, security selling at a negative yield.
Fifteen years, people are willing to put their money out at a minus rate— in real terms. That
— that— that— that— that's about as far as you can go. I— I— I— now I— I'm— you know,
you can talk about more easing or that sort of thing. But— you know, the banks are sitting
with enormous amounts of money at the Fed. They don't want to be sitting with that money
at the Fed. I mean, it— it's— it's bringing 'em a quarter of a percent or something. You lose
money on that money at the Fed, just from the bank standpoint. So they're not happy having
that money at the Fed. They just aren't seeing that much demand for— for loans.
BECKY: So—
BUFFETT: Although they're picking up a little. I mean— but it's— nothing like— people would
like to see. I— I don't see— I don't see what the Fed does that's— that— is dramatic.
BECKY: Is— does that mean we're in a "wait and see" pattern? And—
BUFFETT: To some extent. And then it— it— it also means that— that— that— (LAUGH) that
3/9
they shouldn't be bicycling like crazy at the Fed while— while— well— they— they may—
maybe they should be bicycling like crazy, but it— but while Congress sits there on the
sidelines and— and, you know— and— basically squabbles.
BECKY: What should Congress be doing, at this point? I mean, we're gonna talk more with
Simpson and Bowles a little later this morning. But you think that there's something that
Congress should be doing right now?
BUFFETT: Well, I think— I think people have a feeling that— that— that Congress is— is
inept. And— and— and— and sort of paralyzed by— by the desire of each side to make the
other side look bad. So I— I— I think that has gotta be a factor in— in— in general
confidence. You know, if you see your government not functioning, (LAUGH) it's not— it's not
really the most— it's not the biggest spur to activity that you can imagine.
BECKY: Yeah, maybe not a confidence booster, so to speak.
BUFFETT: Yeah, so— so I— I think— I think it's hard for the Fed to offset the Congress, in
terms of changing public opinion.
BECKY: Okay— we're gonna have more with Warren Buffett in just a moment.
Europe's Future and the Libor Scandal

BECKY QUICK: We are live in Sun Valley. And we are joined by Warren Buffett. And Mr.
Buffett— well, let's get back to what we were talking about with Europe before. The spreads
blew back out again. And all of the fixes we thought we'd seen from the ECB— at this point,
they seem to be lasting for less and less time. Back above 7 percent for some of these bonds.
What's this mean? Where— where are we headed?
WARREN BUFFETT: Well, it means that— that— a fundamentally flawed system was designed
some years back. And we've been trying to— or they have been trying to patch it during the
last couple of years. And— and— it's hard to change— a very fundamental, important
system with patches, particularly when 17 people have a say in where the patches should go
and what kind of patches you should use. So it's— it's— it's— it's not an easily solved
problem.
BECKY: Well, at this point, as you mentioned, it's really hurting the economy there, as well,
starting to drag down in— in a major way.
4/9
Buffett on Europe's 'Fundamentally Flawed System' 7:46 AM ET Thu, 12 July 2012
BUFFETT: Particularly in the last few months, yeah.
BECKY: So what's the end result over the next six months or so?
BUFFETT: Well, ten years from now, Europe will be working fine. But they— they— but the—
and they will be consuming more there. They'll— they'll get it worked out. But— but there's
no obvious answer. And— and— and that becomes more and more apparent as they go
along. And— and like I say, they're— they're— they're trying to put patches on something
that's got a lot of leaks.
BECKY: But— patches on something that has a lot of leaks, you could have a lot of different
solutions to the end of that. Is the euro still gonna exist ten years from now? Europe will, but
will the euro?
BUFFETT: I don't know. I don't know. And I don't think they know. I mean, it— it— it certainly
can't exist as originally designed. We've found out that— that trying to have a common
monetary unit, when you don't have somewhat common fiscal policies and cultures and
work rules and all kinds of things— just doesn’t work. And— and— how they'll— how they'll
resolve that is anybody's guess.
BECKY: Obviously, it— it depends on who's in charge, who the leaders are. And the leaders
there seem to get voted out every time— a new election comes along. So if there's a constant
changing set of players at the table, how— how is there a good solution?
BUFFETT: Yeah, well, I— I— I— I— I— I would not know the solution myself. I mean— Henry
Kissinger said a long time ago, you know, "If I want to call Europe, what number do I dial?"
And— and, you know, essentially, that's the problem. I mean, they— the— when we had our
crisis in 2008, everybody knew the responsibility was on Bernanke and— and Paulson and—
and— with the president behind 'em. And— as long as— as long as they knew where they
5/9
were going, they had the will and the— and— and— and the ability to do things that were
needed to do. But exactly who has the ability— when— when you don’t have a printing
press, you— it's— it's a different animal.
BECKY: You know, we— we've been watching the headlines— over the last several weeks.
And the manipulation of Libor is just the latest in a series of scandals— that has to break
down the public's trust in what happens with financial institutions, what happens on Wall
Street. What— what do you think about what's happened with Libor and how big of a deal is
this?
BUFFETT: Well, it— it— it's a big deal. It's a big deal. I mean, it— you know, you've got the
base rate for the whole world— including— including some— loans we have— in the past.
And— so— the— the idea that a bunch of traders can— can— start emailing each other or
phone each other and— and— play— and play around with that rate is— is an important
thing. And— you know, it— it is not good for the system.
BECKY: Does it shake your confidence in the system?
BUFFETT: Well, I— I've got a lot of confidence in the system over time. No, the— our system
works. I— you know, we are sitting here in Sun Valley in pretty good circumstances,
compared to a couple hundred years ago. So— we're— we're not working any harder than
they worked 200 years ago. We're not any smarter. But we— we live far differently. So our—
our system works over time. But— but— it sure shakes— (Laughs) it shakes your faith in
certain institutions, I'll put it that way. Not the— but not the whole system.
BECKY: I know Andrew's got a question for you, as well.
JOE KERNEN: I just— before Andrew's gonna talk about JPMorgan, I just, Warren, wanted to
quickly ask. But— Bob Diamond, very good executive— I know that in the past— you know,
we— Goldman had some P.R. and some— you know, some ethics issues. You said— I mean,
you wouldn't want— you— I don't think you want— Blankfein to lose his job. I don't know
what you wanted to happen with the— the officers at Wal-Mart. And I'm wondering whether
you thought that this is an overshoot that— that Diamond is just— unceremoniously
dumped. And— you know, he was an American in— in London. And— I mean, would you—
don't— wouldn't you rather have him stay, if you were a Barclay's shareholder?
BUFFETT: Well, I'm not a Barclay's shareholder. But I— I don't think he had any choice but to
go. When— with something as big as Libor— you know, if it happ— it— and he wasn't in
charge of all of Barclay's, at that time. But— but— there are a lot of things that went on in
that trading room— that— who knows who was aware of what? And I don't know anything
specific about it. But— that was not— that— it was not a rogue trader. Let's put it that way.
JOE: You don't have different opinions based on whether you own shares in the stock,
though, right?
BUFFETT: Well, I— no, not on this. But I— I may know less about it.
JOE: Sometimes— sometimes maybe, yeah.

6/9
BUFFETT: I haven't foll— I haven't followed Barclay's.
JOE: All right.
ANDREW ROSS SORKIN: Hey Warren—
BUFFETT: You know, at Salomon we had— you know, some problems in— and they had to
go.
ANDREW: Warren, talking about trust— and a company that you do own a stock in,
JPMorgan— we're gonna hear from Jamie Dimon tomorrow what their earnings are. And
we're gonna try to hear some more about what happened to that soured trade. Your views
on— on the trade itself? Your confidence in the company? Your confidence in Mr. Dimon?
BUFFETT: Yeah, I— I think Jamie Dimon is one of the best bankers in the world. And— if I had
a bank— I— I like John Stumpf a lot too— incidentally, at Wells Fargo. But if— if— if I owned a
bank in Omaha and I could get Ja— Jamie to— to run it for me, I would feel very happy. And—
no, Jamie— Jamie understands banking. He understands risk. And— and— you know, it was
— it's a significant loss. But you l— you— he— J.P. Morgan lost billions and billions and
billions of dollars on loans. I mean, if you— if you've got a couple trillion dollar balance sheet,
you're gonna have some losses some places.
ANDREW: Do— do you have any different views as a result of this, about the Volcker rule or
some of the regulations that are part of Dodd-Frank?
BUFFETT: Well, I— my partner, Charlie Munger is more Old Testament than I am on this. But I
— I do think that— I think there are good reasons to restrict the activities that banks can be
in.
ANDREW: So the activities that led to these losses, you would preclude JPMorgan from
participating in, in the future?
BUFFETT: Well, it— it's— it's hard to say what they— those acti— I mean, if they're truly
hedging risks— you know, I— I— there's— there's certainly a lot to be said— if— if you're
running a bank and you— you— you want to hedge interest rate risk, hedge foreign
exchange risk, I mean, that— that— that's perfectly proper. We do it in our— in our energy
companies. We— we have— we have transactions all the time to hedge risks.
So if somebody goes off the reservation and— and starts— turning hedging positions into
speculative positions, you know, you may have a problem. But that— that was not policy at
JPMorgan. That— you know, that was one fellow's — near as I can ascertain that— that—
that went very, very big in a position that was originally designed as a hedge position. And—
and then he put a hedge on a hedge and— and— pretty soon he had what they call a Texas
hedge.
BECKY: Hey, Warren, can we go back to Libor for a moment, too?
BUFFETT: Sure.
7/9
BECKY: You mentioned that you have some contracts and some— some things that are
based off of Libor that have been there— I— I'm guessing derivatives and some other things
that have been in that?
BUFFETT: Well— yeah, we— we own some auction rate— municipals, for example, that are
priced off Libor — a couple billion.
BECKY: So what happens? If— if Libor was manipulated, do you have a case to go back and
have a complaint, to have— a lawsuit, to have anything that comes up with any of this?
BUFFETT: Well, I— I think— there certainly will be a bunch of lawyers that will think that. And
— and— it— if you can pin down the person that did something to you. And they had— and
— there may well be some kind of a case. I mean, we— we bought these securities in the
market auction rate. Municipals that have— they're tied to Libor. I have a feeling that in— for
any one entity, the amount might be very, very small, but— but it—
BECKY: It's over $3 trillion of things—
BUFFETT: — but it's a huge mark— oh, it's a huge market.
BECKY: — that are priced against this.
BUFFETT: I mean— it— it's— the— the numbers would stagger you.
BECKY: So— how big of a problem could this turn out to be down the road?
BUFFETT: It could turn out to be a big problem. But we don't know what banks did what, at
this point. But— but— well, go back to our Salomon experience. You had one fellow with one
bo— a couple of bond issues, and— it— that caused a lot of trouble. And— and you get
Libor, then you're talking about the whole world.
BECKY: Right. And everybody associated with it.
BUFFETT: Everything is— everything's tied in. And of course, you're in this terrible position, if
you— if you have— millions of contracts based on Libor and one side profits from— a given
price being out of line, and the other side loses— you're not gonna collect from the fellow
that got the benefit. If you're in the middle of the trade, you're just gonna have the people on
the losing side of each trade— come after you. So it— it— it's very asymmetrical for the
person that's got a bunch of trades on it.
BECKY: Okay, so it could be a potentially huge can of worms.
BUFFETT: It's— it— it is a can of worms.
BECKY: It is a can of worms. (LAUGH)
BUFFETT: I will guarantee. It's— it is a can of worms.
BECKY: Okay. Warren, we're gonna have much more in just a moment. We want to thank you
for your time.
8/9
9/9
CNBC Transcript: Warren Buffett on Squawk Box
CNBC Transcript: Warren Buffett on Squawk Box Alex Crippen | @alexcrippen Published 10:46 AM ET Mon, 7 May 2012 Updated
5:16 PM ET Sun, 2 Dec 2012 CNBC.com
May 7, 2012
CNBC/Lacy O'Toole
Warren Buffett and CNBC's Becky Quick in the Hollywood Diner, Carter Lake, Iowa
This is a transcript of Warren Buffett's live appearance on CNBC's Squawk Box on Monday, May
7, 2012.
Announcer: This weekend Warren Buffett faced tens of thousands of Berkshire Hathaway
shareholders. Today he faces SQUAWK BOX. Plus, in depth conversations with Berkshire board
members Charlie Munger and Bill Gates. This is a special presentation of SQUAWK BOX live from
the Hollywood Diner just outside Omaha.
BECKY QUICK: Good morning, everyone. Welcome to "Squawk Box" here on CNBC. I'm Becky
Quick along with Joe Kernen and Andrew Ross Sorkin. And today we have a very special Squawk
newsmaker with us, Warren Buffett. He is the Berkshire Hathaway chairman and CEO, and he's
going to be joining us for the next three hours. He is ready to offer his take on the US markets,
European elections, the global economy, and much more.
But first, before we get to all that, let's bring you up to speed on the overnight market headlines,
and for that we get over to Andrew.
Andrew, good morning.
ANDREW ROSS SORKIN: Hey, Becky, good morning.

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***
ANDREW: Becks.
BECKY: All right, Andrew, thank you very much. By the way, congratulations on making it back
last night. I know that wasn't easy.
ANDREW: It was a tough flight. It was a tough flight. But it's good to be back, and it was good to
be with you and Warren over the weekend.
BECKY: It was. It was great seeing you here. We're going to talk about a lot of things this
morning, but obviously with so much of the global market turmoil, there couldn't be a better day
to be joined for three hours by the world's most successful investor. Warren Buffett is here, got
up extra early with us because, of course, out here it's only 5 AM.
Warren, thanks for getting up early, first of all.
BUFFETT: We've got to start this earlier.
BECKY: You saw what happened overnight.
BUFFETT: Yeah.
BECKY: Based on the elections in Europe over the weekend, what do you think about what's
happening right now with the global market sell-off?
BUFFETT: Well, it really doesn't make any difference to us. We were buying stocks on Friday, and
we'll buy the same stocks today, and we'll buy them a little cheaper. So I never complain about
buying things cheaper.
BECKY: You were buying stocks on Friday. You said stocks, multiple. This is not just one issue
that you're in to?
BUFFETT: Well, just two.
BECKY: There's two stocks that you're buying?
BUFFETT: Yeah.
BECKY: Are these U.S. stocks?
BUFFETT: Yes.
BECKY: Are these— a little— a little bit further.
BUFFETT: I think you've exhausted your...
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BECKY: What I'm going to get out of you on this? But you had two stocks that you were buying.
Are these issues you've been looking at for a long time?
BUFFETT: It's issues, issues we already own.
BECKY: OK. So you're adding to your positions.
BUFFETT: Yeah.
BECKY: And you'll buy more today based on this sell-off?
BUFFETT: Yeah. We— the lower they go, the more we like it.
BECKY: Obviously, though, what's happening right now in Europe is something that people have
been looking at for a long time.
BUFFETT: Sure.
BECKY: You've been worried about the Euro for a long time as a result. And when you see this
shift away from austerity and the pushback that's coming from the voters, what do you think it
means for the future of Europe?
BUFFETT: It's going to be very, very difficult to resolve their problems. I mean, not only are there
problems of having 17 countries, but you've got problems with getting the constituencies in
those countries behind and coordinating in some way. So it's a really tough problem.
BECKY: Did you anticipate, just kind of as you thought things through, that the voters might
swing this direction over time?
BUFFETT: I don't— it's not surprising. I mean, you tell people to tighten their belts and then you
give them a chance to vote on it.
BECKY: Hm.
BUFFETT: It's the real problem of dealing with 17 countries, though, because even if you
managed to sell the people on one or two or three countries on the fact that it's an advisable
course of action, you really need 17 going in the same general direction. And if you're going to
have a common monetary unit, you're going to have to have somewhat common fiscal policies
as you go along.
BECKY: Right.
BUFFETT: And it's difficult.
BECKY: So right now we see what's happening and— we see what's happening and we get the
fact that this is a bit of a sell-off, this is some trouble that comes along the way. I know it's really
difficult to predict what happens, but if you look a little farther, if you try and look two, three
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years down the road, where do you think we wind up with Europe?
BUFFETT: Well, I really don't know the answer, but there's going to be— there'll be a lot more
episodes. On the other hand, 10 or 20 years from now, Europe will be producing more goods
per capita. I mean, Europe is not going to go away. It's a huge market, people have lots of skills,
you've got lots of— you've got factories, you've got wonderful companies over there. So it isn't
like it's the end of the world, but it can be one very messy process in getting from here to there.
We will get to there.
BECKY: What does it do in relationships to the United States? We talked to a lot of people this
weekend, including Bill Gates, who pointed out that the United States has not fixed its deficits or
its problems. You know, you look at the euro and it's now at a three-month low. I think it was
dropping and testing that 130 mark earlier this morning.
BUFFETT: Right.
BECKY: The United States looks like a stronger place, at least the Treasurys have a little safer,
but how long can that continue?
BUFFETT: I think it'll continue a long time. The United States is on a different path, and we
addressed the problems of our banks three years ago very decisively, and we put lots of capital
in them, and they've retained lots of capital, and they've cleaned out a significant percentage of
their bad loans. So we have a whole different banking system in the United States, plus we have
our own currency. And being able to issue all of your debt in your own currency is just an
entirely different game than having to issue it in some other currency.
BECKY: The ECB has figured out a way to extend its balance sheet, though, with the LTRO. Do
you expect more fiscal easing— more monetary easing policy to come from them?
BUFFETT: Well, a trillion is not— a trillion euros isn't bad. I mean, they had a— they really had a
funding scare, whatever it was, five or six months ago, and the banks there, they're in weak
capital positions in many cases. They're— in many cases they're loaded with sovereign bonds
that market to market don't make them look very good. And so they have— they had a big
funding problem coming up, and the ECB stepped in and they stepped in in a very major way
and they stepped in with three-year paper. So you have to congratulate the ECB on heading off
that particular kind of a funding crisis. But the problems haven't been solved with the banks
over there. The liquidity problems have been solved, the funding problems, but the— they need
more capital and they've been very reluctant to raise capital. I mean, you have not since the
banks over there raise capital. You had one in Italy that did it, but they've got a— they've got a
lot of problems. I want to emphasize they'll solve them.
BECKY: Right.
BUFFETT: But not necessarily without a lot of pain.
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BECKY: Well, and that's where the politics get awfully ugly.
BUFFETT: Yeah, that's where...
BECKY: In Greece, for this election over the weekend, you actually saw 20 neo-Nazi candidates
who came into power. That's the first time that's happened since 1974 when the military
dictatorship fell there. And I guess you've seen a lot of things like this before. Does this worry
you as you start to see this turn politically?
BUFFETT: There are a lot of things that worry me in the world, but I also believe that they get
resolved. But asking people to vote for pain, you know, is not necessarily a winning political
slogan. We're not going to have two candidates in this country that are going to ask people to
vote for pain. And it can be done under certain circumstances. I mean, obviously, in a time like
World War II, people really voted to restrict their own consumption and activities, all kinds of
things. But it's not an easy job, and it's particularly not an easy job to get a number of countries
to do it. And they always point at the other guy and say, `He's getting a better deal than we are,'
and that sort of thing.
BECKY: Right. I know Joe and Andrew have some questions from back in the studio, too. Guys:
JOE KERNEN: Questions and comments, I guess.
BUFFETT: Not that— that's a surprise, Joe.
JOE: Yeah. It just— I guess the whole structure of the EU and the common currency without the
fiscal coordination, I guess I didn't think it through enough to see how it's actually going to work
when this happens. You're really talking about the southern countries that have sort of lived
beyond their means, saying, `No, I won't accept— even though we're broke, I won't accept
austerity, and I want Germany to keep funding my lifestyle.' And you're expecting the Germans
who have, you know, they had their own trouble when they had to bring in, you know, Eastern
Europe, and they went through a lot of austerity themselves. And they've worked hard, and they
finally get their day in the sun where things are going well and you've got an entire southern
region asking them to fund their lifestyle. What would normally happen, Warren, I think, is that
you can't get people to accept austerity, so you devalue your currency, and de facto their buying
power goes down, and they sort of have to accept it because that's the way it works.
BUFFETT: Yeah.
JOE: And then you have better exports and seeing— and without being able to do that, I don't
see how this finally works. But I don't see, you know, when France goes, `Nonny, nonny, nonny,
we're going to elect a socialist and not accept austerity, and we want Germany to keep, you
know, keep paying for everything,' it just— I'm watching it happen, and I'm trying to think of the
— what we could— how it would work here. I know that we've got some poor states that the
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federal government, you know, has to subsidize more than some of the other states, but we just
don't feel that way here in this country. They have not accomplished the United States of
Europe, and they're nowhere near there.
BUFFETT: Well, you should've told them that 15 years ago, Joe, because you've given an analysis
of the problem, and they do not have an answer for you.
JOE: I mean, I don't— I really— and we talked beforehand, Andrew says he's been worried about
it for a while— but short of this just not working and just sort of accepting defeat, I don't know
how this really looks. I don't see how— I don't know what the next step is in terms of whether
someone— don't you think it's time for Greece, maybe, to exit the euro?
ANDREW: They might have to ultimately exit the euro.
JOE: Well, everybody might have to ultimately exit.
ANDREW: Well, look, that's what I've been saying. I said the second you get Hollande in there,
the relationship with Merkel, it's going to be very difficult. My question for you, Warren, this
morning is, is there any company that you've been keeping an eye on in Europe or anything in
Europe that you would actually invest in today given what's happening?
BUFFETT: Well, we bought outright a Dutch company late last week, so you know, Europe isn't
going away. But everything that Joe said is 100 percent correct, and no one knows the answer to
the points that he— that he laid out. But that doesn't stop us from buying a good business over
there. I— if I got a call today on some major company in Europe that I understood and that I
knew had good products and a good future, we'd buy it. Now, we don't— we take into account
what's going on over there, but we buy it.
ANDREW: I mean, I...
BECKY: What would happen, though? Oh, go ahead, Andrew.
JOE: No, I'd just be embarrassed if I were the French, you know. It would be like going back to my
parents again and again and again and asking for money. Eventually my pride would stop me
from— you know, the proud French— but they can't live the way they've been living, and yet
they're still straight-faced going back to the Germans, saying, `We're not— we're not going to
cut. We're going to continue...' Because there's not enough millionaires, are there, Warren, to tax
at 75 percent to pay for the 56 percent of GDP that goes for the government? There's not
enough people there to do that.
BUFFETT: But, Joe, if you were an impecunious nephew and you had a rich uncle and he doled
some things out to you before, I'm not sure you'd be too embarrassed to go back to him...
JOE: Yes.
BUFFETT: ...if you thought you could get a little more.

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JOE: You just— you would just— Warren, we had a 2.2 percent GDP, too, which was slowing and
— for whatever reason. Then we had the employment report where I think over the weekend it
looked more negative to me. The more I read, the more negative it looked as people gave up on
looking for the— there's no way that what's happening over there can possibly be seen as
anything but a negative for our numbers. Maybe it doesn't take— maybe it doesn't take a
material amount off the GDP, but it's certainly not going to add to GDP by force here, will it?
BUFFETT: Well, I think you're probably right on that. But we don't buy stocks or businesses
based on the outlook for the next three months or six months.
JOE: Yeah.
BUFFETT: I bought my first stock in the— in the spring of 1942 when I was 11 years old. And, at
that point, we were losing the war of the Pacific to the Japanese. And, I mean, if you read the
headlines every day, it would be kind of fun to go back and look at the headlines on the day I
bought my first stock because, you know, things were looking terrible until the battle of Midway,
and I bought in a few months before that. So I think it's a terrible mistake. I think the worst
mistake you can make in stocks is to— is to buy based on— to buy or sell based on current
headlines.
JOE: Mm-hmm.
ANDREW: Hey, Warren, in the great debate between austerity and stimulus, and it may be
almost unfair to frame it that way because we probably need a combination of both, how do
you think about this issue when you look at what's happening in Europe and you look at this
debate, which by the way, is a debate that's happening here?
BUFFETT: Yeah. I think actually, you know, nobody knows because you can't run controlled
experiments, but actually I think we've handled it pretty well here and much better, I might say,
than the Europeans, but we've had an easier way to handle it than the Europeans. So if we'd had
their structure, who knows what would happen. But because we've had a structure where if the
Fed and the Treasury and the government basically said, `We've got the will and the ability to
give this country a jolt on the way back,' we can follow the policies we set out to follow. And we
have had stimulus from the word go in the fall of 2008. We only call that particular bill, in fact,
we didn't even call that a stimulus bill because the term got unpopular. But we've had continued
stimulus. Anytime you're spending 7 or 8 or 9 percent more of GDP than you're taking in as a
government, that is huge stimulus by any Keynesian definition. I don't care whether you call it
stimulus or you call it anti-stimulus, it's stimulus when the government is spending way more
than it's taking in. And we have stimulus right today. I mean, we are— we are running on at
whatever it may be 8 percent of GDP as a deficit and Keynes is probably cheering up in heaven.
BECKY: Yeah, but the other side is saying it's too much.
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BUFFETT: Well, we're going to have an argument about it, and we'll have a lot of argument
about it between now and Election Day. But I would say overall that the policies we've followed
since really the great crash of 2008 have been pretty darn good. I mean, I— you know, it'd be
nicer if GDP were galloping maybe at 4 percent or 5 percent, but we have had a— we have had
a, completely, a resuscitation of the buyability of the— of the banking system. We've had, all
cases except residential construction, we have had the economy come back in a very significant
way. And month by month, it gets better and we've got all these businesses. And again, with the
exception of residential construction, most of them are having record earnings. The big ones are
all having record earnings. We're employing more people, but not at any galloping pace.
BECKY: Maybe we can talk a little bit more about that after this quick break, but maybe this idea
of how to you get back to 4 to 5 percent growth, and can the U.S. do it?
BUFFETT: Mm-hmm.
BECKY: OK. Joe, we'll send it back over to you, but that's something we can get to right after this.
JOE: All right. I like— does Warren think civilized people don't invest in gold?
BECKY: Ah, Charlie's...
JOE: Charlie thinks that.
BECKY: Yeah, Charlie Munger's comments over the weekend.
JOE: I know.
BECKY: Yeah.
JOE: Does Warren think it, too? I mean, I just— it's such a great quote, and I love when the— I
mean, the gold bugs. We usually dance around the whole discussion about— and Warren in the
past has talked— he'd rather own all the farmland or whatever than gold, but that was a real—
that was throwing down the gauntlet after all the gold bugs. Classic. I love arguing and I love,
you know, stirring things up. And that must've really gotten him. No one wants to be called the
boorish...
BUFFETT: Charlie makes me look mealy...
JOE: Yeah.
BUFFETT: Charlie makes me look mealy-mouthed.
JOE: I know. Civilized people don't buy gold. Anyway, coming up, gold is traditionally a safe
haven investment in times of geopolitical uncertainty. So why does Berkshire Hathaway director
and Microsoft chairman Bill Gates shy away from it? Maybe he thinks it's uncivilized, too. We're
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going to find out when SQUAWK BOX returns live from the Hollywood Diner, which is just
outside, it says here, I'm not going to read that, but it's somewhere out there. Anyway, we'll be
back in a second.
WHY BUFFETT DOESN'T LIKE GOLD

BECKY: Yeah, you were talking a little bit about gold prices, obviously. That's something— yeah,
OK, it's down about four bucks, 1641. Obviously, it's a huge question people have asked as we've
seen a big, big run-up in gold over the last four years or so. And that's something that was
definitely talked about this weekend here at Berkshire. Joe just talked about Charlie Munger's
comments that civilized people don't buy gold.
This weekend I also got the chance to sit down with Berkshire board member and Microsoft
Chairman Bill Gates, and he's not a huge gold fan either. Listen in.
(Clip from Bill Gates interview)
BECKY: Gold today was something that both Charlie and Warren made pretty clear they're not a
big fan of. What about you?
BILL GATES (Microsoft Chairman): Well, I'm certainly in that camp. The— historically, I did have
some silver investments that— at a time Warren actually had some silver investments. He got
out fairly quickly. You know, I stayed in and did very well on silver. But, you know, gold is a very
tough one because it's so psychological, and if central banks or the IMF ever decided to take
advantage— and I think countries need liquidity...
BECKY: Yeah.
GATES: ...you know, hey, there's an asset that's not doing anything for the citizens and then you
— you know, because it's purely psychological it's not like people would say, Òh, well, when it
gets to $800 an ounce people will buy four times as much jewelry.' There's no— nothing that
steps in as a buyer at any price. It's just purely Òh, other people think it's— other people in the
future will think it's worth more than it's worth today,' which, you know, if you think the world is
scary and people are going to panic, I'm not saying that theory doesn't exist, but there is no floor
if ever people got a view.
And you do— we had a invention session with some people recently— as this price gets high
and you look at a 10-, 20-year time frame, the supply equation will change. And so the bulls have
to offset the fact that they'll be quite a bit— not in the near term, but over a period of time—
and these people are claiming that they can predict, you know, gold prices out into the future,
which certainly with equities you can feel like you can. Well, there you have to understand the
innovations in digital mining techniques or some new extraction techniques, which actually, I
think, are pretty interesting and I doubt many people factor that in.
(End of clip)
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BECKY: All right, we've never even talked about the supply picture, but he's talking about
eventually being able to increase the supply of gold.
BUFFETT: Sure.
BECKY: You had a shareholder who asked you a question about gold over the weekend and
your response was pretty interesting. Berkshire vs. gold. You want to talk about how that's
performed over the years?
BUFFETT: Yeah, but we can go beyond that. But— certainly, when we took over Berkshire,
Berkshire was selling at $15 a share and gold was selling at $20 an ounce. And then gold is now
1600 and Berkshire's 120,000. But you can take a broader example of that. If you— if you buy an
ounce of gold today and you hold it 100 years, you can go to it every day and you could— you
could coo to it and you can caress it and you can fondle it and 100 years from now you'll have
one ounce of gold and it won't have done anything for you in between.
CNBC/Lacy O'Toole
Warren Buffett and Becky Quick
If you buy 100 acres of farmland, it will produce for you every year. You can use that money to
buy more farmland; you can do all kinds of things. For 100 years it'll produce things for you and
you still have 100 acres of farmland at the end of 100 years. You could buy the Dow Jones
industrial average for 66 at the start of 1900. Gold was then $20. At the end it was 11,400. But
you'd have gotten dividends for 100 years. So a productive asset of any kind, a decent
productive asset, is going to kill a nonproductive asset over time. Now, in any given one-year
period, five-year period, any asset can outperform another asset. I mean, you know...
JOE: Why...
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BUFFETT: ...tulips did very well for a while.
JOE: Why don't you— why don't you join me? Warren, why don't you join me and buy some
cows? I mean, I like your farmland but, you know, you're in Nebraska for— Iowa, you love steak.
BUFFETT: Well...
JOE: I mean, I— we can have leather, we can have manure, we can have milk, we can have meat.
ANDREW: Milk...(unintelligible)...cheese.
BUFFETT: Yep.
JOE: We'll employ people...
BUFFETT: Well, you can have— you can have the manure, I'll take the meat.
JOE: I've got plenty of the manure. No, but it would employ people...
BUFFETT: Yeah, I've noticed.
JOE: ...taking care of the cows. I mean, that little bar of gold that's worth 50— whatever. We had
one in here. Look, I think it was worth like 60 or $70,000. I can get like so many head of cattle for
that and be product— that was my point. But you like farmland. You just too lazy to take care of
the cattle or something? Pay some people.
BUFFETT: Absolutely. Absolutely.
JOE: Oh, well...
BUFFETT: Have you ever tried to take care of cattle, Joe?
JOE: It must be— I think it might be hard. I know, I've tipped a few, but I've never...
ANDREW: Have you tipped...(unintelligible)?
JOE: No, I've never done it. No.
ANDREW: I hope you have not tipped— that is— that's mean.
JOE: I've— it's cruel. It's cruel.
ANDREW: It is cruel.
JOE: No, I've— they're sweet, they're sweet, but they're not too bright, like me.
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BUFFETT: With land you can get somebody else to do all the work, give them a percentage of
the crop, and you can sit back there for a hundred years and get a percentage of the crop and
you've still got the land when you get all through. I will guarantee you that farmland, over a
hundred years, is going to be gold, and so are— so are equities.
BECKY: Why do you think gold bugs get so irate? Because they really come out...(unintelligible).
BUFFETT: Yeah, it's very interesting. If you— if you go on CNBC and say that bonds are kind of a
poor investment, you know, people don't get mad at you; you don't even hear from the
Treasury. I mean— all right, you can— you can knock almost any investment and people may
get a little irritated, but when you talk about gold— and of course that says something about
their motivations for ownership— they want people to agree with them. They want people—
everybody— they want everybody to get so scared they run to a cave with gold. And caves may
— might be a better investment than gold. I mean, at least they're not producing more caves all
the time. So they want— they want people to be as afraid as they are because that's what's going
to produce an increase in prices.
Incidentally, they're right to be afraid of paper money. I mean, they have a very— their basic
premise that paper money around the world is going to get worth less and less and less over
time is absolutely correct. But...
BECKY: You just disagree with the investment theory beyond that.
BUFFETT: Yeah, yeah. Where they run from that, and they should run from it, is where, in my
view, they make the mistake. But they have a correct basic premise.
BECKY: OK. Guys, we'll send it back over to you. We do have a lot more coming up.
ANDREW: OK, thanks, Beck.
And, of course, our conversation with Warren Buffett is just getting started this morning, so stay
tuned. And up next, his thoughts on tech investments as Facebook officially kicks off its IPO road
show today. And if you're just waking up, well, global stocks, they're coming under a lot of
pressure overnight following that weekend elections in both France and Greece. US equity
futures sharply below fair value at this point. We're going to keep you up to speed as we march
towards the opening bell.
JOE: Good morning, and welcome back to "Squawk Box" here on CNBC. I'm Joe Kernen along
with Andrew Ross Sorkin and Becky Quick, reporting live from just outside Omaha, which is
apparently right next to Iowa, with Warren Buffett this morning.
ANDREW: In Iowa. Oh, they're in Iowa this morning.
JOE: They're— but Omaha is right next to— right on the border.
ANDREW: That is true. Right there.

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JOE: It's like they didn't really want to settle, it seems like, in Nebraska. There's so much in
Nebraska west of Omaha. It's like, I don't know, they were ambivalent between Iowa and
Nebraska, I think, when they...(unintelligible)...to Omaha.
ANDREW: Maybe the better diners are in Iowa, that's why.
JOE: Maybe there are. We'll get right back to Mr. Buffett in just a minute. First, though, a quick
recap of this morning's top market stories.
***
BECKY: Warren, over the weekend we talked a little bit about this and you mentioned that you
have spoken with Mark Zuckerberg about what he needs to be doing with his company. When
did you talk to him?
BUFFETT: Last year at Sun Valley.
BECKY: And what was the basic— did he come to you, or did you reach out to him?
BUFFETT: Well, he— or a shareholder or somebody said, you know, they'd like to get together to
talk a little bit about Facebook, and so we talked to him.
BECKY: But, obviously, you've been in a position of taking a private company public. Is that
basically what you were talking about?
BUFFETT: Yeah, although we didn't exactly— I took a private company public when I was in the
tech world and— with Data Documents many years ago, but Berkshire we never really took
public.
BECKY: Well, you're a public company now.
BUFFETT: Yeah.
BECKY: It started as a private partnership.
BUFFETT: Sure.
BECKY: When you look at what's happening with facebook, I know that this is not something
you're a fan of, but you're also not saying that at this point— you're— you wouldn't buy into
because it's not something that you feel comfortable with, but you don't think this is a bubble
scenario.
BUFFETT: Oh, no. No. I'm an agnostic on a company like Facebook. Any time you get a truly
extraordinary business— and it's obviously— you know, it's an extraordinary business— but
they're the hardest ones to value because the question is, is whether five or 10 years from now
that they will be as extraordinary as they are now, or they may keep doing more and more
wonderful things. So I— it's just harder to figure out than, oh, we'll say Coca-Cola.
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BECKY: Mm-hmm.
BUFFETT: I mean, Coca-Cola 10 years from now is going to be bigger and more profitable, in my
view, than it is now, but there won't be some quantum change in either direction. So it's much
easier for me to figure out what Coca-Cola's worth than Google or Facebook or, you know, you
name it.
BECKY: Although you did get into technology stocks with IBM, and that caught a lot of people by
surprise. Is IBM a very different company than those others?
BUFFETT: It's certainly a company that's future will not look as different five or 10 years from
now, in my view...
BECKY: Mm-hmm.
BUFFETT: ...than it does now, than will happen with a Facebook or an Apple. I— it can be in
either direction. I make— you know, I would never shorten those stocks and I'm not— I'm not
saying they have anything but brilliant futures, but I just don't know.
BECKY: Right. And so that's the question is when it's a fast-growing company in a fast— in a
quickly changing arena?
BUFFETT: Yeah, it's just harder to figure, you know. And it's fascinating to watch, but I don't— I
don't have to— I don't have to— I don't have to draw a conclusion on even tens of stocks. I just
have to look at one or two...
BECKY: Mm-hmm.
BUFFETT: ...and feel that I've got a reasonable fix on what those companies will look like in five
or 10 years.
BECKY: OK.
ANDREW: Hey, Warren, question on Facebook but technology companies broadly. A number of
the IPOs we've seen, including Facebook, have dual-class shares where the founder, in this case
Mark Zuckerberg, really does control the company. We've seen it with Google, we've seen it with
Zing and so many others. I'm curious, when you think about corporate governance and you
think about these dual-class shares, how does it impact you as an investor? And as a CEO, how
do you think about it?
BUFFETT: Yeah, as an investor it doesn't change my view much. I— we're buying into a known
quantity. When we buy into The Washington Post company, as we did in 1973, the Graham
family controlled one of— one of the classes of stock. And actually I wrote Mrs. Graham a letter
then and I said— you know, I knew they controlled it and that was fine with me. You know, there
are a few other people, if they control— you know, if Castro controlled it or something I might
have felt a little differently about coming in.
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But I think if you know what you're getting into, you make a decision on that. And at Berkshire
we have two classes of stock and we have made a very careful determination that never under
any— Berkshire will never sell out or anything, but we make sure that those two classes have to
be treated identically. I think when you have a situation where the super-voting stock can be
sold at a big premium if they sell the company to what the— what the diminished voting shares
sell for, you know, I think that's wrong. I don't think you should be selling the vote when you sell
a company, and we've— I've seen that done. We've had it done to us in some situations way
back in the past.
ANDREW: Right. What...
BECKY: What about with Google, what we've— what we've heard with what they're planning on?
BUFFETT: Yeah. I do think— I do think that when you have some extraordinary people running a
business where the business is very tied to their particular talents, you may want to protect
them in some ways to be sure that they get a chance to keep painting their painting over time.
BECKY: But it's one thing to know what the stock structure is as you buy into a stock.
BUFFETT: Right.
BECKY: It's another thing to have it changed once you're in.
BUFFETT: Yeah. As my memory, I think— I think Dow Jones changed it.
BECKY: Right.
BUFFETT: I think Lee Enterprises changed. There are various companies. I think probably more
in the media field than others. A lot of the media companies had a dual structure going in.
Others created it after the public was in. I, you know, I think that gets a little more dubious.
ANDREW: Warren, one of the arguments is that when things are going well— for example, right
now things at Google going relatively well— when everything's going well, there is no problem,
meaning nobody's going to come after the company or come after the CEO.
BUFFETT: Right.
ANDREW: But it is actually when there's trouble that, as a shareholder, you might want to have a
little bit more power than you would in one of these circumstances. No?
BUFFETT: Well, no, I won't argue with that. But I would say this. If you had an extraordinary
company back in 1973— Cap Cities Broadcasting was a truly extraordinary company. I knew the
company very well. That company in 1973 was selling for a third or less of what it was
intrinsically worth even though it was being managed magnificently. And Tom Murphy and Dan
Burke, who ran it, did not have that percentage of stock that would enable them to obtain
control. So anybody with money, at a time like that, could have walked in and taken away a
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great group of assets at a discount from its intrinsic value but a big premium to the market
value. And that would have been a mistake. But, you know, I can pick out examples the other
way, too. I'm no— it is not— it's not like I'm any big fan of dual classes, but I can see some
reasons for them.
BECKY: Hey, Warren, while we're on the topic of some of the other companies that are in the
news right now, can I ask you bout Yahoo! too? There's news about its CEO that he did not, in
fact, have a degree from— in computer science, and now Dan Loeb and another investor, who I
think owns a little over 3 percent of the stock, are pushing for his ouster. What do you think
about what happened and the company's announcement that this was an inadvertent error?
BUFFETT: Yeah. Well, I don't know all the facts, but just from the few sentences I read, it doesn't
sound like an inadvertent error. And I would say this, if I thought— if I had thought that, as a
director, if I thought that a— an officer had consistently misstated some fact to me, I think I'd
probably do something about it.
BECKY: Mm-hmm.
BUFFETT: Yeah. We actually had that one time, and if you can't trust the people you're working
with, you've got a problem.
WAL-MART BRIBERY AND WALL STREET REGULATIONS

BECKY: Right. Another stock that we've been watching pretty closely is Wal-Mart, and that is
Berkshire's seventh largest holding, I believe?
BUFFETT: That sounds about right.
BECKY: So Wal-Mart has had its own issues. There was a report in The New York Times alleging
bribery in Mexico in its operations there. Has that changed your opinion about the stock?
BUFFETT: Well, not really. We have 270,000 people working at Berkshire, and it's a little early in
the morning, but I will guarantee you that during the rest of the day, at least, some people will
be doing something wrong. I mean, it's the thing that scares the dickens out of me as the CEO,
because you can't have 270,000 people without somebody doing something wrong. People are
just not that— no matter what instructions you...
ANDREW: Warren, but...
BECKY: This is different, though.
BUFFETT: Yeah. Well, what's particularly different in this is apparently the way they handled it
once it...
BECKY: Allegations it went all the way up.
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BUFFETT: ...once it came to their attention. I mean, that's the problem, and we'll find out.
ANDREW: It doesn't— I mean, I guess the question is, does it undermine your faith in the board,
given that it does seem to have risen to that— to potentially that level or at least management
at that level back here in the US?
BUFFETT: Yeah. I don't necessarily think— I'm not ready to think that it got to the board, but I
have read things that it got to the management. And if the story, as reported in The New York
Times a few weeks ago— and I don't remember every word of it— but it certainly implied that it
got to the higher levels of management and then got brushed aside and did not get reported. If
it didn't get reported, you know, that's a big mistake.
BECKY: Would you have second thoughts about the company at that point?
BUFFETT: No. I— you know, it wouldn't be the same individuals running it. I mean, they may—
there may be— there may be things that happen to certain individuals because of this, but, you
know, at Solomon we had a problem there with a few people. I don't think it changed how I
viewed all 8,000 people and what Solomon did. It did mean that it needed to make some
changes.
BECKY: OK. Andrew, I'll send it back over to you.
ANDREW: OK, terrific. If you've got comments, questions about anything you see here on
SQUAWK, anything that Warren said, please shoot us an email at squawk@cnbc.com's the
address. Coming up, why Berkshire's Charlie Munger says that the Volcker Rule, well, may not go
far enough, as "Squawk Box" returns live from the Hollywood Diner just outside of Omaha.
***
BECKY: Welcome back, everybody. We are spending the morning on Squawk with Warren
Buffett. And this weekend I got the chance to sit down with his right-hand man, Charlie Munger.
We spoke a little bit about what's been happening on Wall Street and whether the rules there
need to be tightened up.
And, Warren, take a listen to this.
(Clip of Charlie Munger interview)
BECKY: We had Michael Lewis on the show this week, and he said that the Volcker Rule is not
enough, it needs to have way more teeth. There need to be even stricter things, and that sounds
a lot like what you've said in the past.
CHARLIE MUNGER (Berkshire Hathaway Vice Chairman): I totally agree with Michael Lewis on
that. If I were making the rule, I would make Michael Lewis look like a piker.
BECKY: I thought you might say something like that.

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MUNGER: Yeah.
BECKY: How would you lay it if this— if you were a benevolent dictator and this was yours to lay
out?
MUNGER: Well, take the rapid training by the computer geniuses with the computer algorithms.
Those people have all the social utility of a bunch of rats admitted to a granary. I never would
have allowed the rats to get in the granary. I don't want the brilliant young men of America
doting their lives at being rats in somebody else's granary. That's not my idea of the right way to
run the republic. And if you let me write the laws, it wouldn't happen. But of course, nobody's
going to do that.
(End of clip)
BECKY: So that's Charlie's thoughts on things.
BUFFETT: Yeah.
BECKY: You know that he would like to see more restrictions on Wall Street, more control over
the banks. What do you think about that?
BUFFETT: Wishy-washy.
BECKY: Yeah. No strong opinions.
BUFFETT: No. Charlie's pretty Old Testament. But he and I, I don't think— I wouldn't express it
quick as strongly and I probably don't believe it quite as strongly as he does. But we probably—
you know, going back to Glass-Steagall, we would have both thought that was— the repeal was a
mistake. Banking is a big business, it's a profitable business, and there's plenty of money that
can be made with banking. Banks in this country, in effect, can issue a government guaranteed
piece of paper.
BECKY: Mm-hmm.
BUFFETT: And once you have the right to a government guaranteed piece of paper, your
customer doesn't care whether you're doing dumb things or not. So the market does not impose
discipline on you because they're worried about whether they're going to get their money back.
They're going to get the money back because of the FDIC. And the undisciplined way of ability to
raise huge amounts relative to your capital potentially is dangerous and pretty much, you know,
hundreds and hundreds of people can get that power, and we've seen that in the past. So you
do not want banks to have a free hand in doing lots of things where there's great
interconnectedness and where dominoes can get lined up because that's what we had a few
years ago.
BECKY: You said you opposed the repeal of Glass-Steagall, you and Charlie both thought it was a
bad idea, but can you put the genie back in the bottle?
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BUFFETT: No. It's very hard to do and then you get the whole argument about the international
situation.
BECKY: Right.
BUFFETT: And we say, do you really want a banking system in the United States that has its
hands tied behind its back when competing with European banks and, you know, and I can see
that argument. But I— in the end, the government has to decide what banks can do and where
they start doing it and where the limits are of things they can do it without getting into an area
where they can start causing dominoes to topple.
BECKY: And that obviously gets us into the too big to fail topic, which Andrew, who better to ask
about that than you.
ANDREW: Well, no, no. Warren, what I was— what I was going to ask, and by the way, I don't
know if we have a camera here, I just want you to know, Warren, that I am wearing, actually on
the desk right now, your sneakers here. These are very special Berkshire— these are Brooks
sneakers that are— they're Berkshire sneakers, but I do have a question about the Volcker Rule,
which is when you think about Glass-Steagall, if we got back to that— if we could have put that
in, would that have changed the outcome of the financial crisis? Because I've heard so many
people say, ah, if we just had that, we wouldn't have had the crisis. But then I think about
Lehman and Bear and I say, you know, the— Glass-Steagall had nothing to do with them.
BUFFETT: Yeah. Glass-Steagall was not the primary cause of what happened in 2008, and it's
very hard to get at the primary cause because we all participated in a bubble. We liked the
bubble while it was going on. Government liked it, you know, Wall Street liked it, Main Street
liked it. Homeowners really loved it. They were able to keep refinancing their homes. It became
an ATM machine for them. So it's very hard to pick out one of those groups and say, Àh, there's
the culprit.' But certainly, the abilities of banks, for example, to have SIVs, that sort of thing, I
didn't what a SIV was before the troubles began with them. And all kinds of things spring up. So
you do need— you do need intelligent regulation of banks. And in the end, you can't let them do
everything they want to do because they will— we owned a bank at one time in 1969, and they
passed a bank holding company act. And they said it wasn't a good idea for an entity that owned
a whole bunch of other businesses like we did to own a bank, and they were probably right.
ANDREW: Do you think the banks are too big, though? Are they still too big? Are they still too
big? I mean, Wells Fargo, for example, which I— which I know is— you have a big stake, and also
JPMorgan, which you have a personal stake in.
BUFFETT: No. Our banks in this country are less concentrated than most countries of the world,
including Canada, which did a first class job of coming through the problems of a few years ago.
The— I don't— I don't have a problem with the size of banks. You need capital commensurate
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with size and you need regulation. But size did not cause the problems. Europe has— I mean, in
Ireland, the banks achieved a size relative that were 10 times, you know, what they might be
here. So the size of our banks was not a problem.
BECKY: Hey, Joe, you asked about why we were in Iowa, not Nebraska. And Warren can tell you
more about that in just a little bit. I don't know how tight we are up against the top of the hour
but there's an actual reason we're here.
BUFFETT: Yeah. Well, the Missouri River defined the border between Nebraska and Iowa, and
unfortunately, the Missouri River changed course some years back and it got things all muddled.
And my dad was in Congress at the time, and he introduced a bill, as I remember, that was
supposed to straighten it out. But it still— it didn't quite get it right.
JOE: It just looks like...
BECKY: So you're in...
JOE: It just looks like Omaha. You kind of settled— you didn't really know whether you wanted to
leave Iowa and then...
ANDREW: Right.
JOE: ...all of Nebraska, you just sort of let that out to the west for all the cows and everybody.
That's a great line from "Unforgiven," remember, the Gene Hackman character says, you know,
Ì thought I was dead, too. Then I found out I was just in Nebraska.' But it's sort of like you didn't
really— you didn't really embrace it. You're kind of an Iowa-lite.
BUFFETT: I can— I can see why you're saying those things from a distance, Joe. Come out here
and say that, Joe.
JOE: Are you going to show those sneakers again?
ANDREW: OK. Show the sneakers.
JOE: Are you going to show that you're wearing the Buffett style?
ANDREW: Well, I don't know if Warren's wearing his sneakers right now. He should be. So,
Warren...
BECKY: I have mine at the table.
ANDREW: You do? OK. So these are Brooks sneakers, Brooks owned by Berkshire. These are
special sneakers from this weekend. Here we go. I'll show them here. They say BRK. These are
limited editions, and they have inside the sole here, I don't know if you can see this, inside the
sole, can you see that?
BECKY: Yeah.
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ANDREW: This— there it is. There's Warren B., the man himself. And I assume, Warren, you're
going to run a marathon later this year in these sneakers yourself.
BUFFETT: Yeah. Well, they were selling so strongly the other day, I sold my pair, too.
JOE: What do they sell for, Warren?
BUFFETT: It was, I think it was under 100.
JOE: Over $50? Because Andrew was only too happy to accept this, even though it's only— it's
over $50. You haven't been to the legal training.
ANDREW: Oh, my God, that's true. That is true.
JOE: I just went on Friday. You can wear one of them.
ANDREW: OK. Our conversation with Warren Buffett, of course, just getting started. Get your
sneakers out. He's fielding questions from the Berkshire faithful. He did it all weekend. And
today, he's got two more hours left with us after the break.
BUFFETT ON U.S. ECONOMY

JOE: Let's continue our special interview with Warren Buffett following this weekend's Berkshire
Hathaway annual meeting. Warren Buffett and our very own Becky Quick are in Carter Lake,
Iowa, which is next to Omaha, Iowa. Which is what it should've been. Really— the more I think
about it, the more I think that— Warren...
BECKY: Oh.
JOE: ...before we talk...
BECKY: Next time Warren sends you a brick, he's going to throw it at your head instead of
mailing it to you.
JOE: How much was that— see, I accepted that brick. But what's a brick go for like that Warren?
That's only— I mean, that's very— that didn't cost as much as a sneaker, as a shoelace, even,
right?
BUFFETT: Personalized bricks bring big money.
JOE: Oh, they do. But a regular brick is not that expensive, is it?
BUFFETT: Well, no. But you've got a very special brick.
JOE: It is a...
BUFFETT: And if you keep talking this way, you'll get another special brick.
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JOE: Yeah, I know, I know. You're really generous with the— with the brick. That is at home in
the study, though, Warren, in a very, obviously, a very prominent place.
BUFFETT: I won't ask where. What Joe really wants is he wants a brick on the NetJets.
BECKY: There you go, there you go.
JOE: So...
BECKY: Warren, we've been— oh, go ahead, Joe.
JOE: No, no. Just wondering whether— do you have enough, Warren, enough resolution in—
you must in all your businesses, to have felt this latest semi-swoon that we've seen in the last
three months. And do you think that it makes for a repeat of the last two years? Or is it
different?
BUFFETT: No, I— what we've really seen, Joe, since the fall of 2009, is very steady, but very slow
improvement in business, everything except residential construction. And there's been no
acceleration in the rate of improvement in the last few months, but there hasn't been a big
deceleration, either. Our businesses in the first four months, if you look at our five largest
businesses outside of insurance, you know, they look to me at the present time like they'll all set
records this year. And our businesses are getting better. They've already— in most cases, gotten
quite good, but they're getting— but they're getting better at a— at a slow pace. And there's not
been any really noticeable deceleration. There certainly hasn't been any acceleration, either, but
I don't really see much change. I see a little— but it could be a false pick up, but I see a little pick
up in the residential construction rate— area. But I wouldn't want to bet on the fact that that
means a lot.
BECKY: So why did we get the worst jobs report on Friday that we've seen in six months?
BUFFETT: Yeah. Well, but the worst jobs report still was 100 and some thousand, you had a
revision upward, you know, in the previous months. But that maybe what you see until
residential construction comes back, something in that range. Maybe it'll be 200, maybe it'll be
100, maybe it'll be 150. And you know, maybe it's 2.2 on— or something on GDP. Those are not
terrible figures, they're just not good figures. And we have come back from what was an
incredible shock to our economic system, but we've kept coming back.
BECKY: What would it take and could we get the country moving back at a GDP of 4 to 5
percent?
BUFFETT: Well, we can't keep 4 to 5 percent going over time. But we could have a jolt upward
when— and we will— when housing construction comes back. When we're building a million
residential units a year, things will be growing faster. But you have to realize, if you get 2.2
percent and you have 1 percent population growth, that's a 1 percent gain in real output per
capita. That means in a generation, in 20 years, you have over a 20 percent gain in the— in GDP
22/64
on a real basis per capita. That's tremendous. If every generation was 20 percent better than the
generation before, that's pretty dramatic. Now we need more than that right now to come back
from the big dip we took, but if you— if you could guarantee the American people a 2.2 percent
real GDP gain for the next century, it would be nirvana.
BECKY: You know, we talked a little bit about— very briefly about the elections, the French
elections, the German elections, and what's happening right here in the United— in the United
States. Right now USA Today has something that puts Romney and Obama almost at a dead
heat. It's got Obama at 47, Romney at 45. But I saw another poll that had Romney at 48 and
Obama at 47. How much of this is tied directly to the economy?
BUFFETT: A lot's tied to the economy and a lot will be tied to the economy, barring something
really unusual. But a lot will be tired to the economy. Overwhelmingly it'll be tied to the
economy, in my view, come November.
BECKY: Well, you're talking about an economy that's not going to improve that quickly, which
means the jobs number is not going to improve that quickly, which— where does that set things
up for the fall?
BUFFETT: You know, I guess is it'll look better in the fall than it does now, but not dramatically
better.
BECKY: But won't...
BUFFETT: Which may mean you have a close— it may mean— it probably means you'll have a
close election.
BECKY: Mm-hmm.
JOE: Warren, you guys— you and Romney were— you weren't in the same businesses,
obviously, but you must look at his track record at Bain and think that he was pretty talented
businessman, I guess, right?
BUFFETT: Well, I think that they bought some businesses very well and some of those
businesses turned out— they bought them at the right prices in most cases and some of those
turned out very well. I mean, others did not turn out so well. Because of leverage, the financial
results when things worked out well, very extreme leverage, financial results turned out, you
know, far better than the basic economics of the business. And of course in some cases, they
took a lot of money out of the businesses and then the businesses failed. But overall, you know,
I have no fault with him, you know, as a businessperson.
JOE: Yeah. You're in a different business, obviously. I have one other totally separate question
that I was thinking. You love single-family houses and you've expressed that again and again
and again as like the best investment out there and you said, Ì wish I could own 100,000 of
them, but it's too hard to do that because you've got to like manage each one.' A guy like you, I
23/64
figure you'd been sitting around figuring out the way to do that and I wondered, have you come
up with a way to— are you already— I mean, bricks, obviously, one way to do it. But have you
come up with a better way to make a big investment in single-family houses? What will be the
most— the easiest way to do that?
BUFFETT: It's very difficult to do in scale. Joe, I— since I made that statement, I've got a lot of
letters from various promoters around the country saying, you know, join my fund and we'll do
it in the fund. But if you look at the cost of doing it and everything, it's going to work out fine for
the fund manager and how it works out for the investor is a different thing. You know, Wall
Street has a way of creating products that work out better for it than it does for the investor.
And there's a lot of frictional costs— there's a lot of costs to managing single-family houses and
if you contract with someone and pay them a very significant percentage of revenues to manage
it, you've taken a lot of the return away. But what I said I think last time was particularly
attractive to somebody who's got some skill, perhaps, in working with a few renters and perhaps
picking up a few houses. I think they're going to do very well. I know they're going to do very well
if they buy into a city with rising population over time and get those...
JOE: What about mortgage servicing? There must be something, I mean, there must be some
way that you can do it. Something that's connected to the whole industry that you could buy in
bulk that would make sense for Berkshire.
BUFFETT: Yeah, well, I've— obviously, I think about that. But the truth is, when housing comes
back, and it will, you know, all of our businesses will do well.
JOE: Yeah.
BUFFETT: They're doing pretty well anyway.
JOE: Mohawk, things like...
BUFFETT: But so we are— we've got a big bet on the American economy and we will have it for
— our railroad will do better when there's a million housing units. A lot of our businesses will.
JOE: Right.
BUFFETT: So I don't have to play it directly.
ANDREW: Hey, Warren, I wanted to switch gears for half a second, just what seemed like one of
the big headlines as it came out of the weekend, which was your remark that you had almost
spent $22 billion buying a company a couple of months ago. And I was hoping you'd give us just
a little bit of color. You don't necessarily— I'd love you if you want to tell us who it is or hint
about what happened— but more about necessarily why you didn't buy the company.
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BUFFETT: We couldn't come to terms. But we're always looking, Andrew, and you know, and
there aren't lots of big companies that you can make a deal on and there are a lot— there are
lots of big companies that I don't understand. So they're outside my circle of competence. And
then there's, you know, there's others that have no intention of selling, and then there's others
that are— that were— they may have some intention, but you can't come together with them on
price. So big deals are not going to happen very often, but occasionally they will.
ANDREW: Is it possible that...
BUFFETT: And we're ready.
ANDREW: Is it possible your $22 billion elephant comes back?
BUFFETT: It's always possible. I mean, you know, when a girl hangs up on me once, I try again.
That hasn't been too successful, though, historically. I hope my batting average is better with
companies.
JOE: Well, when you call back and her husband answers, normally that puts a damper on things,
right, Warren?
BUFFETT: It's certainly been tough when I called your house. Yeah.
JOE: Oh. Ow.
BECKY: Hey, Warren, let's talk a little bit about what you see with stocks because we did talk
about this at the top of the six, but there are people who are waking up right now kind of joining
the conversation. They wake up and they see that the markets are down, the Dow's down about
90 points or so and it's on a day when people are very worried about the outcome of Europe.
What are you doing today in the markets?
BUFFETT: We'll be buying something today. We'll be buying it and I'll feel better about buying it
today than I did the same things that I bought on Friday because I'm buying them cheaper and
the businesses that— the 10 year, 20 year prospects for the business haven't changed. And
they're businesses where I like the economics, I like the management, I like the price on Friday,
I'll like that price better today. I mean, it— you know, if McDonald's lowers the price of
hamburgers today, the fact I paid more for one on Friday does not, you know, I'm even more
enthused about buying a hamburger today.
BECKY: Are you talking about serious amounts of money that you put into the market?
BUFFETT: Yeah. Well, I mean, we put as much as we can buy without disturbing the price.
BECKY: How much did you spend on Friday?
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BUFFETT: Well, we probably spent about 60 million. Yeah. We try to buy maybe 10 percent of
what trades or something of the sort when we're buying a stock. When we were buying IBM, I
used to— day by day, I would just account for 10 percent of the trading.
BECKY: Wow. And— but it was done very quietly, you kind of moved your way through?
BUFFETT: Yeah. I put duct tape over my mouth.
BECKY: All right.
BUFFETT: Particularly when I talk to you.
BECKY: OK. Again, if you are a retail investor, that's what you would be telling people to do,
don't pay attention to the headlines.
BUFFETT: Becky, retail investors should not pay any attention to the day's news. If they're paying
attention to the day's news and they're trying to buy and sell stocks based on the day's news,
they're never going to be successful investors. The idea is to buy a good business. I mean, it's the
same way as if you and your, you know, your brother went out to buy a business. You'd look
around for a company, some little business that had good prospects over time, had decent and
honest management and where the price made sense.
BECKY: Hm.
BUFFETT: And you wouldn't— you wouldn't read the newspaper before you do it. My partner,
Charlie Munger, and I have been working together for over 50 years. In both buying a $34 billion
business like Burlington Northern or buying 100 shares of stock, we have never talked about the
day's news or what's going, you know, or that week's news or about month's news. We're
looking at where the business is going to be 10 years from now because we're going to own it
then. That's where it counts.
BECKY: OK. Hey, Andrew, I'll send it back over to you.
ANDREW: Hey, if you've got comments or questions about anything you see here on SQUAWK,
shoot us an email, squawk@cnbc.com's the address, you can also follow us on Twitter
@squawkcnbc is the handle. We've got a lot of things coming in under the #buffettwatch mark.
Still to come this morning, what does Microsoft founder Bill Gates think of Mark Zuckerberg and
the job that he's doing at Facebook? Becky's got an interview, plus reaction from Warren Buffett.
Futures are pointing to a lower open on Wall Street and Europe shares are sliding this morning
as investors digest key election results in France and Greece. We're going to have more with
Warren Buffett live from Carter Lake, Iowa, in just two minutes.
BUFFETT'S CONOCO 'MISTAKE'
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BECKY: Warren, we're here at the Hollywood Diner and we haven't explained to people why we
came here. We've been to a lot of the places you've frequented in the past. But this is a place
where you've taken a lot of people as well.
BUFFETT: Yeah. For one thing, it's handy to the airport. For another thing, its hamburgers and its
strawberry shakes are terrific, and I've brought— I've brought Bono here, I've brought Bill Gates
here, I brought Jimmy Buffett and I brought Jay-Z.
BECKY: Yeah, in fact Jay-Z, the tie that you're wearing today is a tie that Jay-Z gave you.
BUFFETT: Well, he— yeah, he— I'm not sure whether I could say he gave it to me. I kept
admiring it and admiring it, said, `That is one good-looking tie, Jay.' And finally after I said that
about six or seven times he said, ÒK, you win,' and he took it off and he gave it to me. And I
tried that again when he opened up his— opened up his nightclub here a while back and I
started admiring his tie and he said, `You only get one, Warren.'
BECKY: Well, it gives us a little insight as to why you have so much money is you don't spend
money on clothes like that, right? You talk them up, and you talk— you talk your way into these
things.
BUFFETT: You know, if people want to give me ties, I accept.
BECKY: All right.
JOE: Didn't you get a tie from Obama, too? Didn't you get a tie from— you stole one from him,
too. I remember this story. Didn't you ask him for one, too?
BUFFETT: I didn't ask him. I just wore this tie that looked like it has been through a washing
machine and he noticed that threads were hanging out and everything and he said, Ì can't let
you leave the White House looking like that.' So he gave me another tie.
JOE: I mean, I'm learning more and more about how people do get really wealthy. And it's...
ANDREW: You just take people's ties and it works out.
JOE: Yeah. It's unbelievable.
BUFFETT: It works. It works. A rich guy never has to— a rich guy never has to pay for anything.
JOE: That is the Jay-Z tie that you're wearing right there.
BUFFETT: This is the Jay-Z tie. It doesn't look— it doesn't look as good on me as it did on him.
But it's still— it's my best tie. We'll put it that way.
BECKY: Warren, we've been watching oil prices this morning, too. And as we've seen, the risk off
trade with stocks under a lot of pressure this morning. You've got Treasuries here in the United
States a bit higher. Oil prices have been coming down. And this started happening on Friday
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after we got that lousy jobs number. Right now you can see it's trading at 97 and change, just
below $98. You've got a big stake in Conoco. How do you see oil prices going from here and how
does it play into your investments?
BUFFETT: Well, I— the truth is I don't have the faintest idea, which is probably why I shouldn't
have phoned Conoco in the first place. We did not make money with Conoco. And this is— you
talk about risk off...
BECKY: Yeah.
BUFFETT: ...if my understanding— if they take— risk off is selling and going into cash...
BECKY: Yeah.
BUFFETT: ...that's risk on for me.
BECKY: Yeah.
BUFFETT: I think— I think cash is probably as risky an asset as you can own over time. So you're
not taking risk off when you— when you go into cash. You are going into something that is sure
to decline in purchasing power over time. So that is the biggest risk on trade I know is to own
cash.
BECKY: That's an excellent point. Joe, did you...
JOE: No. Did you get those two pictures I sent out there back?
BECKY: Let me see.
BUFFETT: Oh.
BECKY: Take a look at them now. Now, Joe, during the break, for those of you who are watching
us at home and couldn't hear us during the break, sent out a couple of pictures of his wife
Penelope...
JOE: We may— we may show...
BECKY: ...with Warren. Here it is. Here it is, Warren.
JOE: ...we may show that because he's got his wallet out.
BUFFETT: Can I just— can I just keep looking at this? I want to just keep looking at this.
JOE: Yeah, exactly. We may— you know, for stocks to watch instead of the animal orchestra we
may— we may...
ANDREW: (Unintelligible)
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JOE: If it's all— if it's all right with him, you know, I— but we did found out some other things on
break two and I want to— I'm happy for Warren. So that's— let's not— let's not get too deeply
into all...
BECKY: Yeah.
BUFFETT: I've never seen her look— I've never seen her happier.
JOE: I know it. I know it. You know what, he opened up— but he's looking at the wallet, he
opened up the wallet and moths flew out. Like it hadn't been used in so long.
BECKY: Uh-huh.
JOE: And there was like $1 in there I think.
BUFFETT: I'd forgotten the time lock combination, too. I had a little problem.
BECKY: Warren, with Conoco stock, you said you maybe shouldn't have bought it. It's still a big
position for you.
BUFFETT: It's a fairly big position. We reduced it somewhat. But the truth is I made— I made a
mistake in them.
BECKY: Why?
BUFFETT: Well, because I paid too much and the— and I have no special insights about oil
prices. Conoco looked very cheap in terms of reserves and they were repurchasing their shares
and then unfortunately they spent a lot of money on some gas projects that— and gas did not
do as well as oil.
BECKY: You know, we— you often see people kind of moving into this. Recently in the headlines
Delta got into the idea where it's buying a refinery to try and improve its margins because it
pays so much in jet fuel costs. What do you think about that move?
BUFFETT: Well, we buy a lot of diesel fuel, too, but I'd rather be in the railroad business than be
in the diesel fuel business and we would bring nothing special to buying an oil refinery to create
our own diesel fuel for Burlington. I mean, to go into a supplier— you know, if I like milk I don't
have to buy a cow, basically.
BECKY: So you wouldn't yourself look at that as something you would do at Burlington
Northern.
BUFFETT: No, I think— I think if you're in a business that you know and understand and you buy
goods from other people that you should probably stick with the business that you know and
understand and let the other people run that business. You know, becoming fully integrated in
some way— well, just take the newspaper business. You don't have— you know, it all comes out
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on news print. News print has been a terrible business forever, you know, pretty much. And
some newspapers went and bought news print facilities but they never held any parties
afterwards.
BECKY: OK. We're going to continue this conversation in just a moment. But, Joe, right now we'll
send it back over to you and I'll continue to show him some of these pictures that you sent, too.
JOE: Yeah, and I'm thinking of some— I got some things to ask and I know Andrew does. Wal-
Mart, whether, you know, what he makes of that. Should anyone have gone— you always ask
this question— should anyone have gone to jail for the financial crisis and what he thinks of the,
you know, about...
ANDREW: I want to talk to him more about the Buffett rule and— because he did make some
distinctions over the weekend...
JOE: Buffett rule.
ANDREW: ...that are pretty interesting to talk about on the air.
JOE: Well, I want to— I'll talk about that, too, because I— you know, he's a great thinker and if
he's— that's one thing to think about. I want him to solve our entitlement problems, too. I'd
rather have him spend some more time on that than, you know, 40 billion over 10 years.
Plenty to come with Warren Buffett, including reaction to Europe's elections. One stock we'll be
watching today, like AIG. Maybe someone from there, I don't know. They tried, I think. But
anyway, with the government announcing plans to sell nearly 164 million shares for about $5
billion, that'll cut the government's stake to 63 percent from 70.
JOE: Let's get back to Carter Lake, Iowa. Becky is there with Warren Buffett. Becky, I know— I
don't know where you want to go. Andrew, obviously, wants to get some Buffett rule discussions
in here, but this is— this is your show.
BECKY: We do. Before— well, before we get to it real quickly I do just want to take a moment.
We spoke with Warren a little bit earlier about his conversations that he's had with Mark
Zuckerberg, but we also caught up with weekend with Berkshire Hathaway shareholder,
Microsoft founder Bill Gates. He talked a little bit about his relationship and why don't you listen
in.
GATES: Mark's done an amazing job and he and I have had a chance to talk and, no, it's quite—
it's very impressive.
BECKY: Does he remind you of yourself?
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GATES: In some ways. You know, his company is doing a different thing, but he's— works long
hours, he's a Harvard dropout, he's very logical in his thinking and he's willing to pursue his view
of the world even when it's not sort of faddishly, you know, popular. And he's got a vision of
where he wants to go. So, you know, I hope some of those positive attributes might— Mark has
that are— have some similarities to my equivalent years.
BECKY: How often do you get to chat with him?
GATES: Well, actually you know, we've got two topics. He's, you know, talked to me about some
Facebook things, just to get advice. Facebook and Microsoft are partners on a lot of things and
so that comes up and also Mark is getting into philanthropy at an earlier age that I did, and so
talking about philanthropy in general or the educational work that he's doing, you know, that's
another topic we've been able to talk about.
(End of clip)
BECKY: Again, we're live with Warren Buffett this morning. And, Warren, you hear conversations
like that. Does Zuckerberg remind you of either Bill Gates or yourself?
BUFFETT: There— yeah, there's a certain similarity. And certainly with Bill. They both have this
intense focus and I probably have had some of that in the past. I'm maybe calming down a little.
And— but you see they're— they've got a vision for their business and no matter what anybody
else thinks they're going to— they're going to paint the painting the way they see it. And, you
know, they've both done, you know, extraordinary things and they did them at a very early age.
So there's some real similarities between the two.
BECKY: And just to quickly recap comments you made earlier, you said that that's actually a
good thing for shareholders to have an owner like that, to maybe cede some control to an owner
who does something like that.
BUFFETT: Yeah. I mean, it can go in the wrong direction, too, as we may have seen an occasion
or two in recent months. But when you get somebody like a— go back years, Walt Disney or
Steve Jobs or Mark or Bill, what you do see with those people is a passion. And to some extend
they're not thinking solely about the money involved. I mean, they are not running their
businesses to get extremely rich. They don't mind getting rich, and you know they know how to
do that, too, but what really drives them is what they're creating and you see— you saw that
with Bill, you see it with Mark and it— when you get that— when you find that and they've got
big ideas and the rest of the world doesn't necessarily understand them very well, but they're
doing it. You know, you can get some amazing achievements.
BECKY: Hey, guys, I know you had a lot of questions you wanted to talk about from back there.
You want to bring up a couple of those topics that we had just mentioned before, maybe the
Buffett tax?
ANDREW: Yeah. No, Warren, to me one of the most interesting answers that came out of the
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meeting was actually about the Buffett rule and in particular it sounded to me like you were
indicating that what the White House has done with the Buffett rule is different than what you
would have done. And I think you used the quote that it's been butchered a bit. Could you
elaborate on that?
BUFFETT: Oh, no. No, I said some of the commentary about has been butchered or— but, no, I
would not say the rule at all has been butchered. I— obviously if I were writing a bill myself
there'd be— there'd be a little difference. For one thing, there'd probably be a different break
point, maybe at 10 million or something of the sort. But it's interesting, you mention the term
White House because it's Senator Whitehouse who introduced the bill, Senator Whitehouse of
Rhode Island and I wrote him a letter after he introduced the bill and said, Ì'm fine with it.' I
mean, everybody knew something a little bit differently. But it encompasses the principles that I
believe in.
BECKY: Some of the criticism that's come out, though, has been that it's really a Band-Aid on a
really bad tax system.
BUFFETT: Well, it doesn't— it is a small improvement in a very bad tax system. It doesn't cure all,
it doesn't cure all revenue problems remotely. In my original article I said, you know, we've got
major problems on the expenditure side.
JOE: Right.
BUFFETT: And no, but it— no, all it does is it says when you've got 131 of the 400 largest
incomes in the country that are averaging 270 million, you have 100— a third of them paying at
rates less than 15 percent counting payroll taxes.
JOE: I mean, that's amazing.
BUFFETT: But that is something that should...
JOE: Warren, you said 10 million.
BUFFETT: Yeah, that should be corrected.
JOE: You'd do it at 10 million. And that's so totally different than what we're talking about here.
But my point was...
BUFFETT: No, no. I— no, no. what I said, Joe, is I would do the 30 percent at one million and I'd
do 35 percent at 10 million.
JOE: Oh, 35, you'd go up.
JOE: But for you, because you're a genius, if you had spent as much time on trying to figure out
our entitlements, take your pick, Social Security, Medicare, some way of using that mind to figure
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out a trillion dollar problem instead of something that would raise 40 billion over 10 years, I
would put my name on that thing. I would— if...
BUFFETT: Yeah.
JOE: ...to rise to the level of something called the Buffett anything, I would make it a much bigger
— you know, solve a much bigger one of our problems. I just don't think you like these 130
people or something.
BUFFETT: No. I think— I think— you know, I like them. Many of them are my friends. I just think
in terms of fairness...
JOE: Not any more.
BUFFETT: ...it's a, it's a very— oh, no, that is not true. I met...
JOE: I know, I know, I know.
BUFFETT: But the 47 billion was scored on the basis that the Bush tax cuts would expire. So—
which would raise rates generally. Scored on the basis of the present system, it actually comes
in at I think something like 170 billion. And that would— that's the figure given by the same
people who gave the 47 if the tax cuts expired. But I agree with you. I think— and incidentally, I
think most Republicans and most Democrats, most independents know that we have to bring
spending down to 21 or 21-1/2 percent of GDP, and they know they have to bring revenues up to
19 percent. People privately agree on that.
JOE: Yeah.
BUFFETT: The problem is in our— in the political atmosphere we're in, neither side wants to go
first because they figure they'll get crucified if they go first, particularly in an election year. But
you're absolutely right.
ANDREW: Warren— but Warren, one of the— one of the questions you got over the weekend,
and I think Becky was the one who asked it, from a shareholder, was this idea that there are
some shareholders who don't like your politics, and whether that's either bad for business or
bad for the stock. What do you say to that?
BUFFETT: Well, I just say that, you know, when I went into business or started running Berkshire
Hathaway, I did not— I did not put my citizenship in a blind trust. And I don't expect any
employee, any director of Berkshire, I don't care what their politics are, I don't care what their
religion is, and I— and I hope they express their views on things that affect citizenship.
ANDREW: I remember years ago you guys had that— remember there was the charitable
program, and you guys gave money away...
BUFFETT: Right.
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ANDREW: And you ended up shutting the program down because ultimately, in an odd way, it
became bad for business because it created some controversy.
BUFFETT: No. It didn't— it didn't become bad for— it was bad for business in a small way all
along. Certain people would say, `We're not going to buy See's Candy because we don't like
what you're— the fact you're giving money to Planned Parenthood,' even though it was the
shareholders making designations and they— and they could easily give more money to pro-life
organizations. When we— when we quit it, it was because independent consultants who
depended upon a Berkshire company were getting hurt themselves. And they were not— it was
not part of Berkshire. These were people who were having their livelihoods threatened by a
bunch of radio people who were blasting away at them and trying to interrupt the showings
they were making and all that sort of thing. If it just affected Berkshire, we'd still be doing it.
BECKY: That's interesting. You know, guys, one of the big conversations that we've frequently
had around the Squawk table has been centered around Paul Krugman, The New York Times
columnist. We have talked a lot about how he's been pushing for more stimulus.
And that's actually something that came up in a conversation, Warren, that I had with Charlie
Munger over the weekend. I asked him if he agreed with Krugman on his take about this idea
that we need more stimulus to go into the economy. And listen to what he had to say about that.
(Clip from Charlie Munger interview)
MUNGER: Krugman did not sufficiently understand the kind of sin that the Democrats like. You
know, the crooked plaintiffs' lawyers. That stuff disintegrates the body politick and it affects how
well that these economic principles that he believes in works. That said, I think Paul Krugman is
one of the smartest and most articulate people we have, and he's very often right.
(End of clip)
BECKY: Now, that gets us into a broader discussion, especially after this weekend where we see
a lot of the elections in Europe pointing away from austerity and towards more fiscal spending.
What do you think about the idea? Just of stimulus, have we done enough? Is there more that
needs to happen?
BUFFETT: We are doing a ton of stimulus right now. I mean, we are spending, as a government,
you know, maybe 1.2 trillion, maybe 8 percent of GDP, more than we're taking in. That is
stimulus on a scale, like I say, that Keynes would be proud of us. And so we have lots of stimulus,
and it's helped the economy. But do I think we should— do I think we should run $2 trillion
deficits instead of 1.2 trillion? Absolutely not. In fact, I think we should start moving the other
direction, and I think we should have a well thought out plan, and it should be very clear and it
should be very binding, to bring down those deficits over time. But as long as we're running a
deficit, we are stimulating.
BECKY: OK. So enough is enough, though, at this point?

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BUFFETT: I think— I think— I think we should be thinking about bringing them down. Absolutely.
You know, I think we have to bring down expenditures and bring up revenues, and I think
everybody knows it. And I think the problem is that we can't find a way for the two political
parties to think it's in their advantage to push forward on both sides of equation.
BECKY: What does it change— what does it take to change that?
BUFFETT: Probably a little time. It'll change. I mean, we will do the right thing in the end in this
country. We always do. But it— you know, it's probably regarded as a political disadvantage for
any Democrat to start going out and talking about cutting expenditures, and it's thought of as a
political disadvantage for any Republican to talk about increasing revenues.
JOE: Warren, do you think France should start taxing a lot more and spending a lot more? I
mean, what about austerity over there? They're in a much worse position than we are in terms
of this.
BUFFETT: Yeah.
JOE: I mean, do you think that they should just accept the medicine and reform labor laws and
do the growth things that need to be done over time? Or should they just go on a big Keynesian,
you know, lollapalooza or whatever and just tax the heck out of everyone and just keep
spending and add public service jobs for the unemployed? Will that work?
BUFFETT: Well, actually Keynes probably wouldn't tax the heck out of everybody, and he would
just— he would probably run very large deficits. But I'm— you know, when you— when you
don't have the luxury of a printing press of your own, that really isn't so easy to do. I mean, we
can run huge deficits. We run the printing presses, if necessary. But they don't...
JOE: Yeah.
BUFFETT: ...they don't have a printing press. They need the cooperation of the ECB to do that. So
I think they've got a much, much tougher problem than we have.
BECKY: What...
JOE: But Krugman is constantly pointing to the— that the austerity's not working over there, so
why should we try and...
BUFFETT: Yeah.
JOE: ...why should we try and do it here. But I don't see what their choices are at this point. It's
like, you know, you can't— the uncle can't double the profligate nephew's credit card when he's
got 100 grand that he already owes. You don't double it to 200 grand, do you?
BUFFETT: No, particularly when you've got a few other nephews around who are saying, Ì'd like
to join that parade, too.'
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JOE: Right.
BUFFETT: No. The contagion problem over there is huge. We've got a— we've got a far different
and far better situation. And actually, you know, our economy is behaving pretty well. We had
the incredible overhang in residential housing, and that is a huge asset for people. They
borrowed a lot of money against it. It was— it was a big— it was like— it was like 1929 but it was
in houses rather than stocks. And the degree to which the public was participating in it was
huge. They'd gotten used to using their houses as refinancing machines. They thought they
could flip houses if they bought one. They could always sell it for more next year. And it was a
huge asset class that just went crazy. And we've worked our way out of it to a degree and, in my
view, we're well on our way to recovery.
BECKY: Hey, Warren, there's an article on the front page of The New York Times today that takes
a look at stock trading. And even though it points out we've come back in the major averages
and really have made up a lot of ground, volume of trading is still incredibly low. It's something
at 6 1/2 billion shares traded vs. 12.1 billion from well before the collapse in 2008. It points out
that one of the main reasons for this is that individual investors, retail investors, still have a lot
of concern about what's happening in the stock market. They're still scared off by what
happened back then. Have they missed the biggest part of the rally? Should they still be getting
back into the markets?
BUFFETT: In my view, aside from the single family houses we talked about, I think...
BECKY: Yeah.
BUFFETT: ...I think equities are— I think equities are very attractive for the long term. And I—
they may get more attractive next week or next month. But it's the same thing I said in October
of 2008. I didn't know where bottoms were going to be or where they were going to be in a year.
But equities, producing businesses, good producing businesses are a great thing to own over
time, and they've been a great thing to own, you know, for a hundred— several hundred years in
this country. They will be a great thing to own for the next 100 years. But who knows whether
they go up or down in price next week. As to the volume, though, there's still way too much
volume in the market. I mean, the idea that the ownership of a company should turn over a
hundred percent in a year, that is not the way people behave with apartment houses, it's not the
way they behave with farmland. But they have this notion in stocks that they ought to do
something every day. The best thing to do with stock is buy stock with a good company and
don't look at the price for five years or something.
BECKY: So you're not a fan of high-speed trading?
BUFFETT: I'm not a fan of active trading of any kind.
BECKY: Right. So...
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BUFFETT: I don't know how to make money trading actively. Maybe if I did, I wouldn't be so
negative on it.
BECKY: But again, the idea that retail investors feel like, wow, they got burned really badly when
things collapsed in 2008. Some of them, they've had to put off retirement. Some of them maybe
didn't have money that they needed for their kids to go to college. They can't find other ways to
come up with it. You look at that and you think, Ì don't want to get burned by that again. I'm
going to keep my money in safer investments.'
BUFFETT: What's safer? I don't know anything safer. I know things that don't bob around in
price, but their purchasing power just goes like that over time. So the one thing I can guarantee
you is not safe is the dollar in your pocket, you know. That is going to get— become worth less,
not worthless, but worth less over time. We've got that...
BECKY: That total in the past.
BUFFETT: So, you know, the safest thing, well, greatest asset to own is your own abilities. I mean,
no matter what happens in the economy or with currency, if you— if you develop your own
talents— I tell the college students that the best thing to have is your— develop your own
talents. The second best thing is to buy into other people's talents. You know, here's Coca-Cola,
and people are going to be drinking it 10 years or 50 years from now, and they're going to be
drinking more of it, and they'll make more money. So I don't have any idea what Coca-Cola stock
is going to do next week or next month or next year, but I'm pretty darn sure where the
company will be in 10 or 20 years. And people beat themselves in the stock market. The stock
market, literally, in the— in the 20th century, went from 66 on the Dow to 11,400. And you'd
said, `How could anybody not have a good experience?' But millions of people don't because
they get excited at the wrong time, and they get depressed at the wrong time. So you've got to
put your emotions aside, you've got to give up the idea that you can decide when to buy stocks
and when to sell stocks. The time to buy stocks is consistently over time.
BECKY: You know, Charlie, we played that sound bite earlier where he talked about high
frequency trading, called them rats in a granary.
BUFFETT: Yeah. He has a colorful way of expressing himself. Sometimes he does that about me,
too.
BECKY: But is there— are they dangerous? Is it— is it a situation that we need to be wary of?
BUFFETT: Well, just think of it this way. If somebody is— if a group of people are sitting around
playing games with computers, depending on beating quotations by a nanosecond, which
Charlie would say is a form of front running, and let's say they're taking $10 billion a year in
aggregate, in— as gross profits. That 10 billion is not— it comes out of investors.
BECKY: Right.
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BUFFETT: I mean, it's not coming from the profits of the company. The companies will keep
making whatever they were making anyway. So 10 billion is somehow moved from the pockets
of one group to the pockets of another group. And it is not good. It's not good for investors as a
whole to have something that is siphoning off we'll say 10 billion or some number a year from
the market. It's like having a tax. I mean, people don't like a tax on transactions. This is a tax. It's
just— it's called something else.
BECKY: The rats in a granary tax?
ANDREW: Well, I don't— we'll let Charlie— I want him to get the hate mail, not me.
BECKY: Hey, Andrew, I know you have a question, too.
ANDREW: You know, it's a question that actually came up over the weekend, a number of
shareholders, that actually I'd hoped to ask, which was, you know, now, given your size, you've
suggested that the company in terms of its stock performance isn't going to necessarily perform
the way it did, you know, 15 years ago, but it should still outperform the S&P. If you're just
getting into the market today, how big a chunk of your portfolio would you have in Berkshire?
And the answer can't be 100 percent but— well, it could be if that's your answer, but.
BUFFETT: I've got— I've got 98 1/2 percent, and I've never sold a share. But I feel, what just
quoted me as saying is almost right. I would say we cannot do what we did in the past. Not that
it's unlikely, we can't do what we did in the past. But I feel very comfortable at Berkshire
because I think we're constructed so that it's very hard over a period of time not to get a
reasonably decent result. But an extraordinary result is out of the question. It won't happen. On
the other hand, I think the chances of us doing better than average over a long period of time is
pretty good. But it'll be a small advantage that we have. I think the chances of us doing way
worse than other people is very low.
ANDREW: So should investors then have a certain percentage in Berkshire but also some
percentage in what you might describe as shoot for the moon stocks, or not even shoot for the
moon stocks, stocks that you would have thought looked like Berkshire 15 years ago?
BUFFETT: Sure, not shoot for the moon stocks. I don't believe in people trying to get very rich
very quickly in stocks. They don't know how to do it, I don't know how to do it, nobody knows
how to do it. And if you get convinced that you can, you know, you've made a mistake. But there
are lots— there are plenty of good businesses that if you buy them, you can have— you'll have a
very high probability they'll be worth more money in five or 10 or 20 years. And Berkshire's one
of those. But it isn't the best one. I mean, there's— the chances of getting a bad result at
Berkshire are very slight, and therefore you can have, in my view, you can have a higher
percentage of your money in Berkshire if you're willing to be satisfied with a modestly better
than average return. And I have members of my family, you know, my sisters and cousins, that
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have 80 or 90 percent of their money in Berkshire. I'm not uncomfortable with that. But they do
not expect to get the kind of results out of Berkshire in the future that they've gotten in the past,
and they won't.
BECKY: OK. You just talked about returns. You've talked about pension funds returns in the past
and how we're looking, a lot of them, for 7, 8 percent growth. Is that a relatively good
assumption?
BUFFETT: Well, it's not a good assumption. It's— if you got an assumption of an 8 percent
returns, and you've got half your money in bonds that when you roll them over are going to get,
you know, 2 percent or 2-1/2 percent...
BECKY: Yeah.
BUFFETT: ...that means with the balance you have to be getting like 14 percent. And then when
you get— you say, `Well, that's so hard to do that I'm going to have to put my money in a bunch
of investments or private funds that are being promoted to me,' and they've got huge
management fees and everything like that, it's not going to happen. You should never— you
should never buy your investments with the idea, Ì have to get a certain return.' You should
look at the best return possible and learn to live with that.
BECKY: Right.
BUFFETT: But you should not try to make your investments earn what you feel you need. It
doesn't work that way. The stock doesn't know you own it. So you can sit there and think I need
8 percent a year, but the stock doesn't care about that or the bond doesn't care about that.
What you should say is, `How much can I earn from my investments?' and then learn to live with
that number.
BECKY: Hm. Backtrack it instead.
BUFFETT: Yeah.
BECKY: All right. We're going to have a lot more with Warren from Carter Lake, Iowa, when we
come back. Mr. Buffett is here for the remainder of the show. Plus, bridge buddy and Berkshire
director Bill Gates is going to talk to us about where he is putting his money to work. We've got
more from that interview coming up in just a moment.
WHY BUFFETT LIKES LOWER STOCK PRICES

ANDREW: Let's get back out to Becky in Carter Lake, Iowa, with our newsmaker of the morning.
Becky, I still am wearing my sneakers, though. I should tell you, I don't know if you can see. It
doesn't look good with the suit, though. So I don't know if Warren has them under his— under
his table there.
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BECKY: No, he did not wear them. He chose better shoes to go with the suit, but he likes that
you're wearing them, I think.
BUFFETT: Yeah. I actually sold mine yesterday. They were selling so fast, we were running out.
BECKY: We are back here in Carter Lake at the Hollywood Diner where Warren's having the
breakfast of champions. He just ordered a strawberry shake and he's ready to go with the
markets. Warren, we've been watching what's been happening with the futures and when we
came in this morning, it looked like the Dow futures were off by more than 90 points. Right now
they're only down by about 75 points after all the news coming out of the elections. What's your
take on it?
BUFFETT: Well, the lower they go, the better I like it because I'm going to be buying stocks today
and obviously I like buying stocks lower rather than higher.
BECKY: So go on down as you're kind of cheering, I heard, earlier. Like down, down, down, as
the futures.
BUFFETT: Yeah. And— if you're a net buyer of stocks, you want— you know, you're better off if
stocks go down.
BECKY: Right.
BUFFETT: And people generally don't feel that way, but we do feel that way. On top of that, we
own stock in IBM, which is buying in its shares today, undoubtedly. We own stock in Wells Fargo,
which maybe buying them in. American Express is buying them in. Coca-Cola maybe buying
them in. So we are increasing our ownership in all four of our largest investors— investments
without laying out a penny. The lower those stocks are, the more those— the given amount of
dollars buys. So we are benefiting, the sooner the market opens, we're benefiting every minute
if they— if they tick down.
BECKY: OK, we...
BUFFETT: And it's significant over time.
BECKY: It is significant over time.
BUFFETT: Sure.
BECKY: That's part of the reason you liked IBM to begin with, correct?
BUFFETT: Sure, sure. We will— our ownership of IBM has gone up significantly since the end of
the year without us— without us laying out any money. And you know, that happens long
enough, we— it makes a lot of difference. We bought 6.7 percent of Coca-Cola some years ago.
It's now 9 percent without us laying out another dime.
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BECKY: The same thing's happened with American Express.
BUFFETT: American Express.
BECKY: How much do you own of that right now?
BUFFETT: I guess, I think we own about 14 percent.
BECKY: Thirteen percent, 14 percent? Yes.
BUFFETT: Thirteen, yeah. And it goes up and we haven't bought a share for I don't know, 10—
we can't buy it because it's a bank holding company, but our interest in the company goes up
and we love it. It's a wonderful business and what's better than owning more and more of a
wonderful business without laying out any money?
BECKY: Right. This weekend at the shareholders meetings, there were about 35,000
shareholders who came in through Omaha. Was there anything in the questioning that caught
you by surprise or that maybe you learned something from?
BUFFETT: Well, the questions were just generally were good. And of course, to some extent, you
learn what's on the shareholders' minds. And to an extent, I will even think about addressing
next year in the annual report the kind of questions that— the answers to the kind of questions
that we get. And it tells me what shareholders— what I haven't communicated, perhaps, well
enough to shareholders.
BECKY: What was one of those topics that you might...
BUFFETT: Well, one of the topics, I discussed before, but we've discussed a logical stock
repurchase program in this year's annual report.
BECKY: Mm-hmm.
BUFFETT: I think we'll discuss a logical dividend policy in next year's report. I've addressed that
before, but...
BECKY: You said yesterday, though, that you would not consider a dividend that this point.
BUFFETT: Well, no, but we can discuss the conditions under which it makes sense to pay
dividends, how much should be paid in dividends, and when it doesn't make sense to pay
dividends and that should be discussed. We'll probably discuss it in the annual report, even
though I've written about it in the past.
BECKY: Yeah, when does it make sense? I mean, you're— when you basically can't find anything
else to do with your money?
BUFFETT: It makes sense when you can't keep money in the business and generate more than a
dollar at present value by using that money and then you should distribute it.
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BECKY: What should a company like Apple do with all the billions and billions and billions of
dollars that they're sitting around on.
BUFFETT: Well, I got a call from Steve Jobs...
BECKY: Yeah.
BUFFETT: ...as I mentioned to you once a couple of years ago about that question and it's very
unlikely and at least when I talked to Steve at that time, that Apple will ever find an acquisition
that is in the many, you know, tens and tens and tens of billions of dollars and there's no sense
sitting with the cash over time. So they either ought to pay dividends or they ought to
repurchase shares. I guess they're going to do both now.
BECKY: Yeah. When you look at some of the issues that were also discussed this weekend, the
question of succession came up in the shareholder questions, but more pointedly with that
movement that was brought by the AFL-CIO, where they were asking for more specifics. That
proposal got voted down. I think it was by 95 percent to 5 percent in favor of it.
BUFFETT: Yeah.
BECKY: But people have looked at the situation with the question of succession and nothing's
changed from the board's perspective at this point, correct?
BUFFETT: No, and actually the AFL-CIO— we were on the same page largely.
BECKY: Uh-huh.
BUFFETT: Because they did not want us to name a name. They just wanted us to include
something in the proxy material that related to how we were dealing with it. What we've always
told people how we're dealing with it and we've put it in the body of the annual report this year,
for example. So we were— we were in a very similar position and it— there was not a big
disagreement on it. But if you look at our largest holdings again, American Express, Coca-Cola,
Wells Fargo, IBM, I do not know the name of the next CEO of any of those four. I don't even have
any idea who it'll be. When they pick their CEOs, I did not know who they were going to pick. I
didn't know John Stumpf was going to be picked, you know, some years ago at Wells or Ginni
Rometty at IBM. I just knew that they have a board of directors who had the job of picking the
best person available when the time came and they did it. And our board spends more time on
the subject of succession, we'll meet here in another hour or two, and we will spend more time
talking about succession than any other topic, by far. And we're blessed in the sense that we've
got multiple candidates and they would— they're with us. We know them well, we've seen them
perform and it is not a problem.
BECKY: You just mentioned Ginni Rometty at IBM and it reminded me of a headline that you
made this weekend when you made some comments about how as a member of Augusta you'd
be OK with women being admitted.
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BUFFETT: Yeah. But they— I'm not on that committee.
BECKY: So they haven't asked you.
BUFFETT: No. And I knew they wouldn't ask me when I joined.
BECKY: Are you OK with being with a club— obviously, you are as you're a member of the club.
BUFFETT: Yeah. I'm OK. Yeah.
BECKY: One way or the other. Why don't we talk a little bit about some of the other headlines
that have been out there. Joe mentioned before the Wal-Mart situation.
JOE: Hey, Becky.
BECKY: Yeah, go ahead, Joe.
JOE: Yeah. Sorry, Beck. You know, Palmisano became a member, but you know, he was— he
was a CEO for five years before he was a member. So who knows what the club finally does. But
I don't think people know that. They figure Palmisano immediately was, you know, because
they're sponsors of the Masters. But it was five years before he, you know, was finally invited in.
Warren, how long did it take you to get in, too? I mean, and especially with your skills, I figure
they would've handed you a silver platter if they had seen you play.
BUFFETT: I made just the opposite appeal. I'm the highest handicapped member of the club and
I am— I am in there as part of their outreach program. So that was the deal I made. They...
JOE: Gates— Gates, too, right?
BUFFETT: That was my only chance. Yeah. Oh, yeah. Well, yeah. He may be the second highest
handicapped member, but I definitely hold the title and they need me. If they're going to show
they're democratic in terms of taking any kind of golfer...
JOE: Right.
BUFFETT: ...they need me.
JOE: Letting you— letting you and Gates in is much more open than, I mean, that just shows you
they don't discriminate against really bad golfers.
BUFFETT: You've got your— I will not argue that point.
JOE: Likewise. I know. All right.
BECKY: Joe, I'm sorry. Did you want to ask about Wal-Mart? You had asked that before.
JOE: I wanted to ask a really...
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BECKY: We talked a little bit about it, but you had another question?
JOE: I wanted to ask, you know, I just really struggle with this, Warren, and as a shareholder, I
mean, I look at the piece that we saw from Holman Jenkins, which talks about the best way to
bring a developing country like that up to speed is to, you know, is— one of the ways to get rid
of graft and corruption and everything is development. And the net good that Wal-Mart has
done there in terms of jobs, in terms of bringing cheap goods to the population of Mexico, I
really struggle with as a— I'm not a shareholder, but if I were, if I looked at all the net benefits
and net costs, even PR costs, to get that jump-start in Mexico and to do in Rome as the Romans
do, I could almost make a case that as a shareholder I would feel really ambiguous about the
decisions they made down there. I mean, are you willing to say just outright they should've
never done anything in terms of, you know, trying to grease the skids down there?
BUFFETT: No, I heard your argument, but in the end, you know, when in Rome, you know, you
can only do what the Romans do unless it's against the law in your own country. And...
JOE: But maybe the law— maybe the law's antiquated. And it...
BUFFETT: It...
JOE: I made the point that let's say that you were in sub-Saharan Africa and that there was a
government there that wouldn't allow you to bring in vaccines for children and, you know, Bill's
got a big interest for that. And for whatever reason, it's one of these governments you just can't
deal with at all, but you find out there's a way to do it through bribes.
BUFFETT: Yeah.
JOE: Would you do that? You wouldn't do that.
BUFFETT: You're making...
JOE: If it's against the law, but you would do it because the, you know, I hate to say the ends
justify the means, but in that case, nine out of 10 people would say got for it for, you know, to
bring...
BUFFETT: Yeah, but...
BECKY: Yeah, but that's a different case, when you talk about bringing in vaccines for children
vs. building a new store.
JOE: Well, that's— but it is and it isn't. It is and it— it depends on what you think is...
ANDREW: This is so untoward.
JOE: What? What?
BUFFETT: Yeah.
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ANDREW: Bribery unto itself is untoward.
JOE: OK. So you would never do it.
ANDREW: You know where I stand on this. I would not.
JOE: I don't know. Wal-Mart would definitely not be where it is down there without...
ANDREW: And you know what, maybe that's OK.
JOE: But as a shareholder is what I'm talking about. It has benefited the...
BUFFETT: Well...
ANDREW: It's a very tough. It's a very tough issue.
JOE: Yeah. Go ahead, Warren.
BUFFETT: You're right. Yeah, you are at a disadvantage if you're in a country where there's a lot
of corruption and your own country says you can't engage in it and some other country doesn't
say their particular companies can engage in it. But in the end, you've got to follow the laws of
your country and you've got to have people working for you that believe that you follow the laws
of your country. You would not want to...
JOE: Well then— and you— you would think that the CEO, if he knew all along what was
happening and then they decided not what, you know, to not investigate it in a more strict way,
then he should go then.
BUFFETT: Well, I don't know the facts about the CEO or anything.
JOE: OK.
BUFFETT: But I do know— I do know this, I do know this. You know, the thing I worry about at
Berkshire is that with 270,000 people, somebody's doing something wrong. I'll guarantee you
they're doing something wrong today. I mean, we're— we probably have 10 people, maybe 20
people doing something they shouldn't be doing today at Berkshire. What I hope is that we find
out about it, that it's minor and I certainly hope that we hear about it and get it, you know, get it
corrected. But you can't have a huge organization— anybody that runs a huge organization, I
don't care whether it's a church or an army or a political organization, a governmental
department, I mean, that's what haunts you is that down the line people are doing things that,
you know, they're not supposed to be doing and you have various methods to try and keep that
under control. You'll never— you'll never solve it 100 percent. You have to make sure when you
do find out about it, you do something about it.
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ANDREW: Hey, hey Warren, if we learn within the Wal-Mart issue that somehow it really did get
to the board and that there really was a cover-up of grander proportion than even we know,
would that change your view about whether you want to own this stock or is the business unto
itself so solid that it doesn't matter who's running it?
BUFFETT: Well, my— I really don't want to get into a hypothetical going to the board because I
don't think it did. I mean, I would— I'll take some other company, XYZ company, and my guess is
that if something really terrible got to the board and they didn't do anything about it, you'd
change the board and then there'd be no problem owning the stock, you know, in terms of a
new board being there. I don't— I don't think it's a reason to throw away a business because
somebody— if one of our subsidiaries, if somebody does something wrong, the answer's not to
get rid of the subsidiary, the answer is to get rid of the person that did something wrong.
BECKY: Mm-hmm. You've said in the past that you want to own businesses that could be run by
a ham sandwich?
BUFFETT: Yeah, well, that's true. But I've also said we always want to have business— we want to
have people that match our principles and not principles that match our people.
BECKY: Hm, OK. Warren, just a little bit out of left field here, you did an interview, I don't know,
about a month ago or something, where you were asked who was the most difficult person
you've ever had time talking to. And you came up with an interesting answer.
BUFFETT: Well, it was Jackie Kennedy and Princess Di.
BECKY: Yeah.
BUFFETT: Yeah. I was in a room alone one time with Princess Di at a party. Somehow we found
ourselves in this library and I— in 15 minutes, I don't think I could take it. I had trouble
remembering my name, I couldn't— I couldn't think of anything to say, and it was a total
disaster.
And then— but the more interesting thing is, I only met her one other time. It was a party at Kay
Graham's house, which was where the first party was, and it was shortly before her death, very
shortly before her death. And I was at the table, they put me across the table after my previous
disaster. But she was sitting between Barry Diller and Teddy Forstmann. And after she died a
few weeks later, all these papers called and said, `What did she talk about that evening?' I didn't
tell them, but I will tell you today that a comment she made, which was absolutely true, and I
can see Barry and Teddy's faces as she said it. She had been at the White House that day and
she said that Bill Clinton was the sexiest man alive. And I didn't ask her who the least sexy guy in
the world alive was. I was afraid I might get my play in there.
BECKY: Wow.
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BUFFETT: But Barry and Teddy, they tried to keep their faces steady as she made that
proclamation. But that's the last thing I heard from her before she died.
BECKY: Wow. OK. Andrew, Joe, on that note, I'm going to send it back to you guys. We're going to
come back with more in just a moment.
JOE: I don't even know— I don't know where— you know, I just...
ANDREW: What could be said? Who was the sexiest— what would you say?
JOE: I'll tell you what— what would I say? I would say that Bill, obviously, I've heard that about
him, Becky. And you've told me that about him, too. He will look at your like you're the...
BECKY: Oh, I didn't say the sexiest man alive, but I will say he makes— he makes you feel like
you're...
JOE: He will look at you like you're the only person— you're the only person in the world.
ANDREW: Right. That's true.
BECKY: Yeah.
JOE: So think— that's what you'd say. You're the only person in the world...
BUFFETT: I have...
ANDREW: Right.
BECKY: Yeah.
JOE: I think he could make me feel like he's the sexiest man alive. Right?
BUFFETT: He has not heard this before. So he's probably having a good day today.
BECKY: So this is news to him.
BUFFETT: I never told him this.
JOE: I get...
BECKY: No, but it's true. He's a person who walks into the room and focuses on you and makes
you feel like you are special no matter what.
BUFFETT: Yeah.
JOE: I mean, the...
BUFFETT: When Princess Di was looking at me and said that he was the sexiest man alive, the
fact that she was looking at me did not make me feel...
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ANDREW: Didn't make you feel better, right?
JOE: And that whole— you saw how many jokes there were if it had been— if it had been Bill
down in Colombia with the Secret Service guys, you've seen the jokes, It would have been a
whole different ball game, probably down there, I'll tell you, right? I mean, a lot of high-fives
probably.
BUFFETT: You're on your— you're on your own, Joe.
BECKY: Yeah. Put that in the single box, please. Get rid of the rest of us.
JOE: I'm willing to— I'm willing to go there. I've gotten a lot of them.
ANDREW: I'm being told by the producers to save you. Coming up, he's Warren Buffett's very
good friend and also the second richest person in the world. Up next, Bill Gates tells us where
he's putting his money. Here's a sneak peek.
GATES: Certainly equities are— their attractiveness relative to bonds is higher today than almost
any time in my lifetime. And, you know, if you can find companies then, you know, your
opportunity quite phenomenal. So, you know, we have more of an equity— we always had a
very high equity percentage, but it's, you know, virtually, you know, everything is equity-oriented
at this point.
(End of clip)
BUFFETT ON CURRENCIES & RAILROADS

BECKY: Welcome back to "Squawk Box," everyone. The euro has been under quite a bit of
pressure this morning after the news over the weekend about the elections in Greece, Germany
and in France.
Right now it's trading just a hair above 130. Obviously, though, there have been some people
who question why the euro hasn't seen even more pressures based on all the troubles they've
been having there. Over this weekend we got the chance to catch up with Bill Gates, who is a
director at Berkshire Hathaway, and he talked a little bit about his thoughts on currencies and
why you've seen some of these things happen. Why don't you take a listen.
GATES: There's some of these currencies like, you know, the Canadian dollar where you can say
OK they've done a better job, therefore won't they benefit over time. The challenge with
currencies is all the big ones have some difficulty. You know, it's not like the Americans have
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solved their deficit and, you know, when you bet on currency you're looking at that long-term
thing. What is the equilibrium at which the US starts to pay back the net debt that it has
externally, which is primarily to oil-producing countries. A little bit to China. You know, clearly
some currency equalization will be involved in that. So it's not like you can say ÒK, you know, I'll
just buy the dollar.' Also, most investors, including, myself, most of your things are naturally in a
dollar. So you start out, you could say, overweighted in the dollar and you have to go to quite
lengths even just to get neutral and then the question's OK, what do you— if you don't like the
euro how do you get neutral? You know, there's not that many heavily traded currencies other
than the euro.
(End of clip)
BECKY: Again, we are live with Warren Buffett this morning. And, Mr. Buffett, you hear those
comments coming from Bill Gates and it's a good question for a lot of investors like himself. He
is already overweighted in the dollar.
BUFFETT: Sure.
BECKY: Because he owns everything in it. So what do you do?
BUFFETT: Well, Bill and I probably talk about currencies as much over the years as stocks. It's a
fascinating subject and Bill's done well with currencies. But we are all dollar heavy. I mean, you
know, it's natural. You're going to be dominant unless you make a very, very conscious effort
you're going to be very heavily weighted in dollars. And he's thought about it and I've thought
about it and I am not— I don't like any currencies over time. I like the dollar better than most
currencies, but I don't know whether Bill talked about the Canadian dollar there. I didn't listen to
the whole thing.
BECKY: He talked very briefly where he just said, you know, they've— you would think the
Canadians might do, the Canadian dollar might be— do better over time because they've done
very well and haven't gotten into a lot of the problems that we've gotten ourselves into.
BUFFETT: Yeah, yeah. Their economy is— it's been run better over the last 10 or 12 years than
ours. And incidentally, their banks are bigger relative to the size of their economy than ours are.
So...
BECKY: Mm-hmm.
BUFFETT: ...so they've actually done it with bigger banks relatively. But Bill would— I think Bill's
done very well in Canadian currency and I just wish we'd made as much money as he had out of
it.
BECKY: But as an investor, when you look at currencies it's difficult when you're as big as
Berkshire to try and find things that you can really move into.
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BUFFETT: Yeah. Well, and we're in so many different ways. We have insurance liabilities in all
kinds of currencies around the world. We have businesses earning money in other currencies.
It's— it would be very hard for me to tell you precisely where we stand in regard to the euro,
whether going up or going down, actually— how it actually affects us because we have so many
— so much interplay between our financial assets and our operational aspects.
BECKY: Do you worry about trying to hedge in currencies or you just going to play it?
BUFFETT: No, I don't— I don't worry about trying to hedge, no, no.
BECKY: OK.
BUFFETT: When we bought Burlington they would— they would engage in a lot of hedging of
their fuel. I mean, most companies hedge. But the truth is if they really knew what those
currencies were going to do, they might as well close down the railroad. You know, we just— we
just play around with the oil market. And all of those things have costs attached to them. And
I'm going to live a long time and my guess is that we take all of the hedges of all the companies
that we might be exposed to and added them all up over a 50-year period, net they would have
cost me money. So I don't worry about what we earn from quarter to quarter. And people that
worry a lot about what they're reporting every quarter engage in a lot of hedges, which probably
have an economic cost to them. But that they care more about what they report quarterly than
they do about the net result over a 10-year period.
BECKY: Let's talk about Burlington Northern. You've always loved the railroads because you say
it's a very early indicator of how the economy's going.
BUFFETT: I didn't love them early enough. I should have loved them a little earlier. But I— but
they're a very interesting set of statistics comes with them that tells you a lot about the
economy.
BECKY: So what are you seeing right now?
BUFFETT: We're seeing that little bit of improvement month to month and over time. And it's
not much different than we've seen since the fall of 2009 in that it just keeps getting a little bit
better consistently. Now you see given coal is down, for example...
BECKY: Mm-hmm.
BUFFETT: ...you know, and, of course grain will depend on crops and all. But overall I see
improvement.
BECKY: If natural gas becomes a bigger and bigger play over the long haul, we've seen recently
some companies actually putting some real money into making the conversion to natural gas.
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BECKY: Is that a big problem for the railroads?
BUFFETT: No, you could even— you could even think in terms of natural gas being the fuel for
locomotives. I mean, you get a big enough differential between oil and natural gas and you'll
figure out a lot of ways to do a lot of different things. And, of course, we're seeing that in utility
generation right now in terms of the move to gas.
BECKY: What's MidAmerican doing, MidAmerican Energy doing? Is it looking to make that
conversion to natural gas with anything, or to find other...
BUFFETT: Well, where we have units that have the option of using gas, gas is cheap, most units
don't move around that easily. So you're never going to have a major change in a short period of
time from one energy base to another. But, you know, you— gas is going to be the preferred
method between gas, coal and oil obviously in terms of utility generation now.
BECKY: OK. We're going to slip in a quick break here, but when we come back we do have much
more from Warren Buffett. And, Joe, I don't know which direction you want to take this, but I
think you've got a few questions coming up, too.
JOE: Yeah, I don't know where we're going to go. I'm going to talk it over with Andrew here.
Where do you want to go, Andrew?
ANDREW: I got— I got a couple of questions that we didn't get to sneak into the— to the annual
meeting that I think will be kind of fun, actually.
JOE: Wasn't it like hours?
ANDREW: It was hours, but there was two clever ones. Warren knows one of them because I
saw him at dinner afterwards and we should probably get to it because it's kind of fun.
JOE: All right, good. Coming up— that's a good— pretty good tease for you.
ANDREW: I'm trying.
JOE: Damn good. We heard a lot from Berkshire Hathaway's Warren Buffett this morning, but
there's plenty more to come.
BUFFETT: We got a big bet on the American economy and we will have it for— our railroad will
do better when there's a million housing units. A lot of our businesses will.
JOE: Right.
BUFFETT: So I don't have to play it directly.
ANDREW: Let's get back to Becky Quick in Carter Lake, Iowa, with our newsmaker of the
morning. Becky.
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BECKY: Andrew, thank you. Of course, our newsmaker of the morning is Warren Buffett, who is
just coming fresh off the Berkshire Hathaway annual meeting right next door in Omaha,
Nebraska. Thirty-five thousand shareholders descended on Omaha this weekend, Warren, and
they did a little bit of shopping.
BUFFETT: Yeah, it's interesting when you mention 35,000 because our furniture store in the one
week surrounding the meeting, which will end today, will do 35 million of business. So we've
done $1,000 of business for every man, woman, and child that attended the meeting. And that's
almost 10 percent higher than we've done before. When a retail stores does $35 million in a
week, that is a lot of business and the shareholders were out getting bargains.
BECKY: That says an awful lot about the shareholders, the numbers who are coming in, but it
says something about consumers, too.
BUFFETT: Oh, sure. You know, they're in a different mood than they were a few years ago. And I
saw that at the jewelry store, too. I sold— I sold jewelry for two and a quarter hours and I
couldn't write tickets fast enough. Crazy Warren was in his element.
BECKY: Yeah, it's a special thing, though, when people are buying it from you. There's a little bit
more of a clamor than maybe every day that they see that.
BUFFETT: They get a better price.
BECKY: Hey, Andrew, I know you had some questions, too. Things you didn't get to this
weekend?
ANDREW: Well, one question, and Warren and I talked about it briefly was this, and it came in
from a shareholder in Chicago. And the question was "Google self-driving cars are expected to
hit the road within 10 years. How does this new technology impact auto insurance premiums
and how GEICO is preparing itself for a future with no car accidents?" I actually thought it was a
pretty good question.
BUFFETT: Yeah. It's— well it's interesting. I've seen, you know, news clips of that car. I would
doubt in a country with 250 million vehicles that you and I will feel great driving around with a
whole bunch of driverless cars. I don't think it'll happen, but I— you know, the Google guys come
up with a lot interesting things and I will say this, if you end up with no accidents we will end up
with no insurance company.
ANDREW: OK, so Warren...
BECKY: Help!
ANDREW: ...here's the follow-up and this was another shareholder with a different, but GEICO-
related question. The shareholder writes, "If GEICO consistently operates with an underwriting
profits and I buy insurance from GEICO, does this mean I'm overpaying for my insurance?"
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BUFFETT: No, it means that our operating costs are far lower than most of our competitors and
it means that we can pass on some of those savings in operating costs and at the— and at the
same time they're large enough so that we can still make a profit. Our advantage comes from
the fact that we're a low-cost operator. We wouldn't have bought GEICO except for the fact that
it was and will continue to be very much the low-cost operator.
BECKY: What does it have different in terms of overhead that other more traditional companies
do have?
BUFFETT: Well, we— our expense ratio runs about 17 percent, about 6— we could run as low as
11 or 12 percent if we didn't want to grow. And many companies operate at anywhere from 25
to 30 percent. And we're also very efficient because as we get scale advantages we even get that
in terms of the loss adjustment costs as well. It's a very efficient operation.
BECKY: Joe, I'm sorry, did I cut you off?
JOE: No, I was asking Andrew, I was trying to really figure that one out. I mean, I was thinking
about in reference to Jeeves. You already got a— it's not a driverless car, but you have nothing to
do with the— but I— was that— that was a serious question, though, and I don't— I guess...
ANDREW: No, it was about whether Google...
JOE: There would still be...
ANDREW: No, no, this is what— but people would say that...
JOE: There's going to be more accidents, though.
ANDREW: No, but people say that technology...
JOE: The cars are going to...
ANDREW: Technology changes everything, always, and...
JOE: Yeah, but there'll be...
ANDREW: ...it invariably gets better.
JOE: The— I figure...
ANDREW: You might think...
JOE: ...if something— think if there's a virus...
ANDREW: You know.
JOE: ...or something goes wrong, there's going to be pileups everywhere. I think you ought to
add to your position there, Warren. I think there would be accidents all over, don't you...
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BUFFETT: Yeah.
JOE: ...if people aren't driving their cars? I'd double down.
BUFFETT: I...
ANDREW: What's the Tom Cruise movie where they're in the future?
BUFFETT: It's not at— it's not at the top of the list of my worries, I'll put it that way.
JOE: I— no, but I would figure— and I wasn't going to ask you this, Warren, but I might ask it in
terms of climate change and, you know, God, we had a warm summer in the— or winter in the
— on the— you know, in North America, not the rest of the world, but— and we had a very cold
winter the previous one...
BUFFETT: Yeah.
JOE: ...but suddenly people are factoring in more catastrophic events in coming years, and
they're positing it as if it's going to be a fact, even though you remember the year of the
hurricane, that hasn't repeated itself again yet. And you knew it wouldn't because you knew the
next couple of years would be great for a hurricane, I mean, you were writing policies left and
right because of the higher premiums. You knew there weren't going to be a lot of hurricanes
for a few years, right?
BUFFETT: Well, I don't know what the hurricane ratio is going to be, but I know that weather—
the fact that this year was unusually warm and the year before was unusually cool does not
make— does not change my evaluation of the expectancy for hurricanes or earthquakes or
tornadoes. You know, it— people extrapolate too much out of current experience in...
JOE: I agree. Yeah.
BUFFETT: ...in a whole lot of arenas...
BECKY: Yeah.
JOE: Yeah.
BECKY: Warren, let's talk about some of the other stocks that you own positions in.
BUFFETT: Sure.
BECKY: Procter & Gamble is one of those stocks.
BUFFETT: Yeah.
BECKY: Recently, I think it caught— is full-year outlook talked about some disappointing market
conditions in some arenas.
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BUFFETT: Yeah.
BECKY: What did you think of that?
BUFFETT: Well, I think they've found that they're having problems, you know, raising prices in
certain areas and...
BECKY: Right.
BUFFETT: No, they have learned— and I'm privy to know special information on this but...
BECKY: Mm-hmm.
BUFFETT: ...but clearly they have found they did not have the pricing flexibility with some items
that they thought they had.
BECKY: Is that— I mean, it may be surprising when you're talking about how consumers are
feeling a lot better. I guess consumers have pared back the same way that businesses have.
BUFFETT: It depends on the item, though, to some extent.
BECKY: Yeah.
BUFFETT: But I— but consumers are always looking for values, I mean...
BECKY: Mm-hmm.
BUFFETT: ...you know, it— you want to be with a low-cost operator. Now, that's an advantage
that Wal-Mart has, that's an advantage a Costco has, and you can look throughout the field.
People that are low-cost operators have an advantage. And P&G has been selling higher-end
products generally compared to private labels that were available.
BECKY: Mm-hmm. It doesn't change your opinion as a shareholder, I take it. You're a long-term
holder.
BUFFETT: Well, we've been a long-term holder.
BECKY: That sounds less...
BUFFETT: It sounds a little weasely, doesn't it?
BECKY: It does— it does sound a little weasely. Are you selling?
BUFFETT: Yeah, well, it's a little weasely.
BECKY: So are you selling or...
BUFFETT: I'll just say that we've been a long-term holder.
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BECKY: We'll leave it at that.
BUFFETT: And that I'm being weasely.
BECKY: And that you're being weasely. But you did, for the people who didn't hear earlier, you
are going to be buying two different stocks in the market today.
BUFFETT: And the cheaper we buy them, the better I feel. And I should note, I think last year if
you looked at our holdings, I think we did reduce our holdings of P&G, so.
BECKY: OK. So that tells you a little bit about that. Why don't we also talk a little bit about what's
happening in Washington right now. You...
BUFFETT: Not much.
BECKY: Yeah. Are you frustrated, just as an American who thinks that we need to be getting our
deficits under control, are you frustrated that more hasn't happened in an election year?
BUFFETT: Yeah. Well, I would say this, we have the richest country in the world. Our problem is
not that we're— we don't have all kinds of financial and economic strengths. This is a wonderful
country, $48,000 of GDP per capita. You know, we should be able to work out our problems. And
the interesting thing is, I think, most people know how to do it. You've got to cut expenditures
significantly, even a rich family can spend too much money, and you need to get some more
revenues. And you can argue about how you do it on both sides, but I think most people could
come to reasonable agreements on that on both sides. But each side feels that if they speak first
that it will hurt them politically, so you have this stand-off where each one— they Democrats
want the Republicans to move on revenue and the Republicans want the Democrats to move on
expenditures. And normally, when you get an impasse like that, you hope that the leaders meet
in private and work out something. They can't do it in public, you can't do it on the Sunday talk
shows or something...
BECKY: Mm-hmm.
BUFFETT: ...and— because you lose face and you lose bargaining position and everything, so
you try to work it out privately and then get your troops to follow you, and the problem is that
people worry about troops following.
BECKY: Is that because we've seen more extreme positions both on the right and the left?
BUFFETT: Yeah, we've got— we've got more people that— I mean the primary system leads to
that to some degree and, I mean, you— many, many, many people who are in Congress worry
more about winning their primaries than they do about winning the general election, and that
means— that pushes people to the extremes. We'll get over this, but it is— it's gumming up
government to some extent.
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BECKY: OK. We're going to have more with Warren in just a little bit. Right now, guys, I'll send it
back to you in the studio.
JOE: OK, Beck. Thanks. Coming up, Becky talked some politics with Berkshire Hathaway Vice
Chairman Charlie Munger, as well, over the weekend. We're going to hear his take on Mitt
Romney and ask Warren to weigh in on the race for the White House.
'BERKSHIRE IS UNDERPRICED'
BECKY: Welcome back, everybody. We are live this morning at the Hollywood Diner in Carter
Lake, Iowa, which is just aside from Omaha, Nebraska, and that's where we've been speaking
with Warren Buffett all through the morning. This was the annual Berkshire Hathaway
shareholders' meeting, a lot of things happening here this weekend. And at one point over the
weekend, I got the chance to sit down with Charlie Munger and ask him what he thought about
Mitt Romney's chances against Barack Obama, coming up in this year's presidential election.
Listen in.
(Clip from Charlie Munger interview)
CHARLIE MUNGER: I think he's by far the best of the Republican nominees. So did Warren.
BECKY: Mm-hmm.
MUNGER: I think considering how poisonous the political atmosphere in the country is it's
amazing that we have two people as outstanding as those we have. I think that people will live to
have two candidates out there and just hate having to make the choice. I think there's a lot of
merit in both these people.
(End of clip)
BECKY: Again, that was Charlie Munger. And, Warren, Charlie pointed out just before that sound
began that he's a Republican, you're a Democrat. Obviously, the two of you have worked
beautifully together for decades.
BUFFETT: Sure.
BECKY: What do you think's really poisoning the atmosphere in Washington right now?
BUFFETT: Well, I— it's the desire to get elected. And each side— there's this important issue of
what you do with the economy, and each side is worried about getting tagged with the
unpopular side of two sides that are both going to be unpopular.
BECKY: Right. When we have— the end of this year, we're facing a pretty big fiscal cliff, some
people are calling this, where the Bush tax cuts are set to expire. A lot of the one-time tax
pullbacks have been set to expire, too. What do you think should happen?
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BUFFETT: Well, what should happen is we should be working right now on something, and you
could take Simpson-Bowles as the starting point, and we should be working on something that
gets us to where the gap between spending and expenditures is in the 2 to 2 1/2 percent area
and that— and that there's certainty that we will get to that within a reasonably short period of
time, and that will require people bending on both sides. And everybody knows that, and
nobody wants to bend first.
BECKY: You said earlier in the program that we are nearing that point where we shouldn't have
any more stimulus that's coming through. But if all those tax cuts expire at the same time in
January, is that going to be a huge hit for the economy?
BUFFETT: Well, we always have some stimulus if we're operating at a deficit, so I really— I really
advocate a position of 2 or 2-1/2 percent deficits averaged over time. And that's stimulative. I
mean that— it isn't wildly stimulative, like our present situation. But we will need more revenue,
and we will need less in expenditures. And I know it and you know it and the American public
knows it, and it may be that this cliff that we're facing at the end of the year will produce action.
I mean, you— like I said— going back to Simpson-Bowles, those are two high class people, they
got people as far apart as Durbin and— to agree. We need to do something like that. And it isn't
— it isn't because we don't have the resources, and it isn't because we don't have intelligent
people...
BECKY: Mm-hmm.
BUFFETT: ...it's because we got two parties that want to win an election.
BECKY: But I guess what I'm trying to get at is from the investors' perspective, if we do hit this
fiscal cliff and we plunge right off of it because we can't find some sort of agreement in the, you
know, 90 days or something from the election— or from November, December...
BUFFETT: Yeah.
BECKY: ...until we get back into January, is that a big problem for— from the market's
perspective?
BUFFETT: It's a— well, I'm not sure whether it's a problem from the markets— it's a big problem.
BECKY: Yeah.
BUFFETT: But there's always a big problem and lots of big problems. And the— I would— I do
not give that a 1 percent— make that a 1 percent factor in determining what I'm doing today in
investing.
BECKY: So...
BUFFETT: We're always going to— things are going to come out of, you know, right field. You're
going to have 9/11s. You're going to have October 19th, 1987s. You're going to have flash crises...
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BECKY: Mm-hmm.
BUFFETT: ...all kinds of things are going to happen. I'm not trying to sit around and predict which
of those are going to happen, I'm trying to figure where businesses will be five or 10 years from
now. And whenever we buy a stock I say am I happy owning that stock if the stock market closes
for a couple of years? You know, if I've got a good business here and the stock market closes for
a couple of years, I'm fine. And if I own part of a good business I do not need the stock market to
be open for the next couple of years to do fine in investing.
BECKY: That was one of the questions that came up quite a bit this weekend was the valuation
of Berkshire shares right now. Some people think it's severely undervalued, in fact you yourself
— you and Charlie have decided to go ahead and start buying back shares, which was a pretty
unusual move.
BUFFETT: Unusual. Mm-hmm.
BECKY: What do you think it is that's holding back Berkshire shares?
BUFFETT: Berkshire has been underpriced sometimes during its— the 45-plus years I've been
there— has been overpriced. Most of the time it's been in with the range of value. In the next 50
years it'll be overpriced, sometimes it'll be underpriced, it's the nature of stocks. That's what
makes stock investing so wonderful. I mean, if everything was perfectly priced all the time there
would be no money in the game.
BECKY: Mm-hmm.
BUFFETT: I love the fact that Coca-Cola gets underpriced or overpriced sometimes, I love the
fact that Wells-Fargo gets underpriced or overpriced. It's fine with me, you know, if that happens
with Berkshire, it will always happen with Berkshire, I will guarantee you that in the next 10 or 20
years you're going to see times when Berkshire's overpriced or underpriced.
BECKY: You think the stock market has more opportunities where there are significant
mispricings right now?
BUFFETT: Sure. Sure. I would love it if they only allowed me and a whole bunch of psychotic
drunks to trade in stocks and I would get very rich.
BECKY: I don't expect to see rules like that put in any time soon but...
BUFFETT: Well...
BECKY: ...there have been a lot of talk when you start looking at some new regulations that have
been proposed for some of the futures markets, particularly if you look at commodities and
some of the things. We've talked with Bart Chilton recently and one of the ideas that they've put
forth with the CFTC is that nobody should be allowed to own more than 10 percent of, let's say,
the oil market, or something along those lines.
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BUFFETT: Yeah.
BECKY: Is that a good idea? Do you need rules like that?
BUFFETT: Well, the— you do need some rules to prevent cornering. I mean, you know, that goes
back 100 years when people tried to corner, weed, or do that sort of thing. But in stocks, it's not
— it's basically not a problem. The real problem in stocks is that people are emotional about
them. I mean, the problem isn't with the companies, the problem is with the people that call
themselves investors. And if you look at how American business has done over history, it's done
magnificently. And if you just owned a cross-section of it, you didn't— you didn't need to know
how to run a— read a balance sheet or anything. But the problem is that people get excited
about getting rich very quickly or they get depressed when they thought they were going to get
rich very quickly and they didn't, and people beat themselves in the stock market. The stock—
the companies don't beat them, the stocks don't beat them, they beat themselves.
JOE: No, I was listening to Warren, and I saw a piece over the weekend, Warren, about volume
on the New York Stock Exchange, that maybe it's finally coming home to roost, that electronic
trading was, you know, was going to take over. And it was really a negative piece on the
prospects for the Big Board. But to me it just looked like an incredibly positive piece for the
commentary about the stock market itself.
BUFFETT: Yeah.
JOE: Because I think that lack of enthusiasm for the retail investor means they're not in and
when they're not in it just means they're eventually going to get in but at much higher levels. So I
mean, I know you don't time the markets, but this is a really opportune time, don't you think?
BUFFETT: I certainly think that stocks are the most attractive investment aside from that
exception I made for single-family homes. I think they're the most attractive investment available
— generally available to the American public.
BECKY: Hey, Warren, you said that you don't think what's happening right now with social
networking stocks is a bubble and that, you know, with housing that was a bubble, that was
something that was out there. We're always trying to find out what the next bubble is...
BUFFETT: Yeah.
BECKY: ...where the next place is, where it's inflating too much because of some policy gone
wrong or some unforeseen consequences. Have you seen any arenas where it seems to you like
there's a little too much helium that's starting to build in?
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BUFFETT: Not really. But I'll guarantee you it will happen, there will be bubbles in the future. I
mean, people get excited about things that have gone up in price, and that very excitement
becomes further proof to them and the rise in prices. I mean, it becomes circular, and it keeps
going until it ends, and that's when bubbles pop. But we will— we will have a lot of bubbles, and
you can get very rich on bubbles if you take advantage of them rather than participate in them.
BECKY: There was— there's some talk— people think the bubble— next bubble's going to be
coming from all this easy monetary policy, not only from the Fed, but from Central Banks around
the world. They start looking at where you see commodities prices creeping up or oil prices or
other things, because all that money has to go somewhere.
BUFFETT: Yeah. That's not a bubble, that's inflation.
BECKY: OK.
BUFFETT: I mean— yeah. If you print enough money, you know, the price of everything will go
up even though the value of it doesn't go up, in a sense. And if you mail out a million dollars to
every American family, you know, you will— you will not have a bubble, you'll have inflation.
You'll also have a lot of activity for a while. But the printing of money results in the decline in the
value of money. It's very simple.
BECKY: Do we need a bubble to get us back to stronger GDP growth?
BUFFETT: No, we don't need a bubble. We're— we need— we need the housing— the excess
housing supply to be sopped up, and that— and that is happening. I think, for example, in
Omaha, you know, we're very close to equilibrium.
BECKY: But, I mean, that was the last bubble, you don't need that bubble to reinflate, but you
need it to come back to its normal...
BUFFETT: No, you just need— you just need it at normal levels.
BECKY: But if that drove the last great...
BUFFETT: We don't want to do something like that again. What we— what we want to have is
the normal growth that comes out of an economy where people are finding more and more
things to do that please you and me in terms of what we buy.
BECKY: Mm-hmm. You know, Warren, we have not gotten the chance to talk to you about this
live. It was discussed this weekend at the shareholders' meeting, but how are you feeling?
BUFFETT: Oh, I feel terrific.
BECKY: Yeah.
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BUFFETT: I mean, I'm here with my strawberry shake, and I'm enjoying life and— there is
absolutely no change in my life, I— my energy level is 100 percent. I have no symptoms of any
kind, I mean...
BECKY: Mm-hmm.
BUFFETT: No, I— nothing has changed.
BECKY: Well, guys, this is your last chance to jump in with a last-minute question. I know we're
just about out of time.
ANDREW: Hey, Becks, I got a question— it's actually from Doug Cass, Beck, you and I talked
about it over the weekend, actually, it's an interesting one. Doug says that, for many years,
Warren, you referred to Henry Singleton, the founder of Teledyne, the big conglomerate, as one
of the brightest CEOs in corporate America. Henry ended up breaking up Teledyne into four
companies before he died to enable his managements to focus on what they knew and put in an
options program. So Doug asks, "What's the rationale for having this business as a diverse and—
as an— as unconnected as Berkshire?" And have you ever really thought hard about doing
something like Henry?
BUFFETT: Yeah. It's interesting, Henry did incredibly well. He repurchased an astounding
percentage of his stock over the years, and he ran the business as well. And then after he did
what you just got through talking about, it didn't work so well. So you're— that was in his later
years, and apparently, you know, he wasn't functioning as well then. His record was made not
by what happened when what you described took place, it was— all happened prior to that
while he was following exactly the kind of policies that I advocate.
ANDREW: OK. Good answer.
BECKY: Yeah. So...
ANDREW: Before you guys go, I should mention, and maybe you can do a little mentioning
yourself, Warren, there, that Becky got a star on the Hollywood Diner's walk of fame over the
weekend.
BECKY: Oh.
ANDREW: Along with Jay-Z. You can see Steve Forbes there. CNBC. Who else is on the list there?
Warren Buffett, of course.
BECKY: I think Bill Gates has been here.
BUFFETT: Yeah, Bill's been here. Jimmy Buffett's been here.
ANDREW: And now— and now the Becky Quick. So you're in good company, Becky. They did a
nice job there.
62/64
BECKY: Well, Andrew, you...
BUFFETT: And you're the first female, you're the first female, I believe.
BECKY: Ah. Well, Andrew, here's something to do. Next time you're here you got to make sure
you come here, too.
ANDREW: Well, I'll have to work on that. I don't— I don't know if I— if I'll qualify. But you're the
first female, so they're doing better than Augusta at the moment.
BECKY: Yeah.
ANDREW: That was a bad joke.
BECKY: Warren, we want to thank you very much for joining us for these three hours. I know it's
been a very busy weekend, but we love having these chats with you, so.
BUFFETT: I had a lot of fun. Thank you.
BECKY: Thank you for taking the time, we really appreciate it. And, guys, we'll send it back over
to you.
JOE: Excellent. Thank you, Becky. You know, you could hear— he talks all weekend long, and
then— and then he— those three hours...
ANDREW: And he's got more— I got to tell you, he has more energy than just— than I do, I can
tell you that, and it's just a remarkable thing to see at any age.
JOE: I even noticed when I asked him that question about, you know, the— obviously, there's not
a whole lot of retail excitement at this point, I think we're all— maybe a lot of people are gun-
shy.
ANDREW: Right.
JOE: And he wants to say, yeah, this is a great time, but he doesn't say it that, you know, that
stridently because I think he doesn't want everyone to know. I think he's going to do a lot of
buying and position himself. But I think he has that same feeling that when you see the public...
ANDREW: Well, look, he's...
JOE: ...as...
ANDREW: Yep.
JOE: ...as unexcited as they are right now, that's got to be it.
ANDREW: Well, you just heard him— you heard him say it. He...
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JOE: Yeah.
ANDREW: He was buying on Friday.
JOE: Right.
ANDREW: He's going to be buying today. That $22 billion acquisition I'm going to— I'm going to
be wondering what that is for a very long time, but it's an interesting...
JOE: That would— that narrows it down to like— I mean the S&P 500 is mostly...
ANDREW: There's not a lot...
JOE: No, there's a lot of $22 billion companies.
ANDREW: We could figure it out if we— if we get our way.
JOE: All right, you go ahead. Get to work.
ANDREW: Our very special thanks, of course, to Warren Buffett for a great three hours.
Class B:
Class A:
64/64
CNBC Transcript Warren Buffett and Carol Loomis on Squawk Box
rbcpa.com/warren-e-buffett/cnbc-transcript-warren-buffett-and-carol-loomis-on-squawk-box/
November 28, 2012
CNBC Transcript: Warren Buffett on ‘Fiscal Cliff’ and Taxing the Rich
cnbc.com
| 28 Nov 2012 | 01:43 PM ET
Warren Buffett and his long-time friend Carol Loomis, an editor at Fortune, appeared live on
CNBC’s “Squawk Box” to promote a book that collects the magazine’s past articles about the
Omaha billionaire.
During the interview, Buffett said he expects Congress to reach a “fiscal cliff” deal but thinks it
could happen after the December 31 deadline.
This is a transcript of the entire appearance on Wednesday, November 28, 2012 at 8a ET.
JOE KERNEN: We have a big line-up this morning. Warren Buffett — last time I saw
Warren, he had an ugly tie on, and he sent it to me. He brought—right?
ANDREW ROSS ANDREW: It’s true.
JOE: You brought it back—I have it up at my desk. It’s an ugly tie. He sent me a brick so
far, which is pretty ugly, and a tie. That’s it.
BECKY QUICK: Have you thanked him for either of those gifts?
JOE: When I get the NetJet card, I will—I will thank him appro—I will. Thanks, Warren,
for the brick. Warren Buffett’s going to join us with biographer Carol Loomis in just a
minute. Thanks for coming on. We have plenty to talk about with the Oracle of
Omaha.
ANDREW: Everything down. Not a great way to start the morning, but a great way to
start the morning since we do have Warren Buffett on the show.
BECKY: That’s right. And red arrows. You know that Warren Buffett likes to buy when
he sees red arrows, so.
ANDREW: That is true. That is true.
BECKY: Warren Buffett, obviously, is a familiar face here on “Squawk Box”. He is the
subject of a new business biography. He joins us this morning along with Carol Loomis,
who is senior editor-at-large at Fortune magazine. Carol’s the author of the new book
1/17
on Mr. Buffett, “Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-
2012.” And Warren and Carol, thank you both for joining us this morning.
WARREN BUFFETT (Berkshire Hathaway Chairman and CEO): Thanks for having us.
CAROL LOOMIS (Fortune Magazine Senior Editor-At-Large): Great to be here.
BECKY: You know, Carol, you’ve known Warren Buffett for over 45 years. You have a
long friendship and you’re somebody who knows probably his take on business better
than anybody out in the world. People have been waiting for a book like this…
LOOMIS: Great.
BECKY: …but you talk to him every day and in putting this book together, is there
anything that you learned or anything that you were able to say, you know, ‘This is
something I hadn’t thought about in a while’?
LOOMIS: Well, first of all, I just learned all over again how good he is. You just see it all
through the book. He’s—the brilliance and the new ideas that keep coming up. But I
think the thing I was most struck by was how consistent his thinking has been as he
has gone through these years. In the early part of the book when he is advising
Grinnell College about its—how to invest its investments—how to invest its
endowment fund, he is staying off to the side while Grinnell decides to invest not—to
invest in Intel. Bob Noyce went to Grinnell. And so Grinnell is making an investment in
Intel, but Warren is just standing off to the side saying, ‘I don’t understand
semiconductors, so I think you should just go ahead and do whatever you do, but I’m
not—I’m not getting into this one way or the other.’ And that—and then he’s exactly
the same when he gets to the bubble. And if we had another bubble, he’d be exactly
the same again.
BECKY: Wow. You know, Carol, when you first met him back in 1967, what was your
first impression? Did it jump out at the time that he was a great investor?
LOOMIS: Well, my husband had already told me who had met him earlier that he
thought he was—he had met the greatest investor in the country. And, you know, I
probably was a might skeptical about that at that point. And then I met him with
(Buffett’s first wife) Susie. We all had lunch in New York. And I realized that Warren
was unlike anybody I’d ever met—more impressive than anybody I’d ever met, knew
more details about things that I was interested in. And I thought, `No, this guy is
really different,’ and I must say we bought the stock. So—and he was—he was really
virtually unknown at that point.
BUFFETT: Joe, I have—I have lots of ties to send you, although the sort of plugs they get
after I send them to you, I’m not sure I’ll keep doing this.
JOE: So that’s what I see, bricks and—bricks and ties you don’t really like…basically.
2/17
BUFFETT: What would—what would you like? Dilly Bars? We’ve got those. I mean, you
name it.
BECKY: Andy.
JOE: See, he’s asking like he doesn’t know what I really want. You know…
LOOMIS: My experience over the years, having known Warren this long, is he gets a
favorite tie, he sticks with it for quite a long time.
JOE: It works for him.
LOOMIS: It works for him. So he really doesn’t change.
JOE: Carol, I just heard some stuff. Have you—have you ever played—do you play golf
with Warren, Carol?
LOOMIS: I have played golf with Warren.
JOE: Did you bring him to Winged Foot? Has he been—that course would kill either the
east or the west would kill him.
LOOMIS: Well, I don’t think that we have tried out Winged Foot. We have mainly played
in Maine at a course called Prouts Neck.
BUFFETT: Yeah. We played on my 50th birthday, though, remember? We had the semi-
centennial tournament at Winged Foot.
LOOMIS: Oh, that’s right.
BUFFETT: Yeah, George.
LOOMIS: Oh, I did forget—I did forget about that. So and also in Omaha, I’ve started to
play a little bit with him.
JOE: All right.
BECKY: Warren, when you first met Carol, what was your first impression?
BUFFETT: My first impression was that she was pregnant.
LOOMIS: It does stick with you.
JOE: Was she?
ANDREW: I hope she was, right? I mean, that’s…
BUFFETT: I had a—I already had an impression. I knew she was a terrific writer. I’d
been reading her stuff, and, you know, she was the first—the first woman to become a
writer for Fortune, and they made a terrific choice. And ever since then, I mean, she’s
been the number one read for me in the financial world.
3/17
ANDREW: So, Warren, Carol helps edit your annual report or your annual letter to
investors . When did that start and what inspired you to do it?
BUFFETT: Well, in 1977, I gave her a copy of the draft and asked her if she would edit it.
She’s a terrific editor. And I’d been on a committee at the SEC on disclosure, and I
really decided that year I was going to step up the communication with shareholders,
and so I thought I’d let her take a look at it. And she made very few changes the first
year, but she’s sort of gotten in the swing of it since.
LOOMIS: It’s not—I wouldn’t say it’s accelerated every year, but there are a few more
comments, a few more suggestions.
BUFFETT: She’s very diplomatic. When she doesn’t like something, she says, ‘This is my
least favorite part of the report,’ which means it’s a bunch of junk.
BECKY: Why don’t we talk about some of the issues that are in the news today. And,
Warren, you’ve made news this week with your op-ed piece that you had earlier this
week in The New York Times about taxes. A lot of people have talked about what
you’ve laid out, the “Buffett Rule,” and what you’d like to see. One thing that we may
not have talked about a lot, though, is in that, you laid out where you thought higher
taxes should be raised on people. You thought the starting point should be at 500,000
instead of the 250,000 that the president has proposed. I know you spoke with the
president last week, he put out a news release about that. Did you tell him at that
point that you thought the starting number was too low?
BUFFETT: Yeah. He—well, he knew my view on it because I had sent—they made a call
on Friday and said would I be available for a call on Saturday from the president. I’ve
never called him, but—and since I knew I was going to put out this op-ed piece, I sent
him a copy prior to the phone call on Saturday, of the piece. So he had seen the
$500,000 figure when we talked. He did not specifically bring it up.
BECKY: Did you bring it up to him?
BUFFETT: No, he’d seen it. I mean, I knew it was there in front of him. Since he—since
he was saying 250, I did not think it was a great subject to bring up.
BECKY: Did he make any comments about your op-ed piece?
BUFFETT: Well, he certainly didn’t argue with any of it. I mean, he just briefly said that
he’s seen it. He said something to the effect that he liked it. But we didn’t get into a
detailed discussion of it.
BECKY: You know, you two have seen a lot of things that have happened in business
and seen a lot of things that have happened around the country, and we have been
trying here to try and find some sort of fit—fix to the fiscal cliff and the fiscal abyss. I
know, Warren, in the past you’ve told us if you sat down, you could figure out in a
4/17
matter of minutes some sort of solution that probably both sides could live with.
Warren and Carol, if you could put up some sort of a plan, having seen what’s
happened with politics in Washington, what would that plan look like?
BUFFETT: Well…
LOOMIS: I’ll defer to Warren.
BUFFETT: Well, the plan would have—would get us in the near future to having 18 1/2
percent of GDP as revenues and 21 percent of GDP as expenses. We’ve had that plan
basically in effect since World War II. I mean, it’s bounced around a little bit, but that—
those two levels, 18 1/2 and 21 are sustainable in the sense that they will not increase
the ratio of the national debt to GDP. They’ll run a deficit every year, but because our
economy grows, 18 1/2 and 21 is a—is a very sustainable figure. In fact, it’ll probably
bring down the debt to GDP over time. And…
BECKY: But…
BUFFETT: …it’s not just me, Becky, I mean, you know, all three of you, a lot of people
among the American public, have come up with a plan that worked its way to 18 1/2,
and 21 and most people could accept it. We’d all have a little—a few differences, but
that’s where we have to get at.
BECKY: But, Warren, that’s the logical approach and a commonsense approach, and
what we’ve been hearing from Washington these days is almost a winner take all, take
no prisoners sort of approach to this. ‘It’s my way or the highway’ on both sides. I
mean, do you think, having lived in Washington and seeing what happens in Congress,
that this group of people is going to find some commonsense solution that does
exactly what you just laid out?
BUFFETT: Yeah, I think they will. I’m not sure they’ll do it by December 31st; but, you
know, I have seen Washington and they don’t want to negotiate in public, obviously.
So you’re not going to hear people come on—you’re not going to hear Democrats talk a
lot about what expenditures they’re willing to cut.
JOE: Yeah. Right.
BUFFETT: You’re not going to hear Republicans talk a lot about what revenues they’ll
increase. But at—and it’s probably a good thing because then you get stuck in those
positions and your ego gets involved and your constituents say, ‘Well, you said this and
why did you back off?’ and all that. But in private, they will—they will—in my view,
they’ll get to something like that, but it may not be by December 31st.
JOE: I wonder—I wonder, Warren, what we’d really need to do on both sides in a—in a 4
percent world of GDP growth if we could somehow get back there through pro-growth
policies, the 25 percent would be 25 because not as many people would need
government services and that. And then the tax—the revenue side wouldn’t be 15 or
5/17
whatever it is right now. I mean, we could probably in a 4 percent world, we’re almost
there without doing anything, I would think. So I wish we could figure out a way to do
—to do growth.
BUFFETT: Yeah.
JOE: You know, and then we could—and then we could do what we needed to do on
taxes and cutting entitlements.
BUFFETT: And, Joe, we’ll get growth. I mean, but 4 percent is a pretty lofty number.
We’ll…
JOE: Even 3 1/2—even…
BUFFETT: Yeah.
JOE: What would it be at 3 percent, Warren?
BUFFETT: Well…
JOE: We’d probably be at—we’d probably be at 17 1/2, 22.
BUFFETT: Yeah. Three percent would allow a bigger spread between revenue and
expenditures as a percentage of GDP.
JOE: Just where we are with the current tax rate and with the current…
BUFFETT: Yeah.
JOE: Even funding the entitlements we have now, we could get—we’d almost be there.
BUFFETT: But 3 percent growth, if you think about it, 3 percent growth with 1 percent
population growth, that means a 40 percent change upward in one generation, in 20
years, to the—to the standard of living. That’s a pretty lofty goal. We’ve hit it
sometimes in the past, but even at 2 percent growth, with 1 percent growth in
population, the next generation lives 20 percent per capita better than the present
generation, which is pretty remarkable. And what I suggest will work even with 2
percent growth. Obviously, the more growth you get, you know, the easier the
problems become.
JOE: Yeah.
BUFFETT: I mean, the more your income grows, you know, the fewer problems you’re
going to have in your family, Joe.
JOE: Yeah, well, still won’t have a Marquis Jet card.
BUFFETT: Well, we can arrange that.
JOE: Oh yeah, you always say that, and I get a brick. Anyway. Thanks for the brick.
Becky wants me to thank you for the brick. Thanks for the brick.
6/17
BUFFETT: Well…
BECKY: We’re trying to teach manners here.
BUFFETT: You’re the only person I’ve sent a brick to, I want you to know.
JOE: What am I supposed to do with a brick? And don’t say—don’t answer that.
Anyway, go ahead, Andy.
ANDREW: We’ll talk—we’re going to continue this conversation with Warren Buffett
and Carol Loomis after the break. That’s still ahead.
JOE: Let’s get back to our discussion with Warren Buffett and Carol Loomis. Again, the
book is “Tap Dancing to Work.” And I—I don’t know—Carol, I was going to ask you if
you’ve been adding to your portfolio in any areas of the market, or whether you had
any big acquisitions. And then I think, you know what, I should—I should probably
stick to Buffett with those type of questions, right? I don’t want to ignore you.
LOOMIS: I think so. I don’t think I’m going to rock the market.
JOE: Yeah, all…
LOOMIS: Like Warren might.
JOE: …I’m not ignoring you, but I’m just going to…
LOOMIS: Oh no, no, no. That’s all right. That’s all right.
JOE: …I’m going to talk—OK. Warren, a lot of times in the past you’ve said that guys like
you are coddled by the IRS; and you, you know, put forth the Buffett Rule, which I
think of what, one to 10, it’s 30 percent, right, and over 10 it’s 35 percent.
BUFFETT: Minimum tax.
JOE: Yeah, minimum tax. And I think about that and we’re still not going to get—we’re
not going to get you. We’re not going to get what we need from you. And I think about
over the years what you’ve been able to do, and you’re the one—one of the seven
wonders of the—of the universe, obviously, to accrue $50 billion. I don’t think you’ve
done it by being a patsy in terms of paying taxes. I think you’ve known how to take
advantage of structures and deals to make sure that there’s a degree of tax avoidance
in the way you do things. If we were to put the Buffett Rule in, we’re still not going to
get you, and since you’ve given it all to (the) Gates (Foundation), we’re not going to get
you even when you give it away.
BUFFETT: You’re going to get…
JOE: So we’re real—we’re never going to get what you want everybody else to do, we’re
never going to get it from you, are we? And you said something about the middle class,
a morale-booster if rich people pay their taxes. You’re not going to boost anyone’s
morale ever by funding the federal government, are you?
7/17
BUFFETT: You’re going to get—what you’ll get from me under the—under this is you’ll
get 35 percent and…
JOE: If you pay yourself income from…
BUFFETT: Well, no, no. If I have—if I have…
JOE: Dividends.
BUFFETT: …if I have—if I have investment income, which is where my main income
comes from…
JOE: Right.
BUFFETT: …I will pay 35 percent. Right now my income is probably larger than Carol’s.
Carol is paying more I’m sure in income…
JOE: I know, but…
BUFFETT: …but I will pay…
JOE: You know my point. We’re still not going to really get—you’ve been able to take
advantage of the system to accrue a huge amount of wealth, and you will never really
fund the federal government’s operations like you would have it—and I—and I—God
bless you that you’re giving it to charity. I think that’s a—you have said on this—on the
network that that is a better use probably of your wealth than the government. But I
just don’t seem like you’ve ever really, you know, paid your share, or what you would
call your fair share of taxes.
BUFFETT: I, I—no, I agree. I certainly agree in the last 10 years that’s been true. I used
to pay a much higher rate. But in the last 10 years, it’s true. My rate—my rate has been
down there, you know, with Governor Romney’s and, you know, and a whole bunch of
other super-rich people. And I would pay 35 percent under this, and I would pay 35
percent on all the money that ever ends up in my pocket.
ANDREW: Right. Hey, Warren, along the same lines when you think about corporate
taxes and Berkshire’s contribution to the system, I remember us talking a couple of
years ago, we were talking about the structure of Berkshire, and part of the structure
of Berkshire has been to take the profits from one entity and be able to reinvest it in
another entity, and as a result you’re not being taxed on those profits.
BUFFETT: Well that’s not true. That’s not true. If we—if we earn money at See’s Candy
and use that money to buy the BNSF Railroad, we pay taxes at all of the income made
at See’s before it’s used elsewhere. So we—on inter-corporate transfers of money, that
has no effect on Berkshire’s tax rate. Berkshire pays normal taxes on whatever it
makes at Marvin or whatever it makes at See’s, or even NetJets, Joe.
JOE: But not—that’s Andrew now. I’m not—that’s Andrew. He’s the one that’s saying all
this nasty stuff now. Don’t say Joe. I’m done.
8/17
BUFFETT: It isn’t nasty, it’s just that…
JOE: I took—I took my shot.
ANDREW: No, but, Warren, though, but no, you guys pay taxes on the overall profits
from Berkshire every year, not the individual entities, right?
BUFFETT: Yeah, well the individual entities contribute to the consolidated tax return.
ANDREW: Right.
BUFFETT: But any money made at, you name the subsidiary, at BNSF or Mid-American
Energy, that gets taxed at normal rates even though we perhaps distribute and use it
for some other purpose.
ANDREW: Right. Do you think that there’s a better way on corporate taxes, not only to
reduce the rate and close loopholes and all of that, but when you think about the
success of Berkshire, but to be able to better capture taxes effectively, the fair share
issue on the corporate side from companies like Berkshire, which I do believe pay their
taxes fairly, but you go and look at an Apple, for example, and you say, ‘Look at all
those profits,’ and it’s not really clear that the U.S. government and taxpayers here
have been a huge beneficiary of all their success.
BUFFETT: Well, it’s certainly true that the biggest decline among major categories of
tax revenues by the federal government has been the corporate tax. If you go back to
the 1950s and 1960s, about 4 percent of GDP was paid in corporate taxes and tax rates
were 52 percent for a long period and then 48 percent. So 4 percent was going. Last
year, in the fiscal year that just ended, I think there were 242 billion of corporate taxes
paid against 15.7 trillion roughly of GDP rate at the end of the year. So it’s fallen from 4
percent, over 4 percent of GDP to the 1 1/2 percent range. So the biggest beneficiary of
reductions in tax rates in the last 30 or 40 years has been corporations. And the
biggest increase has been in the payroll tax. The payroll tax has gone up in…
ANDREW: Are you a believer in a territorial system then?
BUFFETT: Well, I believe that corporate taxes have not been a problem for corporate
America.
JOE: Hey, Warren, I—on another subject, I was reading in the, of all places, The New
York Times. I went back to it.
BUFFETT: Oh, Joe!
JOE: I’m reading—I’m reading it a little bit now. I’m reading it a little bit.
ANDREW: Now that Warren’s writing for the Times again?
9/17
JOE: Yeah, yeah. Eduardo Porter makes—I mean, I was flabbergasted by what this is
really saying. He points out that income disparity, obviously, everybody knows how
the rich have gotten richer. In fact, the richest 1 percent of families earn 93 percent of
the income growth in the first two years of the economic recovery and the rest of us
got 7 percent. But then he goes on to concede we still have maybe the most
progressive tax rate of all advanced countries right now.
BUFFETT: I don’t agree with that.
JOE: And—well, no. Let me just read it. “Many Americans may find it hard to believe,
but the United States already has one of the most progressive tax systems in the
developed world, according to several studies, raising proportionately more revenue
from the wealthy than other advanced countries do.” But you can disagree with what
I’m saying, but what he then says is that that is not the key to reducing income
disparity. It’s not that—it’s not how much—it’s not that you raise from the wealthy
instead of others, but that we don’t—simply don’t raise enough. We don’t raise enough
to actually help the middle class and the poor to actually help narrow that disparity.
And he’s arguing that until you go back to the middle class or go back to more
taxpayers you’re never going to do what you need to do in terms of income disparity.
BUFFETT: Yeah, well, we’re raising dramatic amounts from the middle class. I mean, if
you look at the payroll taxes, one-third of the entire revenue of the United States
comes from payroll taxes.
JOE: Should we really put Social Security in there all the time? We can’t have—that
mixes things up so much. That’s not apples to apples when you do it that way. That
was not designed as an income tax. It’s an insurance system, right?
BUFFETT: Believe me, it’s a tax, it’s a tax…
JOE: I know—I know you have to pay it—I know you have to pay it.
BUFFETT: …it’s a tax on income.
JOE: But it…
BUFFETT: And you pay it based on your income and it quits at a little over $100,000.
JOE: And then the government—the government steals it and uses it anyway for
expenses a lot of times anyway. But if you were—if you weren’t to have—if you were
to just back out your payroll tax point.
BUFFETT: Well, that’s a third of—that’s a third of the income of the federal
government, so it’s $800 billion.
JOE: Right.
BUFFETT: And it’s the regressive tax. In fact, if you have a couple that’s each making
about 100,000 they’re paying it on 200,000. I’m paying practically no payroll tax.
10/17
JOE: Right.
BUFFETT: I pay it on my salary of 100,000 and, you know, it’s a eight—it’s a third of the
revenue of the country that basically comes from a very regressive tax.
JOE: Right. But people that do make—let’s take people that make a million or $2
million that pay 35 percent don’t have a lot of deductions. If you make $2 million and
you pay 700,000 in federal taxes and then you also pay state and local income tax you
get up close to 50 percent. Is that…
BUFFETT: No, you get—you get a deduction for your state taxes.
JOE: You do for your state. But if you add everything in you get up to a number that’s
somewhere around 8 or $900,000, right?
BUFFETT: You get—you certainly can get to 40 if you deduct your federal…
JOE: Forty percent.
BUFFETT: …of your state taxes and your—yeah.
JOE: Is that—are those people undertaxed?
BUFFETT: Well, but the point I made in the article, of course, is you take the 400
highest taxpayers who average…
JOE: Yeah.
BUFFETT: …$200 million apiece of income, very few of them are paying that rate you’re
talking about.
JOE: Right. But no, I know. But…
BUFFETT: But the athletes pay it.
JOE: …this—but these are people that haven’t—you know, those people maybe they
worked their whole life to where they get—they have capital gains and dividends. We
should have a discussion…
BECKY: Or maybe they just inherited it.
JOE: Or maybe they inherited it. But we should have a discussion on—I don’t know
what the right capital gains or dividend rate is.
BUFFETT: Well…
JOE: But just in terms of ordinary income that you get on your W2, if you make $1
million or $2 million you’re paying about 40 percent. Is that definitely—are those
people undertaxed?
BUFFETT: No, I say that’s about right.

11/17
JOE: Yeah, OK.
BUFFETT: But I say that the super rich are not paying that. I mean…
JOE: Yeah, I wish we could get more from them. We can only…
BUFFETT: Well, we can—we can. All we need is a minimum tax.
JOE: Yeah, but it doesn’t help that much.
BECKY: But…
JOE: There was a study yesterday. You get 3 or $4 billion and that takes 500 years to
pay off when…
BUFFETT: No, no you get a whole lot more than 3 of $4 billion, I can tell you that. I
mean, just sit down and figure it. I mean, you’ve got—you’ve got people making $200
million a year, you got to have six of them to pay no tax. I mean, they’re part of—
they’re part of Governor Romney’s 47 percent. They’re the moochers.
JOE: Right, right.
BECKY: Warren, if you—I know you’ve said in the past that you agree with plans like
Domenici-Rivlin and Simpson-Bowles, you’ve gone along with those things. In those
plans, they take ordinary income, they tax capital gains and dividends at the same
levels as ordinary income. They get rid of things like charitable deductions. You go
along with all those parts of the plan, too?
BUFFETT: Well I go along—they all have a little different—I can go along with any
number of plans that, in general, move up the revenue to 18 1/2 percent or so of GDP
and move down expenses to around 21. I mean, whether it’s Rivlin-Domenici, whether
it’s Simpson-Bowles, whether it’s, you know, whether it’s Quick-Kernen, I mean, you
can—you can come up with a lot of proposals…
JOE: But you left out .
BUFFETT: Well I, really I—there’s all kinds of plans that generally make sense. And I—
and incidentally I think we’ll come up with one. But one of the problems you have is I
think you could have a majority of Congress before a plan, but the far left would not,
you know, would have some votes that didn’t like it. The far right would have some
votes that didn’t like it. And if—and if the leadership of either party is worried that
they’re going to lose their leadership because of that maybe minority within their own
party, you might have something that a majority of Congress would approve, but it
still will not get to a vote. You know, I think we may have had that problem with the
grand bargain, you know, over a year ago.
BECKY: We had Roger Altman on yesterday , and he said he thinks that it’s the equities
market that will eventually put pressure on the elected leaders, that you’d see a sell-
off in the stock market and that would be the thing that pushed them back, just like
12/17
TARP.
BUFFETT: Well, it certainly happened with TARP, yeah.
BECKY: Do you think that that’s a likely scenario? I mean, if you think there’s a chance
we may not get a deal by December 31st, does the equity market react and does that
in turn force Congress and the president?
BUFFETT: Yeah. I don’t know—I don’t know what stock markets will do. They can do
anything, but I think that—I think that there will be a lot of pressure if they don’t get
an agreement by December 31st. Whether it comes from the stock market or just
letters pouring in or whether it comes from, you know, CNBC and the media generally,
but we are not going to go for months after January 1st. But it wouldn’t surprise me if
we go past January 1st.
ANDREW: Warren…
BUFFETT: I don’t think—incidentally, I don’t think the world will come to an end. I will
guarantee you this, Berkshire has about, I don’t know, 290,000 employees now. If
there’s not a deal on December 31st, there’s not an employee that we’re going to lay
off in January 1st or 2nd or 3rd or 4th. It just won’t happen.
ANDREW: Hey, Warren, one question on charitable deductions that I’ve been thinking
about. If there was a real cap on deductions, do you think it would’ve changed either
the way people approach charity today or would’ve changed the way you approach
over the years? You know, by waiting, you’re able to compound, which is a great thing.
BUFFETT: Well, it wouldn’t change it…
ANDREW: But maybe without the deduction you would’ve done it differently?
BUFFETT: No, because I don’t get the deduction on virtually everything I give away. I’ve
got a $10 billion charitable loss carry forward or charitable deduction carry forward,
which I’ll never use. So I get to take a deduction for maybe—well, not more than 1
percent—less than 1 percent of the—of the value of what I give away every year.
JOE: You can send me that instead of a brick. I have a $10 billion loss carry—but you
can’t do that.
BUFFETT: A charitable deduction carry forward.
JOE: You can’t do that.
BUFFETT: What I give away to private foundations is limited to 20 percent of my

adjusted gross income.
JOE: Right.
13/17
BUFFETT: So the deduction has nothing—if there was no deduction allowed, it would
not change my charitable giving a penny. And that’s true of a number of wealthy
people, but there’s some other people that it’s not true of.
ANDREW: Right.
JOE: You did like Simpson-Bowles, Warren.
BUFFETT: I said…
JOE: I mean, if we did—if they did that and did the 28 percent rate and then what
would the cap be for the maximum amount of deductions a person could take? Would
it work that way? You could take 15 and everything else is gone?
BUFFETT: I don’t know the answer to that. But I…
JOE: Would it work?
BUFFETT: But I—there are a lot of things that will work, Joe. I mean, it—you know,
we’ve had all kinds of things that have worked over the last 50, 60 years.
JOE: But you’d be OK at 28 percent if it was a—there was no deductions, and you had to
pay 28 percent on all your income, that would be OK?
BUFFETT: I’d be fine. I’d be fine.
JOE: OK. All right. Not everybody’s fine with that. I think that’s a…
BUFFETT: Well, we’ve had—listen, I mean, we’ve had—we’ve certainly had times when
the normal rate for a high-income person was at the 50 percent level.
JOE: Except they had—they had a bunch of other deductions and they…
BUFFETT: No, they didn’t.
JOE: Really? At 90 percent they did, right?
BUFFETT: No, I mean, listen, I can show you my tax returns. I literally in the last 10
years, my tax rate has averaged way less than when I was in my 30s and 40s, and
believe me, I’m making more money now.
ANDREW: Warren, one thing we haven’t talked about is investing, and I wonder given
the fiscal cliff and the volatility that we’ve seen thus far and perhaps we may see even
more, what you’re doing.
BUFFETT: It doesn’t change anything. If you own a farm and you like the farm, are you
going to buy—are you going to sell the farm because of a fiscal cliff? Are you going to
sell an apartment house you have? Are you going to share your McDonald’s franchise?
ANDREW: No, but if there’s a couple of cheap farms out there, you might buy them.
14/17
BUFFETT: Well, you might buy them, sure. Well, I like to buy. But I…
ANDREW: What are you doing? Have you done anything interesting in the past couple
of weeks?
BUFFETT: The fiscal cliff has nothing to do with long-term investment decisions.
ANDREW: Have you doubled-up—doubled-down on anything, though? Given the price?
BUFFETT: Well, on balance, we buy. But we’re buying just like we were buying six
months ago or so. I mean, the fiscal cliff does not enter into my investment decisions.
ANDREW: OK. But no new names to share.
BUFFETT: Not today. No. When I get another movie, I’ll let you know.
ANDREW: We’ve got to try.
JOE: Carol, Carol, what about you? No new—oh no, I already did, I already said I
wouldn’t answer that.
LOOMIS: No…(unintelligible).
ANDREW: Carol’s a big investor, though. She’s…
JOE: Oh, really?
ANDREW: Oh, she’s a great investor.
LOOMIS: Oh, well, I wouldn’t say great, but I’ve learned a lot from Warren over the
years about investing, and I don’t panic. So many—so many people are very emotional,
and when the stock goes down, they are ready to sell and as Warren says, he buys
when the stock goes down. And I’m inclined to do that, too. So I’m not worried about
that.
BUFFETT: How long have you held Berkshire?
LOOMIS: I’ve held Berkshire since the early—the early ’70s.
JOE: Oh my God.
LOOMIS: I mean, we’ve never—we’ve never sold.
BECKY: Wow.
LOOMIS: Except for one trade when—in the first year that John bought originally. He
did—he did sell once in the first year, but other than that, we have never sold a share
of stock.
BECKY: Wow.
JOE: Those aren’t B shares, either, are they?

15/17
LOOMIS: Well, no, thankfully they’re not.
JOE: Do you have a round lot? I’m trying to get to the bottom…
LOOMIS: No, no, no, no, no, no.
JOE: Trying to get to the bottom of this.
LOOMIS: No. I think we could not. As a matter of fact, I think I’ve forgotten a lot of the
details, so that’s very good that I’ve forgotten them.
BECKY: Hey, Carol, you first wrote about Warren back in 1966. You put one line into a
story you were working on about Alfred Winslow Jones.
LOOMIS: That’s right.
BECKY: And it was a story about hedge funds. And I just wonder, as you’ve watched
hedge funds over the years, what’s surprised you about the way industry has evolved?
LOOMIS: Well, it’s grown way beyond anything I could’ve expected. As a matter of fact,
the second time—we do need to mention the first time I wrote about Warren, I
misspelled his name.
BECKY: Ah.
JOE: Buffett.
BECKY: Yeah.
LOOMIS: I left off—I left off the second T.
JOE: Yeah.
LOOMIS: But then four years later, I was writing a story called “Hard Times Come to
the Hedge Funds,” and it was a time, just a temporary one as it turned out, when they
had enormous problems. Warren was getting out at that point. And I could not have
imagined then that it would’ve—they would’ve grown to the importance that they
have today. And I think much of it is—or some of it is probably not good that it worked
out that way.
BECKY: Yeah. I heard in another interview that “Tap Dancing to Work” was not the first
name you had come up with for the book. What were your first choices?
LOOMIS: Well, no, no, they—I think I’m not going to mention the first title that the
publisher wanted to use. It would—we might spend a lot of time talking about that.
But no, no, actually, I gathered that negotiation between the publisher and the author
and Fortune, in this case, is often a very important part of the—of the process by
which a book gets named. And I wasn’t accustomed to that. Never written a book
before, never really thought I was going to write a book. And so it just—it took us a
while, but not as long as you’d think. And then when I came up with “Tap Dancing to
16/17
Work,” the publisher immediately said, ‘That’s it.’ And it is, because it’s such a perfect
discussion—perfect description of how Warren feels about going to work every day at
Berkshire Hathaway.
BECKY: Warren, what’s your favorite story in the book? And you’re not allowed to say
any of the ones that you wrote.
BUFFETT: Oh, not the ones I wrote. I—well, I think—no, I think the favorite story has
the most drama in it, certainly, is the story of Solomon. I mean, that—that would’ve
made a good movie at the time, and Carol knew all the details and I think she wrote
about it brilliantly.
ANDREW: Hey, guys, I saw you guys yesterday and we were talking about preparations.
You were going on “The Daily Show” last night with Jon Stewart. I saw some of the clips
, including the reference to calling you communists. So I wanted to get a report card
on the experience.
LOOMIS: Well, and Andrew, a nice shirt, by the way.
ANDREW: Thank you. Somebody likes it.
LOOMIS: It was—it was great fun. It really was. It’s a whole new experience. My
daughter was in the audience. And you know, it’s a different class of viewer, and we
had a great time.
BUFFETT: We had a terrific time.
BECKY: All right. Warren, Carol, thank you both for joining us this morning. Again, the
book for anybody who hasn’t seen it, it’s called “Tap Dancing to Work.” It’s on sale now,
and we appreciate your time joining us today. We hope to see both of you again soon.
BUFFETT: Thanks for having us.
LOOMIS: Thanks for having us.
URL: http://www.cnbc.com/id/49995975/
17/17
Warren Buffett appeared live
on CNBC's Squawk Box for a
two-hour interview with
Becky Quick. During their
conversation, Buffett said
there's "no question" the
global economy is slowing
and he's "salivating" for
Berkshire Hathaway to make
a "big acquisition."
He also offered some timeless advice on investing in stocks.
In addition, they covered many other topics, including the

"fiscal cliff," adding to Berkshire's Wells Fargo spacer stake,
and his prostate cancer treatments this summer.
Here's a transcript of their complete conversation.
ANNOUNCER: “Squawk Box” is on Buffett watch. The "Oracle of

Omaha" joins Becky Quick to talk about the issues that matter most to
your money —earnings, the economy, and the election. It's a special
two-hour event with Warren Buffett as the second hour of “Squawk
Box” begins right now.
ANDREW ROSS SORKIN, co-host: Good morning and welcome to

“Squawk Box” here on CNBC. I'm Andrew Ross Sorkin along with Joe
Kernen. We're going to be getting to Becky and Warren Buffett in just
a moment, but first let's get a quick check on the markets.
* * *
ANDREW: Mr. Kernen.
JOE KERNEN, co-host: Thanks, Andrew. Let's get to Becky, who is in

Columbus, Ohio, this morning with Berkshire Hathaway chairman and
CEO Warren Buffett. Is he there, Becky? I saw him. I heard him.
BECKY QUICK, co-host: He is here.
JOE: Good, with the …
BECKY: He is, he's ready to go.
CNBC SQUAWK BOX TRANSCRIPT: Wednesday, October 24, 2012

PAGE 1 OF 52
JOE: … with the … a spanking new NetJets tie on, I see, huh?
ANDREW: Is that what that is?
JOE: Yeah.
BECKY: He does. You like that?
JOE: You said he had a nice...
BECKY: Yeah.
JOE: ...NetJets tie, and I asked you did he also bring a nice NetJets
card, and I'm sure he didn't.
BECKY: And what did I tell you? What did I tell you?
JOE: That I can ask him myself.
BECKY: I said you'd have to ask him. Yes.
JOE: Yeah, and did you bring one, Warren, or am I getting another
brick?
WARREN BUFFETT (Berkshire Hathaway Chairman and CEO): Just

beg a little, Joe. We'll get to it later.
BECKY: He wants to hear you beg for two hours first, Joe.
JOE: I know, and then he doesn't do anything. And I'll —you know,
I'm going to try.
BUFFETT: Oh no, I got —I'll come up with something for you.
JOE: I'm going to try.
BECKY: All right, well, you know, Joe, we are very fortunate to have
Warren with us here this morning. And, Warren, this is the first time
we've gotten a chance to sit down and talk with you since the prostate
cancer treatment.
BUFFETT: Right.

PAGE 2 OF 52
BECKY: How are you feeling?
BUFFETT: I feel fine. I feel great. I —you know, they gave me some
hormones, too, so occasionally I get some hot flashes, which I —we
males call those power surges actually. And —no, it was —it got tiring
after a while. The radiation does. You don't feel anything, but...
BECKY: Of course.
BUFFETT: ...I felt it was time to quit when I started getting the urge
to pee sitting down.
BECKY: But you're feeling good.
BUFFETT: I feel great.
BECKY: Well, you look great, and we are very happy to have you with
us today. Thank you for joining us. You know, this is one of the best
times that we've gotten to talk to you because there have been so
many questions lately about what's happening in the economy. We've
heard from major companies like 3M, Caterpillar, DuPont, all of these
companies, UPS, who have all come out and said that the global
economy is very uncertain, it's slowing down a little bit. They're not
sure about what they see in the future. And it's raised a lot of
questions in the market, too. The market's been selling off over the
last week or so. Real concerns. People sitting up and saying, Òh oh,
maybe there's something really happening here.' Do you think the
market's overselling the situation, or do you think it's catching up with
reality? What do you see?
BUFFETT: Well, I think —I think the stock market generally is the best
place to have money, and —but I think that there's no question that
worldwide there is some slowing down going on. And in the United
States, actually, residential housing is picking up, and we've been
waiting for that a long time, and that will have a significant impact. It
hasn't gotten to any big level yet, but our carpet businesses and brick
businesses and all of that will come on with residential construction,
and that has turned. But the general economy, I think it's a little bit
better in the U.S., certainly better in the U.S. than it is in Europe. And
in terms of the rate of decline in Asia, it's reasonably steep and we're
still inching ahead. But it's inching.

PAGE 3 OF 52
BECKY: When did you first start to notice this global decline, this
global slowdown?
BUFFETT: Well, we've got a couple of companies that really are kind
of real time as to what's going on. The number one would be Iscar
because they sell these little tiny punching tools or cutting tools, and
they fit in these huge machine tools that cost millions of dollars. So
anybody that's turning out anything big are buying these little, call
them razor blade type items, from us. And they don't need a big
inventory. They can —we can deliver very quickly. So their purchases
reflect usage, and there our strongest market is in the United States,
but Europe and Asia have fallen off some. And we're gaining market
shares. So there's a decided decline in activity in all that
manufacturing where you're stamping metal and doing that sort of
thing.
BECKY: Oh, we heard from Doug Oberhelman from Caterpillar the

other day, and he says that he looks around the globe and he doesn't
expect to see a recession anywhere in 2013, but Europe is the biggest
problem spot. Would you agree with that assessment?
BUFFETT: Well, it is at present. Its rate of decline —I mean, it's way

off a lower base —its rate of decline is not greater, in my view, than
the regular decline in Asia. It's just that Asia was doing much better.
The United States actually has got the steadiest trajectory, and I don't
see any change in that. I mean, you know, we got the freight car
rollings, and that —we got a big energy pick up in the United States,
we're getting a housing pickup. Those are pretty big —pretty big
industries.
BECKY: Well, let's talk about some of those numbers because housing
is a huge key. You had told us before that we are not going to see a
turn in the unemployment picture until we see a turn in the housing.
BUFFETT: Right.
BECKY: And Doug Oberhelman had told us the reverse of that the
other day. He said you're not going to see a turn in the unemployment
picture until you see the turn in housing, and he kind of set the thing
on its head and said it's the other way around. Which comes first?
BUFFETT: Yeah. Well, demand I think comes first.

PAGE 4 OF 52
BECKY: Yeah.
BUFFETT: I mean, you hire people when you start seeing demand,
and you are seeing more demand. You're seeing —you're seeing
greater purchases of lots. I was with a guy last night at the GE dinner
that is in the business of selling lots, and the —and the builders are
starting to clamor more for those. We have the largest housing
manufacturing company in the country at Clayton Homes, it's
manufactured homes.
BECKY: Right.
BUFFETT: But those —that business is up in the area of 10 to 15

percent. We see it in our...
BECKY: In terms of volume? In terms of...
BUFFETT: In terms of units, yeah.
BECKY: Right.
BUFFETT: In terms of units. Real estate brokerage, we not only see

about a 15 percent increase in transactions, but we also see a small
increase in the median price. And this —and this comes from all over
the country. I mean, we're in California, we're in Nebraska, Minnesota,
Florida, you know, you name it. So that's changed. Our —you know,
we're going to make a lot more money in carpet this year than we
made last year. You know, more than double probably, and we hire
people when that happens.
BECKY: Mm-hmm.
BUFFETT: So the United States economy is not tanking. Asia from a

higher level, I wouldn't necessarily call it tanking, but it's heading
down, and Europe has been having its troubles for some time and they
haven't ended.
BECKY: Does that —does that catch up with us? Does that affect us at
some point, too?
BUFFETT: Well, what we really hope is we affect them over time. And
no, I don't —I don't necessarily think so unless there gets to be chaos

PAGE 5 OF 52
someplace. We've already adapted to what's going on around the
world.
BECKY: Tell me what you see in terms of the rail cars. You were
saying you were watching loadings on those, Burlington Northern
obviously moving a lot of materials. And natural gas is big for them,
too, correct?
BUFFETT: Yeah. Well, at Burlington coal is down, as it is with the

other railroads. Oil is up, and when you're fracking you bring in lots of
sand. So sand would be up, for example. And the UP just reported,
and they're seeing small gains in things other than —they're seeing it
in lumber. You know, they're seeing it in cars. We're seeing it
intermodal. They do —we're the biggest in intermodal. We carry 15
percent of all the freight measured by tonnage in miles in the United
States. I mean, it's —just the Burlington Northern carries almost half
as much as all the trucks in the United States in terms of ton miles.
BECKY: And you're not seeing any downturn? You're seeing actually
numbers go up on those?
BUFFETT: We're seeing numbers go up. Now, that was a little

deceptive a month or two ago because we had these floods last year
and so the figures were very easy there for July and August. But we
are seeing small gains, but they're small.
BECKY: And in terms of what you see at Mid-American, you talked

about some energy demand. That had been weak for quite a while
because companies weren't using as much energy. How's the —how's
the picture on that?
BUFFETT: Yeah, well, you know, kilowatt hours we're down this year.
BECKY: Yeah.
BUFFETT: But we —well, look at it this way. Berkshire Hathaway in

2010 spent six billion on plant and equipment. That was a record.
BECKY: Mm-hmm.
BUFFETT: We spent last year eight billion on plant and equipment.

Another record. This year we'll spend nine billion on plant and
equipment, another record. And practically all of that's in the United

PAGE 6 OF 52
States. I mean, we see lots of things to do. Now, a good bit of that is
in the rail business and the energy business.
BECKY: Right.
BUFFETT: But there —there's a lot to do. And incidentally you hear a
lot about infrastructure and, you know, the terrible shape it's in.
BECKY: Right.
BUFFETT: The rail industry's infrastructure's in the best shape it's

ever been in.
BECKY: OK. Joe has a question for you as well. Joe:
JOE: Yeah, along the same lines, Warren. If —let's say that you were
going to start a new Berkshire Hathaway, and it was just going to be
based on energy. Now, only energy stock could be in it and you were
trying to play whatever happens in —or trying to take advantage of
what happens in this country over the next 20 years, what would —
how would you do that? Would it be natural gas? Would it be coal?
Would it be solar? Would it be —how do you think you would do that?
All of the above or I mean are you smart enough to see how this plays
itself out with fracking and natural gas?
BUFFETT: No, but I —but I, you know, I'm interested enough to follow
it, but I don't —I don't think I'll be able to write the newspaper two
years from now at the current time. But we are putting a lot of money
into solar and wind. That's just part of what we do at Mid-American.
You know, if you get into producing energy itself I'm not —you know, I
would be no good at that game. I'd have to join with somebody else
that I thought was terrific. But I don't know a blame thing about it. I
mean, I read about it and I —and I feel very good about what I read,
and we transport a lot of oil, but I don't —you know, you stick me in —
next to an oil well, and I go back to thinking of some Clark Gable
movie or something as to what I'm supposed to do, and I think that's
a little out of date.
JOE: Becky, have you shared your thoughts about, you know,
exporting natural gas?
BECKY: Oh, I know where you're going. Oh, he...

PAGE 7 OF 52
JOE: Well, I just —I just wondered whether you've talked to Warren
about that. I mean, you listen in...
BECKY: I haven't. Warren, let me —let me tell you before Joe makes
it even sound worse than it is. I have had some concerns about this
idea of exporting natural gas because, look, this is from the Charlie
Munger school of thought. If you want to be energy independent, he
thinks it's a stupid idea. He thinks we should use all of their stuff. But I
worry, if we really do want to get energy independent why would we
ship this natural gas to other people? Why don't we build it and keep it
here? Go ahead, tell me why that's wrong.
BUFFETT: I'm with —no, I'm with you. Sure.
JOE: Oh.
BECKY: You are?
JOE: Ah! See?
BUFFETT: You got to —no, no. If you —if you've got a national
treasure, and we had that in oil if you go back 50 years. We're an
exporter of oil. I mean, we were producing way more than OPEC. And
the Texas Railroad Commission used to —used to announce every
month how many days you could produce in Texas. It was an OPEC of
its time. And so we took these huge prolific fields, the East Texas field
and, you know, we sent that stuff abroad. We were getting three
bucks a barrel for it. And, you know, and then we built a strategic oil
reserve later on. Well, that's the strategic petroleum reserve. No, I
believe if you're dealing with a scarce commodity, something that you
know is finite...
BECKY: Ha!
BUFFETT: ...over time use the other guys'.
BECKY: Ha! Joe, there, take that. I'm back on the bean wagon.
JOE: Well, I never —I never thought Warren was a protectionist.

That's amazing.
BUFFETT: No, I'll protect something that we're going to need to keep
this country going 50 or 100 years from now.

PAGE 8 OF 52
JOE: Right.
BUFFETT: I don't want to ship our talent overboard.
JOE: We may have enough —we may actually have enough, though,
for the entire world. And that would be a great export business
eventually to be in if we were self-sufficient ourselves.
BUFFETT: It would be for a while, but if you're looking out 100 or 200
years —and thank God people 200 years ago were looking out in many
respects, although we weren't looking at it —we weren't looking out in
the 1950s when we were —when Texas was producing.
JOE: But I love that you're worried about like 100 years from now,
and it's not just for your ancestors. It's for you 100 years from now.
BUFFETT: Exactly.
JOE: Which I like. Which —I like that.
BUFFETT: Exactly. You've got —listen, I like it that you like it, Joe.
JOE: Yeah, because I do. Andrew, go ahead.
ANDREW: OK, real quick, Warren. You —I'm curious, with the market
selling off $500 billion in the past three days, knowing you, I think
you're probably watching this thinking, `What am I buying?' So I want
to know, is there anything —have you done anything in the past three
days?
BUFFETT: Maybe in the past week we've done some things. Yeah, we
—but basically I like to buy and, you know, so if the market is down,
you know, I'm happier buying, I like to buy. If I got to a supermarket
and they reduce prices, you know, I feel better. If I got to a men's
clothing shop and they've reduced prices, I feel better. So if I go to the
stock exchange and they reduce prices, I still feel better.
ANDREW: You want to give us a...
BECKY: What have you been —what'd you buy in the last week?
BUFFETT: In the last week, I bought some Wells Fargo.

PAGE 9 OF 52
BECKY: You did?
BUFFETT: Yeah.
BECKY: So continue to buy.
BUFFETT: But we only have 430-something million shares, so I didn't

feel we had enough.
BECKY: Do you —you look at the banking business, though, overall, is

it going to be as profitable?
BUFFETT: No, it can't be as profitable. The profitability of banking is a

function of two items. Return on assets and assets to equity.
BECKY: Hm.
BUFFETT: And return on assets is not going to go up particularly. USB

has done the very best on that. They're at about 1.7 percent. Wells is
between 1.4 and 1.5 percent. But most banks are lower. Now, if you
have 20 times leverage and you're getting 1.5 percent on assets,
you're making 30 percent on equity.
BECKY: Mm-hmm.
BUFFETT: And that was not lost on people a few years back. And they
pushed balance sheets, and they're still pushing them in Europe. But
they've cut back on that here. So they will not be having the leverage
in the banking system. It'll be even more restricted among the bigger
banks as part of the new rules, and you won't be able to earn more on
assets than before, and so with less leverage in the same return on
assets, you will have a lower return on equity. Banks were —banks
were earning 25 percent on tangible equity not so many years ago.
And really, that's kind of a crazy number. You know, for a basic semi-
commodity business, you really don't want to allow that. But that was
allowed because people felt that their bank deposits, and they were,
were guaranteed by the government; and, therefore, there was no
market force that would look at the —at the shape of a —condition of a
bank and say, `Well, I won't put my money there because they look
kind of dangerous with all this leverage.' And therefore, people got to
push and push it and push it, and then the government says, `Listen,
we got a vested interest in this. You're using our credit, in effect, and

PAGE 10 OF 52
if you want to play, you're only going to have 10-to-1, or some
number like that. So the returns on banks have come down. It's still a
good business.
BECKY: But you still think it's a good business and you still buy it
because you like the price.
BUFFETT: It's a good business. Wells is —Wells is very well run. And
it's a good business.
BECKY: OK.
BUFFETT: But it's not like —it won't get to what it was.
BECKY: OK.
BUFFETT: The European banks still are leveraged to an extraordinary

extent just because they don't know how to get out of it.
BECKY: Right.
BUFFETT: But they aren't earning 1.5 percent on deposits either.
BECKY: Right. OK, well, Warren hold with us just a moment. We're
going to take a quick break. When we come back we're going to
continue this conversation with Warren Buffet. By the way, if you've
been looking at the futures this hour, they are pointing to a slight
rebound after yesterday's sell-off. You can see right now the Dow
futures up by about 13 points above fair value. As Andrew pointed out,
though, stocks have lost $500 billion just in the last three trading
days. We're going to see if today's earnings news and the Fed decision
can spark a change in investor sentiment, and maybe Warren Buffett's
words, maybe that'll spark things for the markets. We'll talk more with
him right after the break. Also, coming up at the top of the next hour
General Electric Chairman and CEO Jeff Immelt will talk to us about
the company's latest quarter, the fiscal cliff, the global economy.
“Squawk Box” is live this morning from the GE Middle Market Summit
in Columbus, Ohio. We're back with Warren Buffett in two minutes.
(Announcements)
JOE: (Joined in progress)...to “Squawk Box”. We are speaking to

Warren Buffett, and Becky is out there. Mr. Buffett just telling us that

PAGE 11 OF 52
he's been buying Wells Fargo this week. That stock has now turned
positive since those comments.
Becky, they told me to ask a question. Is that OK? I'm not going to...
BECKY: Yeah, go ahead.
JOE: Are you sure? Hey, Warren...
BECKY: Yes, go ahead, Joe.
JOE: Warren, you like to buy. You just said you like to buy. Peter
Sellers liked to watch, but you like to buy. I remember that.
BUFFETT: Yeah, yeah. Well, buying doesn't —buying doesn't preclude

watching.
JOE: No. No, I know. Not with you, I'm sure. But —so that —I figure
anything that moves the market higher, you know, you're not going to
—it's like, you know, better than a sharp stick in the eye. So QE3 is
great; market's been going up. But if you were a voting member and
their —I don't know, they got another one of their meetings today,
two-day —their —yes —I don't know. They come so quickly, I don't
even remember. But I know I've been reading something about that.
If you were there when they voted for QE3, would you have voted yes
for QE3 if you were a voting member?
BUFFETT: No, I haven't thought about that, but I would say this: I
would listen very carefully to Bernanke, but my instincts would
probably be to go the other direction. But I —but I would listen to his
arguments. And...
BECKY: But wait a second.
BUFFETT: Yeah.
BECKY: You said with QE2 you thought maybe it was going too far at
that point.
BUFFETT: Yeah. That's why...
BECKY: So QE3 is doubling down on that.

PAGE 12 OF 52
BUFFETT: That's why I'd listened carefully. But my instincts are to go
against it. I think it's much easier if you're —if you're a central bank
and you could print money. It's much easier to acquire 2.6 or 7 billion
or trillion, actually, of securities than it will be to unwind that
operation.
BECKY: Yeah.
BUFFETT: And you can expand it indefinitely. I mean, if you wanted

QE2 to be, you know, 100 billion a month —or QE3 —100 billion, it —
he's the one guy that can do it. He has unlimited buying power.
Unlimited selling power could be a little different. You need some
cooperation on that.
ANDREW: Warren, you're supportive of the president, though.

Governor Romney suggested that he would —I wouldn't suggest he
would fire Bernanke, but he wouldn't pick him up for a third term. Not
clear, by the way, that Bernanke wants a third term even under
Obama. But how does —how does that affect or impact your thinking
in terms of politics?
BUFFETT: I think Bernanke has done an absolutely superb job. I

mean, what he did in the fall of 2008 was gutty. It was —it was
basically right. You know, everybody talking about tinkering at the
edges. But I will say this: If Ben Bernanke hadn't been there in 2008,
I'm not sure where we would be now. So I have enormous respect for
him. I —he's a very, very intelligent man. I don't know if you've ever
read his four lectures that were given at George Washington U about a
year ago. He —you've got to respect him enormously. And, you know,
he sees an economy that he's sort of fighting by himself to get started
when he looks over —you look over at Congress that's more or less
paralyzed. And I would never bet against him. I still would say that I
get a little worried about continuously expanding the balance sheet of
the Fed. You know, we now are getting 3 percent of our revenues from
the profit of —that the Fed is running out as carry trade, if you look at
the...
BECKY: The United States gets 3 percent of its revenue?
BUFFETT: Yeah, the United States —that 2.4 or 5 trillion of revenue,

the third —the third-biggest —the fourth-biggest item. The first item is
personal income taxes and then payroll taxes, then corporate income
taxes. The fourth is dividend from the Fed.

PAGE 13 OF 52
BECKY: Wow.
BUFFETT: Yeah, he made 70 or 80 billion last year. This is —this is

unheard of, you know, if you go back a few years. So he's got the
perfect carry trade. I mean, when he —when he —when he borrows —
he's got a trillion and a half borrowed from the banks, which he pays
them a quarter of a percent for. Then he's got a trillion in money in
circulation, which he doesn't pay anything for, except the cost of the
paper.
BECKY: But do you worry about inflation down the road? Is this
something that we'll see coming? Will we be able to put the brakes on
in time and try and get some of that liquidity back out of the system?
BUFFETT: Well, I —there's nobody that understands that problem

better than Bernanke.
BECKY: Yeah.
BUFFETT: But that doesn't mean that I necessarily think that the
solution is going to be perfect. I'd rather have him thinking about it
and trying to modify the impact of...(unintelligible).
BECKY: But to Andrew's point, if he doesn't have another term, or if

he chooses not to stand for another term and there's someone else
there, that person's going to have a pretty difficult job.
BUFFETT: Yeah, it depends who it is, but I would vote for Bernanke
again. I'd —you know, and I'd get my kids out and everybody else to
vote for him.
BECKY: But if Bernanke says that he's not even interested in staying
—because they're —the people...
BUFFETT: Well, then you get worried because —maybe that he knows
what he's leaving behind.
BECKY: Yeah. People like Kevin Warsh, who knows him closely, has
said that, you know, he may have done enough time there.
BUFFETT: Yeah, well, I think he feels that way, particularly after his
congressional testimony. But I do think if the president of the United

PAGE 14 OF 52
States asks somebody like Ben Bernanke to stay on, I think he will
stay on. I think he's —I think he's that devoted to the country.
BECKY: Hm.
JOE: All right...
BUFFETT: And I would rather have him there than anybody else.
BECKY: Mm-hmm.
JOE: Warren, do you...
BECKY: Joe:
JOE: Do you think that where the bond market is right now, given the
extraordinary action by the Fed, do you think it's not that far from
where it would be if they hadn't been as active? And then I guess it's
OK. But if it be a long way from where it is without them, doesn't that
sort of cause some dislocations that eventually are going to come back
to haunt us? I like when stocks go up, too. And I can see it in your
eye, you like it when the market's going up. But I'm just wondering, is
it —is it worth it with...
BUFFETT: No, no, no.
JOE: Huh? You do. And who doesn't like when the market goes up for
whatever reason?
BECKY: (As Buffett raises his hand) You.
JOE: But if it gets to a point where it's not up —where it's not up
based on the underlying fundamentals, it seems like sooner or later
something has to happen. No?
BUFFETT: Interest rates are to the prices of all assets, you know, like
gravity is to the function of the Earth. I mean, everything is based off
interest rates. It may not seem obvious, you know, and —that the
value of some, you know, plantation in Brazil or something is geared
off it, but everything relates to interest rates. I mean, you start with
what you can get from a risk-free interest rate.
JOE: Right.

PAGE 15 OF 52
BUFFETT: And so there —it has a huge, huge, huge gravitational pull.
It affects what I'm doing, you know? It affects —it affects what
everybody's doing. So...
BECKY: It affects what you're doing at Berkshire?
BUFFETT: Oh, yeah. I mean, if I'm —if I'm getting zero percent on
money, I am going to look at other assets somewhat differently,
whether it's buying a farm or an apartment house or anything else.
And, of course, the people who will lend money to me to buy the
apartment house are going to lend it to me cheaper. It's one of the
reasons I recommended housing six months ago, because the low
interest rates had caused low mortgage rates, and low mortgage rates,
when you can sign up for 30 years off a policy that may be —only be
in effect for another year or two...
BECKY: Mm-hmm.
BUFFETT: ...you're getting a tremendous deal. But no, Joe, the Fed
has had an enormous effect on interest rates.
JOE: Is it —but it's OK?
BUFFETT: Now —well, I don't know if it's OK or not, but I know that...
JOE: You like the prices going up.
BUFFETT: I know that it's being —well, I would say that it's
marvelously OK if you're buying a house or something like that now.
But in terms of policy —in terms of policy, the chairman of the Fed and
the members of the Fed made a decision that this economy needed
enough of a jolt and it wasn't going to get it through enlightened fiscal
policy and that they were going to basically carry the whole load
themselves. I don't —I don't think they enjoy it...
JOE: Right.
BUFFETT: ...but I think that Bernanke —I think he's a very

responsible guy. Now, it doesn't mean he calls them all right, but I
think he's a very responsible guy and a very smart guy.
ANDREW: OK, Warren...

PAGE 16 OF 52
BECKY: Andrew:
ANDREW: ...we're going to slip in a quick break, try to make some

money ourselves during the commercial. We're going to have a lot
more to come from Becky and, of course, Warren Buffett. Plus, we've
got earnings from aircraft giant Boeing ahead. The numbers and
market reaction. We'll talk to Warren about that, as well. And then at
the top of the hour, GE chairman and CEO Jeff Immelt's going to join
the conversation. SQUAWK's back in two minutes.
***
ANDREW: Welcome back to “Squawk Box” this morning.
(Headlines and earnings news)
ANDREW: But as I was making my way to the AT&T news, that

popped off the screen.
JOE: Are you avoiding AT&T?
ANDREW: I'm not avoiding AT&T.
JOE: OK. Would you like to take a shot at that? Or —I'm going to look
at it right —no. You —OK, Becky, good, save it.
BECKY: I have it. AT&T earnings. They came in with an adjusted 63

cents. That was 3 cents ahead of consensus. Consolidated revenue up
2.6 percent when you exclude —or the divested Advanced
Solutions***(as spoken)***unit. That was the Yellow Pages one.
Company had record cash flow, cash from operations of 11 1/2 billion,
free cash flow of 6 1/2 billion in the third quarter. And it's increasing
its full year of free cash flow guidance by more than $2 billion. IPhone
is always a big deal when it comes to AT&T. They had 4.7 million
activations in the third quarter. I'm not sure what the analysts were
looking for. But they also are saying that they had the best ever third
quarter churn, postpaid churn of 1.08 percent. So again, a beat by 3
cents, and it looks like some pretty strong numbers also increasing
their free cash flow guidance by more than $2 billion.
JOE: Yeah. So the lowest churn, is what you mean, not the —yeah, so
the...(unintelligible).

PAGE 17 OF 52
ANDREW: The lowest churn...(unintelligible)...right.
JOE: Yeah, churn.
BECKY: Yeah, best ever, lowest —best ever meaning lowest churn.
JOE: Yeah. Yeah, with...
BECKY: Postpaid churn of 1.08 percent.
JOE: At this point, with AT&T, people just look at how they do in terms
of wireless and wireless ads...
BECKY: Yeah.
JOE: ...and how much people are spending for...
BECKY: And iPhone.
JOE: Yeah. And then, of course, you know, you watch —what
unbelievable yield, 5 percent yield. I don't know why Buffett doesn't
put all his money in Verizon and AT&T. I'd get —I mean, when you're
getting...
BECKY: Warren, you want to answer that? Verizon and AT&T, you
ever look at those companies?
BUFFETT: I don't know what it'll look like five or 10 years from now.
BECKY: All right...(unintelligible).
JOE: There he goes again.
JOE: Wow. You get a hundred years from now, five or 10.
ANDREW: Hundred years from now, right.
JOE: So 5 percent in the meantime. You know, that's true, though,

Warren. People would say, 'Wow, you got a 5 percent yield.' Doesn't

PAGE 18 OF 52
take much for stock to go down 5 percent, does it? I mean, that yield
doesn't necessarily hold up if the markets had its...
ANDREW: But these things are like tollbooths, so...
JOE: Yeah.
ANDREW: Right?
JOE: Yeah.
BUFFETT: Yeah. Yeah, we mostly buy stocks for future earnings. And
if they use the money to —if you used all the money to repurchase
shares like Henry Singleton did with Teledyne years ago, that could be
even more advantageous.
JOE: Yeah.
BECKY: Because you end up owning a bigger and bigger chunk of the
company.
BUFFETT: Bigger, bigger. IBM spent 3 billion in each quarter this year,
almost to the dollar, buying in stock. The cheaper they buy it, the
more our interest goes up.
BECKY: You still like IBM even after all the troubles technology
companies have seen?
BUFFETT: Well, they're struggling a little, and it was kind of

interesting, in the —we owned —we own a little more than we owned
at year-end, and we got great confidence in that over the years. But in
the third quarter, they had a sale of a subsidiary, RSS, that produced
about 288 million, I think, after tax, which was all the gain. And to my
knowledge, The New York Times did not have a line on it, The Wall
Street Journal did not have a line on it, the FT did not have a line on it.
Didn't get discussed. It was one line in the report and it accounted for
all the gain and earnings, and it was a sale of a part of a business.
BECKY: Hm.
BUFFETT: You know, I think the reporting missed the boat on that
one.

PAGE 19 OF 52
ANDREW: Yeah.
BECKY: OK, we're going to talk more about IBM and some of your
other investments when we come back.
And, Andrew, we'll send it back over to you guys.
ANDREW: OK, thanks, Becky.
Still to come from GE's Middle Market Summit in Columbus, Ohio,

we've got more of Warren Buffett. And then later, General Electric
chairman and CEO Jeff Immelt on business conditions, avoiding the
fiscal cliff and much, much more. You don't want to go anywhere.
We've got a big show ahead.
JOE: We got a new —there's a new picture.
ANDREW: And we got a new picture.
***
BECKY: Welcome back, everybody. We are with Warren Buffett this

morning in Columbus, Ohio, at the National Middle Market Summit,
which is sponsored by General Electric and Ohio State University's
business school here. You know, Warren, we've talked an awful lot
about businesses. I want to get back to IBM in a little bit. But the
reason we're here today is because of this focus on midsized
businesses. There's been an awful lot of questions about jobs and the
jobs picture out there. Midsized companies account for a lot of the job
growth that we have seen over the last several years. They've been
net adders of jobs. Can you talk to us a little bit about what
Berkshire's been doing in terms of jobs?
BUFFETT: Well, yeah. Berkshire probably has at least 50 of its 75

companies that would fit the —fit the middle market 10 million to 1
billion of sales category. It looks to me —there's a few months left —
but it looks to me like we'll add at Berkshire, on a base of 270,000,
we'll probably add about maybe 8,000 jobs organically, and then we'll
probably add another 10 or 15,000 on acquisition, so...
BECKY: For this year that we're in right now?

PAGE 20 OF 52
BUFFETT: This year, yeah, yeah, yeah. Certain businesses like GEICO
and Burlington Northern add people and then we bought —we bought
a fair number of what we call bolt-on acquisitions, not big deals but
they bring with them a thousand or 2,000 people sometimes.
BECKY: In terms of the jobs growth, what about the companies that
are related to housing? You've been talking about how you've seen a
turn there. Has that translated into any jobs growth and...
BUFFETT: There's some jobs growth. I mean, you know, our Clayton
Homes is going to produce maybe 15 percent more homes or
something like that this year, and that takes more people. And GEICO
is going to sell more insurance policies and that takes more people.
And the —our furniture businesses are doing very well. We're selling a
lot of carpet and furniture. And so we add people, but we've also going
to add quite —we've made more bolt-on acquisitions this year than
ever before in our history by some margin. And they bring with them
thousands and thousands of people.
BECKY: How much cash do you have on hand right now?
BUFFETT: We probably have at least 40 billion.
BECKY: Are you in the hunt —on the hunt for another big acquisition?
BUFFETT: I'm salivating, yeah. A fellow handed me a card last night

and he said, `This will cost you 6 billion.' And he didn't give me the
financials, but I'm going to call him when I get —I know the company
so when I get home I'll call him and I'll ask him for the financials
and...
BECKY: What —have you looked at any other big acquisitions?
BUFFETT: We had two acquisitions this year, possibilities, that were

plus and minus 20 billion and where the CEO wanted to do it but it
didn't get done. Prices are tough.
BECKY: Prices are tough right now.
BUFFETT: Yeah.
BECKY: All right. We're going to...

PAGE 21 OF 52
BUFFETT: And cheap money makes that —that's a factor in there.
BECKY: We're going to talk more about that in just a moment. We're
going to slip in a very quick break right now. When we come back,
we'll talk a little bit more about the market for acquisitions and why
there's so much money around out there. By the way, tomorrow is a
big day for Joe. He's going to be hosting "Office Hours" after the show.
You can like our Facebook page, you can send him comments and
questions, and he'll be responding starting at about 9 AM Eastern time.
“Squawk” with Warren Buffett back after this quick break.
***
ANNOUNCER: Welcome back to this special one-on-one interview

with Warren Buffett, chairman and CEO of Berkshire Hathaway. Here
now, Becky Quick.
BECKY: Welcome back, everybody. We are coming to you live from GE

Capital's Middle Market Summit that's taking place at Ohio State
University in Columbus. I'm joined this morning by Berkshire
Hathaway chairman and CEO Warren Buffett.
And, Warren, you were just talking about how you've been on the
prowl looking for big acquisitions around 20 billion or so. A couple of
them have fallen through, but part of it is because pricing is so difficult
right now. It's...
BUFFETT: Pricing's difficult and money's cheap so...
BECKY: Yeah.
BUFFETT: ...we don't leverage our purchases so we're buying on an

all equity basis. But people who do leverage are getting significant
portions of the purchase price at very, very low rates, probably as low
as they've ever gotten. So that enables them to bid pretty
aggressively. And it doesn't factor into our thinking.
BECKY: But you think at this point maybe some of these acquisition
prices are getting a little out of control?
BUFFETT: Well, that's the way I feel but, you know, that'd be —that's
natural when you're getting beaten out.

PAGE 22 OF 52
BECKY: But you won't raise your prices to compete.
BUFFETT: No. No. We —but —now we've had a record for bolt-on
acquisitions. We've probably done, I don't know, maybe 15 different
acquisitions, but they probably only add up to maybe $2 billion or
something of the sort. And they're good and they fit in with the
companies we have, but what I really like is the elephant.
BECKY: So you're always out elephant hunting...
BECKY: ...with your elephant gun?
BECKY: Can you...
BUFFETT: And they're more likely to come along when either money
conditions are fairly tight or something of the sort because if you can
borrow money at these rates, you can pay a lot of money, and, you
know, and other people, if they pay the wrong price, they walk away
from them, but if we pay the wrong price, we live with them forever.
BECKY: So if these deals haven't gone through, that means you've

been looking more aggressively for stocks to buy in the market and as
a result, you've got more cash to do that?
BUFFETT: Well, we're always looking for stocks, and I've got two
fellows that are working for me that are really looking for stocks all the
time. And —but I usually end up buying more of something I already
know. Any new company, any new stock I look at, I measure it against
the best idea I've got among the present ones. And I'm perfectly
willing to just keep adding to the present ones. So it has to beat them.
And I know those companies pretty well so it's a pretty high threshold.
BECKY: Let's go back to IBM.
BUFFETT: Right.
BECKY: You were talking just a moment ago about IBM. Have you
added any shares to that company in the last couple of months?

PAGE 23 OF 52
BUFFETT: Maybe —I don't know if it'd be quite a couple of months.
We've added —we've added shares this year. We haven't added a lot
of shares but we've —well, we've probably added, you know, it'd be in
many hundreds of millions. Wells, we probably added maybe a billion
dollars’ worth this year, something like that.
BECKY: When you first announced your stake in IBM, it caught a lot of
people by surprise because you have always stayed away from
technology companies. You've said it's something you didn't really
understand and so you didn't want to get involved with it.
BUFFETT: Right.
BECKY: What —in looking at IBM, you said it was a little different
situation. It made sense to you at that point. I guess part of that is the
services factor of it.
BUFFETT: Right.
BECKY: But when you look at these big technology companies, it looks
like some of them may be maturing. Have you regretted getting into
IBM shares at all?
BUFFETT: No. I'm delighted to be in it. But —and I think they'll

probably do better abroad than in the United States over time. But I
do —when we buy something like that, I go to our companies and see
what they're doing and what they plan to be doing in future years and
how tied in they are with given suppliers and how much stickiness
there is to it. And so we —I —even though, you know, if you put me in
a computer room and spin me around, I'm lost, you know. I'm just
hoping somebody comes here and helps me get out. But I do know
what our managers tell me about their plans and the degree to which
they're involved. I had one manager tell me something —I guess it
isn't quite repeatable, nevertheless, in terms of you get pretty locked
in sometimes with your —with your supplier.
BECKY: What's not repeatable?
BUFFETT: Well, I asked him how sticky —I won't name the company
—necessarily was when you got in there, and he said, `Well, it's like
getting AIDS.'
BECKY: So it sticks and it sticks around.

PAGE 24 OF 52
BECKY: It really does. You know, I should bring up the insurance

companies because we didn't talk about that before.
BUFFETT: They're big.
BECKY: Jim Cramer had said he's very interested in hearing more
about what's happening with insurance because a lot of insurance
companies have been doing very well lately.
BUFFETT: Yeah.
BECKY: What can you tell us about Berkshire's insurance companies?
BUFFETT: Well, Berkshire's insurance companies are doing well. I

mean, we have about 70 billion or other people's money. We call it
float. And when we run at an underwriting profit, that money is just
like you gave me 70 billion and I get to earn all the money on it. And
this year so far we've had an underwriting profit. So not only have
they given us the 70 billion, but they've given us some more money to
hold it, and we get all the investment income from it. So when
insurance is good, it's terrific, and it's been good this year.
BECKY: What do you know about the consumer, not only from the
companies you have at Berkshire that you own outright, but from a
company like Coca-Cola and from being able to look around the globe
to see how consumers are feeling? There's been a lot of pressure on
some of these consumer products companies because prices for
commodities have gone up and sometimes they can't pass those on to
their consumer.
BUFFETT: When you think about it, Coca-Cola's been around since
1886. That's pretty amazing, isn't it?
BECKY: Yeah.
BUFFETT: And it's the basic product. Now it's got a whole bunch of
extensions, too. But Coca-Cola's physical volume, not dollar sales but
physical volume, was up 4 percent in the first nine months, and that's
in a world that's growing maybe at 1 percent. So their per capita
usage or Coca-Cola products has gone up almost every year since

PAGE 25 OF 52
1886. I mean, they —Muhtar Kent has done a terrific job running that
company. It's a huge distribution machine. In Mexico I think the
number now is up to over 600 plus eight-ounce servings per capita of
Coca-Cola products man, woman and child, which is at least 50
percent higher in the United States, but that —and it grows every
year. It grew in the first nine months. It's quite a product.
BECKY: We still have a lot of your other investments to talk about

including American Express, Procter & Gamble. We'll get to that in just
a little bit, Warren, if you'll hold on with us through another
commercial break.
BUFFETT: I'm not going anywhere.
BECKY: Still to come this morning, as we mentioned, we have much

more with Warren. We are also going to be talking about everything
from the fiscal cliff to Simpson-Bowles. We're going to be adding the
man who runs one of the nation's biggest conglomerates. We're going
to find out what GE's Jeff Immelt is hearing from customers about the
state of the economy. We will find out at the top of the hour. By the
way, check out the futures right now. We have been higher throughout
the morning. Right now, those Dow futures are up by 42 points after a
big down day for the markets yesterday. SQUAWK will be back after a
quick break.
***
ANDREW: One more hour with one of the world's richest men, Warren
Buffett, on the markets...
BUFFETT: If the market is down, you know, I'm happier buying. I like
to buy.
ANDREW: ...on Europe...
BUFFETT: The European banks still are leveraged to an extraordinary

extent just because they don't know how to get out of it.
ANDREW: ...and a lot more. Rise above the political rhetoric with the
Oracle of Omaha.
JOE: And another special guest this hour, GE chairman and CEO Jeff
Immelt on the company's latest quarter, the state of the economy and

PAGE 26 OF 52
the impact of the fiscal cliff. The third hour of “Squawk Box” begins
right now.
* * *
JOE: Let's now get back to Becky at the GE Capital Middle Market
Summit at Ohio State University in Columbus. She is joined by Warren
Buffett and another special guest. Hey, Becks.
BECKY: Hey, thank you, Joe. You know, as you mentioned we have
another special guest with us joining us right now. Jeff Immelt, who is
the chairman and CEO of General Electric. And, Jeff, thank you very
much for joining us this morning.
JEFFREY IMMELT (General Electric Chairman and CEO): Becky, good

to see you again.
BECKY: You know, Warren's been laying out for us what he sees from
the economy this morning, and GE probably has one of the best
vantage points of any company to see what's happening around the
globe. I know you talked a little bit about it with earnings but the
market seems to have been caught by surprise by what it's been
hearing from companies just over the last week or so. What does it
really look like out there and do you think the market's overreacting?
IMMELT: You know, Becky, I think the general trend is still positive.
There's just volatility as we've kind of climbed out of this recession. I
always think about four big factors. The U.S. gets a little bit better
every day, we can see that around housing. You know, I think there
would be more investment in the U.S. if there was more clarity around
the fiscal cliff and things like that.
BECKY: Yeah.
IMMELT: Europe is bad, but not shockingly bad. You know, in other
words it's going to be tough, there are still pockets, but Europe's
tough. China is —there's not one China, there's multiple economies in
China. Construction I think is slow, but if you're in the health care or
aviation business in China, it's still very robust. And I just got back
from a trip to Saudi Arabia, Abu Dhabi, Algeria, Bangladesh. There's
business in all those places, right. So I think if you're out hustling you
can find business. So I think the general trend is positive, but there is
volatility in the world.

PAGE 27 OF 52
BECKY: But so from that perspective, I mean, from both you, you
seem to have a more positive outlook than maybe what the market is
reacting to over the last several days.
IMMELT: Look, I think you can't blame investors for, you know, what
they read and what they see. And you're going to have a couple of
days like what we've had. But if you —if you step back, you know, I
think, you know, for a company like ours, our organic growth was up 8
percent on the quarter.
BECKY: Yeah.
IMMELT: That is —that is high, you know, and 10 percent year-to-

date on a company our size, that is pretty good. A backlog of more
than $200 billion, that's pretty good. So I just —and, you know, we
had dinner last night with 20 mid-market companies.
BECKY: Yeah.
IMMELT: Some are doing poorly, but a lot are doing well. But, you
know, I just think it's volatile, right, and so you're going to have a day
like we had yesterday or a day like we had Friday and people are going
to have concerns. Who can blame investors for, you know, for seeing it
that way? But the general trend that I see, and we see 140 countries,
is still generally positive, with volatility.
BECKY: With volatility.
IMMELT: Yeah.
BUFFETT: And he's getting good prices for locomotives and turbines
and all these things he's selling.
IMMELT: Would you like to buy —would you like to buy a few more,
Warren, or I could sell you this morning. Get out my order book.
BUFFETT: He's never given me a cents-off sale.
BECKY: Hey, I know Joe has a question as well. Joe:
IMMELT: Hey, Joe.

PAGE 28 OF 52
JOE: Jeff, I'm Joe Kernen with CNBC. We used to be one of your
favorites, I don't know, a while...
IMMELT: Joe, 49 percent of —49 percent of NBC is still 100 percent of

CNBC. So don't forget that.
JOE: All right, all right. Jeff, you know, GE Capital, the other report
that's like raking in money again and what I'm told is that the
company continues to shrink it to some extent I guess to right-size it if
you will, but wow, it's making money, it's paying a dividend back to GE
again and is there a tendency to want to say 'let's ramp it back up'?
And I mean it was a great unit for years and years and years. You
know, giving so much profit to the company. Is there a tendency to
want to do this? Do you have to pull yourself back and say, all right,
we're going to get this to where we don't what to get, you know, get
to that point again?
IMMELT: Look, it's a great business, OK? I think the difference in this
recovery vs. previous recoveries is just one of discipline. There are
segments in financial services that we do better than banks. This is
one of them. Mid-market lending, we just do it well. We're going to
continue to grow the places that we do better than our competitors
and let those grow. I think what's different, Joe, is you know, we're
just not going to do the incremental or the —you know, some of the
distressed stuff we used to do just because we could and I think we're
—you know, we've got a green light on assets we're great at. We're
going to continue to grow those. And look, you know, GE Capital in
almost every way is healthier today than at any time in its history. We
—our leverage is lower, our liquidity is better, our margins are better.
And someday, investors will agree with me that this is a valuable
business.
JOE: Yeah.
IMMELT: But, you know, we're going to stay in it and there's

segments that we're going —we're going to do really well in.
JOE: Yeah. We're —I have one more...
BUFFETT: I was —I...
JOE: Oh, sorry, Warren. We're —Warren and I are both large
shareholders in GE and I —we have a lot of questions.

PAGE 29 OF 52
JOE: Yeah, we have a lot of questions about, you know, the portfolio
mix as, you know, as shareholders, maybe. I think Warren's got a little
bit.
BUFFETT: Joe, if we —if we vote together, Joe, I think we can control

the company.
JOE: I'm with you, I'm with you on that. Jeff, my other question had
to do with —I mean, we keep talking about the natural gas story and
fracking. And number one, I know GE's involved in a big way in all
parts of energy production and natural gas. Is the portfolio right now
in energy, does it have enough exposure to natural gas, that's my first
question. And number two, have you looking out 20 years, has wind
become less of a —less attractive long-term because of what's
happened with natural gas?
IMMELT: You know, Joe, I think natural gas is one of the big stories of
our generation. It's big, it's real, it's a game-changer. We made the
decision 10 years ago to be long gas, both from an exploration
standpoint and from a power generation standpoint. So we see the
trend unfolding. We have a great exposure to it. We think this is a
long-term really dominant trend and we love it. We've also made the
choice to be a broad-based energy supplier. Wind is going to have its
fit, nuclear's going to have its fit, coal's going to have its fit. You know,
we paid $200 million for Enron's wind business 10 years ago. Let me
tell you, we've generated billions of cash. The cost of electricity of
wind is down to 7 to 8 cents a kilowatt hour. So it's going to have a fit.
Whether it's in the U.S. or not, you know, remains to be seen, but I'm
glad we've got the breadth. But, you know, Joe the big story's gas,
let's be clear. The big story's gas and we are super long gas.
BECKY: OK, gentlemen, let me ask you both about the fiscal cliff. We
have talked to a lot of business leaders about it. I know it's an issue
that you are both concerned about. In fact, yesterday the lead story in
the Financial Times, Jeff, was a story that we talked about on
SQUAWK...
IMMELT: Yeah.

PAGE 30 OF 52
BECKY: ...about how GE is actually looking to make some moves
ahead of that, selling bonds to make sure it doesn't have to be in a
position to get caught up in whatever's happening in Washington in
that point. How big of a problem is it, what do you think needs to be
done? And I'd like to hear from both of you on that.
IMMELT: You know, Becky, the research that we've released today
among mid-market companies I think says that they've all slowed
down because of the uncertainty.
BECKY: Right.
IMMELT: In the case of GE we're a high-tech, long-cycle business.

Boeing depends on us to keep investing in our engines no matter
what, so we're going to do that. We're going to keep going. But there's
no reason why this can't get resolved. You know, we're a group, we're
a member of a group called Fix The Debt.
BECKY: Right.
IMMELT: There's almost 100 CEOs that are parts of that. It basically
endorses Simpson-Bowles. I think everybody believes that we're going
to be plus or minus 10 percent of Simpson-Bowles. Let's get it done.
You know, people say business leaders should be more vocal. Look,
we're vocal.
BECKY: Mm-hmm.
IMMELT: You know, this is a —this is a complete distraction at a time

—an important distraction at a time when the country doesn't need it.
So I just think, you know, everybody is planning. Every business is
planning for something that's plus or minus 10 percent of Simpson-
Bowles. I don't get it, and you're going to have Dave Cote on
tomorrow.
BECKY: Right.
IMMELT: He's been the leader of this. You know, he's a very
respected guy in the business community. It is filled with everybody
who's run big companies in the country. We are —we are saying let's
get this done.

PAGE 31 OF 52
BECKY: You guys feel like you're talking and Washington's not
listening? What...
BUFFETT: Well, Washington's on hold because of the election.
BECKY: Right.
BUFFETT: But they'll not only hear people talking, they'll hear people
shouting. There'll be a march on Washington by business if something
akin to it. I mean, it's man-made. Everybody knows what the general
solution should be and you can argue about whether revenue should
be 19 or 18 1/2 percent of GDP or whether expenses should be 21 or
21 1/2 or —but everybody knows basically what the solution is. And
Bowles-Simpson fits in there —Simpson-Bowles. We're going to stay
away from that acronym of Bowles-Simpson. The Rivlin-Domenici, I
mean, there are hundreds of people that could —that you know that
could design a sensible plan, and any plan that gets Dick Durbin and
Tom Coburn to sign on, you know, that reflects a lot of negotiation and
effort by two terrific people in Simpson and Bowles. It's going to get
done and the American people won't stand for it not getting done. And
I —incidentally, I think it'll get done with —I don't mean Simpson-
Bowles precisely, but something materially...
BECKY: Some sort of a...
BUFFETT: ...close to it will get done by either person selected.
BECKY: And by that I mean, a lot of Americans probably don't even

understand what's in it. You're basically talking about a plan that will
lower tax rates, strip out a lot of the loopholes or things that we've
built in as policy and decided that we want.
IMMELT: Four trillion dollars over 10 years, Becky. It's about a billion
four or five of revenue. It's 2 1/2, 2.6...
BUFFETT: Yeah.
BECKY: Of cuts.
IMMELT: ...you know, lower the tax rate, broaden the base, you
know, global system, stuff like that. You know, we're not going to like
—you know, I guarantee we're not going to like all of it.

PAGE 32 OF 52
BUFFETT: No.
BECKY: Right. And that's...
IMMELT: You know, so I guarantee you.
BECKY: ...just it. Everybody's going to have something they don't like
in it.
BUFFETT: And you got to deal with signing on to it, too, right?
IMMELT: But you know, you know, Warren, I think the beautiful thing
about American business is how flexible and how fast we adjust, you
know. It just is today the most resilient economic system on earth.
And I've seen them all. And business people small and large are going
to figure out, 'OK, this is a business I can be in. I can —I can do this, I
can't do that, let's go.'
BECKY: But you want a plan, you want to know what it is.
IMMELT: Look, it's just the stakes are so gosh darn high for the
country and for all of us. I don't get why we can't do something this
important. You know, in other words, you know, I understand there's
two opinions on everything, I understand there's Republicans and
Democrats. I just think, you know, what I say inside GE is nervous
laughter is a bad strategy, you know? It's kind of like 'oh, my, this is
really important, I hope something bad doesn't happen.' That's a bad
strategy, you know, so I think it's —we just need...
BUFFETT: We're...(unintelligible)...about it at Berkshire.
BECKY: You know, I know Andrew has a question, too. Andrew:
ANDREW: Hey, Jeff, I'm curious on the issue of Simpson-Bowles,

have you scored what GE's effective tax rate would ultimately be and
how it would impact the business?
IMMELT: You know, my hunch, Andrew, is that the tax rate goes up
probably and I think we're kind of ready for that. But, you know, the
notion that you can have a territorial system and have flexibility on
cash, I think that's a positive that supersedes everything else. I just
think that's —you know, and again, we're not asking for —we're asking
for the same system that every one of our global competitors has.

PAGE 33 OF 52
Siemens, Toshiba, every one of our global competitors lives in a
territorial system. All we're asking is for the chance to compete on a —
on a level playing field against those guys. I —you know what I always
say, Andrew, is 'look, like us or hate us we're kind of the last American
company standing in all the industries we're in.' You know, we
compete against global guys in everything we do. Just give us the
same system that they've got.
ANDREW: Right.
IMMELT: And I don't think that's too much to ask for.
ANDREW: Hey, Jeff, real quick while we have you, we talked to

Warren in the last hour about Bernanke and QE3 and the impact. Your
—you were able to see some bonds at some pretty great prices. Are
you worried? Warren seemed to suggest that he was a little bit about
where we really are.
IMMELT: You know, again, I think as much as anything else as I read

what Chairman Bernanke has said there's a sense of consistency in his
actions where he has said he's going to keep the cost of money low
until the economy gets better and he's been consistent to his word. So
if you love him or hate, you know, QE1, QE2, QE3, I think he's been
the one person that has led to some consistency around where we are.
Now, did business need —when interest rates are zero do you need
interest rates lower to borrow money? I don't think so. You know, in
other words this is not necessarily the problem we have to solve
today, you know? And so I think there's people smarter than I am that
can figure that out. But I think if you take that aside and given the
gridlock in Washington, it ain't —and what's going on in Europe and
other places, it's not bad to have had one person in power who's been
more or less consistent from 2008 to today.
BECKY: Yeah.
IMMELT: And I think we at least have to give him credit for that.
BECKY: Absolutely. Gentlemen, very quickly, when it comes to the

fiscal cliff, would you each put odds on whether you think we go over
this fiscal cliff in January and go over maybe a day or two or
something? What are the odds you think we go over in a bad way vs.
we find some sort of a solution?

PAGE 34 OF 52
BUFFETT: I would say there's a pretty fair chance we go over for a
short period of time. But, you know, who knows? It'll —it depends on
which fellow's elected president and it depends on the composition of
the House and —but they will —it's going to get done, Becky, and...
BECKY: Quickly.
BUFFETT: ...how much —you know, how long they want to be in the
sandbox before they come up with answer that's obvious, they can
come up with today, that just depends on the personalities of leaders
of the House and leaders of the Senate and the president. I don't think
it will go on a long time.
BECKY: But you get a...
IMMELT: But if August —you know, Becky, if August of 2011...
BECKY: Mm-hmm.
IMMELT: ...hadn't happened I would say the odds were zero, you
know, when we —when we defaulted and lost the credit rating. So I
think companies have to be prepared that it might happen. But let's be
clear, it shouldn't.
BUFFETT: It shouldn't.
IMMELT: You know, let's be really clear. If it does happen, that's a

failure of governance and that's something that we shouldn't expect.
BECKY: Yeah, and shame on them if it does happen. Gentlemen,

thank you both very much. Warren's going to be sticking with us. Jeff,
I know you have to get to the summit here.
IMMELT: We got —we got...
BECKY: A lot of guests.
IMMELT: I got to do some selling —I've got to do some selling, so...
BUFFETT: Yeah, yeah, I'm a lousy salesman so I'll stay.

PAGE 35 OF 52
BECKY: We appreciate your time very much.
IMMELT: Great. Thanks.
BECKY: When we come back, as we mentioned, we will have more

from Warren Buffett throughout the show. Up next, though, we're also
going to be talking about some stocks on the move this morning. We'll
tell you which companies to watch ahead of the opening bell. A lot of
earnings out there this morning. Also, a very quick programming note
for you. Don't miss a CNBC exclusive interview with Goldman Sachs
chairman and CEO Lloyd Blankfein. That is today 11 AM Eastern,
"Squawk On The Street." We'll be back after a very quick break.
* * *
JOE: And another stock we're going to be watching this morning,

Warren Buffett telling us earlier that he's been buying Wells Fargo this
week. And that stock has turned up since those comments.
ANDREW: OK. Coming up, we have a lot more ground to cover with
Warren Buffett. We're going to get back to Becky and Warren in just a
moment.
(Announcements)

now, Becky Quick.
BECKY: Welcome back, everybody. We've been speaking with Warren

Buffett all morning long. And, Warren, one of the things we haven't
talked about yet is another one of your major holdings. I think Procter
& Gamble is maybe your fifth largest holding?
BUFFETT: It could be.
BECKY: Well, there was a story yesterday in The Wall Street Journal
that took a look at Bob McDonald, the CEO. There had been a lot of
questions in the past raised by Bill Ackman, an investor who's put
quite a bit of money into it about whether or not Bob McDonald's up to
the job. Yesterday, the Journal added that there was a letter sent to
the board of directors that came from a former manager who said a lot
of managers agreed with him about some of his concerns about Bob

PAGE 36 OF 52
McDonald's leadership. So where do you stand as an investor in
Procter & Gamble and what do you think of Bob McDonald?
BUFFETT: Well, we've owned more shares in the past, but we sold
some shares under A.G. Lafley, we sold some shares, that's related to
valuation. And frankly, the earnings on Procter & Gamble have been
disappointing now for a few years. McDonald's a terrific human being.
What goes inside the place, what mistakes have been made, what the
plans are, I'm really not —I don't know the answers on that. But
you've got to say that Procter & Gamble was, you know, the jury's out
on that now because they have disappointed in terms of earnings and
we'll see what happens. I know that the board is actively engaged in
trying to come up with a strategy that they think makes sense to take
the earnings forward.
BECKY: In the past, you've said that when you sell a stock, it's
because you find something else that is a better investment, a better
place to put your money. Did you sell that stock to —for any other
particular purchase or was it just...
BUFFETT: No. We sold that, we've sold Kraft, we've sold some
companies that are very, very good companies. And we've used that
money, we've used it to buy, what, 11 or $12 billion worth of IBM in
the last 12 months. We've bought —we bought more Wells, another
billion dollars’ worth of that. And then we bought some more Wal-Mart
a while back, another 7 or 800 million of that. And then additionally,
I've given some money to these two new managers to run, too. So
you'll see a lot of stocks that they've selected. So the money moves
around. It moves around pretty slowly, but it moves around.
BECKY: Todd and Ted, we maybe talk more about them in just a little
bit. Those are the two managers that you're just referring to.
BUFFETT: Right. And I'm giving them more money as we go along.
BECKY: OK. We'll talk more about that in just a moment. When we
come back, we'll have more from Mr. Buffett. Stick around, “Squawk”
will be right back.
* * *
JOE: Let's now get back to Becky and Warren Buffett. Can you —can I
—do you mind?

PAGE 37 OF 52
BECKY: No.
JOE: Can I ask him...
BECKY: No, no, no.
JOE: Are you sure?
BECKY: You have to wait. Yes. You can wait. You can come in in just a
moment.
JOE: Oh, OK. You're good.
BECKY: I have one question I want to ask him and then you.
JOE: OK.
BECKY: I have one question I want to ask him and I know that you're
going to want to play in this, so stay with me for one moment.
JOE: OK. All right.
BECKY: But Warren, I think we've let you go for long enough. You are
a big supporter of President Obama.
BUFFETT: Correct.
BECKY: We have an election coming up.
BUFFETT: Correct.
BECKY: Things have changed in the polls over the last month or so,
probably since the first debate. What do you think's going to happen at
this point?
BUFFETT: Well, I have no insight that anybody else doesn't have. I —

you know, I —if you go to InTrade or something, I —their odds would
be about the same as my odds.
BECKY: InTrade's odds are different this morning. Joe was just
pointing them out a little bit.

PAGE 38 OF 52
BUFFETT: If they —well...
BECKY: What are they this morning, Joe, 54 percent?
JOE: Fifty-five now. Fifty-five and change.
BECKY: Yeah.
BUFFETT: That's movement. That's a fair amount of movement and I

think there's active movement...
JOE: Now 56.
BUFFETT: ...and it may come down to who has the better ground
game right here in Ohio.
BECKY: Right. You've been watching elections a long time, though.

What do you think happened? I mean...
BUFFETT: Oh, I think the first debate changed things dramatically. I

mean, they say in life you never get a first chance —a second chance
to make a first impression. Romney got a second chance to make a
first impression. And he had been portrayed a certain way. Through
the Republican debates, through a lot of advertising, I mean, and he
—in the first debate, 69 million people saw a different Romney...
BECKY: Mm-hmm.
BUFFETT: ...than they had more or less expected from the earlier
Republican debates, as well as the advertising, so. He really got a
chance to —it was huge.
ANDREW: Did you see a different —did you see a different Romney?
BECKY: Mm-hmm.
ANDREW: Warren, did you —did you feel that you saw a...
BECKY: He's asking if —did you see a different Romney in that —in
that first debate?

PAGE 39 OF 52
BUFFETT: Well, I saw —yeah. I saw him behave differently, yeah. I
mean, he was less robotic. You know, I mean, he was —he was
aggressive without being rude.
BECKY: Mm-hmm.
BUFFETT: And Obama was down that night. I mean, there's no

question about it. I mean, that was a —that was a huge factor in the
campaign.
BECKY: You know, you've been a huge supporter of the president. Do

you think it matters who gets elected and what it means just for
business next year based on who gets elected?
BUFFETT: Well, I do think that under either of the two candidates,

either one that becomes president, American business is going to get a
lot better over the next four years. I think that in terms of social
policies, I think if I were a woman concerned about reproductive
rights, I think there could be a very distinct difference. I was
concerned about Supreme Court appointments. I think there could be
a distinct difference. But in terms of the economy, I think the economy
will get better under either one of them.
BECKY: Joe, go ahead, I'm sorry.
JOE: I want to stick with politics a little bit, Warren.
BECKY: Yeah.
JOE: And you always surprise me. I never know how you're going to
answer this. I want to talk about a local politician here in New York,
and I'm talking about Mike Bloomberg, every Democrat's favorite
Republican. Let's say that this caught on and that it was a nationwide
ban on any Coca-Cola sold in a container which —that had sugar —any
Coca-Cola sold over 16 ounces. Does that make sense to you, that to
do that for the obesity problem? You're a big Coke shareholder. And
then I think about, you know, Dairy Queen, and you know, ice cream's
not good for you, either. And I figure there must be a way that's
heading to obesity. And neither are those crummy hot dogs you sell in
your Dairy Queens, but do you see this as something that makes
sense to you? I mean, I know you...
BUFFETT: But first...

PAGE 40 OF 52
JOE: Yeah, go ahead.
BUFFETT: First of all, I've got to say Dairy Queen sales were up 5.8
percent in September, same store. So that —we did quite a bit better
than McDonald's.
JOE: But do you see —do you see where I'm going with this?
BUFFETT: But I —and ice cream, I, you know, I thrive on ice cream. I
eat it for breakfast sometimes and I'm 82, so you'll have to judge, you
know, how I'm doing at this point.
JOE: Somebody might not like —somebody might not like you doing
that at your age, Warren.
BUFFETT: Yeah.
JOE: Adding to cholesterol and you might get taxed on it because we

don't really think it's a good idea for you to have ice cream for
breakfast. Is that OK?
BUFFETT: Yeah. Well, let's look at the 16 ounces of Coke. Sixteen

ounces of Coke has 200 calories in it. And I would say that there's an
awful lot of servings and an awful lot of things that have 200 calories
or more and the idea that you should say that you can drink 200
calories of something but not 210 or 220 seems to be kind of silly. You
know, in the end, I've elected the foods to eat over the years that I
like to eat and I think it's kept me quite healthy. And I think if I'd been
on broccoli and spinach, I mean, I would've been gone a long time
ago.
JOE: I mean, to me it's just...
BUFFETT: But I drink —I drink about —I drink...
JOE: I think it's —why don't you tell me it's preposterous and
Bloomberg has got a screw loose. Why don't you say that?
BUFFETT: Well, because you've said it for me. But you know, I drink
about...

PAGE 41 OF 52
JOE: All right. But you wouldn't disagree with me. It did just —and
then, you know, I've had people in from Mount Sinai, doctors that tell
me, hey, oh, well, cigarettes. You don't want to —you don't —want —
it's like cigarettes, you don't want to tax cigarettes? We can't tax —
and I go, well, red meat 20 years ago was supposedly the cause of all
heart disease. And oops, that may not have been the end all, be all.
So when did they decide...
BUFFETT: I eat lots of red meat.
JOE: No, it's not.
BUFFETT: I eat lots of red meat, Joe.
JOE: I...
BUFFETT: And I drink about 60 ounces, about five 12-ounce cans of

Cherry Coke a day.
JOE: Whew.
BUFFETT: And that, you know, that's 750 calories. But I elect to get,
you know, I'm going —I'm going to burn up 2700 calories or so a day.
ANDREW: It's your prerogative there, Warren. Right.
BUFFETT: And 750 of them are going to be Cherry Coke. And my

doctor told me during those things is drink more —drink more liquids.
And I said, you know, I said, how about Cherry Coke? He said it's fine.
JOE: It's insanity. It's insanity. And someone needs to tell this guy
that, although he's still —he's still going to be every Democrat —or
every Republican's favorite Democrat. I don't —Andrew, God, if he ran
for president, you'd be out there.
BUFFETT: Yeah.
JOE: You'd have 40 signs in your yard, Bloomberg for president. If you
had a —if you had a yard.
BUFFETT: I think —I've got to say, Mayor Bloomberg has done a lot of
terrific things. I've seen him do it in charity, all kinds of things.

PAGE 42 OF 52
JOE: Well, this ruins it.
BUFFETT: But I —but I also had dinner with him in Sun Valley right
after this came out and when they brought out the dessert, there was
more than 200 calories in this dessert. And I was unable to determine
why those 250 or 300 calories of dessert he was eating was different
than my 20 ounces of Coke.
JOE: Right. Do what I say, not what I do.
BECKY: Did you ask him about that?
BUFFETT: Well, I actually had a great big bottle of Coke brought out.
It was the biggest bottle I could find in Sun Valley.
BECKY: You really did?
BUFFETT: Yeah, absolutely.
BECKY: And did he drink from it?
BUFFETT: I drank from it. I wasn't going to let him have any.
BECKY: Getting back to the national election, you point out that it
could be the ground game right here in Ohio...
BUFFETT: Sure.
BECKY: ...that makes all the difference. And I know you don't have
inside information, but you've been watching elections for a long time.
Your father was a congressman.
BUFFETT: Sure.
BECKY: You used to watch those races very quickly. What do you
think it actually comes down to, what it means?
BUFFETT: Well, I think in —you know, in Ohio it may very well come
down to organization. Now there's been a lot of early voting in Ohio.
BECKY: Right.

PAGE 43 OF 52
BUFFETT: That's organization. I mean, you want to get out your vote.
You know, a lot of people say they'll show up on Election Day and
particularly when you've got a history, as the Democrats do, of turning
out less of their base than the Republicans, so early voting is a huge
advantage to Democrats. They are not going to get the same
percentage of their base out on Election Day as Republicans
traditionally. So we'll see who has the better ground game.
BECKY: No matter who wins the election, we are going to be looking

at different Treasury secretary.
BUFFETT: Right.
BECKY: Tim Geithner has made it pretty clear that he wants to go.
You know a lot of people in finance, you know a lot of people. Have
you thought about who might make a good pick for Treasury
secretary?
BUFFETT: Yeah, I do. And I won't get a call from —I won't get a call
from Governor Romney asking me my opinion, but I think I've got a
pretty good idea. But I'll save that —we'll wait to see whether Obama's
elected and then we'll wait to see if he calls.
BECKY: Is it a name that's been out —I mean, Erskine Bowles has

been mentioned pretty frequently.
BUFFETT: Erskine Bowles would be a terrific guy. I mean, he is —he's

smart, he's patriotic. You know, he would absolutely do the best job
for the country. I'm not saying that's the name at all, but I —but I
would —Erskine Bowles is a fine —a very fine human being and what
he and Alan Simpson accomplished in getting those 11 to sign on, that
is —that's huge. That takes real negotiating ability. That takes —it
takes humor, it takes a decent human being to get people to come
together like that. So I admire —I admire Erskine a lot.
BECKY: OK. Guys, I will send it back to you because I know we have
to slip in another break.
ANDREW: OK. We're, of course, going to have much more from

Warren Buffett still ahead. And don't miss “Squawk Box” on Friday.
We're going to be getting third quarter GDP numbers. That's coming
up 8:30 AM Eastern. We've also got a huge lineup leading up to that
data. Former Treasury Secretary Larry Summers is going to join us for

PAGE 44 OF 52
an hour. We're also going to talk to BlackRock's Larry Fink. They're
going to weigh in on the markets, the economy, and the looming fiscal
cliff.
***

now, Becky Quick.
BECKY: I'd say it's more of a three-on-one interview, but let's get
back to our newsmaker of the morning, Warren Buffett, who's been
kind enough to be with us for the past, oh, hour and 45 minutes or so.
You know, Warren, we look at Europe all the time and you've talked to
us in the past about the euro zone crisis and what you see happening.
You already talked a little bit about the European banks that you think
that they're in a very different position than the American banks. But
last week, François Hollande suggested that the euro zone is well on
its way past this crisis, is really moving out the other side of things. Is
that the impression that you get?
BUFFETT: No, I wouldn't say so. I mean, I don't —I don't know how it
plays out, but I certainly don't feel that it's clear that it's on the road
to recovery. I mean, they have a real banking problem. I mean, they,
to some extent, encourage their banks to load up with sovereign debt
so you have the sovereigns counting on the banks and the banks
counting on the sovereigns. And you know, that creates a problem.
And then it's going to be a very tough thing to have austerity and at
the same time grow GDP. I —it's not an easy solution. Europe isn't
going to go away. I mean, we'll be doing lots of business there five or
10 years from now, but I think it could be pretty rough there for a
while.
BECKY: Is that a good argument for pulling back from the area? Or is
this a time you think businesses should be reinvesting?
BUFFETT: Well, they either have to come closer together or —I mean,

they're going to go in one direction or the other, but the idea of having
a monetary union independent of, really, discipline on the fiscal side,
although they said they had it originally, they've got to come closer
together or it won't be sustainable.

PAGE 45 OF 52
BECKY: Although the ECB has made some major moves to try and
reassure the markets.
BUFFETT: Yeah.
BECKY: And that certainly has given them quite a bit more time.
BUFFETT: Yeah. Well, it —you know, central banks can print money.
They —it's a wonderful machine to have. Every —in economics, just
like in life, generally, you never can do just one thing. I mean,
anything you say you're going to do, it's going to have consequences.
BECKY: Mm-hmm.
BUFFETT: And sometimes those consequences are delayed. Certainly

printing money has consequences. And you can say not printing
money would have consequences to the United States, too, but we
haven't seen —the movie's not over in Europe.
JOE: Warren, do you —do you still think a single family home is one of
the best investments around? And have you actually tried to figure out
a way to invest in that? You'd like to buy 100,000 —you've said that
you'd like to buy as many as you could, but they're impossible to
manage and you can't really do it. Have you figured...
BUFFETT: Yeah.
JOE: Have you tried to figure out a way to do it?
BUFFETT: Yeah. And I've had a lot of suggestions from people after I
made that statement. But it's not really feasible, certainly, compared
to other things we can do with money. They're —it's just too big a
problem to deal with small units like that and management problems
and human problems. So I think that anybody that knows where
they're going to want to live, has a reasonably assured income. I think
they're making a terrible mistake if they don't buy a single family
home now and get a mortgage at these rates. And they should get a
30-year mortgage. It's a —it's a —really a golden opportunity. It was a
little bit better six months ago, but it's still wonderful now. You're not
going to see a chance like this five years from now. I'll guarantee you
that.

PAGE 46 OF 52
BECKY: Five years from now it's going to be a different picture, and
that's interesting.
BUFFETT: Yeah. Rates will be higher and all kinds of things. I mean,
this is —this is the time to buy.
BECKY: And you think prices will rebound, too.
BUFFETT: If you know where you want —you've got to want to live
there, I mean, and a home's a wonderful thing.
BECKY: Hm.
BUFFETT: But I wouldn't buy one if I was going to move in six months
or something of the sort.
BECKY: Hm.
BUFFETT: And I wouldn't buy one if I was terribly nervous about my

job.
BECKY: Warren, a couple of times you have mentioned Ted and Todd.
BUFFETT: Yeah.
BECKY: Ted Weschler and Todd Combs talked about what they've
been doing as an investment cycle. A lot of times we get these notes
from the SEC just about what Berkshire's doing with its investments.
How much of that is yours? How much of that is theirs?
BUFFETT: Very little of it's mine. I mean, if it's Wells Fargo or IBM or
Coca-Cola, I mean, I've got four stocks that aggregate over 50 billion
that I manage. And then I've got a bunch of other things, too. But the
action is with Ted and Todd. And they're building up portfolios, and
they will buy $500 million at a time of something. And they're probably
more prone —one of the two is more prone to move around in
securities than I would be. But there's a lot of styles that work. So I
am enormously pleased. They're getting lots of contingent
compensation, less than they would if they were running a hedge fund,
and they're paying a higher tax rate than if they were running a hedge
fund, even though they're doing exactly what they would be doing if
they ran a hedge fund. It's a real —it's a real indictment of the tax

PAGE 47 OF 52
system when you look at two guys who've just moved to doing the
same exact thing from morning the night they did before and now they
pay double the tax rate for it.
BECKY: Uh-huh.
BUFFETT: More than double.
BECKY: Wow. That's a good point. Andrew:
ANDREW: Hey, Warren, I wanted to get an update on my favorite

subject, newspapers. You bought the Omaha World Herald earlier this
year.
BUFFETT: Right.
ANDREW: You now had a little bit of time to get —to get under the
hood. What do you think?
BUFFETT: Well, I'll have a big section in the annual report about
newspapers, and I did write a letter to all our newspaper publishers. If
you find —if you have a newspaper that's indispensable to a significant
percentage of its community, I think you're going to do reasonably
well over time. We still pay very, very low multiples for them. The
trend of the newspaper industry is down. But you have to be primary
about things that are of interest to your readers. And if they're —you
know, if you're in Grand Island, Nebraska, where we have a product,
we've got to be relevant to what people in Grand Island are interested
in.
ANDREW: Right.
BUFFETT: And that's a much tougher problem as you get into bigger,
metropolitan papers.
ANDREW: But it's working better...
BECKY: You know, this week...
ANDREW: Better or worse than you expected? I only say it because,

you know, Newsweek just said they were going to stop printing
recently. I know community newspapers are a different situation, but a
lot of people always have questions.

PAGE 48 OF 52
BUFFETT: Yeah. Our small newspapers —and by that I mean towns of
20,000, 25,000 —our small newspapers this year that have operated
throughout the entire year for us, the revenues are down about 1
percent. Our larger newspapers like Buffalo and Omaha and now
Richmond, those papers, which are larger communities, their
revenues, on average, would be down more like 4 or 5 percent. So
there's a real difference based on the —on the relevance of the paper
to a very wide —very significant portion of the community. The bigger
the community, the harder it is to have a community feeling.
BECKY: You know, Warren, very quickly, earlier this week was the
release of Greg Smith's book about Goldman Sachs, the guy who
wrote that op-ed piece in The New York Times saying, `This is why I
left Goldman Sachs.' Did you see any of the interviews that he has
done? Did you take a look at any of the book. What do you...
BUFFETT: I haven't read the book. I saw an interview, but I think the
idea of a guy 33, who was making $500,000 a year and is unhappy
because he isn't making a million and probably in any other occupation
but investment banking would be making $75,000 a year, I thought it
was —I thought —the idea that one disgruntled employee leaving a
company with 30,000 employees warrants an op-ed with no specifics
really in it except the word Buffett, so I think I —I did not think that
reflected great editorial judgment.
BECKY: OK. I bring this up because Lloyd Blankfein's going to be on a

little later in the morning. Warren, obviously, we've covered a lot of
ground, and we appreciate you for spending so much time with us and
talking so much. When we come back, we still have the last word that
we'll be giving to Mr. Buffett. And as we mentioned, coming up on
"Squawk on the Street," there is a CNBC exclusive interview today
with Goldman Sachs chairman and CEO Lloyd Blankfein. Make sure
you tune in for that. That's coming up at 11 Eastern.
***
ANDREW: Let's get back to Becky and Warren Buffett for the last
word. Becky:
BECKY: Andrew, thank you. Last word, Warren, is a sort of free word
association game that we've been playing lately. I say a word, you tell
me what it makes me think of. And the question we get most

PAGE 49 OF 52
frequently from people about you coming on is what should they be
buying right now? So if I say buy, you say...
BUFFETT: I say —I say hold —basically hold. I mean, the idea that
the European news or slowdown in this or that or anything like that,
that would not cause you to own a good farm and had a run by a good
tenant, you wouldn't —you wouldn't sell it because somebody said
here's a news item, you know, this is happening in Greece or
something of the sort. If you owned an apartment house and you got
to raise your rents a little, it's well located and you have a good
manager, you wouldn't dream of selling it. If you had a good business
personally, the local McDonald's franchise, you know, you wouldn't —
you wouldn't be thinking about buying or selling it every day. Now,
when you own stocks, you own pieces of businesses, and they're
wonderful businesses. So you can pick the best businesses in the
world, and to buy or sell on current news is just crazy. You're in a
wonderful business, you've got people running it for you. You know
you're going to do well over five or 10 years, and to think news events
should cause you to try and dance in and out of something that's a
wonderful game is a terrible mistake. So get into a bunch of wonderful
businesses and stay with them.
BECKY: But you said hold —I said buy and you changed it to hold.
Does that mean don't sell or does that mean...
BUFFETT: Well, I mean, if you haven't —if you haven't got them yet,
you buy them consistently over time. So you sort of average over
time. And I've been buying all my life. I bought my first stock, you
know, when I was 11 years old and it was about three months after
Pearl Harbor and Corregidor was falling and they had the death march
of Bataan, and all the news was terrible. It was a great time to buy
stocks. And I should've held that stock forever, and I've been buying
stocks ever since.
BECKY: All right. Guys, do you have any last quick thoughts?
JOE: So, hey —I do. Warren, you —have you met Zuckerberg? And if
you sat down with him and he told you, is there any way that he could
explain the business well enough to you to where you'd take a huge
stake in Facebook?

PAGE 50 OF 52
BUFFETT: Probably not. That doesn't mean that I'm negative about it,
I just don't understand it well enough, and I'm actually not even a
member.
JOE: Yeah.
BUFFETT: There's a billion of them out there.
JOE: There's...
BUFFETT: So I have —I like to buy things where I feel I've got a

reasonable idea about how a business is going to be doing five or 10
years ago —just like —10 years from now —just like I would buy an
apartment house or a farm with the idea that I would think it was
going to be a good thing to own five or 10 years later. And you...
JOE: Well, there is —there is a watershed event tomorrow that might

change your view, and you are free to send me questions as well, if
you'd like, Warren. But this is —this is a game-changer for Face...
ANDREW: Kernen's going to be on Facebook, so.
BUFFETT: Well, actually, Joe, I thought instead, you know, you've

always wanted a share of NetJets. I've got a NetJets tie here, and
instead of giving you an eighth, I'm going to take this —there's dozens
of planes on this, and I'm going to give this to Becky to take back to
you.
ANDREW: Wow.
BUFFETT: You are now a major Net —I mean...
BECKY: Here we go, Joe.
BUFFETT: Yeah, exactly.
JOE: A tie.
BECKY: Here we are.
BUFFETT: Dozens, dozens...
JOE: Thousands of jets, and I'm getting a tie. All right.

PAGE 51 OF 52
BUFFETT: Dozens of planes. Dozens of planes on it.
JOE: All right. Nice, Warren.
BUFFETT: OK.
BECKY: Well, thank you very much for your time today.
ANDREW: Thank you. Thank you, thank you.
BECKY: We appreciate it. Guys ..
ANDREW: Make sure you join us tomorrow. "Squawk on the Street"

begins right now.
JOE: I get a tie.

PAGE 52 OF 52
This is an unofficial transcript of Warren Buffett’s live
appearance on CNBC’s Squawk Box on Monday, March 4, 2013.
BECKY QUICK, CNBC ANCHOR: Good morning, everyone, and

welcome to a special edition of “Squawk Box” here on CNBC. I'm
Becky Quick and this morning I am in a suburb of Omaha, Nebraska,
called La Vista. Joe Kernen is back at CNBC headquarters on the East
Coast.
Our special guest this morning is Berkshire Hathaway chairman and

CEO, Warren Buffett. We are coming to you this morning from the
warehouse of Oriental Trading. Berkshire bought this catalogue-based
seller of arts and crafts last November.
We've been soliciting your questions for Mr. Buffett over the last
several days and as always, you didn't disappoint. You have e-mailed,
tweeted, Facebooked and shared your thoughts on LinkedIn. Mr.
Buffett is ready to answer many, many questions, as many as we can
get to. But before we get to that, Joe is going to give us a quick
rundown of the morning's top headlines.
CNBC SQUAWK BOX TRANSCRIPT: Monday, March 4, 2013

PAGE 1 OF 79
And, Joe, good morning.
JOE KERNEN, CNBC ANCHOR: Hey, Beck. I know the sequester is

hitting everybody hard, but this is your new set up there with the
boxes and the — usually we can splurge a little bit more. This is
affecting everyone, I think.
BECKY: This — it is. But this was a purchase. Berkshire never gave
any numbers on this, but it was reported that this was a purchase of
about $500 million. It was —
JOE: Whoa.
BECKY: What we thought was the company‟s most recent acquisition

when we were planning and trying to figure out where we're going to
do the show this time around.
JOE: Yes.
BECKY: Of course, he surprised us with another purchase since then,

but yes, when we were — when we were planning on this and we were
putting everything together, this was what we thought was his most
recent acquisition.
JOE: I was thinking about that sequester. I mean, Buffett could take
care of it himself if he really — you know, if he really wanted to, right?
I mean, does he — does he have his — his checkbook —
Does he have his checkbook with him? I mean — Warren, why let this
happen? Just — you know. Loosen up, loosen up the pocketbook.
WARREN BUFFETT, BERKSHIRE HATHAWAY CHAIRMAN & CEO:

I've never been known for that, Joe.
(LAUGHTER)
JOE: Hey, Becky, you know, I came in here. I'm going to get to the
— I am. I'm going to get to these headlines. But I came in here
thinking that I could kind of coast this morning. I mean, I was up late,
I was watching the "Walking Dead." I got to tell you what happened
last night.

PAGE 2 OF 79
BECKY: Are you — no, you better not. I have watched all the way.
The — the first halfway through the second season. You better shut
your mouth. Don't tell me.
JOE: You — do you — no, I better.
BECKY: La, la, la, la.
(LAUGHTER)
(JOE READS HEADLINES)
JOE: Now, back to you, Becky, and Mr. Buffett.
BECKY: And, Joe, by the way, you cannot snooze through this. You
are expected to play on all accounts so —
JOE: I'm tired.
BECKY: You're not going to get an easy day off.
JOE: I was — I was up until 10:00.
BECKY: Blah, blah, blah.
JOE: All right. I've got a — I've got a couple of question.
BECKY: All right.
JOE: All right.
BUFFETT: I bet you do.
BECKY: We do — yes.
(LAUGHTER)
Warren is ready for them. Again, our special guest today is Warren
Buffett. And Warren, thank you very much for joining us this morning.
We really appreciate it.

PAGE 3 OF 79
BECKY: Again, we are here at Oriental Trading and we come out, as
we have every year, I believe, for — this is the sixth or seventh year
we've been doing this, to come out and talk to you after you put out
your annual letter so shareholders. You did that on Friday. People
have gotten a chance to take a look at that and come up with a lot of
questions that we have for you.
But why don't we start off how you started your annual report this
year. You said it was a disappointing year for you even though the
value of the company increased by over $24 billion. Kind of hard to
match that all up.
BUFFETT: Yes, well. (LAUGHTER)
If it's going to be a disappointing year, I like the fact we made $24

billion. But the — I've regularly measured the performance of
Berkshire by the change in book value versus the S&P 500 with
dividends added back. I mean, you can — you can buy a — an index
fund, a very low cost index fund and get those results. So unless
we're delivering something better than those results over the years,
we aren't doing anything.
And it's true now that our — the real value of Berkshire is considerably
greater than book value. But year to year, book value is not a bad
tracking measure of how our intrinsic business value is. And — so
some years we — well, generally speaking, if this — if the S&P has a
big up year, we're going to fall short because they're 100 percent in
stocks. We're a third in stocks and then we — tax affect our gains. So
we take 35 percent off those gains as they occur.
So we — we would expect to beat the S&P in a so, so year or a down

year. We expect them to be less than an up year. But our job is to
beat them over time.
BECKY: The S&P was up by just over 16 percent last year. Berkshire
shares were — the book value was up by 14 percent. So it was very
close.
BUFFETT: 14.4, yes.
BECKY: 14.4.
(LAUGHTER)

PAGE 4 OF 79
For me to be rounding there. Is that a reflection, you think, of — I
mean, this has now been four years running that Berkshire has
underperformed the S&P on that. Is that a reflection of the massive
gains that we've seen in the stock market or do you think this is a
reflection of big Berkshire has gotten at this point?
BUFFETT: Both. Both. But it's beat us three out of four. We have —
BECKY: I'm sorry. Three out of four.
BUFFETT: Yes. And, of course, we've still — we've never had a five-
year period when we've fallen short. We've had 43 consecutive five-
year periods where we've on but if the market is up in this year, any
significant amount, then our five-year record will get broken. But it's a
function of the fact that we've had up markets over the last four years,
but it is a function of size, too.
BECKY: What you've been doing along the way over the last several
years is making bigger and bigger acquisitions as part of all this. You
said you were disappointed in 2012. You didn't make a major
acquisition but you followed up very rapidly with the recent
announcement of the Heinz acquisition.
How — how do you get to these acquisitions? Why does Heinz make
sense?
BUFFETT: Well, Heinz makes sense because we've got a business we

like and we've got a partner we like. And we've got a price that I
barely like. (LAUGHTER)
But we've got a — we've got a great business. And that's the most
important thing. Then we have these terrific partners, Jorge Paulo
Lemann, I've known him for a dozen years. You couldn't — you can't
find better business people. And they are — they will do the work.
We are a financing partner. And you know we hope to own Heinz 100
years from now. I mean, if you own great brands and you take care of
them, they're terrific assets.
BECKY: We have a question that came in and we've been soliciting

questions. This is question number 62. We've had questions that
have been coming in all along. And this comes from someone named
Wilco Shutzendorf. He says, "As an investor I think Berkshire was a

PAGE 5 OF 79
better value than Heinz. Question is, wouldn't it have been better for
Berkshire to buy back its own stock at current prices than to buy Heinz
at a 20 percent premium to its market value?"
BUFFETT: Buying Berkshire up to 120 percent of books. We feel

we're making significant money. In other words we feel the value of
Berkshire as well over 120 percent of book. How much, nobody
knows. We can't get chances to buy $12 billion worth of Berkshire.
We had that one piece from an estate that was 1.2 billion. But that's a
big piece. But one doesn't preclude the other.
We could buy Heinz and we could buy our stock if it was in that 120
percent range. The surest way to buy — make money is to buy your
own dollar bills for 80 cents or 90 cents. It's not precise what that
dollar bill is. I mean, whether our stock is worth 138 percent or 135
percent of book or some number, I don't know. I just know it's worth
more than 120 percent. But, you know, if somebody walks in here, I
don't have to know whether they weigh 300 pounds or 350 pounds to
know that they're fat. You know so I mean, you don't have to be
precise on these numbers.
And we did — if we get chances to buy our stock at 120 percent book
or less, we will be buying. But if we get a chance to buy another
Heinz, we will do that, too. One does not preclude the other.
BECKY: OK. Why don't we talk a little bit about the sequester. Joe
was just talking about it. This is the first business day back since the
sequester took place. I flew over the weekend and I was a little
worried you'd be facing long lines as you got out. It wasn't the case.
How big of a deal is the sequester and what do you think eventually
should happen?
BUFFETT: Well, I think it could go on for quite a while. The

sequester in effect reduces the amount of stimulus to the economy.
OK? They talk about stimulus and they say, well, this is a stimulus
bill, you know, and they vote $800 million or something — $800
billion, and say, well, this is stimulus.
Stimulus is when the government operates at a significant deficit.

That is stimulus by its definition. We're operating at a $1 trillion deficit
roughly. The sequester reduces that a little bit. Raising the taxes at
the start of the year, reduces that somewhat. But we're still operating
at a deficit that is 6 percent of GDP. And by Keynes' definition, in the

PAGE 6 OF 79
fourth of a recovery, that's a pretty fair amount of stimulus. So it just
— it has the effect of reducing stimulus.
BECKY: But it sounds like you think that's a good thing at this point.
BUFFETT: Well, I think — well, I think at some point reducing

stimulus is good. I don't think a 6 percent stimulus in the fourth year,
third to fourth year of a recovery that is recovering, I think that's still
giving the county quite a juice.
BECKY: So you're not worried about the sequester and about this
pulling back on the economy because there have been a lot of scare
tactics out there. There have been a lot of people who have said this
is the end of days if we get to this point. You don't think that's the
case?
BUFFETT: We're going to bring down spending and we're going to

bring up revenues. (LAUGHTER)
And we may get there in fits and starts and everybody may scream
each time we do it, but the deficit is going to come down. It needs to
come down and it will come down. And we may be doing it in a meat
ax way in this particular move. We did it in kind meat ax way in terms
of the revenue going up. At the start of the year when we increased
the payroll tax by a couple of percent, that's just — that hit all across
the board, you know, on poor people and people of moderate means.
It was a lot of money.
It — roughly an equal amount of the sequester, incidentally. So we

have cut the stimulus from these two factors, but it's still 6 percent of
GDP. And if you had asked me three or four years ago whether having
a running deficit of 6 percent after a recovery that's been going on for
three years was appropriate, I would say that's a fair amount of
stimulus.
BECKY: So in getting there in a meat ax way better than not getting

there at all?
BUFFETT: That's a good question. (LAUGHTER) It probably leads you

to getting there at all. (LAUGHTER)
You may have to use the meat ax first and then people got a look at
their handy work and say, we have to do better than this. But, you

PAGE 7 OF 79
know, we still are talking about spending $3.6 trillion and taking in
$2.6 trillion and that's a lot of stimulus.
BECKY: OK. Joe, I know you have some questions, as well.
JOE: Yes. I mean, I just — when Warren talks about where we are,
and that we are recovering, I mean, you'd have to extrapolate what
you said to Ben Bernanke and the Fed, I guess, too, Warren. I mean,
they're awfully stimulative at the Federal Reserve and I guess I was
just reading between the lines of what you said. I guess you'd wonder
whether they need to be quite as free and easy right now, too.
BUFFETT: Yes. It's an interesting thing, Joe. Because we're running,

well say, very roughly at $1 trillion deficit and the Fed is buying
roughly a trillion dollars worth of — and not necessarily government
bonds, but mortgages. But government issued paper or — let's regard
it as government paper. And so in effect they are picking up our
deficit and creating bank reserves with the money. And you might say
you look at that and you say, this is wonderful.
You might say why don't you have them buy $3.6 trillion of
government paper every year and then there wouldn't be any — you
wouldn‟t have to have any taxes and the Treasury would be running a
— or the Fed would be running a huge profit. Then they're running
about $80 billion a year now. But now they'd have this wonderful
carry. You know, that $3 trillion of assets that they have are financed
about a little over a trillion by currency and circulation.
Well, that doesn't cost them anything except the cost of the paper.
And then they've got a couple of trillion, or close to it, of bank
reserves which cost them a quarter of a percent. So basically, you
know, I'm jealous of the Fed. I'd like to have a machine like that
myself. But they — it doesn't cost them anything. So if they can do a
trillion this way, why not do $3.5 trillion then we wouldn‟t have to
have any taxes at all.
BECKY: You're being facetious for anybody who may not be picking
up on this.
BUFFETT: Sure. Yes — no, I am being facetious, believe me. But it's
something that can't go on. And if it was this easy, you know, we will
be doing it centuries ago. And I've got enormous respect for Chairman
Bernanke. I think what he did in the fall of 2008 saved this country.

PAGE 8 OF 79
But I think it will be interesting when they get to the unwinding stage
of a balance sheet. It's usually a lot easier to buy things than to sell
things. I saw that in my own job.
(CROSSTALK)
JOE: I guess, Warren —
BECKY: You say — I think — go ahead, Joe.
JOE: Sorry. I just have one follow-up on the — on the sequester. I

don't know whether you agree with me on this or not, Warren. But I
guess the worse thing is that we feel like we've done something and
we may be less willing to do more and we didn't do anything about,
you know, the lion's share of what we're spending all our money on.
This came out of the discretionary side. It did nothing for the
mandatory side. So those huge issues and the demographics of our
population, all those things are still there. It's only 2.3 percent of the
total, but if you take it as 2.3 of the discretionary, it actually is a
pretty big cut for discretionary. And it doesn't even get to —
BUFFETT: Yes.
JOE: It doesn't even get to the core of our problems. So it's - you
know, in that way, it's — it's kind of — it misses the mark. It may
cause some unnecessary, you know, furloughs and pain and it doesn't
even help our situation.
BUFFETT: No. It's a very dumb way of attacking a very serious

problem, if you think about. You have people on both sides rushing to
television cameras on Sundays and other days to lock in positions, to
say, I won't do anything but this. And if you have a negotiation, if you
have labor negotiation, and you have a number of managers — people
on management side going on television, saying, I won't budge an
inch from this, and then you had a whole bunch of people from labor
going on and saying, I won't budge an inch — that does not set the
stage for negotiation.
Then on top of that, if you have somebody negotiating for

management, say me and one union leader out there, and I negotiate
with him, finally we get in private instead of on television, and then he
can't go back to his membership and get his position ratified. It's a

PAGE 9 OF 79
terrible — just a — you couldn't negotiate under more difficult
conditions. And I think there's strong evidence that one or even
perhaps both parties, but certainly one party, is in a position where
you can't make a deal in private that you know is going to get ratified
by the membership.
BECKY: You mean they can't control their base?
BUFFETT: Yes. Well, and they don't speak for it. Yes. If you're
negotiating with somebody, and you don't know whether they're
speaking for their base, you've got a problem. Even in negotiating for
businesses. I always feel I'm at a disadvantage because when I say
well, we'll pay $10 billion, we'll pay $10 billion. But the other fellow
says I've got to go back to my directors and I've got to get opinions
from investment bankers and everything.
So there's an imbalance of commitment and who wants to lay out their

best offer if you — if the other fellow, when he says yes doesn't really
mean yes. The really key to making a deal is to have people who can
absolutely speak with their constituencies and who when they say
something you can count on them delivering it.
And as you start moving away from that, and we've moved away from
that enormously, television accentuates it, just speaking out
accentuates it, somebody says, you know, I won't give a dime on
taxes and than their constituencies here and those people who'd in the
next are primaries. So now that they — they get locked into positions.
But few had gone back to the continental congress, I mean, they
negotiated in private and they were not out there staking positions and
saying I won't do this or I will do that. And I think it was — I don't —
I'm not sure we have a constitution. If we had had a bunch of
television cameras out on the side and a whole bunch of people who
couldn't speak for their constituencies.
BECKY: I mean, you have the same players in place that probably
lost trust in each other after 2011. Is there a way to get it back?
Have you ever seen a situation where things have gotten out of control
with those same activists, those same people in charge could get back
to a position of trusting each other?
BUFFETT: Well, the way that you'd get a deal made is if Obama and
Boehner and Reid and McConnell, too, but if they could actually go into

PAGE 10 OF 79
a room, go up to Camp David, you know, wherever it may be, and
hammer something out with the knowledge that once they'd
hammered it out they can deliver their constituency. I mean that's the
way deals are made whether it's in labor negotiations, whether it's
buying companies or it just isn‟t made by dealing with people who
can't speaker for their constituencies.
BECKY: OK. Warren, if you'll bear with us for a moment, we're going
to slip in a quick break here.
But again, Warren Buffett is with us all morning long. He's going to be
answering your questions. So keep sending them to us. We'll have
more of his responses when we come right back.
Plus, the stories this morning that are moving on the SQUAWK news
wire, including why Las Vegas Sands says it likely violated the U.S.
corruption act.
Stay tuned. ““Squawk Box”” will be right back.
(COMMERCIAL BREAK)
JOE: Welcome back to “Squawk Box”.
U.S. equity futures at this hour have gotten a little bit worse, down
about 47 points, making headlines this morning.
Las Vegas Sands says it likely violated the Federal Foreign Corrupt
Practices Act. The act outlaws bribery or foreign officials. In an SEC
filing and the casino operator confirms it's under investigation, "The
Wall Street Journal" reports that the company's findings are related to
deals in mainland China, led by executives no longer employed at the
Sands. Harkening back again to that "60 Minutes" piece last night.
The billionaire 47-year-old billionaire Injanna said that to do anything
in China, you have to play by the local rules and corruption is rampant
across all quarters.
So elsewhere, Elan says its investors do not view a 6.6 billion

approach by Royalty Pharma as worthy of discussion. Elan announcing
the day that it would give shareholders 20 percent of the royalty rights
for multiple sclerosis drugs Tysabri.

PAGE 11 OF 79
Now when we return, more from Berkshire Hathaway. Chairman and
CEO Warren Buffett is answering our questions as well as yours all
morning long. So stay tuned.
(COMMERCIAL BREAK)
ANNOUNCER: The world's most powerful investor, Warren Buffett,

on the economy and gridlock in Washington. Plus, he's ready to field
your questions live.
This special presentation on “Squawk Box” begins right now.
BECKY: Good morning, everybody. Welcome back to “Squawk Box”

here on CNBC. I'm Becky Quick. And, again, we are in a suburb of
Omaha, Nebraska, this morning called La Vita.
Joe Kernen is back at CNBC headquarters on the East Coast. But our
special guest this morning is Berkshire Hathaway chairman and CEO
Warren Buffett. Before we get to more questions for him, Joe is going
to give us a quick rundown of the morning's top headlines. And Joe,
go ahead. Take it away.
JOE: What? Again? All right.
(CROSSTALK)
Just — OK. Fine. You're going to make me do this? I will. I really —

I'd love this machine. You've got Warren Buffett.
OK. There are some — just kidding. There are some headlines Fed
chairman Ben Bernanke, once again back that pulling back on
aggressive policy measures too soon would pose a real risk of
damaging a still fragile recovery central bank vie chair, Janet
(INAUDIBLE), is speaking at 8:00 this morning. We will bring you her
comments as soon as they hit the tape. But as we found out last
week, more and more people just said, you know who you listen to?
You listen to the chairman.
All this other stuff that we heard, all the, you know, worries and
consternation about whether there were negative effects, listen to
Bernanke and you'll see that the Fed is going to do.

PAGE 12 OF 79
A survey by the national Association for Business Economics finds that
sequestration is not the favored method to cut the U.S. budget. More
than 70 percent of economists polled opposed the full implementation
of $85 billion in federal budget cuts that were to start taking hole last
Friday.
Most respondents indicated that cuts should be focused, primarily, as

we were just talking about, not on the discretionary side but on the
entitlement side.
And Royal Dutch Shell may be forced to shut down a 150,000 barrel
per day oil pipeline in Nigeria, due to persistent thefts. The pipeline is
one of the most important production routes for Africa's top crude oil
exporter. US equity futures have been weak so far this morning, now
even a little bit weaker, down about 52 points.
And Becky you — we have your questions. You have — I — I know

how you operate and you've got probably 14 hours worth of questions
for your three hours, so I know — I know that you don't need me, but
I — I am ready when you are. I have so many things — I didn't want
— you know I even want to ask Buffett about Herbalife, I swear. I
mean there are so many things I want to ask...
BECKY: You know what? You would not be the only one, Joe. We
actually got some — some other viewers who wrote in questions about
that too...
JOE: ...yeah, because it's a big brand name.
BECKY: Right.
JOE: It's a big brand name, and you know he loves brand names...
(CROSSTALK)
BECKY: There are millionaires involved who are kind of very vocal
about where they're taking down with this.
JOE: And — and I...
BECKY: ...since we brought it up, why not — why don't you weigh in?

PAGE 13 OF 79
BUFFETT: Well I — I don't have a position in Herbalife, but — but
both Carl Ichan and Bill Ackman are members of The Giving Place,
so...
BECKY: Right.
BUFFETT: ...I would like to see both of them make a lot of money,
because they're going to give at least half of it away to charity.
(LAUGHTER)
BECKY: So, you wouldn't say one way or the other? Have you ever
ran through Herbalife's filings, or had any thoughts about it?
BUFFETT: No, no I haven't, no.
BECKY: All right, I understand you want to be politic and stay out of
this. So instead, why don't we jump right back into another
controversial subject? You were just talking about Bernanke, and
what you thought about what the Fed's been doing recently. Joe just
mentioned in his headlines that Bernanke has warned about the risks
of pulling back too soon, how that could damage the economy, and —
and I want to go back to something you just told us in — in the last
break.
You said, "I think it will be interesting when they get to the unwinding
stage of the Fed's balance sheet." When you say, interesting, what do
you mean? And I say that because you called 2008 interesting too?
BUFFETT: Yeah, I — I — that's a euphemism. The — I — I — it's

very easy to buy. You've got — you've got the Treasury issuing
securities like crazy and you just — you just sop them up. You know if
you buy $85 billion a month, and you — you just credit bank reserves.
The Fed has about $1.1 trillion, or something like that of — of currency
in circulation. You could just put more current in circulation, but —
but basically you credit bank reserves so that if you're going to have
$3 trillion of assets, you need to create $1.8 trillion, or $1.9 trillion of
— of bank reserves.
And they pile up, and the banks get a quarter of a percent on it, and
they don't like it because they're losing money. But they don't have
good places to put out a lot of money now. Now when you start
selling you know you — at that point you — you start stopping up

PAGE 14 OF 79
reserves. And that's a — that's a much different action than buying.
You saw just a whiff, I don't know, about two or three weeks ago of —
just a whiff of the fact they might start tightening up...
(CROSSTALK)
BUFFETT: ...in the stock market. All over the world, everybody that
manages money is waiting to catch the signal that the Fed will — will
reverse course. And they — you know they're — I think they're on a
hair trigger, so I think the Fed will try to give little signals here and all
of that. But in the end, there are an awful lot of people who want to
get out of — out of a lot of assets if they think the Fed is going to
tighten a lot. And we've never quite had, in my — at least to my
knowledge, we've never had the degree of disgorgement that might be
called for down the line. And — and who knows how it will play out.
But it'll be noticeable. It'll be very noticeable.
BECKY: Have you done anything differently at Berkshire to prepare

for that?
BUFFETT: No, I — it's interesting, Becky and nobody believes this,

but Charlie Munger and I have been buying stocks and business for 50
years. In that entire time, we've never had a discussion of
macroeconomic factors in making a decision as to whether to buy, or
sell a business — buy a business, or buy or sell securities. We just —
it just doesn't get into it — our consideration. And if I were buying a
farm, I would not be thinking about what the Fed was going to do. If I
were buying an apartment house, if I were buying a business outright
I wouldn't do it.
So, when I buy a piece of a wonderful business, say Coca-Cola or

American Express, it is not a matter of consideration. So Charlie and I
will talk about the business. We will not get into discussions about the
Fed, or — or government or...
BECKY: But that may also be because you run Berkshire so

conservatively. I mean you are constantly making sure you have a —
a huge amount of cash on hand in case the 100 year problem comes
along.
BUFFETT: Exactly.

PAGE 15 OF 79
BECKY: So, I mean you've already guaranteed against this anyway, I
suppose.
BUFFETT: Yeah, well we don't — we don't know when the 100 year
problem is going to come. It can come tomorrow. It can come 100
years from now. We want to be prepared for it. So we always are
going to deal from strength. But in terms of making the decision as to
whether to buy Oriental Trading today, or pass. Whether to buy Heinz
today, or say — we do not get into macroeconomic discussions at all,
and everybody thinks we do.
They think we sit there and decide what emerging countries are going
to be better and so on — that just doesn't get into our decision
making.
BECKY: Just to differentiate from what you do, versus what

everybody else does, that may not enter your conversation ever
because you've already guarded against it. It's...
BUFFETT: Well, because we think the important thing is to be in the

right business at the right price. Price is all important. And if you read
cheery headlines, and you're willing to pay a much higher price, you're
making a mistake. And if you read depressing headlines, and you say
I won't buy at any price you're making a mistake. That's why I wrote
the Op-Ed in — in 2008.
BECKY: Right.
BUFFETT: Price takes care of the future, and — and it may be that
you read terrible headlines for six months, or a year, whatever it is. I
refer in the annual report, I bought my first stock in the spring of
1942, when we were losing in a war in the Pacific. But I bought a very
cheap stock. And I felt we were going to win the war eventually, you
know but I didn't — I — if I waited three months, as my sister pointed
out to me, I could have bought it a lot cheaper. But that isn't — that
isn't the question.
The real question is, whether I got a lot for my money, and whether
I've got the staying power to wait until things change.
BECKY: All right. I know you don't look at the macro issues. I know
you don't pay attention normally to where the stock prices are, but

PAGE 16 OF 79
you did write that Op-Ed back when you thought stock prices were
very low.
BUFFETT: Yeah.
BECKY: When you look at where the indices are now, which is right
near all time highs, does it make you nervous? Does it make you less
likely to go out and say, buy, buy, buy in terms of the stocks that
you're adding to your portfolio?
BUFFETT: I — anything I bought at $80.00, I don't like as well at

$100.00, but if you ask me whether stocks are cheaper than other
forms of investment, in my view the answer is yes. We are buying
stocks now because — we're buying them not because we expect them
to go up, we're buying them because we think we're getting good
value for them.
BECKY: All right. Joe, I know you have a question too?
JOE: I had a quick follow up Becky. Since we got such a non-answer

about Herbalife. So...
BUFFETT: Hey, wait a second.
(CROSSTALK)
JOE: ...I'm just — there is an expert on Herbalife, his name is Herba

Greenberg, and he messages...
(LAUGHTER)
JOE: ...Warren you own a multilevel marketing company called

Pampered Chef. Did you know that?
BUFFETT: Well, it, yeah. It does not make money by selling to the —
to the people who represent us.
JOE: Right, but it's a multilevel — I mean, is there a problem with —

with the whole notion — I mean I guess they're all different, but you
have some experience at least with that business model, or something
similar, right? Not exactly.

PAGE 17 OF 79
BUFFETT: Well actually — yeah — no, I — it — I — I think — I think
where you look for problems is where you actually make your money
by loading up the sales person, whether they make any sales or not.
But you know Wall Street has multilevels. I mean you have sales
managers who get a portion of the commissions on — on the — on
these sales representatives that work beneath them. You have that in
the mutual fund industry. You have that — you have tiered layers of
supervision where people get overrides on those — you have that in
life insurance.
The real question is whether you have it so that — so that if you just
sell the guy a kit of something, and — and he never makes another
sale, whether that's satisfactory for the business, that you've made
your money on selling the kit.
JOE: Well it sounds like you...
BECKY: So you're talking about the accounting?
JOE: ...yeah, and it sounds like you're — that's what — you're

say9ing that Pampered Chef is different than Herbalife. And Herbalife
might sell a bunch of stuff to people who never sell it to anyone?
BUFFETT: I don't know whether that's the — I know it is not the case
at Pampered Chef. I do not know what the situation is at Herbalife. I
— I've read assertions about that, but I really don't know what takes
place at Herbalife.
JOE: OK. All right.
BECKY: All right. So you don't know enough to — because it did

sound like you were almost calling it a pyramid scheme too.
BUFFETT: No, I've never read their 10-K, and I've never — I've never
asked anybody that's in our direct selling operation what their
techniques are.
JOE: You know Ichan can crush Ackman, but you could crush Ichan.
I mean if you want to just get into it, I mean...
(LAUGHTER)

PAGE 18 OF 79
JOE: ...that money — Ichan can — you know he — he — there's not
enough — Ackman doesn't have enough to withstand this, but I think
you could do the same. I mean I — if you jump in here, Warren, this
could — you know this could be fun. No?
BUFFETT: Shall we split the profit or loss, Joe?
(LAUGHTER)
JOE: I've already tried to get — you know I — one of my — now I'm
getting a bottle of ketchup is the latest thing that I — and I'm waiting
for it, by the way.
BUFFETT: Yeah, yeah, just be patient.
(LAUGHTER)
BUFFETT: You may wish you hadn't gotten it when you did get it.
(LAUGHTER)
BECKY: If you're good, you may get ketchup.
BUFFETT: Yeah.
BECKY: Guys, we're going to — we're going to slip in another quick

break. Warren Buffett is with us all morning long. We've been taking
your questions in. Up next, he's going to be answering a number of
those questions, so go ahead and keep sending them to us. We'll have
more of his responses when we come right back. As we head to a
break, by the way, check out the futures this morning. As Joe
mentioned, they have been weaker this morning, and probably see
right now where things stand.
As we head out for a break, red arrows across the board.
(COMMERCIAL BREAK)
BECKY: Welcome back everybody. Again this is a special edition of

“Squawk Box”. We are live with Berkshire Hathaway Chairman and
CEO, Warren Buffett all though the morning. We've been soliciting
questions from you, and we have received plenty. We'd like to take
the chance right now to try to catch up with some of those questions,

PAGE 19 OF 79
and Warren, we did receive a lot of questions this year related to
Berkshire, and just some of the things that are going on there.
Let me start with one that comes from Jay Shath. He asks, "You've
been critical of LBOs and private equity in the past, leveraged buyouts
and private equity in the past, yet you are partnering with 3G and
leveraging Heinz. Does this indicate a change in your view on LBOs
and on private equity?"
BUFFETT: This is a — a partnership that's buying a business to keep.

And our partners like the idea of some leverage in it. We don't like
leverage as much so, in effect our preferred stock is providing some
leverage to their common. So instead of having loads of debt
providing the leverage, we have our preferred stock, which is equity
and carries no threat to the capital structure. But it is not a private
equity deal.
This is — this is a business to own. Berkshire will own Heinz 100 years
from now, and — and there's no thought on Berkshire's part of — of
sharing its shares. There may be a few people in the Triple-G group
that decide that they want to sell at some point. And if they do, I
hope we get a chance to buy more of it, but — but Heinz is forever as
far as we're concerned.
BECKY: In your letter, you pointed out that the preferred shares have
more than just the higher yield that they're bringing in. I mean this is
also something that brings you warrants to buy more the stock?
BUFFETT: Yeah, we get — we have a 9 percent preferred, an $8

billion issue. We have a call price on that preferred, and eventually it
will get called, and that provides some extra yield because the call is a
premium. It probably provides another point a year. And then on top
of that, we get 5 percent of the fully diluted common, basically for
nothing, for buying the preferred. It — it's — it's a deal that — it's a
very fair preferred, but it does create extra leverage for our partners,
3G, meaning they only have to put up $4 billion for their half the
equity, and they get more play.
If Heinz works out as we expect, they will get a return higher on that
common than we get on the preferred. But we'll do very well on the
preferred. And by having that preferred in there, we — we minimize
the amount of debt leverage. So this is not something that's — that's
— adds debt to the ceiling on it.

PAGE 20 OF 79
BECKY: Several people have written in
about how this is different than your
usual acquisition by partnering up with
someone. Normally you look at a
business where you want to keep the
management that's there. And you look
at that, and it's a long time to add in.
Why — why do this with 3G?
BUFFETT: Well, 3G — I've known Jorge

Paulo Lemann for a dozen years, I know
his associates. I think they may be the
best managers in the world, so — and
incidentally, they're getting no extra ride
for managing it. So, there's a 3 percent
carve out for management if they meet
certain — certain performance targets,
but I would love to have that group
manage any business that we have. And — so they are the managing
partners, we're the financing partners. And to me it's a dream. I
mean we — we get terrific management with them. Management I
couldn't buy. And they get somebody that can finance it with a phone
call, which makes it very easy from their standpoint.
BECKY: Is the 3 percent of — of annual net income, or something?
BUFFETT: No it — it's — the ability to buy 3 percent of the common,

if certain performance levels are...
BECKY: OK.
BUFFETT: ...met.
BECKY: OK, let's get to another question. This one is from Jeff
Verdun. He writes in, "With the recent purchase of Heinz, are you
worried that Berkshire will ever become too diversified, and will end up
having to sell off companies, like other former diversified companies
including; Coca-Cola, and General Electric, because they strayed too
far off of the core business?"
BUFFETT: They are — they...

PAGE 21 OF 79
BECKY: They strayed too far off of their core business...
BUFFETT: No, we...
(CROSSTALK)
BUFFETT: ...we — we — we have managers that are running their

core businesses. At the railroad, we have Matt Rose, that is his core
business. That — we have Greg Abel at the energy business, that is
his core business. So we have — before this deal we had eight
different companies, each of which would be a Fortune 500 company if
— if owned separately. And they have Fortune 500 type
managements. And those people are managing the businesses they
want to manage. That's the same situation we're going to have at
Heinz.
So we — we couldn't run Berkshire from the top. It — it's not

designed that way. It's designed to have a group of businesses that
are run by people that love them, and that know how to run them.
And it's — it's their goal in life to run those businesses. So, their goal
is not to run Berkshire. Their goal is to run the railroad, or whatever it
may be. And so — it's — it's an ideal situation. I just stay out of the
way.
BECKY: OK, let's get to another question. This one comes in from Bill
Breach who writes in, "Regarding the unusual Heinz options activity
prior to the announcement of the acquisition, can Mr. Buffett describe
Berkshire's procedures to try and prevent premature leaks of insider
information regarding prospective acquisitions?" There have been a
lot of questions about that.
BUFFETT: Yeah, well we try to minimize who knows about it, and —
and — but you're always going to have — your lawyers know about it.
Our auditors don't know about it. We don't — we don't consult them.
Our CFO is going to know about it. My assistant is going to know about
it, so — and that's true with the other parties as well. In this
particular case you had four investment banking firms, you had two
commercial bankers, and you had people at our place, at 3G and — so
a lot of people ended up knowing about it — about it.
That's why I like to push these things through as fast as possible. And
obviously, I will guarantee you that that person that bought it on
Wednesday, bought those options, I mean that is — that is inside

PAGE 22 OF 79
trading. I mean they're going to nail that guy at — and they should.
We were doing great up until that point. If you — if you looked at the
Heinz stock behavior, it did not outperform the market or anything. I
thought we were going to get there.
And even on that Wednesday, the day before we announced, the stock
I believe was actually down, but that options trading clearly reflected
somebody that knew something, and it will be very interesting to see
who it is. We've never had a big problem. We — you know we had
the situation in — in Lubrizol, but that was a — that was a different
sort of a situation. We've never had anybody at Berkshire that — with
all the deals that we've had, that has been involved in — it's
aggravating.
BECKY: You know very quickly on that point, let me bring in other
question from a viewer. This is from Harvey Cohen, it's number 13
control room. He asked, "What was the total legal bill to close the
Sokol affair?
BUFFETT: That's a good question. I can't tell him the answer, but it
— it was more than I would like. Because we had our own legal bills,
we had his legal bills, and — and it's not totally done yet in terms of
legal bills. But if I had to guess — I'm really guessing here, I would
— I would guess maybe $4 million, or something like that.
BECKY: Have you spoken with Dave Sokol since the affair?
BUFFETT: I have not spoken with Dave Sokol for a couple of years.
BECKY: OK. Joe, I know you had some questions too.
JOE: Right. Yeah I did. I was just watching Warren with that
answer. I mean $4 million is — you know is not a lot obviously for
Buffett — or for Warren not a lot of money, but I — I saw the pain on
his face. Because $4 million to him...
(CROSSTALK)
JOE: ...as he has mentioned, I mean...
(LAUGHTER)

PAGE 23 OF 79
JOE: ...$400,000 would have easily — I can see him just — Warren,
so...
BUFFETT: You're getting closer. You're getting closer, Joe.
(LAUGHTER)
BUFFETT: Keep going.
(LAUGHTER)
JOE: In — in the past you have made the point that it's better to buy
a great business for a fair price, than a — a fair business for — for a
great price, and I — I know that Heinz probably fits into that again,
but you know Warren, Heinz — when was it founded, 1870 or
something — 1869?
BUFFETT: 1869. Yeah, they went broke, and then — that company,
but the successor — that was founded shortly thereafter. Well it's
been a great business for a long, long time. And I don't know about
your price. I — I guess you probably paid a fair price, but I'm just
wondering you know, sooner or later you have so much money at
Berkshire that you have to deploy, and you find companies like Heinz.
But you could have made this acquisition any time in the last 20 or 30
years and probably gotten a fair price. I think that your Brazilian —
your partner definitely made a big difference here.
BUFFETT: Yeah, he did. He did, you know? There's no question

about that. But we would not have done the deal if we hadn't been
partnership with Jorge Paulo.
JOE: And it made sense just in terms of — of being a global — a

brand that you can just leverage globally. And he's the guy that can
then leverage it globally. So it does, it — it makes sense that way to
me. OK, I got it now. It doesn't seem that profound to me to buy a —
you know to buy a brand name ketchup — because I can give you a —
like probably 10 or 15, you might as well buy Twinkies too while you're
at it. Get in the — the auction bidding for that too.
But you know just as far as a brand name company at a fair price,
there's — you know — you got a whole shopping list.

PAGE 24 OF 79
BUFFETT: Yeah they're not — there are not too many that are big, but
you're right. You know well we've owned Coca-Cola, but we have only
owned 9 percent of it now for, I don't know 25 years or so. But you're
right, we would not have — we would not have done this — we would
not have done this at this price without being partners with Jorge
Paulo. No question about it.
JOE: All right. Will you throw Bloomberg under the bus once and for
all? You mentioned Coke again, I mean for that ridiculous — I mean
you — you can't even order a pizza with a party and — and get a
Coke, and a 2 liter bottle. I mean it's just — if that is not — you know
a — a nanny state run amuck. If you won't say that for me, I'm — I
don't know if I'm going to ask any more questions.
BUFFETT: Well there's two — there's 200 calories in that 16 ounce

bottle that he will tolerate, but he doesn't want to tolerate more than
200 calories. I — I have seen certain people, unnamed public officials
who have eaten more than 200 calories of dessert at one time without
having to order a second serving. The real question — you know I — I
can eat 2,700 or 2,800 calories a day and I've been picking those
2,700 or 2,800 all my life, and it seems to work reasonably well, and
— and I — if I had eaten broccoli all my life, you know I'd probably be
in some mental institution.
JOE: Andy — Andy loves salt. Andy loves salt. Andy flies around you
know the big carbon footprint and it just — it just looks like, let them
eat cake. It looks like I'm here, you know like — like a king and I'm...
(CROSSTALK)
JOE: ...listening at my subjects. What? Yeah I'm a king and my —

my subjects have to live differently than I live because they're too
stupid to make their own decisions. It gulls me, Warren.
BUFFETT: I mean, I — I think you should pick — whatever your

metabolism rate is, then you should pick 2,700 or 2,800 calories...
JOE: Right.
BUFFETT: ...and you ought to have the...
JOE: I'll eat Filet of Fish's if I want. I'll eat — I'll eat 2,800 calories of
McNuggets if I want or — or Twinkies.

PAGE 25 OF 79
BUFFETT: Or ice cream, I — I do that — some days I just go through
a whole gallon.
JOE: Wow, all right.
BECKY: What are you eating for breakfast this morning?
BUFFETT: Well hear, yeah I'm having a Cherry Coke here. There —
there's a — and there are about 200 calories in this, but — but if — oh
and I have some Oreo cookies here.
JOE: What size is that bottle, Warren? What size is that bottle,
Warren?
BUFFETT: This bottle looks like 16 ounces, I...
JOE: No, it's bigger.
BECKY: No, I think that's — I think that's a 20 ounce.
BUFFETT: If it's a 20 ounce bottle...
JOE: You can't have that. Put that down — back. You know where
you can have it? Myanmar. But you can't have that in Manhattan.
BUFFETT: Yeah, well we can have it in Omaha.
(LAUGHTER)
BUFFETT: And we'll continue to have it in Omaha.
BECKY: Gentleman, we are approaching the top of the hour, 7:00 am

on the east coast, 6:00 am here in Nebraska, so we are going to slip in
a quick break. When we come back, we are going to get Warren
Buffett's take on the economy. His businesses tell him an awful lot
about what's happening. By the way, he's answering your questions
this morning, so keep sending them. More of his responses when we
come right back. As we head to a break right now, again take a look
at the futures.
And after the market's been hanging in there for some time, even with
sequestration kicking in, you can now see that the Dow futures are

PAGE 26 OF 79
down by about 38 points below fair value, S&P futures are down by
about 5 points. Again, we'll be back with Warren Buffett right after
this break.
(COMMERCIAL BREAK)
ANNOUNCER: Warren Buffet, in his first television interview since

releasing his annual shareholder letter, answers your questions.
Investments, the economy, politics, and much more, hour two, with
the Oracle of Omaha begins right now.
JOE: Good morning, and welcome to this special edition of “Squawk

Box” on CNBC. I'm Joe Kernen. Andrew is on assignment, and Becky
Quick has made her way to La Vista, Nebraska, where she is speaking
with one of — it says here, I think maybe the greatest I've seen, but
all right, we'll call him one of the greatest investors of our time,
Warren Buffet.
We'll get to her in just a minute. First though, a check on the futures,
which have been meandering around. They've improved a little,
they're down more than 50 now, down a 38 or so. Here are your
morning headlines, the ones that Lisa has chosen for this batch. A
new survey of economists say the U.S. budget deficit needs to be cut,
but indiscriminate spending cuts are not the way to do it. The national
association for business economics says more than 70 percent of its
members are against the so-called sequester cuts that began taking
hold on Friday.
And Las Vegas sands is lashing out, at what it calls indiscriminate and
misleading reports, it's calling out the New York Times in particular, for
a headline that said "Casino Companies — Company, Says that it
Likely Cheated". The story stems from an SEC filing in which it said
the company likely found in violation of accounting provisions.
And Jack the Giant Slayer did debut at number one at the box office,
$28 million in North American sales, but there are those that said that
it should have done double that, to be a hit. It was lower than what
Warner Brothers had hoped. The movie had reported a budget of
$200 million , actually just under $200 million , so I guess if you had
to chalk it up, you'd probably call that about a four or five on a scale of
one to ten, Becky.

PAGE 27 OF 79
BECKY: Yes, OK. Joe, thank you, and we're going to jump right back
in with Warren Buffet, the chairman and CEO of Berkshire Hathaway.
Warren, we've talked about a lot of things this morning, but we have
not gotten your take on the economy right now. We'd like to talk to
you about this, because your businesses give you a really good idea
about what's happening across a broad sector of the economy.
So you laid out some of these things in the annual report, but why
don't you talk to us about the powerhouse five. These are the five
divisions of the company outside of the insurance holdings, that are
the big, big biggies, in terms of what they bring in. And Burlington
Northern Santa Fe probably …
BUFFETT: That's the biggest probably …
BECKY: The biggest, yes.
BUFFETT: … by far, and it's — the car loadings were up in January,

car loadings were up in February, but our car loadings have been
behaving somewhat better than the other three big railroads. So car
loadings, or the four largest railroads, have been fairly flat. They've
been, they've been up in the intermortal (ph), they've been down in
the traditional.
Coal continues to be down. In our case coal is pretty flat, but I think
you'll see a small increase in car loadings this year, and I think, I think
Burlington's going to do quite well on it, because we're well-situated in
respect to where oil has been found.
BECKY: Right.
BUFFETT: So, we're carrying more and more oil, we're carrying about
10 percent of all the oil that's moving in the lower 48 continental
United States.
BECKY: That's kind of unbelievable, 10 percent of everything

produced in the lower 48?
BUFFETT: Yes, and we've got seven unit trains a day, and a unit train
is about 100 cars, and there's 600 or 700 barrels per car, and we have
seven of those a day moving. But that number of unit trains is going
to increase as production comes on, further in the market particularly.

PAGE 28 OF 79
Rail has turned out to be a very good way of moving oil in this
economy because there's such differences in what oil is worth at given
refineries, and oil is obviously far more — rail is far more flexible than
pipeline, in terms of moving oil around.
BECKY: You know, you bring that up, and I‟m looking quickly to try
and find some of the questions that came in from our viewers, but the
whole idea that rail is more efficient, that's something a lot of our
viewers kind of caught on to, and keyed in, and wondered what your
thoughts are on the XL pipeline, and if you were opposed to it,
because you would like to see more traveling on Burlington Northern,
on your own railroad.
BUFFETT: No, the Keystone pipeline or …
BECKY: Yes.
BUFFETT: … is coming — that'll be bringing heavy oil down from

Canada, and there's plenty of places for pipelines, and we're not anti-
pipeline at all. But the oil producers are going to figure out what is in
their best interest. There's these huge differences in what crude is
worth in different places, and with rail, you're more flexible in that
rate. Incidentally, oil moves faster on trains than it does in pipelines.
That may be a little counter-intuitive …
BECKY: Yes.
BUFFETT: … but — and it certainly moves in a more flexible manner.

So I think if you talk to the oil producers, that they're quite happy with
the rail service they're getting, and we've spent a lot of money on
infrastructure, to make sure that in terms of loading and all that sort
of thing, that it's done very efficiently.
BECKY: But just to clarify what you said a moment ago, you are not
anti-pipeline, you are not anti-Keystone, the Keystone XL?
BUFFETT: No, I can't imagine — you know, I‟m not an

environmentalist in terms of knowing what — but it just seems to me
there are an awful lot of pipelines in this country, and there hasn't
been a lot of damage done, and the heavy crude up there, the tar
sands, it's going to move some place, so I do not have any objection
to the Keystone pipeline.

PAGE 29 OF 79
BECKY: All right, beyond what you're watching in terms of the rail car
loadings, and what's been happening, what's your general sense of the
economy, based on what you see from housing, based on what you
see from manufacturing, based on what you see from retailing.
BUFFETT: Yes, well housing is getting better. I mean our brick

business is better, our carpet business is better. I was just talking to
people at USG Wall where business is better. Now, this is from a very
low base, and it's not galloping back, but it's moving back. And what
we see with our real estate brokerage firms, is that houses are
moving.
So we're — we continue to have a slow recovery, that started in the

fall of 2009. I mean it's three and a half years old now. It continues
to be slow, and certain parts come on faster than others, but it hasn't
taken off, but it hasn't stopped either.
BECKY: You know, we spoke with Sam Zell recently, and talked with
him about it, and he's in an interesting perspective, because he's been
putting money into rental properties, and thinks that in some ways,
this resurgence in housing may have been overplayed by the media a
bit, that when he really looks at it, he still believes rentals are a great
place to be, for some time to come, and he is investing in that
manner. Is there a way that both sides of this coin can be correct?
Again …
BUFFETT: They can both be correct, yes. And I know you'd — you
have had this situation where five years ago, 69 percent of people
were in single family homes, and that's dropped down to 65, so —
fraction, I believe. So the rental properties have gotten a
disproportionate amount of the new household formation in terms of
people going into them.
But you're seeing, you're seeing it in single family homes now, and I
still think for your viewers, anybody that's going — who knows where
they're going to live for the next 10 or so years, and finds a house that
they like, I think they should buy it today, and I think they should
mortgage it out for 30 years today. I think they will do very well.
BECKY: So that has not changed. There are several people who
wrote in question about that, and we'll get to some of those a little bit
later this morning. If you look at the other areas, Iscar, Marmon,
again, some of the big businesses that you've been following, what are

PAGE 30 OF 79
you seeing in terms of manufacturing, let's say, on a worldwide basis,
which is what Iscar does?
BUFFETT: Yes, well worldwide, you know, I sense is doing better

than many parts of the world. So if you look at an Iscar, which sells to
manufacturers all over the world, the United States is one of the
stronger places for an Iscar. And the United States, it's not galloping
at all, but we are making progress bit by bit. And everybody would
love to see it faster, but it's not going into reverse, and I do not think
the sequester will cause it to go into reverse.
BECKY: Mid-American energy, I mean you've talked to us back in

2008, 2009, when you really saw the downturn, it was energy usage,
energy demand was down, where do things stand right now? Mid-
American is in what, nine of the different states?
BUFFETT: I think 10 states.
BECKY: Ten states.
BUFFETT: Yes, we're I think maybe second in that, in terms of

number of states. Electricity usage has not come back like you might
think. I mean there's no resurgence in the use of electricity.
BECKY: From the …
BUFFETT: This is a slow recovery.
BECKY: Is that from the consumer, or from the business?
BUFFETT: It's from the business. You would think, with the growth
of population and all of that, that you'd be seeing a little bit better
trend, (INAUDIBLE) hours for our residential than you have. But
residential and commercial, none of it's been that vibrant.
BECKY: OK, so you're talking about a returning economy, not

generally stronger. And is that different than, do you think, than
Bernanke's view of the economy is?
BUFFETT: Well I think that's why he's doing what he's doing. I think
he's saying the same thing, and he feels it's his job to juice it a little,
and he's doing it. He — I think he would feel — I shouldn't speak for

PAGE 31 OF 79
him, I think he would feel that absent his juice, we would be — might
be dead in the water.
BECKY: Would you agree with him?
BUFFETT: I think there's some chance he's right on that, yes. No, I
think very cheap money makes things happen. It makes asset values
higher, and when asset values are higher, people do have a greater
propensity to spend. So there's these second order effects and third
order effects.
But no, I think Bernanke has sort of carried the load himself during
this period, and there's no question that stocks are higher, because
interest rates are essentially zero, than they would be otherwise.
There's no question that there's even more activity on buying
companies, because you can borrow money so cheap, junk bonds are
ridiculously cheap. So he's having an effect.
BECKY: But even though you agree, potentially, with his assessment
of the economy, and even though you think that he is probably holding
up the lion's (ph) share of all this, you don't necessarily think that he
should continue expanding the Fed's balance sheet?
BUFFETT: Well, he's expanding the balance sheet right now.
BECKY: Right.
BUFFETT: But I would say that there are — everybody that's involved
in managing money is waiting for the moment when they think that
he's going to go in the other direction. And so I‟m sure he's going to
try to do various things, to sort of ease that in, and be a little, a little
confusing, maybe, as to whether he has done it.
But there are all kinds of people with portfolios — not Berkshire, but
there are all kinds of people with portfolios, who will take a signal from
him that he's going to go the other direction, as a signal to them to do
a lot of things with bonds and stocks. And you can see a big, a big
reaction. You saw this — I don't know if you saw this the other day,
when they sort of coughed a little at the …
BECKY: The (INAUDIBLE) units.

PAGE 32 OF 79
BUFFETT: Yes, they just, you know, all of a sudden, a couple
hundred points. It will be a very interesting day when it becomes
crystal-clear that the Fed has reversed direction.
BECKY: OK. We're going to have more from Warren in just a little
bit, but Joe, right now I'll send it back over to you.
JOE: Thanks, Beck. Forbes is out with the 1,500 richest people on
the planet. And just looking through here, I‟m on, like, number 200,
it's really interesting. I'll tell you, Warren I think is three or four, or
something, he's doing, he's doing OK for himself, doing well. Man, a
lot, a lot of Russians, a lot of Chinese, a lot of Indian people on the
list. This is a global — my favorite was Steve Ballmer, is like $20
billion. He's like an employee, isn't he?
BECKY: Wow. Well, not exactly.
BUFFETT: He got 10 percent of the company money — he got 10

percent of the company when he went there.
JOE: Jeff Bezos, like tenth or something, I mean huge, and now. I
didn't ask for that. I didn't ask for that. But that was good. But it's
fascinating, and I‟m on David Geffen now, 198, and the prince was in
here, Al-Waleed bin Talal, a bunch of hedge fund guys, I mean Pepper
(ph) is in here, Becky, in the top 200.
BECKY: I bet.
JOE: Amazing.
BECKY: I bet.
JOE: Yes. I‟m not envious at all, really, I don't think, that's not what
I‟m feeling at all right now.
BECKY: You don't sound it.
JOE: No.
BECKY: No.
JOE: Michael Dell, 40 years old.

PAGE 33 OF 79
BUFFETT: Joe, most of them — many of them are not living as well
as you are.
JOE: They're not happy, they are not happy. Money does not buy
happiness.
BUFFETT: What's — for some a dozen, some a dozen.
JOE: Would it kill you just to put me in the top 1,500. I mean that
would, that would be nothing. I mean all the philanthropic stuff you —
never mind, I know there's no chance.
BUFFETT: How about just for a day, how about …
JOE: Becky, let's check the futures. They're not happy. It's all about
family, it is, family, wives, kids, stuff like that. Down 41 points or so.
A lot more with Warren Buffett in just a couple minutes. Up next — I
said it's about wives, like you have more than one — it's about a wife,
(INAUDIBLE). The subsidiary of United Technologies reportedly finds
itself in a nettle mess, that story after the break.
ANNOUNCER: Got a comment or question about this morning's show

with Warren Buffet? E-mail us, squawk@cnbc.com is our address.
You can also tweet your question to the show, @squawkcnbc is our
handle, and be sure to include hashtag #askwarren. More “Squawk
Box” and the Oracle of Omaha, right after the break.
(COMMERCIAL BREAK)
JOE: Welcome back to “Squawk Box”, more from Warren Buffett in

just a couple of minutes. Time for a look at some headlines. HSBC is
reporting a full-year pre-tax profit of $20,650,000,000, but at this
forecast which were about $23,billion, the shares are dropping in pre-
market trading. HSBC CEO Stuart Gulliver, says that the bank faced a
challenging operating environment in 2012, with low economic growth,
and changing regulations.
And the Wall Street Journal says United Technologies unit, Pratt &
Whitney, uncovered a fraudulent scheme of testing engine parts, by
another unit of the company. Pratt officials say metallurgical tests
were doctored, so engine forgings appeared to meet extra stringent
standards. The FAA has launched a formal investigation, after being
informed by Pratt of its probe. United Tech's Carmel Forge unit, in

PAGE 34 OF 79
Israel, is the unit in question, and metal parts were used in engines
were used in engines made by Pratt & Whitney's Canadian operations,
and apparently do not pose any safety hazard according to the
Journal.
Becky, I'm in the — I made it to the mere mortals here now, and
check this, Sumner Redstone's here, Henry Kravis …
BECKY: That's considered mere mortals? How much money do these

guys have?
JOE: $5 billion. LeFrak was in here …
BECKY: Yes, that's still way outside our …
JOE: I'm a buddy to LeFrak, wonderful man, nice man, he's in the —
he was up in the hundreds actually. But yes, I call these, call these
mere mortals.
BECKY: You're crazy, you're crazy if you call these guys mere
mortals.
JOE: Well you'd be — you know what you'd be surprised, Becky, how
many are either guest hosts, or guests on the show, or write in …
BECKY: Yes.
JOE: … or whatever, it's really weird how many of these people we

actually know. There's Les Wexner I see now, anyway, I'm going to …
BECKY: It's like the seven degrees of separation, right …
JOE: That's right. It's really true
BECKY: … we know a lot of these guys …
JOE: … it's really — oh here's someone from — no, that's a different

Heinz, but I‟m sure the Heinz heirs are here — you know who else was
on here? Steve Jobs' widow. Steve Job's widow was way up there,
like $11 billion or something. So a lot of interesting — interesting
looking through here. I will continue to monitor this, as you talk to,
like, number three, or number four. You got him right there.

PAGE 35 OF 79
BECKY: OK, sounds like a plan. Thank you, Joseph. Let's get back,
Warren, to some of the questions we've gotten from our viewers.
There were, again, a lot of questions that come in, and probably the
types of questions, we try and put them into categories, what we've
gotten over the years, more than any other type of question, are those
that fall into the investing category, because people really want to
know your views on the stock market, your views on what stocks
you're looking at.
We just mentioned in the headlines, about the HSBC CEO saying that
the bank was facing a really challenging operating environment in
2012, and one of our viewers, David Perkins, wrote in, and he wants
to know, "if you could, please comment on the banks, specifically
those trading below tangible book value, like Bank of, Bank of
America, and Citigroup. What's it going to take for these large banks
to get above book value, like their peers at Wells Fargo, USB, and J.P.
Morgan?"
BUFFETT: Yes, well a bank that, a bank that earns 1.3 or 1.4 percent
on assets, is going to end up selling above tangible book value. If it's
earning six-tenths of a percent, or five-tenths of a percent on assets,
it's not going to sell below. Book value is not key to evaluating banks.
Earnings are key to evaluating banks, and you earn on assets.
Now, it translates to book value, because it — to some extent, because

you're required to hold a certain amount of tangible equity, compared
to the assets you have. But you've got banks like Wells Fargo and
USB, that earn very high returns on assets, and they sell at a good
price to tangible book. You've got other banks, like maybe the two
you mentioned, that are earning lower returns on tangible assets, and
they're going to sell, they're going to sell more book.
BECKY: James Arneatz (ph), guys, this is 103, I‟m throwing you a
curve ball on this, he wrote in and he wanted to know, "what do you
think on Bank of America, does the stock still have room to run?" I
noticed that you picked that stock a couple of years ago, with the
preferred that you got into.
BUFFETT: Yes, well I — we have warrants that run for nine years.
We're going to hold the warrants until the end of that period, eight and
a half years. And, you know, we expect Bank of America, in eight and
a half years, to be worth significantly more than it is now. I have no

PAGE 36 OF 79
idea whether it's going to go up or down tomorrow, or next week, or
next month, or next year.
But they are making progress in getting rid of a lot of things that they
shouldn't have been in. They're making progress on cleaning up
mortgage problems from the past, most of which came from Country
— their acquisition of Countrywide. They're doing the right things, and
they've got a terrific, low-cost deposit base, so over time, they will do
well. But no one knows whether that stock — in my view, knows
whether it's going to go up, down, or sideways in the next six months.
So we just don't try to do that sort of thing.
BECKY: OK. Let me ask you about another stock. This is one that
we got a lot of variations of this question. It comes from Matt
Koekkoek, of Muskegon, Michigan, and Matt, I hope I‟m pronouncing
your last name right. But he writes in, "if you could give any advice to
Tim Cook of Apple, and its shareholders, what would it be? Should
they give more in terms of a dividend? Should they split the stock? Is
Apple now a long-term growth stock that you would consider
purchasing at its current levels?"
BUFFETT: Yes, I don't own any Apple stock, and I haven't — I did
talk to Steve Jobs a few years ago, about what they did with the cash,
as we've talked about earlier. But the best thing you can do with a
business, is run it well. And if you run it well, it — the stock behaves
fine over time. You know, Berkshire has gone from $15 a share, to
$150,000, and times — four times when it's gone down 50 percent,
and there have been all kinds of times when people have criticized
doing this thing or that thing. But basically we've just focused on
running the business, and if you run the business …
BECKY: But you've never had to deal with a hostile activist investor,
like David Einhorn, who's going in after Apple right now.
BUFFETT: Well I would ignore him. I would, I would, I would run the
business in such a manner as to create the most value over the next
five or ten years. And, you know, you can't, you can't run a business
to try and run the stock up every day.
BECKY: But if you're looking at Apple, I mean it has faced some

massive fluctuations. Tech stocks tends to be a lot more volatile, than
some other stocks, including Berkshire shares …

PAGE 37 OF 79
BUFFETT: Berkshire's gone down 50 percent though, four times.
BECKY: Wow.
BUFFETT: Yes, four times in its history, it's gone down 50 percent.
BECKY: And at that point, again, just focus on what you're doing.?
BUFFETT: You just — yes, if you've got money, you buy it, and you
just keep working on building the value. But four times. And I heard
from people at those times, that said, you know, "why don't you do
this or that?" you know, usually pay a dividend, they think it might go
up because of that. It would have gone down actually.
No, we just kept focusing on building value. And I think Apple's done
a pretty good job of building value. They may have too much cash
around. Now one of the reasons they have that cash around, is
because two-thirds of it hasn't been taxed yet. And they don't want to
bring it in, because they don't want to pay the tax. You know, when
Steve called me, that was — it was a few years ago, you know, I said,
"is your stock cheap?" And he said yes. And I said, "have you, have
you got more cash than you need?" And he said, "a little bit." And I
said, "(INAUDIBLE) stock," but he didn't do it.
BECKY: But, OK, you just said — what you told Steve Jobs a couple
years ago, and you just said yourself, when Berkshire went down, if
you have cash, buy the stock. So you're basically suggesting a stock
buy-back.
BUFFETT: If you don't have uses for the money in the business, yes.
Now, we're always looking to buy businesses. So — but we — when
our stock went from $90,000 or thereabouts, to $40-45,000, I wrote
about it ten years ago, to buy the stock. And we just didn't have any
luck buying it. But if you can buy dollar bills for 80 cents, you know,
that — it's a very good thing to do, unless you have some needs in the
business.
BECKY: All right, let's talk about another stock. This is one of your
big four investments, Coca-Cola, and Chris Kreller writes in, "why do
you not increase the KO stake? The name is near eternity, and this
company seems to be a never-ending cash cow." You own nine
percent of the shares outstanding?

PAGE 38 OF 79
BUFFETT: Yes, we own 400 million shares, and we haven't bought
ourselves any stock for 20 years. There are other things that I think
are cheaper. You know, we've bought Wells Fargo this year. I think
Wells Fargo is cheaper than Coke. Don't get me wrong, I think they're
both wonderful companies, but — and then now, I‟m giving some
money to the two other managers. In fact I'm going to — I‟ll make
news for you today. Last week I told them I was going to give them
another $1 billion each.
BECKY: You're talking about Todd and Ted.
BUFFETT: Todd and Ted, I‟m giving them on March 31.
BECKY: Todd Combs and Ted Weschler.
BUFFETT: Yes, they're making me look bad, so I'm going to give

them another $1 billion so they don't talk about it.
BECKY: How big are their portfolios right now?
BUFFETT: Well, they're just under $5 billion right now, and they'll be
around $6 billion on March 31, when I give them the next $1 billion.
BECKY: Let's talk about what you said, about Ted and Todd in the
report. You talked a little bit about their performance, which you said
outpaced the S&P's performance, last year, by double-digits for each
of them.
BUFFETT: Right.
BECKY: Why don't we bring up — I think we have a full screen in the

control room, that tells exactly what you said in the report, because it
was pretty interesting the way you laid this out. It says, "Todd Combs
and Ted Weschler, our new investment managers, have proved to be
smart models of integrity, helpful to Berkshire in many ways beyond
portfolio management, and a perfect cultural fit."
You go on to say, that each of them have outperformed, "we hit the
jackpot with these two. In 2012, each outperformed the S&P 500 by
double-digit margins." And then in much smaller print, again, this is
what you did in the annual report, "they left me in the dust as well," I
can barely read it from across the room.

PAGE 39 OF 79
BUFFETT: I'm disappointed that you could read it, actually. I kept
trying to make it smaller. They did a terrific job. And it's sort of
interesting, because here these two fellows are, they ran hedge funds
before, but they want to work for Berkshire, and you know, the
standard arrangement in hedge funds is 2 and 20. Well, with them
managing now $6 billion, they get $120 million each, just for the two.
Now look at their expenses. We have one woman, Stacy Godshall

(ph), she takes care of three people there, in terms of their article (ph)
stuff, here in Omaha. Ted has one assistant in Charlottesville,
Virginia, Todd has two people working in New York, for channel
checks, and things like that. Believe me, you can cover that for a lot
less than $120 million.
They would have made, last year, $400 million plus, under the
standard 2 and 20 arrangement, and they would have gotten carried
(ph) interest (ph) treatment on it, but you know, instead they get a
very decent payment from us, based on meeting the S&P, and it's all
ordinary income to them. So it's an interesting example of how the
chips fall in the business. And they, and they love working for
Berkshire, and they'll be working for Berkshire 20 years from now.
BECKY: Let me ask you another question that came in, this one came
in on Twitter, from @mystcrich, "my stcrich" I guess is how you say
that. He wants to know, "what is the likelihood of Berkshire adding
another investment manager to the two already on board?"
BUFFETT: It's quite unlikely, because I‟m so happy with the two. I
mean I‟d rather just give them more money. And I know — you know,
it's like getting married, I mean, you know, you know more a month
afterwards than you do 10 minutes before. And this has worked out
terrifically.
In fact, there's a third, there's Tracy, who does not manage money,
but manages businesses, so we've got the three T's, Ted, Todd, and
Tracy, and they're all home runs. And they, they're not just smart,
they are devoted to Berkshire, they like, they like being part of it. And
they'll all be with us, in my view, 20 years from now, and they couldn't
be better.
BECKY: One of the other changes you noted in the annual report, was
that of the stocks that you break out, and the investment holdings,
there was a new one added to the list, that was DirecTV.

PAGE 40 OF 79
BUFFETT: Right.
BECKY: And you only put stocks on this list that you have over $1
billion invested in. This is the first time that someone besides you has
invested enough money to make it onto that list.
BUFFETT: Right.
BECKY: DirecTV was the biggie again, and that was because both
Todd and Ted are putting money into this?
BUFFETT: They both, they both have put money in there. And I do
not include the pension fund moneys they manage, and there would
be another one there, if that was included. In fact, there would be
more DirecTV, because they had some of that in pensions too. They
concentrate their investments, just like I do.
One of them has, I think, only five stocks. The other may have 11 or
12, and they don't check them with me ahead of time. I look at some
reports at the end of the month, and so I know what they buy or sell,
but they — we just make sure the things where we'd have to file a
13D or something, we make sure that that's coordinated. But other
than that, they have total carte blanche, they could put it all in one
stock.
BECKY: Was it just a coincidence that they both invested in DirecTV?

They didn't check with each other first?
BUFFETT: I think they're both smart. No, I don't think they checked.
BECKY: They don't balance it off or anything, right? It just happened

that way.
BUFFETT: No, and as you know, a small part of their compensation is

based on what the other fellow does …
BECKY: Right.
BUFFETT: So they‟ve got every reason to be cooperative. But they do

not — they were quite independently. We all go to lunch on Tuesday
and then — but, they each have their own portfolio just like I‟ve got
my own portfolio.

PAGE 41 OF 79
BECKY: OK, you tried to slip this through. You mentioned that there
would be another stock that would have made the list of over a billion
dollars if you were looking at the pension —
BUFFETT: —Right.
BECKY: — pension (INAUDIBLE) they run as well. What was that

stock?
BUFFETT: DaVita.
BECKY: I‟m sorry, what —
BUFFETT: — DaVita.
BECKY: DaVita?
BUFFETT: Yes, yes.
BECKY: Wow, OK. There a little bit of news for us as well. Warren, if
you‟ll stand by, we‟re going to slip in another quick break.
BUFFETT: Right.
BECKY: OK, and Joe, we‟ll send it back over to you.
JOE: What is that dialysis stuff, Warren?
BECKY: Yes what is DaVita?
BUFFETT: Yes, it is dialysis, right.
JOE: Who pays for lunch?
BUFFETT: I think we actually own maybe 13 percent of the company

or something like that.
JOE: Well who pays for lunch on Tuesday — those other guys pay
don‟t they?
BUFFETT: No, I pay for lunch and Berkshire does not pay for lunch. I
pay out of my own pocket.

PAGE 42 OF 79
JOE: Whoa. Whoa. Can they get an appetizer?
BUFFETT: It depends on how they performed.
(LAUGHTER)
JOE: (INAUDIBLE). Well, what is about really wealthy — it‟s just fun
to call them cheap, isn‟t it? Really wealthy people. And they like it.
They do. It‟s like they don‟t you know, — they relish it.
Anyway, more from Becky and Warren Buffett in just a moment.

Here‟s a quick look at this morning‟s headlines. The Dow ended last
week about 75 points from its all time closing high so we‟ll see where
we open today. Stocks gained ground in just past week despite the
failure of lawmakers to reach an agreement to avoid the sequester
which triggered a series of across-the-board federal spending cuts, but
the sun came up both days over the weekend.
And Irish drugmaker Elan is offering its shareholders 20 percent of the

royalties from its best selling multiple sclerosis drug. Remember this
one? Tysabri. Five or six years ago, all the controversy. That part of
— that‟s part of an effort to stave off a 6.6 billion dollar takeover bid
from U.S. Investment firm, Royalty Pharma.
And President Obama will nominate Wal-Mart Foundation head, Sylvia

Matthews Burwell to be his next budget director. She previously
served as deputy budget director during the Clinton administration.
If you have comments or questions about anything you see here on

Squawk, e-mail us, squawk@cnbc.com is our e-mail. You can also
follow us on Twitter @squawkcnbc is our handle. And keep those
questions for Warren coming. We‟ll try to do our best to get to as
many as we can on the air.
You can ask. You say it there, it‟ll come out here. Up next your
morning headlines and much more with Warren Buffett. Stay tuned.
(COMMERCIAL BREAK)
BECKY: Good morning again everyone and welcome back to the

special edition of “Squawk Box”. We are in La Vista, Nebraska, which
is a suburb of Omaha, and home to Warren Buffett‟s Oriental Trading

PAGE 43 OF 79
Company. This is a company that he acquired in the fourth quarter
back in November, relatively quietly, virtually never put out a share.
Or never put out a price for this acquisition but it was reported to be
around a half a billion dollars.
This is the company that you probably know from catalogues — if you
have kids at home, this is the company that does arts and crafts. And
again, it is an Omaha company that has been here for a long time.
Warren Buffett is our special guest this morning, and we‟ve been
fielding a lot of your questions for him all morning long, things that
have been coming through. And Warren for the people who are just
tuning in we talked in the 6 am hour, 6 am Easter hour about your
thoughts on the sequester and where we stand right now.
This is the first business day after the official sequester process.
People may have not noticed a lot of changes yet but there could be
some coming as soon as April 1 when things really kind of kick down.
In your opinion, is the sequester a good idea?
BUFFETT: Well, it‟s probably — it‟s a terrible way to go in terms of

cutting expenses, but that doesn‟t mean that cutting expenses is a
good idea. We‟ve done two things this year to reduce the deficit.
Which means reducing stimulus. We‟ve had huge stimulus in this
country. We had a bill we called stimulus, but any time the
government runs at a big deficit, that stimulus (INAUDIBLE) would be
proud of us.
And we have increased taxes. The payroll tax went up a lot. Eighty to
a hundred billion. And we‟ve increased taxes on the very rich. And
then now we are cutting expenses. So we‟ve taken a shot of a couple
hundred billion in terms of reducing the deficit. But we still will have a
deficit of a trillion or a little less.
It‟s a terrible way to go about it. I mean it‟s — the idea that a year
and a half ago you creates a monster and then you say this monster is
going to be so scary that we‟re bound to be able to work together with
that hovering over us. And then you let the monster kind of loose. I
mean it is crazy but the whole negotiating situation really is out of
control when you‟ve got people negotiating (INAUDIBLE) and when
you‟ve got at least one side unable to deliver for any commitment he
might make.

PAGE 44 OF 79
BECKY: There was a question that came in from LinkedIn, Jim
Guerra, Jr. (ph). This is number 180 control room. He wrote in if you
could explain the explosive atmosphere in politics today as to what it
was 10 to 15 years ago. Is it really worse than it was 10 or 15 years
ago?
BUFFETT: It‟s probably worse. It‟s —you know, my dad was in

Congress, you know, if you go back 60 — or 70 years. It‟s always
contentious. I mean — you‟ve got people that believe strongly and
very different things. But now you‟ve seemed to have gotten in a
position where the real goal of almost each side and certainly one side
in my view, is to block what the other guy wants to do.
And it — and you have — you may have four political parties. And you
may have the extreme right and the regular Republicans and you may
have the extreme left and the regular Democrats. And when contests
are being fought in primaries and when people are playing to those
primary audiences throughout the entire two years that they‟re there,
it makes it very hard for leadership to deliver their entire party.
And, I mean, — it seems to me that‟s the real problem in the House is

that you don‟t have two-party — referee parties. And John Boehner,
who I admire what, you know, what he‟s done. But I do not think he
can deliver his group and we saw that when we got to plan B and all
that at yearend.
BECKY: Joe, I know you have a question too.
JOE: I have a lot, Becky. As many as we have time for Warren. I

think in the latest — in the latest results, your puts that you sold here,
you just got to be feeling like what a great move that was. Not just on
you — not just on the S&P, but you have done that around the world,
just betting on higher stock prices over time, I guess. And then it
ended up boosting your results by billions of dollars didn‟t it?
BUFFETT: Yes, but net to this point, Joe, has actually hurt them by a
couple of billion. If you take the cost of undoing those puts — if they
come due on December 31, they would have cost us three and a
fraction billion. But we put the liability up, I think, at six and a fraction
billion.
So we still show a liability on our books that is higher —

PAGE 45 OF 79
JOE: Is that — but what‟s your strike on those? —
(INAUDIBLE)
JOE: What?
BUFFETT: The strike — on the strike we would have a profit if they

were settled today.
JOE: Yes, you know what you‟re doing. And it‟s just mark it — you
probably did that for tax reasons or something. I know how you
operate. Would you write — would you add to your positions around
the world in terms of just staying long — the equity markets around
the world using that strategy using derivatives?
BUFFETT: We would except for the fact that now you have to post
collateral. And Berkshire will never get itself in a position where if the
Federal Reserve is closed tomorrow and the whole world is paralyzed
and the stock exchange isn‟t open and there‟s been some kind of a
nuclear, biological, or chemical attack, we have to be able to operate
the next day.
And you saw on October 19 and 20 of 1987 — on October 20, the

specialists firms were all broke. We are just never going to get in a
position where we have to post a lot of money on 24 hours notice. So
we will — we just won‟t engage in those kinds of transactions. No
matter how profitable they may appear.
JOE: Frank you need to asteroids now too. I mean you‟ve got to add
—
(LAUGHTER)
BUFFETT: Yes, well we can take an asteroid or two.
JOE: Not a big one. (INAUDIBLE). I mean I‟m afraid to go to bed.

I‟m afraid —
BUFFETT: —Well listen you live up there where we had Sandy. We

had 46,000 cars we paid off on. That was five or six hundred billion
dollars. —

PAGE 46 OF 79
JOE: — Yes, my heart bleeds for you with your insurance operations,
Warren. I want to talk about that too. I don‟t know how you‟re doing
that with insurance. You know you got to be charging too much
because you„re not paying out enough because you‟re making so much
money with your insurance operations, right?
BUFFETT: Well let me ask you this then. People are calling us up at
Geico and we‟re now getting the highest closure rates. They‟ve
improved dramatically lately now. Nobody is calling us up and taking
out insurance with us if their prices go up. So we are selling it below
whomever they‟re insured with now and probably by an appreciable
amount. Because if we‟re going to save them 10 bucks they‟re not
going to shift. —
JOE: — Yes, great advertising.
BUFFETT: Well right now —
JOE: — Great — you‟ve said that. You‟ve done this with a great ad
agency and buying more commercials and it‟s paid off. It‟s like
printing money.
BECKY: And a little overhead.
BUFFETT: But the ads can get them to call us. But the only reason
you buy is to save money. And our closure rate right now is the
highest — Geico is shooting the lights out now. And we — in February,
we added net — close to right at 165,000 or 170,000 policies and, you
know, nobody is doing that.
Our pricing is what does that.
BECKY: Geico was profitable even with what you paid out for Sandy,
correct? Which was —
BUFFETT: — Oh sure.
BECKY: Which was (INAUDIBLE) —
BUFFETT: — Sure. —
BECKY: — How much bigger was that than Katrina?

PAGE 47 OF 79
BUFFETT: Three times as big as Katrina —
BECKY: — (INAUDIBLE).
BUFFETT: We — we are number one in market share in the

metropolitan in the New York area. We were not number one in
market share in Louisiana Purchase.
JOE: I want to see — I want to see you in a commercial like adding

up the results and then dancing and then have those two guys playing
and singing — we‟re happier than Warren Buffett getting those Geico
(INAUDIBLE). Do you know that commercial that I‟m talking about?
Where they —
(LAUGHTER)
JOE: Why won‟t you be part of the — seen in one of your commercials
adding up the results.
BECKY: He is — wait a second, he does do a commercial with Geico.
BUFFETT: I‟ve done some things but they seem to never make it past
the cutting room floor.
(LAUGHTER)
BECKY: All right, we will have much more with Warren Buffett right
after the break.
By the way, tomorrow on “Squawk Box” a special one hour event with
some of Wall Street‟s best investors. Stanley Druckenmiller; Ken
Langone; former Fed governor, Kevin Warsh; and the President and
CEO of Harlem Children‟s Zone, Geoffrey Canada. They‟ll be on
tomorrow to talk about the economy, the sequester, and where they‟re
putting their money to work. That‟s at 8:00 am Eastern time. Oh
wait, that‟s at 7:00 am Eastern tomorrow. At 8:00 am Eastern we
welcome Arianna Huffington. It all starts at 7:00, so stick around.
ANNOUNCER: Got a comment or question about this morning‟s show

with Warren Buffett? Email us. Squawk@cnbc.com is our address.
You can also Tweet your question to the show. @squawkcnbc is our
handle and be sure to include hash (ph) tag ask Warren. More
“Squawk Box” and the Oracle (ph) of Omaha right after the break.

PAGE 48 OF 79
(COMMERCIAL BREAK)
ANNOUNCER: Welcome back to the special edition of “Squawk Box”,

live with Warren Buffett. Here now Becky Quick.
BECKY: Welcome back everybody, again. We are with Warren Buffett

this morning. We‟ve been taking a lot of your questions that have
been coming in. And Warren, several of those questions include
politics. People have been looking back at what‟s happened since the
beginning of the year.
We have faced some changes. As you mentioned, there‟s about 700

billion dollars that have been coming in, or are expected to start
coming in in new revenue because of changes to the tax code that
took place after the end of the year last year. Some people have
pointed out with all that you‟ve done and said about what needs to
change with taxes, with the Buffett Rule that had been proposed.
There was one question that came in, which is a question we had a lot
of variations on. This one is from Terry Dower (ph). Number 32
control room. He said with the end of the 2012 federal income tax
changes will you now be paying a higher percentage in taxes than your
secretary or your administrative assistant?
BUFFETT: Yes, I probably will. I‟ll make studies when we get the
taxes calculated throughout the office. But my capital gains rate will
go from 15 to 23 and a fraction because of the 20 percent plus the 3
and a fraction percent in the year. But if you look at Social Security
tax — payroll taxes plus income taxes — I‟ll be a fair amount higher —
say eight or nine points higher. But the differential between me and
the rest of the office — not just for my secretary but the rest of the
office was greater than that.
The payroll tax — you‟re talking 15 or a fraction percent and then start
adding the income tax onto that. So I‟ll be glad to give you a report
after we get all the income tax returns done. It will be closer but I‟ll
probably be the lowest paying — counting payroll taxes, I‟ll probably
be the lowest paying tax payer in the office.
BECKY: So what happened? We raised marshal (ph) tax rate on the

top two percent, and yet, it still doesn‟t fix the problem of the various

PAGE 49 OF 79
wealthiest — very wealthiest Americans getting the — where they‟re
paying more of their share if you want to use that phrase.
BUFFETT: Yes you will still have — when we get the figures a few
years from now. You‟ll probably have the 400 largest people who
might be making 200 or 250 million a year. You‟ll probably have a
quarter of those at least, and probably half of them, paying less than
25 percent.
And, of course, with the payroll tax, 15 percent you get over 25. And
you‟re way over 25 percent. And that‟s why I suggested a minimum
tax to get to those. That way it would affect somebody making a lot of
money and paying normal tax rates on it. But it would affect the
carried interest people and that sort of thing —
JOE: That would affect me.
BECKY: Was this a stupid change in the tax legislation?
BUFFETT: Well I think it was a good — it was better than no change.

And the minimum tax is still out there as a proposal in the Senate. And
I think it makes sense. I think that — I don‟t want to name some of
my friends that are in these (INAUDIBLE) low rates, but I think they
should be paying at the rates that the people who work in, you know,
in this warehouse pay and they still have a big break.
The big break is they don‟t pay payroll taxes. And payroll taxes are,
you know, if we take in 2.6 trillion this year, payroll taxes will be a
third of that roughly. They‟re not quite as much as individual
(INAUDIBLE).—
BECKY: —Are you suggesting there shouldn‟t be a limit on the

amount of income from where the payroll tax ends? What is it
150,000 or something right now?
BUFFETT: It‟s less than that. It‟s around 100,000. And it catches —
many of the people in our office have spouses that work and they get
paid and they get the payroll tax too. So on the first 200,000 for many
families, 15.3 percent. You know I mean —
BECKY: — But is the unfairness that they shouldn‟t be paying that

high of a rate? Or you think there should be no limit on that?

PAGE 50 OF 79
BUFFETT: I just — I just think that — it depends whether you change
the whole code in some way. But I think under the code as it
presently stands, a minimum tax on very high incomes is a start in
getting more equity in the tax code.
BECKY: Did we mess up though by doing this in part-way steps?

Does it make it much less likely that we get to some sort of a grand
bargain, like a Simpson-Bowles plan, because we‟re doing this in
increments?
BUFFETT: I‟m not sure we get there ever, under any arrangement.
It — there should be a grand bargain. I think it was very close to a
grand bargain 18 months ago. I just think the problem was that when
John Boehner went back to his group, he cannot get his 200 and —
BECKY: — Eighteen months ago though it wasn‟t just Boehner who

couldn‟t get his side. The president changed what he was asking for
because he couldn‟t get his base to go along with it too.
BUFFETT: Yes. He‟s got — you‟ve got two people — as we said

earlier, I mean, when you have negotiations the way to get things
done is to have somebody on each side that can deliver. If I‟m in a
labor negotiation, I want somebody out from the labor union there and
when he says this is what my group will take, then I know that that‟s
good. And when I say this is what I can do (ph), he knows I‟m not
going to get overrun by a Board of Directors.
You can make a deal that way and you do it in private and you don‟t
go out and make speeches, you know, about I won‟t do less than this
and all that sort of thing. When you have tough negotiations you
really need to get it down to a couple of people. And that requires
being able to speak for your contingency and both of them have
trouble out of that.
BECKY: Joe.
JOE: Thanks. Warren, a lot of people aren‟t buying newspapers. And

I‟m trying to figure this out. You bought 28 newspapers in the last 15
months. Twenty-eight dailies. And it wasn‟t a lot — it wasn‟t a lot of
money and, you know, it‟s not a huge business but you seemed to
really be into it. Is that you doing that? Is this personal to one of
your interests, yes?

PAGE 51 OF 79
BUFFETT: Yes —
JOE: — It is? OK.
BUFFETT: Yes.
JOE: Do you want to — are you going to be like Randolph Hearst or

something? Are you going to persuade public opinion or is it suddenly
are dailies — local dailies that much better than the big nationwide
papers which have so — I don‟t know if you‟d be long term investors in
those or not. I know you‟re — Washington Post, you‟re a long term
investor. But I didn‟t think you liked newspapers that much and I —
there must be a difference between the business models for these
local papers.
BUFFETT: Yes the business model for both is not good. But the
business model for the big metro paper, in my view, is far worse than
for the local community paper. The local community paper is really
indispensible to the people of the community or many of the people in
the community. And it has a sensible Internet strategy. I think has a
much better future than the big metropolitan paper.
Just to get to your William Randolph Hearst approach, I — we had 12

papers that endorsed in the presidential campaign last year. I voted
for Obama. Ten of our papers endorsed Romney, two of them
endorsed Obama. So it‟s — if I sent out a letter, nobody paid any
attention to it.
JOE: Yes, all those editors have been fired. But —
(LAUGHTER)
BUFFETT: Yes, I will tell you actually — I make a point of this in the
annual report — I really do, Joe. I make a point of this in the annual
report because I don‟t want my successor to start thinking he‟s William
Randolph Hearst. So I want to establish a pattern where our editorial
people, you know, whether they‟re in Virginia or in Omaha, for that
matter. The Omaha paper endorsed Romney.
They endorsed in the Senate race a candidate and I was for the other
candidate. I mean I want to establish a pattern —
JOE: — I know.

PAGE 52 OF 79
BUFFETT: — Because —
JOE: I‟ve never — I‟ve never seen Rupert Murdoch, or Pinch (ph),
Ponch (ph), or whatever his name is. I‟ve never seen them take any
editorial license either, Warren.
BUFFETT: Well you haven‟t been reading very carefully. But if you
read our papers. The idea —Virtue Hathaway owns those papers.
We‟ve got 600,000 or so shareholders. Probably more of those
shareholders voted for Romney than voted for Obama. So it is not up
to me. If I owned 100 percent of Virtue, I would control editorial
policy.
But nobody‟s going to own 100 percent —
JOE: — But that is — this is better. It‟s not just a crappy business at
a great price that you‟re buying? You actually you think that this is a
good business at a fair price? That you‟re seeing mantra (ph).
BUFFETT: I think it‟s a declining — I think it‟s a good business

currently, it‟s declining. The rate of decline will depend on how
indispensible we make ourselves. But it‟s not something — it‟s not like
buying the Burlington Northern.
JOE: All right, great, thanks Warren. We‟ll have more. Beck, I got
like 10 seconds.
BECKY: Yes, I know, go ahead, we got to get out of here.
JOE: We have one more hour with Warren Buffett — we know who he
is, Berkshire Hathaway chairman. Everybody knows who he is. If you
have any questions or comments for Mr. Buffett, we‟re taking them by
e-mail or Twitter. And there‟s the two things you need to do. I‟m not
reading them again. You should know these by now. There‟s the
addresses.
(COMMERICAL BREAK)
ANNOUNCER: Welcome back to a special edition of “Squawk Box”.

One more hour with the Oracle of Omaha.

PAGE 53 OF 79
BUFFETT: We would expect to beat the S&P in a so-so year or a
down year. We expect them to beat us in an up year. But our job is
to beat them over time.
ANNOUNCER: Plenty more to come from Warren Buffett. The third

hour of “Squawk Box” starts right now.
BUFFETT: Our job is to beat them over time.
ANNOUNCER: Plenty more to come from Warren Buffett. The third

hour of “Squawk Box” starts right now.
BECKY: Good morning, again, everybody. Welcome back to “Squawk

Box” here on CNBC. First in business worldwide.
I'm Becky Quick and we are coming to you live from La Vista,
Nebraska. And that is just outside Omaha where we are at a
warehouse for Oriental Trading. This is a catalog-based seller of arts
and crafts that Berkshire Hathaway bought last November.
Our special guest this morning is Warren Buffett. He's the chairman
and CEO of Berkshire Hathaway. We have a lot more to get with him
this morning over the next hour or so but first let's send it back to Joe
who is at CNBC headquarters. He's got your morning headlines.
JOE: OK, thanks, Beck.
The futures are improving as the morning goes on. And less than 20
now. Fed Chairman Ben Bernanke once again warning that pulling
back on aggressive policy measures too soon would pose a real risk of
damaging a still fragile recovery.
We've been talking to Warren Buffett this morning. I don't know if he

necessarily would agree with that.
Fed Vice Chair Janet Yellen says she sees no current cost to
quantitative easing. No current cost. No current cost. I don't know
what that means about future costs. That would prompt her to curtail
the buying program. Those remarks came from a speech taking place
right now. She also says the Fed's easing policy does pose some risk,
but, so does insufficiently forceful action.

PAGE 54 OF 79
And President Obama will nominate Wal-Mart's Sylvia Mathews-Burwell
as his next budget director. Actually it's a Wal-Mart Foundation that
she runs. He'll make the announcement during a White House
ceremony this morning. Burwell served as OMB's deputy director in
the Clinton administration. She was also the chief of staff for Robert
Rubin and she runs the Wal-Mart Foundation — that's retail giant's
huge philanthropic wing.
And let's check the futures, just barely down more than 20 points now,
21 points after some weakness a little bit at the end of last week but
nothing that significant giving — given that we did hit the sequester.
Overseas Chinese stocks are falling to their lowest level in six weeks
overnight. The drop coming after Beijing hit property developers with
harsher than expected tightening measures to contain housing costs.
Fascinating piece on "60 Minutes" last night, in fact, about the

residential market in China.
Meantime, Japanese shares hit a 4.5 year high on monetary easing

hopes, at least for more monetary easing than we've seen hit the yen
but help the stock market. In Europe, we're seeing not a whole lot
happening. Mixed results down a little bit, up a little.
Right now let's get back to Becky in La Vista, Nebraska, with our
special guest, Warren Buffett. OK. Hey, Beck.
BECKY: Joe, thank you very much. You know, you go through the
headlines like that and it reminds me how fortunate we are to have
Berkshire's chairman and CEO Warren Buffett with us this morning
because just about every one of those headlines you just mentioned
I'd like to get his thoughts on some of these things.
Warren, first of all, Sylvia Mathews-Burwell who is being nominated for

OMB, she's from the Wal-Mart Foundation but you have some
experience with her as well. You know who she is?
BUFFETT: Yes, I think she was in the Gates Foundation, too, and
after she left working with Bob Rubin. And — now she's first class.
BECKY: OK. So just again, it's amazing, Joe, as you sit here. Buffett
has thoughts or knows just about someone involved in just about
every one of the headlines that you ran through.

PAGE 55 OF 79
You spoke about Janet Yellen, and Warren, we've spoken an awful lot
about your thoughts on the economy this morning. Yellen is just
making this speech probably not a surprise to hear many of the things
that she's saying that she doesn't see any cost right now to what the
Fed's doing. Do you worry about future costs?
BUFFETT: Well, there's never a problem when you're buying. I

mean, the hot brothers were doing great. It's over. You're no longer
buying it. (LAUGHTER)
It's the selling that could be a problem. You know, to whom. And it's
got to be some kind of a problem when they unwind. Now how big a
problem I don't know. But you do know that throughout the world,
decisions are being made on the basis that money is basically free.
And, when the signal comes that that's going to change in a major
way, you're going to see a lot of activity, a lot of places.
And it — how — you know, how extreme it gets I don't know. It

doesn't have anything to do with what we do. I mean, if we — if we
buy Heinz, you know, we know that's coming at some point. We're
buying Heinz to own it 100 years. So — but it — this will be the
biggest — this will be the biggest economic event for market
participants that they have seen in quite awhile when they get a
strong signal that the Fed is reversing in a — in a significant way.
BECKY: You've made it very clear that you are a fan of Ben
Bernanke.
BUFFETT: Sure.
BECKY: You think that he saved the global financial system back in
2008.
BECKY: But you've also been saying, I think for over a year at this
point, that you've been concerned about how much the Fed is doing.
Are you growing increasingly concerned another 85 billion dollars
every month just in QE infinity?
BUFFETT: It's easy to do. (LAUGHTER)

PAGE 56 OF 79
On the upside. And like I say, you know, you could — we're running a
— we're having $3.5, $3.6 billion of expenditures or trillion, and let's
just say he bought the whole issue. And we had no taxes. Well, we
know that doesn't work over time, right? But the Fed could do it.
They could buy $3.6 trillion and they could just — set up deposits for
banks and so on.
That would have enormous problems. We're doing a small variation of

that. Not so small at 1 trillion. At it's — an act that Bernanke has said
he doesn't want to carry the whole load himself. I think the guy has
been just absolutely terrific as Fed chairman. But I don't think it —
and I'm sure he's thought a lot about how he unwinds this and all of
that. But I don't think it's totally predictable what will happen, what
does happen.
BECKY: Let's talk about the euro very quickly. It has come under
some pressure recently. And people including members of the ECB
have told us on “Squawk Box” that they are concerned about what's
happening in Italy. This fellow Grio who won 25 percent of the
election there has said that he'd like to see a vote from the Italian
voters whether or not they want to still be in the euro.
Where do you think we stand with the euro which is right at 130 right
now versus the dollar?
BUFFETT: Yes. Well, we haven‟t — we still haven't worked out a

sustainable system for the euro, we have stemmed the fear on drag,
he said that he would do whatever it takes. Whenever a central
banker who can print money says I'll do whatever it takes, that's very
reassuring. But it doesn't solve the problem.
I mean, you — the inconsistency of the fiscal policies of people that

were trying to hook themselves to a common monetary unit has to be
solved in some form and we haven't gotten there yet. Europe is not
going down the drain or anything. Europe 10 years from now will be
producing more goods than it is today. But there are a lot of — there's
a lot to work through.
Draghi headed off the immediate problem when he said, I'll do

whatever it takes.
BECKY: All right. Let's get to some questions real quickly. One from
— actually go ahead, Joe, why don't we let you in on the discussion.

PAGE 57 OF 79
JOE: I don‟t — yes. It's great to go to viewer questions. I had a big
— huge philosophical question for Warren and how it's going to work
its way out. Seeing what we've been through for the past couple of
months, with the — with the prospect of the sequester, beck and I
don't know how we should do it warren but you look at the deficits
we're running a trillion dollars, and you see how hard it was just to
raise taxes, you know as we did at the end of the year and then to do
the 85 billion which this year isn't even going to be 85 billion and I just
wonder, whether we're going to get to the point where we decide we
want this much government and we just need to pay for it and that
means rich people don't have enough so we'd have to raise taxes on
the middle class, I guess.
I mean, do you see a way out of it as hard as it was just to cut $85
billion? We got another $900 billion a year that we somehow have to
deal with, and it can't all be revenue. We can't raise taxes — do you
see a way to — to do this? Politically?
BUFFETT: Joe, there's a way out of it. We — you know, we found a

way out of a civil war. And a country half slave and half free. We
found a way out of two world wars. We found a way out of a great
depression.
This country has a lot going for it. You don't see it. You read about
the headlines about what government is doing, but, we have had an
economy that works very, very well. I mentioned in the annual report
that I bought my first stock when we were losing the war in the
pacific. And, since that time the Dow has gone from 92 to 14,000 or
so.
I mean and — and the headlines were terrible. This country goes
through all kinds of problems and we like to talk about them when
they appear and they're in the headlines but we've got such a basically
strong and good country that we will overcome the 535 people do and
it will work over time. Doesn't look like an Armageddon.
JOE: But you‟re still —
(CROSSTALK)

PAGE 58 OF 79
JOE: Sometime I think you're a Democrat and other times I think
you're a closet Republican. You think that the size of government
shouldn't be above 21, 20.5, 21 percent of GDP. You're not arguing —
BUFFETT: That's —
JOE: That we should go to 25 — because, you know, maybe we

should be a 25 percent to make up more fair and to give more
entitlements and to take of our citizenry sort of the way Europe did.
Maybe we should go to 25. But you don't — that's not — you're not —
BUFFETT: I'm not — I'm not — no, I'm not there, Joe. I'm a 21 and
a half and 18 and a half on revenue. And incidentally that three points
fine over time. That I mean that will not take debt as a percentage of
GDP up. So it's very workable. It doesn't seem like it day by day
perhaps but it's very it's workable.
JOE: Well, maybe in a good economy we don't need to cut, maybe we

come down and we — with people need less assistance, so maybe we
won't stay at 25 or whatever, maybe we'll get back down and get —
and then maybe the revenue goes up in a good economy, and both
sides shrink. Is that — is that what you think finally? We do
something with means testing or I don't know, maybe we solve our —
BUFFETT: Yes, well, means testing — yes, we are the 25 right now. I
mean, if you look at — if you look at $3.6 trillion of spending and $16
trillion of GDP, that is not 25. It'd be $4 trillion if it was 25. It's about
22.5.
JOE: So we're getting there. All right.
BUFFETT: Yes, we're — we'll get there.
JOE: OK.
BECKY: Let's bring in a question from a viewer, Charlie Silver, which

kind of plays in to what Joe was just talking about. He wants to know
if you are still as optimistic about the American economy and the stock
market as you were when you wrote the op-ed piece in "The New York
Times" in November of 2008. Maybe you were more positive about
the stock market then.
(CROSSTALK)

PAGE 59 OF 79
BUFFETT: Well stocks were cheaper.
BECKY: Where stocks were cheaper then.
BUFFETT: Yes.
BECKY: And maybe you're more positive about the economy now?
BUFFETT: Well, I'm always positive about the economy. Long range.
I mean, this country works. All you have to do is look at, you know,
just in my lifetime, six — six for one on real GDP per capita. We have
a — you can't see it but we have millions and millions of people out
there trying to figure out how to make their lives better tomorrow and
they create companies like Oriental Trading.
This was created by a young fellow here that had a couple of parents
that had come over from Asia, and you know, look at it, You know,
750,000 square feet, you know, it's — we create things. Geico was
created by a fellow and his wife back in 1936 that had $100,000. I
mean, so, the dynamism of America is not lost.
BECKY: We're always looking for the next big thing and Jim Cramer
wrote in. He's got a question about whether we're at the golden age
of oil and gas. And How Burlington is cashing in on it in terms of the
train to the refinery will be an eye-switch to Natural Gas Engines on its
locomotives? He also asks.
BUFFETT: Well, we've got a couple of locomotives we're

experimenting with this year. Yes. I mean — and we're probably not
the only one. The railroads are definitely experimenting with
converting to natural gas. It's not a simple matter and I can't tell you
the technicalities of it. But, it's — it's real enough so we're spending
real money. In fact I think we ordered a couple of units that we're
working with. So it's — when you get natural gas, you know, $3.5 and
you look at where oil is, you've got to look at converting any kind of an
engine to natural gas.
BECKY: You know, but Jim brings up a point that we've heard from
Jack Welch and others who have come on the show. I mean, Jack
Welch has said he thinks oil and gas is going to be one of the next big
renaissances for America, and that may be where we get a huge
number of jobs from down the road.

PAGE 60 OF 79
BUFFETT: Yes, well, it's — it's huge. The job — the job factor is
significant. It is — it's not like — I don't look at it primarily in terms of
jobs although that's important. But it's certainly important in terms of
the balance of payments which is — you know, I mean we — we can
save hundreds of billions of dollars on annually as we get more self-
sufficient in oil and gas. So it's got — it's got big, big consequences.
BECKY: And you did mention a little earlier what this means for
Burlington Northern But it's a big Boone for them to be coming from
the out. We have to bring that oil out.
BUFFETT: Yes, fortunately they discovered oil where our railroad

was. (LAUGHTER)
Now it's still only about 5 percent of our shipments. We ship a couple
hundred — 190,000 are a week in — and it's about 5 percent of
shipments. Coal is 20 percent. So what we've lost in coal we've more
or less made up in oil. But it's a growth factor. There's no question
about it.
BECKY: You know, real quickly Warren, I've been getting questions
via e-mail and about come comments you were making in the last
hour with Joe talking about some of the newspapers and someone had
written in Steve Williams, this is number 55. He says, "Is buying
newspapers like collecting cars for you? Or is there a real profit
motive?"
BUFFETT: Oh, it has to pencil out or we wouldn't be doing it. It's

smaller than the things we do normally but we spent the $350 or so
million. We will get a decent return on that unless the business is way
worse than I think it is and I would say this, in the year or so that
we've operated we are meeting all the projections and the local sum.
We will never get superrich on it but I can almost guarantee that we
will get a decent return on them. We're buying them very, very, very
cheap.
BECKY: Another viewer Robert Cunningham wants to know if you'd

ever something the Chicago tribune or the "Los Angeles Times"
because it's been reported they're up for sale.
BUFFETT: No thanks. (LAUGHTER) They're too tough. You know, I

— it's very hard to edit a paper like "the Los Angeles times," the

PAGE 61 OF 79
Chicago tribune. If you have a paper in Grand Island, Nebraska, like
we do, everybody there is interested in how the high school teams are
doing, whether it's in wrestling or basketball or the state tournament
or anything else, if you've got the Chicago tribune, or "The Los Angeles
Times," you can't talk to people about what's happening with their
high schools. It just doesn't work. You need a — you need a tight
community.
BECKY: OK. We are going to take a quick break right now. When we
come back, we'll have more from Warren Buffett. That's in just a few
minutes.
In the meantime as we head to that break why don't you take a look
at the U.S. equity futures. We started out with things in the red we
saw at one point those Dow futures down by more than 50 points
below fair value. It's pared its losses right now. Looks like right now
in the markets were to open we'd be down by about 25 points on the
Dow. Down by about 3 points on the S&P 500.
“Squawk Box” will be right back.
(COMMERCIAL BREAK)
ANNOUNCER: Welcome back to this special edition of “Squawk Box”,

live with Warren Buffett. Here now, Becky Quick.
BECKY: Welcome back, everybody. We are coming to you live this

morning from La Vista, Nebraska. That is just outside Omaha. And
this morning we're live from a warehouse for Oriental Trading. That is
a catalog based seller of arts and crafts That Berkshire Hathaway
bought last November.
I'm here again this morning with Berkshire Hathaway chairman and
CEO Warren Buffett. We And Warren, we mentioned to people earlier
that we were here because this was the most recent acquisition we
thought when we were trying to figure out for the show. Since then
you've mentioned the Heinz acquisition. But oriental trading is a really
interesting company. Berkshire did not disclose the terms of that deal.
It's been reported that it was a deal for about half a billion dollars. We
did have a —
BUFFETT: You're exactly right.

PAGE 62 OF 79
BECKY: We are? OK, so that's official then. We did have a question
that came in from Seth who — I don't know if this can on the e-mail or
on Twitter but he says, "As a Berkshire shareholder I'm curious as to
why you've purchased Oriental Trading he thought it was a business
that was below the size requirement and wondered if you did it to save
jobs in Omaha?
BUFFETT: No, it would have continued no matter what. It's a

profitable business. So somebody would have owned it. But it was a
— I got an e-mail I think on a Wednesday and I was generally familiar
with the business. And got some figures and we made a deal on
Thursday. And the — I had a little insight into it. When I did the Bank
of America deal, you may remember I did that deal in n the bathtub.
BECKY: Right.
BUFFETT: And after I announced that I got all kinds of rubber ducks
and I decided that rubber ducks were a totally missed trend that
people were — we could cash in on. So we now have some rubber
ducks. We‟re going to have them at the annual meeting. I don't know
whether you can see, we're having a rubber duck of myself, and
Charlie, Charlie's is not selling very well. Mine we've been able to
maintain price on. But Charlie's has gone from $2 to $1 to 50 cents.
If you just make us an offer, we'd appreciate that. But —
BECKY: This is what Charlie gets for not being here. Right?
BUFFETT: Yes. And then we've got some rubber ducks also that we
thought Joe might like, some of those are sort of evil geniuses there.
JOE: Yes. (LAUGHTER) We collect those, I swear, Warren. And you

did send me some and I love those.
BUFFETT: Well, there'll be more coming, Joe. And incidentally,

here's a Fruit of the Loom tie with underwear. I thought that since
you've been knocking my (INAUDIBLE) tie —
(CROSSTALK)
JOE: I'm trying to figure out. You got a couple of Eveready batteries
on your collars. I mean, are you — is that tie going to light up or
something?

PAGE 63 OF 79
BECKY: Those are not Eveready batteries.
JOE: What are those things?
BECKY: No. Those are Heinz ketchup bottles.
BUFFETT: I'm going to pull a Marco Rubio, here.
(CROSSTALK)
BUFFETT: Maintain eye contact.
(CROSSTALK)
Here we go. Here we have your

personalized ketchup.
JOE: Oh, no.
BUFFETT: We have the Kahunas

ketchup and we have Preferred by
Hot Dogs. I wonder what that
means.
JOE: Oh, no. (LAUGHTER)
BUFFETT: I will get these off to you. (LAUGHTER)
JOE: Oh, thank you. You know what?
BUFFETT: And we will accept — we will accept orders for these, too.
And we'll see — we'll just see how big a fan base you have out there,
Joe.
JOE: With my brick and I've got — you know that's pretty cool.
Thank you. That is awesome. That‟s going on —
(CROSSTALK)
BECKY: I don't think Kahuna's ketchup guy —
BUFFETT: Do you have a preference between these two, Kahunas

ketchup or Preferred by Hotdogs, Joe?

PAGE 64 OF 79
JOE: You know what, can I have them both?
BUFFETT: Absolutely. Absolutely. (LAUGHTER)
BUFFETT: I know you'd say that.
BECKY: Wait a second. And do I have to be the courier? Am I

carrying these —
BUFFETT: No, you — you won't be able to take them on the plane.
JOE: All right.
BECKY: OK. That's right.
JOE: So I can't see those pins, so those are Heinz — those are Heinz
bottles. I thought —
(CROSSTALK)
BUFFETT: I'm going to few — I'll throw in a few pins, too, Joe.
JOE: All right. Keep the rubber duckies coming.
BUFFETT: They'll be — they'll be in the mail today.
JOE: Are we done —
BECKY: Warren, there have been a —
JOE: OK.
BECKY: No, no, wait, wait. No, no.
JOE: OK. Go ahead.
BECKY: Let's not go away yet.
JOE: OK.
BECKY: You know, but, Warren, since we're talking about

acquisitions.

PAGE 65 OF 79
BUFFETT: Right.
BECKY: And since we're here at Oriental trading and since we're
talking about Heinz there have been a lot of people who've been
speculating that maybe you're interested in another consumer
products company. You've talked about how you're on the hunt
already once again that you've got plenty of money to go.
Are there other consumer products companies that you're looking at

right now as potential acquisitions?
BUFFETT: Not right now. I mean I'm aware of all the consumer
products companies, always have been. We owned a big chunk of
General Foods 30-some years ago. And we've been in Coca-Cola and
See's Candy and things like that. So I like the business. And if
something comes along, and it looks like we can make a deal and the
price is right, we're ready to go. There's nothing right now that we
would — that — that's, you know — that's on my plate. But it's our
kind of business. And at the right price, we'd be ready to buy more.
I'd be very surprised if 20 years from now we haven't — we don't have

more. But whether it's going to be 20 months from now, who knows.
BECKY: But nothing on your plate in terms of consumer products

companies that you're eyeing right now. Is there any other potential
acquisition that you have your eye on?
BUFFETT: There's one that has been mentioned to me that I'll be

looking further at. But, you know, that's always a low probability
whether it's a 5 percent probability or a 10, who knows. But I get
excited when I hear about possibilities.
BECKY: You want to tell us what sector it's in if it's not in consumer
products?
BUFFETT: It's in business. (LAUGHTER)
BECKY: OK. We tried. Joe, your turn.
JOE: I started worrying again, Warren, after — I was happy we're

getting down to 22.5 percent of GDP and then I started thinking about
Obamacare. I wonder, have you thought about how much that's

PAGE 66 OF 79
actually going to cost? That's a huge entitlement that we're not even
dealing with at this point. All of our problems are with the
entitlements that we already have. And I'm wondering, as everyone
gets healthier, and the number of people over 100 is going to double
by 2020, I mean there's going to be so many people that are in the
health care system that — I don't see how we keep coming down from
22.5. You still think we can do it even with Obamacare.
BUFFETT: Joe, I think the real problem, even stepping back further
than that, the number one problem — economic problem of the United
States is the rising cost of healthcare. If you go back to 1970, there
were about six countries in the world and they were all at 5 and a
fraction percent, United States was one of them. Six leading
countries. Now we're at 17 and a fraction and nobody else is above
11. So that's a 6 percentage point, as a percentage of GDP. Six
percentage point cost we're bearing that our competitors around the
world aren't bearing.
People — people say that the corporate tax is a terrible competitive

disadvantage. Well, the corporate tax last year was like 1.6 percent of
GDP. But here's six percentage points, and we really have to do
something about it. And I'm not smart enough to know how to do it
myself. What I would like to do is get the heads of the Cleveland
Clinic and Kaiser, and the Mayo Clinic, and just give them the task of
— tell them they've got a couple of months to do it, to lay out a plan
where we can get to 15 percent of GDP as a sustainable cost of
healthcare.
Or why we can't do it. But, you know, this is a tapeworm of the

American economy and Obama care or anything that the government
has to do with it reflects that underlying trend.
JOE: OK.
BUFFETT: But the real problem is the overall cost of healthcare.
JOE: All right. You say that. I mean Andrew brought one of those
back from Africa and I just — I don't even like to hear —
BECKY: The tapeworm?
JOE: Yes. Tapeworm. (LAUGHTER) Anyway, we got to go again.

We'll be back with much more from the oracle of Omaha.

PAGE 67 OF 79
Before we head to break, take a look at U.S. equity futures down
about 24 points on the Dow.
(COMMERCIAL BREAK)
JOE: Welcome back to “Squawk Box”. Among the stories we're

following, a new survey of economists say that the U.S. budget deficit
needs to be cut. That's why we need these guys. You know? Because
they can figure out stuff like this.
However indiscriminate spending cuts are not the way to do it. The
National Association for Business Economics says that more than 70
percent of its members were against the sequester, the so-called
sequester, and those cuts that began taking hold on Friday.
As for now, let's get back to Becky in La Vista, Nebraska. If you don't
know where that is, it's apparently — where is it? Northwest, east,
south of — it's a suburb of Omaha?
BECKY: I believe — I only know based on — we were driving in the

dark, but I think it's probably southeast of Omaha? Is that correct?
BUFFETT: It's southwest.
BECKY: Southwest. Oh, I'm sorry. Yes, I got my direction — I knew

that. We came out 480. Yes.
JOE: All right. The girls and directions. Girls, I mean, we're not
going to get —
BECKY: Shut up, I didn't drive. I didn't drive myself. I did get my
directions.
JOE: This way. OK.
(LAUGHTER)
BECKY: How am I supposed to recover from that?
(LAUGHTER)

PAGE 68 OF 79
All right. I am back again with Berkshire chairman and CEO, Warren
Buffett.
And, Warren, let's talk a little bit more about your letter and some of
the things you put out this year.
BUFFETT: Sure.
BECKY: You mentioned that you're going to be doing things a little bit
differently this year at the annual meeting. Last year you added a
panel of analysts who asked a lot of questions at the annual meeting.
Along with the three journalists who asked questions and all the
questions that come from the audience.
This year you say you're still going to have one insurance analyst but
you've added another analyst who will be looking at the other
Berkshire companies. The other Berkshire subsidiaries or units or
businesses or whatever you want to call these and you're also looking,
actively looking for a bear on Berkshire Hathaway. Why did you add
that?
BUFFETT: Well you start make it more interesting. The crowd can
hear somebody that thinks the stock's overpriced, or that it's all a
house of cards or whatever it may be. And we want the meeting to be
interesting. So that person will get six questions. And we now have
that person because I said it had to be a credentialed bear, preferably
one who was short the stock. And Doug Kass is certainly a
credentialed investor and he said he's short the stock and he'd like to
do it. So Doug, you're on.
BECKY: Does he know this?
BUFFETT: No, he just knows this now.
BECKY: So Doug actually wrote in on Friday or Saturday after he

wrote the note and we kind of forwarded that on. So Doug if you're
watching this morning, you're it buddy. Make your plans for that
weekend.
BUFFETT: Think of tough questions. See if you can drive the stock
down 10 percent.
BECKY: Why? So you can buy back more shares?

PAGE 69 OF 79
BUFFETT: Yeah, that would be OK.
BECKY: Alright so let's talk about some other areas of things that you
really brought up in the Annual meeting. You talked about accounting.
A long section on accounting. And you admitted that at the end you'd
be putting down the dentist's drill. But why did you get into
accounting this time?
BUFFETT: Well accounting, I've done it before, too, accounting is the

language of investment in business. And to some extent, it's not well
explained in certain cases, and sometimes people draw the wrong
conclusions. So I like to stick in a little essay occasionally on where I
think accounting falls short and how an investor or a business person
has to think differently about it in going strictly by gap accounting.
And then when I have an example that fits that, I'll write about it. I
know that isn't of interest to all of the shareholders, there's plenty of
people that skip over that part. But I also think it's important that
people understand it. We have some peculiarities in our own
accounting and I want the shareholders to understand that.
BECKY: And your problem with, the thing that brought it up this time
around was the purchase of additional shares of Marmon?
BUFFETT: Well we had a situation where we actually we bought

originally 64 percent of Marmon, then we bought some more, this is all
pursuant to contract. And we had to immediately write it down. If
we'd just bought that amount by itself we wouldn't have had to write it
down. But because there was a transition between two rules we
actually had to charge off this year $700 million immediately upon the
purchase of something that did not shrink in value $700 million. And
we just want, we want to explain that. I would want that explained to
me if I was a shareholder and my management did it.
So I want the facts to be there, and admittedly, it can get kind of

tough sledding there for a while for some people, but it's there, it's
there to explain what goes on. And we get into it in terms of
amortization of intangibles, and in the end, I, you know, I've got two
very smart sisters that have most of their money in Berkshire and I
want them to understand things, that affect the value of it, and I'm
talking to them.

PAGE 70 OF 79
BECKY: OK. Warren, if, if you were to look around, question we got
again and again, and I know we've talked about this a little bit, but for
people who are just tuning in, there have been people who have been
writing in who want to know if you look at the S&P 500 right now do
you think that stocks are undervalued or overvalued?
BUFFETT: Well I think they're undervalued relative to other assets.

In other words if I had a lot of money today I would rather own
equities than own fixed dollars, long-term government bonds, junk
bonds, farmland, you know, REITs. They will be affected, if interest
rates go up dramatically, all assets will go down in value. Because
interest rates, to investments are like gravity is, you know, basically to
physics. Everything goes off of interest rates. But the cheapest thing
around — I wrote that a year ago. I've been writing it for year after
year. They're not as cheap as they were four years ago. But you get
more for your money and that's why we like buying businesses and we
like buying stocks. You get more for your money there than you will
get the one thing that the dumbest investment you know, in my view,
is a long-term government bond.
I think a single family house is a good investment for people where it

fits their living pattern and What they're going to do, I think that
makes it, and you can finance it extraordinarily favorably, and I think
that makes sense for people.
BECKY: OK, great. Warren we're going to continue this conversation

in just a moment. Joe?
(COMMERCIAL BREAK)
BECKY: Welcome back again everyone. We are here this morning

with Berkshire Hathaway Chairman and CEO Warren Buffett. We are
live in Lavista, Nebraska, which is just outside of Omaha at the
headquarters of Oriental Traders, Trading, I should say at the
warehouse of Oriental Trading. And Warren, I wanted to ask you a
question that comes from Andrew. He's on assignment today but he's
been speaking with a lot of private equity people this morning and
they had a question that they wanted to pass on to you.
He said that over the years you've been critical of private equity and
the dangers of adding leverage to companies. Your partner in the
Heinz transaction 3G is a private equity firm and includes considerable
leverage funded in part by Berkshire. Have you changed your views

PAGE 71 OF 79
on private equity and would you consider partnering with other firms
like KKR in the future?
BUFFETT: Well we are partnering with, it is a partnership. It's a

permanent partnership. We have, we will not sell our interest. So it
has no connection with the private equity people that essentially buy
and then resell businesses. So we are not in the buying and reselling
of businesses which private equity is. We are not charging anybody a
fee of any kind. There's no 2 percent, there's no 20 percent, there's
no nothing. So there's no, we are getting no cut on anybody else's
investment.
The people at 3G, most of that, most of that money is probably their
own money. So it is not primarily designed to get a return on other
people's money. It's a design as a place to put their own money and if
you know Jorge Paulo Lemann you know he's got plenty of money to
put it in.
So it is a partnership. And it we put $18 billion of equity in and there's

$12 billion of debt basically. It has no relationship to the kind of
enterprises where people take funds, have to get the money out, are
getting two and 20. Imagine if we were getting 2 percent on our $12
billion, you know, that we're investing $240 million a year just for
staring at ketchup bottles.
That is not what we're doing. We've got our own money up. We're
getting no carry on anybody else's money. It is not a private equity
deal in any way, shape or form.
BECKY: OK, we've got some other questions that have come in from
viewers. Some of these are general business questions. Just some of
the things we've seen happening in the headlines.
David from Puerto Rico writes in, he says, I'm a big fan and a regular
attendee to your shareholder meeting in Omaha. Last year I made an
investment in JC Penney stock and bonds despite being aware that you
once said when a management with a reputation for brilliance tackles
a business with the reputation for bad economics it's the reputation of
the business that remains intact.
What's your take on JC Penny and their new CEO, Ron Johnson? Is
this a turnaround or a failure?

PAGE 72 OF 79
BUFFETT: Well I've got rooting interest in JC Penney. I worked for JC
Penney. I sold men's clothing. I sold men's furnishing. I sold
children's. I worked there in high school, I worked there in college,
got the minimum wage, 75 cents an hour.
But, you know, when you start arguing with your customers about
what they want, it's not a bad idea, and, you know, it's, they've got a
very, very tough game to play from this point forward. They've
obviously turned away a very significant percentage of their
customers, and the thing about retailing is your competitor's always
moving. So it isn't enough to just catch up from, you know, some
distance from behind, because he's moving all the time.
Amazon is — they're moving all the time. And so I think it's a very,
very tough game ahead of them. And that quotation, incidentally,
when I met the fellow, the CEO, Bill Johnson runs Heinz that's the one
quote he remembers from — I wrote that 30 years ago.
Every business person remembers that quote, because it just gets

demonstrated time and time again.
BECKY: OK. Another question came in on Twitter from@matt solen

who says what are your thoughts on the decision by Yahoo CEO
Marissa Mayer to end telecommuting? I don't know if you've been
paying attention to the news.
BUFFETT: Yeah I've read about how she's got her own nursery there
right next to her. I, you know, I don't know the specifics of how Yahoo
operates. Almost all of our people would work in the office. I mean
we've got 24 in our Home Office. But on the other end, Ted Wexler
could operate from Charlottesville. He's there three days a week or
two to three days a week and two to three days a week with us.
I do not care whether Charlie is in the office or not. He's thinking

about Berkshire all the time.
BECKY: How often do you talk to Charlie, by the way?
BUFFETT: Not as often anymore. About once a week. I mean we've

been married so long that we know each other's thoughts. We used to
talk every day for hours. But now we just grunt at each other and that
takes care of things.

PAGE 73 OF 79
BECKY: All right let's get to another question that came in. This one
came from Camilo (ph) Ramirez (ph) who asks if you could travel in
time to when you were 20 again, starting to build your partnership and
you could meet yourself and tell him that you would be successful in
business as you dreamed at some cost what aspects or decisions of
your personal and professional life would you advice young Buffett to
change?
BUFFETT: I wouldn't change much. No. It worked pretty well and it

worked well for the family. I feel very good about my three children,
and so it certainly worked fine for me. So I do not think I would
change.
BECKY: OK. Another viewer on twitter wrote in, this is @rbridge4

have you ever been fired or laid off and if so, how did you bounce
back?
BUFFETT: Was I fired? I wasn't fired from Penney‟s. I, when I

worked for Graham Newman, they were closing down the place to
some extent. But I quit there ahead of time. I wanted to come back
to Nebraska. I mainly worked for myself and I don't fire myself.
BECKY: You're pretty good at staying in with that.
BUFFETT: I really like my boss.
BECKY: All right well Warren, we're going to take a quick break.
When we come back we have many more questions. Joe?
JOE: So he wouldn't change anything. He's only number four in the

richest man in the world. No mistakes, Warren? (LAUGHTER)
BUFFETT: Well you could say I made a mistake —
JOE: Nothing you could have done better?
BUFFETT: If I hadn't given away the $18 billion I'd be a little higher I
guess.
JOE: And then Becky that question from Sorkin was the same, didn't
we have that exact question in the 6:00? Did he not get up — you've
answered that —

PAGE 74 OF 79
BECKY: First of all I will give Andrew a break because he is in a
different time zone. And the difference — this was a slight —
JOE: Some average viewer asks the same question!
BECKY: A slight variation on that question.
JOE: What was the variation? Poor Warren's answering the same —
BECKY: It was a variation because it asked specifically if he'd do

deals with other private equity firms.
JOE: He better get up earlier. I mean some viewer already asked

that same question on there. All right. When “Squawk Box” returns,
some final thoughts from Warren Buffett. Stick around.
(COMMERCIAL BREAK)
BECKY: Welcome back, everybody. Let's get some parting thoughts

from our special guest today, Berkshire Hathaway's Warren Buffett.
Warren, we're here again today, because of the annual letter to

shareholders that you put out. Reading through that report or that
letter over the weekend, one of the things that really jumped out is
what you said about insurers.
Obviously Berkshire has several insurance businesses, but what you

pointed out are the low interest rates that we're in right now. Those
could pose a serious problem for insurers down the road.
BUFFETT: They do.
BECKY: Will you talk a little bit more about that?
BUFFETT: Well insurers make their money two ways. They either
make an underwriting profit, and most of the time they don't. And
they make money from the investments they hold, which are partly
float and partly their own capital.
And when interest rates go down and they own a lot of bonds, like
most of them do, they may be getting decent rates from the bonds
that they bought a few years ago, but those keep rolling over. And

PAGE 75 OF 79
generally speaking, the insurance companies don't own really long-
term bonds. So that they get them rolled over fairly fast.
And when you roll over bonds now, whether you're a life insurer or
property casualty insurer, you're get a whole lot lower rate than you
anticipated a few years ago you'd be getting. So in effect, the
profitability will go down because of that.
BECKY: Do you think investors have figured that out yet, in the
valuations for these insurance companies?
BUFFETT: Well I think the professionals in the insurance field

probably are pretty cognizant of it. It affects us less because we do
less conventional things with our money. But it still affects us. I
mean the $47 billion we had around at year end was earning nothing.
And six or seven years ago, it would have been earning five percent,
that's a couple billion dollars a year, just in terms of that money that
we have as a reserve fund.
BECKY: OK let's get more questions from viewers, because we are

getting towards the end of our three hours. This is a question that
comes from Connor Keyhoe (sp) in Ireland. Who writes in, if you
could keep one company that Berkshire owns, either a wholly-owned
subsidiary, or a company that Berkshire owns a common equity in,
which company would you keep and why?
BUFFETT: I would keep, for sentimental reasons, I would keep Geico.

Because it goes back the furthest. 62 years ago it changed my life.
It's also a wonderful company. So I would have both things going for
me.
But that — if I hadn't of gone to Geico when I was 20 years old and
had a fellow there explain the insurance business to me, my life would
be vastly different. So I just have to — I'd have to choose Geico.
BECKY: OK let's get another question. This is number 200, and this
from Steven (sp) Tugenack (sp) in Lakeway, Texas, who's writing
about with all the continuing airline industry consolidation, do you ever
see the potential for a Berkshire acquisition of one of the U.S. major
passenger air carriers?
BUFFETT: Well, I have this number I call, if I wake up at midnight

with the urge to buy an airline, I call up this airlines anonymous and

PAGE 76 OF 79
then they talk me down. No, the airline business has been a terrible
business over time. If they ever got down to where there was one
airline, it would be a very good business. Maybe if they could get
down to where it's two. But it's got all the ingredients of a bad
business.
BECKY: We have another question that came in. This is number 42.
It's from someone named C. Fisher. And Warren, there's been a lot of
talk about average investors, average retail investors feeling like they
can't get a fair shake. Part of that comes from concerns about the
flash crash.
Fisher writes in and says, please comment on the high-frequency

trading in the flash crash. In particular, what are the implications for
main street investors?
BUFFETT: it doesn't mean a thing. I mean if you own a McDonald's

stand, would you be worried if someone would come along and said
the value of the stand has gone down 50 percent? No business was
affected by that. Every business we own, it didn't make any
difference.
Now if you own things on margin, then you've got a different problem.
But if you own things outright, if the stock market closed for three or
four years, it wouldn't make a difference. When you buy a farm you
don't get a quote every day. When you buy an apartment house, you
don't get a quote every day.
The fact that you can get quotes should be an advantage, but people
turn it to a disadvantage because they think it's telling them to do
something all the time. And so, you know, they can have a flash crash
every day and I'll just put in orders below the market to buy and we'll
see what happens.
BECKY: But do you think, and I ask this because there have been so
many scandals, that people think about Libor, and they think about a
lot of the deals behind the scenes that have been dragged out. And a
lot of main street investors think that they can't get a fair shake on
Wall Street. Can they?
BUFFETT: Well, they pay a lot of expenses in many cases. They

don't need to. They can buy a low-cost index fund and they can

PAGE 77 OF 79
participate in the growth of America over the next 20 or 30 or 40 years
and they'll do fine.
But if they're paying high fees to achieve that same result, they're
going to get hurt. And they should look very carefully at costs. But
they should own a diversified group of really high-class companies
which you can do by buying an index fund and then they should forget
it. They should just pretend the stock market closes for five years and
they shouldn't look at prices every day.
BECKY: Did you see a story over the weekend from "The New York
Times" that focused on JPMorgan and their wealth management
business?
BUFFETT: Yeah I saw that. It took a look at, or at least it talked to

some disgruntled former wealth asset management bankers, who said
that JPMorgan was kind of pushing them into their own products
instead of maybe looking at a more diversified bunch.
BECKY: I know you probably don't know any of the specifics about
this, but when you look at Wall Street in general, are there still big
conflicts of interest?
BUFFETT: Sure there are. But I'm not speaking of that one
specifically.
BECKY: Obviously.
BUFFETT: But the people selling you securities are often selling you
things they make a lot of money in. The first question you should ask
of anybody selling securities is how are you getting paid and how
much are you getting paid?
And the truth is, you can own index funds with a very, very low cost.
And you will end up getting the same performance that you get from
people who charge you a lot more. So you'll always want to look at
costs.
And when somebody comes around to you and says, I'm going to sell
you this wonderful security but there's this big chunk in it for me, get
suspicious. As they say, when a person with experience meets a
person with money, the person with the money gets the experience
and the person with the experience gets the money.

PAGE 78 OF 79
BECKY: OK. Warren any last thoughts, very quickly, we have just
about a minute left? Anything else you'd like to really reach out?
BUFFETT: I think that, you know, we live in the best country in the
world, and we will solve our problems, and the people that own
equities, purchased over time, not just when they get all excited about
it, in a low-cost manner are going to do fine.
JOE: Hey Warren, have you noticed that that ketchup bottle was kind
of already shaped like a ukulele? Have you thought about like a
custom-made, I mean, you could have one easily made and then when
you play the ukulele, you could be pushing your products, like with the
pins —
BUFFETT: I tell you what we're going to do. We're going to see how
this one sells. And if it performs like I anticipate, they probably will
put me in charge of new product development.
JOE: Ready-made, that is my favorite I decided, when I looked at

both of them. (INAUDIBLE) I do like the — what's it say? Perfect for
hot dogs?
BUFFETT: It says, preferred by hot dogs, and then it has your

picture.
JOE: That I like.
BUFFETT: We're in business, Joe.
JOE: All right. Warren, and Becky, great job. Warren, thanks so
much for all your time. Phenomenal as usual.
BUFFETT: Thank you.
JOE: We appreciate it. Becky, get home safe. We'll see you
tomorrow. Make sure you join us tomorrow. But for now, "Squawk on
the Street" is next.

PAGE 79 OF 79
This is an unofficial transcript of
Warren Buffett and Bill Gate
appearing live on CNBC’s
Squawk Box on Monday, May 6,
2013 from 6 am ET to 9 am ET.
ANNOUNCER: The Oracle of

Omaha.
WARREN BUFFETT: Well, if you

have any left over, yeah, mark 'em
down, I'll buy one. (LAUGH)
ANNOUNCER: Warren Buffett gathering with his faithful.
BUFFETT: Let Charlie try and do this. (LAUGHTER)
ANNOUNCER: Now he sits down with Squawk Box for a three hour long
conversation, the economy, the markets, the business of Berkshire
Hathaway. A special presentation begins right now. (MUSIC)
BECKY QUICK: Good morning, everybody. Welcome to Squawk Box here

on CNBC. I'm Becky Quick, reporting live from Omaha this morning. Joe
Kernen and Andrew Ross Sorkin are back at headquarters on the East Coast.
We have the man of the morning with us, Warren Buffett. Obviously we
have a lot to talk about with him, including stock records runs, the Fed,
bonds, the dollar and his deal for Heinz. But first, before we get to all of
that, Joe and Andrew will have a short round up of the morning's top
headlines. And guys, I'll send it over to you.
JOE KERNEN: Okay. Hello. Good morning. Hello, hello—
BECKY: Hello. Good morning.
JOE: How are you? Hi— Warren.
BUFFETT: Well, yeah I— you—
JOE: I keep hearing you talk about me, Warren. No one knows what the
heck you said, so— I— I don't know. It's like who— (LAUGH) it's like one of
the answers you get—
BECKY: No, I—
(OVERTALK)
CNBC SQUAWK BOX TRANSCRIPT: Monday, May 6, 2013

PAGE 1 OF 70
JOE: —to a lot of questions.
BECKY: —I was sitting— I was sitting right next to him and I heard him
mention your name, too, and I'm not entirely sure what he said.
JOE: Nobody knows.
(OVERTALK)
ANDREW ROSS SORKIN: Joe and I— Joe and I were having this
conversation this morning. He said, "What did he say?" And I said, "I'm not
sure." And I actually said the—
(OVERTALK)
BECKY: He said something nice about him.
JOE: Was it, "Oh, it's—
ANDREW: It was nice.
BECKY: It was— it was something—
ANDREW: It as nice. I think.
BECKY: It was something about a question you (UNINTEL). It was nice, it

was a question about something you're always bringing up and it wasn't
NetJets.
BUFFETT: See my lawyer. (LAUGH)
(OVERTALK)
JOE: That was a long time ago. All right. (LAUGHTER)
ANDREW: Anyway, we're going get back— we're going get back to— to
Omaha. And let me just say, Warren, at— 'cause I— and I— I just got back
now. You— Warren and— Warren and Charlie (Munger) were on fire this
weekend, actually (RUSTLING) in a way that I don't think— we've been—
we've been asking these questions for now I think five years, and I thought
this was one of the most substantive meetings and just the most spirited of
the discussions. Obviously Doug Kass— threw— threw a couple ones at
them, too. But it— I thought it was fascinating.

PAGE 2 OF 70
JOE: Y— War— Warren, you— I— I've heard that people get to a certain age
where they say whatever the hell they want to say. And I mean, has it got
anything to do with that or—
BUFFETT: Well, we— we give 'em a little food or things like that, (CHUCKLE)
it's amazing how far it goes.
BECKY: Yeah, it's true. I— I— I think though that— you and Charlie have
been saying— kind of speaking your mind, Charlie in particularly— he may be
almost 90, but I— I think he was talking that way 30 years ago and even 60
years ago.
BUFFETT: He was talking that way when I met him in 1959. One of the
things that attracted me to him.
BECKY: Yeah, so he had a lot of things that he had to talk about. But
Warren, before we jump into what happened this weekend, why don't we
start off with the headline that the guys were just talking about, JP Morgan.
You said before that you own shares in JP Morgan in your private account,
not for Berkshire.
BUFFETT: Right.
BECKY: So, you get to vote on this, too. ISS came out with this
recommendation, in terms of what they're saying about the directors, three
directors they're saying you shouldn't vote for. They actually have some
pretty harsh language in some of the things that they were talking about.
They said, "The board appears to have been largely reactive, making
changes only when it was clear it could no longer maintain the status quo."
What do you, as a shareholder in JP Morgan think?
BUFFETT: Well, I don't know the details, but if you're the director of a— a
company like JP Morgan— you cannot know the details of what's going on
with trading or anything of the sort. You really— your key decision is
whether you believe that you have the right CEO If you have the right CEO
the board has done its job, and— and if you prevent the CEO from
overreaching in terms of (UNINTEL) or something. And— and I've written
about that. And— and I think they've got the right CEO I— I— so I think
they're— they're done their job.
BECKY: Y— you told us last week that— that you think he should maintain
both his chairman and the CEO Titles as well.
BUFFETT: I think— I think it's fine if he does. Sure.

PAGE 3 OF 70
BECKY: Okay. So, you're on board— not just as— an outside observer, but
also as a shareholder in JP Morgan?
BUFFETT: Right.
BECKY: Let's talk a little bit about this weekend. It was a big weekend— if
you had to pick your headline from what happened over the weekend, what
would it be?
BUFFETT: I think it's just that everybody had a good time, including me
and— the board members, the managers— and certainly the shareholders.
I— I— I probably waved many thousands (UNINTEL) as I went around and—
and— you know, they all call me Warren, which I like. And— and— certainly
in terms of the sales at our various enterprises, they all broke records. So—
people seemed happy.
BECKY: Some of the questions that jumped out at me— that jumped out to
me as being some of the ones that were maybe some of the most
persistently asked questions, had to do with your investigating style, because
the Heinz deal is a different deal than we've seen in the past. It's one that
links you up with private equity, which you haven't done before. It's one
that takes on some leverage, and there have been some questions that
people have asked. Just, does this signal that you're looking at things
differently? Does it signal that— you'll be getting into deals you might not
have in the past? And does it mean that you're not all that confident in
where the market's headed overall?
BUFFETT: No. Well, we took— we took on leverage when we bought—

BNSF, the railroad. And— and— and we, in no way consider— our— our
partners in this as— as private equity. These are people that buy for keeps.
They— they run businesses, I mean, they actively— and— and they will keep
running them.
So, this is not a private equity firm. These fellows are not planning to make
their money on some override on other people's money. They have big sums
of their own money in this— deal. And— Jorge Paulo Lemann and my— my
main partner in this— he'll— he'll keep the stock indefinitely, as will we. So,
it's a partnership.
And our preferred stock introduced some leverage for our partners, but it's
nonthreatening leverage. You know, it— it— it's held by their partners. So,
we have— between the— between the two of us we have 16 billion— of

PAGE 4 OF 70
equity in this deal and they have the more leveraged play, because we have
this preferred stock.
BECKY: There was a question asked over the weekend about a column that
had been written about this deal that suggested that, you know, the— the
money that you had that wasn't in preferred shares, and the common was
dead money.
BUFFETT: (CHUCKLE) If that 4 billion is dead money I'll be very surprised.

And— and that's what our partners own. I mean, we each own 50 percent of
the equity. And if it works out as we hope— the rate of return on that 4
billion, our 4 billion, their 4 billion of common, will be higher by a
considerable margin than the rate of return on the preferred stock we got.
But that— that's the way it should be.
BECKY: So—
BUFFETT: That's not dead money, by a long shot.
BECKY: Are— are people wrong when they assume that you're looking at
deals like this because you look at the stock market and you think that it—
it's not as cheap and you can't get as much value as you might have been
able to get there in the past?
BUFFETT: Well, we always prefer to buy businesses, and that's what we

consider Heinz to be. Well, we'll— we'll be in Heinz forever and— if a few of
our partners decide to sell out at some point, I hope they sell to us. So,
this— this— you know, we— we'd like to buy— we'd like to have bought 100
percent of Heinz, but we— we love the idea of Jorge Paulo Lemann being our
partner. So— if it takes 50 percent of the equity to bring him in— that's fine
with us.
BECKY: We— talked to you about the jobs report on Thursday of last week.
And you said you wouldn't have put money on it, but if you had to bet you
thought it would be a weaker number. It came in at up 165, which the
market took as a huge roaring success. One sixty-five still isn't great
growth, and it's certainly down from where we've been before we got into
this new year. What do you think about that number? And again, your—
your read on where you see the jobs market.
BUFFETT: Well, it's a good thing I didn't bet on it, isn't it? (LAUGH) I— I—
I don't pay that much attention to the numbers from month to month. But in
terms of our businesses, and we have 70 plus direct businesses and a lot
more indirect— we're seeing the same thing we've been seeing for four years

PAGE 5 OF 70
and that's gradual improvement in— in— in the economy. And we're— we
cut across the whole economy, so I think it's a pretty good— a pretty good—
view of what's going on.
And what you are seeing now is certain areas, which didn't participate
initially, like home building, coming back fairly strong. Our— our— we had
record sales at Furniture Mart last year during this week— shareholder week,
36 million. It looks like— we know we'll have another record, it'll be about
$40 million in one week. And the retailers out there know what that is.
The— the biggest— our biggest gains, 30 percent same in flooring. And—
and so people are buying carpeting and— and— that area is— is— is coming
back. But overall the economy is— is moving forward but— at a slow pace.
BECKY: Why? What— there's been a lot of questions about why businesses
aren't investing more, why they aren't hiring. What— what do you think the
problem is?
BUFFETT: Well, they always hire— they— they invest— they hire in respect
to demand. Now we had a record investment last year, and well over
another record this year. I mean, we— we have lots of projects going on
that we think make sense. But— businesses respond to demand and
demand as come back, but slowly. Now I can see demand coming back
faster in the residential area now than— than a year ago or 15 months ago
and— and that makes a difference. And it kind of filters down through our
brick business, carpet business and insulation business. But, it's not roaring
back.
BECKY: Right. I know that— you're not somebody who looks at the market
averages on— on a daily basis—
BUFFETT: No.
BECKY: —or cares about any of these things. But when you start seeing the
trend that we've b— been seeing, which is— almost a straight march up, it
seems like we're hitting new highs almost every day— and that's the type of
thing that catches Main Street's attention.
We've got a lot of individual investors who are sitting around wondering if
they've missed everything, if they should get back in, if they— if it's too late,
if they've missed the train. I mean, w— what— what would you tell those
people who are sitting at home wondering what the Oracle of Omaha thinks
about when it comes to the market today?

PAGE 6 OF 70
BUFFETT: Well, they should pay— they should pay more attention when
they're crossing those milestones on the downside, that's when stocks are
getting cheaper. Right? That's when stocks are going on sale. But people
do get more excited when they see new— well, I can remember when it was
a big time when the Dow c— crossed 100. (LAUGHTER) And— and I
certainly remember well when it was a thousand, I mean, that was a magic
number.
So— probably in— in my lifetime and certainly in your lifetime, you know,
you will see markets that are far higher than this. I mean, the— the
retention of earnings by American industry and the growth of the country, —
will cost stocks to go higher over time. You're not getting everything out of
the stocks in terms of the divi— the dividends they pay, compared to the
earnings, so that retention builds it up.
It's exactly like if you had a savings account and you only took out part of
your interest. Your savings account would grow. So, I don't get too
concerned about it, given level. You'll see— you'll see— you will see
numbers a lot higher than this in your lifetime, Becky.
BECKY: You know, I— I know you watch the show and— and you probably
have seen what Joe's been talking about. For— for quite a while now he's
been talking about how this is something that reminds him of what he's seen
in the past. And Joe, maybe you want to talk a little bit more about this, just
what you've seen with the market, your theory about how things continue to
climb and this feels really different than what we've seen in the past.
JOE: And I don't want—
BECKY: What do you think, Joe?
JOE: There— there's two things that— that scare people, that's when
you're— and— and people do the same thing with human nature, they— they
ride things all the way down and they think it's too late to sell. And then
when things are going up, they— they— a lot of times they're not on board.
And if they start out not on board, they never do get on board. And— and
watching this happen— this time, every time we hit a new— a new high,
people say, "Well, I can't buy now."
And— and that usually indicates that we're not near the end of— of
something. And that— that's only been my— and my other point, Warren, I
just get so irritated with— with sell side people that— they're— they're
always saying, "I'm constructive long term, but in the— you know, there

PAGE 7 OF 70
could be a pull back any time. I'm looking for, you know, five to ten percent
any time."
And they— they say that as they miss thousands and thousands of points.
And they're not committing new money. But they— they never— you— you
can never pin 'em down on being wrong. And that's what— that's w— what I
think they're most motivated. So, it's just sort of— just having seen it for so
many years, it just gets— just a pet peeve of mine. And— and— you know,
when it's just— when it's just utilities moving and just bond equivalents
moving, it seems like— you're— you're not really at the end of— of a— of a
run, of a bull run. I don't know.
BUFFETT: Yeah. Yeah.
JOE: But—
BUFFETT: When— when people talk about— you can see a pull back, of
course you do. It— they pull back any day for the next thousand, ten
thousand days. Nobody knows what the market's going to do the next day.
But you shouldn't pay any attention to that. I— I bought a farm in 1985, I
haven't— haven't had a quote on it since.
I bought a piece of real estate in New York in 1992, I have not had a quote
on it since. I look to the performance of the assets. Maybe those— m—
maybe my farm and my— my— my piece of real estate have had pull backs,
but I don't even know about 'em. People pay way too— way too much
attention to the short term. If you're getting your money's worth in a stock,
buy it and forget it.
JOE: I—
BECKY: I mean, is that— is that an— oh, go ahead, Joe.
JOE: Oh, no, I— I was just— I— I've just got this sort of exciting feeling—
with me 'cause I'm saying, I— I'm not sure whether Warren is— whether this
is going happen or not, but, you know, he's given me a brick, and he's given
me— you know, some ketchup (LAUGHTER) and— and—
ANDREW: And a Marquis jet card but that— that came up—
JOE: That didn't work. But there is a jet right behind him. Is this a surprise
today for me, Warren? Is that— that one behind you? Are you going— is—
is that going be mine?
ANDREW: You're going wait all three hours of the show.

PAGE 8 OF 70
JOE: Yeah— is— are you going— that's going be the—
BUFFETT: Hey, you got to stick around, Joe. Be sure to stick around, Joe.
ANDREW: There's a big unveil going around at the end of this program.
BUFFETT: There— there's—
JOE: I mean, it— is—
(OVERTALK)
JOE: Uncle Warren, it's beautiful. It's beau— it's beautiful.
BUFFETT: There's— there's— there's a name on that plane, Joe, and we'll
look at it later.
BECKY: I can see it from here (LAUGHTER). I'm not going give it away,
though.
JOE: Can you see the ribbon on the side?
BECKY: But yeah, that is the Global 6000. We're going be talking more
about this, too. So, it's a new— it's a brand new delivery. We're going talk
more about this a little bit later, too, because—

PAGE 9 OF 70
BUFFETT: But we can put you behind the wheel, Joe. Don't worry.
(LAUGHTER)
BECKY: I'm not riding if Joe's behind the wheel. Can I just say that?
Warren, let's— let— and let's talk (CLEARS THROAT) about the Fed. The
reason so many people think that equities have done so well, at least in part,
is it's not just the economy improving, it's also what the Fed is doing to make
every other asset class look not nearly as— as strong as equities.
BUFFETT: Sure.
BECKY: You— how much do you think the Fed has done— how much— how
much of this boom, I should say, in stocks do you think is coming from what
the Fed's done?
BUFFETT: Well, it— it— when interest rates are low, and people expect them
to stay low for a while— it pushes up the value of all other assets. I mean,
and— interest rates act like gravity to other asset prices. Everything is
based off them. So, when there are high interest rates there is a lot of
gravitational pull down on the value of assets, as we found back in 1981 and
2 when— when— when the rates got to extraordinary levels.
If you guaranteed people that the long term rate would be 1.7 percent, or
ten-year rate, or— you know, and short term rates would be practically
nothing— you know, stocks should be, you know, selling at least double
where they are now. The question in people's mind is how long it lasts. You
don't— you have the strong feeling it doesn't last forever, but interest rates
have a powerful effect on all asset— all assets. Real estate, farms, oil,
everything else— it— they're— they're the cost of carrying other assets.
They're the alternative. They're the yardstick.
BECKY: But if— if you had to look at it, would you say that 50 percent of the
market's rise— it's come 50 percent from the improving economy and 50
percent from the Fed? Or does one side have a heavier weighting?
BUFFETT: I don't know the answer to that. Both— both are— are very
important. If the economy had gone no place— and interest rates had come
down like they have— stocks would be cheaper than they are now. And if
the interest rates had been somewhat higher during this period, and— and
business had come back, stocks would be somewhat higher. I don't know
how to break up the two.
BECKY: Is— if you were Ben Bernanke, you know, we just heard from them
last week, or when we got the FOMC minutes. We heard that they've said,

PAGE 10 OF 70
"Look, if this isn't enough, we're prepared to do even more than $85 billion a
month."
BUFFETT: He's a gutsy guy. I mean, he— he— he said, back in September
of 2008, he would do what it takes, and he's been doing what it takes ever
since. He is the man and he can do what it takes. He— he— he is— he is
the man that's dealt a heavy response— a huge responsibility— to get the
economy going and to keep it going. And he has used monetary policy— in a
way I've never seen before.
But, we faced a situation I hadn't seen before. So, I— I'm a huge admirer of
his. I don't envy the job of playing the hand out from here. But I— I think
he— he— he's done very, very well in— in— in terms of what he's done for—
for— for the United States.
BECKY: And you've been very outspoken about how much you admire him
and— what a job you think he's done. But you've also said, over probably
the last year or so, that you thought maybe if it were you in that seat, you
would have taken your foot off the gas a little sooner.
BUFFETT: Probably. Well, I— I might not know how to take my foot off the
gas. (LAUGHTER) If— if he— if he call— when he decides to sell or quit
buying, but— with— with single selling at some point, if he calls me and asks
me how to do it, you know, I will— I will tell him to call Charlie. (LAUGHTER)
BECKY: Put that in the too hard file, right?
BUFFETT: Way too hard.
BECKY: All right. If— if you'll bear with us, Warren, we're going slip in a
quick commercial break right now. (MUSIC) When we come back, we will
talk more with Warren Buffett. He is spending the entire morning with us, so
stay tuned. We'll get his thoughts on Europe and whether it is safe for
investors, when we come back. And then a little later this morning, we will
also be joined, live, by Berkshire Board Member, Microsoft Chairman Bill
Gates. Buffett and Gates together, live, starting at 8:15 Eastern time.
Squawk will be right back.
CHARLIE MUNGER (on tape): Cyprus demonstrates it's an old truth. You
can't trust bankers to govern themselves. A banker is allowed to borrow

PAGE 11 OF 70
money at X and loan it out as X plus Y. We'll just go crazy and do too much
of it, if the civilization— doesn't— doesn't have rules to prevent it.
What happened in Cyprus is very similar to what happened in Iceland. It

was stark raving mad in both cases. And the bankers, they'd be doing even
more if they hadn't blown up. I do not think you can trust bankers to control
themselves. They're like heroin addicts.
BECKY: That was Charlie Munger who sat down with us on Friday. We are
live in Omaha this morning with Berkshire Hathaway Chairman and CEO,
Warren Buffett. And— Warren, you've heard Charlie's comments. What he
was talking about there ended up with bankers, but it started on what he
thought about Cyprus, some of the things that are happening in Europe.
Over the weekend, when the two of you were on stage, it seemed like you—
you disagreed a little bit about the state of Europe, just in terms of— how
great of an investment it may or may not be right now, how safe of an
investment it is. You talked about how you see— things— you'd potentially
be interested in a deal coming out of Europe right now.
BUFFETT: We've bought— in the last 12 months we've bought a couple

smaller businesses in Europe. We've bought some European stocks. And—
the fact that there are troubles in Europe, and there are plenty of troubles,
and they're not going go away fast, does not mean you don't buy stocks. We
bought stocks when the United States was in trouble, in 2008 and— and it
was in huge trouble and we spent 15 1/2 billion in three weeks in— between
September 15th and October 10th.
It wasn't because the news was good, it was because the prices were good.
And if you believe that Europe is going to be around, which it certainly is,
and it's going have huge amounts of purchasing power with its citizens and
all of that— then you— you look at— you actually look at troubles as possibly
being— offering you an opportunity to buy.
I bought my first stock, you know, when— when the United States was losing
the war, right after Pearl Harbor. I didn't buy it because I thought losing the
war was a great idea, I bought it because I thought stocks were cheap and
that eventually we'd win the war. And the same way in Europe.
BECKY: So, you've been buying European stocks. Has that been disclosed
already?
BUFFETT: Well, we've bought some in our— in— in our re-insurance

company we have over there. We spent a couple billion euros— a year or so

PAGE 12 OF 70
again. And— and— and— and we would look at more. I mean— if we find a
good business, if— if Coca Cola were based in Amsterdam, instead of Atlanta,
you know, we'd love to buy it. And— and— if the— if— if we get it cheap
enough, that— that— that's— we— we like good companies at— at cheap
prices.
BECKY: Would you buy in some of the Southern European countries, too?
And specifically in Greek, Italy and Spain? And I ask that, because Wilber
Ross joined us recently and said that he'd be interested in making some
deals in Greece.
BUFFETT: Well, I don't see it as impossible. I think— I think there's a

higher hurdle— to clear in looking at business in those areas. But many of
those businesses are international businesses, too. But I— you know, the—
the answer is, if I understand the business well and I trust and admire the
management and the price is right— we'll buy there.
BECKY: Hmm. Charlie did a crack on the stage on Saturday that if— if it
was in Greece he'd hoped you'd give him a call before you went ahead and
buy it.
BUFFETT: Yeah. (LAUGHTER) I'll— I'll— I'll do that. But he says no to

everything I come with, so it really won't make much difference.
BECKY: Andrew, I know you have a question, too.
ANDREW: Hey Warren— I— this is really actually more of a follow up from—

from our— from the meeting on— on Saturday and it came after you had
commented— during— during the meeting we got a number of emails asking
for the follow up. So, here's the follow up.
It was a philosophical question— really related to the division of— of having a

chairman and a CEO— and whether they should be the same person. You
had commented about the reasons for having (Warren’s son) Howard— be—
be the eventual successor, non-executive chairman to sort of oversee things
and be a check on the CEO.
After you said that, during the meeting, invariably I think I got maybe half a
dozen emails from people and the audience said, "Well, then follow up and—
and— and ask should that be applicable across the board?" And— and I
guess given the news this morning related to JP Morgan, you— you could put
it in that context. But— but more broadly philosophically, do you think there
should be a separation between the chairman and CEO, now that you're
thinking about— the future of Berkshire in— at least in that way a little bit?

PAGE 13 OF 70
BUFFETT: Yeah. I— I think e— I— I think either system is okay. But the
one advantage of having the chairman separate from the CEO is that it
becomes easier to change the CEO if you have the wrong— person in the job.
And the biggest problems with CEOs is not— the occasional one that is
crooked or— or— or just absolutely terrible, the problem is, is if you get
somebody that's reasonably good, but— but— you can come up with
somebody w— better.
I mean, we have all kinds of second string— quarterbacks or third string, you
know, in— in pro football or something, and they're— they're very good, but
you still want the top guy in there. And— top person playing in— in the
position. And— and it's very difficult— when the— you have the chairman
and CEO and they're likeable, and they have appointed you to the board,
they're doing their best, they're doing a reasonable job, but you could get—
you could get somebody better and perhaps you should.
And— and that is not an easy thing. When people come into board meetings,
you know, six times a year, four times a year and they have a lot of
committee meetings and they want to get planes back out of town— it's—
it's— it's not easy to change when you've got somebody that's good but not
great. And— so I— that is a reason to separate the two.
On the other hand, I don't think that it's— it's key to do that at— I do think
it's important at Berkshire, because— my son Howard, with the non-
executive chairman, he would have no function— you know— in terms of
capital allocation or anything else, it would just be if there was one chance in
a hundred that we came up with the wrong CEO it would be easier to make a
change.
BECKY: Is that almost a lead director position?
BUFFETT: It's— it's— it's almost similar to the lead director. And one of
the— one of the beneficial things that have come out of securities regulation
in the last ten years or so is the idea of having a meeting once a year of the
board, without the CEO there. I— I've been a participant— as a director, in
those situations, and directors say a lot of things and subjects come up—
when the CEO isn't there— that don't happen with the CEO— in person.
And— and some impor— (CLEARS THROAT) some important things.
BECKY: Why isn't that preferable all the time, instead of just some of the
time?
BUFFETT: Well, I think if you do it once a year, it's often enough.

PAGE 14 OF 70
BECKY: No, I— I I'm sorry, I mean that set up in that situation? What—
why is it a situation that you think is only good in some cases and not in
others?
BUFFETT: Well, I—
BECKY: For— for example, why is it not a good idea for Berkshire right now?
BUFFETT: Well, Berkshire does it now.
BECKY: Oh, you do it right now?
BUFFETT: That— that— yeah, we will have a director's meeting later and
then—
BECKY: And you won't—
BUFFETT: —they'll ask me to leave. And— and— and I— and you get a little
nervous, as— as— if you're gone an hour or two (LAUGHTER) and they're still
meeting. But— no, that— that— that's required, I believe, at— at— at public
companies.
BECKY: How—
BUFFETT: And it— it it's been good at Berkshire.
BECKY: How long were you out of the room the last time this happened at
Berkshire?
BUFFETT: Well, I go— I go back to the office and they're meeting in another
room. And I— I kind of hope that they're having a little post-meeting chatter
or something. But it's— Ron Olsen will be the guy that usually comes around
and— and he's come— around as late as an hour later. The— for example, I
mean, I— you know, I— I don't like a lot of security or anything and— and
the board— I don't know, two years ago or three years ago said, "You're
going to have more." You know, and— and— and—
(OVERTALK)
BUFFETT: —I mean, things like they— they— they— they don't want to talk
to me directly like that when I'm in the room. It's a little embarrassing to be
the one that brings it up. But, I— I can say I've been on one board where a
lot of change happened because the CEO let the room.
BECKY: Is the additional security the biggest thing the board has ever
imposed on you?

PAGE 15 OF 70
BUFFETT: They've made suggestions on a few other things, but— but—
that's the most recent ones that I remember. Yeah.
BECKY: Okay. Guys I think we're going to send it back to you, to slip in
another quick break. But we do have a lot more to come— from— Warren
Buffett right here in Omaha.
BECKY: Good morning, everybody, and welcome back to Squawk Box. We

are live in Omaha with Warren Buffett, the chairman and CEO of Berkshire
Hathaway this morning. And right now we are sitting on a Global 6000.
Warren, this is part of a signature series for NetJets. You just started taking
delivery of these planes, I believe, in December of last year.
BUFFETT: Right.
BECKY: But this is a series of planes that you specifically designed with
Bombardier— because you wanted— certain things that you wanted in these
planes.
BUFFETT: Yeah, people of NetJets did. But I actually made a suggestion or

two myself. (LAUGHTER)
BECKY: What was your suggestion?
BUFFETT: I— I— I like a wide bed. (LAUGHTER)
BECKY: So that bed back there?
BUFFETT: That back there.
BECKY: All the way back. These planes can hold up to 13 people. They also
have special— crew quarters where you can actually sleep in them, and I
guess that's so you can take longer flights so people—
BUFFETT: That's right. That's right. When you need a crew change— in
route.
BECKY: Okay, so you've got these planes that are out here, and we're going
be sitting down with (NetJets chairman and CEO) Jordan Hansell in just a
moment to talk more about that. But one interesting thing is that this
weekend happens to be a huge weekend for NetJets, because so many
people are coming not only here to the Berkshire Hathaway annual meeting,
but also to the Derby.

PAGE 16 OF 70
When— when I saw Bill Gates earlier this weekend, he said he thought just
basically— looking at the runway, he thought there were about 25 percent
more jets than there were last year at this time— private jets. I talked to
Lou Simpson over the weekend, and he suggested that he thinks it's part of
the wealth effect— people really starting to buy into what they're seeing in
the stock market. What do you think?
BUFFETT: Yeah, well, we're— we are seeing in— in flying the people that
own the planes, or fractions of the planes, are flying more hours than they
were. It— it was interesting to me. Whe— when the— when 2008 came
along, in the fall, people already owned the planes. They were paying a
monthly management fee. They had their homes— vacation homes
wherever they might be in Florida or Colorado. But the flying fell off
dramatically. I mean, very, very, very rich people cut back in a significant
way. It— it was like somebody blew a whistle. And— and it's been coming
back from that.
BECKY: Well, was that— was that in part, you think, just because of— the
appearance of austerity? Or do you think that that was really that they just
feel like this is a luxury that they can let go before everything else?
BUFFETT: I— I— they— they just felt poor, but they were still very rich, you
know. No, I don't think it was— they were embarrassed getting out of a
plane. But I think— that— they and their families in some way— they had to
hold. They had the plane. They were paying. (LAUGH) But, they just—
changed their behavior very, very significantly. We saw it in a lot of places,
but it surprised me the extent to which we saw it with the planes. Now—
now like I said, it's come back— dramatically since then.
BECKY: Okay. Again— what do you about this particular plane? Have you
spent time on the Global 6000?
BUFFETT: I— I've flown it once and I— and— w— once— (LAUGH) and it's a
very powerful sales tool. (LAUGHTER) Jordan— Jordan will be working on me
here in the next— few months, I'm sure, and— I'm— I think it'll be— he
probably has a patsy. (LAUGHTER)
BECKY: Okay, again— this is the Global 6000. We're going to go back
outside and we're going sit down with Jordan Hansell, who's the chairman
and CEO of NetJets, along with Warren Buffett when Squawk Box comes right
back.

PAGE 17 OF 70
BECKY: Good morning, again, everybody and welcome back. We have been
speaking all morning long with Warren Buffett. Joining us right now— joining
the conversation is NetJets chairman and CEO, Jordan Hansell. Jordan,
thank you, very much, for hosting us here today. We appreciate it.
HANSELL: Thank you for letting me do it. It’s been fun.
BECKY: You know, we were just talking inside— inside the Global 6000, I
might add— about— just the idea of how many people are coming back and
what the numbers are like. When— when I talked to Bill Gates this weekend,
he said just by looking around casually at the number of private jets on the
runway when he came in, he expected that it was something like 25 percent
more in terms of people who are coming to the annual meeting on private
jets. Was he right?
HANSELL: I think he's in the ballpark. We had a record number of flights for
us coming in and out of— Omaha this year for the meeting.
BECKY: What— what— what do you attribute that to?
HANSELL: I think it's a fact of the economy coming back and people starting
to feel better about things and more optimistic and— and they want to be
here to hear what Warren and Charlie have to say and they want to do it
efficiently.
BECKY: Is this the biggest weekend for you just in terms of— I mean, I—
I've heard that in the past, and I— I— I kind of make that number up and
throw it around. But in terms of both the Berkshire Hathaway meeting, and
the Kentucky Derby— when you add them up?
HANSELL: It's a big weekend— our biggest weekend and day is the Sunday
after Thanksgiving. But this one— this one comes — ranks right up there.
BECKY: This one ranks right up there, too. So Kentucky Derby— did you
have a similar gain there?
HANSELL: We did. We had a great trip down to there— great set of trips
down to the Kentucky Derby, too.
BECKY: Okay, so— Warren, you see what's going on. You see what's
happened. Is it— is it a situation where people who hadn't been buying
before are buying in? Is this— people who are just now feeling like they can
do something like this? Or is this— a resurgence of all the customers who
were there who have come back and maybe are using it more frequently?

PAGE 18 OF 70
HANSELL: It's both from our perspective. We've got people who've been in
the program flying more, and we're up— year over year, 55 percent in terms
of new owners— people who've just come to the program for the first time.
BECKY: Fifty percent in terms of that?
HANSELL: Uh-huh (AFFIRM). Uh-huh (AFFIRM).
(OVERTALK)
BECKY: Can you give us numbers on that?
HANSELL: In terms of new owners. Well, I like to keep a secret unless

Warren tells me I'm supposed to tell be telling people (LAUGHTER), so I can
speak generally —
BUFFETT: Don’t let her work on me. (LAUGHTER)
BECKY: So, 50 percent in terms of new customers. That's interesting.
BUFFETT: Well, we keep looking for Joe's name, too. But—
BECKY: Yeah, has Joe—
(OVERTALK)
BECKY: —yet?
JOE: I— we haven't— we haven't shown the jet from the other side, and—
and Andrew says that's where the n— my name is. But I— I'm g— yeah, you
know, the more you talk about—
ANDREW: There's a whole red ribbon. They're going pan around at the end
of the show.
JOE: The more you talk about it without doing it, I— I think that I'm getting
my hopes up and it's not real. Hey— hey, Warren, I— I had— I was thinking
about— the business of NetJets. And you remember the— the— the— the
bumpy period you had w— can you explain— it— it was based on the
dropping value of— of the jets themselves, that thing, and— how does that
work? It's all— it's all accounting, but there're a couple of really tough years.
Why are you in a business that— that you— that you can't necessarily
insulate against the next big break? Or— or have you done something
differently this time to make sure that that doesn't happen again?

PAGE 19 OF 70
BUFFETT: Oh— we're not— we're not insulated against the major downturns
in the economy. But— but that's part of— that's part of the business.
Incidentally, the— you know, the— the— Burlington Northern peak was
219,000 carloads and it got down to 152,000 carloads. So all of our
businesses— maybe with the exception of insurance— but all of our
businesses— showed declines of one sort or another, and some quite
significantly— during the— recession. And you would expect— aircraft— to
be— in that group. But—
ANDREW: H— hey—
BUFFETT: —that doesn't mean it isn't good business over time. See’s Candy
doesn't make any money in eight months of the year, but— but Christmas
always comes around and— and the— metaphorical equivalent of Christmas
(LAUGH) comes around in the— in— in— in the— in the jet business.
ANDREW: Warren— you know— (Legg Mason Capital Management

Chairman) Bill Miller had made the argument or at least in the question,
Becky asked it during the meeting about airlines and— and given all the
consolidation whether you'd be interested in those. Do you think about
NetJets in that context at all in terms of— an c— a competitor— trying to
come in? You— you know, we had talked to— one of the reasons I think you
said during the meeting that you wouldn't want to buy an airline is that
there's always a new competitor. Is— is there— is there a moat in your mind
around jet— NetJets?
BUFFETT: Yeah, the— there— I— I think there have been dozens of

companies that have gone into fractional ownership— arena, and— and I
believe and Jordan confirmed it— I think we have over 60 percent of the
market— in the United States. So— people do come in one way or another,
but— they really can't match, you know, the— the breadth of our operation,
the service— the safety— precautions that we— we follow. So, it's not a
field— it's not like the airline business. There will be nobody come in, in my
view, that— that— goes into fractional ownership business and— and— has
any kind of success. In fact— people have— people (LAUGH) have been
going out of it for— for some time, and— and— and like I say, our market
shares held steady the l— it— it's in the low 60s, I believe.
HANSELL: That's right. Yeah, we've had steady market share for— for some
time. And— and— unlike the airline industry, we've been differentiating
quite a bit and you see the two aircraft behind us. Those are signature series
aircraft. They're completely different than anything you can get anywhere

PAGE 20 OF 70
else. It's not like flying for Delta or for United and you're either on a 737—
doesn't matter where you are.
BECKY: And— and you're kind of taking deliveries—
JOE: You— you're not— oh— oh, sorry, Beck— you—
BECKY: I think— go ahead— go ahead, Joe.
JOE: No, you go ahead and then I'll— and then I'll ask. I have a totally
separate question.
BECKY: Okay, let me ask real quickly. Let's talk about the signature series
behind us, Jordan. You started taking delivery of these in December of last
year. How many do you have now?
HANSELL: Right now we got eight

on the fleet, two of which are
leased to provide us with core, but
six that we're flying fractionally.
BECKY: And how about— how

many more deliveries you'll be
taking?
HANSELL: We'll be taking about

another eight this year, and of
NetJets CEO Jordan Hansell and Warren Buffett
course we have— up to 120 that
we can take over time.
BECKY: And this is part of that initial deal that you got to go in and help
design some of these.
HANSELL: That's exactly right. Both of these aircraft, the Phenom and the
Global 6000 were completed with the heavy input from the folks at NetJets.
BECKY: Yeah, we should point out the— they have the big one behind them.
That's the Global 6000. Behind me is the Phenom, and I think that one holds
seven passengers?
HANSELL: That holds, seven. Uh-huh (AFFIRM).
BECKY: This one holds 13.
HANSELL: That's correct.

PAGE 21 OF 70
BECKY: And the distances between the two for—
HANSELL: 2200 miles, 2300 miles depending on your flight pattern—

nautical miles in the Phenom, and 6,000 nautical miles for the Global.
BECKY: Is there a big demand for this? Do people get to request this as
part of their package? Or is it just luck of the draw?
HANSELL: No, they get to request it. If they’re an owner, they obviously
are going get it faster. I've been trying to talk Warren into it here for a little
while, but we— and we'll see when he— if he ever decides to take that
plunge he’ll get it even more. But— (LAUGHTER)
BUFFETT: He's checking my credit. (LAUGHTER)
HANSELL: That's right. That's right.
BECKY: Hey Joe, what was your question?
JOE: Mine was about kind of the air taxi business, and I wonder whether
that's viable and whether— I don't— maybe NetJets wouldn't even play there
in the low end. You know, there's— I don't know how you do it. You buy a
Honda jet that doesn't even have a bathroom, but— but there are people
that want to— want to operate between cities that are 80, 100, 200 miles
away. And— and— you know, there's— there's capacity, but there's a way of
booking these flights. I guess NetJets doesn't play there, does it Jordan?
Is— is it a viable business? Will that be a business some day?
HANSELL: NetJets had not played in that arena, and a lot of— people have
tried. It's a very difficult place to operate, and so— we've not looked at it—
in some time.
JOE: Yeah, and I— I don't know if that even possible to— to eventually do
that. But is that your s— what's your smallest jet? Was that the one that we
just saw that— that— that holds seven? Or do you— do you have Citations?
HANSELL: That's right.
JOE: Oh, that's the smallest one? Okay.
HANSELL: Well— the Phenom will be the new small cabin aircraft for us. It
will replace everything we had in that category before. It— it will be the
smallest jet we offer in the fleet.
JOE: Okay.

PAGE 22 OF 70
BECKY: Jordan, when you look around, the— the biggest difficult thing you
face right now is what?
HANSELL: Oh, I think— waiting for the economy to gain full stream. We're
seeing it pick up in the United States and Europe remains anemic. As it
continues to pick up, we'll do better. We've been working very hard. The
team's done a terrific job getting ourselves in a strong position to compete
forcefully when the time comes, and I think we're starting to see that in the
United States already.
BECKY: You are getting record numbers? I mean, we talked about before
about how these are record numbers for some of these things. I mean, does
that mean you're 100 percent back from any of the downturn?
HANSELL: No, we're still working our way back, and I think we will be for a
while. But we're starting to see those early turns. And— and as you
suggested, some of our performance is at record levels. So we couldn't be
happier.
BECKY: Well, w— one of the things we talked about— is— with housing, we
talk about how maybe it's up ten percent with Case-Shiller, but it's still
30 percent below the peak. Where are you versus the peak?
HANSELL: We're still roughly 20 percent down versus the peak. And the
industry is over that— beyond that— 30 percent down or so. So we're in
better shape on a comparative basis, but we have to remain vigilant.
BUFFETT: The contracts are generally for five years, and so we had— a huge
amount sold in 2007 and they matured in 2012. And there were— quite a
few in 2008 before the crash. So, you had people who'd made a lot of
money, you know, financial types particularly and— and— they might not be
in the same frame of mind now that they were in 2007. (LAUGH)
BECKY: Got it. Jordan, thank you, very much, for joining us this morning.
We really appreciate your time.
HANSELL: Thank you for having me.
BECKY: Again, Jordan Hansell. We are approaching the top of the hour right
now. That means it's time for us to take a very quick break. When we come
back, we will have more from Warren Buffett. Still ahead, we're going be
talking about the discussions this week in shareholder meetings. We'll also
be talking about the business of Berkshire and some questions about the
session. And then in the 8:00 a.m. eastern hour, we have another Squawk

PAGE 23 OF 70
newsmaker. Berkshire and Microsoft chairman, Bill Gates, will be joining us
live. Stay tuned. Squawk will be right back.
ANDREW: Let's get back to Becky in Omaha who's got our special guest in
the morning.
BECKY: Andrew, thank you. We've been speaking all morning long with
Warren Buffett. He is fresh off of this weekend's annual shareholder meeting
here in Omaha. And, Warren, we haven't spent much time talking about—
Berkshire in particular. You did report your earnings after the bell on Friday.
One of the things that was very strong were the insurance operations. And
that's because— you were able to get strong premiums and you didn't have
to pay out a whole lot in terms of catastrophe dollars. People might be
surprised when they realize that Sandy— Hurricane Sandy happened this
weekend but— or this— within this past year. What— what— what's really
happening in terms of catastrophe?
BUFFETT: Well, the first quarter of the year usually is a very low period.
The third quarter is most— the one most prone to catastrophes. Sometimes
you get some in the first quarter, and— and we had a few hailstorms and
things like that. But— but it was generally a benign quarter for— the
insurance world, and— and we shared in that. But our insurance business is
really doing very well. (LAUGH)
BECKY: How— all the insurance businesses just in general?
BUFFETT: Yeah, they really are. I mean, it— it's led by Geico. I mean,
Geico is— is— is having a phenomenal year in terms of new business and—
and the profit is fine, too. But— I just hope it keeps up. (LAUGH)
BECKY: You— also nominated— or elected, I should say, a new board

member.
BUFFETT: Right.
BECKY: Meryl Witmer. She is— a 51-year-old who's coming in. She is a
general partner at Eagle Capital, which is an investment partnership. You've
changed the board pretty significantly over the last several years.
BUFFETT: Yeah, we're moving. We have now— we have six directors over
80. We have six under 60, and those six under 60 are the ones for the
future. And— and we've been adding in that category. We've now had

PAGE 24 OF 70
(NBCUniversal CEO) Steve Burke and now we have Meryl joining us. And
we've really got a terrific group— of— of younger directors that— fit— just
perfectly.
We— we want directors with business savvy that are shareholder oriented,
and that have a particular interest in Berkshire. That's not the criteria that
most companies set out. But that's— that's what we care about at Berkshire.
They're— they're the ones that will care about addressing the issues of
succession and that— that— are— are— they're wonderful in terms of—
understanding the allocation of capital. And—so we've got a great board.
BECKY: Is— is that why you wanted Meryl with her background— as an
investor— really kind of overseeing potentially what (Berkshire portfolio
managers) Todd (Weschler) and Ted (Combs) are doing?
BUFFETT: Well, not so much overseeing it, but just understanding how to
pick the Todds and Teds of the world— when the time comes up, maybe
down the line. Meryl— understands businesses. She's— she's gone along—
with Todd— on various— trips to various companies. She understands
management. She understands capital allocation.
And a lot of people with very big names really don't understand that part of
the business. They understand, you know, medicine or a whole bunch of
other subjects very well. But, we're in the business of capital allocation and
we're in the business of— of getting great managers and then keeping them
happy. And it's a different place than most.
BECKY: You didn't give away any secrets this weekend when it comes to
succession. But you've told us the— this weekend and in the past that the
board knows that there are three people right now who could step in and
take over your job as CEO. And you've said in the past that these are three
people who are currently at the company. You've said that they are men.
And I couldn't help but notice when I was looking around the floor this
weekend— normally the way it's set up is that the directors sit on the floor
directly in front of the stage. The managers sit up to the left in sort of the
bleacher seating. I— I noticed that there were three managers who were
sitting on the floor with the directors, and that was (Reinsurance executive)
Ajit Jain, (BNSF CEO) Matt Rose and (MidAmerican Chairman & CEO) Greg
Abel. It that a coincidence that those three were on the floor and you
happened to have three names that are out there?

PAGE 25 OF 70
BUFFETT: Certainly could be. (LAUGHTER) But— they were there
particularly— because I thought there might be some questions— relating to
the railroad or— or— relating to our utility business— that were technical in
nature. And I— I really wanted 'em where I could spot 'em easily and get a
spotlight on 'em and get a microphone to 'em. That— so I— I asked— I
asked those managers to— to be there. And— as you noticed, we did get—
one question that— Greg— answered one question and Matt answered— but
I would have— not have known— the answer, as well.
BECKY: Okay. In terms of other things that came up this weekend— Andrew
touched before on the question that Bill Miller asked— of Legg Mason. His
question was again related to the airlines. He's been on Squawk and talked
about his investment thesis. He has bought into a lot of these airlines. And
he points out that after the merger— the latest merger with USAir to go
through with American, the top four carriers are going to be carrying
90 percent of the traffic. And he sees that as a great reason to be buying
into these stocks right now. You were not as convinced. Your reasoning
behind that?
BUFFETT: Well— to have the airline industry be a wonderful industry— you'd

want one air— airline that was carrying 90 percent. As it consolidates, that
helps to some degree. As they go through bankruptcy and they modify the
labor contracts, it helps to some degree.
But for 100 years, airline tr— (LAUGH) tra— transport has not been a good
business. If you've got it down to few enough competitors— it— it— it could
happen, and maybe— maybe four with 90 percent will get the job done. But
the problem is with— a seat on— on an airliner as a commodity to a great
extent.
And the incremental cost of the last seat to the airline is virtually zero. Got
these huge fix costs, so there's this temptation always to tr— try to sell that
last seat. And unfortunately, when you sell the last seat cheap you may sell
the first seat pretty cheap, (LAUGH) too. Bill's a very smart guy, and— the
airline industry may have finally got to the point of concentration that
enables it to become a decent return on capital. But I've seen enough times
where that's been said before that— I'm skeptical myself and I'm— you
know, I hope Bill's right for his sake, and also for the airline's sake. I don't
have the conviction.
BECKY: Another question that came up on stage was just (Pimco co-
founder) Bill Gross and his outlook for where things are headed. There's an
article in today's Wall Street Journal that talks about Bill Gross and other

PAGE 26 OF 70
people who have been bear— very bearish on bonds— and says to this point,
it hasn't been an accurate reflection. But— your take on what Bill Gross has
been pointing out on this is what?
BUFFETT: Well— I don't know the exact specific comments. In terms of—
terms of bonds, some day they will sell the yield a whole lot more than
they're yielding now. I— I don't know when— when it'll happen.
BECKY: So you agree with him on that— on that point?
BUFFETT: Oh, it has to— it— it's going to happen. And question is— is—
well, all— the question is always when. I'm no good on that. The question is
to what degree it happens. But you could have interest rates very
significantly different than what they are now— in some reasonable period in
the future.
It's not a game that I can play. I mean, I— I don't have any special insight
into that sort of thing— I was in— that it will happen. In terms of stocks,
you know, stocks are reasonably priced. They were very cheap a few years
ago. They're reasonably priced now. But stocks grow in value over time
because they retain earnings and they expand o— basically the companies
(UNINTEL). You know, I like owning stocks. I do not like owning bonds now.
There could be conditions under which we would li— we would own bonds.
But— they're conditions far different than what exist now.
BECKY: Well— it's always been— standard investment advice that you have
some sort of a blend of stocks and bonds so that you keep things— just for—
for— the man on the street, I should say, for the average investor who is
kind of looking at this, getting a little bit of advice. Joe went in not long ago
and talked to a retirement specialist who told him he should be 40 percent in
bonds. I just wonder if this is a very different time.
BUFFETT: No, I— you shouldn't be 40 percent in bonds. The— you know,

my family— any— anybody that— I've advi— and they are a lot of typical
people. I mean, they're not— they're not— super-wealthy or anything of the
sort. You know, I— and bear in mind they have the proper attitude and if
the stocks go down 20 percent in the next month, they're not going be
bothered.
But I c— I would have them having enough cash on hand so they feel
comfortable, and then the rest in equities. Or if they— you know, if they're
farmers or something, I mean, they could apartment houses or other things.
But I would— I— I would have productive assets. I would favor those

PAGE 27 OF 70
enormously over fixed dollars investments now, and I think it's silly— to have
some ratio like 30 or 40 or 50 percent in bonds. They're terrible investments
now.
BECKY: Theyj— so now. This is not just your— your lifelong look on it. This
is particularly to—
BUFFETT: Oh, it's now. No—
(OVERTALK)
BUFFETT: I— I bought bonds back in— in the— in the early '80s. We— we—
we bought— we made a lot of money and we bought zero coupon bonds
that— I bought 'em personally. And— no, it— it— the price of everything
determines its attractiveness.
And— the price of stocks was way down a few years ago. The news was
terrible, but the stocks were cheap, you know. News is better now. Stocks
are higher. They're still not— they're not ridiculously high at all, and bonds
are priced artificially. You’ve got some guy buying $85 billion a month.
(LAUGH) And— that will change at some point. And when it changes, people
could lose a lot of money if they're in long-term bonds.
BECKY: And— leak— Luke— Lee Cooperman's point when he talked to us

about it was that this is kind of like bending down to pick up a quarter in
front of a steamroller.
BUFFETT: Yeah, well, it— I'm not sure it's even a quarter.
BECKY: Yeah. (LAUGHTER) So, it is a concern for you. If you look at the
pension funds, though, a lot of them— are being forced out into other places
to try and seek the yield. Because they've promised or they're expected to
return around eight percent a year or something just to meet their
obligations. It's a much more difficult game.
BUFFETT: Yeah, chasing yield— is— is crazy. You know, just because you'd
like to earn eight percent, (LAUGH) or— or— or you'd like to earn ten percent
or you'd like to earn six percent. The world isn't going to adapt to that.
You— you have to think about what is the most intelligent thing to do and
if— if that produces five p— percent or six percent, that's the best you're
going to do.
But to— to get enticed into some investment that— is riskier that you don't
understand because somebody promises you a higher yield— I mean, I can—

PAGE 28 OF 70
you know, I can take it down to the waterfront or something like that and
they’ll promise you 15 percent or something. (LAUGH) And it just doesn't
make any sense at all. And— but, pension funds— you know, they— they
haven't been that well managed over time.
BECKY: We spoke with the CEO of Lloyd's of London last week and talked to
him about some of the insurance businesses, and he said he's a little worried
about hot money getting into the insurance arena because he thinks it
could— very likely create a bubble there.
He's not saying that it's happened yet, but he says as you see hedge fund
managers and others who are looking for yields, they look at insurance
stocks and it seems like potentially a good place to put that. But he's
worried about that being fast money that is in the market and back out. And
it's not good, he thinks.
BUFFETT: Well, money is capacity in terms of insurance. I mean you— you

need to have money to get people to trust you to write insurance policies
that you'll pay off. So when you bring more money in, it's just like bringing
in more capacity. It's just like bringing in more steel capacity or autoc
capacity.
You know— it's likely to affect the supply side of the equation. And if the
demand side doesn't change, prices come down. So it— he's correct in that
and, of course, a number of money managers, they talk about— you know—
some things uncorrelated and other things. They'll— they'll sell what they
can sell.
And— and— they get special tax treatment if they— put these things
together in— in some offshore locations. They can keep their— their
manager's money for managing the money. They can keep that from hitting
their U.S. tax returns. And so it's very attractive for the money manager to
create it. And then the question is whether it's attractive for the investor
when the game is all done.
BECKY: Right. Warren, do you mind if— we slip in a quick break here?
BUFFETT: Oh, I think you should have a commercial, yeah.
BECKY: You're in favor of capitalism and—

PAGE 29 OF 70
BECKY: Anyway, when we come back, we will have much more from Warren
Buffett right after this break, including his thoughts on— the railroads and
JCPenney. And later, Microsoft chairman and CEO— Microsoft chairman, I
should make that— Bill Gates is going be joining our conversation.
Everything from the third anniversary of the flash crash to the future of
Microsoft. We'll cover it all when Squawk Box returns.
BECKY: Good morning again, everyone. We're joined this morning with— by
Warren Buffett, who's the chairman and CEO of Berkshire Hathaway. And,
Warren, we've been talking about some of the Berkshire businesses and
some of the things that happened over the weekend. We have not talked
much about the railroads to this point. When— you look at what's happening
with Burlington Northern, where are you just in terms of carloads coming
back?
BUFFETT: We're running about 185,000 cars— a week. We'll— in the— the
peak comes in the fall. My guess is we'll peak at maybe 205 or a touch
higher. That will not be quite as high—
BECKY: A bit below.
BUFFETT: —it's below—
(OVERTALK)
BUFFETT: Yeah. Yeah. And we're gaining share this year, so far, which I
like. And— and— it looks to me like we will— have record earnings at the—
at the railroad— this year. It— it— it's been a terrific acquisition for
Berkshire.
BECKY: Is it still not back to the peak just because of the housing situation?
Is that the biggest—
BUFFETT: That— that's part of it. But it's— it's— a general business
activity, and— coal is down— significantly from— 2006. Oil is up quite a
bit— a lot. So it's a mixture of things, but and (UNINTEL) the rails as well.
Business has come back. It's come back year by year, but it's not where—
where it was in— in two— in 2000— actually 2006.
BECKY: The oil situation— that's because— Burlington is the largest player in
the Bakken shale formation area.
BUFFETT: Yeah.

PAGE 30 OF 70
BECKY: And—
BUFFETT: Fortunately they found oil where our railroad tracks happen
(LAUGHTER) to be.
BECKY: How— how big of— of— of a game changer is that?
BUFFETT: Well, oil is now— petroleum tr— petroleum products throughout

the country will be about five percent of our car loadings, and that was about
two— two and a half percent. But— and that's a lot. I mean, it— it— it—
nothing like coal or anything. But— we are now carrying about 650,000
barrels a day of— of oil.
And— the country not too long ago was producing about five million. So it—
it's a very significant part— of— of— of the oil production in the country.
And I've talked to a number of producers, and they're very happy with it.
We spent a lot of money to have the— just some of these to— to carry this—
quantity. And we expect the quantity to— grow quite a bit.
BECKY: There are people who have suggested that— pipelines will
eventually siphon away some of that. How long of— how long away of a
change is that from happening?
BUFFETT: Well, pipelines are carrying a lot of oil now, and— and there'll be
more pipelines created. Surprisingly, oil moves through pipelines a lot
slower than it does by rail. So, if you want to get oil to a given refinery and
that happens to be the best— where the best price is, A) the pipeline may
not fit that perfectly, but even if it does, you can get it there considerably
faster if— with rail. On the other hand, it costs more per barrel— barrel to
get it. So it's a tradeoff, but it gives— it gives the producer— a lot more
flexibility in terms of— in— in terms of refineries— than— than a pipeline
system.
BECKY: There was a suggestion over the weekend from President Obama
that— he'd be in favor of exporting liquefied natural gas. I think he said
something by 2020 he does expect United States will be an exporter— a
significant player in that. Are you in favor of exporting liquefied natural gas?
BUFFETT: Well, it would be good for the short term, but— but— but in the
end, I regard this huge finding we've had of both oil and gas— in terms of
fracking— well, I mean, it— it's a huge natural resource. And— my— my
general feeling is that— that— that we oughta save that for— grandchildren.

PAGE 31 OF 70
So I've often said that you can't rob your grandchildren. But— but in terms
of a natural resource which is— although we found much more of it— but it's
still— it's a finite asset. And if you're thinking about the country for
hundreds of years to come, I— I d— I don't think I'd be in favor of it.
BECKY: I mean, Charlie's said in the past— the idea of American

independence is crazy. American energy independence is crazy because he
thinks you should use up everybody's resources before you use your own.
BUFFETT: I think that was pretty smart, actually. But it— it's not good for
the economy, (LAUGH) in the short term. But when you've been using Saudi
oil all through the 1930s and 'course during the war years, that's one of the
arguments for having it developed in this country. But as— in— in terms of
having an energy source in c— in times of trouble. But in the '50s and '60s,
we shoulda been using the other guy's oil more and we'd have more of it
now. And we've got— we've got a whole lot more than we thought we had
now. It's finite.
BECKY: Andrew has a question, too.
ANDREW: I— I have a question, actually— Warren, we have newspapers

sitting all around the set. It reminded me to follow up with you. We had a
number of people also e-mail in— after we had talked during the meeting—
about newspapers. And— and— and the suggestion that I think you made
and Charlie made was that your— your acquisitions and investments was— in
newspapers you consider to be an exception or an exception to the rule in
terms of businesses. A number of people— e-mailed in and said, "Would you
ever buy additional newspapers— personally?" Meaning— meaning would—
would you use your personal account to go and— and buy newspapers in the
future?
BUFFETT: Yeah, it'd be— it would be pretty awkward if I got offered a

newspaper now having bought 'em for Berkshire. It'd be very awkward if I
go on and buy it for myself. If it happened to do better than the ones we
bought for Berkshire. (LAUGH) I'm sure I'd be criticized. So any newspapers
we buy in the future— I— I could have started out and just bought
newspapers personally, perhaps, and— and said this is a sideline.
But I c— I can't do anything that looks like I'm in competition with Berkshire.
And the paper I bought would either do better or worse than the group we've
already bought. And if it did better, I'd be in trouble. If it did worse, I
wouldn't be that happy about it. (LAUGH) The— the newspapers do not
meet our size criteria— on— on an individual basis, although they do meet

PAGE 32 OF 70
the earnings criteria now on a group basis, now that we've bought a group of
'em. Newspapers will decline in earnings over time.
(OVERTALK)
JOE: We— we got— Andrew's got to give it up. Give it up. Sell your— sell
that dog crap stock and buy some Comcast. Sell your New York Times and
buy something that keeps moving (LAUGHTER) into the— into the future.
Just give it up. It's not going happen for you. It's— Warren c— that's— you
know, Warren—
He's doing it 'cause he likes local newspapers. He has fun with 'em. He's not
doing it to make money.
Your— your options are never going back. They're never going be worth
anything, and the stock that you own is just going to zero. Give it up. And,
Warren—
ANDREW: Thank you, Joe. Thank you. I got to try, Warren, right?
JOE: Hey— I can't even believe you'll ask about newspa— let me see. What
else can we— no, but, hey— you know, that one buggy whip company that's
still left, Warren? Do you have an opinion on— (LAUGHTER) No, no, I'm not
going ask you about that.
BUFFETT: I— I'm trying to buy it. I'm trying to buy it.
JOE: Are you? Just— just for— a vanity buy. I'll tell you what I was thinking
of, and—
BUFFETT: National— National Buggy Whip. You'll— you'll see it in our

portfolio. (LAUGHTER)
JOE: I— I really want to know the answer to this and what— what you think.
Larry Summers— zero interest rates. Let's do all of our infrastructure
improvements that— that we need right now. I mean, it— it had such— just
on s— on the surface, sounds like a slam dunk. But we would be borrowing
money, probably more money from China.
We— we'd— we'd still be— you know, it wouldn't be deficit neutral. Is there
a payoff? You got a brand new bridge. Does suddenly the— does GDP grow
faster? Does something happen because you— you do all those
improvements? Is that something that— that we should do right now while
we can?

PAGE 33 OF 70
BUFFETT: Well, certainly the country should have— have— a first class
infrastructure. Incidentally, we have that in the railroads. I mean, the— the
railroads have never been in better shape— physically— than they are now.
They're in dramatically better shape than they were.
JOE: Yeah, but the private sector—
BUFFETT: Sometimes—
JOE: —did that, didn't it, Warren? Didn't the private s— I mean, I— I—
BUFFETT: Mostly.
JOE: Well, yeah, that's great.
BUFFETT: Overwhelmingly.
JOE: Well, that's great. But what about— is— is it a good investment for
taxpayers? I know you would like to bring percentage of GDP that we spend
on government or still I figure if you think we're still too high— should we—
take it from somewhere else to do this? Should we not do it right now? And
I'm— I'm talking about, you know, airports— all— all the big heavy things
that only the government can really do, maybe in a public/private—
partnership. But really government spending— should we do that?
BUFFETT: Well, it depends what you do. (LAUGH) You know, you have a
congress that might appropriate the money— have bridges to nowhere. But
you also might have, you know, them do something like the interstate
highway system which was a stroke of genius back in the Eisenhower years.
It depends on the projects.
But— but certainly, you want a great highway system in this country, and—
and— and you want— you want a very s— a very sensible— well controlled—
airport system. And then the question is, I mean, do you raise— gasoline
taxes, for example, and devote it to highways? There— there're a lot of
ways to go. It doesn't have to be done by bonds. It can be done by— by in
effect what are user fees. I mean, that's done when you build toll roads, for
example.
JOE: Yeah. Yeah, I— so I'm— I'm trying to figure out whether you're giving
me— an unequivocal yes, or— I don't— I don't— you know, 'cause that—
that's something you would hear about a lot. It would create jobs. At least
we wouldn't be d— you know, digging a hole and then filling it back up like

PAGE 34 OF 70
so many, you know— like— like so many government p— I mean, at least
we'd have something to show for it when it was all said and done.
BUFFETT: And— and actually, in— you know, in the '30s, I mean, you know,
that's— Boulder Dam, TVA - I mean— there could be a lot of useful projects,
and— and the question is whether you finance 'em by bonds or user fees is
another question. But I think you have to really look at the specifics of the
program. There was no— there was no better investment than the interstate
highway system.
ANDREW: We got to take a break now, I guess, to pay for our

infrastructure. Anyway— thanks, Warren. Still to come, we're going— get
Warren's take on health care and why he backs Jamie Dimon, which we
already know that.
JOE: Okay, thanks— Andrew. We are speaking to Warren Buffett, Chairman

and CEO of Berkshire Hathaway, fresh off— this weekend's big— shareholder
meeting. Can— can I ask him a question be— Becky? Or— or you want to—
BECKY: Yeah, yeah, yeah. That's—
JOE: Okay.
BECKY: —that's what we thought. No, no, jump in, Joe.
JOE: I got a shopping list here— of some— some— some companies—
(OVERTALK)
JOE: —because I don't understand you sometimes. I— I'm bored with

ketchup, okay? I'm bored with some of the— they're great businesses, the
things you buy. I— I understand that. But I'm just trying to get you to
expand your— your universe here a little. And I still don't understand, and
I'm not talking newspapers, even though it's media. But big media, big
media.
And I got a list of companies here that I want to tell you why you've never
really gotten that interested about— okay. Do you like Disney? Do you like
that model? You got theme parks, you got movies, you got— you got cable.
You got Comcast, the parent (company of CNBC) here. You got News Corp,
Viacom, CBS, Time Warner, even Google or Facebook or something. This is
the future, Warren.

PAGE 35 OF 70
I know you— sometimes you don't think you understand technology. But
what makes you hesitant to— to do something that's so ubiquitous and
that— and as we get more advanced as a culture, you know media gets more
and more— gets bigger and bigger as a percentage of what we spend our—
our— our leisure time doing? Why can't you— you make an—
(OVERTALK)
BUFFETT: No. There's no question. And— and— it's going get bigger. I
just don't know if I look out ten years, I don't know which— which of those
company's you named— will be doing— the best in. It— it's— it's an industry
that's subject to a lot of change. And it's much easier for me to predict that
ketchup will be do well or Coca-Cola will be doing well in ten years. And
some of the companies you name will undoubtedly outperform the ones we
own. It's just I don't know which ones.
JOE: Well, if you don't know it—
BUFFETT: And—
JOE: —well, how am I—
BUFFETT: Those are dyna—
JOE: —how am I supposed to—
BUFFETT: Those are—
(OVERTALK)
JOE: How is anybody else supposed to know then if you don't know? And do
you think—
BUFFETT: Well—
JOE: —do you think that you are, like, an old dog with— with new tricks, or
something? Does someone know how this is going work itself out? Is there
anyone on the— on the planet that knows—
BUFFETT: Sure.
JOE: —how it's going— really?
BUFFETT: Sure. There— there are people— a lot of— all kinds of— a lot
smarter about some of those companies than I am. And that doesn't bother
me. I— as long as— as long as I can make money with— with ketchup and

PAGE 36 OF 70
Coca-Cola and I— and I don't really think I know which one of that— list that
you ran off, there'll be— (COUGH) there'll be a couple big winners in that list
and there'll be a couple little— really surprise you on the downside. And, you
know, you know enough about the history of the stock market to look at the
tech companies that have fallen by the wayside, for example. But you— you
will have a bigger winner in that group—
BECKY: But who knows?
JOE: Warren—
BECKY: Who does know? I mean, if somebody knows it, do you— do you
know if there's anybody that you would listen to when it comes to those
things—
BUFFETT: Oh, there isn't anybody I'd listen to. But there are people in our
office, for example, that would buy some of those companies. Yeah, I can
tell you that—
BECKY: —DirectTV is one that both Todd and Ted have put some money on.
BUFFETT: They've put money on DirectTV, I think they put— one of 'em at
least has put money on Viacom. Liberty Media— maybe both of them, I'm
not sure.
ANDREW: Warren— Warren—
BUFFETT: So—
ANDREW: —do you feel any better—
BUFFETT: I'm not— I'm not— I don't—
ANDREW: Do you feel any different about IBM—
(OVERTALK)
ANDREW: —since you've bought— since you've bought IBM, it's had— a
couple tough— tough quarters.
BUFFETT: Yeah, they— I think— I— I— I think we'll be right about IBM. But
I said at the meeting, in terms of the certainty of conviction, I feel more
certainty of conviction in terms of where Coca-Cola will be in ten years— or
Heinz for that matter— than I do about IBM. But I feel enough conviction
about IBM to put a lot of money in it and I like very much their financial

PAGE 37 OF 70
policies. I— and I— I like their position in— in the world. But I don't think
it's as bulletproof as something like Coca-Cola.
JOE: And content—
BECKY: You— you said the other day that you—
JOE: Oh, sorry.
BECKY: —you have bought more IBM shares though, right?
BUFFETT: Pardon me?
BECKY: You said the other day when we asked you, you have bought some
more IBM shares this— this year, before the earnings—
BUFFETT: Yeah, we bought a few.
BECKY: —report.
BUFFETT: Yeah, we bought a few, yeah.
BECKY: Joe, I'm sorry, go ahead—
JOE: I was just getting back to this media, 'cause I'm trying to understand, I
don't know what the landscape looks like. And Warren probably— doesn't
necessarily. Do you— does— does it look like the pipes, Warren, eventually
become more commoditized— and— and— we've— you know, people have
been saying content is king for— forever.
And then it's hard to— content is so— it's a creative area and it's so hard and
it— it's so— specific to the people running it or the— the people that you
bring in that— that— that are creative. I guess that makes it difficult too, if
you're going invest just in content, that's hard—
BUFFETT: Yeah.
JOE: And— and then you don't even know whether to keep the distribution
because of— you— technology is— Andrew always brings up the
disintermediation of all these different technologies. So it really is difficult to
do, but there's just such a potential, it seems like, to me.
BUFFETT: Yeah, the— well, distribution was incredibly valuable, for example,
when there were three electronic highways, you know, the three big
networks. And you could run a test pattern on one of 'em and— and get—
and get a reasonable audience practically. So— when it was limited— when

PAGE 38 OF 70
distribution was limited, that distribution was really valuable. And there were
a couple of big VHS stations in the big markets.
And— and— and the profit margins were fantastic. But as distribution
became more ubiquitous in all kinds of forms, then as you say, content, you
know, content is where the money is. And— and— and content will always
be where the money is. That's why sports players, you know— they'll make,
you know, millions of dollars a year when— when you can remember when—
you know, DiMaggio was playing for $25,000 a year, something of this sort.
But content— distribution magnifies the value of content. And— you want to
be— unfortunately I don't— I don't— (LAUGH) you know, I don't have any
talent, so I can't cash in on that. And talent usually gets its share of— of the
revenues. If you own distribution and there's very little in the way of
competition for your distribution, you can make a lot of money. And that's
what's shown by what the networks and the TV stations did— in the past.
JOE: All right.
BECKY: You know, this was— a big weekend at Berkshire, and there were a
number of events that took place. And— Joe, you know Andrew was out
here. He was here for all of this. The new issue this year was the 5K race
that— Brooks Running Shoes put on on Sunday. Warren, you showed up for
it. Andrew—
BUFFETT: Oh, I participated in a big way, I shot off the gun.
BECKY: Yeah, you shot off the gun. (LAUGH) But you showed up. Andrew
told us that he was going to show up, so we were there, waiting to shoot
him. There's Warren shooting off the gun. They were looking and looking
and looking, and I was not there, I wasn't— but I never claimed I would be.
In fact, (LAUGH) I said there was no way I was getting (LAUGH) up that
early on Sunday—
JOE: Is that Burke?
BECKY: —which is the only day in the last three weeks I've slept in.
(OVERTALK)
BECKY: That's Steve Burke—
JOE: Oh my God.
BECKY: —he did show up for the race and Andrew didn't.

PAGE 39 OF 70
JOE: So that looked like—
ANDREW: Steve— Steve Burke—
(OVERTALK)
BUFFETT: Steve does very, very well—
BECKY: Steve Burke is a board member—
(OVERTALK)
ANDREW: And he did it— he— he—
BECKY: Yeah, Steve Burke is a Berkshire board member.
ANDREW: He beat every board member. I think he might've even beat

most Berkshire employees. I think he did it in under—
BUFFETT: That was a fast pace.
ANDREW: —20 minutes and—
JOE: That was a fast—
(OVERTALK)
ANDREW: —frankly, you know, he's the boss, so I didn't want to have to,
you know—
JOE: Oh, you were hungover, probably—
ANDREW: —even—
(OVERTALK)
BECKY: You would've lost so badly—
JOE: You didn't even show?
ANDREW: I would've lost so badly—
BECKY: You would've lost so badly.
ANDREW: —I didn't even— I couldn't— couldn't bring myself.
JOE: Did you say you were going be there and then didn't—
ANDREW: I did— I didn't say— I said I co— was contemplating.

PAGE 40 OF 70
(OVERTALK)
BECKY: He did say he was going be there. He did say he was going be there
because they were looking for him with the cameras to shoot him.
BUFFETT: I— I waited to shoot the gun, I kept, "Where is Andrew? Where is

Andrew at?" But Steve Burke ran a 2:39 marathon one time. (LAUGH) I
mean, we— we—
JOE: He was amazing.
BUFFETT: —have some real talent on the board.
JOE: Wow.
BUFFETT: Yeah, 2:39. Yeah—
JOE: That's scary.
BECKY: Yeah.
ANDREW: Yeah, thank you, Becky, for raising that issue, I— I— I

appreciate—
BECKY: You're welcome—
(OVERTALK)
ANDREW: A great— a good excuse to talk about—
BECKY: —sort of cocktail sister over here.
ANDREW: Yeah, thank you.
BECKY: Yeah. (LAUGH) It gives you that excuse to talk about what?
ANDREW: Oh, I said it was a g— it was a good excuse to talk about the
wonders of— of Steve Burke's running performance, which wa— was
outstanding. We should say.
JOE: I mean— do we know that— was it really under tw— under 20

minutes? I mean, I don't even know if I've ever run—
ANDREW: Yeah—
(OVERTALK)
ANDREW: That's what I heard.

PAGE 41 OF 70
JOE: It was under 20 minutes—
ANDREW: That's what I heard. Yeah, no, he's fast—
BECKY: I want to say 18 something, but I don't know if I'm making that
up—
ANDREW: I think 18— 18 minute something— around 18 minutes, yeah—
BECKY: Oh, under 21. Under 21 I'm told. I'm told under 21—
JOE: Under 21.
BECKY: Anyway, it was a lot faster than Andrew or I did. So—
JOE: Yeah, I know.
BECKY: —way to go. Hey, very quickly, before we go to a break Warren, I

wanted to ask you about J.C. Penney. We've been watching this story very
closely. There was a story recently about how I think Goldman Sachs had
been potentially lining up— a line of credit for them. It's got to be a
company that you've been following too, because Fruit of the Loom is a
supplier—
(OVERTALK)
BUFFETT: Well, they're a supplier, but I thought— I worked for J.C.

Penney— as you fir— for a considerable period. I— I— I've got a rooting
interest for them, I don't have a financial interest. But— and I— I would like
to see .J.C Penney— succeed.
BECKY: You would like to see them succeed. Do you think they're going to?
BUFFETT: I think it's very tough. I mean, they— they obviously alienated a
significant part of their customer base— in the last 18 months or whatever
it's been. And— retailing is— it's a tough game. And you've got very, very
smart competitors who are out there doing smart things every day.
So when you lose momentum and when you turn off a significant part of
your— no— percentage of your customers, it is a big job to get back. I— I
really hope that (new CEO Myron) Ullman pulls it off. I mean, I— I— I'm for
him and— and— I think, you know, that they've got a good man in there to
do it. But— but I'll just have to wait and see the figures.
BECKY: They've been burning through cash pretty quickly.

PAGE 42 OF 70
BUFFETT: Sure.
BECKY: Has it ever gotten to the point where as a supplier you've gotten
nervous about it?
BUFFETT: No. But— but you worry about that if you're a retailer getting to
that point. When your— when your suppliers get worried, you've got
troubles. But that is not the case with Penney.
BECKY: So you've never actually worried about it?
BUFFETT: No, no.
BECKY: All right, Warren, thank you again— if you'll let us, we're going jump
in for another quick break.
BECKY: Welcome back everybody. We are speaking with Warren Buffett this
morning. I've been talking about a lot of things. Warren, the annual
meeting is— a place where you see a lot of— people that— it's just an
amazing place to people watch. You see some huge— successful people from
the worlds of business and beyond. This weekend, some of the people who I
ran into here were Bill Ackman— Bill Miller, who we talked about, Lee
Cooperman was here, Mario Gabelli was here, and people like Kathy Ireland
were here too.
BUFFETT: She beat me. (LAUGH)
BECKY: She beat you in the golf— it was—
BUFFETT: In the putting.
BECKY: —the mini putt. Right, it was mini-golf putting scene. One of the
people who was here though— that really caught my attention who I haven't
seen here in the past was erk— Erskine Bowles. He came in this weekend as
well. We— we spoke with him very recently about his new plan.
This was kind of— Simpson-Bowles 2.0, where he's coming back at the
Congress again and saying that we still have a lot that needs to be done, that
the sequester is stupid. When he was on with us the other day, he said it
was three times stupid because it had dumb cuts the way you use it, and it's
not attacking what we should be attacking, which is really the entitlements.
Where do you come down on this argument?

PAGE 43 OF 70
BUFFETT: Well, Congress— (LAUGH) Congress originally set it up and said,
"We're going to propose something so dumb that we can't possibly do it."
And then they did it. (LAUGH) And so it— it— you know, it— it is a stupid
way— to enact— a cut in the budget. And— and like I say, it was designed
to be stupid. And Congress at some point will face up to the fact that their
job is to design— a responsible, long-term budget plan.
And some things immediately that— make sense in terms of where the
economy is now and where expenditures should be made, where taxes
should be raised, and whatever the case— this business of getting it, you
know, to provide— the middle of the night— some crazy compromise. And
then letting things like the sequester kick in, you know, it's just— we deser—
we deserve a Congress better than that.
BECKY: The biggest issue that you've talked about for a long time is health
care costs, it's something that—
BUFFETT: Right.
BECKY: —Erskine has spoken an awful lot about as well. And we've done
just about nothing to try and get those costs under control—
BUFFETT: That's right, that's right. We— we are a very rich country. So we
can get away with— with the— the sort of deferring things like that. I mean,
we— we can get— we— we can— we can— mismanage in significant ways.
But because we're so rich, you know, it doesn't— we— we don't go under.
We're not a Greece or something like that because of it.
But— but health care costs are the biggest factor that make us
noncompetitive, certain industries, noncompetitive in the world. We have—
anywhere from this 6¢ on the dollar to my 8¢ on the dollar disadvantage in
costs from that one item— against the rest of the world. Imagine if we faced
a 6¢— 6 percent — six percentage point disadvantage in terms of our cost of
our steel or something like that? I mean, it would be a national emergency.
But health care marches on.
BECKY: The Affordable Healthcare Act— is, you know, now being— brought
in more into play all the time. Does that help or hurt the situation?
BUFFETT: Well, I— I don't know the answer to that. But I know that we are
not addressing the costs overall. And— and it isn't— it isn't government the
problem, it's the whole system. And— and we need some very, very good
minds— to tell us how we can get to something like 15 perhaps in G.D.P.
going to health care.

PAGE 44 OF 70
If the rest of the world is anywhere from, you know, 8 percent to 11 percent
or something to the sort, we oughta be able to figure out how— how to have
a very, very good system for all Americans with 15 percent of G.D.P. And
it— I would love to get, you know, to have the Cleveland Clinic and the
Mayos and Kaiser just ta— give them that task— to design a system.
BECKY: Toby Cosgrove was here this weekend, too—
BUFFETT: Yeah, he's a terrific guy.
BECKY: —head of the Cleveland Clinic too—
BUFFETT: He's a terrific guy.
BECKY: But he was talking about how they are rolling this program out into
the— looking for a lot of other ways to try and get that there. But— the idea
of getting down to 15 percent, how do you do that without crushing
innovation and without hurting the quality of care the people receive?
BUFFETT: We operated— we operated at five and a fraction percent— what,

45 years ago and— and we thought we had a reasonably good healthcare
then. The GDP has grown like crazy. So it isn't like the— the— the base
from which we're working. I don't know enough about health care to design
a system. But there are very smart people— that I really think— if you gave
them— the responsibility for actually just looking at the whole system.
And— and why do we have this runaway situation? We have terrific health
care, but we do not have more doctors per capita, we do not have more
hospital business per capita, we do not have more nurses per capita than
country after country. And that, you know, we've got this huge cost and now
the problem, of course, is that we're spending $2.6 trillion or $2.7 trillion a
year on health care.
It's as big as the governmental receipts total. And those dollars all have a
constituency. And so it— it— it is— it is a tough problem. We'll— we'll
attack it and— and solve it. But there is no— there's no real incentive— to
bring down the costs. In terms of the research we're doing, nobody's doing
research that will focus— or at least I don't know of it, that's focused on
bringing down costs of health care.
They're— they're— they're looking for ways, and they'd be very expensive
ways, to deliver even better ca— care. And I— you know, I applaud that.
But when you've got these kind of expenditures going on, you have to have
somebody focused on bringing down cost.

PAGE 45 OF 70
BECKY: The way Washington has gone about this, so there are a lot of
people who have pointed out we have brought down— the rate of increase
for spending, I should say. They're not cutting spending, they're bringing
down the rate of increase for spending over the future years.
As part of what the sequester's doing too is trying to take out and strip out
some of those costs. People say, "Hey, we've done a much better job and
maybe we'll be okay even if there's not a grand bargain that gets reached on
either sen— either end. Maybe we've already cut enough." What do you
think of that?
BUFFETT: Well, we've— we are so rich. We can afford a lot of slop.

(LAUGH) But that's no reason to have it. And— and we aren't so rich that we
can afford all kinds of slop. And— and you know, what— there— there are
choices that are going have to be made. And— and— and so far, I've— you
know, I admire Erskine and— and Alan Simpson enormously.
I mean, they were given the task of working in a bipartisan manner to come
with made— something that made sense over the longer term. Nobody likes
it 100 percent. But they got Tom Coburn and Dick Durbin to vote for it, they
got 11 votes out of 18. That's a monumental achievement. And you know,
they've basically been ignored.
BECKY: When it comes to Social Security, everybody we talked to says, "Oh,

this is a pretty easy fix." If it's such an easy fix, how come we haven't done
it?
BUFFETT: Because it's the third rail of politics. (LAUGHTER) You know, in
the end, nobody wants the vote recorded that affects any voter of their
district negatively. And particularly if it's a large group of voters. And they
worry about losing in primaries. They don't worry so much about the general
election and— and the fact that primaries have become the important
election in this country, for most people in Congress, I think drives them into
more and more intractable and more and more— fringe-type positions.
BECKY: Andrew, you have a question too?
ANDREW: Yeah, Warren— where do you stand on— on repatriating money

from abroad and— and what type of either a tax holiday we should have or—
or— or maybe— a longer-term corporate tax plan that— that works globally?
BUFFETT: Yeah, well, if we have a tax holiday, I can guarantee you (LAUGH)
we'll have a ton of money will come back. They may have already borrowed
money to repurchase shares or— pay dividends, so now they would use it to

PAGE 46 OF 70
replenish, take care of the money they've borrowed. If you give people a tax
holiday, there will just be more money invested abroad, because obviously
they're going invest it abroad and get taxed at 5 percent or something like
that.
And you think you can get it back into this country, it will push investment
abroad. And come— companies now that have tons of cash are borrowing
money, you know, in the United States, and they are going use it to
repurchase shares. So the idea that if that money came back, it would— it
would come back to pay back the debt — it's— it's somewhat disingenuous,
the argument that's made, that— that— this is a terrible thing, because it
forces companies to keep their money abroad. It doesn't force us to keep
money abroad. We just have to pay a normal tax of 35 percent. The— the
tax that was paid originally to the foreign country plus the supplemental tax
to bring it up to the U.S. rate. And— people can bring it back, they just don't
want to bring it back. And they're hoping, like, that they can get a tax
(LAUGH) holiday and then they'll bring it all back that time and then they'll
start accumulating it again.
BECKY: It'll—
BUFFETT: That's what happened after the last one.
BECKY: If they would were to overhaul the corporate tax code though, I
mean, would it be something that you would think would be okay if they
lowered tax rates to 28 percent, like Simpson-Bowles suggested the first
time around?
BUFFETT: Right—
BECKY: I mean, the problem is, a lot of companies don't pay 35 percent—
BUFFETT: Of course. And— and what'll happen is that they have something
to bring the rate down to 28 percent. Ev— every single company will figure
out what— when they like at all the— if it's revenue neutral, there will be
some companies who will pay more and some that will pay less. And
everybody that will pay more will go straight to K Street and get every
lobbyist that they can lined up and the lobbyists will kind of like the proposal
because it drums up business for them.
And— it will be very hard to get data. That doesn't mean I'm against it. It
just— I'm just get— laying out the difficulties. If you talk about a revenue-
neutral bill, you're going to have a lot of people that are opposed to it being
enacted.

PAGE 47 OF 70
BECKY: Okay, we can continue this conversation in just a moment, but we
are up against— the end of the hour. So right now, we're going to take a
quick break. When we come back, Microsoft Chairman Bill Gates will be
joining Warren in a very special interview. We'll get his thoughts on
everything from philanthropy to the global economy to the future of
Microsoft.
BECKY: This is the— the site of the Berkshire Hathaway Annual Shareholder
Meeting, and that's where— the Berkshire Chairman and CEO Warren
Buffett— spent all weekend on the stage and different venues, talking to all
types of people. There were about 40,000 shareholders who were here this
weekend.
But Warren, we get the chance now to sit down with you and— and— talk
about the perspective of where things are headed in this stock market right
now. People look at you. You're called the "Oracle of Omaha" because they
think that you are one of— if not the greatest investor of all time.
We've been watching where the markets head. We've been watching the
new numbers that they run through, the Dow above 15,000 and the S&P
above 1,600. That's the type of thing that makes people sit up and take
notice, even when they are not people who pay attention to the stock market
every day, right? It's got people worried, it's got people eager, it's got
people anticipating about what comes next. What do you say to those
people who are just looking for any sort of advice on what they should be
doing right now when it comes to the stock market?
BUFFETT: Well, I— I never know what comes next. No one knows what
comes next. And— and— but what you do know is that over— a long period
time, American business is going to do fine. And— they not only get
dividends, but they retain earnings and— values will build over time. You
know, Berkshire's value will build over time.
But you can go down— up and down the list, and they will, and— you never
know what they're going do next week, you never know what they're going
do next month. Anybody that tries to buy and sell stocks actively and my—
view is making a terrible mistake, anybody that owns a cross section of
American business at these prices, I think will do very well over a ten or 20-
year period. And I have no idea of, you know, how they'll do in the next ten
days, and I don't think they should think about it.

PAGE 48 OF 70
BECKY: You said earlier this morning that you remember when the Dow
went above 100?
BUFFETT: Right.
BECKY: When was that?
BUFFETT: Well, it was in 1942. I— it hit a low of 92 on the Dow and I

bought some stock and I watched it go down and then I watched it go up
finally. And the Dow crossed 100. And it was before I got out of— college
that— or right when I got out of college that it crossed 200. And— I've
watched it cross 300, 400, (LAUGHTER) right? And it'll— it'll go far higher
over time. Just because businesses will become more valuable over time.
I mean, it— it's going to happen. But if you think you can buy and sell
stocks based on current news or something of this sort, I— I think they're
give— they're giving away an enormous advantage which you have. I— I
bought a farm in 1985, I haven't had— had a quote on it since.
But I know what it's produced every year. And I know it's worth more
money now. You know, it— if I'd gotten a quote on it every day and
somebody's said, "You know, maybe you oughta sell because there's, you
know, there's clouds in the West," or something. (LAUGH) It'sj— it's crazy.
BECKY: You know, over the weekend— or on Friday, we should say, we

spoke with Charlie Munger who's the Vice Chairman of Berkshire. And— he
talked about how he thinks bankers are like heroin addicts because— they
get addicted to things like leverage and different things.
And yet, the biggest investment that Berkshire has— in a stock is in Wells
Fargo. So not all bankers are created equal, I guess we read into that?
BUFFETT: No, that's true. And— and a lot of leverage has been taken out of
the system. You— you hit right on it when you said because of leverage.
Leverage is like heroin, people— in— in— in investments. I mean, everybody
starts saying, "I could make a little more money if I leveraged up." And of
course, that's the way they felt about housing. And— and that's why we got
into all this trouble.
People wanted to borrow every dime they could against their house. So
when they went down a little bit, they— they had negative equity. So
leverage is— is catnip to people in— in— in— in finance. And it's particularly
troublesome— in banking because you can issue a government-guaranteed

PAGE 49 OF 70
piece of paper. So there is no market system that puts the limit on the
leverage that you— you can obtain.
They can— in fact, people give you— all the money they— that they have.
And they— you've got leverage of a hundred for one, if the deposit is
guaranteed— by the— FDIC. So they have the ability, they had the ability to
leverage up. And they had s— they had special purpose vehicles and— and
through derivatives they could leverage more.
And it— it's just tempting because it's the way to increase earnings. That's
how Freddie and Fannie got in trouble. Freddie and Fannie had a perfectly
decent mission. But then they just build— huge portfolios and they had the
ability to leverage, 'cause the government was behind 'em. So anything the
government is behind, particularly, you need someone that can put their foot
on the amount of leverage that they have.
BECKY: Last time we spoke with you, I think you said that you were still
buying Wells Fargo in the market, that you were still adding—
BECKY: —to your— to your— to your— are you continuing to do that?
BUFFETT: We— we've bought Wells Fargo probably every month this year.
Yeah. Uh-huh (AFFIRM).
BECKY: Moody's, you're not buying. You've been selling that, at least that's
what we—
BUFFETT: We've— we sold— we sold some last week, yeah.
BECKY: You sold some last week on Monday through Wednesday, there was
a filing on that. The obvious question becomes, are you going keep selling
that? You going—
BUFFETT: Yeah.
BECKY: Drop down?
BUFFETT: I guess the obvious answer is I don't tell. (LAUGHTER) If we sell,

we have to announce it as long as we have more than 10 percent. And then
if we get to 10 percent, we don't have to announce it after that.
BECKY: But are you—
BUFFETT: We don't have to announce it very quickly—

PAGE 50 OF 70
(OVERTALK)
BUFFETT: —after we do it. Yeah, yeah, we have to announce it.
BECKY: So there would be an advantage to owning less than 10 percent,

because—
BUFFETT: Well, we—
BECKY: —then you're—
BUFFETT: Yeah. But you know, if— we've done— I mean, we're selling
Moody's at six times what we paid for it.
BECKY: Okay. Joe, I know you have a question too?
JOE: It's more of a comment. I was listening to Charlie and thinking about,
you know, Andrew has written— a book on this. And— and w— Warren,
Charlie was saying, you know, and they— they're— they're going do it and
then they're— they're going— leverage to the point where they blow up
and— and that'll be fine. And— and in any business, if you mess it up and
you blow up, then you quickly learn you don't do it next time.
But it's that— it's the— either the government backing or being systemic so
that you take down a country like Cyprus, that's what makes the difference.
So we're back to two big d— if you're too big— and— and you're systemic
and you take everyone down then you can't fail, so you can do these things.
But in a perfect world, is it better to regulate these guys or just make it so
that they can fail? I mean, it— it seems like it would be self— correcting,
that bankers would not be able to—
(OVERTALK)
JOE: —they wouldn't be able to act like that, bankers. If they were going l—
if they were going go out of business, somebody else, who was more
prudent, would— would obviously take the place of those guys. But as long
as they can't fail, then we need regulation.
BUFFETT: And one of the problems is, Joe, that when they fail, the people at
the top often went away rich. So it isn't— it— it isn't like their calculus,
when they leveraged up, was that if they would lose everything if it went bad
and they needed society to bail 'em out. So it— it was the shareholders
that— that lost 90 percent or more in— in— in— in— certain of the banking
institutions.

PAGE 51 OF 70
But the managements, I don't know a CEO of one of the really big
institutions, whether it's Freddie or Fannie or— or— or— or— AIG or— or— or
a number of the banks, where the CEO went away— in— in any kind of
financial distress at all. They went away rich. So they had a different
calculus. And they— and— and in the case of the banks, they were off— able
to offer government guaranteed deposits.
And in a case of Freddie and Fannie, they had the implicit guarantee of the
federal government. And that enabled them to leverage to the sky. And I
think it's perfectly appropriate that they be regulated in terms of the amount
of leverage they— they could have.
ANDREW: Warren, would you put Berkshire and specifically I guess the
insurance business has, given the size, in this systemically-important
category that— that— that sometimes we put some of the big banks in?
BUFFETT: No — we can't— we can't issue government-guaranteed paper

and— if you look at our resources, our earning power and everything, it—
it's— it's an incredible percentage— you know, of anything bad that can—
can happen to us.
BECKY: Well, for you specifically, the AIG got us in a lot of trouble. Should
they—
BUFFETT: AIG has lo—
BECKY: Should the regulators be looking at the insurance companies as

potentially the ones that could really get us in a mess next time around too?
BUFFETT: Well, regulators are looking at insurance companies all the time.
I mean, we are regulated. And—
BECKY: But the insurance industry is saying, "No, you shouldn't look at us."
Or— who's right?
BUFFETT: Now, I— no, the— the insurance companies are all regulated, but
they're regulated by the states primarily—
BECKY: No, but they— by the states instead of the federal regulators who
look after the banks.
BUFFETT: Yeah. I— AIG got in trouble basically 'cause— in terms of the

deriv— derivative position they had. And I think they're changing the rules
on derivatives. If the rules in terms of— of— of collateral and so on had

PAGE 52 OF 70
been what they're going to be— it would've been a somewhat different
struggle. It was— it was a very recklessly-managed institution.
BECKY: I— I guess my question gets back to the idea though that how safe
should Americans feel if an insurance company can get us into that position,
derivatives, if that's taken away, you think that can't repeat itself in other
insurance—
BUFFETT: I— I think it—
BECKY: —agency?
BUFFETT: I don't think— I don't think— an AIG would be the type of

problem. It— Berkshire itself, I mean, we have $200 billion in net worth, we
always have $20 billion of— of equity, you have 200 derivative contracts.
Lehman had hundreds of thousands, Bear Stearns had hundreds of
thousands.
BECKY: Right. And—
BUFFETT: So—
BECKY: —the— the big— the big weapon is going to be something we

haven't thought of, probably—
BUFFETT: That— that— (LAUGH) the next— we will have another bubble w—
and it will burst, it won't be the same as the last one. That's been the
history. We don't— we don't have one internet after another. You have
housing after the internet. That— that—
BECKY: Andrew, I'm sorry—
BUFFETT: But capitalism will continue to have excesses, you can count of
that.
ANDREW: Hey, Warren, I—
BECKY: Andrew, I'm sorry, you had a quick question—
ANDREW: Yeah, I just— I just wanted to ask, you know, a lot's been made
of the fact that— you had a bear, a short seller, Doug Kass there— asking
questions and I— I wanted to just get a postmortem. How— how do you
think it went and w— what was the hardest question you think you got?
BUFFETT: Well, I don't think we really got any particularly hard questions.
But— but (LAUGH) I think if— I think if—

PAGE 53 OF 70
(OVERTALK)
ANDREW: We tried to throw in some zingers.
BUFFETT: (LAUGH) Well, you know, we'll— we'll give the best answer we
can. I mean, that doesn't mean we have— I don't have an answer, if you
ask me what the stock market's going do next week, I have no answer at all.
But— so there's plenty of questions I can't answer. But— but I— I thought
the questions were good that we got generally, and— I think we—
JOE: Warren, Warren, Warren. You— you invited—
BUFFETT: One—
JOE : —you invited a guy who short your stock to come out after you— after
you knew you were going report a 51 percent jump in net income.
(LAUGHTER)
BUFFETT: That's the danger of being short. (LAUGH)
JOE: I mean, I— I can't— bring 'em on. You know, hey, that— I mean, and
you knew you were going get 50 percent increase in net income and you got
a guy who’s short your stock. I mean, I— he shoulda known. He shoulda
stayed home.
BUFFETT: He wants to come back next year, I have to say—
JOE: Oh, I'm sure he does. (LAUGH) I'm sure he does. God, it was the
greatest thing in the world. But— you're not going give him a hu— you're
not going give him $100 million, I guess, Charlie said no?
BUFFETT: (LAUGH) No, I don't— I don't think we can give him $1 million.
(LAUGHTER) Maybe even a dollar. (LAUGH)
ANDREW: You can— you can double— what he manages if you gave him a
million. No, I'm kidding. (LAUGHTER) I'm just joking.
BECKY: All right, guys. We're going take a quick break. (MUSIC) When we
come back, Warren Buffett and I will be joined by a legend in the world of
business and technology. Microsoft Chairman Bill Gates of the Bill and
Melinda Gates Foundation, he's going be joining us for the rest of the show.
This is just a few minutes away. Stay right here.

PAGE 54 OF 70
JOE: Welcome back to Squawk Box. Let's get back to Becky Quick in
Omaha— with two special guests, I see them on, I don't recognize this other
guy. Actually, I do recognize him. (LAUGH) He's pretty well known. All
right, right back to you, Beck.
BECKY: Joe, thank you. You know, we've been spending the morning with
Berkshire Hathaway Chairman and CEO Warren Buffett. Now we are joined
by another very special guest, Microsoft Chairman Bill Gates of the Bill &
Melinda Gates Foundation, and Bill, thank you very much for being here this
morning.
GATES: Great to get up. (LAUGH)
BECKY: Well, we are thrilled to have the two of you sitting here with us
together. People are going be watching this, realizing that you are two of the
richest men in the world, and that's because you are two of the brightest
businessmen. We've been watching the markets. We've been watching
what's happening.
And I know that this is not something that either of you spend a lot of time
wondering about. But our viewers are going to have a question, just what
you think about where we've seen the markets headed. And we've talked
with Warren about this, this morning. Bill, your thoughts. And again, I
realize you don't look at these numbers every day. But people want to know
what you think about this.
GATES: Well, I know less than Warren does. (LAUGH)
BUFFETT: You're in trouble.
GATES: You know, there's always

the question of what's going
happen with interest rates. It has
this fundamental effect on things.
You know, certainly you could say
equities are a good deal relative to
bonds at this point. But, you
know, if interest rates are going go
Microsoft Chairman Bill Gates shooting up, you'd like to, you
know, sort of stay short, (LAUGH)
stay liquid. And so, it is definitely a overreaching figure that people have to
think about as they're investing right now.

PAGE 55 OF 70
BECKY: In— in terms of what it could mean, what we haven't talked about
this morning with either one of you is the currency markets. There are a lot
of people trying to figure that out. Because it seems what central banks are
doing right now is chaotic, particularly when you look at what the Bank of
Japan's doing with the yen and what that means around the globe. Have
either of you spent much time— thinking about that or going through any of
those maneuvers? Any big thoughts from either of you on it?
BUFFETT: We talk about currencies. (LAUGH)
GATES: Yeah, they've been times in the past in between, like, World War I
and World War II, where it was an effort for people to pr— depreciate
currencies. I think this, in terms of simultaneously people trying to stimulate
their economies by having very low interest rates and— weak— weakening
their currencies, it's pretty unique.
And it's unfortunate for somebody who's trying to reboot their economy that
they don't— they can't relatively get their currency much below. In the EU,
they've given up that tool altogether. Everybody else, you know, you're—
you're fighting— everybody with— almost everybody, with weakening
currencies.
BUFFETT: It's easier to predict that interest rates will go up at some point,
and probably substantially, than it is to predict which currency will— will gain
versus another currency when that happens.
BECKY: I guess the big question is when, on all of those issues.
(OVERTALK)
BECKY: Like, when these things will run. Today happens to be the three-
year anniversary of the flash crash. Since that time, there have been a lot of
things that have shaken investors' confidence. You look at Libor and the
rigging scandals that were there. You can just look through some of the
issues at the CBOE, some of the things that they've been talking about at the
CME, too.
On Friday, I sat down with Charlie Munger. And he talked a little bit about
the high-frequency traders. Listen to what he said in terms of who he was
comparing these traders to. Oh, we don't have the sound bite. But at the
time, Charlie said this is basically legalized front running. What do you—
BUFFETT: I agree.

PAGE 56 OF 70
BECKY: —guys think about that?
BUFFETT: I agree. I mean, it— that— that's why these fellows exist and
why they— they spend all— enormous sums on trying to get the speed of
transmission, you know, that's— a millionth of a second or a thousandth of a
second faster than the other guy. I mean— you know, it— it is not
contributing anything to capitalism. And whoever gets the information, you
know, can front-run just that slightest bit faster than somebody else. And
they have algorithms that obviously— they're working with. They make
money. But that is not money. Berkshire Hathaway, General Motors, IBM,
does not make more money because somebody is front-running by a
nanosecond— under orders.
BECKY: You know, it raises the question though, whether average investors
can get a fair shake on Wall Street. And that's probably always been a
question that's been out there. I don't know if this time it's a whole lot
different than others. I mean, my dad has always looked at the market as
kind of a Vegas in terms of being able to get in. Bill, you're looking at me—
GATES: Well—
BECKY: —skeptically.
GATES: —if you buy a stock and hold it for many years, the percentage
effect of all these things we're talking about, you know, assume you didn't
sell during the flash crash— or I guess some of those got reversed. You—
you're— you still have— a bet that's fundamentally based on— on that
business. I don't think trading in and out of the market with high
frequency— makes sense for most— most people. And these frictional costs
just add to— the fact of how crazy it is. I mean, you might as well go to Las
Vegas.
BECKY: Okay. So—
(OVERTALK)
BECKY: —buy and hold is the solution to a lot of these problems, in other
words—
GATES: Yeah. And that's really the— the primary function of the market is
to have people provide capital to businesses— (UNINTEL) devaluation of
those business— and that works just fine without— this high frequency or
even— day-type trading.

PAGE 57 OF 70
BUFFETT: The flash crash didn’t hurt any investor. I mean, you know—
you're sitting there with— with a stock. And, you know, and the next day
it— it— it's gone past. The— the frictional cosst in— in investing for
somebody that does it in a real investing manner are really peanuts. I mean,
they're far less than the cost in real estate or farms or all kinds of things. So
it's— unless you turn it to your disadvantage by trying to do a lot of trading
or something of the sort, it's a very, very inexpensive market to operate in.
And— and all that noise should not bother you at all. Forget it.
BECKY: Hey, Bill. The— we talked with Warren earlier this morning about
how once a year, he leaves the room for the Berkshire board meetings. And
the directors sit around and talk about things that maybe they wouldn't feel
as comfortable talking about in front of him. He doesn't know what they're
talking about. You do. Can you give us any— any insights as to what type
of things they brought up? (LAUGH)
GATES: Well, I agree with Warren. This is— one of the great improvements
in— boards, is you get that person who's so wise, knows the company better,
you know, has— a relation with everybody, get him out of the room and say,
"Gosh." Part of the function of the board is to say, "Is our CEO— doing the
best job possible? Is our CEO the right person? Are there things we're
seeing where we could support the CEO in— in a different way?"
You know, in Warren's case, we've talked about security or— you know,
health or— you know, make sure that we're performing our fiduciary duty. I
think that's— a great thing. And it gets the board to think, "Boy, we are
supposed to be, in certain cases, an independent voice." And we sit and talk
about it. And— then we welcome— welcome Warren back into the room.
(LAUGH)
BUFFETT: I wonder what they said. (LAUGH)
BECKY: So I know Joe Kernen has a question from back at Studio Two. Joe?
JOE: I— I want to ask— Bill if— some questions about his— philanthropy.
And— and it would— based on something Warren said earlier. But— but
first, I— I— I think we got to just ask you— about— you know, these— all
these— tablets and, you know, PCs. Everybody's writing off the PC. You still
do— Microsoft still does $80 billion a year doing— I don't know what the hell
it does. But obviously there's something going on in the PC world to still do
that— revenues like that. But what's the world— going look like? And—
and— how does the cloud factor into what Microsoft will do in the future?

PAGE 58 OF 70
GATES: Well, the cloud is a gigantic opportunity. Because right now, there's
so many things that you can in computing that just wouldn't have been
possible before. So you've got a lot of the top companies going to seize that
opportunity. In terms of the devices themselves, now Windows 8 really is
revolutionary in that it takes the benefits of the tablet and benefits of the PC
and it— it's able to support both of those. So, you know, if you have
Surface, Surface Pro, you've got that portability of the— of the tablet but the
richness in terms of the keyboard, Microsoft Office of the PC.
But as you say, PCs are a big market. The— it's going be harder and harder
to distinguish products whether they're tablets or PCs— with Windows 8,
Microsoft is trying to gain share in what has been dominated by the iPad-type
device. But a lot of those users are frustrated. They can't type. They can't
create documents. They don't have Office there. So we're providing them
something with the benefits they've seen that have made that— a big
category, but without giving up what— they expect in a PC.
JOE: Bill, what— what do you make of— of— of what's happened to— to
both Apple stock price— and have you frankly— people have compared Apple
to— to Microsoft over the— what may be the next decade, suggesting that
they may grow more slowly.
GATES: Well, with tech companies, whoever's the leader is always

questioned, you know. They say, "Is this the end of them?" And— there's
more— more times people think that's the case than it really is the case.
Eventually, they're right. And— they remember, "Okay, we said these
people would— you know, have challenges."
You— we've got some amazingly strong companies— Apple, Google,

Microsoft— companies coming up like Amazon, Facebook— Samsung, to
some degree— Wong's in that mix. If you do deep software both on the
client and deep services— if you have things that are unique for businesses
which is a particular strength of Microsoft, the software business is an
amazing business to be in, both in terms of growth and the profitability
dynamics.
BECKY: How— how big of a problem is China when it comes to that?
GATES: Well, China has been— a disaster if you say per unit of your product
that gets used, how much do you get paid? It's been over ten to one—
versus— the United States. And even, like, four to one versus India. And so
it is a uniquely high piracy market. Now, the trend line, that number's been
coming down somewhat.

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The place we have piracy in China that we don't in most of the world has
been government institutions— state-owned enterprises, and large
businesses. All over the world, you have— the challenge is you get down to
the consumer, even to some degree, small business. But here, we have— a
challenge with these large entities. It is improving but fairly slowly. So
there's a constant dialogue with the companies, the government, about how
to get compliance rates up— up to be higher.
BECKY: Okay. We're going continue this conversation with Warren Buffett
and Bill Gates. Squawk will be right back.
BECKY: Again, Warren Buffett and Bill Gates are here with us. And— Bill, I
wanted to ask you a little bit about something you wrote in your annual letter
this year. Just in terms of measuring innovations. You were talking about
this specifically for delivery systems, things like for the next seed that's out
there or for an immunization, getting those to the people who need them.
And you talked very specif— specifically about how you need to measure how
that is working. And I had never thought about it from that perspective
before. Can you explain what you mean by that? Because there were some
big terms . I had to read through it about three times before I kind of got
the concept.
GATES: Well, capitalism works best when things can be measured. And
helping the poorest are the same. You know, you may have government
donors or philanthropic donors. And so picking, say, which seed to improve,
and then you improve it, does the
farmer really use it? Does it give
them productivity? Do they— have
you educated them in the best
practices?
Or have you created something

that requires fertilizer which they
can't get— or tools that they—
they don't have available? So
there's all this well-meaning—
thinking going on. But the actual benefit always ends up being so much less
than, you know, people with new tools might think. And the only way to get
around that and to see where it's hard and to see what you need to do more

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of, is to be able to measure, measure the health improvements and measure
the agricultural productivity.
And you'd be amazed at how weak these numbers are. Most of them are
just huge interpolations where they measure— less than 1 percent. And they
sort of assume that the rest is the same. And even population numbers, GDP
numbers— as you get to these poor countries— it makes the normal
statistics that you look at, which sometimes have flaws, they are so much
worse.
And so our foundation's had to invest in, okay, how could we do satellite
maps to look at these crops— and see what's going on with them? How can
we use more surveys, more regular surveys, to ask people about health-type
things? And that's been— a big way of seeing that some interventions just
aren't working, and some are miraculous.
BECKY: You pointed out that this is something that's really nec—
necessarily, particularly in times of tight budgets. And we have seen tight
budgets all the way around the globe. We've gone through a very difficult
point where I know charitable giving suffered in a big way, too. Have you
seen, you two with your globetrotting efforts to try and— raise awareness of
philanthropy and get people to give more money, has it improved, like we've
seen the wealth effect with jets and other issues?
GATES: Well, you have this trend of there being more rich people—
billionaires or whatever level you take. And so that will lead to philanthropy
going up over time. Then you have the— the idea is that— is it something
people consider that lots of people are doing? And I'm optimistic that's going
up over time. So you had the blip of— the financial crisis that— that hurt a
lot of things. The government budgets are very tough because when you
talk about aid to the poorest, overwhelmingly, that comes from government
budgets.
I mean, philanthropy is fantastic. But in terms of buying AIDS drugs— the

vast majority of that is the generosity of the U.S. government. When you
look at buying bed nets, when you look at all the different aid activities,
and— most countries, as they've squeezed their budgets, have cut back on
those things. A few like the United Kingdom have gone up— even despite
big budget cuts. So it's harder to raise money— now than— than it's ever
been.
BECKY: Joe, I know you have a question too?

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JOE: Based on something Warren said earlier— when he's— addressed it to—
to Mr. Gates, and Warren pointed out that a lot of— of basic science and a lot
of money that goes into science is— is directed towards extending—
longevity rather than figuring out a way to pay for it. And it's very
expensive.
A lot of these things that we come up with, whether it's drugs that cost
$200,000 or $300,000 a year or— or techniques or organ transplants or
whatever it is, not everyone— we can't afford for everyone to live forever.
Are— are we not funding some of this properly in terms of what we're doing?
And— and— if this is a throwaway, Ray Kurzweil, thinks that by 2045,
we're— we may be able to do something in terms of living much longer
than— than we live right now. How are we going do this?
GATES: Well, they— there's two key factors from this. The first two is the
ratio of your working life to your retirement life. And so if that ratio's staying
the same, then you know, it's all okay because your contribution to
retirement health care is scaling up with the extra length of that retirement
period. So, you've got to look at that variable. The other variable that's
interesting and— the foundation funded a thing called "The Global Burden of
Disease," is the— chronic diseases— where you're sick but staying alive—

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like a Parkinson's or— diabetes, or versus acute disease— like a lung cancer
where you don't live very long.
The rise in chronic disease is a big challenge. And we need to get our
innovation, our risk-takers, we need big incentives for them to go after these
chronic diseases. Because only by having lots of solutions there— do you
avoid the— the reduction in acute, which gives you longevity throwing things
completely out of whack. So overall, I'm optimistic, not like— I'm not
optimistic like Ray Kurzweil. He— (LAUGH) he—
JOE: 2045.
GATES: —his longevity—
JOE: Imm— immortality by 2045, a transplanted or— I don't know what we

do with the brain. That— that makes it a little bit more difficult. But— we
might make it. I'm optimistic. I don't know. We might make it to—
(LAUGH) we might make it to for— but it's going be expensive if no one dies.
BECKY: Warren?
BUFFETT: Well, Bill and I talked a lot— over the— last couple of years about
the incentives in medical research are not to bring down cost. They are—
they are actually— whether, not— perhaps by accident, but they are actually
going to produce more and more increased cost. Because— they—
somebody goes to work on a given solution to a given problem, the cost of
that solution is not really part of the calculation— or any significant part. It's
just getting the answer, and no matter what the cost is.
BECKY: But— I guess we want that, but we can't pay for it.
BUFFETT: The problem.
BECKY: That's the problem with it. Andrew, you had a question too?
ANDREW: Yeah. I would be— going just follow up with Bill. You know, on
the last hour, Bill, we talked to Warren a little bit about tax policy. And I—
you know, there's now a conversation about capping charitable ded—
charitable deductions. And I just wanted to get your thoughts on, you know,
what you think the impact of that will be, and— and if something like that
existed, how it might've changed or would it have changed the way you
approached your philanthropy, and— and the same for Warren?
GATES: Well, the answer is— is no, it wouldn't have changed what I do in
terms of charity. You know, if you give away 90 percent of your money, the

PAGE 63 OF 70
deduction doesn't— is not— not beneficial to you— in any— any meaningful
way. I do think that the— having an estate tax where giving to a
foundation— is exempt from that, and having charitable deduction, is a very
good thing.
You know, limiting it to a 28 percent rate, I— I don't think will have a

dramatic impact. It— it probably would have a slight negative impact. But I
don't think that would be super dramatic. If they were going get rid of that
deduction altogether, I think that— that could change behavior and— and
would be unfortunate.
BECKY: Warren?
BUFFETT: Well, yeah. In the case— in the case of Bill and myself— I got to
use less than 1 percent of what I— (CLEAR THROAT) gave away in terms of a
charitable deduction. Less than 1 percent of that showed up on the income
tax return. The last 99 percent I got no deduction for at all. And I'm sure—
you know, Bill and I might have carry-forwards that, you know, mine's $11
billion and his is probably— (LAUGH)
GATES: Yeah, I— I had— I gave $20 billion in 2000 and that— that expired;
98 percent of it expired unused.
BUFFETT: Yeah, well my— 99 percent. Mine expires— but anyway— it's not
a factor. I would say this. Of the people at the high end in our giving pledge,
I don't think it would make a lot of difference. I think sort of in the
intermediate area of— of wealth and income, I— it could make a fair amount
of difference.
BECKY: Okay. Where— we're going take a quick break. When we come
back, we will have much more from Warren Buffett and Bill Gates.
BECKY: Welcome back to Squawk Box everyone, I'm Becky Quick. And we
are live in Omaha, Nebraska this morning. We are joined by Berkshire
Hathaway Chairman and CEO Warren Buffett, and Microsoft Chairman Bill
Gates, who is on the board of directors for Berkshire Hathaway. And— guys,
one of the things that we haven't touched on today is what's happening with
immigration.
Bill, I know this is something you've talked about in the past where you do
believe that immigration laws need to be altered. It looks like we are closer

PAGE 64 OF 70
than ever to getting something done. How important is it in terms of what it
will mean for technology workers, though?
GATES: Well, I think there's two issues here. One is the high-skilled worker
part— where this group of eight has come up with something that's— that
looks pretty good on that and it's— bi— bipartisan. And then there's the
overall issue where you have this great injustice of a kid who— is
undocumented, not being able to get scholarships, not being able to
participate in a lot of things. So I think it'd be fantastic— to get this issue
resolved. And as you say, it looks more hopeful now than— in the past.
BECKY: And the one question people had is whether the situation would— in
Boston would make it much more difficult to get through the House in
particular. The Boston bombing.
BUFFETT: It shouldn't. It shouldn't. No. I mean— take one case and then
extrapolate it, and— and— and say that that should affect all of immigration
policy does not make sense. And look, we— we ought to be attracting the
kind of people we want to attract. And we certainly— do not want to kick out
of this country, you know, all— billions of people— that— that are here. And
I think it's in both parties' interests (LAUGH) now, which it's more important,
to— to pass an immigration bill— and— so I think you'll see it. I mean, it—
it's in their self-interest.
BECKY: You mean because of the voting pattern—
BUFFETT: Yeah—
(OVERTALK)
BECKY: —that what happened in the last election?
BUFFETT: —the Republicans that are scared silly that we got— losing more
and more of a minority vote— in the future and— and the Democrats are for
it based on principle. So— (LAUGH)
BECKY: Another issue in Washington is— the online sales tax,— being
collected by online retailers. That again is something I think the Senate's
expected to vote on today. Is it fair? Is it right? And should online retailers
be protected— in a way that they hadn't been before, either one of you?
GATES: Well, the bill that asks them to collect these taxes make a lot of
sense. It— it's very unfair to the person who's got a physical store that not
only do they have those expenses— but that the other person isn't collecting

PAGE 65 OF 70
the sales tax. So this— this is— it's a good thing for state budgets. It's a
good thing for fairness in terms of the— the competitive framework.
BUFFETT: Yeah, I think the fairness argument is compelling. You've got

thousands of merchants here in— in Omaha. And to have people walk into
those stores, look at the item and then order it from somebody out of state
and then not pay a sales tax have it be a differential cost, I think— just— it's
just unfair.
BECKY: Yeah. Joe, you have a question as well?
JOE: (LAUGH) Yeah. I— I mean, as long as— as— Gates is CI— there are
big issues that I'm thinking about. And I— this is something that was in the
news last week. I'm just— I'm going to ask it a certain way, Bill. Bioethics.
Is it keeping up wi— with technology? And I'm talking about the Chinese
scientists have put a bird flu together with the swine flu. Do you think about
technology and— and things like this and— and I mean, you— you talk about
a brave new world that we're in. Are— are we safe? Can we trust all these
different countries though, to abide by— you know, prudent science when
we've got this stuff— at— at our disposal? I mean— a very contagious bird
flu virus would not help anyone.
GATES: Well certainly, the whole area of genetics, though, give us a lot of
ethical challenges. And if you want to think about a nightmare scenario
that's even worse than— a nuclear bomb going off— bioterrorism is the area
that you— you've got to be concerned. Because, you know, the right sort of
construct— either intentionally created or unintentionally created, could do
so much damage.
The— in the scientific community, there's been this debate about, should—
should scientists figure out which mutations would cause, say, a flu to get
worse? And then they can see if that's starting to happen and— be more
alert. Or should they not try out those things because that information might
be— get into the hands of somebody who would misuse the information?
And that is a very tough discussion. Lots of reasonable scientists have

disagreed— about the— the right approach there. But— it— it is an area,
you know, we're lucky that we haven't had a bad flu pandemic— and the fact
we had a scare and it wasn't that ba— that bad, made us get a little more
prepared. But we're— we— we would still— it— it would still be a huge
problem.

PAGE 66 OF 70
BECKY: Warren, you've spent a lot of money trying to prevent nuclear—
bombs from getting into the wrong hands.
BUFFETT: Yeah, and nuclear, chemical and biological. I mean, there are
per— people in the world that wish ill on— on— theie neighbors and— and—
and— would like to— kill as many people as possible. And— the choke
point— is not so much knowledge anymore, with knowledge spreading so
much, but— but materials. And— and— I think we've been very fortunate
and probably quite vigilant, you know, since 1945 when we unleashed the
atom— in avoiding it. But the biological, you know, as Bill says, is probably
more of a danger than— than the nuclear.
BECKY: We're going to— go to a quick break right now. And— Joe, I think
when we come back, we'll have some final thoughts from Warren Buffett and
Bill Gates.
BECKY: (LAUGH) Welcome back, everybody. Right now we have more from
Berkshire Hathaway Chairman and CEO Warren Buffett, and Microsoft
Chairman Bill Gates who is a board member at Berkshire Hathaway.
Gentlemen— I was thinking about how much Berkshire has changed. And
Warren, you've written about this in the annual letter. But— when you look
back to just— about eight years ago, you can look at the biggest bu—
businesses for Berkshire outside the insurance companies. It's MidAmerican,
Lubrizol, ISCAR, Marman, and BNSF. And four of those companies were not
part of— of— of Berkshire just from when Bill joined the board back in 2004.
BUFFETT: Yeah, we had one of those then, yeah.
BECKY: How has your investing strategy changed, and why?
BUFFETT: Well, we've always liked buying businesses. But we've had
much— a fair amount more success in the last eight years. So well, you
named five companies. We had one of those earning a little less than $400
million pre-tax then. Now we got the five making a little more than $10
billion. So it— it's— we're transforming Berkshire as we go along. It's a
work in progress.
BECKY: You know Bill, from the perspective of being in the board— has your
job changed over that period of time? Is it different as you've been— adding
more businesses and the business just looks so different?

PAGE 67 OF 70
GATES: Well, the key role of the board is— supporting Warren, talking about
the succession plan. And so that's pretty much the same. It's m— it is more
about wholly-owned businesses and less about trading stocks. And in that
sense— the— the value's very enduring. Because those business franchises
are— you know, just— amazing assets. So it's— I think it's a really great
maturation process— that bodes well for the— the future of the company.
BECKY: The future of the company. How will the board's role change with
the next CEO who comes in? My guess is, things are going be run a little
differently.
GATES: Well, you'll certainly have a period of supporting the new CEO
where— you know, we'll have some institutional memory and— want to make
sure he— he gets into the job very well. So I think things will be more
intense then— than they have been. You know, there'll be a lot of questions
about the company that— all of us on the board will, you know, lend our time
and our reputation to talk about what an enduring— incredible company
Berkshire is, and make sure that's— that's really what's— what's happening.
BECKY: You— you've talked about how succession is the number one topic
that the board talks about. You have a board meeting that starts in about
half— or I guess an hour and a half from now. Is that going be the top—
topic of discussion today as well?
GATES: It's always the— the main topic. Warren's good about letting us
bring up anything we want. But we all know that— that's— that's what— the
main thing we're there for, and— we go through it— even when there isn't
that much of a change. We make sure that nobody in the room— has new
information or new thinking— because it's such a critical decision.
BECKY: All right. Andrew and Joe, I'll give you the last 30 seconds each if
you have a quick question that you want to ask.
ANDREW: Hey Bill, you have a very special friendship— with Warren. And
I— I never even like to think about this. But in— in a post-Warren world, ten
years out, do you imagine you'd still be a board member of Berkshire
Hathaway?
GATES: Absolutely. Absolutely. That's one of the things— that I can do as a

favor to Warren.
JOE: You g— we got no time, Warren. You going give me the jet — I
mean, I— is there some kind of ceremony or something that you've got

PAGE 68 OF 70
planned, (LAUGH) it's— it's— we— you got like, 40 seconds now. You're not
going to, are you?
BUFFETT: No, I was planning— no, no. I was planning to do it until he said
"ten years out," and you said 25 years out.
JOE: I— I know. I heard— I heard that. What— that— that was— that was
cold, man.
ANDREW: That was—
JOE: That was cold.
(OVERTALK)
JOE: —past 92?
ANDREW: No, no, no, no, no. I meant ten years— no, look. Warren's going
live till— till at least over 100, 100— (LAUGH) and I'm thinking ten years—
no, it's ten years after.
JOE: You know what? Warren, I— I heard that question. That was cold,
Warren.
ANDREW: No, no. Warren, I— I—
JOE: I heard that, too.
ANDREW: That wasn't the intention at all.
JOE: You know Sorkin, he's going live forever 'cause he's in his 30s.
ANDREW: No, Warren's going live forever.
JOE: Yeah, he is. (LAUGH)
ANDREW: We're all going— to be very happy about that. So— it's been
great to—
BECKY: Guys, I will let you in on a secret real quickly. Just that even if you
think I never do anything for you, I just want to tell you about the hazards of
working here. We're in a big hangar, there are a lot of birds. One pooped on
my head ten seconds before we came back to air. Look. (LAUGH)
JOE: Oh my god.
BECKY: It's there. (LAUGH)

PAGE 69 OF 70
BUFFETT: Only in Omaha.
JOE: Only in Omaha. Indoors, holy smokes. All right. That was great,
thank you, thank you.
BECKY: Warren and Bill, thank you both very much.

PAGE 70 OF 70
CNBC Transcript: Warren Buffett on Coke pay plan
cnbc.com/2014/04/23/cnbc-transcript-warren-buffett-on-coke-pay-plan.html
CNBC Transcript: Warren Buffett on Coke pay plan Alex Crippen | @alexcrippen Published 7:36 PM ET Wed, 23 April 2014
Updated 7:53 PM ET Wed, 23 April 2014 CNBC.com
April 23, 2014
Buffett: Love Coke, like IBM, market not too frothy 4:15 PM ET Wed, 23 April 2014
Warren Buffett was interviewed live on CNBC's "Closing Bell" Wednesday.
Among the topics covered:
Why stocks aren't "too frothy" as they re-approach all-time highs

His decision to abstain in a vote on Coca-Cola's controversial equity compensation
plan, even though he thought it was "excessive"
His support for IBM, even after a disappointing earnings report
How CEOs are increasingly scared of activist investors
Here's an unofficial transcript of the interview along with a video clip of the entire
conversation with Becky Quick.
You can also download a PDF by clicking here.
BECKY: We are at Smith and Wollensky today. Warren Buffett has just had lunch with the
winners of the annual Glide Foundation Auction. This is an auction that went off last year.
Warren, this was the 14th annual auction. You have now raised $15.6 million for the Glide
Foundation. I know that the new auction goes up on June 1st, looking for next year. But how
was lunch this year?
WARREN BUFFETT: Lunch was great. I always have a good time and there were eight people
and— I knew a couple of 'em from before, they're all gonna come to the annual meeting, and
it— it— it's a treat for me.
BECKY: They didn't want to be identified. But— they snuck outta here with— despite (LAUGH)
all the media that's here .
BUFFETT: Yeah. Yeah, they— they— they were— they weren't looking for publicity. But we
had— we had— we had a very good time.
BECKY: Okay, I'm glad to hear it. While you were in there, there was a little bit of news that
was happening out here. We've been hearing about the Coke shareholders meeting. It turns
out that the votes are in. Eighty-three percent of shareholders voted in favor of Coke's plan.
The— compensate— equity plan. That means 17 percent voted no. How did you vote your
shares?
BUFFETT: We abstained. So that would've been 9 percent. I don't know whether or not it's—
whether they took that out before calculating the 83 percent and 17 percent. But we— we—
we abstained.
1/8
BECKY: That was 83 percent for the votes that were cast. Why— why did you abstain?
BUFFETT: Well, we abstained because— we didn't agree with the plan. We thought it was
excessive. And— I love Coke. I love the management, I love the directors. But— so I didn't
want to vote no. It's kind of un-American to vote no at a Coke meeting. So (LAUGH) that's—
but we— I didn't want to express any disapproval of management. But we did disapprove of
— of the plan.
The plan— compared to past plans was a significant change. And— there's already a 9
percent or so overhang in terms of options outstanding relative to the amount of sh—
shares outstanding, 8 percent— 8 percent— 8 percent to 9 percent. And— this authorization
of another 500 million shares. Not all of which would've gone on options. But that's another
11 percent of the company. And— and— I thought it was too much. And— I talked to my
partner Charlie Munger, and he thought it was too much. So we abstained.
BECKY: Your math, does it match up with David Winters who is— is the activist who's been
very vocal about this. By his math— he thinks it would be something like— a dilution of 16
percent to— existing shareholders— that are there. And—and Muhtar Kent has up from the
company and he thinks it's more like 1 percent of—
BUFFETT: Well, it— it— it's closer to the 1 than it is to the 16— in terms of dilution because
they would repurchase— the— they would use the proceeds they received in the options to
repurchase shares. So— so— they said the breakdown between giving performance shares—
in terms of what they call option equivalent, it would be 40 percent down and 60 percent
options. If they repurchase the shares, it would not be— it would not be as low as 1 percent.
It— it would be far from the— from the higher numbers.
BECKY: Well, David Winters— was just out with a statement, I guess he jumped the gun a
little bit, because he criticized you. He said— in his statement, that we are surprised Warren
Buffett had the opportunity to take a stand against excessive management compensation
and failed to seize it. Why are you telling us this now instead of before the vote?
BUFFETT: I— I— I— I would not want to be in a position of— of— campaigning for either side
in respect of— we were gonna cast our vote, it would become known how we cast our vote.
But— but— I have enormous respect for Muhtar Kent. He is the man to be running Coca-
Cola. And— we never sold a share of Coke— never had any plans to s— sell any Coke. I— I
respect the Coke organization. I just don't like the plan.
BECKY: Did you talk to Muhtar Kent about— your thoughts on this?
BUFFETT: I— I did, but it was only after the— the— the proxy was out. So and— and— and
he did not have— he did not know my views ahead of time.
BECKY: Your— your son is on the board of Coca-Cola. He voted in favor of this plan.
BUFFETT: That— that's true. The— I— I've been on boards for 55 years— 19 public boards—
I've never heard of a vote against the compensation plan voted by compensation committee.
What happens in a board, I— I think people sometimes have a mistaken notion of how
2/8
boards act. But— the compensation com— committee comes in, they've worked for a few
hours, maybe a few days, they've had consultants. And— and they say, "We've approved this
plan." I've never yet heard at any of the 19 boards I was on, anybody say in the meeting they
were against it. And I've had— heard a few say it outside of the meeting. But— but taking on
a committee that's reported, you've assigned— the job to the committee, and they — taking
them on it is— is— is a little bit like belching at the dinner table. I mean, you can't do it too
often. (LAUGH) If you do, you find you're eating in the kitchen pretty soon.
BECKY: Did you ever vote for something when you were on a board that you disagreed with?
BUFFETT: Sure.
BECKY: Like what?
BUFFETT: Well, I've voted for compensation plans that I haven't agreed with. But I— I've even
sort of muttered a yes on— on some mergers that (LAUGH) I didn't think made any sense.
But that— it happens.
BECKY: You know, I— I'm still trying to get my head around this. You— went ahead and—
abstained to vote on this. But did you look at this compensation plan or did you look at the—
equity plan before David Winters pointed it out?
BUFFETT: I— I— I read the full details actually after— after that. I— I— I— I just hadn't
learned the material yet. But in 2002, Coke had a plan that involved 240 million shares. That
lasted six years. They had a plan in 2008, six years later, that was 280 million shares. And that
lasted six years. And then this plan, when I read about it was for 500 million shares. Which
they would equate to 340 million. But still, 340 or 500. And they were gonna use it, they said,
in four years. And that— that really struck me as quite excessive. So— I— I didn't actually
read that until after Winters wrote the letter. But I would've felt the same way.
BECKY: This is a situation now ,though, that the company again, had 83 percent of the votes
that were cast voting in favor of it. What do you think they'll do now?
BUFFETT: Well, I— I— I don't know the answer to that. They— they have the stock
authorized. They said in the report that they expected it to last four years. I hope it lasts a lot
longer than that, because I think that would be excessive to issue that number of shares that
are options, or performance shares equivalence— in a four-year period.
BECKY: So if they simply extended the number of years that they were to take to issue those,
you'd be okay with the plan?
BUFFETT: Sure. I mean, it's— it really just depends on how much you're issuing all the time.
How much of the future upside you're giving away each year. And— right now, something
between 8 and 9 percent of the upside of a stock is covered by options already issued. That's
out there. And they've been issuing options year after year after year. I mean, so anybody
who's worked there for ten years has got— probably got ten years worth of options. It isn't
like incentives are lacking. But you can give away too much of a company.
3/8
BECKY: Will you sell any shares of Coca-Cola? Have you sold any shares of Coca-Cola?
BUFFETT: No, no, no. And no intention whatsoever of selling shares. I— I love the company
and I— and I think that the exact— the— the right CEO is running it. And I think it's— it's got
a fine future.
BECKY: And you— you've said in the past that people should buy companies that could be
run by a ham sandwich. And you've even said Coca-Cola is one of those companies that
could be run by a ham sandwich—
BUFFETT: I don't think I said that. (LAUGH)
BECKY: I'm quoting it from "The Snowball," I think. It was— it was a quote from "The
Snowball."
BUFFETT: Well, then (author) Alice Schroeder said it, yeah. (LAUGH)
BECKY: So Alice Schroeder said that you have said that.
BUFFETT: No, no. In fact, I'm quite sure I never said that. I— I think I know who said it, but I'm
not gonna name him. (LAUGHTER)
BECKY: I guess that's what it gets back to the question, though— is it important to have a
great manager running that company?
BUFFETT: It's— it's— it's hugely important. Just— hugely important. And— and actually— the
— the— Coca-Cola for a while, after Roberta— Roberto (Goizueta) left with—was not doing
so well, and Muhtar is— is— is the right person to be running it and it makes a big difference
who's running it.
BECKY: Let me ask you about another stock that you own, IBM. That company came out with
— a disappointing— earnings report, revenue was down for another quarter. And that
surprised the Street. Some people have suggested that—there were rumors floating around -
that you have soured on the stock. Have ya?
BUFFETT: That's not true. No. I've— I've actually bought a few shares this year.
BECKY: You've bought stock in IBM this year?
BUFFETT: And I've— I've never sold a share, so.
BECKY: Since the earnings report that came out?
BUFFETT: No, not since the earnings report this year. But the earnings report should not
have been a surprise. It was actually roughly what they said in their earnings call a quarter
earlier, their— their revenues were down 2 percent I think on— on a cost-of-currency basis.
And— and I expected that. And— and I don't think they said any different.
4/8
They said earlier they expected to earn about 250. They— they signaled the charge they were
gonna make ahead of time— for— layoffs essentially. So I— I— it did not strike me as a big
surprise— what they reported. Now, it may be a surprise a year from now or two years from
now. But I— I have not been surprised by what they've reported.
BECKY: Would you buy additional shares of IBM? You bought some earlier this year. Would
you continue to buy?
BUFFETT: Depends on the price. (LAUGH)
BECKY: The price today, I think it's trading at about a hundred—
BUFFETT: $191.
BECKY: $191.63 (LAUGH) on the last trade. I think your— your— average cost was
somewhere closer to $173. I look back and— in the annual report, I think you've seen a gain
of about 12 percent. You bought it at a cost of around $11.68 billion. It's now worth closer to
$13.05 billion. So, what is the right price?
BUFFETT: These are just figures you carry around in your head all the time. (LAUGH)
BECKY: No, I had to look down at my notes for that.
BUFFETT: We could buy it. But— I mean, I— I don't— I don't announce anything we're gonna
buy or sell. But I— I— I— I— I wouldn't rule it out. I paid that much for the stock.
BECKY: Okay, all right, so earlier this year, you actually were buying shares of that. Can I ask
you also about just activist investing in general. First of all, David Winters. What do you think
of David Winters because— one person this morning actually called him a gadfly. Is he
Evelyn Y. Davis?
BUFFETT: Oh no, he's not a gadfly. I mean— he's got $2.5 million. I— I think he's owned the
stock for many years. And incidentally, we've heard from— other shareholders after he made
his letter public that owned large blocks of stock that felt the same way. I don't know how
they voted. But— the—
BECKY: Coca-Cola shareholders?
BUFFETT: Coca-Cola shareholders. And— and I'm being— yeah, that's an issue that comes to
the shareholders to vote on. I mean, the— you're expected to cast your vote— on the issue.
And— and he disagreed with it. I disagreed. I didn't vote against it, I abstained. But it's a
perfectly proper thing. But if you're s— going to give away a part of the company—
shareholders should probably vote on it.
BECKY: We—we have seen — activist investors take all kinds of— of new pages and create
new playbooks. Bill Ackman just teaming up with Valeant to go after Allergan. He's said that
he's already heard from another public company who has identified a target they'd like him
to help out with, too. Does any of this strike you as strange? Does it seem like fair behavior?
Does it sound like front-running?
5/8
BUFFETT: I don't know. It— it— it's— I don't know the arrangement he had with Valeant. I
mean—
BECKY: He and Valeant got together. It was Valeant's idea. Valeant put some money into this
deal with him. They agreed to go after it together. And then he bought the stake of 9.7
percent—
BUFFETT: Yeah.
BECKY: —9.6 percent.
BUFFETT: Yeah. My guess is he had legal advice on it and—
BECKY: He did—
BUFFETT: And—
BECKY: Robert Khuzami told him he thought it was fine.
BUFFETT: Yeah, and I think if Valeant had bought it itself, I don't think they have a problem. I
think that-
BECKY: Well, except that Valeant can't buy— that big of a stake in another— in another
maker. I think they were limitations to how much stock they could actually buy.
BUFFETT: Yeah. I don't know the answer to that one. (LAUGH)
BECKY: Does it strike you that activist investors are getting stronger and stronger? Are there
—
BUFFETT: Oh, they are.
BECKY: —CEOs—
BUFFETT: They are. They are. The CEOs are terrified of activists. I can— I can tell you that.
(LAUGH) They're all talking to investment bankers and lawyers and saying, "What do we do
about this?"
BECKY: Who is in the right? Or is it tough to paint all activist investors with one brush?
BUFFETT: I don't think you can generalize about it. I think there— there are companies that
— that— where management has not done a good job, and I'm not— referring to anything
specific here. But I mean — certainly if people want to step up and buy a lot of the stock in a
company, I— it's hard to argue with their right to do that.
BECKY: There have been— major Dow components that have been mentioned as potential
takeover targets, even an IBM, some people have suggested. Do you think that would be for
the good of shareholders or to the detriment?
BUFFETT: (THROAT CLEAR) Well, I think it would be case by case. But I— I— I— I'm not
looking for anybody to do that in IBM.
6/8
BECKY: Okay. Also I'd like to talk to you a little bit about that David Einhorn. He was just out
talking about how he sees a potential tech bubble building once again. He talked about the
cool-kid stocks. And I guess you can—(infer) from that he means companies like a .
Or some of these big— internet companies that have soared very rapidly. He's shorting a
basket of these stocks now because he thinks it looks like it did— back before 2001. You
were somebody who didn't understand valuations with the technology companies back then.
Do you see similar characteristics to the technology stocks today?
BUFFETT: I don't think it's like two-thousand — (THROAT CLEAR) the— the period prior to
2001. I don't— there are a lotta s— companies whose valuations I don't understand. But
that's always been true. And— and then you get into a period like right before 2001 where
you could almost sell anything and capitalize eyeballs and all of that. I— I— I don't think it's
reached that point, and certainly I don't think the general market level is going to bubble up.
BECKY: Well, that— that's an interesting point. We're not far off of all-time highs. It's probably
less than a percent for both the Dow and the S&P 500. You don't feel like things are getting
too frothy here?
BUFFETT: No, no. I think we're— in a range— and it's— it's a big zone, it's a big zone always
of reasonableness. But— but stocks ought to be higher every ten years. I mean, there's a
plow back of earnings that goes back year after years. Stocks will become worth more
decade after decade, not in any precise manner, not in an even manner or anything of the
sort. But ten years, 20 years, 30 years from now, stocks will be worth more than they are
today.
BECKY: You've gotten concerned about valuations in the past, though. What— what would
be a warning signal to you? What would be something that would— would really start to
make you think twice about buying more stocks?
BUFFETT: It would be valuation. I mean, the— the— the— if the numbers got— if prices got
to nosebleed levels compared to earnings for many stocks generally, then I would say we—
you know, we're in one of those periods when stocks got ahead of themselves.
BECKY: Is that—
BUFFETT: But stocks— stocks do get worth more over time because companies retained a
lot of what they earned.
BECKY: But is that just P/E ratios for forward earnings? Is that the best way of measuring it?
BUFFETT: Yeah, and it— in the end, a stock today is worth all of the cash you can distribute
between now and Judgment Day. And the higher the price goes, it— if the distribution
doesn't change (LAUGH) at some point it gets ahead of itself.
BECKY: Let me ask you also just about the annual meeting coming up. In your annual letter
to shareholders, you said that you'd be looking for a bear who could sit and ask questions at
the annual meeting. I take it you don't have a bear who's going to be coming this year. I've
7/8
heard it's Morningstar, the analyst there, who will be handling it. What happened?
BUFFETT: Well, we gave up about a week ago— hearing from any credentialed bear that was
short the stock. So, about a week ago we were getting close to the annual meeting, and — we
had— we've got a sixth seat down there in front (LAUGH) in terms of questioners. So—
Morningstar had written me— previously in saying they hoped that when a vacancy showed
up that they can have their analyst come. And so I wrote 'em and said— "Come this year."
BECKY: There are no bears on Berkshire? Are we to understand that no one applied for this?
BUFFETT: Well, I— I— somewhere they publish short interest, so I don't know whether we
can trace any of those people down. But— we did not find anybody that— that had— a real
bear interest in it.
BECKY: All right.
BUFFETT: They're probably out there, but— maybe they didn't want to surface.
BECKY: All right. Well, Warren, I want to thank you very much for your time today.
BUFFETT: Thank you.
BECKY: We really appreciate it.
BUFFETT: Okay, thank you—
BECKY: And—we hope to talk to you again soon.
BUFFETT: Good, good.
BECKY: Again, Warren Buffett and— Bill on the show, we will send it back to you. But— the
news is that Warren Buffett abstained Berkshire shares. He is the largest shareholder in
Coca-Cola. So that's— abstaining— I think something like 9.6 percent—
BILL GRIFFETH: Nine— yup.
BUFFETT: Well, maybe more like 9.1. We have— we have 400 million shares and they have
4.4 billion outstanding.
BECKY: Right, greater than 9 percent, maybe 9.1 percent of the shares outstanding that vote
on— the equity plan did pass by the votes that were cast by 83 percent. But guys, I'll send it
back over to you—
BILL: Very interesting, Becky.
MICHELLE CARUSO-CABRERA: But still, he disagreed with the plan.
BILL: Well— exactly—
MICHELLE: It's startling. Yeah. (LAUGH)
BILL: Thank you, Becky.

8/8
This is an unofficial transcript of Warren Buffett’s three-hour March 3, 2014 “Ask
Warren” live appearance on CNBC’s “Squawk Box.”
BECKY QUICK: The ruble is at an all-time low versus the dollar. It fell drastically today,
not only against the dollar but also the euro. So investors are sitting up and taking
notice. The-- MICE index in Russia was under quite a bit of pressure as well. So-- the-- it
may not be playing out by more than just 150 points right now in the U.S., but there are
some major moves happening in markets around the globe as investors try to figure this
out.
Again, perhaps no better investor to sit down and speak with today than Warren
Buffett. We are here in Omaha because-- Berkshire Hathaway's annual letter-- Warren
Buffett's annual letter to the shareholders went out on Saturday morning. And, Warren,
we've spent some time digesting-- a large annual letter.
WARREN BUFFETT: I get paid by the word.
BECKY: Yeah. So-- a very hefty annual letter that gives people a lot to think about. As
you do every year you laid out a lot about your thoughts about investing in general--
and taking a look at the markets. And I would ask you for your macro view on the
markets. But in your letter you pointed out that you don't give much credence to
people offering macro views.

PAGE 1 OF 48
BUFFETT: No. No, I-- I've been buying businesses and stocks for a lot of years, stocks
for-- 71 years and businesses for almost as long. And-- I've never really made a decision
based on macro factors. If I find a business I like-- I buy it. I mean, the first stock I
bought was in the spring of 1942. And I will tell you, the macro factors were not looking
good.
You know, we- were-- it—was right after Pearl Harbor and we were getting clobbered--
in the South Pacific. And-- the war did not look good. Now, I think almost every
American thought we were gonna win the war, but when I bought my first stock I spent-
- I went in 100%. I spent-- all of my $120. I was not doing it based on headlines. I was
doing it based on what I was getting for my money.
BECKY: But when you did that, when you bought into it, you say you don't look at
macros. I can think of times from the past when you have looked at macro effects.
When you looked back with stocks at a low you told Americans to buy stocks with both
hands.
BUFFETT: Well, occasionally--
BECKY: Yeah.
BUFFETT: --stocks are just demonstratively cheap. I mean, really demonstratively

cheap. And--I wrote an article in 1974-- or, I did an interview with Forbes—and in 2008 I
wrote an article for The Times. And, I mean, there are occasionally when they're just
ridiculously cheap. But-- most of the time they're good value.
BECKY: Uh-huh.
BUFFETT: But there have been a few times when I thought they were so cheap that I-- I
should say something.
BECKY: You know, people have pointed out obviously stocks have come a long way
since then. People have been analyzing your annual report and realizing that you didn't
really say anything like you've said in years past where you said-- I-- one time a few
years ago that stocks obviously were a much better value than gold.
This time, the excerpt that you-- put into Fortune a few days ago that people really
focusing on had two examples that were both around real estate, 1) the farm that you
bought here Nebraska. Another-- some real estate that you invested in just across the
street from NYU, from New York University. And that has people speculating, do you
think that real estate and other areas are better places for money than stocks right
now?

PAGE 2 OF 48
BUFFETT: No, that's they're speculating wrong. I used those-- illustrations because I
don't know that much about real estate or farms. And yet it was still possibly to
successfully invest them. And--I feel the same way about people on stocks. If they you
can have a great, long-- life-long experience in stocks and really not be a specialist in
accounting or, you know, know all the ins and outs of capital structures and all of that
sort of thing.
And-- I used-- I was just-- I was probably more ignorant of-- the realities of farming, the
realities of that building in New York as most people are with stocks. And yet, it was
perfectly possible to come to-- an intelligent decision that you could not lose money in
those-- investments and that you were probably gonna make quite a bit of money.
BECKY: Yeah. I wondered that. Because there have been a lot of people recently who
have raised questions about the stock market, who have worried that it is-- a fool's
game to try to get involved. That it's-- the average investor can't get a fair shake. I've
heard people like Bill O'Reilly say this very recently, that he doesn't trust the stock
market and thinks it's rigged. What do you tell people?
BUFFETT: Well it isn't rigged at all. I mean, there have been occasions where given
stocks were absolutely rigged. But-- but it's pretty hard to rig--$20-plus trillion (LAUGH).
And the-- people should forget about calling it the stock market, even. I mean, it's
American business.
And-if for some reason you think American business over the next 50 years is likely to be
way less productive than it has been in the past-- then you can come to a negative
conclusion on it. But I--came to a conclusion on that farm that it was likely to produce a
little bit more over the years and that the crops would bring a little bit more over time
and I bought it on a 10% yield-basis to start with.
So when you're buying a productive asset you don't wanna-- categorize it by some name
or-- and then read in the paper that this or that's gonna go up or down. You wanna look
at the business.
If you bought the house next to you to rent to somebody you'd look at the rent you
were gonna get, the taxes you were going to pay and-- what you thought the
neighborhood would do over a long period of time. And then you'd measure that
against the purchase price. The purchase price is all-important. And the stock market
just offers you so many opportunities-- the thousands and thousands of different
businesses.

PAGE 3 OF 48
You don't have to be an expert on every one of 'em. You don't have to be an expert on
10% of them, even. You just have to have some conviction that either a given company
or a group of companies, and I would suggest for most people it should be a group of
companies you have to have every conviction that those companies are likely to earn
more money five or ten or 20 years from now than they're earning now. And that is not
a difficult decision to come to.
BECKY: You also-- revealed something in the annual letter this year, where you said--
you laid out the terms of your will, what you've set aside for your wife. Which, I didn't
know any of this.
BUFFETT: Yeah.
BECKY: And--
BUFFETT: Well, I didn't lay out my whole will. There's hope for some of you who
haven't been mentioned yet. The-- but I did explain, because I laid out what I thought
the average person who is not an expert on stocks should do.
And my widow will not be an expert on stocks. And- I wanna be sure she gets a decent
result. She isn't gonna get a sensational result, you know? And since all my Berkshire
shares are going-- to philanthropy-- the question becomes what does she do with the
cash that's left to her?
And I've been-- part of it goes outright, part of it goes to a trustee. But I've told the
trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments.
And the reason for the 10% in short-term governments is that if there's a terrible period
in the market and she's withdrawing 3% or 4% a year you take it out of that instead of
selling stocks at the wrong time. She'll do fine with that. And anybody will do fine with
that. It's low-cost, it's in a bunch of wonderful businesses and it takes care of itself.
BECKY: You've specifically said a Vanguard index--
BUFFETT: Yeah, right. Yeah, well it's-- a very, very low-cost index fund. And there are
others. But there are others that aren't so low-cost. And keeping costs to a minimum is
enormously important in investing, whether it's farms or buildings in New York, or-- but
particularly in stocks. I mean, if you're in effect paying out 1% or 2% annually--
BECKY: Yeah.
BUFFETT: -- of your portfolio, that's a big, big tax-- that you don't have to pay.

PAGE 4 OF 48
BECKY: And people who are at home who are listening to this, they just need to look at
the expense ratio.
BECKY: And you could probably get one for 20 to 25 basis points versus 100 to 200 basis
points.
BUFFETT: That's right. I think Vanguard's actually a little under 20 basis points. And-- if
all of the people that had owned Berkshire 40 years ago had never traded, every day
they tried to open the stock and they just wouldn't have been there to trade it, their
returns at aggregate would've been exactly our returns.
Now, if they traded around like crazy, they pay people to tell them to own it and
everything, their returns would become our returns, less expenses. So it-- you should
look for a very, very low-expense-- way of participating. And incidentally at-- at
Berkshire-- our expenses are very, very low in relation to the-- 100-plus billion of
investments that we have.
BECKY: We do have the opportunity for viewers to write in and ask you their questions.
One viewer did write in-- (I'm sorry, I'm looking for the number right now) wrote in the
question asking about why-- did you lay out that you had said you set this money aside
for your wife to be put into a Vanguard index instead of put back into Berkshire shares.
BUFFETT: Yeah. Well-- Berkshire would be okay. But like I say, I'm giving away all the
Berkshire shares. And Vanguard is fine. And-- Berkshire would be fine. But-- I wouldn't-
wanna be touting Berkshire to people, generally. I have no problem touting the S&P
500 at a low cost.
BECKY: Let's talk a little bit about what you see in the economy right now. Because
through your businesses you have an incredibly good idea about what's happening. You
have, not only in the Big Five that are doing things, you have massive investments, you
have retail operations. Just, in general, where do you think-- the American economy is
headed right now?
BUFFETT: It's-- from what I see, and I do see figures on at least 80 companies or so.
And I like to get 'em, and I get 'em fast. It-- exactly what's been going on ever since the
fall of 2009 continues. I mean, we've had this moderate but consistent growth-- now for
four and a half years. And every now and then we get excited about it speeding up and
every now and then we start worrying about a double-dip and all that.

PAGE 5 OF 48
And you-- you've heard all this different commentary over the four and a half years. It's
been remarkably consistent. And the GDP figures may bounce around a little bit. In
terms of what we see I would say that it's been almost a straight line, but not at-- the
kinda slope that people would like. But not flat either. And-- that's exactly what I see to
this point.
BECKY: So were we overly optimistic in the fourth quarter and now we're overly
pessimistic in the first quarter?
BUFFETT: Probably. We'll know for sure later on. But that's-- it's been that way in my--
we haven't gotten wildly optimistic. And we haven't gotten wildly pessimistic. But over
that period you've seen the small waves of optimism and pessimism. And really they--
you know, it's just been pretty darn steady-- improving.
BECKY: How much has weather played a role in fact, I mean, the numbers we've gotten
over the last two months have been pretty lousy.
BUFFETT: Yeah.
BECKY: But-- the market's been writing it off saying, "Don't worry about it. It's been
bad weather around the country."
BUFFETT: It's a factor. I mean-- our railroad does not work as well when there's lots of
snow and extreme cold. NetJet doesn't work as well-- in extreme cold. And-- those
things compound on themselves. I mean, if it's terrible weather in one part of the--
country, you know, getting the planes to take care of the people there, it all just
pyramids. So there's no question it's been some factor.
BECKY: Every time we bring up weather as an excuse, though, somebody will point out,
"Yes. But if you look at housing numbers in the housing market in California, that's been
slower, and it hasn't been in-- because of weather there." What do you tell people?
BUFFETT: Well, I can't tell you for sure. But we--have a couple of large real estate
brokers--
BECKY: Right.
BUFFETT: --working in California. In fact, the largest one in the lower three counties.
We just bought-- we're buying another one in San Jose. It-- it's okay. I mean, and-- the
prices are-- the prices have really been quite strong. But you always in the winter have
less activity in real estate. But-- we bought several real estate brokerage firms last year.
We've already bought one this year and we'll keep buying 'em. I like the business.

PAGE 6 OF 48
BECKY: Okay. We're gonna continue this conversation with Warren Buffett. We have
him for the next three hours. Joe, I'll send it back to you in the studio though because I
know we have a break we have to get to too.
JOE: Yes, we do. Yeah. I have often thought about-- about Warren's will.
BUFFETT: How do you spell your name again, Joe?
JOE: I mean, saying that-- that-- that I think of you as a father figure, or actually calling
you Dad is probably too much. But-- you know, in the past you've given me-- you gave
me a couple of bottles of ketchup. You gave me a brick. You gave me a little card-- a
NetJet card that was absolutely useless. It had no money on it. And I'm just thinkin'--
are you-- you're sort of--
BUFFETT: I've been--
JOE: --waitin' for the big surprise, aren't you? Is that-- am I gonna find my name-- am I
gonna find my name in there, God forbid, when-- when--
BUFFETT: Absolutely. Absolutely.
BUFFETT: No, I've been testin' you, Joe. And-- and what you'll see in my will, and-- it'll
say, "To Joe, who wanted to be mentioned in my will, hi, Joe."
JOE: You know, Dad, that would be enough for me. I'd just like to say that. That
would-- I'm not looking for anything else. And-- that would be good.
BUFFETT: I'm gonna make that one the record.
JOE: Okay. You're on Page Six (of The New York Post) today. I think maybe I'll talk
about that a little bit later since-- I use my-- my will--
BECKY: Uh oh.
JOE: Yeah, he's on Page Six.
BUFFETT: Uh oh.
JOE: He's on Page Six. He's-- you know, he's liable to do anything at any time. So-- it's
all in the gossip column. And--so let's save that for later. Coming up--
BECKY: There's a good tease.
JOE: Yep. Yep.

PAGE 7 OF 48
BUFFETT: Yeah.
JOE: Coming up, a special-- Ask Warren edition. I've just asked him to include me in his
will. The Executive Edge and taking a look at the future. What would it matter, really?
With all-- I mean, $60 billion, would it-- really? Is it that big a deal? Anyway, Squawk
Box with Warren Buffett will return-- in just a moment.
BECKY: Welcome back everybody. Right now it is time for The Executive Edge. This is a
special edition of The Executive Edge. This is the Ask Warren edition. We are joined this
morning by legendary investor Warren Buffett. And he is answering some of your
questions.
Warren, we got a lot of questions that came in from people. I'd like to focus on some
that take a look right now at-- Berkshire and some of the things you pointed out in the
letter. One came in from Ron Rogers in Ridgewood, New Jersey. And he says that in the
Fall of 2013 news came out that you were ever so close to a major, multi-billion dollar
acquisition of what would've been another elephant. I assume you would not disclose
the name of the acquisition target, but would you tell us what industry group it's in?
BUFFETT: Yeah, I'm-- I better not even say what industry it was in. But incidentally--
because there aren't that many companies in the industry. And-by the size of it you
could probably know down to two or three companies. It didn't happen.
But there's-- you're always seeing the leaves rustling, if-- nothing else. I mean, then--
then there's gotta be something behind those leaves. We will-- we have nothing real
hot at the moment, but-- we have things we're working on.
BECKY: Yeah. You-- said also on the annual shareholder-- in the-- in the annual letter to
shareholders that-- when it comes to taking a look at what happened with Heinz that
this is a template for things--
BUFFETT: Right.
BECKY: --that Berkshire might do in the future. Have—you spoken with 3G about doing
another type of acquisition like a Heinz?
BUFFETT: Well, we-- we've talked about generally-- yeah, so it-- we--don't have a name.
BECKY: Uh-huh

PAGE 8 OF 48
BUFFETT: But both George Palo Lemon, who was my partner in that, and I would love to
do another one. And-- they have an appetite for-- making acquisitions. And they have
an appetite for making big acquisitions. And--
BECKY: And so do you.
BUFFETT: And-- - yeah. And-- we're a good pair that way. And-- and-- and-- they also do
the work and we do the financing. And that's-- an arrangement that I can get used to.
So I-- everything that's happened with Heinz-- in terms of negotiating the contract,
coming up with the buy whatever it may be, every experience has been 100%
satisfactory. So I really look forward to doing something further with them. And I think
we will.
BECKY: You--talked a little bit about the Heinz acquisition in the letter, but how are
things going so far?
BUFFETT: Well, things are going very well. But the Bernardo-- Hees took over in June.
He-- he's done everything logically that we're on the zero-base budgeting. As I put in
the report, I--would expect the earnings of Heinz to be significantly better this year than
any year in history.
BECKY: You-- pointed out that you're not somebody-- the difference between this and a
private equity deal is that Berkshire plans on holding this for a long, long time.
BUFFETT: Forever. Yeah.
BECKY: Forever. Would you be surprised, though, to see a Heinz IPO sometime in the
next five to seven years?
BUFFETT: Yeah, it could happen. Because-- the 3G people, they did that with Burger
King. And--they have a number of investors. I don't know how many. The primary
investors I know. But they-- no, but I just don't know the number. But the-- some of
those people, undoubtedly will wanna get out.
And if the figures get good, as I would assume they would-- they might have a chance to
get out with a significant profit. And-- when they do, we have no obligation to-- 'cause
they have no obligation to sell the shares to us. And we, so it would be totally voluntary
on their part. But-- if they were going to sell those shares and I found the price
acceptable, I'd certainly offer to buy the shares from them. I--
BECKY: Because right now you're equal partners.

PAGE 9 OF 48
BUFFETT: Yeah. We're equal partners. And we'd be equal partners even if the number
of shares were somewhat different. Psychologically we are equal partners, even if the --
share count isn't equal. But I would like-- I would like, over time, to increase it. Sure.
It’s our kinda business.
It's forever. It's will-- it will be a profitable business. It should-- it-- it'll be a worldwide
business, and it is a worldwide business. And it just fits into Berkshire. And our problem
is putting money to work. So we're not looking to take money out of things. We're
looking to put more money to work.
BECKY: But did it create a problem to have the guys who are still on the board at Burger
King selling ketchup to places like McDonald's?
BECKY: No. McDonald's sells itself. I'll put it that way. I'm not sure the customer felt
that way. But-certain of the franchisees, as I understand it-- sort of objected to the fact
that the guy across the street who was selling-- hamburgers against them also was CEO
and come from Burger King. He had been the CEO of Burger King. And I-believe he's
still vice chairman. And-- certain franchisees of McDonald's were not happy about that.
BECKY: That's a big account though, correct?
BUFFETT: It's a big account. But- Berkshire's gonna have a lot of crossed lines as we get
larger. There will be times when-- that-- the actions of one subsidiary irritate the
competitors of another subsidiary. So you got-- that's just gonna happen.
BECKY: All right. We're gonna continue this conversation. Let's get back to Joe in the
studio right now though.
JOE: All right-- Becky. A big night in Hollywood. One of the big winners last night-- at the
Academy Awards. 12 Years a Slave won best picture. The movie also picked up award for Best
Adapted Screenplay and Supporting Actress. But it was Gravity that took home the most
statues-- seven in all-- including Best Director.
And it-- it's in reference to this, Warren, that-- that you're in Page Six. And I'll just let you know
that your story is in between a big-- a picture of Kim Kardashian-- in a low-cut dress where the
thing says she's got her own version of the Golden Globes (this is, you know, The New York Post)
and then-- this is ridicu-- and then on the right-- is a picture of Branjolina. Brad and Angie. And
then you're in the middle. And-- it says--
BUFFETT: They probab--
JOE: But-- yeah, go ahead.

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BUFFETT: They probably asked for that placement, Joe.
JOE: Yeah. Yeah, they asked for that placement. And it says that-- that Harvey Weinstein
invited you-- to his pre-Oscars party but-- you were kinda snippy back to him and you said-- you
really appreciate it but you weren't gonna go to the Oscars this year since you weren't
nominated. So you were gonna stay home. And--
BUFFETT: I'm a sore loser.
JOE: You are. You-- and then I looked up-- I looked you up on IMDB to see what-- and itthis
classic-- this movie database, "Warren Buffett was born on August 30th, 1930 in Omaha as
Warren Edward Buffett. He is an actor known for Wall Street, money n--" it says this right here.
"You are an actor known for Wall Street, Money Never Sleeps, and then Das-something. Some
g-- German thing." But-- and then it's got all your appearances. And it does include Squawk Box
as some of your-- (LAUGH) some of your best-- appearances. What kind of--
BUFFETT: I put it right at the top, always.
JOE: You have been offered roles, haven't you? I'm sure constantly. And you turn 'em down?
It's just not the right-- the right role for you? Or?
BUFFETT: Actually, I may have a small one under-- consideration right now. But I am-- I have
told my agent to feature the Squawk Box appearances as tops on my resume. That that is most
likely to get attention in Hollywood.
JOE: Yes. But I'm trying to think. You could-- you could be different things. If you really
wanted to be, you could break out a character. You could be, like, a Bond villain and I mean, you
would think about it at-- at this point. I mean, it's not your forte. But, I mean, I'm sure you get a
lot of offers. You would've been on Breaking Bad--
BUFFETT: Joe, I'm thinking more glamour roles, actually. That may be why they haven't stepped
up yet.
JOE: Leading man. Leading man.
BUFFETT: I could probably get a lot of those villain roles.
JOE: Leading man-type yeah, fr-- leading man-type roles. That's an idea too. That's an idea
too. All right. Coming up, we're gonna-- we'll be back with Warren and Buffett-- jeeze, with
Warren and Becky. With Warren and Buffett-- in a minute. But first, the news from Ukraine this
morning, a big impact-- having on the market. We'll have more questions-- for Mr. Buffett, think
about more movie roles for him-- when Squawk Box is right back.
JOE: And the markets, obviously watching all the developments coming out of Ukraine this
morning. Russian president Vladimir Putin sending forces into the Crimea region, in his words,

PAGE 11 OF 48
to protect Russian citizens. Western leaders almost universally condemning the actions and--
vowing to use economic and diplomatic measures to pressure Russia to withdraw.
The weekend events putting pressure on the global markets as well. The futures are down
sharply this morning. European markets are also-- taking a hit. There's where we're down over
150 now on the-- the DOW. There are the European markets-- down across the board.
Russian markets are also lower-- at this hour-- as you can see down-- that's a significant number
there, 12%. And-- so the dollar. Take a quick look, you can see against the yen, the euro--
especially the Russian rubel which hit a new all-time low. Gold has been in a little mini bull
market on its own. And it's up another $23. You can see that-- just-- since-- the December lows.
It's quite a move. Let's get back-- to Becky and Warren Buffett in Omaha. Becky-- you got the--
the oracle there. I guess-- the Ukraine is front and center.
BECKY: That's right. Now, Warren talked a little bit earlier about how difficult it is to try and
look at some of these broader things and figure out what it's going to mean for the markets.
But, Warren, you wouldn't be selling anything today based on this.
BUFFETT: No. I—if stocks are cheaper I'll be b-- more likely to be buying 'em. I we were-- we
were buying, I think, one stock on Friday. And-- presumably selling lower today. And that's
terrific.
BECKY: Was it Wells Fargo?
BUFFETT: Good try.
BECKY: I thought I'd give it a try. In fact, a lot of the questions that have come in from viewers
and from Berkshire shareholders too have been related to your investments. And you did detail
quite a bit of your big holdings and what you thought about some of these. But let me give you
some of the questions that have come in.
Frank Ronnie-- writes in, "You've held Coca Cola, Wells Fargo and American Express for 20-plus
years. If you didn't sell those stakes down during the great bubble of the late-90s or during the
last financial crisis, is it fair to say that you will never sell these stocks? And can you envision a
scenario that would actually make you sell any of these positions?"
BUFFETT: It's fair to say that-- it's very unlikely that we would sell 'em in any given year.
Probably any given five-year period. But-- we need money to buy operating businesses. We
could sell any one of those stocks, or maybe-- a group of them. Our preference at Berkshire is to
keep buying operating-- big operating businesses.
And-- we like owning equities. We'll make money in the equities as an alternative. But in terms
of building Berkshire for the long-term, we just like adding our earning power-- big chunks of
earning power from operating businesses, which we are going to keep forever. So none of the
stocks are forever. But they're for-- generally for very long terms.

PAGE 12 OF 48
BECKY: There have been a lot of questions that have come in regarding IBM. Let me go to one
from Hong Kong. A gentleman named Rojesh Padjwani who writes that, "IBM has
underperformed the S&P 500 by a big margin since you acquired a stake in it. While you've
clearly mentioned in an earlier interview that you'd prefer that share price does not do so well
so the company can buy back more of its share at a lower price, has the company's financial
performance, especially revenue trend, disappointed you? And do you feel that you made a
rare mistake by stepping outside of your circle of confidence?
BUFFETT: Well, the revenue trends have-- been less than-- anticipated. Although not
dramatically less than anticipated. The financial numbers have been pretty good, but it's been
helped by low tax rates and things of that sort. There is a transition going on in the business--
you know, particularly in-- in terms of the cloud.
And-- so I would say it's fair-- it's fair to say that I know less about the future of IBM than I might
know about the future of Wells Fargo or-- Coca Cola or the businesses we own. I think I do
know enough about it that I feel good about owning the stock. But-- -- my level of
understanding of a company like IBM is not as high as my level of understanding of a Wells
Fargo or a Coke.
In terms of the price action, that doesn't make any difference to me. That-- if-- IBM bought in a
lot of stock last year. And if the stock had been even lower they would've bought-- they
would've gotten more shares. So the fewer the shares outstanding the better I-- the better I like
it. And they've continued to buy in shares. They buy 'em at a good clip, and I-- I like that. But I
would like to see the revenues pick up.
BECKY: What do you think of the job (IBM CEO) Ginni Rometty is doing?
BUFFETT: Well, I think she got handed the company at the time of a real transition-- in the-- in
the business. And--her record-- I feel fine with her at this point. I-- but her record will be
judged, you know, five years from now. There's a lot going on in that business. And-- I think
they're doing well. But—the final score will be five years or ten years from now.
BECKY: Are you buying more shares?
BUFFETT: We bought a few more shares last year. Not-- not very many. And-- I think we bought
a few shares this year.
BECKY: Okay. Let me also ask you a question that came in. This is number 32, folks. It's Dan
Youngberg who writes in, "Are you still as positive on rails? Which besides yours is good?"
Meaning which besides Burlington Northern is good? "And what about the rail car companies?"
BUFFETT: Yeah. Well, there's four big railroads in the United States. And Kansas City Southern's
another significant railroad. And two in the East, two in the West. And-- the rail business, over
time, will be a very decent business. It's an enormous asset to the country.

PAGE 13 OF 48
And there won't be more-- yes, there may be more-- there could be some high-speed passenger
and all that sort of thing railroad. But in terms of basic, freight railroads-- you've got the
configuration in this country that's going to exist for a long time. And rail does move goods--
heavy goods very cheaply over long distances. And-- it's also in-- environmental--
environmentally friendly compared to-- highway traffic. So the future of railroads is very good.
BECKY: Also--
BUFFETT: And I would say that that's true of all the four railroads. And--
BECKY: A question came in from someone named Curtis Carter. He says, "Do you have any
plans to use Burlington Northern and Santa Fe right of way for mid-America energy to move
electricity East to West? And are you considering electrifying the railroads?
BUFFETT: Well, the answer to both is no.
BECKY: Okay. That's a question that I've heard from others before, so I--
BUFFETT: Yeah. Yeah.
BECKY: --kinda wondered about it.
BUFFETT: If anybody can figure out a way we can make a lot of money off the right of way that
we haven't thought about I'd love to hear of it. But that isn't the way.
BECKY: In terms of how the railroad is doing though, you did take some time to really lay it out.
The railroad-- has-- Burlington Northern has really benefitted from the shale boom that we've
seen-- in parts of the country.
BUFFETT: It's benefited. And-- -- but all of the rails have done well recently. And, in fact, the
Union Pacific, which is our direct competitor, has been-- has done very well. So it-- it's a
business that-- has real economic advantages if you-- if you look at fuel costs, if you look at a
driver's wages and on the highway. And-- as long as more goods move from place to place in
this country rails are gonna get their share. And-- it should be good-- it should be a very
profitable business.
BECKY: What about the Keystone Pipeline? That that question was raised several times by
shareholders. And by--
BUFFETT: Well, I think that--
BECKY: --others who say, "Wait a second, do you really want the Keystone Pipeline to come?
Because it's a direct contrib-- co-- a direct competitor to what would happen with Burlington--"
BUFFETT: It's not that big a competitor. It's moving—it would be moving-- crude down from
Canada. And that-- no, I think probably the Keystone Pipeline's a good idea for the country.

PAGE 14 OF 48
BECKY: Do you expect that the president might actually pass it sometime?
BUFFETT: I have no idea.
BECKY: I had seen a study recently that came out from the State Department that suggested
that if the Keystone Pipeline were put in it would end up saving lives, versus moving that oil via
the railroad. I think it's something like six lives a year.
BUFFETT: Yeah. Well--
BECKY: Like, in--
BUFFETT: --both sides are gonna come up with that, certainly. They're--
BECKY: But that was from the State Department. It wasn't from--
BUFFETT: Yeah.
BECKY: --the key--
BUFFETT: Oh, yeah. Well, and they may well be right. There are leaks on pipelines. And, you
know, occasional explosion, but that's very, very, very, very rare. But if you measure moving
millions of barrels for a hundred years-- one versus the other, I-- I'm not sure how it would come
out.
And it would-- and it depends on what's going on. They're gonna change rail cars, obviously. It
is-- the-- particularly the oil from the Bakken and from the Eagle Ford as well-- has turned out to
be more volatile than people anticipated. And that's going to require-- for one thing, we've
lowered the speeds, you know-- in-- in that area. But it's gonna re-- it's-- it's gonna require the
kinda tank car too.
BECKY: Yeah. Burlington just said that it was buying 5,000 new tank cars--
BUFFETT: Yeah.
BECKY: --that are higher--
BUFFETT: They're on the shelf there to go. They're an order. So it takes-- it takes time. We're-
- with a different company, Marmon, we're in the tank car manufacturing business. And-- and
there will be changes made. And there should be changes made.
And it's fair to say that we've found, in the last year or so, that it's more dangerous to move
certain types of crude, certainly, than was thought previously. And, you know, that's-- there's
no question about it. There's no question about it.

PAGE 15 OF 48
BECKY: You know-- a lot of the rail tank car companies rose on the announcement that
Burlington Northern was going to be in the market for buying more of these things. Will they be
buying them from mar-- from Marmon? Or are they gonna outsource that--
BUFFETT: They-- buy 'em from--
BECKY: --and buy them from wherever?
BUFFETT: --well, they-- yeah. But the problem with buying 'em is that there's a big backlog at
not only Marmon's tank car subsidiary but Trinity and others that make-- make cars. So-- our
backlog runs into the middle of 2015. Those aren't-- those aren't all for crude oil tank cars.
Most tank cars don't carry crude oil.
BECKY: Right.
BUFFETT: When you see-- a train with a lot of tank cars on it, most of that is not crude oil. But
some of it is. And more of it's-- has been in-- in recent years. So you can't just flip a switch and
get 5,000 cars. There will be retrofitting that takes place, I'm sure.
BECKY: Right.
BUFFETT: And-- that's-- my guess is some of that will get moved to the-- to the front of the line
because it-- there-- it's more important to get it done immediately. But-- but the tank car
problem is a problem. And it should be addressed. It's being addressed. But you can't change
the whole tank car fleet overnight.
BECKY: All right, we're gonna continue this conversation with Warren. Joe, we'll send it back to
you right now.
JOE: Becky, is Buffett a Creighton fan? Hoops? Do you know? 'Cause they're in Omaha.
BUFFETT: You
BECKY: I don't know. I don't know.
BUFFETT: You bet. I'm-- I-- and there's a game against-- Providence next-- fri-- it's-- Saturday.
It's our final game. I'm gonna be there to watch McDermott score about 60 points.
JOE: Oh, yeah? Yeah. Well, I-- because I guess you missed what happened over the weekend
against my-- Xavier--
BUFFETT: Oh. Oh, no. Oh, no, let's not hear about that. No, don't tell me.
JOE: Number nine—
JOE: Number nine? I hope-- not any-- not any longer, my friend. It's tough to go into--

PAGE 16 OF 48
BUFFETT: I know. I know.
JOE: It's tough to go into Cintas Center. That was fun to watch. Anyway, I figured you were-- a
hoops-- yeah, they're-- two good Jesuit schools, right, against each other? I like that.
BUFFETT: You bet.
JOE: All-- all right.
BUFFETT: You bet. We had-- we had-- we had-- we had a Cinderella team back in 1942 when I
was a kid. And I've been waiting for a return.
JOE: Wow. I don't even remember that. All right-- coming up-- Apple and Microsoft in this-- in
the news this morning. The futures-- are right now down less. I saw about 150, again, not quite
as bad now. Now down 146. But more Squawk Box-- with Warren Buffett next.
BECKY: All right, Joe, we're going to continue our questions for Warren Buffett this
morning. Again we've been taking questions from viewers. We've getting more this morning
that have been coming in, but one of the things that happened over the last several months,
Warren is there was a story out that suggested that the committee that looks at systemically
important financial institutions said that it was considering Berkshire.
Now, again this was a story that was just kind of lightly sourced that went through. I wonder,
first of all, if you've heard from them. And second of all, there's a question that came in from
William Andersen in Salem, Oregon who said that, "Given Berkshire's policy to maintain a large
surplus of capital, would Berkshire being declared too big to fail concern you? And would the
increased regulation that could come with that designation be worth it to Berkshire to speed up
the unwinding of the derivatives to below the threshold so that it would not be given that
designation?"
BUFFETT: Yeah, our-- we've heard absolutely nothing from the people in charge of what's
called sify. And our lawyers, I’ve checked that. And I would not think we would be under--our
derivatives as a-- well, A) they're winding down to begin with.
But in nominal value, they're well, let's see Deutsche Bank has $60 trillion, so they're less than
1/10 of one percent of Deutsche Bank for example. And we have loads of liquidity. We have all
these different streams of earning power. I think it's very unlikely.
BECKY: Those derivatives will wind down I think on average around 2020? Isn't that--
BUFFETT: Well the equity parts do. The credit ones all did wind down and we have very minor
collateral requirements. We have no condition--we never have any significant short-term
debt. We always have bundles of cash. We always have cash coming in every month.

PAGE 17 OF 48
It would seem very unlikely that we get categorized. We're large, but Exxon/Mobil's
large. Apple is large. I mean, there's other large companies. It's not based on size. It's based
on whether you're likely to get into trouble.
BECKY: All right, let's continue this focus on Washington. The president is coming out with his
budget tomorrow, President Obama, and the early read that we've gotten on this is that it is
going to be one that is maybe a little less inviting to Republicans, that he feels like he's already
made his outreaches in the past, and that they haven't been effective. What do you think that
does to the environment in Washington?
BUFFETT: Well, it's hard to imagine the environment getting much worse. As, you know, it's
more or less a stalemate, in Washington, because there's a little loosening up, perhaps, but you
have a significant portion of the Republican party that can hold the entire Republican party
hostage, and that the Republican party can hold the legislative process hostage. So unless
there's a real change in attitudes it's hard to see much happening.
BECKY: We did have a lot of questions that came in on the political front. One of the ones that
came in under the ask Warren-- Twitter hashtag, was, "Warren, I know that you are concerned
about the wealth gap. Are you supportive of raising the minimum wage, and tying it to
inflation?"
BUFFETT: You’re talking about the minimum wage for 60 years-- I used to work for minimum
wage. That got my attention first when I was getting 75 cents an hour in pennies, but I-- it really
cuts both ways. I mean, it-- you'd like to have people being paid more, but you also want to
have as many people employed as possible. So that one cuts both ways. And I can argue either
side of that.
I think the one thing that does make sense is to increase the earned income tax credit. I mean,
that does increase the income of people who are working, and there's no question that the
market system, which is the greatest system ever seen for producing lots of goods and services,
also leaves more and more people behind as it gets more and more specialized. And we've seen
that, and that's something that a very rich country should address. But I think the earned
income tax credit is the better way.
BECKY: Meaning that you'd rather—and when I've asked people like Peter Orszag that question,
he'd say, he'd like to see both of this things, the earned income tax credit, and a higher
minimum wage.
BUFFETT: I wouldn't fight him on it-- on the minimum wage, but I think you can accomplish way
more through the earned income tax credit without negative effects than the minimum wage. I
mean, if you could have a minimum wage of $15 and it didn't hurt anything else, I would love
it. But clearly that isn't the case. So there's tradeoffs on the minimum wage, and it's very hard
to quantify those tradeoffs. People come out what these exact studies. They don't
know.

PAGE 18 OF 48
BECKY: No, but the CBO recently came out with a study that suggested half a million jobs would
be lost, 500,000, if the government were to go to $10.10 an hour by the year 2016. They said
that it could be either zero or it could be a million jobs that were lost. Where do you think the
likely falls?
BUFFETT: I agree with them. They don't know. I don't know. You know directionally that it
goes-- the situation. Otherwise, you know, we'd have a $15 minimum wage if it wasn’t going to
affect employment, I'd be 100% for it. But, it would. So I don't know and it's very hard to
quantify the tradeoffs. And usually you just get proponents of either side just pulling out the
figures to substantiate their position.
The earned income tax credit I think is much clearer. I mean that puts more money in the
pockets of people who are working for low wages. And that's what I'd like to see. And it doesn't
distort the market system in any great way. But, you know, that's the way I would
go.
BECKY: And Berkshire employs, what, 330,000 employees?
BUFFETT: About 330,000.
BECKY: How many of them make minimum wage?
BUFFETT: Very, very few. I mean, I can't give you the answer, but it'd be very, very
few.
BECKY: Okay, let's ask a related question that comes in from Ian M. on Twitter. He says, "If you
were advising Obama on economic policy, what's the greatest thing his administration could do
right now to accelerate job growth?"
BUFFETT: Well, I think that obviously further fiscal stimulus would increase job growth but you
pay a price for that. I think the market system will grow jobs over time, as it has been the last
four years. It's just that we had such a shock to the system five years ago, and we really were in
the emergency room. And the recovery has been slow. And I think most people expected that,
but they're still disappointed with it as it happens.
BECKY: You know, we had Sam Zell on “Squawk Box” on Friday, and he came up with a really
interesting analogy. He almost put some of the blame on the Federal Reserve at this point
saying that when you have zero interest rates it's like not having a shot clock in a basketball
game. That there's no severe incentive to get that money into investments at this point, that
people think they have a lot of time.
BUFFETT: Well, I would disagree with that. I mean, if I've got money at zero interest rates, I
want to get it out. And I'm looking for projects all the time, and we just in plant and equipment,
we invested over $11 billion last year. That was a record for us. But I-- any project that comes to

PAGE 19 OF 48
me that has a reasonable payout, whether it's wind farms in Iowa or whatever it may be you
know, I love building more freight cars-- whatever it may be.
And zero interest rates really pushes me. I mean, if interest rates were 15%, you know, I would
be sitting here with a 15% alternative and it would be much tougher for capital projects to catch
my eye. So I would argue just the reverse.
BECKY: Let me ask you one more on the political front. Stan Duzy writes in. He says, "How do
you compare the President of the United States' performance with Brian Moynihan's
performance over the last five years?" Obviously you own a big stake in Bank of America that
Brian Moynihan runs.
BUFFETT: The U.S. of America and Bank of America. They both have very, very tough jobs, and
they both settled down to do them. And you do things one thing at a time. And Brian Moynihan
took something that was a big, big mess which he inherited and—the size was almost
overwhelming. And he just methodically has worked on one problem after another. And-- but
he did not have to get the United States congress to agree with him.
BECKY: We're going to continue this conversation-- again, Warren Buffett is with us for the
remainder for the show. Joe, right now, though, we'll send it back over to you.
JOE: See, I'd be out there dreaming about Warren Buffett coming back to me. I don't know if I
can kiss up --
BECKY: And work your way back in there again, aren’t you.
JOE: I mean, we started talking about the will. When you start talking about the will again,
that's all I can think about now. Take it away, Beck.
BECKY: If you're wondering--
BUFFETT: I’ve got it in there now. It says to Joe Kernen who wanted to be mentioned in my
will, "Hi, Joe."
BECKY: There you are. Hey, Joe Kernen. And he did ask how to spell it, too, to make sure he
gets it spelled the right way. But speaking of, if you're just wondering how big those numbers
actually are that he'd be talking about, the Forbes 2014 world billionaires list is out.
And if you want to take a look at it this morning, we happen to have one of the gentlemen who
is on that top of the list who's there. Bill Gates comes in at number one, with $76 billion. Carlos
Slim has $72 billion. Amancio Ortega comes in at $64 billion and Warren Buffett, number four,
at $58.2 billion. Warren, we were talking about it, how much have you given away over the last
several years?
BUFFETT: Well, I gave away about 160,000 A shares, so--

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BECKY: Which would be?
BUFFETT: Yeah, $16 billion--
BECKY: You're better at math than I am.
BUFFETT: $27 billion or so.
BECKY: $27 billion. So even after that, you still have $58.2 billion on the list. You're number
four. Here's the list. We have it right here.
BUFFETT: Don't take it too seriously.
BECKY: I want to ask some questions that have continued to come in from viewers. Part of
what you talk about every year in the annual report, or the annual letter is you lay out how each
of the insurance companies have done. You lay out how each of the businesses have
done. Someone named LatticeWork with M and G-- writes in and says, "How has the latest rise
of extreme weather events changed the calculus faced by Ajit Jain in reinsurance?" And I know
you talk to Ajit just about every day.
BUFFETT: Yeah, it's interesting. I think the public has the impression that because there's been
so much talk about climate that events of the last ten years from an insurance standpoint in
climate have been unusual. The answer is they haven't.
I mean, we-- you read about these events, but you were reading about events 30 or 40 or 50
years ago. And we've been remarkably free of hurricanes in the United States in the last five
years. So if you were writing hurricane insurance, it’s been all profit. There have been more --
some more tornadoes than normal, but it's not had any effect in terms, so far-- the effects of
climate change if any have not affected our-- they have not affected the insurance
market.
BECKY: They haven't. So that's not something at all that you guys have changed your calculus
on --
BUFFETT: I have made no difference. I calculate the probabilities in terms of catastrophes no

differently than a few years ago.
JOE: Hey Warren and--
BUFFETT: That may change in ten years.
JOE: I think it's been three thousand days since it something like a category two hit
landfall. That's the longest in history for a hurricane. And you mentioned tornadoes. Last year
it was actually well below. I don't know about if you add up all the recent years, but, I watched
you after, you know, Al Gore’s big year it was a horrible year, but the one that he said we're
going to have-- that's going to be repeated year after year, the one where he had-- we went

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through the whole Greek alphabet and started again, with hurricanes. I watched you, you
knew. You knew. you knew, you knew, you knew. And you knew that that was going to be an
opportunity to raise premiums, and then not really have any events over the -- and it played out,
exactly like you thought. I don't know how you do it.
BUFFETT: Well I love the apocalyptic predictions on it, because-- you're right, it probably does
affect rates. And the truth is that writing U.S. hurricane insurance has been very profitable in
the last five or six years. Now the rates have come down very significantly, so, we aren't writing
much-- if anything in the U.S. Our biggest single cat risk would be earthquakes in New Zealand.
JOE: And yeah, but what do you think of the perception right now, I mean it's-- I think it's from
the mainstream media, but we are under the impression that adverse weather events are
happening every couple a days, and that it's never been like this before in history. For some
reason that's what people tell me.
And it's, you know, it's nice to be able to include them all into one thing, you know, when you
include droughts, floods, too much snow, too little snow. When you can include it all into one
big thing, it makes it look, you know, like you’re pretty smart.
BUFFETT: It hasn't been true so far, Joe.
JOE: Yeah. All right. Well thank you --
BUFFETT: and you know, yeah.
JOE: I know, I know.
BUFFETT: We always think it’s cold. But it was cold all about 50 years
ago.
BECKY: Let me ask you --
JOE: The only thing that is weird is that the Great Lakes have-- I think they're almost totally
frozen over. I don't know if we've ever seen that. I think we got one more to go, or
something. So that's a little weird.
BUFFETT: Yeah.
JOE: Yeah, all right.
BUFFETT: Well, we don't insure against that.
BECKY: You know, Jim Cramer's been watching this morning as well, Warren, and he writes in a
question too He says that in your shareholders letter, you always speak so positively about
fabulous ways to transport goods. Do you think that keystone should be approved? I know we

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talked a little bit about this earlier, but I didn't really put you on the line. Do you think Keystone
should be approved?
BUFFETT: I'd vote yes.
BECKY: You would vote yes for the Keystone.
BUFFETT: Yeah.
BECKY: He always wonders about creation of jobs, too, so energy and job creation is really--
pipelines and energy renaissance is what Jim's pointing out.
BUFFETT: Well, yeah, but I don't believe in the Keystone pipeline because of the jobs you make
building it. I mean, you could build anything and create jobs. But I believe that-- I just believe it's
a useful pipeline.
BECKY: You do? Okay. Great. We're going to continue this conversation. Again, Joe, we've got
Warren Buffett here. He's with us for the rest of the program.
BECKY: Well, Joe, I can't think of a better day to have Warren Buffett sitting right next to
us. Warren Buffet, the Chairman and CEO of Berkshire Hathaway, to talk about what’s
happening. And Warren, I know you are a long term investor, but when people wake up and
look at the futures, and see down 150 because of what's happening in Ukraine, and questions
about the economy, I suppose, at this point, and whether what happens there spreads here,
what do you tell them?
BUFFETT: Well, I tell them that when I got up this morning, I actually looked at a stock on the
computer in the trades in London that we're buying and it's down and I felt
good.
BECKY: What was the stock?
BUFFETT: It was an English stock.
BECKY: So you look at this, I mean would you have done that anyway, whether or not the
futures were down? Would you still be buying?
BUFFETT: Well, I had a price limit on it and we were buying it on Friday, but it's cheaper this
morning and that's good news.
BECKY: So you buy more.
BECKY: When people start to think, "Wow, this could be the beginning of something really bad,
it could be even a World War III situation, it could be a return to the Cold War," does any of that
ever go through your mind?

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BUFFETT: Well, if you tell me all of that is going to happen, I will still be buying the stock. You're
going to invest your money in something over time. The one thing you could be quite sure of is if
we went into some very major war, the value of money would go down.
I mean, that's happened in virtually every war that I'm aware of. So the last thing you'd want to
do is hold money during a war. And you might want own a farm. You might want to own an
apartment house. You might want to own securities. But, I mean during World War II you
know, the stock market advanced and stock markets advance over time.
American businesses are going to be worth more money. Dollars are going to be worth less so
that money won't buy you quite as much. But you're going to be a lot better off owning
productive assets over the next 50 years than you will be owning pieces of paper or I might
throw in bitcoins.
BECKY: You know, I've been meaning to ask you your opinion about bitcoin. What do you think
of it?
BUFFETT: It's not a currency. I mean, you know, it does not meet the test of a currency. I
wouldn't be surprised if it's not around in ten or 20 years.
BECKY: Why does it not meet the definition of a currency?
BUFFETT: Well, because-- people say, "Well, I'll sell you goods in bitcoins." But they change the
price of those every time the price of the dollar changes in relation to bitcoins. They're pricing
off the dollar. They could say, "Well, I'll sell it to you in barrels of oil." But if every time the price
of oil changes they change the number of barrels you have to have, that's not-- your oil is not
the currency.
BECKY: Yeah, but the yuan does that, too. And people still look at that as a potential
currency.
BUFFETT: Which one?
BECKY: The yuan, the Chinese yuan.
BUFFETT: Well, yeah, well it is a currency. But it is not a durable means of exchange. It's not a
storer of value.
BECKY: And you said yourself you wouldn't be surprised if it's not around in ten
years?
BUFFETT: I would not be surprised. I don't know that, but it's interesting to me. I mean, it's
been a very speculative, you know, kind of Buck Rogers type thing and people buy and sell them
because they hope they go up or down just like they did with tulip bulbs a long time
ago.

PAGE 24 OF 48
BECKY: Well the situation in the Ukraine you have said you're not that worried about. But in
the letter to shareholders, you did lay out something that's been on the horizon that you are
concerned about and that's what's happening with pension funds, the promises that have been
made. Question came in from the Disher, saying, "What impact will unfunded government
pension and benefits have on economic health in ten to 20 years?"
BUFFETT: Well, the government pensions aren't the problem. The private pensions are. The
government has the power to tax. And it has the power to print money. We are not in a
dangerous U.S. fiscal situation. We at some-- we have to quit having our debt grow as a
percentage of GDP. It made sense to have it happen during-- when things were terrible five
years ago.
But we can have a deficit which creates more debt, but not at a rate that is-- grows faster than
the GDP grows. So if GDP is going to grow at two percent. In real terms, but the Fed has a
policy that is sort of shooting for two percent inflation on top of that. That would mean, like,
four percent in terms of nominal GDP. And you literally could have debt grow at four percent
and it would maintain the same relationship to nominal GDP as it does now.
We are not in-- the trend is wrong. There is a danger if that goes on, although a lot of countries
have gone far beyond where we've gone. But I don't like seeing it go up as a percentage of
GDP. But this country is in wonderful shape.
BECKY: If you say that government pensions aren't the problem because the government has
the power to tax, what do you say to somebody who has a private pension? Should they be
worried about it? Should they think that they're still going to get it when they
retire?
BUFFETT: Well, if they’ve got a private pension from corporations, it's protected by the pension
benefit guarantee corp.
BECKY: Guarantee, right.
BUFFETT: And that has come into play in many pension plans. But the state municipal pension
plans-- well, the one right here in Omaha is in terrible shape and almost got a lot of resources
and it's a healthy community and all that
I mean, we can work our way out of it, but people, both who have made the promises and the
elected general-- generally have not understood what they were doing when they were making
pension promises. And there's a long tail to the problem so it doesn't catch up for a while.
But it's inextricable over time, and we are starting to reap the problems that were sowed
decades ago in pension plans. And you're going to be reading a lot more about them. Of course
in Detroit, they're going to have to scale back the promises.

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BECKY: What do you think about the decision in Detroit where at this point it looks like
everyone's going to take a haircut. But the bondholders are going to take a much bigger
haircut. In fact that prompted a question from Gary Gambino who writes in, "Are muni bonds
safe given your concern about the public pensions?"
BUFFETT: Well, some muni bonds are safe and some aren't, just like some corporate bonds are
safe and some aren't. It depends on the debt paying capacity of the entity that owes you money,
and if you take the Omaha Public Power district, which runs the electric operation here, those
bonds are safe. They've got enough debt paying capacity, they can take care of things. But if you
take a city like Stockton, California or something where they just they borrowed too much
money.
BECKY: But in the situation in Detroit, it looks at this point like municipal bondholders are going
to take a much bigger haircut than those in the pensions. They're not going to be treated
equally.
BUFFETT: Yeah, the pensions are going to take relative to pain inflicted, my guess is the
pensions problems are going to take-- or pension holders are going to--
BECKY: Feel it more.
BUFFETT: Oh, absolutely. I mean if somebody's getting $1500 a month and it’s cut to $750 a
month, that is huge. The bondholders are going to take a big cut. The debt's just got way, way,
way out of proportion to the taxable base. And the problem with a city or a state is that if the
math gets kind of overwhelmingly bad you set a cycle in motion where people leave and go
someplace else that doesn't have the trouble. So it's--there're plenty of problems ahead in
municipal finance.
BECKY: All right, we're going to continue this conversation. But, Joe, we'll send it back to you
right now.
BECKY: In just about 15 minutes, we'll be introducing our viewers to the three T's at Berkshire
Hathaway. Investment managers Ted Weschler, Todd Combs, and financial assistant to Warren
Buffett, Tracy Britt Cool. These are the three T's that Warren has talked about extensively, and
there's an awful lot of public interest in these three figures. This is the first time that three of
them will be sitting down together, and talking on camera. So, we do have a lot coming up.
We're back with Warren Buffett in Omaha. And Warren, let's talk a little bit about why you
chose the three T's, how you came up with these three individuals?
BUFFETT: Well, when I'm not around, my job will be broken into two pieces, and one is running
the business, the CEO, but then the investment end will be run by others. And it became
important to bring on the right kind of investment people and so Charlie and I had talked about
that. We-- well, the first time we took a trip, I think I had hundreds and hundreds and hundreds
of applications that I was reading on the trip to China.

PAGE 26 OF 48
And we found two terrific managers, and they're not only terrific in terms of their investment
ability, which had been proven over time, been proven to me, but they are really the right kind
of individuals. I mean, they want to be with Berkshire. They'll be with Berkshire forever. And
they're the kind of fellows you'd want to have marry your daughter.
I mean basically, we-- Charlie and I care about that, and in Tracy I've tried with assistants once or
twice in the past but she came along and she's just done a perfect job. I mean, there're all kinds
of things at Berkshire that I should do that I don't want to do. So, I hand those off to her. And
the three of them have -- they've been worth a very, very substantial amount to Berkshire. It's
demonstrable in terms of the financial performance of the two that manage investments –
BECKY: Todd and Ted.
BUFFETT: But it's also been very clear in terms of Tracy's performance with the subsidiaries
that have been turned over to her.
BECKY: Todd and Ted are each managing about $7 billion.
BUFFETT: $7 billion now.
BECKY: $7 billion a piece.
BUFFETT: Right.
BECKY: They started out on a lower base was it, like, two or three billion dollars, and you’ve
built up more and more over time?
BUFFETT: Yeah, yeah, and even most of them three billion originally, yeah.
BECKY: So what is it that you see in each of them, that made you think that they think like you
do when it comes to investments?
BUFFETT: Well, I talked to them some, but I looked at what they'd done. It isn't just an
investment record that impresses me, it's how that investment record was achieved. And there
are people that are just in tune with the, even kind of markets, and then when the market
changes, they never-- they really can't adapt.
But Todd and Ted look at investments very much like I do. I mean, they look at stocks not as
stocks. They look at them as pieces of businesses, and they evaluate business. They're really
business analysts, when you get right down to it. And then they translate that into investment
decisions.
And they both have a fundamental soundness to them but they're also-- it's a combination of
soundness and brilliance. And you want both. And they think about things that haven't
happened yet in terms of problems. They're-- not in terms of dreaming about great projects
that are pie in the sky, but they're always thinking about the downside. And they've made

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Berkshire billions of dollars already that we would have otherwise made, and they'll make us
many billions more.
Tracy has gone into a variety of situations – usually the smaller companies that where one
reason or another, we needed something done-- sometimes a management change. And she's
done a lot better job than I could do. And she's done such a good job, that when one woman
took over Johns Manville a year or two ago, she asked that Tracy be made the Chairman of the
Board of that.
And Chairman of the Board of our subsidiaries, really, it's just an overseer from Berkshire’s
standpoint. They represent the shareholder, in a sense. And so she's taken on four of those,
and she'll take on more as time goes along. And, she also will be a great repository of
knowledge about all these companies for my successor.
BECKY: You know, let's talk about some of the succession notes that you made, in the annual
letter. And you always do talk about this not only with the shareholders, but with the
board. You say that the board-- something struck me this time around, where you said-- that
the board knows who your choices would be, if there was an immediate need for a successor,
when it comes to the CEO position, but you said that those people were either working at
Berkshire right now, or were available to Berkshire. And that made me question that you're
looking outside the company potentially for successors?
BUFFETT: No. No. No, the successor will be from within the company. All the candidates are
now-- all of the candidates have been over the years and the successor will come from inside
Berkshire. We've got you know, we've got so many businesses, we got a shot at evaluating a lot
a talent. And there is a lot of talent there.
And some of them would have the talent to run the place overall. Others wouldn't. They're
more specialists in their own business. But, particularly then, when combined with Todd and
Ted, who bring an investment perspective, which is useful in acquisitions, analyzing acquisitions,
I think we’re as well equipped for the next century as anybody.
BECKY: And you mentioned both Todd and Ted, so I assume you look at the potential CIO part
of your job be the investment part of your job as something that more than one person could
take on as your successor?
BUFFETT: Well, those two could handle it, very well.
BECKY: Those two could handle it together.
BUFFETT: That doesn't preclude a third person, but I'm not looking for one.
BECKY: And also, when it comes to who the successor as CEO might be, I've asked you in the
past, would it be a woman, and you said none of the candidates at that point were--

PAGE 28 OF 48
BUFFETT: Not at present.
BECKY: Not at present.
BUFFETT: No, I mean that doesn't rule it out. I hope I last long enough so we get some women
on the list. But, there-- no, the top candidates now are men.
BECKY: And- those candidates, is that going to -- a list that's changed over the last
year?
BUFFETT: Doesn't change very much. It's very slow to change. You know, they shouldn't be on
the list if it's quite changeable.
BECKY: Right. Okay, let's talk about some other issues that people have written in about as
well. In fact concerning Todd and Ted, we got a letter that came in from Bora Kostick, who
writes, "In the letter you mentioned Todd and Ted created significant values in matters
unrelated to portfolio activities. Can you give some examples?"
BUFFETT: Well in making an acquisition related in media general where we acquired a bunch of
newspapers and also made an investment in the company Ted did all that. In terms of working
in the RESCAP bankruptcy, Ted did that. He wasn't getting paid for these at all, I mean, this is
extraneous work.
We just recently completed a deal in the last week or so where we exchange our Phillips 66
stock for a combination of cash plus a specialty chemical operation. That was Todd. I mean I
may have partially conceived of the idea, but I just turned it over to him.
And those sort of things might not have gotten done if I had to do them myself. And there's
some threshold at which I have to say, "The heck with it." And having them has been invaluable
on that. I mean we're talking things that are worth hundreds and millions of dollars in addition
to the billions of dollars they've made us on portfolio.
BECKY: And you've talked a lot about their compensation. Both of them were managing their
own hedge funds before, and the compensation structure in Berkshire is very different than the
two and 20 you would get if you were a hedge fund manager.
BUFFETT: That's right. If they-- last year they started with about five billion each. If they’d put
it under the mattress under the standard hedge fund arrangement they each would’ve made
about $100 million. I mean, that shows you how nutty the arrangement is.
But they would have literally made $100 million by sticking it under the mattress. If they put it
in an index fund, and gotten the two and 20, they each would’ve made over $300 million. All
they had to do was buy the vanguard index. And they each would've made over $300 million.
They also would’ve gotten more favorable tax treatment on it then they got by getting a salary
from Berkshire.

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So imagine I mean, you can retire forever on $300 million. So one year you go, you put the
money in an index fund so it just shows that the-- it shows you amounts you get by asset
gathering rather than asset managing. I mean even though a great many hedge funds in recent
years have not delivered high performance, they've delivered high fees.
But our arrangement is that they get a salary and then they get which to most hedge fund guys
would look like nothing, and then they get paid on the excess. They get ten percent of the
excess over the S&P performance. But it's done over a three year staggered period. So they
can’t have just one up year and then another down year, or something of the sort.
So that's the same arrangement I have with Lou Simpson at GEICO for 30 years. So, only if they
do better than I can do by sticking the money in an S&P fund do they get paid a dime of
performance. And it seems to me that's quite logical, but it's not something that the hedge fund
community is out there pushing harder for.
BECKY: They both beat your performance last year, didn't they?
BUFFETT: I'm sorry you brought that up. They not only beat my performance, they smashed my
performance.
BECKY: All right, up next, we're going to talk about the market's reacting to the situation in
Ukraine, plus some stocks you need to watch at the open. And at the top of the hour, a behind
the scenes look at what makes Berkshire Hathaway tic. We will have Tracy Britt Cool, Warren
Buffett's financial assistant, plus Berkshire investment managers Todd Combs and Ted Weschler,
all right here with us, right on set. Squawk Box will be right back.
JOE: Okay, thank you-- Jim Maceda, let’s toss it back out to Becky. At this point-- the one thing
that-- that we keep hearing, Becky, and that's somethin' I'd ma-- maybe take a little solace. He
knows how expensive it would be to-if he-- if Russia needs to-- take all of Ukraine's problems.
And maybe money is the one thing that we can count on, you know, that-- that-- you know,
these leaders aren't reasonable and absolute power corrupts absolutely. But it'd be a lot easier
to have the-- West and Europe and United States sort of pitching in to help this-- this huge
region's economy.
BECKY: Yeah, that-- I guess that was Michelle's point earlier this morning. Maybe the markets
can step in and put a little pressure where that was done. I noticed some earlier coverage that
noted that-- Ukraine, the guys who are in charge at Ukraine now, instead of sending in their
military are sending in the oligarchs there, the wealthy, the influential people, to try and make
the argument about why this should be done-- from a peaceful perspective. And that might
make a difference, too.
JOE: Yeah, yeah. I kind of think of Buffett as kind of an oligarch. I guess that's probably-- that's
a stretch to some extent, but-- you know, and we just-- actually, you know what? I don't think
he's rich enough to be an oligarch in most of these-- these Eastern countries.

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BECKY: Right, yeah. And some of these guys have built up an incredible stores of wealth. But
you're right, it is a special morning here on Squawk Box. We have Warren Buffett here
answering all of your questions. He's been doing that throughout the morning.
Right now, we also have a rare interview with Berkshire Hathaway investment managers Todd
Combs and Ted Weschler, plus Tracy Britt Cool, who is Warren Buffett's financial assistant. All
three of them are here. And this is a rare treat because, I don't think you three have ever sat
down together for an interview, have you?
MULTIPLE VOICES: No. No.
BECKY: We-- we've talked in the last block about-- why Warren chose each of you. And he
explained a little bit about-- what he finds so interesting in each of you. What I'd love to hear
from you three is why you chose Berkshire Hathaway and maybe how you found your way to
Berkshire, because each of you had a very different path. Todd, let's talk a little bit about w--
when you first w-- talked to Buffett. When did that happen, to Warren?
TODD COMBS: Well, I reached out to Charlie. And we had a series of conversations-- over the
course of several months, before one day I was out visiting in L.A. and he said that-- just outta
the blue after a three or four-hour breakfast that-- in classic Charlie style that Warren would
really like to meet me, not that-- I'd really like to meet Warren.
But-- and then he went on for about five or ten minutes about how much Warren would like to
meet me and so forth. And-- so, I came out to Omaha. And Warren and I spent the day
together talking about everything from baseball to-- business and insurance. And-- and just very
interesting.
BECKY: And you-- you've moved your whole family to Omaha. When did you move?
COMBS: That's right. After I joined-- the kids finished-- out the year in school back in
Connecticut and we moved the entire family out right after I joined. And so we've been out
here, I guess, coming up on about three years now.
BECKY: Okay.
COMBS: And it's been wonderful.
BECKY: And it's been wonderful, and you guys love Omaha.
COMBS: Absolutely. The-- my wife and the kids all love it. It's been an absolutely wonderful
experience. Omaha's a great town. And the people really make it there. It's just been an
excellent experience.
BECKY: Ted, I love your story, too, for how you came here. Because over the course of two
years, you've paid $5.3 million for two lunches with Warren. How-- how'd that happen?

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TED WESCHLER: Donated 5.3 million.
I like-- I like your version. And then, Becky, I go-- and when reading Warren's letters probably
since '79 when I started college. And-- it was kind of a bucket list thing for me, that I always
wanted to meet the guy. And, I think, as you know, Glide Foundation, terrific charity in San
Francisco, does an annual auction. And I wanted to know more about Glide there, so we spent
half a day out at Glide, understanding the charity. And I thought, "Hey, this is-- this a terrific
charity to really help the otherwise helpless." And I bid on the auction and ended up
winning. And--
BECKY: Did you keep hitting the button at the last minute, to try and make sure you were the
high bid?
WESCHLER: Not quite. Not quite. Not quite. But it-- but I end-- ended up getting it and-- came
out to-- like, my only condition on it that I asked for was I wanted to do it anonymously. And I-- I
didn't want-- we were set up at Smith & Wollensky's and-- we opted to do it in Omaha, actually,
I requested that.
And I came out and visited with Warren. And-- it was just fun. I mean, we really hit it off. And I
was expecting kind of-- a stiff hour-or-so meeting. And it ended up being this, you know-- long
visit at the office and a terrific-- dinner, where we had a lot of-- just, you know, common
interests and laying-- thought about things very-- similarly.
And, you know, that was that. And-- I was pretty happy to have it checked off. And the
following year-- I said, "You know, I really don't wanna see the price of this go down." So,
mentally-- mentally, I said, "Well, if we-- if you're gonna go for the same price or less, I wanna
make the donation again and help out Glide."
And it-- and that happened. And I came out the second time, and again, and we really just had--
had a terrific visit. And toward the end of the evening-- and I had my, you know, little yellow
legal pad of questions I was asking Warren. And I wanted to make sure I hit all of 'em. And I
said, "You know, you can ask me anything you want, too." Out of the blue, he said, "Well-- I
think you might be a good fit at Berkshire. Would you have any interest?" And it was-- it was
the last thing in my mind. It really just completely turned me off, but--
BECKY: Did it floor you to hear it?
WESCHLER: Totally. Totally. Yeah, I mean, y-- really, they had totally threw me off. And-- but I--
I didn't wanna be dismissive. I mean, you know, this guy is like a hero, you can't just say, "No
way." And so I started thinking about it.
And-- you know, it-- it was right at that point, I'd run my own fund for 12 years. The regulations
on hedge funds were changing. I was gonna-- had a staff of two people and me that ran my
fund. I was gonna have to bring a compliance person in. And life was gonna get

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complicated. Thought, "Wow, this is actually a way to simplify things and do what I love to do,
which is be an analyst."
BECKY: And Tracy, your path to Berkshire-- is one that a lot of people-- I know when the
students come out-- to meet with Warren, they always ask him-- "How did Tracy do that?" and,
"Should I change my name to start with T?" I’ve heard that question last week, between you
three. How did you find your way to Berkshire?
TRACY BRITT COOL: Well, meeting Warren was also on my bucket list but I didn't have $5.3
million. So, I had to take another path. And I came out with one of the student groups-- an
organization that I was involved with called Smart Woman Securities. Warren loved to support
women in investing and wa-- women in business.
And it was a great opportunity to meet-- Warren. I really enjoyed that experience. Like I said, it
was once in a lifetime. And a couple years letter-- later, I decided to write a letter to Warren
and just say, "Can I come out and spend a day, a week, a month, I'll do anything if you let me
spend some time with you," fully assuming he would say no and I would say I tried and we'd go
about our way. But fortunately he said yes. So, I-- came out that summer, worked on a small
project for him, thought, "Wow," again, "this is a once in a lifetime--
BECKY: What was the project?
BRITT COOL: --"experience." I was looking at the-- looking at the Lehman bankruptcy. And so it
was a very daunting task, and one where I don't think I ended up having-- too much value to
add. But it was really interesting. And it allowed Warren and I to have an opportunity to have a
variety of discussions about business management investing. And those are all great for me,
and I think, my guess, a good opportunity for him as well to learn more about me.
BECKY: You know-- Warren, you must get letters all the time from people who wanna come to
work here. You must meet people all the time. But- what about these three in particular really
jumped out--
BUFFETT: Sometimes-- things jump out at you. I mean, it-same way as when we bought
Iscar. You know, that was a one and a page-- one-and-a-quarter page letter from Israel, and we
made a $5 billion purchase on it. And it-- it's-- to some extent, not perfectly, but people do give
themselves away.
And I've had literally thousands of letters from people who wanted to do hedge fund type-- or—
manage money force. And—they also had a longer record and everything. But it-- it's-- it's
more than having had a good five years or something of the sort. You know, I've seen a lot of
investment managers come and go. So, it's a judgment about their intellect. But it's also just as
much a judgment about their character. And-- we've got the right three here. And they don't
come along every day. You

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BECKY: They don't. And-- in fact, there-- there's been a lot of interest in all three of you. We've
gotten a lotta questions that have come in from our viewers. And we've been posing some of
those questions to Warren this morning. But if you-- if you three don't mind, I'd like to ask you
three some of the questions that have been coming in, too.
Part of what's really come up is just-- Todd and Ted, I'll ask you this first-- how you invest and
how you see the world. Ted Ehrhardt writes in-- guys, this is number 82-- Ted Ehrhardt writes
in, "When you identify a company, for example, that seems worth a deeper look, what does
your investment process generally look like? What do you like to read? And how much time is
typically spent before you're ready to actually make an investment?" And I'll start with you two
on this.
COMBS: Go ahead, Ted.
WESCHLER: Okay. So, I'd say that it's-- investing well, not turning over a lotta stones. And the
way that I spend my day-- is just reading-- annual reports, transcripts-- delta reports, regulatory
filings, channel checks-- anything I can get my hands on, really-- trade magazines, etcetera. And
so 99% of what you look at you can dismiss-- within five minutes. It
BECKY: What-- what's the magic thing that tells you, "There's no way that this is something"?
WESCHLER: Well, there's kind of-- you know, Charlie talked about mental models and-- and so
forth. There-- there's a lotta things—Think about like a gating analysis or a flow chart. There's a
lotta things that come along-- obviously, valuation being one.
And being able to understand the business-- and technology is an area that-- sector that I
traditionally haven't done much in because I think it's very hard-- to know what a lotta the
businesses will look like five years from now. So, there's a lotta things that you go through this
gating process that are just completely eliminated.
And if you know that you can't get comfortable with it, you don't need to spend any more time
on it. So, it's the 1% of ideas that are really exciting that you-- it's kinda like a needle in a
haystack-- you know-- you just know when you've done this long enough when there's
something there. And that's really exciting, because if you love investing that's what you can
spend the next 500-- thousand hours on, really digging into--
BECKY: Five hundred thousand hours.
WESCHLER: Somethin' like that--
BECKY: How much do you read every day? Because didn't Warren tell you at one point that
that's the most important thing you should be doing?
WESCHLER: Yeah, when he came to Columbia and spoke to the business school and-- Professor
Bruce Greenwald's class and-- in either late '01 or early '02-- the very last question that was

PAGE 34 OF 48
posed to him was-- what his secret was. And he had this-- I'll never forget-- he had this giant
pile of paper and he pulled it out.
It was a complete hodgepodge. And he said that he reads 500 pages a week. And-- anyone can
do it. And-- you know, it's like compound knowledge. If you start today, you just build over
time. And so that's when I started. And then somewhere around 500, sometimes a little bit
more pages a week. And that can be all those things I mentioned before-- annual reports and
transcripts and regulatory filings and so forth. But that-- that's really the process-- to answer
your question--
BECKY: Yeah, there's-- no easy way to it. It's--
WESCHLER: No, no--
BECKY: --building up knowledge over years and years and years.
WESCHLER: That's right. That's right. And then, you know, as Warren had said before, it is
compound knowledge. You get better and better at it. It's spotting those gating factors. I can
look at a bank or-- you know, certain companies and certain sectors much faster than I would--
you know, five, ten years ago.
BECKY: Warren, that reminds me of something you said when you made that Bank of America
investment. When did you first read Bank of America? I mean, you'd built that up over
decades--
BUFFETT: Yeah, I read that probably 55 years ago I read a book called Biography of the
Bank. But I probably read their annual report every year for 50 years. It-- I-- you know, the
same things happen many times. I mean, itand the beauty of it is that it is knowledge is
cumulative. And even what you're learning about Company A will help you thinking about
Company B.
BECKY: Ted, how about you? How does your approach differ? Or is it the same?
WESCHLER: It's very similar. I think things that are distinguishing – I’m a little bit quirky. I
typically don't meet management. I don't talk to management.
BECKY: Why?
WESCHLER: I-- historically, when-- I was in private equity for 15 years. And generally, if you
become a CEO of a company or a really good salesman, one way or the other, and you're gonna
probably spin people. And-- I made a couple big mistakes when I got involved in situations
where I liked people too much.
And, I generally like people. So, the way to avoid that is put the filter on that rely on reading
transcripts, 10ks, 10qs. And the other key thing-- and it-- I mean, plays off of everything--
Warren and Todd just said is, you know, know the situation. Wait for the right price.

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BECKY: Right.
WESCHLER: You're just always reading about things. But, you know, people-- most of the times
the price won't be right, but be ready.
BECKY: Be ready.
COMBS: Yeah.
BECKY: Tracy, people have a lotta interest as to what you've been doing with the company that
you kind of parachuted in on. Warren talked earlier about how when he has a company that's in
a little bit of trouble, with some of these ones that he hasn't spent the time with, he's asked you
for some help. Tom Roth from New Jersey writes in and he says, "What are your plans for
Benjamin Moore going forward?" I'm interested in that, but I'm also just interested in-- what is
it you do when you parachute in.
BRITT COOL: Definitely. At Benjamin Moore, we have a tremendous quality of a brand there as
well as a great company with great people. And it's just a situation where we need to give a
little bit more attention to our dealers. So, over the last ten years or so we've underinvested in
our dealer network.
And now what we're trying to do is reinvigorate them with trust and helping them understand--
that we're here for them for the long haul. We're not gonna be through other channels. We're
not gonna make commitments in other directions, but really for them. And I would say when I
go into a company, it's helping the management team identify the direction which we need to
move. And in situations that I'm involved, typically there's been some sort of industry change,
business shift, somewhere where we've lost a way a little bit.
And we can use resources within Berkshire. Other Berkshire companies are usually the first
place I look to for knowledge and experience and asking, like, "Can you come in and help? Can
you talk to us about how you manage that in your warehouse, how you went to market with a
specific brand, how you approached some issue that was of specific significance to you, and how
can you leverage that knowledge within Berkshire at our other companies?"
BECKY: Okay. Guys, another question that has come in-- this is directed to Ted and Todd. Both
of your compensations are tied to each other in an 80/20 split. If you could pick any investment
manager besides the ones you're sitting with to have a similar split, who would you pick? And I
think Warren's sitting here, too, so you can't choose them.
COMBS: Ninety-nine/one they might go for it
WESCHLER: They can't pick Charlie either?

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BECKY: No, I'm gonna take him outta the running. I'm gonna take him outta the running. But--
you both have long careers. You both have worked with a lotta people over the years. Is there
somebody else who impressed you along the way? I think that's what they're trying to get at.
WESCHLER: You wanna go first?
COMBS: I have names that I've recommended people to. I'm just not 100% sure that they would
necessarily wanna be recommended. I'll tell you, Lou Simpson was at-- at Geico for a very long
time at Berkshire. And there's-- a fellow named Tom Bancroft that runs the fund-- out in La Jolla
that worked for Lou for about 13 years. And he's done wonderful. I've referred people-- over to
him before. And—
BUFFETT: Larry Pidgeon worked for-- La-- Larry Pidgeon died-- unfortunately. But he--
managed money very well after he left-- left us.
BECKY: Right
COMBS: Mary Wentler joined our board. I don't think she takes outside money, but cer-- I've
known her for probably ten, 12 years. And she has a wonderful long-term track record-- as does
Tom.
BECKY: And what do you think, Ted?
WESCHLER: I'm thinking-- I-- I've never met him, but David Tepper's got as good of--a 20-year
track record as anybody out there. And he's proven able to, you know, do well in tough markets
and do well in rising markets. And I-- I always respected that.
BECKY: All right, that's a great point. Another question for you. Do you own any Berkshire
Hathaway shares personally? And if you were still running your hedge funds, would you buy it
for your funds? If you do own shares, do you think that Berkshire shares would be better off if
it were broken up due to the conglomerate discount it appears to have been stuck with the last
five plus years? What do you guys think?
WESCHLER: I-- I do own-- some Berkshire. Owned it when I joined. I probably would not have it
in the fund. Typically, when I manage my own fund, I- am-- a lotta what I do at Berkshire's, I like
to become the largest shareholder on a given company. And that's kinda hard to do with
Berkshire. And the third part of that question?
BECKY: The third part, would you break up the company?
WESCHLER: Oh, break-- no, no, no. No reason to break it up. That—
BECKY: That's what I thought—
WESCHLER: --would-- yeah—

PAGE 37 OF 48
BECKY: --you might say.
WESCHLER: --you don't wanna mess with it.
BECKY: Todd?
COMBS: Yes, same answer. I own it as well. I owned it-- when I ran Castle Point. And-- yeah,
there-- there's-- there-- I don't think there's that much a conglomerate discount, but certainly
doesn't need to be broken up.
BECKY: Ted, specifically, this question came in for you. And there's been a lotta talk about
DaVita—
WESCHLER: Uh-huh.
BECKY: --recently. And you know that that was a stock that you identified. And Mark Blakely
from Tulsa, Oklahoma, wrote in and said, "Would Ted Weschler explain what he likes about
DaVita HealthCare Partners and why he finds this company such a great investment? Since
Berkshire signed an agreement not to own more than 25% of DaVita, does Ted or Berkshire have
any other intentions besides being a large shareholder?"
WESCHLER: Okay. I followed the dialysis industry for, mmmm 30 years now. Right outta college
I started-- studying. And so I know the space reasonably well. And I think the broad filters that I
apply for healthcare investment in general is-- number one, "Does the healthcare company
deliver better quality of care than somebody could get anywhere else?" And DaVita falls into
that.
Number two, "Do you-- does it deliver a net savings to the healthcare system?" In other words,
is the total bill for U.S. healthcare cheaper because of the efficiency that the company
provided? DaVita checks that box. And lastly, "Do you get a high return on capital, predictable
growth-- and, you know, shareholder-friendly management?" Absolutely. And all three of those
together-- you know, you've got healthcare is whatever, 17%, 18% of GDP. You got an incredibly
talented team running that company. I'm not sure what the stock will do over the next year or
the next two years, but very comfortable at five years from now it'll be-- a more valuable
franchise.
BECKY: Uh-huh. Can I ask you both-- you both-- Direct TV. Is that right?
COMBS & WESCHLER: Yeah.
BECKY: You both like Direct TV. When did you see that? When did it first pop out at
you? Todd?
COMBS: Well, yeah, I think I was-- in the name and my fund probably eight years ago and then
bought it when I came onboard as well.

PAGE 38 OF 48
WESCHLER: I'd started following cable and satellite about ten years ago. Kept an eye on it the
whole time. And it was one of the first things I bought when I got-- when I came to Berkshire.
BECKY: How much back and forth is there? I mean-- in terms of when you, like, see a stock you
like and you identify it, do you talk to Warren before you buy it? Or do you just go ahead, buy it,
and maybe tell him at some point down the road?
WESCHLER: Give him a heads-up-- just because there's a concern that he may we may know
something institutionally that's inside. So, we know--
BECKY: Oh--
WESCHLER: --we don’t want to create a problem.
BECKY: --right. Warren, you've talked about that before.
BUFFETT: Yeah--
BECKY: You just have to make sure that there's not a Berkshire conflict--
BUFFETT: Yeah, that we’re not taking the place over tomorrow.
COMBS: But-- we do have total autonomy. And Warren, in fact, insists on it. So it's not a matter
of going to him and asking him if we can buy it or anything like that, as Ted said. It's literally for
compliance reasons, to make sure there isn't anything going on that we don't know about.
BECKY: Warren, anytime that there's an SEC filing that says Berkshire is compiling a stake in
such and such company, everybody immediately runs out and says, "Warren Buffett is buying
it."
BUFFETT: Yeah.
BECKY: How do we know what you're buying, what these guys are buying? How does it all—
BUFFETT: You don't know for sure, but the chances are-- you know, if it's-- if it's a multibillion
dollar position-- although they have no multi-million – position to approach two billion-- but if
it's really large, it's probably mine. And if it's really small, it's probably theirs. It's probably not
mine that I’m just starting on although it could be.
BECKY: Uh-huh. Tracy, one of the things we've talked about this morning is Heinz and how that
acquisition's been going. What have you seen from what you've been doing with the company
and sitting onboard?
BRITT COOL: It's going very well. I think that it-- there again is a company where we have a
tremendous brand and we have a great team with Bernardo and the-- rest of individuals
there. And they're continuing to move forward. And I think that that company will be much
stronger a couple years from now than it is today.

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BECKY: Uh-huh. And-- Warren, just your thoughts about having these three in the office. This
is a picture, by the way, that was in the annual report. You've never had a picture in the annual
report before, but this is a picture--
BUFFETT: It shows how flexible we are.
BECKY: --yeah, which--
BUFFETT: Yeah.
BECKY: --when you realize there's 330,000 employees at Berkshire, this is the headquarter staff.
BUFFETT: The entire head office with the exception of two people who missed-- the
lunch. Here’s the most valuable person to Berkshire, this Don… my assistant, but this fella over
here at Mark Millard's example. He's in charge of $40 billion of cash.
And-- he moves it around. And-- you know, I give him guidelines. But they-- it's a sensational
group. And we're all on one floor. Our tax return is 23,000 pages. That's twice as high as I am.
And they put out the 10Ks and the 10Qs and they handle the inquiries about Berkshire, the
public relations, investor relation-- all sorts of things. And they do a sensational job. I couldn't
be more proud of 'em.
BECKY: Well-- Todd, Ted, Tracy, I wanna thank you three for joining us today. We really
appreciated your time. And it's been great getting to hear from all of you.
WESCHLER, COMBS & BRITT COOL: Thanks. Thanks for having us.
BECKY: --thank you so much. And this conversation with Warren Buffett is going to
continue. In fact, when we come back, personal income and spending data are out. And then
we'll get back to our interview with more of your questions for Warren Buffett. Right now,
though, as we take-- as we head to a break, take a look at what's been happening with the U.S.
equity futures.
JOE: This is Ask Warren day and I have been wanting to talk about the final four at some point
because Warren is a huge here is going to the Creighton game I’ve sent you some stuff as hard
as it is for me to believe
BECKY: --Yeah I'm still trying to look this up. Joe has a question on this. And- Joe, we should
mention the news that is just out in the last half hour about the billion dollar bracket deal that
Berkshire Hathaway is ensuring with-- Quicken Loans. And this is something we've heard about
for a while. And this is all tied into March Madness. If you pick the perfect bracket, you win a
billion dollars?
BUFFETT: Yeah. Well-- or $500 million immediate value or $25 million a year for 40 years.

PAGE 40 OF 48
BECKY: And-- Joe, the news that was out today is that Yahoo is also getting in on the deal, which
Warren, that's pretty surprising looking at what had happened. It sounded like Yahoo had its
own plans to go ahead with a deal like this. They didn't go ahead with that because Quicken
Loans went out first.
BUFFETT: Right.
BECKY: And- now we heard today that Yahoo's joining up.
BUFFETT: And now they're joining forces. Yeah, yeah--
JOE: You know what, Warren?
BUFFETT: --it was new to me just a few --
JOE: You-- you got a better chance at Power Ball. Okay-- you're a genius. What-- is-- do you
have a quick -- have you figured out the odds on this? Because I-you know, I think I could pick
the team that wins. I think I might be okay pickin' the Final Four if I was really lucky. But just
the very first round, pickin' those, you-- with-- what happens, and then pickin' 16, then pickin'
eight, then pickin' four? That-- it's impossible! And some
BUFFETT: Yeah. Well--
JOE: --some autistic kid supposedly did it. I can't tell whether this is an urban legend or not
that this kid actually did this.
BUFFETT: This defeatism is not like you, Joe. I mean-- if you could put in 15 million entries,
which we expect to get-- then do you think you'd have a shot at it?
JOE: No. And I don't think you'd be--
BUFFETT: Oh
JOE: --I don't think you'd be puttin' up-- I don't think you'd be puttin' up a billion if you thought
people had a shot at it, either.
BUFFETT: Well, oh, they have a shot at it. Yeah, no, the one thing I-- I've seen these
calculations, for people will assume it's a random event so they take--
JOE: No.
BUFFETT: --two to the 63rd--
JOE: Yeah.

PAGE 41 OF 48
BUFFETT: --you know. But it is not a random event. I made calculations myself before entering
into this insurance contract. And Ajit Jain-- also made calculations. And we were in the same
ballpark and--
JOE: But did you s--
BUFFETT: --obviously went ahead with it.
JOE: --you see what's happened. I mean, B.C. beats Syracuse-- I mean, you look at-- it-- it's--
unbelievable-- I don't know who's good. I can't tell. I-- you know, one team I think is good is
Florida. That's all I can figure out. Florida seems--
BUFFETT: Yeah.
JOE: --they seem really-- I don't know, after that, everybody seems like they've got-- you know,
they've been killed by what is it, Goliath and-- you know, the giant. I mean, it
BUFFETT: Well, Joe, if you look at-- I think the last hundred and the last what-- 20-- it will be 27
years, maybe 28 years-- whatever it is-- they've had 64, there's been, like, 112 will say number
one seed's playing number 16 seed and the number one seed has won every single--
JOE: Yeah, that's true.
BUFFETT: one of those games.
JOE: --who would you pick in the Final Four, Warren? You got Creighton in there?
BUFFETT: Well, I've got-- Creighton. Yeah, you bet. . Well, yeah, I would say maybe Arizona,
too.
JOE: Yeah, Arizona. Florida. And-- and then Virginia looked good.
BUFFETT: Yeah--
JOE: 0Virginia who won their . Yeah.
WARREN BUFFETT –now that you've told me about Florida, yeah, Ithey're definitely gonna be in
there.
JOE: Right. We're pickin' the number one. We're so good. Aren't we? We're pickin' the
number one.
BUFFETT: Yeah.
JOE: Oh, pickin' the number one seed.
BUFFETT: Yeah.

PAGE 42 OF 48
JOE: All right-- well, we're gonna take--
BECKY: Hey, Joe, we--should point out, though-- before we go to break, we should point out
when we have time to talk a lot much-- a lot more about the March Madness strategy, because
both Warren and Dan Gilbert from Quicken Loans are gonna be joining us on set for Squawk Box
on March 14th. So, we'll get into more depth with them on that day, too.
JOE: Wow, I can't-- that's--gonna be so much fun, isn't it? And-- and we'll--
JOE: --have our bracket--
BUFFETT: --a little more information then.
JOE: Yeah. And we'll have our brackets done by then-- you know, our TV news or brackets and
all that stuff. Awesome. All right. We'll have-- much more of Omaha and Warren Buffett in just
a couple a minutes. You got his Final Four. But first, a quick news headline.
BECKY: And welcome back to Squawk Box, this is a special edition in Omaha, Nebraska with
Warren Buffett, who's been with us all morning long, answering your questions, and Warren, we
continue to get questions that are coming in from viewers. Jeff Burton writes in: "What's your
opinion on so-called 'activist investors'? Do you really think that they are acting in the best
interest of the targeted companies and the shareholders, or are they more just interested in
making a quick profit for themselves?
BUFFETT: Well, I think generally speaking-- they aren't just making a quick profit, and there's a
law against making quick profits-- but our whole attitude in our own business and what we like
to see with the business we own stock in, is we wanna for the people who are gonna stay in,
rather than the ones who are going to get out. Now at any given time, you can make more
money, usually selling the company than running.
I mean, most stocks-- most of the time, not all of time, sell at some discount to what you could
actually sell the company for that day-- that day for. So you know, a little more activist activity
might be just selling the company-- and I think that would be a big, big mistake.
I mean, I've seen cases-- where really good companies have sold for a third or a quarter what
they were worth during-- and the answer isn't to sell the company, the answer is to keep
running the company well. The answer may well be to buy in their own stock when they're
selling at that kind of a discount. So I-- the money is flowing into activist funds because they've
had good performance lately. And- so-- and that money will get put to work; so I think you're
going to see a lot of activity in that field, that-- you know, I could do certain things to jiggle up
the price of Berkshire-- in the short run, that would not be good for the company over five or
ten years--
BECKY: Like what?

PAGE 43 OF 48
BUFFETT: Well, you can spin off one stock that might a hot type-- I mean, one-- of our divisions,
it might be a pretty big, hot division, but it-- if it's a really good business, I just as soon keep it for
Berkshire. And--there's a lot of efficiencies from a tax standpoint and a capital allocation
standpoint, from being under one umbrella. So-- I am running the company for people who
want to stick around, not for the ones who are leaving.
BECKY: All right, let's take what you just said and apply that to some specific instances. Nelson
Peltz is right now pushing on Pepsi to split up the company so it makes more sense apart than
together.
BUFFETT: Yeah. I don't think if I own Pepsi-- if I was the only holder of it or my family was the
only holder of it I don't think I'd split it up.
BECKY: Because?
BUFFETT: I just-- I think that Frito Lay, it is an extremely good business, it's a better business
than the soft drink business, but I think the soft drink business is good business, too, and I don't
see a need to split 'em up.
BECKY: On that point, lemme point to a question that came in from a Neil Hagstrom . He said:
"Are you worried about Coca Cola's declining in the near future?" Just the business of Coca Cola
itself.
BUFFETT: Well, it's under a lot more pressure than it was ten or 15 years ago, particularly in the
United States. But their sales went up last year, just as they go up almost every year, in terms
of-- even in cases of carbonated soft drinks. And you know, right now, 3% of all the liquids
people in their mouths, throughout the whole seven billion people, are Coca Cola products, and
I think maybe that 3% will go up a little over time.
And I think they've got-- you know, wonderful brands and wonderful acceptance throughout the
world. Coca Cola brand itself sold a hundred million more cases last year, I remember, than the
year before, and they sold more that year than the year before.
It's a very, very good business-- but it's under more attack. Their-- the tax situation in Mexico,
there's certainly-- a lot of groups that are working to-- certainly, not in the interest of Coke. The
interesting thing is that diet soft drinks have actually gone down more in this country than--the--
sugar drinks, which you wouldn't think would be case, by which your—
BECKY: All the water drinks-- are not carbonated drinks--
BUFFETT: (UNINTEL) way up--
BECKY: --have gone way up.
BUFFETT: Well, water-- water's gone way up. But still, close to a quarter of all liquids
consumed in the United States are carbonated soft drinks.

PAGE 44 OF 48
BECKY: Wow.
BUFFETT: You know, I drink five a day and I'm feeling good.
BECKY: Yeah, you had two on the set with you this morning.
BUFFETT: Yeah, well, and I'll finish 'em, too.
BECKY: Let's go back to activist investing, I want to apply it to another situation.
BUFFETT: Sure.
BECKY: Apple has also been the target of an activist investor, Carl Icahn, who was pushing for
them to do something to bring back shareholder value, in terms of buying back stock. He's
actually dropped his proxy-- request that he had on. The company has spent a lot of money
buying back shares. What did you think of that whole situation--
BUFFETT: Well, I think that what they’ve done is probably pretty sound-- but shareholder
value, taking shareholder value doesn't mean doing something to get the stock up tomorrow. I
mean, shareholder value means building the most value over a five or ten-year period, that you
can do with the resources, it's your command-- and that does not mean trying to-- every-- every
day, to have the stock go up.
And-- the whole firm shareholder value sorta puzzles me a little. I mean, the way we build
shareholder value at Berkshire is by building the earning power over 49 years and-- you know,
any given day, that-- that he's splitting the stock, I'm not sure that that would mean anything,
anyway, but I have a lot of suggestions along that line.
So what if the stock goes up? I mean, that's good for the stock people that are leaving. And it's
bad for the people that are entering it, you know, basically. What you really want to do is build
earning powers, sustainable earning power over time. And my guess is, at Apple, they're
working very hard on that.
BECKY: Yeah, we had a question that came in from Simon Chow, and we know you're a huge
fan of Breaking Bad. He writes in: "What lessons or situations from Breaking Bad do you think
are most applicable to investing?"
BUFFETT: I'm not sure all I know is, I should call Saul if I'm in trouble.
BECKY: All right, well, we're going to continue this conversation in just a moment. Again,
Warren Buffett is with us today and Joel, we'll send it back over to you.
JOE: All right, all right, Becky? I'm gonna ask about what he's watching now, but-- get-- maybe
to get that, we gotta take a break.

PAGE 45 OF 48
BECKY: Well, welcome back to a special edition of Squawk Box, we are sitting down with
Warren Buffett of Berkshire Hathaway this morning, wrapping up what has been three hours of
him answering your questions. And Warren, we do have other questions that have come in, I
know we're not going to get through all of them, but Ben Sigel wrote in with a specific question-
- about-- a Berkshire company. He wants to know: "Were Warren and Charlie aware of, before
the recent change in policy, that Business Wire was selling access to high frequency trading
firms?"
BUFFETT: No, I--didn't know. It's-- important to realize though that Business Wire sells to
thousands of people and they-- it's all simultaneous, so no high frequency trader ever was
getting information a thousandth of a second before the others. But they apparently were
working with it a little faster when they got it. So anyway, when we found that out, we cut 'em
off, anyway. But they were-- they were getting simultaneous delivery not early delivery.
BECKY: And I guess the question would be, though, if they could get simultaneous delivery as
the wire service, anybody relying on a wire service would have a slower of gateway, by a
fraction of a second.
BUFFETT: By a fraction of a second.
BECKY: Yeah, and maybe that's where they were making hay with it. Another question came in
from-- our Robert Frank, one of the reporters at CNBC, and-- he covers the wealthy, he-- brings
up the question, "You and Gates have been number one and number two at the top of the
Forbes U.S. Billionaire List for years now, what year do you think someone else will break the
duopoly at the top and who will it most likely be?"
BUFFETT: I really-- I can't tell you who's-- you know, three four or five-- you know, I'm-giving
away stock, Bill gave a way lot in the past and he'll give away more in the future. So it-- iwill be--
it will probably be somebody who isn't giving away as much. But I-- don't know who that'll be.
BECKY: Okay, Joe has a question.
JOE: Yeah, just a quicker one, just getting back one more time, that-- you know, if anyone
would see the effect of climate change I would think Berkshire would, in terms of-- especially
because we've built out the population so much bigger and we've built in areas where-- you
know, years ago, maybe you wouldn't have seen property casualty claims and now it seems like
you would see 'em.
With-where CO2 levels are, are you surprised you haven't seen an effect and would you be
absolutely shocked if they have to pair back climate sensitivity models to CO2? I mean, are you-
- a firm believer that you're gonna see events in the future?
BUFFETT: What I think—I’m no physicists-- Joe, and you know, so I-- all I'm doing is reading--

PAGE 46 OF 48
JOE: look there’s no climate scientists aren't physicists, either, that's one thing we know for
sure.
BUFFETT: Yeah, but I think-it's- the kinda question that deserves lots of attention. In terms of
our insurance business, it has no effect, in terms of the prices we're charging this year versus
five years ago, and I don't think it'll have any effect on what we're charging three years or five
years from now. But I do think that-- that-- you know, we do have one planet, and I think we
outta pay a lot of attention to what's going on--
JOE: I agree, I agree.
JOE: We've gotta make sure that-- that we're focusing on the right-- things, though, in terms of
keeping the planet livable, I agree, wholeheartedly, thanks, Warren. Anyway, do you-- is there
anyone that we don't have on our list of 25? Any outliers that you think that we should have
that will revolutionize-- business and-- and just the world? You've probably seen that list.
You're on it. I'm-- I'm sure you're gonna be there as a Graham and Dodd (PH) genius.
BUFFETT: Yeah, well, Charlie Munger is my man.
JOE: Yeah, that's good. Have you thought about me at all or no-- but probably-- not in your will
or on this list, you haven't thought of me, have you? I'm just chopped liver--
BUFFETT: I'll tell ya this, I--agree that I'll put ya either in my will or on the list, one of the two.
JOE: Okay, all right.
BUFFETT: But - I'll make the decision.
JOE: All right.
BECKY: Warren, before we go again, for the people who weren't tuned in at the very top of the
show at 6:00 AM Eastern-- your thoughts on what's happening with the economy right now?
Because probably the biggest question that a lot of people are wondering in the economy is,
have we seen a significant slowdown from the fourth quarter, third and fourth quarter of last
year? What- do you think, based on what you're seeing in the businesses?
BUFFETT: I don't think so, except to the extent that whether it does hit certain types of
industries. But my impression is that the American economy for five years, has been moving at
a fairly steady rate, upwards, not as fast as people would like. But-- I think that absolutely
continues now.
I mean, I think we're moving ahead at a couple of percent a year; and incidentally, a couple
percent a year, if you have 1% population growth and 2% gain in output, it means that in a
generation, you have a 20% gain of output per capita in the country.

PAGE 47 OF 48
That is not bad. I mean, at any other time in the history of the world almost, that would have
been Nirvana. So if we have 20% more, I'll put for your children where we have today, and they
have 20% more in the next generation. That is not bad, and we're on a cliff that's somewhat
better than that.
BECKY: And-- finally, just looking at the stock market today, there have been a lot of people
nervous about what's happened in-- in the situation in the Ukraine. You would tell them?
BUFFETT: I would tell them it doesn't change anything. If you've got-- if you've got a wonderful
business of your own, you know, in Peoria, Illinois, why in the world would you sell it today
because of what's happening in the Ukraine? If you've got a farm that's producing for you, if
you've got an apartment or house that's fully occupied, why in the world would it sell it today
because of what's happening in the Ukraine?
The same applies if you have a wonderful-- a piece of a wonderful business or a piece of many
wonderful businesses. People do-- they react too much to short-term things in the stock
market, whereas, they behave quite rationally when they get into other investments.
BECKY: Well, Warren, I want to thank you for being so generous with your time today.
BUFFETT: Thank you.

PAGE 48 OF 48
CNBC Transcript: Warren Buffett, Charlie Munger and Bill Gates
cnbc.com/2014/05/05/cnbc-transcript-warren-buffett-charlie-munger-and-bill-gates.html
CNBC Transcript: Warren Buffett, Charlie Munger and Bill Gates Alex Crippen | @alexcrippen Published 2:17 PM ET Mon, 5 May
2014 CNBC.com
May 5, 2014
Five key things Warren Buffett said on CNBC 1:37 PM ET Mon, 5 May 2014
This is an unofficial transcript of Warren Buffett, Charlie Munger and Bill Gates appearing live with
Becky Quick on CNBC's "Squawk Box," Monday, May 5, 2014.
A PDF version of this transcript may be downloaded by clicking here.
BECKY QUICK, CNBC: We are live this morning from the Nebraska Furniture Mart, which is
one of many Berkshire businesses. Warren, this business in particular, really sees a huge
surge of business on the shareholders weekend. What kind of numbers have come through
here and how many shareholders do you think were actually here this weekend?
WARREN BUFFETT, BERKSHIRE HATHAWAY CHAIRMAN & CEO: We'll do over $40 million in
one week here at the Furniture Mart. That's a lot of business. Most furniture stores don't do
that in a year, and it's our biggest week of the year. In fact, it's a normal month. We do about
$450 million a year at this store. So it's a normal month, and we do it all in a week. And the
stockholders get more excited every year. I mean, I run into people in the elevator a month
or two ahead of time. They say thank you for holding the meeting, patting me on the back.
They want to come on to the Furniture Mart.
BECKY: So you told us before you expected maybe 38,000 people this year. What do you
think the numbers were?
BUFFETT: Not any less than that. This was the biggest meeting by quite a margin because we
filled not only the main auditorium, but we filled all three overflow rooms and spilled over to
the Hilton, and there were people in the exhibition hall. We can never get a perfect count,
but I'm sure we beat anything in the past by at least 3,000. And I wouldn't be surprised if we
beat it by 5,000.
BECKY: So somewhere between 38 and 40,000 is what you're guessing?
BUFFETT: Yes.
1/45
10-year not part of my strategy: Buffett 6:58 AM ET Mon, 5 May 2014
BECKY: Let's talk a little bit about what Joe was mentioning. I had not seen the ten-year (U.S.
note yield) yet this morning. He talked about how it was 2.75 percent. Why do you think this
is? Is this a sign of concern about what's happening? What would be your guess?
BUFFETT: I don't know. I'm not good on interest rates. One thing I know ten years from now
they probably won't be at 2.57 or 3.57.
BECKY: Does it catch your attention, though, when you see the ten-year continue to decline?
Most people thought it would definitely would have to go up this year.
BUFFETT: It's surprising, but I'm used to getting surprised in markets. And we issue bonds
from time to time. So lower rates are, the more we like to issue them, and the longer we like
to issue them.
BECKY: So would a ten-year at this level change any of your behavior in the business? Would
you do anything differently?
BUFFETT: No, if it moved up or 50 basis points or down 50 basis points, we would not do
anything differently. We don't react to macro factors at Berkshire. Our macro factor is the
country will do better over time. That guides us in everything we do.
BECKY: If you had to make a guess right now, would you guess that the ten-year would end
the year above or below the 3 percent?
BUFFETT: I don't think about that. If you told me I had to pick a figure, I would pick higher.
2/45
Buffett: No desire to go to war with Coca-Cola 7:06 AM ET Mon, 5 May 2014
BECKY: Let's talk about one of the issues that came up repeatedly at the shareholders
meeting, actually it only came up a couple times, but I did get a lot of questions related to it
in my email box where shareholders were sending things in. That's Coca-Cola. Joe (Kernen)
already alluded to that this morning. And let's talk about what has happened. I know we've
had a lot to say, but there was some criticism. Some people who didn't understand why if
you thought Coca-Cola's equity plan was excessive, you didn't say something before the vote
and you didn't take your 9.1 percent of the outstanding shares and vote no.
BUFFETT: Yeah. We had no desire, never will have a desire to go to war with Coca-Cola. It's a
wonderful company, it's treated us wonderfully, the management has always been totally
candid with us. I think we've got the right leader. I'm sure we've got the right leader, Muhtar
Kent, but we did think the program was excessive. With those two beliefs we felt the best
thing to do was express our opinions privately to the management who listened carefully
and to abstain from voting at this meeting. And we think — I know we'll have some very
constructive discussions with Coca-Cola between now and when they implement any plan.
BECKY: Barron's out over the weekend, there was an article in the back of it from Carl Icahn. I
know you're friends with Carl and you're both on the Giving Pledge together, but this article
says why Buffet is wrong on Coke. He's got a different style than you do.
BUFFETT: I hope so.
BECKY: Do you think — first of all, what do you think about what Carl said, and second of all,
do you think that your style will be effective in this situation?
BUFFETT: I do think our styles will be effective. And I think our style actually will be more
effective than the style that might be proposed by Carl. But Carl moves in other types of
businesses and he goes in where — often, at least, he goes in where there's a problem.
There isn't a problem at Coca-Cola. There was a plan that was proposed that was excessive.
3/45
It's very easy to make it non-excessive. All you have to do is spread the authorization over
more years than the four years they talked about having it in the proxy. And that's easy to
do. Whether it actually turns out to be excessive will depend on the actions they take
subsequent to this. They have not locked it in stone that they're going to use the stockholder
four years.
I would say generally or frequently, at least, Carl is working with managements with different
attitudes, and they probably have a different attitude toward him than Coke has towards me.
BECKY: Have you spoken with Muhtar Kent to this point? When we talked to you Thursday
you had not.
BUFFETT: I have not talked to him since the meeting.
BECKY: Since the Coca-Cola meeting.
BUFFETT: Since Coca-Cola's meeting, which was on the 23rd.
Buffett: Generally fighters not invited on boards 5:32 PM ET Mon, 5 May 2014
BECKY: One other pointed question that came from shareholders this weekend — and I got
several iterations of this, too, in my inbox — your son, Howard Buffet, is on the board. He
voted in favor of this plan and there were some people who questioned. Howard is expected
to be the chairman when you step away from the company to be the protector of the culture
there. Does this raise any questions or should shareholders have questions about his ability
to protect the culture when he voted for a plan that you, yourself, didn't like?
BUFFETT: Yeah. I voted for plans over the years — I've on the board for 55 years. I voted for
plans I didn't like. I actually voted for acquisitions I didn't like. I opposed a few too, but
there's only so many bullets you can use in the gun. If you start objecting to this and this and
this, pretty soon people don't pay any attention to you. You want to save your bullets for
4/45
when they really count. And I have never seen a comp committee come into a boardroom, in
all my time, and hundreds of times, I've never seen them come in with a recommendation
and heard a no vote.
The board delegates to a committee. They say you go out and work on this. They may say to
the Governor's committee, you go out and work on getting directors, all kinds of things.
And once a board has delegated to a committee and they've spent hours working on
something, and then they report it and there's 20 other items on the agenda and the
Chairman calls on the comp committee to give his report and gives it in about 30 seconds, it
never gets voted against. And it would be regarded as sort of usurping the power of the
committee to all of a sudden say I've got a better idea. I haven't talked to the compensation
consultants, I haven't looked at the figures, but I still have a better idea. It doesn't happen.
BECKY: A lot of people have been stunned by your comments on corporate governance. I
don't think stunned by what you've said, but that you said it. There's been this idea that
boards are clubby, basically come out and said that's the case.
BUFFETT: I've written that for 30 years. I've seen boards operate. It's always interesting to me
to read academic discussions of boards. I have this theory — I could be in the movies or
something. But boards are in part business organizations and in part social organizations.
People walk into those with their behavior formed by dozens of — usually your people have
achieved some standing, perhaps, in the community. So they've learned how to get along
with other people. And they don't suddenly change their stripes when they come into a
board meeting. So there's a great tendency to behave in a socially acceptable way and not
necessarily in a business maximization way. The motives are good; the behavior is formed by
decades earlier.
And people like to get along with other people, most people. Carl, maybe not as strongly as
others. I love Carl, but he may enjoy battle. Some people do that. Generally you don't get
invited on boards if you've got a person that actually loves a fight.
BECKY: Your point is that this is not too much different than the rest of the world.
BUFFETT: Yeah, I think that's very true. And it doesn't mean because you don't get into fights
that you can't get things done, and it doesn't mean there aren't certain issues that — I've
been involved with a couple situations where a proposal to buy a company has come to the
board and been shot down. What happens in that case is one person finally pipes up. It's a
little like the kid saying the Emperor is wearing no clothes and everybody will come on
board. But the first person to speak is like belching at the dinner table. And then sometimes
other people start belching and the move away from you. Depends on the situation, but
there are some people that have bravery to be followers in a situation like that but not to
initiate it. You've seen that in other aspects of human behavior.
BECKY: Andrew has a question from back at CNBC headquarters, too. Andrew?
5/45
ANDREW ROSS SORKIN, CNBC: I was going to say it's remarkably honest what Warren is
saying. The question is whether it should be this way. Whether from the outside there's a
sense that people are more strident in the boardroom, more brave or willing to come
forward, or that the social issues aren't supposed to impact the way people behave or the
way they think. Even though of course they do. I hear you saying this is what happens. My
question is should it happen this way?
BUFFETT: Well, no, obviously you know everybody would speak freely and all of that sort of
thing, and dialogue would be encouraged and the chairman would love to hear reasons why
his ideas were no good, but it isn't quite that way.
And I think it's probably — you will get some of that. I will give you a great example. I mean,
we bought $700 million worth of Solomon Preferred in 1987. It was a big investment for
Berkshire. Charlie and I were put on the board. Our preferred was convertible at 38 because
the stock had been selling in the mid 30s.
We went to the very first board meeting, was right after October 19th, 1987, here we are two
brand-new directors. One of the first items on the agenda was the change, the option price
of all the options outstanding at Solomon from prices in their 30s, down to $17 a share.
Nobody proposed to change our conversion price from $38 down to 37.50, but the $35
options the employees were getting — including the people sitting at the table were going to
get changed down to $17 a share. Charlie and I voted for it. We probably mumbled our vote.
But those things happen. And we later on objected to a few things at Solomon, too. But you
can't object a lot.
And bear in mind, too, Andrew, this is important. There are a number of directors at any
company that are making two or three hundred thousand dollars a year, and that money is
important to them. And what they really hope is they get invited to go on other boards.
Now if a CEO comes to another CEO and says I hear you've got so-and-so on the board, we
need another woman or whatever it may be, oh, she will behave.
If they say she raises hell at every meeting, she's not going to be on the next board. On the
other hand, if they say she's constructive, her compensation committee recommendations
have been spot on, et cetera, she's got another $300,000 a year job. That's the real world.
6/45
I don't want to embarrass Coca-Cola: Buffett 7:06 AM ET Mon, 5 May 2014
ANDREW: One quick follow up. In the Wall Street Journal this morning, they were pointing
out a comment you made in 2009, when you talked about speaking out on the most
egregious cases of CEO compensation, and you said quote, the way to get big shots to
change their behavior is to embarrass them. I was hoping you could try to explain the
distinction between what you were talking about then in 2009 and, perhaps, this Coca-Cola
situation today.
BUFFETT: Well, I don't really want to embarrass the Coca-Cola Company. I like the people
and everything. But I think perhaps if you ask some people, I don't know whether they use
the word "embarrass," but they would prefer I didn't do it, I'm sure.
Like I say, I used that word in 2009, so I'm stuck with it. I wasn't looking to embarrass them,
but I was certainly looking to have them reexamine what they're doing. They're in a great
position to reexamine it, because they haven't used a share in this authorization yet. And
even though they said in the proxy statement that they expected to use it over four years,
that could easily be changed.
They generally issue, I believe, their options in either January or February. So they have a lot
of time to think about what's best. And they are. The one thing I can guarantee you, they are
decent, high-grade people. They will do what's right. But I don't believe the best way to do
that is to go to war with them.
BECKY: Warren, if I could ask just quickly, you said in the past there have been deals that
you've shot down. My first thought is to Quaker Oats and Coca-Cola. How did that happen?
BUFFETT: Well, it got very public and basically the management sort of let the world know
that Coca-Cola was buying Quaker Oats. And there was a meeting rather hastily called in New
York, and directors went into that room. And I was not the first one to say that giving away 11
7/45
percent or so of the Coca-Cola Company to obtain Gatorade primarily, although a bunch of
other foods came with it. But Coca-Cola really didn't want the foods, they wanted Gatorade.
We thought the first proposed opposition to it, I should say, said he didn't think that
mathematically made sense, to giveaway 11 percent of Coca-Cola to get a single product,
Gatorade.
I had come into the meeting feeling the same way. I just didn't speak first in that case. Then I
spoke, and by the time I got through, the deal did not go through.
BECKY: And the whole table was belching?
BUFFETT: Most of them were belching. It was sort of a belching contest there. And the
company had the whole thing to go through. The press people were there. It was in the
evening, as I remember. Everybody was on deadline, and, you know, let's get this done.
There's usually that sort of momentum attached to any deal. You can't oppose five in a row. I
mean, you become totally ineffective at that point. But that was a big deal. And a number of
the directors had reservations about it, and that became apparent as this first director spoke
up. But the other ones probably wouldn't have spoken up.
BECKY: Including yourself.
BUFFETT: I'm not sure. But we won't know that. I think I probably would have. I mean, that
was not a deal that made sense to me.
BECKY: Okay, Warren, if you'll bear with us. We have to take a commercial break. But we
have much more to come with Warren Buffet. We will be back after that very quick break.
Also starting at 8 a.m. Eastern time, Berkshire vice chairman, Charlie Munger, and Bill Gates
will be our special guest. We will be sharing a stage. All three of those gentlemen will be with
us live.
Andrew, I'll send it back over to you.
ANDREW: Okay, Becky.
(Commercial break)
8/45
We will never do a hostile deal: Buffett 7:10 AM ET Mon, 5 May 2014
BECKY: We are back again with Warren Buffett. And, Warren, after the shareholders meeting
this weekend we talked about how they were thirty-eight to forty thousand shareholders
here. There are always a number of interesting people to see in this audience. Kathy Ireland
was there with you tossing newspapers on Saturday morning.
BUFFETT: She was a newspaper carrier herself.
BECKY: Right. She did a good job. Bill Ackman was here, David Winters, the glitterati of the
financial world. Mario Gabelli, also Jorge Paulo was here from 3G. I ran into him a couple of
times. The partnership that you with 3G when it comes to Heinz — first of all, how is Heinz
doing? And second of all, would you do more deals like this with 3G with Jorge Paulo.
BUFFETT: Yeah. The Heinz deal is going well. Is that doesn't surprise me at all. We would not
have done Heinz by ourselves, certainly at that price. There is no one I'm more impressed
with than Jorge Paulo. I will add his associates in terms of their operating abilities. The
chance to join him was terrific. I would love to join them again.
One thing I like about them, is they think big. They're likely to come up with a big one some
day. Maybe next year, maybe the year after, who knows when. And I think if they need some
financial — a financial partner, I think they'll do it with us. So it's a big plus for Berkshire to
have an association with Jorge Paulo, and his associates.
BECKY: Is there anything the two of you are cooking up right now?
BUFFETT: Well, he does the cooking and I do the tasting. His mind is incapable of not
thinking about possible deals. And we will not do anything ever hostile at all, that's ruled out.
But when the phone rings and they say it's Jorge calling, I feel good.
9/45
BECKY: So he was here this weekend. We talked about that. How much cash do you have on
hand at Berkshire now?
BUFFETT: Well, counting everything except the regulated subsidiaries, we have probably
have around 47 billion, something like this.
BECKY: You like to keep 20 billion on hand, so that still gives you 20 billion to play with.
BUFFETT: Yeah, and we could raise more pretty fast.
BECKY: How?
BUFFETT: We could raise them by debt, but we can also raise them by selling securities. We
have well over 100 billion in securities. We have over 150 as far as that's concerned. But we
could come up with — I like to be challenged on that.
BECKY: If that were the case, if we did have to come up with some money quickly because
you saw a deal you really liked, what would be the security you would sell first?
BUFFETT: Well, if we had to do it very quickly, we might borrow some money and sell
securities over a longer period of time. But we would look at the prices of the securities,
which change daily, and we would look at what I think about the companies, which doesn't
change daily but does change over time.
And if we needed a lot of money, we would have to be looking at some of the bigger things.
But since I don't have a deal today, I don't have to think about what I would sell today.
Buffett: Mary Barra made for job 5:30 PM ET Mon, 5 May 2014
10/45
BECKY: Just to get to some of those securities that you do own, you mentioned over the
weekend that you met recently with Mary Barra of GM for lunch.
BUFFETT: Right.
BECKY: What did you think —
BUFFETT: I just met her at a conference.
BECKY: At that the Fortune Most Powerful Women conference?
BUFFETT: Yeah, exactly. And that was the first time I'd seen her. I don't own that stock,
personally, at Berkshire. One of our two managers does.
But Mary was there, and I think she's terrific. She can run a company at Berkshire, that's for
sure. She loves cars. I told her she was a car guy. Just all the way through, and she knows
cars. Every aspect of it that you get into, she knows the impact, the tradeoffs involved
between weight and style and price. I mean, she just has cars down forward and backward.
And she loves General Motors. Her father was there a long period of time. She's made for
the job.
BECKY: Have you had any concerns about the GM recall news? Obviously that happened
before her time. Anything that made you reconsider whether you own the stock right now?
BUFFETT: Well, again, it wouldn't be my decision. Actually, it's Ted Weschler's decision, but
she inherited a mess, and it's not a small one. It's a particular concern to the American public
because the government did save General Motors in 2009, and these events which
happened prior to that. But General Motors is in the forefront of most Americans. Buying
cars are important to them.
So Mary is basically on a hot seat. But it's a not a seat of her own making. I don't think there's
anybody that will be better at handling it. It won't be handled in a week or a month. It's the
nature of problems like that to go on a while.
BECKY: Warren Buffett is our guest host. We will have a lot more coming up. We'll send it
back to you guys.
(Commercial break.)
11/45
Buffett on BofA 7:50 AM ET Mon, 5 May 2014
BECKY: Welcome back, everybody. We are with our guest host today, Warren Buffett, life in
Omaha at the Nebraska Furniture Mart.
This weekend for Berkshire Hathaway is a lot of business, Warren, a lot of serious talk that
comes out, but there's also some fun time. Yesterday you spent the day going to Borsheims
and selling jewelry yourself.
BUFFETT: A couple hours.
BECKY: And the first thing you did —
BUFFETT: Crazy Warren, my prices can't be touched.
BECKY: So you were selling yourself. You also spent some time playing a little Bridge and
playing some table tennis, ping-pong. I want to show you this shot. You were going up
against Ariel (Hsing.)
BUFFETT: Yes, she is the women's national champ and played in the Olympics and won a
couple matches.
BECKY: You got the great shot off. You said forget it. I'm sitting down. You get a shot on Ariel
and you're out, right?
BUFFETT: One great shot a year.
BECKY: There has been a lot of stuff that we talked about that has been very serious
business, though. One of the things that come up was another one of your holdings, Bank of
America.
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Bank of America very recently had to pull back their plan to increase the dividend and buy
back more shares because there was a mess up in the regulatory capital. They were off by a
big number. Was it 4 billion?
BUFFETT: Something like that.
BECKY: About $4 billion. I just wonder, as a shareholder, as someone who has a big stake in
the company, did that concern you?
BUFFETT: No. The answer is no. It did not affect the Gap net worth, the GAP earnings or
anything of that sort. And, actually, the change they're making with our preferred adds 5
billion to regulatory capital.
BECKY: Really?
BUFFETT: Yes. They are changing our preferred from a cumulative preferred to
noncumulative preferred, and that changes that category of capital by 5 billion. I'm not
saying that's a good reason for making the 4 billion error.
I've made mistakes. We've made mistakes. It doesn't involve any loss of money or anything.
It's structured debt that they acquired when they took over Merrill Lynch.
Again, after I took over Solomon — Solomon was a merger I took over in 1991. When I took
over, there was a plug item in the balance sheet. Some item that floated around every day.
And that was because they had not been able to find — they had not been able to reconcile
the books since 1981, ten years earlier. And Arthur Anderson were our auditors. They came
in and explained to me as the new CEO, you'll see this 180 million or whatever it is, move
around different amounts. But don't worry, someday we'll figure it out.
BECKY: Did that concern you?
BUFFETT: Sure, it concerned me. One of the companies had been on a cash basis and one
on a trade-day basis and somehow they never got it worked out.
We had a situation in our savings and loan many, many years ago where we couldn't work it
out. So we just ran out the bank account and started all over again.
BECKY: So you're not concerned. You think Brian Moynihan is doing a terrific job?
BUFFETT: I think Brian Moynihan is doing a terrific job. He's got a lot of problems to deal
with, not of his making. He's just methodically worked his way through. And one of the
problems is when he thinks he's worked his way through, there's a few more.
He's done the right things. He's simplified the bank dramatically, brought down the balance
sheet. He's brought it back to the fundamentals. Bank of America has a wonderful deposit
franchise, and it will do well over time. When I first bought the stock, when I was talking to
Brian, I said you have a long period ahead of you. You'll work through all of this.
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BECKY: Our guest host this morning is Warren Buffett. We have a lot more to talk about with
him.
Coming up we are also waiting on quarterly results from Pfizer. We'll break out those
numbers as soon as they're released.
Plus, we have two more headliners to our set right here at the Nebraska Furniture Mart in
Omaha. Berkshire Hathaway's Charlie Munger and Microsoft's Bill Gates. Both of them, of
course, board members at Berkshire Hathaway. They will be joining us starting at 8 a.m
Eastern time.
"Squawk Box" returns right after this quick break.
(Commercial break.)
Tax reform could cause one hell of a fight: Buffett 7:45 AM ET Mon, 5 May 2014
JOE: Let's get back to Becky in Omaha with special guest, Warren Buffett. I know Andrew
mentioned that the "I" word, inversion, was discussed a little bit out there as well, and I'm
sure in the broader context of what we should do here with corporate taxes and the whole
tax code. Anyway, Becky, back to you.
BECKY: Joe, let's jump right into that. Pfizer is a good jumping off point for all of this. Warren,
I know we've talked a lot about some the merger and acquisition activity. It's a little different
this time around. Some of the acquiring stocks have actually risen on some the news. But
what's really caught our attention are situations like Pfizer, where Pfizer buying AstraZeneca,
it has said that it would move its tax domicile if this deal goes through to the UK because
they would be paying a lower tax rate there. What does that tell you about business, what
does it tell you about the U.S. tax code, the corporate tax code?
14/45
BUFFETT: We're getting more mergers that are tax driven, and that's one of the reasons
maybe the acquired stock goes up because you're actually talking not only about buying a
business, but you're talking about bringing down the tax rate for the acquirer. And that's
been coming along to some degree. You saw insurance companies go to Bermuda and
you've seen Valiant pull off a number of these, and my guess is that as Valiant is going along,
the people at Pfizer are probably just thinking, this is getting out of hand. We've got to bring
our tax rate down too.
So it will gather momentum, and my guess is that when you get to companies of this size,
this prominence, and with this speed-up of momentum, my guess is that Congress one way
or another addresses this. But that could go either direction in terms of how they address it.
And whether they just try to work on this little aspect of the code that allows this, which is
not insignificant, or whether that forces them to rethink sort of all corporate taxes, we'll find
out. But I do think it's going to get attention.
BECKY: The president has already put it in his budget for this year. It's not been closely
focused on, except for potentially by some of these companies that are considering doing
these things. The president has proposed to make it tougher to move your tax domicile.
Right now if you have 20 percent of your shareholders outside the United States, you're
allowed to do that, but the president has proposed moving that up to 50 percent. Some
people look at that and say, wait a second, why don't you just deal with the tax code overall
and make it a little more attractive for people to be here rather than moving somewhere
else?
BUFFETT: Well, that's the fight that's going to go on, and —
BECKY: What's the right move?
BUFFETT: Well, everybody talks about tax reform. People love to use the word tax reform,
and very few people are for tax reform that increases their own taxes. They have all kinds of
other things that they don't like in the code for helping other people, and they want to get
that corrected. But I have yet to hear from anybody pretty much that wants to — equates tax
reform with some set of proposals that increases their own taxes. And this whole thing on
the foreign situation I think will cause one hell of a fight in corporate America.
BECKY: But you're talking about a policy that right now pushes companies like Pfizer that pay
a relatively high tax rate, 27 percent, and pushes them away. It keeps the people who maybe
aren't paying rates nearly as high. Isn't that an argument for simplifying the tax code, not
handing away as many incentives or advantages to other people, and getting everybody to
pay, like Simpson-Bowles suggested, closer to 28 percent?
BUFFETT: Yeah, you'd like to get everybody the same. We'd like to see that, but that's
because we're paying more than 28 percent, bring us down. And somebody who's paying 20
percent — and I can name a lot of companies — they're not going to like it if that activity
brings them up to 28 percent. So if you go for something that's revenue neutral, a lot of
companies are going to get hurt, and they will probably squeal more than the people who
are getting some benefit out of the changes.
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I think there may be enough action going on now that despite what I've said, you will get
some new resolution of the situation on corporate taxes generally beyond the question of
just foreign tax rates. But it will take a lot, because as soon as company X's taxes are going to
go up a couple points pro forma under some new proposal, they will have lobbyists lined up
in Washington that will stretch to Baltimore.
BECKY: Andrew, you have a question, too?
ANDREW: Well, it was a question that I wanted to follow up with Warren on, which is that we
asked a question of you on the panel over the weekend at the meeting whether Berkshire
would ever pursue a deal like what Pfizer is doing, an inversion of some sort, and you said
no. And I ran into a couple investors who wanted to know why wouldn't you do it. If, for
example, I think you pay about $8.9 billion in taxes last year. If you could take that number
down to $7 billion or $6 billion, you couldn't come up with a rationale for why that would
make sense from a shareholder perspective?
BUFFETT: Well, for one, we do not come close to having 20 percent of our shareholders
outside the United States, and you know, it might require me moving. I'm not sure that
Charlie moving would get the job done.
So I ... I'm being half facetious with that. We do not feel that we are unduly burdened by
federal income taxes. But it does get a little annoying to us when we see other people paying
far lower tax rates while engaging in the same sort of business that we engage in.
But Berkshire operated under 52 percent tax rates and 48 percent tax rates, and we make a
lot of money under U.S. tax rates.
JOE: Warren, when you talk about the 20 percent, we've talked about this a lot too, a lot of
companies have been induced to move operations overseas by the tax rate, and the 20
percent represents a blended rate that they're now paying because they've already reacted
to what they see, so that's one thing.
Number two, I've been told that the president, in corporate tax reform, won't go for anything
that is even revenue neutral. He wants to actually raise revenue in any type of reform that
comes from corporate taxation. And you just mentioned that to keep it revenue neutral,
taxes are going to go up on some companies, maybe they'll come down on other ones, so
some people will like it, some people won't.
That sort of implies that this level of revenue right now is appropriate, which sort of goes
against — I think that it goes against — in other words, the total number that we take from
our corporations, if we need to keep it revenue neutral, then that means that our
corporations are not overtaxed as far as the big picture goes. Who's to say that right now — I
mean, there is another side that would say that corporations right now are competitively
disadvantaged globally because they're just too high. So in fact if it's not revenue neutral, if it
actually lowers taxes for the entire group, that that's not necessarily a bad thing, that would
bring us more in line globally. And then you could get people signed on because most
corporations would have lower taxes. Am I wrong?
16/45
BUFFETT: If you want to take corporate taxes down, just tell me again whose taxes you want
to take up in terms of keeping the overall —
JOE: I don't want to keep it. I'm saying that we don't need to keep it neutral, that it should be
a lower amount, because we're disadvantaged now globally because it's too high.
We are not unduly burdened by taxes: Buffett 5:29 PM ET Mon, 5 May 2014
BUFFETT: Joe, we do almost $200 billion worth of business, and we pay normal rates on
most. We have certain deals that are tax advantaged in terms of wind power and solar
power. We are not at a competitive disadvantage with the rest of the world at Berkshire
Hathaway —
JOE: Some companies are. Some are, and that's why they're doing some of these things, right
—
BUFFETT: They're doing it to pay even lower taxes. Pfizer is a very profitable company. You
look at the return on net tangible assets at Pfizer. It's terrific. They'd like to make even more
money by not paying taxes. But they have a wonderful business paying U.S. corporate tax
rates, and all you have to do is look at —
JOE: I don't know what profit's fair and what isn't. I don't know whether they make too much
or they make too little. But if we're leaving trillions of dollars overseas and they're induced to
do this and they're moving headquarters, and other companies that have lower tax rates can
come in here and buy our assets because they can offer more money than domestic
companies can, none of these things seem like it's the optimal way for us to be competing
globally at this point.
BUFFETT: On balance, American companies have bought more foreign companies in the last
20 years than vice versa. So we have actually been net investing over there.
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But beyond that, if you look at corporate taxes as a percentage of GDP, since World War II
they've come down from 4 percent to about 2 percent. In fact, under 2 percent. That's while
corporate profits have been hitting record levels. So if you look at the budget of the United
States, individuals have paid more taxes, corporations have come down from 4 percent of
GDP to 2 percent of GDP. No other group has come down as much percentage-wise as
corporations. Corporations are doing fine in the United States.
JOE: We should acknowledge that then and not worry about it, but it does leave trillions of
dollars that would be — we could bring it back and use it for infrastructure.
BUFFETT: They could bring it back now. They just don't want to pay the tax. And if you let
them bring it back cheap, they're going to try and make even more over there with the idea
they can bring it back cheap.
JOE: I know. That's why you need to change the overall rate. Go ahead.
BUFFETT: The number one industry with cash over there is the tech industry. There isn't a
tech company I know of the major companies making lots of money that has got the least bit
of a problem in financing their businesses. What they would rather do is borrow the money
here and as Amazon — as Apple's doing. But that's because they've got loads of cash. They'll
borrow it here, they'll borrow it very cheap. But they do not have a need for cash for their
business. They have a need for cash to repurchase shares because the shareholders are
pushing them for it. But they are not using that money to build plants and equipment in the
United States. They are using it to repurchase shares.
BECKY: Warren, you yourself said that it's okay to follow the tax rules and not get out of
taxes entirely, but if you can avoid taxes by doing something differently. In fact, you've done
some deals recently, including the sale of the Washington Post shares that were tax
advantaged.
BUFFETT: Sure. We've never lobbied for a tax advantage. But in terms of the tax code, we do
not figure up our tax return for the year and then add a tip of 15 percent like on a restaurant
check. We pay what we owe. And by paying what we owe, we've earned substantial returns
on capital. We've never foregone a capital investment because we were here in the United
States instead of some foreign country. And we've bought foreign businesses.
JOE: The (Wall Street) Journal today says the only reason that you're building wind farms at all,
you know they're not economically feasible, is for the tax breaks.
ANDREW: He said that over the weekend.
BUFFETT: We've said that publicly for years.
JOE: That sounds like taking advantage of a little line here, line there in the tax code to
actually invest and to have a whole wind farm unit just based on the tax advantages. That
doesn't seem like in keeping in the spirit of the law.
18/45
BUFFETT: No, it is in keeping with the spirit of the law. The U.S. Congress decided that they
wanted to encourage wind farms, they wanted to encourage solar, they wanted to encourage
low-income housing. And all of those proponents of the law, actually it was President George
Bush, 41, that had me in the Oval Office to congratulate me because we were investing in
low-income housing tax credits.
JOE: Why do you make a distinction between that and what some of the U.S. companies are
doing when it comes to an inversion?
BUFFETT: Well, I think they can do it with an inversion if they want. I think that is one that's
likely to get — I'm not saying they're doing anything illegal at all in following the rules on
inversion. I would personally change that part of the law. And other people might change the
part of the law about wind tax credits, but I'm not attacking Pfizer for following the U.S. tax
law. And that provision wasn't even put — I'm sure it wasn't put in there because of Pfizer.
I'm just saying that it's probably a mistake to have that part of it.
And people can argue whether it's a mistake to have the wind tax credits. But American
business, I will tell you, whether it's Berkshire Hathaway or Pfizer or Apple, are doing
wonderfully under this tax code and are not short of capital in any way, shape or form, or are
having any trouble competing. Now, you can make other arguments for changing the tax
code, but you can't really make those arguments, in my view.
BECKY: Great. We will continue this conversation. We do have a lot more with Warren
Buffett. Guys, I will send it back to you. Also coming up at 8 a.m. Eastern time, we should
point out, Berkshire Hathaway Vice Chairman Charlie Munger and Microsoft Founder Bill
Gates will both be joining us live right here on the set with Warren Buffett. Andrew, right
now, though, I'll send it back to you.
(Commercial break.)
19/45
Capital allocation easier under current structure: Buffett 8:00 AM ET Mon, 5 May 2014
BECKY: Thank you. Guys, again, we are spending the morning with Berkshire Hathaway
Chairman and CEO Warren Buffett.
Warren, one of the things that I saw last night, kind digging online, was an article in The
Economist, where they suggested that maybe you should break up Berkshire Hathaway, that
for your successor, it would be easier to run the company if it were smaller or broken into
pieces. What do you think about that idea?
BUFFETT: Well, there are real advantages to having the company together. I mean, one big
advantage is the ability to allocate capital from businesses where it can't be used effectively.
Maybe frozen capital can be used effectively, but incremental capital has very little value and
we can move that over to other areas, which have capital needs beyond the amount they're
generating themselves. So capitalism is about capital allocation. The whole idea is putting
resources in the right places. And we've got the ability to look at 70-plus companies, various
industries and everything else, and allocate capital wherever it makes the most sense.
And most companies, if they're in the XYZ business, they feel that they look at the
opportunities in XYZ and if they can't find any good ones, they may do some ones that aren't
quite so good. And if they need capital, if they have to go to capital markets and incur the
expense of that.
So we have a seamless, very efficient way of rearranging capital among businesses, which in
aggregate will spend like 12 billion on capital this year.
BECKY: You and Charlie Munger, your partner, are incredible capital allocators. You have
proven that over decades and decades of time. It does raise the question, though, what are
you doing to prepare your potential successors to make sure that they are equally good at
allocating capital?
BUFFETT: The board will not put a person into the job as CEO of Berkshire that they don't
think is terrific at allocating capital. And the candidates we have, I've got no worries about.
There are plenty of people that are very good at something else and might meet a lot of the
tests, but would not meet the capital allocation test and they should not be in the job.
BECKY: Is there an argument, though, that any potential successor spend time at more than
just one unit, simply from the perspective that you don't want to look at that unit as the best
place always just to make sure you get a broader view of the business.
BUFFETT: You want somebody in the top position that doesn't have favorites, doesn't have
anybody on the blacklist, that doesn't feel way more comfortable in putting capital in area A
than area B. But really, looking at it from the standpoint of the Berkshire shareholders and
saying, where can this money be used best? And that money may be used in repurchasing
shares.
BECKY: I was just going to bring that up. The other idea is that you want somebody who is
allocating capital to businesses you own, but when there's not money that's put there, you
20/45
would go out and buy other stock. So now you're going to have more than one person who's
making that decision. (Portfolio managers) Todd (Combs) and Ted (Weschler) have been in
the position of looking at stocks. How does that work? Is it a triumvirate?
BUFFETT: Here's a big plus. They're not the bosses, but we will have a lot of money in not
only stocks, but bonds, various forms of securities. And we've got two terrific people to carry
out that function. They will not be the Chief Executive Officer, but they will be there to help
the Chief Executive Officer in that arena. Just like people that run given business are there to
help in their areas.
But the chief executive should think exactly like an owner. And an owner is trying to figure
out where to put the capital to best advantage and we will generate a lot of capital. So it's a
very important function.
BECKY: Todd Combs and Ted Weschler are the two individuals you've been talking about.
There were several questions raised by shareholders this weekend, wondering when they
were going to get to hear a little bit more from Todd and Ted. What do you think? Would they
be in a position of maybe taking questions at an annual meeting down the road, too?
BUFFETT: That's not impossible. They're not publicity hounds or anything of the sort, and
they like managing money. And the record of how they do on that will be available for the
shareholders to see. But they are not interested at all, for example, in talking about their
investment ideas. Why should they be? They worked hard to develop them. They're not
about to pass them out.
BECKY: We're going to continue this conversation in just a moment. But Joe, Charlie Munger
is here, he showed up early, so we're going to put him on the set when we come right back.
JOE: Excellent. That's going to be fun. And Warren has said that Charlie is doing very well in
middle age, flourishing.
ANDREW: Can I tell you, he's amazing. This weekend, I mean, it's inspirational. He's sharper
than anybody at this table.
JOE: Well, that's a low bar, as we've said many times. More Warren Buffett still ahead. And we
have a special guest coming up in the next hour. Microsoft Founder Bill Gates is going to join
us. He's a member of CNBC's top 25 leaders over the past 25 years in business. We're going
to talk tech, the legacy of Microsoft, and of course, his plans to change the world. "Squawk
Box" is coming right back.
(Commercial break.)
21/45
How Charlie met Warren 8:05 AM ET Mon, 5 May 2014
BECKY: We are spending the morning with Berkshire Hathaway chairman and CEO Warren
Buffett, and now we're adding another special guest, Berkshire Hathaway vice chairman
Charlie Munger. Charlie, it is a pleasure to see you this morning. Thank you so much for
joining us.
CHARLIE MUNGER, BERKSHIRE HATHAWAY VICE CHAIRMAN: I'm delighted to be here.
BECKY: People come every year because they want to hear the two of you on stage together.
I talked to so many shareholders this weekend about it. You guys have been doing this
together for how long, being on stage, taking questions from the shareholders?
MUNGER: Mostly 50 years, more or less, isn't it, Warren?
BUFFETT: Yeah, about that.
BECKY: So I guess my question is other than being a year older for all of us, what's different
or what did you learn this year, because I know the two of you say that you learn something
just about every day? Did you learn anything this weekend?
MUNGER: I think you always learn something, but it's hard to put a finger on it. I very seldom
have an ecstatic moment, like Archimedes.
BUFFETT: I always learn something. One of the things that I have fun with, I have a lot of fun
with, is the annual meeting is just getting up there and hearing what Charlie's got to say.
BECKY: I was going to ask you this. Do you ever talk about it in advance?
BUFFETT: Never, ever.
MUNGER: Preparation would be cheating.

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BECKY: You two have perfect comedic timing. Has it gotten better over the years? Did you hit
that off the first day?
MUNGER: We are natural wise asses.
BUFFETT: That's what attracted us to each other.
BECKY: I've heard the story before, but I know a lot of our viewers haven't. You two met,
Warren, when you were 29, and Charlie, you were 35?
BUFFETT: Correct, yes.
BECKY: Can you tell us a little bit about that meeting?
BUFFETT: It was at a local dinner, our wives were there, and after about five minutes Charlie
was rolling on the floor laughing at his own jokes. I've been known to do that myself. There's
not many guys like us in the world, so I better hook up with him.
BECKY: What is it that you two share in common. What similarities do you think you have?
Charlie?
MUNGER: Well, the Omaha background, and I think we're both very intellectually curious.
We both kind of like competing in games. And I think we both love ideas. And I like to ask
Warren what he wants to be remembered as, and he says a teacher. Who else in America
who is a CEO says he wants to be remembered as a teacher? I like it.
BECKY: Charlie, what do you want to be remembered as?
MUNGER: Well, I wouldn't mind being remembered as a teacher, but I won't be. (Laughter)
BUFFETT: I think he will be.
MUNGER: I may be remembered as a wise ass.
BECKY: One of the things I've always wondered is how Berkshire Hathaway really works with
the chairman and the vice chairman. How often do you two talk? Because, Charlie, you're in
California.
MUNGER: Way less than we used to because we know what the other thinks. We're not
wasting a lot of time checking what we already know.
BUFFETT: We're like an old married couple. We just sort of grunt at each other, but we know
what the grunts mean. But originally, and this is when phone conversation was fairly
expensive and we were not rich, we would talk for hours a lot of days. But now we may talk
once every two weeks or something like that.
BECKY: You did say, though, Warren, that you spoke with Charlie about the Coca-Cola
decision before you came to any conclusions.
BUFFETT: Right.
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BECKY: What did you two think about that as you were talking?
MUNGER: It took about ten seconds.
BECKY: Really?
MUNGER: I do not find that a difficult decision.
BECKY: The abstention or the —
MUNGER: I thought he did it just right. He complained a little, but not too vociferously. I think
that was just the right tone, and with compliments which were deserved to the management
of Coca-Cola. I thought he handled it perfectly.
BECKY: Let me ask you two about the acquisition that you just did. There was a $3 billion
acquisition that you announced for Berkshire Energy last week. Do you guys talk about
everything that comes through?
MUNGER: That wasn't even talked about by me.
BECKY: What do you mean?
MUNGER: Warren and (Berkshire Hathaway Energy CEO) Greg Abel did that one. My guess is
Warren didn't talk about it for more than a minute or two.
BUFFETT: That's true. I got the facts on it and I liked the deal and I knew Charlie would like it.
So why waste a phone call?
BECKY: So that's a $3 billion acquisition. What kind of rates, as the level that you think, oh, I
really need to talk this through with Charlie?
BUFFETT: Well, usually if I talk it through it's because down deep I know I might be doing
something dumb, and he'll tell me.
BECKY: Warren, you said over the weekend that you're probably more inclined towards
action than Charlie is. Charlie, you had a response to that.
MUNGER: Well, it depends on the action. We're both very action prone when it's obvious.
(Overtalk)
BUFFETT: .. the ones that are kind of marginal. (Laughter)
BECKY: But you said over the weekend that he's called you something before.
MUNGER: The Abominable "No" Man. He likes that. Kinda kidding.
BUFFETT: When we talked on a Thursday night about doing Burlington Northern Santa Fe,
and Charlie was on board, and you know, immediately he thinks, he sees the facts so fast
and thinks so fast, and he doesn't waste any time making arguments just for the hell of it,
you know, that are speeches or anything like that.
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I would say that the quality that we share is that to a great extent, we're rational. And we
don't waste a lot of time exploring things that are just nonsense.
BECKY: What is something that you thought was going to be a great idea until you talked to
Charlie?
BUFFETT: Well, if you go back far enough, I called him one time on the Pittsburgh and West
Virginia Railroad. This is 40 years ago. I said, Charlie, do you think we ought to put a lot of
money on the Pittsburgh and West Virginia Railroad? And Charlie said to me, Warren, if
you've studied it carefully, and you think you know all the facts, you're going to pay attention
to it, if you're going to put a lot of your own money in it. He said, then I'll just shut my eyes
and say no. (Laughter)
BECKY: And was he right?
BUFFETT: He was right. That's the irritating part. If you take the batting average of the times
we disagreed, he's been right a very high percentage of the time.
There's honesty in what we do: Munger 8:13 AM ET Mon, 5 May 2014
BECKY: Charlie, I know that you are in California now, but you make it out every year for this
meeting.
MUNGER: That's my hometown. I like coming.
BECKY: What's important to you about being here and about seeing the people at Berkshire?
MUNGER: Well, it's a very remarkable experience to go back to your hometown every year as
part of something as big as Berkshire, which keeps getting bigger and more admired as the
decades go by. It's very pleasant.
25/45
BECKY: You two have been excellent about knowing your circles of competency. There was a
question from a shareholder this weekend asking how they could identify their own circles of
competency. Charlie, do you have any advice to anybody who's trying to figure that out
themselves?
MUNGER: Well, I'm really better at determining my level of incompetency and then just
avoiding that. And I prefer to think that question through in reverse.
BUFFETT: He likes to invert. He says, all I want to know is where I'm going to die so I'll never
go there. I mean, that's his approach generally is casting out a whole bunch of things. He's
good at pointing out where my levels of competency ends.
BECKY: And Charlie, honestly, for somebody who was trying to figure that out, how do you
know when you're getting out over your skis?
MUNGER: All I can say is we have a good batting average, and that is probably because we're
probably a little more competent than we think we are. There's some modesty in what we're
doing.
BUFFETT: It probably is very useful. There's a lot of reasons why the partnership works. But
to have someone that you respect enormously say, you know, you're really out in an area
where you don't belong, Warren. I mean, I will pay attention to him when he says that, and
he'll say it. So there's real utility in our functions together, for one to simply just say, are you
sure you know what you're talking about?
BECKY: That raised another question at the shareholders meeting. I mean, you two work so
well together. When you look at a potential successor for the CEO position at Berkshire, how
do you help them along the way to try and make sure that they find someone who they can
work equally well with and who can also point out when maybe they're making an incorrect
decision?
MUNGER: I hardly know anybody who's done very well in life in terms of cognition that
doesn't have somebody trusted to talk to. Einstein would not have been able to do what he
did without people to talk to. Didn't need many, but he needed some.
You organize your own thoughts as you try and convince other people. It's a very necessary
part of operations. If you had some hermit sitting on a mountain, he wouldn't do very good.
BUFFETT: And Charlie, by the way…
MUNGER: We have some of those, and they aren't very good. (Laughter)
BUFFETT: Charlie will always emphasize the fact that we ought to state the other guy's case
as well as he can and better than he can if possible. That's when you get to where you can
think through your own case better, and that may be his legal training to some extent. But he
starts out stating the opposite case.
BECKY: Gentlemen, we are going to continue this conversation in just a moment. Andrew, I'll
send it back to you.
26/45
(Commercial break.)
Retail sector is a moving target: Buffett 8:26 AM ET Mon, 5 May 2014
BECKY: Welcome back to a special edition of "Squawk Box".
We do have some breaking news just hitting from the retail company Target. Target is saying
its CEO Gregg Steinhafel is stepping down. His resignation takes effect immediately. In his
resignation letter he says that Target has faced some unprecedented challenges in recent
months, most notably that massive data breach where millions of Americans' information
was briefed. And this all happened over the holiday season, started right around
Thanksgiving, went through early December. And that is something that the stock took a
huge hit on. Steinhafel says that he's been focusing on ensuring Target emerges from the
data breach as a better company, and that now is the right time for new leadership.
Target CFO John Mulligan is going to be serving as interim CEO until a permanent successor is
found. It also says that Roxanne Austin, who is a current member of Target Board of
Directors, she has been appointed as the interim nonexecutive Chair of the Board. They say
both will be serving in those roles until their permanent replacements are named.
The company also says that they've asked Steinhafel to serve in an advisory capacity during
that transition and that he has agreed. The board says it's deeply grateful to Gregg for his
significant contributions and outstanding service for his notable 35-year career with the
company.
But our guest hosts today, again, Charlie Munger and Warren Buffett. Gentlemen, the news
on Target comes not only after the data breach, but also after Target's expansion into
Canada. That is something that has been a target for analysts who have said that that was
the wrong move. You two have an awful lot of experience when it comes to retail.
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BUFFETT: We have a lot of awful experience, actually.
BECKY: You guys have a long history with the department store and other stores. But
Charlie, you're still on the board of directors at Costco.
MUNGER: Yes, but I'm not running it.
BECKY: But I wonder what you two think about news like this. Target has had a rough run
over the last six months or so.
MUNGER: Well, I think these data breaches are so likely that we'll see more of them, and I
don't think the CEO is necessarily at some terrible fault.
BECKY: I wonder if this has more to do with the Canadian expansion than the data breach
itself, because Steinhafel has come out and tried to be very forthright.
MUNGER: I think Warren and I can match anybody's failures in retail.
BUFFETT: Yeah, we have a really bad record, starting in 1966. We bought what we thought
was a second-rate department store in Baltimore at a third-rate price, but we found out very
quickly that we bought a fourth-rate department store at a third-rate price. And we failed at
it, and we failed ...
MUNGER: Quickly.
BUFFETT: Yeah, quickly.That's true. We failed other times in retailing. Retailing is a tough,
tough business, partly because your competitors are always attempting and very frequently
successfully attempting to copy anything you do that's working. And so the world keeps
moving. It's hard to establish a permanent moat that your competitor can't cross. And you've
seen the giants of retail, the Sears, the Montgomery Wards, the Woolworth's, the Grants, the
Kresges. I mean, over the years, a lot of giants have been toppled.
MUNGER: Most of the giants of yesteryear are done.
BUFFETT: Target went into Canada. It cost a lot of money to go there, and it can be tough.
Everybody is already doing business with somebody there, and your competitor is never
standing still. So that even though you think they have vulnerability at this moment when you
start in on something when your store is completed a year later, they're moving, too. It's
always a moving target. It is a tough business.
BECKY: And yet here we are at the Nebraska Furniture Mart that Berkshire has done very
well with.
BUFFETT: Nobody is going to be able to compete with the Nebraska Furniture Mart. I mean,
this store does more home furnishing business than any store in the country. And what are
we in, I don't know, the 50th market in the country? This store does $450 million annually. It's
doing $40 million during the Berkshire shareholders week. But there's no store that remotely
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can offer the variety. There's no store that can undersell us. But to achieve that kind of
dominance, you can't do it with a chain of stores in Canada when you're competing with Wal-
Mart up there and a whole bunch of other people.
Amazon model will change US: Munger 8:27 AM ET Mon, 5 May 2014
BECKY: Warren, I know you use the internet a lot. But I wonder if Charlie, Warren, if either of
you ever buys anything on Amazon?
MUNGER: My children buy it for me occasionally. I have never done it personally.
BUFFETT: My assistant.
BECKY: What do you think about the Amazon business model, though?
MUNGER: Well, I think it's very disruptive compared to everybody else, I think it's a
formidable model that is going to change America.
BUFFETT: I agree. It's one of the most powerful models that I've seen in a lifetime, and it's
being run by a fellow that has had a very clear view of what he wants to do, and does it every
day when he goes to work, and is not hampered by external factors like people telling him
what he should earn quarterly or something of the sort. And ungodly smart, focused. He's
really got a powerful business, and he's got satisfied customers. That's hugely important.
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Pharmacy biz wants zero tax rate: Munger 8:34 AM ET Mon, 5 May 2014
BECKY: Charlie, earlier we got the chance to talk with Warren about some of the U.S.
corporate tax code and some of the new acquisitions that we've seen. Pfizer reported earlier
this morning, so we talked a little bit about Pfizer's plan to buy AstraZeneca and use an
inversion where they would move their tax domicile to the UK because I guess they pay
about 27 percent here in the United States. If it was a UK tax domicile they would pay closer
to 21 or 22 percent.
There was a little bit of conversation around —
MUNGER: Well, I think the pharmacy companies try and get to the tax rate, they're on their
way to zero. That's the only one that would make them happy.
BECKY: What do you think about that whole practice, though? Berkshire has taken advantage
of tax code in the past to make sure it's doing things in the most tax effective way.
MUNGER: We would never take our U.S. tax rate to zero on purpose, or even close to it. For
other people that's sort of an ideal.
BECKY: Getting to 22 percent is still more than a lot of U.S. companies would be paying, if
Pfizer does do that inversion and goes ahead and moves the tax domicile.
MUNGER: It's the rage now to get the tax rate down.
BECKY: I think Joe Kernen, my colleague, has a question back at home, too. Joe?
JOE: I'm just reading in the past that you have talked to Warren about this before, Charlie,
right? You are on the record. Here's a headline: Buffet clashes with Munger over U.S.
corporate taxes at a meeting.
30/45
I will quote what you said. "The corporate tax rate should be much lower. When the rest of
the world keeps bringing the rates down, there's some disadvantage to us if we're much
higher."
Did you change your opinion on that recently, Charlie, or do you still feel that way?
MUNGER: I would not — there's something to be said for making the tax rate a little lower,
but going from 35 to 33 or something is not like taking it to zero by moving your
pharmaceutical manufacturing to some tiny little place.
JOE: I'm not asking about a lot of places — go ahead.
MUNGER: I think the economy might work a little better if the corporate tax rate was low.
But I think it would be a mistake for American corporations to get really low taxes.
BUFFETT: And when you talk about the tax rate being lower, you're not talking aggregate
corporate tax rates being lower; you're just talking about evening out the rate, right?
MUNGER: Yes. I would like a consistent rate that everybody paid.
BECKY: Something more like Simpson-Bowles was talking about, getting rid of a lot of the —
MUNGER: Something more like Latvia.
BECKY: Latvia?
BUFFETT: Nobody knows what the hell Latvia means —
JOE: Charlie, what is the rate in Latvia? Do you know?
MUNGER: They have a single tax rate.
JOE: So does Lithuania. It's like 15 percent. I think it's 10 percent, but a 15 percent flat tax on
everyone else. But I think the corporate rate is 10 percent in Lithuania.
MUNGER: Generally speaking, I would tax consumption higher and earning power of
business a little lower. It just works so well in Hong Kong and various places. I don't think we
deserve it, but maybe the economy would work better if we had it.
ANDREW: Can I follow up with you on something else you said over the weekend, and
Warren did, too? Another sort of unconventional thought. We had a conversation in the
question about compensation and the disclosure of compensation. You made a point that I
think many of our viewers may find surprising about how disclosure may not be a good
thing. Do you want to elaborate?
MUNGER: Well, I think envy is one of the major problems of the human condition, and that's
why it figured so prominently in the laws of Moses. Remember, he said you couldn't even
covet your neighbor's donkey.
BUFFETT: I never have.
31/45
MUNGER: Yeah, but other people did. And so I think this race to have high compensation
because other people do, has been fomented by all this publicity about higher earnings. I
think it's quite counterproductive for the nation. There's a natural reaction to all this
disclosure because everybody wants to match the highest. Warren, I think that's a crazy race
for us to get into.
BUFFETT: I've never been on a board of directors where the CEO came in and, waving the
proxy statement of some competitor, and said, Here, this guy is making less. I probably
should be making less, too.
It doesn't happen. There is a rationing effect that is produced by the publication of large
salaries. And every comp committee is not hearing the comparison by the consultant to the
fourth quartile or the third quartile. It's always to the second quartile, and that will produce a
rationing. It's very natural to think if you're a director of the ABC Corp. and the CEO of the
XYZ Corp is getting more, well, our guy is at least as good as theirs. And it goes on and on
and on.
So publication of the top salaries has cost the American shareholder money. Maybe
disclosure is the great disinfectant, all of that, sunshine is the great disinfectant. Sunshine
has cost American shareholders money when it comes to paying their managers.
MUNGER: You're right, a peculiarity of ours, but we're right, just as Moses was.
(Laughter.)
BUFFETT: And other people in between.
BECKY: We're going to continue this conversation with Charlie and Warren.
In fact, when we come back, we are adding yet another amazing business leader to this
conversation, Microsoft founder Bill Gates will join us live right after this break.
Our conversation will continue in just a moment. Also, as we head to the break, check out the
"Squawk Box" market indicator. We have seen futures under a little bit of pressure this
morning. You'll see right now futures are still in the read. We'll also take a look at the ten-
year note, because the yield there dipped below 2.6 percent. Stick around. "Squawk Box" will
be right back.
(Commercial break.)
32/45
Three traits needed to get elected to Berkshire's board 9:28 AM ET Mon, 5 May 2014
BECKY: All right. Joe, thank you very much. Again, we are speaking to Warren Buffett, the
Chairman and CEO of Berkshire Hathaway. Charlie Munger, the vice chairman, and now we
are adding another powerful business leader to the roundtable: Bill Gates. He is the founder
of Microsoft and the co-chair of the Bill and Melinda Gates Foundation. He's also a member
of the CNBC First 25 list that was revealed last week and he is on the board of directors right
here at Berkshire. That's why we have these gentlemen here today.
Bill, thank you for joining us this morning.
BILL GATES, MICROSOFT FOUNDER: Great to be here.
BECKY: One of the things I would love to hear from you three is just what it is you talk about.
When you just sat down you were talking about Mongolia. You guys will talk about anything
and everything. What do you know about Mongolia?
GATES: Well, business stories are fascinating to us and all the demand for minerals has
meant that countries like Mongolia have opened up big new mines and the country's
deciding what they're going to do with the revenues they're getting from that. A friend we
have owns 10 percent of the retail operations in Ulan Bator so he was telling us how that's all
working.
BECKY: When you were at the board of directors meeting today, obviously you can't talk
about specifics on things, how do those board of directors go? How are things led?
MUNGER: It's a lovefest.
BUFFETT: (Laughs) I hope so.
MUNGER: It's not a highly critical place.

33/45
GATES: Are we supposed to say that?
(Laughter)
MUNGER: I don't care.
BECKY: Warren, you did make the comment over the weekend that when it comes to boards,
too often they don't look for Dobermans, they look for Cocker Spaniels and then try to make
sure their tails are wagging. Is that how the Berkshire board runs runs, too?
BUFFETT: No, Berkshire we look for directors that were shareholder-oriented, business-
savvy, and interested in Berkshire. And we think those criteria make sense. Other people
have a whole bunch of different checklists. But we have a group of directors that get paid
virtually nothing, and they have to — their interest has to come about because they find the
place interesting, and in many cases because they have huge investments. And they made
those investments themselves. Nobody gave them shares. So it's a very unusual board. But
it's a terrific board.
How Gates met Buffett 8:46 AM ET Mon, 5 May 2014
BECKY: We heard the story about how you and Charlie first met up. How about the story
about how you and Bill first met?
BUFFETT: Well, he was forced to meet me.
GATES: That's true. My mom was having (former Washington Post publisher) Kate Graham
and Warren over, and I was still sort of maniacal about not doing anything but working at
Microsoft and so I agreed to come by. I actually — I made this mistake thinking that Warren's
view of the world was just about charts and stock volumes and not about the fundamentals
of business.
34/45
So when we met and he was asking me how do you compete with IBM, how do you price
your stock, where is it going, it was fantastic. It was the most fun conversation I'd ever had.
So that started an amazing friendship.
BUFFETT: We got to the bedroom, talking, and the governor of Washington had come. And
Bill's dad was a wonderful man, but he got irritated with the fact that we were sitting in the
bedroom talking. And finally he came in very politely, he said, "Would you boys think about
talking to the Governor?"
BECKY: So you stayed a little longer than maybe you planned?
GATES: Yeah, both sides wondered what these two groups were going to talk about, and had
an amazing day. And it was only a few weeks later that I went up and Warren had a group of
friends who were talking about business and stocks and so it's been a conversation ever
since then.
BECKY: You know, Charlie, you made the comment over the weekend that when it comes to
frugal people, you collect these type of people at Berkshire. You're looking for frugal people.
But one thing I have noticed. You tend to collect friends and colleagues who have all those
characteristics that Bill was just talking about. People who look at business and who think
through it. How did that happen?
MUNGER: Well, when you like people who are intellectually curious, and I don't see how you
can wise up all the time if you aren't working at it.
BECKY: How do you do that? Do you read every day?
MUNGER: Sure.
BUFFETT: I knew Charlie and Bill would hit it off.
GATES: Charlie's amazing.
BECKY: Let me ask each of you. What is something that you're reading now or you are you've
read recently that you would recommend that other people read? Bill.
GATES: Zeke Emanuel wrote a book about medical costs in America and how we got to the
complex situation we have. And he makes some predictions about the future. And people
can disagree with him. Actually I disagree with some of it. But it's very well written, and we
should have a more informed dialogue about that critical topic.
BECKY: Charlie, how about you?
MUNGER: Well, I have just read "Faraday, Maxwell, and the Electromagnetic Field."
BECKY: What is that?
MUNGER: It's a combination of scientific biography and explanation of the physics,

particularly relating to electricity. It's just the best book of its kind I have ever read, and I just
hugely enjoyed it. Couldn't put it down. It was a fabulous human achievement. And neither of
35/45
the writers is a physicist.
BECKY: Neither of them. Okay. Warren?
BUFFETT: Why the light goes on when you hit the switch, but I couldn't understand the book.
I had to move on.
I read (former U.S. Treasury Secretary) Tim Geithner's book which will be out in another week
or so, and anybody, politician or financial manager, financial supervisor should read that
book. Tim correctly says that you're going to run into more panics in the future, and there's
not a thing about them and here is what to do. And it's a very, very good book.
BECKY: He thinks we'll run into more financial panics. How far down the road?
BUFFETT: He has no idea. And I have no idea. He just says humans are behaving the same
way. And he describes how they behaved in various ways and how they behaved this time.
And what has to be done. It's a good book.
BECKY: In other words, next time will not be different. There will be a next time?
BUFFETT: There will be a next time.
MUNGER: It may be led by the same people.
BECKY: By the same people meaning?
MUNGER: The financiers.
BECKY: The banks.
MUNGER: Other than a woman.
(Laughter)
(Commercial break.)
36/45
Shareholder power important part of system: Gates 8:58 AM ET Mon, 5 May 2014
BECKY: Our special guests this morning will all be at the Berkshire board meeting later
today: Warren Buffett, Charlie Munger, and Bill Gates.
Gentlemen, people would die for the opportunity to get here and sit and talk to you about
business. What I would like to do is just throw some topics out to you and maybe you guys
can respond on your thoughts on things.
First up, about activist investors. We have seen a rise of activist investing. Carl Icahn, Bill
Ackman, who was actually here this weekend. I just wonder what the three of you think
about activist investing. Is it a good thing for America or not? Charlie?
MUNGER: Well, sometimes it's good, and sometimes it's awful. And I'm afraid that's just the
way it is.
BECKY: Bill, what about you? What do you think about it?
GATES: Well, there's a level of discipline that shareholders, in the hierarchy, they should be
viewing the actions of the board management. Sometimes it seems to get focused on very
short-term things, like the dividend policy, as opposed to the strength of the management
team and the long-term strategy. But shareholders having power is a very important part of
the system.
BECKY: Can shares get hijacked, though, by a shareholder who is very loud but who happens
to have a small position in a stock?
GATES: Only if the press allows it to happen.
(Laughter)
37/45
BECKY: Well, you can say we've been guilty of that. We will certainly take any and all activist
shareholders.
BUFFETT: You have thousands of corporations. Some of them are going to be poorly run and
some of them are going to be run in a very self-interested manner by the managers. What is
the correction for that? And activism can be a correction for some of that.
I think very often the activism — and they are attracting money on this basis. The money is
pouring into activist-related-type investment vehicles. The measure really is whether you get
the stock up in a very short period of time.
I can remember when the best-managed company I knew in the United States, Capital Cities,
was selling for a third of what it was worth. And an activist might come around and say, 'Why
don't you sell off the properties or something?'
So an immediate bump in the stock price should not be the measure of whether somebody
has accomplished something successfully in a corporation. But there are times when change
is needed in corporations and they're not going to do it themselves.
BECKY: Andrew has a question too. Andrew?
ANDREW: Warren, I want to follow up on something we talked about over the weekend,
which is actually Bill Ackman's approach in this recent transaction between Valeant and
Allergan, where he effectively teamed up with Valeant and bought shares of Allergan before
they actually made the bid, knowing that the bid was coming. Some people have argued that
is the equivalent of front-running or inside trading. I wanted to get your thoughts on that
tactic from a policy perspective and what you think it means to the market.
BUFFETT: Well, I'm sure he had it well-lawyered. But, you know, if I bought that stock
because I'd learned that somebody might be doing something and I learned it in certain way,
I would be in trouble.
But if they join forces, you know, certainly a company that has in mind making a bid is
entitled to buy some stock. And how big a group you can form, maybe you could form a
group with a whole hedge fund community and have them all go out and buy stock like crazy
for a couple weeks. And if they're part of a group, maybe it doesn't help.
But I would say this: If that should be the case, it probably should be changed.
BECKY: Joe?
JOE: Thanks, Beck. All three of these great gentlemen, I would like to just hear them opine
quickly on this. I'm going to say his name again: Thomas Piketty. He's a French elitist
academic that has the hottest book on economics right now. (Capital in the Twenty-First
Century.) I'm sure you have read about it. It talked about capitalism in the down side in
terms of income and quality. That capitalism, he says, by definition engenders, that we've
just been lucky in recent years that it's not even worse.
38/45
So we're revisiting what system is the most appropriate. I think about you, Bill Gates, and
what you're able to do with everything that you amass in your lifetime through capitalism in
some respect, and certainly you're doing a lot of good with it now.
But in and of itself, is capitalism good or a bad thing?
GATES: Well, of course it's a fantastic thing versus any other system we've tried. And Piketty's
mostly talking about retained wealth. That is, if you have high returns on capital for
generations, then you get a group of people that have a disproportionate part of the money.
If you think about the three fortunes represented here, these are first-generation fortunes
that show there is dynamism in this system.
He makes some assumptions about returns that I'm not sure are true for the long-term. But
the direct remedy for what he's talking about is some type of estate tax or well tax. He
actually comes out for a well tax, which I think is hard to do. But an estate tax, which I
happen to believe in, is something that would reduce the phenomena that he talks about.
But —
JOE: I've talked to Warren about this before too, and you guys can answer too, but to give all
your money away beforehand, I think Warren has actually admitted to me that he thinks in
the private sector that it will be better used by charitable organizations because it does avoid
— when you give it all away, it does avoid it going to Uncle Sam in the end anyway, right?
ANDREW: Well, that's a problem too. It's still a generational issue. I don't get to answer for
Bill.
BUFFETT: But you set it up in a case there in the sense that if I didn't give it all to
philanthropy, I can arrange it so it's greater than this. But I could certainly create 60 percent
that would be dynastic wealth. And if I was really concerned about dynastic wealth, as many
people are, I could set it up so that far more than 60 percent went to —
JOE: You could bequeath it all to the federal government if you thought it was going to be a
good use of the funds.
BUFFETT: That's a choice. I'm just saying the choice is not between philanthropy and — it's
false to say you can't create —
JOE: That's not what I'm saying. I'm just saying you have never necessarily looked like you
thought the government was the best place to allow capital to be utilized.
BUFFETT: I agree with you on that.
JOE: That's pretty good.
BECKY: Gentlemen, we're going to take a very quick break here. Of course, Joe, we do have
more coming up after this.
(Commercial break.)
39/45
HFT equivalent of rats in a granary: Munger 5:28 PM ET Mon, 5 May 2014
BECKY: Welcome back to a special edition with "Squawk Box". Our special guests this
morning: Warren Buffett, Charlie Munger, and Bill Gates.
Gentlemen, another topic I would like to hear from you on. High-frequency trading. Charlie,
I'd like to get your opinion about what you think about high-frequency traders. Is the book
right, that lays out for Michael Lewis that they are — they're skimming off the top and it's a
fixed market?
MUNGER: Well, of course they have an advantage. Cleverly obtained. Of course it does the
rest of the civilization no good at all. It's the functional equivalent of letting rats into a
grainery. (Pause) No, I don't like it.
(Laughter)
BUFFETT: I wondered what his point was.
BECKY: Charlie, Bill, do you agree or — Warren, Bill, do you agree or disagree with Charlie?
GATES: It doesn't seem like it's much value added because it's not, when you get — you really
need the liquidity, it's not guaranteed to be there. So I'm not an expert on it, but it seems like
a strange source of profit.
BUFFETT: It's not a liquidity provider. It may create more volume. But that's not the same as
being a liquidity provider. To the extent that it's front-running, I think society generally has
been against front-running for good reasons and where it's — in the old-fashioned front-
running, they had rules against it.
Here they gained a natural advantage by speed just by figuring out how the system worked
40/45
and then getting there first, and that adds nothing to GDP or anything, a real output of goods
and services. On the other hand, the market isn't regulated. And for the small investor,
they've never had it so good. And high-frequency trading I don't think costs them a penny
probably.
BECKY: I see Bill nodding with that. Charlie, you agree with that, too?
MUNGER: Somebody is paying it. God is not creating extra money.
BUFFETT: No, it's the big orders.
GATES: If you don't trade very often, then all these frictional costs can be quite modest.
BECKY: If you're a frequent day trader. Running in and out.
MUNGER: The big institutions operating on behalf of the little people. No, I think it's a curse,
and I think the author of the book was basically right.
BECKY: Andrew has a question too. Andrew.
MUNGER: And he writes well, too.
ANDREW: Warren, related to this, one of the Berkshire companies is Business Wire. They
reached a settlement along with PR Newswire and a couple of the others with the (New York
State) Attorney General Eric Schneiderman about this idea of front-running — go ahead.
BUFFETT: I have to correct that, Andrew. They've reached no settlement. They had decided
— I had decided, along with (CEO) Cathy Baron Tamraz, when an article appeared in the
Journal about it, we always provided simultaneous distribution, and we continued to provide
simultaneous distribution, but we did get rid of the five high-frequency traders who had no
edge in the time at which they received things. But we got rid of them, in any event, but that
was not pursuant to any settlement. That was a decision that was made at Business Wire.
ANDREW: I'm glad you cleared that up. What was the settlement part, then?
BUFFETT: There was no settlement. There was no settlement. We got — we made — I think
there was an article late in the week in the Journal, and Cathy talked to me early the following
week, and after assuring myself that they were getting totally simultaneous distribution, I
said we don't need them. So we got rid of them.
BECKY: Gentlemen, let me ask a very quick — go ahead, Joe.
MUNGER: I said I love it. Wish there was more of it.
BECKY: Let me ask you quickly about the situation in Ukraine. How much time do any of you
spend thinking about that? How concerned should we be from a geopolitical risk standpoint?
MUNGER: What in the hell do I know about the Ukraine? I — I'm glad I'm not making those
decisions.
BECKY: Do you worry that it will spill over and affect business —
41/45
MUNGER: Well, of course you worry a little when you see a pattern that reminds you of
Hitler.
BECKY: Right.
BUFFETT: But basically, yeah, I regard myself as totally incompetent to judge what should be
done.
BECKY: Bill, Warren, either of you want to follow up after that and say that you are more
competent to make a decision on it?
BUFFETT: Totally. It's not hard to improve.
GATES: When you have a global economy, so when you have disputes between countries,
like Europe's dependency on Russian gas, you sometimes will make — to make political
points, you'll sometimes take economic pain, and it's a great debate, you know, what
penalties should there be to discourage more take-over behavior. And you actually have the
business community having one view and talking to the politicians.
I don't think it's going to get terrible, but it certainly would be high on the list of concerns
right now.
BUFFETT: When you get a shift in boundaries, it can set other forces in motion and nobody
knows what those forces may be. And there may be political popularity considerations. All
kinds of things start happening. So once you shake things up, you never can be sure, on
international matters, what will be item 2, item 3, and item 4. They have their own dynamic.
So it's not a plus. And nobody knows how it's going to turn out. But something has been put
in motion, and it would be nice to see it come to rest.
BECKY: We'll continue this conversation in just a moment. Andrew.
ANDREW: Thank you. And, Warren, I want to thank you for correcting me on the Business
Wire issue. I also noticed some of the reporting has been bad on this. Eric Schneiderman
applauded Business Wire and their decision to do this. It wasn't part of the settlement or any
type of accord. Despite some of that reporting.
Coming up we've got a lot more coming up from Omaha, Warren Buffett, Charlie Munger,
and Bill Gates. It doesn't get any better than that kind of conversation.
(Commercial break.)
42/45
Patents are too easily granted: Munger 9:30 AM ET Mon, 5 May 2014
BECKY: Welcome back, everybody. Some final thoughts right now from Warren Buffett,
Charlie Munger, and Bill Gates.
Gentlemen, in the commercial break I love your conversations that continue to go on. You
were talking about Apple and Samsung; Apple just winning a minor court victory of $120
million to get paid. What I wonder is what you think of the patent wars. Charlie?
MUNGER: Well, when I was young, there wasn't much money that changed hands based on
patents, and now they're hugely important. I think patents are too easily granted now. I don't
think we need as much patent protection as we have. Bill will probably disagree.
BECKY: The patent office has had a hard time keeping up with technology. Bill, should
people get paid for their creations and inventions?
GATES: Well, there's entire industries like the drug industry that only exist because if you
invent something you're allowed some protection.
The particulars of the system have gotten very complex, and you could talk about various
improvements. But the idea that innovation in and of itself should be protected, you should
get paid. That's been a very successful idea going all the way back to the steam engine.
BECKY: Bill, I do want to ask you, we talked a little bit this morning about how you are no
longer the largest shareholder of Microsoft. You've been selling down that stake. Why is that?
GATES: I've sold for over a decade the same number of shares every quarter. That plan lasts
through the end of this year. You know, I'm going to retain a lot of Microsoft stock, but the
U.S. Treasury's done well, many billions of dollars. And you know, I'm excited about the stuff
I'm doing at Microsoft right now, you know, re-examining all its strategies, and a lot of great
work going on.
43/45
BECKY: Are you excited about the new CEO, Satya Nadella?
GATES: Yeah, Satya is off to an amazing start. He's drawing on a broad set of people in the
company to get them to rethink how can Microsoft move a bit faster and really distinguish
ourselves with things like Office 365.
Munger: Totally against exporting natural gas 5:24 PM ET Thu, 7 Aug 2014
BECKY: Let me ask you all about energy policy. I come back to this, Charlie, because you've
said some things in previous meetings - maybe it was two or three years ago - that kind of
changed my thinking about it, just the idea of whether or not we should be exporting natural
gas and some of our natural resources. Your idea was that we should save it all.
MUNGER: Yeah, I'm totally against exporting natural gas. I don't like oil to be exported,
either. I'm all for using up our oil more slowly and discovering it more slowly. I'm all by myself
on this. I feel very lonely.
BECKY: Why is it that you think we shouldn't export it?
MUNGER: I think this stuff is utterly precious. I feel it's like the topsoil of Iowa. We don't want
it to go away too fast. I also have old-fashioned capitalist ideas that intelligent, responsible
people are always suffering now to make later better. I don't like making today great by
making later worse.
BECKY: Warren, you agree with Charlie?
BUFFETT: Well, if I were in charge of running the United States for the next 500 years, I
would want the ability to produce energy in a way that would take care of national defense
under all circumstances. Because I would not want to be dependent on the rest of the world
in that respect.
44/45
But if otherwise I could use up, you know, as important an item to the planet as energy and
use the other guy's, and like I said, if I have responsibility for hundreds and hundreds of
years, I would use the other guy's and trade him little pieces of paper for it. But I would
always want to have an up-to-date national defense.
MUNGER: That's two of us, out of 300 million.
BECKY: Let me ask all three of you. All three of you are investors that spend a lot of time
thinking about things. I wonder, with the stock market hitting new highs, if that concerns any
of the three of you, if things are starting to look expensive at these levels. Bill, what do you
think?
GATES: Well, relative to interest rates, equities are still a bargain. And, you know, so you've
really got to have an opinion about interest rates to be an investor of any kind in this market.
It's such a key factor. You know, by historical measures, yes, interest rates were very different
in most of those time periods.
BECKY: Have you been surprised that interest rates have stayed so low this year?
GATES: Well, the central banks are making sure that's the case. They are trying to stimulate
these economies as best they can. The fact that it requires the gas pedal being pushed to the
floor as much as it does is an amazing and even a little bit scary thing.
BECKY: Charlie, what do you think?
MUNGER: Well, I think under what Bill Gross calls the "new normal," common stocks may not
do quite as well in the future as they did in the last 100 years. But that doesn't mean that the
Mungers are going to sell their common stock in an effort to buy them back later cheaper.
BECKY: Warren, how about you?
BUFFETT: Well, the option is to own equities or own fixed dollars. I think it's clear you own
equities. I do not think they're in crazy territory. But most of the time stocks have been in a
zone of reasonableness over my lifetime. I think they're in the zone of reasonableness now.
And certainly if you said to me it's either going to have to be long the 30-year bond and short
an index fund for 30 years or vice versa, it would be long index fund. I would be long in
stocks.
MUNGER: We all would.
BECKY: Gentlemen, I want to thank you all for your time today. We really appreciate it. That
does it for us. Make sure you join us tomorrow. Right now it's time for Squawk on the Street.
—By CNBC's Alex Crippen. Follow him on Twitter: @alexcrippen
45/45
CNBC Transcript: Legendary Investor Warren Buffett Speaks with
CNBC's Becky Quick on the Nationally Syndicated "On the Money"
Sunday, October 5th
cnbc.com/2014/10/03/cnbc-transcript-legendary-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-the-nationally-
syndicated-on-the-money-sunday-october-5th.html
October 3, 2014
WHEN: Sunday, October 5th
WHERE: "On the Money"
Following is the unofficial transcript of an interview with Billionaire investor Warren Buffett
and CNBC's Becky Quick on the nationally syndicated "On the Money." The full interview will
air on CNBC this Sunday, October 5th at 7:30pm ET. Check your local listings.
All references must be sourced to "On the Money."
BECKY QUICK: HE'S THE MAN THAT MANY CALL AMERICA'S GREATEST INVESTOR. AN
ORACLE, WARREN BUFFETT IS HERE RIGHT ON SET WITH US AND WARREN, THANK YOU SO
MUCH FOR JOINING US TODAY.
WARREN BUFFETT: FUN TO BE HERE.
QUICK: SO WHEN WE HAVE YOU HERE, WE HAVE A LOT OF PEOPLE WHO ARE AT HOME
WATCHING THE STOCK MARKET WHO HAVE GOTTEN VERY NERVOUS BY SOME OF THE DIPS
THAT THEY HAVE SEEN RECENTLY. PEOPLE STARTING TO WONDER IF THINGS ARE TOPPING
OUT. WHAT ADVICE WOULD YOU GIVE TO THOSE PEOPLE WHO ARE SITTING AT HOME?
BUFFETT: WELL I HAVE NO IDEA WHAT THE STOCK MARKET IS GOING TO DO TOMORROW,
OR NEXT WEEK, OR NEXT MONTH, OR NEXT YEAR. I DO KNOW IT IS GOING TO BE HIGHER
TEN YEARS FROM NOW. AND IF YOU OWN YOUR STOCKS AS AN INVESTMENT, JUST LIKE YOU
WOULD OWN AN APARTMENT HOUSE OR A FARM OR ANYTHING, LOOK AT THEM AS A
BUSINESS. AND YOU HAVE A GROUP OF AMERICAN BUSINESSES AND YOU ARE GOING TO
OWN THEM FOR TEN YEARS, YOU'RE GOING TO DO FINE. AND IF YOU ARE GOING TO TRY
AND BUY AND SELL THEM BASED ON NEWS OR YOU KNOW, SOMETHING YOUR NEIGHBOR
TELLS YOU OR ANYTHING LIKE THAT, YOU'RE PROBABLY NOT GOING TO DO WELL. SO FIND
A GOOD BUNCH OF BUSINESSES AND HOLD THEM.
QUICK: AND THAT IS WHAT YOU HAVE BEEN DOING FOR DECADES AND DECADES, AND IT
HAS PAID OFF.
BUFFETT: I'VE BEEN DOING IT ALL MY LIFE, YEAH. AND YOU WILL NOT MAKE MONEY TRYING
TO BUY AND SELL STOCKS DAILY OR WEEKLY.
QUICK: YOU MAY NOT KNOW EXACTLY WHAT IS GOING TO HAPPEN TO THE MARKET
TOMORROW, BUT YOU DO HAVE A PRETTY GOOD IDEA ABOUT WHAT IS HAPPENING IN THE
ECONOMY. YOU KNOW THAT THROUGH ALL OF THE COMPANIES.
BUFFETT: SURE.
1/4
QUICK: FROM BURLINGTON NORTHERN, WHICH IS A VERY GOOD READ ON THE ECONOMY,
TO A COMPANY LIKE AMERICAN EXPRESS THAT YOU HOLD A BIG STAKE IN. WHERE DO YOU
THINK WE ARE HEADED?
BUFFETT: WELL THE ECONOMY, SINCE THE FALL OF 2009, THAT'S FIVE YEARS NOW, HAS
BEEN INCREASING AT A PRETTY STEADY RATE. PEOPLE HAVE GOTTEN – PERIODICALLY THEY
GOT MORE ENTHUSED OR MORE DEPRESSED ABOUT IT. THEY TALK ABOUT DOUBLE DIPS,
AND ALL THESE SORTS OF THINGS WE'VE HEARD, BUT IT HAS BEEN A PRETTY STEADY
INCREASE. IT DOESN'T ACCELERATE A LOT, IT DOESN'T DECELERATE A LOT. AND WHAT WE
SEE NOW IS EXACTLY WHAT WE HAVE BEEN SEEING FOR FIVE YEARS. AN INCREASE NOT A
RATE THAT GETS PEOPLE ALL EXCITED, BUT – AND I THINK WE WILL BE SEEING THAT A YEAR
FROM NOW.
QUICK: IN TERMS OF WHAT WE HAVE SEEN FROM SOME OF THE COMPANIES, SOME NEWS
OUT OF THE COMPANIES THAT YOU OWN BIG STAKES IN, COCA-COLA THIS WEEK SAID THAT
IT WOULD BE CHANGING THE PACKAGE THAT IT PAYS ITS EXECUTIVES IN TERMS OF HOW
THEY BREAK UP AND PAY THEM IN STOCK OR NOT SO MUCH IN STOCK. YOU WERE
SOMEONE WHO WAS A PROPONENT OF CHANGING THAT PLAN. WHAT DO YOU THINK OF
WHAT THEY HAVE PUT OUT?
BUFFETT: I THINK THAT THE COMPENSATION COMMITTEE WORKING WITH THE BOARD HAS
CRAFTED A VERY, VERY SENSIBLE PLAN THAT INVOLVES FAR LESS ISSUANCE OF STOCK, MORE
PAYMENT IN CASH – PERFORMANCE RELATED IN BOTH CASES – AND I THINK IT IS A VERY
LOGICAL PLAN AND I THINK THE STOCKHOLDERS ARE CONSIDERABLY BETTER OFF THEN
THEY WOULD HAVE BEEN IF THE COMP COMMITTEE HADN'T DONE WHAT THEY DID. SO, I
TIP MY HAT TO THEM.
QUICK: WARREN, OVER THE LAST SEVERAL YEARS, YOU'VE BOUGHT UP ABOUT 28 REGIONAL
NEWSPAPERS. THAT'S AN INVESTMENT THAT A LOT OF PEOPLE THOUGHT WHAT THE HECK
IS GOING ON THERE? THAT'S A SHRINKING INDUSTRY. HOW HAVE THOSE INVESTMENTS
PAID OFF FOR YOU AND WHAT DO YOU SEE?
BUFFETT: WELL THEY WORKED OUT OK, BUT THEY ARE ABSOLUTELY RIGHT. IT IS A
SHRINKING INDUSTRY. AND THOSE PAPERS WILL EARN LESS MONEY FIVE YEARS FROM NOW
THEN THEY EARN NOW. BUT WE BOUGHT THEM AT A PRICE WHERE WE'VE FACTORED THAT
IN. SO THEY WILL BE A SATISFACTORY INVESTMENT. BUT, NEWSPAPERS ARE NOT A PLACE
WHERE EARNINGS ARE GOING TO INCREASE. THEY ARE GOING TO DECREASE AND A LOT OF
PAPERS ARE GOING TO DISAPPEAR OVER TIME. THERE IS NO QUESTION ABOUT THAT.
QUICK: SO YOU WOULDN'T NECESSARILY SAY THAT IS AN INVESTMENT FOR EVERYONE? YOU
HAVE TO PICK YOUR PLACES.
BUFFETT: OH, NO I DON'T THINK THAT IS AN INVESTMENT FOR HARDLY ANYONE. YOU'VE
GOT TO BUY THEM VERY, VERY, VERY CHEAP.
2/4
QUICK: WARREN, EARLIER THIS YEAR, BERKSHIRE HATHAWAY WAS LISTED AS ONE OF THE
WORST COMPANIES IN THE COUNTRY, BROUGHT BY THE HUMAN RIGHTS CAMPAIGN,
SAYING IT IS ONE OF THE WORST PLACES TO WORK IF YOU ARE LESBIAN, GAY, BISEXUAL OR
TRANSGENDER. THEY SAID THAT YOU DON'T HAVE POLICIES THAT PROTECT EMPLOYEES
AND MAKE IT A SAFE PLACE FOR THEM TO WORK. WHAT WOULD YOU – HOW WOULD YOU
RESPOND TO THAT?
BUFFETT: WELL I GUESS, PROBABLY WHAT HAPPENED IS WE GET SURVEYS ALL THE TIME ON
ALL – MEN AND WOMEN – YOU KNOW, I MEAN YOU NAME IT, ALL DIFFERENT KINDS OF
THINGS AND WE BASICALLY DON'T ANSWER THEM. WE HAVE 75 SUBSIDIARIES OUT THERE
RUNNING THEIR BUSINESSES. 300 AND SOME THOUSAND EMPLOYEES AND WE'VE GOT 25
PEOPLE IN OUR HEADQUARTERS AND WE DO NOT, EVERY TIME WE GET A QUESTIONNAIRE,
GO OUT TO 75 AND HAVE THEM GO THROUGH A LOT OF WORK TO FOLLOW UP. I WOULD
SAY THIS, CERTAINLY OUR MANAGERS KNOW HOW I FEEL AND I'M 100 PERCENT FOR FULL
RIGHTS IN EVERY RESPECT FOR GAY AND LESBIANS. BUT I DO NOT SET THE POLICIES FOR
THE 75 COMPANIES. I KNOW WHAT THEY ARE – A FEW OF THE LARGER ONES, AND I THINK
THEY ARE QUITE PROGRESSIVE, BUT THAT'S – I WOULD SAY THAT I'VE SEEN IT LISTED AS
ZERO ON CERTAIN SURVEYS AND THE REASON WHY IS THAT WE DIDN'T ANSWER THE
SURVEY.
QUICK: AND THIS WEEK YOU ALSO ADDED A NEW COMPANY TO BERKSHIRE HATHAWAY.
YOU ARE ALWAYS ON THE PROWL, ALWAYS LOOKING FOR A NEW DEAL. THIS TIME AROUND,
YOU BOUGHT VAN TUYL AUTO GROUP. WHAT LURED YOU?
BUFFETT: WELL, LARRY VAN TUYL TALKED TO ME SIX OR SEVEN YEARS AGO. I UNDERSTAND
THE BUSINESS AND I THINK THAT IT IS A DECENT BUSINESS OVERALL AND I THINK THE WAY
LARRY RUNS IT IS EXTRAORDINARY. HE HAS THESE PARTNERS IN 78 DEALERSHIPS AND SO HE
WORKS ON A PARTNER BASIS, HE'S GOT A TERRIFIC RECORD OVER THE YEARS, AND YOU
KNOW, IT IS SOMETHING THAT WE WILL OWN FOR 100 YEARS. IT REALLY FITS BERKSHIRE –
IT'S THE KIND OF BUSINESS WE CAN EXPAND A LOT BECAUSE THERE ARE 17,000 DEALERS IN
THE COUNTRY AND WE ARE BUYING 78 OF THEM THROUGH THIS MEANS. SO WE WILL GET A
LOT OF OPPORTUNITY TO EXPAND THIS BUSINESS. THIS WILL BE A BIG BUSINESS FOR
BERKSHIRE.
QUICK: ALRIGHT. WARREN, WANT TO THANK YOU SO MUCH FOR YOUR TIME TODAY.
BUFFETT: THANKS FOR HAVING ME.
About CNBC:
With CNBC in the U.S., CNBC in Asia Pacific, CNBC in Europe, Middle East and Africa, CNBC
World and CNBC HD , CNBC is the recognized world leader in business news and provides
real-time financial market coverage and business information to approximately 371 million
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Canada. CNBC also provides daily business updates to 400 million households across China.
The network's 15 live hours a day of business programming in North America (weekdays
from 4:00 a.m. - 7:00 p.m. ET) is produced at CNBC's global headquarters in Englewood Cliffs,
3/4
N.J., and includes reports from CNBC News bureaus worldwide. CNBC at night features a mix
of new reality programming, CNBC's highly successful series produced exclusively for CNBC
and a number of distinctive in-house documentaries.
CNBC also has a vast portfolio of digital products which deliver real-time financial market
news and information across a variety of platforms. These include CNBC.com, the online
destination for global business; CNBC PRO, the premium, integrated desktop/mobile service
that provides real-time global market data and live access to CNBC global programming; and
a suite of CNBC Mobile products including the CNBC Real-Time iPhone and iPad Apps.
Members of the media can receive more information about CNBC and its programming on
the NBC Universal Media Village Web site at http://www.nbcumv.com/programming/cnbc.
4/4
CNBC Transcript: Berkshire Hathaway's Warren Buffett and Larry
Van Tuyl Sit Down with CNBC's Becky Quick on "Power Lunch"
Today
cnbc.com/2015/04/01/cnbc-transcript-berkshire-hathaways-warren-buffett-and-larry-van-tuyl-sit-down-with-cnbcs-becky-
quick-on-power-lunch-today.html
April 1, 2015
WHEN: Today, Tuesday, March 31st
WHERE: CNBC's "Power Lunch"
Following is the unofficial transcript of a CNBC interview with Berkshire Hathaway Chairman
& CEO Warren Buffett and Berkshire Hathaway Automotive Chairman Larry Van Tuyl today,
Tuesday, March 31st, on CNBC's "Power Lunch" with Becky Quick. Video from the interview is
available on CNBC.com.
All references must be sourced to CNBC.
BECKY QUICK: GENTLEMEN, THANK YOU FOR JOINING US HERE TODAY. IT IS GREAT TO SEE
YOU HERE TODAY.
WARREN BUFFETT: THANK YOU.
LARRY VAN TUYL: THANK YOU.
QUICK: WE HAVE A LOT OF PEOPLE WHO ARE WAITING TO HEAR FROM YOU HERE AT THE
NADA. THERE ARE PROBABLY ABOUT 700 PEOPLE OR SO WHO ARE HERE AND WARREN, IT
JUST RAISES THE QUESTION. THIS WAS A HUGE MOVE FOR YOU TO GO IN WITH THE VAN
TUYL AUTO GROUP. 78 DEALERSHIPS, 240,000 VEHICLES SOLD A YEAR AND ABOUT 8 BILLION
DOLLARS IN REVENUE BACK IN 2013. BUT A LOT OF PEOPLE ARE WONDERING, ARE YOU
LOOKING TO EXPAND THAT POOL? ARE YOU GOING TO BE EXPANDING IN TERMS OF THE
NUMBER OF AUTO DEALERSHIPS YOU OWN?
BUFFETT: VERY MUCH SO. IN FACT I THINK THE 78 IS WHAT? 81 NOW?
VAN TUYL: YES.
BUFFETT: YEAH AND WE HAVE HEARD FROM A LOT OF DEALERS, WE WILL HEAR FROM MORE
I'M SURE, AND I'D BE VERY SURPRISED IF FIVE YEARS FROM NOW WE AREN'T A WHOLE LOT
BIGGER.
QUICK: YOU KNOW, LARRY, THIS IS A COMPANY THAT YOU AND YOUR FATHER BUILT OVER
60 YEARS. VAN TUYL IS A NAME THAT IS WELL KNOWN IN THE INDUSTRY, BUT BERKSHIRE
HATHAWAY IS ALSO A PRETTY GOOD BRAND. AND I JUST WONDER, ARE YOU GOING TO TAKE
THAT BRAND AND USE IT NATIONWIDE, LIKE WE HAVE SEEN AUTONATION DO?
VAN TUYL: WELL, YES. CORRECTLY. YEAH. IT IS A GREAT NAME, A GREAT REPUTATION. WE
WANT TO MAKE SURE THAT WE KEEP IT THAT WAY. SO WE WILL DO IT CORRECTLY AND
EXPAND WITH IT.
1/9
QUICK: ARE YOU ALREADY ON THE PROWL? ARE YOU ALREADY LOOKING AT OTHER
TARGETS?
VAN TUYL: OH YEAH. THE MINUTE THAT WE MET THE PHONES STARTED RINGING. SO, YEAH.
QUICK: SO DO YOU HAVE KIND OF A METHOD TO YOUR MADNESS? ARE THERE CERTAIN
DEALERSHIPS YOU ARE LOOKING FOR? ARE THERE CERTAIN GEOGRAPHIC AREAS? ARE THERE
CERTAIN BRANDS – CAR BRANDS THAT YOU ARE INTERESTED IN? OR IS THIS KIND OF JUST
DEPENDING ON WHO YOU RUN INTO AND WHAT THE PRICE IS?
VAN TUYL: WELL, IT IS IN THE U.S. PRIMARILY. BUT WE WILL LOOK THROUGH – WITH
VOLUME. WE LIKE VOLUME DEALERSHIPS. SO YOU KNOW, IT NEEDS TO BE REASONABLY
PRICED, BUT A GOOD BUSINESS AND SOMEBODY THAT WANTS TO PUT IT IN GOOD HANDS.
AND WE THAT KNOW WE ARE GOOD HANDS TO PUT IT INTO AND WE WILL PAY A FAIR PRICE.
AND WE ARE INTERESTED IN THE REAL ESTATE AS WELL AS THE DEALERSHIP AND WE WILL
TAKE GOOD CARE OF THEIR PEOPLE AND WE THINK THERE IS A LOT OF OPPORTUNITY TO DO
THAT.
QUICK: WARREN, I KNOW THAT YOU HAVE SPENT A LOT OF TIME WITH SEVERAL OF THE BIG
CAR COMPANIES, THE CEOS. PEOPLE LIKE MARK FIELDS FROM FORD, PEOPLE LIKE MARY
BARRA FROM GM. AND I JUST WONDER WHAT THEIR REACTION HAS BEEN TO YOU BUYING
THE VAN TUYL GROUP.
BUFFETT: WELL, THEY APPROVED OF THE TRANSFER, SO. BOTH OF THE ONES YOU
MENTIONED SAID WELCOME TO THE CAR BUSINESS AND I THINK THEY MEANT IT. AND WE
LOOK FORWARD TO DOING A LOT OF BUSINESS WITH FORD AND A LOT OF BUSINESS WITH
GM AND A LOT OF BUSINESS WITH SOME OTHER PEOPLE.
QUICK: WHAT KIND OF IMPEDIMENTS ARE THERE TO GETTING BIG IN THIS INDUSTRY?
BUFFETT: WELL, THE MANUFACTURER HAS TO APPROVE EVERY TRANSFER. SO THERE ARE
SOME MANUFACTURERS THAT HAVE AN ABSOLUTE NUMBER THAT THEY DON'T WANT ANY
DEALER TO GO ABOVE. SO, THEY ARE GOING TO SEE HOW WE PERFORM AND THEY ARE
QUITE INTERESTED IN HAVING THE GOOD DEALERS EXPAND THEIR OPERATION BECAUSE
THERE IS A BIG DIFFERENCE BETWEEN A GOOD DEALER AND A SO-SO DEALER IN TERMS OF
ANY GIVEN MARKET. SO THEY WILL LOOK AT PERFORMANCE MORE THAN ANYTHING ELSE.
QUICK: HOW DO YOU ALL RATE IN TERMS OF YOUR SATISFACTION LEVELS WITH SOME OF
THESE DEALERS?
VAN TUYL: VERY GOOD. WE HAVE NEVER BEEN TURNED DOWN FOR A DEAL. EVER. BY THE
MANUFACTURERS.
QUICK: IS THAT UNCOMMON?
VAN TUYL: YOU KNOW, I DON'T KNOW. BUT I THINK THAT SPEAKS WELL FOR US. HOWEVER,
IT ALSO SAYS WE'VE GOT TO KEEP MOVING, WE'VE GOT TO KEEP GROWING, WE'VE GOT TO
KEEP DOING THE RIGHT THING. I PERSONALLY THINK THAT BERKSHIRE HATHAWAY JUST
2/9
MOVES THE BAR AND SO WE WANT TO CONTINUE TO DO THAT AND WE THINK THAT WE
CAN.
BUFFETT: LARRY CAN TELL YOU MORE ABOUT THIS, BUT THERE IS SUCH A THING AS
SOMETHING CALLED OPEN POINTS. AND TO SOME EXTENT, THEY REFLECT
MANUFACTURERS' VIEW OF THE JOB THAT A DEALER IS DOING. IF THEY GIVE YOU OPEN
POINTS, THEY ARE PROBABLY HAPPY WITH HOW YOU ARE PERFORMING, AND I THINK LARRY
HAS GOT A GOOD RECORD OF THAT.
QUICK: IT IS KIND OF LIKE THE MICHELIN STARS FOR RESTAURANTS?
VAN TUYL: IT IS, YEAH. YES.
QUICK: LARRY LET ME ASK YOU ABOUT SOME OF THE BIG NEWS ISSUES THAT ARE HITTING
YOUR INDUSTRY RIGHT NOW. FIRST OF ALL, LOWER OIL PRICES AND IN TURN LOWER
GASOLINE PRICES AT THE PUMP. HOW HAS THAT CHANGED AMERICAN BEHAVIOR WHEN IT
COMES TO BUYING CARS?
VAN TUYL: WELL IT IS GREAT. IT GIVES THEM MORE ROOM TO – ON A CAR PAYMENT. IT GIVES
THEM THE ABILITY TO GO BUY A BIGGER VEHICLE IF THEY WANT TO. AND A LOT OF
AMERICANS LIKE TRUCKS AND BIG SUVs. SO THAT HAS BEEN VERY, VERY HELPFUL.
QUICK: IS IT AN INSTANTANEOUS TURN AS GAS PRICES DROP AT THE PUMP?
VAN TUYL: IT IS INSTANTANEOUS ON SOME MODELS. YEAH. YOU SEE A FULL SIZE SUVs,
TRUCKS, BIGGER POWER PLANTS ABSOLUTELY PICK UP QUICKLY.
QUICK: WOW. WE KNOW THAT CONSUMERS HAVEN'T NECESSARILY BEEN SPENDING ALL
THAT THEY HAVE SAVED AT THE PUMP. IT HAS BEEN AN ISSUE FOR RETAIL SALES AND IT HAS
KIND OF CONFOUNDED SOME – ALONG THE WAY. BUT HAVE YOU SEEN IT, AT THE
DEALERSHIPS, PEOPLE KIND OF PLOWING IT RIGHT BACK INTO BIGGER AND NEWER CARS?
VAN TUYL: WE HAVE AND I THINK THAT IS BECAUSE WE'VE GOT SO MANY NEW PRODUCTS,
SO MUCH NEW TECHNOLOGY THAT'S VERY SMART. THERE ARE A LOT OF OLDER CARS ON
THE ROAD WITH HIGHER MILEAGES SO THAT IT ONLY MAKES ECONOMIC SENSE TO BE ABLE
TO MAKE A MOVE TO A NEW VEHICLE. AND FINANCING IS AT AN ALL-TIME LOW. SO, I THINK
THOSE ARE THE FACTORS THAT CONTINUE TO CONTRIBUTE TO OUR SALES.
QUICK:THERE HAD BEEN SOME REAL CONCERNS THOUGH WHEN IT COMES TO THE QUALITY
OF AUTO LOANS THAT ARE OUT THERE. PEOPLE ARE WORRIED THAT WE ARE GETTING BACK
TO THE KIND OF LOOSE CREDIT STANDARDS THAT WE SAW BEFORE THE BUBBLE BURST IN
THE HOUSING MARKET. AND WE HAD THE GREAT RECESSION. WHAT IS HAPPENING RIGHT
NOW FROM YOUR PERSPECTIVE WHEN IT COMES TO AUTO LOANS?
VAN TUYL: I DON'T SEE IT YET. THAT IS ALWAYS A CONCERN – IS THAT GOING TO START UP
AGAIN. BUT I DON'T SEE IT YET. I THINK THEY ARE ALL STILL BEING VERY CAUTIOUS ABOUT
WHAT THEY BUY, WHAT KIND OF CARS THAT THEY ALLOW THE CONSUMERS TO GO INTO –
THE LENDERS, I'M TALKING ABOUT. THE KIND OF DOWN PAYMENTS AND ET CETERA THEY
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ARE LOOKING FOR. I THINK IT IS STILL PRETTY MUCH IN CHECK. SO WE ARE CONCERNED
ABOUT THAT HAPPENING, SO HOPEFULLY WE WILL KEEP THOSE CONCERNS AND NOT HAVE
THAT BEHAVIOR.
QUICK: JUST IN TERMS OF THE CREDIT STANDARDS THAT YOU HAVE AT YOUR OWN
DEALERSHIPS, HAVE THEY LOOSENED? WE KNOW THAT THERE IS A PENDULUM SWING, THAT
IF THINGS GOT A LITTLE TOO TIGHT FOR AWHILE, IT'S TOO HARD TO GET A LOAN.
VAN TUYL: NO. AND THE DEALERSHIPS THAT WE MANAGE WE DON'T DO MUCH SECONDARY
– WHAT THEY CALL SECONDARY BUSINESS. WE JUST DON'T DO MUCH OF IT. SO WE ARE NOT
SEEING ANY CHANGE WITH THE PRIMARY LENDERS. THE WELLS FARGOs, THE CHASE BANKS,
WE AREN'T SEEING MUCH CHANGE IN HOW THEY LOOK AT CREDIT SCORES AND QUALITY OF
PAPER.
QUICK: THIS IS A QUESTION FOR BOTH OF YOU. WE KNOW THAT TESLA HAS COME ON
STRONG. THIS IS AN AUTOMOBILE COMPANY THAT PLANS ON DIRECT SALES TO
CONSUMERS. DO YOU EXPECT THAT SORT OF MODEL TO PICK UP STEAM AND WHAT DOES
THAT MEAN FOR YOUR BUSINESS?
BUFFETT: I WOULD DOUBT IF IT PICKS UP MUCH STEAM. I MEAN, WHAT TESLA DOES WITH IT,
WE WILL FIND OUT, BUT I DO NOT SEE THE DISTRIBUTION SYSTEM CHANGING IN ANY MAJOR
WAY. ONE THING YOU MENTIONED EARLIER, MILES DRIVEN HAVE GONE UP QUITE
SUBSTANTIALLY IN THE LAST COUPLE OF MONTHS, WHICH MAY BE GOOD FOR HIS
BUSINESS, BAD FOR OUR INSURANCE BUSINESS. HOWEVER SO, I CAN NEVER FIGURE OUT
WHETHER THESE THINGS ARE GOOD OR BAD AS THEY HAPPEN.
QUICK: YOU THINK THAT IS A DIRECT RELATION TO THE LOWER GAS PRICES?
BUFFETT: I WOULD THINK SO, YEAH.
QUICK: YEAH, STRAIGHT THROUGH. WELL GENTLEMEN, I WANT TO THANK YOU BOTH FOR
BEING HERE. LARRY, THANK YOU AND I WILL BE WITH YOU IN JUST A MOMENT ON STAGE.
WARREN, IF YOU DON'T MIND STICKING AROUND, WE WILL HAVE MORE WITH YOU IN JUST A
MOMENT WHEN WE COME BACK.
BUFFETT: FINE.
VAN TUYL: GREAT.
QUICK: SO FOLKS STICK AROUND. WE WILL HAVE MORE FROM WARREN BUFFETT RIGHT
HERE ON "POWER LUNCH" WHEN WE RETURN.
QUICK: WELCOME BACK EVERYBODY AGAIN WE ARE LIVE WITH WARREN BUFFETT IN NYC
TODAY TALKING TO HIM ABOUT A LOT OF DIFFERENT ISSUES AND WARREN I WANT TO
THANK YOU FOR BEING HERE. THIS IS YOUR FIRST ON-CAMERA INTERVIEW SINCE THE HEINZ
KRAFT MERGER ANNOUNCEMENT. WE GOT THE CHANCE TO TALK WITH YOU ABOUT THIS
ON THE PHONE SOME LAST WEEK BUT WITH A LITTLE MORE TIME TO KIND OF DIGEST
THINGS AND THE ONE THING THAT PEOPLE ARE TAKING AWAY IS THAT THIS IS A MASSIVE
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PLATFORM FOR YOU TO DO ALL KINDS OF OTHER ROLL UPS OF OTHER COMPANIES GO
AFTER OTHER FOOD COMPANIES. IS THAT THE CLEAR INTENTION THAT YOU GUYS HAVE
WITH THIS?
BUFFETT: WELL CERTAINLY WE WOULD HOPE THAT IT WOULD NOT BE THE LAST MAJOR
TRANSACTION BUT WE WILL ONLY DO TRANSACTIONS THAT ARE FRIENDLY SO IT REALLY
DEPENDS ON WHETHER THERE ARE WILLING SELLERS OF SOMETHING THAT WE WOULD LIKE
TO BUY AT A PRICE WE WOULD LIKE TO BUY IT. BUT THERE IS NO FINISH LINE.
QUICK: HAVING SAID THAT ARE YOU TARGETING ANYTHING YET? HAVE YOU AND 3G TALKED
ABOUT OTHER POTENTIAL TARGETS?
BUFFETT: NO WE HAVEN'T AND WE MAY TALK ABOUT DIFFERENT PEOPLE'S BUSINESSES BUT
IT WOULD PROBABLY BE A QUESTION OF SOMEBODY COMING TO US.
QUICK: WE TALKED A LITTLE BIT ABOUT PRIVATE EQUITY LAST WEEK JUST THE IDEA THAT
YOU HAVE COME DOWN VERY TOUGH ON PRIVATE EQUITY IN YOUR SHARE HOLDERS
LETTER THIS YEAR BUT ALSO IN THE PAST YOU OFTEN REMARKED THAT PRIVATE EQUITY IS
NOT A GOOD THING. NOW YOU MADE THE DISTINCTION LAST WEEK WHEN WE TALKED TO
YOU THAT 3G IS VERY DIFFERENT FROM OTHER PRVATE EQUITY PLACES BECAUSE THEY
DON'T LOAD IT UP WITH DEBT AND PLAN ON SELLING IT TO SOMEONE AND WALKING
AWAYBUT THAT'S NOT THE ONLY RUB THAT PEOPLE HAVE WHEN IT COMES TO PRIVATE
EQUITY. ANOTHER IS JOB LOSSES THAT COME ALONG WITH THAT. PRIVATE EQUITY IN
GENERAL KNOWN AS REALLY RUNNING A TIGHT SHIP AND OFTEN THAT MEANS JOB LOSSES.
THAT HAS DEFINITELY BEEN THE CASE WITH 3G AND HEINZ. THERE HAVE BEEN THOUSANDS
OF JOBS LOST. WHAT DO YOU SAY TO CRITICS THAT SAY THIS IS NOT GREAT FOR AMERICA?
BUFFETT: WELL I WOULD SAY THAT IT CERTAINLY A PART OF CAPITALISM THAT A FEW HAVE
HAD EXCESS EMPLOYEES OR EXCESS COSTS OF ANY KIND THAT YOU DON'T PERPETUATE
THOSE. I MEAN YOU TALK ABOUT THE AUTOMOTIVE INDUSTRY I MEAN THEY ARE TRYING TO
TAKE COST OUT OF THE CARS AT THE SAME TIME THEY ARE TRYING TO MAKE THEM BETTER
BUT HAVING EXCESS COST IS NOT A RECIPE FOR SUCCESS IN ANY BUSINESS UNLESS YOU
HAVE A MONOPOLY. AND YOU CERTAINLY DON'T HAVE IT IN FOOD. AND THE OTHER THING
ABOUT 3G IS THAT THEY BUY TO KEEP, THEY ARE BUYING TO BUILD BASICALLY. THEY BUILT
BURGER KING THEY BUILT ANHEISER BUSH IT STARTED WITH A SMALL BREWERY IN BRAZIL
AND BUILT IT TO THE LARGEST BREWING OPERATION IN THE WORLD SO THEY ARE ALL
ABOUT BUILDING BUSINESSES BUT THEY ARE ALSO ABOUT BUILDING EFFICIENT
BUSINESSES. UNLESS YOUR PROFITABILITY IS DECENT YOU ARE NOT GOING ANYTHING
PROBABLY.
QUICK: WARREN I WOULD LIKE TO TALK ABOUT NEWS OF THE DAY IF YOU DON'T MIND. I
KNOW THAT SEVERAL YEARS ABOUT YOU WROTE A CHECK FOR $50 MILLION TO THE
NUCLEAR THREAT INITIATIVE THAT YOU HAVE BEEN VERY CONCERNED ABOUT WEAPONS OF
MASS DESTRUCTION FOR DECADES SO I JUST WONDER WHAT YOU THINK ABOUT THESE
TALKS WITH IRAN RIGHT NOW?
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BUFFETT: WELL I HAVE BEEN CONCERNED SINCE AUGUST OF 1945 WHEN THEY DELIVERED A
SPECIAL NEWSPAPER THE WASHINGTON POST ANNOUNCING THEY ARE ISSUING A BOMB. I
MEAN EINSTEIN SAID FOUR DAYS LATER THIS CHANGES EVERYTHING IN THE WORLD EXCEPT
HOW MEN THINK AND THERE'S NO QUESTION LIVING IN A NUCLEAR WORLD IS DANGEROUS
FOR 7 BILLION PEOPLE AND CERTAINLY LIVING IN A WORLD WHERE IRAN HAS A NUCLEAR
WEAPON GETS A WHOLE LOT MORE DANGEROUS. I DON'T KNOW THE DETAILS OF THE
AGREEMENT I DON'T KNOW THE OPTIONS OTHERWISE BUT I DO KNOW THAT IT IS VERY
IMPORTANT FOR THE WORLD THAT IRAN DOES NOT HAVE A NUCLEAR WEAPON OR THE
ABILITY TO DEVELOP ONE IN A VERY SHORT PERIOD.
QUICK: WE ARE GETTING DOWN TO THE WIRE THOUGH TODAY IS THE DEADLINE, THE
EXTENDED DEADLINE, THAT WE ARE FACING WITH THESE TALKS AND LATEST THAT WE HAD
HEARD AT NBC THIS MORNING IS THAT THERE WERE 3 ISSUES THAT WERE KIND OF STICKING
POINTS. THE FIRST IS THAT IRAN WANTS THE SANCTIONS LIFTED IMMEDIATELY, THE
SECOND IS THAT THEY ARE NOT VERY WILLING TO GIVE US MUCH OVERSIGHT WHEN IT
COMES TO RESEARCH AND DEVELOPMENT ON THEIR NUCLEAR ACTIONS IN THE FUTURE.
AND THE THIRD IS THAT THEY ARE NOT WILLING TO EXPORT THE URANIUM THAT THEY
HAVE ALREADY ENRICHED.
BUFFETT: HIGHLY ENRICHED, YEAH.
QUICK: YOU SET UP – PART OF THE 50 MILLION DOLLARS WAS TO GO TO SET UP A BANK
WHERE PEOPLE COULD OR COUNTRIES COULD PUT THIS ENRICHED URANIUM. IF THAT IS
THE SITUATION, IF THOSE ARE THE CONDITIONS, DOES THAT SOUND LIKE A GOOD DEAL
FOR US?
BUFFETT: WELL, USUALLY DEALS GET MADE AT THE LAST MINUTE SO WHO KNOWS WHO
CAVES ON WHICH POINTS. LIFTING THE SANCTIONS WOULD NOT BE A PROBLEM IF YOU'VE
GOT ASSURANCES ON THE OTHER. I MEAN, THE WHOLE IDEA IS THAT YOU WOULD LIKE TO
LIFT THE SANCTIONS BECAUSE YOU WOULD LIKE TO GET ASSURANCES THAT IRAN WILL NOT
EITHER HAVE A BOMB OR BE VERY CLOSE TO DEVELOPING ONE. THE IDEA FOR THE FUEL
BANK WAS THAT IT TOOK AWAY THE EXCUSE THAT A COUNTRY LIKE IRAN MIGHT HAVE IF
THEY SAID THEY WERE DEVELOPING IT FOR PEACEFUL PURPOSES BUT THEY WANTED TO
STOCKPILE A LOT OF URANIUM THEMSELVES. IN EFFECT YOU WOULD HAVE A FEDERAL
RESERVE BANK TO GO TO OTHERWISE THE COUNTRIES SAY WELL MAYBE WE CAN'T GET IT
FOR OUR POWER PLANTS THEREFORE WE HAVE TO HAVE A LOT OF IT AROUND. WE WILL SEE
WHAT HAPPENS. ALMOST ALL DEALS DO GET MADE AT THE LAST MINUTE THAT'S WHEN
PEOPLE GIVE UP ON POSITIONS AND THEY DON'T WANT TO GIVE UP EARLY. BUT IT WOULD
NOT BOTHER ME TO GIVE UP THE SANCTIONS IF WE REALLY WERE SURE THAT IRAN WAS
NOT GOING TO HAVE THE BOMB OR HAVE THE ABILITY TO GET A BOMB VERY SOON BUT
THE WORLD WITH IRAN HAVING A NUCLEAR WEAPON IS A LOT MORE DANGEROUS WORLD
THAN HAS EXISTED IN THE PAST.
QUICK: YOUR VICE CHAIRMAN OF BERKSHIRE HATHAWAY CHARLIE MUNGER HAS BEEN
MAKING SOME COMMENTS RECENTLY. I THINK LAST WEEK HE MADE SOME COMMENTS
THAT GOT PICKED UP IN THE MEDIA WHERE HE TALKED ABOUT WHAT HAS BEEN
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HAPPENING IN GREECE. AND HE SAID HIS GREEK NOTION THAT YOU CAN VOTE YOURSELF
RICH HIS WORDS EXACTLY AND I KNOW CHARLIE SOMETIMES MINCES HIS WORDS. HE SAID
THAT THIS IS AN IDIOTIC IDEA. WHAT DO YOU THINK ABOUT WHAT IS HAPPENING WITH THE
EURO.
BUFFETT: WELL I'VE THOUGHT THAT THE EURO HAD STRUCTURAL PROBLEMS RIGHT FROM
THE MOMENT IT WAS PUT IN WHICH DOES NOT MEAN IT WILL NECESSARILY FAIL I MEAN
YOU CAN ADAPT TO THOSE STRUCTURAL PROBLEMS. MAYBE SOME COUNTRIES WON'T
ADAPT AND THEY WON'T BE IN IT. IT IS NOT ORDAINED THAT THE EURO HAS TO HAVE
EXACTLY THE MEMBERS IT HAS TODAY BUT IT IS ORDAINED THAT OVER TIME THE
COUNTRIES IN THE EURO ZONE HAVE TO HAVE SOMEWHAT COMPATIBLE LABOR LAWS,
FISCAL DEFICITS, GENERAL MANAGEMENT OF THEIR ECONOMY THAT DON'T RESULT IN
OUTLIERS THAT REALLY AREN'T PLAYING THE GAME THE WAY THE RULES ARE SUPPOSED TO
BE AND WE MAY FIND OUT VERY SOON ABOUT GREECE. THIS COULD BE A GOOD THING I
MEAN IF IT SHOWS IF IT CAUSES THE MEMBERS OF THE EURO ZONE TO PUT REAL TEETH IN
VARIOUS ITEMS THEY HAVE THEY HAD AN ITEM IN THERE ORIGINALLY ABOUT FISCAL
DEFICITS WERE ALLOWED AND THEN THEY LET IT GO BY WHEN FRANCE AND GERMANY I
THINK BOTH BROKE IT. SO THE EURO IS NOT DEAD AND IT MAY NEVER BE DEAD BUT IT
DOES HAVE TO WORK IN GREATER HARMINIZATION OF FINANCIAL MATTERS IN ITS
CONSTITUENT COUNTRIES CAUSE IT CAN'T LIVE WITH PEOPLE GOING IN DRAMATICALLY
DIFFERENT DIRECTIONS. THE GERMANS ARE NOT GOING TO FUND THE GREEKS FOREVER.
QUICK: WHEN YOU SAY THAT THIS COULD BE A GOOD THING ARE YOU TALKING ABOUT THE
IDEA THAT THE GREEKS POTENTIALLY FALL OUT?
BUFFETT: WELL IT COULD BE A GOOD IDEA SEVERAL WAYS IF EVERYBODY LEARNS THAT THE
RULES MEAN SOMETHING AND THAT IF THEY COME TO A GENERAL AGREEMENT ABOUT
FISCAL POLICY AMONG MEMBERS OR SOMETHING OF THE SORT THAT THEY MEAN
BUSINESS THAT COULD BE A GOOD THING BECAUSE THE RAP ON THEM IS THAT THEY
DIDN'T MEAN BUSINESS WHEN THEY DID IT EARLIER OR IF IT TURNS OUT THAT THE GREEKS
LEAVE THAT MAY NOT BE A BAD THING FOR THE EURO.
QUICK: DO YOU HAVE A BET ABOUT WHERE YOU THINK THINGS ARE MOST LIKELY TO HEAD?
BUFFETT: I DON'T HAVE A DIME ON IT. I HAVE NO IDEA. MAYBE CHARLIE DOES BUT I DON'T.
QUICK: HAVE YOU BEEN SURPRISED BY THE RAPID APPRECIATION OF THE DOLLAR VERSUS
THE EURO OVER THE LAST COUPLE OF QUARTERS?
BUFFETT: IT HAS BEEN REALLY INTERESTING WHAT HAS HAPPENED THERE. BUT WHEN YOU
START GETTING TO NEGATIVE INTEREST RATE SOMETHING VERY INTERESTING HAPPENS. WE
HAVE ABOUT $5 BILLION OR SO IN EUROS IN AN INSURANCE COMPANY THAT HAS TO BE
INVESTED IN FIXED INCOME OBLIGATIONS SO IF WE PUT IT OUT TODAY WE PUT IT OUT
SHORT TERM IN HIGH-GRADE OBLIGATIONS WE PAY THE PEOPLE THAT BORROW FROM US
WE ACTUALLY PAY THEM 12-15 MILLION EUROS A YEAR JUST FOR THE PRIVELEDGE OF
LENDING IT TO THEM SO THAT'S KIND OF CRAZY. AND IN EFFECT WE DON'T WANT PEOPLE
TO PAY THEIR BILLS BECAUSE IF SOMEBODY OWES US SOME MONEY IF THEY PAY TO US WE
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PUT IT OUT ON A MINUS RATE. IT IS MUCH BETTER IF THEY DON'T PAY US. SO IF YOU
WORKED FOR A GERMAN CABLE SYSTEM YOU SHOULD LIVE ON YOUR SAVINGS AND AS
LONG AS THE RECEIVABLE IS GOOD FROM YOUR CABLE SYSTEM YOU ARE BETTER OFF
HAVING A RECEIVABLE PAYING NO INTEREST THAN ACTUALLY HAVING THEM PAY YOU. IT IS
PRETTY UNUSUAL.
QUICK: THAT IS A LITTLE WHACKY.
BUFFETT: IT IS A LITTLE WHACKY BUT I CAN TELL YOU RIGHT NOW IF I PUT THE EUROS
UNDER MY MATTRESS I WOULD BE MAYBE 12 OR 13 MILLION EUROS BETTER OFF AT THE
END OF THE YEAR THAN I AM IF I LEND IT TO SOMEBODY.
QUICK: WOW. WARREN CAN I ALSO ASK YOU ABOUT SOMETHING THAT HAS CAUSED A HUGE
UPROAR OVER THE LAST WEEK. IN INDIANA THE RELIGIOUS FREEDOM LAW HAS SPARKED
QUITE A BACKLASH FROM BUSINESS LEADERS. WHAT DO YOU THINK ABOUT IT?
BUFFETT: WELL I HAVEN'T READ THE LAW BUT IF IT IN ANY WAY RESULTS IN
DISCRIMINATION AGAINST GAYS AND LESBIANS I WOULD BE 100% OPPOSED.
QUICK: IT DOESN'T SEEM LIKE IT MAKES DISCRIMINATION EXPLICITLY LEGAL BUT IT DOES
SEEM LIKE THERE IS SOMETHING THERE WHERE IT COULD BE USED AS A DEFENSE IN A
COURT OF LAW IF A BUSINESS WERE TO DISCRIMINATE AGAINST IT.
BUFFETT: WELL IF IT IS DONE WITH A WINK I AM AGAINST IT. I MEAN THAT DAY HAS PASSED
AND LIKE I SAID I DON'T KNOW THE STATUTE AND I DON'T KNOW HOW IT WOULD BE
INTERPRETED OR ANYTHING BUT IF THAT'S A POSSIBILITY I WOULD SAY THEY BETTER GET
RID OF IT.
QUICK: DOES BERKSHIRE HAVE OPERATIONS IN INDIANA?
BUFFETT: OH YEAH WE HAVE FOUR HOME COMPANIES IN INDIANA.
QUICK: AND IS THAT SOMETHING WHERE YOU WOULD BE JOINING UP WITH THE RANKS OF
OTHER CEOS WHO HAVE SAID THEY WOULDN'T DO BUSINESS THERE OR ARE YOU GOING TO
JUST LET THIS PLAY OUT?
BUFFETT: WELL I AM GLAD TO SPEAK OUT ON MY OWN FEELINGS BUT I DO NOT TELL THE
MANAGERS OF OUR COMPANIES WHAT TO DO THERE OR ANY OTHER PLACE.
QUICK: BEN BERNANKE STARTED BLOGGING AND TWEETING I BELIEVE. HE JUST STARTED
BLOGGING AND I JUST WONDER WHAT YOU THOUGHT ABOUT THE IDEA OF A FORMER
FEDERAL RESERVE CHAIRMAN BLOGGING?
BUFFETT: LIKE A FORMER PRESIDENT OR SOMETHING I DON'T THINK IT IS GOOD TO

COMMENT ON YOUR SUCCESSORS ACTIONS BUT I AM NOT SURE HE IS DOING THAT. BUT IN
FACT I WOULD BET AGAINST THE FACT THAT BERNANKE IN ANY WAY WOULD BE
COMMENTING ON WHAT YELLEN IS DOING AND I ADMIRE GEORGE W BUSH VERY MUCH
8/9
FOR THE WAY HE HAS HANDLED POST PRESIDENCY PERIOD. SO I THINK BERNANKE WILL BE
THE SAME WAY. MAYBE HE WILL BE COMMENTING ON WHAT MOVIES HE LIKES OR
SOMETHING OF THE SORT.
QUICK: WELL ONE THING HE DID DO IS HE PUT UP A LITTLE BIT OF A DEFENSE AGAINST THE
IDEA THAT CRITICS OF HIS FEDERAL RESERVE HAS SAID THAT HE REALLY HURT THE SAVERS
ALONG THE WAY. THAT ANYBODY WHO IS A SAVER HAS GOTTEN PUNISHED. HIS POINT IS
THEY WOULD HAVE BEEN HURT MUCH WORSE IF THE FED DIDN'T DO WHAT IT DID TO STEP
IN.
BUFFETT: WELL IN ECONOMICS YOU CAN NEVER DO ONE THING I MEAN IT IS JUST LIKE
PHYSICS. IF YOU DO CERTAIN THINGS THAT HE WAS DOING IN HIS VIEW TO SAVE THE
ECONOMY AND I AGREE WITH HIM IT HURTS SOME OTHER PEOPLE. IT HURT FORD YOU CAN
ARGUE WHEN HE SAVED CHRYSLER AND GENERAL MOTORS. MAYBE IT DIDN'T BECAUSE
FORD MIGHT HAVE BEEN NEXT BUT YOU CAN'T DO ONE THING. HE HAD A HUGE
RESPONSIBILITY TO OVERALL FOR THE ECONOMY AND I THINK HE IS AN AMERICAN HERO IN
TERMS OF HOW HE CARRIED OUT THAT JOB BUT THERE IS NO QUESTION THAT LOW
INTEREST RATES JUST KILL PEOPLE WHO ARE LIVING ON A FIXED INCOME AND HAD BEEN
COUNTING ON THAT INCOME TO TAKE CARE OF THEM.
About CNBC:
the NBC Universal Media Village Web site at
http://www.nbcumv.com/mediavillage/networks/cnbc/.
9/9
CNBC Transcript: Berkshire Hathaway CEO Warren Buffett on
CNBC’s “Squawk Box” Today
cnbc.com/2015/08/10/cnbc-transcript-berkshire-hathaway-ceo-warren-buffett-on-cnbcs-squawk-box-today.html
August 10, 2015
WHEN: TODAY, MONDAY, AUGUST 10
WHERE: CNBC'S "SQUAWK BOX"
Following is the unofficial transcript of a CNBC interview with Berkshire Hathaway CEO
Warren Buffett today on CNBC's "Squawk Box." Video of the interview is available on
CNBC.com.
QUICK: AGAIN WE ARE LOOKING THROUGH THE NUMBERS ON THIS DEAL AGAIN IT IS
BERKSHIRE HATHAWAY BUYING PRECISION CASTPARTS THIS IS A DEAL THAT THEY ARE
VALUING AT 37 BILLION DOLLARS JUST LOOKING AT THE PRESS RELEASE. WARREN BUFFETT
IS CALLING INTO THE CONTROL ROOM IS JUST A MINUTE THEY ARE PAYING $235 PER SHARE
IN CASH THIS IS A STOCK THAT CLOSED AT $193.88 ON FRIDAY SO WE WILL BE TALKING
MUCH MORE ABOUT THIS. I THINK RIGHT NOW WE DO HAVE WARREN BUFFETT ON THE
LINE. SIR ARE YOU THERE? SO WE SEE THE NEWS THAT IS OUT TODAY THIS COMES AS A
SURPRISE TO A LOT OF PEOPLE BUT THE WALL STREET JOURNAL DID REPORT THIS ON
SATURDAY I WONDER WHEN DID YOU FIRST HEAR ABOUT THIS, WHEN DID YOU FIRST TALK
TO THIS COMPANY AND HOW DID THIS DEAL HAPPEN?
BUFFETT: I WOULD SAY IS WAS ABOUT 5 WEEKS AGO. YOU HAVE TO GIVE CREDIT TO TODD
COMBS FOR THE DEAL WE HIRED TODD ABOUT 5 YEARS AGO TO MANAGE MONEY AND HE
MANAGES ABOUT 9 BILLION NOW AND MAYBE THREE OR SO YEARS AGO HE ADDED
PRECISION TO HIS PORTFOLIO AND I REALLY NEVER HEARD ABOUT THE COMPANY BEFORE
THAT AND TODD TOLD ME A LOT ABOUT IT AND OVER THE LAST FEW YEARS I HAVE BECOME
FAMILIAR WITH IT AND ABOUT 5 OR SO WEEKS AGO THE CEO MARK DONEGAN ALONG WITH
HIS CFO AND IR PERSON CAME BY BERKSHIRE THEY WERE SEEING BERKSHIRE HOLDERS AND
THEY MET WITH TODD AND THEN I DROPPED IN ON THE VISIT AND IN THE LAST 15 MINUTES
OR SO AND I WAS VERY IMPRESSED BY MARK AND OF COURSE I HAD BEEN IMPRESSED BY
THE COMPANY SO SHORTLY THEREAFTER I STOPPED AND GIVE THEM A CALL TO SEE IF THEY
WOULD BE OFFENDED IF WE MADE A BID AND THEY DIDN'T INDICATE THEY WERE
PARTICULARLY RECEPTIVE BUT THEY ALSO INDICATED THEY WOULD LISTEN SO I
SUBSEQUENTLY MADE A BID. I MET MARK OUT AT SUN VALLEY, HE WAS ACTUALLY IN THE
AIR MOST OF THE TIME AND SO HE CAME BY BECAUSE I WAS THERE FOR THE ALLEN
COMPANY CONFERENCE AND I MADE HIM A BID AND HE TOOK IT TO THE BOARD AND
BEFORE LONG WE HAD A DEAL.
SORKIN: WARREN I HAVE GOT TO TELL YOU I SAW BECKY THE WEEK AFTER SUN VALLEY AND
I SAID BUT WARREN IS DOING A DEAL I HAD SEEN YOU AT SUN VALLEY. YOU HAD THAT
PHONE WITH YOU SO INTENSE THERE WAS SOMETHING GOING ON AND I THOUGHT I
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DIDN'T REALIZE THIS IS WHAT YOU WERE DOING.
BUFFETT: I WILL HAVE TO BE CAREFUL WHEN I AM AROUND YOU ANDREW IF YOU CAN READ
MY FACE LIKE THAT.
SORKIN: FROM A PRICE PERSPECTIVE ONE OF THE QUESTIONS WE HAD FROM AN EBITA I
WAS DOING IT OFF OF THE $30 BILLION AND THINKING THIS WAS ABOUT 20 TIMES EBITA
WHICH I WAS SAYING NOT THE CHEAPEST DEAL IN TOWN. IT DOES ALLOW YOU TO SPEND A
LOT OF MONEY QUICKLY. IN TERMS OF THE VALUATION THOUGH HOW DO YOU THINK
ABOUT IT AND WHEN YOU ARE TALKING ABOUT SPENDING THIS KIND OF MONEY IS IT
HARDER AND HARDER AS WE WERE TALKING ABOUT EARLIER TO ACTUALLY GET A REALLY
CHEAP DEAL?
BUFFETT: IT IS NOT 20 TIMES EBITA THOUGH ANDREW. I AM NOT SURE WHAT FIGURES YOU
ARE LOOKING AT THERE BUT ALL DEALS SEEM EXPENSIVE TO ME BUT THIS ONE WE ARE
CERTAINLY PAYING A VERY GOOD PRICE FOR AN EXTRAORDINARY COMPANY RUN BY A
PERSON THAN AS FAR AS I AM CONCERNED HE IS THE BEST IN THE WORLD AT WHAT HE
DOES.
SORKIN: HE'S MADE A NUMBER OF DEALS OVER THE PAST COUPLE OF YEARS ABOUT 8
BILLION DOLLARS WORTH OF TRANSACTIONS WHEN YOU LOOK AT THIS COMPANY OVER
THE NEXT COUPLE OF YEARS DO YOU IMAGINE USING A LOT OF BERKSHIRE CASH TO MAKE
ADDITIONAL ACQUISITIONS TO USE IT AS A ROLL UP VEHICLE IF YOU WILL?
BUFFETT: WELL ITS ALWAYS ACQUIRED COMPANIES I DON'T KNOW HOW MANY
ACQUISITIONS THEY MADE OVER THE YEARS BUT IT IS A LOT. BECAUSE THERE ARE A LOT OF
THINGS THAT GO INTO AEROSPACE IN THE WAY OF PARTS AND THEY'VE GONE AFTER ONE
ITEM AFTER ANOTHER OVER THE YEARS. IN FACT THEY'VE MADE A COUPLE SMALL DEALS I
BELIEVE IN THE FIRST FISCAL QUARTER AND I THINK THEY'VE GOT MAYBE ONE PENDING OR
SO. NOW THEY MAKE A GOOD BIT OF MONEY SO THEY WILL PROBABLY BE ABLE TO DO THE
ACQUISITIONS OR MANY OF THE ACQUISITIONS INTERNALLY GENERATED FUNDS BUT IF
THEY NEED ANY MONEY FROM BERKSHIRE ALL THEY HAVE TO DO IS CALL.
QUICKLY: WARREN THIS IS AN EXPENSIVE DEAL IS THIS THE MOST EXPENSIVE DEAL EVER?
HOW DOES IT MATCH UP TO BURLINGTON NORTHERN?
BUFFETT: WELL THE MOST DEALS ARE THE ONES THAT DON'T WORK OUT. YOU MENTIONED
DEXTER SHOE A LITTLE WHILE AGO. BUT IN TERMS OF PRICE EARNINGS MULTIPLES GOING
IN THIS IS RIGHT UP THERE AT THE TOP NOW WHEN WE BOUGHT BURLINGTON THAT WAS A
HIGH PE BUT IT WAS OFF A VERY DEPRESSED FIGURE BECAUSE WE BOUGHT THAT IN THE
FALL OF 2009 WHEN EARNINGS WERE AT A TROUGH. AND PRECISIONS EARNINGS HAVE
FALLEN OFF MODERATELY BECAUSE OF DEVELOPMENTS IN THE OIL AND GAS FIELD WHERE
THEY DO SOME BUSINESS AS WELL AS IN AEROSPACE SO BUT THIS IS A VERY HIGH MULTIPLE
FOR US.
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SULLIVAN: YOU READ MY MIND ON OIL AND GAS HOW MUCH OF THIS IF AT ALL IS A BET
THAT THE U.S. OIL AND GAS INDUSTRY MAY BE BOTTOMING OUT AT LEAST FROM A PRICE
PERSPECTIVE?
BUFFETT: WELL WE ARE GOING TO BE IN THIS BUSINESS FOR A 100 YEARS SO IT DOESN'T
REALLY MAKE ANY DIFFERENCE WHAT OIL AND GAS DOES IN THE NEXT YEAR IN TERMS OF
US BUYING IT. IF SOMEONE TOLD ME FOR SURE THE OIL AND GAS BUSINESS WAS GOING TO
BE IN THE DULDRUMS WE'LL SAY FOR 3 YEARS I STILL WOULD HAVE MADE THE DEAL. THAT'S
NOT A PREDICTION I AM JUST SAYING IT IS NOT IMPORTANT TO US HOW LONG THE OIL AND
GAS SLUMP LASTS WHEN YOU GET A CHANCE TO BUY A WONDERFUL COMPANY YOU KNOW
THERE IS USUALLY SOME REASON WHY YOU ARE GETTING THAT CHANCE AND PERHAPS THE
SLUMP IN OIL AND GAS HELPS US IN THIS CASE. BUT THERE WILL BE SOMEDAY THERE WILL
BE A SLUMP IN AEROSPACE AND THAT WILL BE MUCH MORE SEVERE FOR A COMPANY LIKE
THIS BUT IF YOU LOOK OVER THE DECADES BOTH OIL AND GAS AND AEROSPACE WILL BE
GOOD BUSINESS AND THESE FELLOWS ARE THEIR KEY PARTICULARLY IN THE AEROSPACE
BUSINESS THE INDUSTRY NEEDS THEM THEY'RE UNIVERSALLY REGARDED AS THE MOST
RELIABLE INNOVATIVE DEPENDABLE SUPPLIER OF VERY KEY PARTS THAT GO INTO ALL KINDS
OF AIRCRAFTS.
SORKIN: WARREN SPEAK TO THE DEFENSIVE MODE THAT YOU OFTEN TALK ABOUT WHEN
YOU THINK ABOUT PARTICULAR COMPANY IN TERMS OF ITS MARKETSHARE AND ITS ABILITY
TO MAINTAIN IF NOT GROW THAT MARKETSHARE
BUFFETT: WELL WHAT YOU NEED IS YOU NEED PEOPLE THAT HAVE PHYSICAL FACILITIES BUT
THAT IS A SMALL PART OF IT. THEY DO HAVE MARVELOUS PHYSICAL FACILITIES BUT WHAT
YOU REALLY NEED IS BRAIN POWER AND YOU NEED PARTICULARLY AT THE TOP YOU NEED
SOMEBODY WITH A TOTAL PASSION FOR THE BUSINESS AND I'VE MET MARK FOUR OR FIVE
TIMES AND EACH TIME HE'S BEEN IN THE AIR AND HE'S IN THE AIR ALMOST A THOUSAND
HOURS A YEAR THIS FELLOW LOVES THIS BUSINESS LIKE I LOVE BERKSHIRE AND HE'S A LOT
BETTER AT IT THAN I AM AT BERKSHIRE. YOU CAN'T FIND PEOPLE LIKE THIS. YOU CERTAINLY
CAN'T HIRE THEM. THE ONE THING I GUARANTEE MARK IS THAT HE'S RUNNING THE
COMPANY. PEOPLE LIKE THIS ARE VERY VERY RARE. YOU CAN SEE IT IN WHAT HE HAS BUILT
AND YOU CAN SEE IT IN THE PASSION HE'S GOT FOR WHAT HE IS DOING NOW. HE'S NEVER
SATISFIED IN TERMS OF GETTING MORE BUSINESS IN THE AIRFRAME AND THE ENGINES. HE'S
NEVER SATISFIED IN TERMS OF GETTING HIS COST TO WHERE THEY SHOULD BE. HE JUST HAS
A PASSION FOR THE BUSINESS.
QUICK: WARREN WHAT DOES THIS MEAN IN TERMS OF THE CASH THAT YOU ARE USING FOR
THIS? I KNOW YOU LIKE TO KEEP ABOUT 20 BILLION DOLLARS IN CASH ON HAND. ARE YOU
STILL IN THE MARKET FOR OTHER POTENTIAL DEALS? OR DOES THIS TAKE YOU OUT OF THE
MARKET FOR AWHILE?
BUFFETT: THIS TAKES US OUT OF THE MARKET FOR AN ELEPHANT BUT WE WILL PROBABLY
BE BUYING A FEW SMALL THINGS IN THE NEXT 6 MONTHS. WE ARE IN NEGOTIATIONS ON A
COUPLE BUT IN TERMS OF A DEAL OF SIMILAR SIZE IT PRETTY MUCH TAKES US OUT. WHAT
WE WILL PROBABLY DO ON THIS ONE WE WILL PROBABLY BORROW ABOUT 10 BILLION AND
3/10
USE ABOUT 23 BILLION OF OUR OWN CASH ON THAT ORDER. WE'LL BE LEFT WITH OVER 40
BILLION PROBABLY IN CASH WHEN WE GET ALL THROUGH. BUT I LIKE TO HAVE A LOT OF
CASH AT ALL TIMES SO THIS MEANS WE HAVE TO RELOAD OVER THE NEXT 12 MONTHS OR
SO BUT IT DOESN'T PRECLUDE DOING SMALLER DEALS BUT WE WILL BE DOING A FEW
PROBABLY.
SORKIN: AND WARREN ONE OF THE OTHER QUESTIONS YOU ALWAYS TALK ABOUT TALENT
AND SPECIAL PEOPLE AND SPECIAL BERKSHIRE PEOPLE AND IT IS HARD TO FIND THEM.
WHEN YOU THINK ABOUT MARK DARE I ASK THE QUESTION SHOULD WE START TO ADD HIM
TO THE LIST OF POTENTIAL PEOPLE THAT MAY ONLY RUN THIS PARTICULAR COMPANY NOW
BUT MAYBE PUT INTO THE BERKSHIRE FOLD WHEN IT SOMES TO SUCCESSION?
BUFFETT: IF I READ MARK CORRECTLY AND IN THIS RESPECT I AM SURE I DO ALL HE WANTS
TO DO IS RUN PRECISION AND TO TAKE IT TO GREATER AND GREATER HEIGHTS HE DOES
NOT WANT TO RUN BERKSHIRE AND TRUE OF MOST OF OUR MANAGERS THEY LOVE WHAT
THEY ARE DOING THAT'S THE BEAUTY OF IT. I HAVE TO DECIDE REALLY WHEN I BUY A
COMPANY THERE IS NO WAY IN THE WORLD THAT I COULD RUN PRECISION OR REALLY
ANYBODY IN OUR OPERATION COULD SO THE FIRST I ASK AND MARK'S 58 I ASK IF HE HAS
ANY IDEAS AT 65 THAT HE'S GO AND PLAY SHUFFLE BOARD IN FLORIDA OR SOMETHING LIKE
THAT. AS LONG AS WE TREAT HIM RIGHT NOW WE'VE GOT TO TREAT PEOPLE RIGHT WE
TREAT HIM RIGHT HE WILL BE RUNNING THIS FOR DECADES AND DECADES. AND THAT'S
WHAT HE WANTS TO DO JUST LIKE I LIKE RUNNING BERKSHIRE.
QUICK: WARREN YOU MENTIONED THAT THIS WILL TAKE YOU OUT OF THE HUNT FOR A BIG
ELEPHANT FOR 12 MONTHS OR SO WHILE THE COMPANY RELOADS WITH THE CASH
CONTINUALLY COMING IN. JUST LAST WEEK BILL ACKMAN MADE IT PUBLIC THAT HE HAS A
LARGE STAKE IN MONDELEZ ONE OF THE THINGS HE THOUGHT ABOUT IS POTENTIALLY
MONDELZ GETTING LUMPED IN WITH KRAFT HEINZ. DOES THAT MEAN IT IS NOT AN OPTION
AND WHAT DO YOU THINK OF BILL'S PROPOSAL?
BUFFETT: WELL I WILL LISTEN TO ANYTHING MY FRIENDS AT 3G WANT TO DO BUT WITH

KRAFT HEINZ WE HAVE OUR WORK CUT OUT FOR US FOR A COUPLE OF YEARS. I THINK IT IS
QUITE UNLIKELY YOU NEVER WANT TO SAY ANYTHING IS IMPOSSIBLE BUT I THINK IT IS
QUITE UNLIKELY THAT KRAFT HEINZ WOULD BE DOING A BIG ACQUISITION IN THE NEXT
COUPLE OF YEARS SOMEWHERE DOWN THE ROAD I WOULDN'T BE SURPRISED. BUT IT ALSO
WOULD HAVE TO MAKE SENSE FINANCIALLY AND FRANKLY MOST OF THE FOOD COMPANIES
SELL AT PRICES THAT IT WOULD BE VERY HARD FOR US TO MAKE A DEAL EVEN IF WE HAD
DONE ALL OF THE WORK NEEDED AT KRAFT HEINZ. A LOT OF THE COMPANIES ARE SELLING
AT PRICES THAT SORT OF REFLECT IMPROVEMENTS IN THEM THAT PEOPLE SORT OF WHAT
HAS BEEN HAPPENING AT KRAFT HEINZ AND BELIEVE ME THIS IS NOT EASY.
QUICK: MEANING THAT MONDELEZ AT THESE PRICES YOU WOULDN'T LIKE?
BUFFETT: WELL IT WOULD BE HARD FOR US TO MAKE A DEAL THAT MAKES SENSE YEAH. BUT
WHO KNOWS WHAT HAPPENS DOWN THE LINE BUT IF YOU LOOK AT KELLOGG OR
CAMPBELL'S SOUP OR MONDELEZ THEY'RE PRICES TO SOME EXTENT THE MARKET HAS PUT
INTO THOSE COMPANIES PRICES THAT REFLECT AN EXPECTATION KRAFT HEINZ TYPE
4/10
MARGINS ARE POSSIBLE AND THAT MAY BE THE CASE BUT I HAVE NOT SEEN IT ELSEWHERE.
SULLIVAN: MR BUFFETT IN 2009 MANY OF THE BANKS CAME TO YOU FOR HELP. HAVE YOU
HAD ANY OIL OR GAS COMPANIES COME TO YOU IN THE LAST FEW MONTHS LOOKING FOR
YOUR HELP, LOOKING FOR YOUR INVESTMENT?
BUFFETT: NOT YET BUT PRICES STAY DOWN HERE. IF PRICES STAY DOWN HERE SO FAR I
WOULD SAY THAT MOST OF THE PEOPLE IN THE OIL AND GAS BUSINESS UP MAYBE UNTIL
VERY RECENTLY THEY FELT THAT OIL PRICES WOULD BOUNCE BACK. THEY MAY NOT HAVE
FELT GAS PRICES WOULD BOUNCE MUCH BUT THEY FELT OIL PRICES WOULD BOUNCE BACK.
THE OIL PRODUCTION COMPANIES HAVE BEEN SELLING ON A BASIS NOT OF $45 WTI THEY
HAVE ASSUMED HIGHER PRICES AND OF COURSE THE FORWARD CURVE HAVE REFLECTED
HIGHER PRICES. I THINK IT WOULD HAVE BEEN HARD TO MAKE REALISTIC DEALS WITH OIL
AND GAS UP UNTIL NOW BUT WE WILL SEE WHAT HAPPENS IN THE FUTURE. TO BE SPECIFIC
NOBODY HAS COME TO ME.
QUICK: DOES THAT MEAN THAT YOU HAVE NOT MADE ANY OTHER PURCHASES IN THE OIL
AND GAS BUSINESS?
BUFFETT: THAT'S CORRECT
QUICK: SO THERE IS NOTHING THAT YOU'VE SEEN ASIDE FROM THIS DEAL TODAY THAT YOU
THINK HAS BEEN AN OPPORTUNITY YOU WOULD BUY INTO?
BUFFETT: NO OF COURSE THIS IS KIND OF SECENDARY I WOULDN'T SAY MAYBE 15% OF

PRECISION'S BUSINESS HAD BEEN IN THERE AND THEY GOT HURT IN THE LAST COUPLE OF
QUARTERS SIGNIFICANTLY BECAUSE WHEN OIL SLOWS DOWN IF THEY'VE GOT VARIOUS
BUILDING EQUIPMENT ON HAND ALL OF A SUDDEN THEY DON'T NEED TO ORDER ANY FOR
AWHILE EVEN THOUGH CONTINUE TO PRODUCE. SO NO WE HAVE NOT MADE ANY
COMMITMENTS IN OIL AND GAS.
SORKIN: HEY WARREN EVERY TIME I SEE YOU I ALWAYS ASK THE QUESTION IBM, IBM UPDATE
THE STOCK IS TRADING I THINK ABOUT 155 DOLLARS RIGHT ABOUT NOW HOW ARE YOU
FEELING ABOUT IT
BUFFETT: I FEEL FINE.
SORKIN: WHAT'S YOUR BASIS IN THAT COMPANY AT THIS POINT?
BUFFETT: WHAT'S OUR STOCK COST US?
SORKIN: YEH
BUFFETT: I WOULD SAY AROUND 170
SORKIN: AROUND 17O NOW BY MY MATH YOU HAVE ACTUALLY MADE THE MONEY STILL ON
THIS DEAL ON PART I THINK THE FUNCTION OF THE DIVIDENDS BUT YOU ARE NOT
CONCERNED AT ALL IN TERMS OF THE STOCK
5/10
BUFFETT: I LOVE IT WHEN IT GOES DOWN IT MEANS THE COMPANY BUYS STOCK CHEAPER
AND MEANS IF I WANT TO BUY MORE STOCK YOU CAN LOOK AT OUR 13F IN A FEW DAYS IT
MEANS I GET TO BUY IT CHEAPER
QUICK: DOES THAT MEAN YOU'VE BEEN BUYING IT?
BUFFETT: I AM NOT A SELLER OF STOCK. PEOPLE ASSUME WHEN WE BUY SOME STOCK WE
WANT IT TO GO UP. WE DON'T WANT IT TO GO UP MAYBE OBVIOUSLY EVENTUALLY MAYBE
FIVE OR TEN YEARS FROM NOW BUT WE LOVE THE IDEA OF A COMPANY BUYING ITS STOCK
CHEAPER. I MEAN THAT'S HAPPENED AT AMERICAN EXPRESS FOR INSTANCE AMERICAN
EXPRESS IS A REGULAR REPURCHASER OF SHARES AND WE OWN 15% OF IT AND OWNERSHIP
GOES UP FASTER IF THE STOCK IS DOWN THAN IF THE STOCK IS UP.
SULLIVAN: WE HAD ON FRIDAY A BILLION DOLLAR ACTIVIST INVESTMENT IN AMERICAN

EXPRESS MR BUFFETT JEFFREY UBEN OF VALUEACT CAPITAL. WHEN YOU OWN A STOCK LIKE
AN AMERICAN EXPRESS ARE YOU HAPPY TO SEE AN ACTIVIST COME IN DO YOU WELCOME IT.
BUFFETT: NO NOT PARTICULARLY BUT IT IS UP TO THEM WHAT THEY DO WITH THEIR

MONEY. ACTUALLY IT SENDS UP FOUR OR FIVE POINTS SO THE EXTENT THAT AMERICAN
EXPRESS IS REPURCHASING SHARES WE CAN'T BUY STOCKS IN AMERICAN EXPRESS BECAUSE
IT IS A BANKHOLDING COMPANY AND WE OWN OVER 10% BUT THE CHEAPER THE STOCK IS
THE MORE SHARES AMERICAN EXPRESS WILL BE ABLE TO REPURCHASE FOR A GIVEN
AMOUNT OF MONEY AND ON BALANCE THAT HELPS US WE'RE BUYING YOU KNOW THERE IS
NO MORAL PROBLEM ATTACHED TO IT BECAUSE IT TAKES PLACE IN THE MARKET BUT WE'RE
ON OUR PARTNERS CHEAPER.
QUICK: LET'S TALK ABOUT SOMETHING ELSE THAT IS ALSO A LOT CHEAPER THAN IT WAS A
WEEK AGO YOU LOOKS AT THE MEDIA STOCKS DISNEY KICKED IT OFF WHEN BOB IGER SAID
THERE ARE CONCERNS ABOUT ESPN, VERY BRIEF CONCERNS FROM HIS PERSPECTIVE THE
MARKET TOOK THAT AS A HUGE SELLING POINT NOT ONLY FOR DISNEY BUT ALL OF THE
MEDIA RELATED STOCKS DO YOU SEE ANYTHING IN THE MEDIA INDUSTRY YOU LIKE AT
THESE PRICES?
BUFFETT: NO I WOULD SAY THAT I CONSIDER BOB IGER AND I KNOW HIM WELL AND HAD
EXPERIENCE WITH HIM MORE THAN 20 YEARS AGO I THINK HE IS ONE OF THE GREAT
MANAGERS IN AMERICA AND A GOOD GUY BEYOND THAT BUT I'M AN OBSERVER OF THE
MEDIA PICTURE TODD AND TEDD OWN SOME SHARES IN CERTAIN MEDIA STOCKS BUT I AM
NO VICTIM OF THIS MYSELF AND THE SELL OFF DID NOT ENTICE ME.
SORKIN: HEY WARREN SPEAKING OF BUYBACKS ONE OF THE QUESTIONS AND I DON'T
THINK WE HAVE TALKED ABOUT THIS SINCE YOU SENT YOUR LETTER AND WE HAD YOU ON
THE SHOW BUT LARRY FINK FROM BLACKROCK SENT A LETTER A COUPLE OF MONTHS AGO
TO CEOS AROUND THE COUNTRY AND SAID LOOK STOP WITH THE BUYBACKS, STOP WITH
THE DIVIDENDS WE WANT YOU INVESTING IN THE FUTURE AND IN PART I WOULD ARGUE
THAT LETTER SEEMED TO INSPIRE HILLARY CLINTON WITH HER LATEST QUARTERLY
CAPITALISM APPROACH AND PROGRAM THAT SHE'S TALK ABOUT IN TERMS OF CHANGING
6/10
THE TAX STRUCTURE CAPITAL GAINS STRUCTURE AROUND INVESTMENTS. WHAT DO YOU
THINK OF WHAT HILLARY CLINTON HAD TO SAY AND WHAT DO YOU THINK OF WHAT LARRY
FINK HAD TO SAY?
BUFFETT: WELL PEOPLE MAKE BUYBACKS VERY COMPLICATED. BUYBACKS MAKE SENSE
WHEN YOU ARE BUYING YOUR STOCK BACK BELOW ITS INTRINSIC VALUE AND WHEN YOU
DON'T NEED THAT MONEY FOR THE NEEDS OF THE BUSINESS. IT MAKES NO SENSE WHEN
YOU PAY ABOVE INTRINSIC VALUE AND THAT'S A VERY SIMPLE PRINCIPAL BUT IT HAS BEEN
IGNORED BY MANY MANAGEMENTS OVER TIME. IF YOU LOOK AT THE HISTORY OF
BUYBACKS PEOPLE BUYBACK A LOT IN TERMS OF AGRIGATE BUYBACKS PEOPLE BUY A LOT
MORE STOCK BACK WHEN STOCKS ARE UP THAN WHEN THEY ARE DOWN BUT IN THAT WAY
THEY ARE SORT OF BEHAVING LIKE JOE PUBLIC YOU KNOW. THERE HAVE BEEN SOME GREAT
INVESTMENT STORIES BASED ON PEOPLE WHO BOUGHT BACK STOCK INTELLIGENTLY
WHICH MEANS BUYING IT AT A DISCOUNT FROM ITS INTRINSIC VALUE. WE WOULD BUY
BACK STOCK BY THE BUSHELL BASKETS IF IT SOLD WELL BELOW INTRINSIC VALUE IT WOULD
HAVE TO BE WELL BELOW INTRINSIC VALUE AND WE WON'T BUY A SHARE IF WE THINK WE
ARE PAYING INTRINSIC VALUE OR MORE. IT IS NOT A COMPLICATED EQUATION BUT
MANAGEMENTS WHEN SOMEBODY SAYS THEY ARE GOING TO HAVEA 5 BILLION DOLLAR
BUYBACK THEY OUGHT TO SAY WE ARE HAVING A 5 BILLION DOLLAR BUYBACK IF WE CAN
BUY IT AT X OR BELOW BUT THAT'S JUST NOT THE WAY IT OPERATES.
SULLIVAN: HAS IT BEEN AN EFFICIENT USE OF CAPITAL
BUFFETT: IT HAS BEEN A TERRIFICLY EFFICIENT USE OF CAPITAL FOR SOME COMPANIES AND
BEEN A VERY STUPID USE OF CAPITAL FOR OTHER COMPANIES. I WOULD ARGUE THAT OUR
BUYBACKS HAVE BEEN PEANUTS UNFORTUNATELY BUT OUR COUPLE OF BUYBACKS MADE
GREAT SENSE. BUT WE COULDN'T DO IT ON SCALE.
SORKIN: AND WHAT DID YOU MAKE OF HILLARY CLINTONS PROPOSAL ON CAPITAL GAINS
BUT SHE ALSO SAID I BELIEVE THAT SHE WANTS PEOPLE TO LOOK INTO BUYBACKS
THEMSELVES IN TERMS OF HOW THEY SHOULD BE REGULATED. ELIZABETH WARREN AND
OTHERS HAVE SUGGESTED THEY ARE EFFECTIVELY INSIDER TRADING BECAUSE THE
COMPANIES KNOW ABOUT IT.
BUFFETT: WELL I WILL BE GLAD TO WRITE A PAPER ON IT SOMETIME. I HAVE WRITTEN ON IT

ABOUT 20 TIMES OVER THE YEARS AND IN GENERAL VERY MUCH APPROVE OF WHERE
HILLARY IS GOING IN TERMS OF FINE TUNING ALL THE POINTS WE'LL TALK ABOUT THAT AS
THE CAMPAIGN PROGRESSES. BUT BUYBACKS ARE NOT NIRVANA AND THEY ARE NOT EVIL IT
IS JUST A QUESTION OR WHETHER THEY MAKE SENSE AND IF OUR STOCK SELLS WELL BELOW
INTRINSIC VALUE AND WE HAVE MONEY WE DON'T NEED FOR THE BUSINESS WE WILL BUY IT
BACK JUST AS FAST AS WE CAN NOW UNFORTUNATELY WHENEVER I SAY THAT IT KEEPS IT
FROM HAPPENING.
QUICK: WARREN WE KNOW THAT YOU ARE A SUPPORTER OF HILLARY CLINTON BUT DID YOU
WATCH THE REPUBLICAN NATIONAL DEBATES THAT TOOK PLACE LAST WEEK?
BUFFETT: I WOULDN'T HAVE MISSED IT

7/10
QUICK: AND WHAT DID YOU THINK?
BUFFETT: I THOUGHT THAT IT WAS TERRIFIC TELEVISION AND I THINK THERE'S A SMALL
CHANCE WITH PROPORTIONAL AWARDING DELEGATES IN A GREAT MANY OF THE PRIMARIES
AND WITH SUPER PACKS ENABLING PEOPLE TO KEEP GETTING FINANCE WHERE AS
OTHERWISE THEY WOULD DROP OUT FOR LACK OF MONEY IF THEY WEREN'T DOING THAT
WELL. I THINK THERE IS ACTUALLY SOME CHANCE THAT WHEN THEY GO TO THE
REPUBLICAN CONVENTION NO ONE WILL HAVE A MAJORITY GOING IN BUT I THINK IT WILL
BE VERY VERY INTERESTING. DONALD TRUMP IS GOING TO HAVE A CERTAIN PERCENTAGE OF
DELEGATES AND SO WILL A WHOLE BUNCH OF OTHERS AND IN THE PAST UNLESS YOU
WERE IN THE TOP 2 OR 3 YOUR FUNDING DRIES UP AND YOU GET TO A COUPLE OF STATES
AND THAT WAS WITH BUT WITH SUPER PACKS AROUND YOU CAN HAVE QUITE A FEW
CANDIDATES IN IT FOR QUITE A BIT OF TIME AND THE PIE COULD GET DIVIDED IN SUCH A
WAY THAT NOBODY HAS A MAJORITY. IT IS GOING TO BE VERY INTERESTING. IT IS A GREAT
SPECTATOR SPORT.
QUICK: WE DID HAVE AN OVERNIGHT POLL AN NBC NEWS POLL THAT WAS CONDUCTED
FROM FRIDAY INTO SATURDAY IT SHOWED THAT DONALD TRUMP IS STILL LEADING THE
PACK WHICH MIGHT COME AS A SURPRISE TO SOME PUNDITS WHO HAD KIND OF WRITTEN
HIM OFF AFTER THAT PERFORMANCE.
BUFFETT: YEH NO HE IF YOU CAN GET BY THE JOHN MCCAIN IS NOT A HERO AND A FEW
THINGS AND NOT HAVE YOUR NUMBERS GO DOWN YOU HAVE A VERY SOLID BASE AND
YOU KNOW I WOULDN'T BE SURPRISED IF HE MAINTAINS QUITE A SOLID BASE FOR A LONG
TIME. AND THAT MEANS HE IS GOING TO GET A FAIR NUMBER OF DELEGATES IF YOU GET IT
IN PROPORTIONAL STATES. AND HE IS NOT GOING TO RUN OUT OF MONEY SO IT IS GOING
TO BE A LOT OF FUN TO WATCH PARTICULARLY IF YOU ARE A DEMOCRAT.
QUICK: I WAS GOING TO SAY AS A DEMOCRAT YOU MUST ENJOY HOW THIS PLAYS OUT.
WHO WOULD YOU MOST LIKE TO SEE YOUR CANDIDATE RUN AGAINST?
BUFFETT: WELL I THINK IF I GAVE THAT PREDICTION IT WOULD BE SORT OF THE KISS OF
DEATH ON THAT CANDIDATE. I WANT TO SEE HER RUN AGAINST THE WHOLE FIELD.
QUICK: YOU KNOW WARREN WE HAVE A WHOLE BUNCH OF OTHER THINGS WE WOULD
LOVE TO TALK TO YOU ABOUT WE SAW THE JOBS NUMBER THAT CAME IN. THE JOBS
REPORT WAS JUST AS EXPECTED ON FRIDAY 215,000 A LOT OF PEOPLE SPECULATING THAT
THE FED WILL RAISE INTEREST RATES COME SEPTEMBER. YOU HAVE A VERY GOOD IDEA OF
WHAT'S HAPPENING IN THE ECONOMY JUST BASED ON THE NUMBERS THAT YOU SEE AND
THE BUSINESSES THAT YOU HAVE YOUR FINGER ON THE PULSE. WHAT DO YOU THINK IS
HAPPENING IN THE ECONOMY. WHAT DO YOU THINK THE FED SHOULD DO IN SPETEMBER?
BUFFETT: I THINK WHAT'S HAPPENING WITH THE ECONOMY IS EXACTLY WHAT'S BEEN
HAPPENING NOW FOR FIVE YEARS IS THAT IT IS MOVING AHEAD ROUGHLY AT 2% RATE AND
IN CERTAIN INDUSTRIES A SPURT OCCASSIONALLY AUTOS ARE STRONG RIGHT NOW BUT IT
HAS BEEN A VERY STEADY INCREASE AND PEOPLE HAVE TALKED ABOUT DOUBLE DIPS AND
THEY'VE TALKED ABOUT ACCELERATION AND EVERY TIME THEY TALK ABOUT IT MOVING
8/10
SHARPLY IN ONE DIRECTION IT DOESN'T DO IT. THE ECONOMY HAS COME BACK AND IT HAS
COME BACK VERY WELL CONSIDERING THE KIND OF SHOCK THAT WE HAD 5 OR 6 YEARS
AGO BUT I DON'T SEE IT PARTICULARLY ACCELERATING AND I DON'T SEE IT DECELERATING
EITHER. I HAVE SAID BEFORE I THINK IT IS VERY TOUGH TO PUSH RATES HIGHER IN THE U.S.
WHEN EUROPE NEEDS TO KEEP THEM ALL AND YOU'VE GOT THE SITUATION EXISTING
AROUND THE WORLD BUT I KEEP HEARING THE VARIOUS GOVERNORS SAY IT IS GOING TO
HAPPEN SOON SO BUT I DON'T THINK IT IS AN EASY DECISION WHEN RATES ARE
CONSIDERABLY LOWER IN EUROPE AND YOU MAY BE AFFECTING EXPORTS AND IMPORTS
VERY SIGNIFICANTLY IF YOU PUSH RATES HERE TO BE CONSIDERABLY HIGHER THAN THEY
EXIST IN EUROPE.
QUICK: THERE HAVE BEEN A LOT OF PEOPLE WHO HAVE BEEN CONCERNED ABOUT THE
MARKET LATELY IF YOU HAVE WATCHED WHAT HAS BEEN HAPPENING DURING EARNINGS
SEASON SOME OF THE MOVES HAVE BEEN EXTRAORDINARY TO SEE PEOPLE MISSING BY
SMALL AMOUNTS ON EARNINGS OR REVENUE LINES AND THEN COMING IN WITH DOUBLE
DIGIT STOCK DECLINES YOU ALSO SAW WHAT HAPPENED WITH MEDIA STOCKS OVERALL
MOVE THE ENTIRE SECTOR LOWER THAT HAS SOME PEOPLE THINKING THAT THERE IS A LOT
OF WEAKNESS IN THE MARKET AND THAT THERE IS SOMETHING OF A CORRECTION THAT'S
DUE. I AM GUESSING THAT I WOULDN'T PUT YOU IN THAT CAMP IF YOU ARE WILLING TO DO
DEALS LIKE THIS OR DO YOU EVEN THINK ABOUT WHAT IS HAPPENING ON A DAY TO DAY
BASIS?
BUFFETT: STOCKS ARE GOING TO BE HIGHER AND PERHAPS A LOT HIGHER 10 YEARS FROM
NOW, 20 YEARS FROM NOW I AM NOT SMART ENOUGH TO PICK TIMES TO GET IN AND GET
OUT IF YOU ARE IN SOMETHING THAT IS GOING TO BE A LOT HIGHER OVER TIME. IF YOU
THOUGHT YOUR HOUSE WAS GOING TO GO DOWN 5% IN PRICE YOU WOULDN'T SELL YOUR
HOUSE AND HOPE TO BUY IT BACK 5% CHEAPER. THAT'S NOT MY GAME. MY GAME IS TO
OWN DECENT BUSINESSES AND OWN THEM AT DECENT PRICES AND YOU ARE GOING TO
MAKE A LOT OF MONEY OVER TIME IF YOU DO IT BUT I THINK THE ABILITY OF PEOPLE TO
DANCE IN AND OUT OF MARKETS IS QUITE LIMITED AND IN MY CASE IT IS ZERO.
QUICK: WARREN THERE IS A STORY ON THE FRONT PAGE OF THE NEW YORK TIMES TODAY
ABOUT COCA COLA WHICH IS A COMPANY THAT YOU ALSO THE LARGEST SHAREHOLDER IN
IT POINTS OUT THAT COCA COLA HAS TEAMED UP WITH SOME INFLUENTIAL SCIENTISTS TO
TRY AND ADVANCE A MESSAGE IN MEDICAL JOURNALS THAT IT IS REALLY MORE ABOUT
HOW MUCH YOU EXERCISE NOT WHAT YOU EAT THAT MATTERS. THE TIMES ACTUALLY KIND
OF PUTS THIS AS SOMETHING WHERE THEY LOOK ASKANCE THE IDEA THAT BIG
COPORATION IS FUNDING A MESSAGE LIKE THIS WHAT DO YOU SAY AS THE LARGEST
SHAREHOLDER?
BUFFETT: WHAT HAPPENS TO YOUR WEIGHT DEPENDS ON HOW MUCH YOU TAKE IN AND
HOW MUCH YOU BURN UP. AND IF YOU TAKE IN 2700 CALORIES AND YOU BURN UP 2700
YOUR WEIGHT ISN'T GOING TO CHANGE AND IF YOU TAKE IN 3500 AND BURN 2500 YOU ARE
GOING TO GAIN WEIGHT. IT'S A MATHEMATICAL TYPE EQUATION AND IF YOU ARE LIKE ME
AND DON'T LIKE TO EXERCISE MUCH THAN YOU BETTER NOT TAKE IN TOO MUCH. THERE IS
NO MYSTERY TO WEIGHT. CALORIES ARE DEFINED THERE'S 4 PER GRAM IF YOU ARE DEALING
9/10
WITH PROTEIN AND CARBOHYDRATES THERE'S 9 PER GRAM WITH FAT AND YOU'VE GOT TO
FIGURE IT OUT IF YOU WANT TO LOSE WEIGHT SO YOUR BODY BURNS OFF AS MANY AS YOU
ARE CONSUMING.
QUICK: WELL WARREN WE WANT TO THANK YOU FOR JOINING US THIS MORNING. AGAIN
CONGRATULATIONS ON THE DEAL.
About CNBC:
10/10
CNBC Transcript: Billionaire Investor Warren Buffett on CNBC's
"Squawk Box" Today
cnbc.com/2015/03/25/cnbc-transcript-billionaire-investor-warren-buffett-on-cnbcs-squawk-box-today.html
March 25, 2015
WHEN: Today, Wednesday, March 25th
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a CNBC interview with Berkshire Hathaway Chairman
& CEO Warren Buffett on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today. Following are links
to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000364771,
http://video.cnbc.com/gallery/?video=3000364748 and http://video.cnbc.com/gallery/?
video=3000364744.
BECKY QUICK: THAT STORY THIS MORNING IS THAT HEINZ AND KRAFT ARE MERGING. HEINZ
ACTUALLY BUYING A CONTROLLING STAKE OF THE COMPANY. 51%. THE DEAL IS BEING
FINANCED BY A $10 BILLION INVESTMENT FROM 3G CAPITAL AND BERKSHIRE HATHAWAY.
JOINING US RIGHT NOW ON THE SQUAWK NEWSLINE IS BERKSHIRE HATHAWAY'S CHAIRMAN
& CEO WARREN BUFFETT. AND WARREN, THANK YOU FOR JOINING US THIS MORNING.
WARREN BUFFETT: DELIGHTED.
QUICK: YOU WARNED US IN YOUR ANNUAL LETTER TO SHAREHOLDERS THAT YOU WERE
STILL ON THE HUNT. YOU EVEN MENTIONED THAT YOU'D BE LOOKING FORWARD TO DOING
THINGS WITH 3G IN THE FUTURE. HOW LONG HAS THIS BEEN IN THE WORKS?
BUFFETT: IT'S PROBABLY BEEN IN THE WORKS ABOUT FOUR WEEKS OR SO. SOMETHING LIKE
THAT. IT MOVED ALONG QUITE PROMPTLY.
QUICK: THAT IS A FAST DEAL. AND IT'S RELATIVELY COMPLICATED. THIS IS NOT A STRAIGHT
BUYOUT. THIS IS A SITUATION WHERE 3G AND BERKSHIRE THROUGH HEINZ ARE GOING TO
BE TAKING A 51% STAKE IN A NEWLY COMBINED PUBLIC COMPANY OF KRAFT AND HEINZ.
THERE IS ALSO A SPECIAL DIVIDEND THAT COMES OUT FROM A $10 BILLION PAYMENT. HOW
DID YOU COME UP WITH THE STRUCTURE?
BUFFETT: WELL, IT WAS A MATTER OF NEGOTIATION. AND IT'S CORRECT THAT 3G AND
BERKSHIRE HATHAWAY WILL INVEST $10 BILLION IN HEINZ JUST PRIOR TO THE DEAL. AND
THEN THAT MONEY ESSENTIALLY WILL BE PAID OUT IN A $16.50 SHARE DIVIDEND TO THE
KRAFT SHAREHOLDERS BEFORE THE – IMMEDIATELY BEFORE THE DEAL IS COMPLETED. AND
THEN THERE ARE PRESENTLY ABOUT 600 MILLION KRAFT SHARES OUTSTANDING. AFTER THE
DEAL, THERE WILL BE ROUGHLY A BILLION 220 MILLION OR SO OF WHICH 3G AND
BERKSHIRE HATHAWAY WILL OWN COMBINED 51% AND THE PRESENT KRAFT
SHAREHOLDERS WILL KEEP THEIR SHARES AND OWN ABOUT 49%.
1/9
ANDREW ROSS SORKIN: WARREN, WE HAVE BEEN TRYING TO DO THE MATH ON YOUR
PROFIT THUS FAR ON HEINZ UNTO ITSELF. IT LOOKS IT COULD – HAVE YOU MADE FIVE TIMES
YOUR MONEY ALREADY?
BUFFETT: NO, NO, WE – BECAUSE WE PUT IN 4.25 BILLION TO BUY COMMON STOCK OF
HEINZ INITIALLY. AND THEN WE'RE PUTTING IN ANOTHER – WE'RE PUTTING IN A LITTLE OVER
$5.2 BILLION, BECAUSE WE HAVE ABOUT 53% OF HEINZ COMING OUT. SO WE'RE PUTTING IN
ANOTHER 5.2 SOMETHING BILLION. SO WE WILL HAVE 9.5 BILLION ROUGHLY IN THE
COMMON STOCK. AND WE'LL OWN 320 ODD MILLION SHARES OF THE NEW COMPANY. BUT
OF COURSE, THE STOCK YOU'RE LOOKING AT WILL GO EX-DIVIDEND 16.50 AT SOME POINT
BEFORE WE RECEIVE OUR SHARES IN THE NEW COMPANY. SO WE WILL HAVE 320 PLUS
MILLION SHARES, ROUGHLY, IN THE NEW KRAFT/HEINZ. AND THAT WILL BE THE PRESENT
KRAFT STOCK PLUS A 16.50 SPECIAL DISTRIBUTION TO THE PRESENT KRAFT SHAREHOLDERS.
SORKIN: SO AS BERKSHIRE HATHAWAY SHAREHOLDERS TRY TO JUST GAUGE THE VALUATION

OF THEIR STAKE IN ALL OF THIS, RELATIVE TO WHERE YOU WERE IN HEINZ BEFORE, WHAT'S
YOUR MATH?
BUFFETT: WELL, WE WILL – IF WE OWN 320 MILLION-PLUS SHARES IN THE NEW COMPANY,
AND WE PAID 9.5 BILLION, WE WILL HAVE PAID A LITTLE LESS THAN $30 A SHARE FOR OUR
STOCK. IN THE NEW KRAFT/HEINZ COMPANY.
SORKIN: RIGHT.
QUICK: THAT STOCK CLOSED, THE KRAFT SHARES CLOSED AT 61.33 YESTERDAY. THEY ARE
INDICATED TO OPEN TODAY AROUND $83.60, BUT AS YOU MENTIONED, THAT IS BEFORE
THE EX-DIVIDEND OF THE SPECIAL ONE-TIME PAYOUT.
BUFFETT: RIGHT, RIGHT. BUT – GO AHEAD.
SORKIN: WARREN, ONE OF THE OTHER QUESTIONS THAT WE HAD ABOUT THIS IS, YOU
KNOW, CLEARLY, YOU'VE DONE A REMARKABLE JOB. AND 3G'S DONE A REMARKABLE JOB AT
CUTTING COSTS, AND AT RAISING MARGINS AT HEINZ AND OSTENSIBLY CAN HOPEFULLY DO
THE SAME THING AT KRAFT. AND SO IN THE SHORT-TERM, GREAT INVESTMENT CASE.
QUESTION THAT WAS RAISED BY SOME OTHER ANALYSTS AND ACTUALLY BY JIM CRAMER IS
THE LONG-TERM OF KRAFT, PACKAGED FOODS, PACKAGED GOODS, AND IN A WORLD
MOVING TOWARDS ALL NATURAL THING AND LESS PACKAGED GOODS, WHAT YOU THINK
THAT PORTENDS?
BUFFETT: YEAH WELL, THE SHORT TERM DOESN'T MAKE MUCH DIFFERENCE TO US BECAUSE
WE WILL BE IN THIS STOCK FOREVER. THIS IS A BUSINESS WITH US, IT'S NOT REALLY A
STOCK. AND IT'S A COMPANY THAT WE WILL OWN 26 AND A FRACTION PERCENT OF. SO IT'S
WHERE THE NEW KRAFT/HEINZ COMPANY IS 10, 20, 50 YEARS FROM NOW THAT COUNTS TO
BERKSHIRE HATHAWAY AND I LIKE THE BRANDS. AND I LIKE THE MANAGEMENT A WHOLE
LOT. AND I THINK WE'LL DO FINE OVER TIME. BUT THAT, YOU KNOW, WE WILL SEE HOW
MUCH PHILADELPHIA CREAM CHEESE AND OSCAR MAYER HOT DOGS AND A WHOLE HOST
OF OTHER PRODUCTS PEOPLE WERE EATING 10 OR 20 OR 30 YEARS AGO. BUT I FIRST WENT
2/9
INTO GENERAL FOODS ON BEHALF OF BERKSHIRE HATHAWAY IN THE EARLY 1980s. I THINK
MAYBE WE WERE THE LARGEST SHAREHOLDER – BERKSHIRE HATHAWAY WAS THE LARGEST
SHAREHOLDER OF GENERAL FOODS. AND THESE BRANDS AT KRAFT, A LOT OF THEM COME
OUT OF THAT GENERAL FOODS HOLE IN SO THESE ARE BRANDS THAT I LIKED 30-PLUS YEARS
AGO. AND I LIKE THEM TODAY. AND I THINK I'LL LIKE THEM 30 YEARS FROM NOW.
QUICK: WARREN, YOUR TASTES ARE WELL-KNOWN. WE KNOW THAT YOU LIKE THINGS THAT
MOST 5 YEAR OLDS LIKE AT THEIR BIRTHDAY PARTIES. BUT SOME MOMS THESE DAYS ARE
NOT AS EAGER TO FEED THEIR KIDS FOOD THAT THEY DON'T FEEL IS ABSOLUTELY NATURAL
COMING FROM OTHER PLACES. THEY DON'T LIKE PRESERVATIVES IN THEIR FOOD. THAT IS
WHERE THE QUESTION COMES UP.
JOE KERNEN: THAT WAS KIND OF A SLAM, WARREN. FROM WHERE I'M SITTING. I DON'T
KNOW. LIKE A 5-YEAR-OLD AT A BIRTHDAY PARTY.
QUICK: HE SAID THAT HIMSELF.
KERNEN: WELL I KNOW, BUT I THINK THAT'S A COMPLIMENT. YOU SORT OF SAID IT. I DON'T
KNOW.
BUFFETT: WELL, THERE'S 7 BILLION PEOPLE IN THE WORLD THAT ALL HAVE DIFFERENT
TASTES. BUT THE TASTE THAT KRAFT – AND HEINZ FOR THAT MATTER – HAVE APPEALED TO,
YOU KNOW, OVER MANY, MANY DECADES. I THINK HEINZ GOES BACK TO 1869. I THINK
THOSE TASTES ARE ENDURING. THERE WILL BE PLENTY OF PEOPLE THAT WANT TO EAT
OTHER THINGS. BUT THERE ARE PLENTY OF PEOPLE THAT WANT TO EAT THE PRODUCTS
THAT KRAFT/HEINZ TURNS OUT. AND THERE ARE NEW PRODUCTS COMING ALL THE TIME.
AT HEINZ, WE HAVE AT LEAST FOUR NEW PRODUCTS THAT WE WILL BE HITTING THE
SHELVES WITH THIS YEAR. SO IT'S NOT A STATIC OPERATION AT ALL. AND WE'VE GOT A
MANAGEMENT THAT I'M WILLING TO BET A LOT OF MONEY ON. MATTER OF FACT, JUST ON
THE COMMON STOCK, I BET 9.5 BILLION AND THEN WE HAVE 8 BILLION OF PREFERRED.
ALTHOUGH I'M AFRAID THAT WILL GET CALLED AS SOON AS THEY CAN CALL IT.
QUICK: WELL WARREN, YOU MENTIONED THAT THERE ARE 7 BILLION PEOPLE THAT YOU'RE
SERVING. KRAFT REALLY HAS BEEN FOCUSED ON THE DOMESTIC MARKET. WHEN IT SPLIT,
MONDOLEZ WAS FOCUSED ON THE INTERNATIONAL BRANCH. DOES THAT MEAN THAT YOU
ARE PLANNING ON TAKING THESE BRANDS AND PUSHING THEM MORE INTERNATIONALLY?
BUFFETT: WELL, I CERTAINLY THINK THAT'S A POSSIBILITY. THE MANAGEMENT OF THE NEW
KRAFT/HEINZ, THEY'LL BE LOOKING AT ANYTHING THAT MAKES SENSE. AND A LOT OF
PEOPLE LIKE THOSE BRANDS IN THIS COUNTRY AND IN CANADA ALSO, AND I THINK WE'RE –
THE NEW COMPANY WILL BE FREE TO EXTEND BRANDS WHERE IT MAKES SENSE
GEOGRAPHICALLY.
QUICK: WHAT DOES THAT MEAN? THAT ANY AGREEMENTS THAT IT HAD WITH MONDELEZ
BEFORE DON'T STAND?
3/9
BUFFETT: NO, ANY AGREEMENTS DO STAND, BUT THOSE AGREEMENTS HAVE TIMETABLES
ON THEM. THERE'S MULTIPLE PARTS OF THE AGREEMENT. BUT THERE'S A LOT OF FREEDOM
TO EXPAND INTERNATIONALLY WITH THE KRAFT BRANDS THAT WILL EXIST. AND HEINZ
BRANDS ARE THROUGHOUT THE WORLD. SO THERE'S AN INFRASTRUCTURE THAT CAN
HANDLE THE EXPANSION OF THE KRAFT BRANDS OUTSIDE OF THE U.S. AND CANADA.
QUICK: YOU USED TO BE A HOLDER IN SHARES OF KRAFT BEFORE THAT SPLIT IN THE
COMPANY.
BUFFETT: THAT'S RIGHT. THIS IS THE THIRD TIME AROUND FOR ME. BUT THIS IS AN
OWNERSHIP OF A BUSINESS, WHEREAS THE FIRST TWO, WERE AS OWNERSHIP OF STOCKS,
BUT IT'S TRUE THAT IN THE EARLY 1980s, I THINK WE WERE THE LARGEST SHAREHOLDER OF
GENERAL FOODS WHICH LATER GOT SOLD TO PHILIP MORRIS. AND THEN KRAFT GOT SOLD
TO PHILIP MORRIS. AND THEN THEY GOT PUT TOGETHER, SO THESE BRANDS ARE BRANDS
THAT WE – A GOOD MANY OF WHICH WE WERE A BIG OWNER OF BACK IN THE EARLY 1980s.
AND THEN NOT SO MANY YEARS AGO, WE WERE A VERY LARGE SHAREHOLDER – PROBABLY
THE LARGEST HOLDER, MAYBE OUTSIDE OF INDEX FUNDS, OF KRAFT ITSELF WHICH GOT
SPLIT INTO TWO COMPANIES, MONDELEZ AND KRAFT. SO I'VE BEEN FAIRLY FAMILIAR WITH
THE BRANDS OVER THE YEARS.
QUICK: YOU KEEP SAYING THAT YOU'RE OWNING THIS AS A BUSINESS AND NOT AS A STOCK.
BUFFETT: RIGHT.
QUICK: THE ONLY DIFFERENCE SEEMS TO BE THAT WHEN YOU OWN IT AS A BUSINESS, YOU
KNOW THE MANAGERS AND LIKE THE MANAGERS.
BUFFETT: RIGHT, AND WE'LL BE ON THE BOARD OF DIRECTORS. THERE WILL BE SIX
DIRECTORS FROM HEINZ. THERE WILL BE FIVE DIRECTORS FROM THE OLD KRAFT
OPERATION. AND THREE OF THOSE BOARD MEMBERS WILL BE FROM BERKSHIRE
HATHAWAY. IT'S A PERMANENT HOLDING ON OUR PART.
SORKIN: HEY WARREN, YOU KNOW, WHEN YOU FIRST GOT INTO BUSINESS WITH 3G ON
HEINZ, WE ALL THOUGHT OF IT AS A PLATFORM POTENTIALLY FOR YOU TO BUY MORE
CONSUMER AND BEVERAGE COMPANIES LIKE KRAFT. THE QUESTION NOW IS, IT IS AN EVEN
BIGGER PLATFORM WITH, BY THE WAY, POSSIBLY EVEN MORE CAPACITY FOR – TO PUT SOME
DEBT ON THIS THING. I KNOW THERE IS NOT ADDITIONAL – IT DOESN'T LOOK LIKE IN THIS
TRANSACTION. SHOULD WE EXPECT YOU TO LOOK AT OTHER COMPETITORS IN THIS SPACE?
WE HAVE ALL THOUGHT THAT CAMPBELL'S WOULD EVENTUALLY GET BOUGHT UP, GENERAL
MILLS, FOR EXAMPLE?
BUFFETT: WELL, I DON'T KNOW OF ANY POSSIBLE – BUT WE LOOK AT EVERYTHING. THERE IS
NO FINISH LINE IN EITHER BERKSHIRE'S INVESTMENTS OR 3G'S INVESTMENTS. SO WE'VE
GOT A WONDERFUL PARTNER. I KNEW THEY WERE WONDERFUL GOING INTO THE HEINZ
DEAL. AND IN EVERY RESPECT, BOTH IN TERMS OF ABILITY, BUT JUST IN TERMS OF
INTEGRITY, EVERY ASPECT OF IT, 3G HAS BEEN A PERFECT PARTNER.
SORKIN: BUT YOU WOULD CONSIDER THIS A PLATFORM FOR MORE ROLLUPS, IF YOU WILL?
4/9
BUFFETT: WELL, I DON'T KNOW WHETHER I WOULD CALL THEM ROLLUPS. BUT IT'S
CERTAINLY A COMPANY THAT WILL HAVE AMBITIONS FOR A LONG TIME, BUT THAT WOULD
BE TRUE OF ALMOST ANYTHING WE DO.
QUICK: HEY WARREN, SPEAKING OF PRIVATE EQUITY, I KNOW HOW YOU FEEL ABOUT
GEORGE PAUL AT LEHMAN, I KNOW HOW YOU FEEL ABOUT 3G. YOU'VE SPOKEN
REPEATEDLY ABOUT HOW MUCH ADMIRATION YOU HAVE FOR THEM. BUT IN THE ANNUAL
LETTER TO SHAREHOLDERS THIS YEAR, YOU ALSO LAID OUT A SECTION WHERE YOU REALLY
TOOK PRIVATE EQUITY TO TASK. LET ME READ BACK SOME OF THE WORDS. YOU SAID, "IN
TRUTH, EQUITY IS A DIRTY WORD FOR MANY PRIVATE EQUITY BUYERS, WHAT THEY LOVE IS
DEBT. AND BECAUSE DEBT IS CURRENTLY SO INEXPENSIVE, THESE BUYERS CAN FREQUENTLY
PAY TOP DOLLAR. LATER THE BUSINESS WILL BE RESOLD, OFTEN TO ANOTHER LEVERAGED
BUYER. IN EFFECT, THE BUSINESS BECOMES A PIECE OF MERCHANDISE." WHAT'S DIFFERENT
ABOUT 3G VERSUS THE PRIVATE EQUITY PLAYERS THAT YOU REALLY GAVE A TOUGH TIME
TO?
BUFFETT: YEAH, WELL, THE 3G PEOPLE ARE PUTTING IN ALMOST $5 BILLION MORE OF
EQUITY. WE'RE PUTTING IN MORE OF EQUITY. SO WE ARE ADDING, ROUGHLY – WELL, WE
ARE ADDING $10 BILLION TO EQUITY HERE. BUT THE MORE IMPORTANT POINT EVEN, IS
THAT 3G – THEY'RE NOT BUYING THINGS TO SELL. AND THE OTHER PRIVATE EQUITY FIRMS
THAT HAVE TERM LIMITS AND ALL OF THAT, THEY HAVE A TIME WHEN THEY ARE GOING TO
SELL SOMETHING. AND THEY BUY COMPANIES WITH THE IDEA OF EITHER IPO-ING THEM OR
SELLING THEM TO COMPETITORS, OR SELLING THEM TO ANOTHER PRIVATE EQUITY FIRM.
THAT IS NOT 3G'S STRATEGY. I DON'T THINK IT'S EVEN PROPER TO CALL THEM A PRIVATE
EQUITY FIRM EXACTLY BECAUSE THEY'RE BUYING TO KEEP JUST LIKE WE'RE BUYING TO KEEP.
AND IF YOU LOOK AT ANHEUSER-BUSCH, FOR EXAMPLE, ABI, YOU KNOW, THEY HAVE BEEN
IN THAT – FROM THE PREDECESSOR COMPANIES – I DON'T KNOW HOW MANY DECADES. SO
THEY HAVE BOUGHT THAT TO KEEP. THEY BOUGHT BURGER KING WHICH IS NOW
RESTAURANT BRANDS INTERNATIONAL. THEY BOUGHT THAT TO KEEP. SO YOU CAN'T PUT
THEM IN THE SAME CATEGORY AS THE FIRMS THAT BASICALLY ARE IN THE BUSINESS OF
BUYING AND RESELLING COMPANIES.
SORKIN: WARREN, YOU KNOW, THIS IS A VERY UNUSUAL STRUCTURE IN TERMS OF HOW IT'S
BEING PUT TOGETHER. DO YOU IMAGINE THERE COULD BE ANY PUSHBACK FROM KRAFT
SHAREHOLDERS WHO SAY, YOU KNOW, THE WAY AT LEAST TO THE EXTENT THEY'RE
GETTING A PREMIUM IT'S IN A BIT OF AN UNUSUAL STRUCTURE?
BUFFETT: WELL, IT IS AN UNUSUAL STRUCTURE. BUT, YOU KNOW, SO FAR IT LOOKS LIKE
THEY LIKE IT. AND IF THEY DON'T LIKE IT, THEY CAN PROBABLY SELL IT FOR A LOT MORE
THAN PERHAPS KRAFT COULD HAVE BEEN SOLD TO ANYBODY ELSE FOR.
SORKIN: RIGHT.
BUFFETT: SO IT IS – WHEN WE MADE THE DEAL, WE FELT THAT THE KRAFT SHAREHOLDERS
WOULD COME OUT VERY WELL. AND I THINK SO FAR, THE INDICATIONS ARE THAT THE
MARKET FEELS THE SAME WAY.
5/9
QUICK: THE MANAGEMENT STRUCTURE. I REALIZE THE NEW COMPANY IS GOING TO BE
CALLED KRAFT/HEINZ. THE MANAGEMENT STRUCTURE IS THAT THE CEO OF HEINZ IS GOING
TO BE RUNNING THIS NEW BUSINESS?
BUFFETT: YEAH. BERNARDO HESS WILL BE RUNNING IT. AND ALEX BEHRING IS THE
CHAIRMAN, AND HE'S VERY ACTIVE. SO YOU'LL HAVE THE MANAGERS THAT HAVE DONE A
REMARKABLE JOB AT HEINZ THE LAST COUPLE YEARS WHO WILL BE CONTINUING IN THAT.
AND BERNARDO WILL BE LIVING IN PITTSBURGH AND HE'LL BE THE CEO.
KERNEN: YOU KNOW, WARREN, WHEN YOU – YOU REALLY SHOULD THINK ABOUT CALLING
IN HERE BECAUSE YOU KNOW YOU CAN'T GET OFF JUST TALKING ABOUT THIS DEAL I DON'T
THINK. DID WE TELL HIM THAT WE WOULDN'T ASK HIM ANYTHING ELSE?
BUFFETT: WELL –
QUICK: I DIDN'T MAKE ANY PROMISES.
KERNEN: YOU DIDN'T MAKE ANY PROMISES. JUST A QUICK ONE, WARREN.
BUFFETT: IF YOU WANT TO TALK ABOUT BRICKS, JOE, I'LL BE GLAD TO.
KERNEN: BRICKS, ICE CREAM. WHAT WAS YOUR FAVORITE FLAVOR FROM WHAT I SENT YOU?
DID YOU HAVE A FAVORITE?
BUFFETT: YEAH, I PARTICULARLY LIKE THE BLACK RASPBERRY WITH THE CHOCOLATE CHIPS.
KERNEN: A LOT OF CHOCOLATE IN THERE.
BUFFETT: THEY ARE REALLY GOOD. THAT IS A REALLY GOOD PRODUCT. MAYBE KRAFT/HEINZ
OUGHT TO LOOK AT THEM.
KERNEN: I KNOW. GRAETER'S. I KNOW, I THOUGHT ABOUT THAT.
BUFFETT: A FINDER'S FEE GOES TO YOU, JOE.
KERNEN: YEAH I KNOW. I DON'T KNOW IF I CAN ACCEPT THAT. NO, WHAT I WAS THINKING
WAS, YOU'VE WATCHED – I KNOW YOU'RE NOT AN EXPERT ON GREECE, OR THE EURO, OR
ANYTHING ELSE. BUT THERE'S JUST BEEN A COUPLE OF THINGS IN RECENT DAYS JUST
WATCHING IT. I'M WONDERING WHETHER YOU'VE CHANGED YOUR OVERALL VIEW OF
WHETHER THIS REALLY DOES GET, YOU KNOW, WHETHER THE GERMANS FINALLY SAY FINE
WE WILL HELP YOU OUT NO MATTER WHAT. HAS THAT CHANGED AT ALL? HAVE WE HIT AN
INFLEXION POINT WHERE IT MIGHT GO THE OTHER WAY IN YOUR VIEW?
BUFFETT: WELL, I'VE ALWAYS FELT THAT THE PRESENT ARRANGEMENT WITH THE EURO
WOULD NOT STAND THE TEST OF TIME IN THE SENSE THAT IT WOULD HAVE TO BE
MODIFIED IN SOME VERSION. I MEAN, WHAT YOU DID WAS YOU HARMONIZED A CURRENCY
WITHOUT HARMONIZING A WHOLE LOT OF OTHER THINGS THAT HAVE BIG EFFECTS ON A
CURRENCY. AND OVER THE LONG RUN, I FELT THAT SOME ADJUSTMENTS WOULD HAVE TO
BE MADE TO THAT. AND THE GREEK SITUATION MAY ILLUSTRATE THE KIND OF
6/9
ADJUSTMENTS THAT ARE NEEDED. IT WAS A SITUATION WHERE YOU SAID, WE'RE GOING TO
HAVE A COMMON CURRENCY, BUT WE'RE NOT GOING TO HAVE COMMON FISCAL POLICIES
OR COMMON LABOR PRACTICES AND A WHOLE BUNCH OF OTHER THINGS. AND THAT WAS
SORT OF LIKE, YOU KNOW, IN THE CIVIL WAR SAYING WE CAN'T EXIST HALF SLAVE, HALF
FREE. AND THE EURO – I'M NOT SAYING THE EURO WON'T CONTINUE BECAUSE I THINK THE
ODDS ARE GOOD THAT IT WILL, BUT I THINK MORE WILL BE NEEDED TO MAKE IT REALLY
FUNCTION WELL. AND I THINK THE GREEK SITUATION JUST HAS DRAMATIZED THE PROBLEM.
QUICK: GEORGE SOROS, I DON'T KNOW IF YOU SAW WHAT HE SAID YESTERDAY, HE THINKS
THERE'S A 50% CHANCE THAT THE GREEKS WIND UP OUT. AND THE WHOLE THING – A 50%
CHANCE THAT THE ECONOMY COULD EVEN GO DOWN THE DRAIN.
BUFFETT: YEAH, I'VE GOT NO VIEW ON THAT. BUT THE GREEK SITUATION DOES SHOW THAT
CERTAIN MODIFICATIONS, YOU KNOW, BUT AS I SAID, BEFORE, OUR CONSTITUTION HAS
BEEN AMENDED A NUMBER OF TIMES. SO WHATEVER CAME OUT BACK IN THE 1990s, THEY
HAVE TO GET MODIFIED IN SOME WAYS, PROBABLY WILL. ORIGINALLY, OF COURSE, THERE
WAS SOME LANGUAGE IN THERE ABOUT THE DEFICITS THAT COMPANIES – THAT THE
MEMBER COUNTRIES COULD RUN. BUT THEY GOT IGNORED WHEN EVEN THE BIGGEST
COUNTRIES BROKE THEM. AND THEY MAY HAVE TO GET TOUGHER ABOUT THAT.
SORKIN: RIGHT. HEY, WARREN, CAN I JUST GO BACK TO HEINZ FOR ONE MORE SECOND.
BECAUSE I JUST WANT TO UNDERSTAND ONE THING ABOUT THE STRUCTURE.
BUFFETT: SURE.
SORKIN: THERE ARE SOME PEOPLE HAVE LOOKED AT THIS DEAL AND SAID, YOU KNOW
WHAT, IT'S ALMOST A BACK DOOR IPO, IF YOU WILL, FOR HEINZ. YOU'RE TAKING 51% OF THE
COMPANY. YOU ALWAYS SAY THAT WHEN YOU WANT TO OWN SOMETHING YOU WANT TO
OWN AS MUCH OF IT AS POSSIBLE.
BUFFETT: YEAH.
SORKIN: WAS THERE EVER A THOUGHT ABOUT BUYING THE ENTIRE THING OUTRIGHT AND
PERHAPS EVEN PUTTING MORE EQUITY IN THE BUSINESS? YOU HAVE A LOT OF CASH ON
HAND. OR PERHAPS PUTTING SOME MORE DEBT ON THE DEAL?
BUFFETT: WELL, I THINK WHAT YOU – YOU'RE RIGHT, I LIKE TO OWN AS MUCH OF
BUSINESSES I LIKE, I LIKE TO OWN AS MUCH AS WE POSSIBLY CAN. BUT IT REFLECTS THE
VIEW, IT REFLECTS THE NEGOTIATING STRENGTHS AND THE VIEWS OF TWO DIFFERENT
BOARDS OF DIRECTORS AS THEY NEGOTIATED THE DEAL. SO THIS WAS THE DEAL THAT WAS
DOABLE THAT MADE SENSE FOR BOTH KRAFT AND HEINZ. AND YOU KNOW, I DON'T THINK
ANOTHER DEAL WOULD HAVE BEEN POSSIBLE.
SORKIN: WOULD YOU IMAGINE TAKING ON MORE OF IT IN THE FUTURE?
BUFFETT: WELL, WHO KNOWS. I MEAN, I CERTAINLY WON'T OWN LESS. LET'S PUT IT THAT
WAY. AND YOU JUST DON'T KNOW THE DIRECTION THIS NEW COMPANY WILL GO. WHETHER
IT WILL HAVE AN OPPORTUNITY TO BUY BIGGER OPERATIONS AND ADD TO IT. OR WHAT
7/9
WILL HAPPEN. BUT THE ONE THING I CAN PROMISE YOU, IS THAT YOU WILL NOT SEE
BERKSHIRE REDUCE ITS INTEREST.
QUICK: WARREN, HAVE YOU ALREADY LOOKED AT OTHER COMPANIES THAT YOU MIGHT
LIKE TO ADD INTO THIS? I MEAN, I START LOOKING AROUND AT CAMPBELL'S SOUP, YOU
THINK OF MONDELEZ EVEN. OBVIOUSLY, MONDELEZ IS A MUCH BIGGER MARKET CAP THAN
KRAFT.
BUFFETT: YEAH, WELL, I'VE LOOKED AT ALL OF THE COMPANIES FOR YOU KNOW, 40 OR 50
YEARS. I MEAN THAT IS WHY WHEN JORGE PAULO CAME TO ME ON HEINZ ORIGINALLY, I
SAID YES BEFORE THE SENTENCE WAS OUT OF HIS MOUTH BECAUSE I PROBABLY GOT 40
YEARS OF ANNUAL REPORTS OF HEINZ IN THE FILES. AND THE SAME WAS TRUE WITH
GENERAL FOODS, THE SAME WAS TRUE WITH PHILIP MORRIS WHICH ENDED UP OWNING
KRAFT AND GENERAL FOODS. SO CAMPBELL'S SOUP, YOU NAME THEM ALL, I KEEP TRACK OF
THEM. AND THEN THE QUESTION IS, YOU KNOW, DOES SOMETHING MAKE SENSE DOWN
THE ROAD. AND WE WON'T DO ANYTHING HOSTILE. SO IT HAS TO BE SOMETHING THAT THE
OTHER SIDE WANTS TO DO AS WELL.
KERNEN: HEY, WARREN, I MUST HAVE MISSED IT. DID NETJETS CUT THE PRICE OF TRAVEL IN
HALF BECAUSE OF THE DROP IN OIL PRICES OR ARE YOU GREEDY PROFIT MONGERS JUST
KEEPING THAT FOR YOURSELF?
BUFFETT: WELL ACTUALLY, WE'VE ALWAYS HAD A FUEL ADJUSTMENT COST. SO WHEN IT
WENT UP, THE NETJETS OWNERS PAID A SURCHARGE BASED ON HIGHER FUEL PRICES AND
THAT COMES DOWN.
KERNEN: IT IS COMING DOWN REALLY SLOW.
BUFFETT: SO THE NETJETS OWNERS ALWAYS HAD AN INTEREST DIRECTLY IN THE FUEL PRICE.
KERNEN: ALL RIGHT. MAYBE WE CAN FINALLY AFFORD –
BUFFETT: WE CAN DO BUSINESS, JOE.
QUICK: WARREN, AGAIN, WHILE WE HAVE YOU ON THE PHONE, WE TALKED TO YOU IN THE
PAST ABOUT IBM. AND I JUST WONDER, I KNOW THAT THIS IS SOMETHING YOU WEIGHED IN
WITH US A COUPLE MONTHS AGO. WHERE DO YOU THINK ABOUT WHERE SHARES OF IBM
ARE RIGHT NOW AND THE JOB THAT GINNI ROMETTY IS DOING?
BUFFETT: I THINK SHE'S DOING A FINE JOB, BUT I WILL NOT COMMENT ON ANYTHING WE
MIGHT BE BUYING OR SELLING.
QUICK: OK. WARREN, WE WANT TO THANK YOU VERY MUCH FOR CALLING IN THIS
MORNING. WE REALLY APPRECIATE YOUR TIME. AGAIN, THANK YOU, WE'LL TALK TO YOU
SOON.
BUFFETT: OKAY. KEEP PUTTING PLENTY OF KETCHUP ON EVERYTHING. THANKS.
About CNBC:
8/9
9/9
Warren Buffett appeared live on CNBC’s Squawk Box on
September 8, 2015
rbcpa.com/warren-e-buffett/warren-buffett-appeared-live-on-cnbcs-squawk-box-on-september-8-2015/
September 8, 2015
Warren Buffett appeared live on CNBC’s Squawk Box on September 8, 2015
http://www.cnbc.com/2015/09/08/cnbc-transcript-cnbc-s-becky-quick-speaks-with-billionaire-
investor-warren-buffett-on-cnbcs-squawk-alley-today.html
WHERE: CNBC’s “Squawk Alley”
Following is the unofficial transcript of a CNBC interview with CNBC’s Becky Quick and
Berkshire Hathaway Chairman & CEO Warren Buffett live on CNBC’s “Squawk Alley” (M-F,
11AM-12PM ET) today. Video from the interview is available on CNBC.com.
CARL QUINTANILLA: THE ANNUAL LUNCH WITH WARREN BUFFETT IS TODAY. THE WINNING
BIDDER OF THE GLIDE FOUNDATION LUNCH PAID OVER $2.3 MILLION TO HAVE LUNCH WITH
THE ORACLE OF OMAHA. LET’S SEND IT OVER TO BECKY QUICK, WHO IS WITH THE MAN
HIMSELF.
BECKY QUICK: THANK YOU VERY MUCH. AGAIN WE ARE LIVE, WITH WARREN BUFFETT.
WARREN, $2.3 MILLION IS A LOT OF MONEY TO PAY FOR A LUNCH. I KNOW IT GOES TO
GLIDE, BUT YOU’RE NO CHEAP DATE.
WARREN BUFFETT: JUST THINK OF THE TIP.
QUICK: I’M REALLY GLAD THAT WE HAVE YOU HERE TODAY, BECAUSE WE’VE BEEN
WATCHING THE MARKETS AND THERE’S BEEN SO MUCH VOLATILITY. SO MUCH CONCERN.
EVEN TODAY, THIS MORNING, THE FUTURES AT ONE POINT UP OVER 350 POINTS BEFORE
THE MARKET OPENED. WHAT DO YOU THINKI IS HAPPENING? WHY IS THIS TAKING PLACE?
BUFFETT: I’M NO GOOD ON WHAT’S GOING ON IN MARKETS. I HAVE NO IDEA WHAT WILL
HAPPEN TOMORROW OR NEXT WEEK AND SOMETIMES THEY’RE, THEY GET VERY VOLATILE
LIKE THIS AND OTHER TIMES THEY PUT YOU TO SLEEP. BUT THE IMPORTANT THING IS
WHERE THEY’RE GOING TO HAVE IN FIVE OR TEN YEARS. AND I’M CONFIDENT THEY’LL BE
CONSIDERABLY HIGHER IN TEN YEARS. AND I REALLY HAVE NO IDEA WHERE THEY’LL IN TEN
DAYS OR TEN MONTHS.
QUICK: LEE COOPERMAN WAS ON “SQUAWK BOX” THIS MORNING AND HE SAID THAT HE
THINKS THAT SOME OF IT IS BECAUSE WHAT’S BEEN HAPPENING WITH SOME OF THE
FORCED COMPUTER BUYING THAT’S TAKING PLACE. DO YOU THINK THERE IS ANY TRUTH TO
THAT?
1/8
BUFFETT: I DON’T KNOW. I DON’T KNOW THAT MUCH ABOUT IT. IT DOESN’T REALLY MAKE
ANY DIFFERENCE TO US, IF WE’RE BUYING A STOCK, WE USUALLY TRY AND BUY A GIVEN
PERCENTAGE OF THE VOLUME THAT TRADES THAT DAY. SAME WAY FOR SELLING ALTHOUGH
WE DON’T SELL VERY OFTEN. SO DOWN DAYS I LIKE BECAUSE WE BUY THEM CHEAPER AND
WE DON’T TRY TO REALLY FIGURE OUT WHAT’S GOING ON IN MARKETS. I’VE NEVER BEEN
ANY GOOD AT IT.
QUICK: HAVE YOU SEEN THIS RECENT PULL-BACK AS A REASON TO BE BUYING?
BUFFETT: WELL WE, WE’RE BUYING BECAUSE WE LIKE WHAT WE’RE BUYING IN RELATION TO
ITS LONG-TERM PROSPECTS IF WE LIKED IT AT X A FEW WEEKS AGO AND IT’S 95% OF X NOW,
I LIKE IT EVEN BETTER AND IF IT GOES TO 90% OF X I’LL LIKE IT STILL BETTER?
QUICK: WHAT STOCK ARE YOU TALKING ABOUT?
BUFFETT: WELL YOU PROBABLY KNOW THE NAME, BUT I WOULDN’T TO BORE YOU WITH IT.
QUICK: WHEN WE SPOKE WITH YOU ON THE PHONE BACK ON AUGUST 10 I THINK IT WAS,
YOU KIND OF HINTED THAT YOU MIGHT HAVE BEEN BUYING MORE SHARES OF IBM IN THE
SECOND QUARTER. THOSE FILINGS CAME OUT AND KIND OF SURPRISED US. THAT THERE
WEREN’T ANY ADDITIONAL PURCHASES IN THE SECOND QUARTER
BUFFETT: WELL I OWE YOU ONE ON THAT BECAUSE I THOUGHT I WAS BUYING IT IN THAT
QUARTER WE BOUGHT IT IN THE FIRST QUARTER. AND NORMALLY I WOULDN’T TELL YOU
THIS, BUT WE BOUGHT SOME IN THE THIRD QUARTER. I ACTUALLY THOUGHT THERE WAS
PURCHASES IN THE SECOND QUARTER. I WOULDN’T HAVE SAID THAT UNLESS I THOUGHT
THE NUMBER WAS GOING TO BE A LITTLE BIT HIGHER. BUT I WAS WRONG. SO I HAVE TO
TELL YOU THAT WE HAVE BOUGHT A LITTLE IN THE THIRD QUARTER AND WE DID BUY IT IN
THE FIRST QUARTER AS WELL.
QUICK: THAT WAS AUGUST 10th. SO I TAKE IT YOU WERE BUYING IN THE THIRD QUARTER
BEFORE AUGUST 10, EVEN BEFORE THE MARKET VOLATILITY CAME UP.
BUFFETT: I DON’T REMEMBER THAT EXACTLY AND I GOT IN TROUBLE GIVING AN ANSWER
WHERE I DIDN’T REMEMBER PERFECTLY BEFORE. SO I’LL LEAVE IT AT WHAT I SAID WHICH IS
TRUE, THAT WE DEFINTELY BOUGHT IT IN THE FIRST QUARTER AND THE THIRD QUARTER
AND WE DEFINITELY DID NOT BUY IN THE SECOND QUARTER EVEN THOUGH I KIND OF
THOUGHT THAT WE HAD.
QUICK: YOU’VE BEEN SPENDING A LOT OF MONEY RECENTLY THOUGH WITH PRECISION
CAST PARTS. YOU HAVE OBVIOUSLY SPENT BILLIONS AND BILLIONS OF DOLLARS.
BUFFETT: WE HAVEN’T SPENT IT YET BUT WE’RE GETTING READY TO SPEND IT.
QUICK: DOES THAT LEAVE YOU SHORT OF CASH THOUGH. WHEN YOU SEE A PULLBACK OF
10% OR MORE, DOES IT MAKE IT TOUGHER FOR TO YOU COME UP WITH THE MONEY TO BUY
THINGS THAT ARE 10% CHEAPER THAN THEY WERE BEFORE.
2/8
BUFFETT: WE KNOW WE’RE GOING TO BE LAYING OUT 32 BILLION IN THE NEXT PROBABLY
FOUR OR FIVE MONTHS SO I’VE STILL GOT MONEY LEFT TO BUY. I’LL NEVER GO BELOW $20
BILLION OF CASH, IN FACT I WON’T EVEN GO VERY CLOSE TO IT BECAUSE I DON’T WANT TO
GO BELOW IT AND I PROMISED I WON’T GO BELOW IT SO WE MIGHT BE A LITTLE LESS
AGGRESSIVE IN BUYING THINGS IN THE OPEN MARKET. BUT IF WE’RE BUYING AND WE’RE
SPENDING SAY 500 MILLION A WEEK, IN THREE OR FOUR WEEKS, THAT’S JUST A COUPLE
BILLION DOLLARS, SO THE 32 BILLION IS THE BIG CHUNK IT REALLY, I HAVEN’T HELD BACK
FROM DOING ANYTHING BECAUSE OF THAT UPCOMING PURCHASE.
QUICK: IS 500 MILLION, IS THAT A NORMAL WEEK AT BERKSHIRE?
BUFFETT: IT CAN BE. SOMETIMES IT’S 200 MILLION. SOMETIMES IT’S A LITTLE MORE. IT
DEPENDS ON, USUALLY WHEN STOCKS ARE GOING DOWN, THE VOLUME PICKS UP. SO IF
WE’RE BUYING 20% OF THE VOLUME, WE WILL BE BUYING MORE PER DAY ON BIG DOWN
DAYS. THAN OTHER DAYS. SO I LIKE HIGH-VOLUME DAYS FROM THE STANDPOINT OF OUR
PURCHASES, BECAUSE I THINK IF WE BUY MORE THAN 20% A DAY WE’RE PROBABLY
AFFECTING THE PRICE TOO MUCH. AND ON THE OTHER HAND, I LIKE TO BUY AS MUCH AS I
CAN GET. SO I SORT OF HIT ON THAT 15 OR 20% A DAY.
QUICK: LET’S TALK A LITTLE BIT WHAT ELSE WE FOUND OUT IN THE MOST REEST FILINGS
THAT CAME OUT. PHILLIPS 66 YOU NOW \ HAVE A $4.5 BILLION STAKE IN THE COMPANY?
BUFFETT: THAT’S CORRECT.
QUICK: WHAT HAPPENED, WHY DID YOU BUY INTO THAT BECAUSE THIS IS SOMETHING THAT
YOU TRADED OUT YOUR SHARES FOR BACK AT THE END OF 2013 FOR I GUESS SOME
PIPELINES THAT YOU WERE —
BUFFETT: WE TRADED THE SHARES, WE WERE ABLE TO DO IT ON A TAX-ADVANTAGED BASIS,

WE DIDN’T TRADE THEM BECAUSE WE DISLIKED THE STOCK AT ALL. A MATTER OF FACT I
LIKED THE STOCK WHEN WE TRADED IT. IT WAS A CHANCE TO DO A TRANSACTION TO BUY
AN ASSET WE LIKED VERY MUCH. TO DO IT ON A TAX-FREE BASIS, THEY COULD DO IT ON A
TAX-FREE BASIS AND I HAD ALWAYS INTENDED THAT WE WOULD COME BACK IN. ASSUMING
THAT THE PRICE WAS RIGHT. AND WE DID.
QUICK: IT MUST BE VERY SPECIFIC TO PHILLIPS 66 THOUGH. BECAUSE YOU SOLD YOUR
SHARES OF EXXONMOBIL I THINK IN THE FOURTH QUARTER LAST YEAR.
BUFFETT: THEY’RE IN DIFFERENT BUSINESSES, TO SOME DEGREE. PHILLIPS 66 HAS NO

UPSTREAM PRODUCTION, THAT PROBABLY ACCOUNTS FOR THE BULK OF THE VALUE OF AN
EXXON. ON THE OTHER HAND, PHILLIPS 66 IS NOT A PURE REFINER. THEY’VE GOT A BIG
CHEMICALS DIVISION, A MID STREAM BUSINESS. SO IT’S NOT, WE’RE NOT BUYING IT AS A
REFINER, WE’RE CERTAINLY NOT BUYING IT AS AN INTEGRATED OIL COMPANY WE’RE BUYING
IT BECAUSE WE LIKE THE COMPANY AND WE LIKE THE BMANAGEMENT VERY MUCH. EVER
SINCE GREG GARLAND HAS TAKE TN OVER AFTER IT SPUN OUT OF CONOCO PHILLIPS, HE’S
DONE A TERRIFIC JOB. SO I’VE LIKED THE COMPANY.
QUICK: IS IT SOMETHING THAT YOU COULD SEE EVENTUALLY ADDING BY BUYING THE
3/8
COMPANY OUTRIGHT?
BUFFETT: WELL, THAT’S A LONG – WOULD BE A LONG STRETCH FROM HERE AND WE NEVER,
WE WOULD ONLY DO SOMETHING IN ANY COMPANY IF THE COMPANY WANTED US TO. AND
I THINK THEY’RE VERY HAPPY TO BE INDEPENDENT.
QUICK: ARE THERE OTHER OPPORTUNITIES THAT YOU SEE IN THE OIL AND NATURAL GAS
POSITIONS AT THIS POINT? JUST BECAUSE OF THE HUGE DROP WE’VE SEEN IN OIL AND GAS.
BUFFETT: I THINK THAT’S THE ONLY OIL COMPANY THAT’S CONNECTED WITH THE OIL AND
GAS INDUSTRY THAT WE OWN. ALTHOUGH PRECISION CASH PARTS MAKES EQUIPMENT FOR
THE OIL INDUSTRY AND OUR LUBRIZOL OPERATION PRODUCES CHEMICALS THAT ARE USED
IN OIL AND GAS PRODUCTION.
QUICK: WARREN, LET’S TALK ABOUT THE ECONOMY BECAUSE AGAIN, THE LAST TIME WE
SPOKE WITH YOU, YOU SAID YOU THOUGHT IT WOULD BE A PRETY TOUGH CALL FOR THE
FEDERAL RESERVE. SINCE THEN, YOU’VE HAD FANTASTIC ECONOMIC NEWS THAT’S BEEN
COMING OUT WITH THE JOBS REPORT AND UNEMPLOYMENT NOW LOOKING AT ITS 5.1%.
YOU’VE HAD AUTO SALES THAT CAME IN AT A RATE OF ABOUT 17.7 OR 17.8 MILLION, WHICH
IS BACK TO WHAT WE WERE SEEING IN THE PRE 2007 PERIOD. ALL OF THOSE THINGS ADD
UP TO A GREAT ECONOMY, AND YET THE MARKET’S VOLATILITY COULD BE SOMETHING
THAT WOULD KEEP THE FED ON PAUSE. HOW DO YOU KIND OF DO THE CALCULUS ON THIS?
BUFFETT: THEY HAVE NEVER ASKED ME TO BE A MEMBER OF THE FED, MAYBE THEY THINK I
DON’T KNOW ANYTHING ABOUT IT AND THEY ARE CORRECT. I HAVE ALWAYS THOUGHT
THEY WOULD BE SLOW JUST BECAUSE OF THE EFFECT ON CURRENCIES AROUND THE
WORLD, IF OUR INTEREST RATES KEEP GETTING STRONGER WHEN EUROPE IS TRYING TO
KEEP THEM LOW. ONE THING YOU HAVE TO BE A LITTLE CAREFUL ABOUT IN GDP
STATISTICS, WHEN WE TALK ABOUT EARNINGS OF COMPANIES, WE ARE ALWAYS TALKING
THIS YEAR VERSUS LAST YEAR IF WE SAY THEY’RE UP 5%. WITH GDP, WHEN WE TALK
QUARTERLY, WE’RE TALKING ABOUT SEQUENTIAL. IF YOU LOOK AT YEAR-OVER-YEAR
FIGURES ON GDP, THEY’RE TWO AND A FRACTION PERCENT, AND THEY’VE BEEN THAT WAY
QUARTER AFTER QUARTER AFTER QUARTER. BUT THE QUARTERLY FIGURES, WHEN YOU
MULTIPLY SOMETHING BY FOUR, LITTLE CHANGES GET MULTIPLIED A LOT. SO THE
SEASONAL ADJUSTMENTS BOTH OF THE CURRENT PERIOD AND THE LAST PERIOD, THEY
CONTROL THOSE QUARTERLY NUMBERS A LOT WHEN YOU REPORT SEQUENTIALLY. I THINK
IN A WAY IT’S BETTER TO LOOK AT THEM YEAR OVER YEAR. AND YEAR OVER YEAR WE’VE
BEEN IN THE 2.5% RANGE NOW FOR, I DON’T KNOW, SIX QUARTERS OR SOMETHING LIKE
THAT. SO I WOULD BE A LITTLE CAREFUL IN GETTING TOO EXCITED ABOUT QUARTERLY
STATISTICS IN EITHER DIRECTION, AS LONG AS YOU’RE LOOKING AT THEM SEQUENTIALLY.
QUICK: SO YOU THINK THE ECONOMY IS NOT NECESSARILY AS STRONG AS THE MOST
RECENT NUMBERS WE’VE SEEN?
BUFFETT: I THINK WE’RE STILL ON THAT PATH WE’VE BEEN ON FOR SIX YEARS, WHERE IT’S
GROWING AT 2 TO A LITTLE BIT BETTER THAN 2% ANNUALLY AND THAT’S NOT A BAD RATE,
BUT IT’S NOT A BOOMING RATE EITHER. I THINK THAT’S ABOUT WHERE WE STILL ARE.
4/8
QUICK: SO IT MAY NOT BE A BOOMING RATE FOR THE ECONOMY, BUT IT’S PROBABLY ALSO
NOT AN ECONOMY THAT WARRANTS 0% INTEREST RATES. I MEAN THAT’S A FIRE SALE,
THAT’S AN EMERGENCY SORT OF SITUATION. WHY NOT MOVE OFF OF ZERO?
BUFFETT: THEY PROBABLY WILL. I DON’T KNOW. LIKE I SAY, IF OUR RATES GOT
SUBSTANTIALLY HIGHER THAN EUROPE’S, I WOULD NOT THINK THAT WOULD NECESSARILY
BE GOOD FOR EXPORTS FOR THIS COUNTRY. IN ECONOMICS YOU CAN NEVER JUST DO ONE
THING. THERE’S ALWAYS AND THEN WHAT? I THINK THE “AND THEN WHAT” OF MOVING
RATES UP SUBSTANTIALLY WHILE EUROPE IS TRYING TO KEEP THEM VERY LOW, IS GOING TO
HAVE SOME CONSEQUENCES DOWN THE LINE.
QUICK: DO YOU THINK THIS FED HAS A DIFFERENT JOB? HAVE THINGS REALLY GOTTEN THAT
MUCH MORE GLOBAL AND KIND OF OUT OF THE FED’S CONTROL?
BUFFETT: I THINK THEY’D HAVE TO THINK ABOUT EVERYTHING. I MEAN THAT’S THEIR JOB
AND THEY’RE LOOKING AT A LOT OF THINGS THAT I’M NOT LOOKING AT AND THEY MORE
GET BETTER INFORMATION I’M SURE ON LOTS OF THINGS. SO I DON’T ENVY THEIR JOB AND
TO SOME EXTENT MAYBE BY THEIR COMMENTARY, THEY’VE SORT OF PUSHED THEMSELVES
INTO SOMETHING WHERE THEY HAVE TO DO A LITTLE BIT SOMETHING HERE. BUT I WOULD
NOT BE TERRIBLY AGGRESSIVE IF I WERE IN THAT POSITION.
QUICK: SO THERE ARE SOME PEOPLE WHO ARE IN THE CAMP OF RAISE IT 25 BASIS POINTS
AND THEN BACK OFF AND DON’T DO ANYTHING FOR A LONG TIME. WHICH IS FINE IN
THEORY. BUT THE MARKET DOESN’T KNOW EXACTLY WHAT YOU’RE DOING UNTIL THEY
WATCH ON A DAY-TO-DAY BASIS.
BUFFETT: I’VE NEVER MADE A DECISION BASED ON WHAT I THINK THE FED IS GOING TO DO
NEAR-TERM OR LONGER-TERM. I MEAN IT JUST DOESN’T ENTER. WHEN WE DECIDED TO BUY
PRECISION CASH PARTS, THERE WASN’T ONE WORD OF CONVERSATION WITH MY PARTNER,
CHARLIE OR WITH OUR BOARD OF DIRECTORS ABOUT FED ACTION. AND THE SAME THING
GOES WITH OUR PURCHASE OF PHILLIPS PETROLEUM. PHILLIPS 66.
QUICK: IN MAY, WHEN I SPOKE WITH YOU AND BILL GATES IN OMAHA FOR THE BERKSHIRE
ANNUAL MEETING, YOU BOTH SAID THAT WHETHER THE STOCK MARKET WAS FAIRLY
VALUED OR NOT DEPENDED ON WHAT HAPPENED WITH INTEREST RATES.
BUFFETT: CORRECT.
QUICK: SO IF INTEREST RATES GO UP FROM HERE, DOES THAT CHANGE YOUR PERSPECTIVE
ABOUT THE STOCK MARKET OVERALL?
BUFFETT: NOT IF THEY GO UP 100 BASIS POINTS. IF THEY GO UP 400 OR 500 BASIS POINTS
THAT CHANGES A LOT.
QUICK: BUT AT THIS POINT, EVEN IF WE WERE TO SEE 100 – LIKE A 1 POINT –
5/8
BUFFETT: 100 BASIS POINTS, IS NOT – IF INTEREST RATES, IF YOU GUARANTEE ME INTEREST
RATES WOULD BE AT 100 BASIS POINTS HIGHER THAN THIS FOR THE NEXT 20 YEARS, I
WOULD BE BUYING STOCKS HAND OVER FIST.
QUICK: WE KNOW THAT THERE ARE A LOT OF STOCKS THAT YOU’VE BEEN INVOLVED WITH.
BANK OF AMERICA IS ONE OF THEM. I THINK YOU OWN NONVOTING SHARES AND
WARRANTS?
QUICK: SO YOU WON’T GET THE CHANCE TO VOTE THIS, BUT WE’LL ASK YOU YOUR OPINION
ANYWAY. BANK OF AMERICA, THERE’S BEEN A LOT OF TURMOIL ABOUT THE IDEA OF BRIAN
MOYNIHAN TAKING THE ROLE OF BOTH CEO AND CHAIRMAN. IT WENT AGAINST A 2009
PROXY VOTE THAT WAS TO KEEP THOSE TWO ROLES SEPARATE. NOW THEY’RE GOING TO BE
ASKING SHAREHOLDERS DIRECTLY. WHAT DO YOU THINK?
BUFFETT: WELL IF I COULD VOTE, I WOULD VOTE AS MANAGEMENT SUGGESTS, WHICH IS TO

HAVE BRIAN TAKE ON THE CEO AND CHAIRMAN JOB.
QUICK: ARE YOU BOTHERED BY THE IDEA OF JUST HOW IT WAS DONE? HOW THE BOARD DID
THIS AND IGNORED WHAT WAS A BINDING PROXY VOTE FROM 2009?
BUFFETT: I GUESS THEY’RE PUTTING IT BACK TO THE SHAREHOLDERS NOW, SO I’M NOT
BOTHERED – I DO NOT THINK THAT’S A BIG DEAL. I THINK THAT WHAT BRIAN DOES, BRIAN
HAS DONE, HE TOOK A COMPANY THAT WAS JUST A TERRIBLE MESS, I MEAN IT’S BEEN
VIRTUALLY DESTROYED, THE PUBLIC HATED IT, THE GOVERNMENT HATED IT. THEY HAD ALL
KINDS OF LAWSUITS COMING IN AND EMPLOYEE MORALE WAS TERRIBLE. AND HE’S
RESUSCITATED IT AND I THINK HE HAS DONE A FIRST CLASS JOB. AND IF HE IS THE
CHAIRMAN AS WELL AS THE CEO, GOD BLESS HIM.
QUICK: IT WAS A COMPANY IN CRISIS AND AS SOMEBODY WHO HAS BEEN IN BUSINESS FOR
A LONG TIME YOU’VE BEEN THROUGH A CRISIS OR TWO YOURSELF. AND I THINK YOU’VE
EVEN COME UP WITH A MOTTO THAT YOU TELL PEOPLE TO STICK WITH: GET IT RIGHT, GET IT
FAST, GET IT OVER, BUT GET IT RIGHT FIRST. AND THAT HAS BEEN YOUR WAY.
BUFFETT: YEAH, YOU GOT TO GET IT RIGHT, THEN GET IT FAST, GET IT OUT AND GET IT OVER.
BUT YOU GOT TO GET IT RIGHT FIRST. AND THAT’S WHAT HE’S WORKED AT DOING.
QUICK: DO YOU THINK THAT’S WHAT HILLARY CLINTON HAS DONE WITH THE EMAIL
SITUATION?
BUFFETT: WELL THAT’S SLIPPERY. I WOULD SAY THAT NO, I WOULD SAY IT WAS A MISTAKE. IT
WAS A MISTAKE TO HAVE THE PRIVATE SERVER AND I THINK IT WAS A MISTAKE. IN THE FIRST
TALK SHE ACKNOWLEDGED THE FACT SHE WOULD HAVE DONE IT DIFFERENTLY, I THINK IT’S
BETTER JUST TO BE VERY BLUNT IN THOSE KIND OF SITUATIONS. SAY I MADE A MISTAKE AND
YOU KNOW, FORTUNATELY, IT DID NOT RESULT IN ANY BREACH OF SECURITY OR
CONFIDENTIAL. BUT THE BEST THING TO DO IS GET IT BEHIND YOU.
6/8
QUICK: IT’S BEEN MONTHS AND MONTHS OF THIS. AND AS RECENTLY AS LAST MONTH SHE
WAS MAKING JOKES ABOUT IT. KIND OF COMPARING IT TO SNAPCHAT. DOES THAT BOTHER
YOU AS A SUPPORTER?
BUFFETT: IT DOESN’T BOTHER ME, BUT I DON’T THINK IT WAS THE BEST WAY TO HANDLE IT.
BUT IT DOESN’T BOTHER ME. WHAT I CARE ABOUT WITH HILLARY IS I CARE ABOUT WHAT
SHE WOULD DO IF SHE WERE PRESIDENT OF THE STATES AND HER ABILITY TO DO IT IF SHE
BECOMES PRESIDENT OF THE UNITED STATES. AND I THINK IN THOSE BOTH RESPECTS, I’M A
TERRIFIC SUPPORTER.
QUICK: WE’VE BEEN WATCHING HER POLL NUMBERS, THE MOST RECENT POLL SHOWS THAT
YOU ACTUALLY HAVE BERNIE SANDERS WHO HAS TAKEN A LEAD OVER HER IN NEW
HAMPSHIRE AND IOWA. ARE YOU SURPRISED BY THAT?
BUFFETT: WELL I’M SURPRISED, BUT I THINK BERNIE SANDERS HAS BEEN A TERRIFIC
CAMPAIGNER. I THINK HE CAMPAIGNS EXACTLY AS I WOULD HOPE THAT I WOULD
CAMPAIGN IF I WERE A CANDIDATE.
QUICK: HOW SO?
BUFFETT: WELL, HE’S BEEN FORTHRIGHT. HE’S NOT BEEN KNOCKING THE OTHER
CANDIDATES. HE DOESN’T – HE’S NOT GOING AROUND SAYING NASTY THINGS ABOUT
OTHER PEOPLE. HE’S JUST SAYING HERE’S MY PROGRAM. IF I GET ELECTED I WOULD WANT
TO HAVE ANY JUDGE BE PLEDGED TO GETTING RID OF CITIZENS UNITED THAT I CARE ABOUT
ALL THE PEOPLE THAT ARE BEING LEFT BEHIND. I THINK HE’S RUN A MODEL CAMPAIGN. HE’S
NOT GOING TO GET ELECTED, BUT I THINK HE – I ADMIRE HIM.
QUICK: IN TERMS OF JOE BIDEN POTENTIALLY GETTING INTO THE RACE, DO YOU KNOW HIM?
WHAT DO YOU THINK OF HIM?
BUFFETT: I PROBABLY ONLY MET HIM ONCE OR TWICE IN MY LIFE. HE’S RUN FOR PRESIDENT
TWICE. HE SPENT 40 YEARS IN POLITICS. NOBODY RUNS FOR PRESIDENT TWICE AND GETS
TO BE VICE PRESIDENT THAT DOESN’T CONSIDER RUNNING AGAIN, IF THEY THINK THEY
HAVE A CHANCE, A REASONABLE CHANCE. AND I’M SURE THAT’S WHAT HE’S WEIGHING.
PLUS HE HAS ALL THE PERSONAL PROBLEMS TO DEAL AS WELL, BUT I THINK IF HE THINKS
THERE’S A REASONABLE CHANCE OF GETTING THE NOMINATION, I THINK HE’LL RUN. BUT IT
DOES GET TOUGHER AS THE WEEKS GO BY.
QUICK: THE PERSONAL PROBLEMS, YOU MEAN THE DEATH OF HIS SON – STILL GETTING
PAST THAT?
BUFFETT: YES I MEAN THAT IS A VERY, VERY – AND HIS SON EXPRESSING TO HIM THAT HE
HOPED HE WOULD RUN. THAT’S AN ADDED BURDEN IN EFFECT.
QUICK: WE HAVE BEEN WATCHING DONALD TRUMP VERY CLOSELY AND I KNOW WE’VE
SPOKEN WITH YOU –
BUFFETT: YOU AND 320 MILLION OTHER AMERICANS, YEAH.
7/8
QUICK: YEAH. DO YOU WATCH HIS PRESS CONFERENCES?
BUFFETT: OH SURE. HOW YOU CANNOT WATCH THEM?
QUICK: HE SAID SOMETHING VERY INTERESTING THE OTHER DAY. HE SAID THAT JEB BUSH
AND HILLARY CLINTON ARE OWNED BY BILLIONAIRES AND BY SPECIAL INTEREST GROUPS.
THAT THE REASON YOU SHOULD SUPPORT HIM IS BECAUSE HE’S NOT OWNED BY PEOPLE
LIKE YOU. WHAT DO YOU THINK? HE’S TAPPED INTO SOMETHING –
BUFFETT: NO. WELL, I DON’T BELIEVE THAT’S TRUE. I BELIEVE THAT BILLIONAIRES AND
SPECIAL INTERESTS HAVE A GREATER INFLUENCE IN POLITICS GENERALLY THAN I WOULD
LIKE THEM TO HAVE AND I THINK CITIZENS UNITED REALLY SORT OF OPENED THE BARN
DOOR ON THAT. BUT IN TERMS OF EITHER ONE OF THOSE PEOPLE BEING OWNED, THAT
WOULD NOT BE TRUE.
QUICK: IN TERMS OF WHAT HE’S ABLE TO TAP INTO, THOUGH, THERE’S SOMETHING THAT
HE’S REALLY CONNECTED WITH.
BUFFETT: THAT’S FOR SURE.
QUICK: FOR UPSET WITH THE ESTABLISHMENT, THEY LIKE PEOPLE FROM THE OUTSIDE. AND
IN FACT I THINK IN THE REPUBLICAN POLLS, IF YOU TAKE TRUMP, FIORINA AND CARSON
AND ADD THEM UP, IT’S MORE THAN HALF OF THE REPUBLICAN VOTERS WHO ARE
SUPPORTING THEM.
BUFFETT: RIGHT. THREE PEOPLE THAT HAVE NEVER HELD AN OFFICE. THE FEELING OF THE
AMERICAN PUBLIC, AND THAT MAY EVEN EXTEND INTO THE DEMOCRATIC RACE, ALTHOUGH
SANDERS HAS BEEN IN. THERE’S A FEELING I’M FED UP SO I WANT SOMETHING ELSE.
QUICK: WHAT DO YOU THINK HAPPENS? HOW DOES THAT PLAY OUT? BECAUSE THIS IS A
LITTLE DIFFERENT FROM WHAT WE HAVE SEEN BEFORE.
BUFFETT: THE REPUBLICAN RACE REMINDS ME OF BEING AT AN AMUSEMENT PARK AND

WATCHING ALL THE KIDS IN BUMPER CARS. YOU’VE GOT 1700 BUMPER CARS SMACKING
INTO EACH OTHER. AND I THINK IT WILL GET SORTED OUT, BUT THERE’S NO QUESTION THAT
WHAT YOU’RE SEEING IS INDICATIVE OF A LOT OF DISSATISFACTION IN THE COUNTRY WITH
WASHINGTON POLITICIANS AND PERHAPS THE MEDIA TO SOME EXTENT, TOO.
QUICK: OK WELL, WARREN, I WANT TO THANK YOU VERY MUCH FOR YOUR TIME TODAY. WE
REALLY APPRECIATE IT.
BUFFETT: OK. THANK YOU.
QUICK: AND WE HOPE YOU ENJOY YOUR LUNCH.
BUFFETT: I WILL. THANK YOU.
8/8
NO MEDIA ID PG. 1
CNBC NBC UNIVERSAL
"WARREN BUFFETT"
INTERVIEW WITH WARREN BUFFETT
CORRESPONDENTS: BECKY QUICK, JOE KERNEN AND
ANDREW ROSS SORKIN
NO MEDIA ID
ANDREW ROSS SORKIN:
06:00:02:00 (MUSIC) Good morning and welcome to Squawk Box right here on CNBC. I'm Andrew Ross Sorkin along
with Joe Kernen. Becky Quick is in Omaha this morning with our very special guest for the morning, Warren Buffett.
We're gonna get to them in just a minute. But first we get you caught up on this morning's top stories. Here we go.
We're gonna start with the markets.
06:00:17:00 Take a look, the U.S. equity futures-- at this hour-- because we have a pretty interesting story here. Dow
Jones, looks like we open off about 90 points, NASDAQ looking open down as well, off about 34 points. And the S&P 500
looking opening down about 12 points off. Overseas in Asia and Japan, Nikkei fell by 1%, the Hang Seng off by 1.3%. And
China's Shanghai Composite falling nearly 3%.
06:00:40:00 That's following China's close. The country's central bank cut its reserve requirement ratio by half a
percentage point. Also European equity-- at this hour-- you're gonna see there-- again, right now it's across the board
with the DAX down-- more than 1.5%-- the CAK (PH) off almost, well, .75% at 5,100-- off a little low for-- .5%.
06:01:02:00 In corporate news, Valeant Pharmaceuticals announced yesterday that CEO Michael Pearson will return
from medical leave. The company also postponing the filing of its Q4 results which had already been rescheduled from
last week to today. Shares of Valeant-- trading right now-- before the open this morning, you're gonna see actually--
oddly perhaps even marginally down off about that 1%.
NO MEDIA ID PG. 2
06:01:24:00 And we should also tell you that JPMorgan fired the head of its government debt trading desk, another
employee, for failing to follow compliance procedures. It's coming according in The Financial Times, the two employees
left the bank in early January. But for-- the reasons for their departure were not disclosed at the time.
06:01:40:00 And a resounding win, we should tell you over the weekend, for Hillary Clinton in South Carolina over
the weekend. Clinton beat Democratic rival Bernie Sanders by 48 percentage points. It was Clinton's third win in the first
four nominating contests. A dozen states will vote tomorrow on Super Tuesday.
JOE KERNEN:
06:01:59:00 All right. We are watching gold prices this morning. Precious metal is on track for its best mon-- best
month in four years, as investors have been seeking a safe haven. And take a look at the price of crude is down today,
but-- not a huge soar (?) yet, it's at $32.69. It's when it gets down, it looks like it's gonna break under $30 again, that--
we start worrying that the markets are low
06:02:18:00 Shanghai (UNINTEL) is back below 2,700 now. Let's-- right now, let's get to Becky Quick. I don't know
how much sleep she got. She's in Omaha with her special guest this morning. I-- you know, Becky, I-- I heard there was,
you know, the Oscars, which golly, everybody wants to watch. And then-- but-- I was conflicted 'cause (LAUGH) the-- the
finale--
BECKY QUICK:
06:02:37:00 Was I?
JOE KERNEN:
06:02:38:00 --all-- the all-time finale of Downton Abbey was one, two hours I think, and Walking Dead. So I said, "You
know what? I can't-- I'm not gonna choose, I'm goin' to bed." And I went to bed before 8:00, so (LAUGH) I have no-- I
have no idea-- what--
BECKY QUICK:
06:02:52:00 Well, I was with you.
JOE KERNEN:
06:02:53:00 Huh?
NO MEDIA ID PG. 3
BECKY QUICK:
06:02:54:00 I was with you on that--
JOE KERNEN:
06:02:54:00 Good.
BECKY QUICK:
06:02:55:00 I went to-- I went to bed, I have no idea what happened on any of those things except for the--
06:02:58:00 (OVERTALK)
JOE KERNEN:
06:02:58:00 I can't tell you how-- I can't-- yeah, I brought-- I brought a little stone that says "tranquility" with Chinese
letters. And I feel very tranquil 'cause I didn't have to-- you know I'm reading about some stuff this morning. There's a
lotta conflict going on in the world right now, even at the Oscars. And I-- and I feel good. I feel good that I'm-- I just-- you
know, sort of in my own place. And I feel tranquil. So I'm gonna toss it out to you and-- and we'll listen to--
BECKY QUICK:
06:03:22:00 (LAUGH) I'm with you. And-- you're a wise man, Joe. I follow your ways all the time.
JOE KERNEN:
06:03:26:00 Well, you're with the wisest, so--
BECKY QUICK:
06:03:27:00 Here we go. We-- I g-- I am. So let's get straight to that. We are in-- Omaha this morning, live with the
oracle of Omaha, Warren Buffett. He's the chairman and CEO of Berkshire Hathaway. He is just off the report of his
annual letter the-- that he writes to shareholders. And Warren, it's great to see you this morning.
WARREN BUFFETT:
06:03:44:00 Oh, great to have you here.
BECKY QUICK:
06:03:45:00 You know-- I was thinking a little bit about it, and-- we haven't gotten to talk to you since December.
NO MEDIA ID PG. 4
WARREN BUFFETT:
06:03:49:00 Uh-huh (AFFIRM).
BECKY QUICK:
06:03:50:00 Since December, the last time we talked to you, the markets have gone haywire. People have been
wondering-- what's going on and people have actually been clamoring, wondering when we were gonna get the chance
to talk to you. So what do you think happened in the last four or five months since we talked to you?
WARREN BUFFETT:
06:04:05:00 Well-- in a sense, probably not that much, if you measure where we are now versus last September. But-
-
BECKY QUICK:
06:04:11:00 Yeah, a little weaker.
WARREN BUFFETT:
06:04:13:00 People--
BECKY QUICK:
06:04:12:00 I mean--
06:04:13:00 (OVERTALK)
WARREN BUFFETT:
06:04:14:00 Yeah-- I never know what markets are going to do. There's never been a time in my life when I was-- I
know what markets are going to do over a long period of time. They're gonna go up. But-- in terms of what's going to
happen in a day or a week or a month or a year, even-- I d-- I-- I never felt that I knew it then and I never felt it was
important. I-- I-- I-- I will say that in ten or 20 or 30 years, I think stocks will be a lot higher than they are now.
BECKY QUICK:
06:04:38:00 You know, I-- I-- I know you look at things like that, but I-- I-- I also know that you look at stocks and try
to decide if they're fairly valued, if they're overvalued, if they're looking cheap at this point. And we have been waiting
for a correction for an awfully long time. That's finally come. Do-- do stocks look cheaper to you? Just based on where
we've come?
NO MEDIA ID PG. 5
WARREN BUFFETT:
06:04:55:00 Well, any time the stocks go down, as far as I'm concerned, I like it. Because I'm a net buyer of stocks.
I'm-- I've been buying stocks ever since I was 11 years old. So-- when stocks go down, it's good news, just like when
hamburgers go down it's good news, or Coca-Cola goes down, it's good news in terms of anything I buy.
06:05:11:00 But the-- you know, stocks are gonna go-- you can probably look it up as to what percent of the days of
the l-- you know, since I was born have gone down. And maybe it'd be-- 30% or something like that. And-- you-- you
can't predict what stocks will do. But-- in-- in the short run. But you can predict that American business will do well over
time.
06:05:28:00 And-- just take the 20th century. Stocks went from $66, the dollar average, $66 to $11,497 and-- and
you were getting three times as much in dividends as the whole average were selling for at the start. And you had-- you
had two world wars and you had a Great Depression, flu epidemics, all kinds of things. Yeah.
06:05:50:00 American business will do fine over time. And if you own a piece of it, and if you don't (UNINTEL)
yourself-- the only-- the only person who can cause you to get a bad result in stocks is yourself, you know?
BECKY QUICK:
06:06:00:00 (LAUGH) Yeah, unfortunately that's the biggest problem, is trying to fight yourself in some of these
situations.
WARREN BUFFETT:
06:06:04:00 Yeah.
BECKY QUICK:
06:06:05:00 Have you been buying more stock lately just because prices have come down? Have you upped your
percentages in other things just 'cause--
WARREN BUFFETT:
06:06:12:00 We're almost always a buyer of stocks. So we have bought more stocks since the end of the year. But we
had-- we earned $17 and a fraction billion last year and we had our (UNINTEL) off $4 billion, which is additional money
available. And so we're almost always a buyer of stocks. And we're a more aggressive buyer when they're going down. I
NO MEDIA ID PG. 6
mean-- I feel much better when they're going down. But-- it's hard to think of very many months when we haven't been
a net buyer of stocks.
BECKY QUICK:
06:06:42:00 Let-- let me ask you this. Part of the reason that the stocks have come down so precipitously-- is because
people look at the economy and they get awfully worried with stuff they see happening around the globe. They see that
there's been a recession here in manufacturing and they worry that that's gonna spill over to the broader economy.
What-- what do you see in your businesses and in the companies that you own stakes in?
WARREN BUFFETT:
06:07:03:00 The bus-- business, I would say, is a little softer-- in many places, than people I (UNINTEL) than I
anticipated will say four or five months ago. That to me is in reverse. But, you know, we've talked before how since the
fall of 2009, overall the economy's just kept movin' up around 2%. And people talked about dipple-- a double dip, you
remember hearing that, you know, three or four years ago.
06:07:26:00 And-- and then they talk about it accelerating. And-- and they had (UNINTEL PHRASE) to be (UNINTEL)
about 2% most of the time. And-- and-- you know, that is not a bad clip, incidentally. I mean, it-- it will take you a long
way. But-- I don't-- I don't think I know what business will do next-- next month or next year.
06:07:46:00 I mean, I bought my first stock in April of 1942. I was 11. And Pearl Harbor had happened three or four
months earlier. We were losing the war. I mean, the-- the-- you wanna talk about a bad outlook-- (LAUGH) for the
country. Now, nobody thought we were going to lose the war, but at that time, we were getting clobbered in the Pacific.
06:08:07:00 And-- but the Dow Jones average was 100, I mean, you know? And-- and it was a good time to buy stock.
I bought-- I bought stock after 9/11. I bought stock in nineteen-eighty-- '87 after the-- the big crash in the fall. It-- the
country's not gonna go away. The clients aren't gonna go away. The people aren't gonna go away. The (UNINTEL) aren't
gonna go away.
06:08:32:00 The country will grow in value over time. Now who gets it is another question. But-- (LAUGH) but it'll
grow in value. And if it grows in value, businesses will grow in value. So it's a terrible mistake, that buy or sell stocks face
(UNINTEL PHRASE) you think business is gonna do next month or next-- next-- even next year.
NO MEDIA ID PG. 7
BECKY QUICK:
06:08:49:00 Although the good thing that the economy's a little weaker than we would have expected if we're
looking at it five--
WARREN BUFFETT:
06:08:53:00 Well, correct.
BECKY QUICK:
06:08:54:00 --months ago. What-- what-- what do you think happened?
WARREN BUFFETT:
06:08:57:00 Well, I'm not sure what happened. The-- people were just more optimistic then. And-- and-- you had the
general thinking, I think, if you go back that-- with the oil was just-- the low price of oil was going to put more money in
the pockets of consumers and-- and that-- that was going to cause-- a pickup in business and so on.
06:09:18:00 And-- and it wasn't (UNINTEL PHRASE) that. I mean, the-- the-- the American public got a big gasoline
dividend, in effect. The-- that's an interesting plight, which we can get to if you like, as to why-- lower oil prices, which
should be good for oil in foreign countries, really may not be in the short run. And we saw what happened on that
(UNINTEL).
BECKY QUICK:
06:09:38:00 What-- what-- why-- why is that?
WARREN BUFFETT:
06:09:39:00 Well, it's a very interesting thing. I mean-- we all learned in freshman economics that-- that if oil went
down in price, it was bad for the exporters and good for the importers. And-- and certainly, when we had the oil shock
back 40 years ago, it was a tax on-- on-- on America and the Saudis were leveling the tax and so on.
06:09:57:00 There's no question that it is good for the country, that lower oil prices. But what happens is that the
benefit to the consumer, it feeds in-- next time you go to-- to the filling station, the gas station, you know, you save 15
or 20 bucks. It feeds in very slowly. But the capital values disappear immediately.
NO MEDIA ID PG. 8
06:10:19:00 So if you're sitting with an oil industry in this country that's producing ten million barrels a day or
something of the sort-- that's-- that-- at $100-- ten million barrels a day is-- is a billion dollars of revenue-- $365 billion a
year, capital values may be $2 trillion based on that. Now all of a sudden you take it down to where you're not making
any money, and the $2 trillion of capital values disappears very quickly, the bank loans against it get sour very quickly.
06:10:51:00 They-- they quit buying from the service companies very quickly. So the negative effects to this huge
capital value happen very quickly, whereas it's easing to the consumer very slowly. So even though it's good for the
country net, when you're an importing-- economy, it can be very bad in the immediate effects it has.
BECKY QUICK:
06:11:11:00 But we're not looking at an immediate effect anymore. We're-- we're anniversering (?) these low oil
prices--
WARREN BUFFETT:
06:11:17:00 Well, right.
BECKY QUICK:
06:11:17:00 So you are talking about an extended period of time. Does it actually change in the point in the economy
where--
06:11:23:00 (OVERTALK)
WARREN BUFFETT:
06:11:23:00 No. Because-- the-- the-- the-- the loans against the oil companies, they-- they don't go bad the first day,
and all of that. So--
BECKY QUICK:
06:11:29:00 Sure.
WARREN BUFFETT:
06:11:29:00 --so there's-- you-- you get a lot of-- you-- you-- you-- you get a lot of fallout-- in terms of capital values,
it hits fairly (UNINTEL). And the banks feel it and this oil supplier-- oil equipment suppliers feel it. So all of those things
contract very quickly. People lose their jobs-- in-- in-- in the-- in the-- producing areas. So the-- very tough things
happen-- to the economy fairly quickly. And the benefits just keep on falling through slowly.
NO MEDIA ID PG. 9
BECKY QUICK:
06:12:02:00 That-- that explains the correlation that we've seen in weak oil prices and weak stock prices. Is-- is there
a point where you think that correlation looses-- loosens up though? And-- and we start to see the benefits instead?
WARREN BUFFETT:
06:12:14:00 Overall, it's good for an oil-importing country, which we are, (UNINTEL) will our oil prices. If oil were
free-- it wouldn't be good-- good for us. (LAUGH) It wouldn't be very good. So I-- so I-- and-- and-- and-- and, you know,
you'd have a billion jobs to put in the oil industry, which would happen immediately.
06:12:31:00 And so it-- it would-- it would clobber us in certain areas initially. And (UNINTEL) would be bad and
(UNINTEL) and there are all kinds of things. And even-- even now-- our-- we have a furniture operation in Houston. And
we have them throughout the country, our-- our Houston furniture operation--
BECKY QUICK:
06:12:47:00 The Nebraska Furniture Mart.
WARREN BUFFETT:
06:12:49:00 Well, this is-- this is actually a company we'll start, we're in Dallas--
BECKY QUICK:
06:12:50:00 Oh, okay.
WARREN BUFFETT:
06:12:52:00 Dallas hasn't been (UNINTEL) but in Houston, we've done the worst in furniture-- among other various
operations. But that's to be expected.
BECKY QUICK:
06:13:00:00 Because of the location with--
06:13:01:00 (OVERTALK)
WARREN BUFFETT:
06:13:02:00 It's because of oil.

NO MEDIA ID PG. 10
BECKY QUICK:
06:13:02:00 --so heavily oil.
WARREN BUFFETT:
06:13:03:00 Because of where it is. And-- and you see a lot very quickly.
BECKY QUICK:
06:13:05:00 Well, when you say that the economy hasn't been in-- as strong as you would expect it if you were
looking-- four or five months ago, are-- are you talking about from the industrial operations that you watch? Are you
talking about from a consumer? Are you talking about across the board? Because Berkshire's much more industrial-
focused than it was eight years ago.
WARREN BUFFETT:
06:13:22:00 Yeah, you see it in various industrial parts. And-- well, you see what rail-- rail-- rail was disappointing last
year, it got more disappointing as the year went along, and so far this year it's-- it's-- it's been the case.
BECKY QUICK:
06:13:37:00 Although in your-- in your letter, you really laid out the strong performance that Burlington Northern
Santa Fe based-- compared to a year earlier.
WARREN BUFFETT:
06:13:43:00 Yeah, but I would have expected the industry to do better, in which case we would have done even
better. But we-- we were coming off a bad year, which helps (LAUGH) in comparisons. And-- and we-- we ran the
railroad-- a lot better last year than the year before. But overall, the rail industry had a disappointing year. It got poor
during the fourth quarter, it's-- it's been poorer in the first quarter of this year.
06:14:09:00 And there again-- some of that's secondary. The-- the biggest thing has been coal, actually. But-- but in
oil-- 3% or 4% of our railroad-- car holdings come from oil. But if you look also at frac sand, that's very big. And-- there's
all kinds of ways things ripple through the economy.
BECKY QUICK:
06:14:31:00 But back to that-- that key question though, the question that I think investors have been trying to figure
out, is that weakness in industrial areas, does that spill over to the broader consumer? And what-- what do you think?
NO MEDIA ID PG. 11
WARREN BUFFETT:
06:14:43:00 Well, look, it-- it-- it hasn't so far, except in certain areas where it's been to more exposed--
06:14:48:00 (OVERTALK)
BECKY QUICK:
06:14:49:00 In Houston, for example or--
WARREN BUFFETT:
06:14:49:00 Yeah, yeah, or North Dakota.
BECKY QUICK:
06:14:50:00 --or North Dakota.
WARREN BUFFETT:
06:14:51:00 Yeah. But-- but that-- that-- that shouldn't really concern investors. I mean, if you're buying-- if you're
buying a farm, if you're buying an interest in a local business, you're buying-- an apartment house to rent out in Omaha
to people-- you shouldn't be looking at the next six months and trying to decide whether now is the time to buy. You
should look at what the asset is likely to produce over time and what you have to pay for it. And if you can buy it
cheaper, so much the better. It-- it's-- for people to try and time stocks is crazy.
BECKY QUICK:
06:15:26:00 We're gonna talk a lot more about the annual report-- the annual letter-- in-- in just a few moments, if
you don't mind. In the meantime though, we'll send it back to Andrew. And-- Andrew, I know we have more coming.
ANDREW ROSS SORKIN:
06:15:36:00 Thank you-- Becky and Warren. We're gonna have much more from Warren Buffett straight ahead,
including Berkshire's fourth quarter results. We're gonna talk about 'em. Plus-- we should tell you right now, U.S. equity
futures at this hour are looking down. And Dow Jones, looks like we're gonna open off nearly a hundred points right
now. Squawk returns with Warren Buffett in just a moment. (MUSIC)
06:16:07:00 (PAUSE IN AUDIO)
* * *TRANSCRIBER'S NOTE: COMMERCIALS NOT TRANSCRIBED.* * *

NO MEDIA ID PG. 12
BECKY QUICK:
06:18:39:00 Good morning again, everyone. And welcome back to Omaha, Nebraska, where we are live with Warren
Buffett, chairman and CEO of Berkshire Hathaway. He's just out over the weekend with his annual letter to shareholders,
and Warren, how many have you written now? I know you've been running Berkshire Hathaway for 51.
WARREN BUFFETT:
06:18:54:00 Yeah, I-- I-- I've-- I've written 'em all. I-- I didn't use to sign 'em the first half, but (LAUGH) six years,
sometimes I would sign-- sign them later on, so-- but-- but I've written them. I've written all 51 of them.
BECKY QUICK:
06:19:06:00 I mean, this is-- a process that-- I think takes you most of the year. You start thinking about the next
year's, probably, tomorrow?
WARREN BUFFETT:
06:19:14:00 I'm always thinking about stuff. You know, and I-- I-- I have some-- some things that I might have put in
this year. But when I got to s-- 16,000 words, I decided I might be losing people. So I-- I-- I'm sort of-- wiser (?) next year.
But-- and-- it's-- it's sort of continuous. It's-- it's-- there are some things that are-- actually just reporting on what
happened. And then there's other-- there's a few subjects that I'd like to sort of mouth off on. (LAUGH)
BECKY QUICK:
06:19:37:00 Because you don't get enough opportunity to do that?
WARREN BUFFETT:
06:19:40:00 Well, (LAUGHTER) I-- I think I-- my family would rather have me do it in print than do it on that first
(UNINTEL).
BECKY QUICK:
06:19:44:00 Well, let-- let's start off talking with just the report itself in terms of how the businesses are doing. It was
a strong year. Profit-- was up sharply. How would you just say-- the overall business is doing right now?
WARREN BUFFETT:
06:19:56:00 Well, most of the businesses did pretty well last year. And-- you know, our goal is to add the
fundamental earning power every year. Now, that doesn't mean we think the earnings will go up every year, because
sometimes we'll be in recession or something of the sort. But we wanna-- you know, end of the year, we've got more
fundamental earning power on an average basis going forward to the start of the year.
NO MEDIA ID PG. 13
06:20:17:00 And-- and since we-- we (UNINTEL) all earnings, we-- we oughta do that. I mean, if you've gotta sell your
entire (?) earnings just to stay flat (?). So-- so every year-- last year we were able to add a couple important businesses.
They didn't actually get done until after the year end. And they will add to our earning power. And they will try to
develop further the earning power of the businesses we already have. And-- and that's the goal year after year.
BECKY QUICK:
06:20:41:00 The big addition for this year will be Precision Castparts.
WARREN BUFFETT:
06:20:44:00 Yeah, I didn't close until about a month after the end of the year. But--
BECKY QUICK:
06:20:48:00 You-- you talk about your powerhouse five, but--
WARREN BUFFETT:
06:20:50:00 Yeah, now we're-- now we're gonna have-- the powerhouse six. (LAUGH) And someday we'll have the
powerhouse 80, I hope. (LAUGH)
BECKY QUICK:
06:20:56:00 Yeah. Just in terms of running through those businesses, you did say that Burlington Northern Santa Fe,
you expect, will have a weaker year this year?
WARREN BUFFETT:
06:21:05:00 Yeah, I-- I-- I would say that it's highly likely that all the U.S. railroads have lower earnings in this year
than last year. And last year was a little disappointing for-- most of them.
BECKY QUICK:
06:21:16:00 But again, that's just this industrial recession that we're seeing?
WARREN BUFFETT:
06:21:19:00 That's just the-- not-- not as many-- not as many carloads you're moving. I mean, you-- every week on
Wednesday-- (UNINTEL PHRASE) railroad, you can-- you can look up the figures and it will tell you crushed stone and
auto and grain and all kinds of different-- commodities, how many cars moved the freight this week. And-- and you can
tell exactly what's going on on the arter-- you can call it the arteries of-- of the economy.
NO MEDIA ID PG. 14
BECKY QUICK:
06:21:42:00 Is-- is-- is that because of this China slowdown? It's hard to imagine that a slowdown in China would hurt
grain movement here.
WARREN BUFFETT:
06:21:49:00 No, grain actually hasn't been so bad. No, the-- the big-- the big culprit's been coal. And-- and that's
gonna continue. It-- it's exacerbated by the fact that coal stocks at electric utility are at a very high level. They measure
'em in terms of days of usage. And-- and they were low a couple of years ago.
06:22:10:00 And so there was-- somewhat of a catch-up. Now there's somewhat of-- of an undershipment to work
off-- excess stocks at the utilities. What partly happened was that our service got bad a couple years ago, a year and a
half of what it was (UNINTEL) and utilities got very worried about their stockpiles coming down.
06:22:31:00 So they s-- perhaps overcompensated a little bit and-- make sure it didn't happen again. So coal's-- coal
piles are-- high at utilities. But even with the (UNINTEL) factor, coal usually is laying down with utilities. And many
utilities can shift between natural gas and coal with a lot of their generation. And natural gas prices being where they
are just hurts coal a lot.
BECKY QUICK:
06:22:55:00 Just going through the report, looking through some of the numbers, things caught me off guard with
Geico, where the profit fell to $460 million from $1.1 billion. What-- what happened there?
06:23:04:00 (OVERTALK)
WARREN BUFFETT:
06:23:05:00 Well, what happened in-- in-- in the insurance business is pretty interesting-- the auto insurance
business is that-- for the first time in quite a while-- deaths, and-- and accidents too, but for that figure (UNINTEL) or
we've got long histories on. Deaths per a hundred million-- miles driven-- went up. And it's quite interesting.
06:23:30:00 It was-- in the 1930s, it was 15 ti-- you were 15 times more likely to die in an auto accident-- per mile
driven than currently. Fifteen times. And-- and then after World War II, the figure got down from 15 per hundred
million-- probably to seven or something like that, per hundred million. And then Ralph Nader came along and cars got a
lot safer.
NO MEDIA ID PG. 15
06:23:56:00 And now it's just a little over one per 100 million. And that number's just kept going down. So we only
had a little over 30,000 auto deaths in 2014. But in 2015, for the first time in a long time, the trend started going the
other way. The-- and-- and-- we just got figures from the first nine months. But the frequency of auto accidents went up
a lot last year.
06:24:21:00 The number of deaths went up-- to 32,000 deaths, and only about a third are drunk driving. I mean, if
you think about it-- almost 10,000 deaths from up into 32,000 come from drunk driving. Half of the people were killed as
occupants in a car-- or not wearing seatbelts. But I personally believe that distracted driving, which was listed for about
10% of the deaths in 2014, I'll bet that number went up a fair amount. So--
BECKY QUICK:
06:24:50:00 Distracted driving meaning somebody who's talking on the phone or texting while they're driving--
WARREN BUFFETT:
06:24:52:00 Yeah, yeah. One-- one way or another distracted. And-- and that's harder to-- to get the precise figures
on. But-- that was about 10% in 2015, about 3,000 deaths. But in any event, the frequency of accidents, the frequency of
deaths per hundred million vehicle miles went up quite significantly in 2015. And that's the first time in a long time. And
the cars are safer, so people are not driving as well.
06:25:19:00 And then on top of that-- what they call the severity also went up. So as a consequence, our rates were
behind experience-- during the year. I would guess, that this was a guess, for a couple months into the year-- I would
guess that now the r-- rates are more adequate for w-- what the current experience is. It I had to bet. And the people at
Geico won't like me saying this, but-- (LAUGH) I think-- I think our underwriting experience will be better in 2016 than it
was in 2015.
BECKY QUICK:
06:25:53:00 Meaning rates at Geico and probably all the other auto insurers are going up because--
06:25:57:00 (OVERTALK)
WARREN BUFFETT:
06:25:58:00 They've gone up.

NO MEDIA ID PG. 16
BECKY QUICK:
06:25:58:00 They have gone up--
06:25:58:00 (OVERTALK)
WARREN BUFFETT:
06:25:59:00 They've gone-- they've gone up. Yeah. And-- and now you get your policy every six months. So you may
not see it for three months until you renew your policy. But-- but rates-- rates will-- have moved up and you will see it as
you get renewals. And-- and they've gone up because both-- the frequency of accidents has gone up and the cost of
accidents has gone up.
BECKY QUICK:
06:26:20:00 And-- and you think it's tied directly to distracted drivers because they're on their phone?
WARREN BUFFETT:
06:26:23:00 I-- I really think that's gotta be real. In fact, now, there were more miles driven last year too, because gas
gets cheap. And that has some effect. And actually when employment gets better, that-- that effects driving to some
degree. So there were more miles driven.
06:26:35:00 But beyond that-- people should did not drive as well last year as-- they had the year before. And-- and
it's been coming down. I mean, it's-- it's-- when you think about it, it's so much safer to drive a car now than, you know,
when I was a kid, for example. And-- and even when I was-- an adult-- cars have gotten a lot safer.
BECKY QUICK:
06:26:56:00 Okay. Warren, there are a lotta things you brought up in your letter. We're-- we're gonna go through
many of things, fortunately we have you for the next two and a half hours or so. But I wanna get to less of how the
businesses did, but a lot of the other issues that you brought up in the letter too. If you'll-- bear with us though, I think
we need to slip in a commercial break. Joe?
JOE KERNEN:
06:27:15:00 Okay, Beck. Thanks, we're gonna take you to quick-- break. But we're-- we'll be-- we'll be right back. The
Berkshire Hathaway Chairman and CEO Warren Buffett right now. Though as we head to break, here's a look back at a
moment from Squawk Box at Warren, from that show back in 2008.
NO MEDIA ID PG. 17
BECKY QUICK:
06:27:32:00 LeBron James of the Cleveland Cavaliers right there. And-- and he asks, "If you were ever to buy a
professional sports franchise, what would it be?"
WARREN BUFFETT:
06:27:41:00 It would-- well, if I lived in a big city that had-- that had a top team, I-- I'd-- I'd-- I'd wanna buy it there. I
mean--
BECKY QUICK:
06:27:49:00 You would?
WARREN BUFFETT:
06:27:50:00 Yeah. When I was a kid, I thought for sure if I ever got rich that I would be buying a sports team. But--
but I'd rather play on one now. So if there's anybody out there that would like to sign me up, (LAUGH) I'm ready.
BECKY QUICK:
06:31:17:00 Welcome back to Squawk Box here on CNBC, first in business worldwide, I'm Becky Quick and I'm
coming to you live from Omaha, Nebraska today. Joe and Andrew are both here in New York too, and we're all ready to
jump in on this. Right now, we wanna get back to our special guest this morning, Berkshire Hathaway's Chairman and
CEO Warren Buffett.
06:31:33:00 And warren, we talked about a lot of different issues. We have not yet touched on some of your
holdings, the big four investments and some of the other stocks that you hold. I was looking through the list in the
annual report that shows your top 15 holdings. You've got your cost basis, what it costs you for that, and then what the
market valuation for those stocks are today. And it's pretty phenomenal when you look at the huge gains for a lot of the
stocks that you've owned for years and years.
06:31:57:00 In fact, if you look through that list, there's only two stocks that have gone down in value from what you
paid for them. One is John Deere and the other is IBM. You've been buying that stake for-- five years at this point. I think
your cost basis for it was $13.8 billion and at the end of the year, it was worth $11.1 billion. That stock has come down
pretty substantially, even since the end of the year. Was that a mistake to buy into IBM?
NO MEDIA ID PG. 18
WARREN BUFFETT:
06:32:19:00 Well, I-- I don't think so. But-- but it could be. I mean-- we-- we've owned stocks we lost money in, and
sometimes when stocks go down-- we're-- we're wrong and we sell 'em and sometimes-- we think we're right and we
buy more. And-- and sometimes it turns out we are. And maybe-- Washington Post stock, it-- it's-- it's not in that list
because we sold the most of it.
06:32:43:00 But-- but we-- we have about-- a hundred to one profit in it. But it went down by more than a quarter
after we started buying it. So-- we-- we coulda lost that, but it's kept buying it and the company bought it (UNINTEL)
stock and it all worked out very well. On the other hand, we-- I shouldn't say we, I bought Tesco, (LAUGH) it went down.
And it kept going down. And I was wrong about the company.
06:33:07:00 If I'm right about the company, the stock will do fine. And I love buying more. But they go down as-- and-
- and when I think I'm right. And-- and-- and if I'm wrong, you know, you-- you sell 'em out and take a big loss. And we've
done that on a few stocks and bonds over the years. More often, we-- we've made even more money because they went
down initially.
06:33:29:00 I mean, Berkshire itself has gone down 50% three different times since I've been in-- in control of it. And
the first time I was able to keep buying. I had some money left from the partnership. And it went from 90 to 40. And that
was terrific. I mean, I-- I-- I was buying it.
06:33:48:00 Some friends of mine didn't think it was so terrific. But-- (LAUGHTER) and that's happened two times
since then. So-- stock going down is a good thing unless the company itself is-- is losing value. And-- and sometimes
that's the case and sometimes it isn't. I don't think it's the case with IBM, but I could be wrong.
BECKY QUICK:
06:34:06:00 Charlie Munger, your good friend said recently that he'd say the jury is still out on whether the
reinvention will work. I think he also said that he's neither-- a believer or a disbeliever in-- in IBM and its reinvention.
When you start looking at things, should I assume that you're still buying new shares? Or you're kind of waiting to see
what happens now?
NO MEDIA ID PG. 19
WARREN BUFFETT:
06:34:25:00 Well, you'll see what we do. (LAUGH) It's quarterly, it'll happen at the end of every quarter. I g-- I get-- I--
I could tell you this, we-- we've-- we've never sold a share of-- of IBM. You mentioned John Deere, but there-- there's
other stocks that-- that we buy. And-- and there are stocks we own that have gone down a fair amount. American
Express has gone down quite a bit.
06:34:48:00 That-- that's not really different than IBM. I mean, it may be different if (UNINTEL) really paid for it. But
it-- once you pay for a stock, it doesn't mean anything. I mean, look-- look-- look, what means something is where the
company's gonna be in five or ten years. And-- I think Charlie's neutral, I think that-- IBM will be worth more money. But
like I say, I could be wrong. If I'm wrong, you know, we'll-- we'll expect that.
BECKY QUICK:
06:35:12:00 Joe has a question for you on this front as well. Joe?
JOE KERNEN:
06:35:14:00 Yeah, (UNINTEL) Warren, we-- when we have-- analysts on a lot, they-- they-- they do the buy, sell, or
hold-- (UNINTEL). You sound like a hold on IBM right now-- just-- just from your body language.
WARREN BUFFETT:
06:35:25:00 Well, I'm-- I'm-- well, I-- I-- no, (THROAT CLEAR) no, I would say this. (THROAT CLEAR) We're a potential
buyer. But it-- you know, we're buying different things--
JOE KERNEN:
06:35:33:00 You--
WARREN BUFFETT:
06:35:33:00 --at different times. But--
JOE KERNEN:
06:35:34:00 I understand, Warren--
WARREN BUFFETT:
06:35:35:00 But--
NO MEDIA ID PG. 20
JOE KERNEN:
06:35:35:00 --but-- but, you know, I'm tryin' to read between the lines, 'cause you-- you know, you've got big
positions and people key off of what you're doing and you wanna be careful you don't say too much. But if you were
buying up in the 170s and it's at 130, you would buy twice as much as your original stake, the dollar cost average now, if
you were convinced it was going back to 170.
06:35:53:00 So if in the next filing, we don't see that you bought twice as much, I mean, a real commitment, not just,
you know, a couple of thousand shares here and there, then that means that you've soured on it a little bit. And the first
we'll hear about it, 'cause you don't wanna telegraph your intentions, the first we're gonna hear is that you sold the
entire position. So that's my only point. It sounds like you're a hold.
WARREN BUFFETT:
06:36:12:00 Yeah. No, I-- I-- and I would say this, Joe. You-- you (UNINTEL PHRASE) you say we would buy twice as
much, because-- for one thing, we think a long time before we ever go over 10% of a company. Once we go over 10% of
a company, A) we have to report every two days, within two days every transaction.
06:36:30:00 Secondly, we can't-- we can't change our mind for a year and sell on these stocks and-- and have a short
(UNINTEL) profit where we have to give it all back to the company. I mean, you'd become in a much different position--
than 10%. So-- so if you would have to s-- buy twice as much now, I think that would take us to 20% or-- or something of
the sort. But--
JOE KERNEN:
06:36:48:00 All right, but if you could-- okay, here's my point though. Or-- there's a lot of investors out there, Warren
that-- that piggyback off of a lotta things that you do. And I'm sure a lot of 'em bought IBM based on that. Would it be
your recommendation that all these people that followed you into IBM double down on their IBM position right now to
try and make their money back? Or would you-- urge them not to do that?
WARREN BUFFETT:
06:37:09:00 I'm not an investment advi-- I wouldn't-- ever im-- urge them to do anything based on what we-- what
we do. I mean, the-- it-- it-- if they wanna do what Berkshire does, they-- they probably should buy Berkshire. But I am
not into-- I'm not an investment adviser. You know, it's intellectual property that belongs to Berkshire what we're doing
in the-- securities.
NO MEDIA ID PG. 21
06:37:28:00 So we-- we have no desire to encourage people to buy or sell stocks at all, except I will tell people that
over time, I think they will do very well by buying common stocks. And I think the best thing for most of 'em to do is to
buy an index (UNINTEL).
06:37:44:00 I-- I-- I-- I think they're making a big mistake if they're piggybacking me or-- or some other people that
they may-- whose names appear in the paper. They're not-- that is not a great strategy. A great strategy is just to buy
stocks consistently over a lifetime and not worry too much about whether they go up or down in any given month or
year.
JOE KERNEN:
06:38:04:00 Warren-- let me just give--
WARREN BUFFETT:
06:38:04:00 Well, no, (UNINTEL PHRASE) that's what I tell my wife to do in my-- in-- in my-- in my will. You know--
she's gonna put 90% in-- in-- in-- in an index fund and 10% of government. So I told a lot of other people to do that over
the years, and they've done very well.
JOE KERNEN:
06:38:18:00 Warren, let me just get one crack to battle on-- on the IBM issue-- which is this, just to-- to the extent
that investors want to understand your time horizon, or whether this-- turns right or turns wrong, at what point would
you say, if-- if it were-- if it did turn wrong, what is it-- what would be the trigger at which you'd say, "You know what?
Okay. Maybe I-- maybe I did make a mistake"?
WARREN BUFFETT:
06:38:40:00 Well, I was wrong on Tesco, for example. And I was right in recognizing that. You know, and-- and they--
they were doing certain things. I thought when they came into the United States, I thought that was a big mistake. But I
did not anticipate that they would lose the position that they had in the U.K., for example, to the same extent.
06:39:00:00 I was late in recognizing that. We'll sell a stock for one of two reasons, if we need-- if we need the
money to buy something that we like even better. Now that's not easily-- that's almost never a case at Berkshire,
because the money keeps coming in. So-- that wasn't the case 20 or 30 or 40 years ago. But it's not the case now. And
that-- now we'll only sell something basically if we think the-- the company is not worth what it's selling for.
NO MEDIA ID PG. 22
BECKY QUICK:
06:39:25:00 Hey Warren, let me throw in a question from a viewer on-- on IBM sa-- oh, Andrew, go ahead, I'm sorry.
ANDREW ROSS SORKIN:
06:39:30:00 Oh, the only-- I just wanted to--
06:39:31:00 (OVERTALK)
WARREN BUFFETT:
06:39:32:00 The last thing--
ANDREW ROSS SORKIN:
06:39:34:00 The-- Warren--
WARREN BUFFETT:
06:39:33:00 Go ahead.
ANDREW ROSS SORKIN:
06:39:34:00 The only-- the only cr-- follow-up I wanted to ask was actually about Ginni Rometty and-- and the
management of the company, which is to say, how much of your faith in the company is in her, and how much of it is in
IBM proper, meaning the-- the institution that is IBM?
WARREN BUFFETT:
06:39:49:00 Sure. Well, you'll have to have faith in both. But-- but stronger (UNINTEL) always is wanting to be the
business itself. I mean, because a human who's running it, you know, something could happen to them tomorrow. So
you-- you love the idea of loving a manager that's terrific. But you-- you always have to have basic faith in the business.
06:40:08:00 We love the fact that Matt Rose was running the NSF when we (UNINTEL) that, and that's just buying a
stock. It-- we'd buy the whole (UNINTEL) and you have the whole company. But we really have-- we have to like the
business. And then we also have to feel good about the person running it. But the business overwhelmingly is the most
important thing. Because people come and go.
BECKY QUICK:
06:40:29:00 Warren, let me follow up with a question from a viewer on IBM as well. Daniel Cabrall (PH) wrote in.
"Have any of the companies under Berkshire's umbrella gained any competitive advantage by using IBM Watson so far?"
NO MEDIA ID PG. 23
WARREN BUFFETT:
06:40:42:00 We have. At Geico, we're doing a fairly elaborate-- experiment with-- with Watson. And with Watson,
you spend a considerable amount of time teaching Watson. I mean, Watson-- Watson does not come knowing a thing
about insurance. (LAUGH) And-- and-- never had an insurance policy before we had him and-- and-- he was great at
Jeopardy.
06:41:06:00 But-- so our job-- and IBM's job is to educate Watson-- in all aspects of insurance. I mean, Watson
learns. And-- and we have been working with Watson-- quite a while now. And we've got some big tasks in mind for
Watson. And we see progress along that line. But it-- it's just like in medicine. I mean, the-- you know, if you've got
Memorial Sloan Kettering starting to feed information about cancer into Watson, the first day, it-- he-- Watson knows
nothing, you know? And it's-- it's just a piece of machinery.
06:41:40:00 And-- and after a while, it has this ability to-- to remember every article that's ever been written and re--
really-- you know, do it in-- in a second or two and-- and take information from tens of thousands of w-- whether it's X-
rays or recent tests or whatever it may be and-- and-- and-- it comes in and incredibly valuable piece of-- of-- or storage
of information and then aide in decision making. And that can be very valuable in insurance, but it's not valuable the first
day or the second day. And--
BECKY QUICK:
06:42:14:00 So is Geico paying IBM or is IBM paying Geico?
WARREN BUFFETT:
06:42:16:00 Well, it's an interesting thing. I mean, I'll the you, they probably would like us to pay them and we would
like them to pay us, because we're both contributing to it. It's a partnership initially. And it has to be a par-- it's a
partnership with MD Anderson or-- or Sloan Kettering or any-- both sides are contributing a lot to it.
06:42:31:00 I mean, you-- you need-- you need a lot of data. You need just a lot of human intelligence-- because you
have to decide what-- what's (UNINTEL PHRASE). You know, you have language problems and all these things. But you've
got-- you've got quite-- quite a scoring partner-- at the end. And obviously, we've put money into it, IBM's put money
into it. And we think that there could be a very big payoff.
BECKY QUICK:
06:42:59:00 Okay, Andrew?

NO MEDIA ID PG. 24
ANDREW ROSS SORKIN:
06:43:02:00 Thank you for that and thank you w-- Warren. We're gonna get back to Warren Buffett-- in just a
moment. But first, before we do that-- if you went to early, we're gonna tell you everything you need to know about last
night's Oscars in just 60 seconds. We're gonna head to a break, a quick check on what's happening in European markets
right now. We're back in just a moment. (MUSIC)
ANDREW ROSS SORKIN:
06:46:42:00 Welcome back. U.S. equity futures are down this morning. They were down 90 last time we looked-- 61,
now they look better on the Dow Jones. The S&P has indicated down just under eight points and the NASDAQ down
about 22. And here's a check on the economic calendar that we'll be looking at for this week.
06:46:57:00 Look for February, Chicago PMI and January, pending home sales. On Tuesday, we're going to get to ISM
Manufacturing index. In February, auto sales. Wednesday, it's a February A.D.P. report in the fed's page book. Thursday,
look for revived fourth quarter productivity and labor cost, in the February ISM services index. And then on Friday, no,
no, no. Are you kidding me? Seriously? Is that a new break--
JOE KERNEN:
06:47:26:00 Yeah.
ANDREW ROSS SORKIN:
06:47:27:00 It's-- it's-- it's-- it's the-- the-- there's a big jobs number again?
JOE KERNEN:
06:47:29:00 Uh-huh (AFFIRM).
ANDREW ROSS SORKIN:
06:47:31:00 God, that just seems like we just did that there, and you know, it's an even shorter month.
JOE KERNEN:
06:47:34:00 Always feels that way.

NO MEDIA ID PG. 25
ANDREW ROSS SORKIN:
06:47:35:00 It's a shorter month--
06:47:36:00 (OVERTALK)
ANDREW ROSS SORKIN:
06:47:37:00 --but that is really fast (UNINTEL PHRASE). Okay, (UNINTEL PHRASE) I'd give you an update on what
happened-- with the Oscars overnight for those of you who did no stay up late enough. The biggest award of the night,
Best Picture, went to Spotlight, the film about The Boston Globe's investigation into the catholic priest abuse scandal.
Also one Best Original Screenplay. Quick shout out to Josh Singer, who's a friend of mine, who's one of the-- writers of
that-- with Tom McCarthy.
06:48:00:00 Also in the Best Actor category, Leonardo-- Leonardo DiCaprio honored finally for his performance in--
The Revenant, it was DiCaprio's first Academy Award win after six nominations. A lotta people waiting around for that.
The Revenant also won best director honors for Ale-- Alexander-- Iñárritu. I always-- it's always hard for me to--
06:48:19:00 (OVERTALK)
JOE KERNEN:
06:48:20:00 We had it ready to go and you mess up the Alejandro.
ANTHONY ROSS SORKIN:
06:48:23:00 Alejandro, Alejandro--
JOE KERNEN:
06:48:23:00 'Cause you were focusing on the Iñárritu.
06:48:25:00 I know, I know.
06:48:26:00 (OVERTALK)
06:48:27:00 It's a tough name. But--

NO MEDIA ID PG. 26
JOE KERNEN:
06:48:28:00 We should give this man a lotta credit 'cause it's a rare back-to-back win for Iñárritu. He won both-- dire-
- he w-- he won Best Director (UNINTEL) for last year-- for Birdman, a movie that you loved.
06:48:37:00 I-- I did--
06:48:37:00 (OVERTALK)
JOE KERNEN:
06:48:38:00 You know, and people thought that this film should have also won--
06:48:41:00 (OVERTALK)
JOE KERNEN:
06:48:41:00 --Best Film as well. I don't know what's your award for Best Film.
ANDREW ROSS SORKIN:
06:48:44:00 Well, I'll tell you my other favorite film.
JOE KERNEN:
06:48:46:00 The Room was--
ANDREW ROSS SORKIN:
06:48:47:00 I love her. Brie Lar-- Brie Larson-- won the Best Actress Oscar for her performance in Room, which you
know I felt was one of the great films of the year, heavily favored after sweeping award season. This is-- Larson's first
Academy Award. Also, Chris Rock hosted the award show, amid controversy that no African Americans were nominated
in any of the major categories. He addressed the controversy right off the bat.
CHRIS ROCK:
06:49:11:00 I'm here at the Academy Awards-- other-- otherwise known as the-- White People's Choice Awards.
(LAUGHTER) And you realize, if they nominated hosts, I wouldn't even get this job. (LAUGHTER) That's right, y'all be
watchin' Neil Patrick Harris right now.
BECKY QUICK:
06:49:30:00 There were a lot of funny lines from last night.

NO MEDIA ID PG. 27
JOE KERNEN:
06:49:33:00 Right.
ANDREW ROSS SORKIN:
06:49:33:00 A lot I-- we can't say some of them.
JOE KERNEN:
06:49:35:00 How late? You were up till midnight? Were--
ANDREW ROSS SORKIN:
06:49:38:00 No, no, I didn't stay up the whole time.
JOE KERNEN:
06:49:39:00 You didn't?
ANDREW ROSS SORKIN:
06:49:39:00 I didn't. I want-- I went to bed at 11:00. No, no, no. I only made it (UNINTEL PHRASE). Yeah, about
halfway--
06:49:45:00 (OVERTALK)
ANDREW ROSS SORKIN:
06:49:46:00 --about halfway through. They didn't start it until 8:30. I had to (UNINTEL) with the, you know, watching
the dresses on the-- red carpet--
JOE KERNEN:
06:49:53:00 Red carpet.
ANDREW ROSS SORKIN:
06:49:53:00 --and then you're finished. You're like, "I've seen it--"
06:49:55:00 (OVERTALK)
ANDREW ROSS SORKIN:
06:49:55:00 "--seen enough."

NO MEDIA ID PG. 28
JOE KERNEN:
06:49:57:00 Hopefully.
ANDREW ROSS SORKIN:
06:49:57:00 Yeah. And then I just (UNINTEL PHRASE).
JOE KERNEN:
06:49:59:00 Who was your best dressed for-- I know you--
06:50:02:00 (OVERTALK)
JOE KERNEN:
06:50:04:00 Okay, well--
ANDREW ROSS SORKIN:
06:50:05:00 Mar-- I saw Marcus (UNINTEL).
JOE KERNEN:
06:50:07:00 Yeah. The (UNINTEL PHRASE) we'll be with you first (UNINTEL) there was a lot of basketball (UNINTEL).
We'll have to ask Andrea about that Creighton too, Creighton just walloped Saint John's-- yesterday. And-- Chris Mullin I
think had trouble, a lotta stuff happened. But we'll have much more from Warren Buffett in Omaha. Everybody lost this
weekend, everybody, Andrew, I mean Steve (UNINTEL) and-- Ohi-- Iowa--
ANDREW ROSS SORKIN:
06:53:35:00 We are really ahead of the game on the oil story. A year and a half ago, we were at Midland, Texas, up at
Williston, North Dakota. The initial reaction to oil was, "Hey, good news, low oil means low gas, everything's fine." I think
when you dug into the story and realized hundreds of thousands of jobs either lost or at risk, that sort of changed the
narrative. But also when you look at the debt that is behind the story, hundreds of millions of dollars in debt that is now
at risk. (UNINTEL PHRASE) says, "No cuts, no cuts, no cuts." That sent oil down. And sent the stock market lower as well.
BECKY QUICK:
06:54:08:00 Good morning again everybody and welcome back to a special edition of Squawk Box. We are live in
Omaha, Nebraska, with Warren Buffett, the chairman and CEO of Berkshire Hathaway. And Warren, in your annual letter
NO MEDIA ID PG. 29
to shareholders, you point out that-- the annual meeting this year is gonna be a little different in-- in-- in that for the first
time ever, you are allowing it to be webcast.
WARREN BUFFETT:
06:54:26:00 Right.
BECKY QUICK:
06:54:28:00 Why are you doing that?
WARREN BUFFETT:
06:54:28:00 Well, for two reasons. One is we-- we sort of maxed out at Omaha last year. I-- we sent over 40,000, it
may have been 45,000. And the center where we have it, we used I think five overflow rooms and filled those and then
we actually had to use a couple rooms in this hotel. So and the-- and the hotels were all full. So we're-- we're pretty
close to-- what we can handle physically in (UNINTEL).
06:54:54:00 And then the second reason is that-- as I said in the letter-- well, you can have-- a CEO that's 85 and you
have-- and his sidekick is 92-- it's probably only fair that the shareholders could get-- get a sense to actually see what
he's sitting there doing and cutting out paper dolls or-- (LAUGHTER) or whether you can hold your (UNINTEL) $5 or $6
with a lot of questions and talk intelligently about the business.
06:55:21:00 I-- I like to see our managers in person. And particularly as they get old. I mean, we've had a couple that-
- have drifted off into la la land-- at-- at Berkshire. (LAUGHTER) And-- and then a couple (UNINTEL) I didn't know it. I
mean-- so there's nothing like semi-per-- semi-personal contact. And they're the people that go on business around the
world. So we'll give it a shot this year and see what-- see what happens.
BECKY QUICK:
06:55:46:00 Okay, other than that, it's business as usual though for the annual meeting?
WARREN BUFFETT:
06:55:48:00 It'll be business as usual. Yeah.
BECKY QUICK:
06:55:50:00 All right, Warren Buffett is our special guest this morning. We are fortunate enough to have him with us
for the rest of the program. When we return, we have much more to come from Mr. Buffett, including some questions
NO MEDIA ID PG. 30
from viewers that were submitted on Facebook, on Twitter, and on Instagram. You are watching Squawk Box on CNBC,
the first in business worldwide. Stick around, a lot more to come this morning. (MUSIC)

NO MEDIA ID PG. 31
CNBC NBC UNIVERSAL
"WARREN BUFFETT"
CORRESPONDENT: BECKY QUICK, JOE KERNEN AND
ANDREW ROSS SORKIN
PRODUCER: LACY O'TOOLE
MEDIA ID: HOUR 2
MALE VOICE:
06:59:36:00 Warren's annual letter to shareholders is out. And we have a special one on one interview with the
Oracle of Omaha. His thoughts on the global economy, oil.
WARREN BUFFETT:
06:59:47:00 Overall it looks good for an oil importing country, which we are, the lower oil prices.
MALE VOICE:
06:59:53:00 China and investing in turbulent markets.
WARREN BUFFETT:
06:59:54:00 You can't predict what stocks'll do. But-- in-- in the short-run. But you can predict that American
business will do well over time.
MALE VOICE:
07:00:02:00 Warren Buffett answers the questions that matter most to your money as the second hour of Squawk
Box begins right now. (MUSIC)
BECKY QUICK:
07:00:23:00 Good morning, everybody. And welcome back to Squawk Box here on CNBC. First in business worldwide.
I'm Becky Quick along with Joe Kernen and Andrew Ross Sorkin who are back in New York City. I'm in Omaha, Nebraska
this morning with Warren Buffett. He is the chairman and CEO of Berkshire Hathaway. Warren's answering your
questions this morning and we have plenty of them to get through. But keep them coming. We're gonna try to get to as
NO MEDIA ID PG. 32
many as we can on the air today. First though, let's head back to New York. That's where Joe has a look at the markets
this morning and Joe good to see you again.
JOE KERNEN:
07:00:51:00 Thanks good to see you too-- Becky. I hope you're-- you're-- you feelin' better and now you're traveling
again. But your--
BECKY QUICK:
07:00:58:00 I'm feeling much better.
JOE KERNEN:
07:00:58:00 --are you--
BECKY QUICK:
07:00:58:00 I'm feeling much better. I blew my nose a lot before I descended on the plane but I'm good.
JOE KERNEN:
07:01:04:00 --yeah. And-- and you got the ear thing with that. Chewin' gum sometimes-- some-- sometimes help a
little. We'll get-- we have to-- you have to prepare Warren. I'm gonna ask him about Creighton 'cause I know there's
another Xavier Creighton--
BECKY QUICK:
07:01:14:00 Uh-oh.
JOE KERNEN:
07:01:16:00 --coming up. And Creighton won last time. And that's-- that's pretty good. Does he think they're gonna
make it in the tournament? When-- when I get back you'll find-- have an answer for me whether they're gonna make it.
Let's check the markets right now.
07:01:24:00 The future's-- pointing to a lower opening-- on Wall Street. Last we saw they're down about-- I think
they were down 90 and then 60 and now 45. So you've gotten a little bit better. Although whether Europe is improving--
or not. Oil was down but not significantly now to unchanged. And that may be why the market's-- improving a little.
NO MEDIA ID PG. 33
07:01:41:00 In fact-- ICE-- Brent Crude is actually up-- up a quarter. Actually and we just saw-- WTI turn up as well.
And that can-- could portend that-- we firm up in the stock market here. The ten-year note, right now 174, 175 which is
just-- amazing. Look at that sell off at the end. I wonder what that means. I wonder what we see on Friday in the jobs
report and whether it indicates that there's-- any weakness in the labor market or whether it continues strong. Last
month wasn't so great given what we saw in the previous month. So we'll see whether we're getting up to that point
where there aren't enough people for a lotta the jobs that are there. And then we start thinkin' about, you know, wages
and it'd be good if they went up. But then again you start worrying about there are some people that think inflation is
not as (UNINTEL) as-- as you would think given where commodity prices.
ANDREW ROSS SORKIN:
07:02:29:00 We're gonna have to ask Warren about that.
JOE KERNEN:
07:02:31:00 You can ask that.
07:02:33:00 (OVERTALK)
ANDREW ROSS SORKIN:
07:02:33:00 His view on that. In the meantime, we have some other headlines for you at this hour. China Central
Bank cutting the reserve requirement ratio. The amount of the cash the country's bank have to hold-- now. This is an
attempt to calm investor's jitters over the world second largest economy.
07:02:45:00 And Google-parent company Alphabet could reportedly gain at least $3.5 billion in new tax benefits if
Intel wins its international tax dispute with the IRS. This coming according to the Wall Street Journal, the case involving
share-based compensation.
07:02:57:00 At least 20 companies including Microsoft and eBay have said they're monitoring the outcome of that
case. And this week is chock full of economic data, topped by Friday's job report. Today look for February Chicago PMI
and January pending home sells.
07:03:12:00 Tomorrow we get the IFM manufacturing index and February auto sales. Wednesday it's the February
ADP report and the Fed's beige book. Thursday jobless claims and then on Friday it's the biggie, the February non-
foreign payrolls report. In the meantime, let's get back to Becky Quick who is in Omaha this morning. Becky.
NO MEDIA ID PG. 34
BECKY QUICK:
07:03:31:00 All right, Andrew, thank you very much. Warren, before we start on everything else, why don't you
answer Joe's question? Do you think Cleighton's gonna make it? (LAUGHTER)
WARREN BUFFETT:
07:03:39:00 Well-- I sure hope so. But I-- I'll g-- I'll give Joe advance word on something that-- our managers haven't
heard this yet. Our employees haven't heard it. Some of our directors know about it. But we're going to announce-- we
were gonna announce in a-- to our managers in about an hour.
07:03:56:00 This year-- if you're employed by Berkshire Hathaway or any of its subsidiaries-- tomorrow on-- on-- on--
on March 1st you're eligible for the ultimate office bracket contest. And any employee of Berkshire can put in a bracket.
Doesn't cost 'em anything-- website we've got for it. And if they-- they are the one that picks the latest number of
consecutive games correctly as they're played-- they will win $100,000.
07:04:29:00 (OVERTALK)
BECKY QUICK:
07:04:30:00 It doesn't have to be a perfect bracket?
WARREN BUFFETT:
07:04:31:00 No, no, doesn't have to be anything. It d-- it just goes further-- if-- somebody wins. They get $100,000--
if-- if they tie they split it but-- but-- but-- well, and we'll-- after every game we'll report how--
07:04:42:00 (OVERTALK)
WARREN BUFFETT:
07:04:43:00 --and maybe what company they work for. But if they make it to the sweet 16-- if they go through two--
two-- bracket tests--
07:04:54:00 (OVERTALK)
JOE KERNEN:
07:04:54:00 Get 'em all.
WARREN BUFFETT:
07:04:54:00 --and they-- they-- they get to the sweet 16 only they get a $1 million in--
NO MEDIA ID PG. 35
07:04:59:00 (OVERTALK)
WARREN BUFFETT:
07:04:57:00 Rest of their life.
MALE VOICE:
07:05:00:00 No. (LAUGHTER) Oh God.
07:05:01:00 (OVERTALK)
BECKY QUICK:
07:05:02:00 Warren?
WARREN BUFFETT:
07:05:03:00 No they-- oh (UNINTEL) all of the brackets aren't as--
07:05:07:00 (OVERTALK)
WARREN BUFFETT:
07:05:07:00 They're not required to do anything.
07:05:09:00 (OVERTALK)
WARREN BUFFETT:
07:05:10:00 We're gonna (UNINTEL).
07:05:11:00 (OVERTALK)
JOE KERNEN:
07:05:11:00 That's amazing.
WARREN BUFFETT:
07:05:11:00 Breaking news. Our managers don't know about it. It's-- it's-- it's-- it's to go out-- we were gonna send it
out in about an hour or so.
07:05:16:00 (OVERTALK)
NO MEDIA ID PG. 36
JOE KERNEN:
07:05:17:00 Can't you c--
07:05:17:00 (OVERTALK)
WARREN BUFFETT:
07:05:18:00 --and then we're gonna pass it--
07:05:18:00 (OVERTALK)
JOE KERNEN:
07:05:18:00 Warren, can't a couple other people get in on this? Becky, I mean, to e-- I-- I'm probably not gonna get
all 60 right. Let me try though. I-- I've been watch-- I mean, I'm prepared this year.
WARREN BUFFETT:
07:05:29:00 You don't have to get all-- you only-- you don't have to get all 60-- three games right. You only have to
get 48 games right to get a million a year the rest of your life.
JOE KERNEN:
07:05:37:00 No that's what I mean. But I--
07:05:37:00 (OVERTALK)
JOE KERNEN:
07:05:38:00 --but I wanna be able to tr-- give-- give a special gift sensation to let me try. Can I be part of that without
being with GEICO employee?
BECKY QUICK:
07:05:45:00 Hire us. (LAUGHTER)
WARREN BUFFETT:
07:05:47:00 I'll tell you what I do, I'll underwrite you personally. (LAUGHTER) Yeah. I-- I'll underwrite you personally.
JOE KERNEN:
07:05:50:00 I think he's say-- I mean--
07:05:53:00 (OVERTALK)
NO MEDIA ID PG. 37
WARREN BUFFETT:
07:05:54:00 Well, forget about Berkshire Hathaway playing. I'll pay $1 million a year for the rest of your life.
BECKY QUICK:
07:05:56:00 Are you suggesting that Joe's gonna choke?
WARREN BUFFETT:
07:06:00:00 I-- the only thing is you can't check with Watson. You have to do this independently.
JOE KERNEN:
07:06:05:00 Okay. He's actually--
07:06:06:00 (OVERTALK)
BECKY QUICK:
07:06:07:00 Wow.
JOE KERNEN:
07:06:06:00 --last year that-- your-- your money's safe, Warren, believe me. And I-- and-- you-- you never know
advance when your money's--
WARREN BUFFETT:
07:06:12:00 No.
JOE KERNEN:
07:06:13:00 --safe. I know that. (COUGH)
WARREN BUFFETT:
07:06:16:00 Well, but somebody could win the $100,000 for sure.
JOE KERNEN:
07:06:18:00 Yes. That's true.

NO MEDIA ID PG. 38
WARREN BUFFETT:
07:06:19:00 And my assistant, Debbie Bosanek, her-- her son works for the Nebraska Furniture Mart and his
girlfriend works for the Furniture Mart. So they're gonna have three entries, you know, among them. And-- and bringing
a lotta fun outta this. Particularly if we go through the games.
07:06:29:00 'Cause when we get-- we're gonna announce how many are live after each game. And then when we get
down to where there's maybe 100 or something like that, well, how-- how many are from GEICO and how many are
from the (UNINTEL) and so on. And then it'll be a lotta fun.
07:06:42:00 (OVERTALK)
BECKY QUICK:
07:06:42:00 But last year you did the $1 million bracket challenge.
WARREN BUFFETT:
07:06:46:00 That was two years ago.
07:06:48:00 (OVERTALK)
BECKY QUICK:
07:06:48:00 Two years ago. Was it two years ago? Is that what this came out of?
07:06:49:00 (OVERTALK)
WARREN BUFFETT:
07:06:50:00 Well, yeah, I-- I just thought about it. And it seemed like this would be a lotta fun. And incidentally we
are closing on the purchase of Duracell today. So all the Duracell employees tomorrow will be--
JOE KERNEN:
07:06:59:00 Will know.
WARREN BUFFETT:
07:07:00:00 --eligible--
NO MEDIA ID PG. 39
JOE KERNEN:
07:07:00:00 Wow.
WARREN BUFFETT:
07:07:01:00 --for this.
JOE KERNEN:
07:07:02:00 That's, like, a lot.
WARREN BUFFETT:
07:07:03:00 Yeah.
JOE KERNEN:
07:07:04:00 That's awesome. All right, Warren--
07:07:06:00 (OVERTALK)
JOE KERNEN:
07:07:07:00 --while we're wa-- while we're wasting time-- the only other thing-- the--
07:07:11:00 (OVERTALK)
JOE KERNEN:
07:07:12:00 --to ask you I-- I just-- the new GEICO commercial, I-- how do you do it? You've got 20 of the best
commercials. And the-- the-- and the latest one is Tarzan and Jane. And you've seen Jane ask the chimpanzee whether
he knows where the-- where the-- where the (UNINTEL). And he goes-- you-- you've seen that one, right? And then Peter
Pan, greatest all-time-- greatest all-time commercial. They just do it again and again and again. It's unbelievable.
WARREN BUFFETT:
07:07:36:00 Well, so just remember, the ones you like-- those were my ideas. (LAUGHTER) They're some clunkers in
there, that's Charlie's.
JOE KERNEN:
07:07:43:00 The clunkers, exactly. There is a couple. But I love the-- some of (LAUGHTER) 'em-- make up for all the
other ones. All right, Becky, get back to the markets. But we digressed. But I love-- I love--
NO MEDIA ID PG. 40
07:07:53:00 (OVERTALK)
BECKY QUICK:
07:07:52:00 About the markets. I do. Let's-- and that is breaking news, you're right, Joe. Warren, let's talk a little bit
more about the economy. We touched on this before. But for people who are just tuning in there have been so many
questions. I can't tell you. I've heard from more people in the last few months wanting to know your view on the
markets-- than just about any other time that you've sat down with us. People are very unnerved by what's happening.
What-- what do you tell them, first of all, when they wake up in the morning and they see-- you know, the-- the
beginning-- the worst beginning of the year that we've ever seen in stocks?
WARREN BUFFETT:
07:08:23:00 Well, but that's because we're on some calendar or something. I mean, there've been way worse
months. There have been way, you know, you have October 19th, 1987, what was it 22% up and down in one day or
something. It, you know, the-- the-- the-- people buying and selling (UNINTEL) but they basically don't know what day of
the week it is or what hour or anything like that.
07:08:41:00 And-- and they react to news, they react to the market itself. The very fact that we talk about the
market, you know, on bad days and everything may tend to accentuate it for all I know. Who-- who-- who knows? It
really doesn't make any difference.
07:08:55:00 I mean, if I-- if I owned a McDonald's stand here in Omaha I would not get a quote on it every day. You
know, I would-- I would try to make my service the best. You know, I would-- I would hope too many competitors didn't
move in close to me. And-- and I would hope that McDonald's would great advertising and came up with some new
products occasionally. And what I would think about is how's this going to work over five years or ten years. I mean,
people gonna keep eating hamburgers, they're gonna like ours and all of that sort of thing. And you'd be better off in
stocks if you did not get a quote on them.
07:09:24:00 You know, and-- and quotations cause people to do things they wouldn't otherwise. If I-- I've got this
farm, 40 miles in there. If I'd gotten a quote on it every day since I bought it 30 years ago I mighta done something
dumb. I mean, as it is, I've never had a quote on it. And it produces a little more every year and generally the prices
(UNINTEL) products-- so focusing on the prices and what they're doing is a terrible way to go-- to invest in-- in
businesses.
NO MEDIA ID PG. 41
BECKY QUICK:
07:09:51:00 You said in the annual letter this year that Berkshire Hathaway is obviously an-- an-- a interest-rate-
sensitive company. And therefore consequently-- when rates go up the company will do very well. Do you think we're
ever gonna see rates going up again?
WARREN BUFFETT:
07:10:03:00 Well, i-- that-- that's-- besides-- what's happened with interest rates is really extraordinary. I mean, it--
you can go back and read everything Keynes wrote and everything Adam Smith wrote or Ricardo wrote or (UNINTEL)
wrote or you name it and Paul Samuelson.
07:10:19:00 I mean-- you won't see a word of-- in my view-- anything I've ever seen-- about sustained negative
interest rates. I mean, we-- really something the world hasn't seen. It does have the effect of making all assets more
valuable. I mean, interest rates are like gravity in valuations.
07:10:33:00 I mean, if interest rates are nothing, you know, values can be almost infinite. If interest rates are
extremely high that's a huge gravitational pull on values. And we had that in the early 1980s. So we're going into this
period-- well, Berkshire Hathaway is sitting with billions of dollars of euros in an insurance company that we have in
Europe. And they will bear a negative rate. I mean, we would be better off if we had a big mattress here (LAUGHTER) if
we could spin all this stuff.
07:11:04:00 And-- and if I could just find the person who I trusted to sleep on the mattress. You know, that's what
we would do. If we have a billion of euros at minus 35 basis points that's, you know, these-- on a billion it would-- it
would be three and a half million euros a year that it's costing us just to have that.
07:11:24:00 Well, that means you don't wanna collect your receivables. I mean, why would you wanna collect your
receivables going into a negative-- you know, it-- it-- it distorts everything. Now there's a good reason why they're doing
it. But nobody has really gone through an extended period like this with. We do not know how this movie plays out.
BECKY QUICK:
07:11:42:00 So when you start thinking of potential scenarios how do you play it out?
NO MEDIA ID PG. 42
WARREN BUFFETT:
07:11:47:00 Well, it, I mean, we thought when we started this that it would end fairly soon. And then Europe in
particular-- needed further, you know, further-- (UNINTEL) (LAUGH) in the arm. And-- they've extended it. And we can't
get too far away from it. We talked about that a year ago, the problems of this country raising rates while Europe was at
negative rates and what that might do to the dollar and what that does to trade and what trade does to business.
07:12:10:00 And-- in economics the most important thing to remember-- important in other areas in life-- but after
anything that happens if somebody tells you, "This is gonna happen," you gotta say, "And then what?" There's always--
it's like in physics or anything else, there's always an and then what. So the question I always ask myself, "And then
what?" And in terms of the say no interest rates what I say and then what I don't know the answer. (LAUGH) And you
want to know the answer. I-- I'll ask him next time I see him.
BECKY QUICK:
07:12:34:00 Dean Shepardson wrote something today-- where he-- he takes a look at how quickly wages are rising
and how quickly inflation is coming up. And he said in-- in inflation in particular if-- if you just look at the same average
inflation we've seen over the last three months or so, if that continues we're gonna be hitting the Fed target by October.
That's two years ahead of time-- from the Fed's own predictions. And he worries that we're gonna be growing rapidly at
these points in those particular areas. And that the Fed's already behind the curve for not raising rates faster. Do you
think about something like that or--
WARREN BUFFETT:
07:13:08:00 Well, I-- I don't know. I don't know what-- I don't-- I don't pay any attention to what economists say
frankly. (LAUGHTER) Well, think about it, I mean, you-- all these economists with 160 IQs and spending their life studying
it. And can you name me one super wealthy economist who's ever earned money out of securities? No. I mean, just go
down the list now.
BECKY QUICK:
07:13:27:00 No.
WARREN BUFFETT:
07:13:28:00 Now Keynes-- Keynes actually in his early years tried to make money in stocks by predicting what
business would do. And he gave it up. And then he went over to a Graham-type approach. I mean, it's-- it's very
interesting to read his history on this 'cause he thought he could-- by looking at various economic variables pick what he
called the credit cycle and make a lotta money.
NO MEDIA ID PG. 43
07:13:48:00 And-- and he went broke a couple times doing it. Had to borrow from people. And then he settled on
buying good businesses cheap that he understood and concentrating his investments. And he did very well. It's an
interesting (LAUGHTER) history. But if you-- if you look at the whole history of them, you know, they don't make a lotta
money buying and selling stocks. The people who buy and sell stocks listen to 'em which is-- I have a little trouble with
that.
BECKY QUICK:
07:14:09:00 Okay. Forget I asked that. (LAUGHTER) We will have more from Warren coming up in just a bit. Joe, we'll
send it back over to you.
JOE KERNEN:
07:14:16:00 All right-- Beck. Coming up, we're gonna talk politics finally-- with Warren Buffett. (MUSIC) You saw what
the one guy said and-- don't-- candidates shouldn't accept money from weirdo billionaires.
ANDREW ROSS SORKIN:
07:14:27:00 Yes.
JOE KERNEN:
07:14:29:00 From weirdo billionaires. I don't know-- yeah, I-- when Warren hears that I wonder if he thinks that
those are the other guys or whether he, you know, whether you wonder. I don't know who this guy (UNINTEL) but we'll
talk about that. And we're gonna ask which candidate has the best plan for the economy. Squawk Box will be right back.
07:14:48:00 (COMMERCIAL NOT TRANSCRIBED)
JOE KERNEN:
07:15:55:00 (MUSIC) We are really ahead of the game on the oil story. A year and a half ago we were in Midland,
Texas, up at Williston, North Dakota. The initial reaction to oil was "Hey, good news. Low oil makes low gas. Everything's
fine." I think when you dug into this story and realized hundreds of thousands of jobs either lost or at risk. That sort of
changed the narrative. But also, I mean, look at the debt that is behind this story. Hundreds of billions of dollars of debt
that is now at risk. (UNINTEL) said no cuts, no cuts, no cuts. That sent oil down and sent the stock market forward as
well.

NO MEDIA ID PG. 44
BECKY QUICK:
07:17:27:00 Welcome back to Squawk Box, everybody. We are speaking to billionaire investor and Berkshire
Hathaway chairman and CEO, Warren Buffett, this morning. Warren, it is-- super Tuesday eve today. And-- the election
has been interesting to say the least.
07:17:41:00 (OVERTALK)
WARREN BUFFETT:
07:17:41:00 That's right.
BECKY QUICK:
07:17:42:00 What do you think of--
07:17:44:00 (OVERTALK)
WARREN BUFFETT:
07:17:42:00 I'm sorry. (LAUGHTER)
BECKY QUICK:
07:17:45:00 What do you think? Are-- have you been surprised by the direction things have gone?
WARREN BUFFETT:
07:17:49:00 I've been surprised by everything. Sure, I-- I-- I've been almost fascinated. You know, it-- it-- I've watched
virtually all of the debates and town halls. And this has been-- I-- I've always been a political junky to some extent. You
know, my dad was in Congress. And-- but this was-- this takes the cake. (LAUGH)
BECKY QUICK:
07:18:06:00 When we spoke with you back in September you were-- the first person I remember suggesting at the
time that you could wind up with a brokered convention. Looks a little less likely now because Donald Trump is doing
fairly well.
WARREN BUFFETT:
07:18:19:00 Yeah, it-- tomorrow will be big on that. I mean, it-- you know, tomorrow's proportional then they shift
over to winner take all a little later. And-- and it's the proportional-- it's-- if the tally at the end of tomorrow is such that--
that Trump has 40%-- of the delegates (UNINTEL) and they've been-- the others have been assigned proportionally, you
know, it could go to a convention. We'll find out.
NO MEDIA ID PG. 45
BECKY QUICK:
07:18:45:00 In terms of Bernie Sanders-- last time we spoke with you you said that you admired Bernie Sanders.
Since then Charlie Munger's spoken up. He says-- as an intellectual he's a disgrace. He also called him a little nuts. What
do you see in Bernie Sanders campaign and what would you think of him as president?
WARREN BUFFETT:
07:19:02:00 Well, what I like about Bernie Sanders is he will say exactly what he believes. I mean, he is not tailoring
his message week by week. The-- it-- you'll find with some of the candidates that they-- they shifted around or they
don't answer the questions. But with-- with Bernie you know exactly what he thinks. And I-- in certain areas I agree with
him. And in certain areas I would agree with Charlie. (LAUGHTER)
BECKY QUICK:
07:19:25:00 What-- what areas are you talking about? I mean, if--
WARREN BUFFETT:
07:19:28:00 Thing-- he's-- Bernie's bothered by certain things I'm bothered by and I would hope other people are. I
mean, things like the influence of money in politics. I mean, Bernie-- Bernie would put-- certainly put citizens united
close to the top of the list he would like change.
07:19:43:00 And he-- he's bothered-- he's bothered by-- the fact that in a country with 66,000 of GDP per-- per
capita that so many people are poor. And m-- many of whom are willing and able to work but-- but they're still not
getting by that well in this country. And he would like to do something about that. But it's what he would like to do
about it (LAUGH) that I think Charlie's probably closer to that.
BECKY QUICK:
07:20:05:00 Charlie's closer in saying it's a little nuts, right?
WARREN BUFFETT:
07:20:06:00 Well-- well, I wouldn't-- yeah, I-- if I was to use that term myself. (LAUGH) But I would-- I would say that-
- that Bernie has his tendency to-- to demonize institutions and-- and-- and-- he-- he thinks the solution would be
simpler and he would-- he would turn the system I think somewhat upside down.
07:20:26:00 And there's parts of it that I might agree with him on. I think in terms of campaign finance I think it
should be turned upside down. But I don't think-- I think we have a marvelous system-- in terms of delivering more and
NO MEDIA ID PG. 46
more of what people want. I mean, we have a golden goose that's laid progressively more golden eggs ever since the
country was started. And-- and both remarkable-- achievement in-- in the history of the world has happened in this
country. So I-- I do not believe in throwing out the ba-- the baby with the bath water.
BECKY QUICK:
07:20:57:00 In your letter this year you really took aim at some of the politicians who have been going around saying
that things aren't-- aren't going well in this country. You-- you said that-- that-- that things are strong here. Is that-- a
shot at thinking we don't need to make America great again?
WARREN BUFFETT:
07:21:11:00 Well, America-- America's never been greater. I-- I mean, you can look at, you know, where we stand. I
mean, it-- it-- it will be greater in the future. But America's never been greater. I mean, this-- this is the best time to be
alive in the history of the world.
07:21:27:00 I mean, in terms of medicine, transportation, entertainment, you-- you name it. Or just in terms of
aggregate wealth. Now the distribution has gotten more and more skewed in recent years and it should be skewed to
quite a degree. But-- but I would say the skewing has been accepted.
07:21:42:00 But-- but as I mention in the letter, I live in a middle-- upper-middle class neighborhood. I mean-- the--
the median income might be $100,000 a year or something like that. And every person in that neighborhood lives better
than John B. Rockefeller Senior lived at the time I was born. In one man's lifetime, an upper-middle class neighborhood
has evolved to a-- a way of life that's better than the richest man then in what was the best country in the world-- in
1930 was able to achieve.
07:22:14:00 He had power and prestige and-- and all of that. But in terms of medicine, entertainment,
transportation, you name it, my neighbors are better off than he was. So it-- this country works. And it's working now.
But it leaves-- it's leaving a lotta people behind that are very good citizens. And we can do more for them. But we don't
wanna do it in terms of screwing up the golden goose.
BECKY QUICK:
07:22:38:00 What do you think of Donald Trump and what do you think of Chris Christie's-- support of him?
NO MEDIA ID PG. 47
WARREN BUFFETT:
07:22:44:00 (LAUGH) Well-- my friend, Charlie, says never underestimate the man who overestimates himself.
(LAUGH) And that's-- seems to apply to politics as well as in Wall Street and some other places. I-- I've been amazed at
what's happened but-- and-- in-- in the Republican party. I wasn't amazed at all-- I w-- Christie was very predictable. I
mean, I-- I-- that was-- that did not surprise me at all. But Trump's popularity has surprised me. But it's-- it's among
Republicans and-- and-- I-- I happen to be a fan of Hillary's. And I think that she will be the winner in the fall.
BECKY QUICK:
07:23:21:00 Okay. Warren, they are wrapping us right now. But obviously we still have a lot of time to get through
many more questions and maybe touch back on some of those as well. In the meantime though, Andrew, we'll send it
back to you.
ANDREW ROSS SORKIN:
07:23:31:00 Thank you, Becky. And we do have a lot more to talk about-- to Warren about. But in the meantime, a
unicorn warning from Bill Gates. That story after the break plus much more from Warren Buffett. Here are the futures
right now, we were looking at red arrows and-- (MUSIC) (UNINTEL) that are down. We'll talk (UNINTEL), Squawk returns
in just a moment.
ANDREW ROSS SORKIN:
07:26:36:00 Welcome back to Squawk Box right here on CNBC. We will have more from billionaire investor, Warren
Buffett, in just a couple of minutes. But first let's get you caught up on some of the headlines that have crossed this
morning. The first, a unicorn warning.
07:26:46:00 Bill Gates issuing a warning to Silicon Valley investors. He told the FT that over the next two years he
predicts the valuations of $1 billion unicorns will fall as recent overenthusiasm cools off. He had added that the strategy
of throwing money at any tech company will no longer guarantee returns. Comin' up-- we're gonna head back to
Omaha. (MUSIC) Becky is standing by with billionaire investor Warren Buffett. We're gonna talk American Express, Coke
and Dow Chemical, just a few of his top holdings. Squawk returns with Warren in just a moment.

NO MEDIA ID PG. 48
JOE KERNEN:
07:30:25:00 Hey, we were down 90 then for a while we were down-- we were about 30 (UNINTEL) somewhere in the
middle there, 43, 41 right now. Oil-- has rebounded a little bit from where it was. It's-- it's now actually positive. It was
never down a lot today but it-- as you can see WQI is now 32.88.
07:30:43:00 The European markets were quite weak-- early on. And they have definitely improved. Germany
continues to be down-- at the service point. But France is-- basically just down less than a 1/10 of a percent and the
(UNINTEL) is down less than 1/3 of a percent.
ANDREW ROSS SORKIN:
07:31:01:00 Okay, among the stories that are front and center after this hour, Starbucks set to open its first store in
Italy next year. CEO Howard Schultz announced that coffee chain will expand first to Milan and then to other Italian
cities in 2017. Schultz acknowledged that it was high standards for coffee saying--
07:31:15:00 (OVERTALK)
ANDREW ROSS SORKIN:
07:31:17:00 --company will enter the country with humility and respect.
JOE KERNEN:
07:31:21:00 That's a good idea--
07:31:20:00 (OVERTALK)
ANDREW ROSS SORKIN:
07:31:22:00 We will see whether the Italians take to Starbucks the way the rest of the world has.
JOE KERNEN:
07:31:25:00 I think it was a Sopranos' episode where Paulie is really mad when they were in a place gettin' some--
some espresso or some-- cappuccino or something and what they're charging for it and how this was a uniquely Italian
thing and what-- I mean, he got real-- I just saw it recently here 'cause I was watching it again. But-- you should enter-- I
would say that's-- that's good advice. Enter Italy s-- with humility--
07:31:52:00 (OVERTALK)
NO MEDIA ID PG. 49
JOE KERNEN:
07:31:53:00 --and respect if you're gonna be assured on how to-- you know, how to brew coffee. (UNINTEL).
ANDREW ROSS SORKIN:
07:31:59:00 Talking about humility-- let's see-- how-- customers-- react to this Disney hoping to use ticket prices now
to ease traffic problems in its parks. Call it surge pricing. The company has rolled out a surge pricing offer for single-day
tickets in both its California and Orlando parks. Here's how it's gonna work. Prices will now be split into three levels. It's
called value, regular and peak based on projected traffic.
07:32:23:00 So depending if you go during a holiday season, if you go during the summer when school's off. All of
these things will be considered peak. Then there's some regular. Again, only affecting people who America buying one-
day tickets, not the-- annual pass-- or longer-- sets of-- sets of tickets. And-- we also have your Oscar recap this morning.
The biggest award show-- of the night-- Best Picture went to Spotlight, the film about the Boston Globes investigation
into the Catholic priest abuse scandal also won Best Original Screenplay. Joe's been talking a lot about how he enjoyed
that picture.
07:32:53:00 And then-- in the Best Actor category Leonardo DiCaprio honored for his performance in The Revenant.
It was DiCaprio's first Academy Award win after six nominations. In the meantime, let's get back to Omaha. Becky Quick
who is joined by Warren Buffett. I wonder who w-- was there-- was Warren watching the Oscars? And did he root for a
particular picture this year?
BECKY QUICK:
07:33:16:00 Warren?
WARREN BUFFETT:
07:33:16:00 Well, we have an ABC station in Miami that we own, WPLG. So-- I was rooting for a big audience.
(LAUGHTER) I did not watch the Oscars though.
07:33:26:00 (OVERTALK)
BECKY QUICK:
07:33:27:00 Warren, let's talk--

NO MEDIA ID PG. 50
JOE KERNEN:
07:33:27:00 Oh sorry.
07:33:28:00 (OVERTALK)
JOE KERNEN:
07:33:29:00 I just-- one of the guys who won Best Screenplay said-- "Go candidates (?). I'm not going to accept any
money from weirdo billionaires." And-- I was wondering have-- have you-- did you give Hill-- did you give Hillary any
money this-- this-- this time around? I--
WARREN BUFFETT:
07:33:45:00 Yeah, but-- I don't-- (LAUGHTER) you know, if you (UNINTEL) logic you can't do the reverse of that. You
can't say because I gave money I'm a weirdo billionaire.
JOE KERNEN:
07:33:55:00 I know.
07:33:54:00 (OVERTALK)
WARREN BUFFETT:
07:33:54:00 There's other evidence that I am though. (LAUGH)
JOE KERNEN:
07:33:56:00 And-- and so-- so War-- so Warren, as a Hollywood Reporter-- wrote the story. And, you know, I knew
you were on today. And-- and I didn't think of you 'cause I don't think you're a weirdo necessarily. But-- so they picked
out three weirdo-- (LAUGHTER) they picked out three weirdo billionaires. Here-- here they were, Koch brothers-- Ken
(UNINTEL) and-- who-- who was the last one? There were-- there was three-- oh Sheldon Adelson.
07:34:22:00 (OVERTALK)
BECKY QUICK:
07:34:22:00 And a weirdo?
JOE KERNEN:
07:34:24:00 They-- they picked out-- they picked out three Republicans. Obviously. They weren't talking about
Warren or Tom Steyer or George Soros. You know, the Hollywood Reporter easily came up with three weirdos. And of
course by definition they were on the right.
NO MEDIA ID PG. 51
WARREN BUFFETT:
07:34:40:00 Ken-- there's no way Ken (UNINTEL) is a weirdo. (LAUGHTER) I didn't get your third one, but.
JOE KERNEN:
07:34:46:00 I-- I agree. I agree but just--
07:34:46:00 (OVERTALK)
JOE KERNEN:
07:34:50:00 --your ears were burning when I read that. I-- I-- that was also what I was getting at.
WARREN BUFFETT:
07:34:53:00 Ken-- Ken I've known as a terrific guy. I know him personally.
BECKY QUICK:
07:34:57:00 Yeah. We love him too.
JOE KERNEN:
07:34:58:00 He's on Wednesday. Yeah.
BECKY QUICK:
07:34:59:00 Warren, let's talk a little bit-- oh he's good. I haven't seen him in a while. Warren, let's talk a little bit
more about the letter and some of the things that you wrote about. You-- you took a lot of time and space in the letter--
to tackle the differences between Berkshire Hathaway's operating style and 3G's operating style.
07:35:16:00 George E. Powell of (UNINTEL) obviously someone you've done some work with. You guys have
partnered on several different deals. And the point of asset-- as far as Berkshire's concerned you buy good businesses
with good managers. You already like the way they're running. 3G does it differently. They buy businesses where they
can go in, make cuts-- and-- and try and improve the way a business is running.
07:35:35:00 You also say that you'd never do a hostile deal. So it's fun to lay out those differences. What do you
think about that different-- that different style though which has been criticized pretty heavily in the past. The private
equity version of coming in and laying off a lotta people.
NO MEDIA ID PG. 52
WARREN BUFFETT:
07:35:49:00 I-- I-- I think every business should be run as efficiently as possible. And some are and some aren't. We
try to buy the ones that are. We think-- we don't think there's a thing that needs doing at Precision-- Castparts -- that
would make it more efficient. They've run it efficiently from the start.
07:36:06:00 Actually we've had Berkshire headquarters, for example, are efficient. We've got 25 people there and
it's the same 25 as a year ago. So I-- I believe enormously in efficiency. I mean, it's the only way living improves is to get
more output per unit of input.
07:36:22:00 I mean-- if-- if we did everything the same as we did in 1790 we'd be living like we did in 1790. So the
whole goal, I mean, that's what-- you've got-- obviously manufacturing is easy to measure how many cars you get per
man hour and how m-- it's much more difficult, you know, if you're looking at medicine or teaching or something of the
sort.
07:36:42:00 But the goal of the society should be to get more output per unit of input. And some companies are
extremely efficient now. And we try to buy those. And-- because we don't think we can bring it to them. And George E.
Powell looks-- and his associates-- they look for companies where there's a lot to be done to make them more efficient.
07:37:00:00 And then once they are you have a more efficient economy. And you are trying to free up people-- and I
use the example in the annual report of farm labor. I mean, we have 40% of the people working on the farm in 1900.
And if we had 40% now about 150 million plus work force you'd have 60 million. You know, I mean, and those people
would not be producing, you know, at Apple and places like that, things we want. So efficiency should be the goal
whether it's government, whether it's business, you name it. And-- and they're very good at getting inefficient
operations working much more efficiently. I wouldn't be good at it. But-- but I'm good at spotting it where people are
doing it already. And I'm reasonably good at talking those people into joining Berkshire.
BECKY QUICK:
07:37:48:00 And-- and-- I-- I guess that's my point, when 3G and other private equity companies have gone in and
laid off people they've generated all kinds of negative headlines. Your point is that this is a necessary task. This is
something that has to be done.
NO MEDIA ID PG. 53
WARREN BUFFETT:
07:37:59:00 Sure. It-- it has to be done. I mean, and-- you-- well, you're seeing it in the newspaper industry. The
people-- the people are writing about it and had to get more efficient as they-- as-- as the revenues have declined. And--
and-- probably some of them were inefficient in certain ways before just because they were so rich at that time.
07:38:17:00 A rich economy can afford a lot of efficiency. But that doesn't mean it should happen. Because in the
end we've got 320 million people in this country. And the more they are properly placed in the proper jobs to fit their
talents and if you motivate them to do the best job they can and all of that the more output you get per capita the
better the country's going to be.
BECKY QUICK:
07:38:38:00 Andrew, you have a question too?
ANDREW ROSS SORKIN:
07:38:42:00 I do. Warren, a number of activists actually have emailed me over the weekend because one of the-- the
interesting notes at the end of your letter this year were you seemed a-- after I think years of being relatively critical-- of
activists you said-- at one point, "To be sure, certain hostile offers are justified. Some CEOs forget that they need
shareholders for whom they are working while other managers are woefully inept." So when-- when is it okay and when
is it not? And has your view on activism changed?
WARREN BUFFETT:
07:39:10:00 No, it hasn't changed at all. The first time I'd written about it on this-- in this specific arena. But I--
actually I've talked about it annual meetings in the past. I mean, we do not-- if you take the Fortune 500 we do not have
the 500 best quarterbacks (LAUGH) at each one of those scenes.
07:39:24:00 And in the end part of the success of our economy will depend on having the right managers and having
the right businesses. And-- and any time a business is run by someone that's a six when you can have-- a nine in there,
not only the business suffers, the whole economy suffers. I mean, it-- it-- you need able people and-- to the extent you
can-- the very best people-- running-- running businesses. I mean, they deploy these 150 million workers we have and
determine how efficient they are. So I-- I have been-- I've been a director of companies where we've had the wrong
person running them.
NO MEDIA ID PG. 54
07:40:04:00 We've owned companies where we've had the wrong person running 'em. And I do not believe that-- in
dilly-dallying around about making changes like that. Sometimes I've been too slow myself and I've seen the problems
in-- in widely-held corporations. I've seen the problems of the-- of getting rid of somebody who's a perfectly nice person,
probably helped select you to become a director.
07:40:27:00 Treats his family well, treats his directors well. But he's just not doing as good a job as someone else can
do. And-- and that hurts not only that company it-- it actually hurts all of America. So I-- I've-- I've always been-- I've
always felt that way. It doesn't mean I wanna do that job myself. I mean, that-- that-- you know, at 85 I'm not-- (LAUGH)
I'm not-- around to be-- it's much easier just to buy companies that are already well-run. I mean, it-- that makes it-- my
job so much easier. But the problem exists out there that certain companies are not well-run. And sometimes the
directors don't do anything about it. And then you need somebody to stir things up.
BECKY QUICK:
07:41:04:00 Warren, let's talk about a company that has been stirred up recently and that's Down Chemical. You
own $3 billion of preferred shares that pay 8.5% annually. There is the option of the company to go ahead and convert
those back to common shares if the stock price stayed above $53 and change for 20 days in any--
07:41:23:00 (OVERTALK)
BECKY QUICK:
07:41:24:00 --thirty-day period.
WARREN BUFFETT:
07:41:26:00 Yeah, you and I are probably the only ones that know besides Dow Chemical. (LAUGHTER)
BECKY QUICK:
07:41:29:00 What-- they-- the company-- has been trading higher because of the merger that's been pushed--
07:41:36:00 (OVERTALK)
WARREN BUFFETT:
07:41:35:00 It's traded higher for a couple of days. Actually it-- it's traded lower. (LAUGH)
BECKY QUICK:
07:41:40:00 If the company were to hit that threshold and decide to go ahead and-- convert the shares to common
which they probably would just because of the 8.5% that they're paying on it, would you keep the stock?
NO MEDIA ID PG. 55
WARREN BUFFETT:
07:41:51:00 Well, the company would like the stock to sell at a level that would allow them to force converging,
that's perfectly sensible. I mean, I-- I would want the same thing if I were in their position. And if it-- we-- we are unlikely
to be an owner of-- of the common.
BECKY QUICK:
07:42:09:00 Because?
WARREN BUFFETT:
07:42:09:00 Because we bought a preferred that we liked. And-- and we did not buy the common. And we have not
bought the common ever since. So there's other stocks that we would like better as a common stock. So we-- we like the
preferred-- 8.5% preferred we like. Someday we'll get to a level where-- where they can force conversion and-- and--
and they undoubtedly will. And then the question is is would I rather own Dow Chemical or maybe DuPont Dow
Chemical at that time. Would I rather own that than any other stock? And-- if that were the case I'd a been buying it
already.
BECKY QUICK:
07:42:44:00 If that's the case is it because of the changes that are coming? Andrew Liveris isn't gonna be with the
company anymore. If he was there, would you keep it?
WARREN BUFFETT:
07:42:52:00 It's because it's a business that I don't really have a fix on. We-- we've never owned much in the way of
chemical businesses. If-- if you look at the history of Berkshire I can't even hardly recall-- I don't think I can recall a
chemical stock. I mean, I don't think I have a fix on that business.
BECKY QUICK:
07:43:06:00 I think of--
07:43:07:00 (OVERTALK)
WARREN BUFFETT:
07:43:10:00 --yeah. That-- that's a specialized chemical. But if you look at-- you look at-- all the big chemical
companies we really haven't owned them.
NO MEDIA ID PG. 56
BECKY QUICK:
07:43:22:00 In-- in terms of what happened there, is that a situation where you think the activists were warranted in
getting involved?
WARREN BUFFETT:
07:43:28:00 Well, I don't know about whether they're warranted there. But-- but there's certainly situations it's very
tough to tell. I mean, in-- in DuPont, you know, we'll find out whether people can run it better than it was being run
before. The record is very mixed on that. Sometimes-- sometimes-- sometimes the-- the activists come or bring in
somebody that-- that does a much improved job. And sometimes they screw it up.
BECKY QUICK:
07:43:57:00 Okay. Warren, we'll continue this conversation. But in the meantime, Joe, we'll send it back over to your
direction.
JOE KERNEN:
07:44:02:00 Okay, thanks-- Becky. Coming up, Warren is gonna tell you about some of his top holdings including
American Express and Coca-Cola. Squawk Box will be right back. (MUSIC)
WARREN BUFFETT:
07:46:55:00 Frito Lay is a-- a-- a fabulous business. I'd love to own it. I-- I-- I eat Fritos, I eat Cheetos, I eat the potato
chips. I even eat Munchos which are kinda hard to find. But I always drink Coca-Cola with them. (LAUGHTER)
BECKY QUICK:
07:47:13:00 That was Warren Buffett back on March 1st of 2010 talking salty sna-- snacks and soda. And Warren,
that brings us back to some of your big investments including Coca-Cola. Charlie Munger made some comments recently
where he said that Coca-Cola's still a strong company but not like it used to be. What-- what do you think about Coca-
Cola?
WARREN BUFFETT:
07:47:29:00 Well, Coca-Cola continues to sell more-- drinks-- wider portfolio than they used to have many years ago-
- more every year than the year before. But the growth rate-- in carbonated soft drinks 20 years ago was a lot greater
than-- than it is today.
NO MEDIA ID PG. 57
07:47:51:00 And it's still-- it-- it's still s-- very strong. I mean, I think (NOISE) they sell, like, 1.9 billion eight-ounce
servings of some drink every day. And-- a lot of that's Coca-Cola. So it-- it's a very good business. But the growth rate has
slowed down considerably from it was, say, 20 years ago.
BECKY QUICK:
07:48:09:00 We-- we know that-- the company just recently announced that it's stepping up the restructuring of its
North American operations. It's trying to-- push ahead-- the move to get out of Coca-Cola battlers.
WARREN BUFFETT:
07:48:22:00 Yeah.
BECKY QUICK:
07:48:22:00 Is that the right move?
WARREN BUFFETT:
07:48:23:00 Well, it-- it's hard to tell. I mean, a-- they-- they bought-- off the bottling operations-- I don't know-- five
or six years ago with the idea of refranchising 'em later on. So, I mean, this is part of a plan.
07:48:39:00 They just-- in 1899 for $1 they made a deal with three guys from Chattanooga. It was the dumbest deal
ever made. They-- they gave in perpetuity the rights in-- in almost the entire United States for these guys for the bottling
operation. And that led to all kinds of things over time. And those fellas made some arrangements and all that sorta
thing. Working their way out of that, it started 40 or 50 years ago. And I've (UNINTEL) a big part of the job. And they--
but these are the beloved and tre-- they cajoled and pleaded (LAUGHTER) and all these things to try and get this thing
into a more logical arrangement. And they've been working on that for a long time.
07:49:18:00 And this is part of a very long-term plan. You have the most logical distribution system that fits today's
retailing. I mean, there weren't Walmarts and those around 100 years ago. So you had local accounts entirely then. Now
you have big national accounts. So it's a different world. But it's been expensive-- it's been very expensive to configure
the distribution arrangement.
BECKY QUICK:
07:49:41:00 Well, with the purchase of CCE, Coca-Cola Enterprises, was that the right move back in 2010?
NO MEDIA ID PG. 58
WARREN BUFFETT:
07:49:47:00 They probably felt it was the only move to-- but they created CCE of course 20 years earlier. I mean, it--
it's been a tough problem to align the interests of the bottlers and the conc-- they call it concentration-- manufacturing
part of it. And-- and it's-- it's different by different countries.
07:50:04:00 It's-- it's not an easy puzzle. But they have decided that to have the United States in particular more
logically configured-- reinvigorated in terms of the bottling partners they might have and so on. They've got a terrific
bottler for example that they've added in Chicago. I know the people. So this-- the score card isn't in on it. They paid a
lotta money and they're not gonna get back that much money it doesn't look to me like in terms of when they
refranchise it. But that isn't really the key. The real key is-- is-- is how vigorous the system is and once it's been put in
place. And they've accelerated the time table for getting it refranchised.
BECKY QUICK:
07:50:43:00 They-- company names and the president and chief operating officer, James Quincey, back in August. Do
you know him?
WARREN BUFFETT:
07:50:48:00 I-- I met him once and I've got-- a dinner coming up with him here in-- pretty soon. Everything I know
about him is good.
BECKY QUICK:
07:50:57:00 Okay. There's a question from a viewer that comes in asking-- this is from (UNINTEL)-- will 3G buy Coca-
Cola in the next few years?
WARREN BUFFETT:
07:51:06:00 I don't think so. (LAUGHTER) No that's-- Coca Cola's not for sale. (LAUGHTER)
BECKY QUICK:
07:51:10:00 And the--
WARREN BUFFETT:
07:51:11:00 I will say this, we own 9% of it. So we might have a little bit-- (LAUGHTER)
07:51:14:00 (OVERTALK)
NO MEDIA ID PG. 59
WARREN BUFFETT:
07:51:15:00 --yeah. Yeah.
BECKY QUICK:
07:51:16:00 Okay, let's-- let's turn our attention (UNINTEL) a little bit about American Express. This was another
question from a viewer, Dave Carson, who writes in, "How do you rationalize Berkshire's continued investment in
American Express given its troubles?"
WARREN BUFFETT:
07:51:28:00 Well, American Express started I think in 1851. And they had an express business. You-- you transported
goods from the west coast-- east coast to the west case. I think they even chained the pony express rider to his trunk
that he was carrying so that if the Indians came couldn't (UNINTEL) and leave the trunk.
07:51:46:00 And then along came the railroad. And now all of a sudden you could stick those trunks on-- on-- on a
railroad. And American Express adapted to money orders. And then the credit card came along in the 1950s and people
thought money orders were gonna disappear. And they adapted to credit cards.
07:52:02:00 Diner's club looked like they were gonna wipe 'em off the face of the earth for a short period of time. So
it's been a business that's had to adapt. But it's-- it's been a very fundamental business with a terrific reputation. During-
- when Roosevelt closed the banks in 1933 travelers checks were allowed to be continued to be used. So they
substituted for banks even for a week or so.
07:52:26:00 So it-- and Ken Chenault has been terrific about adapting in a world where you need to adapt very
quickly. But you've got-- you've got cardholders spending $16,000 or $17,000 per person against, you know, four s--
thousand or so on these. And it's a very-- it's a very, very strong brand. But you are going to have all kinds of people
coming at you in payments. That won't stop. I mean, it'll be this thing today and another thing tomorrow.
07:52:52:00 And so you've got PayPal. You've got the whole works. I think American Express will do fine over time.
The Costco-- break up the Costco arrangement was a big deal. But the proprietary cards stay as strong as ever and keep
growing. And I-- I-- I like it fine. But there's no question it'll have an abundance of competition.
NO MEDIA ID PG. 60
BECKY QUICK:
07:53:12:00 The company's going through a restructuring as well-- American Express. And-- people have been told
some-- some warning that you could have some up and down-- quarters as you go through this, as they spend more on
marketing to make you bring more people in-- more members into the card. You're prepared to ride that out?
WARREN BUFFETT:
07:53:28:00 Well, sure. I mean, I-- I-- I rode out the (LAUGHTER) (UNINTEL) oil in 1960s. So American Express-- they
bought (UNINTEL) fund insurance, they tried to build a brokers thing around (UNINTEL), I mean, they'll make-- they'll
make mistakes. They owned IDS and they s-- they spun it off. It went (UNINTEL).
07:53:46:00 It's-- it's what they have the sense to evolve and they keep evolving toward their strengths. And-- you
know, I-- I've got a card in my pocket that I got in 1964. (LAUGH) And-- and it served my purposes very well. But it
doesn't serve everybody's purposes. And they will keep adapting to that. They've come up with lots of new data. So it's
competitive. But I like the business.
BECKY QUICK:
07:54:10:00 Of the big four investments we have-- talked about already American Express, Coca-Cola, IBM. We have
not touched on Wells Fargo.
07:54:18:00 (OVERTALK)
WARREN BUFFETT:
07:54:18:00 That's the biggest one too.
BECKY QUICK:
07:54:19:00 The biggest one and it's the best-performing stock if you're looking at the four over the last year or so.
So-- talk a little bit about Wells Fargo.
07:54:27:00 (OVERTALK)
WARREN BUFFETT:
07:54:28:00 Terrific operation at the onset. And done a great job. I-- I keep trying to-- he's talking about retiring at
65. And I-- I'm gonna go out and have a hunger strike in front of the director if they (UNINTEL). He's done a fabulous job.
And Wells-- Wells-- it's a very big, I mean, it's a company that makes $20 billion a year plus after tax.
NO MEDIA ID PG. 61
07:54:51:00 And then-- it's in I don't know how many households. But it's-- it's-- it's a very well-run bank. It's-- it's--
when the-- when the c-- crisis hit, you know, it took over what I think was then the fourth largest bank, Wachovia. The--
government didn't have to come up with a penny. You know, I mean, stockholders got some more stock. But with Wells
was there to take over Wachovia at a time when the world was falling apart. And it didn't have to go the FDIC, it didn't
have to go to the Federal Government. So it-- it-- it's done a terrific job.
BECKY QUICK:
07:55:22:00 You also mention Bank of America in the annual letter. Not one of your big four holdings although you
mention that it--
07:55:27:00 (OVERTALK)
BECKY QUICK:
07:55:28:00 --it was converted it would be your fourth largest (UNINTEL) investment.
WARREN BUFFETT:
07:55:33:00 Yeah. Now Bank of America, I mean, it-- Brian Moynihan has done a great job. I mean, he-- he inherited
a bad hand. I mean, they had-- when you look at Countrywide and-- and when Merrill Lynch was acquired on that
Sunday rather around $30 a share if they waited (UNINTEL) probably been 30 cents a share.
07:55:48:00 You know, so-- Brian really took on a tough company. And all these mortgage problems inherited from
the past. And you have the government (UNINTEL) and you had the (UNINTEL) populous mass. (LAUGH) And he-- he, I
mean, he just took it one thing at a time.
07:56:03:00 And he-- he's made improvements-- dramatic improvements. And I think it's very, very likely we've got
these (UNINTEL) and few years and I think very, very likely we-- we ex-- we-- exercise those and-- and remain a very
large shareholder. The-- I think we'd own about 7% of the company or something like that. And-- and-- I think that'll
happen.
BECKY QUICK:
07:56:27:00 Okay. We're gonna continue our conversation with Warren Buffett. When we come back we'll get his
advice for Tim Kirk. Plus Buffett is a big rail fan as the owner of Burlington Northern, what does Buffett think of the oil
glut. The rail tanker industry and much more. Stick around, this special edition of Squawk Box will be right back. (MUSIC)

NO MEDIA ID PG. 62
CNBC NBC UNIVERSAL
"WARREN BUFFETT"
CORRESPONDENTS: BECKY QUICK, JOE KERNEN AND
ANDREW ROSS SORKIN
PRODUCER: LACY O'TOOLE
MEDIA ID: HOUR 3
* * *TRANSCRIBER'S NOTE: JOE KERNEN AND ANDREW ROSS SORKIN SOUND SIMILAR
AT TIMES.* * *
ANNOUNCER:
07:59:33:00 Squawk Box is on Buffett watch. Warren's annual letter to shareholders is out. And we have a special
one on one interview with the oracle of Omaha. His thoughts on the global economy.
WARREN BUFFETT:
07:59:46:00 We would be better off if we had a big mattress here (LAUGH) so we could stick all the stuff in, yes.
(UNINTEL PHRASE) mattress. You know, that's what we would do.
ANNOUNCER:
07:59:54:00 Oil (?).
WARREN BUFFETT:
07:59:55:00 Some very tough things happened-- to the economy fairly quickly. The benefits just keep kind of flowing
too slowly.
ANNOUNCER:
08:00:03:00 And investing in turbulent markets.

NO MEDIA ID PG. 63
WARREN BUFFETT:
08:00:06:00 American business will do fine over time. And if you own a piece of it and if you don't beat yourself-- the
only-- the only person who-- who can cause you to get a bad result in stocks is yourself.
ANNOUNCER:
08:00:14:00 Warren Buffett answers the questions that matter most to your money, as the final hour of Squawk Box
begins right now. (MUSIC)
JOE KERNEN:
08:00:34:00 Welcome back to Squawk Box here on CNBC, first in business worldwide. I'm Joe Kernen along with
Andrew Ross Sorkin. Becky Quick, as you know, is live in Omaha with Berkshire Hathaway CEO, Warren Buffett. We'll get
back to them in just a minute. First though, let's get you up to speed on some of the other top stories of the day. We're
down about 45 points in the U.S. market after two very good weeks. We are a little bit lower, indicated this morning
down 42, 43 on the-- on the DOW, down s-- six or so, just under six on the S&P. And 20 or so on the-- on NASDAQ. Ready
to-- ready to flip the board there. Then what's happening in Europe right now.
08:01:09:00 Germany, the weakest over there, as you hear more and more-- pushback against-- Angela Merkel and--
and what's happening over there. Immigration-- a global issue now that-- that everyone's talking about. Especially with
what's happening in Syria. I don't know-- d-- what's the latest on the ceasefire? Still en-- enforced, Andrew, but no one
has--
ANDREW ROSS SORKIN:
08:01:30:00 I think so, but nobody's--
BECKY QUICK:
08:01:32:00 We need to check on an hourly basis, I guess. But we'll keep our fingers crossed.
ANDREW ROSS SORKIN:
08:01:36:00 In the meantime, let's-- tell you what else is goin' on among our other top stories. China's Central Bank
cutting the reserve requirement ratio. Now, the amount of cash-- 'cause that's the amount of cash that the country's
banks have to hold. This is an intent to calm investor jitters over the world's second largest economy.
08:01:50:00 And then, on the economic agenda back here in the United States this week, we got a lot to talk about.
Jobs, jobs and jobs. On Wednesday, we're gonna get the (UNINTEL) ABP report. On Thursday, we get the closely
NO MEDIA ID PG. 64
watched weekly job (UNINTEL). And then on Friday the big one, the all-important jobs report itself. And we're watching
gold this morning because the previous metal is on track now for its best month in four years as investors seek a safe
haven. They're looking at gold now at $1,230. In the meantime, we gotta get back to Becky Quick in Omaha with our
special guest for the morning, Warren Buffett, who traditionally doesn't like gold. Becky.
BECKY QUICK:
08:02:27:00 (LAUGH) Well, would you like to expound on that. Your c--
WARREN BUFFETT:
08:02:29:00 Well--
BECKY QUICK:
08:02:29:00 --your cost on gold--
WARREN BUFFETT:
08:02:30:00 --last time-- last time you asked me about gold was about three or four years ago, it was $1,800 or
something. And I said I didn't think much of it. And so far, I've been right. (LAUGH)
BECKY QUICK:
08:02:38:00 Well, we have-- a lotta questions that have come in from people wanting to know your thoughts on
Apple and the Department of Justice and this battle that's played out. I'll-- I'll ask one of these questions. This comes
from Nick Peluski (PH). He says, "In regard to the F.B.I. versus Apple, what would you do in a similar situation, knowing
that the value of your company could be affected?"
WARREN BUFFETT:
08:02:59:00 Well-- well, I'll salvage my credentials, (LAUGH) my phone. Yeah. Yeah. I-- I don't know anything about
tech, obviously. But my feeling just generally, with-- and I don't know the-- I don't know the specifics of the pleading to
the judges, the side here or anything of the sort. I do think that we live in a very, very, very dangerous world.
08:03:22:00 And-- and there, I'm thinking about the mass attacks, like the things that we could have in cyber or--
nuclear chemical, biological. Certainly, if you were in the early days of September, 2001 and you were receiving credible
information that something major was happening and you had reason to believe that it might be-- connected with
certain people, you know, I think that in that case, security trump-- trumps privacy.
NO MEDIA ID PG. 65
08:03:52:00 On the other hand, I think that if you've got people that are just pushing around-- on smaller type things,
they're-- and-- and low probabilities of-- of finding things or anything like that, I think privacy-- trumps security. But in
the end, if there's an-- there's something major, something that the attorney general or the head of the F.B.I. was be
willing to s-- sign and go to a judge on and say, "We need this information and we need it now--" I would be willing to
trust that official to behave in a proper manner.
08:04:27:00 I wouldn't want that broadly distributed. I wouldn't want every magistrate to feel he had to respond to
(UNINTEL PHRASE) some local cop or whatever it may be on one item of privacy or another. But I-- I do think that the
world is very, very dangerous. And I think that anything that enables us to minimize the danger or something that's
really threatening.
08:04:49:00 I mean-- take the anthrax of 2001. If-- if it were apparent that you could determine the-- the area from
which that anthrax came, I would wanna know about-- about everybody that had access to it. And I'd wanna know it
immediately because I wouldn't know when they were start putting it in something a whole lot more dangerous than
(UNINTEL) National Enquirer or Tom Brokaw or Tom Daschle. (BACKGROUND VOICE)
BECKY QUICK:
08:05:14:00 On Apple's point, Tim Cook's side of things, he says that this is basically the government ordering them
to write code. I-- I'm not a technologist out there. I don't understand that necessarily--
WARREN BUFFETT:
08:05:25:00 I don't-- no, I don't either. And I admire Tim Cook enormously. I-- I-- I respect him much as any CEO in
the country. I would say this. If-- if we have probable cause and-- whether-- whether it be an attorney general or F.B.I.,
the president, talk to some-- there was a dirty bomb in New York or something of the sort and Apple could help us-- at
Berkshire and hath-- and Hathaway, we've been asked to help 'em on-- on certain things.
08:05:53:00 If-- if-- if-- if they were asked to help, I would think they would wanna do it immediately. And certainly, I
think Tim Cook probably would. I mean, I-- the-- the problem is, he doesn't wanna open it up to where, yeah, (UNINTEL
PHRASE) and th-- your phone or my phone. And turn off a whole bunch of things that clearly-- are irrelevant to national
security. But they help somebody in some other way. I mean, so-- you have to have some-- privacy has its limits. And--
and-- and-- and the national security has its limits in the other direction. You can't call everything national security.
BECKY QUICK:
08:06:29:00 Andrew, you have a question on this too?

NO MEDIA ID PG. 66
ANDREW ROSS SORKIN:
08:06:31:00 Warren-- (UNINTEL PHRASE) Warren just peaked my interest 'cause you'd-- you had mentioned that the
government has asked Berkshire-- prior for certain information. What kinda information was that?
WARREN BUFFETT:
08:06:42:00 Well, I would say this. I w-- I-- I-- I think almost every large company-- over a period of years has been
asked to help in s-- some way in terms of law enforcement. And when they-- when they're asked, they are also-- that's
preceded by an agreement not to talk about it. And I think that's quite proper. I mean, there are things-- you know, you
could be privy, if-- certain companies could be privy to something that would be useful-- you know, if there were a dirty
bomb in-- in New York or something that was scheduled to go off.
08:07:18:00 You might be very interested in building maintenance (LAUGH) (UNINTEL PHRASE) or something of the
sort. So-- I-- I-- well, I know that-- that many large companies have been asked very-- it's not been willy-nilly. Nobody's--
nobody's doing it just to pry or anything like that. There's been a reason for it. And I think that almost any large company
would cooperate.
08:07:39:00 And I think, frankly, Apple would cooperate if-- if it was a targeted sorta thing, that-- where they felt it
was very important to national security. But I don't think they wanna give away, you know, th-- the-- the-- the-- there're
a lot of l-- a lot-- millions of phones out there that people-- where people aren't just replying. And--
ANDREW ROSS SORKIN:
08:07:57:00 Warren, I think one of the-- the issues for Tim Cook in particular about the code is-- it would be the
equivalent of the government asking you to manufacture a product, if you will-- that you currently don't manufacture,
and a product that you don't want to manufacture. If the government came to you under those circumstances, how
would you feel?
WARREN BUFFETT:
08:08:19:00 Well, I would say if it was important enough to national security, that we would try to cooperate. I-- and
I think I-- and listen, I think-- I think 99% plus of the Fortune 500 would do the same. You'd have to be convinced this was
terribly important and that you had some particular ability or expertise that really we could make a difference.
NO MEDIA ID PG. 67
08:08:40:00 But-- but if somebody came to me and said, "You know, you've got some power plants and you've got a
lotta plutonium there, (LAUGH) would you mind selling us some," you know, the fellow looked like he came from North
Korea, I think I'm-- (LAUGH) I'd be quite cooperative with-- with government.
ANDREW ROSS SORKIN:
08:08:56:00 Right. And Warren, just-- for-- one final point on it 'cause I think this makes it slightly more complicated,
and this is one of the reasons-- that Tim Cook feels the way he does, beyond genuinely feeling this way-- on the privacy
count, which is the impact on his business. Which is to say that, unlike many other businesses, if the government came
to you and-- again, came to you privately-- in this case, it's now very public.
08:09:16:00 Th-- the larger implication from a business standpoint is that if Apple were to give-- be forced to give up
this information, that it might-- make his business in places like China and elsewhere much more complicated, either
because he's gonna have to abide by their rules, or they're gonna tell him, "You know what? You can't do business
here."
WARREN BUFFETT:
08:09:38:00 That's-- that's a complication. But I-- I would say that I-- I-- I don't know Tim real well. But everything I
know about him is-- is he's-- as high a rated individual as you can imagine. But, you know, th-- the bank-- (LAUGH)
they're-- th-- I-- I-- I used to take out-- my wife likes to use cash. I used to take out $9,000 regularly. And-- the F.B.I. came
to see me, you know?
08:10:01:00 And-- where did-- my bank gave 'em that information. I-- I'm not mad at my bank about that. I mean,
that's-- that's-- w-- but they cooperate with the U.S. government and it probably has to do with money laundering and a
whole bunch of things. And-- my-- I expect my bank to co-- cooperate with the U.S. government. I expect my-- you know,
I-- I expect my telephone company-- to cooperate with the United States government.
08:10:24:00 I don't think they sh-- I think they should be reasonable in determining to what extent th-- where there's
really a need to get that sorta thing. But-- but I-- we live in a dangerous world. And-- and if-- if in our railroad we found
mysterious shipments of something (LAUGH) (UNINTEL), something, I would hope that we would-- we would-- make
sure that the pe-- proper people in government knew about it.
MALE CORRESPONDENT:
08:10:54:00 (UNINTEL PHRASE) know what you're do--

NO MEDIA ID PG. 68
BECKY QUICK:
08:10:54:00 And I think the situation has gotten so comp--
MALE CORRESPONDENT:
08:10:57:00 I-- I wanna know what he's doin'--
BECKY QUICK:
08:10:57:00 Oh go ahead, sorry--
MALE CORRESPONDENT:
08:10:58:00 --with the ni--
BECKY QUICK:
08:10:58:00 Warren.
MALE CORRESPONDENT:
08:10:58:00 What were you doin' with the $9,000, Warren? And how many times (LAUGH) did you do that and what
(LAUGH)-- wh-- what the heck-- (UNINTEL PHRASE)--
WARREN BUFFETT:
08:11:04:00 I get a lotta clients.
MALE CORRESPONDENT:
08:11:05:00 Huh?
WARREN BUFFETT:
08:11:07:00 Yeah, well-- well, I-- I get (UNINTEL PHRASE). That's what my wife gets to spend on it.
MALE CORRESPONDENT:
08:11:11:00 (LAUGH) Well-- th-- well-- yeah, okay--

NO MEDIA ID PG. 69
WARREN BUFFETT:
08:11:13:00 It-- it's-- it's-- (UNINTEL PHRASE). (LAUGH) No, I'm just-- no, I did it fairly frequently. I-- I-- I read
someplace that-- that, you know, that-- that it's-- there-- that $10,000 was some threshold where they report it. I
thought, "I d-- I-- why sh-- why should they report it?" MALE CORRESPONDENT:
08:11:28:00 (LAUGH) I-- I can just--
08:11:28:00 (WARREN BUFFETT: UNINTEL)
MALE CORRESPONDENT:
08:11:29:00 --say--
WARREN BUFFETT:
08:11:29:00 --her to buy groceries. (LAUGH)
JOE KERNEN:
08:11:30:00 Me and Andrew here in-- v-- neither one of us (BACKGROUND VOICE) has ever taken $9,000 out to just
throw-- for walkin' around money, have we, Andrew? That-- that--
ANDREW ROSS SORKIN:
08:11:38:00 (UNINTEL PHRASE) cost, my friend.
MALE CORRESPONDENT:
08:11:39:00 I use my magic bus card (?)--
WARREN BUFFETT:
08:11:40:00 That's why you--
MALE CORRESPONDENT:
08:11:41:00 --that's Warren's-- (UNINTEL). (LAUGH)
WARREN BUFFETT:
08:11:44:00 That's why the F.B.I. got suspicious of me. I--

NO MEDIA ID PG. 70
BECKY QUICK:
08:11:46:00 (LAUGH) You were just under the threshold every time?
WARREN BUFFETT:
08:11:48:00 Yeah. Well, yeah, you're not supposed to do that. I didn't know that, but I-- (LAUGH)
MALE CORRESPONDENT:
08:11:53:00 Spend-- spending it on cherry Coke, you know I mean? And just guzzlin' that. (LAUGH) Like, (UNINTEL
PHRASE).
WARREN BUFFETT:
08:12:02:00 Well, those two guys were pretty serious when they came into the office. I wasn't there, but my
assistant was there and-- (LAUGH) and, you know, I learned. (LAUGH)
MALE CORRESPONDENT:
08:12:11:00 We're-- we're-- we're-- w-- we're-- that goes back to the weirdo billionaire question again on that, 'cause
I was wonderin' where that $9,000 all was--
WARREN BUFFETT:
08:12:16:00 Yeah, where's it--
MALE CORRESPONDENT:
08:12:17:00 --goin'.
WARREN BUFFETT:
08:12:17:00 --goin'?
MALE CORRESPONDENT:
08:12:17:00 Yeah. Yeah. Do tell, Warren. (LAUGH)
WARREN BUFFETT:
08:12:21:00 Well, those-- we'll save that for the annual meeting. I gotta ask if (UNINTEL) was there.
08:12:25:00 (OFF-MIC CONVERSATION)

NO MEDIA ID PG. 71
BECKY QUICK:
08:12:28:00 Andrew?
ANDREW ROSS SORKIN:
08:12:30:00 We-- and I-- I'm finished up on my Apple questions--
WARREN BUFFETT:
08:12:32:00 I'll tell you, I--
ANDREW ROSS SORKIN:
08:12:32:00 I think-- I'm fascinated by his answer. And I-- have you talked to Bill Gates about this at all, Warren?
WARREN BUFFETT:
08:12:39:00 Well, I-- I saw him on Charlie Rose the other night-- talking about that. I have not talked to Bill about it--
but. I mean, it's a very, very tough question because it is a question of degree. I mean, if I really wanna know-- if-- if we
can crack the 19 guys and have-- find some conversations when they're planning on how to take over a bunch of
airplanes, you know, I would like to be able to have access to that information and I wouldn't wanna have to go all the
way up to the Supreme Court.
08:13:06:00 Like, you know, well-- well, with this playing out. And on the other hand, the idea of government just
prying and-- and-- and-- you know, and using it-- well, we had that case with J. Edgar Hoover, you know? And so I-- it-- it-
- it's-- it's (UNINTEL)-- it's easy to answer the extremes and it's hard to know where to-- where to cut it in the middle.
ANDREW ROSS SORKIN:
08:13:23:00 Okay.
WARREN BUFFETT:
08:13:23:00 I think-- I-- I di-- my guess is Tim Cook, I mean-- you know, he-- he cares about the same things, you
know, every American cares about in terms of-- of safety of the country. And he also cares about not-- not letting people
get into a product he's sold unless they've got a very, very good reason for it.
MALE CORRESPONDENT:
08:13:41:00 Okay. Warren Buffett-- we're gonna come back to you in just a couple of minutes. Stay tuned for more
questions, some of which (MUSIC) have been submitted by you, the viewers. We're gonna get to those-- shortly. Right
NO MEDIA ID PG. 72
now though, as we head to a break, take a look at the price of crude. We're talkin' about oil-- with Warren a little bit
earlier. WTI Crude now at 3290. Squawk returns with Warren Buffett in just a moment.
08:14:01:00 (COMMERCIAL BREAK)
BECKY QUICK:
08:16:54:00 Welcome back to this special edition of Squawk Box. We are live in Omaha, Nebraska with Warren
Buffett, the chairman and CEO of Berkshire Hathaway. And Warren, we've talked about a lot of issues this morning. But
we haven't touched on some of the new investments that came in. And I'm thinking specifically of Kinder Morgan.
08:17:10:00 Berkshire, as of the fourth quarter, has-- $396 million saved. It w-- I was a little surprised by that
because, you know, when we've talked about oil investments in the cash, you haven't been that enthralled with most of
them overall. This-- a pipeline investment.
WARREN BUFFETT:
08:17:24:00 Yeah. Well, I was a little surprised too. (LAUGH) Yeah. We have two fellas e-- who each had (UNINTEL
PHRASE) $9 billion for us. I look at their holdings once a month. But I-- they don't have to check with me about-- th--
they don't at all. So they-- they run two portfolios. They get-- ba-- based on how those portfolios behave. I've never told
'em to buy anything or-- or sell anything. So that was the decision of-- of one of those two. And they--
BECKY QUICK:
08:17:53:00 Was it Todd or Ted?
WARREN BUFFETT:
08:17:54:00 Well, I th-- I-- I don't think I'll s-- tell us-- which one is doing w-- what. But they-- I think when you see a
position of that size, it's probably theirs because-- I'm not gonna do anything, in all likelihood, that doesn't involve-- at
least potentially involve-- a few billion (?). So-- now, that could've been the start of something and I was gonna buy
more, but that's not the case with (UNINTEL).
BECKY QUICK:
08:18:23:00 You were involved though in the f-- additional purchases of Phillips 66?
WARREN BUFFETT:
08:18:28:00 Right.
NO MEDIA ID PG. 73
BECKY QUICK:
08:18:29:00 So at this point--
08:18:30:00 (OVERTALK)
BECKY QUICK:
08:18:30:00 --you had--
08:18:30:00 (OVERTALK)
WARREN BUFFETT:
08:18:31:00 Billions. (LAUGH) That's me. (LAUGH)
BECKY QUICK:
08:18:35:00 What is the (UNINTEL PHRASE)?
WARREN BUFFETT:
08:18:37:00 Well, I-- I w-- I-- I won't get in the business of (UNINTEL) stocks. But I-- you know, it-- I-- obviously, I like
the business or I wouldn't have bought it. But I-- I-- I'm not recommending anything than everybody else. (LAUGH)
BECKY QUICK:
08:18:48:00 Okay. When you--
WARREN BUFFETT:
08:18:50:00 What is important, some people say that is a reflection of how I feel about oil. Yeah, oil refining is much
different than oil production. They're-- they're too entirely different businesses. I mean, they have-- you have a little
connection in a certain way. But-- but a decision on oil refining or a decision on going in the oil production business,
they're night and day.
BECKY QUICK:
08:19:11:00 Because?
WARREN BUFFETT:
08:19:12:00 Well, because in-- in the oil production business, it all depends on the price of oil, whether you're gonna
make money in the future. And in the refining business, it all depends on what's called the crack spread, which is just
NO MEDIA ID PG. 74
basically what it costs you to buy oil and sell it. Now, you can make just as much money or more with $30 oil or $100 oil,
but not if you're a producer. (LAUGH)
BECKY QUICK:
08:19:30:00 So you like the crack spread right now?
WARREN BUFFETT:
08:19:31:00 Well, it-- no, it's not so good right now. (LAUGH) You know, it was better last year. But-- what really
helps (LAUGH) in the oil refining business is when somebody shuts down. For example, the Whiting, Indiana refinery sh--
sh-- this is a big one, shut down last year for a while. And-- and that helps the spread, okay?
08:19:48:00 That-- oil refining generally operates in the 90+% of capacity operation. So anytime somebody gets
knocked out, either there's planned outages, but then there's also unexpected outages. And-- and if you're-- if you're in
the oil refining business, you're hoping that the utilization is very up there, h-- in the high nineties.
BECKY QUICK:
08:20:09:00 Uh-huh (AFFIRM). There-- there's been a battle in the energy field-- in which Bloomberg Business Week
put you on the cover with Elon Musk, (LAUGH) the two of you kind of battling and fighting over this. Him with SolarCity
and you with NV Energy, Nevada Energy-- saying that this is-- a situation where-- billionaires are fighting over this.
08:20:30:00 And w-- it generated a lot of questions from viewers. I-- I'll give you one that came up from-- Maricella
Giordano (PH). Says, "Why is your company, Nevada Energy, trying so hard to stop people from converting to solar
power in Las Vegas?" Another similar question came from Mike Wood. Says, "Berkshire's been a leader in solar
investment. Why are you preventing or deterring that (UNINTEL) in Nevada?"
WARREN BUFFETT:
08:20:52:00 Well, we're-- (THROAT CLEAR)
BECKY QUICK:
08:20:53:00 Explain that to me--

NO MEDIA ID PG. 75
WARREN BUFFETT:
08:20:53:00 We're (UNINTEL)-- oh, well, we don't have a problem with their meters. And we're the leading in
renewables in the country-- among the regulated utilities. The only ways we do not want our million plus customers who
do not have solar to be buying solar at 10.5 cents when we can churn it out for 'em at 4.5 cents or buy it at 4.5 cents.
08:21:11:00 So we do not want the non-solar customers-- and there're over a million, to be subsidizing the 17,000
solar customers. Now, solar customers are subsidized through the federal government, as we are with our wind and
solar operations ourselves. The reason that society believes in subsidizing solar and wind is because of damages to
society that may result over decades from carbon emissions. And-- and-- society has an interest in it.
08:21:42:00 And subsidized by the federal government, society is, in effect paying for it. I mean, people who benefit
the whole country. In Nevada, they had an arrangement-- for a very limited number of people and-- public utility
commissions aside first. They had an arrangement where the utility had to pay way above market for solar produced by
the 17,000 houses and (UNINTEL).
BECKY QUICK:
08:22:09:00 (UNINTEL) says, "If I have solar electricity that I'm producing that's more than I need, I can sell it back to
you th--"
WARREN BUFFETT:
08:22:14:00 At 10.5 cents when we could buy someplace else for 4.5 cents or make it ourselves for 4.5 cents. And
that costs the million plus customers-- twice. And the public utility commission, there's three utility commissioners,
(UNINTEL PHRASE) utility commission decided that was unfair to the million plus people who didn't have solar. And they
said, "It's fine to sell it back, but sell it back for what it can be bou-- sell it back at market price."
BECKY QUICK:
08:22:38:00 That Bloomberg Business Week cover-- really (UNINTEL PHRASE) again is a battle between billionaires
with you and Elon Musk. Is-- is that fair? Have you spoken with Elon Musk about this?
WARREN BUFFETT:
08:22:46:00 Elon called me, yeah. (LAUGH)
BECKY QUICK:
08:22:47:00 What'd he say?

NO MEDIA ID PG. 76
WARREN BUFFETT:
08:22:48:00 He was unhappy. He-- he-- I mean, he's-- he's being subsidized with his battery plan (?) big time. Our
other customers are actually paying a little more for electricity to subsidize his battery pack (?). And-- they were being
charged this higher price for electricity. And now, we can lower prices a little bit for the non-solar people, or under
17,000, can only sell us electricity. It's 'cause we're being phased in over a few years. But eventually, they will only be
able to sell it at market price.
BECKY QUICK:
08:23:19:00 So was Elon upset when he called you?
WARREN BUFFETT:
08:23:20:00 Well, he-- (LAUGH) he-- he-- he-- he-- he would like us-- he would like the million people to subsidize the
17,000, just like the rest of Nevada is subsidizing his battery plan.
BECKY QUICK:
08:23:32:00 And when you told him that, how did the conversation end? (LAUGH)
WARREN BUFFETT:
08:23:35:00 Well, it (UNINTEL PHRASE) polite. (LAUGH)
BECKY QUICK:
08:23:40:00 All right-- we'll-- we'll continue this conversation in just a minute. Joe, we'll send it back over to you.
JOE KERNEN:
08:23:45:00 Okay, Becky. Cuing up a viewer question for the oracle of Omaha. We'll have more from Warren Buffett
next. (MUSIC) And as we head to break, here's a look back at a moment on the Squawk Box Ask Warren Show about four
or five years ago, in 2011, when we asked Warren about gold. (MUSIC)
BECKY QUICK:
08:24:02:00 Carl, you've got a question too?
CARL:
08:24:03:00 I'm-- I'm still tryin' to get the image of Warren fondling a giant (LAUGH) block of gold-- (BACKGROUND
VOICE) out of my v--
NO MEDIA ID PG. 77
MALE CORRESPONDENT:
08:24:07:00 Fondling it occasionally, what's-- (BACKGROUND VOICE) what stuck with me. (LAUGH)
08:24:10:00 (OVERTALK)
MALE CORRESPONDENT:
08:24:12:00 Folding it th--
WARREN BUFFETT:
08:24:12:00 Make me a giant block (LAUGH)-- maybe a giant block of gold and you'll see me fondle like you've never
seen before. (LAUGH) (MUSIC)
MALE CORRESPONDENT:
08:26:25:00 (MUSIC) We were really ahead of the game on the oil story. A year and a half ago, we were in Midland,
Texas, up at Williston, North Dakota. The initial reaction to oil will (UNINTEL). Good news, low oil means low gas,
everything's fine. I think when you dug into this story and realized hundreds of thousands of jobs either lost or at risk,
that sort of changed the narrative.
08:26:41:00 But also then, you look at the debt that is behind this story. Hundreds of billions of dollars in debt that is
now at risk. (UNINTEL) he said, "No cuts, no cuts, no cuts." That sent oil down and put the stock market forward as well.
MALE CORRESPONDENT:
08:26:55:00 When we come back, much more from our very special guest in the morning, Warren Buffett. As we
head to break, take a look at U.S. equity futures at this hour. (UNINTEL PHRASE) in margin with better (UNINTEL PHRASE)
would open off about 39 points. Squawk returns with Warren Buffett in just a moment. (MUSIC)
JOE KERNEN:
08:30:08:00 (MUSIC) Welcome back to Squawk Box. Time now for a check on our markets once again. U.S. equity
futures have been down all morning down, with-- less than 40 points now, down about 35 on the DOW, down four on
the S&P. The NASDAQ up (?) about 12. All those are improved levels from earlier today. And that's one of the reasons
because the early sell off in oil, which was never severe, but it-- WTI was down earlier. It's now up along with-- Brent
crude. Andrew.
NO MEDIA ID PG. 78
ANDREW ROSS SORKIN:
08:30:34:00 Okay. Let's-- tell you about some corporate news this morning. Disney hoping to use ticket prices to ease
traffic problems in its parks. The company rolling out (UNINTEL PHRASE) surge pricing. Think of Uber a little bit-- for
single day tickets in both its California and Orlando parks.
08:30:48:00 Prices will now be split into three levels. You can get 'em called value, that's on the lowest price, regular
and peak based off projected traffic. Of course, though, it's important to note this is just for one day tickets. Doesn't
affect-- multi-day tickets or-- annual passes. In the meantime, we're gonna get back to Becky Quick in Omaha with our
special guest for the morning, Warren Buffett. Becky.
BECKY QUICK:
08:31:10:00 An-- Andrew, thank you very much. You know, Warren, we've-- we've talked about a lot of what you laid
out in the annual letter. But-- there's stuff here we haven't gotten to. One of those is the significant chunk of space that
you took up defending Clayton Homes, which is your mobile home producer.
08:31:26:00 The company's been under attack. There have been a series of articles in The Seattle Times. And-- and
some that have been in conjunction with BuzzFeed. And there have been charges. The most recent charges-- you don't
directly take on some of the charges that they brought up. But one of 'em is that you charge minorities higher rates
than-- than white people for sales of mobile homes. What-- what do you say to that?
WARREN BUFFETT:
08:31:48:00 It's not true. It's not-- w-- there're a variety of factors that enter into the rate charge. The average rate
was about 8.8% last year. But these are smaller loans. These are not quarter of a million dollar loans of service, they're
$60,000 loans. And-- and they're made for people with lower FICA scores on average. People with-- lower income
people.
08:32:08:00 70% of the houses bought by lower income people-- $150,000 and under houses were manufactured
homes last year. But it depends on your down payment. It depends on your FICA score. It depends on your-- your
earnings. It depends on the percent of your earnings going to-- to-- housing. It-- it depends on whether you own the
land. Th-- there's a whole variety of-- of items.
NO MEDIA ID PG. 79
08:32:33:00 And th-- they're all-- their price or something that has nothing to do (LAUGH) with-- with your religion or
your-- you know, your-- your-- your color or anything of the sort. And-- and if you have a lower down payment on
average, you'll-- you'll pay (UNINTEL) a higher rate than if you have a higher down payment. If you have land, you'll pay a
lower payment than if you don't have land. And there-- (UNINTEL)--
BECKY QUICK:
08:32:52:00 Because the land's collateral? Is that--
WARREN BUFFETT:
08:32:53:00 Well, the land-- yeah. If the land becomes part of the collateral for the-- for the loan. If you have a
higher percentage of your income going to-- to-- mortgage payments, you'll-- you'll pay-- you'll pay a little more. And--
and-- but similarly, the other way around. If you have a higher (LAUGH) one, you'll pay less.
08:33:12:00 So-- there's a range of rates. It's not a huge range, but there's a range of rates depending on your credit
worthiness. And we are lending to people who are lower income, on average. These people would not have a home
otherwise. But at the end of the year, 95 fi-- 95.4% of our dollars were (UNINTEL PHRASE) payments.
08:33:32:00 And-- and we will have a home at the annual meeting that I think will cost $78,000 and (UNINTEL) that
you have to have the land. And I will guarantee you, you'll think that's a very decent-- those are very decent living
quarters for that sum. I mean, we're-- we're taking care of a lotta people that would not otherwise have the chance for
homeownership.
BECKY QUICK:
08:33:54:00 But you went through very specifically-- The Seattle Times, I should say, went through very specifically
and made some charges where they looked at very specific cases, where they said people were lied to on tape about--
whether or not there were other available lenders. Situations like that. Have you looked into--
WARREN BUFFETT:
08:34:09:00 Every--
BECKY QUICK:
08:34:10:00 --all of this?

NO MEDIA ID PG. 80
WARREN BUFFETT:
08:34:10:00 --every single-- we-- we've got a copy in the annual report of a one page item that lists the available
letters. It says, "No d-- more than one." We don't make all the loans that are taken on our houses. They go to-- the local
bank often makes 'em. But there are local banks on (UNINTEL) making homes, not manufacturing homes.
08:34:27:00 But in every office of ours, we have a person on the wall that read-- it's a one page saying. It's big type.
They sign it. Now, does that mean that every single transaction gets handled perfectly? No. And that's true. I mean, we
got 330,000 employees at Berkshire, and I will guarantee you somebody's doing (LAUGH) something they shouldn't do
today.
08:34:47:00 But in terms of the-- th-- the tone at the top, the instructions. And I should point out in the last two
years, we've had 65 examinations, including examinations from 25 different state and federal. And the total amount of
fines we paid was $38,000 or something like that. And we made some refunds for $700,000. But we get-- we've got--
we've got 300,000 loans. We're constantly examined by all the states in which we do business and by the federal
government. And, you know, if you look at our record compared to most others, I think it's pretty darn good.
BECKY QUICK:
08:35:25:00 Uh-huh (AFFIRM). Joe?
JOE KERNEN:
08:35:26:00 Quick question. Thanks, Beck. I mean, Warren-- I love when you talk about how everyone in your
neighborhood lives better than-- than John D. Rockefeller on-- and it's $100,000. And-- and we're gonna keep gettin'
greater and greater. I love that. I love hearin' that. So you saw that Google-- robot from last week or somethin', like,
runnin' through the trees and fallin' over and gettin' back up.
08:35:47:00 So we hear that manual labor's probably gonna be replaced eventually by-- by robots. We made it
through-- there's no more really ditch digging. We have earth moving equipment, really. And agriculture, you look at
what agriculture used to employ and you looked at the way we do it now. We've managed to-- to find a way to employ
people-- as we've gotten better through technology at all these things.
08:36:10:00 My buddy Andrew and-- you've got me worrying a little bit, finally, about this now. The population of
the world keeps growing. Throw in artificial intelligence, where who knows, maybe it won't just be manual labor, maybe
NO MEDIA ID PG. 81
it'll be, you know, average-- brain intensive stuff eventually is done by machines too. You sure that we can keep up--
gev-- givin' everyone a job when so much technology is-- is doing so much? Is it still a reason to be optimistic about the
future?
WARREN BUFFETT:
08:36:39:00 Well, Joe, w-- wouldn't it be wonderful if someday we got to the point where there were robots
everyplace. They were running farms, they were running Apple, they were running Berkshire Hathaway. And all you had
to do was one person could p-- punch a button at the start of every morning and all the goods and services that we're
getting now would be turned out by robots or whatever?
08:37:00:00 And we'd have the goods. We'd have 18 million cars a year. You'd have a million more housing starts.
We'd have all the iPads being sold. And if all of that came to one person pushing a button, would that be a tragedy?
(LAUGH) I mean, just think how w-- how well we'd live. Now we'd have-- instead of having to work 35 hours a week, we
might work an hour a week or something of the sort.
08:37:20:00 So, I mean, basically, the more output you can get from people, it-- it frees 'em up to do other things.
And one of the things it frees 'em up to do is work less. We work less than people did 100 years ago. And what we've
elected to do is bring down the work week, to some extent. But also, have a huge amou-- abundance of goods beyond
what we had at that time.
08:37:40:00 And I will guarantee you that if somebody in 1900 when there were 40 million people working and
however many were on fa-- farms, and if some p-- candidate for president had said, "Ele-- nine million of you, 11 million
are gonna be displaced by a bunch of machinery--" you know, he probably would've won the election. And-- and I
(LAUGH)-- and I promise you (LAUGH) we'd g-- you know, it is-- if-- Joe, if-- if-- if we get so you can just press a button--
JOE KERNEN:
08:38:07:00 Okay, good.
WARREN BUFFETT:
08:38:07:00 --and everything is produced, you know, that--
08:38:10:00 (OVERTALK)
NO MEDIA ID PG. 82
ANDREW ROSS SORKIN:
08:38:11:00 But Warren, one of the questions that has been raised is-- is-- and I don't, by the way, suspect this is
even an issue for the next 20 or 25 years, but perhaps longer term there is an issue which is to say then are you getting
into a whole issue of redistribution of wealth? What does it say about-- individual-- responsibility, capitalism?
08:38:29:00 Some people talk about-- you know-- a wage that would be given-- across the board. I mean, literally,
that the government would just provide this wage to you. I mean, it sort of raises all sorts of questions the farther you
get out with it.
WARREN BUFFETT:
08:38:44:00 Yeah. And Andrew, I agree totally with that. And-- as capitalism and the market system get more
specialized, it does leave more and more people behind. In 1900, if you could work on a farm, you could earn something
reasonably close to the median income. I mean, there was not a huge disparity between one farm worker and another
and-- and the wages you could make that way.
08:39:07:00 Is-- and-- and-- compared to what you'd make in some more specialized occupation. As the economy
gets more and more specialized, it pushes more and more of the rewards the market system offers, it pushes those to
people with specialized talents. And it leaves behind people who have talents that were valued 100 years ago. And
there's no question about that. But a prosperous society can take care of that. As I've pointed out in the annual report, if
we just get 2% a year growth in one generation, there will be $76,000 more of output for a family of four in the United
States. $76,000 more GDP for a family of four from simply 2% growth. Now, it will get-- the market system left alone will
produce more and more of that for guys at the top, like me.
08:39:56:00 And it will leave a lotta people behind. But we can solve that. I mean, we-- we-- we should have-- we
should have a cut through (?) that works for people who are willing to work. I think an earned income tax credit-- of--
improved and-- and-- expanded-- is (UNINTEL) called for because we'll have the output. The question is who gets it.
We're gonna have a whole lot more output.
08:40:19:00 Just like we have six times as much output now per capita. Real output. Like when I was born. If you told
my parents in 1930 we'd have six times the output that they had at that time per capita, they woulda said, "Well,
everybody's gonna be living wonderfully." And it hasn't been true because specialization pushes more and more to the
NO MEDIA ID PG. 83
top. I mean, the very fact of cable TV. I mean, it makes-- it makes somebody that is the best middleweight in the country
worth, you know, $40 million or $50 million for a fight.
08:40:50:00 And, you know, back in the '30s, he-- he got what you could get out of 8,000 people (LAUGH) in-- in-- in
a room. So all-- this-- it-- it-- it really pushes for the people who have special talents valued by the market. And it turns
out more and more stuff. But absent some intervention by government, it will leave all that stuff with the top-- at-- at
the top.
08:41:10:00 But (UNINTEL), I don't think it's what our country should be about over time. I think there should be
enormous differences in the results. But I also think that anybody who's willing to work in-- in a country that's getting
every more prosperous, should find that that country works for themselves.
MALE CORRESPONDENT:
08:41:27:00 Hmm. Hmm. We had to--
WARREN BUFFETT:
08:41:28:00 And if you want a little unearned income-- Joe, if you want a little unearned income, all you have to do is
fill that bracket out, you know, and get to the 316 and you'll get $1 million a year for the rest of your life.
JOE KERNEN:
08:41:37:00 I know. And you know what I'm gonna be doin'? I'm gonna be takin', like, $9,000 in cash every week.
And I don't know what-- still don't know what I'm gonna spend it on, (LAUGH) but-- if I ever get like you, I wanna-- I
want-- I just wanna touch $9,000 someday. But, you know, if Larry Summers is right, it's gonna be in quarters. (LAUGH)
That would be heavy to carry around. I got--
WARREN BUFFETT:
08:41:58:00 (UNINTEL PHRASE) if you wanna get called out by the F.B.I., take out $9,000 every (LAUGH) week.
MALE CORRESPONDENT:
08:42:03:00 Yeah.
WARREN BUFFETT:
08:42:04:00 You'll have two new friends.

NO MEDIA ID PG. 84
MALE CORRESPONDENT:
08:42:05:00 Oh, I know. I know. (UNINTEL PHRASE). You know what? Let's go. Go ahead, Becky. I think we're gonna--
you wanna (LAUGH) take-- you wanna take us out-- you wanna take us outta here before I-- go ahead, Beck--
BECKY QUICK:
08:42:16:00 Yeah, before we get ourselves in trouble. (LAUGH) When we come back, we're gonna have much more
from our special guest, Warren Buffett. Right now, as we head to a break though, take a look at the U.S. equity futures.
They have been under a little bit of pressure this morning, although things have evened out quite a bit. Yeah, in fact,
things have turned positive. The DOW futures' now up by about seven points. (MUSIC) S&P futures up by 1.5. The
NASDAQ is flat. Stick around, Squawk Box'll be right back.
BECKY QUICK:
08:45:13:00 Welcome back, everybody, to this special edition of Squawk Box. We wanna make sure we get more of
our viewers' questions. You've been writing in questions for Warren Buffett and we're gonna take some more of those
right now. Warren-- Gavin Smith writes in and he wants to know, "Do you have a view on Brexit? We are-- should the
U.K. leave the European Union?"
WARREN BUFFETT:
08:45:29:00 It-- I think I'll leave that to the British. I-- I hope they stay in, but that-- they-- they have to make their
decision, obviously, based on what they think is best for the U.K.
BECKY QUICK:
08:45:36:00 Why do you hope they stay in?
WARREN BUFFETT:
08:45:37:00 Well, I just think that stability-- I'm-- I'm hoping the European Union works out well. I hope the European
Monetary Union works out well. And I think that-- that it would probably be some downside to U.K. not-- they're-- not
that they're in the monetary union. But-- the more Europe does learn to work together over time-- I mean, I think the
European Monetary Unit is flawed, as I've said in the past.
08:46:03:00 But-- but that doesn't mean-- you know, we started out in our own p-- arrangement with the 13 states
and we had a lotta problems to work through. So I-- I-- you know, it-- it's up to the-- it's up to the citizens of the U.K. to
figure out what's the best for themselves. I-- I hope that they stay in.
NO MEDIA ID PG. 85
BECKY QUICK:
08:46:20:00 You're-- you hope that they stay in because of stability. What-- what do you think would happen to
financial markets-- if-- if they do vote to-- to pull out?
WARREN BUFFETT:
08:46:28:00 I-- I don't-- it wer-- it won't make any difference to anything Berkshire does. I mean, if I was assured by
Cameron that they were (LAUGH) gonna stay in or leave, it wouldn't change one iota what I'm doing in businesses or
stocks.
BECKY QUICK:
08:46:40:00 Okay. Another question that came in from Eric Dubowsky (PH). He says that-- "We didn't talk much
about negative real-- rates across much of the world. Shouldn't we be borrowing and (UNINTEL)?" I-- I know we touched
on negative rates this (UNINTEL)--
WARREN BUFFETT:
08:46:54:00 Well-- well, negative rates affect everybody's behavior. I mean, I-- I probably-- hell, I know that I pay
more for precision cast parts because interest rates are so low, than I would've paid if interest rates were 6% or 8%. I
mean, it-- it absolutely has an effect on my behavior. And-- and for people that use a lot of our money, it has a huge
effect.
08:47:14:00 So it-- I mean, it is a s-- huge stimulus (UNINTEL). It's terrible on people that are-- that are lending. I
mean, for somebody-- just retired and who's always afraid of owning stocks or something, and therefore, kept their
money in banks, I mean, they've gotten killed. So you really had the borrowing class-- getting enormously subsidized by
the lending class for these overriding-- (UNINTEL) reason.
08:47:40:00 But-- you know, it's-- it's really rearranged the income big time of-- a lot of the citizens of the United
States. And-- and I never would've thought it would continue this long. But I also thought a year ago it would have to
continue if the Europeans kept (LAUGH) doing what they were doing. It could be-- it-- nobody's seen this movie before.
And you can go back and read all the great economists and nobody's (UNINTEL) about a long period of negative interest
rates.
BECKY QUICK:
08:48:11:00 Joe, you have a question?

NO MEDIA ID PG. 86
JOE KERNEN:
08:48:12:00 Lookin' at an STPs-- Warren, and it-- I-- I guess you had in addition to the Clayton Homes w-- that you--
you outlined, that-- that kind of a controversy or whatever you wanna call it, there's also some-- some shareholders that
are mad that you don't-- have climate change as one of the key risks of Berkshire Hathaway's Insurance Business. And
they're-- they're-- you know, people are taking it, depending on ha-- what they believe in, they're using it to put forth
Warner (?) and other-- opinions.
08:48:42:00 I was gonna ask you in a different way earlier, if you're very optimistic about the future-- I am well-- y--
you know that CO2's gonna continue to rise because of China and-- and India for the next ten, 15, 20 years. If you
believe the alarmist case, I g-- I don't know how you can be quite so optimistic because our-- our ability to deal with it is-
- you know, is questionable at this point.
WARREN BUFFETT:
08:49:06:00 Yeah, well, the question is right. Yeah, and actually, it's a proposition that's put forth on the proxy
statement of Berkshire buyer shareholder. And I'm sure with very w-- well intentioned shareholder, I mean, this
shareholder's worried about the effect of climate change on our insurance business. And in the annual report, I've gone
into quite (UNINTEL).
08:49:24:00 But the truth is it's not a risk to our insurance business. In fact, it may very well be a plus. But the-- that
doesn't mean that it's not a problem for society. But we write our insurance policies one year at a time. And we adjust to
changes in the world. I mean-- there're way more automobiles on the road than there were 30 years ago or 50 years
ago.
08:49:46:00 Well, you know, somebody coulda said, "Well, with all those automobiles on-- on the road, won't there
be more accidents and won't you have more insurance-- claims to pay?" Well, of course. But we adjust our insurance
(BACKGROUND VOICE) rates every single case. And it-- it is not-- it is not a threat to our insurance operation.
MALE CORRESPONDENT:
08:50:00:00 But-- but Warren-- th-- y-- I don't even think your premiums have necessarily been raised-- at-- at this
point. And with-- with all we hear about supposedly that it's front and center that the effects of this are happening as we
speak-- week in and week out with every adverse weather event, when would you expect to see Miami real estate start
to weaken? When would you expect to see insurance rates start to go up, as they invariably must, if all these things
really are becoming more frequent? Why is it not happening?
NO MEDIA ID PG. 87
WARREN BUFFETT:
08:50:34:00 Well, I-- I think-- I think it's a little-- (THROAT CLEAR) in terms of insurance rates, I think it's probably a
long way off. But if I'm wrong, we'll change 'em. But-- my-- my friend Bill Gates, who's--
MALE CORRESPONDENT:
08:50:44:00 (UNINTEL) already here.
08:50:45:00 (OVERTALK)
MALE CORRESPONDENT:
08:50:45:00 Certainly on here on the subject. Supposedly, already here.
WARREN BUFFETT:
08:50:47:00 Yeah. And no-- pardon me?
MALE CORRESPONDENT:
08:50:51:00 A lot of the adverse weather events that we see now are tied to us already. So it's not supposedly unless
supposedly it's front and center right now if you believe th-- those true alarmists.
WARREN BUFFETT:
08:51:02:00 Well-- it has not caused-- a change in insured losses-- that is any way different than I would expect if
there were no talk about it. I mean, it-- it-- it may well in 20 years or 30 years, I don't know. But-- the one thing I can tell
you is that it hasn't caused it now. In fact, rates are down and that's-- the reason we're not writing catastrophe
insurance at Berkshire Hathaway is because the rates have gone down for catastrophe insurance. More of that has gone
for longer without a hurricane hitting land in any time since--
MALE CORRESPONDENT:
08:51:37:00 I know.
WARREN BUFFETT:
08:51:37:00 --in the early 1800s. So it-- you know, it-- it just is not an insurance risk.
JOE KERNEN:
08:51:43:00 That's one of the benefits of having you on ev-- every year because I remember our conversation after--
that year when there were-- you remember, we ran out of the-- we had to go to the Greek alphabet 'cause we ran out of
name storms that one year. And-- and you were-- you were, like-- I could see it-- in your-- your, like, your Cheshire king--
NO MEDIA ID PG. 88
you-- you knew rates were gonna be up, but you knew the probability was there weren't gonna be that many hurricanes
probably the next year. And as it turned out, it's been the longest period in history without a category three making
landfall. And-- and you've been rakin' the-- the premiums.
WARREN BUFFETT:
08:52:17:00 You've got-- you've got a future with us as an insurance underwriter, (LAUGH) Joe. You under-- you
understand-- you understand-- Joe, you understand that if two twelves come up in a row, it doesn't mean (LAUGH) the
chances of a 12 coming up have changed from--
JOE KERNEN:
08:52:31:00 You knew.
WARREN BUFFETT:
08:52:31:00 --one in 36. (LAUGH)
JOE KERNEN:
08:52:32:00 You knew. You knew. You knew in spite of everything, all these other, you know, (UNINTEL) linin' up, but
you knew. Anyway, thanks.
ANDREW ROSS SORKIN:
08:52:40:00 Okay. We're gonna-- come back to Warren in just a minute. A lot more questions (MUSIC) for him before
the show is up. And tomorrow, we should tell you, of course, Super Tuesday. Voters in a dozen states are gonna go to
the polls. Gonna tell you what to expect when results come rolling in starting tomorrow at 6:00 a.m. Eastern Time. Back
in a moment with Warren Buffett.
BECKY QUICK:
08:55:48:00 Welcome back. We are live with Warren Buffett from Omaha, Nebraska this morning. Warren, Joe was
just asking about why climate change wasn't in the risk factors. But th-- that was-- an interesting thing you put in the
letter this time, risk factors that you normally don't lay out.
08:56:01:00 One of the risks that you laid out was-- an issue like how driverless cars could have an adverse impact on
both Geico and on your-- auto companies. What-- you know, you think through how you get around that, but if-- if
driverless cars are driving everybody around, what would you do? How do you evolve in a situation--
NO MEDIA ID PG. 89
WARREN BUFFETT:
08:56:18:00 Well--
BECKY QUICK:
08:56:19:00 --like that?
WARREN BUFFETT:
08:56:19:00 --the only way they'll be driving everybody around if they're-- is probably if they're s-- regarded as a lot
safer. And-- we'll find that out as we go along. But--
08:56:29:00 (OVERTALK)
BECKY QUICK:
08:56:29:00 But there have been faster advances in this than I would've expected a few years ago.
WARREN BUFFETT:
08:56:33:00 Yeah. I w-- I would-- I would say that. But I would also say, if you ask me to take the over or under--
2030, what percent of the cars on the road in the United States are driverless, I would take the under-- 10%. But I may
be wrong. There's-- there's a long bot-- LongBets.com you could go to on the internet. You can make a bet on something
like that, I was tryin' to get on the hedge fund guys.
08:56:55:00 But I would think under 10%, but I may be wrong. And there's no question if you have 50% driverless
cars or 75% driverless cars-- the premium-- auto premium buying would be-- very likely be far less. And-- and probably
the dealership arrangement in the United States would be changed in some way that's hard to predict.
BECKY QUICK:
08:57:15:00 Th-- I understand the Geico issue and the-- Geico stuff that comes with that. The dealerships, I-- I mean,
people would still need cars.
WARREN BUFFETT:
08:57:22:00 Well, I think-- w-- w-- well, we'll see. But-- maybe. But driverless cars would seem to me to be appealing
on things much more than style and that sort of thing. I-- I-- I-- I think that it would become a more homogeneous
product. I may be wrong. But I-- I-- that's my impression.
NO MEDIA ID PG. 90
BECKY QUICK:
08:57:41:00 You know, I-- I have a couple of quotes that I wanted to run by you. Someone tweeted, "Don't take
vacations. What's the point? If you're not enjoying your work, you're in the wrong job." That sounded a little like
something you might say. But it was something that Donald Trump tweeted. (LAUGH)
WARREN BUFFETT:
08:57:56:00 Well, that-- I-- I don't know whether he feels he's in the wrong job now, that (LAUGH)-- that's why he's
looking for something else. I-- oh, I-- I absolutely advise stu-- that students last week, 160 of 'em from Harvard and sou--
South Dakota State. I just tell 'em, "Try to find your passion." And-- and, I mean, may not find it the first time.
08:58:13:00 But, you know, don't sleepwalk through life. Find something that you really enjoy doing, if you can do it.
And not-- you know, not everybody's lucky enough to be able to-- to find that. But it's-- it-- it oughta be your goal. To-- to
make $10 a week more doing something that you're-- don't feel good about, compared to something you'd feel good
about, yeah, make the change.
BECKY QUICK:
08:58:31:00 You said you watched Bill Gates on Charlie Rose last week, and I did too. Bill said something that I
thought was really interesting. He said, "The thing you do obsessively between age 13 and 18, that's the thing you have
the most chance of being world class at." Bill said his one thing was coding. What was your one--
WARREN BUFFETT:
08:58:46:00 Well, I-- I was pretty interested (LAUGH) in investments. No, Bill and I, his father many years ago, right
after we met, had us, a group of about 20, write down on a sheet of paper one word that they thought accounted for
their success. And Bill and I, who may have only met twice, didn't know what the other one was writing down, we both
wrote down the same word, which was focus. And he was focused on software, I was focused on investments. And-- it--
it-- it gave me a big advantage to start very young, there's no question about it.
BECKY QUICK:
08:59:13:00 Uh-huh (AFFIRM). Well, Warren, I wanna thank you for your time today. We really appreciate having
you.
WARREN BUFFETT:
08:59:17:00 Thanks for having me.

NO MEDIA ID PG. 91
BECKY QUICK:
08:59:18:00 It's been (LAUGH)--
BECKY QUICK:
08:59:19:00 And Joe and Andrew, I'll send it back to you guys, if you guys have any last minute--
JOE KERNEN:
08:59:21:00 Thank you.
BECKY QUICK:
08:59:22:00 --questions for him, so.
JOE KERNEN:
08:59:22:00 Me and Andrew both looked at each other and we said-- "That's absolutely true," right? (LAUGH) We got
really, really (LAUGH)-- I think that is absolutely--
ANDREW ROSS SORKIN:
08:59:30:00 I-- I-- (UNINTEL)--
JOE KERNEN:
08:59:31:00 --that what we did did between 13 and 18, except we got so F-ing good at that, did we not--
ANDREW ROSS SORKIN:
08:59:37:00 I don't know what--
JOE KERNEN:
08:59:37:00 --Andrew?
ANDREW ROSS SORKIN:
08:59:38:00 --you're talking about. I don't know (LAUGH) what you're talking about--
NO MEDIA ID PG. 92
JOE KERNEN:
08:59:39:00 I love that quote. I mean, you've gotta be kidding me, (LAUGH) right? I read that. I'm, like, I started
laughing. (LAUGH) And (UNINTEL) Andrew, but--
08:59:45:00 (BECKY QUICK: UNINTEL)
ANDREW ROSS SORKIN:
08:59:47:00 I was not laughing and I don't know what this gentleman is talking about. (LAUGH)
JOE KERNEN:
08:59:50:00 Man, that's true. I was laughing--
WARREN BUFFETT:
08:59:52:00 Come to me right now-- come to (UNINTEL PHRASE) in success. (LAUGH) Like a gold medal, don't
(UNINTEL PHRASE) your concession.
JOE KERNEN:
08:59:57:00 I can win the-- we can win the gold. (LAUGH) Thank you.
ANDREW ROSS SORKIN:
09:00:01:00 Warren, thank you--
BECKY QUICK:
09:00:01:00 I'm glad you were listening, Joe-- (LAUGH)
MALE CORRESPONDENT:
09:00:03:00 Make sure you join us--
WARREN BUFFETT:
09:00:04:00 Nice to be with you. (LAUGH)
MALE CORRESPONDENT:
09:00:05:00 Great to be with you, Warren. Squawk on the Street is next. (MUSIC)
* * *END OF TRANSCRIPT* * *
Here is the full transcript of billionaire investor Warren
Buffett's interview with CNBC
cnbc.com/2017/02/27/billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box.html
Here is the full transcript of billionaire investor Warren Buffett's interview with CNBC CNBC.com staff | @CNBC
Published 5:57 PM ET Mon, 27 Feb 2017 Updated 7:17 AM ET Tue, 28 Feb 2017 CNBC.com
February 27, 2017
Following is the unofficial transcript of a CNBC interview with Berkshire Hathaway

Chairman & CEO Warren Buffett on CNBC's "Squawk Box," Monday, Feb. 27. Video from the
interview is available on CNBC.com. All references must be sourced to CNBC.
Becky Quick: And again, Warren Buffett is with us in Omaha to ... this morning at the
Nebraska Furniture Mart. Warren, this is ten years now.
Warren Buffett: Ten years.
Quick: ...That we've been doing the Ask Warren Show, where you've let us come out,
bring questions from viewers along with us, and we wanna thank you for that, and for
taking the time to be with us once again this morning.
Buffett: It's always been fun.
Quick: It has always been fun. We have a lot of questions, as Joe was just alluding to,
this morning. But why don't we start talking about the letter ... the letter that was just
released on Saturday morning. A lot of people had a chance to look through it. How
many is this, 53 for you now of letters?
Buffett: It's been 52 years, maybe 50. A lot of it.
Quick: It's been more than 50. I remember.
Buffett: Well yeah. It's been maybe 53.

1/52
Quick: All right. So in this letter you start things off with a message that is a familiar
message for you, the American dynamism, the ... just how powerful this country is.
Buffett: It's unbelievable.
Quick: It's a very common message for you. But is there a reason that you chose to
put it so high in the letter this year?
Buffett: Well, I usually put it pretty high in the letter because it's the dominant theme
that's run through my life since I bought my first stock in the spring of 1942 when I
was 11 years old. And it overwhelms everything else over time. I mean, we have
hiccups in the economy and we even had a panic in 2008. And we had a war during
that period that when they started we were losing the war, actually, in the spring of
1942. But this country always comes back and wins. And it's astounding when you
think about it, what's happened in 240 years. That is less than three of my lifetimes.
And let's look at this place, I mean, there wasn't anything here 240 years ago. And
civilization is gone on, you know, for centuries, and centuries, and centuries with
people making very little progress in their lives. And then America showed the way
and it ... and we have not lost the secret sauce.
Quick: In terms of what the message is you want to get across to people, I mean,
when we're looking at markets at such high levels, as Joe was just alluding to, it has a
lot of doubters and a lot of people saying: "Wait, it's too late for me to get in. I've
missed it. We're past Dow 20k, now I have to wait for the pullback." What would you
say to someone like that?
Buffett: Well, I would say they don't know, and I don't know. And if there's a game it's
very good to be in for the rest of your life, the idea to stay out of it because you think
you know when to enter it-- is a terrible mistake. I don't know anybody that can time
markets over the years. A lot of people thought they can. But, if you were buying a
farm and you decided that farms were gonna be worth more money ten, or 20, or 30
years from now and that would be a productive asset, go out and buy it unless it was
just ... some absurd price. And the best thing with stocks actually is to buy 'em
consistently over time. You wanna spread the risk as far as the specific companies
you're in by owning a diversified group, and you diversify over time by buying this
month, next month, the year after, the year after, the year after. I ... but you ... making
a terrible mistake if you stay out of a game that you think is going to be very good
over time because you think you can pick a better time to enter it.
Quick: Although you have had times where you thought stocks were incredibly cheap,
like in 2008, 2009, when you talked about that, even on our program. You thought
that there were times that stocks were greatly overvalued where you've said, "Forget
it, don't do it." Are we near an inflection point right now, as best as you can tell?
Buffett: Well ... I've been talking this way for quite a while, ever since the fall of 2008. I
was a little early on that actually. But I don't think you could time it. And we are not in
a bubble territory or anything of the sort. Now, if interest rates were 7 or 8 percent
then these prices would look exceptionally high. But you have to measure, you know,
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you measure everything against: interest rates, basically, and interest rates act like
gravity on valuation. So when interest rates were 15 percent in 1982 they'd pull down
the value of any asset. So, what's the sense of buying a farm on a 4 percent yield basis
if you can get 15 percent in government's? But measured against interest rates,
stocks actually are on the cheap side compared to historic valuations. But the risk
always is, is that — that interest rates go up a lot, and that brings stocks down. But I
would say this, if the ten-year stays at 230, and they would stay there for ten years,
you would regret very much not having bought stocks now.
Quick: Joe, this sounds like the perfect jumping in point for what you had just been
talking about, where you were watching the ... what's happening with interest rates?
Joe Kernen: I think it's, as much as we talk about, economic nationalism it is still
global, and I don't know when the rest of the world's headed one way it's just, you
know, the money's gonna come in here for our bonds. And as long as that happens I
guess we stay low ... you know, I was thinking about something else, Becky, and I
mean, I don't wanna take this too far afield. But with Warren, I was wondering what it
is about us ... about the United States. And I wonder that is so different from
historically the way, you know, countries have prevailed, Warren. And I wonder if
eventually we can't just assume we'll always be this dynamic? Or was it ... is the
Constitution and the way they set things up, those guys were that smart? Or is it the
people that we have? Is it that we're ... we've brought in so many people from around
the world that came from places where, you know, they didn't wanna be, and they
came to this great spot here? And, I mean, have we selected genetically for people
that are entrepreneurial and work hard ... I don't know. Have you got your finger on
what it is? If any, if you don't, I don't know who does. You've had plenty of time to
think about it. I mean, you're not old.
Buffett: Well...
Kernen: ...But you've had a lot of time to consider these things.
Buffett: Yeah. If you go back to 1790, Joe, there were four million people, roughly, in
the United States of whom 700,000 were slaves. There were 900 million people
around the world. So we had at that time a half of 1 percent of the world's
population. And it was a friendly country in terms of the soil, and the minerals, and
the temperature and all of that. But there were other friendly spots around the world.
And so why did this ... why did these four million people do something that 900
million people hadn't been able to do before, where progress had been very slow?
And I would say that it was a combination ... none of these perfect, but I think the
market system was absolutely essential to it. It was not a planned economy and I
would say that rule of law was important, never perfect but far more than many
places. I would say that equality of opportunity was a factor. I would say that
immigration did select for people that to some extent selected for people that were
ambitious and really wanted a new life. But I would ... if I had to pick one thing I
would say the market system ... was the overwhelming factor that contributed to it.
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Kernen: You know what? Life is weird too, because I think it's weird that Adam Smith
wrote that book in 1776 and it...
Buffett: Yeah, exactly.
Kernen: That's not a coincidence. That when you're able to own an idea, and you got,
like, a court system that will back up your ownership of patent law, and then you can
commercialize it, I think maybe that was it. I think intellectual property, and property
rights, and things like that. Because prior to that, after 10,000 years of spinning our
wheels no one ... What was the average GDP per person? And then all of a sudden,
starting when you were able to own an idea and commercialize it, suddenly it
exploded, GDP, like, in multiple times.
Buffett: It unlocked human potential, Joe. I mean, you know, we aren't smarter now
than they were 240 years ago, and we certainly don't work harder. But once you
started opening up human potential,the sky's the limit. And it's just starting.
Quick: Yeah, there are times, Warren, where you hear pundits or other people saying,
"Look things are at risk at this point. Our American way of life, our system is under
threat." And I've heard this from all sides at all different times. Is there ever a point
where you thought that was the case?
Buffett: No, and you say you've heard it at all times from all sides. I've been hearing it,
you know, all my life. And in the spring of 1942 I was 11 years old, and the Dow was at
about 100. And we were losing the war in the Pacific at that point, that was early ...
was shortly after Pearl Harbor. And there was no doubt in this country we were going
to win over time. I mean, and people said, "Well, this is let's wait till things are clear,
let's wait till we start winning the war." There's always a reason to wait and I've
listened to that all my life. You know, when I got out of school the Dow had never
been above 200. There'd never been a year when the Dow had not been below 200
during the year. Even in 1929, when it got to 381, the low was below 200. Never been
a year. Well, so what, you know? But that was a big subject at that time. And then you
know, we ran into price controls, we ran into the oil shocks, you name it, just all kinds
of things. And those are diversions. So all my life I've been hearing, "You know, maybe
there's a better time to invest, you know?" Or, "Things are more unpredictable now."
They're always unpredictable. I can't predict what's gonna happen tomorrow. I mean,
you could have anything happen tomorrow. We've had October 19th, 1987, 22
percent down in one day. So I can predict what'll happen ten or 20 years in a general
way, but I have no idea what'll happen tomorrow. And the important thing is if you
got these wonderful assets out there, to own 'em, and which ones do you own? I
mean, if you ... if you save money you can buy bonds, you can buy a farm, you can
buy an apartment, house, or even buy a part of American business. And if you buy a
10-year bond now you're paying over 40 times earnings for something whose
earnings can't grow. And you know, you compare that to buying equities, good
businesses, I don't think there's any comparison. But that doesn't mean the stock
market can't go down 20 percent tomorrow. I mean, you never know what it's going
to do tomorrow, but you do know what it's going to do over ten or 20 years. And
people talk about 20,000 being high. Well, I remember when it hit 200 and that was
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supposedly high. The Dow, I mean, the Dow, in your lifetime. You know, you're going
to see a Dow that certainly approaches 100,000 and that doesn't require any miracles,
that just requires the American system continuing to function pretty much as it has.
Quick: You know, you had made some headlines when you said maybe a month or
two ago that you had spent about $12 billion in stocks since the election. Have you
continued to spend since that time?
Buffett: Well, not sure exactly when I said it. But we certainly bought in two groups.
I'm adding 'em together now. We spent $14 billion with ... we probably spent ... since
a little before the election, maybe. 'Cause we were b — maybe $20 billion, even.
Quick: $20 billion? You're just counting the billions in your head as you sit here doing
this?
Buffett: Well, I was ... yeah, yeah. I quit when I got to $20 billion.
Quick: And why now? Again, is there a reason for this? Or is it just, you look at
individual stocks that you wanted to own, and you bought them?
Buffett: I absolutely look at individual stocks. It has nothing to do what the Federal
Reserve, it has nothing to do with the election. As it does have, it would have
something to do with interest rates if they did something extraordinary. It hasn't had,
because they haven't been, they haven't changed that much. But there just were a
couple of things I wanted 'em to do and we had the money. And I like investing. And I
would much rather have that $20 billion in these companies that I don't look at it as
being in stocks, I look at it as being in businesses. It's just small pieces of businesses.
And I would so much rather have that than have the money in treasury bills, which is
my alternate, that I don't have any problem with the decision at all.
Quick: What are the businesses? Should I assume it's Apple and the airlines, based on
what we've seen?
Buffett: I think that's a good guess.
Quick: But $20 billion ... is that more than what we have been told based on the 13-F
filings? I'm just going back...
Buffett: Yeah, it was more than showed on Dec. 31 because we spent a lot of money
since Dec. 31.
Quick: On what? Is it more Apple, more airlines?
Buffett: Since we're not buying it now — it's at a price different than I would buy it
now. But we bought a lot more Apple after year end.
Quick: With the holdings that you'd had, Apple was already ... was it the fifth biggest
holder, the third biggest?
Buffett: I think we showed $59 million, or something like that.
Quick: Yeah, I'm sorry, I'm just looking through the report right now to grab that page.
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Yeah, it was already your fifth-biggest holding as of Dec. 31 at $7 billion. How much
more did you buy?
Buffett: Well, it...
Quick: $7 billion.
Buffett: You know, we could change our mind tomorrow and all of that, but we have
not bought Apple in the last ... well, since the earnings report came out because it
shot up some then. But we would have, one of the fellows in the office has about 10
million shares, and I have for Berkshire's account about 123 million. So, we got about
133 million shares.
Quick: One of the fellows ... that's Todd or Ted?
Buffett: Yeah.
Quick: Would you care to say which one? Or?
Buffett: I never identify which one does which.
Quick: So, one of them bought, and then you as a result bought some additional?
Buffett: One of them had had 10 million shares, and then I bought another 123
million shares, or something like that.
Quick: Why?
Buffett: 'Cause I liked it.
Quick: You know, you've always said that you're not a technology investor, and now
when you start looking through the earnings, through the holdings...
Buffett: Say, I'm not a technology investor.
Quick: Wait, but again, hold this ... hold that up higher, they can't see it. That's your
phone.
Buffett: There's a vast, untapped market out there. I mean, 86-year-old guys who
haven't got it yet.
Quick: So, you say you're not a technology investor, but you're buying shares of
Apple, which is now Berkshire's fifth, or maybe even larger than that based on how
many that you've put in since then, how many you've bought since Dec. 31. IBM is
your third-biggest holding, too?
Buffett: Well, I would say Apple's — I mean, obviously it's very, very, very tech-
involved, but it's a consumer product to a great extent too. And I mean, it has
consumer aspects to it. And one of the great books on investing, which I've touted
before, is one that Phil Fisher wrote back around 1960 or thereabouts, called
"Common Stocks and Uncommon Profits." It had an effect on me. I went out to meet
Phil Fisher after reading the book, I found him in this little office in San Francisco. And
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I recommend any investor read that book. And it's still in print. And he talks about
something called the scuttlebutt method, which made a big impression on me at the
time. But I used it a lot, which is essentially going out and finding out as much as you
can about how people feel about the products that they ... it's just asking questions,
basically. And Apple strikes me as having quite a sticky product and enormously
useful product that people would use, and not that I do. Tim Cook's always kidding
me about that. But it's a decision-based ... but again, it gets down to the future
earning power of Apple when you get right down to it. And I think Tim has done a
terrific job, I think he's been very intelligent about capital deployment. And I don't
know what goes on inside their research labs or anything of the sort. I do know what
goes on in their customers' minds because I spend a lot of time talking to 'em.
Quick: Have you spoken with Tim Cook about this?
Buffett: No, not about this, not about this. He would've seen our 13-F filing, and he
would've seen the one before, so he would've known somebody had — Berkshire
owned some shares, and then he would've seen the 13-F filing. And I usually see him
maybe twice a year. I see him at Sun Valley and perhaps one other time.
Quick: Wow. Can I ask you, you said it's how many shares that you own, 133...?
Buffett: Well, 133 million.
Quick: Million? Which, I'm sorry, how many did you own as of Dec. 31 that worked out
to $7 billion? I can't do it in my head.
Buffett: Well, I think we had 59 million at year end.
Quick: So, you've more than doubled it since that time?
Buffett: That's correct. And we act ... it's amazing how much you can buy of some of
these things. 'Cause we had bought that, the added 70 million plus, we bought that all
by the time they reported their earnings. So, it was done probably in 20 business
days, or...
Quick: And their earnings were better than people had expected, and the stock
jumped as a result. So.
Buffett: Yeah, I don't think they were that much better than people expect. I mean,
they, the company.
Quick: Stock was up after the earnings report...
Buffett: Yeah, yeah. It did jump, and that's why we couldn't buy. We probably would've
bought more. But the stock, they tell you every quarter what they expect in sales and
in gross margins and they've been pretty accurate on that. So I don't think the fourth
quarter, well, in the fourth, fifth — I mean, the December quarter, they're on a fiscal
year. I don't think that was that big, or should've been that big a surprise. But they've
got an extraordinary business. Yeah, there's always people—
Quick: Wow—
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Buffett: Trying to knock you off. And the market system, one of the things it does is, if
you've got something good you've got a lot of people who are gunning for ya. And
you've got some very smart people that are gunning for them.
Quick: You know, we could talk more about this in just a moment, if you don't mind if
we sneak in a commercial break.
Buffett: Okay, yeah.
Quick: By the way, for anybody who didn't think we were gonna get to big news very
quickly, you're already missing a lot. Warren Buffett already telling us he's been
buying more stock since the beginning of the year, since the last 13-F filings, telling us
he's bought more than double the amount of Apple that they had disclosed at that
point. Stick around, 'cause you never know what's gonna come out of his mouth. We'll
be back with more from Warren Buffett in just a moment.
[Break]
Quick: Welcome back to "Squawk Box" everybody, we are live in Omaha, Nebraska
this morning with Berkshire Hathaway's chairman and CEO, Warren Buffett. And if
you thought you could sleep in this morning and catch up with us, well, you are late
already. Warren Buffett has already told us this morning some secrets that nobody
else knew until just now. Warren Buffett and Berkshire Hathaway have been buying a
lot of shares of Apple. In fact, as of the end of the year, according to SEC filings and
the annual report it was the fifth largest holding of Berkshire at $7 billion in that
stock. Warren just told us that he had continued buying that stock, even through the
beginning of this year. And at this point he now owns $17 billion worth of Apple
shares. That gives him about 2.5 percent of the shares outstanding of Apple, and is
now the second largest holding after Wells Fargo for Berkshire Hathaway.
Buffett: Yeah, it'd be very close, but—
Quick: Very close to Coca-Cola?
Buffett: Yeah.
Quick: Very close, neck and neck, with Coca-Cola, but it looks like it edges it out, at
least where the price is right now. Warren, we were talking a little bit about how you
came about to this decision and I, you know, I assumed you had people who would
go out and do some of these channel checks for you and do some of these things. But
you just mentioned to me you've done some of the research yourself right here in this
building.
Buffett: Well, I've, yeah, I had learned that from a fella named Phil Fisher who wrote
this great book called "Common Stocks and Uncommon Profits." And he calls it the
scuttlebutt method. And Phil was a remarkable guy. And I first used it back in 1963
when American Express had this great Salad Oil Scandal that people were worried
about it bankrupting the company. So I went out to restaurants and saw what people
were doing with the American Express card, and I went to banks to see what they
were doing with travelers' checks and everything. And clearly American Express had
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lost some money from this scandal, but it hadn't affect their consumer franchise. So I
ask people about products all the time. When I take my great-grandchildren to Dairy
Queen they bring along friends sometimes. They've all got a iPhone and, you know, I
ask 'em what they do with it and how ... whether they could live without it, and when
they trade it in what they're gonna do with it. And of course, I see when they come to
the furniture mart that people have this incredible stickiness of — with the product. I
mean, if they bring in an iPhone, they buy a new iPhone. I mean, they're ... it just has
that quality. It gets built into their lives. Now, that doesn't mean something can't come
along that will disrupt it. But the continuity of the product is huge, and the degree to
which their lives center around it is huge. And it's a pretty nice, it's a pretty nice
franchise to have with a consumer product.
Quick: Hey, Joe, you can relate to that, the stickiness of the product and being hooked
into the Apple eco-sphere, right?
Kernen: So many different ways, too. I think it's funny, that Warren doesn't have one.
But it's weird 'cause you're walking around. You're walking around with the
Encyclopedia Britannica on your back, but it's the size of this little thing. And anytime,
anywhere you need to look up anything and, I mean, you could be on Jeopardy, and if
people didn't see that you were looking at your iPhone you'd get every question right.
And I could listen to every song that's ever been recorded. And, you know, I used to
live in L.A. and I was afraid to leave the freeways because I had no idea, I'd get lost. So
I'd just sit in that traffic for, like, 11 hours to get five miles. All of a sudden with this,
you just press it in and I got all the surface streets ... it's so bizarre, it's so life-
changing. But the thing that I, you know, you don't buy stocks, Warren, for 10 percent,
20 percent, 50 percent normally. You like to buy stocks at — that over time double
and triple. So you're fully saying that this $700 billion company is gonna be $1.3
trillion, then it's gonna be $2 trillion, then it ... right? It's $700 billion...?
Buffett: You're saying it. I'm hearing...
Kernen: Okay, but—
Buffett: Joe—
Kernen: You're not worried about the law of large numbers. 'Cause it's over — it's the
most valuable company in the world right now at, what — at something like $720
billion. So you have no problem thinking that it's gonna go, be the first company to go
over $1 trillion in market cap? And, I mean, sooner or later it's gotta happen, obviously
—
Buffett: I won't make any prediction of that, Joe. But what I do know is when I take a
dozen kids, as I do on Sundays out to Dairy Queen they're all holding their Apple, they
barely can talk to me except if I'm ordering ice cream or something like that. And then
I ask 'em how they live their lives. And the stickiness really is something. I mean, they
do build their lives around it, just like you were describing. And the interesting thing
is, when they come into ... when they come into get a new one, they're gonna get they
overwhelmingly get the same product. I mean, they got their photos on it and, I mean,
yeah, I know you can ... you can make some shifts and all that. But they love it.
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Kernen: That's my point. I mean, you see what I mean about the law of large
numbers? It will be $1 trillion company even it's only gotta go up 40 percent from
where it is now. So I mean, I don't think you'd buy it if you thought it was gonna peak
at $800 billion.
Buffett: Well, or they could, Joe, which they, you know, they've bought shares quite
aggressively—
Kernen: Buyback stock? Buyback, yeah.
Buffett: Yeah, so they could — yeah, you could have a lot fewer shares outstanding at
some time and still do very well on a per share basis. They bought in about 4 percent
of the company last year. And they've been pretty, pretty aggressive on that. So my
guess is they've got about 5.25 billion shares out now, but my guess is that ten years
from now they'll have substantially fewer.
Quick: Let me ask you a question. What would you put a bet on? Which company goes
to $1 trill first: Apple or Berkshire Hathaway?
Buffett: Oh, I'd bet on Apple just 'cause they've got a stronger position. And, if Tim
wants to swap and even up, you know, I've got an' 800 number for him.
Kernen: I can't believe you're for—
Quick: While we're on the subject—
Kernen: Oh, sorry—
Quick: Oh, go ahead, Joe.
Kernen: No, I was just thinking that one of your, one of your guys, you wouldn't say
which one, you know, I mean, did you really have to do that, Warren? I mean, would
you say he had, like, "Oh yeah, I've built up quite a position. I've got..." what did he
have, Becky? How much did he have? Like, ten—
Buffett: Ten million shares—
Quick: Ten million shares... ten million shares?
Kernen: Ten mill — "Yeah, I like it. I've really, I love it. I've got ten million shares." And
you go, "Yeah, I like it, too. I got 133." I mean, that's just ... that's cold, Warren. To just
—
Buffett: 123 actually.
Kernen: You know what I mean? I mean, you took his idea and then you ... he had ten
and thought —he was feeling good about himself. And you bought another 123
million on top of him, seriously?
Buffett: He gets to go first, Joe.
Kernen: He was feeling good. "Yep, I'm a big investor."

10/52
Quick: I'm feeling good about Warren.
Kernen: Yeah, right. Yeah.
Quick: Look, if Warren Buffett takes your ideas and follows you, man, I think that
would make you feel pretty good.
Kernen: That's true.
Quick: Walking around with that. Right. All right, let's talk about another thing that
you've been buying a lot of, and that is the airlines. We just found out, at least at the
end of the year, how much you owned in each of them, and they were pretty
significant stakes ... for the four majors. That would be American, Delta, United
Continental and Southwest. At the end of the year we were reporting that you had
stakes of about 7 to 8.5 percent for some of these airlines. Where are you now?
Buffett: It's about the same. They may have been tweaked just a shade. They're, again,
one of the fellows in the office has essentially one of those positions. While he was
building that position he owned a couple of the others, just 'because he wanted to get
the money invested and then he was going to shift over. So, but one of them has, he
has the American Airlines position and I have the other three. Those positions you
mentioned we're fairly close to 10 percent. We don't wanna go over 10 percent,
virtually on any stock. It complicates life for us. We do it occasionally, but it's a big
decision to make to go over 10 percent.
Quick: Why is it complicated, for people who aren't familiar with the rules on what
you can and can't do once you go over 10 percent?
Buffett: Yeah, once you go over 10 percent you become subject to what they call the
short swing rule. So if you buy and sell a stock that you have over 10 percent of in six
months you actually have to give any profit to the company. Actually, if you sell and
then buy, or buy and then sell and they take the lowest purchase price, and they take
the highest sell price. It's been on the books a long time. And it just ... it can
complicate things. Plus you have to publish what you do every, within two days or so
after you do it, which is not the case when you're below 10 percent, when you report
quarterly. So we don't go over 10 percent very often. And with the airlines, all four of
the ones you named are repurchasing their shares. Now, at Wells Fargo we went over
10 percent, simply because the company repurchased its shares. We didn't buy any
stock that cost.
Quick: Well, you couldn't. For a financial company you're not allowed to buy over 10
percent?
Buffett: Not unless you want to become a bank holding company, yeah. There's more
laws on that. In any event, on the airlines, if we own 9 percent we might find we were
9.5 percent, or something like that, because of repurchases. So we will stay under 10
percent in all probability. And that's where we are now. And, like I say, one fella owns
the American, and I own the other three.
11/52
Quick: All right, let me read a couple of things back to you. In the past you've said
things like, "I have an 800 number that I can call if I get the urge to buy an airline
stock. 'My name is Warren and I'm an air-acholic,' and then they talk me down." You
also said that, "If a capitalist had been present at Kitty Hawk back in the early 1900s
he should've shot Orville Wright; he would have saved his progeny money."
Buffett: That's so true. He'd a saved him a lot of money. If you look at the last 30 years
you can look it up on the internet, I think there have been almost 100 airline
bankruptcies. I mean, that is a lot. So it's true that the airlines had a bad first century. I
mean, they're kinda like the Chicago Cubs, you know, everybody had a bad century
now and then. And they got that century out of the way, I hope. But it's, it's been a
disaster for capital. I mean, it's got glamour to it so you can always get guys to put
some money up for an airline. And you can go to the internet and look at 100 of them
that failed then, and all of them now that are operating, you know, with the
exception, Southwest, I mean, the — they've been through bankruptcy. And I bought
into one called U.S. Air, that was my previous investment in the late 1980s. Ed
Colodny, who was the CEO, came out here. We had dinner at Garazzo and I gave him
$358 million, and it disappeared almost before we finished dinner. I mean, the airline
... U.S. Air had some favored routes, but Southwest was coming at 'em over time. And
I tried to sell that stock at $0.50 on the dollar ... it was a preferred stock. Fortunately, I
wasn't able to do it, and then they had this blip so we actually made quite a bit of
money. I mean, we're one for one on airlines, actually, but not because we were
smart. And then it went bankrupt twice afterwards, U.S. Air did. It's part of American
Air now.
Quick: So why in the world do you buy back in now? If you are so—
Buffett: Well, I—
Quick: I'm sure that this was a horrible business, what's changed?
Buffett: It's a very tough business because it's got the marginal cost of a seat ... is
practically nothing. You have these huge fixed costs, and yet if you take one more
person on there's virtually no cost to it. So you're very tempted to sell that last seat
too cheap, and if you sell the last seat too cheap it becomes the first seat for, in a way,
so it has- it has this dynamic to it. And unless the airlines operate in the well over 80
percent capacity — what kills ya is when they really have too many airplanes around. I
mean, they do what anybody else does. If they got too many airplanes around they
just think it down to marginal cost, and marginal cost cause you to go broke over time
in the airline business. I- the hope is that they will keep orders in reasonable
relationship to potential demand. And-- lately they've been operating in-- in the 80s
now for a while. But it's a business you can always mess up.
Quick: You know, Charlie Munger was your partner, your vice-chairman of Berkshire
Hathaway was speaking at The Daily Journal meeting just couple of weeks ago. And
he talked about how you guys are in the airlines at this point and then said, "You
know, I just went on and bought a ticket to Europe for $400 or $500 and I thought,
'What are we doing in this business?"
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Buffett: Exactly--
Quick: Was Charlie on board with this decision?
Buffett: Well, Charlie's generally- goes along with me. I mean, he may say, "Well, I've
never heard ya come up with a worse idea, Warren," or something like but when
Charlie says that to me I know he's going along with me. So we get along very well.
You know, he's okay with both these decisions. And- but he, as he would say (and
correctly), "It's not like the old days." But I've been hearing that a long time, and it's
true.
Quick: Joe?
Kernen: I I was just thinking about the irony of this. So he loves Apple and doesn't
own an iPhone, doesn't know anything about it and- loves airlines but hasn't been on
a commercial flight since the Wright brothers, I don't think. You- know absolutely
nothing about being on--
Buffett: You are giving away my secrets.
Kernen: Huh? What? When's the last time you were on a commercial flight, Buffett?
Tell me.
Buffett: Well -- we'll save that for after the show. (LAUGHTER)
Quick: Fair to say it's been over 30 years?
Buffett: My family brings up to the same thing to me so I've-- been hearing this
before.
Kernen: Was the in-flight movie the- that just released, Casablanca?
Buffett: Actually it was Birth of a Nation.
Kernen: All right. I just thought about that, that you don't need obviously to—
Quick: Hey—
Kernen: --use these things to have an investment opinion. But it's amazing, it's
amazing. it's very interesting today, Warren. I'm enjoying this. I haven't left and I'm
gonna stay here. I'm all alone.
Buffett: Well, you gotta realize I started in textiles and department stores, so some of
these things look good to me just on a comparative basis.
Kernen: Yeah, right.
Quick: You know, Warren, it does occur to me, though, if you're building up such a
significant stake in all the major players, is that anything that's, like, monopolistic
behavior? Is there any concern to think that you would say something to the airlines
to make them make sure that they're not competing on prices quite the same? What
would keep somebody from worrying about that?
13/52
Buffett: Yeah, I've never met— I've never met the CEOs of any of the four airlines — I
may have met one down in a Texas business Hall-of-Fame thing, shake his hand. I
mean, Herb Kelleher was down there for sure. But-- no-- have no communication with
'em. And-- index funds own a significant percent of each one. And-- we'll see how it
turns out. I mean, it's-- the orders that they have now would not look excessive. I
mean-- they usually take options, and they can delay deliveries, and so on. But it can
be brutal. And I mean, ever-- you've got lower cost airlines, you've got startups that
can come at 'em. And-- historically-- the pricing has been a very tough game. I do like
the fact that they used lots a money to repurchase shares most of them have these
huge tax carry-forwards, too. So they had a lot of cash coming in for a while. They've
used up the carry-forwards in general. But they-- the idea that you're buying
something that had a huge carry-- tax loss carry-forward is not the best signal in the
world. getting into a wonderful business. But-- they bought in a lot of stock, I like that.
And--we'll see how they do. We bought 'em at lower prices and we're not buying 'em
now. And I don't wanna-- run out and buy airlines.
Quick: But you're a passive investor?
Buffett: Oh yeah, totally, totally.
Quick: Okay. Folks, we will have much more from our special guest, Warren Buffett,
when we come back after a very quick break.
[Break]
Quick: Welcome back to "Squawk Box," everybody. We are in Omaha, Nebraska this
morning with Berkshire Hathaway's chairman and CEO, Warren Buffett. And Warren,
thank you again for taking the time to walk through a lot of these issues with us. We
have some questions from viewers and I'd like to start with one right now. This comes
from Michael Khan who wrote in-- I- believe this came in on Twitter. He says-- "Have
there been -- have there been any stocks you purchased that you changed your mind
about and sold before they could even show up on a 13-F?"
Buffett: Well, that's probably happened sometime but I don't remember--
Quick: Off the top of your head?
Buffett: No, no. that would be-- that would be quite unusual. And--of course, it could
be that it'd be one of the other two guys in the office might-- have done that. But I-
don't really remember that happening with any of us.
Quick: The reason I ask-- that question just now is because Dow Chemical preferred
shares-- they called those the preferred shares on December 30th. And from what I
read it said that it should've translated into about 6 percent of the shares outstanding
of the company—
Buffett: 70, 72 million shares, yeah.
Quick: But I did not notice Dow Chemical on the 13-F in this most recent filing. Would
have--
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Buffett: We timed our sales so that once it got above the conversion price-- we timed
our sales-- we tried to time 'em—because 72 million shares would be a lot of shares
to get and we did not want to own the common stock we don't own any common
stocks of any chemical companies so and as the stock when higher we sold it more
aggressively because we wanted to get 72 million shares done by the day which was
becoming more probable all the time that they would call it and they called it exactly
when we thought they would call it. And I think our last shares were sold the day
before, the day after, the same day we timed it to be out of 72 million shares when we
received those shares.
Quick: So I was going to say you didn't sell 72 million shares on December 30 and 31st
Buffett: No we didn't want to be in that position.
Quick: but you had been timing those shares all along and preparing for it.
Buffett: exactly and it became you were in a very strong market and as Dow kept
moving up we would get more aggressive so towards the end we might have been
selling a couple million shares a day when it got up to 56 or some price like that. We
were hoping to get out of it, out of the common by the time they sold the common
and like I said it worked out to the day we were kind of lucky on that we could have
ended up with 10 million shares but we were going to quit obviously when we got to
the amount that was going to be handed to us.
Quick: Why don't you like Dow or the other chemical shares?
Buffett: We've never owned chemical shares. We own a specialty chemical company
Ebersol a chemical common stock we own we bought the preferred stock of Dow
because we wanted a preferred position and we held it. It was kind of interesting we
bought that stock in July of 2008, the preferred and they were going to acquire, Dow
was going to acquire Rohm & Haas and they needed money for it and then the world
fell apart in the fall and Dow wanted to get out of the contract, they sued Rohm &
Haas to get out of the contract but it was held that they had to stick with it. So we
closed the deal to buy the preferred stock in April of 2009 by which time the market
had totally disintegrated the time we closed that we bought $3 billion worth it
probably wasn't worth tops more than
60 cents on the dollar so we showed up with $3 billion for something that was worth
$1.8 billion at the time which is one reason why people offer us deals they know we
will be around at the closing. We showed up for the Wrigley closing too that was on
October 4 or something but during that whole period we had commitments and that
kept me from doing some other things we might have done at that time. The fact that
we had this $3 billion going out the door
Quick: What did you ultimately end up making on Dow Chemical shares.
Buffett: we ended up making about a billion dollars and plus we had an 8.5 percent
coupon those years.
Quick: You made a billion even before the preferred dividend that was paid?
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Buffett: We had a billion dollar of capital gain very roughly, and then we had $255
million a year dividends during the time we owned it.
Quick: Wow, okay. I have a few other questions From viewers I'd like to get to. Joe, by
the way, jump in if you want to. Meantime why don't we ask a question from Curtis
Carson. He said how many suits do you Have in your closet at home. I bet my wife
fewer than five, most over 10 years old.
Buffett: He would be right except for the fact I met a woman in China many years ago,
Madam Lee and I arrived at the hotel at 11:00 in the morning. Immediately two guys
jumped in the room a couple minutes later, I didn't know what was going on. They
started sticking tape measures around me and everything, then they showed me a
book with a whole bunch of samples and said pick out a suit. Madam Lee wants to
give you one. I never met her and picked out another. Then I met her. She had
started with a sewing machine 15 years earlier, longer Than that, she employed
15,000 People. She was a marvelous woman. She just started sending me suits. I was
thinking of opening up a men's clothing store for awhile, everyone would have to be
my size. I literally have – certainly Have close to 20 and they were All made by Madam
Lee. I'm very grateful to her. She's come to the annual meeting once or twice and
brought her Family. She made Charlie a suit and Bill Gates a suit, Walter Scott.
Quick: Because you can't afford your own suits.
Buffett: Not if we don't have to buy them.
Quick: Joe had a question as well.
Kernen: The old expression, Warren, If you have money a lot of times You can make
money. Back during financial crisis when people would love to have Berkshire sort of
as, I don't Know, an endorsement, at least If you invest in it you don't think they are
going out of Business. You don't even have to like a Chemical company, do you? If
they are going to give you 10 percent at that point all you think about they are going
to be too make good on dividend payments? You don't have to like the prospects for
growth at that company. Anyone in a 2 percent world, get 10 percent. They know they
are going to get, It's like a no-brainer for you, Isn't it?
Buffett: Well it's a fixed income decision. It's a credit decision more than an equity
position.
Kernen: Right.
Buffett: the equity part enters in, you're making, first of all, a credit decision, which is
what I made back in 2008 on I made back in 2008 on Dow Chemical and I made it on
US Air back in the late 80s. They passed the dividend while we owned it. Fortunately
we had a clause in the US Air preferred where any dividends they didn't pay us
compounded at a pretty good rate.
Kernen: other people can't get that Kind of deal.
16/52
Buffett: they could have had my US Air deal at $0.50 on the dollar not very long after i
paid it.
Kernen: that's true. You double your money in seven years. All you need is a credit
decision at 10 percent. You know what i mean?
Buffett: Well, I haven't gotten 10 percent, We got 8.5 on the dollar.
Kernen: What about Goldman and GE. I thought you got almost 10 on those, didn't
you?
Buffett: 10 on Goldman and GE. We got some warrants there. But i will tell you in
September, late September 2008, I don't think there were any other buyers around
for it.
Kernen: There weren't. That's true. If the world ended, we'd all Be -- you might as well
have done it. The world doesn't end and you're fine. The world doesn't and we're all
screwed, right?
Buffett: Yeah. What's the difference -- if the world is going to end, what's the
difference dying broke and $1 million in debt.
Kernen: I heard it can only end once. That's something to keep in mind If you're
investing in the stock market. If it ends more than once I'm not thinking about it right.
Buffett: Yeah.
[Break]
Kernen: Good morning and welcome back to "Squawk Box" here on CNBC live from
the NASDAQ market site in Times Square. I'm Joe Kernen; Andrew's off today, and
Becky is in Omaha, Nebraska, this morning, speaking with the billionaire investor and
Berkshire Hathaway chairman. He's a lot more than just those two things Becky. He's
funny, he's witty, he's a little wild at times, I think. You can probably confirm that.
Warren Buffett is a CEO. You know, this year, Warren, I was watching Creighton the
other day and I was hoping Creighton was going to win. They got a pretty good team,
but I can't – these brackets, as I told Becky, I may not even do them this year. We're
going to get into the futures. But it's so hard I don't know who's good.
Kernen: Kansas? I don't know.
Buffett: Yeah, it's a season where they'll stand out. Creighton started very fast, as you
know, but we are going to announce again probably in the next week or so we'll send
it out to our managers. We're going to have the same contest among our employees
that we had last year.
Kernen: Love that.
Buffett: And if they manage to make it to – if they can get to the sweet 16, if there's
only one of them, whoever it is, he or she gets $1 million a year for the rest of their
life. Now, we also have a prize of $100,000 for whoever gets the furthest, and last
17/52
year, we had two fellows that tied. One of them knew a lot about basketball, the other
didn't know anything about basketball, but they each got $50,000 out of it. And we're
going to do the same thing for Berkshire employees this year. We had 85,000 entries
last year but I'll bet we go over 100,000 this year.
Kernen: That's so fun. That's so great too. And you know, getting all 16 of the 16 –
Buffett: It's fun.
Kernen: -- it's like, please. I mean, I've tried. I've tried. It's like if you get if you can get
ten or 12, you're doing pretty well.
Buffett: Yeah, but it's not impossible.
Kernen: I know.
Buffett: And somebody's going to win. Somebody's going to win $100,000 or they'll
divide it up. And actually, some of our individual companies then they – last year, they
joined in with a tournament of their own. So, I mean, it really caught fire. And what's
particular fun is you can go to this website we have and you can see after each game
how many are left and how many have gone for – in the next game coming up – gone
for team A or team B. And we have a good time.
Kernen: It is good. Gonzaga now lost. And, you know, I like Jesuit schools, like you, and
Xavier, we lost Edmond Sumner. He was so good. And he got the torn ACL. I mean,
that killed me. And then, you know, I was going to start watching Cincinnati then they
lost yesterday to – it's hard. It's hard, Warren. Anyway—
Buffett: I'll tell you what we'll do.
Kernen: Okay.
Buffett: Joe, send me a ballot. I'll have one of the people put it in under their name. I
mean, you could be – you can get in this game.
Kernen: I can be in this game.
Quick: Last year, he offered to let you be in it and you didn't send it in.
Kernen: You know why?
Quick: Remember?
Kernen: Because Warren is very smart. And, you know, the side of the tray that he
takes, I want to be him. I'll give people money if they get them all right. That's like
selling calls or – he's always on the right side of these trades. No one's going to do it.
No one – he's safe. It's like those people that insure the hole-in-ones, you know what I
mean? I'd like to be the insurer; I don't want to be the person swinging. Anyway we'll
get back to –
Buffett: Well, that's usually a good idea.
18/52
Kernen: Yeah, exactly. I like to be the house. Let's check on the markets.
Buffett: The house is where the money is.
Kernen: Yeah, the house. You know, I'm going to see – I thought the Dow might turn
up because you're going to juice Apple today, there's no doubt about it, Warren. And I
thought the Dow might turn up. But Apple, I mean, who wouldn't buy Apple after
hearing that type of financial outlay that the greatest investor in the world –
Buffett: Yeah, but, Joe, I want to emphasize—
Kernen: Go ahead.
Buffett: I want to emphasize, we have not bought at this price. I mean, we quit buying
when the earnings came out. So if I were buying now I wouldn't be talking about it, for
one thing. You know, we're certainly not selling either, but I wouldn't be talking about
it.
Kernen: Yeah, exactly.
Buffett: But we're not – I don't want anybody to think we are buying it at this price.
Kernen: And, you know, and your IBM stock. That call is looking much better at this
point, too. And I'm sure we'll talk about that, Becky, a little bit more. We'll probably
have a whole segment on IBM. But and that, you know, $172 billion, not $720 billion.
So that who knows where that could run if they get it going there. Anyway, Beck, back
to you.
Quick: You know what, Joe, ask about IBM right now because we have so much stuff,
I'm afraid I don't want to miss anything. But if you have a specific question on IBM,
why don't you jump right in on it right now. You're right that is a much higher price
than where he bought in.
Kernen: I just wonder, you know, what do you attribute that to? What has started –
has it been the cloud part of the business has gotten to be a larger part of, you know,
of the results at this point? And so some of these initiatives are starting to bear fruit,
Warren? What do you think happened?
Buffett: Yeah, Joe, you know, well, the whole market has moved so much, you know,
to start with. And they increased the dividend. I think there's been some more
interest in dividend stocks and they increased it here recently. But, I've got no
information for you on IBM except those two factors. But a lot of stocks, I mean,
they've really moved in the last few months.
Kernen: Yep, they certainly have. I guess that'd be a good segue to lead into President
Trump maybe, Becky, because you can attribute it to a lot of different – attribute it to
a lot of different things.
Quick: Go ahead. Start.
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Kernen: I have people every day come in here that said the market was going to go
down 5,000 points if he got elected. And they're all like, you ought to see them dance
now explaining this, Warren. They're – it's they don't know – it's the equinox or
something. I mean, it's the witches. They come up with all kinds of stuff to attribute
why the market's up. They'll never say that maybe some of these policies could be pro
growth, but some of them are pro growth.
Kernen: You must like some of them.
Buffett: Last year at our annual meeting, you know, it was clear I was for Hillary, but I
got asked a question about the market based on who got elected. And that does not –
and I said, America's going to do fine under – in terms of economically under – under
either candidate as president. People who mix their politics up with their investment
activities I don't think that makes sense. I've watched it all my life and obviously
probably half the time, my adult life, I've had a president other than the one I voted
for. But that has never taken me out of stocks. I mean, the American economy, you
know, we're up to number 45 or so and we've done awfully well. If you mix your
politics with your investment decisions, you're making a big mistake.
Kernen: Although in terms of just—
Quick: You know, Charlie Munger—
Kernen: Oh, sorry, I just—
Quick: Go ahead. Go ahead, Joe.
Kernen: I was just going to—
Quick: Go ahead.
Kernen: Just one last thing. You talk about how great democracy and this country is,
and the dynamism. And I have seen people, you know, in the Journal op-ed or
wherever, just people that say that democracy is ending. They look at this election,
they say, wow. This is, like, the way it happened. Another orderly transition of power.
You know, and it was the way that it was done is like, it brought tears to their eyes in
terms of this is still an – this was a prime example of how well things work and that
democracy is alive and well, right?
Buffett: Yeah. Joe, in 1951, I proposed to my wife. And my father-in-law was the most
conservative guy in Nebraska except maybe for my dad. My father-in-law said, "I want
to have a talk with you." So I went over to his house to have a talk. And he sat there
and he said, "Warren," he says, "I just want to absolve you from any worries. You're
going to fail. And the reason you're going to fail – my daughter may starve to death
and you're going to fail, but I'm not going to blame you because it's because the
Democrats are in and they're all Communists." And I listened to this thing for three
hours. And I almost withdrew my proposal at the end. But I have seen people make
economic decisions based on their political feelings and it is not the way to do it.
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Kernen: Well, now, Warren, if Bernie Sanders got elected, I might make a few
investment decisions. I'm sorry, but that's just me.
Buffett: Yeah. I understand. Yeah. All my friends feel that way one way – on one side
or the other. But I grew up in a household where when Roosevelt got elected for the
third term, my dad said, you know, "There'll never be another election." We couldn't
have dessert at our house, if you were a kid, unless you said something nasty about
Roosevelt. And but I bought that stock in 1942 when Roosevelt was president. And it
worked out pretty well.
Quick: You know, Charlie Munger made some comments also at the Daily Journal
annual meeting just a few weeks ago, Warren. And he said that look, he's mellowed
on Donald Trump because he had some things that were not so nice to say about him
before. He also said, "Look, not everything he's doing I disagree with." He's in favor of
some of the things he's said about Social Security and some of other moves he's
made. Have you mellowed as well?
Buffett: Well, I would say that I would agree with Charlie on that, in terms of the
entitlements and Social Security. And I certainly, you can't help but feel, if you're in
business, everybody, you know, there are a lot of regulations that I think probably
have gone too far. So I will judge President Trump after four years based, number
one, on how safe the country has been kept. I mean, that is the number one job of
the chief executive of the United States. And that's not an easy job. And I'm not
thinking of random killings or anything like that, I'm thinking of weapons of mass
destruction. I mean, that's my number one worry. And that's the number one test I
have. Secondly, I'll judge him, to a degree, although, they have less control over this –
well, they need a little luck on weapons of mass destruction too, but how the
economy does overall. And then third, I'll judge him on how if the economy does well,
which I expect it to do, how wide the participation in that in a better economy
extends. And those are the three primary tests I would have applied to Hillary Clinton
or to Donald Trump.
Quick: Meaning that, if he passes on all three of those, you would consider voting for
him in four years?
Buffett: Well, depends who he's running against. I would say it would be unlikely, but
those are the three tests. I mean, those would have been my tests for Hillary Clinton. I
think being president of the United States is the most important job in the world. It's
not all-powerful, and you need luck. But we've had weapons of mass destruction,
Kennedy got us through the Cuban missile crisis, and somebody else might not have.
And there is when you look at North Korea, you know, trying to get an ICBM that can
hit the West Coast, and with warheads and everything, I mean, it is very, very, very
important that you have a president for whom that's the number one priority too.
And I actually think that with both Hillary Clinton and Donald Trump, they have an
understanding of that. And that's number one. And I think the odds are good, as I said
last year at the annual meeting, that we'll have prosperity in any four-year period. It's
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not a cinch. I mean, there are certain times when the economy has hiccups. But the
odds are pretty good that any president has a reasonably good economy. And then I
would like to see more people share in that good economy.
Quick: All right, let's go through this one by one. In terms of trying to keep us safe.
Part of that must be appointments like secretary of State. What do you think about
Rex Tillerson in that position?
Buffett: Well, I don't know any of the appointments well, but I certainly think Rex
Tillerson makes a lot of sense. I mean, you've got an absolutely outstanding person.
And incidentally, I would say this too, because you get a lot of this in politics: Rex
Tillerson is going to be working for the United States in that job. I mean, people that
get all upset because he was with ExxonMobil or something, or because he's got a fair
amount of money, I have seen a lot of people enter high levels of public service. And I
think the great majority of them take it very seriously, that their employer is the
United States. And so I don't worry at all about the fact that somebody comes from
the oil industry or that they've got a lot of money or anything of the sort. I do think
most people rise to the occasion to quite a degree. Not always, but quite a degree. So,
I don't know Tillerson. I've sat next to him one time at dinner. But, you know, he'd be
the kind of person I would choose.
Quick: There's also people like Wilbur Ross, Steven Mnuchin, Gary Cohn who are all in
these cabinet-level positions, too.
Buffett: Yeah. They're Wall Street guys. They're smart guys. And, again, I would say
that those people, none of whom I know well, but I know of them and I know people
that know them, and I would say that they will take very seriously the fact that they
are in public service. I mean, you know, you may run into an exception every now and
then. Spiro Agnew didn't come through too well or a few in the past. But I think
people take it seriously.
Quick: In terms of judging the economy, a lot of that's going to be done based on –
we've seen the stock market run, as Joe brought up, to this point. The next thing
people are waiting to see what happens is tax reform. Before that happens, they're
going to be looking at Obamacare for a repeal of that. All of these things will weigh on
the economy. What's your overall take of the direction that we are headed right now?
Buffett: I think, just on a probability basis, not specific to actually to any given
administration, I think the odds are very high that any administration ends up better
four years – with the economy better four years later than at present. You know, I
mean, but I would say that absolutely—
Quick: But what about the specifics of what have been proposed in terms of potential
border adjustment taxes, in terms of immigration policies, in terms of regulation
rollbacks, all of these things?
Buffett: Yeah. I would still say I think the economy will be better off four years from
now, even though I disagree with some of the specific policies. But I disagree with the
policies of most administrations – of some policies. Border adjustment tax, I mean, it's
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an import tax, and an import tax is a sales tax. You're looking – we're here at the
Nebraska Furniture Mart. This store is in several buildings, does over $400 million a
year; 75 percent of what you see is imported. I mean, if we pay an import tax on it,
our customers are going to pay for it. It's a sales tax, and it's a sales tax, in this case,
on items that are not yachts or anything like that. They're things that the ordinary
person buys. So it would be a big sales tax. I think the president said initially that it
was – it'd be too confusing or too complicated or something of the sort. My guess is
that the Republicans, you know, you don't get a shot like this where you control both
houses and the presidency. They will want to do things. I mean, McConnell will want
to do things, and Ryan will want to do things. And my guess is that they will find doing
something really comprehensive will be too difficult. They'll want to get something
done. You remember Russell Long by any chance?
Quick: Well, I know the building, the Long building in Concord.
Buffett: Yeah. Well, Russell Long was Hughie Long's son, and he was the head of the
finance committee. He was a senator. He actually owned Berkshire Hathaway stock.
And I knew him just a little bit. He's the guy that coined that line, you know, "Don't tax
you, don't tax me, tax that fellow behind the tree," you know? And if you're going to
be revenue neutral, without the craziest dynamic scoring in the world, if you're going
to be revenue neutral, it's going to get very, very tough. You'll have everybody in there
saying, "Tax the fellow behind the tree." And I think they will end up going for
something not as dramatic as they might even like to do because they simply don't
want to spend the time and the political capital getting it done. People realize, as you
control the whole place, you know, you better get your stuff done at that time. And
they look at the first term, you know, of the last Obama administration, and you use
up capital and you use up time, and pretty soon they're thinking about the midterm
elections and everything. So I just have a feeling when the Treasury secretary says,
"We'll try and have this by August," or something, you're not going to get a really
1986-type overhaul or a 1954-type overhaul or a 1969-type overhaul in that kind of a
time period.
Quick: Meaning you think something gets passed with lower rates, but not a border
adjustment tax or something that we haven't tried in the past?
Buffett: Right. I think – I don't think it's likely to get terribly complex because I think as
soon as you try and make a revenue neutral and you change one big segment, you
will have every lobbyist in the world in there who says, "That isn't reform," you know?
"My idea's reform, but not your idea." So, and that's just – who knows? I mean, you've
got some master legislators in McConnell and Ryan that will be handling things so as
to get as much as possible of what they would like through. But I think if you're trying
for speed and you're trying for complexity, I think complexity will give way to speed.
But that's – I don't know any more about this than your viewers.
Quick: You know, you mention that the border adjustment tax would be something
that's a tax on consumers. I can certainly see that happening.
Buffett: Sales tax.

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Quick: But you also have American manufacturers who say, "We're not competing on
a level playing field. We're the only one of 35 OECD nations that doesn't have some
sort of a border adjustment, some sort of a VAT," or something along those lines.
"And as a result, it's hurting us. And we are not able to create jobs here as quickly."
And that has been an issue that's been very important to the president. Is there
another way around that? Another way to—
Buffett: Well, I wrote an article for Fortune a long time ago on import certificates. It's
too long to describe here. But there are various approaches, and I actually have one I
kind of like, but it would take a long time to explain. But I understand there's an article
today by Marty Feldstein – I may be wrong on that – about how the dollar would
adjust upward enough so that you really would be buying these things cheaper —
Quick: That's the idea. That, in theory, over time, the dollar would adjust. But it's
never been tried. So we don't know.
Buffett: Yeah. No, I would not bet on that. For one thing, that kills exports. So free
trade is wonderful for the world and for the United States, but its benefits are
diffused among 320 million people. You buy your bananas cheaper because we don't
try and produce them in the United States. But the penalties from free trade are
terrible to specific industries. And as an investor, I can own – make a dumb decision
on owning a shoe company. But if I own a good insurance company, I can diversify
away the problems. If you're a 55-year-old steelworker, you can't diversify away your
talents. I mean, you had it if steel or textiles or shoes become subject to total, it all
moves offshore. So you want to have free trade, but you also have to take care of the
people who, through no fault of their own, have spent their life learning one
profession. And you can talk about retraining and all that, but it just isn't practical.
And just take Berkshire Hathaway. We started with 2,000 employees in New Bedford,
Mass, turning out textiles. And that business was doomed. And we had workers there
who really they didn't have alternatives at age 50. Fair number of them just spoke
Portuguese. They didn't have a chance. And a rich country that's prospering because
of free trade, and as the world is prospering, should keep the free trade as much as
possible. But they also should take care of the people that become the roadkill, you
know, when an industry moves.
Quick: Well, apparently that's been a problem. I mean, if you look at –
Buffett: It's a real problem.
Quick: --the election was a huge referendum on that.
Buffett: Sure.
Quick: And both the Democrats and the Republicans are moving away from the idea
of free trade, depending on how – the free trade that we've seen as free trade to this
point.
Buffett: Yeah.
Quick: Some of them will say this isn't free trade.

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Buffett: Yeah.
Quick: But what happens now?
Buffett: You've got to take care of those people. And if I were somebody that had
spent 25 years in shoes or textiles or you name it, and somebody came around to me
and said, "This is great for the world and it's great for those guys on the Forbes 400,
but it's just too bad because you lose your job and it makes – we can buy our shoes a
little cheaper, our underwear a little cheaper, our steel a little cheaper abroad," I
would say that a rich society should figure out a way to take care of those people.
Quick: Okay. Warren, we're going to continue this conversation in just a moment. We
do have much more to get to. Folks, we are live in Omaha, Nebraska, today with
Warren Buffett, the chairman and CEO of Berkshire Hathaway. Still have a lot of
ground to cover. Got questions from viewers coming up; we're also going to be talking
about Unilever and other important news that's been hitting here. So stick around. If
you have any additional questions that you'd like to send into us, go ahead and you
can do that using the #AskWarren. You can send those out on Twitter or on
Facebook. And "Squawk Box" will be right back.
[Break]
Quick: Anyway, our guest host again this morning is Warren Buffett, and he's been
talking with us for an hour and a half at this point about things that have been going
on. And Mr. Buffett, I can't believe it's been an hour and a half and we have not gotten
to a massive piece of news, and that would be the Unilever deal.
Buffett: That's right.
Quick: It was I guess just little over a week ago that we first heard about this deal that
Kraft Heinz and 3G would be putting together. Deal came out on Friday and some
news broke on it. Stocks for a lot of the other suitors that were not being considered,
stocks like Mondelez and Campbell's, dropped. Stocks of both Kraft Heinz and
Unilever soared. By Monday, all of that had been kind of doused. What happened?
Buffett: What happened? I can tell you what happened. Most of what I can tell you, I
can tell you for sure. And then the other side couple things I have to draw inferences
on. But Alex Behring, who's chairman of Kraft Heinz, and part of the 3G operation
with Jorge Paulo and they and I agreed on making a friendly offer for Unilever if they
were open to it. And Alex Behring went over to London, I don't know how long ago,
maybe four weeks ago or whenever it would have been, and met with their CEO and
had a conversation. And he brought up the idea of possibly making an offer late in
the conversation. And he didn't get a yes, he didn't get a no, he got perfectly polite
conversation. And the CEO actually Greg Abel of Berkshire, knowing him 20 years ago
I mean, we had nothing but good reports about him. We felt fine about it. So Alex
came back and said that he hadn't been thrown out. And so would we want to go
ahead? So we went to see him again maybe two weeks later. And he had a letter that
was an outline of a deal, which he thought if he got a neutral response, he would give.
But if he got a negative feeling, he would not. And he went over and felt he got a
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neutral response. And therefore, gave the letter. Now, I might mention you know, it
reminds me of that old story about the difference between a diplomat and a lady. I
don't know whether you've ever heard that or not.
Quick: No.
Buffett: Well, if a diplomat says yes, he means maybe. If he says maybe, he means no.
And if he says no, he's no diplomat. And if a lady says no, she means maybe. And if
she says maybe, she means yes. And if she says yes, she's no lady. So he probably got
a maybe and didn't know whether it was coming from a diplomat or a lady,
essentially. I mean, that's what frequently people get. I don't work on acquisitions that
way myself, I just go in and say, "If you want me to make an offer, I'll make one. If you
don't want me to make an offer, I won't make one. And I'll tell you a price if I do it."
But there's usually much more of a mating dance than that. And so you get this, "I'll
take it to the board," and all that. And you're dealing with different kinds of people.
Some people are different cultures, they're more polite than others, and so on. So
Alex took it as being a maybe. And gave this letter outlining a deal to Unilever. And it
was said it would go to the board. Well, it became very apparent that Unilever did not
want this offer based on – within a few days, press reports. For one thing, it leaked
somehow on a Wednesday prior to the Friday one. And so on Saturday, I got – after
that Friday – I got calls indicating that the offer was unwelcome. And I was said, "It's
unwelcome?" And Jorge Paulo said the same thing, I mean, if it's unwelcome, there is
no offer. I mean, it was only intended to be presented if there was a possibility.
Quick: It was never intended as a hostile offer?
Buffett: No. Zero. And on the other hand, it may have been interpreted that way. And,
you know, I can't argue about that. If people say, "We don't like the price," that's
usually a maybe. I mean, and—
Quick: Is that what was said in this case?
Buffett: Well, that was said the first time; it wasn't said the second time because they –
when I was called about it by a representative of Unilever on Saturday, I just said, you
know, "I mean, if this is regarded as hostile or unfriendly, you don't have to worry
about it. There isn't any offer. But if it's simply because you're negotiating," which
people often do, when they take it to the board and they say, "Well, it's not enough
money," and all that. And then, you know, I'm not a negotiator myself, but the 3G
people are more that way. So, but once the three of us learned that it was regarded
as unfriendly, we had no intention of making one. And I think the Unilever people
understand that now.
Quick: Is this a case, you're saying, of the Unilever CEO being exceedingly polite and
that's what it was?
Buffett: Well it can be polite. I mean, it can be differences in culture even, in the way
people express themselves. I mean, Alex's second language is English. I mean I've
seen misunderstandings before. And that's one reason I like to do it the way I do it. I
mean, when I went to Precision Cast and Mark Donegan, I just said, "I will make an
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offer if you want me to. And if you don't want me to, forget it." I just said the same
thing at the N.S.F. But that's not the way – there's usually more of a dance back and
forth, and part of that's sort of what subtle law is. Now, the law's much different in the
United States than in the U.K. But in any event, within an hour, we got across to them
that we were not making a friendly offer. So, you know, we would go away.
Quick: That clears up a lot because we had many questions that came in from viewers
saying, "Is this the first time that you've done a hostile offer? Should we expect more
to come?"
Buffett: No. We don't do hostile offers. Yeah. I don't have any – I don't think they're
morally wrong or anything. I think there are plenty of companies that could use some
shaking up. And sometimes it takes a hostile offer to do it. I mean, there are
companies that deserve hostility, believe me. But Berkshire doesn't do it. And Unilever
wasn't one anyway. But we don't do it.
Quick: So what happened in terms of Unilever? What attracted you to that company?
What made you look at it and think this was a good deal?
Buffett: It's a great company. And I think, you know, they'll do fine things. I wish them
the best.
Quick: With Unilever off the table, does that clear the way for a potential backup deal,
something like a Mondelez or a Campbell's that the market had anticipated as a
potential?
Buffett: Yeah. There isn't any backup deal. I mean, there was an – that was the only
one that certainly I seriously thought about, that made sense. So, no. Will there be
another deal with Kraft Heinz someday? My guess is yes, but who knows when, you
know? I mean, there's no backup deal. And, again, it would have to be friendly. And,
frankly, the prices in that field make it very, very, very tough to make an intelligent
deal.
Quick: But Unilever was more undervalued than companies like a Mondelez or a
Campbell's?
Buffett: Yeah, it was. That's why Mondelez went down the next day and Unilever went
up. But that's just my opinion. I mean somebody else might have different opinion on
that. But Unilever looked more attractive by some margin – and it was larger. And we
always like size.
Quick: Is that to say that you have, as a group – you and 3G – have looked at all these
other companies and are constantly assessing them?
Buffett: Well, you always look at everything, yeah. But that doesn't mean you're going
to do anything at all. But-- you can't help but be in the business and be aware of what
various companies do, what they're selling for. I mean, that's the wonderful thing
about investment. I mean, there's thousands of choices out there, and they change in
price daily, so that the relative attractiveness can change. But there's nothing in the
works.
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Quick: I had someone tell me recently that simply the activities of what Kraft Heinz
and 3G and Berkshire's involvement with that, simply by them being there and
watching 3G's operations, has put pressure on all the other food companies in that
arena to make sure that they are shoring up their operations too, so they don't
become an easy target. Does that make sense to you?
Buffett: I think that's true. No, I think that when people see what the 3G management
has accomplished, you know, it may make shareholders of other companies
somewhat unhappy. I mean, you've heard it expressed in a couple places. One thing I
would emphasize about 3G: They are wonders at productivity, there's no question
about that. But I've been on 20 boards; I have never seen anybody any better about
marketing and product development and all of that. I mean, that is what we talk
about at board meetings. And it's hours and hours. And I've been on other consumer
goods company boards, and they're nothing like the intensity they bring. They don't
just bring it to productivity, they bring it to new products. They bring it – I learn about
what's going on in the marketing world a lot when I'm at their – at the meetings of
Kraft Heinz because it's their game.
Quick: I mean that's interesting that you bring that up because the detractors of 3G,
those who've been on the other side of some of these issues have said things like, "3G
is just a roll-up company. That's what they're good at." That's not your experience?
Buffett: That's not true. Well, I mean they built the biggest beer company in the world
starting with nothing. And, I was at the last meeting, just a month ago, A) we spent
hours and hours – everyone was having different channels. And, you know, the online
retailers versus the brick and mortars – they really understand their business. I mean,
it's so much more of an informed discussion than I've heard at most board meetings
in my life. It's night and day. And I might say that they've developed a new dessert
which I had three different helpings of. So they're working on the right thing, as far as
I'm concerned. They are – every aspect of management, they excel in.
Quick: What's the dessert that has caught your fancy? What is it?
Buffett: Well, it's – I don't know how much I'm supposed to talk about new
developments. But it involves – it's cheesecake. But I can't go beyond that, but I did
have three helpings. And then I took four or five of them home as well.
Quick: So they won your vote at least?
Buffett: Yeah, 170 calories each. I had three; that's 510 calories, the best 510 calories
I've had in a long time.
Quick: When did you start counting calories?
Buffett: I don't count them. I find them interesting, just in terms of evaluating the
product.
Quick: But it's not something you're worried about on your own though?
Buffett: I don't pay any attention.

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Quick: Okay. Thought we had some new diet that was going on here.
Buffett: No.
Quick: Warren, in terms of how much money you have in cash equivalents, the
annual letter that you just wrote laid out $86 billion.
Buffett: Yeah.
Quick: That is money that is piling up at this point?
Buffett: I hate it.
Quick: Do you have an itchy trigger finger at this point?
Buffett: No. You can't afford to have an itchy trigger finger, but – well, in one sense
you could say I always have an itchy one in the sense that I'm always looking for
things to do. But it doesn't change my standards in terms of having it, but I'm always
looking. If we only have the $20 billion, we regard it as our minimum. I'd be looking
because we could sell some things if I found something attractive enough to do.
Quick: But if you have $86 billion, if it doesn't change your standards, it certainly
broadens your horizons. There are—
Buffett: We can do something big. And we'd love to do something big.
Quick: Are you working on anything right now?
Buffett: I'm always looking but I would say that there's nothing close.
Quick: Nothing close?
Buffett: I don't think so.
Quick: Okay. I want to go to a few questions from viewers. There was one that was
sent in – sorry, I was just jumping through. One sent in from Ken Melotte. This is T13
control room, if you guys want to follow along. It says, "You only find out who's
swimming naked when the tide goes out. Do you feel that there are many naked
swimmers right now?"
Buffett: Well, it's not like during the internet boom or – and there have been various
real peaks – I've written a couple of times when I thought things were getting out of
hand on the high side. And-that's not now. Now, if interest rates dramatically upward,
then these valuations would come down, in my view. But I don't see the games being
played on a big scale that you had in the late '60s or that you had around the internet
time, you know. I don't see lots of just fallacies being promoted. Or games being built
on accounting tricks and that sort of thing.
Quick: Is it fair to say though, you point to interest rates. Is it fair to say that much has
been built on the idea that interest rates are not going to necessarily rise rapidly or
dramatically anytime soon?
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Buffett: Yeah. Low interest rates push stocks up. You know, I mean the ten-year bond
is selling at 40 times earnings. And it's not going to grow. And if you can buy some
business that earns high returns on equity and has even got mild growth prospects,
you know, at much lower multiple earnings, you are going to do better than buying
ten-year bonds at 2.30 or 30-year bonds at three, or something of the sort. But that's
been true for quite a while. And I've been talking about it the whole time. I said people
were idiots in 2008 to put their money in cash. I mean, it was the one thing that
wasn't going to go anyplace. And interest rates are enormously important over time.
And that's – if bonds yield a whole lot more a year from now than they do now, stocks
may well be lower.
Quick: You know interest rates though, the Fed has been talking a tougher game this
year than they had been before. The Federal Reserve meets again this month, or later
– in March, they have a meeting, and they could raise rates as quickly as then. Do you
think that this is a position—we're getting into a position where the Fed could raise
rates rapidly or not?
Buffett: Well, I don't really know. But what I do know that when you've got Europe and
Japan with the rates they have, and particularly Europe, I mean, it's – the spread gets –
you've got to be thinking about the spread. You're not have 8 percent rates in the
United States and 1 percent rates in Europe or something of the sort. So Europe is a
big factor. And you know, you widen it out, the dollar gets stronger, that hurts export.
I mean, there's a lot of consequences to everything. You never can do just one thing
in economics, you always have to say, "And then what?" And if I were the Fed, I'd
probably be saying, "And then what?" if I got too big a spread against Europe.
Quick: Right. Okay, we're going to continue this conversation in just a moment. When
we come back, we have more of your questions to Warren Buffett. We're going to run
through many of them that have been coming in. In the meantime, why don't you
check out the futures this morning.
[Break]
Quick: Welcome back to "Squawk Box" everybody, we are live in Omaha, Nebraska,
this morning with Warren Buffett. You all have been sending questions in, and we
want to run through a bunch of these as quickly as we can. Warren, first of all, I had
someone right in Gary Gambino. Folks in the control room, it's T26. Says, "Self-driving
car technology continues to advance rapidly. How do you see it affecting GEICO
earnings?"
Buffett: Well, self-driving cars will be adopted if they're safer. If they're safer, there's
less in the way of insurance costs, that brings down premium by significantly. So, if all
the cars – if a safe autonomous car had been developed, then there's 260 million
vehicles on the road, so it takes some time to break in. The average age is about 11
and a half years or something. But if the day comes when a significant portion of the
cars on the road are autonomous, it will hurt GEICO's business very significantly.
Quick: It sounds like you potentially see something like this happening sooner maybe
than you had anticipated a few years ago. That's the case with me, but—
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Buffett: It's the last 1 percent though that's the problem. I mean it's going to happen
one way or another, but, you know, who knows? You had that situation in St. Louis a
year ago and if you were driving down the road and somebody took control of your
car, only one or two experiences like that can slow it down a lot. But it'll come. If I had
to take the over and under ten years from now on whether 10 percent of the cars on
the road would be self-driving, I would take the under. But I could very easily be
wrong. You've got very, very, very smart people, lot of them, working on it. You've got
the big auto companies – I mean, it's something that billions and billions and billions
of dollars are being spent on, and brains are being involved in it. So it could easily
come sooner than I think. But it will be negative for auto insurers.
Quick: Let's go to a question. T129 from Paul Howard. He says, "What would you to do
tackle the country's debt? Would you like the 50- or 100-year bond idea?"
Buffett: Well, I think that when rates have been where they've been the last five or six
years, or even a little longer, selling very long bonds makes sense for the same reason
I think it's dumb to buy them. I wouldn't buy a 50-year bond, you know, in a million
years at these rates. So if it's that dumb for me to buy it, it's probably pretty smart for
the entity to sell them if I'm right. So I would say that the Treasury – I would've been –
there's a lot of considerations they have. But I would be shoving out long bonds. And
of course at Berkshire, you mentioned we had $80-some billion in very short stuff. I
mean, everything we buy in the way of bonds is short.
Quick: Is short term. Okay. One more question, this was T70. The question is, "What
does he think of the Fannie and Freddie lawsuits and housing reform?"
Buffett: Well, I think that Freddie and Fannie were broke in September of 2008, and
they were a big cause of what happened in that month. They were the first of the
really big dominoes. I mean Bear Stearns had been some months earlier, but those
were huge dominoes, huge dominoes. Holdings of their paper around the world and
everything else. And they were broke. And the people that encouraged policies that
caused them to go broke deserved some responsibility for what happened
subsequently. For various reasons, the government didn't want to take over 100
percent of it. For one thing, I think they'd have to show it on their balance sheet and
all of that. So they came up with this conservatorship. They have changed the game
when they went into the sweep arrangement here, and they just did it overnight. They
just said, "We're just going to take all the money out so that there can be no recovery,
essentially, for the Freddie and Fannie securities." That's getting tested in court. And
you can argue that if you go all the way back, there wasn't then any equity at all for
those securities. The government made the equity by coming through with huge
amounts of money. But the courts will decide it.
Quick: We'll leave it right there and, Joe, I'll send it back to you.
Kernen: All right, Beck. Still to come, more of your questions for Warren Buffett, plus
his take on the markets, the state of America, trade, jobs and much more. "Squawk
Box" will be right back.
[Break]
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Kernen: Keep it business oriented, and then I wanna revisit some of the stuff-- that
we've talked with-- to-- Warren about because, you know, he knows insurance in and
out, through and through. And it's such a great business for a guy like Warren. We
already talked about, you know-- some of the ways he can, you know, he can do
things where it seems like he's gonna be on the right side-- like the dealer. It seems
like he's, just by definition, gonna be on that-- and insurance is such a great thing,
isn't it--
Quick: The house—
Kernen: --war-- if it's done right, insurance? Like, you get—
Buffett: If it's done right, yeah.
Kernen: If it's done right, you get—
Quick: Joe, just do this now. Just jump in—
Kernen: Well-- oh—
Quick: Let's do this now—
Kernen: -- Warren, you got one year where you get-- we ran outta letters for the
named hurricanes, you know what I mean? And so it's, like, oh boy. And so—
Buffett: Yeah, yeah.
Kernen: --this is for good and you're, like, go-- you're like this, "Ooh, go," you know?
The premiums are go-- and then the next ten years, you got -- you know, basically,
not a single category. And so the way that it can be done-- is pretty amazing. But I
hesitate to delve into this, but you have said in the past that you haven't seen
catastrophic events increasing in terms of the insurance business, right? And year
after year. Is that-- is that fair to say? It's been sort of static, or it's been predictable?
Buffett: Oh-- well, it's not predictable, but it's been-- the frequency of Florida
hurricanes, for example, has been quite low-- for the last ten years or so, compared to
history. That's not been true in the-- you know, in--in Asia. I mean, New Zealand had a
quake a while back that would've been equivalent to, in relation to their population,
probably three times or so what we've ever seen in the United States. But-- most of
the cap covers do relate to the United States. If you see ha-- Matthew came close last
year to being a big one. But-- it's been remarkably benign in terms of Florida, Texas,
the southeast-- for quite a while. But--that doesn't tell you anything about next year.
Kernen: I know.
Buffett: But the prices went to where we don't-- we don't wanna ride it. I mean,we did
not feel like the house anymore, as you put it-- when rates got to where they are now.
Kernen: Right. The reason I'm bringing this up, - I'm also thinking about, I mean, of
even paying off more in flooding or-- do you whether the increase of tornado damage
has stayed relatively flat? Has it gone up? How about wildfires? How about-- the idea--
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the notion is that all these things are happening with this great frequency now. And
I'm just wondering, is that true in terms of insurance? And I can understand how
damages would go up because there's more people and they're populating the cost
and they're-- you know, there's just more people around for tornadoes to hit. So I
could see that. But do you know-- is the incidence absolutely increasing-- as a show
of-- that we're screwing things up?
Buffett: Well-- last year-- , tornados were unusually frequent. And if you wrote
comprehensive auto, or you wrote homeowners in Texas-- you probably lost a lot of
money on that line. We have, I don't know, 25 auto dealerships-- or thereabouts in
Texas. And we had losses that were I think seven or eight times the premium we paid,
for example, on cars damaged at our auto dealerships through tornados. So Texas
got hit hard-- well, a lot of places got hit hard. So what you've seen in the last few
years is there's more tornadoes than you might expect and-- fewer hurricanes. But
who knows what's gonna happen next year? You know, you've seen--you actually had
a big quake over in New Zealand not that long ago.
Kernen: Yeah, quake that—
Buffett: It's nothing like we had a few years ago.
Kernen: Yeah. I mean, we haven't quite started attributing quakes to increased CO2.
That's coming-- I'm sure. But-- no, I'm just trying to get a feel for whether—
Buffett: Well—
Kernen: I'm trying to get a feel for whether I saw, you know, one ofthe most vocal
advocates of anthropogenic global warming, m-- this Michael Mann gentleman, said,
"We don't need to really measure things anymore because we can just see things-- we
can see the catastrophes happening." So that we don't need to-- actually do-- you
look at-- any data, we know it's real because it's happening. And I-- I don't know, I
remember things happening when I was young too. So I don't know whether the
frequency is higher or not.
Buffett: Sure. No, I've-- I have not seen anything yet-- that would cause me to change
the way we look at evaluating quakes, tornados—
Kernen: Floods.
Buffett: --hurricanes—
Kernen: Droughts.
Buffett: --by atmosphere.
Kernen: Right. More snow, less snow—
Buffett: Now, that may happen someday—
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Kernen: -- It's unbelievable. Okay. That-- that-- I--you know, I'm not gonna ask you
anything else beyond that because, I mean-- there's nothing more important,
obviously, than-- than things like clean water and clean air and keeping chemicals--
and, you know, the EPA has a lot of work to do with waste sites and all these things. I
just don't know whether it's a slam dunk that we've changed the entire-- climate at
this point. That's my only point.
Buffett: Yeah, the only thing I've changed my view on is I would now-- I now charge a
higher rate for hole in one insurance when you're playing in the tournament. I mean,
we have done that. But that's- been the only major change in our underwriting
policies, Joe.
Kernen: When you start—
Quick: you saw his game out in Pebble Beach—
Kernen: -- when you're sarcastic, it doesn't work well Warren, it—
Buffett: Oh, okay. Okay. I'll back off. I'll back off—
Kernen: You're so safe. You're so safe. But-- the only thing you're safer is if I've got a
wedge
Buffett: We've written a lot of hole in one insurance over the years.
Kernen: Well, that's perfect for you. It is. That's, like, your perfect thing. That's, like,
your—
Buffett: It is.
Kernen: that's why for you, to win that Final Four March thing, make it $1 billion.
You've got it, no one's gonna do it. Just make an even bet-- d-- what do you got-- just
make it m-- you'll get more headline. Make it $1 billion. Right?
Buffett: I'd rather get more premium. Forget the headlines, I want more premium.
Kernen: All right.
Quick: Hey, Warren, I wanna give you a moment to follow up on what we had just
ended talking about, Fannie Mae and Freddie Mac.
Buffett: Yeah, one-- one point I'd like to make is that I think it's-- enormously
important for the economy that we have readily available, 30 year government
guaranteed mortgages. I mean, I--think this -- country will function better.
Homeowners will borrow-- for less with a government guaranteed mortgage. I think
the problem comes when you try to mix up the private sector with the government
because serving two masters is tough. And you had that boards of Freddie and
Fannie with some government representatives. You had you had-- Congress telling
them what to do and you had Wall Street telling 'them what to do. I think that's a bad
model. But I do think it's important that we have a government guaranteed 30 year
mortgage. I think that's good for our citizenry and I think-- it's good for the economy.
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Quick: But you don't think we need Fannie and Freddie to do it?
Buffett: no. I- don't think that-- I think-- I don't think you need Fannie and Freddie at
all to do it. I think you need a program-- that is government sponsored. And you may
want to have private insurers have to take 2 percent of everything they do or
something of the sort-- just as a check on pricing and all that sorta thing. But basically,
it's gotta be the government.
Quick: Warren, I wanna get back to the annual letter. And something that jumped out
at me this year was a phrase that you put in that you don't hold stocks forever. You
just wanted to make clear, there was a section, a small section that you put in, just
said, "Look, people have said we own stocks forever. That is not the case." Why did
you put that in this year?
Buffett: Well, there's a section in the report which has been there for 30-some years
saying that we won't sell a business just because we get offered a fancy price for it or
anything. But if it ever has one of two things happening, that it promises to lose cash
forever, or we have major labor problems of some sort, we would consider selling.
But I've gotten calls on businesses saying, "I'll pay you way more than it's worth," and I
say, "I'm not interested." People have interpreted that-- in fact, one of our directors
had interpreted that as meaning it applied to the stocks as well. Well, the truth is, we
keep selling stocks a and we-- our favorite holding period is forever. I mean, it'd be
nice to find stocks. I've owned Berkshire forever, I mean, for 52 years. So I followed
myself, and I-- a lot of my family's followed it. But we don't commit to owning
anything-- stocks forever. We do commit-- when a fellow sells me his business-- I
commit that we're gonna keep it. We're not gonna resell it to anybody. It's-- we're not
a private equity firm. And if it's disappointing, we'll keep it unless it gets in that those
two categories. But that one section in what I call the-- ground rules-- that proved
ambiguous is proved by the fact one of the directors actually mentioned it to me. So I
just thought I'd better make-- clear it up.
Quick: should that lead us to think that you might be selling any of your ultra long
term holdings? If I think of Wells Fargo or Coca Cola or American Express, stocks that
have seemed like you've owned forever.
Buffett: Yeah, we've got no intention of selling those. On the other hand, let's say the
world's greatest deal (LAUGH) came up. I mean, I have not-- there's no self-imposed
ban on selling-- those. I've got no plan to sell 'em, but I just wanted to clear up that
one point because it was-- the way I'd said it earlier wasn't clear.
Quick: Let me ask you a question. This is T-20 control-- and I'm going out of order on
this. T-20 comes from Chris who writes in, "What are your thoughts on the border
adjustment tax?" We've talked about that already, but he does wanna know, "Was this
a factor regarding your recent sale of Walmart?" Maybe you could talk a little about
the sale of Walmart and why you did that?
Buffett: Yeah, well, Walmart's a fabulous company. And what Sam Walton and his
successors did, I mean, that's one of the great stories of American business. I think
retailing is too tough for me. Just generally, I-- we bought an department store in 1966
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and I got my head handed to me. I've been in various things in retail. B-- we bought
Tesco over in the-- in the U.K. and I-- it wasn't we. I bought Tesco over in the U.K. and
got my head handed to me. It-- retailing is very tough. And I think the online thing is
very hard to figure out, you know? Now, we own we're sitting in a retailer we own that
does very well. I mean, I think this particular business is relatively immune from the
online business, although we do a lot of online-- business here. But this does very
well. I think it'll continue to do well. But I think that-- I think Amazon in particular-- is
someone that's going to-- it's an entity that's gonna have everybody in their sites. And
they've got delighted customers. And it's extraordinary what they've accomplished.
And a lot of people like-- they like the delivery, they-- you know, and that is a tough,
tough, tough, competitive force. Now, Walmart's pushing forward online themselves
and they've got all kinds of strengths. But I just decided that I'd look for a little easier
game.
Quick: A major investor I spoke with recently asked me this question. And I'm not sure
if it was supposed to be on the record or not, so I won't use the name. But this
investor said that he or she had heard you recently making some comments about
Amazon, where you were very-- complimentary of Amazon, its founder, Jeff Bezos,
said he's probably the best manager you've ever seen.
Buffett: I-- think maybe he is, yeah. You know, I've said that. I mean-- it's remarkable. I
mean, here, a guy -- you know,- gets in a car with his wife leaves-- leaves Shaw and
starts driving across and he thinks, "How am I gonna take over the world? maybe I'll
sell books online." It's he is one terrific businessperson.
Quick: That investor then asked me, "Why don't you own shares of Amazon?"
Buffett: Well, that's a good question. And-- but I don't have a good answer. Obviously,
I should've bought it-- long ago because I admired it long ago, but I didn't understand
the power of the model-- as I went along. And the price always seemed to more than
reflect the power of the model at that time. So it's-- one I missed big time.
Quick: Is it too late or you just don't know?
Buffett: I just don't know. Yeah. I d-- retailing is tough for me to figure out. I mean, it--
I-- if you go back to when I was a kid, in every town, the guy that owned the big
department store was king, I mean, whether it was Marshall Field or, you know, or
Dayton or Hudson in Detroit or Frederick and Nelson, Seattle, or you name it, , the
department store was king. And people said, "What can happen to it?" You know, it's
down there where the streetcar lines crossed and the women took the streetcar to
shop there. And they could see 500 spools of thread and 500 wedding dresses. And
they couldn't see anything like that. That-- it offered this incredible array of goods.
And then somebody came along with a shopping center. And instead of making it
vertical with all this display owned by one person, they spread it out, owned by many.
And now comes the internet, and that's the ultimate variety of things that you can get
to very easily. So people love variety. They love low prices and a whole bunch of
things. So it's-- it just keeps evolving. And the great department stores, many of 'em
have disappeared and the rest are under pressure.
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Quick: It's a business that has changed rapidly. And it reminds me of another
business you're invested in, newspapers. Newspaper, the publisher used to be the
king of the town as well. What's happened to newspapers?
Buffett: Newspapers have-- there are only two papers in the United States that I think
have an assured future because they have a successful internet model to go with their
print model, and that's The Journal and The New York Times. And I'm not saying it'll
even be easy for them. But they have developed-- an online presence that people will
pay for. Now, the third that may do it, again going back to Bezos, is The Washington
Post. And he's improved dramatically their situation online. And so it's conceivable
that their math works. But if you look at-- there's 1,300 daily papers left in the United
States. We've got 31 of 'em. There were 1,700 or 1,800 not that many years ago. And it
was an incredible business when you were first in everything. I mean, you could tell
people how their stocks closed. I learned how my stocks closed by looking in the
paper. I learned who won football games or what the box scores was in baseball. I
learned all kinds of things from the paper first. And now, you've got-- you know,
you've got an internet. And-- aside from the ones I've mentioned, 1,400-- 1,300 or
1,400 papers haven't learned-- haven't figured out a way to make the digital-- model
compliment the print model in such a way as to guarantee the future. So circulation is
going down significantly, advertising. I mean, used to be dozens and dozens of pages
of help wanted ads. it's basically disappeared. And--no one has found the answer to
that yet.
Quick: President Trump has-- looked at the media as a potential enemy. Steven
Bannon has said they are the enemy. You've had-- a long relationship with-- these
newspapers that you read every morning. You've been invested in newspapers like
The Washington Post and many other newspapers. What do you think about that?
Buffett: Well, I-- think that every-- president I've known and every politician virtually
I've known one way or another, doesn't like the media. They-- they just are smarter
about it. They handle it maybe in terms of covering up, or maybe he's smarter taking
'em on. But in any event, the media's looking for things to write about. And they
should. I mean, that's their job. But who wants somebody looking at everything you
do with a critical eye? And-- the higher the office, the more they're going to look at it
with a critical eye. The more air time it's gonna have and everything. So he expresses
his feeling. But I would say that he is not unique in having those feelings--
Quick: Not at all.
Buffett: --among politicians.
Quick: Not at all. You know, you-- are not somebody who has embraced Twitter,
although you do have a Twitter feed. How many times have you tweeted?
Buffett: Well, I-- think there're seven tweets up there, but I haven't done any of them. I
have this friend that talked me into getting a Twitter feed. She's put up a couple
things. But-- the answer is I've never tweeted anything really myself.
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Quick: Do you find yourself following through-- anything on Twitter? I mean, I know
you don't have an iPhone, but I know you have an iPad, right?
Buffett: I have an iPad. Somebody gave it to me though.
Quick: Do you ever —
Buffett: No-- well, I would say this. There's two things I was told in life many, many
years ago that turned out to be terrific advice. One is to praise by name and criticize
by category. Somebody told me that 40 years ago and Tom Murphy 40 years ago said,
"Warren, you can always tell somebody to go to hell tomorrow. You haven't lost the
option." Both of those pieces of advice have been very good. And I would say that
both email and Twitter really can cause you to stray from that very easily 'cause if you
can just whack out something-- it's very easy to tell somebody to go to hell in ten
seconds if you get mad at 'em, or. And-- the very act of having that available instead
of writing a letter or doing something of the sort, I think has made a lot more things
come outta the-- that people shouldn't have said. I think they'd do better following my
philosophy, but I think it's harder to do that-- if you can tweet something out in five
seconds, or go to email and - do the same thing.
Quick: So how often do you think, "That guy's an asshole," but not tell him?
Buffett: Well, I've certainly thought that over the years. It hasn't always been guys
either.
Quick: Did you just think that about me?
Buffett: No, no, no. No, I-- think-- but w-- I mean, sometimes you really do feel
differently the next day. And you haven't lost the option. You know, I-- people have
done things where you feel like, you know, exploding-- over it. And--
Quick: How many times have-- you had to use your own advice?
Buffett: A fair number of times. Yeah. For one thing, it's reinforcing in that you see
that it works. Yeah. lot of people have said things in emails or whatever I wish they
hadn't said. And they didn't to say it. You know, I mean, it-- - and they don't lose the
option. You can't tell them to go to hell tomorrow.
Quick: Is-- that-- more of a lesson in business or in life?
Buffett: It's very important in both places. No, it-you learn about that. I mean-- I think
was it Kierkegaard that said life can-- life can only be understood backwards, but it
must be lived forwards, basically. And-- you do learn about a lot of dumb things,
including writing letters in the past, but now including tweeting and emails. It-- your
first impulse is not necessarily your best course of action.
Quick: Is that why you don't email and you don't tweet?
Buffett: Well, it's probably just that I'm inept. But-- that is a good rule, not to-- it's-- but
it's a good rule to follow. I mean-- I would say that if you had a delay system on every
email or tweet and it couldn't go out for two hours, I don't think they all would go out
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that people send.
Quick: The trouble is we all still have our mouths that get us in trouble.
Buffett: Yeah, definitely. I'm a walking example of that. No, it's-- really is a mistake to
give an instant reaction, you know, to everything that comes along. I guess you're
gonna have some things that are irritating for one reason or another. But-- people will
tweet and they'll send emails. And I sent, you know, the one email I sent in my life,
you know, ended up in Federal Court
Quick: Tell people about that. What was that email?
Buffett: Well, what happened is that Jeff Raikes, a friend of mine from Nebraska was
at-- in a top position at Microsoft in the 1990s—on my one email. He emailed and
said, "Doesn't Microsoft meet all your tests for a wonderful business," and laid out
some reasons. And I emailed him back as to why I didn't buy Microsoft. And I also
threw in some comments on Nebraska football. Well, I guess the U.S. government
decided this email that he'd sent me or I'd sent him had some meaning in terms of
Microsoft's position in the economy. So it-- one day in The Wall Street Journal-- I see
my email is posted for the world. And I thought I didn't worry about what I said about
Microsoft, I was worried I'd said something negative about Nebraska football and
would have to leave the state forever. Fortunately, I didn't.
Quick: Hey-- Joe is somebody who shares your concern about Twitter, who tweets
very rarely. And Joe, I know you want in here too.
Kernen: I block. I block. That's the best thing about it. You can block people very
quickly. So in the past-- Becky, I-- whenever I wanted to use that word, I would say
someone is a royal A-hole. And that's a company--
Quick: It slipped--
Kernen: --and I can get--
Quick: It slipped--
Kernen: I can get away w--
Quick: I meant-- I know, but he said, "Tell people to go to hell," and the other phrase
jumped in my head and--
Buffett: Well, it show--
Kernen: Well, no-- no--
Buffett: --it shows the problem of--
Kernen: --but, okay, here's--
Buffett: --quick response.
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Kernen: --here's the deal. If you're-- I have said, "Ass," but g-- isn't an ass a donkey?
Isn't we-- a donkey? So I can say, "Ass."
Quick: It is.
Kernen: And I say, "Hole" all the time. So-- can I--
Buffett: I don't think we should pursue this too far--
Kernen: Is it o--
Buffett: --you know, but go ahead--
Kernen: If you're gonna start-- Becky, if you're gonna go here, I w--
Quick: I slipped--
Kernen: --I would like to use--
Quick: --I slipped--
Kernen: --that word all the time. If it's now fair game, I'm gonna just l-- I'm gonna just--
Quick: It's not fair game.
Kernen: It may be in every sentence.
Quick: Do not take that as fair game. That was a mistake.
Buffett: Do you wanna illustrate it-- Joe, for example--
Quick: I thought he said the other I thought he said the other. I thought I was
repeating his words--
Buffett: Well--
Quick: I was not--
Buffett: --Charlie and I have a code word we use. When we've-- see some guy that we
really think is a jerk, we will say to him, "Boy, you think like a CPA." And the guy kinda
gets all pumped up. And-- of course, our code word is crooked, psychotic, and you
could fill in the last.
Kernen: can I fill in--
Quick: So you don't wanna be a CPA--
Kernen: -- can I fill in the A? I'm--I'm still
Quick: No, don't. Don't.
Kernen: Royal A-hole.
Quick: Don't.
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Kernen: Royal-- it was actually bought by del--
Quick: Thank you--for harping on this.
Kernen: Well, - me and your husband here, I looked over and we're both, like--
Quick: Is that the only thing you wanted to jump in one? I thought you had something
else.
Kernen: No. I wanna know-- I wanna start using it. If it's okay now, I wanna 'cause I
need it--
Buffett: You lost our PG rating. We've lost--
Kernen: No, I've used
Buffett: CPA, u--
Kernen: --I've y-- I've used it before. I have used that before. And, you know, I think
shitzu all the time--
Quick: My mistake.
Kernen: I say, "Shih tzu" all the time and I will--
Quick: Okay.
Kernen: --continue too the dog--
Quick: Never mind. Let me out of my embarrassing snafu. Let's go.
Kerne: It wasn't a snafu--
Quick: Ask something else.
Kernen: All right. Go ahead.
Quick: Ask something else.
Kernen: Oh, oh, ask something else? No, no, no--
Quick: No?
Kernen: Okay. Do-- yeah, have we exhausted--
Quick: No, we--
Kernen: --the-- the talk about the ten year, Warren? You
Quick: This topic? Yes.
Kernen: No, you never answered me whether it's weird to see the bond markets so
well behaved when so many people are suddenly worried about reflation or-- you
know-- deficit spending. You know, we're not gonna do anything with entitlements.
We're gonna increase military spending. We've spent $1 trillion on infrastructure.
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We're gonna cut taxes across the board. Why do you think that the bond vigilantes,
which is Becky-- that's the way she likes to say it. I like it too. But why do you think that
it's so quiet, Warren?
Buffett: I-- it absolutely baffles me who buys a 30 year bond. I just don't understand it.
And-- they sell a lot of them so-- clearly, there's somebody out there buying them. But
the idea of committing your money, you know, at roughly 3 percent for 30 years--
now-- I think Austria sold some 50 year bond here, you know, at-- below 2 percent. I
just don't understand the-- in Europe, there are certain inducements actually for the
banks in terms of capital requirements to load up on governments. But it doesn't
make any sense to me.
Quick: You just said that-- a 50 or-- or 100 year U.S. Treasury might be a good idea for
the Treasury to sell, but is that an indication that you would not be a buyer?
Buffett: Absolutely. I would not be a buyer, yeah--
Quick: And you wouldn't necessarily recommend anybody else buy it either?
Buffett: No. But that, you know, -- that's why I think the government should sell it, it's
a bad buy.
Quick: Okay. Warren, we're gonna continue this conversation in just a moment. We're
gonna slip in a quick break here. When we come back, we'll have (MUSIC) more with
Warren Buffett. Stay tuned. You are watching "Squawk Box" right on CNBC.
Quick: Welcome back to "Squawk Box." we are live with Warren Buffett in Omaha,
Nebraska. Warren, we've talked about a lot of different issues but so much news we
haven't gotten to, one of those being Wells Fargo. We haven't gotten a chance to sit
down and talk to you since everything happened with Wells Fargo. We had some
viewer e-mails that came in as well. This comes from Norm. Guys, this is T-31. He says
to ask you given your ownership of Wells Fargo, please explain your criticism of
management, why it's been muted for Wells Fargo versus the Salomon Brothers
incident.
Buffett: well with Salaman the company was failing and might have been out of
business following week with huge repercussions for Wall Street. That was a whole
different thing. They asked me to come in. I was on the board. With Wells Fargo
because they repurchased shares We actually owned slightly more than 10 percent.
We have to be a passive investor there by law unless we want to become a bank
holding company which we don't want to become. I might well have been passive
anyway. I can tell you i had to be passive in any event. They made a huge mistake.
The huge mistake was not necessarily the dumb incentive system. Everybody comes
up – incentives systems are fine sometimes they incent the wrong things they
certainly incented the wrong things. The problem is they didn't do i anything about it
when they learned about it. Same with Salmon in that sense. I keep preaching to our
guys. If you see a problem, attack it immediately. It's going to get better. A huge
mistake was made at Wells not in cooking up the incentive -- if you want incentives
and people to do it but you don't want it to lead to crazy behavior which it did. The big
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mistake is when they found out and didn't do anything about it. They are fine was
something like $180 million or $185 million. I think they saw that wrongly as in the
light of $5 billion fines put on for mortgage practices at some other banks, $3 million
fines. They saw the problem as sized by the size of the fine and it wasn't at all. Any
time you have people making up accounts and doing all the thing they were doing, it
isn't the size of the fine that measures the customer impact, it's how your reputation
will suffer. It's what you were doing and it was wrong.
Quick: The fine came five years later after they had been doing it for five years.
Buffett: Clearly they knew what was going on to some extent and they didn't do
anything about it. I will say this, if the top guy doesn't do anything, the people below
won't. John Stumpf is a perfectly good guy. I wouldn't worry for a second. But
somehow when he saw the evidence, he didn't do something about it. Now, maybe
he thought somebody else was going to do something that part is similar to what
happened at Salomon, John Goodfriend thought that he postponed calling Jerry
Corrigan. Late April, may 15th another government bond offering came along and the
guy behaving badly behaved badly again and now it was too late. To some extent
when you get behind the eight ball and don't do it immediately you think it will go
away. If i come in now, why don't i come in six weeks ago or six months ago. Whatever
it was, it's a terrible mistake when you see a problem not to attack it immediately. It
can be unpleasant. Get it right, get it fast, get it out, get it over. I keep telling our
managers that. I'm sure something is being done now with 367,000 employees the
Berkshire and i hope i find something about it and do something about it.
Quick: What do you think of Tim Sloan the new head.
Buffett: I had lunch with him and I'm going to have lunch in a week or two. I think he's
doing fine. They made a big mistake and they are correcting it. I don't think in terms
of the earning power of the company in five years from now it's material.
Quick: Tim Sloan was there at the time. Did he have any involvement in any of this?
Buffett: not that I am aware of what I would guess is consumer banking, it goes up the
chain and that there's a person that's got a very responsible job ahead of consumer
banking that should do something about it. If that person doesn't, then the CEO has
to do it. The board isn't going to know anything about it. You don't learn about that
sort of thing at board level.
Quick: Can we talk about Bank of America?
Buffett: Sure.
Quick: That is another large holding. You don't count it in your 15 biggest holdings of
the different way it's structured.
Buffett: Yeah.
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Quick: You talked about in the annual report about when you might or might not go
ahead and exercise those warrants. You want to lay it out for people who didn't read
that deeply?
Buffett: Yeah. We can use our $5 billion preferred as payment for the warrants which
are 700 million shares at $7.14 so we can have a cashless exchange. We're getting
$300 million a year from owning preferred. If we use that preferred you exercise the
warrants, it would only make sense if the common we received paid us more than
$300 million. The magic figure is $0.44. I have no idea whether they will pay that or
not. I wanted to be clear in the annual report that would cause us to exercise the
warrants earlier than normal time which would be a day before expiration.
Quick: You also used the annual letter this year to really lay into investment
managers, hedge funds in particular, and people who think they can get ahead by
relying on experts when it comes to investing. There was a viewer e-mail that came in,
and the gentleman said if you were looking at these issues, you talk about the know
nothing investors.
Buffett: All you have to do is America is going to do okay.
Quick: Know nothing investor. He took umbrage to that. What is a know nothing
investor?
Buffett: It is someone who is not a professional. I'm a know nothing doctor, I'm not in
that business. The idea you're going to be in a game you're not trained for or spent
your life, not saying a zero IQ, you can have 200 IQ and not be involved in
investments. I don't know why light switches go on. I think I'm generally reasonably
intelligent but I don't know. I'm a know nothing physicist.
Quick: Your point is for investors who don't do this for a living, it's really really difficult
to beat the indexes.
Buffett: They aren't going to. One might be lucky for a while. The beauty is you're
going to do wonderful with American industry. You don't have to be an expert. The
experts aren't going to do it in large measure either. You're going to do fine. It isn't
like I'm saying know nothing investors are going to be left out on the street or
anything. They are going to get a great result. I mentioned in the past when I die, I told
my wife, 90 percent of her and trustee have it in an index fund. It will do better
unbalanced than what they will get if they go to professionals.
Quick: Because?
Buffett: Professionals don't know how -- after fees they don't know how to get a
better result. If you take half the people in the country and they don't do anything,
they just own the average, they are going to get average results, right? If they don't
have expenses they will get growth from that. The other by definition average, the
other part average left for them, they are going to incur all kinds of fees and they are
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going to do way better – way worse than the people in the -- who do nothing. And I
made this bet in order to just illustrate. The difference is incredible. The amount of
money people wasted getting investment advice is just ridiculous in this country.
Quick: You mentioned there are ten managers in your lifetime you have met. I want
Joe in on this conversation and we'll come back to that. Joe.
Kernen: I was going to say a lot of those hedge fund guys are assholes. I'm going
down with you, baby.
Quick: I'm never going to hear the end of this.
Kernen: I'm going down with you.
Quick: Thank you, joe.
Kernen: sink or swim.
Buffett: Next year -- i'll be doing this show by myself next year.
Quick: Uh-oh.
Kernen: Two in twenty and they can't beat the index. That's something -- I'm glad
someone shared that. Some year after year are good but there's a lot of naked
emperors charging two and twenty. They have a couple of good years and give it all
back. They keep their two and twenty and lose it all for the people that are there,
right?
Buffett: No. Two and twenty is going to make a lot of people rich. And it actually – it
borders on obscene. As I said in the letter, I've known 10 or so people with modest
amounts of money, I would bet a lot of money that they would do better than
average. And I say that there are hundreds, maybe even thousands. But there's
thousands, and thousands, and thousands and thousands of hedge fund managers
charging two and twenty is just ridiculous. And you don't get better because you
charge a lot. I mean, that does not make you a better judge of securities or anything
like that. And so the good salespeople, overwhelmingly, are the ones that attract the
money, rather than the very few who are extraordinary at managing money. Phil
Fisher, who wrote that book Common Stocks and he was going to do better than
average. Charlie was going to do better than average in life in investments. Bill Ruane,
a friend of mine, was going to do better. There have been a few. But there are very,
very few. And then only if they work with fairly modest sum of money.
Quick: Is that why you don't want to tell us anybody we could actually invest with right
now?
Buffett: Well partly being 86 – my crew is, you know, the fella you never heard of,
Herb Wolf. Probably if I'd picked one guy to manage money, I would've had Herb do
it, you know? But Bill Ruane was outstanding and I recommended him to my partners.
And my partner Sandy Gottesman in many things. There's no question he was going
to do better than average but very, very, very few people – well, when we were looking
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for a couple people to hire at Berkshire-- I think you were on that trip, CNBC was,
when I had hundreds and hundreds and hundreds of applications from people. And
the truth is, I let anybody in the world that wanted to challenge me nine years ago
come up with 500,000 bucks for their half of the bet. And all of these guys who make
billions of dollars a year, they didn't want to put up $500,000 and bet on themselves.
You know it's amazing what's happened in investment management.
Quick: Joe?
Kernen: I have one more philosophical question Warren. And it goes against what you
normally speak to. But just in terms of looking at the market and whether it's had,
like, a run where it's done too well and it needs to regress to the mean, or where it
hasn't done well enough and it'll come back, if you look in an eight year analysis, let's
say it's triple in eight years. That's, like, 16 percent a year or something I think because
it doubled twice. Or not quite. But it if it tripled, that's one way of looking at it. But if
you go back to 1999, 17 years it's only doubled. So that's only 4 percent a year. So
which is it? Has this market gotten ahead of itself because it's tripled in the last eight
years? Or it's taken forever to go from 10,000 to 20,000, so we aren't necessarily in
this rarified era. Do you have an opinion on that?
Buffett: Yeah. Well, I would bet my life well, it doesn't mean much when I'm 86 to bet
my life on a 30 year bet. But I would bet my life that stocks over 30 years
outperformed the 30 year bond. I would come close to doing it, betting that over ten
years, they'll do better than the ten year bond, versus the one year bond or two year
bond. I have, you know, no idea whatsoever. But stock if you look at American equity,
basic business of America, American equity earns a tremendous return on tangible
net assets. That's what the business is about. That's what the farm is producing. Now,
a bond is limited in what it can produce. But when you say reversion to the mean, I'm
not sure what the mean is. I mean, the mean is going to be based upon returns on
equity, the amount of equity reinvested and reemployed. And I would say there the
prospects are so much better than in fixed dollar investments, that, you know,
admittedly, I liked stocks a lot better a few years ago. And I've said that on this
program. But the stocks versus bonds right now, it's not close. Now, bond yields can
change a lot. If bonds go to 15 percent, I may be recommending bonds.
Quick: Warren, were you considering yourself among those ten people that you
thought could outperform indexes? Did you always know that you were going to be
able to be—
Buffett: I always felt I would. Yeah. It's kind of disgusting, but I really did. I mean, I
retired, when I left Grant Millman with $175,000 and I thought that would be enough
to provide me a good living you know, the rest of my life. And I had a couple kids then.
And no, I thought I was right for this business. Now, I thought Charlie was right for this
business. I thought Bill Ruane – I mean, I knew ten or so people, Walter Schloss – and I
didn't think they were the smartest guys necessarily in the world, although maybe
Charlie is. But I thought they were well adapted to the business. People have different
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talents. I mean, you look at chess champions or bridge champions. Sometimes they're
not so good in other areas and-- I'm wired for this business to some degree. So and I
felt that, yeah. And I learned from the greatest teacher you could have.
Quick: What would you have done what other jobs did you consider besides going to
work for Ben Graham?
Buffett: Well, when I got out of Columbia, I only applied for one – I went to Graham
and said I'd work for nothing and he turned me down. But I did go down to Merrill
Lynch. I went down to Merrill Lynch. And this woman said that she put me in this little
room to wait. And about, well, there were a couple guys in there already. And they got
called up. But then there were about three or four that came in after me. And these
guys were all really fat. And they kept getting called in ahead of me. And I finally
decided Merrill Lynch had some minimum weight requirement. So I left. If they'd
called me in earlier, I might be working for Merrill Lynch today. But they – I just got
tired of all these fat guys going in ahead of me. And I thought it I must've been at a
pro football tryout or something. So I only weighed about 135 or 140 pounds at the
time. So I decided that there was some requirement at Merrill that they hadn't told me
about.
Quick: And, oh, how different your life might've been.
Buffett: It'd been different. Yeah.
Quick: You keep talking about the ten guys, maybe, ten people, maybe that you've
seen that could outperform. Is there anybody who's actively managing money today,
who investors can still get in within that group of people?
Buffett: Well, I'm sure there are. But they will only be effective, in all likelihood, with
fairly modest sums of money. And, of course, they'll attract more money.
Quick: Yeah the reason I keep coming back to this is because that's got to be a
question everybody's saying is, "Who do I go to to beat the average?"
Buffett: Yeah. I hired two guys who I thought were very good. And they are very good.
Quick: Todd and Ted?
Buffett: Yeah, but they're running $10 billion each, and they would do better if they
were running $1 billion in terms of percentages than they will. It's just that we have a
lot of money around. But added funds work wonders for the general partner who's
getting the two and 20. And they're totally against the interests of the limited partners
beyond a point.
BECKY QUICK: There was a question that came in from a viewer, and I don't know the
number on it you guys, if you can find it, the gist of the question was does the market
still have plenty of GEICO's out there that you could find that are great investments,
that are going to continue to grow phenomenally? Or is it just a different market, is it a
different time?
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Buffett: It's tougher than it was, obviously, 50 years ago. I mean, my best year actually
was 1954. So see how far I peaked very early. But I was working with tiny amounts of
money and in a market that was not combed over the same way as presently. So
there are way more people looking to compete with. And I think still think, because of
temperamental differences, I think there are a fair number of people that, with small
amounts of money, can do well. But the chances that the average person is going to
be – pick them out or that the person sitting across from you, trying to sell you, is that
person, is betting against the odds. Significantly against the odds.
Quick: You mentioned in the letter that that's something that your wealthiest friends
just don't want to hear though.
Buffett: That's a very interesting phenomenon. I've talked this way, and people with
small amounts of money say, "That sounds good to me," and then they just go and
they buy index funds. They keep buying them. And they've done better than the
people who have gone to hedge funds. But if I say that, I get asked various pension
funds, sometimes they're local. And I've been asked by very big retirement funds,
some other states. And I say the same thing to them. And they basically can't stand
the idea that their big money won't buy special performance. And , of course, they get
called on by these people all the time. You know, and a good salesman will –
Quick: The hedge fund guys, you mean?
Buffett: Yeah, they're going to fall for good salespeople. And what really gets me is
sometimes they hire consultants. They say, "Well, I don't know enough to pick good
managers, but I know enough to pick a good consultant." I have never quite figured
out why they can't figure out who a good manager is, then some guy comes in, says,
"Well, I'm a good consultant." So it's really sad, but they're really outclassed, in many
cases, by the salespeople. I mean, that's true in a lot of fields. But in investments,
you're talking big, big, big money. And somebody's got $1 billion, they want to have a
family office, or they want to feel special. And the truth is, you don't need to be
special.
Quick: Okay. Warren, if you don't mind, we're going to slip in one more quick break.
When we come back, folks, we're going to talk a little bit more with Warren Buffett
about some issues concerning the markets and some of the securities that he's been
bulking up on. You're going to want to hear this, so stayed tuned "Squawk Box" will be
right back.
[Break]
Quick: Welcome back to Squawk Box, everyone, where we are live in Omaha,
Nebraska with Berkshire Hathaway's chairman and CEO, Warren Buffett. He's been
answering questions for the better part of the last three hours. And Warren, again,
thank you for your time today.
Buffett: Thank you.
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Quick: Before we go, I'd like to make sure we hit a few points for people who weren't
up three hours ago, right at very beginning of things. The one question everyone asks
me when I come back from talking to you on one of these things is, "What does he
think about the stock market right now?" There are a lot of concerns from investors
who have watched things run very rapidly over the last few months. We've watched
the DOW go past 20,000, watched the S&P go past 2,300. And there are investors who
feel like, "Wow, I missed my chance. I've been sitting on the sidelines. Now I have to
wait for a pullback." What would you say to those investors?
Buffett: Well, I don't have the faintest idea what the stock market's going to do
tomorrow or next week or next month or even next year. I do know that over time –
and we'll talk ten years of something of the sort – that equities will do better than
bonds, which is the main alternative or bank deposits or whatever it may be. Fixed
dollar investments for people. And they're not going to be able to pick the time to
come in. I don't know how to pick the time to come in. I bought a lot of stocks in the
last couple months. They turned out – the stock market goes down 20 percent or 30
percent. But that won't bother me if I like the businesses I bought.
Quick: You know, there are a lot of people who think you need to be balanced. If
you're going to be in stocks, you also need to have balanced in bond. Maybe 60/40 or
80/20 or whatever it may be. I have money in Fidelity Retirement. I have everything in
S&P 500 index funds like you've written, like you've told people to do with the
exception of Comcast shares, which I own. But everything else is in S&P 500 index
funds. And I get a red signal back from Comcast – from Fidelity saying, "This is
dangerous. You should not be invested in stocks." Are they right to warn me off?
Buffett: No, I think that's totally wrong. I mean, it depends – obviously, you shouldn't
be invested in stocks with money you might need to use in the next –
Quick: It's a retirement fund.
Buffett: Yeah. But if you're going to need – you shouldn't borrow money against
stocks. And you shouldn't – if you're going to need some money for college or
something in a year, you don't want to be in stocks because you don't have any idea
what stocks are going to sell for in a year. It's inappropriate. But stocks are safe for
the long run and they're very unsafe for tomorrow. If you call unsafe being will you be
bothered by a decline in market prices. But Berkshire, three times since I took over,
has gone down roughly 50 percent. Did I feel poor then? No, not at all. I mean, you
know, but I didn't owe it on borrowed money. I knew it was going to be worth more
over time. American business is going to be worth more over time. You know, that's
what you're buying, is a business. You're not buying a stock, you're buying a piece of a
whole bunch of businesses. Are those businesses going to be worth more ten or 20 or
30 years from now? Of course, they are. But if you think you can jump in and out or
that you know the time to come in, then I think you're making a mistake.
Quick: In my lifetime, you said, you wouldn't be surprised to see the DOW go to
100,000?
Buffett: Yeah, well, you're probably, what, 30, 35 and you got another 50 years or 60
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years left—
Quick: You're kind.
Buffett: You'll see it. You know, I mean, it's going to go. I mean, they retain earnings
every year. Just retained earnings. A fellow named Edgar Lawrence Smith wrote a
great book about that in 1924. It was the rationale for the great bull market in the
'20s. But you know, he pointed out how retained earnings actually add-- to values.
And if you owned a private business and you retained the earnings every year,
Berkshire's done that. And it gets to be worth more money. And that's what's
happening in this world.
Quick: You told us earlier in the program you've put probably $20 billion to work just
since around the time of the election because you've liked two areas. One of those
areas is Apple, one is the airlines. And we do have a question that came in from a
viewer, James Lee, it's T51, folks, who says, "Why do you believe that managements in
boom and bust industries like the airlines will act prudently and rationally for a long
time?"
Buffett: Well, that's the question. But hey, it's certainly easier to act rationally when
you're doing 80 percent plus loan factors than if it was a lot less. So the big problem if
they get too many airplanes around you know, you can be sure that it'll be a lousy
business for a while.
Quick: Does that mean that's a number you watch, kind of like the canary in the coal
mine – is the loan factor itself?
Buffett: Well, you can see what the orders are and all of that and delivery's expected
to be. And airline usage – will go up over time. You know, not necessarily dramatically,
but that will increase. So it isn't like demand is ever going to go away. If you get too
much supply, you got a problem.
Quick: Speaking of supply and demand, crude oil is another one that we've watched
very closely. I know you mentioned in the letter that Marmon Industries, things like
the railcar, the leasing business that was there – it's been down significantly. You said
it was not just because of crude oil. What are the factors that go into that?
Buffett: Well, crude oil is a factor. But general heavy industry has not been super
strong. It's very interesting. Since the fall of 2009, we've had about a 2 percent a year
growth, you know, year after year. And people get more optimistic than that
sometimes and strengths and weaknesses are moved a little through the economy.
But the oil business, you know, it looked terrific a few years ago. And more oil
products in the United States are going to move with $100 crude than move with $50
crude. And people got very excited about ordering tank cars a few years ago. And
then they got less excited. Actually, there's been a little pick up lately.
Quick: I can't believe we've gotten to this point in the program and we haven't asked
you your take on the economy. Where is the economy right now?
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Buffett: The economy is – everything I see has been the same since 2009 – the fall of
2009. It keeps moving ahead at a couple percent a year, which is terrific, incidentally.
Not as terrific as 3 percent or 4 percent would be, but if it just stays at 2 percent, you'll
add in one generation 19,000 of GDP per capita to our present economy. We'll have
so much more stuff then than we have now, it'll be fabulous, one generation away. So
your kids are going to live better than you do. But people – would rather have 3
percent or 4 percent, and maybe we'll get it. But 2, we're moving forward.
Quick: We just spoke with Treasury Secretary Mnuchin last week and he said he sees
a way for us to get to 3 percent growth based on a few things, if it's tax reform, if it's
cutting regulations and other things that go along with that. Do you see us getting
back to 3 percent growth?
Buffett: I just don't know. I mean I wouldn't bet on it, but 2 percent will be – will do
perfectly. 3 percent would be better. Anything – well, I shouldn't say anything – but
there's a lot of policies that might bring it to 3 percent. If they do, I'm all for it.
Quick: What do you think would help us improve growth?
Buffett: Well, productivity is the only thing that gives you growth. I mean, if we hadn't
changed productivity since 1776, we'd be living like we were in 1776. If 80 percent of
the people had to be on the farms to feed us, we wouldn't be producing much of
anything else. So it's all productivity over time that counts.
Quick: Well, we got a lot of people who wrote in about artificial intelligence and robots
and where you think they are moving along. Are they hurting our productivity?
Buffett: Yeah, I don't really know anything about robots. But I'll put it this way. If you
eventually got the world so that one guy could push one button and everything that's
being produced now would be produced from him pushing that button, it'd be a
better world. Now, you'd have to make sure that guy didn't keep all the output, but
the idea of getting more productive, it benefits everybody. And I shouldn't say it
benefits everybody. It benefits society. It can hurt individuals in their given industries.
But we should long for more productivity. That'll give a fewer hours worked, it'll give
more output per capita, it'll give better living for people. And that's what we've done,
actually, in this country. We saw it dramatically in farming. I mean, it's unbelievable
what has happened in farming. And we now have 2 percent of the population
working on farms, doing way better than when we had 80 percent. But if we didn't
have tools and fertilizer and all those things, we'd be an agrarian economy and we'd
be living like we did in 1776.
Quick: Very quickly, the dollar has continued to climb. Is that good news or bad news
for America?
Buffett: That depends whether you're an exporter or importer. It makes it very tough
if you're exporting. But it's, you know, with interest rates being what they are in
Europe, you know, compared to here, the dollar just has gotten stronger. And when
people tell you what the dollar's going to do, they'll be very careful. I mean, it just
suggests they take up currency trading for a living and see how they do.
51/52
Quick: Warren, I want to thank you very much for all your time today.
Buffett: Thanks for having me.
Quick: Again, this is our tenth annual Ask Warren show. And we can't thank you
enough for hosting us and having us here.
Buffett: It's been fun.
Quick: It has been. Thank you.
Buffett: I've learned a few new words.
Quick: On that note, Joe, we'll send it back over to you.
Kernen: Yeah, right. Exactly. Okay. That's his story and he's sticking to it. What do you
mean, you had an acronym for it, CPA. That's not certified public account. Don't kid a
kidder. Don't kid a kidder, Warren. We know exactly—
Buffett: Okay.
Kernen: In your business, like you don't need to have that one on the tip of your
tongue half the time? You definitely do. Anyway, Becky, great job.
52/52
Full Transcript: Billionaire Investor Warren Buffett Speaks with
CNBC’s Becky Quick on “Squawk Box”
cnbc.com/2017/05/09/full-transcript-billionaire-investor-warren-buffett-speaks-with-cnbc-percent-u2019s-becky-quick-on-
percent-u201csquawk-box-percent-u201d.html
May 9, 2017
BILL GATES, MICROSOFT FOUNDER & CO-CHAIR OF THE BILL & MELINDA GATES FOUNDATION, &
CHARLIE MUNGER, VICE-CHAIRMAN OF BERKSHIRE HATHAWAY JOIN THE CONVERSATION AT 8AM ET
WHEN: Today, Monday, May 8th
Following is the full unofficial transcript of a CNBC interview with Berkshire Hathaway
Chairman & CEO Warren Buffett on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Monday,
May 8th. Video from the interview is available on CNBC.com.
All references must be sourced the CNBC.
JOE KERNEN: What time did you get in last night from Omaha?
ANDREW ROSS SORKIN: About 8pm
JOE KERNEN: So that was perfect for you
ANDREW ROSS SORKIN: -- Perfect good enough to see the kids and to give them little dolls of
Warren Buffett. I went and bought some dolls of Warren Buffett which is my nice segue to
get back to Becky, who is in Omaha. Not with the doll Warren Buffett, but with the real thing.
JOE KERNEN: Now, these aren't voodoo dolls, right?
ANDREW ROSS SORKIN: No, no--
JOE KERNEN: Okay.
ANDREW ROSS SORKIN: --no.
JOE KERNEN: I don't know. I mean what do I--it sounds strange, that's--
ANDREW ROSS SORKIN: No, they talk-- Warren knows--
BECKY QUICK: No, it's they--
ANDREW ROSS SORKIN: They talk--
BECKY QUICK: --it's the Secret Millionaire one, right?
ANDREW ROSS SORKIN: The Secret Millionaires. They talk. They have a DVD. We're gonna
watch the cartoons, and my-- my kids are gonna learn about money from Warren Buffett.
And we have the-I got both of them-- I got two.
JOE KERNEN: WarrenI wanna see if it works. I'm gonna stick--

1/47
ANDREW ROSS SORKIN: I-- too.
JOE KERNEN: I'm gonna stick a needle into one of these—
ANDREW ROSS SORKIN: Oh, stop it.
JOE KERNEN: --little-- I'm just-- see if you feel anything when I do this. Warren, are-- are get
read-- no, I actually don't have one. But I'm gonna try that. Did you-- how much do you get
for each one of—them
ANDREW ROSS SORKIN: I mean—
JOE KERNEN: I betcha he makes money on each one of those. I-- you can never have enough.
Right, Warren?
WARREN BUFFETT: You'll get the voodoo dolls-- Joe. I've got a special one for you.
JOE KERNEN: Startin' on ya early, Warren.
WARREN BUFFETT: I know. I'm weak too.
JOE KERNEN: Yeah. You're vulnerable. Okay, good. All right.
BECKY QUICK: Well, guys, let's-- jump into this right now with both feet. Warren Buffett is our
guest this morning. He's the chairman and CEO of Berkshire Hathaway. And-- this is his first
interview sitting down since-- he spoke to 40,000 or so Berkshire shareholders over the
weekend, just across the street from here. Warren, thank you very much for joining us this
morning. I was kinda thinking back-- and this is 52 years now that you've been doing the
annual meeting. And the annual meeting has changed quite a bit over that course of time,
but it-- in reflecting back on the weekend yourself, what was your headline out of this
weekend? What was your takeaway and what did you think?
WARREN BUFFETT: I would say people continue to have fun. I mean-- you know, it's-- kind of
a half Mardi Gras, half annual meeting that they come for and-- I see thousands of 'em ate in
a Steak House last night. There are a couple hundred there, and they're all smiling. And----
you know, there were planes that didn't fly and a few things that-- but in-- inconveniencies.
But they-- have fun and they-- meet a lot of people that-- they saw the previous year. And
matter of fact, when we went to Steak House the directors all went there. The same guy
picked up our check that's probably picked it up for 10 straight years. And it just-- he's happy
there. You know? It-- I'm tryin' to find out where he's eating today, actually.
BECKY QUICK: So that you can buy him lunch?
WARREN BUFFETT: Well, I--
BECKY QUICK: Or so that you can show up and-- and get another free lunch out of it?
WARREN BUFFETT: Yeah. No, it-- but everybody's in a good mood. I mean they're clapping at
the Steak House. And they-- they come because they expect to have a good time, and-- we try
not to disappoint 'em.
2/47
BECKY QUICK: Well, we-- watched a lot of different things and heard-- so much from the Q&A
this weekend. And I was tryin' to figure out the theme myself. One of the ones that-- themes
that stuck out with me is technology, and how much that was discussed this weekend. For a
guy who claims that he's not really a technology guy, in fact doesn't even own a smart
phone-- you spent an awful lot of time talking about technology investments that-- that you
made or didn't make. That you missed out on. I was thinking in particular-- about Apple. That
you talked-- quite a bit about, why you got into that. IBM. Why you are selling some of that
stake. But you also talked about companies like-- Google where you said you missed it. And
maybe you could tell us a little bit about that for people who—
WARREN BUFFETT: Yeah, well, I did miss it, but-- I-- Charlie actually brought up the fact, we
must have too, and-- Google I should have had some insight into, because Geico was a heavy
user very early on. So here we saw value in something. At-- that time-- I have no idea what
we're paying for a click now, but-- but we were paying $10 or $11 a click for something that
had no cost of goods sold, and we were gonna keep doing it. I mean we could see that. So-- I
should have had more insight into that. Now, whether Bing was gonna come along or other
people were gonna take away the market, that's another question. Whether you had sort of
a-- first user advantage that would be-- would prevail. And there is a lot of technology to it.
So--somebody could have come along with a better technological product that I would not
have had any insights into that. I certainly had insights into the benefit to the user. I think a
blazer surgeon or something like-- I think it may have sold for 60 or 70 bucks or something of
the sort. Mesothelioma. I mean that-- I don't know what it brings now, but just imagine
having something. Every time you just hit a click, you know, a cash register rung somewhere
out in California. So it was an extraordinary-- and is an extraordinary business. And--it has
some aspects of a natural monopoly. I mean it-- it's very easy for me when I go to the
computer. I've worked with Google before, and-- but I'm looking for information for the
annual report. I used to have to mail away to federal agencies or go down to the public
library, and now I can get it in 10 seconds. So it's-- a hugely valuable device, which the other
guy pays for. The-- user of the computer doesn't. The-- answer is we missed it. And I knew
once they came to see me before they—
BECKY QUICK: Sergei and Larry came to see you?
WARREN BUFFETT: Yeah, and actually Eric did too.
BECKY QUICK: And Eric.
WARREN BUFFETT: Yeah, yeah. I liked 'em.
BECKY QUICK: So when you say you missed it, that-- that suggests that it's now at a valuation-
- you understand the company but it's now at a valuation that doesn't make sense to you?
Why don't you just buy it now?
WARREN BUFFETT: Well, it's-- if I was forced to buy it or short it, I'd buy it. Same way as
Amazon. But it's a little hard when you look at something at X and it sells at 10x. To buy it, it
shouldn't be, but I can just tell you psychologically it's harder. If you looked in the first place
3/47
and passed the-- at X to then buy it at 10X. That's cost people a lot of money at Berkshire. I
mean they-- saw it at a lower price and they just said, "If it ever gets back there, I'll buy it."
But that's a terrible way to think, but
BECKY QUICK: The train has left the station, actually—
WARREN BUFFETT: Yeah, exactly.
BECKY QUICK: As you like to, so-- so frequently—
WARREN BUFFETT: Exactly.
BECKY QUICK: --point out. How come you don't feel that way about shares of Apple? How
come you feel like that's a different story?
WARREN BUFFETT: Well-- the--shares when we bought 'em, at least, were much more
reasonable in relation to current earnings. Apple didn't have to do a lot better in the future
than they were doing at the current time. When you get into-- a Google and Amazon you're
paying for the future more. But that may-- they may well have—a better future. I mean that
may be more than justified. But-- and Apple-- I wouldn't say is easier for me to understand
than Google now, perhaps, or Amazon now, but-- certainly would have been five years ago.
It's amazing where-- Apple's and-- or-- well, where-- yeah, Apple's ended up with consumers. I
mean I--can very easily determine the competitive position of Apple now and--who's trying to
chase 'em, and how easy it is to chase 'em. We happen to be well situated in terms of having
these massive home furnishing stores, and I can learn very easily how consumers react to
different things-- there. Probably easier than I can-- trying to pick out what's really happening
at Amazon at any given time.
BECKY QUICK: So you use your research at the Nebraska Furniture Mart to-- tell you that
consumers prefer Apple over Samsung or-- I mean what type of thing are you--?
WARREN BUFFETT: Well, the interesting thing is it-- if you come in to buy a TV set at the
Furniture Mart-- price is extremely important. Now, obviously picture is-- there's all those
great pictures, just sitting up there. So you can have Samsung. You can have all these
different-- ones. And-- if you put on a sale-- and you drop the price of Samsung 10%, we can
fill that department with people who come out for it. You can't move people by price-- in the
smart phone market remotely like you can move 'em in appliances or all kinds of things. But-
- people want the product. They don't want the cheapest product. And-- the loyalty is huge.
Now, that doesn't mean somebody can't come along with a product that-- that just jumps the
field in some way. But-- and then once you have the product, the degree to which it sort of
controls your life, I mean it's a very, very, very valuable product to the people that build their
lives around it. And that's true of eight years old and it's true of 80-year-olds.
BECKY QUICK: People who have questioned Apple's future have said things like, "Well, right
now people are paying $800 for a smart phone." And-- the other reality in technology is that
prices eventually come down. And unless you're adding more and more value to that
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product, the price will come down. So what happens if people-- I mean I guess the question
is will people always be willing to pay $800 or more for a phone, or will that wind up being a
cost that comes down and down—
WARREN BUFFETT: Well, it—
BECKY QUICK: --just as technology changes--?
WARREN BUFFETT: --it can be that way, but-- it-- usually because there's competition
between different products. And some manufacturer decides that they can't beat, say, Apple
on their own terms, so drop it 100 bucks or 200 bucks. Some products are very susceptible to
that, and other products are not. And-- so far-- I mean you've had smart phones and big
differences in price categories. And-- people come back in and-- if they had an Apple before,
you know can have a much cheaper cell phone-- selling right next to the smart phone, selling
right next to it. And-- I'll look at it. You have a cheaper TV. The picture's looking at you and--
you say, "What-- wait, wait." I say, "What's the difference?"
BECKY QUICK: Right.
WARREN BUFFETT: And you buy the cheaper TV. And--that's true of-- I mean most items are
price-sensitive. And it's not to say that-- an Apple isn't-- has somewhat price sensitivity. It's
very, very-- very little.
BECKY QUICK: The--
WARREN BUFFETT: That-- but somebody could come along and leapfrog something in the
way of the technology and add some benefits that-- as-- that would be the more competitive
threat to me than price competition. It would be benefit competition.
BECKY QUICK: Yeah, I don't know what that is, but then-- you know, Apple gave me a whole
lot of things that I never realized I needed--
WARREN BUFFETT: That's—the thing
BECKY QUICK: --until they came up with them.
WARREN BUFFETT: And somebody else is tryin' to think of some other things to give you
along the same line.
BECKY QUICK: Right. Let's-- talk about just the stock price again. You said that it made sense
to you when you started buying into it. Shares have appreciated since then--
WARREN BUFFETT: That's the problem. I'm cheap. It-- and there's always an anchoring
problem with buying stocks. We used to buy 'em, at X and actually it's harder to buy 'em at
higher prices.
BECKY QUICK: So does that signify that you've stopped buying in Apple because of where
prices have —
WARREN BUFFETT: Well-- maybe, maybe not.

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BECKY QUICK: Okay.
WARREN BUFFETT: But-- you slid it in there nice, so—
BECKY QUICK: Yeah, I tried. I guess when you see things like the earnings that came out-- you
had mentioned to us the other day that you weren't bothered or disappointed by the
earnings. When you see—
WARREN BUFFETT: Not at all.
BECKY QUICK: --stock price pull back, you let-- you probably like it at that point?
WARREN BUFFETT: Oh yeah. I mean Apple, with a non-new product, I think they sold
something like 50 million. You know, or something that's a lotta units to sell of something at
$700, and a lot of those are going to people that they're actually replacing a present Apple.
But they do know that a new product's gonna be out in six months or something, and, you
know, who knows. maybe they got promised Apple for their birthday or their graduation. But
I would be tempted, if I were going to buy one, to wait until a new model comes out. I-- what
do I lose by doing it except the use of one in between? That's a lotta product to sell. What--a
new model coming out, well, you think about $15 million.
BECKY QUICK: We've talked to you pretty extensively about IBM. Andrew and I got the chance
to ask questions from the stage at the shareholder meeting this weekend, but we each only
asked about six questions and we got thousands of questions from shareholders. One
question that did come in from a shareholder that I didn't get the chance to as you was
about-- IBM and Watson. And-- you'd been pretty public about the fact that you were using
Watson at Geico. He wondered if your sale of IBM was related in any way to the performance
of Watson.
WARREN BUFFETT: No, well, we've been experimenting. There's a lotta possibilities-- with the
Watson at Geico. And we've experimented with various different possibilities. And it's-- so far
it's done certain things and it hasn't done certain things. But that same kind of
experimentation is going on in hospitals and going on-- you know, in-- in a whole bunch of
areas. H&R Block. I worked with it this year. And-- Watson is a pretty amazing invention that
has-- and-- it is getting-- put into use-- a lotta places. So it's a really interesting product. And
I'm sure the revenue is growing very significantly, but from a very small base. But I would say
that you've got other very smart people-- that have been given some time to work on other
products, and I would say that when you get into that area, you do have to worry-- maybe
even more than with the phone. You have to worry about somebody jumping the utility of
something like that. The-- where it really becomes valuable-- I mean it's obviously valuable in
being able to-- look at-- x-rays and all that sort of thing. Much better and faster than humans
can. And--real all the literature. You know-- millions of pages and all that. I would think the
real-- the biggest value will come in is when it actually replaces human labor. I mean that is
so quantifiable and-- you know, machines don't-- come round an anually and ask for--higher
wages, and they don't need-- they don't need healthcare. And I've-- if they can do a little
maintenance. But it-- if they replaced-- and if it should replace people in a big way. It would
have a lot of value, unless somebody else has some other products to do the same thing.
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BECKY QUICK: So it's artificial intelligence, but it's-- very much still in the artificial, emphasis
on artificial in that
WARREN BUFFETT: Yeah, I think they call it something slightly different than that, but I-- you
and I had a sort of common language would call it artificial, intelligence. And-- it is intelligent.
The question is-- how much better results can you get with it than using human beings? Or
how many human beings you can displace in getting it? Or in-- can you get some entirely
new form of information that humans are actually incapable of getting 'cause they can't keep
every word that's been written about prostate cancer or something in their minds. And--
they've read everything-- what was published yesterday at-- so it's -- I think it's got great
potential. It has not come as long-- along as fast commercially as you would have hoped on
that. It's probably growing at a very fast rate, but the base is probably fairly small and are
there people who are gonna be cashing you.
BECKY QUICK: Okay. Andrew and Joe, we're going to-- have much more with Mr. Buffett
today, but right now we'll send it back to you-- for a quick update as well.
JOE KERNEN: Okay. He-- Warren hasn't seen any actual indications of any malevolent intent
from Watson, yet, has he? I mean I-- just the idea of Watson controlling, like, what's going on
in high-- you know? I just remember what happened to those astronauts. You know what I
mean? The ones that were actually--in the-- you know, just slowly how it turns down all of
the-- you know, life supports. I mean-- the-- no-- have you seen that, yet, Warren? That's what
I worry about with-- with Watson. I mean does he--seem like a nice guy?
WARREN BUFFETT: I-- well, I've sat in the same room with him-- for hours, and I kept an eye
on him.
JOE KERNEN: That's what I mean. You know, I—when-- they don't----need us, why--- and-- you
just-- you said it. Healthcare. We-- asked for raises. We eat food. We-- I mean we're pretty
superfluous at-- to some extent. And I just-- I don't trust Watson as far as I can throw him,
he's probably fairly large-- I mean the server, right?
WARREN BUFFETT: Well, we all know what happened with Hal and Space Odyssey.
JOE KERNEN: Yes.
WARREN BUFFETT: Yeah. The-- actually, I've talked with some very smart people, not at IBM,
just about the whole idea about artificial intelligence. I see 'em out in Sun Valley, they're
really smart. And-- you know, they all go different directions on this. But it-- is not-- and not
about Watson specifically. The whole subject of artificial intelligence. And-- -- you've read
about it too, though, I-- you know?
JOE KERNEN: Yeah.
WARREN BUFFETT: I mean they--
JOE KERNEN: Some people are worried—
WARREN BUFFETT: People—

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JOE KERNEN: Are genuinely worried. Not just kidding—
WARREN BUFFETT: Some people are-- some people are work—
JOE KERNEN: Yeah, genuinely. —
WARREN BUFFETT: So some people are worried, but—
JOE KERNEN: Down the road, really, we probably do—need to think about it. You-- know? And
—
WARREN BUFFETT: Joe, I've got the cure for it. I got the cure for it. I'm 86. You won't worry as
much under those circumstances.
JOE KERNEN: Yeah. Exactly. Yeah, it might be-- far off. I-- thank you for doin' this, Warren.
Your--voice-- we were just talkin' about what amazing-- what you do for-- three or four days is
like-- superhuman almost.
WARREN BUFFETT: three or four days a week-- three or four days a year, I work. And-- when I
work I make sure everybody's knowing it and then I disappear.
ANDREW ROSS SORKIN: Okay, Warren. We're gonna-- come back to you in just a couple of
minutes. I will-- I'm gonna try to get you-- a Warren doll. I think you--need one. I think you
need one. Warren, thank you. We'll come back to you in just a second.
BECKY QUICK: Andrew, thank you very much. Again, we are live with Warren Buffett this
morning in his first sit-down since speaking to the Berkshire Hathaway shareholders who
made it here to Omaha this weekend, about 40,000 or so of them. Warren, Joe just
mentioned at the top that-- the markets are probably not all that surprised by the results
with the French election-- Macron winning, Le Pen-- going ahead and admitting defeat in this
situation. When did you find out about the French situation? When did you hear about Le
Pen-- conceding?
WARREN BUFFETT: When did I hear about Le Pen conceding--?
BECKY QUICK: Conceding, yeah.
WARREN BUFFETT: It woulda been pretty early l-- la—
BECKY QUICK: So you-- it wasn't something that you were necessary-- my point is, it wasn't
something you were sitting around, waiting on--?
WARREN BUFFETT: No, no, no. Not-- no, not in the least. No—
BECKY QUICK: You—
WARREN BUFFETT: I can't think of when I've really done much about purchases or sales in
connection with any election. I mean, every time-- when I was a kid every time a Democrat
got elected and-- like Roosevelt or anybody, you know, they-- there was a wake in our house
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and my father would start storing sugar in the basement or something like that. And so I've
learned to not put too much weight in any given election.
BECKY QUICK: This was not something-- if things had gone the other way do you think the
market reaction would've been-- as swift as some pundits had anticipated?
WARREN BUFFETT: Well, it-- might well have been. But-- people do get fooled on market--
reactions and-- as we saw. Well just with the Trump election it went down a whole lot and
then came right back up in a matter of few hours. So-- I don't think I'm any good at that. I
mean, I there'd be-- people'd be a lot faster if we-- if I was on the floor of-an exchange, you
know? I'd probably starve to death
BECKY QUICK: Yeah, you'll make those kneejerk reactions and investments
WARREN BUFFETT: No, I-- and--it's-- but just think of all the events that have happened in 100
years or something, or even in the 75 years I've invested. And-- if I had reacted to every one
I-- my reaction percentage would-- be terrible and I'd have a lot more in the way of costs, and
I'd be outta the market at times-- I never really wanna be outta the market. I--- it isn't a
question of being in the market, it's a question of owning businesses. And if I wanted to own
farms I wouldn't keep buying and selling 'em based on some election result or something
like that. I'd own farms and I'd try and figure out the best place to own 'em, and get the best
tenants I could on 'em, and all of that sorta thing. So I look at businesses the same way.
BECKY QUICK: Let--talk about the U.S. economy-- because there have been a lot of questions
about just how we're doing. We had that first quarter GDP number that came in-- with a
really lousy 0.7%. Does this feel like a 0.7% economy to you? What do you see?
WARREN BUFFETT: Well, I don't-- it doesn't feel like-- one. I don't think it is one. I think since
the fall of 2009-- and I think we've said this every time I've talked with you-- it's more or less
grown at a 2% rate. And I think-- deviations from that are as likely to be through problems in
collectin' the information or-- having the proper seasonal, or by the fact that quarter to
quarter they-- it's measured rather than over a year agos quarter then. So you multiply by
four and change. So a two-tenths change becomes an eight-tenth, yeah, annual type figure.
And-- I do not look at those figures with a lot of intr-- I mean, obviously when you get into
2008 and 2009 period and when the economy's falling apart it's a pretty good gauge of how
it-- fast it's falling apart compared to some-- earlier recession or something. But I have never
done-- I've never made a trade in a stock based on a GDP figure.
BECKY QUICK: Let's talk about the figures that you do pay attention to, and those are the
numbers that you see coming back from the businesses you own outright, or that ya own
major portions in, something like the railroads. Let's talk about what you're seeing right now.
WARREN BUFFETT: Well, railroad figures, which you can get every week. I think the AAR puts
them out on Wednesday. I get them Wednesday morning. And they show 20 different
categories, plus intermodal is shown by railroad. They show the Canadian roads. So they are
short line roads. And basically the economy is doing okay. And when I say okay I mean sort
of the same 2% rate. Now, it's not that precise through the rail figures. But one thing that's
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helped with rails is that natural gas has gone up in price. And there's a lot of coal that doesn't
move at $2 natural gas that moves at $3 or – I mean, a lot. There's a lot of electric generation
that they flip a switch basically – and it's the input. And right now, natural gas is, I think, close
to $3.25 on Friday. And that dictates the use of coal a lot of places, where if it was $2.25,
they'd be running natural gas. So that's – coal shipments are actually probably up the most
percentage-wise of any of the 20 categories. They're certainly most up dollar-wise. On the
other hand, petroleum products would be less. Grain is moving more this year. There's just a
lot of crops still out there. And there's going to be more coming on. So at BNSF, we move
13,000 cars of grain. And they move at 33,000 – $3,500 or something like that. So to get an
extra 1,000 cars of grain you got an extra $3 million of revenue. But that's a product of low
prices for grain, so the farmers wanted to store more big crops. And we'll learn in the Fall
this year whether you have another big crop and we'll carry a lot of grain if it happens. And if
for some reason there's a low crop, it comes down. And they're just category crushed. I
mean, you name them all.
BECKY QUICK: One of the things that surprised me that I hadn't realized until we spoke with
Matt Rose of BNSF this weekend is that the truckers, who I always thought of as the railroad's
biggest competitor, didn't realize they're also their largest customer, that they are shipping
so much for them.
WARREN BUFFETT: That's true. That's what – we carry a lot of trucks. You know, they load
those babies on there. And double stack them. And I think our five biggest customers, I
mean, you've got, well, JB Hunt would be the biggest. But Schneider which just went public
here recently. Those are big customers. I mean, they have an advantage just to start with in
loading in a huge percentage of cases. But if you really are going to move heavy traffic,
hundreds and hundreds of miles, bulk traffic, they're better off sticking them on our railroad
and then picking them up the other end. At Christmas time, you know, whether UPS or
people like that, a lot of it will move by rail.
BECKY QUICK: Also when it comes to housing, you've got a pretty good idea what's
happening there. Not only do you have a realtor company. You've got ACME Brick, Shaw
Carpet, Clayton Homes, Benjamin Moore Paint. I was trying to think through all of the
components of housing. Where do you see the housing market right now?
WARREN BUFFETT: It's getting better. I mean, it isn't booming. But both in resale of existing
homes, Clayton Home sales – that's a manufactured home product – they're up significantly
this year. We have three site built builders with it. Clayton is starting to go into that in Kansas
City and Tennessee and Georgia. And they're all doing fine. Now it's not boom time for any of
these. But it's a lot better than it was three or four years ago. And it's better than it was last
year. And I would anticipate that it continues to get better. It looks – there was this huge shift
after 2008 and '09 for people to rent rather than to buy. I mean, we had 69% home
ownership. And I think it dropped to 63% or something of the sort. And there's some reasons
why maybe it will stay lower. For one thing, when people bought houses in the early 2000s,
they thought almost for sure they could sell them for profit later on. So you had flippers or
people that at least were convinced that they couldn't lose. People don't feel that way after
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what happened. And then anytime you have a recession, it affects matrimony. Whole bunch
of things. But that's wearing off. And home building will be the best in this year, in my view,
since things went to hell in 2008.
BECKY QUICK: Millennials are actually starting to buy homes?
WARREN BUFFETT: Yeah, and, you know, I can't really get into specific age groups too well.
But I see the aggregate figures. And that's true. You know, brick sales will be better and the
earliest they have been so far this year. And they were better last year. And carpet – now
people are changing their minds about what kind of covering they want for their floor.
They're going more to hardwood. There's been some change in preferences. But when new
home sales pick up, you know, flooring sales pick up. When houses change hands, paint
picks up. There's a big system there that feeds. And we see improvement. We're not seeing
boom times or anything. But you can get some feeling for that part of the economy. And
we've got 80 plus auto dealerships. And you would know what was going on that anyway
because the car companies report so frequently as, you know, sales. But the economy's
getting better. The economy was – has been getting better since 2009.
BECKY QUICK: In terms of what you see from the industrial side of things, you've got
Marmon, IMC. I just think through a lot of industrial areas, too. Have you seen a pickup in
that part of the business?
WARREN BUFFETT: Well, that was slow up til recently. But we saw a fair uptick. Not huge, but
noticeable in March. And we'll see how much carry through there is to that. The industrial
stuff in many cases went into the energy, oil and gas business. So the slowdown in oil and
gas affected a lot of different types of industrial activity. It backs up through a lot of
equipment. So it was definitely affected by that. But the most recent figures would be
encouraging but incomplete.
BECKY QUICK: I'd like to just ask you – we talk all the time about the animal spirits that
started moving. You saw the stock market run up after Donald Trump's election. Does that
show up in your numbers anywhere? Animal spirits are shortened – are short-hand for
saying, you know, people got more optimistic. Businesses got more optimistic. Consumer
confidence rose. The stock market rose. Does that show up in the sales line?
WARREN BUFFETT: Well, it certainly shows up. I mean, if you look at charge card the first
quarter with Visa, American Express – you name it, I mean, get those figures. They were quite
strong. And got stronger in March. And those are big numbers. I mean, people charged lots
of stuff on credit cards. And if you – American Express lost the Costco account. So you're not
comparing apples to apples there. But if you make adjustment for that – and incidentally that
was around the world. And I think, I mean, these figures are announced by American
Express. So I'm not telling anything new. But U.K. was up 17.5% for American Express. Well,
you know, American Express has been around a while. They were up 15% in Japan. I'm talking
local currency. I mean, and the U.S. was very good. Better than I anticipated. And it got better
through the quarter. And certainly—
BECKY QUICK: Through the first quarter or the fourth quarter?

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WARREN BUFFETT: The first quarter.
BECKY QUICK: First quarter, yeah.
WARREN BUFFETT: First quarter. And, you know, JPMorgan Chase is doing very well with their
card. And I just think as you see, I mean, you can see what consumer's doing. Credit card
volume will tell you a lot about the consumer and what their attitude is.
BECKY QUICK: Do you see that showing up at your consumer businesses, too, in the stores?
At Nebraska Furniture Mart, at See's Candy, at Dairy Queen. How does that kind of play out?
WARREN BUFFETT: They're doing well. But the furniture mart – and we have other furniture
stores, I mean, we have them with RC Willey in the West. And we have it with Jordan's in
Boston. And well, they show decent gains.
BECKY QUICK: Okay, great. We're going to have much more from Warren, and by the way,
guys, if you want to jump in, feel free to do that. But we're going to have much more from
him coming up. We still have to talk to him about 3G and the political environment. And
airlines and some of the controversy that's happened there. But right now we'll send it back
to you.
BECKY QUICK: Welcome back to "Squawk Box," everybody. We are live in Omaha, Nebraska
with Berkshire Hathaway's Chairman and CEO, Warren Buffett who is sitting down with us
for his first interview since speaking to the Berkshire faithful who made their way here.
About 40,000 shareholders who were here in Omaha over the weekend. And Warren, thank
you again, for sitting down with us this morning.
WARREN BUFFETT: Well, thanks for coming out.
BECKY QUICK: There were a lot of questions that were brought up by shareholders this
weekend. And some of them had to do with 3G, the private investment firm that you all have
been so active with in a lot of different ways. It's not new controversy. It's been issues that
have been brought up because 3G operates a little differently when it buys a business than
you have when you've bought a business in the past. They're all about operations and getting
things streamlined very quickly. Usually when you buy a business, you like to have the
management there, you keep the management, and you let things continue to run. But it did
bring some questions and, again, from shareholders this year including questions about how
politically savvy it is to be doing business with a company that's going to be laying off
employees in this political environment, with this president who has said he is very much in
favor of protecting American jobs. How do you respond to that?
WARREN BUFFETT: Well, it does get a political response and it varies depending on who's
president or how much attention the particular layoff gets or whatever it may be. You know,
if we had not changed any ways we did business, we would be living as we lived in 1776. I
mean, productivity gains are the only way that consumption gains come. If productivity per
capita stays the same, consumption per capita stays the same. Unfortunately over a couple
hundred years in farming, for example, we literally came up with tools, we got rid of the
horses and had tractors. We came up with better seed, better fertilizer. All of those things.
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So whereas 80% of the people had to be working out of farms just to feed the country a
couple hundred years ago, we now have less than 3%. And that means 97% of people can
turn out other things that you want. So productivity – everybody understands productivity
gains are the key to living better. But when they happen to you, very understandably, you
feel that you're getting the short end of the stick. Society may be benefiting, but you're
getting hurt. And we tried buying a few businesses that had troubles and all of that. And it
wasn't any fun eventually getting rid of 2,000 people working at Berkshire Textile Mills or in
other businesses we were in. So we've tried at Berkshire to buy businesses that already very
productive and keep them that way. Or to have their managers keep them that way. 3G has
come into businesses where they really could do the same level of business with a lot fewer
people. And they've made the changes very promptly when it happens. And they've been
good about severance pay and all of that. But they have followed the standard capitalist
formula, Marxism formula, of trying to do business with fewer people. And that benefits
everybody. It particularly benefits the owner. But it's a painful process. And sometimes
there's a big political reaction to it. GEICO, which now employs 36,000 people, in the early
1970s or right after a fellow named Jack Byrne came in who cleaned up the problem cut
almost half of its employees. I mean, it got rid of thousands of people. And it was painful. It
was because of a management mistake. The people that got laid off no fault of their own at
all, just GEICO management come up with the wrong prices. And they were losing money,
they were going to go bankrupt. And a fellow named Jack Byrne came in and he saved the
company. But in the process of saving the company laid off thousands of people. They had to
lay them off promptly. So there will be readjustment – well, the railroad industry, after World
War II had something like 1.6 million people working in it. It has less than 200,000 now. From
1.6 million to under 200,000. And it's carrying considerably more freight than it was at that
time. Now it's true there was a passenger factor to that. But the improvement in productivity
has been dramatic. Otherwise, the railroad business – there wouldn't be any railroad
businesses existing like it did in 1946. But if you're – that's easy to talk about. But it's the
same problem as trade. Trade benefits people in invisible and small ways. And to the person
it puts out of business who spent 25 years learning a trade as a steel worker or as a
manufacturer of shoes, it is a disaster. And a rich country – and we're ungodly rich as a
country – 57,000 or 58,000 of GDP per capita, we have to take care of people who are the
roadkill in better output for all the rest of us. And I don't blame anybody for voting against
the system that they think is bypassing them and just throwing them aside because if you're
a 55-year-old steel worker or a 55-year-old shoe manufacturer, you are not going to learn a
new trade. And, you know, you're not going to have another job that's good. And yeah society
has to take care of them because it's achieving a societal objective which is to get more
output per capita.
BECKY QUICK: Andrew has a question on this as well, Andrew?
ANDREW ROSS SORKIN: Hey, Warren, to the extent that 3G is successful at using its zero-
base budgeting to bring more efficiencies out of the companies that it owns, how much
pressure do you think it's going to put on other units of Berkshire or companies that
Berkshire owns, for example, Coca-Cola, which may have to follow the same type of model to
keep the same type of margins given the success that 3G may ultimately have?
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WARREN BUFFETT: Yeah, James Quincey the new CEO of Coca-Cola or designated CEO, has
already said that there'll be 1,200 jobs reduced at headquarters at Coca-Cola. Now Coca-Cola
has been a very, very, very profitable company over the years. And could afford to have lots
of people around who aren't really changing productivity that much. But volume has leveled
off more or less. But I would argue that even if it was prosperous, it shouldn't have more
people doing it than it needed. I mean, that's the guts of capitalism is you don't have a lot of
people doing something when fewer people can get the job done. You free those people up
to work in other areas and innovate for them so that they bring out new products. And
people live better when there's more output per capita. So you don't gain anything by having
thousands of people around. You can afford to do it in some cases. But Coca-Cola is doing
exactly the right thing if they look at their operation and say, "How many people do we need
to do the job right?" And if you're very prosperous – the cigarette companies were this way in
the past. I mean, they were so prosperous it really didn't make any difference – I forget the
name of the fellow that flew around sent the airplanes for his dogs and all of that sort of
stuff. And they could afford to do it. But that output for America, you know, goes down when
that plane flies around with a dog in it. And prosperous companies tend to be sloppier than
companies that are in tougher businesses. You're forced to think harder. And packaged
goods generally has been a very profitable business. I mean, if you look at the great
companies in that field for decades and decades and decades, they earned high returns on
capital. And so you probably found more sloppiness in employment than you would find if
you ran a very tough retail business like my grandfather's grocery store. He just couldn't
afford it.
BECKY QUICK: Do you still like these companies where you see the margins coming down
pretty significantly in industries like consumer packaged goods? Companies like Coca-Cola,
like Kraft. You've got major investments in these areas.
WARREN BUFFETT: Well, Kraft, the margins have come up because they're doing just as much
business. But they don't have people there that they don't need. And Coca-Cola, James
Quincey has announced 1,200 people in headquarters. I will guarantee you they won't sell us
Coca-Cola because those 1,200 people are gone. I mean, and we have, in Berkshire's
businesses – some of them – a certain amount of slop in them. I mean, we don't drive it as
hard as we could. But that's no tribute to me. It just means that isn't something I like
spending my time on. I don't like a lot of inefficiencies. And some of our companies are
extremely efficient. But ithey are not as efficient as if to feed myself tonight I had to have
them running a maximum efficiency. But that's a defect of mine. I mean, that is not
something to brag about.
BECKY QUICK: Straight ahead, Warren Buffett digs into Wells Fargo, defends the airlines and
talks stock investments after the Berkshire Hathaway annual meeting. His comments in a
special one-hour event coming up. Plus centrist candidate Emmanuel Macron winning the
French presidential election. Market reaction and what it means for the global economy is
just minutes away. And reports this morning that Comcast and Charter Communications are
joining forces in the wireless business. We have the details straight ahead. The second hour
of this special edition of "Squawk Box" with Warren Buffett begins right now.
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JOE KERNEN: Let's get back to Becky who's in Omaha this morning, following the Berkshire
Hathaway annual meeting. And she's joined by none other than Warren Buffett this morning
who, Becky, you don't need to know about a company you don't necessarily have to use their
products and stuff. I'm just thinking about, you know, Warren, opining on the airline industry.
You know where I'm going with this.
BECKY QUICK: I thought you were talking about Apple because he doesn't have an iPhone
either.
JOE KERNEN: Or Apple. Or Apple. But, you know, I love to hear his comments on the airline
industry. Because, you know, friends have been telling him about what it's like to be at one of
those airports and stuff. And you would walk on and you'd be like the kid, the rich kid that
says, "Who are these other people, dad?" when they finally fly on – you have no idea, Buffett.
I mean, don't pretend to. So you've read up on it, I guess, right? That's about the extent of it.
WARREN BUFFETT: I would make a small bet, Joe, that I have taken more commercial airline
flights than you have in your life.
JOE KERNEN: Well, you're 86 or 87. All right, okay. All right. You've taken more breaths than
me, too. That's not going to do it. I always say that.
WARREN BUFFETT: Ok, I see your –
JOE KERNEN: The last movie you saw in flight was – it had just come out, it was Casablanca.
That was the last movie you saw on an in-flight commercial.
WARREN BUFFETT: No.
JOE KERNEN: Huh?
WARREN BUFFETT: I saw Sully the other day while riding on a plane. It's about a plane that
goes down. But I have to admit it was on a commercial plane.
BECKY QUICK: Hey, Warren, let's shift gears here. We were going to talk about something
else, but let's talk airlines right here since Joe just gave us that great entrée going into it.
WARREN BUFFETT: Sure. Yeah, right. Sort of an easy answer.
BECKY QUICK: Exactly. Like, answer this now following up. You are, through Berkshire, the
largest investor in four major airlines.
WARREN BUFFETT: Correct.
BECKY QUICK: Including United. And we have seen the troubles at United. We haven't really
gotten the chance to talk to you too much about that. What did you think, as the largest
shareholder, when you saw the video of Dr. David Dao being dragged off? And then the
response from Oscar Munoz who was called in front of Congress last week to testify on this
along with some other airlines CEOs.
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WARREN BUFFETT: Obviously it's a terrible mistake. And you actually stated that, you know, I
saw the event with the fellow being dragged off and then the response. I kind of wonder
whether Oscar had actually seen that when he made the response. If so, it was a bigger
mistake by far than if he hadn't seen it. I mean, and I don't know the answer to that. But the
natural tendency, if you've got 80,000 employees and you're about – some incident is to
defend your employee. But it wouldn't be your natural tendency if you had seen the tape. So
I don't know precisely. In either case, it was a mistake. In one case it was an egregious
mistake. And you know, he's apologized many times. But your first reaction is going to get a
lot of attention.
BECKY QUICK: You know, I understand what you're pointing to. Like, United has had some
employees that have been unhappy since the merger. They've had some issues, some legacy
issues and things they've been trying to deal with. He has been concerned about trying to
make sure that the employees feel good about things. But, again, that video and that tone
deaf response made a lot of people feel like they have forgotten that these are customers.
Paying customers.
WARREN BUFFETT: No, I mean, and I worry about that with 367,000 employees as well.
Somebody stands on their feet all day selling candy and people are yelling at them and, you
know, it's Valentine's Day and they're trying like crazy to keep up. There'll be certain people
who may blow up, you know, late in the day. And, I mean, we have actually had someone just
walk off the job. They just get tired of the job.
BECKY QUICK: Oh really?
WARREN BUFFETT: Yeah, sure. Well, what really gets them is that we hire lots of temporary
help obviously at holidays. And the customers know more about the product than the
people we hire. I mean, we'll hire people and have 100 different pieces and maybe educate
them a little. But the customer's been coming in for 30 years. And that psychologically is hard
to handle when the customer starts telling you, "You don't know what you're doing." You
know, and so a certain number of people may behave badly and what you hope is they don't
behave real badly. And not too many people do it. But we'll have somebody do something.
We'll have more than one somebody do something. If we have thousands and thousands of
retail transactions, for example, some people don't follow the rules. We had an accident in
O'Hare a while back on the railroad that somebody didn't follow the rules. And there the
penalty is huge, I mean, in terms of injuries and so on. You do the best you can on it. And
you know, the first report I get from Matt Rose every quarter, the first topic is safety.
BECKY QUICK: The head of BNSF?
WARREN BUFFETT: The head of BNSF. First report is safety. And the injuries have been driven
down and down. But he's not happy til they get to zero. Well, I know that's what he wants to
do. But you can't get them to zero. But you really want people to be treating everybody they
meet in business as if it's the person they love the most. I mean, at GEICO, we've got
thousands of people on the phone and they're just getting calls all the time. And I like them
to have a picture of whomever they love the most, you know, it can be their mother, their
wife, their dog. I don't care. Whatever it is, be talking to that person because it really comes
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through.
BECKY QUICK: You know, you mention that on Valentine's Day maybe you have somebody on
their feet all day. They get fed up and maybe they walk off the job. You can understand why
airline employees get frustrated because everybody in the airport is mad because conditions
in the airport, getting through TSA. And then frankly, what the airlines have done themselves
with their own policies where you're charging people for bags, you're cramming people in
with less and less legroom. It's become very commoditized making the people feel like
maybe more like cattle than like customers coming through here. But part of that, the
airlines are responsible for. Not all of it, for sure.
WARREN BUFFETT: Oh, I understand.
BECKY QUICK: Not all of it. But the airlines themselves have created some of those situations.
WARREN BUFFETT: Yeah. One of the things they found is that a very high percentage of
people are very price conscious. So you know, they may become like cattle cars, but people
would rather be treated like – a significant percentage would rather be treated that way and
fly for X than have far more leg room and more, you know, all kinds of things, and travel for X
plus 25%. So to some extent they try to segment.
BECKY QUICK: Have they pushed a little too far along those lines?
WARREN BUFFETT: Well, it's still – the customer with how, you know, basically by flying, you
know, and –
BECKY QUICK: Well, the customer would tell them by flying somewhere else. But the problem
is with airlines you often don't have a choice.
WARREN BUFFETT: Often don't have a choice.
BECKY QUICK: More than 70% of the airlines are – the flights that are originated out of
Newark are United Airline flights. I don't have a choice when that's my home.
BECKY QUICK: My home place to go.
WARREN BUFFETT: But some people, I mean, we suggested to people actually that came to
the Berkshire meeting because the prices went up a lot. The demand went up a lot. Put on
thousands and thousands and thousands of extra seats, the airlines told me. So I actually
put in the annual report every year you can fly to Kansas City during the annual meeting time
way cheaper than you can fly to Omaha. And you can rent a car there and be here in a
couple of hours. And a fair number of people actually do that, you know, but a lot of people
don't. I mean, people have different preferences. But there's no question, I mean, I would
hate to run an airline. People are traveling. They're hoping to make a wedding, they're hoping
to make a business appointment. I mean, it's important to them.
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BECKY QUICK: It is. It is. And I understand all of those issues. I guess I'm asking you as the
largest shareholder it sounds like you have not had any conversations with Oscar Munoz
since any of this has happened.
WARREN BUFFETT: I've never met him or talked to him.
BECKY QUICK: So I'm asking you if it concerns you when reactions like this get the heads of
these airlines called up in front of Congress.
WARREN BUFFETT: It's bad.
BECKY QUICK: Would that potentially change the investment strategy?
WARREN BUFFETT: It wouldn't change the investment strategy. It's bad. I mean how bad it is,
don't know. But there's no way that you aren't going to read about some airline. The one
thing going for the airlines is they've become unbelievably safe. I never would have dreamt.
But they have also worked toward having higher load factors. When they have load factors in
the, you know, like they did in the past around '70, I mean, they went bankrupt. And they
need high load factors. And high load factors mean a fair amount of discomfort. And it has
kept prices from going up. But as you point out, I have not ridden a commercial airline for a
long time.
BECKY QUICK: As Joe points out. Not me.
WARREN BUFFETT: It's a job I don't want, running an airline.
BECKY QUICK: I guess the only question is do you think Congress would do anything that
would make your investment less worthwhile?
WARREN BUFFETT: They could. I don't think they will likely. But the interesting thing about it
is if you regulated the airlines, reregulated them, you would have – well, whatever they
decided to regulate – but you could have more leg space, you could have no overbooking.
You could, I mean, you can regulate all kinds of things. The cost will go up. And that's the
tradeoff.
BECKY QUICK: Andrew, you had a question too?
ANDREW ROSS SORKIN: In this similar vein, Warren, I have actually two questions. One
relates to just whether you think forgetting about regulating the airlines per se. But just the
idea that at least in certain markets you could see some pressure to open up more slots or
effectively to take slots from different airlines and try to give them to others, what you think
the risk is to the investment thesis from that perspective?
WARREN BUFFETT: Yeah. Well, if you get more planes around, call it seat miles. Too many
seat miles around, it just gets to be brutal. I mean, they all went broke. If you put in
bankruptcy and airlines into search you'll see 100 names or thereabouts just in the last 30
years. And you'll see, you know, all the big names you won't see Southwest or Alaska, but
you'll see the big names. I mean, it's a brutal business because the incremental cost of one
extra person in an empty seat is practically nothing. And the problem you'll have is keeping
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the pricing of that incremental seat from infecting all of the seats on the plane. And
everybody knows the prices every day. So there's no way to dress it up or anything of the
sort. There's ways of offering different combinations like whether you charge for this or that.
And some people like that and some people don't like it. Everything you do though, your
competition can copy. Now Becky makes a good point, if you've got enough of the gates at a
given airline, then you have some protection as long as people want to fly from there. But
people travel to other airports too under those circumstances. It's a very, very tough
business. If you want one figure that really counts in determining how well the airlines are
going to work economically it's going to be the percentage of seat occupancy basically. I was
a director of U.S. Air, it was a really dumb investment on my part. I made it all by myself. I
didn't even consult Charlie. And by the time the ink was drying, I knew it was dumb. And then
it got dumber. And that airline actually went broke twice. Fortunately, there was a blip in
between and we actually made a pretty fair profit out of the stock. But we didn't deserve it.
And it went broke twice. And they would have a route like – and I'm pulling this out of the air
obviously – but, you know, Philadelphia, Pittsburgh, or something like that. And as long as
they were the dominant carry with a lot of gates at each end, it did fine. And then Southwest
or somebody would come in and they would look at 14 cents a seat mile and revenue mile.
And it's, you know, they could do it for 12 cents. And a big enough price differential will move
people over. And of course the industry is looking for all kinds of things through loyalty
points and all that. To make it stickier but in the truth, when people are going to fly from X to
Y, they can go to their computer and figure out very quickly how much it's going to cost them.
And it's a tough business. It was a suicidal business for a long time. Having the consolidation
that came about through the bankruptcies has made it an extremely competitive businesses.
I don't think it's a suicidal business anymore. But if they get down to running at 70% capacity
or something like that, it'll be suicidal again.
BECKY QUICK: Andrew, you had a follow-up on that?
ANDREW ROSS SORKIN: Yeah, Warren, real quick. The other thing I was curious about is
many of the U.S. airlines have lobbied – the Trump administration – have lobbied other
Washington lawmakers against part of the Open Skies agreement arguing that a number of
the Middle Eastern airlines like Emirates have effectively been subsidized and dumping their
services in the United States at prices that are below what it truly costs them. About a $50
billion subsidy they've described. Do you agree with that assessment? What do you think
should happen if that's true?
WARREN BUFFETT: I don't know the facts on it. But I would say that over the years, there's
been a fair amount of below cost pricing. And anytime you're in a business where your
competitor is getting into below cost pricing and there's not huge difference in the public's
minds between flying airline A or airline B, the timing of their departures and all that –
arrivals – may make some difference. But people are very price sensitive. And if people are
pricing below cost – when I was on the board of U.S. Air, we had a lot of planes out in the
desert. And if you get a lot of planes outta the desert you've got problems. And so I would
say that you should try to figure out best system where having reliable, safe planes operating
– it's better if they're overall operating profitably than if they're operating at a loss. Because if
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they're operating a loss you're going to have a bankruptcy situation and you're going to have
to redo union contracts and all sorts of things like that. Incidentally, one other factor in the
airline industry currently is, I mean, you really do have a pilot shortage to some degree. And
pilots come in from the military. And they're just not coming in as much.
BECKY QUICK: What does that mean?
WARREN BUFFETT: Well, it just means that the pilot shortage has gained some strength
relatively. Now, there are differentials as you work for the smaller airlines and all of that. But
if you're running a big airline, one of the things on your list of things to worry about is—
BECKY QUICK: Labor costs going up.
WARREN BUFFETT: And you need experienced pilots. I mean, you have high requirements of
hours for those people to be in those seats.
BECKY QUICK: We're going to have much more coming up with Warren Buffett. But, guys,
why don't we send it back to you right now?
BECKY QUICK: Welcome back to "Squawk Box," everyone. We are live this morning in Omaha,
Nebraska with Berkshire Hathaway's chairman and CEO Warren Buffett. He's been sitting
down with us, going through a lot of issues. This is his first interview since talking to the
40,000 or so Berkshire shareholders who showed up here in Omaha this weekend. Warren,
one of the items that came up with a little bit of controversy over the weekend was Wells
Fargo. That was the first question that was posed to you from a shareholder. And the
questions, a lot of them came in, and they were all kind of related to what you thought about
Wells Fargo. Now in the past, you've run that clip from your Congressional hearings over
Solomon Brothers. The very famous clip is where you say, "Lose money for the firm and I will
be understanding. Lose a shred of reputation for the firm and I will be ruthless." I did have
one shareholder who wrote in a question asking why you weren't ruthless when it came to
Wells Fargo.
WARREN BUFFETT: Well, the CEO lost his job and gave back his pay. And I was not a director.
So, I mean, I would say that the CEO feels that his life has been, in an important way, ruined.
And incidentally, I know John some. I don't think it had anything to do with him making
money. And I don't know what happened because I mean, we would talk to him once in a
year or something of the sort. But they obviously came up with an incentive system that
incented the wrong things. Now most businesses do that from time to time. We've done it at
various businesses. I mean, you think you've come up with a brilliant idea and then you find
out that it gets – it's probably happened in your family. I mean, you know, in terms of
deciding what allowance to give or whatnot. You know, not everything works out as you
anticipate. That's okay. But you get signals back that it isn't working and you got to stop it.
The big mistake was whatever sufficient information had come back that this is producing a
counterproductive effect, it's not resulting in more cross-selling as we call resulting in all
kinds of games being played and phony accounts and all that sort of stuff. That's the
moment of truth. I mean, that's the big moment. Because you have to stop it then. And you
just got to say, "What's wrong with the system and how do we correct it?" And believe me,
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that happens at Berkshire. That happens every place. If you don't do it immediately and you
let it run for a while, now you've got the ultimate problem because everybody that comes in
says, "Well, yeah, but why didn't you do this when you first heard about it?" So that is the key
time. And we have a hotline. We got about 4,000 complaints of one sort or another that come
in on the hotline. Everybody that works for Berkshire has access to it. It comes into Omaha.
Most are frivolous. The person next to me has bad breath or something like that. Well,
they've got to work that one out on their own. Some of them, a good many of them, should
go back to the human relations departments of the companies. Now, if they don't do the
proper thing, then we then we have to do something about it. But mainly, they're things that
are that level. And then a few are really, really important. And they're anonymous and
there's no retribution. And you would certainly think that in any big bank including Wells
Fargo or any big institution of any kind the hotline is bringing in lots of information. And
whoever's in charge of that – at our place it is the head of internal audit – but it can be the
general council, it can be there should be people looking at that. And they should be deciding
which to send back to subsidiaries. But they should be deciding which ones should go to the
CEO. And I've had a reasonable number of actions that came to me either through the
hotline or anonymous letters to me and you can tell when it might be something serious.
We've spent a lot of money investigating the things that come in like that because we turn it
over to an outside person frequently. And a pretty good percentage of the time it lead to
something pretty big. And at Wells Fargo, you know some stuff was coming up from the
branches and people and somebody didn't pay any attention to it. And then if you wait a
year, you know, it is just totally bad news.
BECKY QUICK: Have you lost confidence in the bank as a result? Do you think the bank's
reputation has suffered as a result? And would you ever sell any shares as a result?
WARREN BUFFETT: Well, the reputation has been hurt. The fundamental earning power of
the bank over a period of years has not been hurt in any material way. But--the reputation of
the bank has been hurt. I would argue probably that better systems would be in place there
now, just like they were at Salomon-- than probably exists at most of the competitors. I
mean-- and that's true when other banks get slammed down on, whether it's mortgage
things or some trading thing. I mean, that does focus the mind. And it focuses the directors,
it focuses the media. So in general, I would bet on the practices being better in any operation
that's had that kind of attack and scrutiny, and deserved attack and scrutiny, than it might be
if you were just kinda sailing along, thinking everything-- I worry about getting complacent.
BECKY QUICK: Warren, we're gonna take a quick break. And Joe, I'll send it back to you.
JOE KERNEN: All right. Beck, thank you. Wow, lotta stuff Warren says it keeps flashing on my
screen. It's amazing. Very important. Got people wanna know. And we're gonna have much
more from Berkshire Hathaway's Warren Buffett.
BECKY QUICK: Andrew, thank you very much. Warren, we have been sitting down and talking
with you for the last hour and a half which has been wonderful. And I haven't pushed you on
this yet. But this is something you spent a little time talking about at annual meeting this
weekend. Probably the question that we get from-- viewers and from shareholders more
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than any other is where do you think the market is headed? And what do you think of market
valuations right now? It-- it's not something that you often comment on in depth. But this
weekend you did talk a little bit about how it's harder and harder to find deals. How-- there
are-- a number of factors that have certainly driven up the price of businesses. Can you tell
us-- what's happening right now-- what-- going on?
WARREN BUFFETT: Well, the first part. Where the market's headed, I don't know. It'll-- be
higher ten years from now. It'll be higher 20 years from now. It'll be higher 30 years from
now. But I have no idea what the market will do in the short term. It if I thought it was a
productive area of-- exploration, I'd do it. But I--don't know how to do it. My partner, Charlie
Munger, doesn't know how to do it. So we think about businesses. Now unfortunately right
now the largest, quote, "business" end quote, we own-- we've got about $95 billion in and it's
selling at a 100 times earnings. And the earnings can't go up, which sounds like a pretty
dumb investment and it is. But that's what we get on treasury bills basically and-- we literally
have-- it's not all in bills. But we have $95 in cash including mostly bills and we are paying a
100 times earnings for something like I say whose earnings can't go up. You get 1% and that
does not make me happy. And I like to buy businesses. We will buy businesses. But it makes
it much tougher-- when there's 1% money around and the people who-- many of the people
who buy businesses use as much borrowed money as they can. And when they get that-- at
rates that are based off that very low rate of 1%-- they can pay a lot more money than we
can-- using what-- pretty much all equity money 'cause that's the way we look at money. So--
we have not—made significant acquisition now for 15 months or thereabouts and—
BECKY QUICK: And getting a little itchy?
WARREN BUFFETT: I'm always-- I--if it goes for 15 minutes, I get itchy. But I can't afford to give
into the fact-- I can't scratch. I get in big trouble. No. Once you buy a business, the business
doesn't know what you paid for it. So it is not going to earn some appropriate amount just
because you paid X for it. And if you do something dumb going in either in terms of the kind
of business you buy or the price you pay for a perfectly decent business-- the results are
with you forever. So it's my job to allocate capital and it's a very tough period in which to
allocate capital. But that's okay. It makes it in-- why I come to work every day.
BECKY QUICK: You-- did say over the weekend that if-- See's Candy-- seller had tried to get $5
million more from you, you would have said no and walked away and that would have been a
mistake. Are you still that cheap?
WARREN BUFFETT: No. I'm not as cheap because that taught me something. I'm still cheap.
But-- not as-- not as cheap as I used to be and-- Charlie saved us on that one. The seller saved
us 'cause he did come down. But Charlie-- Charlie also was--pushing me somewhat. And you
can afford to overpay a bit for a really fine business depending on your degree of certainty
that it's a really fine business and is going to stay one for a long, long time. And you can't
make that decision about most businesses. I mean, it's just not given demand to be able to
foresee 20 years out on most businesses. On the other hand if you pay big prices for
something, you're counting on earnings. You're counting on being right a very high
percentage of the time. Our projections of earnings that go up and, of course, the best kind
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of earnings are the ones that go up without more capital investment. Very easy to have great
earnings in the utility business. You just put a slug of money in and you get out of the return
it. But the return isn't that great. So you're really looking for something that will-- grow and-- I
did mention one thing at the meeting, which I don't think people appreciated it-- at all. Is if
you take say the five largest businesses in the country by market value, you're probably--
and assuming Berkshire is in there. It flips in and flips out. Let's assume we're out. Those five
businesses have a market value of $2.5 trillion or more, you know, starting with Apple. You
could run those five businesses with no equity capital. So you have close to 10% of the
market value perhaps of the United States in five extremely good businesses that essentially
take no capital. Now that was not the case in the past. I mean, if you were at the turn of the
century and you were talking about U.S. steel and the big railroads and all that, you made
large sums or Rockefeller with the oil businessby earning money with refineries or-- steel
mills. And finally you earned enough so that you bought another one, and you borrowed
some money along the way. But you had to build up equity capital dramatically as you went
along. And even if you go back to the Fortune 500 of 30 years ago, the companies-- that were
big took big capital. Now you've got the five highest value companies in the country. They
don't take any capital. Even IBM-- has net no tangible assets. If you take the equity-- gap
equity, subtract the intangible assets, it's less than zero. And if you take businesses-- you
know, you take a Google. I mean, they may invest some money in fixed assets and all. But
they actually need no equity capital. So you could have a $2.5 trillion business in the United
States and not need equity capital. And that is a different world than the past.
BECKY QUICK: You over the years-- over the last ten or 15 years have become a much more
industrialized company. Things like the railroads that do require more capital equipment--
more capital investment. When did you notice-- that the top five market cap companies
require no capital investment? When did you make this realization? And does that explain
your investment in Apple?
WARREN BUFFETT: It doesn't explain it because I've understood that for a long time. But it's
become more and more concentrated. It used to be Exxon Mobile up there and some-- so
the shift has been taking place and essentially the great, great, great businesses have
become businesses that don't capital. And-- and that really wasn't true. I mean, the auto
industry took a lotta capital. The aerospace industry took a lotta capital. The railroad
industry. These are huge industries that affected America. I mean, they changed our country.
Now you've got companies that have huge, market values changing the country. They don't
take any money.
BECKY QUICK: Those companies by the way for people who are listening on the radio, we did
just show a chart of the-- of-- or a full screen of it. It's Apple, Microsoft, Amazon, Google and
who am I leaving out? And?
BECKY QUICK: Facebook. Right. And Facebook. Those are the five-- and Alphabet, obviously,
the parent company of Google. It-- that's a huge shift. Would you like Berkshire's businesses
to be more reflective of that sort of new paradox?
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WARREN BUFFETT: I'd love it. I just haven't-- been able to build-- I-- got See's Candy and I've
had one since then quite like that. I've got-- we've got a few. But-- those are the wonderful
business-- they'll-- the businesses that grow and don't require money. And, of course, that's
why they're a wash in cash and-- to the extent that they made it abroad-- some of it, they'd
have to pay some tax if they brought it back. Now they use some capital be-- I mean, they-
build headquarters and they have small amounts of inventory in some cases and—
BECKY QUICK: Research and-- development for a lot of these—
WARREN BUFFETT: --but it took-- you don't need it. You absolutely-- I--can run those
businesses and they-- I mean, they can run them a lot better with absolutely no equity
capital. In fact, a huge, negative, equity capital. You can't run Exxon Mobile with-- negative
capital, you know? You can't run U.S. Steel. You can't run the railroads. You can't run the
utilities-- all these massive industries that-- really what the country was built on up till not
that many years ago. And now there's this huge shift to intangibles. And they produce
products that people love. So I'm not saying that this is in any way, you know, frivolous or
anything of the sort that it happened this way. But it makes a big difference. When people
talk about capital shortages and how we need, you know, to bring the money back to the--
there's a whole bunch of things that are sort of built-- on this conception of how business
was 50 years ago and sometimes it's useful for the people in those businesses to sorta play
up that fact and not what really has happened in the way of change. But yeah. It is a big
change.
BECKY QUICK: You're talking also about the shift away from an industrial-- economy. Away--
away from-- more towards services. More towards white-collar jobs in many of these
instances too.
WARREN BUFFETT: And if you can find businesses that don't capital and they earn a lotta
money, that's how you can become rich very easily very early-- now it isn't so easy to come
up with it. But you can get the capitalized value of something, and nobody says, "Yeah. But
it's gonna take a $100 billion to build it." I mean, if Google had come along and the
infrastructure required would have taken a $100 billion, you know, that would be a different
situation. In fact, Jeff Bezos has talked about that in Amazon. He said, "Look, it. With
Amazon," he said, "We needed the internet."
"Somebody else spent billions of dollars developing it. But it wouldn't have worked without
the internet." And he said, "We needed transportation. Somebody else had already built the
railroads and UPS all that sort of thing." And he said, "We needed payment systems. That
would take billions of dollars to build. But that had already been done by Visa and all-- along
the lines." So he took three huge requirements where the other guys had spent the money,
and then he combined them in a way that he didn't have to spend the money.
BECKY QUICK: You have talked—
WARREN BUFFETT: And it's brilliant. I give him great credit—for it.
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BECKY QUICK: --you have-- talked extensively over the last several days, even the last several
months about how Jeff Bezos is the best leader you think we have right now in the United
States, about how Amazon is a brilliant company. And now you're talking about how it's one
of five companies that take no capital to continue to build. How come you don't buy shares
of Amazon?
WARREN BUFFETT: Stupidity. I was impressed with Jeff early. I never thought he could pull off
what he did, and what's really-- I-- mean, I thought he could pull off something. But on the
scale that-- that has happened. I mean, it's changed your behavior, you know? It's changed
everybody in the office's behavior. And the remarkable thing about Jeff-- and everything else
he's done it in two -- industries almost simultaneously that really don't have that much
connection. I've never seen any person develop two really important industries at the same
time and really be the operational guy in both. And he's done a good job with the
Washington Post on the side juston it personally. But-- but here you take Cloud services. I
mean, he-- there was a show on this-- that he did three or four months ago. He thought he
would have two years of runway. He got seven years. You do not want to give Jeff Bezos a
seven-year head start.
BECKY QUICK: Before the competitors jump in on—
WARREN BUFFETT: In any—
BECKY QUICK: --Cloud services.
WARREN BUFFETT: --so the same time he's develop--he's shaking up the whole retail world,
he's also shaking up the IT-- world simultaneously. Andyou know, I take my hat off to him.
BECKY QUICK: But by not buying shares right now it suggests that maybe you think they're
too rich? Or-- is it that you don't understand the company's valuation?
WARREN BUFFETT: It's a big valuation. It-- it's very hard when you thought about something
one-tenth the price to buy it . But we do it occasionally and, you know, you're talking now
about getting multiples from the hundreds of billions. And-- but if you-- if you told me that
you were gonna shoot me at the end of ten years ifthe short worked out better than the
long, I mean, I would take the long side.
BECKY QUICK: You—
WARREN BUFFETT: I'm not buying any. But-- these are powerful, powerful ideas with big
potential and he's executed.
BECKY QUICK: And he's executed on it. And-- that's what you tip your hat to. Now have you
been in the process of looking for other companies? Back to your $95 billion. I thought it was
$90 billion you told me last week. It's $95 billion in cash--
WARREN BUFFETT: Yeah. I-- we--
BECKY QUICK: --and cash equivalents?
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WARREN BUFFETT: --we--put out-- our 10Q over the weekend and-- I think if you add up the
cash every place. Now I don't really count all of it. This is regulated and there's-- butt -- if-- if
you take the balance sheet and you add up treasury bills cash and equivalents and, you
know, it goes up every month. It's higher now than it was on March 31st.
BECKY QUICK: And-- again the arenas? You're looking for deals anywhere? But probably
something north of $5 billion are the type that you really—
WARREN BUFFETT: Yeah. Further north the better. I'd like to be in the North Pole.
BECKY QUICK: Okay. Guys, we're gonna have more from Warren Buffett in just a few minutes.
Including when we come back, we'll ask him what the most factor is in determining-- market
valuations right now. It's a question that we'll put to him right after this break.
ANDREW ROSS SORKIN: Okay. Thank you for that-- Becky. When we return, Berkshire
Hathaway Vice Chair Charlie Munger. And Microsoft cofounder Bill Gates are also going to
join Becky live alongside the Oracle of Omaha starting in just 15 minutes.
BECKY QUICK: Good morning again, everybody, and welcome back to this special edition of
Squawk Box. We are live in Omaha, Nebraska with Berkshire Hathaway's chairman and CEO
Warren Buffett in his first sit-down interview since speaking to the Berkshire Faithful, the
40,000 or so shareholders who convened here just across the street this weekend. And--
Warren, you mentioned something in the commercial break back before that there is-- one
essential factor that will determine-- what you think about market prices and market
valuations. What-- is that?
WARREN BUFFETT: Yeah. I can tell you the right question. I can't tell you the right answer
necessarily. The-- most important item over timein valuation is-- is obviously interest rates. I
mean, if-- iinterest rates are destined to be a very low levels-- not necessarily as low as they
are now. But--very low compared to 100-year averages or 50-year averages, it makes any
stream of earnings from investments worth more money. I mean, if you're-- the bogey is
always what-- what government bonds yield. Now you can pick your maturity - and you see it
in real estate. Real estate yields adapt quite-- quite quickly and fairly directly-- with interest
rates and with-- appropriately. But stocks don't do it as much. But it's the same principle. Any
investment is worth all the cash you're gonna get out between now and judgment day
discounted back. Well, the discounting back is affected by whether you choose interest rates
like those of Japan or interest rates like those we had in 1982 before Paul Volker took a
sledge hammer to the economy. So when we had 15% short term rates in 1982, it was silly to
pay 20 times earnings for stocks unless you felt the world was going to change at in a very--
material way. Once it's-- it's a huge bargain to buy stocks now if you knew these interest
rates would stay at this level. And-- you can buy 30-year bonds. I mean, in Europe, they've
been selling 50-year bonds. So, I mean, people are making a judgment every day and, I mean,
the yardstick is there. It's just a question of whether you believe the yardstick or not. But that
is something we don't like-- incorporate into what we will pay for a business. But it is
incorporated in the market. It's not fully incorporated in the market. The stock market is dirt
cheap now if these interest rates were guaranteed for ten or 15 or 20 years. And, of course, a
20-year bond? That's--you are in a sense making that kind of commitment. But that's the big--
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that's the big thing-- that's the big thing investors have to think about.
BECKY QUICK: When you start thinking about that, Ben Bernanke was on with us-- just a
week ago on—
WARREN BUFFETT: I saw it.
BECKY QUICK: --Squawk Box. And he talked about how he thinks interest rates are going to
be much lower for a long time to come. It's kind of the new, normal theory around 3% or so.
Does that sound like something that you would buy into?
WARREN BUFFETT: Well, it's something I'd consider. But nobody thought we were gonna-- in
2009, nobody thought we would have a recovery like we've had, an employee coming back a
couple hundred thousand a month-- month after-- I mean, the economy is doing well now.
And I don't think people thought we were gonna have that for seven or eight years, and rates
only inch up as much as they have. Now in part I do think that's because Europe is so low that
the degree of difference that you wanna you have from there and the consequences for the
dollar, and then the consequences for export industries. All kinds of things enter into how
large a differential we really would want from a place like Europe. But nobody thought Japan-
- you gt back 30 years ago, nobody thought Japan was gonna have these rates 30 years
hence. And I didn't think in 2009 we would have these rates seven or eight years hence and—
BECKY QUICK: Ben Bernanke said the same thing. That he didn't think rates would still be—
WARREN BUFFETT: No.
BECKY QUICK: --this low at this point.
WARREN BUFFETT: --if there is something about this world that is going to cause interest
rates to be very, very low, stocks will look very cheap and I will have passed up buying some
businesses I should have bought.
BECKY QUICK: We-- we've had a guest on who--posited he thinks that interest rates will go
back to 0% sometime in the next five years because he thinks we'll hit a recession, and when
you realize how long it has taken us to build up, there's not a lotta dry powder there. It's not
outside the realm of the possible.
WARREN BUFFETT: Yeah. Well-- we'll have recessions from time to time. But we had-- we had
a recession when rates were 15% for a short term too. So I don't think anybody can predict
'em. That's the problem. I certainly don't think I can predict 'em. I obviously have ranges in
my mind and all sorts of things. The one thing I know is that I don't like 'em-- from the
standpoint of investing Berkshire's capital at this-- I will pay more—
BECKY QUICK: You don't like—
BECKY QUICK: --you don't like treasuries, you mean?
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WARREN BUFFETT: Well, they are a big, big, big drag on returns and I will pay more for
businesses when they are this low after I've sort of become used to this I mean, I don't think
it's unthinkable that stay low for a very low time. And by low I mean a 100 basis points higher
than where they are now. And it's the big variable for investors. I mean
BECKY QUICK: You said you have a range in your mind that you kind of keep at. What is your
range that you're thinking of? And for how many years?
WARREN BUFFETT: Well it's not that good. But I would say this. Anybody that prefers bonds
today to stocks is making a big mistake. I've been saying that year after year after year. Now I
don't I won't say that under all circumstances. But-- it is ridiculous in my view for somebody
to buy 30-year bond, in some countries 50-year bonds and so on, at these rates in preference
to buying stocks. Stocks will bounce around a lot more and they can go down 50%. But a 30-
year bond can go down 50% too at these rates and it bonds are a terrible choice against
stocks and I've been saying that a long time, and it's just dictated by mathematics.
BECKY QUICK: Okay. Great. Warren, again thank you for your time. We have more to come
and Joe, we'll send it back to you to tell everybodywhat is next.
JOE KERNEN: Yep. Thanks, Becky. Coming up Berkshire Hathaway Vice Chair Charlie Munger.
And Microsoft cofounder Bill Gates will join Becky live alongside the Oracle of Omaha. We're
gonna talk all kinds of different things. Markets and tax reform, health care among other
things.
JOE KERNEN: Okay. Let's get back out to Becky in Omaha and she joins us now with two more
special guests on top of Mr. Buffett. Continues. Hi, Beck.
BECKY QUICK: Hey, Joe. Yeah. We're calling this a meeting of the minds today. Three-
incredibly intelligent-- people who are sitting down with us who have expertise in a series of
some of the biggest issues facing our nation today. Charlie Munger is the vice chair of
Berkshire Hathaway. Bill Gates, the cofounder of Microsoft and the head of the Bill and
Melinda Gates Foundation. Warren Buffett of course is still with us. And-- gentleman-- I--was
thinking that we could sit down and put all that brain power to work with some of the big
issues that's facing our country right now. You all have spent a lotta time thinking about
these issues, investing money in these issues and working on these issues. And-- I thought
we'd start with health care. Not only because of the health care bill that was passed last week
in the House. But Warren, you made some comments about that over the weekend at the
meeting and, Charlie, you followed up with a few comments of your own. So I thought we'd
jump right in when it comes to health care. Warren, you mentioned that when it comes to
business, when it comes to the nation, but even for businesses, health care is more
important than tax reform is because it's such a big chunk of GDP and such a big chunk of
businesses' cost. Why don't you lay out what you think about where we stand right now with
health care and what you think about the bill that was passed?
WARREN BUFFETT: Yeah. The-- you probably hear more from businesses leaders about
corporate taxes being causing them to fight with one hand tied behind their back in terms of
foreign competition. Corporate tax as a percentage of GDP have gone down from about 4%
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in 1960 to 2%. So they've been cut in half as a percentage of GDP. But health care has gone
from 5% of GDP to 17% of GDP. And business pays a lot of the health care cost. So you--
you've lost 12 points and there's only a 100 cents on the dollar. But you've lost 12 points.
Now in other countries-- most industrialized countries-- a number of them are also around
5% in 1960. And some of those have gone up to maybe 11% or something of the sort. But in
terms of cost of manufacturing and really everything throughout the economy that is related
to health care and health care is one seven one-sixth of the whole economy we've had a 12-
point movement against American business and it continues. And I don't see anything
necessarily in the horizon that would cause that number to be I think it's more likely to go up
than down unless we change something fundamental. When something's happened to that
extent, you better not count on it reversing itself from natural causes. There's a reason why
it's happening and you better attack the reason if you care about changing the course of the
cost.
BECKY QUICK: Charlie, let's get your perspective on this. You are the-- the head of Good
Sarmatian Hospital. You're the chairman of Good Samaritan Hospital in Los Angeles. So you
know health care on a very firsthand basis when it comes to this. But—
CHARLIE MUNGER: The wholesystem is cockamamie. It's almost ridiculous in its complexity
and it's steadily increasing cost and Warren is absolutely right. It gives our companies a big
disadvantage in competing with other manufacturers. They've got single-payer medicine
andwe're paying it out of the company.
BECKY QUICK: You've also said though that-- there are some incredibly good aspects about
our health care system that—
CHARLIE MUNGER: Well, it—
BECKY QUICK: --you're better off being sick here than anywhere else.
CHARLIE MUNGER: We have the best medicine at the top and we invented 60% of the world's
good drugs. So we're in an amazing place. But if you look at it up close, the amount of waste
from overtreatment of the dying is just disgusting. There's a lot wrong with the system.
BECKY QUICK: How would you fix it?
CHARLIE MUNGER: I would go to some…Medicare for all. I would police it. Pretty hard to keep
out the fraud.
BECKY QUICK: Which is the universal health care system, essentially?
CHARLIE MUNGER: Yeah. With-- more anti-fraud. You get the same thing workman's comp.
There's a lotta fraud and abuse in workman's comp system and the only way to keep it out is
to be very tough on it all the time. And, of course, government's not very good at that.
BECKY QUICK: Do you—
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CHARLIE MUNGER: You know? What's the incentive for some employee for the government
fighting some poor guy with a broken back who's lying about everything? And so it's a very
serious problem. But I think we should have single-payer medicine eventually and I think we
should squeeze a lot of the fraud and folly out of the system.
BECKY QUICK: You're a Republican, so.
CHARLIE MUNGER: Yes. But I'm not a normal Republican.
BECKY QUICK: How would you get us to that point?
CHARLIE MUNGER: Well, it's very hard. But I think if they go to these cockamamie systems
taking care of all the insurances, it just gets more and more complicated. And there's a lot to
be said for having a basic health care like Medicaid that's for all.
BECKY QUICK: Bill, you wanna weigh in on that?
BILL GATES: Well, there's sort of two issues. There's how much money is there to help people
with health care? And then are you changing the system-- so it's more efficient in some way?
And it's a bit disappointing we don't have more ideas about bringing cost down. I think it's a
super important problem. I think a lot of-- both politicians and non-politicians should come
together on that. But the issue of the taxes and access-- which are also important, but
they're getting most of the debate. So efficiency-- even during the Obama years was not the
primary discussion.
CHARLIE MUNGER: One of the interesting things is that Kaiser Permanente, a non-profit
bureaucracy-- if the whole nation had Kaiser Permanente care, the average quality of the
care would go way up, and the cost would go down. So some people are doing a pretty good
job.
BECKY QUICK: What do they do? What is the secret?
CHARLIE MUNGER: Well, they don't overtreat the dying and they have very good internists
and pediatricians that they hire right outta medical school. It's just a very good system and
the people who have the Kaiser Permanente care like it.
BECKY QUICK: Charlie, do you worry that if we went to a single-payer health care system we
would lose the good parts of our system? The—
CHARLIE MUNGER: No. I think it would have an alternatice system that people could use. We-
- already have that. We have a lot of our best doctors have opted out of Medicare. They just
go to concierge medicine. They just leave the system. We have various ways that people who
wanna pay more and have somewhat better care. They think-- and I-- of course, we want that
as a safety valve. And that's what Europe has. You can opt out and buy your own. You can go
to some other country and get your medical care or you can take the state. But nobody in
any of these advance countries including Canada has the least interest of giving up I mean,
medicine for all.
BECKY QUICK: Warren, you pointed out—

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CHARLIE MUNGER: And it has ruined their capitalism either.
BECKY QUICK: But Warren did—
CHARLIE MUNGER: Like Canada doesn't have any capitalism.
BECKY QUICK: Warren, you did point out over the weekend though that our medical system
subsidizes all those other nations. I believe it was you. Maybe it was Charlie. Someone said
this over – that in terms of innovation –
WARREN BUFFETT: Well, I think it's true. I think somebody else may have emphasized that,
but—
CHARLIE MUNGER: We get paid for it.
WARREN BUFFETT: But Bill would know far more about this than I would. But in terms of the
major improvements in medical care or medicines for 320 million people out of seven billion,
we've probably done quite a bit more than our share. But I defer to bill on that.
BECKY QUICK: Bill?
BILL GATES: Well, it's absolutely true that the companies here in terms of inventing new
procedures, drugs, vaccines they've done a great job. Those are sold globally. You could say
there's a small factor that because we go first and because the way the pricing system works
that a tiny bit of our medical costs do accrue to the world. It's an industry in which the U.S. is
strong, and the number of jobs in that area have actually shifted into the United States
instead of out.
BECKY QUICK: It's a bright spot.
WARREN BUFFETT: It's an unusual system though in that the innovation and heavy research
and all that is very, very, very largely concentrated on coming out with better products, which
we'd love to have. But you don't see them handing out any rewards for bringing down cost. I
mean, if you have a steel business or a retail business I mean, you're trying to offer a better
product all the time to your customer. You're also trying to bring down costs with a
vengeance at the same time. And I don't think that exists in the medical business, and it's
17% of the economy.
BECKY QUICK: Bill pointed out that there are two ways of looking at this. One is you have to
look at the cost efficiencies to bring down the prices. The other is decide how much you're
going to be using to fund all of this. And Warren, you said over the weekend that your tax bill
would have been 17% lower had the proposed tax plan that the House has not passed been
in place last year.
WARREN BUFFETT: Yeah. No. Based on the House bill, I'm a lot healthier now than I was a
week ago financially. If the bill were enacted as written and I don't know all the revisions. But
I do know this revision although it's received really a very minor amount of press. I just did
my tax return a month ago and my income tax was a little less than $4 million. And there's
line 62 and there's 680,000 or something like that on there. And line 62 disappears under
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this bill. So I save $680,000 on a little less than $4 million and I haven't done anything this
week. I mean, I just watched the people vote in Congress. And I would say this, if this
elimination of the tax applies on net investment income – if a couple has $250,000 a year or
more of income, I think it would be very interesting for the constituents of every
congressman that voted for that bill to ask just one question. Are you above $250 on your
adjusted gross income? And if you were, how much would you save from what you paid last
year from this bill you just passed?
BECKY QUICK: Meaning that they are voting for a tax cut for themselves personally while
they're –
WARREN BUFFETT: Absolutely. Anybody that has over $250 and has a net investment income
and the numbers get very big. I mean, I've had years when there have been more than
$680,000. But I am $680,000 better off if everything else is equal just because of what
happened this week. Now it has to go through the Senate and then change in Congress and
a lot of other things. But it was huge what they did on cutting taxes for the rich in this. I
mean, if there's one clear-cut message that comes out of that bill, it is we're going to cut the
hell out of income taxes for the rich on investment income.
BECKY QUICK: Bill, have you analyzed the bill? The health care bill? And then do you agree
with that?
BILL GATES: Well, Warren's correct there's a 3.8% tax that kicks in at a very high level of
capital gains.
BECKY QUICK: It was the Obama surcharge. The Obamacare surcharge.
BILL GATES: And that goes away. So that's a super progressive tax that may not continue.
CHARLIE MUNGER: It may, too.
BILL GATES: Yes.
BECKY QUICK: Because this has go to through the Senate and then —
BILL GATES: Right.
BECKY QUICK: Right.
CHARLIE MUNGER: But you already have something like Medicaid for everybody. If you are
so impaired you need to be in a nursing home and you're out of assets, you automatically
qualify to have your nursing home bills paid. And they don't let your doctor come by and
walk by 20 beds and bill $40 to the government every three days. He's only allowed to come
by and bill very seldom. We have a system that polices the caregivers and provides Medicare
and social security disability. If you're sick enough, you get total – you're in Medicare.
BECKY QUICK: We also—
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CHARLIE MUNGER: We've already gone a long way towards single payer. It's not a
revolutionary idea.
BECKY QUICK: Would you agree with that, Bill and Warren? Do you agree with single-payer
idea?
WARREN BUFFETT: I personally do.
BILL GATES: Yeah. I think you do have to—
CHARLIE MUNGER: Police it.
BILL GATES: Yeah. It's got to be policed. I mean, you have Veterans Affairs, that's like a Kaiser.
CHARLIE MUNGER: No. It's worse.
BILL GATES: Okay. Fine. Kaiser, I certainly agree Kaiser is an exemplar of quality and they've
gotten the incentive systems quite right.
CHARLIE MUNGER: Right. It shows it can be done.
BECKY QUICK: Their incentive systems, if I'm correct, are they pay doctors a salary?
BILL GATES: Right.
CHARLIE MUNGER: The doctor does not get rich in Kaiser. But he has a very nice life and he
gets –
WARREN BUFFETT: How many people – don't they – it's more than ten million, isn't it, that—
CHARLIE MUNGER: Oh, sure. Yeah.
WARREN BUFFETT: I mean, this is not a small system.
BECKY QUICK: But the doctor has a set number of hours and is not working—
CHARLIE MUNGER: What happens is they give the doctor a life, you know? You can be a
woman doctor and you can work 50 hours a week instead of 90 and they've got good people.
It's a good system.
BILL GATES: Yeah. It's really a successor to the health maintenance organization, which was
not policed well. But it gets rid of the incentive for overtreating. Now they've done it and
done it really well without any of the problems the HMOs have historically.
CHARLIE MUNGER: Germany doesn't overtreat either. They just – those estimates are just
made sensible.
BECKY QUICK: Well, you talk about overtreating. You talk about the way that we pay per
transaction.
CHARLIE MUNGER: We let the caregiver, the hospital and the doctor, decide what should be
done when they're getting paid for it and naturally they decide that a lot of things should be
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done.
BECKY QUICK: Instead of caring for the outcome to try and get patients healthier and better.
In fact, Charlie, you mentioned over the weekend a hospital that had incredible rates for
heart surgeries.
CHARLIE MUNGER: Yeah, in Redding. Yes. I said that nobody goes through a heart surgery
better than a man who doesn't need it at all.
WARREN BUFFETT: Good way of increasing your success rate.
BECKY QUICK: But can you expand for the people who weren't listening this weekend, who
didn't know about that? There was one hospital in particular?
CHARLIE MUNGER: Yes. And a lot of people thought they were doing the lord's work. It shows
the capacity of the human mind to dilute itself.
BECKY QUICK: Because they were doing surgeries –
CHARLIE MUNGER: Totally unnecessary surgeries –
WARREN BUFFETT: And nobody died because they weren't sick in the first place.
CHARLIE MUNGER: And in huge volumes and the systems didn't catch it. That's wrong. Our
system should get – one of the guys that's good at this stuff is Atul Gawande at Harvard
Medical School. He's doing a lot of good in medicine.
BECKY QUICK: What types of things is he saying?
CHARLIE MUNGER: Well, it's everybody's checklists and make fewer errors and not offer
incentives. And he was the one that blew the whistle on McAllen, Texas. The doctors up there
were just totally abusing Medicare. They just cross referred everybody for a lot of
unnecessary stuff. And so they were all getting paid very heavily and that one little place was
spending twice as much as ordinary places. And when Atul blew the whistle on them, they
stopped doing it.
WARREN BUFFETT: When Charlie read that article—
CHARLIE MUNGER: We need more of that.
WARREN BUFFETT: When Charlie read that article, he actually – you sent $25,000 to the New
Yorker to give to the author of it just because you thought he'd made a contribution to
society.
CHARLIE MUNGER: Yeah. He sent it back and I finally got him to take it so he could give it so
somebody else.
BECKY QUICK: Can we shift to tax reform and where you all think about this. How much time,
if any, you've spent. Warren, I'm guessing you've spent some time thinking about tax reform
and what you think needs to happen?
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WARREN BUFFETT: Well, corporate—
BECKY QUICK: Let's start on the corporate.
WARREN BUFFETT: Just the word reform, I mean, reform is usually when your taxes are cut.
It'll be tax change whether it's a better tax system or not depends on how it's constructed
and—
BECKY QUICK: Well, our taxes, are the corporate taxes something that is a competitive
disadvantage for American corporations?
WARREN BUFFETT: Not much. Not much. No. I can't think of any business we're in where our
tax rate puts us at a – and we're in a lot of businesses – a significant disadvantage with
foreign countries. For one thing, ours aren't as high as we think they are in many cases.
They're not as low elsewhere—
BECKY QUICK: You mean the actual—
WARREN BUFFETT: Corporate taxes are 2% —
BECKY QUICK: Instead of paying 35%, many companies are paying much lower.
WARREN BUFFETT: Sure. Sure and 2% of GDP is not a high by U.S. standards. And then when
you compare it to 17% for health care, I mean, it's, you know, every businessperson is going
to go there and say, "Our taxes are too high." And if they really try and make it revenue
neutral, you know, my guess is it won't pass because the people will for whom it goes up are
going to argue against it harder than the people where it goes down. I mean, it's great for
lobbyists and all that. So if they talk about it being – they always talk about it being tax
neutral. If it is tax neutral, I don't think it will pass.
BECKY QUICK: And tax neutral is one way. But other people that we've talked to including
Steven Mnuchin and others have said that, "Look, we have dynamic scoring that can bring
this in. And as a result we think we can bring taxes far down and not necessarily have a pay
for as you go along with that."
CHARLIE MUNGER: Well, of course, everybody's gotten the idea based on the world success
in printing money and not paying too much of a penalty. Everybody has a notion that you
can just cut taxes and you don't have to raise revenues. That is a very dangerous thing to do.
The fact that it's worked pretty well some of the time does not mean it always will.
WARREN BUFFETT: Dynamic scoring – I've never seen anybody introduce dynamic scoring
that says that things will come out worse than just indicated by the figures, and clearly
sometimes it does. I am very suspicious of dynamic scoring.
BECKY QUICK: Do you agree that there's some sort of a Laffer curve though where you raise
taxes to a certain point and it is a law of diminishing returns?
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WARREN BUFFETT: If you get taxes to a 100%. Actually some people would work them, but
very few. But that's not an argument for changing my taxes at all, you know, except upward.
Everybody that wants a cut in taxes, you know, they higher some academics. And they look
for dynamic scoring, and they say, "The country will be better off if I pay less tax." And it's
very hard. I mean, I don't blame them. It's understandable. And so be very, very, very
suspicious of dynamic scoring.
BECKY QUICK: If we had a simpler tax code, one that would not allow for so many loopholes,
one that would not make it worthwhile for big companies to employ legions of accountants
to try and make use of those loopholes, would that not be better? If it did nothing other than
just even it out so that everybody's paying the same rate?
WARREN BUFFETT: If you free up labor that is now engaged in a lot of senseless procedures
and put them to work in a market system and things that the market demands, that is a plus.
There's no question about it.
BILL GATES: Well, there's another issue which is the certainty of the tax code and leaving it
alone if you create – if you're constantly switching and saying, "Now this switch may have
gotten rid of a few counts now. This switch gets rid of them." Then you are getting –
everybody has to learn the new stuff, and uncertainty is not good, you know? You'd like once
you fix the tax system to leave it alone for a long, long time.
BECKY QUICK: We've heard business leader after business leader though say that this is an
uncompetitive situation. If you're an American manufacturer, you have things that are
coming against you. If you are a technology company, maybe you have a lot of money that
you're keeping offshores. Bill, do you think that it would be better if the tax system were
reformed? You've been a little quieter on this.
BILL GATES: I don't think that the success of the technology sector will be improved by some
tax change. The tech companies are not starving right now and this only comes up when you
have profits and these companies have very high profits. So it's not like we're going to be
stronger in the tech sector by making owners of those stocks richer.
BECKY QUICK: Apple has a quarter of a trillion dollars that it's keeping much of it offshore.
Would it make sense to have that money brought back to the United States? Does it matter?
CHARLIE MUNGER: I would say yes it does matter and I don't see why we don't want people
artificially shifting money to some foreign place to avoid U.S. taxes. But it's not artificial if
you're really making the money in the foreign place, and they don't have high taxes. Why
would we care if somebody makes a lot of money in some foreign place and brings it back at
a low tax? I think there's a lot – having all this money pile up abroad and then borrowing
against it artificially, it's a cockamamie system.
BECKY QUICK: So how do we fix it?
CHARLIE MUNGER: Well, I think they bring it back if you had a one-time forgiveness and I
don't think that would hurt anybody.
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BECKY QUICK: The tax holiday? We tried that in the Bush administration.
CHARLIE MUNGER: Yeah. And it worked.
BECKY QUICK: Worked temporarily.
WARREN BUFFETT: If you have a holiday, then that encourages more investment abroad and
particularly in artificial places—
BECKY QUICK: To wait for the next holiday.
WARREN BUFFETT: We'll bring it back later on. I mean, there's some countries that are very
small countries that have an awful lot of businesses. And if the consequence of doing that is
you get a big break occasionally, you're going to try to figure out how to do more of it. It
doesn't increase investment in the United States. It increases investment in some place
where you still got a low rate. Maybe you'll get it back again.
CHARLIE MUNGER: Well, I'd go down – come down hard on all that stuff where you shift
some patent that was invented here, send it over to Lichtenstein and collect all the patent
royalties. It's gaming the system. But assuming you actually have made the money abroad
and the taxes abroad are low, I don't see why we should impose a big tax on them when they
would bring it back.
BECKY QUICK: Charlie, you would be a pretty strict dictator if you were running things,
wouldn't you?
WARREN BUFFETT: He certainly is at Berkshire.
CHARLIE MUNGER: I don't like – if fraud runs rampant, say workman's comp, it just feeds on
stuff like cancer. So you got to constantly police it, and a lot of people just won't do the work.
It's a huge mistake because you're ruining your country and everybody gets sucked into the
fraud and they do it because everybody else is doing it. So I'm a great believer in coming
down hard on that stuff. Way harder than the government does and other people do.
BECKY QUICK: Kind of like Singapore?
CHARLIE MUNGER: Yes. Well I'm a big admirer of Singapore. You're right about that.
BECKY QUICK: Caning.
WARREN BUFFETT: Well, he's also in charge of public relations at Berkshire.
BECKY QUICK: Bill, just in terms of—
CHARLIE MUNGER: Caning actually leaves a scar. I'm quite serious.
BILL GATES: I never noticed that.
BECKY QUICK: Bill, very quickly, just the idea of a constant tax code as you mentioned. A
holiday, a tax holiday doesn't necessarily lend into that idea and I'm guessing you're getting
at the idea that American businesses want to know what the rules of the road are before
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they will invest on a long period over many, many years.
BILL GATES: Yeah. A lot of government policies including taxes, you want great predictability.
And so it'll be interesting to see what they do. The overseas money although it's kind of a
complicated thing, it's not like when that money comes to the U.S. people will start building
factories that they weren't building otherwise. It doesn't change the profit potential of capital
investment.
CHARLIE MUNGER: It's more likely to do something with it.
WARREN BUFFETT: Yeah. But some of it's already lent to us. I mean, or it's lent to XYZ
corporation. In other words when companies go to the market in the United States, foreign
subsidiaries of companies that have so called trapped cash buy those bonds. I mean, so it
actually goes from an industry that doesn't have much use for the capital to somebody that
really does have some plans for the capital under the present system.
BECKY QUICK: Great. Gentleman, if you'll bear with us for just a moment, we're going to slip
in a quick break. When we come back, we'll have much more from Charlie Munger, Bill Gates
and Warren Buffett.
BECKY QUICK: Welcome back to this special edition of "Squawk Box," where we are live in
Omaha, Nebraska with Charlie Munger, Warren Buffett and Bill Gates. We are calling this a
meeting of the minds and trying to tackle some of the big issues facing our nation and our
world today. We've already spoken about health care here in the United States and the tax
reform that's under way. Bill, I thought we could talk a little bit about the budget process
because this is something that matters to you at the Gates Foundation. You spend, what,
about $5 billion a year in programs trying to improve people's lives? I think there's something
like 122 million children's lives that have been saved through vaccinations and nutrition
provided by the Gates Foundation over the years. When we start hearing things about cuts in
the State Department, an 18% cut to the State Department budget, what does that mean?
What would happen to the projects that you have worked on over the years?
BILL GATES: Yeah, what's amazing is the success that our foundation, working in partnership
with the U.S. and others has had, at improving health. And that helps stabilize these
countries so that they can get out of their poverty trap. It also lets us see any health
problems like a pandemic coming out of those problem countries so we can protect
Americans from that. There was a proposal that the State Department would've been cut
28% which, for these health related things, would've been a much bigger cut. And so we're
glad that, you know, and looks like the Congress won't make those cuts because they don't
think we're so weak that we need to withdraw the malaria bed nets or the HIV medicine. I'm
very lucky that I get to go and see the great success and then, you know, say to the U.S.
taxpayer, "Hey, we are performing miracles here." 122 million children's lives saved, over ten
million people who are alive because we helped provide the drugs, the HIV drugs, the
PEPFAR program that started under President Bush. So I think we're strong enough to help
stabilize these countries, see the pandemics early. And I think that Congress will maintain
these investments. So I'm, you know, I think that's very smart.
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BECKY QUICK: We are getting close to a goal that you've been after for some time, which is
the eradication of polio. How many cases this year?
BILL GATES: We've had five this year. Every day I get up, you know, check to see if there's
been a new case. Right now, all the cases are in Pakistan, Afghanistan. We're still making sure
in Nigeria, where Boko Haram is, we're still a little worried, have we missed some cases there.
But those are the two hot spots. And so with luck, this'll be the last year where we have any
cases.
BECKY QUICK: If you go a year with no cases, then it's declared eradicated? How does that
work?
BILL GATES: Actually, they make you go three years, which is wise because they want to make
sure you don't miss any. And so, we'd start that three year clock at the end of this year, if
things go well, which right now it's on track. I'll be going to Rotary for their hundredth
anniversary in June and congratulating them because they've been very involved in this. And
their workers have volunteered, they've raised resources, they've spoken out. They're one of
the big heroes in this whole effort.
BECKY QUICK: You know, there was a big shift I think in overall thinking. The election, this
past election reflected that. Americans are worried about their own jobs. There's big chunks,
swaths of the country where they feel like jobs have left, they have not been replaced. And
Warren, we talked about this a little earlier, about job training programs that haven't been
there. But people who have suffered through these issues of job losses here in the United
States probably will look at it and say, "We need to take care of ourselves instead of looking
abroad." Charlie, what do you say to people like that?
CHARLIE MUNGER: Well, there's a long tradition of Americans going after the worst poverty
and disease abroad. John D. Rockefeller was one of the best philanthropists that ever lived,
and Bill is following his example place after place. Rockefeller saved more damn lives and, of
course, the Rockefellers helped bring in the miracle grains – has a good record. And what I
like about what Gates and Buffett are doing is they're tackling stuff that other people don't.
BECKY QUICK: Joe has a question as well. Joe?
JOE KERNEN: It's on this topic, and it's for Bill Gates. I promised I'd ask this question, Bill, for a
gentleman that runs a school in one of the poorest parts of the world. And I think you've
kind of answered it already. It's hard to, you know, if you have health concerns, it's hard to
have education. But his point is that he wishes that you would focus even more on
education. He says that poverty is a bigger concern than health. And the problem is if the
economy is too small for the number of people in it, there's no way to do anything about,
you know, these lives that these people have, unless you grow the economy. So his point is
that you get a better return from education than maybe from health care. But I think you've
already answered it. It's hard to get an education if you're dealing with health problems as
well. It's a chicken and egg thing, I guess.
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BILL GATES: That's right. You really need both. If a kid is malnourished, they're not
developing either their body or their brain. So first is health, then it's education. Then third is
a government that creates opportunity. And when those three come together, you get out of
this poverty trap. And so the U.S. government funds we've been talking about, some of those
do go to international education. And that's why a lot of aid recipients like India, Brazil,
Mexico, even South Korea in the 1970s, they have gotten out of poverty. And now they've
turned around and they're contributing. We need to do that same thing for the poor
countries in Africa.
BECKY QUICK: Warren, you spent I believe, $2.9 billion that you gave back to the Gates
Foundation last year and the other four family foundations that you have. This has been
several years, many years that you've been doing this. I know you believe very strongly in the
foundation's cause, trying to make sure that all people have healthier and improved lives.
But when you start thinking about that, it's massive amounts of money that you all are
spending on this. But why is the government money so important to go along with this? Can't
philanthropists just do it by themselves?
WARREN BUFFETT: Well, $5 billion is a lot of money. But if you're talking about percentages
of budgets, Bill can give you better figures on this. The United States actually lags behind a
number of countries in terms of the percentage we use for foreign aid and that sort of thing.
But the answer is we were, all three of us, we're so lucky to be born in this country. I mean,
it's incredible what has been accomplished here. And that can be maybe not replicated 100%
around the world, but if you believe every life has equal value – I believe that and Bill
believes that. Melinda believes it, my children believe it. The question is, what can you do to
push that along so not only does every life have equal value, but every life has equal
opportunity. And health enters into that obviously huge. Governmental policies do,
education. Health is the one that you can see the impact on. Bill can give you the figures on
the number of kids five and younger that die every year in the world. And it's been cut in half
in, what, 30 years or something like that, Bill. And, you know, his goal is to cut it in half again.
I mean, just think of the difference. I mean, if you have children of your own, you know, how
would it have been if they'd lived in some terrible part of the world? So it just seems obvious
that to help people around you and you help people around the world.
BECKY QUICK: Bill, you're a bit of a statesman. You travel the world bringing this mission to
other countries. You also probably spend some time in Washington. What have you thought
in terms of what Washington is thinking these days about foreign aid missions?
BILL GATES: Well, the history is the U.S. has been generous. Not at the level of other
countries, but because we have a large economy. In absolute, we give the most. So it's $30
billion a year going out to help these poor countries. Germany and the U.K. are tied for
second at about $18 billion each. And so the scale of government resources is what lets us
get the bed nets and the HIV medicine out there. Philanthropy alone couldn't do it. It can try
out new things in an innovative way. But only that government level generosities let us
achieve these incredible goals. And as I've met with the Congress, I've been impressed at the
commitment to continuing this by both parties.
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BECKY QUICK: Have you spoken to Rex Tillerson, the head of the secretary – the secretary of
state?
BILL GATES: I have. And I'm sure I'll be talking with him a lot more because we're in
partnership with the part of the State Department called USAID that is delivering that $30
billion. And we're always getting smarter about how we measure it, how we do it in a smarter
way. And so he'll be a key partner for us.
BECKY QUICK: Okay. We're going to slip in a quick break right here. We'll have much more
coming back with these three gentlemen in just a moment.
BECKY QUICK: Welcome back to "Squawk Box," everyone. We are live in Omaha, Nebraska
this morning with Warren Buffett, Charlie Munger and Bill Gates. And we've been talking
about a lot of different issues this morning. But one thing, gentlemen, our viewers are always
keen to hear are your insights into the markets, where you think about things. Warren
already told us this morning that he thinks interest rates are the one key factor that
determine whether markets are valued too rich or not. And I just wonder if you two could
add some comments to that. Bill, what do you think about the market's valuation these days.
BILL GATES: Well, the multiples are fairly high. And that's because, as Warren says, it's all
benchmarked to the interest rate. So if interest rates go up a lot there you'd expect some
retreat from these levels.
BECKY QUICK: Charlie, when you look around, is it hard to find deals these days? Is it hard to
find opportunities?
CHARLIE MUNGER: Of course. Of course, it's hard. We have an army of people in – finance
and we've got an army of people in so-called shadow banking who are financing these
people to buy any companies that they want, with that liberal leverage. And, of course, they
pay high prices. They get part of the upside and they don't take any of the downside. And
they get fees off of the top. So it's fee driven buying. And it's very extreme. Of course, it
makes it hard for us to buy companies.
BECKY QUICK: Do you find more opportunities in the United States or elsewhere right now?
CHARLIE MUNGER: Well, we're not –we have long periods where we don't do much
anywhere.
WARREN BUFFETT: We're taking up space now. We've run out of opportunities.
CHARLIE MUNGER: That's why we have so much in the way of treasury notes.
BECKY QUICK: $95 billion roughly cash and cash equivalent at Berkshire.
CHARLIE MUNGER: We don't like that. But there're times in finance when people just throw
the money away as though it were confetti. I think there's a lot of idiotic deal making in
venture capital now. And there's a lot of idiot – if we had some big recession, I think a lot of
this labored finance would present a lot of agony.
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BECKY QUICK: Do you think—
CHARLIE MUNGER: And so I don't think that the future is just guaranteed to be all rosy.
BECKY QUICK: Do you think a recession's in the cards or—
CHARLIE MUNGER: No, I don't think any of us know. Anybody that isn't modest about his
theories about economics hasn't been paying attention in the last six years. People have
been utterly surprised in things they deeply believed or fixed in that weren't fixed at all. Who
would've guessed that we could print all this money and then not have any inflation?
BECKY QUICK: Do you think we've gotten out of this, or is this still a movie that has yet to – or
do you think that this is still a movie that we haven't seen the ending on yet?
CHARLIE MUNGER: I think it's always a movie where you haven't seen the ending. One thing
you know is there'll be good stretches and bad stretches in the future.
BECKY QUICK: All three of you are in the positions you're in because you have had
phenomenal successes in investing and in business. But you didn't get there without some
hiccups along the way.
CHARLIE MUNGER: Yeah, but we got ahead, we're pretty conservative.
BECKY QUICK: I ask this just because Warren has talked about his worst trades in the past.
And Warren, I believe you said it was Berkshire Hathaway itself that was your worst trade.
WARREN BUFFETT: Yeah, but I have plenty of other competitors. The three basic businesses –
there are three companies came together for Berkshire, actually. Diversified Retailing and
Blue Chip Stamps were two others. And the base companies of both of the other two totally
failed, disappeared. So we're three for three in terms of our building blocks. And we thought
they were okay at the time, didn't we, Charlie?
CHARLIE MUNGER: Well, we bought them so cheaply, that we could return more money than
we paid. And then we took the money and bought these other companies. So it wasn't as
though we lost big chunks of money. It's just that it was such a dumb way to do business.
Scrambling around with those unfashionable dying businesses, Textile Mills in New England.
The power costs in the south on the TBA country were 60% lower than they were in New
England and they could – textiles that can yield piece of electricity. What kind of an idiot
would go into textiles in New England?
WARREN BUFFETT: The guy on your right.
CHARLIE MUNGER: Yeah.
BECKY QUICK: Charlie, if you had to go back through the years, what would you quantify as
your worst trade that you've ever made?
42/47
CHARLIE MUNGER: Well, I might if I went way back, I could find you trades when I levered a
bunch of convertible bonds and, you know, you go back to the very earliest Munger
struggling for rationale, you'd find some dumb trades.
WARREN BUFFETT: Every smart guy is tempted by leverage.
CHARLIE MUNGER: Yes.
WARREN BUFFETT: And some of them are broken by it. And it's somewhat capricious in
terms of which ones get broken. Wouldn't you say, Charlie?
CHARLIE MUNGER: Sure.
WARREN BUFFETT: And Charlie came close.
BECKY QUICK: Is there one that stings in particular?
CHARLIE MUNGER: Well, every failure stings. It took a long time. I made a tech company
investment. And we damn near went broke and we hovered on the edge of a precipice for
about three or four years. And it was agony. And it was a lot of money to me at the time.
Now, we scrambled out of it with a pretty good profit. But it wasn't the world's smartest
investment. And it took a lot of intelligent scrambling to rectify the situation. And I'm not
looking to repeat the dumb decisions that got me there.
WARREN BUFFETT: We'll find new ones.
BECKY QUICK: Yeah.
CHARLIE MUNGER: Yeah, we will.
BECKY QUICK: Bill, how about you? What's the worst trade you think you've ever made, or
one of?
BILL GATES: Well, my expertise, or reported expertise, is more in software. And so things like,
you know, my role in not having Microsoft lead in search or not lead in the phone operating
systems.
CHARLIE MUNGER: Or in the Cloud.
BILL GATES: Right. We are number two there.
CHARLIE MUNGER: Yeah, but you started five years late.
BILL GATES: Yeah. So those are the ones that I think about at night, more than stock trades. I
do have a heavy weighting in terms of the investment team I work with in Mexico. So we're
not looking too smart right now, but I'm optimistic that will turn around quite well.
BECKY QUICK: Andrew, I think you have a question as well?
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ANDREW ROSS SORKIN: Becky really, this question is for Warren. And it comes from a
number of shareholders who sent in emails after the annual meeting, who said that we,
meaning Becky and I and Carol, missed asking you directly what your views were of Donald
Trump and his performance thus far as the president when it relates to the economy. So I
thought I would just ask it straight up.
WARREN BUFFETT: Well, I don't think he's had that much of an effect on the economy yet.
And I said a year ago at the annual meeting, much of the – I was 100% for Hillary and did a lot
of fundraising and all of that sort of thing. And discussed with some of my friends, I said I
thought Berkshire would do fine under either person that's president. And now, that doesn't
mean you can't have recessions under either one. But the president is probably over
emphasized – the presidency is – it's the most important job in the world. But it's still over
emphasized in its relevancy to stock market fluctuations or even business prosperity. We'll
see how it all plays out. But I do not make investment or business decisions based on who is
president or who I think is going to be president.
ANDREW ROSS SORKIN: Warren, one more follow.
WARREN BUFFETT: Have we ever made – oh, excuse me. Okay, go ahead.
ANDREW ROSS SORKIN: No, no, one follow up came from another shareholder who asked,
given – well, I'll read it to you. Given the many CEOs that have been supportive of Trump and
seem to have his ear now as president, do you think that your support of Hillary Clinton has
had any impact on Berkshire's ability to influence policy?
WARREN BUFFETT: No. I have never called the president in my life. Never. And I've never
really sent messages to a president through a Cabinet member or anything of the sort. So
and, obviously, I've not done so with Trump either. So and I've never – Berkshire Hathaway
parent now at the subsidiaries where they have specific interests in railroads or utilities,
they've employed lobbyists, I'm sure. I know they have. And they've made political
contributions. Berkshire Hathaway parent has never, to my knowledge, employed a lobbyist,
and certainly has never made a contribution in 52 years to a political candidate, from the dog
catcher up to the president of the United States.
CHARLIE MUNGER: My idea is that generally, there's way too much hatred in American
politics. And that the parties hate each other so much, they both get quite irrational. And I try
to avoid that kind of dense hatred. Why should you expect perfectly rational behavior from a
politician, whether on the left or the right? And what is so constructive about this miasma of
hatred which you see all the time? It's quite counterproductive for the country. And all these
politicians are partly right. I think Trump was exactly right when he said he ought to get along
with China and he stopped talking about trade all the time. He frequently does some
learning that's quite admirable.
BECKY QUICK: In terms of learning, gentlemen, the three of you have spent an awful lot of
time together. And you learn from your mistakes, but I'd guess you also learn from each
other. Is there something that you can say that you've learned along the way? And Warren,
why don't you I start with you?
44/47
WARREN BUFFETT: Well, I'd be crazy if I went around people like Charlie and Bill and wasn't
learning. I mean, that's been part of the great fun I've had with both of them. I mean, I've
known them now both a long time. And when we have the annual meeting, and Charlie sits
down next to me, you know, I'm going to learn something during the ensuing few hours. And
the same way with when I met Bill, I think we spent about ten or 11 hours right there. And we
were regarded as anti-social by the governor of the state of Washington because we
wouldn't come out. So I can't think of much more fun than learning from other people. And
these guys are, you know, they are unlimited resources in that way. They're much broader
than I am. And so I've got way more to learn from them than they have from me. And I take
advantage of it.
BECKY QUICK: What did you learn from Charlie yesterday sitting next to him?
WARREN BUFFETT: What did I learn from Charlie? Charlie was—
BECKY QUICK: Or two days ago, I should say.
WARREN BUFFETT: I'd have to go over it, but I'll guarantee I did, Becky. Just this morning,
we're talking about, you know, essentially Kaiser. I mean, these are things I know something
about, but it helps when I hear Charlie articulate thoughts on it. It helps when I hear Bill
articulate thoughts on what could be done to improve the world.
BECKY QUICK: Bill, how about you?
BILL GATES: Well, it's been really unbelievable for me to have the friendship first with Warren
and then with Charlie as well. Because they come at things from more of an economic,
business point of view, and I'm more on the technical side, the fact that we often see things
the same way is kind of amazing. And, you know, the world's unfolded in all these surprising
ways. Take the financial recession. People still don't understand that. But as I sit and talk to
the two of them, I get a sense of, "Okay, what would make that happen again?" Also, even
beyond numbers, just the way they think about people. The way they think about integrity,
setting an example. I am a much better manager because I've known the two of them.
BECKY QUICK: Charlie, you mentioned over the weekend that your wife wondered why you
were spending so much time being so impressed with a young guy, Warren Buffett—
CHARLIE MUNGER: I wouldn't eat the carrots.
BECKY QUICK: Yeah.
WARREN BUFFETT: Well, broccoli or spinach or Brussels sprouts or all that other stuff.
CHARLIE MUNGER: Yeah, right. No, I just told her that's a very unusual young man.
WARREN BUFFETT: Wonderful wife.
CHARLIE MUNGER: She was wasn't automatically in favor of a crew-cutted young man that
thought he knew everything, operating from his sun porch. She came to appreciate you, but
it wasn't immediate.
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WARREN BUFFETT: Well, I appreciated her immediately. With better reason.
BECKY QUICK: What have you learned from Warren and from Bill over the years?
CHARLIE MUNGER: We've all learned a lot from each other and from the world. And it's
amazing how, having worked so hard to learn, how much we don't know. We don't know
what's going to happen to inflation five years out. We don't know whether we're going to
have another recession.
WARREN BUFFETT: Well, we know we're going to have another one, just when. Yeah.
CHARLIE MUNGER: Yeah, we know there'll be another someday, yeah. And I do have once –
my only controversial idea apart from my notion that we'll eventually get single payer health
care. And that is that my fellow Republicans that want to take away all this regulation of the
major finance, I think that's bonkers. I think that if you're using the government's credit to
maintain your deposits, you should behave in a pretty careful, standardized way. Let the
people who want to swing for the fences get a different forum. But I don't think we want our
too big to fail places swinging for the fence.
BECKY QUICK: The argument--
CHARLIE MUNGER: I think they've got a duty to behave conservatively.
WARREN BUFFETT: Yeah, and we—
CHARLIE MUNGER: Berkshire behaves conservatively. We could've made so much more

money with no trouble by just being a little more leveraged. Do we really miss it? I don't think
that – what difference does it make whether Warren has another few million dollars?
BECKY QUICK: The arguments in favor of rolling back some of the regulation on the banks
are that, as a result, it's tougher for businesses to get access to credit, it's tougher for
consumers to get access to credit. And that, in turn, slows down the economy and hurts
consumers and businesses along the way.
CHARLIE MUNGER: Yeah, but that – they like the – finance. In other words, some of the
normal finance, they worry about. It is true that some of the new regulation has taken banks
out of financing leveraged buyouts directly. And that we have shadow banking instead to do
that. I think that's fine. What's wrong with shadow banking?
BECKY QUICK: Well, because you waited for the last two minutes for that controversial
thought, we don't have more time to push you on that, so we'll let you have the last word on
it. But Warren, Charlie, Bill, we want to thank you very much for your time today. We certainly
appreciate it. And we appreciate your generosity with your time.
WARREN BUFFETT: Thanks for having us.
CHARLIE MUNGER: Yeah.
46/47
BECKY QUICK: Thank you. Folks, that does it for us today. Make sure you join us tomorrow.
Right now, it's time for "Squawk on the Street."
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47/47
FULL INTERVIEW: Warren Buffett on tax reform, markets, and
much more
cnbc.com/2017/10/03/full-interview-warren-buffett-on-tax-reform-markets-and-much-more.html
FULL INTERVIEW: Warren Buffett on tax reform, markets, and much more Thomas Franck | @tomwfranck Published 11:53 AM
ET Tue, 3 Oct 2017 Updated 12:16 PM ET Tue, 3 Oct 2017 CNBC.com
October 3, 2017
Watch CNBC's full interview with Warren Buffett 4:31 PM ET Tue, 12 Dec 2017 | 48:39
Warren Buffett, chairman and CEO of Berkshire Hathaway and the world's second richest
man, had a lot to say to CNBC's Squawk Box and Becky Quick on Tuesday.
The "Oracle of Omaha" discussed his new purchase of truck stop company Flying J, but that
was just the beginning.
He also touched on:
Why stock valuations make sense

Why he is waiting to sell any stock until he can see how the GOP tax plan shakes out
His thoughts on Trump's plan to eliminate the estate tax.
Wells Fargo still has his "faith"
His favorite bank stock
And much more...
See above for a video of the full interview and below is a rough transcript of his full remarks
to CNBC.
Full Buffett transcript:

[On the Las Vegas shooting]
1/9
"You never should get inured to this -- and the one thing I would say is that I've heard that
the shooter got off 200 rounds in 90 seconds or something like that, and I think the Las
Vegas metro police did an incredible job in getting there. When somebody is shooting at that
rate, the police force may have saved maybe even hundreds of lives by reacting as fast as
they did. You've got 325 million people in this country, and a certain percentage of them,
their brains don't work like brains should.
[On current market valuations]
Well, valuations make sense with interest rates where they are. I mean, in the end you
measure laying out money for an asset in relation to what you are going to get back, and the
number one yard stick is U.S. governments.
When you get 2.30 on the ten-year, I think stocks will do considerably better than that. If I
have a choice of the two, I'm going to take stocks at that point. On the other hand, if interest
rates were on the ten-year were five or six, you know, a whole different valuation standard
for stocks. And we've talked about that for some time now.
Interest rates are gravity. If we knew interest rates were going to be zero from now until
judgment day, you could pay a lot of money for any other asset. You would not want to put
your money out at zero. I would have thought back in 19 -- I mean, 2009 that rates would not
be this low eight years later. It's been a powerful factor, and the longer it persists, the more
people start thinking in terms of something close to the rates they've seen for a long time.
The one thing I'm sure of is that over time stocks from this level will beat bonds from this
level. If I can be short the 30-year bond at 3 percent or something and long the S&P 500 and
just have it put away for 30 years, stocks are going to far outperform bonds. The question is
which variable is going to change. Everybody expects interest rates to change. But they've
been expecting that for quite a while.
I don't try to guess the stock market: I find businesses I like. But if I were to guess: if interest
rates -- if the ten-year moved up to 5 percent, stocks would be somewhat cheaper.
It's been so wide I've written about it in annual reports. Stocks have been so much more
attractive than bonds for a long time now and that's partly intentional on the part of the fed.
I mean, they want assets to increase in value and the way to do it was to reduce that gravity
force of higher interest rates.
I think they expect it to increase, but the question is how much. If three years from now
interest rates are 100 basis points higher than this, stocks will still be cheap at these prices. If
it's 300 or 400 basis points, they won't look cheap. Janet Yellen doesn't know what she would
do three years from now. She's got more of a job than --that's a simple factor of the stock
market. It's interesting because the fed has said that they would like to see 2% inflation.
That's fairly recent. Paul Volcker would not have slept if he'd ever heard that in the 80s.
If the U.S. government is borrowing at ten years from you at 2.3%, and their own instrument,
the fed, is saying 'we would really like money to become more 2% a year or less,' they're not
promising you very much in terms of real terms for saving.
2/9
[On who will be the next chairman of the Federal Reserve]
I don't spend time thinking about it. It wouldn't do any good to think about [who will be the
next Fed chairman].
I wouldn't know the answer in the end. Most of the time the Fed is not that important:
occasionally it's the only game in town. It can be the only game in town. There is only one
person that, in September of 2008, could walk out like the sheriff into the street and say,
'you know, that this isn't going any further. We're going to do whatever is necessary and have
the power to do it.'
The Fed is of enormous importance during a panic. People tend to hang on their every word
in between. But we don't pay any attention to it. If they really think they could figure it out,
they might as well play the bond market. They don't really have to get over to the stock
market. I can't remember a decision we've ever made based on the Fed, except for the fact
that I felt that Bernanke and Paulson and Geithner, but I felt the Fed would do the right thing
in the fall of 2008. We had an incredible machine that was in the hospital, and the Fed could
bring it out.
[On Congressional tax cuts or reform]
Well, I think about [tax cuts] plenty right now because we may or may not have a change in
the tax code, and we have lots of stocks with lots of gains, and we have a few stocks with
losses, and here we are in October. If something happens that changes the tax rate
significantly on January 1st, it would pay me something -- assuming that they would reduce
rates on capital gains or corporate rates. It would pay me to sell the losses now and defer
the gains until next year. I think there's a lot of that going on because I think there's an
expectation that if they reduce -- that if they have a tax act, it will be -- they will cut the rates -
- certainly corporate rates. It would be kind of foolish to have a gain now and pay 35% tax on
it if by waiting a few months you were likely to pay 25%.
So it actually very seldom enters into our thinking.
On balance we would rather sell things with losses than gains. Right now were sitting and
watching because within three months -- actually, less than that -- well know the answer on
this whether this is was the year to take losses and not gains. We've got actions on both sides
that we would take.
It doesn't happen very often that, during the month of October, with there being a major tax
act, whether it's a 20% chance or 50% chance. One thing I know is that I'll know the answer
within a month or two. There's not that many days left to legislate, and I would feel kind of
silly if I realized $1 billion worth of gains and paid $350 million in tax on it if I just waited a
few months and would have paid $250 million. If enough people were doing that that may
mean that the market is being affected fairly substantially.
And you may be talking about people -- it would tend to depress stocks that have behaved
badly because people would be taking the losses now, and it would tend to defer gains and
reduce sellers currently that would be in stocks with very large appreciation. I can tell you, it's
3/9
an actual fact at Berkshire, and it's very, very, very seldom in my 87 years that it's ever been a
factor.
I personally think they're higher probably than most people think because I think that – I
think having had the healthcare bill pulled away -- just generally and no infrastructure, if you
take maybe the three big items, this is the only one left to do this year, and I would think the
Republicans controlling both houses and the presidency, they would not want to have a shut-
out in their first year, and of top priority. I think they can get it done. It's not a tax reform act,
it's a tax cut act.
I think that any politician that can't pass a tax cut probably is in the wrong line of business. If
you can't pass that -- it's a different thing with the health care act, but I think there could be a
lot of compromise. I think it could be bipartisan to a degree.
[On Berkshire Hathaway's stake in Flying J]
I do like -- I do like the products of virtually all our companies. I suppose if we ever bought a
funeral parlor, I wouldn't be as -- generally speaking, I like our products.
I like good economics to go along with them too. Well, if you do it, you do it with your own
money and not Berkshire's. I wouldn't argue against that. I mean, if you had a lot of money
and there's something you like, if it isn't profitable, you buy it, but you don't buy it with
Berkshire's money.
[On Flying J deal] We set up a lot of different structures than what the managing party would
like to have, and, you know, with the Blumkins in 1983. It's the same structure. Their
situation in terms of their family and their partnership and everything made this logical, and
we have this two-step arrangement.
We've got other two-step arrangements. Marmon with the Pritzker family we had a three-
step arrangement. We try to fit what the seller would like, and with families and everything,
you can have different arrangements.
Jimmy is based in Knoxville, and we bought another company 14 years ago: Clayton homes.
Their employment has gone from 5,000 to 16,000, and they've seen me exactly once. They
might have done better if I hadn't gone down the one time -- Jimmy knows and the families
know each other, and so they've got a chance to check to see exactly how much we do
interfere with operations.
The truth is I wouldn't know how to build a manufacture home or a truck travel center—we
depend on management.
[On Wells Fargo]
Well, I didn't hear all of what [Senator Elizabeth Warren] had to say. She's absolutely right
that you should – same situation as at Salomon -- 8,000 people four or five of them had
caused the problem. The job is to remain – remove the stain from almost all of the 8,000 and
4/9
get it where it properly belongs with the people that either performed the act or condoned
them after they were performed. That's what we did at Salomon.
I think that's what they've been working at Wells. You can't do that necessarily in a day or a
week. Well, I proposed, actually, in the annual report of Berkshire -- that would be four or five
years ago, sometime after 2008 -- the problem is that the bank gets fined and the
shareholders are the ones that pay for it, and they didn't have anything to do with it,
basically. And I suggested that probably more extreme actions than Senator Warren in terms
of clawing back all the directors fees for five years. I think that you really want -- you want as
much as possible – you want the people that were responsible to pay, and ideally you would
have the people that were innocent not pay. It doesn't work that way in the American judicial
system.
I think that if you have a very large company -- Berkshire is large -- you have a hotline. I think
the CEO has to be very attentive to what comes in on the hotline.
Now, most of its silly stuff, but there's real stuff too. And you get anonymous letters. You've
got to follow through on the ones that actually sound like they have real meaning, and
clearly you couldn't have activity as broad as it was at Wells without the hotline here
Somebody messed up on the job as to find out who messed up and ideally to make the
penalties be such that it discourages other people in the future from doing similar things.
I say when you got a problem -- and you are going to have problems -- I mean, if you had a
very big -- You can't have 280,000 people working without something, and most things are
minor, but you get something systemic, you have a big problem. Once you find out about it,
you have to get -- get it right, get it fast, get it out, get it over. Getting it right is hard: I mean,
because you turn over rocks, and sometimes you find dome things, and it's very seldom
there's just one big thing going wrong in a big institution if something like that is going on
you've got get it right, and the one thing you don't want to do is be wrong about it.
Yeah, like I said it happened to me at Salomon. Salomon had my faith: It doesn't mean every
person at Salomon had my faith after I got there. I had some surprises I mean, I was worried
about surprises every day. But the truth was that 99% of the people were perfectly decent
people, they were just like the people working at Goldman or some other place, and
somebody had gone off -- totally gone off the -- gone haywire and other people didn't report
it.
When you find a problem, you have to jump on it. I mean, that is – that's just basic.
I was in Las Vegas last week talking to about 400 wells people and Tim was head of this. It
was there top group from around the country. I did the same thing about five or six years
ago for wells in Chicago. I did it for B of A maybe seven or eight years ago. I mean every now
and then they ask me to come around just so that people can see who owns a lot of shares.
So I must have talked for at least an hour last week.
5/9
I mean, [Sloan] knows that I testified many years ago in connection with Salomon. Both to the
House and the Senate, and I told him something of my experience, but it's all on tape, in
terms of being able to see it anyway.
I gave him -- I told him what I would do.
[As to whether Buffett has reduced his holding in Wells Fargo]
Only to stay under 10%, which was something that the Fed requires, and since Wells
repurchases their shares and we were right up against 10 %, that way we went over because
they repurchased shares not because they bought. We keep -- we will sell enough to stay at
around 9.8. That's to avoid becoming a bank holding company. You will find with just keeping
a little below 10%.
We have not sold the share except for that purpose.
[On his favorite bank]
What's my favorite bank?
I'm not so -- what's your favorite child? Bank of America has done a sensational job under
Brian Moynihan.
Brian had all kinds of problems when he came in. They were not of his own doing. But he
had a ton of problems and
He had a lot of rocks to turn over, and it cost a lot of money. And he just set out step by step
to bring the bank back. He's gone from 280,000 people down to 210,000 people. He gone
from a run rate of expenses in the $70 billions down to $54 billion.
He has really done a job, and we will be holders of B of A stock for a long, long, long time.
[Additional thoughts on tax reform, his long-term plans for his money]
I don't think I need a tax cut. For example, the current proposal eliminates the estate tax, and
it's not a death tax.
There will be 2.6 million people die this year in the United States and there will be 5,000 tax
returns – states that pay tax. If you start going to a funeral every month, it's going to be 40
years on average before you go to one where there's any estate tax to do it with, and it's a
pejorative term. The truth is: if they passed the bill that they're talking about, I could leave
$75 billion to a bunch of children and grandchildren and great grandchildren and if I left it to
35 of them, they would each have a couple of billion dollars. They could put it out at 5% and
have $100 million. Is that a great way to allocate resources in the United States?
That's what you are doing through the tax code is you are affecting the allocation of
resources. If they were lucky enough to come out of the right room and have the right name,
Buffett, they could build tombs for themselves like Egyptian pharaohs never dreamt of. They
6/9
could do anything and capitalism was all about intelligent allocation of resources. Now, some
people say, well, you don't have to worry about that because they'll blow it all.
But if they blow it all, that means that they've done some dumb things with some important
resources. That's not good for capitalism I don't think it's good for the children. I sure don't
think it's good for a society where there's a ton of inequality to start with. I think that's a
terrible mistake for example. I don't think that setting it up so children and grandchildren --
let's say I died when they were 20 I don't think they would be the same individuals that they
are.
I didn't encourage that foundation program until they were in their 40s and I had seen what
they had done with their lives, and they had a chance to live for a long time going to public
school, living just like other people in Omaha live.
I just think that -- I don't think we should have our Olympic team 20 years from now be the
eldest sons of the Olympic team currently. I don't think dynastic systems with huge sums of
wealth – and bear in mind, the wealthy are so much wealthier now than 25 years ago. We're
talking about the 400 now having $2.4 trillion against $90 billion, 25 times as much money.
You have sprinkled around these children and grandchildren that just with those 400 could
have $2.4 trillion passed down to them. That's a lot of resources in this country with not even
a $20 trillion in GDP. I think -- I think it goes
Totally against what's built this country, what this country stands for, and if those 5,000
people can't stand to spend the $20 billion or $25 billion they have lots left over, believe me.
Incidentally, it wouldn't be bad for philanthropy people would -- a certain number of people
would elect to set their kids up with the billions and billions of dollars rather than that would
go to philanthropy -- I don't think that's the primary reason, but I do think that would be a by-
product.
If I haven't lost all my friends by now, ill finish it off. We have a lot of businesses. 60 or 70 I
don't think any of them are non-competitive in the world because of the corporate tax rate. I
mean, American business earns a return on tangible equity under the present tax system
that is extraordinary compared to history in the last 100 years in America. I'm talking about
tangible equity that's the money actually you Invest.
You could add the five largest companies in the United States by market value. That's almost
10% of the value to market. They don't need capital. It's not like the old days where big steel
companies and auto companies and oil refineries, where huge amounts of capital were
needed. We do not -- we are among the high earners of the world in terms of return on
tangible assets But if you make it very easy to take back money from jurisdictions in which
you pay very low rates, it's going to encourage even more investment over there because you
still have a higher rate in the United States.
Listen: on a personal basis and for Berkshire Hathaway shareholders, I hope they do change
it now. I would like it in the sense that it would be good for a million shareholders of
Berkshire in terms of their net returns. I do think that some of the arguments I think people
they may find their nose growing a little bit after they make them. Well, a decrease in taxes
7/9
would mean an increase in profits. It might not be totally the amount of the decrease in
taxes, but it would increase earnings. There's no question about it: The question is whether
that's already built into the expectations. I doubt if it fully is built into expectations.
The lower the taxes -- actually, if you had a negative tax rate for corporations, it would really
be great. You're right about banks: Incidentally banks tend to pay a pretty full rate unless
they -- they own some tax exempt bonds, but that's not a big item. Some of them do low
income housing tax credits and that sort of thing, but the tax rate on banks is right up there
among the top of various industries. Berkshire: Most of our income is taxed at 35%, but we
do have a lot of unrealized appreciation in securities, close to $100 billion, that hasn't been
realized yet, but if we were to sell all of the stocks we own today, we would pay 35% on
about $80 or $90 billion. But I can say this: The banks are doing okay. They're not doing as
well as they were eight or ten years ago, that's primarily because of the capital requirements.
Capital requirements can kill the return on equity, and banks. And they reduced it
significantly from what was available 10 or 12 years ago.
Let's just say, let's just say the rate in some country was 2% and you charged people 10% --
10% for bringing it back and you had a domestic rate that was 25 or something like that.
There is rates lower than 12. You're right about Ireland, but there is rates lower than 12.
There is some of that one think, interestingly enough, Joe. The money is coming back to some
extent. When Berkshire Hathaway sells a bond issue, guess what: The foreign subsidiaries of
certain very cash rich American companies buy those bonds so the money comes back to
Berkshire Hathaway, we pay interest to the foreign subsidiary of the cash rich country over
there, but that money ends up in the United States think of it this way -- Let's say you have
two companies, Company A and Company B and both have a trillion dollars over there and
Company A borrows a trillion from Company B and company B borrows a trillion from
Company A, now all $2 trillion back here and it is available for investment.
I can tell you exactly the secret about not having any estate tax: give it all away. It will
eliminate all estate tax.
Well, anything that increases profits tends to push higher. There can be ten other variables
happening for other -- but as a single variable, in the equation, for profits and profits
determine stock prices over time. No, it is a plus for American business, and like I said, I got a
million shareholders at Berkshire Hathaway and they would all love to see a corporate tax
cut.
[Passive management] will absolutely kill every one of the fund to funds and bear in mind,
each one of the fund to funds add a strong financial incentive to pick the best funds they
could find, ten years ago, meant real money to them so it was overwhelming and passive
investment, I've written about it, passive investment and aggregate will be active investment
because of fees. And they didn't have to pay 2% or 3% a year to somebody to get those,
average results were going to be very good. And they were good, they have been good all my
life and these ten years they have been good. You've done perfectly okay with passive
investment.
8/9
I get letters all the time from people who say I would like to do it, I'll put up $100 or
something, become famous they love the idea of me giving them a lot of publicity -- if
anybody wants to put up a significant percentage of their net worth – If they want to put up a
significant percentage of their net worth, their family's net worth and want to make a bet on
ten years, on active versus passive, maybe my estate has to be the one to settle with them. At
87, anything involving ten years is kind of a triumph of hope over statistics, but nevertheless,
the ones that have written me, they really want to Get their name in the paper.
They can pick a group, got to pick a group, you know, I'm picking a group of 500 in the S&P
500, and they can pick the date of the start. The date of the start has nothing to do with it.
The truth is, the market behaved fairly typically in terms of aggregate return for the decade.
This is not some extraordinary period in the least. Nothing unusual about this the thing that
was unusual is the size of the fees that ate them alive, basically. The managers of the funds
did very well during this period and the managers of the underlying funds did very well and
investors got killed compared to something they could have done.
[His thoughts on early 2020 presidential campaigning]
I haven't talked to Oprah for quite a while. Not -- nobody has come to me to fund-raise.
I'm not a great prospect on that either.
No solicitors allowed, you know, or something on the door. It is going to be a very interesting
run up to 2020. There are going to be a lot of people that think about getting into this race.
You have somebody come from totally outside politics to get elected President, it starts the
wheels churning with a lot of people."
9/9
CNBC Exclusive: CNBC Transcript: Senator Elizabeth Warren
Speaks with CNBC’s Jim Cramer
cnbc.com/2017/09/20/cnbc-exclusive-cnbc-transcript-senator-elizabeth-warren-speaks-with-cnbcs-jim-cramer.html
September 20, 2017
Where: CNBC's "Mad Money with Jim Cramer"
When: Tuesday, September 19, 2017
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Senator Elizabeth
Warren on CNBC's "Mad Money with Jim Cramer" (M-F, 6p–7pm ET) on Tuesday, September
19, 2017. Following is a link to an excerpt of the interview on CNBC.com:
https://www.cnbc.com/video/2017/09/19/sen-elizabeth-warren-wells-fargo-misdeeds-were-
all-about-profits.html.
JIM CRAMER: THE MORE WE LEARN ABOUT THIS EQUIFAX DEBACLE THE WORSE IT LOOKS.
TURNS OUT IT WAS HIT WITH ANOTHER DATA BREACH IN MARCH, MONTHS BEFORE THE
GIGANTIC HACK THAT EXPOSED THE PERSONAL INFORMATION OF 143 MILLION AMERICANS.
SAME HACKERS BOTH TIME, TALK ABOUT ASLEEP AT THE WHEEL. LISTEN I KNOW
REGULATIONS BECOME A DIRTY WORD ON WALL STREET BUT WHEN BUSINESSES BEHAVE
THIS IRRESPONSIBLY AT SOME POINT THE GOVERNMENT HAS TO STEP IN. THAT'S WHY I
THINK NOW IS A CRITICAL TIME FOR US TO HEAR FROM SENATOR ELIZABETH WARREN, THE
DEMOCRAT FROM MASSACHUSETTS WHO HAS STRONG WORDS FOR EQUIFAX AS WELL AS
FOR THE FEDERAL RESERVE WHEN IT COMES TO THE ACTIONS OF ANOTHER COMPANY THAT
HAS MISBEHAVED, WELLS FARGO. SENATOR WARREN, WELCOME TO "MAD MONEY."
SENATOR ELIZABETH WARREN: THANK YOU. I'M GLAD TO BE HERE.
CRAMER: ALRIGHT SENATOR I'VE GOT TO ASK YOU SOMETHING I ASKED RHETORICALLY LAST
NIGHT BUT I THINK YOU'LL HAVE AN ANSWER. HOW THE HECK DOES RICHARD SMITH, THE
CEO OF EQUIFAX, STILL HAVE A JOB?
WARREN: I DON'T KNOW. I DONT KNOW. BUT HERE'S WHAT I DO KNOW. SO LONG AS THERE
IS NO PERSONAL RESPONSIBILITY WHEN THESE BIG COMPANIES BREACH CONSUMER'S
TRUSTS, STEAL – LET THEIR DATA GET STOLEN, CHEAT THE CONSUMERS LIKE THEY DID WITH
WELLS FARGO, THEN NOTHING IS GOING TO CHANGE. AS LONG THEY CAN KEEP
COLLECTING THEIR PAYCHECKS AND THEY CAN KEEP SLEEP AND COZY AT NIGHT, THEN
WE'RE GOING TO HAVE THE SAME KIND OF THING GOING ON AT THE BIG CORPORATIONS
WHERE THE CUSTOMER IS AT THE END OF THE DAY AND LET'S FACE IT, STOCKHOLDERS ARE
AT THE END OF THE DAY. IT'S ALL ABOUT THE EXECUTIVES. IF WE WANT CHANGE WE GOT TO
HOLD THE EXECUTIVES ACCOUNTABLE, PERIOD.
CRAMER: CAN YOU HAUL THE MEMBERS OF THESE BOARDS DOWN THE WASHINGTON AND
ASK THEM PERSONALLY? BECAUSE YOU KNOW THEY SEEM TO SAY NOTHING AND THEY GET
AWAY WITH IT. YOU EMBARRASS THEM AND THEY WILL TAKE ACTION.
1/5
WARREN: YEAH, YEAH, EXACTLY RIGHT. SO, I'VE ASKED FOR HEARINGS ON BOTH EQUIFAX
AND ANOTHER HEARING ON WELLS FARGO. YOU KNOW, WE HAD A HEARING A YEAR AGO
WHEN JOHN STUMPF, WHO HAD GONE ON YOUR PROGRAM, FIRST ONE OUT OF BARREL
AND SAID, HEY LISTEN, I TAKE PERSONAL RESPONSIBILITY FOR WHAT'S GONE WRONG AT
WELLS FARGO. AND THEN WHAT IT TURNED OUT PERSONAL RESPONSIBILITY MEANT WAS
FIRING PEOPLE WHO MADE 15 BUCKS AN HOUR. YOU KNOW, SO, WE GOT JOHN STUMPF IN
FRONT OF US. ASKED A COUPLE QUESTIONS. STUMPF IS NO LONGER THE CEO OF WELLS
FARGO. BUT LET'S FACE IT, THERE'S STILL A LOT OF PEOPLE RUNNING WELLS FARGO WHO
WAS THERE AT THE TIME OF THE CRISIS. I WANT TO DO THIS WITH ALL OF THESE BIG
CORPORATION. I WANT THESE CORPORATION TO UNDERSTAND THAT WHEN YOU ENGAGE
IN MASSIVE FRAUD, WHEN YOU ARE SO IRRESPONSIBLE WITH THE DATA THAT BELONGS TO
CONSUMERS, WHEN YOU PUT YOUR CUSTOMERS AT RISK THERE'S GOING TO BE REAL
RESPONSIBILITY FOR YOU. AND UNTIL THAT HAPPENS, UNTIL PEOPLE LOSE THEIR JOBS,
UNTIL WE HAVE CRIMINAL INVESTIGATIONS, UNTIL THERE'S A REAL CHANCE ONE OF THESE
EXECUTIVES IS GOING TO BE WALKED OUT OF OFFICE IN HANDCUFFS WITH PEOPLE
SNAPPING PICTURES, THEN NOTHING'S GOING TO CHANGE ON WALL STREET, NOT IN THESE
BIG COMPANIES.
CRAMER: WELL, SENATOR WARREN, THIS ONE AT EQUIFAX SEEM LIKE THEY KNEW FOR A
LONG TIME, DID NOTHING THERE ARE 143 MILLION PEOPLE IN THIS COUNTRY MAY HAVE
THEIR IDENTITY BEING STOLEN. THEY HAVE OUR SOCIAL SECURITY. WHERES THE OUTRAGE
BESIDES YOU?
WARREN: RIGHT. SO HERE'S THE DEAL ABOUT THEM STEALING OUR SOCIAL SECURITY. THEY
NOW GOT MY SOCIAL SECURITY, MY BIRTHDAY, WHERE I LIVE. THEY CAN SIT ON THIS DATA
FOR A LONG,
LONG TIME. SO YOU KNOW, WE'RE ALL REVVED UP RIGHT NOW, WE SHUT DOWN OUR
CREDIT AND WATCH VERY CAREFULLY FOR WHAT, A MONTH, THREE MONTHS, SIX MONTHS,
MAYBE A YEAR. BUT BOY, THOSE KEY DATA WILL STILL BE OUT THERE FOR STEALING OUR
IDENTITY NEXT YEAR, AND FIVE YEARS FROM NOW, AND TEN YEARS FROM NOW AND 20
YEARS FROM NOW. THIS IS A MASSIVE FRAUD ON THE AMERICAN CONSUMER. AND IT IS NOT
ENOUGH SIMPLY TO SAY, OH THERE'S GOING TO BE A FINE IMPOSED ON THE COMPANY
AND SHAREHOLDERS ARE GONNA PAY A LITTLE MONEY. WE REALLY NEED TO TAKE A CLOSE
LOOK AT THE OVERSIGHT IN GENERAL OF THESE CREDIT REPORTING COMPANIES, BUT WE
ALSO NEED SOME ACCOUNTABILITY FOR THE EXECUTIVES THEMSELVES. TRUE AT EQUIFAX,
TRUE WELLS FARGO IN MY VIEW.
CRAMER: LET'S TALK ABOUT WELLS FARGO.
WARREN: LET'S DO.
CRAMER: WE HAVE AN ORGANIZATION IN THIS COUNTRY. IT'S CALLED THE FEDERAL

RESERVE. IT'S SUPPOSED TO BE MONITORING THESE THING FOR US, IS WELLS FARGO
BIGGER THAN THE FEDERAL RESERVE?
2/5
WARREN: THERE IS WHAT GETS ME. WE KNOW THE FEDERAL RESERVE COULD REMOVE THE
BOARD OF DIRECTORS OF WELLS FARGO. I HAD JANET YELLEN IN A HEARING VERY RECENTLY
AND CHAIR YELLEN SAID YES, SHE ACKNOWLEDGED THE FED HAS THE POWER TO DO THAT,
AND LOOK, JANET YELLEN IS SOMEBODY WHO'S GOTTEN OUT THERE AND TALKED ABOUT
THE IMPORTANCE OF PROTECTING CONSUMERS, ABOUT THE IMPORTANCE OF AN
ECONOMY THAT WORKS WELL, NOT FOR JUST THOSE AT THE TOP BUT FOR THE REST OF
AMERICA. WELL THIS IS FEDS CHANCE TO STEP UP AND SAY WHETHER YOU CHEAT
CONSUMERS, WHEN YOU OPEN FAKE ACCOUNTS, WHEN YOU FORCE INSURANCE ON THEM
THEY DON'T NEED, WHEN YOU CHARGE THEM MONEY THEY DON'T OWE, THENWE IN THE
FEDERAL RESERVE ARE GOING TO SAY, THOSE WHO ARE IN CHARGE AND ARE RESPONSIBLE
ARE GONE WE CANT TRUST YOU TO RUN A COMPANY OF THIS SIZE. I REALLY WANT TO SEE
THE FEDS STEP UP HERE. THE FED HAS THE POWER TO DO IT, THEY NEED TO STEP UP AND
DO IT.
CRAMER: NOW, THIS IS NOT A REPUBLICAN AND DEMOCRATIC ISSUE.
WARREN: NOPE.
CRAMER: THIS 3 MILLION – WE THOUGHT IT WAS ONLY 1 MILLION PEOPLE. 3 MILLION

ACCOUNTS THOUGHT IT WAS ONLY 1 MILLION ACCOUNTS. IS IT NECESSARY TO PUT A
SPECIAL MASTER ON THE BOARD OF WELLS FARGO TO CHANGE THAT CULTURE?
WARREN: YOU KNOW, LET ME START BY SAYING, HOW ABOUT WE GET RID OF EVERYBODY
WHO WAS THERE IN CHARGE WHEN IT HAPPENED? THAT'S GOING TO SEND A PRETTY
IMPORTANT SIGNAL TO WELLS. BUT I THINK YOU RAISED THE RIGHT QUESTION, JIM. SO
WHO DOES GO ON? HOW IS IT THAT WELLS FARGO ORGANIZES ITSELF IN A WAY THAT
BRINGS ANY CREDIBILITY TO THE IDEA THAT THEY ACTUALLY ARE FOLLOWING THE LAW?
CAN YOU IMAGINE THAT THAT IS OUR STANDARD NOW? THAT'S WHAT WE'RE ASKING FOR,
JUST DON'T BREAK THE LAW, DON'T CHEAT PEOPLE AND DEFRAUD PEOPLE. THAT'S WHAT
WE'RE ASKING FOR HERE WERE ASKING WELLS FARGO TO COME UP WITH A WAY TO
REASSURE THE AMERICAN PUBLIC AND THE GOVERNMENT OFFICIALS THAT HAVE
OVERSIGHT THAT THAT IS SO. WE CAN START THERE BY HOLDING THE PEOPLE AT WELLS
FARGO WHO WERE THERE WHEN THIS HAPPENED WHO ARE RESPONSIBLE AND GETTING
THEM OUT OF THOSE JOBS.
CRAMER: WERE YOU SURPRISED AT THE INCREDIBLY LONG SHEARMAN STERLING REPORT
THAT IS REALLY JUST FELL DOWN ON ONE PERSON – CARRIE TOLSTEDT AND EVERYONE ELSE
GOT A PASS?
WARREN: YEAH, COME ON. ALTHOUGH EVEN WHEN YOU READ THROUGH THAT REPORT,
NOT WITHSTANDING THAT THEY WANT TO MAKE IT ALL ABOUT ONE PERSON. YOU READ
THAT REPORT AND THAT REPORT IDENTIFIES ONE SYSTEMIC FAILURE AFTER ANOTHER. AND
ALWAYS KEEP IN MIND WITH WELLS FARGO, THIS WAS NOT WELLS FARGO'S FIRST RODEO
ON THIS. WELLS FARGO, FOUR YEARS EARLIER HAD ALREADY ADMITTED THAT IT HAD SET UP
COMPENSATION'S THEMES FOR ITS EMPLOYEES THAT FORCED THESE EMPLOYEES TO GO
OUT – AND ENCOURAGED THESE EMPLOYEES TO GO OUT AND SELL PREDATORY
MORTGAGES, PRINCIPALLY IN AFRICAN-AMERICAN NEIGHBORHOODS AND LATINO
3/5
NEIGHBORHOODS. WELLS FARGO PAID A FINE FOR THAT AND SAID WE'RE CLEANING UP
OUR ACT. WE'RE GOING TO CHANGE HOW RESUPERVISE, WE'RE GOING TO CHANGE HOW
DEAL WITH OUR EMPLOYEES SO NOTHING LIKE THIS HAPPENS AGAIN. NOTHING LIKE THIS
HAPPENS AGAIN, AT THE SAME TIME THEYRE STARTING TO OPEN THE FAKE ACCOUNTS AND
THEIR SQUEEZING THEIR LOW-LEVEL EMPLOYEES TO MAKE THAT HAPPEN AND THEN SINCE
THIS FIRST CAME OUT THAT WELLS FARGO HAD OPENED ALL THESE FAKE ACCOUNTS, AND
JOHN STUMPF SAT IN FRONT OF THE BANKING COMMITTEE AND SAID, THIS IS IT, IT'S ALL IN
A BOX, THIS IS THE ONLY PROBLEM WE'VE GOT, EVERYTHING ELSE IS WORKING WELL, RIGHT.
HE SAID THAT AND THEN IT TURNS AROUND, NO ACTUALLY THAT'S NOT SO THEY HAVE A
PROBLEM ON THEIR AUTO LOANS, THEY HAVE A PROBLEM HOME MORTGAGES, AND THEN
THEY HAD EVEN MORE FAKE ACCOUNTS THAN THEY HAD ORIGINALLY ADMITTED TO. THIS IS
A COMPANY THAT FROM THE VERY TOP HAS MADE IT CLEAR, THERE IS NO ACCOUNTABILITY
HERE, THIS IS NOT ABOUT SERVING CONSUMERS. THIS IS ALL ABOUT QUARTER BY QUARTER
BY QUARTER, HOW TO JUICE THE REPORTED PROFITS. THAT THAT'S WHAT MATTERED AT
WELLS FARGO. IF THEY HAD TO STEP ON YOU KNOW, A FEW HUNDRED THOUSAND
FAMILIES, A FEW MILLION FAMILIES IN ORDER TO GET THERE, WELL THEN THAT WAS A PRICE
WELLS FARGO WAS WILLING TO PAY AND NOT THE FEDERAL RESERVE SHOULD GO ALONG
WITH.
CRAMER: WELL SENATOR I HOPE THAT YOU'LL COME BACK WHEN WE GET SOME SORT OF
JUSTICE HERE, 'CAUSE RIGHT NOW IT SEEMS LIKE IT'S JUST YOU AND ME TALKING.
WARREN: WELL, WE'RE GOING TO KEEP IT UP THOUGH.
CRAMER: ALRIGHT, THANK YOU SO MUCH.
WARREN: TAKE CARE.
CRAMER: THAT'S ELIZABETH WARREN, UNITED STATES SENATOR OF MASSACHUSETTS.

GOOD TO SEE YOU MA'AM, THANK YOU SO MUCH.
WARREN: GOOD TO SEE YOU.
About CNBC:
4/5
5/5
First On CNBC: CNBC Transcript: Berkshire Hathaway's Warren
Buffett Speaks with CNBC's Becky Quick Today
cnbc.com/2018/08/30/first-on-cnbc-cnbc-transcript-berkshire-hathaways-warren-buffett-speaks-with-cnbcs-becky-quick-
today.html
August 30, 2018
WHEN: Today, August 30, 2018
WHERE: CNBC's "Squawk Alley"
The following is the unofficial transcript of a FIRST ON CNBC interview with Berkshire
Hathaway Chairman and CEO Warren Buffett and CNBC's Becky Quick on CNBC's "Squawk
Alley" (M-F 11AM – 12PM) today Thursday, August 30th – Buffett's 88th birthday. The
following is a link to video of the interview on CNBC.com:
https://www.cnbc.com/video/2018/08/30/warren-buffett-apple-fed-campbell-buybacks-
stocks-markets-investing.html.
All references must be sourced by CNBC.
BECKY QUICK: CARL, THANK YOU VERY MUCH. WE'RE AT SMITH AND WOLLENSKY WHERE
THE LUNCH FOR THE ANNUAL GLIDE FOUNDATION LUNCH THE CHARITABLE AUCTION MR.
BUFFETT DOES IS TAKING PLACE. THANK YOU FOR BEING WITH US TODAY. WE APPRECIATE
IT.
WARREN BUFFETT: I'M DELIGHTED TO BE HERE.
QUICK: THE WINNER FOR THE GLIDE FOUNDATION AUCTION PAYING $3.3 MILLION TO HAVE
LUNCH WITH YOU TODAY. WHAT ARE YOU GOING TO SAY TO THEM TO MAKE IT WORTH
THEIR WHILE?
BUFFETT: WE'LL TALK ABOUT WHATEVER THEY WANT TO TALK ABOUT AND AS LONG AS
THEY WANT TO TALK. ANY SUBJECT THEY WANT TO GET INTO, EXCEPT WHAT I'M BUYING
CURRENTLY. I LOVE TO TALK ABOUT WHAT THEY WANT TO TALK ABOUT.
QUICK: IS IT COMMON TO BE ASKED FOR STOCK PICKS IN THESE LUNCHES?
BUFFETT: NO, ACTUALLY IT ISN'T. I CAN'T RECALL EVER BEING ASKED. WE TALK ABOUT
FAMILY. ACTUALLY, THE COUPLE THAT BOUGHT IT THIS YEAR BRINGING ALONG TWO SMALL
CHILDREN AND WE TALK ABOUT THE CHILDREN, RAISING KIDS, A LOT OF THINGS. IT'S NOT
ALL STOCK OR BUSINESS OR FINANCE AT ALL.
QUICK: WELL, LET ME BE THE SKUNK AT THE GARDEN PARTY AND START ASKING ABOUT
SOME OF THE THINGS. YOU ARE JOINING US ON A DAY WE HAVE WATCHED THE STOCK
MARKET CONTINUE TO SET NEW HIGHS, THE S&P, THE RUSSELL AND THE NASDAQ. THE
DOW IS NOT FAR OFF THE QUESTION WE ALWAYS ASK YOU IS DO STOCKS LOOK EXPENSIVE
TO YOU AT THESE PRICES?
1/9
BUFFETT: DEFINITELY. IF YOU HAD YOUR CHOICE BETWEEN BUYING AND HOLDING A 30-
YEAR BOND FOR 30 YEARS OR HOLDING A BASKET OF AMERICAN STOCKS, THERE'S JUST NO
QUESTION, YOU'RE GOING TO DO BETTER OWNING STOCKS. IT'S MORE ATTRACTIVE THAN,
CONSIDERABLY MORE ATTRACTIVE THAN FIXED INCOME SECURITIES THAT DOESN'T MEAN
THEY'RE GOING TO GO UP OR DOWN TOMORROW, NEXT WEEK OR NEXT YEAR, BUT OVER
TIME, A BUNCH OF BUSINESSESTHA ARE EARNING HIGH RETURNS ON CAPITAL ARE GOING
TO BEAT A BOND THAT'S FIXED AT ROUGHLY 3% FOR 30 YEARS, AND IT'S NOT MY FIELD OF
SPECIALTY, BUT ACTUALLY THEY LOOK, STOCKS GENERALLY WHICH ARE, THEY'RE AMERICAN
BUSINESSES, $30 TRILLION WORTH OF THEM AND THEY LOOK CHEAPER THAN GENERALLY
REAL ESTATE.
QUICK: IS THAT THE ONLY THING THAT MAKES STOCKS LOOK ATTRACTIVE RIGHT NOW IS
THE COMPARISON WITH FIXED INCOME?
BUFFETT: WELL, THAT'S WHAT YOU HAVE TO DO IN INVESTING. I MEAN, YOU'RE SITTING
WITH SOME CASH IN YOUR POCKET. YOU'VE HAD SAVINGS, AND THE QUESTION IS WHAT DO
YOU DO WITH IT? YOU CAN BUY A DUPLEX NEXT DOOR AND RENT IT OUT TO PEOPLE AND
DO FINE OVER TIME OR BUY A SMALL PIECE OF FARMLAND OR SOMETHING OF THE SORT OR
YOU CAN PUT IT INTO SOMETHING FIXED INCOME, BONDS OR BANK DEPOSITS OR
WHATEVER IT MAY BE, AND STOCKS IF YOU LOOK AT AMERICAN EQUITIES, AMERICAN
BUSINESSES EARNING A LOT OF MONEY RELATIVE TO THE CAPITAL FOOTING, AND THE
REASON STOCKS ARE WORTH A WHOLE LOT MORE THAN THEY WERE 20 YEARS AGO OR 50
YEARS AGO OR 100 YEARS AGO IS COMPANIES HAVE PLOWED BACK PART OF THE EARNINGS.
WITH A BOND YOU GET IT ALL OUT IN INTEREST, YOU GET YOUR 3% OR WHATEVER IT IS AND
THAT'S WHAT YOU HAVE WITH STOCKS MAYBE A 3% DIVIDEND BUT THEY'RE PLOWING
MONEY BACK OR REPURCHASING SHARES OR DOING SOMETHING, AND OVER TIME, THAT
JUST MAKES A HUGE DIFFERENCE.
QUICK: THE REASON I ASK ABOUT STOCKS SITTING AT THESE NEW HIGHS AND WHETHER
YOU THINK THE MARKET IS EXPENSIVE IS BECAUSE THERE ARE RETAIL INVESTORS SITTING AT
HOME AND WHEN NIGHTLY NEWS TALKS ABOUT HOW THE MARKETS ARE AT NEW HIGHS
SOME OF THE RETAIL INVESTORS WHO HAVE BEEN SITTING ON THE SIDELINES THINK MY
GOSH, I MISSED MY OPPORTUNITY AGAIN. THE LAST TIME WE TALKED TO YOU, YOU SAID
YOU WERE STILL BUYING STOCKS. ARE YOU STILL RIGHT NOW?
BUFFETT: WE'RE BUYING STOCKS THIS MORNING, AND I'D RATHER BUY THEM CHEAPER, BUT
I'VE BEEN BUYING STOCKS SINCE MARCH 11th, 1942, AND I REALLY, I BOUGHT THEM UNDER
EVERY PRESIDENT, SEVEN REPUBLICANS, SEVEN DEMOCRATS I'VE BOUGHT THEM QUARTER
AFTER QUARTER. SOME OF THE BUYS WERE TERRIFIC, SOME OF THEM WEREN'T AT SUCH
GOOD TIMES AND I DON'T KNOW WHEN TO BUY STOCKS, BUT I KNOW WHETHER TO BUY
STOCKS, AND ASSUMING YOU'RE GOING TO HOLD THEM, WOULDN'T YOU RATHER OWN AN
INTEREST IN A VARIETY OF GREAT BUSINESSES THAN HAVE A PIECE OF PAPER THAT'S GOING
TO PAY YOU 3% IN 30 YEARS OR SHORT TERM DEPOSIT THAT PAYS YOU 2% OF THE SORT.
2/9
QUICK: NO ARGUMENT. YOUR CONCENTRATION IN THE STOCKS YOU OWN HAS GOTTEN A
LITTLE MORE CONCENTRATED RECENTLY, THERE WAS A FILING THAT CAME OUT NOT TOO
LONG AGO THAT SHOWED BERKSHIRE HATHAWAY WAS CONTINUING TO BUY SHARES OF
APPLE. THAT STOCK IS ALSO A NEW ALL-TIME HIGH LAST NIGHT.
BUFFETT: YES.
QUICK: IT'S NOW YOU OWN 5% OF THE SHARES OUTSTANDING OF APPLE. IT'S THE BIGGEST
HOLDING FOR BERKSHIRE HATHAWAY AT $56 BILLION. HAVE YOU CONTINUED TO BUY EVEN
SINCE THAT FILING?
BUFFETT: WE BOUGHT JUST A LITTLE, ABOUT 6 MILLION OF THE SHARES ARE ATTRIBUTABLE
TO ANOTHER FELLOW IN THE OFFICE THAT'S OWNED IT FOR A CONSIDERABLE PERIOD OF
TIME. THE REST ARE MY PORTFOLIO, BUT I BOUGHT JUST A LITTLE BIT -- I LIKE TO BUY THEM
CHEAPER. IT'S VERY DIFFICULT. WE STARTED BUYING OR I STARTED BUYING WHEN THE
STOCK WAS MAYBE 100, I WAS BUYING IT KIND OF AS FAST AS I COULD, AND I ENDED UP
BUYING SOME AS HIGH, A WHOLE LOT HIGHER, I DON'T WANT TO NAME THE EXACT PRICE
BUT A WHOLE LOT HIGHER. I'D RATHER HAVE IT GO DOWN FOR ONE THING, IF IT GOES
DOWN APPLE IS GOING TO BUY A LOT OF STOCK BACK, ALREADY BUYING STOCK BACK. IF IT
GOES DOWN 10% IT MEANS THEY GET TO BUY 10% MORE SHARES AND MY INTEREST WILL
GO UP 10% MORE FOR SPENDING THAT MONEY I AM BENEFITED BY GOING DOWN IF I WERE
TO TALK MY BOOK, I WOULD TALK IT DOWN.
QUICK: I SPOKE WITH AN ANALYST TODAY, GENE MUNSTER AND HE POINTED OUT THE
INTERESTING THING ABOUT APPLE FOR A LONG TIME IT WAS A VOLATILE STOCK, IT TRADED
IN THE BOOM AND BUST CYCLE. EVERY TIME THEY HAD A NEW PHONE THAT CAME OUT IT
WOULD PUSH THE STOCK HIGHER AND IF IT DIDN'T HAVE A NEW RELEASE IT WOULD DROP
HE SAID IT IS STILL 65% OF THE BUSINESS, BUT A LOT OF PEOPLE LOOK AT IT DIFFERENTLY
AND WONDERING HOW YOU LOOK AT IT. IS THIS A BOOM AND BUST CYCLE OR SOMETHING
DIFFERENT?
BUFFETT: NOT IN THE LEAST. I LIKE TO SEE THE NEW RELEASE DO WELL OR YOU KNOW, BUT
I DO NOT FOCUS ON THE SALES IN THE NEXT QUARTER OR THE NEXT YEAR I FOCUS ON,
THEY WON'T TELL YOU EXACTLY HOW MANY BUT HUNDREDS AND HUNDREDS AND
MILLIONS OF PEOPLE WHO PRACTICALLY LIVE THEIR LIVES BY IT, AND IF YOU LOOK AT THAT
LITTLE PIECE OF WHATEVER IT IS, THAT IS SOME OF THE MOST VALUABLE REAL ESTATE IN
THE WORLD. FIFTH AVENUE WILL NEVER COME CLOSE TO THAT. YOU'VE GOT HUNDREDS
AND HUNDREDS OF MILLIONS OF PEOPLE WITH LOADS OF BUYING POWER, AND ABLE TO
DO BUSINESS OR LEARN INFORMATION OR WHATEVER IT MAY BE AND IT'S PART OF THEIR
HABIT OF LIVING, THEY SPEND HOURS A DAY AND IT DOES ALL KINDS OF THINGS FOR THEM
SO THAT REAL ESTATE IS WORTH A FORTUNE, AND IT'S NICE TO HAVE IT ADDED TO, AS THEY
SELL NEW PHONES AND OF COURSE A LOT OF THEM ARE REPLACEMENT PHONES BUT
THEY'RE ADDING TO HUNDREDS AND HUNDREDS OF MILLIONS OF CONSUMERS THAT ARE
NEVER GOING TO GET TO FIFTH AVENUE, THEY'RE NEVER -- AND YOU ARE AN
INDISPENSABLE PART OF THEIR LIVES. IT'S AN EXTRAORDINARY PRODUCT.
QUICK: YOU DON'T LOOK AT IT LIKE A TECH ANALYST WOULD OR A TECH COMPANY, FOR
3/9
THAT MATTER?
BUFFETT: I LOOK AT iPAD. YOU MEAN –
QUICK: IN TERMS OF HOW YOU VALUE THE STOCK AND ITS PRODUCTS.
BUFFETT: THEY'VE GOT TO KEEP HAVING THE PRODUCT THAT THIS HUGE CLIENTELE
REGARDS AS INDISPENSABLE. IT'S GOT TO BE THE BEST THING THAT THEY CAN TELL US
WHEN AIRPLANES WILL ARRIVE OR WHATEVER IT MAY BE, WHAT THE WEATHER WILL BE
WHAT STOCKS ARE DOING, MILLIONS, PLAY GAMES, WHATEVER IT MAY BE, AND THAT'S
IMPORTANT THAT THEIR REPLACEMENT PRODUCTS ARE LOOKED AT AS SUPER DESIRABLE,
BUT ONE OF THE THINGS THAT I COME TO UNDERSTAND IS WE HAVE A VERY LARGE
RETAILING OPERATION AT FURNITURE MART AND IF PEOPLE WENT IN TO BUY THE LATEST
iPHONE OR WHATEVER IT MIGHT BE, IF FOR SOME REASON WE DIDN'T HAVE IT, YOU
COULDN'T SELL THEM ANYTHING ELSE. THEY EITHER WENT NEXT DOOR WHICH WE DIDN'T
WANT THEM TO DO OR THEY CAME BACK I MEAN, IT WASN'T AN ALTERNATIVE, AND WHEN
YOU HAVE A PRODUCT THAT IS THAT PERSONAL, THAT VALUABLE, AND THEY TALKED ABOUT
I'VE OWNED THOUSANDS, I HAVE A PLANE THAT COST ME A LOT, A MILLION DOLLARS A
YEAR OR SOMETHING OF THE SORT. IF I USED THE iPHONE, I USE AN iPAD A LOT, IF I USE THE
iPHONE LIKE ALL MY FRIENDS DO, I WOULD RATHER GIVE UP THE PLANE, WHICH IS A
MILLION OR MILLION AND A HALF A YEAR FOR SOMETHING THAT COSTS A THOUSAND
BUCKS THE iPHONE IS ENORMOUSLY UNDERPRICED. NOW IT'S GOT COMPETITION SO YOU
CAN'T PUSH THE PRICE, BUT IN TERMS OF ITS UTILITY TO PEOPLE, AND WHAT THEY GET FOR
A THOUSAND DOLLARS SOMEPLACE ELSE, YOU KNOW, YOU CAN HAVE A DINNER PARTY
THAT WOULD COST THAT, AND HERE THIS IS, AND WHAT IT DOES FOR YOU, IT'S INCREDIBLE.
QUICK: YOU MENTIONED AIRPLANES, AND AIRLINES, AND I JUST WONDER, ARE THE AIRLINE
STOCKS THAT YOU ALSO STILL FIND ATTRACTIVE? HAVE YOU BEEN ADDING TO YOUR
POSITIONS THERE?
BUFFETT: WE CAN'T ADD, TECHNICALLY WE COULD BUT I DON'T WANT TO GO OVER 10%
EXCEPT IN RARE CIRCUMSTANCES OF SECURITY, SO WE OWN NINE AND A FRACTION
PERCENT OF THE FOUR LARGEST, AND I ACTUALLY HAVE TO TRIM THEM JUST A LITTLE IF
THEY'RE REPURCHASING SHARES TO STAY UNDER 10% IF I COULD BUY 20%, I WOULD HAVE
BEEN HAPPY TO BUY 20%, BUT, SO WE'VE GOT ABOUT WHAT WE CAN HANDLE.
QUICK: WARREN, LET ME ASK YOU ABOUT THE NEWS OF THE DAY. CAMPBELL'S CAME OUT
WITH ITS OWN BUSINESS INITIATIVES, A STRATEGIC INITIATIVE TODAY.
BUFFETT: I SAW THAT.
QUICK: THEY'RE SELLING OFF A COUPLE OF UNITS, THE FRESH FOODS AND THE
INTERNATIONAL. DOES THAT MAKE IT MORE ATTRACTIVE OR LESS ATTRACTIVE AS A BUYING
OPPORTUNITY FOR SOMETHING THAT COULD GET WRAPPED IN POTENTIALLY TO KRAFT
HEINZ?
BUFFETT: I DON'T KNOW THAT IT CHANGES THE PICTURE A LOT. PRESUMABLY THEY'RE
GOING TO GET FAIR VALUE FOR THAT. SO IF THEY WOULD BE CALCULATED BY ANY
4/9
ACQUIRERS BEING WORTH "X." NOW IT MAY OR MAY NOT BE TAX EFFICIENT. I DON'T KNOW
THE TAX BASIS ON THOSE ASSETS. BUT IF THEY HAVE A LOW TAX BASIS IT THEN IT ACTUALLY
DECREASES VALUE A LITTLE BIT FOR ANOTHER BUYER, BECAUSE YOU'LL GIVE SOME OF IT TO
THE GOVERNMENT IN THE PROCESS, BUT I DON'T THINK -- I DON'T THINK IN TERMS OF ANY
OTHER COMPANY LOOKING AT IT FOR ACQUISITION, THEY'RE PROBABLY SELLING THE
ASSETS THAT THOSE COMPANIES WOULD HAVE BEEN PARTICULARLY LOOKING FOR. BUT I
DON'T KNOW CAMPBELL THAT WELL.
QUICK: YOU'RE SAYING YOU DON'T KNOW IT THAT WELL MAKES ME THINK YOU HAVEN'T
BEEN LOOKING IT OVER CONSIDERING IT AS A PURCHASE BECAUSE DAN LOEB WOULD LIKE
TO SEE SOMEBODY BUY IT. WOULD BERKSHIRE BE INTERESTED, WOULD KRAFT HEINZ BE
INTERESTED?
BUFFETT: WELL, BERKSHIRE CERTAINLY WOULDN'T BE. BUT -- BUT THAT'S PARTLY BECAUSE
WE OWN KRAFT HEINZ, TOO. WE WOULDN'T DO ANYTHING. BUT – I THINK IT'S VERY HARD
TO OFFER SIGNIFICANT PREMIUM FOR A PACKAGE GOODS COMPANY AND HAVE IT MAKE
FINANCIAL SENSE. THE PACKAGED GOODS BUSINESS MAKES HIGH RETURNS ON TANGIBLE
ASSETS THAT IT HAS, BUT IT IS A TOUGHER BUSINESS THAN IT WAS TEN YEARS AGO AND THE
STOCKS ARE HIGHER THAN THEY WERE TEN YEARS AGO. SO THEY -- WE BACK IN THE '80s
WERE THE LARGEST SHAREHOLDER OF GENERAL FOODS. I ALWAYS LIKED BRANDS. AND
THEY'RE VERY GOOD BRANDS. BUT IN TERMS OF THE BATTLE OF THE RETAILERS VERSUS THE
BRANDS AND THE -- AND THE WILLINGNESS OF PEOPLE TO CHANGE THEIR HABITS
PROBABLY HAS A HIGHER PROPENSITY FOR THAT THAN 20 OR 30 YEARS AGO. SO BRANDED
GOODS, BRANDED PACKAGED GOODS ARE A VERY, VERY, VERY GOOD BUSINESS IN TERMS
OF RETURN ON TANGIBLE ASSETS. BUT THEY'RE NOT A SENSATIONAL BUSINESS IN TERMS
OF WHERE YOU CAN BE FIVE OR TEN YEARS FROM NOW.
QUICK: LET ME ASK YOU ABOUT SOME NEWS THAT BERKSHIRE MADE A LITTLE OVER A
MONTH AGO. I'M NOT SURE IT RECEIVED QUITE THE ATTENTION THAT IT SHOULD HAVE.
YOU SAID THAT YOU WERE CHANGING YOUR VIEWS ON BUYING BACK BERKSHIRE SHARES.
BUFFETT: RIGHT.
QUICK: FOR A LONG TIME, YOU'VE SAID THAT IF IT GOT ABOVE 120% OF BOOK VALUE, YOU
WOULD BUY IT BACK. THAT – AND THAT CREATED A FLOOR FOR THE STOCK. NOW YOU SAY
THAT YOU'RE THROWING THAT OUT THE WINDOW. IF YOU AND CHARLIE LOOK AT IT -- YOU
AND CHARLIE MUNGER – AGREE BACK YOU'LL BUY BACK STOCK. HAVE YOU BOUGHT BACK
ANY STOCK SINCE THEN?
BUFFETT: WE'VE BOUGHT BACK A LITTLE. YEAH. AND WE TRY IT TO INTRINSIC BUSINESS
VALUE, WHICH WE SHOULD HAVE DONE ALL ALONG BUT FOR A WHILE BOOK VALUE WAS A
GOOD PROXY. IT DIDN'T FULLY DESCRIBE INTRINSIC VALUE, BUT IT TRACKED IT, AND IT WAS
A REASONABLE PROXY, AND IT'S GOTTEN TO HAVE LESS AND LESS IMPORTANCE AS WE
MOVE TO OPERATING BUSINESSES FROM INVESTMENTS. SO WHAT REALLY COUNTS IS WHAT
ARE THE BUSINESSES WORTH, ALONG WITH THE SECURITIES WE OWN. AND IF IT'S AT A
DISCOUNT TO THAT FIGURE, CHARLIE AND I WILL BUY. AND WE BOUGHT SOME.
5/9
QUICK: HOW OFTEN DO YOU AND CHARLIE TALK ABOUT IT?
BUFFETT: WELL, WE DON'T HAVE TO TALK VERY OFTEN. IF IT'S SO CLOSE, WE HAVE TO TALK,
EVERY TIME IT MOVES 1%, IT ISN'T WORTH BUYING. I MEAN, IT'S – SO, THERE SHOULD BE A
MARGIN OF ERROR IN OUR CALCULATION. SO WE DON'T – WE NEVER TALK DAY-TO-DAY OR
WEEK TO WEEK ON IT. BUT I KNOW THAT WHAT'S IN HIS, WHAT'S IN MINE, -- WE'RE TOTALLY
IN SYNC. AND WE NEED A BIG ENOUGH DISCOUNT, SO WE'RE BUYING IT, AT WHAT WE
KNOW IS A PRICE WHERE THE CONTINUING SHAREHOLDERS ARE GOING TO BE BETTER OFF,
BECAUSE WE BOUGHT IT. WE'RE RUNNING BUSINESS FOR THE PEOPLE WHO ARE GOING TO
STAY, NOT THE ONES WHO ARE GOING TO LEAVE.
QUICK: ABOUT A WEEK AND A HALF AGO OR JUST ABOUT A WEEK AGO, I SPOKE WITH BRIAN
CORNELL, HE'S THE CEO AT TARGET. AND HE SAID THAT IN HIS CAREER HE'S NEVER SEEN A
BETTER ENVIRONMENT FOR THE CONSUMER, THAT THINGS SEEM TO BE FIRING ON ALL
CYLINDERS. I JUST WONDER WHAT YOU SEE WHEN IT COMES TO THE ECONOMY, WHAT DO
YOU SEE WHEN IT COMES TO THE CONSUMER?
BUFFETT: WELL, THE ECONOMY, REALLY SINCE THE FALL OF 2009, HAS PROGRESSIVELY
GOTTEN BETTER BUT IT STARTED FROM A VERY LOW BASE. IT STARTED FROM PANIC. AND
WE'VE NOW HAD NINE, WELL VERY SOON, WE'VE GOT NINE FULL YEARS OF IMPROVEMENT
IN BUSINESS. I MEAN, QUARTER BY QUARTER. NOW SOMETIMES IT LOOKED LIKE 1% OR
1.25%, SOMETIMES IT WAS 2.5. NOW IT LOOKS EVEN BETTER THAN THAT. BUT BUSINESS IS
GOOD. ACROSS THE BOARD, BUSINESS IS -- BUSINESS IS GOOD. IT WAS GOOD TWO YEARS
AGO. IT KEEPS GETTING BETTER. BUT THE AMERICAN PUBLIC – AMERICAN PUBLIC
HOUSEHOLD WEALTH IS OVER $100 TRILLION. AND 250 YEARS AGO, YOU KNOW – THIS
ISLAND – NOTHING WAS WORTH -- THERE WASN'T ANYTHING HERE. I MEAN, 24 BUCKS FOR
PETER MINUIT.
QUICK: BUT THE ECONOMY IS FIRING ON ALL CYLINDERS. ONE ISSUE THAT PEOPLE HAVE
WORRIED ABOUT IS WHAT IS HAPPENING WITH TRADE AND TARIFFS. HAVE YOU SEEN ANY
IMPACT ON BERKSHIRE'S BUSINESSES OR HIGHER COSTS ASSOCIATED WITH ANY TARIFFS
THAT HAVE GONE IN PLACE?
BUFFETT: YEAH, YEAH. THERE ARE A FEW. DEFINITELY. AND WE BUY STEEL, YOU KNOW, FOR
EXAMPLE, AT -- WE BUY IT AT A LOT OF PLACES. AND WE ARE SEEING SOME EFFECTS FROM
THAT AND WE'RE SEEING SOME EFFECTS FROM INFLATION.
QUICK: I'M SORRY, FROM INFLATION --
BUFFETT: RIGHT. WE'VE SEEN MORE IN THE WAY OF COST INCREASES IN THE LAST YEAR, IF
YOU GO ACROSS ALL OF OUR BUSINESSES, BUT PARTICULARLY BUILDING MATERIALS OR --
WE SELL PAINT, THE CAN IT COMES IN. THAT IS A LOT MORE EXPENSIVE THAN A YEAR AGO.
QUICK: HOW MUCH INFLATION IS TIED TO THE TARIFFS AND HOW MUCH IS FROM AN
IMPROVING ECONOMY AND INFLATION YOU WOULD EXPECT TO CREEP IN?
BUFFETT: I CAN'T TELL YOU EXACTLY YET, AND SOME OF THEM -- WELL, NEWSPRINT. YOU
KNOW, IT POPS UP IN DIFFERENT PLACES. AND I HAVEN'T REALLY DONE THAT, BUT I WAS
6/9
SEEING IT IN RAW MATERIALS WELL BEFORE THE TARIFFS SITUATION CAME UP. BUT THE
TARIFF SITUATION WILL AGGRAVATE IT SIGNIFICANTLY.
QUICK: LET'S JUST TALK ABOUT THAT. IF YOU ARE SEEING PRICE INCREASES COMING
THROUGH THAT MAY LEAD YOU TO THE CONCLUSION YOU THINK THE FED SHOULD RAISE
RATES OR CONTINUE TO RAISE RATES AS THEY'VE BEEN DOING, THE PRESIDENT, DONALD
TRUMP, TWEETED OUT AND TALKED IN AN INTERVIEW ABOUT HOW HE DOESN'T LIKE TO SEE
THE FED RAISING RATES. WHAT DO YOU THINK ABOUT THAT, JUST AS SOMEBODY WHO
WATCHES IT?
BUFFETT: WELL I THINK JAY POWELL IS A TERRIFIC CHAIRMAN FED. I'VE KNOWN,– NOT KNOW
HIM WELL, BUT I'VE KNOWN HIM, I KNOW PEOPLE HE WORKED WITH, AND I'VE LISTENED TO
WHAT HE'S HAD TO SAY, SO I LOVE THE FACT JAY POWELL IS CHAIRMAN OF THE FED. AND
HE WILL DO THE RIGHT THING, HE GETS A LOT MORE FIGURES IN THAN I DO. I MAY GET
THEM A LITTLE FASTER ON SOME THINGS THAN THE FED, THEN THEY WORK THEIR WAY
THROUGH. BUT HE WILL SEE IT, AND HE'LL DO WHAT, IN HIS JUDGMENT, IS BEST FOR THE
AMERICAN ECONOMY OVER TIME. THERE ISN'T ANY QUESTION ABOUT THAT. AND MAYBE
HE'LL MAKE MISTAKES. I KNOW I'LL MAKE MISTAKES. BUT HE KNOWS WHAT HIS JOB IS AND
HE'LL DO IT.
QUICK: THE PRESIDENT ALSO TWEETED ABOUT ANOTHER INITIATIVE, AND I JUST WONDERED
WHAT YOU THOUGHT ABOUT IT. HE SAID THAT AFTER SPEAKING WITH INDRA NOOYI, WE
LATER FOUND OUT THAT SHE WAS THE ONE WHO TALKED WITH HIM, THAT HE WOULD LIKE
TO DO SOMETHING THAT HELPS AMERICAN BUSINESS. THAT'S TO SAY STOP REPORTING
EVERY QUARTER, MAYBE DO IT ON A SIX-MONTH BASIS. WHAT DO YOU THINK OF THAT
IDEA? BECAUSE YOU FOCUSED ON LONG-TERMISM.
BUFFETT: JAMIE DIMON AND I CAME OUT A WHILE BACK, BUT I'VE ALWAYS FOCUSED ON THE
IDEA, A) I LIKE TO READ QUARTERLY REPORTS AS AN INVESTOR AND WE'VE GOT A COUPLE
HUNDRED BILLION DOLLARS WORTH OF COMMON STOCKS. SO I LIKE TO GET THOSE
QUARTERLY REPORTS. I DO NOT LIKE GUIDANCE, AND I THINK THAT GUIDANCE LEADS TO
LOTS OF BAD THINGS. AND I'VE SEEN IT LEAD TO LOTS OF BAD THINGS. I DON'T THINK
QUARTERLY REPORTING ITSELF -- IT'S WHEN YOU GET INTO PROMISING PEOPLE WHAT
YOU'RE GOING TO DO EVERY QUARTER. BECAUSE I CAN'T PROMISE WHAT'S GOING TO
HAPPEN -- YOU KNOW, WE'RE IN THE HURRICANE SEASON NOW AND YOU COULD CHANGE
OUR EARNINGS DRAMATICALLY WITH A STORM OR SOMETHING OF THOSE SORTS. SO I
THINK IT'S A VERY BAD PRACTICE TO BE IN IN THE GAME OF EARNINGS GUIDANCE. AND IT IS
A GAME. I MEAN YOU KNOW, PEOPLE PLAY IT AS A GAME, AND THEN PEOPLE ADJUST TO
NUMBERS AND ALL THAT. BUT I LIKE TO GET THE FIGURES QUARTERLY, AND I HOPE THAT
STAYS.
QUICK: I DON'T KNOW IF YOU FOLLOW TWITTER VERY CLOSELY. MY EXPECTATION IS THAT
YOU DON'T.
BUFFETT: YOU'RE RIGHT ABOUT THAT.
7/9
QUICK: BUT THERE WAS A FAKE TWITTER ACCOUNT, A FAKE WARREN BUFFETT TWITTER
ACCOUNT THAT WENT FROM 20,000 FOLLOWERS TO 200,000 FOLLOWERS IN 24 HOURS BY
TWEETING OUT ALL KINDS OF PITHY SORT OF SOUND ADVICE, THINGS THAT FOLKSY
SAYINGS THAT SOUNDED LIKE IT COULD HAVE COME FROM YOU. WHY DON'T YOU TWEET
MORE OFTEN?
BUFFETT: WELL I JUST DON'T SEE A REASON TO. I PUT OUT AN ANNUAL REPORT, AND I DO
NOT HAVE A DAILY VIEW ON ALL KINDS OF THINGS. AND, AND MAYBE I'VE GOT A GUY IN
THIS COPYCAT OR IMITATOR, MAYBE HE'S PUTTING OUT BETTER STUFF THAN I WOULD. SO
IF HE PUTS OUT GOOD ADVICE, I'LL TAKE CREDIT FOR IT.
QUICK: WE HAVE SEEN SOME CEOs WHO LIKE TO TWEET VERY FREQUENTLY, INCLUDING
ELON MUSK.
BUFFETT: YES.
QUICK: HE'S CERTAINLY SOMEBODY WHO TWEETED A LOT. WHAT DO YOU THINK ABOUT
PEOPLE WHO TWEET A LOT?
BUFFETT: I DON'T THINK IT'S HELPED HIM A LOT. NO, I THINK IT'S -- WELL, IT'D BE
PARTICULARLY DANGEROUS TO START COMMENTING ON BERKSHIRE DAILY, WHICH I NEVER
WOULD DO. I WON'T DO IT WITH YOU. BUT I THINK THERE'S OTHER THINGS IN LIFE I WANT
TO DO THAN TWEET. I MEAN, I'M NOT THAT DESPERATE FOR SOMEBODY TO HEAR MY
OPINION ON THIS.
QUICK: WARREN, IT'S YOUR BIRTHDAY TODAY, YOUR 88th BIRTHDAY. AND WE WISH YOU A
HAPPY 88thBIRTHDAY.
BUFFETT: THANK YOU.
QUICK: IN FACT, WE HAVE SOMETHING THAT WE'VE ORDERED UP, THE CHEF IS HERE AT
SMITH AND WOLLENSKY PUT TOGETHER JUST TO CELEBRATE YOUR 88th BIRTHDAY. THIS
YEAR THEY WENT OUT OF YOUR WAY TO FOCUS ON THE COKE HOLDINGS, IT'S YOUR FIFTH
LARGEST HOLDINGS.
BUFFETT: WOW. THAT IS TERRIFIC.
QUICK: SO THERE'S YOUR HAPPY BIRTHDAY CAKE. AND I JUST WANTED TO TALK TO YOU
ABOUT -- AT 88, PROBABLY NOT A LOT OF NEW TRICKS THAT YOU CAN GET TAUGHT. BUT I
KNOW EVEN THOUGH YOU DON'T HAVE A SMARTPHONE YOU DO HAVE AN iPAD.
BUFFETT: I HAVE AN iPAD. I USE IT A LOT.
QUICK: WHAT DO YOU DO WITH IT?
BUFFETT: WELL I KEEP IT AROUND ON MY DESK DURING THE DAY, AND IF I WANT TO CHECK
ANYTHING IN THE FINANCIAL MARKETS, YOU KNOW THAT'S AN EASY– VERY EASY WAY TO
DO IT. BUT I LOOK UP THINGS. IT'S WHAT I DO WITH A COMPUTER AT HOME, AND
8/9
COMPUTERS ARE ENORMOUSLY USEFUL TO ME AND THE iPAD IS -- IS THE ONE I HAVE IN
THE OFFICE IN EFFECT.
QUICK: DO YOU EVER LISTEN TO PODCASTS? DO YOU EVER FOLLOW ANYBODY ELSE? WHAT
OTHER THINGS DO YOU WITH THIS?
BUFFETT: I LISTEN TO A PODCAST FROM MY FRIENDS AT TOM MURPHY. PODCASTS ARE

NORMALLY, THEY TAKE A WHILE. I CAN READ FASTER THAN I CAN LISTEN TO ONE, BUT I
RECOMMEND THAT. IT WAS DONE WITH DAVID NOVAK. IT'S A 28-MINUTE PODCAST. ANY
TIME I GET TO LISTEN TO TOM MURPHY I THINK IT'S TERRIFIC BUT GENERALLY I DON'T
BECAUSE OF THE TIME ELEMENT.
QUICK: WHAT DID YOU LEARN FROM TOM MURPHY IN THAT PODCAST?
BUFFETT: WELL, I'VE LEARNED -- I'VE BEEN LEARNING FROM HIM EVER SINCE I MET HIM IN
1968 OR '69. I MEAN, THE VERY FIRST TIME I MET HIM -- TOM MURPHY LIKE CHARLIE
MUNGER HAS MADE ME A BETTER PERSON THAN I WOULD OTHERWISE BE. I MEAN, THAT'S
THE ULTIMATE GIFT YOU CAN GIVE TO SOMEONE. AND TOM MURPHY HAS GIVEN THAT TO
ME, AND CHARLIE MUNGER HAS GIVEN THAT TO ME AND MY DAD EARLIER AND MY WIVES
AND SO ON. BUT -- BUT HE'S A HUMAN BEING THAT IF YOU STUDY HIM, I'M JUST TALKING
ABOUT BUSINESS, BUT JUST AS A HUMAN BEING, AND YOU WANT TO HAVE THE RIGHT
HEROES, AND I'VE HAD THE RIGHT HEROES. AND TOM MURPHY IS ONE OF THEM.
QUICK: AND TOM MURPHY IS FROM CAPITAL CITIES/ABC. WARREN, HAPPY BIRTHDAY.
BUFFETT: THANK YOU.
QUICK: THANK YOU FOR SPENDING TIME WITH US TODAY. AND GOOD LUCK WITH THE
LUNCH –
BUFFETT: THANK YOU. AND I MAY NEED A SECOND HELPING, ACTUALLY. THAT'S A LITTLE
SKIMPY – A LITTLE SKIMPY ON THE COKE.
For more information contact:
Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com
Emma Martin
CNBC
t: 201.735.4713
m: 551.275.6221
e: emma.martin@nbcuni.com
9/9
FULL TRANSCRIPT: BILLIONAIRE INVESTOR WARREN BUFFETT
SPEAKS WITH CNBC’S BECKY QUICK ON "SQUAWK BOX"
TODAY
cnbc.com/2018/02/26/full-transcript-billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-
squawk-box-today.html
February 26, 2018
WHEN: Today, Monday, February 26th
Chairman & CEO Warren Buffett on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today,
Monday, February 26th. Video from the interview is available on CNBC.com.
JOE KERNEN: Good morning, and welcome to Squawk Box, here on CNBC, live from
the NASDAQ market site in Times Square. I'm Joe Kernen. Becky, you just saw live in
Omaha with-- oh, with Warren Buffett, okay. All right. I got it. We'll get back to her-- in
just a minute, though. I didn't-- I misunderstood. So-- that's why-- that's why you're
out there, three hours with the--
BECKY QUICK: That's why I'm here.
JOE KERNEN: Excellent. Excellent. How many? I gotta look these futures though. How
many questions do you have from our viewers, do you think, Becky? Do--I mean,
everybody—
BECKY QUICK: A lot. And I—
JOE KERNEN: --everybody should get in.
BECKY QUICK: --and I have to say, the questions are really good this year. People have
gone through. It's not just like, "What's your favorite stock? Tell me which stock to
buy." Like, 58,000 variations of that same question. Lot of other things that are
happening here too. But yeah, questions are good, so a lot going on—
JOE KERNEN: Excellent. All right. Let's-- the-- the markets are crazy, Becky. Three--
what-- was that on-- 350 on Friday when it was all said and done, and-- strongly higher
again this morning. Almost 200. And--also-- well, we'll take a quick look. Here's a
check on the markets. U.S. equity futures-- at this hour are, as you can see, 193 points
indicated on the Dow. The NASDAQ up another 25. The NASDAQ had been diverging a
little bit last week, until Friday. 127 points-- for the NASDAQ on Friday-- which was
almost 2%. That's a big move that we saw. And-- continuing buying going on in--
across the board-- in this country, and actually in Asia and Europe overnight. Some
strong market action, and some interesting moves in the ten-year note as well. But
there's-- you can see the NIKKEI was up more than-- a percentage point, which added
22,000. That gives us 260 points. Hang Seng-- up-- sharply as well. Check out Europe,
1/55
green across the board in-- in Europe when I watched, or at least looked-- this
morning. Not quite the gains that we're seeing here, or in Asia. But we'll see what
happens as we move forward. It's only 6:01. And then-- treasury yields moderating on
the ten-year. Which, that is-- you know, it-- I guess it's a double-edged sword. As we
get closer to 3%, sometimes you see a little pressure on the stock market. I guess if
we don't immediately go there, and if we trade below 290, and I don't know if it went
below where it is now, let's say it goes down-- maybe that becomes-- you know,
maybe that lights a fire under the stock market when-- just by not going to 3%. We'll
see. Anyway, we now know-- Becky, that there was-- quite a bit of margin-- selling, I
guess, going on-- in that route, which explains how quickly it moved, andhow far it
moved. But we'll get back after you, and you can answer to Warren--
BECKY QUICK: You're talking about the lead story, or one of the lead stories in the
Wall Street Journal today about the margin selling that—
JOE KERNEN: Yeah. I don't know if Buffett buys
BECKY QUICK: --$642.8 billion.
JOE KERNEN: --I assume he probably doesn't-- buy-- you know. Maybe he does. When-
- huh—
BECKY QUICK: Never. And in fact, he wrote a big chunk about that in the annual letter.
The-- he wrote a big part about that in his annual letter to shareholders this year is
the dangers of margin investing and-- and using leverage, right, Warren?
WARREN BUFFETT: Yeah. Uh-huh.
JOE KERNEN: Yep. Yeah.
BECKY QUICK: Right. So we will talk about that.
JOE KERNEN: That-- would be a yes. Okay, good.hey, Warren, my man, Creighton, did
you—
WARREN BUFFETT: Hi.
JOE KERNEN: --did you watch—
WARREN BUFFETT: Joe, how are you?
JOE KERNEN: I'm great. Did you see-- that was so awesome. That game the other day.
It was-- I'm not a big Villanova fan. Not for nothing. But just because Xavier-- I'm not. I
really am not. And-their good players absolutely drive me nuts. That DiVincenzo, he
is-- he sticks a dagger into Xavier so often. But how great that they-- I thought they
shoulda won in regulation, and then you saw how it went to-- I don't know if you saw
the game, but wow, they really came on strong. They got the initial tip in overtime,
right, and then they won. And then they beat Villanova. It was awesome.
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WARREN BUFFETT: Joe, we're having our basketball bracket contest for Berkshire
employees here in a couple of weeks, and with the same prizes as last year. But if
either Creighton or Nebraska ends up winning the tournament, we're going to double
the prize. So instead of being $1 million—
BECKY QUICK: Really?
WARREN BUFFETT: --it's gonna be $2 million—
JOE KERNEN: This is breaking news. This is-- what I was looking for—
BECKY QUICK: Wow.
JOE KERNEN: But you know—
WARREN BUFFETT: This is breaking news.
JOE KERNEN: Yeah, Creighton almost-- Creighton just barely-- lost to Xavier, and then
they beat Villanova. So any-- I mean, I wouldn't-- how big is that coach? 'Cause I-- he
looks big, but then I saw him with his players—
WARREN BUFFETT: He is. He's big. He's big.
JOE KERNEN: --he's got-- he's, like, 11 feet tall—
WARREN BUFFETT: He—
JOE KERNEN: I think. He's like Hagrid, that dude—
WARREN BUFFETT: Well, he's got a big son, too.
JOE KERNEN: He does too. He's also awesome— All right, we better get-- we-- you
know, Becky, we got three hours, though, right? We got three hours. So-- we can—
BECKY QUICK: We do. We have plenty of time. Just the three of us for the next three
hours. We're good—
JOE KERNEN: --okay. And that was breaking news. Doubling—
BECKY QUICK: It-- was. And I'm sure this was going to come at some point. Doubling
the prize, the bounty.
WARREN BUFFETT: If Creighton or Nebraska wins the tournament—
BECKY QUICK: And-- by the way, is Joe allowed to play this year?
WARREN BUFFETT: You know, I will include him. I'll book him personally. The company
is going to award the prize for whoever goes the furthest. And if you get through the
Sweet 16, you get $1 million a year for life. Which, if Creighton or Nebraska won,
would be $2 million a year for life.
BECKY QUICK: I want a finder's fee, Joe, if you win.
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JOE KERNEN: I want-- so he'll do--we can do our own little bet, Warren? Can we do
somethin' w-- like, right, here we go again-- I'm like a broken record. Can we do
somethin' with NetJets? I mean, can we do -- something like-- private jet travel for life
—
BEKY QUICK: You win $1 million for life, you can buy your own NetJet.
JOE KERNEN: Oh, that's true--
WARREN BUFFETT: Is it- your brick against my NetJets? Is that what-- you're
suggesting--
JOE KERNEN: That's-- right. It's my brick. My brick. All right, we're done. Go, go, go. I'm-
- get start--
WARREN BUFFETT: Well, we'll negotiate.
JOE KERNEN: All right.
BECKY QUICK: All right, let's get right to the news with our newsmaker of the morning.
Berkshire Hathaway's chairman and CEO Warren Buffett is with us. And-- Warren,
you're here, or we're here, I should say, we're here in Omaha because you just put
out your annual letter to shareholders, and you've sat down with us for-- seven or
eight years at this point, and let us come out and have viewers-- read your letter, have
questions about that, and then get the chance to talk to you about it. And this is the
53rd letter to shareholders that you've written—
WARREN BUFFETT: I think it's the 53rd, yeah. Uh-huh.
BECKY QUICK: All right, so the 53rd annual letter. And this one was a little different.
You actually broke with some of the formatting that you've been doing for years now,
where you lay out and go through each of the companies and tell us how they're
doing. Why--did you decide-- to shake things up after 53 years—
WARREN BUFFETT: Well, I'm 87. Maybe I'm in my second childhood. In a different way.
I just felt we'd sorta worn out that format, and there was quite a bit of information
that I would put in the letter that was repeated in the 10-K. So we just append the
entire 10-K, and-- you're right, it's-- probably 60% or 65% as long as-- previous letters.
BECKY QUICK: Yeah-- which is-- look, as somebody who doesn't like change on any
level, I'm amazed to see you doing this. I-- yeah, like, throwing it right out the window
and going with it. But let's talk about some of the big news items that come right at
the top of the letter. The first is that there's a $65.3 billion increase in net worth for
the company in 2017. $29 billion of that comes from the tax changes, from the U.S.
government making those tax changes. Why don't we dig into that. Explain what that
means. How significant is that?
WARREN BUFFETT: Well, there were two primary items, but they both reduced a
deferred tax liability. We had about $100 billion of unrealized gain in equities. Now,
when they're sold, you pay tax on that. And--previously when the tax was 35%, we
4/55
would've had a $35 billion reserve for taxes against that as a liability. That would drop
to about $21 billion. So $14 billion, roughly-- was a reduction in the amount of tax
that, when we sell those securities, we will pay. Wasn't cash now, but it reduced a
liability. And when you reduce a liability, net worth goes up. And the other important
point related to the same thing, deferred income taxes, when we buy some kind of
fixed asset, locomotive or whatever it may be, we're entitled-- in previous years to
50% depreciation in the first year, and let's say it's gonna last ten years. That may last
longer, to make it easy. Well, you would normally, on a book basis, depreciate it ten--
$1 million a year on a $10 million asset over ten years. For tax purposes, you've got to
have what they call bonus depreciation and take 50% of it the first year, $5 . So you're
gonna get the same amount of depreciation over time. But you got the tax deduction
earlier, and that became a deferred tax. And we have a lotta that. We've got it in the
railroad, we've got it multiple places. The amount that was saved with the utility
companies goes to the customers. So that was about $6 billion. And we gave-- we set
that up as a liability, 'cause that will go to the customers. But the amount that related
to the normal-- you know, the locomotives or whatever it may be-- we got a reduction
because that depreciation we'll take later on, which-- for book purposes, we've
already taken for tax purposes, will come and be taxed at 21% instead of 35%. Those
are the two big items.
BECKY QUICK: You-- were not a proponent of pushing through this tax reform, but
you have talked pretty extensively about it--what it's going to mean for American
business. It is a huge tailwind for American business—
WARREN BUFFETT: It's a huge tailwind. And it's particularly a tailwind if you've got--
particularly for companies that have had lots of depreciation and taken bonus
depreciation up front. So it's a big item-- there. Not as many companies have lots of
appreciation and marketable securities, but it's a big item for those that do.
BECKY QUICK: What-- will it mean for American business overall, and-- as a-- posit of
that, what will it mean for the economy over the next year and over the next several
years?
WARREN BUFFETT: Well, it-- certainly means corporations will pay quite a bit less in
tax than they otherwise would. And-- because the ongoing rate is 21% instead of 35%.
So forget about these changes that apply to the past. When we make money in 2018--
domestically, and subject to a lotta little things here and there, but basically we'll be
paying at 21% instead of 35%. So that's a lotta money. And-- you know,we haven't
really gotten cash yet from this, but we will save cash as we go along.
BECKY QUICK: Joe?
JOE KERNEN: In-- just thinking about some of your comments in the past, Warren, I
don't think you thought American business was overtaxed. You've made that point
many, many times. Or maybe you were saying that if they were taxed less, it wouldn't
necessarily make it better for them. They're doin' just fine the way they were with the
old tax rate. You said that many, many times-- on the show. And I know you think
people like you and Bill Gates and others of the wealthy should pay more. So I think
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you have a stated-- sort of objective that the government needs more money to do
what it wants to do. In this case, what you just said, is that a positive for the country,
that Berkshire now is going to have more control about where that capital is
allocated, rather than the government having control of where that capital is
allocated-- is that a net positive for the country or a net negative for the country, in
your view?
WARREN BUFFETT: Well, it depends whether they'd instead of allocating it to us,

they'd allocate it to the people who-- on very low incomes, or as-- if they were going to
give a tax cut, the question is who they gave it to. And you know, and there are all
kinds of provisions there, but--
JOE KERNEN: Well-- no, I just mean-- but-
WARREN BUFFETT: --but basically—
JOE KERNEN: --we're not talking about we're talking about Berkshire Hathaway now
gets that money instead of the government. Do you think that's a net positive that it's
kept in the private sector, or a net negative-- because if you think it's-- a net negative,
you're free to write that check and say, "I--don't like this tax law. Take the money from
Berkshire and give it to the low-income people," or whatever. You could do that. Or--
do you think it's better that—
WARREN BUFFETT: Well, I-- we--Joe, we have 1 million shareholders. I think I'd get
shoo-- sued by about 999,000 if I start making voluntary payments from--
JOE KERNEN: If that wasn't the case-- if that wasn't the case, would you do it? Would
you give it-- if the shareholders would go along with you- I just think it's really good
for Berkshire, and I wonder if you can just agree with me on that.
WARREN BUFFETT: No, it's really good for Berkshire. There's no question about it.
That's the point—
JOE KERNEN: What about for society in general? Don't you think you can do great
things with the-- incremental addition that-- that you-- with-- wouldn't you rather
have it than have the-- you know, maybe people that don't use it as effectively—
WARREN BUFFETT: Everybody would rather have it. The question is whether-- but, you
know, whether-- whether—
JOE KERNEN: Okay. I'm-- all right , I-
WARREN BUFFETT: --who you give it to.
JOE KERNEN: --you're-- I've never been able to get you—
WARREN BUFFETT: I-- would so—
JOE KERNEN: I can't get you on these things. I—
WARREN BUFFETT: Well--
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JOE KERNEN: --but I think, if I read between the lines, I think it's-- I think you like this. I
think it's good. And I think that it's not a net negative for society that-- that the private
sector gets to compete globally better. Whatever you-- however you wanna look at it,
it's a net positive. And-- you know, if you don't like it, I think you oughta just-- 'cause I
can-- just sign that check and send it off. It'd be, what'd you say, $29 billion?
WARREN BUFFETT: Unlike some people, I don't believe in giving away other people's
money.
BECKY QUICK: I think that's probably an area where you two could agree.
JOE KERNEN: I-- think there's times where you've recommended giving away other
people's money, although it would include you. Anyway, okay, that's all. That-- I just
wanted to-- now I'm goin'—
WARREN BUFFETT: Okay.
JOE KERNEN: --I'm goin' back to the brackets. Let me just see here. (LAUGHTER)
WARREN BUFFETT: Well, if you were in the money, Joe, you're gonna pay a big tax on
this. I mean—
JOE KERNEN: Okay
WARREN BUFFETT: You'll--wish they cut personal rates a lot more, believe me, unless
you incorporate your—
JOE KERNEN: ask Becky. Talk to Becky. Talk—
WARREN BUFFETT: --your brackets.
JOE KERNEN: -we both know about this, don't we Becky?
BECKY QUICK: We do.
JOE KERNEN: I mean, b-- between the agencies and the-- and—
BECKY QUICK: State and local taxes, the state and local taxes goin' up—
JOE KERNEN: --and the state and local taxes. Right.
BECKY QUICK: --it's gonna hit a lotta people.
JOE KERNEN: I think my taxes are similar to yours, Buffett— I think I'm paying more
than you, 'cause you take no income. I do. I think I'm probably paying more than you.
(LAUGH) I know how you work things.
WARREN BUFFETT: Yeah. I-- think you probably pay a higher rate, Joe.
JOE KERNEN: Yeah, there's no—
WARREN BUFFETT: I don't think you're paying more in dollars, probably, but you're
paying a higher rate—
7/55
JOE KERNEN: But I don't mind. I don't mind. I'm fine. I'm good. I live in the greatest
country in the world—
WARREN BUFFETT: I don't mind either.
JOE KERNEN: I'm not complaining.
WARREN BUFFETT: I agree with you on that. No, I do not think we're undertax-- or
overtaxed.
JOE KERNEN: Excellent.
BECKY QUICK: Warren, let's talk about another big change that you mentioned in the
letter too. And this is about accounting change that's gonna come. And--it's going to
make your results a little-- tougher-- for individuals to really realize what's happening
on--- a actual basis with the company. So how the companies are performing. What--
is that accounting change? And it's accounting. It sounds boring. But I think it's
important.
WARREN BUFFETT: Well, it is important. I mean, we will report-- well, we would of

reported, I don't know how much more, maybe $15 billion or something like that
more income last year than we did under the rules that have just been adopted.
Because they are going-- the accounting profession requires that we now run gains or
losses, unrealized, just as our stocks go up and down, we run those through the
income account. So here we're running a normal business like the railroad, and then
you're interested in how that does on an operating basis. But we have $170 billion of
stocks, and they might go up $10 billion in a quarter, and down-- or down $10 billion.
We formerly always reflect that in the balance sheet. Now it has to go through the
income account. So you're going to see a bottom-line net income figure which really
has no relevance to operating results. And-- you know, people will look at the report
and they look at the bottom and it says, "Net income." It-'ll be a totally deceptive
figure. And--
BECKY QUICK: You said—
WARREN BUFFETT: --and we're warning people about that.
BECKY QUICK: Right. You've said that you and Charlie are gonna make-- take pains to
make sure you explain to people exactly what this means. Have you talked to Ajit and
Greg-- Ajit Jain and Greg Abel, about making sure, if they were in charge of things, that
they would continue to do the same?
WARREN BUFFETT: Oh, they would understand that in one second. But people are
used to seeing an item that says, "Net income," and have that mean something. The
answer is, it doesn't mean anything at Berkshire—
BECKY QUICK: Is that-- a Berkshire-specific situation, though, because you have $170
billion in stocks?
8/55
WARREN BUFFETT: Yeah, it makes us-- it makes us like securities firms. A Goldman
Sachs would have to report that way in the past, but they're in the trading business of
stocks and bonds going up. But-- we've got an unusual amount of marketable shares.
But other insurance companies are gonna have to do exactly the same thing. So you'll
see, you know, you name it-- Chubb or whatever it is, that they're going to report--
unrealized gains or losses as net income, or against net income, each quarter.
BECKY QUICK: Obviously that'll fluctuate with market-- with the markets going up or
the markets going down. That'll have a huge impact on things. What you also said in
your letter that's so interesting is that you've got $116 billion in cash, at least you did
at the end of the year, that you'd love to put to work. But when you look around, you
have a hard time finding values. You said basically, prices were decent but far from
spectacular. Business is at an all-time high.
WARREN BUFFETT: That's true.
BECKY QUICK: Does that mean that-- market overall is overvalued, based on what
you-- what you think is fair—
WARREN BUFFETT: Not necessarily. I mean, it--in fact, I-- the market-- the stock
market relative to the long-term bond market-- people have free choices, pretty
much, if they're going to be in marketable securities. They can own reasonably long-
term bonds, they can own equities, or they can keep it in short-term cash equivalents.
And--- if-you had to choose between buying long-term bonds or equities-- I would
choose equities in a minute now.
BECKY QUICK: You would choose equities in a minute? They are—
WARREN BUFFETT: That doesn't mean I think the stock market is gonna go up or
anything else. But if- I were going to own a 30-year government bond or own equity
for 30 years, I think equities will considerably outperform that 30-year bond over the
30 years. I don't know what they're gonna do in any day or week or month, but I think
that-- I've thought it for a long time, andwe can talk more about that later. But--
BECKY QUICK: Well, overall, is Berkshire a net buyer or a net seller of stocks right
now?
WARREN BUFFETT: In-- so far this year we've been-- a net buyer, although we sold-- a
chunk of Phillips to get below 10%. So the-- that was a three and a fraction billion
dollars—
BECKY QUICK: I think it was three and-- three-- $3.3 billion.
WARREN BUFFETT: Yeah. Yeah. So we've bought more than that on—
BECKY QUICK: Really? So even with that purchase,
BECKY QUICK: --sale, you've still been a net buyer.
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WARREN BUFFETT: Correct—
BECKY QUICK: Is that because of the huge-- spikes in volatility and the big declines
we've seen in the market—
WARREN BUFFETT: No, it's just because we found stocks that we like. We- if we buy
something, we don't have the faintest idea whether it's gonna go up next week or
next month or the next minute. But if I like it, I--we buy it. And we've got $170 billion
of stocks. I mean, we like-- there's plenty of stocks we like. We have not found
businesses that-- because you have to pay more, the stocks are selling more if you
buy in the public market by some margin. And-- we just haven't seen anything to buy
there.
BECKY QUICK: All right, let's-- ask a couple of questions from viewers. One is T-60. It
comes from Chris Rogers. He says, "With $116 billion and growing, how confident are
you in the future opportunities to deploy such a large amount of capital that would fit
the Berkshire mold? And at what point would you consider a dividend?"
WARREN BUFFETT: Well, we would-- if-- I'm fairly confident that-- that we'll find ways
to deploy money. I mean, we are deploying money right now. But--we'll get a chance
as we go along, based on history. It's gone a long period now we've been in a bull
market. And-- the best chance to deploy is when things are going down, obviously.
But if we don't, we'd probably be more likely-- it would depend on the price of the
stock entirely, but we-- the inclination might be more toward repurchase than
dividends. Because dividends have the implied promise that you keep paying them
forever and not decrease them and so on, whereas repurchase is assuming the price
of the stock is such that continuing stockholders' benefit from the repurchase, we
would probably lean toward repurchase.
BECKY QUICK: Would you I mean, you've been very clear about what price you would
buy back shares.
BECKY QUICK: Would-- you change the equation?
WARREN BUFFETT: We might-- you might have to change it a little bit. If you had to
change it too much, it wouldn't make any sense. So then we'd have to look at
something else—
BECKY QUICK: What's the equation right now? It's—
WARREN BUFFETT: 120% of book.
BECKY QUICK: Of book value. That's when you buy back shares on the marketplace
WARREN BUFFETT: We know that we're doing the continuing shareholders a favor if
we buy it at that price. And then that gets increasingly more questionable as you
move along from there. And-- obviously I leave some margin of safety when I do the
10/55
120%. And-- if we were going to spend a lotta money to buy in stock at some time in
the future, and it was 125% or 127% or something like that, we'd probably go that
direction.
BECKY QUICK: Rather than a dividend. Although there-- there-- I'll ask this question
from Alan Buckey. It's—number T-23. A lotta people came into this very question,
"Why not come up with a one-time dividend? Would you pay a one-time special
dividend?" And Alan himself asks, "You don't like to invest in companies that pay-- or
you like to invest in companies that pay dividends, and buy back their stock. But
Berkshire does not do either. Why is that?"
WARREN BUFFETT: Yeah, well, we'd rather have a company whose stock was
undervalued spend all their money buying a stock. But the trouble is if you establish
the dividend, you're not going to eliminate the dividend to repurchase shares. So
they're-- a company that's paying a dividend, take Apple or you name it, I mean,
they're not gonna cut their dividend-- to repurchase shares. And-- they're probably
not gonna cut their dividend under any circumstances unless their business changed
in a dramatic way. So-- we would do what made the most sense for shareholders. But,
you know, I have--I pointed out years ago, you can-- you can sell a little piece of
Berkshire every year and still end up owning more of it than-- you had before. So if
you wanna create-- the people who wanna create-- turn a little bit of what Berkshire
earns each year into the equivalent of a dividend, into cash, can do it. And they don't
force that policy on the other people. And we had a vote prompted by shareholder I
never heard of a few years ago Some shareholder put on our ballot, he said, "Let's
pay a dividend, and you know, let's get this Buffett out of-- keeping the money from
us and pay a dividend." We had the vote, and the shareholders, 47 to one among the
B shareholders, the smaller shareholders, 47 to one, they said, "Don't pay us a
dividend." So-- that-- that was a pretty and we didn't campaign on it or anything else.
The votes just came in.
BECKY QUICK: Because they figured you'd do a better job of-- what-- by the way—
WARREN BUFFETT: Well, we .
BECKY QUICK: --did that include you voting your shares?
WARREN BUFFETT: I probably voted my shares. But I'm not counting the A shares
BECKY QUICK: Okay, just the B shares.
WARREN BUFFETT: But-- Berkshire, in effect, for 53 years, has been a savings account.
I mean, we-- Charlie-- put his money in, I put my money in. Berkshire-- my partners
put their money in. We-- all my partners put it in. And it's a way of saving money over
time. And the money gets left in, and we invest it. And to the extent that it's worth
more than 120 cents on the dollar after we save it, every dollar we save is worth more
than if they got it out in cash. Forgetting all about tax factors, we would've had the
same dividend policy if we'd been taxed-- if the individuals had been tax-free the
whole time.
11/55
BECKY QUICK: All right, Warren, we're gonna continue this conversation, but we are
gonna slide in-- a quick break. When we come back, we'll talk more about some of the
individual stocks that Berkshire owns-- that Warren didn't comment about in that
annual letter. First, though, some big news out of China over the weekend as the
Communist Party looks to abolish term limits for its president. Details are straight
ahead, and Squawk Box will be right back.
JOE KERNEN: Good morning. U.S. equity futures sharply higher this morning. We'll see
whether we made it to up 200. Yeah, we're up 190. 182 right now on the Dow, after a
350-point gain on Friday. The S&P indicated up 12, and the NASDAQ also indicated
higher after a 120-plus point gain also that we saw on Friday. On this week's agenda,
today look for January new home sales. Tomorrow we get durable goods. The S&P
Case-Shiller Home Price Index and Consumer Confidence, and Fed chair Jay Powell
will deliver his first monetary policy testimony before a House panel at 10:00 a.m.
Eastern. Then on Wednesday, the second estimate on the fourth quarter GDP is out,
along with Chicago PMI as well as pending home sales. Oh boy. I just saw some – I'm
trying to do two things at once here. Some GE news out, we'll get to in a second.
Thursday we get personal income and spending. The ISM, Manufacturing Index and
Auto Sales. Fed chair Powell will testify before the Senate Banking Committee. And
that's followed by consumer sentiment on Friday. As for earnings, about 30
companies, stragglers in the S&P – not really. They have different fiscal years, et
cetera. Retailers and the like, including Macy's, Toll Brothers, Lowe's, TJX, SalesForce,
Kohl's, Gap and J.C. Penney. All right, here's some news just out from GE. The
company's adding three new directors, including former Danaher CEO Lawrence Culp,
American Airlines former CEO Thomas Horton, this is the one where I said, "Oh boy,"
and former Financial Accounting Standards Board chairman Leslie Seidman. Might be
Sideman. However it's pronounced, Becky, get back out to Becky, and maybe we have
someone who can comment on this. I know you must've had like a book of GE
questions for Warren Buffett today, Becky.
BECKY QUICK: There have been plenty of GE questions that have come in.
JOE KERNEN: For you, yeah. From viewers, and from you, and from us. But what do
you think of that, Beck? So a former person that ran the account--
BECKY QUICK: Well—
JOE KERNEN: Yeah. Is that – they need someone maybe to come in—
BECKY QUICK: Probably not a bad idea, at this point.
JOE KERNEN: Exactly. The FASB, a person that ran the FASB to come in and maybe
they can sift through, you know, the power systems and the pension issues that are,
you know, who knows how those are finally—
BECKY QUICK: And how some of these things were being—
JOE KERNEN: Yeah. You know, my question –
BECKY QUICK: Being booked and accounted –

12/55
BECKY QUICK: Warren's here.
JOE KERNEN: Yeah, Warren loved the CEO. Gave a huge – the former CEO. And
remember that big sort of at a time when GE really needed Buffett or Berkshire, in
terms of saying, you know that big investment, that helped GE a lot, Warren. Looking
– Becky, you can ask all these questions. But I wonder if looking back on it, Warren,
you feel like you were duped, to some extent, by Jeff Immelt?
WARREN BUFFETT: No, I don't feel that way. My job is to make up my own mind on
things. And we're talking, that investment was made at the very end of September, or
the first days of October of 2008. And GE had been funded with extraordinary
amounts of commercial paper, and the commercial paper market ended. And they
really had a problem, and there was no question in my mind that it would be
temporary if the government got its act together, and the economic engine got back
on the tracks, which I was sure it would. And so we did buy a $3 billion worth—
JOE KERNEN: No, I know.
WARREN BUFFETT: Piece of preferred with some warrants. And –
BECKY QUICK: But it came with a 10% –
WARREN BUFFETT: It came with a 10% coupon –
BECKY QUICK: Coupon on it, yeah.
WARREN BUFFETT: We made some money on it. We didn't make as much money on
that as we made on our Goldman investment.
JOE KERNEN: But Warren, looking back, I mean, there was a time where I think Immelt
had your full confidence. Looking back on it, do you think that that was misplaced?
Have you revised your overall viewpoint of how he led GE over the last – over his
tenure? Have you looked at that and revisited that and think, "Wow, this wasn't what
it appeared to be," or no?
WARREN BUFFETT: Well, I keep looking at GE. I won't comment on, you know, Jack
Welch is a very, very good friend of mine and Jeff's a friend of mine. And clearly there
were mistakes made, and they made mistakes in long-term care. We made mistakes
in long-term care. They weren't on the same – to the same degree, but that turned
out to be a huge one. And I will read their 10-K when it comes out. I'll read it very, very
carefully. It'll probably take me all day to do it, but I'll do it. And no. Insurance cost
them a lot of money, and it's cost other people a lot of money. You can make big
mistakes in insurance.
JOE KERNEN: And it did –
WARREN BUFFETT: Like I say, we made a –
JOE KERNEN: Yeah, sorry.
WARREN BUFFETT: Go ahead.

13/55
JOE KERNEN: I'm just seeing some more stuff here. I'm just wondering what – Becky,
are you seeing – we're trying to get through all the stuff that GE said. And I don't know
whether to go with this yet.
BECKY QUICK: No, I don't.
JOE KERNEN: From Mark Grant. Did you see this? I don't know what this means, that
maybe there's going to be—
BECKY QUICK: I have not gotten that yet.
JOE KERNEN: A look back at the past—
BECKY QUICK: Oh, here it is.
JOE KERNEN: I think you do. But there's going to be a —
BECKY QUICK: Well, look. We already knew this. We already knew this, that GE was
going to restate earnings for 2016 and 2017—
JOE KERNEN: For both years, yeah.
BECKY QUICK: For both years. That they – Warren, this is news, I think that was out
yesterday –
JOE KERNEN: We don't know the extent of it, though. Yeah.
BECKY QUICK: We don't know the extent of it yet, but they are going to be restating
earnings, in large part because of how they were booking some of the issues at
power. How they were booking revenue at power, and some of the things that were
coming through. What would your comment be, not knowing everything that's gone
out at this point?
WARREN BUFFETT: There's a lot of flexibility when you're booking that, either
construction in progress or potential service contracts, everything. I'll be very
interested in what they have to say on that. You know, I would say the accounting at
GE has not been a model at all, in recent years. But you can make mistakes in
something like insurance reserving, big time. And long-term care has probably been
the biggest single element of mis-reserving in insurance throughout the industry. And
they were in it big time, but I was staggered by the amount of it.
BECKY QUICK: By the amount of this most recent issue where they had to call up the
reserves—
WARREN BUFFETT: Yeah. That was huge.
BECKY QUICK: To the tune of billions of dollars.
WARREN BUFFETT: Yeah. Yeah, and the question gets to be, I mean, it was the Kansas
department supervising them. And that doesn't happen overnight. So it'll be
interesting to see just exactly what the correspondence was between the Kansas
department and the company and all of that sort of thing.
14/55
JOE KERNEN: Yeah. Do you remember when—
WARREN BUFFETT: But GE is a wonderful—
JOE KERNEN: Oh yeah? How wonderful? To the tune of buying how much percentage
of the common stock right now? How wonderful are you feeling about it, Warren?
WARREN BUFFETT: No, I mean, we haven't bought any stock. But—
JOE KERNEN: If it's wonderful, are you going to?
WARREN BUFFETT: In fact, we sold our stock. We had a small amount of stock that
came from the warrants of the company, the preferred –
JOE KERNEN: Right. From the –
WARREN BUFFETT: And we sold it. I know we sold it at $29, whatever that was awhile
back. It was a relatively small investment for us. But we did sell it.
JOE KERNEN: It's on sale. It's on sale today.
BECKY QUICK: But we did get questions from – yeah. We did get – $14.58 is the latest
tick. We did get questions from viewers, I believe one came from the Rational Walk,
that ask very specifically, "had the company approached you, would you be interested
in buying parts of this?" There's another question that came in saying, "Would you be
interested in buying parts of either General Electric or Siemens, particularly if it was
something that would help you in your health care initiative? It's a star investor,
vacuous star investor with liquid assets, earning less than projected inflation. Why not
buy a cash generator industrial like GE or Siemens's health care unit? This could
strengthen the health care partnership with JP Morgan and Amazon, as early
diagnosis provides long-term savings to fixed health care." What do you say to
something like that?
WARREN BUFFETT: Yeah, we wouldn't buy a health care business to try it in with the
health care initiative.
BECKY QUICK: Would you buy it just simply because of prices on this?
WARREN BUFFETT: If we like the business and the price was right, we could write a
check for cash. And that would apply to GE. They've got a few big businesses. I don't
think they want to sell them, but they have some smaller units that they're interested
in selling. But we're always in the market for a big business that we can understand
and that we like, and we think that we've got the management for and so on.
BECKY QUICK: Do you understand GE?
WARREN BUFFETT: I don't understand the whole place, no. But I think I'd be capable
of understanding, given the businesses or managers that we have at Berkshire would
be capable of understanding those.
JOE KERNEN: Hey, Beck?
15/55
WARREN BUFFETT: So, you know, they have not approached about any big business.
JOE KERNEN: Just –
WARREN BUFFETT: They've got some small businesses – go ahead, Joe. I'm sorry.
JOE KERNEN: Sorry, Warren. And I'm going to let you go. But just for the record, GE is, I
don't know, they're – do you see this, Becky? They're worried about how we're
reporting it. So the accounting rules – this is not – the restatement of earnings is not
due to the S.E.C. investigation. It's due to new accounting rules. Every, you know, I
guess after the tax cut, every company is required to do it. So they're worried that –
BECKY QUICK: Well, this is – these are the changes. Let me ask. I've been very
confused by this, and maybe we can hash through some of this. Those accounting
changes, those accounting changes that we were just talking about with Warren at the
top of the program, accounting changes the will affect what you are doing going
forward, is that a reason to restate 2016 and 2017 earnings?
WARREN BUFFETT: Well, that just from what you've said this morning – I don't know
anything about it. Obviously, they miscalculated their insurance reserves in a big, big
way. That doesn't usually –
BECKY QUICK: I think this is – that's not related to restatement of earnings.
WARREN BUFFETT: No, that doesn't usually count as a restatement.
BECKY QUICK: That is not what we're talking about.
BECKY QUICK: That is not restatement of earnings on any of these issues—
WARREN BUFFETT: No. No.
BECKY QUICK: These are things that GE has already said on this, that we're talking
about from that front.
WARREN BUFFETT: Yes, if in process business or amount capitalized as possible

earnings in the future and – were put on the books for in terms of service contracts or
something like that, anytime you get extended pieces of business, as you get an
aircraft or engines and that sort of thing, there's a lot of flexibility in when you record
both costs and revenue. And my guess is the S.E.C. is looking at that. I don't know a
thing about it in that respect. But my guess is that they're looking at that. And I have
seen companies use much different – and I'm not referring to General Electric at all –
I've seen them use much different approaches to contracts that extend over years,
and how they treat the first few units, which obviously have a higher cost because
you're just getting into it. There's a lot of flexibility. And whether you have a
conservative or an aggressive management can determine the earnings for at least a
few years.
16/55
BECKY QUICK: Right. Right. All right, we have much more with Warren that we're going
to continue to talk about. We want to talk about Wells Fargo, too. It's an issue that a
lot of our viewers wrote in about as well. We'll get to that in just a moment. Also, a big
weekend for Black Panther at the box office. The movie just did something that only
three other movies have done, ever. We have the details right after this.
JOE KERNEN: Black Panther joining an elite group at the box office. It brought in $108
million in North America over the weekend, making it just the fourth film to top $100
million in its second week in theatres. The others were Star Wars: The Force Awakens,
Jurassic World and The Avengers. Now after 12 days in theaters, the movie raked in
roughly $704 million globally, and according to comScore, and it hasn't yet debuted in
China and Japan, believe it or not. Those are two of the Hollywood, obviously,
industry's biggest markets. Coming up, we'll get back out to Becky quick in Omaha,
where Warren Buffett is answering questions from our viewers. As we head to break,
here's a quick check on what's happening in the European markets right now.
BECKY QUICK: Welcome back to "Squawk Box," everybody. We are live in Omaha,
Nebraska with Berkshire Hathaway's chairman and CEO Warren Buffett this morning.
He's been answering questions that viewers have sent in. And Warren, one that we
got lots of questions about was Wells Fargo.
WARREN BUFFETT: That's understandable.
BECKY QUICK: Yeah. There was a question that came in from Value Mojo who says,
"What are your current thoughts on Wells Fargo? Do you think the market reaction
was justified after the Fed's announcements of the asset's growth plan? What's the
impact on Wells's normalized earnings power? And do you still have confidence in
CEO Tim Sloan?"
WARREN BUFFETT: Yeah, I have confidence in Tim Sloan. But Wells did – it goes way
back, but they came up with some terrible incentives. And incentives work in both
directions if you got the right incentives. And you do the same thing with your family,
and all kinds of thing. And they had some incentives – they had an incentives system
which incentivized bad behavior. And the bad behavior became somewhat
contagious, apparently, in some offices more than others, where people put in phony
accounts and all that sort of thing. I mean, once people saw their superiors doing it,
I'm sure it picked up. But that was a bad problem, but that happens. But what they
didn't do was they didn't correct it when they were getting word that effectively these
terrible practices were taking place. So it gets back to the fact that, you know, the
same thing that happened in Salomon, you know, 28 years ago, is that management
didn't react when they found out that something had gone very much awry. And then
it just compounds like crazy.
BECKY QUICK: The company took action. That's why the former CEO John Stumpf lost
his job. But then chairman – former Fed Reserve chairman Janet Yellen weighed in
just as she was leaving her office and said, "We cannot tolerate pervasive and
persistent misconduct at any bank. And the consumers harmed by Wells Fargo expect
that robust and comprehensive reforms will be put in place to make certain that
17/55
abuses do not occur again." That is a huge rebuke, one that I can't recall seeing
something like this from the Fed Reserve in recent memory. And that brings up
questions about current management, too. What do you think the Fed's doing? And
I'll bring this up, too, Charlie Munger, your partner, just recently said he thinks
regulators, it's time for them to let up on Wells Fargo. What do you think?
WARREN BUFFETT: Well, I don't know all the facts on it. I do know that in 1991, I
became the CEO of a company that similarly insulted the Federal Reserve. And if the
Federal Reserve is mad at you because you've flouted them in one way or another,
you know, you're in a big, big, big doghouse. And digging your way out of it takes time.
And you find other things. I think I said last time, you know, there's never just one
cockroach in the kitchen. I mean, and you find other things out. I was always terrified
of that at Salomon, because I didn't know what had happened prior to my stepping
into the job. So you know, you obey your government. And if you don't, you can have
plenty of consequences. And Wells Fargo is suffering through those. But they will get
through it, and they're not the consequences of what Tim Sloan did. He's been
working like crazy and trying clean things up. But he's had a lot to clean up.
BECKY QUICK: Do you think you've seen the last of the cockroaches?
WARREN BUFFETT: I think so. But that's what you never know. I mean, if you've got
260,000 or 270,000 employees, and there was bad activity someplace, you try to find
out. But that – and I actually have been in that situation, well, you know, had 8,000
employees. And when I was – I woke up every morning terrified while I was in there
that I would pick up the paper and find out that somebody else had done something.
And you just – you can't be sure. Although I would – my guess is, and it's just a guess,
is that they have scrubbed and scrubbed, and that they have found out the things
that were done wrong, and the Fed and any other supervisor is going to make them
pay, which they have, for past sins. And they don't just do it in one day and wave at
you and say, "Congratulations."
BECKY QUICK: Back in 2009 at the annual meeting, you were asked if you had one
stock that you'd put all your money in, you said it would be Wells Fargo at that point.
What stock would it be today, if you had one stock you had to put all your money in?
WARREN BUFFETT: Well, I've got all my money in Berkshire. 99% plus. Yeah, 99.8% or
something like that, aside from treasuries. So that's the one I feel the best about. Not
that I feel the best about it having the greatest upside potential, because it doesn't.
But in terms of anything bad happening to it, I feel better about Berkshire.
BECKY QUICK: Outside of Berkshire, is there another stock, if you had to pick one?
WARREN BUFFETT: Well, if you look at our holdings, you would assume that we like
them in the order in which they rank by dollar value of holdings. But if you look at
them in terms of recent purchases, you know, over the last year, we've bought more
Apple than anything else.
BECKY QUICK: Can I take it and run with that as a headline? Apple's your favorite
stock?
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WARREN BUFFETT: I don't think – no because I haven't told you what I might have
been buying in the last week. Or month.
BECKY QUICK: But Apple ranks up there?
WARREN BUFFETT: Well, Apple, you know, it was – but it was selling at $105 or
something like that when we first bought it.
BECKY QUICK: Okay, great. Warren, we are going to continue to press you on some of
these issues in just a moment.
WARREN BUFFETT: I can tell.
BECKY QUICK: When we come back, we have more with Mr. Buffett. In the meantime,
we will also give you a rundown of today's top stories. All of this coming up including
big changes to the board of General Electric. Stick around, "Squawk Box" will be right
back.
JOE KERNEN: Good morning and welcome back to "Squawk Box" here on CNBC live
from the NASDAQ MarketSite in Times Square. I'm Joe Kernen. It's just me. Becky is in
Omaha this morning. It is for a good reason, obviously, speaking with Warren Buffett.
But I've got no one to talk to. I've got Stec, our guy on the set here, Becky. But we are
in close contact. We are in close contact at least.
BECKY QUICK: We are, we have been talking through the commercial breaks.
JOE KERNEN: Well, I needed to.
BECKY QUICK: A lot to get off your chest.
JOE KERNEN: Well, anyway. This is unbelievable. I mean I'm glad – you know, people
need people. They just do.
BECKY QUICK: Joe's worst nightmare.
JOE KERNEN: U.S. equity futures at this hour – I'm going to hurry up and get back to
you because it is very lonely. Anyway, here's what's making headlines. You can see
the futures are up 175. The NASDAQ is strong. Making headlines this hour, and there
are some pretty amazing things happening. Chip maker Qualcomm has urged rival
Broadcom to engage in direct talks on a price for a takeover deal. Qualcomm
continues to maintain that Broadcom's prior offer materially undervalues the
company. And economists are looking for a rebound in new home sales for January,
when those figures are reported at 10:00 Eastern time. Consensus forecasts call for a
4% jump partially reversing December's 9.3% slide. And General Electric is making
some moves with its board, shrinking the board and adding three new directors. And
now there will be 12. The three are former – one of them, former Financial
Accountings Standards Board chairman Leslie Seidman, former American Airlines
CEO Thomas Horton and former Danaher CEO Lawrence Culp. And as previously
announced, the overall size of GE's board will be reduced to 12 from 18. So if you're
adding three and still going down six, that leaves a who's-who list, really, of directors
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that won't stand for reelection. And I look at some of these names, Steven
Mollenkopf, think he's pretty well known, Shelly Lazarus, Jim Rohr, Mary Schapiro,
Marijn Dekkers, Susan Hockfield, Peter Henry, and Andrea Jung. And I think Jack
Brennan will be staying as the lead director, or the, yeah, lead director for awhile to
transition, to facilitate the transition to a new lead director until 2019. But then he
won't stand for reelection either. So let's get back to Becky and Warren Buffett in
Omaha. And there have been some questions, Becky, and you can talk to Warren
about it, about where was the board, and I guess this is sort of an answer to those
questions at this point. I mean, that's a pretty big reshuffling of the board. I guess
maybe Flannery would want a different board, obviously. But seems like a pretty big—
BECKY QUICK: So Flannery has talked about this when he came in about some
changes. But I don't think we realized quite how extensive those changes would be.
JOE KERNEN: Right. And you know, Rohr from PNC, and Mollenkopf, is he Qualcomm
or where – no, he's not Qualcomm, but I know the – I got to figure this out, but –
Shelly Lazarus—
BECKY QUICK: The well-known names.
JOE KERNEN: Mary Schapiro. These are really a who's-who list, right? So, I'd like to
hear Warren's thoughts on that, too. Yeah. March 24, 2019
BECKY QUICK: That's right. Warren, what do you think? I mean, obviously you've
watched GE for a long time. You were a shareholder for quite a number of years, from
2008 through when you sold those shares that were at $27 at that point. Big changes
there. Restating earnings for a couple of years, and talking about some different
accounting standards that have been put into place, but it does sound like they are
changing the way they account for some long term contracts.
WARREN BUFFETT: It-- sounds that way. I mean, I haven't read anything-- just been
sitting here, but it sounds like they are changing--when you build a ship or something
like that over five years-- not that they're building ships, but you do have ways of
accounting for sorta the in process activity. And companies can be quite aggressive in
that. They can be quite conservative at that. And-- I had-- I don't know anything
specific about General Electric.
BECKY QUICK: You would understand John Flannery coming in and wanting to—
WARREN BUFFETT: Clean house, yeah.
BECKY QUICK: Well, yeah, make sure that he's doing things his way going through the
entire process.
WARREN BUFFETT: Sure. Yeah, if-- I were brought in to run GE which they never would
do, and they'd be wise not to, but there'd be a lot to get your mind around. I mean,
you know, from the old insurance contracts to these long term contracts and service
contracts, and there's just a lot on your plate. And-- so the fact that you don't have it
all in place the first day, the first week or the first month I don't blame anybody for
that. There's-- things to learn with something that complicated and widespread.
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BECKY QUICK: Okay-- one thing that we got a lotta questions that people wrote in
about are- variations on forms of corporate social responsibility. I'll start with one of
the questions-- that came in. This is from Tominori Isakawa who wrote two topical
questions. Does Berkshire investor or own gun manufacturers and then number two,
actuarially does gun ownership have an effect on property and casualty premiums?
And-- these are-- there were a lotta questions in this vein that came in just given the
headlines that have been out there-- about what's been happening with school
shootings. But broader than that, just corporate social responsibility overall and some
of the things Larry Fink's talked about.
WARREN BUFFETT: Yeah, we don't own any gun manufacturers but I have not issued
any edict, for example, to the two managers that-- run money besides me at
Berkshire that they can't own stock in gun manufacturers. They can own stock in
man-- gun manufacturers. They can own stock in liquor manufacturers. We do own
stock in Diageo and have for a long time, which-- liquor manufacturer. And so-- we
have-- but to my knowledge we don't--I know we don't own any happen to own any--
gun manufacturers. And-- the second point was—
BECKY QUICK: The second point was-- does-- from an actuarial perspective does gun
ownership have an effect on propertyand casualty premiums.
WARREN BUFFETT: No, it really doesn't. It really doesn't. No-- there might be some
very weird personal policy that you might conceivably-- but in terms of standard
business, no. The-- that-- I don't know of any-- I don't know of any time it's come up in
the years I've been in the insurance business.
BECKY QUICK: There-- is a movement from Larry Fink-- at Blackrock and from others
who are kind of stepping into this saying that they would like to have more of an
impact on the companies that they are investing in, that they would like to have
maybe a little more say in what's happening. It's an arena that can get pretty fraught--
with potential missteps, though. Because by taking a step you're potentially alienating
half-- up to half of your customers. Sowhere do you come down?
WARREN BUFFETT: Yeah, it-- it's complicated. I mean, did I-- but I've been cheering for
what was going on at Wells Fargo if I'd known about it years ago. But Wells Fargo-- we
do lots of business with them. They-- made a big mistake and some others that
flowed out of the big mistake. But-- Berkshire's made mistakes and, you know, I got
involved in Solomon when they made a mistake. I-- you will not find any large
company that doesn't have some problems of one sort or another. I mean-- the best--
the best defense is a hotline. And-- we have found out more things that have been
wrong at Berkshire through the hotline—
BECKY QUICK: But I--think this is a little different than finding out cases of fraud or
wrongdoing or somebody doing things that are wrong. This is a case of investing
companies, of banking companies potentially getting in and saying, "We don't agree
with a particular group," be it the NRA, be it-- we want to take a stand on immigration,
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something along those lines. You do see more and more CEOs who are kind of
wading into the political arena and making their views known. You are somebody
who's not shied away from talking about who you vote for and who you support.
WARREN BUFFETT: Yeah. No, in terms of politics-- you know, I have not put my politics
in a blind trust. On the other hand, I don't speak for Berkshire in doing that.
Berkshire, to my knowledge-- Berkshire the parent company never had any
contributions to politicians. And I don't believe that imposing my views on 370,000
employees and a million shareholders-- I mean, they d-- I'm not their nanny on that.
And if I worked for Hillary but I don't know who our managers voted for and-- so I
think you have to be pretty careful-- if you're saying, you know, "We're not gonna fly
on this airline because of that, or we're not gonna use this railroad because of that in
terms of social." Because -- you'll find something. I mean, I-- admire enormously
Walmart and Costco. They sell cigarettes. We-- actually distribute between the
manufacturer through our Mclane company to Walmart and 7-11s and all kinds. I
think that-- I think it's a mistake to get-- start getting personal views andtrying to
impose 'em on an organization.
BECKY QUICK: Yet, we have seen-- a lot of that just over the last couple of weeks since
the last school shooting.
BECKY QUICK: And there have been some companies—
WARREN BUFFETT: Well, I've got views on gun laws, but I don't think they're
Berkshire's views.
BECKY QUICK: And so you don't think it's something that corporate boards should be
talking about?
WARREN BUFFETT: I think you should be pretty careful before-- a company takes a big
political opinion and something that society has decided that they say, "Well, we're
going to-- we're going to have a different view." Now-- I also think people individually
should very much express their views. I mean, I think what the kids are doing-- there
is very admirable. But-- I don't think that Berkshire should say, "We're not going to do
business with people that hold guns." I think it'd be ridiculous.
BECKY QUICK: Okay, let's talk about some of the holdings that-- we mentioned before.
At the end of the last block we were talking about Apple which is the stock according
to the filings that we've seen that you've been buying most frequently and most
heavily. There are a lotta questions that have come in on Apple and-- people wanna
know why you're doubling or tripling down on this stock at this point?
WARREN BUFFETT: Well, they might wanna know but I'm not gonna tell 'em. I mean,
they can look at our actions and we have to report those every three months. But
we're not in the investment advisory business.
BECKY QUICK: Why do you like it—
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WARREN BUFFETT: It's propriety-- the views-- you know, those are proprietary, in
effect, to Berkshire. They belong to the Berkshire shareholders.
BECKY QUICK: Just in terms of one question that came in, there was someone who
was asking about you've long touted the stocks that you bought into by drinking
some-- drinking Coca-Cola or eating at Dairy Queen or doing all of these different
things to talk about the stocks and the companies that Berkshire owns. But you still
have your flip phone. Wanted to know if you were ever going to get a smart phone, an
Apple phone.
WARREN BUFFETT: Yeah, well, Tim Cook's ac-- asked me that Well, the answer is just
I'm out of touch. But-- I tell Tim that as long as I haven't gotten one, the market's not
saturated. I mean, the day I buy one, there's probably nobody left after that.
BECKY QUICK: Wanna talk through a couple of the other stocks that you hold too. One
question that came in-- from Kraft Heinz was a question about the announcement
that Kraft Heinz just put out. This came from Ivan the K. He says, "Is this a sign that
Mr. Buffett is scaling back his direct participation in the business?" He was referring to
the headline, "Kraft Heinz reports retirement of Warren Buffett from board."
WARREN BUFFETT: No, that's-- I wasn't on any outside board till the Kraft-- well, till
the Heinz deal came along first, and then the 3G, our partners, asked if I would go on
for a while and I said, "Fine." But it takes-- there's five meetings a year. It's about a day
and a half for a meeting. I mean, you go in the previous afternoon and-- they-- so, it--
it's really a day and a half. So if you have five meetings, that's seven and a half days a
year. We have two other people on the board from Berkshire. And the truth is I'll talk
to the 3G fellows the same way. And so it doesn't change anything about it. It just
saves me seven and a half days a year, and I don't wanna be on any outside boards. I
mean, it just-- it's time consuming and-- - I haven't got that much time.
BECKY QUICK: But it doesn't indicate any—
WARREN BUFFETT: Zero.
BECKY QUICK: --of-- a declining interest in the business at all.
WARREN BUFFETT: Oh, no, no, we-- we're not gonna change a share. We've got Greg
Abel and-and Tracy Britt Cool on the board. We could've put somebody additional
ourselves, but Alexander Van Damme is going on there. I know him. He's got a huge
investment in the company. I love the fact-- he's much-- gonna be a much better
director than I am he likes to travel.
BECKY QUICK: Okay, great. We're gonna continue this conversation with Warren. But,
Joe, right now we'll send it back to you in the studio-- as we head to a break.
JOE KERNEN: Warren, always-- you know, sometimes-- I feel likewe're drifting and
then he pull-- he pulls me back in. And that answer on the-- on your questions,
Warren, was so apt and so appropriate. We all have personal views, and we should
act on those in every way that we can to try to-- to get what we want in society the
way that we think it should be based on our personal views. But isn't that the
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operative word, "personal views?" I can just play devil's advocate. And I can think of
some things that certain individuals would want companies to take a stand on that
are diametrically opposed to what other people want. And-- you can think of 'em, too.
The-- hot button issue in society, whether it's abortion or LGBT issues, and, you know,
the left always feels like they're-- they're so sure that they've got all the answers and
that they're right that they can't believe anyone would disagree on how they feel
about virtue and things. But if you had the right come in with some of-- what they--
what the left would feel are insane ideas and you had-- and you were pressuring
corporations to take a stand with you, it just doesn't work that way. But that-- that's
not gonna stop the-- that's not gonna stop the thought police in the media. The
media goes crazy and tries to shame-- corporations into-- but your answer was so
right on. And-- you didn't pull any punches, either. I mean, would you tell Larry Fink, if
you had a conversation with him-- would you say, "Larry, what are you thinking?" I
mean, would you say that to him? It's like, "I love your views but--"
WARREN BUFFETT: I would tell him what I thought. But it's the-- it's the extremes on
both sides-- whenever people get going on those kinda questions, I always say, "Let's
talk about something noncontroversial like religion."
JOE KERNEN: I mean, exactly.
WARREN BUFFETT: It just—
JOE KERNEN: I mean, salt-- you know-- red meat-- God almighty, any of that stuff. If
you-- there's just-- everybody's got it. That's why they're called personal views. You
know, so-- I don't know. Anyway-- but I digress, and we love hearing from you. But--
Warren, like I said-- great answer. Thank you and then Becky, that was-- that was a
good discussion. We'll have-- much more from Warren and Becky after the break.
Let's get-- a check on the markets-- right now. As you can see sharply higher up 190
points. Up 13 on the S& P. NASDAQ up 30. The ten-year note changing hands now
below 2.9%. Maybe that has something to do-- 2.85, in fact. Maybe that's why the
markets are strong. They like it when rates stay low. And here's oil-- which is back to
63.5. You're watching Squawk Box. More Warren Buffett, all the way till 9:00 today.
Stay with us.
JOE KERNEN: Welcome back to Squawk Box. A few headlines before we head back to
Omaha and Warren Buffett and Becky. Samsung unveiling its new Galaxy S9 smart
phone yesterday at the mobile world congress in Barcelona. It's the first phone to use
QUALCOMM's-- QUALCOMM's new Snapdragon 845 chip. The phone is pretty
expensive, priced at $720 for the S9 and $840 for the larger-- S9 Plus. Both will be
available on March 16. We gotta talk to Warren. Maybe-- that's the smart phone that--
you know, we just assume he'd buy. And I guess he'd probably buy an Apple, though--
since he owns all that stock. We'll ask him, anyway. Fiat Chrysler's planning to
eliminate-- diesel models-- from its vehicle lineup by 2022. Financial Times reports
that the move follows a drop in demand in the wake of Volkswagen's emissions
cheating scandal. Fiat Chrysler doesn't-- sell diesel cars in the U.S., but they're
popular in Europe and Asia. Prices at the pump edging lower. The average price of
regular unleaded fell six cents in the past two weeks-- to $2.59-- a gallon. That's the
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first decline since December-- but gas prices are still about 25 cents higher-- than a
year ago. Are we goin' back to Becky or we goin' to break? I think we're goin' back to
Becky. Becky, I-- you know, when I text people and-- when I send it and it goes in blue
and I get things back in green, it's like I don't even-- is that, like, not an Apple phone or
somethin'? I don't-- I like the blue. You know, I don't know. Why do-- do some people
really have Galaxy phones or Samsung or-- do you know what I'm talk-- you have no
idea what I--
BECKY QUICK: I think so. Yeah, I do know what you're talkin' about, but I don't know
what the answer is. I guess there's a change, whether you're in the iPhone ecosystem
or not. Is that part of the reason.
JOE KERNEN: I think less of people when they're not-- in the iPhone ecosystem.
BECKY QUICK: That's because you are all about status and-- status symbols, right.
JOE KERNEN: I'm just very tech savvy. I'm very tech savvy. But if-- I like blue a lot
better-- it's like green and white. What---- hey, where-- what century are you living in?
What is this green thing? Get a 10. Get an X. Get a 10-- Warren. Come on.
BECKY QUICK: You-- if you were buying a smart phone what-- which one would you
buy?
WARREN BUFFETT: Oh, I'd definitely buy an Apple.
JOE KERNEN: See?
WARREN BUFFETT: Incidentally--
JOE KERNEN: See?
WARREN BUFFETT: Samsung, although they didn't-- they made the money in
semiconductors to a very great-- but they could be the second highest earning
company in the-- you know, in-- in the world. I mean, they earned about-- I think they
earned about-- well, you get into one, so $50 trillion or something like that. But-it's a
lot. Is it-- what is it? I don't know, 108. But-- they probably earned somewhere around
$45 million or something. I haven't looked at it recently. And there aren't too many
companies around that earn $45 million.
BECKY QUICK: Right. That aren't in commodities--
WARREN BUFFETT: They—but they did not make as much-- remotely as much money,
it didn't look-- doesn't look like it in phones. It was semiconductor business ran wild
last year.
BECKY QUICK: Just shows you a little bit about how-- Mr. Buffett is always reading--
the financial statements of just about every company out there.
WARREN BUFFETT: I like to read.
BECKY QUICK: It's what you do for your fun time, right?
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WARREN BUFFETT: Yeah-- yeah, that is my fun time.
BECKY QUICK: That is your fun time, right. Warren, I wanna talk to you about
something you wrote in the annual letter this year, and that's talking about leverage
and how dangerous that can be. And I bring it up because it happens that one of the
stories on the front page of The Wall Street Journal today is all about margins, margin
bets, fueling the selloff. Part of the reason we've seen so much volatility is that--
$642.8 billion had been borrowed by retail and institutional investors against their
portfolio. That can lead to all kinds of-- machinations in the stock market, send some
real impact to people when prices finally go down.
WARREN BUFFETT: Yeah. Well, it-- it's interesting. After the '29 crash when they had
ten percent margins, they actually-- gave the Federal Reserve the power to set margin
requirements and everything. And then of course-- and I think the Fed-- does have
that power. But-- the whole thing has been-- they moved by derivatives and index,
futures and that sort of thing. So people can gamble in stocks and people like to
gamble. I mean-- a lotta people like to gamble. But you can't-- four times in the 53
years I've been at Berkshire, the stock has gone down anywhere from 40% to 60%.
BECKY QUICK: Berkshire shares?
WARREN BUFFETT: Berkshire shares.
BECKY QUICK: Yeah.
WARREN BUFFETT: Just-- and some not-- well, very fast in October of 1987. And--
people had a perfectly decent investment. If they borrow against it, they lose it. I-- it is
crazy in my view to borrow money on securities. You-- you do not know to borrow
more. You don't know whether the stock exchange will be open tomorrow morning. I
mean, they-- we have closed the stock exchange, one time during World War I. We
closed it for months. We closed it after 9/11 for a few days. It-- when-- it's-- I put in the
annual report-- it's insane to risk what you have and need for something you don't
really need. And---- you know, borrowing money is a way of trying to get rich a little
faster, but there are plenty of good ways to get rich slowly. And-- you can-- you can
have a lotta fun while you're getting rich as well. My partner, Charlie, says that there's
only three ways that a smart person can go broke. He says, "Liquor, lays and
leverage." Now the truth is the first two he just added because they started with L. It's
leverage, and-- when somebody tells you how they came back and made a second
fortune, I'm not impressed 'cause why the hell would they lose their first fortune? I
mean, you know, there's no reason. There's just no reason to borrow money except
you're in a hurry to get rich and you're risking going broke and all the effects it can
have on your family. I'm-- I do not believe in borrowing money on security.
BECKY QUICK: There was a question that someone had written in-- just asking-- about
how you do that just in terms of-- let's see if I can find it -- just in terms of getting
yourself to not do it. Because you have at times in the past have had more ideas than
you had money.
WARREN BUFFETT: Always. Come on—

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BECKY QUICK: How did you have the self-discipline?
WARREN BUFFETT: --well, first 30 years, yeah.
BECKY QUICK: How did you have the self-discipline to not go ahead and get levered
up in those situations?
WARREN BUFFETT: I wasn't unhappy when I had $10,000 when I got outta school. I
was having a lotta fun. I was looking for things to buy. And the fact that after I spent
$10,000 I ran outta money meant that I just kept looking for things that were better
than the ones I already had. But-- I was-- if you think that-- if you have $100,000 that
means that you're an unhappy person and a million dollars is gonna make you happy,
it is not gonna happen. You know, I mean-- then you'll look around and you'll see
people with two million. And it-- it just-- it--doesn't work that way. -- you will not be
way happier if you double your net worth. You get-- you'll get-- kind of a euphoric
surge or something like that, but-- to risk, you know, starting all over again, you know,
and losing everything and you've got children and-- it's just-- it's madness.
BECKY QUICK: Warren, we're gonna continue this conversation. We'll have a lotta
questions from viewers that we'll go through rapid fire when we come back, as well. In
fact, when we come back, from-- from Omaha, we'll have your questions that you've
been sending in through the morning, plus your morning corporate stories including
changes to the board of General Electric. We have the details straight ahead. Right
now, though, as we head to a break take a look at some of the names of-- folks who
are gonna be joining us tomorrow right here on Squawk Box. Stick around. We will be
right back.
JOE KERNEN: Good morning and welcome back to Squawk Box here on CNBC, live
from the NASDAQ market site in Times Square. Among the stories-- front and center,
General Electric shuffling its board of directors is one word for it. The company's
adding three new directors-- including-- former financial accounting standards board-
- chairman, Leslie Seidman or Seidman. We're-- I'm gonna know.I'm gonna know
eventually when we actually do something and figure it out. Seidman-- let's call it
Seidman. Former American Airlines CEO, Thomas Horton-- former Danaher CEO,
Lawrence Culp and as previously announced the overall size of GE's board will be
reduced to 12 from 18 which means there are quite a few departures-- or at least
directors who won't stand for reelection. There's the list. Many-- are-- you're familiar
with. Remember on-- Andrea-- Young and-- Shelly Lazarus, Jim Rohr, Mary Shapiro,
Steve Molinkopf-- Susan Hockfield, Peter Henry-- many, many-- well known names.
Lead director-- Jack Brennan will stay on to facilitate the transition, but he won't stand
for reelection in 2019. Elsewhere, Daimler and its China partner, BAIC, plan to invest
nearly-- two billion to modernize a factory in China-- which will build Mercedes Benz
and high end electric cars. And that move-- comes after the chairman of China's Geely
Auto disclosed Friday he bought a ten percent stake in Daimler, worth nine billion.
Makes him Daimler's largest shareholder. Geely is a parent company of Volvo. And in
other-- global news, the ruling communist party-- in China has proposed eliminating--
the two-term limit for president-- Xi Jinping-- for all of 'em, I guess. But this mainly
applies to President-- Xi, and he will remain leader of China indefinitely. The proposal
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also covers-- the office of the vice president. Let's get back-- to Omaha and Warren
Buffett-- and Becky is there. And I-- I don't-- did-- did I say any th-- did-- should
Android users feel like I-- I really-- I was just kidding around about-- I happen to use--
the iPhone. I mean, they're people, too. They're-- I don't want them upset at me.
BECKY QUICK: You're getting angry responses on Twitter?
JOE KERNEN: Yeah. Myopic and Android that's fine. Hey, but I did have a question
about Warren for Samsung, to give them a plug. But then I thought, "I wonder if
Warren actually has a flat screen." Do you still have one of those boxy TVs? You have
a color TV, probably. Right, Warren? But have you actually got a flat screen?
WARREN BUFFETT: I've got an 85-incher. I like to watch sports on television.
JOE KERNEN: See? I knew.
WARREN BUFFETT: And it's interesting. And I sit very close to it. It's interesting how in
the theater you get a bad result if you sit in the front row, but you can sit very close to
this screen of mine and I love it.
JOE KERNEN: Is it a Samsung, Warren? Can you disclose that?
WARREN BUFFETT: Yeah, it is a Samsung, yeah.
JOE KERNEN: Mine, too.
WARREN BUFFETT: It's a Samsung.
JOE KERNEN: I like it. So you watch Creighton. You watch Creighton from, like, this far
away.
WARREN BUFFETT: Absolutely, absolutely.
JOE KERNEN: All right.
WARREN BUFFETT: And I watched the Super Bowl, and I watch everything.
JOE KERNEN: Olympics?
WARREN BUFFETT: Just think of, you know, yeah – and think of what that is compared
to 40 or 50 years ago. I mean, the experience is just incredible.
JOE KERNEN: It's unbelievable. High def. It's fantastic.
JOE KERNEN: And all right, and you can tell it to – you can verbally tell it to, you know,
switch to something else. Switch to "Squawk Box," for example, which is apparently
one of the most common verbal instructions – or switch from Squawk Box when I'm –
no, I'm kidding. Anyway, go on.
BECKY QUICK: All right.
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WARREN BUFFETT: I watch you on an 85-inch screen, Joe.
JOE KERNEN: Oh, my God. I know we don't pay our makeup people enough, I know.
BECKY QUICK: No, we don't. Wow. All right, Warren, we want to take this part of the
show and get some questions from some of the viewers who have been writing in
and sending things in, too. A lot of these are people who read your annual letter and
have additional questions about Berkshire, too. First one comes from Piyush Pant,
who says, "both you and Charlie have the vast majority of your net worth in Berkshire
stock which means that you share the pain if things go south. Can you clarify how
much of their net worth Ajit and Greg Abel have in Berkshire and are there plans to
increase?" Now, they disclose their holdings as directors.
BECKY QUICK: In terms of Berkshire, but that doesn't really tell about their net worth.
WARREN BUFFETT: Yeah, well, I've never asked them about their net worth. That's
their business. But Ajit obviously has a very substantial investment. He's bought every
share of that in the open market, and he came into my office in 1986 on a Saturday
and I don't think he had very much net worth at that time. And he's just bought
Berkshire as he's gone along. And Greg has been with MidAmerican Energy, now
Berkshire Energy for well over 20 years and his net worth is virtually 100% in
Berkshire. I don't know that it's 100% because I don't know what he has outside, but
I'm sure it's a very, very high percentage of his net worth is in Berkshire Hathaway
Energy. And it pays no dividend, incidentally, and Berkshire itself owns 90% of it, so
our interests are very aligned.
BECKY QUICK: And by the way, you don't hand out stock options like a lot of
companies do.
WARREN BUFFETT: No.
BECKY QUICK: These are sums that they've kind of built up themselves over the years.
WARREN BUFFETT: Ajit has bought every share of that, come on, you know, in the
open market and he buys it just like anybody else. If it goes down, he suffers. I mean,
we do not have one way things. We don't grant the directors restricted shares or
anything of the sort. We want our directors to stand in the shoes of the shareholders.
We don't have directors and officers insurance liability. I think maybe one other
company on the New York Stock Exchange does it. If we do something really dumb
and they lose – a company loses a lot of money, they lose money and it's real money
to them. It isn't just something that was given to them.
BECKY QUICK: You didn't know how much either of them owned before, did you?
Before they were—
WARREN BUFFETT: Well, I knew how much Greg owned of Berkshire Hathaway
Energy. I had no idea what his holdings were of Berkshire, and I didn't know, I mean, I
knew Ajit owned it, but I had no idea what the amount was.
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BECKY QUICK: Okay. Here's another question that comes in. This one's from The
Rational Walk. It says, "Berkshire has become a large player in the real estate
brokerage, a field that's still plagued by high commissions. I recently sold a home
using Redfin and saved at least two percent in commissions relative to traditional
brokers. Is this a threat to HomeServices?"
WARREN BUFFETT: Yeah. I don't think it's much but, you know, I could misjudge that.
But it's obviously the Internet's going to try and take away any business that existed in
a more traditional form in the past. Buying a home is the biggest deal that most
people make in their lives. Sometimes they're moving from another city and they
want somebody that explains the schools to them, and then, you know, just how the
whole city – where they really want a helping hand in coming in. And it's a very
personal transaction. It's a scary transaction sometimes to people. A lot of paperwork
involved and all that. They really want somebody they trust, and I have a feeling that it
will be very much a person to person operation ten or 20 years from now. But the
people who are backing an Internet operation think otherwise, and certainly, Amazon
has proved that a lot of businesses that you thought had to be done face-to-face can
be done very well from thousands of miles away.
BECKY QUICK: Right. This question comes in from Jeff Vaughn. He says, "Warren,
when you talk your about your thought process and discussion that you and the
investment team had about taking a large position in BYD, which segment of the
business was most attractive and why?" And that comes up because BYD made its
way into the top 15 holdings of Berkshire again this time around.
WARREN BUFFETT: Right. Well, I've said in the past it really wasn't me or the
investment team. Charlie called me one day and says, "We've got to buy BYD. This guy
that runs it is better than Thomas Edison." And I said, "That isn't good enough." And
then he called a little later and said, "He's a combination of Edison and Bill Gates."
And I said, "Well, you're warming up but it still isn't good enough." Anyway, Charlie
wanted to do it. Now, it's worked out so well that I'm actually starting to remember
that it was my idea. As it's coming back to me. I think I persuaded Charlie. But
unfortunately I'm on the record that it's his deal. But BYD, Charlie's in love with the
company, and it's done very well. And the fellow that runs it, you know who's autos
and batteries, but he's got big, big ideas and he's very good at executing. So, but I
leave it to Charlie.
BECKY QUICK: There's another question that came in from David Rolfe and he's
asking about Precision Castparts. He says, "What's the percentage gain in intrinsic
value of PCC since the closing of the aacquisition? Can you state it if it's even
positive?" You've described the $37 billion PCC acquisition as a singular bet on Mark
Donegan. Are you pleased with his performance so far?
WARREN BUFFETT: Yeah, I am. But it has not earned as much as was in the
projections. But that's a very long term business, and the contracts they get can run
out in to the mid 2020s. And Mark, I just saw him about two days ago. And he is an
extraordinary business operator. I mean, he just loves figuring how to make things
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and he hits it off terrifically well with our fellow who runs his car. Because they've got
that kind of mind, and they're very, very good at it. And Mark never stops working,
and he built a sensational company and he will continue that with us.
BECKY QUICK: Okay. And finally, Market Folly writes in about the relationship with
Todd and Ted, the investment gurus in house. He says, "Has Buffett ever disagreed
with any of Todd or Ted's investments, and why?"
WARREN BUFFETT: Yeah, well, they make their own decisions, 100% and they each
manage $12 billion or $13 billion now.
BECKY QUICK: It started as what, about $5 billion each?
WARREN BUFFETT: Pardon me?
BECKY QUICK: They started out with each of them having five to six –
WARREN BUFFETT: Well, they started actually, I think when Todd came about a year
ahead of Ted. And I think maybe it was $2 billion, but it has increased at various
points and then they've earned a lot of money for Berkshire, which builds up for
them, too. There's certainly – they've done things I wouldn't have done. But I've done
things they wouldn't do, too. I mean, I want them to figure out their own. The choices
– they are good at managing money, and they've got the advantage of managing
smaller sums than I'm running. But they've got the disadvantage of running quite a bit
larger sums than most people run. I mean, it gets more difficult with size. But they not
only have done a good job of managing the money and trusted them. But they've
contributed to Berkshire in just dozens of ways. They were sensational hires.
BECKY QUICK: Do you talk about the investments with them ahead a time?
WARREN BUFFETT: No, not ahead a time. And there's a number of them I haven't
talked with them at all. I couldn't even – I couldn't name three quarters of their
portfolio. I couldn't tell you the amounts. I don't remember that well. But I've gotten
ideas from them. But they take on other tasks. I mean, Todd is on the health care
situation. He's there on Saturday. I was there on Saturday. He's there all day talking to
people around the country in terms of looking for the right CEO and that sort of thing.
They are enormous contributors to Berkshire.
BECKY QUICK: We are going to talk more about the health care proposal between
Berkshire Hathaway, JPMorgan and Amazon coming up in just a little bit. In fact,
Warren, this'll be the first time that we've gotten to talk to you about it since this
announcement came up. But we'll do that just a little bit later this morning. In the
meantime, Joe, we'll send it back to you.
JOE KERNEN: And you might prepare Warren to answer some of the most pressing
social issues facing us, Becky. Like, can you – do you know whether he's a Taco Bell or
a Chipotle guy? Have you ever asked him?
BECKY QUICK: I'd have a guess. I don't know. Have you been to Taco Bell or Chipotle?
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WARREN BUFFETT: Neither one.
BECKY QUICK: Neither?
WARREN BUFFETT: Neither one, no. I go to Kentucky Fried. I go to McDonald's. I go the

Burger King. I occasionally go to Wendy's.
JOE KERNEN: You're skirting the question, though.
WARREN BUFFETT: And there's various local ones.
JOE KERNEN: Skirting the question. Taco Bell—
WARREN BUFFETT: Me? No, I—
JOE KERNEN: Will the Taco Bell guy be good at Chipotle or will he ruin the natural foo-
foo, you know, all the na – you know, I mean, Taco Bell—
BECKY QUICK: Knowing his inclinations for whether he's – I don't think he's a taco guy.
WARREN BUFFETT: When they start serving hamburgers I'll give you an opinion.
BECKY QUICK: Yeah, I don't think he's a taco guy.
JOE KERNEN: All right, all right. I was just – these are the pressing, you know, these are
what's on my mind. As I said, I wanted to prepare you for some of these social,
societal questions. The big questions.
WARREN BUFFETT: I'm for whichever one serves Coca-Cola.
JOE KERNEN: That might not be Taco Bell because it used to be Pepsi, I think. Anyway.
Coming up, more Warren Buffett. Plus a big weekend for Black Panther at the box
office. Details straight ahead. "Squawk Box" coming right back.
JOE KERNEN: Welcome back to "Squawk Box." The futures have moderated somewhat
recently down – now up 161 on the Dow. Almost 200 earlier as far as upward
momentum. The Nasdaq though, meanwhile, has actually added to the earlier gains.
It was up 120-plus on Friday. And earlier in the premarket session was up about 25,
26, 27. Now up 33. Black Panther joining an elite group at the box office. The movie
brought in $108 million in North America over the weekend. And that's just the fourth
film to top $100 million in its second week in theaters. The others were Star Wars: The
Force Awakens, Jurassic World, and The Avengers. So after 12 days now in theaters
the movie has raked in roughly $704 million globally. I don't know how much in
popcorn sales. Because sometimes that's as expensive. I went to the movies Saturday
night. I think it cost more, popcorn and a large drink cost more than a ticket. Quite a
bit more. According to comScore, though, it hasn't yet debuted in China and Japan.
Those are two of Hollywood's biggest markets. And let's get back now to Becky, in
Omaha. I wish we could – what if we just, you know how when NBC sometimes we go
to commercial on the Olympics, or golf or something, and we stay with – we show the
commercial, but we stay with the programming? What if we did that with you and
Warren? Would that be—
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BECKY QUICK: So you could see what was happening in between the commercial
breaks? That would be good.
JOE KERNEN: Yeah, that might be some of the best – the conversations and stuff. That
might be some of the best. So what'd you guys talk about?
BECKY QUICK: Well, I'm actually just looking at this. Well, no, I was just showing him. I
was laughing. You know, I've been watching the wires to see what he says makes the
wires. And literally, Joe, this honestly just hit the wires at 7:44:48 a.m. Buffet says,
"Has not gone to Taco Bell, Chipotle. Prefers McDonald's, KFC, Burger King, Wendy's."
I'm not joking. That literally hit the wires.
JOE KERNEN: I'm getting –
BECKY QUICK: So I think you can say anything.
JOE KERNEN: Yeah, 85-inch screen – literally within milliseconds Drudge had "Buffet
touts stock – or, tax plan." They had that and I thought it was going to be the least of
it. That got on Drudge almost immediately, too. So let me check Huffington Post—
BECKY QUICK: But it's not nearly as important as this comment that just made the
wire.
WARREN BUFFETT: You too could live to 87.
JOE KERNEN: Yeah, exactly. That'll come out.
BECKY QUICK: Warren, one thing that you said earlier, you were talking about
Samsung. You mentioned you owned the Samsung 85-inch television screen. But you
know an awful lot about the company. You don't own the shares, do you?
WARREN BUFFETT: I don't own them, and Berkshire doesn't own them now. But
Berkshire has owned Samsung. It doesn't get reported in our 13F. I think 13Fs just
apply to domestics. So it actually hasn't shown up.
BECKY QUICK: Really?
WARREN BUFFETT: But I think I'm right on that. I'm 99% sure. And so we bought some
when Samsung was at about a million yuan – you got to divide that by something over
1,000 – we bought a reasonable amount. We did sell it when it went up. It's higher
than this now. It went up to 1.8 million, or something. I think it's around 2 million, 2.3
million or 2.4 million. The yuan went in our favor a little bit too. So we did a little bit
better in dollars, but –
BECKY QUICK: I mean, I don't think of you as – in the past you have bought some
South Korean stocks, I think. That was a while ago. Why were you looking at Samsung
at this point?
WARREN BUFFETT: It was very, very cheap. They had a lot of cash. They hadn't done
much on buying in their stock. But they had talked about it. But it was just very cheap.
It's a big, strong, good company.
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BECKY QUICK: Yeah, I remember you buying a South Korean retailer, was it, years
ago?
BECKY QUICK: Maybe it was Costco or something?
WARREN BUFFETT: There was a time when I bought a whole bunch of little ones
personally.
BECKY QUICK: Right. Right about the time when we traveled.
WARREN BUFFETT: Yeah. Exactly. And we – the Korean market was very cheap. I
mean, ridiculously cheap after the 1998 – when they had all kinds of troubles. And
there were a lot of bargains in Korea.
BECKY QUICK: When you say a reasonable amount, I mean, for me, that's a different
number for my holdings than it would be for you.
BECKY QUICK: Are we talking north of a billion dollars?
WARREN BUFFETT: Well we probably made in the hundreds of millions, someplace.
BECKY QUICK: You made that much on the transaction.
WARREN BUFFETT: Yeah. That's my memory. It was kind of in $500 million, or $400
million, I don't remember exactly.
BECKY QUICK: Let's talk about some of the other purchases that were revealed.
Purchases and sales that were revealed in some of these most recent filings and 13Fs.
You sold more of your IBM stake and bought more Apple, according to the latest
filings that we had seen.
WARREN BUFFETT: That's true.
BECKY QUICK: And a question came in from Brandon Carroll that said, first of all, why
did you—
WARREN BUFFETT: Well I was wrong on – at least I felt I was wrong on IBM. Now, I
may have been wrong when I sold it, too. But I certainly was wrong when I bought it.
And I've felt that Apple has an extraordinary consumer franchise. Apple's a different
kind of business than IBM. They're both tech, obviously, in a major way. And they
even have a joint venture, you know, on some things. But I think I understand
consumer behavior perhaps better than I do the tech business. It wouldn't take much
to beat it. And I liked it, I like Tim Cook very much. I like their policies. I see how strong
that ecosystem is. It's to an extraordinary degree. I mean, I look at my grandchildren,
my great grandchildren and everybody in the office, I mean, their families. I talk to the
people at the Furniture Mart when the ten hadn't arrived, nobody goes over to, you
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know, buy an Android. I mean, you are very, very, very locked in at least
psychologically and mentally, to the product you're using. I mean, you got all kinds of
stuff up on there. It's a very sticky product.
BECKY QUICK: That was sort of the same thing you said about IBM when you were
first buying it. That corporations that had bought into it, they were kind of stuck with
it.
BECKY QUICK: That it would be what they were using because it was too hard to get
off of a system like that.
BECKY QUICK: And, by the way, IBM recently just finally showed an increase in
revenue for the first time in, like, 27 quarters.
WARREN BUFFETT: Well, but it was – the foreign exchange went with them, and it was
the introduction of a new piece of hardware. I mean, it actually – they weren't up
except for those two factors. But the cloud came along. And one of the most
extraordinary things I've ever seen in business is when an unrelated type company – a
retailer, you can call Amazon of that type, goes into another big industry and sees the
future in it, gets into it, and then they gave – and Jeff Bezos would say this, he said it
on the Charlie Rose show, some time ago – he got this amazing runway. I mean, the
other players – here are all these 200 IQ people, you know, in that business, and they
gave him year, after year, after year. It wasn't a secret of what he was doing. And he
was, in an important way, revolutionizing the industry, and the other people sat on
their hands, basically.
BECKY QUICK: Wow. All right. We have more questions that we're going to ask you,
related to some of these things. But right now we're going to send it back to Joe. Joe?
JOE KERNEN: Hold on. Hold on. I just thought of something, Becky. Hey, Warren?
WARREN BUFFETT: Yep.
JOE KERNEN: I don't understand why Creighton's in the Big East. I don't know.
Number one, because it's so far West. But let's just – so it is. Why don't – I'm inviting
you. I'll get the tickets. You can come with my family. Why don't you come back for
the Big East tournament? Not the March Madness. But at Madison Square Garden. It's
coming up the week of March 7th to 10th. You want to come back for that and we'll
take in a couple of games?
WARREN BUFFETT: That's tempting. Because I like watching Creighton basketball. But
I am cutting back on the travel, Joe. I'll watch it on my 85-inch. And you were talking
about popcorn earlier.
JOE KERNEN: Now you're cutting back.
WARREN BUFFETT: I make my own popcorn.

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JOE KERNEN: I invite you somewhere and you're cutting – I invite you somewhere and
you're cutting back on your travel. The minute I invite you—
WARREN BUFFETT: Joe—
JOE KERNEN: Well I'll get good seats. StubHub.
WARREN BUFFETT: I will – I'll tell you what I'll do. I'm making you an invitation. If
Creighton gets to the finals in March Madness, I'll take you. How's that?
JOE KERNEN: That's pretty good.
WARREN BUFFETT: That's a firm offer.
JOE KERNEN: Because I'm not convince they won't this year.
WARREN BUFFETT: And I'll have good tickets.
JOE KERNEN: I'm not convinced they – I don't know who is good—
JOE KERNEN: I mean, there's a lot of – everybody's great. That's the thing. Amazing. All
right. Okay. So forget it. Nevermind.
WARREN BUFFETT: I'll have good tickets. But you got to be for the Bluejays, though. I
mean, if we go, you cheer for the Bluejays. That's the deal.
JOE KERNEN: Not if it's against Xavier. I can't do that. Not if it's—
WARREN BUFFETT: Well, no. But that will be the exception.
JOE KERNEN: All right, well we'll see. I just thought because this is going to be – that's
unbelievable. Madison Square Garden. That conference, I mean, if you can win in that
conference, you can win anywhere. Right? It's like the Southeastern conference.
WARREN BUFFETT: Who would've thought it, yeah. You're right.
JOE KERNEN: Yeah, I know. All right, Buffett, forget it. Don't come back. I don't care.
Coming up, this morning's corporate headlines. Plus, much more from Warren
Buffett, including – he's not traveling as much. What if you said that, Becky? When he
tells you to come out to Omaha? I mean get on one of your NetJets, Warren. Anyway,
we'll get his take on health care in a moment.
BECKY QUICK: Good morning, everyone. Welcome back to a special edition of Squawk
Box, live from Omaha, Nebraska. We are here with Berkshire Hathaway chairman and
CEO Warren Buffett who's gonna be answering your questions for one more hour. Go
ahead and keep sending us your questions on Twitter, on Facebook with the hashtag
#AskWarren. It is Monday, February 26th, 2018 and the third hour of Squawk Box
begins right now.
JOE KERNEN: Good morning and welcome back to Squawk Box here on CNBC, live
from the NASDAQ market site in Times Square. I'm Joe Kernen along with Becky
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Quick. The futures right now-- they were inching up again last we checked. Now back
to 180. Up 180 on the Dow up just under 13 on the S&P, the NASDAQ strong, up 37.
Treasury yields have moderated. I saw 285 on the ten year-- last time we checked. See
285 even right now. In corporate news, General Electric making big changes to its
boards. The company adding three directors, including former Financial Accounting
Standards Board chairman-- Leslie Seidman, former American Airlines CEO Thomas
Horton, former Danaher CEO Lawrence Culp, as previously announced. The overall
size of GE's board will be reduced to 12 from 18. There is a list of some of the
directors who are not-- standing for reelection, which includes Steve Mollenkopf,
Shelly Lazarus-- Jim Rohr-- and Mary-- Schapiro. And lead director Jack Brennan-- will
also not stand. He will stay on-- to facilitate the transition, but will not stand-- for--
reelection in 2019. Right now, let's get back-- to Becky Quick-- and Warren Buffett.
Time is goin' pretty fast. It's already 8:00-- back here, Beck.
BECKY QUICK: I know. It-- always flies. Joe, thank you. Our news maker of the morning
is Berkshire Hathaway's chairman and CEO, Warren Buffett. And Warren, we have not
gotten the chance to speak with you since you made an announcement along with
Jamie Dimon and Jeff Bezos about how the three of you are creating a new company
to try and tackle the ever-- increasing level of health care costs in America. tell us a
little bit about this plan, how this came together. How did-- how did the three of you
set this up?
WARREN BUFFETT: It's a good question. It--- I think that-- certainly Todd and I-- Todd
Combs in our—
BECKY QUICK: Todd Combs.
WARREN BUFFETT: --office-- discussed it quite a bit. Todd is on the board of JP

Morgan. And I think he-- talked to Jamie about it. And-- he participated probably more
in the discussion than I did. But I love the idea of tackling what I regard as the major
problem of our economy. I think that you had health care costs go from 5% of GDP in
1960. They were $170 per person annually. And now they're over $10,000. And they're
closing in on 18% of GDP, which is as much as the federal government raises in a year.
So it's-- and it-- it gives every indication of going up, and up, and up. Now--you want
the best health care, but you find that in other industrial countries that were at about
our 5% level many years ago, they've gone up into the 11% range or thereabout. So
we have got a huge, competitive disadvantage in American businesses far more
important than any tax change in-- in terms of our health care costs. And-- $3.3
trillion a year now. That's-- every dollar has a constituency. So when you try to add--
and it's a very complicated system. But I do think we have the right three partners.
And-- the job now is to get the right CEO and that's an enormously important job and
we can't afford to make a mistake. And-- that is our first and most important order of
business. And-- then we go forth.
BECKY QUICK: You-- all have-- -- not put out a lotta details about-- how this is going to
work, but there's been an awful lotta conjecture-- and-- people tryin' to figure things
out. In fact, on the day that you announced this, there was a huge hit to plenty of
health care stocks across the board, from insurers-- to the pharmacy benefit
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managers. And-- this is not the first time that a group of people has tried to tackle
health care costs. But this is the first time that the market has had an instantaneous
reaction to something like this, probably in no small amount because of the stature of
the three of you combined doing this. what's your goal?
WARREN BUFFETT: Well, the goal is to deliver better care in reality and also in terms
of how the people feel about the care that they're receiving 'cause that's important
too. And— to find ways to take cost outta the system, while not impairing the quality
of what people receive. And that's enormously complicated. There're so many
intersecting-- companies and people, it's not gonna be easy. But we-- you know, we're
determined, we've got the money, we'll stick with it. You mentioned actually forming a
company. We haven't necessarily-- we don't necessarily have to form a company. We
may form a company, and probably will. But-- -- it's just a joint effort now. And-- we
will need somebody to head an organization. And that could be a partnership formed
and different things. But-- and our goal is really not just for the three companies. Our-
- our goal is something that other people can pick up on. And that when-- end this--
stop this really just constant increase, 'cause there are only 100 cents in the dollar.
And if you've got 18 cents, which we're approaching, going to health care, you've only
got 82 cents left.
BECKY QUICK: Uh-huh. You mentioned that there-- it's a very complicated system. I
know you're not an expert on it, but you've spent a lot of time digging through it and
so have the other people who are working with this-- Todd, Jamie-- and Jeff and lots of
other people involved underneath. What's your early read on some of these things
because-- if you look for margins, there are lots of middlemen and lots of margins?
WARREN BUFFETT: Yeah, no, I think we've-- been inundated from people that would
like to run this or like to help. Just inundated. And-- I-- should emphasize help. And--
also companies who would like to join, you know, and all of that. But we're not
remotely there. But-- it--would be very easy I think to go in and shave off 3% or 4%
just by negotiating power, certain things. We're looking for something much bigger
than that. That-- can be part of it. But-- we are hoping to figure out a way that the
constant increases of percentage of GDP can be at least halted. And hopefully, that
we could find a way where perhaps better care could be delivered, even at somewhat
lesser cost.
BECKY QUICK: You think the private sector can do it better than the government?
WARREN BUFFETT: Yeah, I think. Usually, that's the case. And I think that's probably
the case in health care.
BECKY QUICK: I mean-- I realize again this is early on, but people look at pharmacy
benefits managers. They'll look at Express Scripts and say that their margins are 9%
on $100 billion in drugs that go through their system every year. Is that, like, an easy
way to clip or are we talking--about working even beyond?
WARREN BUFFETT: Oh, it-- it'd be beyond that. Way beyond that. And-- I can't tell you
what. They-- interact in ways that it's gonna take a terrific CEO a lot of commitment,
probably some important mistakes, lots of time. You know, I'm not interested in lots
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of time. At 87, I wanna keep it moving. But it-- ithis is not easy. If it was easy, it've been
done. iit's very, very difficult. It-- it isn't-- it-- like I say, it isn't difficult to shave a little bit
off here. But it'll pop up someplace else it has to be looked at by somebody who really
has a grasp of it from every angle. Hospitals, physicians, patients. I mean-- they're--
and the question is whether we can come up with something better. And I'm hopeful,
but don't expect any miracles out of this soon. We-- we've got the perfect partnership.
And-- with Jeff and Jamie, I mean, w-- we can make things happen. Our companies are
big, yet we can-- we can still make things happen. We're not that-- you know, we don't
have the bureaucratic problems or the constituency problems that some others might
have. And we like each other and we trust each other. And so that's gonna work very,
very well. And it's a lotta muscle but it takes-- it-- is gonna take a terrific CEO, and
that's our most important job by far, is finding that person. Like I say, we've been
inundated with-- prospects. And we'll-- we wanna come up with the right person and I
hope we do it fairly soon. But we're not gonna compromise.
BECKY QUICK: Is this a plan we should-- expect our-- should-- would you expect to see
this-- in place a year from now?
WARREN BUFFETT: I would expect to see a CEO in place a year from now. But there
will be a lot to do, Becky, I mean, you know? And, I mean, you talk about something
that has $3.3 trillion in revenues presently going to people and most people that are
on the reception end of the $3.3 trillion are-- are happy with things. I may have said
billion, but-- the $3.3 trillion are happy with things. And although they'll all say things
could be better but-- done better but not in their particular segment.
BECKY QUICK: You mean the actors involved in receiving—
WARREN BUFFETT: Oh, sure.
BECKY QUICK: --the checks that are coming in
WARREN BUFFETT: It's a huge, huge, huge industry. Yeah. And-- they're good people.
And we've done well with medicine here, although we don't have more doctors per
capita or more beds per capita or more nurses per capita than these countries that
are spending 11% or so. So-- but—it we should have-- a top notch CEO certainly well
within a year. And we will give that person a lot of latitude and a lotta support. And--
he or she will need it.
BECKY QUICK: You know, in the past when we've talked about ways to try and bend
the cost curve as a nation when we've had this discussion, people always say, "Be
careful what you cut back on because you could hurt the innovation process. You
could hurt what we are doing to come up with the best health care procedures and
pills and-- discoveries in the health care front." Do you worry about that?
WARREN BUFFETT: Yeah. I m-- mean-- but I think you've got three organizations and I
think we will have a CEO that's terribly conscious of that. And-- there's no question, I
mean, that our drug companies and-- I mean, they've worked miracles-- you know? I
take a few pills, you know? And they did-- they seem to help. So-- I think I receive very
good health care. So-- there's a lot good about our system. But the system, by its very
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nature, is not cost conscious. I mean, if you were-- a young, medical person and let's
just say you're working on prostate cancer, which I had, the rewards to you
psychologically and with your peers, everything, are going to come if you do
something that develops something better for prostate cancer, which they should.
But they weren't gonna come to you if you w-- d-- reduce the cost of treating it. There-
- just isn't the same motivation as-- -- the outstanding medical minds are functioning,
in many cases, much more on the results, which they should be. But the cost really
doesn't make much difference. It's very seldom that you read about some
breakthrough on cost by anybody in this huge profession. So it's got a different set of
incentives. And-- to some degree. And we've gotta figure out a way to keep the good
parts-- you know, without-- but also to get at what I've called-- really, truly is a
tapeworm on the-- economic system. I mean, it is eating up, instead of $170 per
person in 1960, when we actually thought we were doing pretty well in this arena, to--
over $10,000 per person. Just think of that, $10,000 per person. You know, family a
four, on balance $40,000 of GDP going to-- just one aspect of their lives.
BECKY QUICK: Let me ask a question from Marc Gilbert,who writes in that, "You've
made a lot of money from some very successful profit making companies. Why is your
new health venture with Amazon and JP Morgan designed to be free from profit
making incentives and constraints? Is profit seeking not a good incentive?"
WARREN BUFFETT: Yeah. It-- certainly can be a good incentive. I mean, it's a wonderful
incentive. And there may be many places that it happens in this. And-- we didn't-- if
you read the-- what we said carefully, I mean, it-- we are free from that as a demand,
but that doesn't mean that it can't happen. What I'd love to see, of course, is costs
come down and the employees, in terms of-- 'cause there're very-- you know,
significant parts of the cost-- you know-- I-- personally, at Berkshire, I'd like to see
them get the first reduction if we-- if— we find something better. That isn't to say that
Berkshire shouldn't get somethin' too, but-- it's really a huge, huge cost to the
American public. And it gets down to the worker. I mean, it's-- the company may write
the check, but they often get participation and copays and all-- kinds of things. So--
this goes beyond just trying to improve the bottom line of-- the three companies
involved on it.
BECKY QUICK: Well, companies-- like Berkshire Hathaway and JP Morgan and
Amazon, make up-- I--think they cover about half of all American households. About
half of American households get insurance through companies like this. So it could
make a big impact—
WARREN BUFFETT: Yeah, it-- it-- it's—
BECKY QUICK: --if people are following from that.
WARREN BUFFETT: It's sort of the way it's developed in this country. And-- and partly,
the tax law leads to that because the companies get a deduction and the employee
doesn't recognize income on that particular benefit. I mean, if we could-- if the
company bought all your food, you know, you would get charged on the implicit value
of the food that you were getting. But they-- the tax law has an impact in terms of
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how-- how the whole system is arranged. Lots of things have an impact. That's why it's
gonna be so difficult to, you know, really make fundamental change. But we're
committed to it.
BECKY QUICK: One of the recent additions that Berkshire made to its holdings, to its
stock holdings, was the addition of Teva. And there was a question that came in from-
- Marco, a guy named Trader Marco, who says, "What are your expectations on return
on investment for investment in Teva? Do you have any hopes, plans or strategies to
help introduce Teva in the mix of the Amazon, JP Morgan, Berkshire Group's
aspirations for a more efficient and cheaper health care plan for all—
WARREN BUFFETT: Well, that would be the last thing on my mind. But the-- Teva's not
a stock I bought. It's one of the other two. And-- and—
BECKY QUICK: Todd or Ted?
WARREN BUFFETT: --I've never-- never talked with them about it.
BECKY QUICK: So you have no idea why you bought it?
WARREN BUFFETT: No.
BECKY QUICK: Why Berkshire bought it?
WARREN BUFFETT: No, no. No. And-- they'll sell it without telling me. I mean—
BECKY QUICK: All right. Warren, we're gonna leave it there-- right now. But we will
have much more from Warren Buffett coming up after this quick break. Plus,
Samsung unveiling the latest version of its flagship smartphone. We've got the details
straight ahead. Stay tuned. You are watching Squawk Box right here on CNBC.
JOE KERNEN: Welcome back-- to Squawk Box. Let's check out the futures right now.
This is-- after a 350 point gain in the Dow on Friday. And the-- Dow is now back--
closed Friday at $25,309 and we're indicated up another 170 points-- today. So closing
in on-- $25,500-- again. I don't know where that puts us in terms of-- from the highs.
But-- you know, if there was a 10%, 12% correction, we've certainly gotten back more
than half of that. And the S&P is now up 11 and the NASDAQ indicated up-- 35.
Samsung unveiling its new Galaxy S9 smartphone yesterday at the Mobile World
Congress in Barcelona. The new flagship phone looks similar to last year's S8. It has
new camera features that boost low light photography and action shots. The phone's
priced at $720 for the S9 and $840 for the larger-- S9 Plus. Both will be available-- on
March 16th. And-- Warren Buffett might be in the-- might be in the market for-- a
smart phone-- 'cause we really don't know whether he's gonna take the plunge or not
from his-- got one of them big, Gordon Gekko-- phones that he had on the beach.
Like-- like, the size of a mailbox or like a toaster. Coming up-- we're gonna get back to
Becky Quick-- in Omaha, where Warren Buffett is answering questions from Squawk
Box viewers as we head to break. Take a look at-- Treasury yields. Squawk Box will be
right back.
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BECKY QUICK: Welcome back to Squawk Box where we are live from Omaha,
Nebraska with a special edition. Our news maker this morning is Warren Buffett, who
is Berkshire Hathaway's chairman and CEO. He just put out his annual letter to
shareholders this weekend. It's his 53rd annual letter to shareholders. And he's giving
you a chance to ask questions too. We've been asking for questions and Warren, I
have a couple I'd like to get to-- from people who have been watching and reading in.
Eric LaFont writes in, "Warren, at last year's annual meeting, you said you missed out
on buying Amazon. The stock was $935 last May. Today, it's $1,500. Are you
completely surprised by the market's valuation of Amazon?"
WARREN BUFFETT: No, I'm not completely surprised. I'm amazed at the managerial
talent of Jeff Bezos. But I've been-- a constant fan, really, almost since he started. And
the-- and the more I see him-- the more impressed, you know, I've been with what
he's accomplished. But-- I've blown it in terms of-- making any money on it.
BECKY QUICK: So you're not investing right now? We shouldn't--
WARREN BUFFETT: No. But--I would never bet against it.
BECKY QUICK: Yeah. Yeah. All right, Andre writes in a second question. He- says--
"BNSF, the Burlington Northern, was acquired when the railroad industry had
consolidated down to four players and was showing signs of pricing power. Has
Berkshire looked at acquiring 100% of an airline, given similar dynamics of
consolidation, high barriers, pricing power and low valuations relative to book?"
WARREN BUFFETT: Yeah, the airline business is different. You know, people can go in
and form-- ultra low cost ones. I mean, Frontier is out there, waiting to-- go public,
perhaps. And-- so you've got-- you're not gonna have these huge, huge trunk carriers
necessarily more of those. But--you can always compete. But you can't build a new
railroad from Omaha to Chicago tomorrow or something of the sort. But you can add
a flight-- if you're one of the airlines already there or you can perhaps come in and
get in the gate and then fly. So it's-- it's a way different-- set of economics between the
two industries. On the other hand, I wouldn't rule out owning an entire airline. But it's
a different business. A very different business.
BECKY QUICK: Right now, you have four major airlines?
WARREN BUFFETT: We own—
BECKY QUICK: United, Delta—
WARREN BUFFETT: --somewhere between six and a fraction and nine and a fraction
percent of four. We won't-- of four. And we won't go over 10%-- 'cause we just
generally don't like to go over 10%. But-- we do own those four. And I wouldn't rule
out as-- even we d-- haven't done it, but even buying s-- stock in some other one or,
you know, changing that position at some point—
BECKY QUICK: But it's United, Delta, American and Southwest?

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BECKY QUICK: Those are the four big ones?
WARREN BUFFETT: Yeah, the big ones.
BECKY QUICK: And you still like the airlines as much as when you first bought it—
WARREN BUFFETT: It's-- a business that's-- always subject to somebody doing

something very dumb competitively. And—-- they've done it a lot in the past. There
was more chance of them doing it when there were seven of 'em than the big ones,
than-- than four. I mean, the industry was suicidally competitive for decades. I mean,
they net lost money-- and-- while they were growing like crazy in units. And I was on
the board of U.S. Air so I saw how it all happened. And it can turn into fierce
competitive battles that'll wipe out earnings. Or it can be a business that's more
decent, but still subject to lots of competition. And-- it's really hard to know, you
know, for sure how it will develop. It's-- not risk free in their competition at all. In-- in
the railroad business, all the tracks have been pretty much laid and all of that. So that
settled into a business. Now, it's regulated and means that your earnings, you know,
can only-- you're a common carrier. And-- many places, you compete with another
railroad, and other places, you don't. And there're different rules that apply even in
terms of pricing in those cases. But it's a perfectly decent business. It will lose volume
in coal over time. And that's an important product. But it'll probably gain in other
areas. So it's-- it's two different animals.
BECKY QUICK: There's another question. It's T41, guys, it's Derek Borrs who writes in.
And he says, "Of the equities that Berkshire Hathaway currently holds, which ONE"
one, in all caps, "do you wish you could purchase more of if the SEC allowed it?" I
think he's referring to cases like American Express or Wells Fargo, where you're not
allowed to buy more.
WARREN BUFFETT: Yeah. I- can't answer that. I'm not gonna tell you what we would
buy.
BECKY QUICK: Derek, congratulations.
WARREN BUFFETT: Yeah, no, it—
BECKY QUICK: You managed to get one that-- that he won't answer, so well done on
that. All right, folks, we're gonna take-- a quick break. When we come back, we have
much more with Warren Buffett. We'll talk about market valuations right now and
what he thinks about the huge swings that we've seen in volatility recently. That and
much more. Right now though as we head to a break, take a look at the U.S. equity
futures. They've been up all morning long. Right now, Dow futures indicated up by
about 158 points above fair value. The S&Ps would open up by 11 here and the
NASDAQ up by about 35. Squawk Box'll be right back.
JOE KERNEN: Good morning and welcome back to Squawk Box-- here on CNBC live
from the NASDAQ market site in Times Square. Couple of stocks to watch today, Dean
Foods is down sharply. Company reporting earnings $0.25 a share. That was a penny
share of estimates. Revenue also was below estimates. The company announced
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plans to consolidate its manufacturing capacity in a move-- that it says will cut costs.
And shares of HP Inc. are higher this morning. The company has upgraded from
neutral to overweight at JP Morgan Chase based on valuation. The stock has jumped
3.5%-- just on Friday after-- following-- the company's quarterly report. All right, now
let's get back-- to Becky Quick and Warren Buffett in Omaha. Becky?
BECKY QUICK: Joe, thank you. As we-- you know, our special guest this morning is the
chairman and CEO of Berkshire Hathaway, Warren Buffett. And Warren, we've talked
about a lot of things this morning. We got briefly your thoughts on the markets. But
there's been a lot that's happened in the markets since the last time we sat down with
you. Volatility is back in a big way. And that has the average retail investor kind of
questioning what to do at this point. It's-- scared a lotta people. What-- what do you
think's happening right now just in terms of the return of volatility? Is it something to
be worried about? What's causing it?
WARREN BUFFETT: Well, if you own stocks like you'd own a farm or an apartment
house, you don't get a quote on those every day or every week – you look at the
business. And the value of American business depends on how much it delivers in
cash to its holders over between now and judgment day. And I don't think it changes
in 10% in a two month period if you're looking at it as a business. Now, you've got –
anything can happen in markets. I mean, anything can happen in markets. And that's
why I say don't ever borrow money against securities. Markets don't have to open
tomorrow. I mean, you can have extraordinary events. So I think to some extent, you
can get some of the instruments that people don't understand very well that have a
lot of fire power in them.
BECKY QUICK: Like the volatility index and things that are tied to that.
WARREN BUFFETT: They can trigger and – yeah. The idea of people taking a position
and they're gambling. They're not investing. Nobody's investing when they buy, you
know, some super charged index on, you know, how the VIX does or something like
that. They don't need it in their – it's an unnecessary instrument. Now, you know, they
will create instruments that the public will buy. And you can just count on that. Wall
Street's been doing that for – since they met under the buttonwood tree in 1792 or
whatever it was on the exchange. But if you're investing, if I'm going to buy a half
interest in a McDonald's stand and you're going to run it, or a McDonald's franchise,
you're going to run it, I look to the business to determine whether I've made a good
investment. And I'm concerned about, you know, whether we have new competition,
how we do over the years. But it's the business I look at. When you're just looking at
the price of something, you're not investing. I mean, if you buy something, Bitcoin for
example, or some cryptocurrency, you're not looking to the asset itself to produce
anything. If you buy an apartment house, you're looking at how the apartment house
does. You buy a farm, you look how the farm does. If you buy a whole business,
you're looking at how the business does. If you buy a part of a business, why
shouldn't you look at how the business is going to do. People get charmed by lots of
action and the fact that things are liquid and all of that. And it does have
repercussions back into the market. When you get something like, you know, ETN
arrangement on the, you know, super charged on the VIX, I mean, where you can lose
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90% of your money in one day, I mean, that really doesn't belong with the word,
"Investment." I mean, it's just a gambling form of activity.
BECKY QUICK: Although you've said yourself, you talked about this in the annual letter
over the weekend, and just even at the top of the show, where when you look around
for a business that you want to buy, you can't find any attractive levels. However,
when you're looking at equities, you do see that is a good place. That Berkshire has
been a net purchaser of equities this year in 2018. And that's because you like the
deals that you're getting in the market.
WARREN BUFFETT: You can buy small pieces of businesses for less than you can buy
whole pieces of businesses.
BECKY QUICK: For the premium you'd have to pay if you were buying the whole thing.
WARREN BUFFETT: Yeah. So you get a bargain as an investor, compared to what I can
get in terms of buying the whole business. And people – if they just think of stocks as
pieces of business, they'd be so much better off than thinking of those little things
that move around in price. And I think with Berkshire, we have an unusual number of
people, the shareholders, who just look at Berkshire as a business – they look at it as
a savings account. They put some money in 20 or 30 or 40 years ago, we retain it and
reinvest for them. But we're their savings account. And that's the way I look at my
own stock. That's the way Charlie looks at his stock.
BECKY QUICK: And part of the reason that you've been so bullish on equities for many
years at this point is the interest rate environment. You've looked at interest rates
and said, "Interest rates are gravity on stock prices. And when interest rates are so
low, stock prices inevitably are going to climb." There's been this really weird thing
that's been happening in the markets. Where all of a sudden, good news that we got
from a good jobs report made people start to worry that interest rates were going to
climb and that the Fed was going to raise rates more than anticipated. People got
really nervous around that. You can still see it every time we get up on the ten year
back towards 3%. It gives investors, or at least traders I should say, some concerns
about what's happening. How do you kind of gauge all of that?
WARREN BUFFETT: Becky, a bond, if you buy a 30-year government bond, it has a
whole bunch of coupons attached. In the old days it does, now it's all electronic. But it
has a whole bunch of coupons. And the coupon says 3%, or whatever it may say. And
you know that's what you're going to get between now and 30 years from now. And
then they're going to give you the money back. What is a stock? A stock is the same
sort of thing. It has a bunch of coupons. It's just they haven't printed the numbers on
them yet. And it's your job as an investor to print those numbers on it. If those
numbers say 10% and most American businesses earn over 10% on tangible equity. If
they say 10%, that bond is worth a hell of a lot more money than a bond that says 3%
on it. But if that government bond goes to 10%, it changes the value of this equity
bond that, in effect, you're buying. You are buying – when you buy an interest in
General Motors or Berkshire Hathaway or anything, you are buying something that,
over time, is going to return cash to you. Maybe a long time in terms of Berkshire, but
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it'll be bigger numbers. And those are the coupons. And it's up to – your job as an
investor to decide what you think those coupons will be because that's what you're
buying. And you're buying the discounted value. And the higher the yardstick goes,
and the yardstick is government bonds, the less attractive these other bonds look.
That's just fundamental economics. So in 1982 or '83, when the long government
bond got to 15%, a company that was earning 15% on equity was worth no more than
book value under those circumstances because you could buy a 30-year strip of
bonds and guarantee yourself for 15% a year. And a business that earned 12%, it was
a sub-par business then. But a business that earns 12% when the government bond is
3% is one hell of a business now. And that's why they sell for very fancy prices.
BECKY QUICK: So 3% is a long way from 15% that you were just talking about.
WARREN BUFFETT: Absolutely. But I watched it go from 3-15% though, too.
BECKY QUICK: Right. Is there an inflection point on that way because people think,
"Oh my gosh, we've gone from 2.4% to 2.9% and that is a big difference."
WARREN BUFFETT: It isn't much. That's not much.
BECKY QUICK: Historically speaking, that's still the way we should be measuring these
things –
BECKY QUICK: Not on the absolute movement or the percentage gain movement over
time?
WARREN BUFFETT: 2.4-2.9% is nothing if you're comparing it with businesses that

earn 12% on equity and reinvest. And the S&P, you can just look at the figures for
decades, has earned on tangible equity, it's earned a lot more than that. And it
translates into more, higher prices than it should.
BECKY QUICK: Is there a tipping point along the way, or is it a gradual decline in terms
of these things?
WARREN BUFFETT: Nobody knows. Yeah. But it is gravity. I mean, if you told me
interest rates were going to be 15% next year on bonds, you know, there's a lot of
equities I wouldn't want to own now. And I would buy a lot of governments at 15%,
and I kind of wish I had in 1982, but I didn't.
BECKY QUICK: If I told you that the long bond was going to trade at 4.5-5% next year,
what would you –
WARREN BUFFETT: It makes a difference. But it's been idiotic to own long bonds
during the last, you know, I talk about this in the report in terms of our – it's just been
idiotic. And big, public pension funds and all that, they sat there and they owned
bonds. Now, they may have bought them on a 4% or 5% basis. But if they go to a 3%
basis, they're selling way above par. The way people think about it is that they do
some very silly things.
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BECKY QUICK: I mean, you lay this out in the annual report, but a lot of investors are
told – retail investors are told, that they should have a certain percent of their
portfolio in bonds. Maybe they're told 60/40, maybe they're told 70/30 stocks to
bonds. That's something that you should do and that's the safe way of doing. What
are they missing?
WARREN BUFFETT: Well, some people should not own stocks at all because they just
get too upset with price fluctuations. If you're going to do dumb things because a
stock goes down, you shouldn't own a stock at all. No, I mean—
BECKY QUICK: What are dumb things? Selling a stock because it goes down?
WARREN BUFFETT: Yeah, selling a stock because it goes down. I mean, you know, if
you buy your house at $20,000 and somebody comes along the next day and says,
"I'll pay you $15,000," you don't sell it because the quote's $15,000. You look at the
house or whatever it may be. But some people are not actually emotionally or
psychologically fit to own stocks. But I think more of them would be if you get
educated on what you're really buying, which is part of a business. And the longer
you hold stocks, the less risky they become, whereas the longer the maturity of a
bond, the more risky it becomes.
BECKY QUICK: Do you feel like that's a message that is getting through to people? It's
one that you repeat again and again. And I always feel like, I was watching a lot of the
Olympics. And I felt like what they do in the Olympics is so easy. These guys sailing
through the air and doing massive spins on the ice and turns. And then I read your
annual letter and I think, "Oh, it's really easy to invest." And then I walk away and
realize it's not that easy.
WARREN BUFFETT: It's not easy psychologically for many people. But I've been
teaching since I was 21. I taught my first class on investments, and I had a class last
week with 11 schools, 220 students. And some of them get it and some of them don't.
Now, people would rather gamble. I mean, the idea that you can double your money
in six months, that's just going to – it's why people go to the races, why they go to
Vegas. You know, whatever it may be. They even know the odds are against them.
And they still do it. I mean, it's a strong instinct to want to get rich fast. And I don't
know how to do it.
BECKY QUICK: Joe has a question that he'd like to ask too. Joe?
JOE KERNEN: Buffett, you haven't tweeted since April of 2016, man. Is that true?
WARREN BUFFETT: I didn't really tweet that. I've got a friend that's tweeted about
seven times for me.
JOE KERNEN: You've got no follow, you follow nobody, you know, let me – here, let me
—Warren.
WARREN BUFFETT: No—
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JOE KERNEN: Warren, you are coming on "Squawk Box" this morning for three hours.
It would kill you to say, "I'm going to be on 'Squawk Box' for three hours" and tweet
that out as a favor to Becky and me? I mean—
WARREN BUFFETT: Make me an offer. I have never actually tweeted myself. And I
don't really know how to do it. You know, and I don't know how to look up somebody
else's tweets. But I'd still—
JOE KERNEN: Will you look at—will you look into it maybe –
WARREN BUFFETT: I'd still feel I've led I've led a satisfactory life.
JOE KERNEN: You know what? I'm going to tell you something, Warren. Becky, over
the weekend, I was trying to figure out, I mean I get so irritated, that I don't need it,
you know? Not from people sending, but now, from looking at what other people are
tweeting –
BECKY QUICK: Twitter?
JOE KERNEN: And retweeting, I get irritated. And I'm trying to figure out a way to still
get the info that sometimes I get, but just without me being actually part of it. Have
you got a way I can do it? But then I'd still be following these annoying people. I don't
know—
BECKY QUICK: Lobotomy?
WARREN BUFFETT: Joe, if we go to the final game, if we go to the finals of the NCAA
and we're there together in these great seats I'm going to deliver for you because
Creighton's in it—
JOE KERNEN: I'm going to hope for Creighton.
WARREN BUFFETT: I will have you tweet for me during the game.
BECKY QUICK: Oh, be careful what you offer, Warren.
WARREN BUFFETT: I mean, you could—
BECKY QUICK: Joe, how would you like the keys to the castle with that?
WARREN BUFFETT: You'll be the designated tweeter—
JOE KERNEN: God, there's a lot—
WARREN BUFFETT: But I've never read a tweet. I mean—
JOE KERNEN: You know what? I'm taking Creighton and Xavier right to the – now I'm
really going to be rooting, you know, but—
WARREN BUFFETT: I love it.
JOE KERNEN: Becky –
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WARREN BUFFETT: I love it.
JOE KERNEN: I unblocked someone today that appealed to me through email. And I've
never done – I had to figure out how to do it.
BECKY QUICK: Wow.
JOE KERNEN: But it's on a probationary basis, at the board of discretion or at the
discretion of the board. But I've never done that before.
BECKY QUICK: The discretion of the board.
JOE KERNEN: Yeah, but someone got back in. So, you get to do things like that if you
come on, Warren.
BECKY QUICK: Warren, what—
WARREN BUFFETT: I'd rather read 10Ks.
BECKY QUICK: Right, but you don't realize how dangerous that offer is you just made
because Joe and I have joked around about getting a hold of somebody's Twitter
account or their information when they leave it logged onto a screen that we sit down
at. The things that you can tweet out. Or the things that you can say to people.
JOE KERNEN: So dangerous. So dangerous.
BECKY QUICK: When you're masquerading as someone else.
WARREN BUFFETT: Well, people have pretended to be me on both Facebook and

Twitter, I mean—
BECKY QUICK: Have you guys gone after the people who—
WARREN BUFFETT: We did it for a while. There's just so many of them it's kind of
hopeless.
BECKY QUICK: Every time you stamp one out, eight more pop up?
WARREN BUFFETT: Yeah, exactly. Exactly.
BECKY QUICK: All right. We will have much more from Warren Buffett still to come this
morning. Right now though, as we head to a break, take a look at shares of the four
airlines in which Berkshire Hathaway has a stake. We were just talking about all of this
and why Mr. Buffett likes these stocks. After talking about some of these things, some
of those stocks have popped. Delta's up by almost 1.2%. Buffett told us he wouldn't
rule out owning an airline outright, although he says that's not in the cards at this
point. We will be right back.
JOE KERNEN: Welcome back to "Squawk Box." Let's check out the futures. Look like--
about 180 right now, 177 in terms of the Dow Jones trading higher pre-market. The--
S&P indicated up about 14. The NASDAQ indicated up about 37. Last time-- we looked
at the ten year, it was actually below 2.85 now. It was at-- 2.84. So that-- has seemed
49/55
like it's-- sort of-- been positive for the move that we're seeing in equities. Right now,
let's get back-- to Becky Quick-- and Warren Buffett-- in Omaha. Still thinkin' about
that-- that twit-- tweet offer-- Becky. That's big. That is big. In terms, like I-
WARREN BUFFETT: It's big. It's big--
JOE KERNEN: How many tweets would I be--
BECKY QUICK: Remember when we almost took over David's? We almost-- remember-
-
JOE KERNEN: David Faber.
BECKY QUICK: --you and I walked up and David Faber had been left on. And we
almost--
JOE KERNEN: I got so scared.
BECKY QUICK: --took over his account. We stopped--
JOE KERNEN: No, I got--
BECKY QUICK: --ourselves?
JOE KERNEN: --so scared, thinking about the things that I could send out, that-- that--
you know, that-- and then I'd get fired, probably. He-- first, he'd look like he w-- you
know, and then I got so nervous about it, I logged it out. I didn't want-- I didn't even
want it there 'cause it's so dangerous-- with the--
BECKY QUICK: Faber doesn't even know--
JOE KERNEN: --the thought police--
BECKY QUICK: --we almost did that.
JOE KERNEN: The thought police that are on Twitter are, like-- you can retweet
something inadvertently. And if it comes from some, like, crazy or something, then it--
suddenly, you're-- you know, you're tarnished with it. The whole thing is dangerous--
the whole thing makes me nervous, Becky. It just does, you know what I mean? It j--
it's just better to not do it, you know? And you definitely-- Warren--
BECKY QUICK: Agree.
JOE KERNEN: --don't ever TWI. You don't ever tweet while intoxicated. That is
immediately grounds--
BECKY QUICK: Oh, he doesn't drink.
JOE KERNEN: TWI.
BECKY QUICK: He doesn't drink.
JOE KERNEN: You can get a TWI. Don't do that.
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BECKY QUICK: Right, right. Okay. Well, let's-- make a little bit of a turn here and get
into another discussion with Warren Buffett.
WARREN BUFFETT: Yeah, let's talk while intoxicated, yeah.
BECKY QUICK: Right. We get ourselves in enough trouble with things just with the
coffee and the Coke-- Coca Cola, I should say. Warren, let's talk a little bit about trade
policies-- and-- what's happened in Washington. There-- there's some news out today-
- that Peter Navarro is going to be elevated as a special counselor to President Trump.
And people have made-- a lot of this because Peter Navarro is somebody who-- has--
some--pretty strong ideas-- about-- free trade and where he thinks the problems are
with free trade. He's made the argument that-- having a trade deficit is a bad thing,
inherently. Do you agree with that?
WARREN BUFFETT: Well, I-- -- actually wrote an article about it some years ago.
Unfortunately, I think having very large trade deficits as a percentage your GDP
manage-- means you're transferring wealth abroad to other countries or claims on
wealth, you know? And-- I thought we were-- that was excessive a dozen years ago or
so. I don't like the idea of running huge trade deficits as a percentage of GDP at all.
You can say you're fooling foreigners 'cause you're just handing 'em little pieces of
paper and they're working hard, making underwear and shoes and everything to ship
to you. And why not give them little pieces of paper which are gonna get inflated
away at some point? But I don't like large trade deficits. On the other hand-- trade has
benefited us and the world enormously over time. And it doesn't mean that there
can't be abuses in it in terms of dumping and things of that sort. But a world that--
that has more trade in it, relative to the total world economy ten or 20 years from
now, will be a better world than one with lesser trade.
BECKY QUICK: Where do you think we stand-- in terms of how we've approached
these trade deals? Because a lot of the things that people-- thought would happen as
soon as President Trump took office, haven't come to fruition. We haven't gotten out
of NAFTA yet. We haven't done some of the more restrictive things in terms of
labeling-- the Chinese-- manipulators or-- some of the heavy duty things that were
kind of threatened at the start.do you worry-- about closing borders? What would it
mean for Berkshire if that happened?
WARREN BUFFETT: Well, I don't-- I don't think closing borders is a good idea. And I
don't think in--
BECKY QUICK: Not that we've talked about doing that, but if we were to get outta
NAFTA, let's look at some of the--
WARREN BUFFETT: I--think over time, we want more trade-- and the closer it is to
balanced trade, the better. I mean, maybe ideal, e-- everybody would have the total
trade balance, but it isn't gonna work that way, obviously. But-- we can take small
imbalances, fine over time. And I- think on balance, you wanna encourage trade. Our-
-we will live better off. If we-- if we start saying we're gonna grow our own bananas in
the United States-- we've said that with sugar. I mean, with sugar, we've subsidized it
like crazy in this country. Been-- you know, and the truth is, we're-- we aren't the best
51/55
natural place to grow sugar. And you get artificialities in your economy if you start-- if
you start ruling out this and ruling in that. But it's-- we oughta be generally pro-trade,
but we should avoid gettin'-- doing something really stupid, -- which is that as a
guiding principle.
BECKY QUICK: There's been-- an issue that the Commerce Department has made
recommendations in terms of what to do on both aluminum and steel with some of
these dumping provisions. The White House has some time now to make up its mind
on going down this. Do you have any thoughts on that? Does that play into any of the
businesses-- that you're involved in?
WARREN BUFFETT: Well-- I would say we have not been enormously affected by trade.
Obviously, you know, 50 years ago the-- we didn't own it then, but the-- company
made underwear, you know, that-- -- it was using more domestic workers percentage
wise than it-- it does-now-
BECKY QUICK: Berkshire Hathaway, the original--
WARREN BUFFETT: Yeah, of course. Yeah, we d-- yeah-- Fruit of the Loom. It used to
be called Union Underwear. I mean, they're-- we originally were in textiles. And-- and
our competition was partly in the United States, but then it became outside the
company as well. In shoes, we got decimated-- with the company we bought because
of-- the fact that-- that we had the best workers in the world and all that. But-- shoes
came in cheaper from abroad. The United States used to make a very high
percentage of its own shoes. It makes probably w-- none now. So it-- can have huge
affect on industry. But overall, we wanna work toward having more trade. And we
also wanna figure out a good way of taking care of the people that are-- that lose their
jobs and are 55 and can't really be retrained for other things because of the effects of
having free trade. We-- the benefits of free trade get spread throughout the
population and-- the roadkill are real in terms of the people in given industries. And
we should take care of those people because-- we're sacrificing their lives for the g--
or economic lives, for the greater good. And there oughta be policies that take care of
them.
BECKY QUICK: Last week on Squawk Box-- we had a guest host join us-- for a couple of
hours, Chris Hughes, who is one of the founders of Facebook. He was there. He
happened to be Mark Zuckerberg's-- roommate in college--
WARREN BUFFETT: He made a good decision.
BECKY QUICK: He did. He spent about three years working for Facebook and, in turn,
made about half a billion dollars when the company went public. He joined us
because of a new initiative that he's been working on to try and deal with the
problem that you just-described. His thought is to have a program where it-- it's not a
universal basic income, where everybody gets $1,000 no matter what, it's anybody
who is working, he thinks, should be making about $500-- on a monthly basis. Just to
make sure that they're not falling below the poverty line as long as they are working.
What are your thoughts on this, 'cause you've talked about the earned income tax?
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WARREN BUFFETT: Yeah, I like the earned income tax credit. For one thing, we've got
it. So we've got some experience with it. And-- I think we're spending about $60 billion
a year on it. So it's-- and it's something, incidentally, that seems pretty bipartisan. I
think Paul Ryan is in favor of it. And-- there're some-- be some improvements made. I
mean-- I think now you get it once a year and, you know, in effect, you take payday
laws-- seeing it coming. And it'd be better if it was, in my view, done, you know, on a
regular basis throughout the year so you don't have this lump sum problem. And--I
think it should be-- it-- to the person-- a minimum wage-- affects market economics.
And it affects it big time if you really do it extreme enough. What counts to the worker
is how much money they put in their pocket. And-- an earned income tax credit, I
think, is the best way of both guaranteeing that people have a reasonable amount in
their pocket even if they're working at jobs where the market doesn't pay them--
wouldn't pay that much. And it also keeps the dignity of work there. And it also
encourages people to improve their skills because as you move up, you keep more of
the money. So I much prefer the earned income tax credit. And I think the American
people generally would endorse it more. I think it has more-- it encourages more
things the American people kind of value.
BECKY QUICK: Okay. We're gonna take-- a very quick break. When we return, we have
more of your questions for Warren Buffett. We'll get to that-- just when we come back
after this very quick break. As we head to that break, take a quick look at the U.S.
equity futures. You know, see, they've been up all morning long. Dow future's up by
165 points, the NASDAQ up by 35, the S&P up by 13. Squawk Box, right back.
BECKY QUICK: Welcome back to Squawk Box. Right now it's time for some parting
shots with our news maker of the morning, Berkshire Hathaway's chairman and CEO,
Warren Buffett. Warren, a couple of quick questions that have come in-- from viewers
as well. Russel Pruner writes in-- he was wondering what Mr. Buffett thinks about,
"How residential real estate will perform in 2018, especially the luxury markets in the
northeast impacted by high property taxes and the loss of the SALT deductions," the
state and local-- property taxes deductions.
WARREN BUFFETT: Yeah, I don't really know. They-- we'll find out. And-- I like the
business over time. I like homeownership. I mean, I'm-- bought my house 60 years
ago and-- you know, it-- it's been an important part of the family's happiness. So I---
but-- I haven't got the faintest idea on--
BECKY QUICK: All right. Harry John writes in. He says, "Considering that both Warren
and Charlie were already both strong minded and confident in their own abilities
when they met, how did they instantly click with each other? And what was it that
allowed them to trust each other to be lifelong business partners?"
WARREN BUFFETT: Yeah, it's an interesting question because we had dinner together
in 1959 and we never knew each other. He grew up - less than a block away from
where I now live. He worked at my grandfather's grocery store like I did, but we did
not know each other till he was 35 and I was 29. And we went to dinner. And in five
minutes-- Charlie was rolling at the floor laughing at his own jokes, and I do the same
53/55
thing. So-- we knew we were sort of made for each other. And we've never had an
argument in this whole time. We are strong minded. We disagree on a few things. We
agree on most things. And we have a great time together. It--
BECKY QUICK: Can respect each other--
WARREN BUFFETT: Absolutely--
BECKY QUICK: --and disagree.
WARREN BUFFETT: Totally.
BECKY QUICK: Hey, Joe, I think you had a question too?
JOE KERNEN: You know, we don't have time, but l-- working-- I--watch how-- Warren
operates. He never really-- promises things that are likely to happen. And-- Creighton
probably won't make the finals. What about that deal works if they make the elite
eight, Buffett? Let's say they make the elite eight, can we watch that game? Or what
about-- are you (UNINTEL)--
WARREN BUFFETT: We'll watch that game
JOE KERNEN: Okay. Elite eight.
WARREN BUFFETT: You got-- you got a deal.
JOE KERNEN: Okay. They make the elite eight. I--
WARREN BUFFETT: Elite eight. I'll buy the popcorn. I'll buy the popcorn.
WARREN BUFFETT: I'll even buy the tickets. But I was gonna--
JOE KERNEN: Yeah, I'll get the tickets. Don't worry. I just wanna tweet on your account.
Anyway, thank you, Warren. Thank you, Becky.
WARREN BUFFETT: And incidentally--
JOE KERNEN: And it's great--
WARREN BUFFETT: --Nebraska has a good
BECKY QUICK: Yeah, Warren, thank you--
JOE KERNEN: Oh, it's Nebraska too.
BECKY QUICK: --so much for your time today.
WARREN BUFFETT: Okay. Thanks.
JOE KERNEN: All right, great. Thank--
WARREN BUFFETT: Nebraska has a good team.
54/55
JOE KERNEN: All right either one then I will take that. Becky thank you.
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55/55
Full Transcript: Billionaire Investor Warren Buffett Speaks with
CNBC’s Becky Quick on “Squawk Box” Today
cnbc.com/2018/01/10/full-transcript-billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box-
today.html
January 10, 2018
CHARLIE MUNGER, VICE-CHAIRMAN OF BERKSHIRE HATHAWAY, ALSO JOINS THE CONVERSATION AT

8:45AM ET
WHEN: Today, Tuesday, January 10, 2018
Chairman & CEO Warren Buffett and CNBC's Becky Quick on CNBC's "Squawk Box" (M-F,
6AM-9AM ET) today, Tuesday, January 10, stemming from the company's announcement this
morning that Buffett has appointed Gregory Abel and Ajit Jain as vice chairman for non-
insurance and insurance operations respectively. Vice-Chairman Of Berkshire Hathaway
Charlie Munger joined the conversation at 8:45am ET. Berkshire Hathaway also announced
that Buffett and Munger will continue their respective roles, although Buffett notes this is
"part of a movement to succession over time." Video of the full interview is available on
CNBC.com: https://www.cnbc.com/video/2018/01/10/warren-buffett-may-be-slowly-passing-
the-baton-at-berkshire-hathaway.html.
JOE KERNEN: BERKSHIRE HATHAWAY MAKING SOME BIG CHANGES TO ITS BOARD. LET'S GET
TO BECKY QUICK IN OMAHA. SHE JOINS US NOW WITH A VERY SPECIAL GUEST. YIELDS,
WARREN, I'M SURE WE'LL WANT TO WEIGH IN ON THAT. I THINK INSURANCE COMPANIES
HAVE TO INVEST A BUNCH OF STUFF, DON'T THEY, BECKY? I MEAN, IT MIGHT BE BETTER TO
GET –
QUICK: THEY DO.
KERNEN: IT MIGHT BE BETTER TO GET A LITTLE BIT HIGHER.
BECKY QUICK: THEY DO. AND LOW YIELDS HAVE BEEN VERY PAINFUL FOR THE INSURANCE
COMPANIES, FOR THE PENSION COMPANIES, AND, YEAH, I'M GUESSING THAT'S PROBABLY
GOOD NEWS.
KERNEN: IS HE REALLY THERE WITH YOU, HONEST TO GOD?
QUICK: YEP. YOU WANT TO SEE? YOU WANT TO SEE? TAKE A SHOT.
KERNEN: I'LL BE DARNED. I'LL BE DARNED.
QUICK: TAKE A SHOT OF WARREN. HE'S HERE.
KERNEN: AND THAT'S NOT TOM CRUZ WITH ONE OF THOSE MASKS ON LIKE – THAT'S REALLY
–
1/24
QUICK: NOPE. NOT LIKE MISSION IMPOSSIBLE.
KERNEN: HI, WARREN. THANKS FOR JOINING US. DON'T SEND ME A BRICK.
WARREN BUFFETT: OK, JOE. YOU'LL GET TWO OF THEM. WE'VE GOT A SPECIAL THIS WEEK.
QUICK: HE WAS WATCHING EARLIER THIS MORNING, JOE, HE HAS ALREADY MENTIONED.
KERNEN: OH, HE DID? HE'S SMILING. HE'S STILL SMILING.
QUICK: HE DID. YEAH HE WAS WATCHING. HE HEARD EVERYTHING. FOLKS, THAT'S RIGHT.
WARREN BUFFETT, THE CHAIRMAN AND CEO OF BERKSHIRE HATHAWAY IS WITH US THIS
MORNING, AND THIS IS ON A MORNING THAT BERKSHIRE HATHAWAY HAS SOME BIG NEWS.
TWO NEW APPOINTMENTS TO THE BERKSHIRE HATHAWAY BOARD. GREG ABEL WHO RUNS
BERKSHIRE HATHAWAY ENERGY AND AJIT JAIN WHO RUNS BERKSHIRE HATHAWAY RE-
INSURANCE. THEY WILL NOW BE RESPONSIBLE – THEY WILL BOTH BE PROMOTED TO VICE
CHAIRMAN, BE NAMED TO THE BOARD, AND WILL EACH HAVE THEIR OWN PORTFOLIO TO
RUN IN THE COMPANY. GREG ABEL, YOU SEE THERE WHO IS 55 YEARS OLD, IS GOING TO BE
RUNNING ALL THE NONINSURANCE PARTS OF BERKSHIRE HATHAWAY. AND AJIT JAIN,
PICTURED HERE WHO IS 66 YEARS OLD, IS GOING TO BE RUNNING ALL THE INSURANCE
PARTS OF BERKSHIRE HATHAWAY. AND WARREN, WE MADE A COMMENT ABOUT THIS
EARLIER TODAY THIS IS THE CLOSEST THAT WE'VE EVER HEARD TO A SUCCESSION PLAN AT
BERKSHIRE HATHAWAY. IS THAT HOW WE SHOULD BE READING THIS?
WARREN BUFFETT: WELL, YEAH. IT'S PART OF A MOVEMENT TOWARDS SUCCESSION OVER
TIME, AND THEY ARE THE TWO KEY FIGURES AT BERKSHIRE. THIS WOULD HAVE MADE SENSE
FIVE YEARS AGO, TOO. THEY BOTH HAVE BERKSHIRE IN THEIR BLOOD. THEY LOVE THE
COMPANY. THEY KNOW THEIR OPERATIONS LIKE THE BACK OF THEIR HAND. SO, IT'S REALLY,
IT'S VERY GOOD FOR BERKSHIRE, AND IT'S EVEN BETTER FOR ME.
QUICK: YOU MENTIONED YOURSELF THAT THIS COULD HAVE HAPPENED FIVE YEARS AGO.
BUFFETT: OH, SURE.
QUICK: THERE HAVE BEEN PEOPLE WHO HAVE BEEN PUSHING YOU TO MAKE PUBLIC YOUR
SUCCESSION PLANS FOR QUITE A BIT LONGER THAN THAT. WHICH RAISES THE QUESTION,
WHY NOW?
BUFFETT: WELL, LIKE YOU SAY, IT PROBABLY SHOULD HAVE BEEN DONE A FEW YEARS AGO,
BUT EVERYTHING HAS BEEN WORKING FINE. ON THE OTHER HAND, THERE'S SOME VALUE IN
HAVING BOTH OF THEM IN THOSE POSITIONS AND GETTING MORE FAMILIAR WITH THE
ONES THEY HAVEN'T BEEN – THE OPERATIONS THEY HAVEN'T BEEN IN CONTACT WITH
BEFORE. AND I'VE GOT A CERTAIN AMOUNT OF INSTITUTIONAL KNOWLEDGE AND I CAN
TELL THEM THE STRONG POINTS AND THE WEAK POINTS AND THIS AND THAT OF THE
VARIOUS OPERATORS. IT'S JUST A TRANSITION PERIOD THAT MAY LAST A LONG TIME OR IF
SOMETHING HAPPENED TO ME, IT COULD HAPPEN VERY SOON. THERE'S NOTHING MAGIC
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ABOUT THE TIME. IT'S KIND OF INTERESTING, ACTUALLY, I TALKED TO THE DIRECTORS ONE
AT A TIME BEFORE WE HAD THIS MEETING LAST NIGHT AND THE DEGREE TO WHICH THEY
JUMPED AT THE SUGGESTION WAS A LITTLE ALARMING.
QUICK: WANTING YOU TO GO AHEAD AND MAKE THE –
BUFFETT: OH YEAH. THERE WAS NO PERSUASION NEEDED.
QUICK: YOU JUST SAID THAT THIS COULD HAPPEN, IT COULD LAST A LONG TIME, OR IT
COULD HAPPEN MORE IMMEDIATELY. SHOULD PEOPLE BE CONCERNED ABOUT YOUR
HEALTH?
BUFFETT: NO. I AM REMARKABLY IN GOOD HEALTH, PARTICULARLY CONCERNING THE LIFE

I'VE LED. EVERYTHING PHYSICAL GETS A LITTLE – YOUR BALANCE ISN'T AS GOOD, AND YOUR
ENDURANCE MAY NOT BE QUITE AS GOOD AND ALL OF THAT. SO, I HAVE SLIPPED IN ALL
THESE VARIOUS WAYS, BUT I WASN'T MUCH TO START WITH. SO THE AMOUNT OF SLIPPAGE
IS FAIRLY MINOR JUST BECAUSE I STARTED FROM A LOW BASE. NO, I FEEL TERRIFIC. I LOVE
WHAT I DO. I CAN'T WAIT TO GO TO THE OFFICE IN THE MORNING, AND, NO, THERE'S BEEN
NO CHANGE IN THAT. AND INCIDENTALLY, IF THERE WAS ANYTHING ABOUT MY HEALTH,
AND THIS HAS BEEN TRUE SINCE I TOOK OVER, I WOULD TELL THE SHAREHOLDERS
IMMEDIATELY. I'M NOT WRONG TO TALK ABOUT MY HEALTH. IN FACT, I THINK YOU HAVE A
DUTY TO DO THAT WHEN YOU ARE CEO.
QUICK: SO HOW WILL THIS CHANGE OPERATIONS AT BERKSHIRE? YOU WILL NOW HAVE
THREE VICE CHAIRMAN. CHARLIE MUNGER, AJIT JAIN AND GREG ABEL. WHAT DOES THAT
MEAN?
BUFFETT: WELL, IT MEANS NOTHING IN TERMS OF PHYSICAL CHANGE. AJIT LIVES IN NEW
YORK, WORKS IN CONNECTICUT, AND ALSO IN NEW YORK CITY. GREG LIVES IN DES MOINES.
THEY WON'T CHANGE ANYTHING. THERE'S NO CHANGE IN OUR OFFICE. CFO IS IN OMAHA.
THERE WONT BE A CHANGE IN ONE PERSON IN OMAHA OR REALLY ANY PLACE ELSE EXCEPT
SOMEBODY WILL MOVE UP TO THE HEAD OF BERKSHIRE HATHAWAY ENERGY.
QUICK: I GUESS THE QUESTION BECOMES, IF THIS IS THE SUCCESSION PLANNING KIND OF
OPENED UP, DOES THIS MEAN THAT THEY WOULD BOTH BE RUNNING BERKSHIRE
HATHAWAY AT SOME POINT? SORT OF THE WAY YOU HAVE YOUR INVESTMENT POTENTIAL
SET UP WITH TODD AND TED. TODD COMBS AND TED WESCHLER EACH RUNNING TWO
THINGS AND KIND OF OPERATING TOGETHER. IS THAT HOW WE SHOULD ANTICIPATE
SUCCESSION PLANNING AT BERKSHIRE HATHAWAY FOR THE CEO JOB?
BUFFETT: NO. WHEN I'M NOT CEO, THERE WILL BE ANOTHER CEO. THERE WILL BE A CEO.
AND HOW THAT CEO WILL ORGANIZE THINGS WILL BE UP TO HIM IN THIS CASE. AND HE
WILL FIGURE OUT THE BEST WAY TO DO IT. AND IT WON'T CHANGE VERY MUCH. IT WILL
CHANGE A LITTLE, BUT IT WON'T CHANGE VERY MUCH.
QUICK: DO YOU KNOW WHICH OF THESE TWO WOULD BE CEO IF THIS WERE TO HAPPEN
OVERNIGHT?
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BUFFETT: WELL, YOU NEVER KNOW, BUT OUR DIRECTORS KNOW WHAT THEY WOULD DO
TOMORROW MORNING IF IT HAPPENED, BUT THEY DON'T KNOW WHAT THEY WOULD DO
FOUR YEARS FROM NOW, SAY IF IT HAPPENED THEN.
QUICK: I GUESS THAT RAISES THE QUESTION, DOES THIS RAISE A LITTLE BIT OF A HORSE
JOCKEYING COMPETITION?
BUFFETT: THERE'S NO HORSE RACE AT ALL IN THESE TWO FELLOWS. THEY KNOW EACH
OTHER WELL. THEY LIKE EACH OTHER WELL. THEY BOTH HAVE THEIR AREAS OF SPECIALTY. I
MEAN, GREG WOULD NOT WANT TO BE RUNNING INSURANCE AND AJIT WOULD NOT BE
RUNNING THE OTHER OPERATIONS. THEY ARE EXTREMELY GOOD AT WHAT THEY DO. THOSE
ARE TWO PRETTY DIFFERENT BUSINESSES. AND THEY'RE ROUGHLY EQUAL BUSINESSES.
THERE ARE MORE PEOPLE ON ONE SIDE, BUT THE INSURANCE BUSINESS GENERATES OVER
$100 BILLION OF FLOAT IN ADDITION TO HAVING WELL OVER $100 BILLION INVESTED IN IT
IN TERMS OF NET WORTH. SO, THERE'S MORE OR LESS PARODY OF EARNING POWER AND
IMPORTANCE.
QUICK: THAT'S WHAT I WAS GOING TO ASK YOU ABOUT BECAUSE WE'VE BEEN LOOKING AT
SOME OF THE MEASURES THIS MORNING JUST FROM ANALYST'S NOTES ON SOME OF THESE
THINGS. IF YOU LOOK AT 2016 PROFIT AND BREAK IT DOWN, THE INSURANCE COMPANY
REPRESENTS ABOUT A QUARTER OF THE BUSINESS. AT LEAST FOR THE PROFITS FOR THAT
YEAR AND OBVIOUSLY INSURANCE PROFITS CAN SWING PRETTY RAPIDLY. BUT YOU LOOK AT
IT A LITTLE DIFFERENTLY.
BUFFETT: YEAH. IF WE HAVE $100 BILLION PLUS A FLOAT, THAT MEANS THOSE INTERESTS IN
DIVIDENDS AND A FAIR AMOUNT OF CAPITAL GAINS OVER TIME COME FROM THE
INSURANCE OPERATION. THEY'RE REALLY OF PRETTY EQUAL IMPORTANCE. I'M NOT SURE IF
WE WERE TO SELL ONE SIDE OR THE OTHER WHICH ONE WOULD BRING MORE MONEY.
THEY BOTH ARE ENORMOUSLY IMPORTANT TO BERKSHIRE.
QUICK: AND THE KEY IS – IT'S KIND OF THE SECRET BEHIND BERKSHIRE HATHAWAY FROM
ALL THESE YEARS. THE INSURANCE COMPANY CREATING THE FLOAT THAT THEN YOU CAN
TURN AROUND AND INVEST EITHER IN PURCHASING OTHER BUSINESSES OR IN
PURCHASING SECURITIES AND BRINGING THEM IN. HOW DOES THAT WORK WHEN IT'S NOT
THE SAME PERSON WHO IS KIND OF RESPONSIBLE FOR OVERSEEING ALL OF THAT? THEY
WOULD HAVE TO BE PEOPLE WHO WORK WELL TOGETHER.
BUFFETT: WELL, THEY CERTAINLY HAVE TO UNDERSTAND EACH OTHERS OPERATION. BUT I
INVEST THE CAPITAL, AND CHARLIE DOES IT WITH ME. BUT IN OUR INSURANCE OPERATIONS,
TONY NICELY OF GEICO, HE DOESN'T THINK FOR FIVE SECONDS ABOUT HOW THE MONEY IS
GETTING INVESTED, AND ACTUALLY, THE SAME WAY WITH AJIT. THEIR JOB IS TO DEVELOP
GOOD INSURANCE BUSINESS, CREATE MORE FLOW OVER TIME, AND MY JOB IS TO INVEST IT.
THERE'S REALLY THREE FUNCTIONS IN THE BUSINESSES. TWO DIFFERENT TYPES OF
OPERATIONS, AND THEN THERE'S THE MONEY.
QUICK: WHY DIDN'T YOU DO THIS YEARS AGO? WHAT WAS THE REASONING BEHIND THAT?
4/24
BUFFETT: PROBABLY LETHERGY BORDERING ON SLOTH OR SOMETHING OF THE SORT.
THERE WASN'T A REASON TO DO IT PARTICULARLY, YOU CAN SAY THERE IS A REASON
TODAY. BUT IT WILL BE VALUABLE TO ANYBODY THAT SUCCEEDS ME TO HAVE HAD MORE
EXPERIENCE IN THE OVERALL MANAGEMENT OF A LARGE AREA, AND WE HAVE SO MANY
DIFFERENT – INSURANCE OPERATIONS – WE HAVE A LOT OF DIFFERENT ONES IN INSURANCE.
WE HAVE EVEN MORE THAN THE OTHER OPERATIONS. JUST IN TERMS OF THE HISTORY OF
WHICH MANAGERS REALLY DON'T NEED ANY HELP WHATSOEVER AND WHICH ONES IF
THEY'RE DOING BOLT ON ACQUISITIONS MAY NEED MORE INPUT THAN OTHERS. THERE'S A
LOT OF DIFFERENT INDIVIDUALS RUNNING OUR DIFFERENT BUSINESSES AND THEY HAVE
DIFFERENT STRENGTHS AND WEAKNESSES. AND OVER TIME, ON BOTH THE INSURANCE SIDE
AND THE NON-INSURANCE SIDE, EACH OF THOSE FELLOWS WILL PICK UP – THEY'LL KNOW A
LOT MORE A YEAR FROM NOW THAN THEY KNOW NOW.
QUICK: AND THEY'LL HAVE THOSE BUSINESSES REPORTING THROUGH TO THEM?
BUFFETT: TO THEM. AND THEY'LL DECIDE THE COMPENSATION OF THE PEOPLE

UNDERNEATH. I MEAN, CERTAIN PEOPLE WE HAVE COMPENSATION ARRANGEMENTS WITH
THAT WE WILL HAVE IN FORCE FOR THEIR LIFETIME BECAUSE WE MADE UP AT THE TIME OF
ACQUISITION, BUT ASIDE FROM THE ONES THAT ARE FIXED, THOSE DECISIONS WILL BE
THEIRS. AND SMALLER BOLT ON ACQUISITIONS WILL PROBABLY BE THEIRS IF THERE'S A
LARGE BOLT ON ACQUISITION, THEN CHARLIE AND I WILL GET INVOLVED.
QUICK: YOU WILL GET INVOLVED IN MAKING THE ACQUISITION, BUT I WOULD ASSUME THAT
ANY FUTURE ACQUISITIONS WOULD REPORT THROUGH – THOSE DIVISIONS WOULD REPORT
THROUGH TO ONE OF THESE TWO GENTLEMEN.
BUFFETT: THAT'S CORRECT.
QUICK: WILL THAT MAKE IT MORE DIFFICULT FOR YOU TO MAKE ACQUISITIONS BECAUSE
ONE OF THE BIG LURES IN THE PAST HAS BEEN BEING ABLE TO REPORT TO WARREN
BUFFETT?
BUFFETT: WELL, IT ISN'T THAT I DISAPPEAR. I WILL TELL ALL THESE FELLOWS AND WOMEN
TO SEND ME THE STATISTICAL INFORMATION THEY GET. IT'S LIKE LOOKING AT BASEBALL
SCORES OR SOMETHING FROM MY STANDPOINT. SO I'LL KEEP GETTING INFORMATION, BUT
I WILL NOT BE SETTING THE PAY. I MEAN, THEY WILL BE WORKING FOR EITHER AJIT OR GREG.
BUT I'LL BE AS INTERESTED AS EVER. THERE'S NOT A DROP OF BERKSHIRE BLOOD THAT'S
LEAVING MY BODY.
QUICK: YOU SAID THAT THIS IS SOMETHING THAT YOU FEEL GREAT.
BUFFETT: TERRIFIC.
QUICK: YOUR HEALTH IS IN PERFECT HEALTH.
BUFFETT: YEAH.
QUICK: SAME THING. ARE YOU TIRED? DO YOU NOT WANT TO BE DOING AS MUCH?
5/24
BUFFETT: NO. I'M DOWN AT THE OFFICE ON SATURDAY. ANY SATURDAY I'M IN TOWN,
UNLESS THERE'S SOMETHING VERY UNUSUAL GOING ON. I LOVE IT. I LOVE BERKSHIRE. I
LOOK FORWARD EVERY MORNING TO BEING THERE. IT'S A GREAT – YOU COULDN'T HAVE A
BETTER JOB THAN I'VE GOT. I'VE JUST MADE IT ONE NOTCH BETTER NOW.
QUICK: THERE'S A JPMORGAN REPORT FROM SEPTEMBER OF LAST YEAR AND THE ANALYST
THERE POINTS OUT THAT SUCCESSION HAS ALWAYS BEEN A BIG QUESTION, THE NEXT LINK
OF WHO IS GOING TO BE THERE HAS ALWAYS BEEN A HUGE QUESTION. BUT SHE ALSO
POINTS OUT SHE WOULDN'T BE SURPRISED TO SEE YOU RUNNING THINGS FOR THE NEXT
TEN YEARS OR SO. YOU HAVE AN ACTUARIAL BRAIN, YOU RUN THESE THINGS THROUGH.
WHAT DO YOU THINK WHEN YOU START THINKING ABOUT HOW LONG YOU'LL BE RUNNING
BERKSHIRE?
BUFFETT: TEN YEARS WOULD BE A LONG TIME, BUT EVERY TIME I SEE ONE OF MY DOCTORS,
I SAY JUST GUARANTEE ME THE NEXT FIVE YEARS. IT'S SORT OF A RUNNING EXTENSION AS I
GO ALONG. RUNNING IT NOW IS EXACTLY LIKE IT WAS LIKE IT WAS TEN YEARS AGO OR SO. IF
THERE'S A DEAL SOME PLACE, I'LL GET ON A PLANE AS SOON AS I LEAVE HERE. I LOVE WHAT
I DO AT BERKSHIRE. THERE'S NOTHING I WOULD RATHER BE DOING BECAUSE I COULD DO
ANYTHING ELSE IF I WANTED TO DO SOMETHING DIFFERENTLY. IT'S MORE FUN THAN I
THINK I COULD IMAGINE.
QUICK: AND HOW DID THIS DECISION COME ABOUT?
BUFFETT: I JUST WAS – I'VE MOLDED VARIOUS TIMES EXACTLY WHEN I WOULD DO
SOMETHING LIKE THIS. MAYBE SIX WEEKS AGO OR SO I JUST DECIDED WHY NOT NOW? AS I
SAID, I TALKED TO THE DIRECTORS ONE AT A TIME INDIVIDUALLY BEFORE WE HAD THIS VOTE
LAST NIGHT AND THEY JUMPED ALL OVER IT. I WAS HOPING THERE WOULD BE A LITTLE
DISENT OR SOMETHING. AND THEN THE MEETING TOOK ABOUT 15 MINUTES YESTERDAY
ON THE PHONE. SO, IT JUST MAKES SENSE NOW. I KNOW THAT IF I WERE IN THE POSITION
OF THOSE TWO FELLOWS, I WOULD JUST AS SOON HAVE SOME OF THE STUFF. I WOULD LIKE
TO GET SOME EXPERIENCE WITH SUPERVISING A WHOLE GROUP OF BUSINESSES BEFORE I
EVENTUALLY TOOK OVER.
QUICK: YEAH AND POTENTIALLY MAKING SURE THEY FEEL COMFORTABLE WITH ALL OF
THOSE ISSUES, TOO. CHARLIE MUNGER IS NOW GOING TO BE SHARING THE TITLE OF VICE
CHAIRMAN. HE WILL BE JOINING US A LITTLE LATER THIS MORNING. HOW DOES HE FEEL
ABOUT SHARING THAT TITLE?
BUFFETT: OH, IT WAS HIS IDEA, ACTUALLY, IN TERMS OF THE TITLE. I GOT ABOUT HALFWAY
THROUGH THE FIRST SENTENCE, WHICH IS MORE THAN I USUALLY GET THROUGH WITH
CHARLIE BEFORE HE COMES UP WITH A BETTER IDEA, AND HE JUST SAYS, LET'S JUST HAVE
THREE VICE CHAIRMEN.
QUICK: WELL, WE WILL BE JOINED BY CHARLIE MUNGER LATER THIS MORNING TO TALK
ABOUT HIS PERSPECTIVE ON ALL OF THIS AS WELL. WHEN WE COME BACK RIGHT HERE IN
OMAHA, WE WILL HAVE MORE FROM WARREN BUFFETT. WE ARE GOING TO TALK TO HIM
ABOUT WHAT HE SEES IN THE MARKETS AT THE BEGINNING PART OF THIS YEAR, WHAT HE
6/24
THINKS ABOUT INTEREST RATES THIS MORNING AND MUCH MORE. AGAIN, WE ARE LIVE IN
OMAHA, NEBRASKA, THIS MORNING WITH WARREN BUFFETT, THE CHAIRMAN AND CEO OF
BERKSHIRE HATHAWAY. NEWS THIS MORNING AND MUCH MORE. WE'LL BE BACK WITH
MORE AFTER A QUICK BREAK.
QUICK: WELCOME BACK TO "SQUAWK BOX" EVERYBODY. WE ARE LIVE IN OMAHA, NEBRASKA
THIS MORNING WITH WARREN BUFFETT, WHO IS THE CHAIRMAN AND CEO OF BERKSHIRE
HATHAWAY. BIG NEWS OUT OF BERKSHIRE THIS MORNING, BUT ALSO OBVIOUSLY PEOPLE
WONDER, WARREN, WHAT YOU THINK ABOUT THE MARKETS AT ANY GIVEN POINT.
PARTICULARLY NOW SEEING WHAT'S HAPPENED. THE S&P HAS HAD ITS BEST START TO THE
YEAR SINCE 1987. STOCK MARKETS CONTINUE TO KEEP GOING UP AND ITS GOT PEOPLE
BOTH WANTING TO PARTICIPATE AND THEN ALSO THAT WE ARE SEEING SOMETHING THAT
THE END IS NEAR, THAT WE ARE GETTING INTO OVERPRICED TERRITORY. I KNOW THAT YOU
DON'T ALWAYS LOOK AT MARKETS ON A CASE BY CASE BASIS BUT IF YOU'RE JUST LOOKING,
BROADLY SPEAKING, DO THE MARKETS SEEM RICHLY VALUED TO YOU?
BUFFETT: THEY'RE NOT RICHLY VALUED RELATIVE TO INTEREST RATES, YOU KNOW. STOCKS
ARE – INTEREST RATES ARE THE LONG-TERM RATE. IT'S 3%, AND WE'RE QUITE A BIT LESS
THAN EXIT. THE LONG-TERM RATE IS 7%. THERE'S PANIC MANY IN STOCKS IF THE LONG-
TERM RATE IS 15% LIKE IT WAS IN 1982. SO INTEREST RATES ARE THE GRAVITY TO VALUE
BASICALLY. AND EVERYTHING IS WORTH IN AN INVESTMENT SENSE THE PRESENT VALUE OF
WHAT IT'S GOING TO -- CASH IS GOING TO DELIVER IN THE FUTURE. AND OBVIOUSLY, IF
RATES GO UP, THAT PRESENT VALUE BRINGS THE NUMBER TODAY DOWN. SO, WE'VE HAD
LOW INTEREST RATES NOW FOR A VERY LONG PERIOD, AND WE'VE HAD A BULL MARKET
SINCE – WELL, REALLY SINCE MARCH OF 2009. WHEN I WAS ON, AND JOE ASKED WHY I
WASN'T BUYING MORE AMERICA EXPRESS AT 12, AND I TOLD HIM THAT I WAS BUYING
THINGS THAT WE WEREN'T ALLOWED TO. SO, IT'S – WHAT HAS HAPPENED IN THE MARKET
HAS BEEN VERY SENSIBLE. I MEAN, NOBODY THOUGHT WE WOULD HAVE THESE KIND OF
INTEREST RATES FOR A LONG TIME. NOW, ADDITIONALLY, YOU HAD THE TAX ACT, WHICH IS
A HUGE FACTOR IN VALUATION. I MEAN, IF YOU HAD BOUGHT – WE'RE IN OMAHA, LET'S SAY
YOU HAD BOUGHT THE UNION PACIFIC RAILROAD YOURSELF, LIKE WE BOUGHT THE BNSF,
AND IF YOU HAD BOUGHT IT A YEAR OR TWO AGO, YOU COULD HAVE BOUGHT 100% OF
THE STOCK, BUT THE U.S. GOVERNMENT WOULD HAVE HAD A SUPER STOCK THAT WAS
ENTITLED TO 35% OF THE EARNINGS. AND THEY HAD JUST CHANGED THAT WITHOUT YOU
PAYING THEM A PENNY TO WHERE THERE'S – THEY NOW HAVE 21% OF THE STOCK. IN
EFFECT, YOU BOUGHT IN THEIR 14%, 40% OF WHAT THEY HAD FOR NOTHING. I MEAN, IT'D
BE LIKE I GAVE 14% OF BERKSHIRE BACK TO BERKSHIRE FOR NOTHING. WOULD THAT MAKE
THE REMAINING SHARES MORE VALUABLE? OF COURSE IT WOULD. AND SO YOU'VE HAD
THIS MAJOR CHANGE IN THE SILENT STOCKHOLDER IN AMERICAN BUSINESS WHO HAS BEEN
CONTENT WITH 35% -- NOW THERE'S VARIOUS THINGS ABOUT FOREIGN EARNINGS AND ALL
THAT, BUT 35% OF A BASIC – OUR BASIC BUSINESSES. AND NOW INSTEAD OF GETTING A
35% INTEREST ON THEIR EARNINGS THEY GET A 21%, AND THAT MAKES THE REMAINING
STOCK MORE VALUABLE.
7/24
QUICK: I HAVE NOT HEARD ANYBODY EXPLAIN IT JUST LIKE THAT. WHEN YOU SAY
SOMETHING LIKE THAT, YOU KNOW, WE'RE CONSTANTLY ASKING IS THIS BAKED INTO THE
MARKET? IS THIS REFLECTED IN THE MARKET? WHEN YOU SAY SOMETHING LIKE THAT, THAT
MAKES ME THINK NO, THAT THIS IS A MUCH LONGER TERM, MUCH BIGGER DEAL THAN THE
RUN-UP THAT WE'VE SEEN IN THE LAST MONTH OR SO.
BUFFETT: WELL, IT'S A BIG DEAL. HOW MUCH OF IT HAS BEEN BAKED IN AS PEOPLE STARTED
THINKING MAYBE THERE WOULD BE THE TAX BILL AND HOW BIG WOULD IT BE. I THINK
THAT – 21% WAS NOT BAKED IN, THAT'S A HUGE, HUGE REDUCTION. IF YOU AND I WERE
PARTNERS IN A BUSINESS AND YOU OWNED 35% OF IT AND I OWN 65% AND THEN YOU
SHOWED UP ONE DAY AND SAID I'M GIVING YOU 14 OF MY 35 POINTS, NOW MY INTEREST
HAS GONE FROM 65% TO 79%. THAT'S MORE THAN A 20% INCREASE IN THE EARNING
POWER, AND YOU'VE JUST GIVEN IT TO ME. NOTHING HAS CHANGED IN THE BUSINESS
THAT'S -- IT'S A BIG FACTOR. NOW, THEY CAN TAKE IT AWAY TOO. GO THE OTHER
DIRECTION.
QUICK: THEY – LOOK, WE'RE LOOKING AT THIS NEW CHANGE. IT'S JUST BEEN ON A CASE BY
CASE BASIS THAT INVESTORS ARE TRYING TO FIGURE OUT WHAT THIS MEANS FOR
COMPANIES. AND WE ARE JUST BEGINNING TO HEAR THE VERY EARLY PIECES OF THIS.
YOU'RE BASICALLY SAYING THAT THIS IS GOOD NEWS FOR SHAREHOLDERS ACROSS THE
BOARD BECAUSE SOMETIMES THIS IS PAINTED AS SOMETHING THAT'S A GIVE-AWAY TO
CEOS OR CORPORATE EXECUTIVES, THINGS ALONG THOSE LINES.
BUFFETT: PEOPLE WHO OWN THE BUSINESSES HAVE JUST OWNED -- THEY NOW OWN 20%
MORE OF THE DOMESTIC EARNINGS. I MEAN THE FOREIGN STUFF GETS MORE
COMPLICATED, BUT IT'S GOOD IF YOU OWN THE FOREIGN STUFF, TOO. FOREIGN EARNINGS.
WE HAPPEN TO BE OVERWHELMING U.S. ORIENTED AT BERKSHIRE. BUT IT'S AN INTERESTING
POINT. THE GOVERNMENT DOESN'T OWN THE ASSETS OF THE BUSINESS, WE OWN 100% OF
THE ASSETS OF BNSF, BUT WE DON'T OWN 100% OF THE PROFITS. AND WE WENT FROM
65% TO 79 PERCENT OF THE PROFITS AT BNSF, AND THAT IS A – MORE THAN A 20%
INCREASE. YOU KNOW, THAT'S 14 POINTS ON 65. SO, IT'S A BIG DEAL.
QUICK: WHAT DOES IT MEAN SPECIFICALLY FOR BERKSHIRE HATHAWAY? THERE WAS AN
ANALYST WHO JUST PUT OUT A NOTE, JAY GELB, THAT SAID THAT IT'S A $37 BILLION BOOK
VALUE INCREASE FOR BERKSHIRE INSTANTANEOUSLY.
BUFFETT: YEAH, WELL, IT DOESN'T MEAN A DIME OF CASH TODAY. BUT WE HAVE A HUGE OF
AMOUNT OF DEFERRED TAX LIABILITIES. FOR EXAMPLE, YOU PROBABLY – I'M PULLING THESE
FIGURES OUT. DON'T FILE A SUIT IF I'M OFF A LITTLE BIT. BUT WE HAVE PERHAPS $100
BILLION OF UNREALIZED APPRECIATION IN THE SECURITIES WE OWN. AND IF YOU OWN
SECURITIES THAT HAVE GONE UP, YOU DON'T HAVE TO PAY A TAX JUST BECAUSE THEY'VE
GONE UP, BUT IF YOU SAW THEM, YOU DO, AND IF YOU KEPT YOUR BOOKS ON AN
ACCOUNTING BASIS, YOU SET UP A LIABILITY FOR THE TAX ON YOUR UNREALIZED GAIN.
WELL, OUR TAX ON THE UNREALIZED GAIN ON $100 BILLION WOULD BE $35 BILLION, AND
THEN THAT GOES DOWN TO $21 BILLION UNDER THE NEW TAX LAW. SO, ANYBODY THAT
HAS A LOT OF DEFERRED TAX LIABILITIES GETS A BIG KICK UP IN BOOK VALUE. A COMPANY
8/24
LIKE CITIGROUP HAS A BIG DEFERRED TAX ASSET. THE REVERSE IS TRUE THERE, BECAUSE
THAT TAX ASSET IS NOT WORTH AS MUCH. WHAT IT DOES IS IT REDUCES THEIR TAXES IN IT
FUTURE YEARS, AND THAT REDUCTION IS WORTH 21 CENTS ON THE DOLLAR INSTEAD OF 35
CENTS ON THE DOLLAR. SO, IT DEPENDS WHETHER YOU HAVE A LOT OF DEFERRED TAX
LIABILITIES OR DEFERRED TAX ASSETS, AMONG OTHER THINGS, BUT THAT'S A BIG ONE WITH
US.
QUICK: I MEAN IT'S A CHANGE IN ACCOUNTING, BUT WHAT DOES IT MEAN

INSTANTANEOUSLY? OR IT'S JUST A DESCRIPTION OF HOW –
BUFFETT: WELL, IT DOES MEAN IF I SELL SOME STOCK THAT I WAS GOING TO SELL IN
DECEMBER, AND I WANTED TO SELL IT BUT I DIDN'T SELL IT IN DECEMBER I WOULD HAVE
HAD A 35% TAX ON THE PROFIT, AND BY WAITING UNTIL JANUARY 1st, IF I SELL IT TODAY, I
HAVE A 21% TAX HIKE. SO I GET 79% OF THE PROFITS FOR BERKSHIRE THIS MONTH AND
LAST MONTH I WOULD HAVE GOTTEN 65%.
QUICK: YOU KNOW, YOU HINTED AT THIS IN OCTOBER WHEN WE TALKED TO YOU AND SAID
IF THE TAX RATE CHANGED, AND YOU WERE ONE OF THE ONES THAT WAS ACTUALLY
BETTING THAT IT WOULD AT THAT POINT, WHICH WAS AGAINST CONVENTIONAL WISDOM,
AS EARLY AS, I THINK IT WAS OCTOBER 3rd THE LAST TIME WE SAT DOWN WITH YOU, AND
HINTED AT THIS WHOLE IDEA OF WHAT YOU WOULD BE POTENTIALLY SELLING OR NOT
SELLING AS A RESULT. ARE YOU SELLING STOCKS NOW THAT --
BUFFETT: NET, WE'RE BUYING.
QUICK: NET, YOU'RE BUYING.
BUFFETT: YEAH. NET. I'VE LIVED UNDER 15 OF THE 44 PRESIDENTS OF THE UNITED STATES,
AND I'VE BOUGHT UNDER EVERY SINGLE ONE OF THEM EXCEPT HOOVER. I WAS ONLY A
TODDLER THEN, LESS THAN A YEAR. BUT, NO, WE'RE BASICALLY BUYERS OVER TIME, BECKY.
THAT DOESN'T MEAN -- THERE COULD BE CONDITIONS UNDER WHICH WE'RE SELLERS, BUT
THAT'S NOT -- FOR ONE THING, THE MONEY KEEPS COMING IN, YOU KNOW, SO WE
BASICALLY KEEP BUYING.
QUICK: LET ME ASK SPECIFICALLY ON ONE STOCK, IBM, ARE YOU A BUYER OR A SELLER OF
THAT? BECAUSE WE'VE TALKED WITH YOU IN THE PAST WHEN YOU WERE SELLING.
BUFFETT: YEAH. WELL, AROUND THE MIDDLE OF FEBRUARY WE HAVE TO REPORT WHAT WE
DID IN THE FOURTH QUARTER. AND WELL, IT WAS ADVANTAGEOUS IF YOU HAD A LOSS IN
SHARES AND WE DID IN SOME, IBM, IT WAS ADVANTAGEOUS TO SELL LAST YEAR RATHER
THAN THIS YEAR.
QUICK: SO DOES THAT MEAN YOU'RE NOT SELLING IBM THIS YEAR?
BUFFETT: WELL IT WOULD CERTAINLY MEAN THAT IF WE HAD HIGH COST IBM, WE WOULD
HAVE SOLD IT LAST YEAR, AND IF WE HAD LOW COST, WE WOULD HAVE WAITED UNTIL THIS
YEAR, AND WE HAD SOME OF BOTH.
9/24
QUICK: SO THAT SOUNDS LIKE YOU'RE SELLING ALL THE WAY AROUND.
BUFFETT: WELL, ON FEBRUARY 15 AT, YOU'LL BE THE FIRST TO KNOW. OR WHATEVER THAT
DATE IS. IT'S MID FEBRUARY.
QUICK: I TRIED. I TRIED. BACK TO THE TAX LAW VERY QUICKLY, WHAT DOES IT MEAN IN
TERMS OF JUST WHAT IT WILL BE ON COST OF BUSINESS. IS IT GOING TO MEAN BERKSHIRE
EARNS A LOT MORE? ARE YOU GOING TO RAISE?
BUFFETT: WELL, DEPENDS ON THE BUSINESS. IF YOU ARE TALKING ABOUT REGULATING
UTILITY BUSINESS, NONE OF IT FLOWS THROUGH US BECAUSE ALL OF IT GOES TO THE
CUSTOMER, AND AS IT SHOULD. THEN IN SOME BUSINESSES IT WILL TEND TO GET
COMPETED AWAY, AND IN OTHER BUSINESSES, IT WILL BE LESS LIKELY TO BE COMPETED
AWAY. THERE'S A BIG DIFFERENCE IN HOW IT AFFECTS DIFFERENT KINDS OF BUSINESSES,
AND YOU CAN'T TOTALLY—
QUICK: —ANTICIPATE IT.
BUFFETT: ANTICIPATE IT. EXACTLY. YOU KNOW THAT CERTAIN TYPES – IT TENDS TO GET
COMPETED AWAY FAIRLY FAST. OTHER BUSINESSES—
QUICK: WHAT TYPES OF BUSINESSES DOES IT GET COMPETED AWAY?
BUFFETT: WELL IT'S THE – WELL IT'S THE ONE WHERE PEOPLE ARE LOOKING AT AFTER TAX
RETURNS ON CAPITAL AND PRICING ACCORDINGLY – ACCORDINGLY. AND MAYBE WHERE
THERE ARE SUPPLIERS TO IMPORTANT COMPANIES AND THOSE SUPPLIERS SAY, YOU KNOW,
NOW YOU'RE ONLY PAYING 21% OF THE TAX, SO THEY WANT SOME OF THAT – THEY WANT A
CUT OF IT. CAPITAL IS COMPETITIVE BUT IT'S MUCH MORE COMPETITIVE IN CERTAIN
INDUSTRIES THAN OTHERS. AND SOME, THERE WILL BE DECISIONS MADE WHERE THERE ARE
– SOME PEOPLE MAKE THEIR DECISIONS BASED ON AFTER TAX RETURN ON CAPITAL AND
THOSE WILL BE MADE ON MORE MARGINAL PROJECTS PRESUMABLY. THERE'S NOT A LOT OF
THAT.
QUICK: I WOULD THINK IN THE RAILROADS IT'S A LITTLE MORE OF A SET IN STONE ISSUE
BECAUSE YOU'RE NOT A MONOPOLY BUT IF PEOPLE WANT TO CONTINUE TO USE THOSE
ROUTES –
BUFFETT: YEAH OUR COMPETITION IS TRUCKERS AND OTHER RAILROADS. I MEAN, BOTH.
AND THE COST OF DIESEL FUEL IS MORE IMPORTANT. BUT THAT – IT ALL REMAINS TO BE
SEEN ON THAT, BUT THEN IT CERTAINLY IS A SIGNIFICANT PLUS. AND IF YOU OWN THE KIND
OF BUSINESS WHERE PEOPLE REALLY HAVE NO CHOICE BUT IT ISN'T REGULATED, I MEAN, IT
WOULD BE REGULATED IN CASE OF UTILITY OR SOMETHING, YOUR AFTER TAX MARGINS ARE
LIKELY TO WIDEN OUT. AND THEY'RE LIKELY TO WIDEN OUT FOR FOREIGN AND DOMESTIC.
QUICK: WHAT DOES THIS MEAN FOR THE AMERICAN ECONOMY OVERALL? WE TALKED
ABOUT THE STOCK MARKET AND WHAT THIS MEANS. WHAT DO YOU THINK IT MEANS ON A
BROADER BASIS?
10/24
BUFFETT: THAT'S THE BIG QUESTION WE'LL FIND OUT. I MEAN, WE'RE ESSENTIALLY
CHANGING THE MIX. AND TO SOME EXTENT, WE'RE ADDING TO THE DECEFIT AT A TIME
WHEN THE THE FED ACTUALLY WAS GOING TO BE SELLING, THOUGH NOT IN HUGE
QUANTITES. BEFORE WE ARE ADDING TO THE DECEFIT FOR YEARS, BUT THE FED WAS
BUYING A LOT OF THE TREASURY ISSUANCE NET. SO THAT THE PURCHASING FROM THE
PRIVATE SECTOR OF DEBT EARLIER NEEDED TO BE LESS THAN THE TREASURY WAS ACTUALLY
RAISING BECAUSE THE FED WAS THERE BUYING. SO THEY TOOK THEIR BALANCE SHEET –
QUICK: WE'RE EFFECTIVELY TAKING OUR OWN.
BUFFETT: THEY WERE BUYING THEIR OWN STUFF. SO THEY TOOK -- THERE WAS $3.5
TRILLION OR THEREABOUTS ADDED. I MEAN, I THINK IT'S ABOUT $300 TRILLION, AND
BASICALLY THAT WAS THE FED FUNDING PARTS OF THE DEFICIT OF THE UNITED STATES
GOVERNMENT. NOW IT WILL BE THE OTHER WAY AROUND. A LITTLE BIT AS THE FED -- THE
FED IS GOING TO TAKE IT DOWN VERY GENTLY, BUT NEVERTHELESS, INSTEAD OF BEING A
BUYER, THEY'LL BE A SELLER, AND AT THE SAME TIME THE TREASURY WILL BE RAISING MORE
MONEY SO YOU'VE CHANGED THAT EQUATION. HOW THAT PLAYS OUT, I DON'T KNOW.
QUICK: NET-NET, I CAN'T IMAGINE THAT IT WILL HURT THE AMERICAN ECONOMY OR GDP AT
LEAST OVER THE SHORT-TERM.
BUFFETT: IT'S HARD TO TELL THE ECONOMICS – THAT'S THE ONE THING I'VE LEARNED. I DO
NOT – WE DO DON'T EVER TRY TO MAKE MONEY BY PREDICTING ECONOMICS. I MEAN, IT'S A
TAX LAW CHANGE ACTUALLY CHANGES NUMBERS THAT YOU CAN SEE, BUT IT'S --
MACROSTUFF IS VERY HARD TO PREDICT. AND, YOU KNOW, YOU HAVE SEEN THAT IN THE
YEARS WHEN PEOPLE COME ON AND TRY AND PREDICT WHAT THE ECONOMY IS GOING TO
DO. IT'S – CHARLIE AND I HAVE NEVER MADE A MARKETABLE SECURITY DECISION OR THE
PURCHASE OF AN ENTIRE BUSINESS WHERE WE'VE TALKED AT ALL ABOUT
MACROECONOMICS.
QUICK: NO BUT I WOULD GUESS IF ARE YOU PUTTING MONEY TO WORK IN THE MARKETS
AND TRYING TO FIGURE IT OUT, THOSE MACRODECISIONS WOULD HAVE A BIG IMPACT YOU
JUST SAID INTEREST RATES ACT AS GRAVITY THE TAX BILL WILL ADD SOME STIMULUS, AND
CERTAINLY MAKES IT MORE VALUABLE TO OWN ANY SHARES.
BUFFETT: WELL YOU CHANGED THE EQUATION THERE I MEAN, THAT -- YOU HAVE ACTUALLY
CHANGED WHO GETS THE VALUE -- WHO GETS THE EARNINGS OF AMERICAN
CORPORATIONS IN A FAIRLY MAJOR WAY
QUICK: SO YOU MAY NOT BUY A COMPANY OR A BUSINESS AS A RESULT, BUT YOU MAY
DECIDE TO ALLOCATE MORE MONEY INTO STOCKS.
BUFFETT: BUT YOU NEVER CAN DO ONE THING IN ECONOMICS. YOU KNOW, I MEAN,
EVERYTHING YOU DO, ITS THE BUTTERFLY EFFECT. YOU KNOW SO YOU NEVER KNOW
EXACTLY WHAT'S GOING TO HAPPEN WITH MOVES THAT WERE MADE.
QUICK: WOULD YOU HAVE TOLD THE SENATORS AND CONGRESSMAN VOTING ON THAT
BILL TO VOTE FOR OR VOTE AGAINST IT?
11/24
BUFFETT I WOULD HAVE HAD A DIFFERENT BILL
QUICK: IF YOU DIDN'T HAVE A CHOICE OF A DIFFERENT BILL AND YOU WERE LOOKING AT
LEAVING THINGS EXACTLY AS IT WAS OR LOWERING THE CORPORATE RATE –
BUFFETT: IF I DID IT AS A REPRESENTATIVE OF BERKSHIRE SHAREHOLDERS, I WOULD HAVE

TO VOTE FOR IT. IVE GOT A MILLION SHAREHOLDERS THAT ARE PRETTY MUCH HAPPY
ABOUT THE FACT IT HAPPENED, BUT I WOULD HAVE HAD A DIFFERENT BILL MYSELF.
QUICK: LET'S TALK ABOUT INTEREST RATES AGAIN AND JUST TALK ABOUT WHATS
HAPPENING TODAY YOU CAN LOOK AT THE TEN-YEAR NOTE TOUCHING UP, GETTING 2.56%
AND A LITTLE NORTH OF THAT THIS MORNING. THAT KICKED OFF EARLY THIS MORNING
AFTER THE JAPANESE TEN-YEAR BOND STARTED CLIMBING AS WELL. WHEN I SAY CLIMBING,
YOU HAVE TO LOOK AT THIS IN RELATIVE TERMS IT WAS 0.086% THIS MORNING WHEN I SAW
IT BUT IT DID THAT BECAUSE THE YIELD MOVED UP BECAUSE THE JAPANESE CENTRAL BANK
WAS EXPECTED TO NOT BE BUYING QUITE AS MUCH AS HAD EARLIER BEEN ANTICIPATED
WHEN YOU START SEEING MOVES LIKE THAT, IT TELLS YOU WHAT?
BUFFETT: IT TELLS ME I DONT KNOW ANY MORE ABOUT INTEREST RATES THAN I DID FIVE
YEARS AGO, TEN YEARS AGO. SYDNEY HOLDER WROTE A BOOK, HE WAS THE EXPERT ON IT
AND WHEN YOU GET THROUGH THE BOOK, THERES NOBODY WHOSE PREDICTIONS ON
INTEREST RATES I WOULD PAY ATTENTION TO, INCLUDING MINE EVEN INCLUDING CHARLIE
INTEREST RATES ARE EXTRAORDINARILY – BEEN EXTRAORDINARILY LOW FOR A LONG, LONG
TIME. THAT HAS -- THAT HAS ACTED TO BUOY THE STOCK MARKET VERY SIGNIFICANTLY.
PEOPLE ORIGINALLY IN 2009 AND 2010 DIDNT THINK THEY WOULD BE AT THESE KIND OF
LEVELS. NOW THEY WONDER IS THIS SORT OF PERMANENT? IT'S A VERY STRANGE
SITUATION. THE FEDERAL RESERVE SAY OUR GOAL IS 2% INFLATION AND THEN THEY HAVE
PEOPLE BUYING THE TREASURY BILLS AT 1.5% AND THEY PAY TAX ON IT. THE GOVERNMENT
HAS ANNOUNCEDD TO YOU THAT IT DOESN'T PAY TO SAVE. THEY SAY IF WE CAN RUN
THINGS THE WAY WE WANT TO WE ARE GOING TO HAVE 2% INFLATION. IF YOU GET A
NOMINAL RETURN OF 2.8 OR SOMETHING, YOU ARE GOING TO PAY INCOME TAX ON THAT.
YOU ARE GOING TO HAVE NOTHING IN THE WAY OF MORE PURCHASING POWER BY
DEFERRING CONSUMPTION TODAY WHY DO YOU DEFER CONSUMPTION YOU ARE HOPING
TO HAVE MORE CONSUMPTION LATER ON THATS THE REASON FOR SAVING ESSENTIALLY
THE FEDERAL RESERVE HAS NOW SAID FOR A FEW YEARS THAT WE'RE GOING TO TRY AND
MAKE SURE YOU DONT HAVE ANY NET GAIN IN CONSUMPTION
QUICK: SO WHAT COULD GET IN THE WAY AND MESS THINGS UP I MEAN, THAT SOUNDS
LIKE A SURE BET FOR PUTTING MONEY IN EQUITIES AND PEOPLE HAVE TAKEN IT AS A CUE
FOR YEARS AT THIS POINT.
BUFFETT: THAT'S WHY IVE SAID FOR A LONG TIME THAT EQUITIES WERE THE PLACE TO BE. I
MEAN, THEYVE BEEN NO COMPARISON TO ME ITS JUST BEEN ABSURD TO SEE PENSION
FUNDS AND THOSE PEOPLE IN THE EARLY TEENS OF THE CENTURY SAYING WE DONT HAVE
30% OR 40% BONDS THERES NO COMPARISON. A BOND THAT PAYS YOU 2% IS SELLING AT
50 TIMES EARNINGS, AND THE EARNINGS CAN'T GO UP AND THE GOVERNMENT HAS TOLD
YOU WE WOULD LIKE TO TAKE THAT 2% AWAY FROM YOU BY DECREASING THE VALUE OF
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MONEY. THAT'S ABSURD TO OWN SOMETHING LIKE THAT YOU MAY HAVE TO OWN IT FOR
LEGAL REASONS OR SOMETHING OF THE SORT, BUT TO MAKE THAT AS A VOLUNTARILY
CHOICE IN THE LAST TEN YEARS AGAINST OWNING ASSETS HAS STRUCK ME AS ABSOLUTELY
FOOLISH.
QUICK: SO WHAT CHANGES THAT EQUATION WHAT HAPPENS
BUFFETT: YOU HAVE HIGHER INTEREST RATES.
QUICK: HIGHER. YOU ARE NOT TALKING ABOUT 3% INTEREST RATES YOU ARE TALKING
ABOUT 7% OR NORTH OF THAT.
BUFFETT: I DON'T KNOW WHAT IT WOULD BE BUT 3% IS A -- 3% -- YOU PAY 20% OR

SOMETHING TAX ON THAT AS AN INDIVIDUAL NOW YOU ARE DOWN TO 2.4% AND THE
GOVERNMENT SAYS IT IS GOING TO TAKE 2% OF THAT AWAY FROM YOU BY CLIPPING AWAY
THE PURCHASING POWER OF THAT MONEY
QUICK: YOU KNOW PEOPLE WHEN THEY LOOK AT ISSUES THAT COULD THROW THE STOCK
MARKET INTO A TIZZY THEY WILL POINT TO GEO POLITICAL ISSUES MOST OF THE TIME
MAYBE IT IS A TRADE WAR MAYBE IT IS AN ACTUAL WAR OR SOMETHING THAT BREAKS OUT
WITH NORTH KOREA OR SOMETHING OF THE SORT. WHAT DO YOU THINK OF THOSE KINDS
OF CONCERNS?
BUFFETT: WELL YOU HAVE GOT TO HAVE YOUR MONEY SOMEPLACE. SO IS THAT GOOD FOR
BONDS. IN THE END YOU HAVE TO LOOK AT THE UNDERLYING STREAM OF CASH YOU'RE
GOING TO GET OVER TIME, AND THAT DETERMINES WHAT YOU SHOULD PAY NOW. NOW,
THE QUESTION IS HOW SURE ARE YOU OF GETTING THE CASH. NICE THING ABOUT A BOND
IS YOU KNOW EXACTLY WHAT THE COUPON IS. IF YOU LOOK AT AMERICAN BUSINESS, IF
YOU LOOK AT THE S&P 500, THEY'RE EARNING – THEY'RE EARNING WELL INTO THE MID-
TEENS OR HIGHER. LET'S SAY THEY'RE EARNING 15% ON ASSETS EMPLOYED, AND THEY
CONTINUE TO EARN THAT'S A 15% BOND. I MEAN, IN COMPARISON BETWEEN A 15% BOND
AND 2.6 OR 3% DOESN'T REALLY MAKE VERY MUCH DIFFERENCE
QUICK: RIGHT EVEN BEFORE YOU TALK ABOUT THE BIGGER PERCENT OF THOSE EARNINGS
THAT YOU GET BECAUSE OF THE TAX BILL AND WHATEVER ELSE COMES ALONG WITH IT.
BUFFETT: NOW THEY INCREASED THE POTENTIAL FOR EARNINGS FOR BASICALLY AMERICAN
BUSINESS AND AMERICAN BUSINESS WAS EARNING A HELL OF A LOT OF MONEY BEFORE.
QUICK: JOE HAS A QUESTION FROM BACK AT THE STUDIO TOO. JOE.
KERNEN: YOU KNOW I ALWAYS DO. HEY, ORACLE MAN GOOD TO SEE YOU. YOU KNOW I
ALWAYS ASK YOU THE SAME QUESTION CAUSE INSURANCE IS IMPORTANT TO BERKSHIRE I
MEAN, OBVIOUSLY. WE JUST HEARD THAT $100 BILLION NUMBER YOU'RE VERY SAVVY. I
LOVE THE WAY YOU DO THINGS INSURANCE IS SUCH A GREAT BUSINESS BECAUSE A LOT OF
TIMES YOU CAN FIGURE OUT WHAT'S LIKELY TO HAPPEN AND CHARGE MORE THAN YOU
REALLY NEED BECAUSE THE THINGS THAT PEOPLE WORRY ABOUT PROBABLY ARENT GOING
TO HAPPEN SO IT IS JUST LIKE PRINTING MONEY. I KNOW YOU KNOW THIS AND THAT'S WHY
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YOU HAVE BEEN A GENIUS IN THAT FIELD FOR SO LONG. YOU REMEMBER 2005 WE HAD
ABOUT 12 HURRICANES OR SOMETHING AND I REMEMBER RIGHT AFTERWARDS YOU WERE
LIKE THIS, BECAUSE YOU KNEW EVERYONE WAS GOING TO PREDICT. THAT'S GOING TO BE
EVERY YEAR. THEN FOR 12 YEARS YOU CHARGE THESE EXORBITANT RATES BECAUSE IT WAS
GOING TO HAPPEN AGAIN, AND IT NEVER HAPPENED, AND BERKSHIRE HATHAWAY WENT UP
FIVE FOLD OR SOMETHING BECAUSE OF THAT MY QUESTION IS WE JUST HAD THE WORST
YEAR EVER FOR CATASTROPHIC LOSSES BOTH INSURED AND UNINSURED. IS THAT GOING
TO BE THE NORM FROM HERE ON OUT, OR DO YOU THINK IT'S WITHIN THE RANGE OF
STANDARD DEVIATIONS FOR LOSSES? DO YOU THINK IT GOES BACK DOWN? DO YOU NEED
TO RAISE RATES?
BUFFETT: AS NEAR AS YOU CAN TELL, YOU'VE GOT PRETTY GOOD RECORDS BACK TO THE
EARLY 1800s ON HURRICANES THAT HAVE HIT THE MAINLAND UNITED STATES IT LOOKS
AWFULLY RANDOM IF YOU LOOK ALL THE WAY BACK TO 1830 OR 1840. IT'S TRUE THAT WE
HAD THE LONGEST PERIOD HERE UP UNTIL LAST YEAR MOST CONSECUTIVE YEARS WITHOUT
A HURRICANE HITTING THE MAIN LAND IN THE UNITED STATES. THAT CAME RIGHT AFTER
KATRINA AND THE YEAR WHEN WE HAD HUGO AND I FORGET VARIOUS ONES.
KERNEN: RIGHT.
BUFFETT: IT APPEARS RANDOM, DOESN'T IT? INCIDENTALLY, WE DID NOT – WE WENT AWAY
FROM INSURING WHAT WE CALL SUPER CATS– WE MOVED AWAY FROM IT AFTER KATRINA
BECAUSE THE RATES KEPT JUST COMING DOWN, DOWN, DOWN, DOWN. WE JUST THOUGHT
WE WERE NOT GETTING PAID ENOUGH. WE HAVE NOT BEEN IN THE SUPER CAT BUSINESS
TO ANY DEGREE AT ALL IN RECENT YEARS. WE USED TO BE IN IT VERY BIG TIME WHEN WE
THOUGHT THE RATES WERE MORE APPROPRIATE. WE THE RATES HAVE NOT BEEN HIGH.
KERNEN: YOU ARGUED AGAINST EVERY SHAREHOLDER. EVERY YEAR YOU GET SHAREHOLDER
PROPOSALS THAT YOU GOT TO START, YOU KNOW, TAKING INTO ACCOUNT CLIMATE
CHANGE YOU GOT TO SELL ALL YOUR FOSSIL FUEL HOLDINGS. YOU GOT TO DO ALL THAT
YOU DONT GO FOR IT EVERY YEAR
BUFFETT: NO, BUT WE -- IT GOES ON THE BALLOT IT WILL BE ON THE BALLOT AGAIN THIS
YEAR, AND SINCE WE NOW WEB CAST OUR MEETING AND WE GET LOTS OF VIEWERS
AROUND THE WORLD, IM SURE WELL HAVE A LOT OF PEOPLE TO KEEP PUTTING -- I THINK
WE HAVE TWO PROPOSALS ON THE BALLOT THIS YEAR. I EXPLAINED OUR POSITION ON IT A
COUPLE OF YEARS AGO. THE BIG THING YOU NEED TO WORRY ABOUT IN THIS WORLD IS
WEAPONS OF MASS DESTRUCTION DOESN'T MEAN YOU CAN'T WORRY ABOUT OTHER
THINGS BUT WEAPONS OF MASS DESTRUCTION , THATS THE BIG WORRY ITS BEEN THE
WORRY EVER SINCE AUGUST OF 1945
KERNEN: I AGREE FUKUSHIMA AND WHATEVER NUMBER IS ATTACHED TO IT THAT DOESNT

GO AWAY FOR 500 YEARS MIGHT BE MORE OF A WORRY THAN CO2. I DON'T KNOW THAT'S
JUST ME. MELISSA HAS --
BUFFETT: OKAY. I WOULD SAY THAT THERE WAS A LITTLE CATCH-UP IN SEPTEMBER WHEN
WE HAD IRMA AND -- HARVEY AND --
14/24
KERNEN: YEAH. NO DOUBT.
BUFFETT: BUT WE WERE NOT INSURING SUPER CATS. WE HAD A FAIR AMOUNT OF EXPOSURE
JUST GENERALLY, BUT NOT SUPER CATS.
KERNEN: I DIDN'T KNOW YOU WERE GOING TO GO ALL THE WAY BACK TO 1800 ON A 400
BILLION-YEAR-OLD PLANET I THOUGHT ALL WE COULD LOOK AT WAS THE LAST 15 YEARS.
YOU'RE WHACKY.
BUFFETT: I CAN TELL YOU HOW MANY EARTHQUAKES HAVE BEEN IN CALIFORNIA OVER A 6.0
OR OVER IN THE LAST 100 YEARS TOO BUT IT DOESN'T TELL ME WHAT IS GOING TO HAPPEN
TOMORROW.
KERNEN: YOU WERE THERE?
BUFFETT: THAT'S TRUE IF YOU WANT TO KNOW ANYTHING ABOUT THE CIVIL WAR OR
ANYTHING LIKE THAT IM THE GUY TO COME TO.
LEE: HEY, WARREN, I HAVE A QUESTION ABOUT BITCOIN JAIME DIMON CALLED IT A FRAUD
BACK IN OCTOBER YOU FOLLOWED UP WITH COMMENTS IN DECEMBER SAY YOU THOUGHT
IT WAS A MIRAGE. JAIME DIMON YESTERDAY BACKED AWAY FROM THOSE COMMENTS
SAYING THE BITCOIN IS A FRAUD HAVE YOU RETHOUGHT YOUR POSITION ON BITCOIN, AND
HOW WOULD YOU FEEL IF SOME OF YOUR PORTFOLIO BANKS WANTED TO MAKE A MARKET
IN BITCOIN, WANTED TO TRADE BITCOIN, WANTED TO MAKE A BUSINESS OUT OF BITCOIN
TRADING?
BUFFETT: WE DON'T TELL THE BANKS IN THE PORTFOLIO ANYTHING ABOUT THEIR
OPERATIONS BUT IN TERMS OF CRYPTO CURRENCIES GENERALLY I CAN SAY ALMOST WITH
CERTAINTY THAT THEY WILL COME TO A BAD ENDING NOW, WHEN IT HAPPENS OR HOW OR
ANYTHING ELSE, I DONT KNOW, BUT I KNOW THIS. IF I CAN BUY LONG-TERM PUTS, I COULD
BUY A FIVE-YEAR PUT ON EVERY ONE OF THE CRYPTO CURRENCIES, I WOULD BE GLAD TO DO
IT, BUT I WOULD NEVER SHORT A DIMES WORTH
LEE: HAVE YOU THOUGHT ABOUT TRADING THE FUTURES TO TAKE A NEGATIVE POSITION OF
BITCOIN
BUFFETT: NO.
LEE: YOU WOULD NOT DO THAT?
BUFFETT: NO. THERE'S NO REASON. THERES NO REASON. I GET INTO ENOUGH TROUBLE
WITH THINGS I THINK I KNOW SOMETHING ABOUT. WHY IN THE WORLD SHOULD I TAKE A
LONG OR SHORT POSITION OF SOMETHING I DON'T KNOW ANYTHING ABOUT? WE DON'T
HAVE TO KNOW WHAT COCOA BEANS ARE GOING TO DO OR CRYPTO CURRENCIES WE JUST
HAVE TO FOCUS ON 8 OR 10 STOCKS THAT BUSINESSES BASICALLY THAT WE THINK ARE
DECENT BUSINESSES BUT I THINK WHAT'S GOING ON I THINK IT WILL DEFINITELY COME TO
A BAD ENDING YOU HAVE VIRTUALLY EVERYBODY -- I HAVE 11 SCHOOLS COMING ON
FRIDAY THE QUESTIONS WILL BE ON BITCOIN, AND I WONT KNOW THE ANSWERS.
15/24
QUICK: ALTHOUGH, WHEN WE SAT DOWN, WARREN, YOU DID SAY I SHOULD HAVE
ANNOUNCED WE WERE GETTING INVOLVED IN BITCOIN THIS MORNING.
BUFFETT: THATS TRUE TO -- THAT WOULD BE MUCH MORE INTERESTING TO THE AUDIENCE
THAT WE WERE GOING TO ISSUE A WHOLE SERIES OF CRYPTO CURRENCIES TOMORROW
BUT WE AREN'T BELIEVE ME AND WE DON'T OWN ANY WE DON'T SHORT ANY WE WILL
NEVER HAVE A POSITION.
QUICK: LET ME ASK YOU A COUPLE OF QUESITONS VERY QUICKLY WE ARE GOING TO HAVE A
CALL COMING IN FROM CHARLIE MUNGER IN JUST A FEW MINUTES. BEFORE WE GET TO
THAT, I WANT TO RUN THROUGH A COUPLE OF STOCK ISSUES WITH YOU TOO. YOU
ALREADY SPOKE ABOUT IBM, WHATEVER YOU WOULD OR WOULDN'T TELL US ABOUT THAT -
- WHEN IT COMES TO APPLE, THERES A HUGE POSITION YOU ARE ONE OF THE TOP FIVE
SHAREHOLDERS IN APPLE. THEY HAVE A BIG HOLIDAY SEASON FROM WHAT WE'VE BEEN
SEEING, WHAT WE'VE BEEN WATCHING WITH SOME OF THE CHANNEL CHECKS AND BEYOND
YOU STILL FEEL LIKE IT'S A GREAT CONSUMER PRODUCTS BUSINESS AT THIS POINT
BUFFETT: FROM ALL THE STUFF WE PUBLISHED, WE'VE ADDED TO OUR HOLDINGS
CONSISTENTLY UP THROUGH ALL THE PUBLISHED REPORTS, AND WE'LL PUBLISH SOME
MORE ON -- SEE, THE MARKET IS NOT YET SATURATED FOR iPHONES. I JUST WANT TO POINT
THAT OUT. WHEN TIM COOK SENT ME A CHRISTMAS CARD AGAIN THIS YEAR SAYING HE WAS
GOING TO SELL ME AN iPHONE THIS YEAR, WHEN I ACTUALLY BUY IT, ITS ALL OVER, FOLKS.
THE LAST PERSON HAS BOUGHT IT
QUICK: A SAMSUNG FLIP PHONE THAT YOU STILL HAVE –
BUFFETT: YEAH.
QUICK: YOU'RE STILL POSITIVE ON IT YOU'RE GOING TO BE -- WHEN YOU BUY IT, IT'S
JUMPING THE SHARK ESSENTIALLY?
BUFFETT: PARDON ME.
QUICK: WHEN YOU BUY A SMARTPHONE, IT'S JUMPING THE SHARK THAT'S THE END OF THE
RUN?
BUFFETT: I DON'T KNOW. I, MAYBE I WILL BUY ONE LATE IN THE YEAR. HE KEEPS SENDING
ME REMINDERS EVERY CHRISTMAS.
QUICK: JIM CRAMER WROTE IN TOO HE HAS A QUESTION. HE WANTS TO KNOW IF THERE IS A
POINT WHERE YOU THINK GENERAL ELECTRIC SHARES REPRESENT VALUE.
BUFFETT: WELL, THERE HAS TO BE THERE ALWAYS IS FOR ALMOST ANY COMPANY.
DIFFERENT PEOPLE WILL HAVE DIFFERENT VIEWS ON WHAT THE PRICE WOULD BE, BUT, I
MEAN, IF YOU CAME TO ME AND SAID WE'LL SELL YOU THE WHOLE GENERAL ELECTRIC
COMPANY AND X WAS THE RIGHT NUMBER, WE WOULD LIKE TO BUY IT IF WE BUY LITTLE
PIECES IN THE MARKET, THAT'S THE WAY WE THINK ABOUT IT
16/24
QUICK: I THINK HE MAY HAVE BEEN SPECIFICALLY ASKING WHAT IS THAT PRICE TARGET IF
YOU HAVE ONE
BUFFETT: YEAH. WELL, THAT WOULD DEPEND ALSO ON WHAT OTHER STOCKS WERE
SELLING IN THE END MY JOB IS TO HAVE THE CAPITAL OF BERKSHIRE INVESTED IN
BUSINESSESTHAT WE THINK WE UNDERSTAND PRETTY WELL, AND THAT ARE AN ATTRACTIVE
VALUATION. NOW, WE CAN'T MOVE AROUND IN BIG POSITIONS THAT EASILY. IT TAKES A
PRETTY BIG DISPARITY FROM SOMETHING WE WANT TO SELL TO MOVE TO SOMETHING WE
WANT TO BUY. GENERAL ELECTRIC IS A BIG STRONG COMPANY.
QUICK: HOW MUCH CASH DOES BERKSHIRE HAVE ON HAND RIGHT NOW
BUFFETT: WELL, WE HAVE SOMETHING A LITTLE OVER $100 BILLION IT'S ALMOST ALL IN
TREASURY BILLS. I THINK THERES ABOUT 1.7 TRILLION TREASURY BILLS IN THE WORLD. U.S.
TREASURY BILLS. WE OWN 12% OF THEM WE ACTUALLY GET THE CALLS FROM DEALERS
WHO NEED A BILL FOR THIS -- IF THEY NEED 200 MILLION APRIL 12th OR SOMETHING. THEY
COME TO US WHERE.
QUICK: BECAUSE YOU HAVE IT SITTING AROUND IN THE COUCH CUSHIONS.
BUFFETT: YEAH. WE – WE ARE USUALLY ON MONDAY WE'RE USUALLY BUYING ABOUT FOUR
BILLION OR SO OF BILLS, BUT THEY'RE VERY SHORT, SO THEY ROLL WE HAVE TO BE A LITTLE
CAREFUL BECAUSE SOLOMON BROTHERS, WHICH WAS I WAS INVOLVED IN 25 YEARS AGO,
THERES A RULE YOU CAN'T BUY MORE THAN 35% OF THE ISSUING THATS THE -- THAT RULE
WAS CALLED THE MOZIER RULE BECAUSE THE GUY THERE SOLOMON LOVED BREAKING IT.
HE WENT TO JAIL FOR A FEW MONTHS AFTERWARDS WE'RE VERY CAREFUL ABOUT HOW
MANY WE BID FOR. WE NEVER -- WE DONT OWN COMMERCIAL PAPER WE DONT COUNT ON
BANK LINES WE DONT DO ANY OF THAT. WHEN 2008, 2009 COMES ALONG, WE WANT TO
HAVE SHORT BILLS IF THE ONLY THING WE BUY FOR SHORT BILLS IS LIQUIDITY.
QUICK: YOU'VE SAID THAT YOU LIKE TO HAVE 25 BILLION IN HAND, SO THAT LEAVES $80
BILLION FOR ACQUISITIONS. ANYTHING YOU HAVE YOUR SIGHTS SET ON RIGHT NOW?
BUFFETT: NO, BUT I WOULD LIKE TO. YEAH.
QUICK: ON THAT NOTE, LET'S BRING IN RIGHT NOW CHARLIE MUNGER, THE VICE CHAIRMAN
OF BERKSHIRE HATHAWAY, WHO IS JOINING US ON THE SQUAWK NEWS LINE FROM
CALIFORNIA AT THE VERY EARLY HOUR OF 5:45 A.M. CALIFORNIA TIME. CHARLIE, I WANT TO
THANK YOU FOR JOINING US TODAY AND CALLING IN.
CHARLIE MUNGER: WELL, I'M GLAD TO DO IT.
QUICK: YOU ARE WITH US THIS MORNING BECAUSE OF THE BIG NEWS AT BERKSHIRE
HATHAWAY. THE ANNOUNCEMENT THAT BOTH GREG ABEL AND AJIT JAIN HAVE BEEN
NAMED TO VICE CHAIRMEN OF BERKSHIRE HATHAWAY AS WELL. AS THE FIRST VICE
CHAIRMAN OF BERKSHIRE WHO IS BY THE WAY, STAYING IN THAT POSITION, WHAT DO YOU
THINK ABOUT THIS? WHAT CAN YOU TELL US ABOUT GREG AND AJIT AND WHAT YOU THINK
ABOUT THEM BEING PUSHED INTO THESE POSITIONS – PROMOTED TO THESE POSITIONS?
17/24
MUNGER: WELL, I THINK THIS IS A VERY GOOD IDEA, AND ALL OF THE BERKSHIRE
SHAREHOLDERS SHOULD BE VERY HAPPY ABOUT IT. YOU CAN HARDLY FIND TWO MORE
QUALIFIED PEOPLE ON EARTH TO BE PROMOTED TO MORE RECOGNITION AND SO FORTH.
AND ONE IS ACTUALLY GOING TO DEVOLVE A LITTLE MORE POWER IN SOME DIRECTIONS.
AND THESE PEOPLE DO SOME THINGS BETTER THAN WARREN DOES.
BUFFETT: A LOT BETTER.
MUNGER: IT'S A HUGE PLUS FOR BERKSHIRE TO DO IT AND IT'S A DESERVED RECOGNITION
COMING TO PEOPLE WHO SHOULD GET MORE RECOGNITION. SO OF COURSE I LIKE IT.
QUICK: YOU SAID THAT YOU THINK IT'S A GREAT IDEA. WARREN TOLD US JUST A LITTLE BIT
AGO THAT IT WAS ACTUALLY YOUR IDEA WHEN HE CAME TO YOU AND MENTIONED ALL OF
THIS. THAT YOU WERE THE ONE WHO CAME UP WITH THE IDEA.
MUNGER: YEAH, WELL I DON'T MIND A LITTLE PECULIARITY. YOU KNOW, THREE VICE
CHAIRMEN LOOKS PECULIAR. BUT BERKSHIRE HAS ALWAYS LOOKED PECULIAR AND IT'S
DONE BETTER THAN –
BUFFETT: YEAH, 94 YEAR OLDS.
QUICK: CHARLIE, WE HAVE BEEN TALKING WITH WARREN JUST ABOUT THE FUTURE, WHAT
YOU SEE COMING, WHAT YOU SEE HAPPENING, AND WE'VE POINTED OUT TO WARREN THAT
FOR A LONG TIME PEOPLE HAVE BEEN PUSHING FOR A SUCCESSION PLAN BECAUSE HE IS
87. YOU JUST TURNED 94, I FORGOT THAT UNTIL A COUPLE OF HOURS AGO. I WAS STILL
THINKING YOU WERE 93. YOU JUST TURNED 94, SO WHAT DO YOU SEE IN THE FUTURE? AND
JUST TALK ABOUT YOUR INVOLVEMENT.
MUNGER: WELL, A BUNCH – DEMONSTRATE TO THE SHAREHOLDERS, THEY PROBABLY GOT

SEVEN OR MORE GOOD YEARS COMING OUT OF WARREN.
QUICK: AND HOW MANY MORE GOOD YEARS COMING OUT OF YOU, CHARLIE?
MUNGER: WELL, NOT VERY MANY. I HAVE TO FACE REALITY. BUT BERKSHIRE IS GOOD AT
REALITY RECOGNITION.
QUICK: CAN YOU TALK TO US A LITTLE BIT ABOUT THE MARKETS? WE'VE JUST – I'M SORRY,
GO AHEAD, SIR.
MUNGER: WELL, SHAREHOLDER – WE SHOULD PROBABLY GO ON TO SOME DIFFERENT

SUBJECT.
QUICK: LET'S TALK A LITTLE BIT ABOUT THE BROADER MARKETS, TOO, BECAUSE YOU
ALWAYS HAVE SOME BIG THOUGHTS ABOUT WHAT YOU SEE OUT THERE. WE'VE BEEN
TALKING ABOUT SHARE PRICES AND WHETHER SHARE PRICES LOOK EXPENSIVE OR NOT
HERE. WHAT DO YOU THINK WHEN YOU LOOK AT THE STOCK MARKET AND SEE NEW
RECORDS SET ALMOST EVERY DAY AND JUST FOR THE BEGINNING OF THIS YEAR, THE
STRONGEST START FOR THE S&P SINCE 1987.
18/24
MUNGER: WELL, I DON'T THINK SHARE PRICES ARE CRAZY. YOU KNOW, WHERE BONDS STILL
YIELD LESS THAN 3%.
QUICK: ARE THERE THINGS THAT CONCERN YOU WHEN YOU LOOK AT THE MARKETS
BECAUSE IT'S PART OF WHAT WE GET ALL THE TIME. PROCRASTINATORS SAYING, WELL THIS
COULD BE A BIG ISSUE DOWN THE ROAD.
MUNGER: YEAH, THERE ARE ALWAYS BUBBLES – YOU KNOW GOING TO END BADLY.
QUICK: ARE YOU TALKING ABOUT BITCOIN?
MUNGER: NO, I'M TALKING – YEAH SURE. AND VENTURE CAPITAL, TOO.
QUICK: I'M SORRY, VENTURE CAPITAL?
MUNGER: YEAH, THERE ARE BUBBLES THERE.
BUFFETT: YEAH.
QUICK: WHAT DO YOU SEE IN VENTURE CAPITAL THAT CONCERNS YOU?
MUNGER: BUBBLES. TOO MUCH MONEY.
QUICK: AS MEASURED HOW? AND IS THIS JUST SOMETHING THAT YOU THINK THAT THE
ARENA ITSELF HAS GOTTEN TOO BIG?
MUNGER: WELL, THERE ARE ALWAYS THESE EXCESSES AND BUBBLES. THEY'RE JUST – WE
HAVE DIFFERENT BUBBLES AT DIFFERENT TIMES. THINK OF THE BUBBLE BACK IN 2000. IN
THAT YEAR, THEY COULD HAVE TAKEN $50 BILLION INTO A BUSHEL BASKET AND BURNED IT
AND IT WOULD HAVE GOTTEN THE SAME RESULTS.
QUICK: WHAT IN PARTICULAR STARTED YOU THINKING ABOUT VENTURE CAPITAL? IS THAT
SOMETHING YOU'VE JUST THOUGHT IN THE LAST YEAR OR LONGER?
MUNGER: WELL, WARREN AND I THINK ABOUT EVERYTHING THAT IS GOING ON. MOSTLY WE
JUST STAY AWAY FROM IT. WE DON'T –
QUICK: SO WHAT DO YOU LIKE RIGHT NOW?
MUNGER: WELL, I ACTUALLY LIKE THIS TAX REDUCTION THAT BERKSHIRE HAS GOTTEN. I'M
AN UNABASHED APPRECIATOR.
QUICK: WHAT DO YOU THINK ABOUT THE TAX PLAN OVERALL? THIS IS SOMETHING YOU
WOULD HAVE VOTED FOR?
MUNGER: WELL, I WOULD BE MORE LIKELY TO VOTE FOR IT THAN WARREN.
QUICK: WHAT DO YOU THINK THE BROADER IMPLICATIONS ARE, WHAT THIS MEANS FOR
CORPORATE AMERICA, WHAT THIS MEANS FOR THE MARKETS AND WHAT IT MEANS FOR THE
ECONOMY?
19/24
MUNGER: I THINK THERE'S A CHANCE THAT IT MAY WORK QUITE WELL.
QUICK: YOU'RE TALKING –
MUNGER: IN INDIA, WHICH IS A VERY POOR NATION, THE CAPITAL GAINS TAX IS ZERO AND
THE INCOME TAX ON DIVIDENDS IS ZERO AND REALLY POOR NATION. THAT SEEMS JUST
INCONCEIVABLE. AND THE RICH IN INDIA ARE VERY RICH. THAT IS REALLY PECULIAR, IT'S A
LOT MORE PECULIAR THAN THE UNITED STATES. AND I'M NOT AT ALL SURE THAT INDIA IS
WRONG IS DOING WHAT IT'S DOING.
QUICK: BECAUSE?
MUNGER BECAUSE I THINK THEIR ECONOMY MAY GROW BETTER DOING WHAT THEY ARE
DOING THAN IT WOULD IF THEY WERE LESS FRIENDLY TO THEIR -- TO THE PEOPLE THAT
INVEST THE MONEY.
QUICK: WHAT DO YOU THINK HAPPENS TO OUR ECONOMIC GROWTH? THIS IS THE BIG
QUESTION IN ALL OF THIS. DO YOU THINK GDP HERE WILL SEE BIG GAINS BECAUSE OF THE
TAX CUT?
MUNGER: NO. I THINK THE PEOPLE THAT ARE SURE IT WON'T WORK ARE PROBABLY –
SHOULDN'T BE QUITE SO SURE.
QUICK: WARREN, WHAT DO YOU SAY TO THAT?
BUFFETT: WELL, I AGREE WITH HIM ON THAT. I THINK IT'S -- PREDICTING WHAT THE
ECONOMY IS GONNA DO, WHEN I WENT TO COLOMBIA, I TOOK A COURSE IN
ECONOMETRICS AND THEY THOUGHT THEY WERE GETTING THE ANSWER. YOU HAVE NOT
BEEN ABLE TO MAKE MONEY IN THE STOCK MARKET OR EVEN MAKE GREAT DECISIONS IN
BUSINESS BY LISTENING TO ECONOMISTS.
QUICK: YOU KNOW, WARREN, YOU AND CHARLIE BOTH ARE ALLOCATORS WHO LOOK AND
TAKE BERKSHIRE'S MONEY AND TRY TO FIGURE OUT THE BEST PLACE TO BE PUTTING THOSE
IN THE MARKET. CHARLIE, WE'VE SPOKEN WITH WARREN A LITTLE BIT ABOUT WHAT HE LIKES
AND DOESN'T LIKE. WHEN YOU LOOK AROUND AT THE STOCK MARKET, ARE THERE STOCKS,
ARE THERE SECTORS THAT YOU THINK ARE REALLY INTERESTING PLACES TO BE?
BUFFETT: WELL, OBVIOUSLY, STOCKS ARE VALUED HIGHER THAN THEY WERE A LONG TIME
AGO AND IT'S HARDER TO MAKE A LOT OF MONEY IN THE STOCK MARKET THAT SELLS AT 20
TIMES EARNINGS THAN ONE THAT SELLS AT 15. AND SO -- BUT THAT DOES NOT MEAN THAT
YOU SHOULD PUT ALL OF YOUR MONEY IN LONG TERM BONDS AT 2 OR 3%. I AGREE WITH
WARREN TOTALLY ON THIS STUFF. I THINK YOU'RE -- THE RIGHT ANSWER FOR INVESTORS, A
LOT OF DEFERRED GRATIFICATION AND BEING WELL TO SUFFER A FAIR AMOUNT OF AGONY
BY JUST RIDING OUT -- HAS US BUYING EQUITIES AND RIDING OUT THE DECLINES.
QUICK: I THINK JOE HAS A QUESTION FOR YOU AS WELL, CHARLIE.
20/24
KERNEN: WILLING TO TRY. WE'VE GOT DELAYS FROM HERE TO YOU AND DELAYS ON THE
PHONE AND EVERYTHING ELSE. SO JUST PEOPLE CAN BEAR WITH US, THAT'S WHAT WE'RE
DEALING WITH. BUT CHARLIE, YOU SEEM TO HAVE A REALLY GOOD GRASP AS FAR AS I'M
CONCERNED OF TAX POLICY AND THE ROLE OF GOVERNMENT AND THE PRIVATE SECTOR,
AND I WAS JUST WONDERING, WARREN IS QUITE A BIT YOUNGER THAN YOU. WHEN PEOPLE
ARE YOUNG, THEY ARE LIKE THAT, MORE IDEALISTIC. AND DO YOU THINK THAT EVENTUALLY
AS HE GROWS UP, HE'LL ADHERE TO YOUR TAX POLICY OR YOU'RE THINKING MORE OR IS HE
JUST HOPELESS? WHERE DO YOU COME DOWN ON THAT? HE'S GOT – MAYBE HE CAN FIGURE
IT OUT.
MUNGER: WE DON'T HAVE TO AGREE PERFECTLY ON EVERYTHING. IT'S PROBABLY BETTER IF

WE DON'T.
KERNEN: I GUESS SO, BUT I'M JUST -- USUALLY WITH AGE COMES SORT OF THE REALIZATION
THAT MAYBE LESS IS MORE IN TERMS OF -- WARREN, IS THERE ANY HOPE? YOU'VE GOT A
FEW YEARS WHERE YOU HAVE THE IDEA ABOUT CAPITAL GAINS AND LOWER TAX RATES FOR
CORPORATIONS OR ARE YOU HOPELESS?
BUFFETT: I – I CAMPAIGNED FOR WILLKIE IN 1940. WILLKIE AND MCNARY AND I WAS HEAD
OF THE YOUNG REPUBLICANS CLUB AT THE UNIVERSITY OF PENNSYLVANIA IN 1948. SO—
KERNEN: YOU WENT THE REVERSE. YOU WENT BACKWARDS.
BUFFETT: YEAH, I'M A TIME REVERSAL MACHINE.
MUNGER: WELL, I AM TOO. I VOTED FOR KENNEDY AND – I CHANGED TOO. WE'RE COMING
TOGETHER. IT JUST TAKES MORE TIME THAN LIFE IS GOING TO GIVE US.
KERNEN: KENNEDY WAS A TAX CUTTER.
MUNGER: YEAH. BY THE WAY, I REALLY LIKE THAT, WHEN HE DID IT.
QUICK: CHARLIE, YOU MENTIONED BROADLY THAT STOCKS ARE THE PLACE TO BE NOT
BONDS, BUT WHEN YOU LOOK PARTICULARLY, ANY STOCKS THAT HAVE CAUGHT YOUR EYE
RECENTLY OR ANYTHING YOU THINK WOULD BE WORTH POINTING OUT?
MUNGER: WELL, I DON'T WANT TO GET INTO TALKING ABOUT SPECIFIC STOCKS.
QUICK: TRIED. LET'S TALK ABOUT OTHER BUBBLES THEN. IF YOU THINK PRIVATE EQUITY OR
I'M SORRY, VENTURE CAPITAL IS POTENTIALLY A PLACE WHERE YOU SEE BUBBLES –
MUNGER: AND BITCOIN AND THE OTHER CRYPTOCURRENCIES ARE ALSO BUBBLES.
QUICK: AND WHAT TELLS YOU THAT? I'M JUST THINKING OF THE MILLENNIALS THE YOUNG
INVESTORS WHO GET SO EXCITED ABOUT SOMETHING LIKE THIS. WHAT WOULD YOU TELL
THEM? WHAT WOULD YOUR MESSAGE BE?
21/24
MUNGER: WELL THEY'RE EXCITED BECAUSE THINGS ARE GOING UP AT THE MOMENT AND IT
SOUNDS VAGUELY MODERN AND I THINK I'M SURE THE COMPUTER SCIENCE INVOLVED IS
DIFFICULT AND INTERESTING. SO YOU CAN UNDERSTAND WHERE THEY GET EXCITED. BUT
I'M NOT EXCITED.
BUFFETT: IF YOU'RE BUYING SOMETHING –
MUNGER: AND GO ON SOMEWHERE ELSE.
BUFFETT: IF YOU'RE BUYING SOMETHING BECAUSE IT WENT UP YESTERDAY OR LAST WEEK,

THAT IS NOT A GOOD REASON FOR BUYING ANYTHING IT WILL GET YOU IN TROUBLE OVER
TIME.
QUICK: YESTERDAY BILL MILLER WAS ON CNBC AND HE TALKED A LITTLE BIT ABOUT WHAT
HE SEES HAPPENING HE SAYS THERE'S A POTENTIAL HE THINKS FOR A MARKET MELT-UP. HE
POINTED BACK TO WHAT HAPPENED IN 2013 WHERE YOU SAW 30% PLUS GAINS IN THE
MARKET AND SAID THAT HE WOULD THINK THAT IS MORE LIKELY IF THE 10-YEAR GETS
CLOSER TO 3% I DIDN'T QUITE UNDERSTAND OR FOLLOW THAT BUT WHAT DO YOU THINK
ABOUT THAT POTENTIAL?
BUFFETT: I THINK IT'S POINTLESS THAT PEOPLE -- IF THEY OWN BONDS, THEIR BONDS
WOULD BE GOING DOWN AS RATES GO UP.
QUICK: THEY WOULD BE LOSING MONEY.
BUFFETT: THERE'S NO QUESTION THAT MARKETS HAVE MOMENTUM. AND THAT WHEN
THERE IS ENOUGH MOMENTUM, IT TAKES OVER EVERYTHING, I MEAN, WHEN YOU -- THAT'S
HOW YOU GET BUBBLES BEN GRAHAM USED TO SAY YOU GET IN MORE TROUBLE WITH A
GOOD IDEA THAN A BAD IDEA BECAUSE THE GOOD IDEA ORIGINALLY HAD THE IDEA THAT
STOCKS WERE CHEAPER THAN BONDS GENERALLY, AFTER A WHILE, THE VERY ACTION OF
THE STOCKS BECOMES MORE IMPORTANT THAN THE FUNDAMENTAL REASONS AND THE
FUNDAMENTAL REASONS DISAPPEAR AND PEOPLE BUY SOMETHING BECAUSE IT'S GOING
UP. WHEN PEOPLE BUY SOMETHING BECAUSE IT'S GONE UP THERES NO TELLING HOW FAR
IT WILL GO BUT YOU CAN BE PRETTY SURE THERE WILL BE A BAD ENDING.
QUICK: CHARLIE ANYTHING TO YOU THAT REALLY JUMPS OUT IN THE MARKETS AND IN THE
NEWS THESE DAYS? YOU'VE BEEN WATCHING THIS A LONG TIME IS THERE ANYTHING YOU
THINK MAY BE DIFFERENT THIS TIME AROUND?
MUNGER: WELL, THE WHOLE SITUATION IS QUITE WEIRD. WHOEVER WOULD HAVE GUESSED
THAT YOU COULD HAVE 20 YEARS OF REAL INTEREST RATES AT ZERO A LOT OF DIFFERENT
ADVANCED NATIONS. WHO WOULD HAVE GUESSED WE COULD PRINT AS MUCH MONEY AS
WE DID AND HAVE AS LOW INFLATION AS WE DID. MY ATTITUDE TOWARDS THE ECONOMIC
SITUATION HAS ALWAYS BEEN ONE OF SKEPTICISM I DON'T THINK ANY OF THESE PEOPLE
KNOW WHAT THE HELL THEY ARE DOING.
QUICK: ANY OF THESE PEOPLE BEING WHO?
22/24
MUNGER: ECONOMICS PROFESSION. THEY'VE BEEN -- THEYVE BEEN CONFIDENT IN VARIOUS
FORMULAS BUT ECONOMICS IS NOT PHYSICS THE SAME FORMULA THAT WORKS IN ONE
DECADE DOESN'T WORK IN THE NEXT ECONOMICS IS A DIFFICULT SUBJECT. AND A LOT OF
OVER CONFIDENCE HAS BEEN REMOVED FROM THE ECONOMICS PROFESSION OVER THE
LAST 20 YEARS. THEY'VE BEEN REALLY SURPRISED.
QUICK: AND WARREN, YOUR COMMENT?
BUFFETT: WELL, I'M GOING TO POINT OUT, THE NATIONAL DEBT NOW IS 1,000 TIMES WHAT
IT WAS WHEN I WAS BORN AND NOW IF YOU TOLD MY PARENTS OR ANYTHING, MY DAD IN
THE WAITING ROOM THAT THE NATIONAL DEBT WOULD GO UP 1,000 TIMES DURING HIS
SONS LIFETIME, HE WOULD HAVE SAID, EVERYTHING IS GOING TO TURN INTO PUMPKINS
AND MICE AND OF COURSE GDP AND REAL TERMS IN SIX TIMES PER CAPITAL WHAT IT WAS
THEN AND EVERYTHING. IT'S HARD TO GET DOGMATIC IN ECONOMIC MATTERS PEOPLE
THAT -- I WOULD SAY THAT THE -- JUST THE WHOLE EMPHASIS ON THE DEBT GOING UP
DURING MY LIFETIME HAS BEEN WAY OFF THE MARK AND I'VE BEEN WAY OFF THE MARK
WHEN I WAS BACK IN MY YOUNG REPUBLICAN DAYS, I WAS GOING AROUND SAYING
ANOTHER DOLLAR OF NATIONAL DEBT WAS LIKELY TO THREATEN OUR FUTURE OR
SOMETHING OF THE SORT. YOU DON'T WANT TO GET DOGMATTIC IN ECONOMICS.
QUICK: WELL, WARREN, WANT TO THANK YOU VERY MUCH FOR JOINING US TODAY.
CHARLIE, THANK YOU FOR CALLING IN. IT'S A PLEASURE TALKING TO BOTH OF YOU WE
TRULY APPRECIATE YOUR TIME AND JOE, WE'LL SEND IT BACK OVER TO YOU.
For more information contact:
Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com
Emma Martin
CNBC
t: 201.735.4713
e: emma.martin@nbcuni.com
About CNBC:
23/24
24/24
FULL TRANSCRIPT: BILLIONAIRE INVESTOR WARREN BUFFETT
SPEAKS WITH CNBC’S BECKY QUICK ON "SQUAWK BOX" TODAY
cnbc.com/2018/05/07/full-transcript-billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box-
today.html
May 7, 2018
WHEN: Today, Monday, May 7th
Chairman & CEO Warren Buffett, Microsoft Founder & Co-Chair of the Bill & Melinda Gates
Foundation Bill Gates and Vice Chairman of Berkshire Hathaway Charlie Munger, on CNBC's
"Squawk Box" (M-F, 6AM-9AM ET) today, Monday, May 7th. Video clips from the interview are
available on CNBC.com and the full interview will be available on the Warren Buffett Archive.
BECK QUICK: Good morning. I am in Omaha, Nebraska this morning that's the site of the
Berkshire Hathaway Annual Meeting. Our special guest for the next three hours if you
haven't figured it out is Berkshire Hathaway Chairman & CEO Warren Buffett. Thank you so
much for being here
WARREN BUFFETT: Thanks for having me.
BECKY QUICK: You are coming off the 53rdannual shareholders meeting Its something that
we have been coming to you for years but 53 years in I just want to ask you what you thought
about this weekend and how you feel about all of it? What stood out to you through this
weekend?
WARREN BUFFETT: I think everybody had as much fun as ever. We had a crowd certainly
equal our record I run into thousands of shareholders and they are all having a good time
and our directors have a good time here so its sort of a Mardi Gras
BECKY QUICK: Is there anything different about this meeting or is it the sameness that makes
it so special?
WARREN BUFFETT: It is the sameness pretty much working with Charlie Munger we are not
going to change the format very much
BECKY QUICK: Although Brian pointed out earlier, there were a lot of controversial subjects
and things that caught peoples attention and picked up a lot of news this time because you
and Charlie say what you think especially Charlie
WARREN BUFFETT: Yeah. Charlie says exactly what he thinks and he thinks in colorful
language too. Have you noticed that?
BECKY QUICK: I have noticed that. Has that changed over the years or Is that more of the
same?
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WARREN BUFFETT: That's Charlie
BECKY QUICK: That's Charlie since you met him?
WARREN BUFFETT: Since 1959 when I met him.
BECKY QUICK: Lets talk about some of the things that really resonated with people and
maybe start where you began the annual meeting this year it was talking to your investors
and telling them a little bit about investing some tips and lessons along the way. You kind of
used it as a teaching experience at the top.
WARREN BUFFETT: Yeah normally I don't do that in fact I cant remember when i did it we just
go right into questions and answers. I really thought that maybe we were giving a little bit the
wrong lesson because all the questions would naturally tend to be towards current events.
So this time I went back to 1942 when I bought my first stock as an illustration of all the
things that have happened since 1942 we have had 14 presidents, 7 Republicans. 7
Democrats. We have had world wars, 9/11, Cuban Missile Crisis we have had all kinds of
things. The best single thing you could have done on march 11th, 1942 is buy an index fund
and never look at a headline never think about stocks just like you would if you buy a farm.
Just do it and let the tenant farmer run it for you. If you put $10,000 in an index fund that
reinvested dividends and i paused for a moment to let the audience guess how much it
would amount to. It would come to $51 million now. The only thing you really has to believe
in then is that America would win the war and that America would progress as it has since
1776 You would have to know that if America moved forward, American business would
move forward. You didnt have to worry about what stock to buy or what day to get in or out.
You didn't know the Federal Reserve would exist. America works.
BECKY QUICK: You went back to the day in 1942 because it was the day you purchased your
first stock which to point out you were 11 years old then
WARREN BUFFETT: Yes and the headlines were terrible every day.
BECKY QUICK: This is the new york times that day
WARREN BUFFETT: Yeah. 1942 new york times sold for 3 cents and I also got the headlines
from some days before. Everything was going badly the Philippines were going to fall within
two months, things were grim in Europe, our ships were being sunk the war was bad then
and that day that I bought March 11, The Dow Jones cracked 100 on the down side, it was a
2% decline which would be 500 points today the night before on march 10th I said to my dad
I want to go all in I had $125 put every bit of it in three shares of City Service Preferred. And--
which is still my personality is to get it all in and--
BECKY QUICK: As we've seen with Apple.
WARREN BUFFETT: Yeah, somewhat. And-- as I pointed out to the crowd, I bought that stock
at 38 and a quarter. It was down from 84 the year before and it was down from 55 in
January. I thought I'm really buying it cheap. So it went down to 27 after I bought it. And then
I did-- it-- and it went up to 200 later on. But-- I sold at 40.
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BECKY QUICK: You know, these are lessons that you point out because you tell investors that
they shouldn't really be trying to market time. They shouldn't be looking at things. You
should invest, stop paying attention and look away. But you are somebody who does pay
attention to market valuation, buys more if you think a t-- a stock is cheap and less if you
think it's expensive. And I'm just wondering where you think the markets stand right now.
When we talked to you back in February, at the end of February-- you said you thought
things were not overly priced. But you didn't find any businesses that you, yourself, felt like
you could purchase. Where-- do you think things stand right now?
WARREN BUFFETT: Yeah, and we haven't bought any businesses in their entirety since I saw
you last. We bought a lot of Apple as we pointed out the other day. If--I had a choice between
buying the S&P index or buying the ten-year U.S. Treasury or the 30 U.S. Treasury it wouldn't
take me a nanosecond to--go into stocks. Now that-- it may be because bonds are going to
fall a lot-- but the investor has a choice between three or four things. They've got stocks,
they've got short-term governments, got long-term bonds or long-term governments. And--
or they could buy-- they could buy a farm, piece-- a small farm or--
BECKY QUICK: What about corporate bonds--
WARREN BUFFETT: --a do--
BECKY QUICK: --too?
WARREN BUFFETT: --yeah, they can buy corporate bonds. But they-- they probably don't
know enough to evaluate credits. I mean, they will-- they get enticed into junk bonds with
exactly the wrong time. That's when the issuances will come and the covenance will be non-
existent. And so--
BECKY QUICK: So you're talking about average investors who don't--
WARREN BUFFETT: The average investors.
BECKY QUICK: --do this for their day job.
WARREN BUFFETT: No not professional investors. But-- average investors-- but-- but 99% of
people are non-professional-- investors. And-- that would-- if they had to do that to come out
decently you-- can understand I'm sort of gambling on that. Or-- but the point is you don't
need to do it. You-- don't have to buy exactly the right stock or b-- buy at exactly the right
time. The one thing you have to avoid is buying the single wrong stock or at the single wrong
time. And most people get excited about a stock or about the market after it's gone up. I
mean, their neighbors made a lotta money and they know they're smarter than their
neighbor. Very irritating to have a neighbor buy a new car and your spouse says, "You-- that--
that guy's smarter than you are or what." So they-- have this-- they're enticed into the market
at the wrong time. And all they need to do is buy a cross section of America. And it's best to
buy it over time. If the first ten years of your working life you just save and—that's for that
period of time, that-- you don't have to be the right time.
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BECKY QUICK: You-- you made the point even more drastically over the weekend in terms of
looking at treasuries-- U.S. Treasuries-- basically said there-- there's-- never been a good time
to buy it even going all the way back to the war bonds back in the '40s.
WARREN BUFFETT: Yeah, that--
BECKY QUICK: That was the--
WARREN BUFFETT: --that is true now. You bought it for patriotic reasons. But-- the
government then was offering you t-- 2.9%. You bought a U.S.-- you called it a war bond.
They called them defense bonds. And then savings bonds later on. But-- we were happy to
buy war bonds then. And we paid $18.75 and we got $25 in ten years. Four-- three gets you
four. That was-- in fact, they had-- they took Take Me Out to the Ballgame and turned it into a
song about buying war bonds. You know? And for each three you get four at the old bond
game. And-- that's-- that-- there's a little song. And we'd sing it in school. And but-- and the
government happily pointed out to you that you were getting 2.9% compounded for that. But
that-- and of course now you have a situation the Federal Reserve says they want inflation of
2%. So they say they're going to try and devalue that bond by 2% a year in dollar terms. And--
it's almost always equities have been a better buy. And certainly if you're gonna put away
money over time when you're younger-- you can buy stocks over a conservable period of
time you're not gonna get the lows but you're not just gonna buy at the highs. And if you buy
a cross-section-- well, like I say, you turn $10,000 into $51 million and you'd never have had
to look at a financial page again or listen to a broker.
BECKY QUICK: Going back to this idea though that the markets, you think, are a good place
for average investors right now. The S&P 500 is a good place. If you're a professional
investor, if you're somebody like you, you look at prices and you think what?
WARREN BUFFETT: Well, I look at prices and I-- find it hard to buy things. And incidentally
professional investors aren't going to do better than the average-- amateur-- in almost all
cases. But I-- don't find things easily. I mean, we were on and-- in March of 2009 when the
Dow was in the 660s or 670s. And-- we talked about it then. I mean, there's-- this was the
bargain counter. And-- it continued for a long time. Stocks have been very, very cheap. But
you have to measure-- you have to measure 'em against alternatives. I mean, if—government
bonds got to 15% like they were in 1982 that's a different equation against stocks than exist
now.
BECKY QUICK: You've had periods in the past though where you have said stocks look
expensive to you or that we look like we're in bubble type territory. This is not one of those
times I take it?
WARREN BUFFETT: That-- this is not one of those times. That-- now if government bonds go
to 7% or 8% which means if you own a long bond now you'd get killed-- stock you bought
now will not necessarily look attractive. It-- probably won't be attractive.
BECKY QUICK: And--
WARREN BUFFETT: Interest rates are like gravity. If interest rates are 1% and they're gonna
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be that for 100 years obviously anything that yields you 2% or 3% is going to do way better.
But I don't think they're going to be 1% for 100 years.
BECKY QUICK: Just to get into the nuances again though.
BECKY QUICK: What-- you're talking broadly about issues in terms of how you see the stock
market as a great place for average investors. Maybe a place where you're not finding all that
many bargains. And when you look to buy a company all in, I mean-- I've spoken with some
people here this weekend who know an awful lot about M&A, who know a lot about private
businesses, what they're valued out at different things you'd say, that when they're looking at
prices things look really rich. You're talking about prices that are 15% to 20% above what the
fair price of base-- ha-- does that match up with what you see--
WARREN BUFFETT: I would--
BECKY QUICK: --right now?
WARREN BUFFETT: --I would agree with that. That's why we haven't bought any businesses
for quite a while. In addition to the normal factors in the public market too, when people buy
businesses these days frequently-- they're being bought by people that are-- borrowing 60%
or 70% of the money, maybe even more.
BECKY QUICK: You're talking about private equity?
WARREN BUFFETT: Mostly private equity but not exclusively private equity. And if some--
we're not willing to calculate our returns based on borrowing money at 70%-- of the
purchase price. That may be the best thing to do. But-- we--calculate things generally on an
all-equity basis. And we are not competitive. And-- then you've got a general euphoria that--
to some degree. The private equity funds have to put the money out. And it's kind of
interesting what they do because-- they take the money which they get usually from
institutional investors and then they buy a company in the market from some of those same
institutional investors except pay a premium and they say we can run it better if it's private.
Then they hold it for a while. And then they sell it back to the market in these private
institutional investors having-- with them having paid substantial fees in the meantime and
say it's better to be public. I mean, it's-- an interesting exercise.
BECKY QUICK: Let's talk about some of the things that came up this weekend that really
caught people's attention and some of the more controversial statements that came out. At
one point this weekend you said that Bitcoin and this is was based-- you were asked-- Charlie
said, "Bitcoin's like rat poison." You were asked about that comment. And you said, "Well, it's
probably more like-- rat poison squared." Charlie went on in the meeting to then basically call
Bitcoin turds.
WARREN BUFFETT: He--is an expressive sort, isn't he? Maybe when he gets a little older he'll
mature.
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BECKY QUICK: I just wanna ask you about that because it sparked so much controversy. And
it's-- particularly on Twitter and some of the places where you might expect people who are
trading in-- in cryptocurrency-- to be pretty-- loud about what they heard. What-- is it about
Bitcoin that gets you guys so fired up?
WARREN BUFFETT: Well, when you buy a farm-- you look at the crop every year and what
prices are and you decide whether it was satisfactory investment, I mean, you look to the
asset itself and what it produces for you. When we buy a business we look at what the
business earns and decide how we feel about it in terms of what we paid. But we are buying
something that at the end of the period we not only have what we bought in the first place
but we have something that the asset produced. And when you buy non-productive assets--
all you're counting on is whether the next person is going to pay you more because they're
even more excited about another next person coming along. But the asset itself is creating
nothing. One of the interesting things—for example is gold. If you go back to the time of
Christ and you look at how many hours of labor you had to give up in order to buy an ounce
of gold and you take it forward to now you'll find a compound right, maybe 1/10 or 2/10 of
1%. You know, and then you have to insure it during that time and make sure, you know,
somebody doesn't steal it from you and every-- but it doesn't produce anything. And--
productive assets-- you may have even paid too much for a productive asset. But I bought a
farm in the 1980s. And--every year look at how much it produced in the way of soybeans and
corn. And at the end of that period I've still got the farm and I've got some significant income
off of it. Apartment house, operating business. But-- if you and I buy various cryptocurrency
they're not gonna multiply-- they're not gonna be a bunch of rabbits sitting there in front of
us. They-- they're just gonna sit there. And I got a whole-- next time you get more excited
after I bought it from you and then maybe I'll get more excited it and buy it from you. And
actually we could-- we could sit in the house by ourselves and we could keep running up the
price between the two of us. But at the end of the time there's one Bitcoin sitting there. And
now we gotta find somebody else. And-- they come to an end. I mean, those--
BECKY QUICK: That-- that, I mean, that's a greater fool theory. That's what you're saying?
WARREN BUFFETT: It-- well, yeah. It's-- buying something because you expect the pool of
people who wanna buy it because they wanna sell it to somebody else will grow. And-- you
know, it's-- wonderful because it does create a rising price. Does create more buyers and
people think, "I've gotta get in on this." And--it's better if they don't understand it. That's the
other thing about non-product-- if you don't understand it you get much more excited than if
you understand it. I mean, if you buy a bond that says it's gonna pay you 4% a year you're
not gonna get any pleasant surprises. It only pay you 4% a year. But if-- you can have
anything you wanna imagine if you just look at something and say, "That's magic." You can
do it with sharks teeth or seashells or anything. And-- you know, they did it with tulips in the
17th century in-- Amsterdam. And-- they'll do it again. I mean, people-- they like to speculate.
They like to gamble. And-- if you can get something-- particularly if you have something half
plausible going on. If you had bought gold in 1942 and you said, "We might lose the war. We
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might have to run off to some other country and, you know, so let's put our assets in gold,"
you would have less than a penny for every dollar you got from owning stocks. Less than a
penny. Now somebody calls that a stored value. I mean, I think they're delusionary.
BECKY QUICK: Andrew has a question too. Andrew?
ANDREW ROSS SORKIN: Hey, Warren, related to this-- issue of Bitcoin, you saw that Goldman
Sachs just last week announced that they were gonna-- create a-- effectively a trading
operation around cryptocurrencies and Bitcoin in particular. You've been an investor-- in
Goldman. What do you think of their decision to do that?
WARREN BUFFETT: Well, they probably think that lots of people are gonna get very excited
about, well, and-- maybe already are. But they think there's money to be made trading them.
I don't think they're expressing an opinion on the ultimate value. I would be very surprised if
the top partners of Goldman are selling their Goldman stock and putting it into Bitcoin. But I
wanna cover the subject now because my friend, Charlie, will come on at 8:00. There's no
telling what he will say.
BECKY QUICK: Well, that-- that's my whole entire point. I do wanna ask Charlie about it
because I think when he talked about the turds he was referring to this he said, "If you're
trading this it's like watching other people trading turds and deciding you wanna get a piece
of that."
WARREN BUFFETT: Well, you're not gonna get me to comment on that.
BECKY QUICK: Hopefully Charlie's not awake and is not--
WARREN BUFFETT: Well, the truth is--
BECKY QUICK: --watching right now.
WARREN BUFFETT: --there's people who do trade on very crazy things over time. You know,
imagine people selling their homes to buy a tulip in Amsterdam. If people think they're going
to make money the next day and, worse yet, if they think somebody else that they know is
going to make money and they aren't going to make money they-- it just draws people in.
You know, I can whisper something on this program and kind of the more sillier it was the
more it right react because there's no quantitative limits. If you buy a stock and you say,
"Well, I'll buy it at 15 times earnings but I won't buy it at 20 times earnings." But when you get
into something that doesn't produce anything, you know, there's no checkpoints there.
There's nothing to reference it to. It's just-- it's gone up and it will keep going up
BECKY QUICK: Now I will say when I was tweeting the things that you and Charlie were saying
about this weekend all I was doing was repeating what you were saying. And people were
coming back with some pretty angry comments-- --including things like, "I bought a house--
buying cryptocurrency. You're outdated on this." They said a lot meaner things that-- "You
don't understand it so you should shut up about it." What-- you're not.
WARREN BUFFETT: Well, the interesting thing is if you're investing you or other people. You--
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BECKY QUICK: What--
WARREN BUFFETT: --if I'm investing in Apple-- I love the idea of people saying Apple is
terrible 'cause I want the stock to go down because the repurchasing shares and my interest
will go up faster. You-- don't get defensive if you're buying something that produces. You
don't buy a farm and get real defensive if somebody comes and says, "You shouldn't buy a
farm." If somebody says, "I watch the crops go and I can see what I sell-- I'm selling my crop
for at the end. And I'm making s-- 4% or 8% on my investment." You're getting defensive
when you look at this thing and it doesn't do anything. You're just hoping somebody comes
along to pay you more tomorrow and the next day. And you're dependent on more people--
the mob growing, you know, basically. So-- those people do get angry. But-- the person that
bought a house with it, I would say they did the very right thing. They sold it.
BECKY QUICK: They sold it. They sold it and bought something else with it. Hey, Joe-- you
have a comment to?
JOE KERNEN: Just-- I was saying in it-- but look how long it took you to buy Apple though,
Warren. I mean, you finally did buy it. But-- you needed to be, you know, it needed-- it just
took a long time. I don't know what happens with Bitcoin. But you see these-- I don't
understand it either. But-- it's got quite a following amongall these people that, you know,
think it's going to 25,000 or 100,000. I mean, it did take you-- you've never embraced--
technology as much as a lot of other things that you understood a lot better. And you're
finally in Apple. But what did you finally buy Apple? It's was already probably a $700 billion
company when you finally bought it. Coulda-- you know, woulda been nice to buy it a $100
billion or $50 billion.
WARREN BUFFETT: Yeah. I say about buying Apple is I don't care whether anybody ever
mentions Apple again. I mean-- you know, whereas with Bitcoin you do-- people that buy it
wanna taut it because they want more people joining the crowd. So they wanna come on and
say, "You buy Bitcoin," because the only-- they're gonna lose money unless the crowd
gathers. If the crowd starts to dispersing-- so they've got every reason in the world to taut it.
When I buy Apple I know that Apple is going to repurchase a lot of shares. So right now Apple
had whatever it did at the quarter 4,927,000,000 shares or 923 million, whatever it was. And
we own about 5%. But I know I don't have to do a thing. And probably in a couple years we'll
own 6% without laying out another dollar. Well, I love the idea of having 5% go to 6%. And
the cheaper the stock is, the more they will get for their money when they're buying it in. So
there's-- no reason at all for me to encourage other people--
JOE KERNEN: Hey-- Warren--
WARREN BUFFETT: --to buy Apple. I'm--
JOE KERNEN: -- I hadn't heard anyone say City Service in a long time. Was that-- it was-- it was
a preferred stock? I-- I don't-- it must've been convertible. Wasn't it or something to have
huge price—swings like that
8/54
WARREN BUFFETT: Now what---- happened, Joe, was that City Service started out as a utility
company like it sounds. Way-- back around 1910, sometime around then.
JOE KERNEN: Right.
WARREN BUFFETT: But then they bought it-- they started developing natural gas and then
they found oil in connection with it. So over a period of time it still = it was a big utility
company. It-- morphed into a basic energy company-- productive company. But they issued
when they were a utility primarily-- they issued a $6 preferred that-- cumulative preferred.
And it quit paying dividends in 1932-- a lotta people, they ran outta money then. So-- from
1932 forward you had this preferred which, $100 par, which was accumulating at $6. A rarity
just-- the year before I bought it they actually made a $3 payment on a rarity. But that still
was less than $6 coupon. And then they eventually called it at 200 and something which was-
- $100 par, probably a call premium plus all the rariges. It was not convertible.
JOE KERNEN: I see. That's pretty amazing that you were 11 years old when you-- and what a
history City Service had. I mean, there's a boom ticking and a Pacman defense, it was bought
by Oxy. And then part of their gas stations were bought by Venezuela, remember? And they
were given free gas around it. And-- the Red Sox, the big--
JOE KERNEN: --CITGO sign up at-- near the-- baseball stadium. It's amazing--
WARREN BUFFETT: Right, right. It became-- a major oil company.
JOE KERNEN: Yeah.
WARREN BUFFETT: They actually I think sold the preferred door to door-- way back in the-- in
the '20s, sometime like that too. But--
JOE KERNEN: Quit talking about buying--
WARREN BUFFETT: --it was cheap. You know.
JOE KERNEN: -- every time you say bought the farm I'm like, "What--" I'm, like, not listening for
a second and then you go, "I'm buying a farm-- buying--" like, stop talking about that. I looked
up what-- that's a weird-- expression that came from-- it's very morbid-- what it actually came
from. But-- I'm not even gonna go into it. But it-- there's-- a-- derivation for what it came from
when I guess the guys-- they wanna come back from a war and they're gonna buy a farm
when they do. And unfortunately it's their family that ends up buying it from insurance
proceeds or something. It's horrible. But-- anyway-- yeah, let's move onto-- Bitcoin and--
BECKY QUICK: To different assets--
JOE KERNEN: --Apple.
BECKY QUICK: --different assets on this.
WARREN BUFFETT: The War-- World War II there wasn'tgo ahead actually.
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BECKY QUICK: Go-- ahead, go.
WARREN BUFFETT: It was very interesting in one sense because John Maynard Keynes had
written in 1935 or 1936 The General Theory. And-- Keynes in economics of-- around my
household everybody thought it was a total fraud and all of that. World War II forced the
country into this huge Keynesian type financing. I mean, we had the deficit financed in a way
that was incredible. And-the debt went up to 120% of GDP which is considerably higher than
it is now from a figure far lower than that. And we sent millions of the most productive
people-- we took a lot of the economy. We started building things that we dumped into the
sea. We did it on borrowed money. And it created the runway for, you know, the greatest
economic progress the world's ever seen.
JOE KERNEN: That
BECKY QUICK: Warren, let me ask you one more question on-- oh go ahead.
JOE KERNEN: No I-- so that almost-- so is that, like, an endorsement of Keynesian economics,
Warren?
WARREN BUFFETT: It certainly worked in World War II. I mean, we would-- we-- I don't-- I do
not think the '40s and '50s and '60s would have developed remotely like they did without the
huge deficit spending. And-- all these events that, you know, we were trying-- we were
struggling to get out of the '30s. And-- then they just turned a spigot loose which they had to
do and build a whole bunch of things they dumped in the sea. You know, they-- weren't
building refrigerators or cars or anything like that. They-- and-- there were a lotta people that
predicted a-- one of the things that I do remember very well was that a lot of very respected
figures that we would come out and have a Depression post-World War-- II just like we had
post-World War I. So-- that was a prevailing sort of--
BECKY QUICK: But are there times to be Keynesian and then times to pull it back in and rein it
back in?
WARREN BUFFETT: Yeah, well, that's-- but Keynes would say that too. Yeah.
JOE KERNEN: Well, we need a guy with a little--
BECKY QUICK: Let-- me ask you--
JOE KERNEN: --experience-- to talk about all this. Not someone-- you're age, you know. We
need-- Charlie on who can probably really--
BECKY QUICK: Charlie.
ANDREW ROSS SORKIN: --with a little experience under his belt.
WARREN BUFFETT: Give him a s-- yeah, g-- be prepared to bleep him out though.
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BECKY QUICK: We need a three-second delay with Charlie. Hey, Warren, let me ask you, just
City Services, you've talked about this. I knew that was your first purchase. I knew you were
11. But for people watching at home, you hear an 11 year old picks out a stock and asks their
dad to buy it, particularly when their father is a stock broker, you assume their father is the
one that led them to that conclusion. My guess is you did that all by yourself. How-- did you
come up with it?
WARREN BUFFETT: Well, I must've heard somebody talk about it. But-- and if you looked at
City Service at that point, here was this company in the Depression, didn't have the money to
pay it. Now all of a sudden was paying down its debts and it was going to earn a lotta money.
And they had a lot of, you know, they had- -- assets that were becoming worth more. And we
were going to have inflation after World War II so that assets probably were going to be worth
more while their debt was coming down. And the earnings on the preferred were terrific.
They just weren't paying 'em out. So-- I was gonna get $200 at some time. But the problem
was that I-- buying it at 38 and a quarter, as a matter of fact, and having it go down to 27--
and walking to school with my sister who also wanted to buy three shares 'cause I was
buying it-- she hated to see me get rich, while she wasn't getting rich- and having her point
out that this thing was going down every day,when it got back up to 40 and we had-- each
had a chance to make a $5 profit I thought, you know, now my sister will again consider me a
genius and I will have $5 more. How could life be any better? So then I watched it go to 200
after selling it at 40.
BECKY QUICK: Well, lessons learned early in life. Probably very powerful ones. Warren
Buffett's gonna be with us until 9:00 a.m. We have a lot to talk about still. But, guys, I'll send it
back to you in the studio right now.
ANDREW ROSS SORKIN: Okay, thank you, Becky. Coming up, when we return, we have two
special guests joining Becky and Warren Buffett. That's gonna happen in the 8:00 hour,
Berkshire vice chair Charlie Munger. We are getting the three-second delay ready for him.
And then Berkshire board member Bill Gates. Stick around, we've got a lot more coming back
from Omaha in just a moment right here on Squawk.
ANDREW ROSS SORKIN: Good morning. Welcome back to "Squawk Box" right here on CNBC.
Let's show U.S. equity futures at this hour. Let's let you know what's going on right now. Dow
looks like it could open up higher, about 60, almost 70 points higher now. NASDAQ looking to
open about 38 points higher and the S&P 500 looking to open up about nine points higher. A
quick look at crude right now. Barrel costs a WTI, $70.42. That's the highest level since
November of 2014.
JOE KERNEN: And it makes you wonder when – if the Iran deal is decertified, is it in the stock
or is it in the price already? Because that's not going down if the president decides to exit
that deal. Let's get back to Becky out in Omaha with our special guest, Mr. Buffett. Beck?
BECKY QUICK: Joe, thank you. Once again, we are in Omaha with Berkshire's chairman and
CEO, Warren Buffett. He's going to be with us through the entire morning. We'll be joined
also by Charlie Munger and Bill Gates a little later in the program. But right now, Warren, let's
talk through some of the individual stocks that you've spoken about this weekend. Maybe
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the most controversial one was Wells Fargo. You were questioned directly on that at the
shareholders' meeting with questions from shareholders. And who have said, "Okay," and I
did hear this from other shareholders later on –
BECKY QUICK: Wells Fargo has run into trouble time and time again. The fines have
continued. The developments and things that we've found out about some of the
cockroaches particularly – you know, as you might phrase – continue to come out. But you've
stuck with this stock and said that you're not selling and that you have faith in Tim Sloan
who's the existing CEO. People have pushed back and said, "Look, this is a company that's
run into trouble and it doesn't jive with what we've heard you say about Salomon." How do
you say yes this does fit with our investing philosophy?
WARREN BUFFETT: Well, at Wells Fargo they made one mistake that maybe I've made from
time to time, which is incentives work, and they came up with improper incentives and they
work. And so they incented bad behavior instead of incenting good behavior. And that
happens from time to time. You could put too big a commission in something of the sort.
BECKY QUICK: But let's talk very specifically about what incentives were created. They were
incentives that rewarded people for the number of new accounts that were opened.
WARREN BUFFETT: Number of new accounts. And they got in – they regularly on their
investor presentations would say, "We've got so many. And eight would be great. And 6.2 was
better than 6.1 products." So it put this huge emphasis to the public out there as well as to
their employees. But to the public that they had more services per customer.
BECKY QUICK: To their shareholders.
WARREN BUFFETT: And shareholders. And everybody would listen. And surprise, surprise,
people started creating fake accounts. And when bad behavior gets in there, other people
figure it out – I mean if you get rewarded for bad behavior, you're going to have a lot of bad
behavior. That's a problem. I'm sure it's a problem we've had from time to time in Berkshire
and other places. But the real problem was when you find out about it, you've got to stop it
immediately. And I don't know the details about why it wasn't stopped, but I've seen that
before. And then it just gets out of hand. And if you don't stop it immediately, then if you do
it four months later everybody will come and say, "Well, why didn't you do something four
months earlier?"
BECKY QUICK: But let's be a little more pointed with this. This was not just a case where Wells
Fargo was not stopping bad incentives immediately. It was quashing whistle-blowers who
were behaving properly and firing them.
WARREN BUFFETT: I don't know the details too much on that.
BECKY QUICK: From what's been reported. I don't know this first-hand.
WARREN BUFFETT: I won't argue with you.

12/54
BECKY QUICK: I don't know this first-hand, but from what's been reported, there have been
many whistle-blowers who said that they were trying to do the right thing. They tried to
report it. And as a result they wound up losing their jobs.
WARREN BUFFETT: Yeah, once you have not done it, you're in the soup. I mean, John
Gutfreund in April of 1991 got word that Paul Mozer, a trader in government bonds, was
doing something that was very wrong. And he absolutely – John was not profiting by it. He
didn't know about it. But the next minute he had to pick up that phone and call Gerry
Corrigan of the Federal Reserve of New York. And everybody thought he was going to do it in
the room. But it was unpleasant or he got distracted. And then on May 15th Mozer did it all
over again and now the position you're in is you caught him and you knew this pyromaniac
was out there who would set fires and you let him light another match. And then you're in
big trouble. Anyway, you have to act. I mean, Charlie's been very good with me on things like
that. If I tell him about anything is a problem, I mean, he doesn't let me procrastinate. And I
might procrastinate a little. It's a very human trait. But anyway, and then they uncover other
wrong things as you get into it. Now a couple of our great opportunities came from similar
situations. I mean GEICO had a CEO in the early '70s who refused to accept the fact that the
lost reserves were developing badly. Now if you refuse to accurately assess your loss
reserves, you also don't know your costs because you sell the product first and then you
start kidding yourself on the cost. And then you get in a hole. And now your reserves are at a
– maybe you figure it out. But then you've got to admit it if you do it. And it's just easier to
shut your eyes and hope that something good happens. And it essentially bankrupted the
company. Now that was a huge opportunity for us because GEICO was a solid company
underneath. But their balance sheet was a mess. They needed to raise capital. They almost
got their licenses withdrawn. And we bought half the company for less than 50 million bucks.
So the fundamental business of Wells Fargo, they've still got the accounts, they've got the
loan customers. We do business with them every day. And incidentally, other banks ran into
much other kinds of trouble in the 2008 and '09 period. More on the selling bigger stuff, you
know, maybe mortgage back securities or something of the sort. So the banks had their
share of trouble. But Wells had theirs in a particularly egregious way, which was really kind of
thumbing their nose at the public. They made way, way, way less money doing that than if
they were bundling big MBS' and raking it in by the tens or hundreds of millions. And the
fines were big, you know, even bigger. But going forward, you can stop bad practices. They
should be stopped earlier and much earlier is easier.
BECKY QUICK: I look at the situation with Salomon and you came in and were the person
who had to clean it up. Tim Sloan was an insider. Tim Sloan was not the one who – this didn't
happen on his watch.
WARREN BUFFETT: No it didn't.
BECKY QUICK: But he was an insider. Is that – can you be an insider and still be the one who
cleans it up?
13/54
WARREN BUFFETT: Well, I cleaned up affairs with Congress and tried to set a tone and
everything. Deryck Maughan came in and I put him in total charge of running Salomon
Brothers. And everything he did, you know, was perfect. I mean, and he had all kinds of
things he had to look at, we didn't know when we'd get more surprises. He was working 15-
hour days. He never asked for any extra compensation of any kind.
BECKY QUICK: And he was an insider at Salomon.
WARREN BUFFETT: Oh yeah, he'd been an insider there. Sure, he was one of seven or eight
people that would – top people I interviewed. I had to have an insider because I arrived there
on a Friday, you know, and they were about closing us up – and somebody had to run a
business that was doing more maybe hundreds of billions of dollars' worth of business and
things like government bonds and everything. We had the largest balance sheet of Wall
Street. So there was no way I could wait and get an outsider. I interviewed people on a
Saturday. I started interviewing at 9:00 in the morning. I got in on a Friday. And I had to come
up with somebody by Saturday afternoon to run the place. And there were people in that
room that semi-contributed to the culture anyway that led to this activity. And so I picked an
insider who knew about it, knew all the people involved. And the guy behaved magnificently
and got me outta trouble.
BECKY QUICK: Joe?
JOE KERNEN: Andrew wants to talk to you.
WARREN BUFFETT: The same thing happened to GEICO. They picked a new guy. They picked
Jack Byrne.
JOE KERNEN: Warren, I wonder how much Wells Fargo talked to you. They're on a complete
reset now. Yesterday was a Wells Fargo championship down at Quail Hollow. I don't know if
you saw it. But the entire advertising campaign they go back and show when Wells Fargo
was, you know, was founded and they show stage coaches and everything they did. And then
they just go completely blank where they say, "But this happened. And now it's the new—" I
mean, they paid someone to get an entire ad campaign that there's been a complete reset
and we're starting over. And, you know, the spokesperson that they had on at the
tournament it's all they talked about as well. I mean, that took a while. But they finally got to
the point where they're saying, "All that history is in the past and we're starting all over right
now," which is pretty amazing that they had to come to that point. Did they talk to you about
that advertising campaign?
JOE KERNEN: I guess they did.
JOE KERNEN: No, they didn't?
14/54
WARREN BUFFETT: No, we never – and at Salomon, we did not run an advertising campaign.
But I ran a two-page, double truck ad in the New York Times and the Wall Street Journal and
the Financial Times when we reported our third quarter. And I said what was wrong and I
said how we were going to change it. And it was in very small type. And we needed change.
Wells, it's interesting. I first bought in when Carl Reichardt was running it. I can tell you that
there's no finer guy than Carl Reichardt. It wouldn't have happened under Carl Reichardt. But
institutions make mistakes. And I will tell you this, we have 377,000 people working for
Berkshire and right now I don't know whether five of them or ten of them or 20 of them –
but I'll guarantee it isn't zero – are doing something wrong. And my job is to act when I hear
about anything. And to make sure we've got some system so we do hear about things. So we
get about 2,000 contacts through what we call the hotline a year. I get anonymous letters.
And those are the two best sources of finding out where something's wrong. I mean, it's
better than having 100 people crawling all over the books. Anonymous, anonymous.
Sometimes they sign them. But I just received one last week, you know.
BECKY QUICK: You received one last week about something happening at Berkshire?
WARREN BUFFETT: Yeah, sure. But, I mean, I receive them all the – and I mean, they're going
to come in. And sometimes people just don't like the person working next to them so they,
you know, they come in for a lot of frivolous reasons. But you have to look into what it is. And
if you look at 100 and 99 are, you know, the guy next to me has bad breath, you know, or
something like that. But that's the way you do find them, overwhelmingly, is tips basically.
BECKY QUICK: How do you track down every one of those tips?
WARREN BUFFETT: Well, we have an audit department that sorts out the ones that they think
I ought to see. I mean, you know, so Becki Amick is in charge of the audit department. And
incidentally, the larger companies, they have their own groups too. But those people could
not only write their own company but they could write us. And some of them just come into,
you know, a letter comes into Warren Buffett chairman – it's usually not signed. But that's
okay, I mean, and obviously when they get very specific and say, "This is going on or that's
going on," that's what happened at American Express in 1964. They had a field warehousing
subsidiary. They were getting calls from a guy at a bar in Bayonne to the head of the – and he
was saying, "The tanks are phony. Go to this tank and go to that tank and you will find that
it's not filled with solid oil." And the guy didn't want to hear it. And he didn't want to tell his
boss. And it just gets worse and worse and worse.
ANDREW ROSS SORKIN: Hey, Warren?
BECKY QUICK: Andrew?
ANDREW ROSS SORKIN: You know, after you had commented on Wells Fargo during the
meeting when we discussed it on Saturday I got a couple of emails of folks who asked me I
could – if there could be a follow-up question. So the follow-up question is this. When you
bought Salomon you came in after Salomon had its problems. And some of the other
examples that you gave, the opportunity came because you weren't in the stock. In the case
of Wells Fargo, you've been in the stock. So there were two questions. One is do you wish
15/54
you weren't in the stock when they had the problems, meaning would you have preferred to
put your money, for example, in something like JPMorgan, which I know you've put personal
money in before. And somebody else said that, you know, you famously said if you lose
reputation, "I will be ruthless." And the question is, when will you be ruthless or at what point
would you be ruthless either in this case of Wells Fargo or does it have to be even more
egregious?
WARREN BUFFETT: Well, I'd be ruthless if anybody was working for me. But I don't – and the
answer is, of course I wish I wish I'd bought the other stocks – bank stocks – and then sold
them now so I'd be buying Wells Fargo now. I mean, Wells Fargo actually is buying in a lot of
shares. And you can argue that they are improving the per share value because they had this
bad news they're buying it cheaper. But I think ten years from now, I think if you look at the
ten-year record of Wells Fargo ten years from now you will – you're very likely to find that it
outperforms most of its competitors.
BECKY QUICK: Would you be buying more shares now if you could? You can't because of the
bank thresholds, bank owned 10%.
WARREN BUFFETT: Yeah, if – I don't want to give recommendations on which stocks to buy.
BECKY QUICK: Yeah. To Andrew's other point though, I think you touched on it very quickly.
But the idea of being ruthless, if you lose a shred of reputation for the company—
WARREN BUFFETT: That's Berkshire.
BECKY QUICK: Right, but what you're saying, you're distinguishing between Berkshire-owned
companies and investments.
WARREN BUFFETT: Sure. Sure.
BECKY QUICK: It may be worth pointing out that you're a passive investor in Wells Fargo and
the bank and you have to be.
WARREN BUFFETT: Yeah, well, I have to be a passive investor.
BECKY QUICK: But I'm not sure everyone understands that.
WARREN BUFFETT: Yeah. No, no, no. We are not – we do not want to be a bank-holding
company. Now, we can become a bank-holding company if we own over 10% and there's a
point at which your activities could make you or some of these – we have no – we owned a
bank. And we had to dispose of it back in 1980. We bought a bank and then they passed the
banking act of 1969. We'd have bought more banks actually. I like the banking business. And
then they changed the law in 1969 and we had ten years to divest. Maybe they changed it in
1970. We had ten years to divest of the bank we owned. But I would not – we'd still own that
bank and we'd own other banks if they hadn't changed the law in the 1970 period.
BECKY QUICK: Okay.
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WARREN BUFFETT: But I don't feel responsible. If you're having trouble with your Apple
phone don't blame me.
BECKY QUICK: Okay. We have much more from Warren Buffett still to come. Right now we're
going to send it back to Joe and Andrew in the studio.
ANDREW ROSS SORKIN: Okay. Coming up when we return, billionaire summit. Warren
Buffett's going to be joined by Berkshire vice chair Charlie Munger and Berkshire board
member Bill Gates. That starts at 8:00 a.m. eastern time. "Squawk Box" returns from Omaha
in just a moment.
BECKY QUICK: All right, good morning again, everybody. Welcome back to "Squawk Box"
where we are live from Omaha. Today we are introducing the Warren Buffett archive. This is
a website with the world's largest collection of Buffett speaking about business, investing,
money and life. It includes 25 full annual meetings for Berkshire Hathaway with Warren
Buffett and Charlie Munger taking questions from the audience. It goes all the way back to
1994 with a highlight reel for each year. By the way, folks, this is the only place that you can
get this complete archive. It's also got 130 hours of searchable video. It's synchronized to
2,600 pages of transcripts that have been painstakingly checked by Alex Crippen who did a
phenomenal job of running through and making sure he knew exactly what everything that
was mentioned was done. This was done by hand. I'm calling it, instead of AI, AC for Alex
Crippen. There are 500 video clips covering scores of subjects plus CNBC interviews, a Buffett
timeline and a Berkshire portfolio tracker. If you want to check it out make sure you do it
today, it's Buffett.CNBC.com. Warren, you got a chance to take a look at this too. And this
came from you giving Steve Burke, our chairman at NBCUniversal, access to 25 years of
annual meetings. This is stuff that only Berkshire's been holding onto for this time.
WARREN BUFFETT: Yeah, Steve had suggested it to me a few times. And then he suggested it
a little stronger. And it sounded like a good idea. I didn't think it could be done like this. So we
just gave him all the annual meeting material. We didn't give the movie because that's got
some stuff that we've promised not to put out, you know, but—
BECKY QUICK: You mean with celebrities who have done things.
WARREN BUFFETT: The celebrities come on, yeah. But in terms of the annual meetings, you
know, door to – portal-to-portal and everything we had. Everything we had. And even, you
know, with university students – anything we had, we gave Steve. And I told Steve, "You can
do with it exactly what you want." I mean, I've known Steve a long time. And I thought it'd be
an impossible job. But I knew that if it was done, it would be done well. I mean, it blew my
mind when I saw it.
BECKY QUICK: I mean, it's been really useful for me just going back trying to figure things out
because over the years things kind of blend together when you said what or exactly what you
said or if it was you who said it or Charlie who said it. The search function is better than I had
anticipated just in terms of being able to look up things. Like maybe I wanted to find out
17/54
when you started buying shares of Apple. Type in Apple shares and it comes up. And I can
even go back, link to the transcript and then click to the video of you saying exactly why you
were buying it.
WARREN BUFFETT: Yeah, it'd be more fun for me to just recall what I was saying. The bottom
of all. But it's all there. I mean and that's the way it should be. I just love the idea of it.
BECKY QUICK: Great, thank you. And folks at home, if you are wanting to check this out the
address, again, is Buffett.CNBC.com. The website is live. We'd love to hear what you think
about it too. When we come back this morning, we have much more from Warren Buffett
plus we'll be joined for an hour by Berkshire's vice chair Charlie Munger and Microsoft co-
founder and Berkshire board member Bill Gates. That is coming up at 8:00 a.m. eastern
time. We will be right back live from Omaha, Nebraska.
BECKY QUICK: Andrew, thank you very much. Again, folks, we are live in Omaha, Nebraska.
This was the site of the Berkshire Hathaway annual meeting this weekend, the 53rd annual
meeting. Our special guest is Berkshire's chairman and CEO, Warren Buffett. And, Warren,
thank you again for being with us this morning.
WARREN BUFFETT: It's fun.
BECKY QUICK: It is fun. I want to talk through the cash hoard that Berkshire has. At the end
of the year, you had $116 billion in cash. You told us last week-- that you had spent about
$12 to $13 billion in the first quarter. So you were thinking the cash hoard was closer to $100
billion based on some other things that you had potentially bought as well. Okay. So you're
spending billions of dollars, but you still have $100 billion. Is-- is that ideal?
WARREN BUFFETT: No. No. It-- it-- it's-- we earn very little on it. But that is-- we will earn a
little more this year on it than-- but it's-- it's-- it's just about the world's w-- worst investment
except doing something dumb that y-- you're doing for a longer term. And-- but it does give
you the ability to move very quickly if something very big comes along. But I would much
rather have that number be $30 billion than $100 billion and have that-- the other $70 billion
invested in-- ideally in businesses we own but also-- in securities we own. And we did, for
example, put out-- I don't know whether it was-- how much was in the first quarter, how
much was in April I'm not sure. But-- but we-- we-- we put out 15 or so billion net-- into
stocks. And I like that. And-- and it wouldn't-- if I could find 'em and buy 'em in sufficient
quantity, if that had been 50 billion, I would have been even happier in the first quarter. Or if
we'd bought a $50 billion business. But-- you don't want to let money burn a hole in your
pocket either. I mean, we-- we make-- if we buy a business, we buy it to keep. So-- if we pay X
for a business or 2X for a business, the business doesn't know, it's doesn't adapt itself to what
I'm paying. And it's going to earn the same, and so it – if I make a mistake on purchase price,
Berkshire Hathaway lives with that mistake. Forever.
BECKY QUICK: And so, for the rest of us who see you sitting on $100 billion, we think that you
think the market looks expensive and that you can't find anything that's worth putting your
money into that's better than cash or short-term treasuries.
18/54
WARREN BUFFETT: We – we own $170 billion worth of equities. We go up every quarter, and
we went up a fair amount in the first quarter. So – no, I would rather own the $170 billion of
stocks we have than own treasury bills by a very significant margin. But there are limits to
how much I can buy of -- of some of these companies that I like. Usually we quit at 10%
almost always. So, no, if you told me I had a choice and I could make a change – if you told
me I could make the choice of owning treasury bills, long-term treasuries or common
equities, I'd buy common equities, and I-- I was gonna keep it for 10 years or 20 years, I'd do
it in a second. And-- we'll get the money in play. We-- we've-- something will happen.
BECKY QUICK: Something will happen meaning a big deal?
WARREN BUFFETT: It could. Yeah. Sure. I could spend it all tomorrow. I mean, I wouldn't
spend the whole 100. But I'd-- I-- I-- I-- although if a 100 million-- a $100 billion deal came
along that-- Charlie and I really liked, we'd get it done.
BECKY QUICK: You'd get it done by spending it all or by a financing partner?
WARREN BUFFETT: Well, we'd probably have to-- we might borrow 30. 25 or 30. Or we might
sell some things. I mean-- but one way or another, we'd get it done if we liked the deal.
BECKY QUICK: There are-- questions that came in from shareholders that I got this weekend.
And I-- I-- I didn't get a chance to ask you all the questions that came in. Some of them said,
"Is 20 billion still the amount that you feel comfortable holding?" Others asked, "If you've got
all this and you're telling all of us to put our money in an S&P index, why don't you put that
$100 billion in an S&P index?"
WARREN BUFFETT: It wouldn't be the dumbest thing in the world if we did. But-- that's a lot
to move in and out. No index fund would take it, I mean, to start with-- knowing that we
would want to-- might want to yank it out-- 50 billion of it out in a week. So we-- we-- we'd
almost have to create our own-- index fund to do it.
BECKY QUICK: It wouldn't be hard.
WARREN BUFFETT: Well, it-- it-- it'd be a fair amount. I mean, they're better set up to do it
than we are to buy 500 sto-- stocks in the proper proportions and keep an index. But we
could create something that was a quasi-index fund. And-- that-- that-- that would have been
smarter than what we've done, Becky. That-- that would have been smarter. You know, I
mean, I've-- I've-- I've thought about that some. I think-- I think it's a little harder to act when
you see something later on if you do have to unwind 500 positions and all. I-- I like to move
when I move. So I-- but net, if you told me over the next 30 years that Berkshire would keep
it's excess-- that we'd still have 20 billion in-- at least in treasuries-- but-- or treasury bills. But
if you told me we were gonna follow-- for the excess money we were gonna follow an index
fund policy versus a treasury bill policy, I would say the index fund policy would work well
assuming we could execute it reasonably well.
BECKY QUICK: Okay. Let-- let's talk-- about Apple, the-- the place where you were spending
the bulk of-- of that cash that you were in the first quarter where you were deploying it. $12
to $13 billion that you put in. That's on top of the, I think $27 or $28 billion you already--
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maybe it was 29 billion you already owned in Apple as of the end of the year. That's a big
chunk of that $170 billion. It's the biggest stock that you own by far. It already was before
you bought these additional shares. 75 million shares. Why?
WARREN BUFFETT: Well-- I should say in the past we had plenty of times when-- when a
single stock was a bigger proportion of our total net worth. But in terms of recent times--
well-- it-- it was-- it was-- it was a company I liked, a business I liked very much. And we could
buy a lot of it. There are some others that-- that are much smaller companies we just can't
buy that much. I might like them equally as well, but I can't put as much money in it. But I
clearly like Apple. And-- and we buy up 'em to hold. And-- and we bought about 5% of the
company. And-- I'd love to own 100% of it. But that's the test. Would you like to own 100% of
a company? If-- if you're gonna by 5%-- we're not buying a stock when we buy Apple in our
minds. We're buying 5% of a business. We buy 100% of some businesses. And when they're
publicly held, we buy 5%. But we bring the same thinking to it. And-- and--we like-- we like
very much the economics of their activities. And we like very much the management, and the
way they think, and the way they act.
ANDREW ROSS SORKIN: One of the-- other questions, Warren, that we didn't get a chance to
ask-- over the weekend-- was one-- about USG. This is a transaction you-- you've been
involved. You've historically avoided-- what are described as hostile takeovers and said you
didn't want to be involved in them. This one's a little tricky-- because the US-- in the-- this
case of USG, you have effectively backed a company-- that is trying to effectively take over
USG. Can you-- can you talk about that a little bit?
WARREN BUFFETT: Yeah. We bought USG first 18 years ago. We made a substantial
investment. In 2006, the company-- company had been-- went into bankruptcy twice. And--
and-- and the company faced these huge asbestos claims. And we backstopped
singlehandedly, Berkshire did, a one-for-one stock offering, which is very unusual. And we
backed with a billion six or a billion seven-- this company c-- coming out of bankruptcy having
a one-for-one offering. And-- and then two years later, in 2008-- when the-- the crisis hit and
also hit housing, the company found itself needing money again. And-- we put up 300 of the
$400 million they needed at that time. And 18 years from the time we bought the first stock
and 12 years from the time we in effect bankrolled the company in terms of coming out of
bankruptcy, we've never received a dividend. And the stock that we backstopped in 2006 at
$40 was selling-- has been selling for less than that. And-- and in general, the-- the earnings
estimates, the new products, and that sorta thing-- you know, have fallen short. Now, that
happens with companies we own, too. I mean-- business can be tough. But when they
received an offer from another company that also had been an 18-year-old shareholder and
perf-- perfectly responsible-- building materials company-- that actually competes with our
company Johns Manville, this company, they made an offer. And-- the company did not-- we
own 30% of USG. (The c-- the company did not call and say, "What do you think of this offer?"
Anything of the sort. They just called afterwards and said that their board had unanimously
decided that it wasn't in our interest to-- negotiate with them or anything. And-- and like I
say, we own 30% of the company. And then the company made a second offer. And-- the
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German company Knauf. And, again, they were turned down with no negotiation or anything
of the sort. So we really felt the directors were p-- probably f-- very fine people. I don't know
them. But we felt that they-- they did not represent our interest and that-- and we said that--
we intended to vote against them at the annual meeting. We don't have a candidate of our
own or anything like that. But we just think that directors are there to represent
shareholders. And-- we do not feel that they were certainly representing us with a 30%
interest. And I-- and it's been since then that two proxy advising organizations, ISS and Glass-
Steagall -- Glass Lewis, have said that-- they think-- they recommend a vote against these
directors as well. And now the company said it's going to negotiate with the-- with-- Knauf. So
that's-- that-- that is the situation. We-- that-- that's the first time I think in the 53 years I've
been at Berkshire that we've voted against a slate. We withheld our vote at Coca-Cola a few
years ago about-- because of a compensation plan. And we voted a time or two against
individual issues. Maybe on stock options or something of the sort. But-- but-- but it's just--
it's a question of-- of whether-- the stockholders should determine what-- what they think the
value of the company is. All-- all I know is that-- that for 18 years it has not worked out that
well. And-- and-- and management has been more optimistic than-- than-- subsequent
events-- delivered. And-- and-- we thought they should sit down and negotiate. Warren,
another question that came up from a lot of shareholders. We-- we covered it some in the
question and answers period on Saturday, but I thought maybe you could go into a little
more deal-- detail on it. Just the idea of consumer packaged goods. Companies like Coca-
Cola-- which hit a 52-week low last month even though the company came in with better
than expected earnings on issues-- and-- and a company like Kraft Heinz, which is down
about 35% over the last 12 months versus the S&P being up 11%, it-- it has a lot of people
thinking that consumer packaged goods-- don't have as a bright of a future. I-- I think-- Jorge
Paulo may have even called them-- saying jokingly that he felt like a dinosaur at the Milken
Conference recently. What-- what do you think when you--
BECKY QUICK: --look at these areas?
WARREN BUFFETT: --it's-- they're still very good businesses. I mean, you've got a brand. If you
look at the return on tangible assets, you know-- at Coca-Cola, or at Kraft Heinz-- you've got a
very good business. It doesn't look as good as it did five or 10 years ago. In other words,
There-- there's two reasons I think for that. One is, people are-- seem to me to be a little
more willing to experiment with different diets or foods than they were--
BECKY QUICK: Give me. You mean--
WARREN BUFFETT: --five or 10 years ago.
BECKY QUICK: -- Some people would say healthy diets where they won't eat things that are
packaged. They think that's bad for them. It's a millennial attitude, too, where they won't buy
from the old brands.
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WARREN BUFFETT: They're certainly— that's a factor in all of it, I think it may even extend
beyond millennials to some degree. People are more-- well, they've gotten used to more
change in their life generally. And-- and--and-- so I would say that the-- that there's still a
huge loyalty factor. And there's-- but it is not as strong as it was five, or 10, or 20 years ago.
And secondly-- there's always been a struggle between the retailer and the brands. I mean,
they-- now, the-- you can't-- I mean, that's-- that's built into the American market system. And
I would say that the retailers-- and-- and-- and they've-- they've always had private label b--
brands. In some other countries, private labels are much stronger than the United States, for
example. And-- and the private label brands are priced below the big brands. And-- the
retailer-- every time a retailer meets up with-- a packaged goods-- salesperson, they are
arguing for lower prices and better deals. And I would say that their hand-- becomes
stronger as the Costcos, and the-- and the Walmarts, and in other countries this other kinda-
- as they become stronger-- the struggle can tilt a little bit one way or the other. I think-- I
think a few years ago-- I-- I think Costco dropped Coca-Cola. And that's a real test if you want.
And-- and-- and of course Sam's Club at that time started pouring it on with more Coke and
everything. And-- and-- and that-- Coca-Cola's a pretty strong brand. So that Costco could
decide to do that. But if Costco decided to drop a bunch of other brands-- that you could
name-- they-- or Walmart decided to drop 'em, I mean-- the packaged good company might
feel it more than the retailer would feel it. And they would come to terms faster. It's an-- it's
an interesting dynamic. And it has gone somewhat against the packaged good companies.
They're still good b-- very, very good businesses.
BECKY QUICK: Is that-- the dynamic between the retailer and the packaged goods
companies, is that a pendulum swing that swings back? Or is this--
WARREN BUFFETT: I hope so.
BECKY QUICK: Or is this a new--
WARREN BUFFETT: No, not necessarily. No, I mean you've got these German discounters
coming over here now. And-- each company's got some muscle. And if you've been selling
whether it's Coca-Cola, or, you know, whatever food you m-- may have eaten as a kid, or
something like that, I mean, you were pounding-- you want the c-- consumer 'cause you gotta
win with the consumer in the end. You've gotta have a product that's strong enough that the
realer-- retailer has to c-- carry it to some degree and where their private label, even though
it's priced below it, does not draw volume away. And if you take-- take Heinz Ketchup, it's
very, very, very hard to take share away from Heinz Ketchup. It's hard to take share away
from Philadelphia cream cheese, but I could name some other products which are-- w--
where it's easier to take-- share away. And-- the consumer is going-- the consumer votes
every day. And some things are affecting the consumer like the feeling that th-- other things
are healthier or something of the sort. Price affects the consumer. But just the prevalence
and strength of the retailer can affect the consumer, too.
BECKY QUICK: Is that why there's so much pressure for some of these packaged goods
companies to get bigger, for-- new deals to come in? Like-- I'm gonna take and wrap up with a
lot of products, and then I have more heft against the retailers if they try and turn me around
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with their friends?
WARREN BUFFETT: You don't-- you don't get-- if-- if-- if Coca-Cola were to buy-- they've got
the-- the-- the world's greatest distribution system. So they can-- they can push liquids
through that. I don't know whether they could push cream of wheat, you know, or some
things through their-- their distribution system. Obviously, a great distribution system is-- is
worth an enormous amount. And-- and like I say, Coca-Cola has a great one. Coca-Cola
incidentally, you know-- they're selling 5% more liquids. They are selling 100 ounces of liquids
per capita in the whole world. 7 billion people are drinking their Coca-Cola product. And
they're drinking that at the rate of 100 ounces a year. That's substantial. Leaves a lotta
ounces to go. But-- but they are selling more ounces of liquid-- they've got more-- but they've
got more brands now. But they are selling than they've ever sold. And it-- it grows year by
year. And it's growing. And James Quincey is doing a sensational job on that. And first
quarter even showed it. But-- but the-- if you've got a brand that's kind of lost out there or
something of the sort, it's hard to get shelf space. And-- the retailer is going to stock what will
move. And sometimes that involves price. And what you-- what you want to have is a product
the retailer has to have.
BECKY QUICK: There are a lot of subjects that-- that drew some controversy and got a lotta
headlines from this weekend-- including some back and forth-- between you, and Charlie,
and then Elon Musk. And we're gonna talk about that in just a moment, but I-- I think we
need to take a break. So Joe and Andrew, we will send it back to you in the studio. And we'll
have more on that coming up in just a moment.
JOE KERNEN: Thanks-- Becky. You got a Wall Street Journal out there, too, Beck? You got one?
They –
BECKY QUICK: Right here. What do you want me to look at?
JOE KERNEN: I want Warren to-- he may have already seen this Neil Ferguson-- piece 'cause--
it echoes some of the stuff that-- Warren was saying about this-- this China skirmish that--
BECKY QUICK: Here it is.
JOE KERNEN: --that we're having. Very interesting.
BECKY QUICK: All right. I'm giving it to him right now, Joe, so he can take a look at it.
BECKY QUICK: It's in the op-ed page. He'll read up on it--
BECKY QUICK: --and be prepared.
JOE KERNEN: Excellent. 'Cause-- like-- like-- Mr. Buffett, I-- I think they think that it's
something that because of the changing relationship we have-- and things have changed--
since—"Chi-merica" actually came about. And, you know, China's done well. And they need to
come into the-- the real world. And maybe we're not wrong to be doin' it this way. That's the
thrust of the piece. Anyway-- I would like--
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BECKY QUICK: That's a good tease, too. We can talk more about that.
JOE KERNEN: Yeah, I'd like Warren's comments or-- or at least thoughts on that. We'll more
from Becky and Warren Buffett-- on the other side of the break. In the meantime, let's get
you caught up-- on the markets. We had Katie Stockton on last Thursday. And she was saying
still thought the trend would reassert itself positively. And suddenly on Thursday we are
down 400 points. Well below 24,000. But it closed up five that day. And then another positive
session. And suddenly, we're about 700 points above-- the worst levels after she was on-- as
it did reassert itself. There's the futures up 100 this morning-- just about on the Dow Jones.
The NASDAQ up about 45. And we're watching oil this morning. Saudis reportedly want $80.
And they'd like 80. And they seem to be getting their way-- this time around. The 10-year
note, still below 3% though. 2.96 when I looked-- this morning. We'll have-- 2.959 now. And
we'll have more Squawk Box-- coming up in a minute with investing legend Warren Buffett
when we return.
BECKY QUICK: Good morning, everybody. And welcome back to Omaha, Nebraska, where we
are live with-- Berkshire Hathaway's chairman and CEO, Warren Buffett, coming off of the
53rd annual shareholders meeting for Berkshire Hathaway. Warren, again, thank you for
your time this morning.
WARREN BUFFETT: Glad to be here.
BECKY QUICK: There are so many things that we wanted to talk to you about this morning.
One I've kind of been holding off, waiting to get your comments on is Elon Musk. Elon Musk
was brought into the conversation this weekend at the shareholders meeting by a question.
And I forget who asked it. One of the shareholders maybe. Bringing up this idea-- or maybe--
maybe it was Andrew. But somebody brought up this idea of-- of moats. Competitive
advantages and moats. Elon Musk recently said that he thinks moats are stupid. People--
WARREN BUFFETT: He could give me his.
BECKY QUICK: And-- and that became a subject where Charlie weighed in and said, yes, he's--
he's right that actual moats around castles are stupid. But you guys got into a little bit where
you were joking around, saying that-- you'd like to see him try and get into a candy store. He
responded this weekend with some tweets, saying, "I'm starting a candy company, and it's
going to be amazing. I am super, super serious. It just occurred to me that the plot of Willy
Wonka is really messed up. Okay, okay. Just for the sake of argument, what do you wish for
in candy? Cryptocandy. Then I'm going to build a moat and fill it with candy. Warren B. will
not be able to resist investing. Berkshire Hathaway kryptonite. I'm killin' me. L-O-L." (THROAT
CLEARING)
BECKY QUICK: What do you think about all of this?
WARREN BUFFETT: Well, if you look at the leading candy bars, for example, for the last 50
years, I think you'll find Snickers on top. And then you've got M&M's. You've got two types. So
they don't combine the peanuts with the-- the other ones. But I think they're number two
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and four. And, you know-- Hershey's in there at number three or something of the sort. Yeah.
I can't take 'em on. I don't th-- I don't think Elon should take 'em on. You know? They have
moats. When you go into-- a drug store, a 7-Eleven, or something and you say, "I would like a
Snickers bar," and the owner says, "Oh, I've got something-- the Musk Bar at-- at-- at 10 cents
off the Snickers bar," you say, "Give me the Snickers." And if he doesn't give you the Snickers,
you go across the street and buy the Snickers. Brands-- brands are moats, I mean, obviously.
And-- and-- and if you try to-- you know, this-- this-- this product is selling, you know-- to
hundreds of millions of people who want Coca-Cola. And if you say, "I'll sell you something
for two cents less," or, "I've got some celebrity's name on it, they actually-- Richard Branson
tried Virgin Cola in the United States about 15 or 20 years ago. And a million others have
been tried. So-- I don't really have the same urge to produce automobiles that he apparently
has to produce candy. But I don't-- I don't suggest that he take on Snickers.
BECKY QUICK: You're taking me literally and stepping away from the real story here, which is
kinda this war of words between you, and Charlie, And Elon. And I-- I just want-- do you even
know Elon Musk?
WARREN BUFFETT: I've-- I've never-- I've never said anything negative about Elon. I mean,
you're-- you're baiting me a little bit to do it, but--
BECKY QUICK: I am.
WARREN BUFFETT: But-- but I've-- I've never-- you know, I-- I-- people like his car and
everything. But-- but somebody mentioned that now he's talking about financing. Something
this morning about that. I-- I-- I thought I heard that earlier.
BECKY QUICK: Yes. Well, actually, War-- Andrew just read some headlines where it looked like
they may be-- Tesla may be going back to market-- to-- to pick up some additional financing.
I'm not entirely sure.
WARREN BUFFETT: That's--
BECKY QUICK: All I heard was the-- all I heard was the headline.
WARREN BUFFETT: That's what I call a counter-revelation. I'm talking-- (LAUGH) you know,
because I think it was just a few days ago they said they wouldn't need financing. It-- it-- but,
you know, he's-- he's trying something to improve a product. And I-- I salute him for that. And
the American public will decide whether it's a success. And-- and-- and it's not easy. You
know? So-- it's probably easier to develop a new car than it is to compete with Snickers. But
some products have terrific moats. Probably Elmer's Glue does. You know, WD-40. I mean,
there you go. You can-- there's just certain things that you are not in-- much inclined to be
dissatisfied with and seek-- and I would say that-- incidentally that the the iPhone-- you
know, has a terrific moat. I mean, people that have an iPhone-- or maybe have some other
phone. But they-- they want to continue with the product that they've got. They-- they want--
they want the new version. It's just easier for 'em now that they've have learned how to do
everything, and their life's built around it, and all of that. And moats are very useful. Costco
has a moat in people's mind. I mean-- Amazon can raise the price of Prime, you know, 20%.
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And you can't do that unless you've built something within that image of the Amazon Prime
that's based on reality that you're going to get a lot for your money and you're gonna wanna
use it. And then you can raise prices $20. But if you're selling-- you know, if you're selling
some commodity prod-- product, you can't do that. You need a moat.
BECKY QUICK: You mentioned Amazon. So let's talk about that. Because you did say over the
weekend that Amazon is one of the shares that you haven't bought that you wished you had.
Are you ever going to buy shares of Amazon?
WARREN BUFFETT: It-- it-- it'll probably be tough. I've probably got so many psychological
problems with the fact that I didn't do it that it's very hard to do it. I-- I always-- when I first
met Jeff, I-- I knew he was an incredible-- person. And-- and he still encloses his 1997 annual
report, which I read at the time, with his current annual report. And he's an extraordinarily
clear thinker as well as being a brilliant thinker. And-- and-- and then he-- he connects-- I
mean, it-- it's far surpassed anything I would have dreamt could have been done. I mean,
'cause if I had dream it-- if I had really felt it could have been done, I should have bought it
then. It-- I knew he would do the most with whatever idea he had. I had no idea-- idea that it
had this potential. I blew it.
BECKY QUICK: Another stock that you mentioned over the weekend, saying you-- you should
have known it early on-- w-- was Google, Alphabet, the parent companies of Google, because
you knew how much they could charge you when it came to GEICO--
BECKY QUICK: Another stock that you mentioned over the weekend, saying you should have
known it early on was Google, Alphabet, the parent company of Google.
BECKY QUICK: Because you knew how much they could charge you when it came to GEICO.
WARREN BUFFETT: Yeah, here we were at GEICO, paying them 10 bucks or something for
every click. I mean, you – 10 bucks. 10 bucks. And no cost to goods sold. I mean, and it
produced results for us. That's why we paid them the money. So I had seen the product
work. And I knew the kind of margins. I mean, I always said it's great to find something that
costs a penny, and sells for a dollar, and is habit forming. This doesn't cost anything. And it's
very useful. I mean, if you're looking up auto insurance on GEICO, you know, you've got an
interest in auto insurance. I mean, it's a very directed way of talking to people. So the real
question in my mind, I'd seen all of this to before I used to play bridge on all of this. And what
I didn't know was whether there'd be more entrants. I didn't know enough about technology
to know whether this really was the one that would stop the competitive race and all that.
But I should have gotten Google, too.
BECKY QUICK: You say that Silicon Valley and a lot of the things that happen there is not
really your field of expertise. But you've been around, and you've seen how a lot of things
happen. Particularly with how Washington can have an impact. The reason shares of Apple
were down earlier this year was in part because of the iPhone, but probably also in part
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because the FANG stocks overall were under pressure because of Facebook, the trouble it
got into, the potential for regulators coming into this arena. What do you think broadly about
some of these regulatory issues, some of these privacy issues or do you even consider it?
WARREN BUFFETT: Well, no, I think about that. But basically I like good news that isn't – or
bad news that isn't going to last. And I'm saying that is one of them. But, I mean, bad
headlines don't bother me. I mean, I had bad headlines when I bought that stock right after
two or three months after Pearl Harbor and knew it was going to have bad headlines for a
long time. So, I am not worried about – we've made the most money when there's been some
temporary bad news. I mean, over time. Now, you got to be sure it isn't permanent or
something of the sort. But if people get excessively worried about, you know, people
changing their tastes and what they drink, they're going to drink 64 ounces of something or
other. And carbonated soft drinks have lost share. They gained share just steadily for I don't
know how many years, practically forever. But then – but bad news does not scare me.
BECKY QUICK: Just to put a finer point on that though, the regulatory issues concerning the
FANG stocks, you think that's just a temporary headline where maybe there's much ado
about nothing here? Or are you not sure?
WARREN BUFFETT: The regulatory issues on which?
WARREN BUFFETT: Oh no. I think that's – no, that's important. That's important. I mean, if you
– 60 Minutes had two different ones. They had one back on October 8th. And then they had
one a couple weeks ago that illustrated the effect of – well, the fellow said Facebook won the
election for Trump. The fellow who managed their operation in the last election out of San
Antonio, and has been appointed the head of their committee for 2020. And he – it's a very
interesting episode. I mean, they really knew how to target everybody in the country basically
with things that would appeal directly to them. And that could not only affect them in
encouraging the followers to come bring out the vote, but it could suppress votes. And, I
mean, they had – Facebook embedded – the fellow used the term embedded there. I mean,
so it's a very, very important issue. And I think probably Congress has just begun to scratch
the surface of it.
BECKY QUICK: What's different with what the Trump campaign did than what the Obama
campaign did four years earlier where they were using Facebook and were kind of seen as,
like, these technology wizards for figuring it out?
WARREN BUFFETT: Yeah. Well, they took a first step. And then – I don't blame anybody for
doing it. And but my guess is they thought they were doing it as well in the Democratic
campaign in 2016 as the Republicans were. But the Republicans were technologically—
BECKY QUICK: Advanced. Yeah.
WARREN BUFFETT: Yeah. Yeah. And Obama was advanced for 2012. I mean, the trick is to
convince people. But the trick also is to get your vote out. And then the trick which is not –
which is really tricky and is very counter-democratic is to suppress the other guy's vote.
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BECKY QUICK: And you think that's the type of thing that will get regulators' attention or it
will make Congress pay more attention?
WARREN BUFFETT: Oh, a lot of things in privacy will get it. You know, I am – people
impersonate me, you know.
BECKY QUICK: Yeah, Joe does it very well.
WARREN BUFFETT: Well, but he's doing it to a very sophisticated audience in your case. But if
somebody impersonates me on some website and says something I say, I may even be all
over the world. It isn't me. No, this has brought a lot of new issues that are important issues
out. And we're just in the early stages.
BECKY QUICK: Okay. We're going to talk more about this and many other things. We'll send it
right now though back to Joe and Andrew in the studio.
ANDREW ROSS SORKIN: Okay.
ANDREW ROSS SORKIN: Becky, we will be coming back to you in just a little bit. We have that
question from Alex Ohanian, by the way, Becky, which we're going to have to ask at some
point.
BECKY QUICK: Oh, good.
ANDREW ROSS SORKIN: In just a little bit. But we will get back to them in Omaha get their
thoughts on China and whether or not a trade war is on the horizon. And don't forget today
we're introducing the Warren Buffett Archive, the world's largest collection of Buffett
speaking about business, investing, money, and life. It includes 25 full annual meetings going
back all the way back to 1994. We have a highlight reel for each. Plus, CNBC interviews, a
Buffett timeline, and a Berkshire portfolio tracker. Be sure to check it out. Buffett.CNBC.com.
It is very cool. "Squawk Box" returns in just a moment.
BECKY QUICK: Good morning again, everybody. We are live from Omaha, Nebraska, the site
of the Berkshire Hathaway annual meeting. Our special guest this morning is Berkshire
Hathaway's chairman and CEO, Warren Buffett. And Warren, so many things that we've
talked about this morning and over the weekend. One issue is just the economy. And I know
you told us last week a little bit about it, that it does feel like things have improved a little bit.
Things have picked up steam. I just wonder why you think that. What numbers you see. What
are the things that kind of run through your head in determining the Berkshire economic
index.
WARREN BUFFETT: Yeah. I see a lot of numbers. And I get them pretty fast. I mean, and
business is generally pretty strong. I mean, you could look at railroad car – anybody can look
at railroad car loadings, for example every week. They come out on Wednesday. And you can
see them by category. 22 different categories. And I think Matt Rose may have mentioned
the other day that 18 of the 22 are up and overall they're up. And they're carrying stuff
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because people are buying stuff. They're adding inventory. And you see it and you're seeing
some inflation connect with some of this. But you see it in some building materials. We've
seen it particularly in electronic components. We have an operation – most people probably
don't even know anything about called TTI. And it carries close to a million different types of
electronics. I mean, you can order any one of a million items from us. They're very small. But
people buy them because they're using them. And, you know, we have a hard time filling
orders in that business. And that's kept getting stronger now for a year right up to what we're
talking here. So we're seeing pretty good business most places.
BECKY QUICK: The jobs number on Friday had some people speculating that we can't get
much lower in terms of an unemployment rate. That it's hard to find bodies to fill the jobs
that are opening. Do you experience that?
WARREN BUFFETT: Well, that's absolutely true. I mean, we have a lot of jobs. We have – if you
want to be a carpet installer, you can make very good money because there's a shortage of
people that know how to install carpet. And we can teach you to do it. It takes a little while.
But that's a very good job. And our home builders— and you've read about this elsewhere –
but we have, in addition to having a manufactured housing operation, we have a site build
operation as they call them. And we're in Denver, and Austin, Texas. Various places. And we
have a hard time getting people for certain of the construction trades. And, again, we're
actually funding a school in Denver – we probably have other participants doing it – just to
teach people jobs that can pay them 50 or $60,000 a year. And no, there's – employment is
tight in some areas. There's no question about it.
BECKY QUICK: What do you do? Do you end up having to pay more than 50 or $60,000 a
year? I'm just trying to find out how inflation gets started.
WARREN BUFFETT: Well, the market system in the end, if a resource is scare – whether it's
human or otherwise – if a resource is scare, the price will go up. And probably – we are
seeing prices moving now in some areas and less resistance to those prices in recent
months.
BECKY QUICK: Which—
WARREN BUFFETT: This is not an explosion of World War II scarcity or anything like that.
BECKY QUICK: No. No, but I—
WARREN BUFFETT: But it's definitely going in that direction, Becky.
BECKY QUICK: And then you wonder where that gets us in terms of inflation that the Fed
would start to see and potentially act against. And there are so many people who are trying
to figure that out.
WARREN BUFFETT: Yeah. And I don't – I see all these figures, and I don't change one thing I
ever do in terms of buying something. I've never changed an activity based on a headline in
my life that I can remember, or an editorial opinion, or even the facts we get. I'm aware of
them. And I like to know them. But it's going to be a different news year – we're going to own
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the company a year from now or five years from now. But I can tell you, I mean, if you're a
policy center adviser or a member of the Fed board, I would be – I've got a responsibility then
in terms of these figures. And I'm trying to steer them to some degree.
BECKY QUICK: But it may not have affected or impacted a decision on whether or not you
were going to by a business. But it does impact your valuation, expectations in terms of
looking at stocks versus bonds or stocks versus something else. You've told us on this
program that inflation acts as a weight on stock valuations. And when interest rates are so
low –
WARREN BUFFETT: It should push up interest rates over time.
BECKY QUICK: Right.
WARREN BUFFETT: And it's very easy to talk about having a 2% goal. But it's another thing to
keep it from going – once it starts in either direction, we don't know how well that'll work.
BECKY QUICK: Let's talk about something that Joe alluded to earlier. And-that's China and
Trade. Not just with China. With Mexico--
WARREN BUFFETT: Yeah, the world.
BECKY QUICK: --with NAFTA, other things that are happening. But our delegation just
returned from China over this weekend. This is Steven Mnuchin, the treasury secretary,
Wilbur Ross, Lighthizer. All of them-- coming back. And now we have to wait and see. We
have to-- figure out if Trump's tough talk will start paying dividends-- and improved trade
relations or if it-- pushes us the other direction and leads us potentially into a trade war.
What do-- you think happens? By the way, here's a tweet from the president. I believe this
was Friday night. "Our high-level delegation is on the way back from China, where they had
long meetings with Chinese leaders and business representatives. We will be meeting
tomorrow to determine the results, but it's hard for China in that they have become very
spoiled with U.S. trade wins."
WARREN BUFFETT: Yeah. Well, the answer is I don't think we will have trade wars because--
of significance. We will have trade movements. But--in terms of the old fashioned thought of
a trade war where-- you just keep piling it on-- I don't think that happens. It's counter to the
interests of us. It's counters to the interests of China. It's counter to the interest of every
country in the world. I mean, the world thrives on trade. We would not have the economy,
nor would China, nor would the rest of the world have the economic wellbeing that they
have without a lot of trade. And incidentally in 1970, we exported and imported exactly the
same amount. It was about 5% of GDP. So our exports have grown to 11 and a fraction
percent of GDP, which is a huge number now. I mean-- but the imports have-- there's about
a three-point gap or thereabouts. And-- there will always be people trying to get edges and
all of that sort of thing. But in the end-- China and the United States have a common interest
in something very big. And then we have-- a less-than-common interest in some things
around the edges. It-- we will-- the world will not do something stupid over time in trade.
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BECKY QUICK: Joe, did you want to jump in here? I know this is-- an issue you've been
following very closely.
JOE KERNEN: It just-- I would just a little. I mean, the and I think Warren probably read this
piece. But it is amazing when this alliance or whatever you want to call it between China and
the United States started back in 2001, it was a different world. And-- China really was
supplying cheap labor and cheap goods. And we were benefiting from that with low inflation.
It kept our interest rates low. But the article, the Neil Ferguson article, points out China, no
longer an emerging market. And they're looking more and more like us in terms of their
economy, and consumers, and everything else. And-- at this point, it only makes sense that
the trade deficit has to come down. And that's something that's not-- you know, it-- it's not
unrealistic for the United States to be asking for that at this point. And China shouldn't be
shocked that-- the-- and should probably make some concession. Warren, last week-- we
went back and forth. We said China has more to lose. China said we have more to lose. And
we went back and forth with that rhetoric. But the simple fact remains I think right now 4% of
China's-- exports go to the United States. Less than 1% of our exports go to China. So-- I
mean, we can affect them much more significantly than they can affect us. And it's not too
much to ask for them for the trade defect to go down even though most economists say,
"You shouldn't look at it that way." But, I mean, it's only fair in bilateral trade.
WARREN BUFFETT: I think it was in 2003, Joe, I wrote an article for Fortune actually about the
trade deficit. I was worried about it getting too large then. Because, again, it was getting to be
3% or so of GDP. It-- wasn't specific to China at all. But it was just a question of how wise it is
to let the trade deficit grow larger and larger. Because when you run-- when you are in effect
buying more from other countries than they're buying from you, you are handing them
investment funds. I mean, it's the nature. You give 'em little pieces of paper, and they can
convert that into buying-- they can buy government bonds. They can buy buildings here.
And-- Japanese bought Pebble Beach in the 1980s when they were running a big-- surplus. I
mean, so you are giving up claim checks on our country essentially in exchange for having
more consumption now than you're producing in this country. And so I do think that there's
levels of trade deficit that bother me. I had some system that did not make it country specific.
But I think-- the world has gotten better and better. And there's no question that-- that
countries may try and take advantage in this or that. And-- we've actually been guilty of that
sometimes in the past, too. I don't think leaders in other countries, whether China or 100
other countries, are not smart enough-- to realize that it's in the interest to keep promoting
trade. The more we trade over time. And-- we don't want it to be a question of where we
important 20% of our GDP and we export nothing. Now, we could all quick working, and we
could hand little pieces of paper to the rest of the world, and they could keep sending us
food. And they can send us autos. And they can send us all kinds of things. But eventually
they have claims on all our wealth. So-- we do want to have policies where the overall trade
deficit does not get out of hand in relation to GDP. And I've been arguing that for a long, long
time.
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BECKY QUICK: Guys, I'm going to take a break right now. We were going to keep going. We
have both Bill Gates and Charlie Munger who are going to be joining us at the top of the
hour. But-- Charlie Munger's here early, and I don't want him sitting on the sideline. So we're
gonna take a break so we can bring him right over. And we'll have more coming up with
these two-- in just a few moments. The guys are ready to kill me because I'm calling an
audible, but Charlie Munger's sitting here, and I want him on set if he's here. So-- right now,
we'll take a very quick break. When we come back, we'll be joined by Charlie Munger, the
vice-chairman of Berkshire Hathaway. Stick around. We'll be right back.
BECKY QUICK: Good morning again, everybody. And welcome back to Omaha, Nebraska
where we have been live for almost the last two hours with Warren Buffett, the chairman
and CEO of Berkshire Hathaway. We are joined right now by Berkshire's vice chairman--
Charlie Munger, who's sitting down with us and joining us. And-- Charlie, thank you so much
for being with us today. I really appreciate you being here.
CHARLIE MUNGER: Well, I'm delighted to be here.
BECKY QUICK: Well, let's talk about this. Between the two of you—
CHARLIE MUNGER: I'm delighted to be anywhere.
BECKY QUICK: Between the two of you, you have 181 years of experience and you've been
doing this annual meeting for 53 years. I thought we could take just a minute or two-- for
both of you to reflect on these meetings, how they've evolved over time and-- what it is that--
you enjoy so much about sitting with each other. Charlie, what do you think? Why don't you
start?
CHARLIE MUNGER: Well, my hometown where I was raised. And, of course, I like the
company and I like the shareholders and I like the festival and everybody's having a good
time. And we're celebrating values as well as ourselves. And so, of course, I like it.
BECKY QUICK: Warren, what's it like sitting next to Charlie on the stage?
WARREN BUFFETT: I always learn something. And-- I certainly get surprised. And Charlie and
I, we worked in the same grocery store less than four miles from here. We didn't work at the
same time so we didn't know each other till 20 years later. But we've got an extremely good
partnership. And-- business is more fun-- business life is more fun with a good personal
partner. And to have great business partner-- you know, it just-- it-- we've accomplished more
but we've also had way more fun. And Charlie and I-- and this is true, we've had-- we--
disagree on a lotta things. Not-- that many, but some. We've never had an argument in the
entire time we've known each other, which is almost 60 years now.
BECKY QUICK: What's one thing that Charlie's done for you? A decision, an arena-- something
about your life that-- that-- that you listened to Charlie and you're better off for it?
WARREN BUFFETT: Char-- Charlie has given me the ultimate gift that a person could give to
somebody else. He's made me a better person than I would otherwise have been. And that's
the most you can do for somebody else. And-- I've listened to him. Not too many people I
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listen to but Charlie-- you know, he's given me a lot of good advice over time. And-- I may
hate to take it to a certain degree, but-- sometimes. But my decisions have been better. But I
just-- I've lived a better life because of Charlie.
BECKY QUICK: Charlie, has Warren done anything for you?
CHARLIE MUNGER: Well, he talked me outta leaving a law practice, which turned out to be a
very good idea. Warren's-- this is a place, Berkshire, where everybody's done a lot for
everybody else. And that's why people like it. I don't think all these people would come just to
celebrating making a lotta money. They're here to celebrate I'd say a set of values. It's like the
Catholic catechism.
BECKY QUICK: How so?
CHARLIE MUNGER: Well, it never changes, for one thing.
WARREN BUFFETT: Yeah. And usually has old guys in charge.
CHARLIE MUNGER: And there's old, white males in charge, absolutely.
WARREN BUFFETT: We're seeing the wisdom of that more and more. Now, Charlie was
practicing law but I said, "Charlie, it's okay as a hobby but forget it." So.
CHARLIE MUNGER:H e was right. It took him a while to convince me. But I was-- I'm a slow
learner sometimes.
BECKY QUICK: People wonder how long you guys can keep doing this. Charlie, you're 94.
Warren, you're 87. But you made it look pretty easy up there onstage this weekend.
WARREN BUFFETT: It-- is easy, actually, at this point. At some point it won't be. But, no, I
would say it's as easy now as ever. I mean, you didn't see me enter the race that took place
(LAUGH) (UNINTEL) or anything of the sort. But this job doesn't really require-- doesn't
require hand eye coordination or stamina or anything. You know, you just sit at a desk and
you apply things that you learned 60 or 70 years ago and they come in a little different form
now, maybe-- this way or that way. But-- it's the perfect job for somebody that wants to be
working at 80 or 90.
BECKY QUICK: You mentioned that you have had disagreements in ways of thinking over the
years. What's the biggest thing that either of you can remember disagreeing on? Even
though it wasn't a fight or didn't get into anything, where is-- an area where one of you
thought you should do something, the other one didn't, or vice versa?
CHARLIE MUNGER: I wanted Berkshire to buy the French stake in Costco when the French
left.
BECKY QUICK: What year was that?
CHARLIE MUNGER: Oh, that was a long time ago.
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WARREN BUFFETT: I was at a bridge-- I was playing at a bridge tournament. They actually
called me outta this thing-- which is very bad etiquette at bridge tournaments. And-- Charlie
is saying-- basically saying-- the French firm, big retailing firm there, had about a 15% block
or something like that. Charlie said, "Shut your eyes and buy it." And--
CHARLIE MUNGER: He said, "I'm gonna shut my eyes and say no."
WARREN BUFFETT: I should've bought it.
BECKY QUICK: You should've bought it?
WARREN BUFFETT: Absolutely. I'll tell ya, I can't really-- I can hardly think of anything Charlie
has recommended that I do that shouldn't have been done. I would do more things than
Charlie would. But that's partly 'cause I'm there, you know, eight hours a day or something.
I've got a little more inclination toward action. And Charlie wants to really wait for the fat
pitch. I mean, he wants-- he would-- he would be very happy hitting ten homeruns and ten
homeruns at bat in the final game of the World Series of his life and just have that be it. It in
securities. And--that's the right way to proceed. But I like a little more action.
BECKY QUICK: All right, the billionaires keep showing up. Bill Gates is here. We're gonna have
more from this Berkshire summit in just a moment.
JOE KERNEN: Welcome back-- to Squawk Box here on CNBC live from-- the NASDAQ market
site in Times Square. I'm Joe Kernen along with Andrew Ross Sorkin and Becky is in Omaha.
Big hour coming up. A billionaire summit-- in Omaha. Berkshire Hathaway vice chair Charlie
Munger and Microsoft cofounder Bill Gates-- will join Becky alongside Warren Buffett live.
That's-- coming up in just a moment. First though, a quick check-- on the markets. We've
been right around triple digits on the Dow, either just above or just below, now up about 92
on the Dow, up about-- ten on the S&P 500. And the NASDAQ-- indicated up 41 points. The
ten year has been under 3% for a few sessions now, 2.96%, 2.95%-- at this point. And-- I don't
know if we-- think it's okay to, like, add up three guys, how much they're worth and say that's
how-- yeah, that's not what it's about is it, Andrew? Really?
ANDREW ROSS SORKIN: It's not about money.
JOE KERNEN: Now, do you-- if-- correct me if-- when you get up in the morning, do you put
on - I still put on one pants leg at a time--
ANDREW ROSS SORKIN: One pant--
JOE KERNEN: --you?
ANDREW ROSS SORKIN: --leg at a time.
JOE KERNEN: Can you ask those guys--
ANDREW ROSS SORKIN: And-- these guys do--
JOE KERNEN: Becky-- yeah, find out--
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ANDREW ROSS SORKIN: They do.
JOE KERNEN: I don't know. Maybe they don't. Maybe they're able to get on a ladder and jump
in--
ANDREW ROSS SORKIN: I assure you, they do.
JOE KERNEN: They do?
ANDREW ROSS SORKIN: We're goin' to get back to Becky, who is in Omaha this morning and
she has three now very special guests.
JOE KERNEN: Six pant legs--
ANDREW ROSS SORKIN: Becky.
JOE KERNEN: Six legs.
BECKY QUICK: No, no, my guess is they put their pants on the same way you do, Joe. But I'd
still rather hear their opinion than yours. Let's get to our billionaire summit this morning.
Joining us right now is Bill Gates. He is the cofounder of Microsoft. He's also a Berkshire
board member. Charlie Munger is the vice chairman of Berkshire Hathaway and still with us
this morning, Warren Buffett, who's the chairman and CEO of Berkshire Hathaway. And
gentlemen, welcome. Thank you all for being here this morning.
WARREN BUFFETT: Thanks for havin' us.
BECKY QUICK: I was tryin' to figure out how to get into these conversations with the three of
you. And it's-- it's always difficult. The three of you are brilliant thinkers. It can be a little
intimidating. But I was thinking back over the years of the times that we've sat down. And
you are all very similar-- in a lotta ways. You're analytical thinkers, you're logical thinkers.
You're voracious readers. And you're-- all people who think knowledge is the ultimate quest.
You wanna figure out how the world works. But it occurs to me that part of the reason that
you're friends is not just because of what you share in common, but that sometimes you
have differing opinions on these things. And you probably like to challenge each other on
some of these issues. And I thought maybe we could tease out some of those issues this
morning, where you may not see eye to eye exactly on things. You may have more nuanced
views on areas. So I'm just gonna throw up some areas this morning and see where you all
agree and see where you all differ. And so I'll start with the idea of the markets because this
is where we started with Warren this morning at 6:00 a.m.-- 6:00 a.m. eastern, I should point
out. Just the idea of where the markets are right now. Are they fairly valued? Are they
expensive? Is it hard to find things that you like? Bill, why don't we start with you since you're
just sitting down with us. Warren pointed out that t looks pretty expensive to him on a lotta
private deals that come along. And it's pretty hard to find bargains in the market. You're a big
investor too. What--do you think when you look at the market today?
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BILL GATES: Well, in terms of absolute returns, you've got the ten year around 3%. And so
that's your risk free rate in dollars. So expecting to make a lot more than 3% on things-- you
know, either you're being smarter than everybody else, or you're taking some level of risk. So
with-- absolute returns are predicted to be lower-- over these next ten years than they've
been in most ten year periods.
BECKY QUICK: Absolute returns on stock?
BILL GATES: On all asset classes. The--T-bill sets the rules. But strength of gravity-- and so I
don't know-- you know, if you ask investors, I think they expect to earn, you know, just say
state pension plans-- have 7.5%, a few still at 8%. That's an unrealistic expectation which
makes those deficits a little worse. Actually, quite a bit worse than they appear on paper.
BECKY QUICK: Uh-huh. Charlie, what do you think?
CHARLIE MUNGER: I agree. I agree with Bill.
BECKY QUICK: You have nothing further to add?
CHARLIE MUNGER: I have nothing further to add.
BECKY QUICK: All right, we--
CHARLIE MUNGER: But-- except one thing. I think Berkshire's gonna do a little better.
BECKY QUICK: Bill, you agree with that too?
BILL GATES: Oh, absolutely.
BECKY QUICK: So what-- does Berkshire do that gives it that advantage? Is it--
CHARLIE MUNGER: We're less crazy. The way we just-- there're certain bad habits we don't
have.
BECKY QUICK: Such as?
CHARLIE MUNGER: There're a million ways to be irrational. And while we are irrational pretty
often, we're less often irrational than most people. That really helps.
WARREN BUFFETT: Our bad habits are not financial.
BECKY QUICK: I don't suppose you wanna go into any detail there.
WARREN BUFFETT: I'm talkin' about Charlie's-- I'm not gonna talk about--
BECKY QUICK: All right. Let's-- talk a little bit about-- the dabbling you all may do. You-- each
have your own money, aside from Berkshire money, that you look and you invest. And
Charlie, I know you've looked to China a lotta times when you start looking at places that you
like.
CHARLIE MUNGER: The Munger family has invested in China substantially.

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BECKY QUICK: Since when and why?
CHARLIE MUNGER: Since about 14 years ago. And I did it because I respected the man who
was going to do the investing. And it all looked inexpensive to me. And the companies looked
very strong to me. And, of course, this worked out. I've done way better than I had any right
to expect.
BECKY QUICK: Does it still look that way when you look to the Chinese market?
CHARLIE MUNGER: I think that the best companies in China are cheaper than the best
companies in the United States.
BECKY QUICK: The concern other investors might have before they-- follow in that way is that
they don't know that much about Chinese companies and maybe--
CHARLIE MUNGER: They're just generally afraid of China.
BECKY QUICK: Is there a reason that they may have some-- I mean, you have people who are
guiding you, who understand China well. If someone was tryin' to do this on their own, would
it be a little more dangerous?
CHARLIE MUNGER: Sure. It really helps to understand the country you're operating in. Of
course.
BECKY QUICK: All right, there's my that's a stupid question moment. You would not
necessarily advise others to do this, I guess is my point, for investors who are sitting at home
watching?
CHARLIE MUNGER: I don't think it would be all that hard for any smart person to find four or
five great companies in China to invest in.
BECKY QUICK: All right. Bill, how about you? When you look around, what areas are catching
your fancy? I know of things that you've done in the past, areas where you've-- kind of gotten
into currency markets or done different things, but what are you thinking right now? What--
captures your attention?
BILL GATES: Well, my tech-- investing is almost entirely the Microsoft stock. I think in terms of-
- things that will have super high returns, there are tech stocks that are undervalued. You're
just gonna get very high variance-- out of tech stocks because you have some markets where
the winner ends up getting a substantial profit pool. Because I don't wanna have a conflict
with Microsoft-- I don't invest a lot in other tech stocks. But I create a fantasy portfolio to see
if my predictive powers is good or not. And outside of that, I have a team of people who
invest. And they're quite diversified. They have-- a fair bit in China. China looks quite
attractive.
BECKY QUICK: Who's on your fantasy technology league?
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BILL GATES: I probably shouldn't--talk about that. I mean, there're some that are still private--
like AirBnB, which-- you know, at a fair (LAUGH) valuation-- that's-- a strong long term
business.
BECKY QUICK: Why?
BILL GATES: Because they serve customers globally. And so the-- reputation and listings they
have you can't just go into one city like you might for a ride service and bomb the prices, you
know, go get the drivers and do a lot of marketing. And-- just compete in that one city. Here,
you have to have a global reputation, global inventory. And so it just makes challenging that
leader position far more difficult.
BECKY QUICK: I--mean, I've always kind of thought of AirBnB and the ride services as having
some of the similar risks-- in terms of local regulations that could get in the way with things.
Does that not concern you with an AirBnB?
BILL GATES: Oh, absolutely. But they're-- you know, city by city they get to deal with that. It's
a barrier to entry for other people who come along. I-- the competitive dynamics for the ride
services versus the-- AirBnB are different in AirBnB's favorite.
BECKY QUICK: I won't ask you for your entire list of fantasy technology companies 'cause you
already told me you wouldn't tell me. But is Apple on that list with Berkshire plowing so
much money into it?
BILL GATES: Well, Apple's an amazing company. And the multiple's not gigantic. And it's not a
tech speculative company where it's still losing money or anything. So, you know, I think
Warren's applied, you know, great thinking there. The top tech companies do have-- a very
strong profit position right now. But Apple-- has the most of all.
BECKY QUICK: And Warren, I guess when you have described this company, the reason you
like Apple is-- not reasons that are technology based reasons. You think of it as a consumer--
WARREN BUFFETT: It's a c--
BECKY QUICK: --goods company.
WARREN BUFFETT: I mean, it's the consumer behavior with the product-- what they do with
it, how it becomes part of their lives and all that sort of thing-- that I observe and primarily
reason from. Now, if there was something coming out tomorrow that would obsolete
everything that made it attractive to that group, you know, Bill would know it before I would.
But it has a position in consumers' minds that is-- and a utility to them that's very, very, very
useful. And it's an incredible ecosystem that they have found ways to profit more from as
they've gone along. I should mention that both of these fellows-- have done way better with
their non-Berkshire holdings than I have.
BECKY QUICK: Warren, you don't even have an iPhone so--
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WARREN BUFFETT: A fellow sent me-- a ten the other day. But I haven't-- I'm not using it yet.
A very nice fellow though. He even explained-- I think he-- I think he pretended he was writing
to his three year old child. And he wrote me this very nice letter and explained-- what to do
with it, it wouldn't bite me or, you know, do anything like that. And--- I'm kind of screwing up
my courage here. And one of these days-- I'll move.
BECKY QUICK: Charlie, do you have an iPhone?
CHARLIE MUNGER: Of course not.
BECKY QUICK: What do you think about Apple?
CHARLIE MUNGER: I've given up my adding machine.
BECKY QUICK: What do you think about Apple? Do you have a thought on the stock?
CHARLIE MUNGER: Yes. I wish we owned more of it.
WARREN BUFFETT: Yeah, we talked about it.
CHARLIE MUNGER: I wish we owned more of it.
BECKY QUICK: Why?
CHARLIE MUNGER: I think we've been a little too restrained.
BECKY QUICK: $43 billion's not enough?
CHARLIE MUNGER: No.
BECKY QUICK: What--do you like about the company?
CHARLIE MUNGER: Well, I like the fact that it's reasonably priced and strong. That's a very
desirable combination.
WARREN BUFFETT: And the management--
CHARLIE MUNGER: I like the management--
WARREN BUFFETT: Tells us --
CHARLIE MUNGER: Yes. Oh, yes. Very intelligent management.
BECKY QUICK: Let me ask you, Charlie, about some comments that you made over the
weekend-- that people paid attention to. My Twitter feed lit up when I tweeted about some of
them. Specifically when you started talking about Bitcoin as turds. What-- why--
WARREN BUFFETT: I'm surprised that attracted any attention.
BECKY QUICK: Why did you equate the two?
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CHARLIE MUNGER: Well, Bitcoin is worthless, artificial gold which, if it succeeded… a lot of
illicit activity. Now, that is not something I think the world needs. And the fact that it's clever
computer science doesn't mean that it should be widely used and that respectable people
should encourage other people to speculate on it. Bitcoin reminds me of Oscar Wilde's
definition of fox hunting, the pursuit of the uneatable by the unspeakable.
WARREN BUFFETT: Well, it sounds better than what he used before.
BECKY QUICK: We- asked earlier, Charlie, - Andrew brought it up with Warren, but--
CHARLIE MUNGER: I think it's a scum ball activity. Does that bet-- serve you better?
BECKY QUICK: Thank you. Yeah. We-- asked earlier about Goldman Sachs getting into the
business of having a trading desk for Bitcoin. Berkshire Hathaway owns about $2.5 billion of
Goldman Sachs. Does it bother you or does it not surprise you, just--
CHARLIE MUNGER: Well, I don't expect every investment bank to agree with everything I
think. They have a lot of animal spirits in investment banking.
BECKY QUICK: Bill, Charlie and Warren have weighed in on Bitcoin. Do you own any?
BILL GATES: Somebody gave me some for my birthday. And then a few years later, I thought,
"Hey, I'm gonna sell that." So no. There's some really good technology in terms of sharing
databases and verifying transactions-- that is talked about as block chain. That is a good
thing. Bitcoin and eye codes, I agree completely-- it's one of the crazier speculative things
where it's not as an asset class, you're not producing anything. And so you shouldn't expect it
to go up. It's-- kind of a pure, greater fool theory type-- investment. So, you know, I-- agree. I
would short it if there was an easy way to do it.
WARREN BUFFETT: One of the-- interesting things. If people react-- when you criticize their
investment, if they get mad, they're gambling. You know, if somebody criticizes Apple or
Berkshire, we like it. I mean, if the stock goes down, we'll buy more of it-- because-- it's-- we
don't care whether it just-- we don't feel that it has anything to do with us. But if we criticize
something that they own because they only want it to go up tomorrow-- they feel we are
hurting them. And therefore, they get very upset about it. If they really liked what they
owned, what difference would it make, you know? If I criticize their wife or something, they
don't get all upset about it.
BILL GATES: That's a bad habit.
WARREN BUFFETT: Yeah, that's-- yeah. Yeah, it's probably not the perfect-- example to use.
BECKY QUICK: In terms of privacy issues-- we--spoke with-- Warren about this earlier. What's
happened in Silicon Valley, privacy issues surrounding Facebook and Twitter and Google and
Apple and how that has kind of weighed on those same stocks has a lotta people looking
towards Washington, wondering if there will be regulation that comes down-- and looking
towards the European Union, where regulation is coming this month. Bill, you've dealt with
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regulatory-- close scrutiny in the past. Is this something that you think is likely to have an
impact in Silicon Valley? Will the regulators come? Will it change things in Silicon Valley and
will it make it tougher for these companies to follow their business models?
BILL GATES: Well, privacy's a super important issue. But I do think that the big companies,
even as regulation comes, which is-- inevitable-- they'll be able to handle it. People don't
mind having a little bit of demographic information about themselves used to target ads.
That's-- value added to the user. And there are issues about medical records or the content
of your communications that are-- very private. One challenge with the privacy laws is
making sure small companies can still-- get involved in the ad market. These rules could
block-- lots of new companies. So I-- think the challenge of privacy can be met. The challenge
of what gets published on a platform-- hate speech, free speech-- fake news and what you
allow people to get outraged about, you know, and what you should do, every government
has a view. And so making sure the government takes responsibility for those rules, I think
that's one of the toughest things for any platform where people are expressing opinions. So-
-
BECKY QUICK: I mean--
BILL GATES: --that's a separate issue. And I think the harder of the two.
BECKY QUICK: You mean acting as a publisher rather than a bulletin board, going all the way
back to CompuServe?
BILL GATES: Right. And if people expect you to stop certain things and not others, they'll
always do that in retrospect. And it's a real-time system with millions of people writing things.
Those judgment calls, you need-- some standards group of the government, not a private
corporation to make those calls.
BECKY QUICK: Charlie, what do you think?
CHARLIE MUNGER: Well, I think we always use television ads to flog the idiots of each party to
the polls. And to-- sell 'em in a very misleading way. And we're just shifting the misleading
ads to a different medium. I do think it works better. In other words, I think the Facebook
thing, it's really good at flogging angry idiots to the polls. And I think that changes the
equation some.
BECKY QUICK: Changes the equation meaning you think it would--
CHARLIE MUNGER: Meaning it has an effect on politics.
BECKY QUICK: It has an effect on politics and therefore will bring in regulation?
CHARLIE MUNGER: I don't-- I think it therefore won't bring in regulation.
BECKY QUICK: 'Cause the politicians--
CHARLIE MUNGER: It's hard to control people who want to be silly about politics.
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BECKY QUICK: Andrew has a question too. Andrew?
ANDREW ROSS SORKIN: I was just gonna ask Bill, but everybody can weigh in on this. Given
the ownership of Geico, maybe you have some insight into it as well-- Warren and Charlie. I
was thinking of autonomous vehicles, where you guys were talking about technology and
even Elon Musk-- with Tesla. When you look at the cars that are-- and the car market that's
out there, do you see in terms of technology any of them-- doing better-- than the other?
And--what do you think of Tesla actually-- as an investment itself?
BECKY QUICK: Bill?
CHARLIE MUNGER: I don't wanna weigh in on Tesla.
BILL GATES: Yeah, Tesla's-- making a great product. They have a very high valuation and they
will experience-- all the auto makers coming in and competing with them. And-- so it's not
like some tech markets that the leader gets all that-- market share. It's gonna be a tougher
thing. The-- move to autonomous and electric are proceeding in parallel. And if you take--
you know, 15 year timeframe, it's gonna be a very, very dramatic change. You know, I tend to
be optimistic about technology adoption. And I think worldwide, while there's a lot of cities
that wanna be the first to get in with these cheap autonomous services. So-- it's exciting and
the other car companies now have been forced to have strategies for electric cars and
autonomous. Some have very impressive plans.
ANDREW ROSS SORKIN: Are there lower insurance--
BECKY QUICK: Warren, what-- what does-- oh, go ahead, Andrew.
ANDREW ROSS SORKIN: I was just gonna say are there lower insurance rates, talking about--
thinking about Geico, for a Tesla or for the new Cadillac that has-- some kind of-- semi
autonomous driving you know, some of these new features that-- that allow the computer to
drive a little bit more than the human?
WARREN BUFFETT: Yeah, the-- presumably, any cars that catch on big are going to be safer.
And a safer car is going to bring lower insurance rates. There's one some-- there's-- modest
offset to that in that, in terms of-- collision activity-- the damage is done to a car by-- in terms
of a bumper or-- a side rearview mirror something. Costs far more now-- it's a much more
complex product. So the damage per accident, not human damage, but physical damage to
the car, that will probably go up substantially. But the number of accidents won't-- you won't
see widespread adoption unless they're safer. And-- we want a safer car. So it's-- net, it will be
bad for the-- auto insurance industry over time if autonomous cars become-- a big part of
the fleet.
BECKY QUICK: Bill just mentioned that over the next 15 years you are gonna see some pretty
significant changes. Is that the timeframe that Geico is looking at that too?
WARREN BUFFETT: Well, it-- we don't know, I mean, what it'll be. And you've got 260 million
cars on the road. Let's just say that 10% of the people took up-- autonomous cars in a year.
Now you're talking about-- a million eight outta the 18 million. And-- there's-- a big life cycle
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to it and all that. But what does best for the consumer and is safer over time really will
prevail-- over time. It-- and that's good for the American public. It's very hard to tell who the
winner will be. Or there-- won't-- it-- was hard under the conventional car to pick out which
would be the company that was doing the best ten years earlier. That's why Charlie and I
have talked about the auto industry for-- forever. So it's very hard to pick winners. And it'll be
hard to pick winners five years from now. Nobody's gonna own the market or anything of
the sort.
CHARLIE MUNGER: I am amazed at how good almost all the cars are. With all those several
mechanisms and all that electricity scattered through, you can buy a car and drive it ten
years with practically no trouble. It's an amazing achievement.
BECKY QUICK: I mean, you were big on the electric vehicles too with BYD.
CHARLIE MUNGER: Well, you gotta remember in China, you couldn't breathe the air in the
city. So I thought they might end up with more electric cars. Wasn't a very difficult idea.
BECKY QUICK: Let's talk a little bit about Berkshire overall and some of the changes that
we've seen this year. Ajit Jain and Greg Abel named as-- co-vice chairmen along with Charlie
on this. How has it changed your day to day life, Warren?
WARREN BUFFETT: Well, not a lot, but it's made it easier. It was already easy to start with. I
mean-- but -- the-- really easy. But the 5% that I didn't like, I just said, "Well, those are your
new-- responsibility--" that's the way I selected what their responsibilities would be. And-- it--
well, Charlie could tell you, it's changed our lives very little, but all for the better. It's been
very, very good for Berkshire and it's been even better for me.
BECKY QUICK: Charlie, you were a proponent of this. I think it was your idea-- to name them
vice chairmen--
CHARLIE MUNGER: Well, it was hardly-- you could hardly find two people who've done better
in their jobs in all of America. Very outstanding people. The truth is that we're too late.
BECKY QUICK: Bill, I know succession is-- a common, or constant-- topic with the rest of the
board members. What does the board think about this, about these positionings and now
that they're both board members too, what does that mean just from board's perspective?
BILL GATES: Well, it's exciting to have two, you know, highly energetic, super capable people
helping out Warren. And now as board members. I've gotten to know both of them-- for over
ten years. And I'm just amazed at-- what they bring. They understand the Berkshire culture
because they've been inside it and have benefited from it. So it's great news.
BECKY QUICK: There're people who are wondering if this was creating a horserace for--
successor. I heard Ron Olson s-- knocking down that idea over the weekend. How-- would
you respond to that?
BILL GATES: No, it's-- not a horserace or-- being the successor. That's-- that's not a good way
to characterize it.
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BECKY QUICK: What is the right way to characterize it?
BILL GATES: That-- the number of businesses that report to Warren-- is a pretty unbelievable
number. And so now you've gone from one person with all those businesses reporting to
him, to three people. So the company's not adding, you know, a lot of staff, you know, under
Greg and under Ajit. You just have three great business minds-- managing, you know, over
50-- business entities. So it's still one of the leanest management structures you ever seen. If
you draw it out as an org chart, you have to have one of the widest pieces of paper ever, even
with the three now. So-- you know, Berkshire's still very, very unique.
BECKY QUICK: All right. Folks, we are gonna have more of this conversation with Warren
Buffett, Charlie Munger and Bill Gates. We will be back with more from Omaha, Nebraska,
right after this. (MUSIC)
BECKY QUICK: Welcome back to a special edition of "Squawk Box." We are live from Omaha,
Nebraska. And we are joined this morning by Bill Gates, the cofounder of Microsoft and a
Berkshire board member. Charlie Munger, who's the vice chair of Berkshire Hathaway, and
Warren Buffett, who is the chairman and CEO of Berkshire. And gentlemen, the last half hour
we've kind of been delving through your thoughts on the markets, on technology, on privacy
issues, on Bitcoin. I thought we might take this next half hour and go a little broader because
all three of you have big ideas about the world and how to fix it. You have spent a
considerable amount of money and time on philanthropic projects, on trying to find ways to
move beyond. And you all happen to know a lot about so many different things. One of the
issues that's been so much in the headlines over the last six months or so has been
Berkshire's move to go along with JPMorgan and Amazon to try and come up with a way to
reign in health care cost and health care cost inflation in the United States. Warren, we've
talked with you about this but we haven't gotten the chance to talk with Bill and Charlie so
much about this. For those who don't know it, by the way, Charlie for the last 31 years, has
been the chairman of the board at Good Samaritan Hospital in Los Angeles. So he knows an
awful lot about health care. Bill Gates has worked tirelessly when it comes to health care
issues around the globe. In fact, the Gates Foundation has invested $12 billion in global
health initiatives just over the last five years. So for anybody who's wondering about your
credentials on this, there they are. Why don't we start with you, Bill? What do you think about
the idea of trying to tackle health care cost inflation and how that might be tackled in the
United States? Is this something that could get traction?
BILL GATES: Well, I think other than improving the education system, making sure that health
care costs don't continue to go up so rapidly is the biggest issue. If you look at state
governments, over time, they've had to shift money away from education and infrastructure,
into the various health care expenses they have. And so it's a problem for the government,
it's a problem for business. So any effort to take a look at this system and how we use the
latest technology to make it more efficient, to reward the low cost providers so that they gain
market share, I think that's fantastic. I've studied it a lot. And I don't think it's an easy thing to
fix. But it's fantastic that the three companies are going to work together. To the degree they
succeed, there are hundreds of companies that would love to join in. But first, they've got to
hire some people and it's got to come into focus.
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BECKY QUICK: Charlie, let's just talk about how fixable you think this problem is. Do you see a
lot of rampant waste when it comes to these issues at least from your perspective at the
hospital?
CHARLIE MUNGER: Rampant waste is a good phrase, of course. But our system is shot
through with rampant waste. And a lot of the medical care we do deliver is wrong. And so,
expensive and wrong is ridiculous. A lot of our medical providers artificially prolong death so
they can make more money. I regard that as deeply immoral. And there's a lot of it. And so I
think the first time the Democrats control all three branches of government, we will get
single payer medicine. I think it's so bad, that people will reach out for a complete change
forced by the government. To have a young person have a $5,000 deductible when he has a
baby, that's not insurance anymore. It's some stratagem to make things better for some
insurance company. But it's not really medical insurance. This whole system is shot through
with defects. And, of course, I welcome the fact that Berkshire is trying to make it a little
better in some ways.
BECKY QUICK: If you could fix it, how would you go about doing it? Are there maybe not easy
ways, but are there obvious ways of trying to tackle that?
CHARLIE MUNGER: It's very hard to get to a system like Singapore's, which costs about 20%
of what our system does and works better. From where we are now, we will never get there,
in my opinion. In a big, rich nation like ours. But we can have a better system than we have
now.
BECKY QUICK: Would universal health care be the answer? You said you think that's what
would happen.
CHARLIE MUNGER: Well, there're many defects in universal health care. But universal health
care with an opt out, which they have in all the advanced nations – England, Canada and so
forth – it's a perfectly reasonable system. And it exists everywhere else. So I'm not frightened
of it.
BECKY QUICK: Universal health care with an opt out being basically universal health care that
rich people pay more for and get a different level of care, is that—
CHARLIE MUNGER: Sure. Even in Singapore if you want a better hospital room, you don't get
a better doctor or a better nurse, but they'll give you a better hospital room if you want to
pay for it.
BECKY QUICK: Andrew has a question.
CHARLIE MUNGER: I see nothing wrong with that.
BECKY QUICK: Andrew has a question too. I'm assuming it jumps onto this. Andrew?
ANDREW ROSS SORKIN: It does on the health care front. And it's for Warren. Warren,
historically, you've allowed all the managers at Berkshire to run their groups autonomously
and haven't imposed different programs from headquarters. I'm curious when you do
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implement the health care program with Amazon and JPMorgan, whether it will be voluntary
for the managers to effectively choose to be part of it, or whether it'll be something that
they're going to have to do.
WARREN BUFFETT: Well, A, I may not be around when that takes place. That may be
sometime in the – this is an extraordinarily difficult project. I mean, this is not – and I think it
might well be reasonably easy to make – do a little something here and there. But we're
really hoping that something that has gone from 5% of GDP to 18% of GDP and just keeps
moving, we can do something about it. You know, we have not picked an easy task. You've
got $3.3 trillion or something like that spent on the health care system. And every dollar, just
like in government, every dollar has – hits a constituency, has a defender. And I do think it's
so important that it should be tried. And what I would tell our managers, and I've told our
managers, that we will never – we will not be coming up with something that hurts them in
terms of the care they receive. And it's going – if we come up with any kind of an improved
product, I can guarantee you they will like it. I won't have to – no one will have to stuff it
down their throat. I mean, and we will have people join us. But it is really an uphill climb. But
we should be doing it.
BECKY QUICK: You said over the weekend that you hope to have a CEO named for this new
initiative between the three companies in the next couple of months.
BECKY QUICK: Has it been narrowed down significantly, the search?
WARREN BUFFETT: It's been narrowed down to, yeah, a very few. And it's by far the most
important decision we'll make. I mean, there's no way – and we've got plenty of people who
want the job. But it is an extraordinarily difficult job because you have to be very – you have
to plenty knowledgeable about, enormously knowledgeable about the system. But you have
to be able to get your mind beyond it and you have to understand who your opponents will
be, you have to understand public opinion. And you have to, you know, you could bargain
down costs in some areas 1%, or 2%. But we really hope we can find the perfect person in
terms of being able to make a real jump. And as Charlie will tell you, there's some history in
terms of what happened.
CHARLIE MUNGER: When Rockefeller totally revolutionized American health care for the
better, he went after the low hanging fruit. He went after the charlatans and the quacks and
so forth. And my guess is that Berkshire will find some low hanging fruit.
BECKY QUICK: If you had to guess where that low hanging fruit would be—
CHARLIE MUNGER: Oh, I know there's a lot of low hanging – I don't want to say.
BECKY QUICK: Okay.
WARREN BUFFETT: We will whisper it to our new CEO, though.
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BECKY QUICK: Well, speaking of the new CEO, I realize that this is something that Todd
Combs is heading it up. But given your expertise, Charlie and Bill, have you had any input
into what should happen with this, who the new CEO should be?
BILL GATES: Well, Todd's a great learner. And he and I have brainstormed about, you know,
what health care looks like. But not specifically on who gets hired. You know, I think there's
three things that are very separable. If Berkshire, you know, finds a way to optimize its health
care cost, versus the entire U.S. health care system and access versus cost are two different
things. If you add access, unless you're very careful like a universal coverage, it will actually
drive up costs pretty dramatically.
BECKY QUICK: And potentially lower standards or lower what access people get.
BILL GATES: Right. So when, you know, Vermont costed out what universal care would cost,
even the proponents were stunned at the cost. So we have to perform two miracles. We
have to get better access in America and get the cost down.
WARREN BUFFETT: Probably couple other miracles we don't even know about. The goal is
not to reduce Berkshire's costs. And we will have a CEO and I hope, I would expect within a
couple of months. And we will need a remarkable individual. That person will have to also
have a number of remarkable people who wish to join the person. That's one of the things,
you have to have somebody that does attract other talent, so on. And so nothing's going to
happen fast, except we do want to get the CEO in place, obviously. But they're not going to
turn the whole system upside down immediately. But you want somebody that thinks about
where you want to be in five years and figure out some path toward that.
BECKY QUICK: I mean, obviously the person has to be an expert in health care, but from
which arena? Because whatever arena they're coming from—
WARREN BUFFETT: Well, sure. Yeah, if you'd talk to somebody that's run a hospital for 20
years, they think everything but the hospital's a problem, you know? And if you talk to some,
I mean, it's just the way it is.
BECKY QUICK: Right. Let's talk a little bit more broadly about some of the issues that we're
seeing today. Earlier, we spoke with Warren about trade issues, particularly with China, with
our delegation just coming back from China. But trade has been a big issue when it comes to
NAFTA, when it comes to our trade agreements around the world. And the strategy from the
Trump administration has been a little different than what we've seen from previous
administrations. Maybe now we're going to find out if it works or not. We're at that point.
Charlie, what do you think about whether or not we're going to wind up in trade wars or
whether you think we get better trade agreements as a result?
CHARLIE MUNGER: I'm pretty optimistic about China and the United States working together.
It would be insane for them not to work together and not to develop a trusting, constructive
relationship. And I have no reason to think that that won't happen.
BECKY QUICK: Bill?
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BILL GATES: I agree. Although I would say the U.S. is making that a bit challenging right at the
moment in terms of predictability and stability and finding the right approach. You know,
we're all big believers in the large benefits of trade. And so, the fact that the sentiments have
turned against it, you know, do you need to do more to help those who aren't hurt by trade?
Politically, it's impressive that free trade was not supported by either candidate.
BECKY QUICK: You mean in the U.S. election?
BILL GATES: Exactly.
BECKY QUICK: Right. It may be the blowback after what happened in 2008 and 2009. People
who felt like they got left behind and who haven't caught up with others. I'm not sure how
else to handle that. What the right way about going to do that would've been. But Bill, you're
somebody who has to go from nation to nation, country to country, and through the
foundation and your work there, kind of hope that everyone can work together. Has it gotten
tougher to do that, or is it the same as it was before?
BILL GATES: Well, the most important relationship in the world is between the United States
and China. And you could imagine lots of win-win things with trade, with innovation, with
helping to drive stability for the world, where countries with very different histories, very
different governments. And so you do worry as you watch even in these last few months, the
sparks fly. But I think logic will prevail. Our foundation has worked a lot with the Chinese
government. And we're excited they're becoming a bigger aid donor. So even for the work we
do to help poor countries, having this relationship be strong would be very, very helpful.
WARREN BUFFETT: Bill and Melinda as well have actually done very big and important things
in terms of getting countries to work together in the health field. And they have brought the
world closer together in terms of attacking particularly vaccines, but a number of things to
do with health. And over time, that sort of thing will prevail in the world. I mean, when
people see something working and their lives greatest better, and you mentioned the
problem of the prosperity, I mean, if countries get far more prosperous, they should figure
out a way that all of their citizenry participate in some way. You want to keep the market
system – does wonders and all of that. But you have seen what you can actually look at what
Bill and Melinda have done. And they have influenced other countries to act cooperatively.
And it's a tremendous achievement.
BECKY QUICK: You all have been incredibly philanthropic. You've given billions and billions of
dollars away. But if you had to look and try and find one arena, one topic, one place that you
think gets underserved, aside from what you're already doing with your own money, with the
foundation money, is there an area where you would look and say, "Hey, here's another
thing that needs some additional funding. It's overlooked and it's very deserving"? Bill, what
do you think?
BILL GATES: Well, there are so many important causes out there. You know, we picked global
health and education. And by sort of specializing in those, you can do a good job. But-- the--
the needs are-- are really vast. Some philanthropists are working in the U.S. Justice System--
to deal with the inequities there. We do some work on poverty, but there's many others--
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who have different cuts on that. You know, the beauty of philanthropy is you're taking on--
you know, these social-- goals-- that are very, very difficult to achieve and trying to show
government how to do-- a better job. And so it's been rewarding. There's a lotta progress.
But there're so many causes. And-- as Warren and I encourage other people to do
philanthropy, you know, we hope they'll pick-- one of these unmet areas and get a passion
for it and bring their same skills they had in business-- because that's-- huge probably rather,
even beyond the money.
BECKY QUICK: You're talking about through the giving pledge, where you--
BILL GATES: Through-- ideally, through the giving pledge. I mean, we sit and talk to people
about philanthropy. And most of those people do end up -- joining the pledge.
BECKY QUICK: Charlie, how about you? What-- area –
CHARLIE MUNGER: Well, better drugs and devices have the advantage. They work almost
automatically. And the one I see-- that will change the world is the new IUD is a huge
contribution to human civilization. And it's just sweeping. It'sand it's gonna change-- that's
gonna change lives. And the beauty of that, it didn't require any government, didn't require
any pompous bureaucracy. S-- they just invented a better way of doing it and it spreads
automatically. We-- I love that kinda thing. And, of course, I like the vaccinations. Think of the
good that it does to do the vaccinations. And, of course, if you vaccinate and I don't, it
doesn't work as well. So naturally, the nations cooperate. But Bill's gonna get more
cooperation than Warren is.
BECKY QUICK: Because?
CHARLIE MUNGER: He-- has more incentive for the people to be-- agree with Bill. Warren's
taking -- interests aren't gonna like it at all.
BECKY QUICK: Bill, very quickly, before we go to Warren on this-- can you give us an update
on where polio stands right now, just speaking of these vaccinations?
BILL GATES: Well, we have two countries that we haven't gotten rid of polio and it's-- Pakistan
and Afghanistan. We're making sure it doesn't travel to other parts of the world. So we have
to keep the vaccination rates up. And-- we're doing a better job getting out to all the children
in those two countries. So with luck, this could be the last year with cases. But it's very tough.
You know, it's-- every morning I get up and see, okay, what-- does the case count look like?
And we actually sample the sewage to see if there's any-- polio being transmitted. So we're
very close. But zero's the magic number. If you miss it then, you know, you have to go
another year. So we've-- we've got our fingers crossed.
BECKY QUICK: The reason that you sample sewer-- samples is because --?
BILL GATES: Amazingly, if a kid has polio and they're in that city, if you go look in the sewage,
there-- there're so many viruses-- out of even a single kid, that we can detect it. And we can
see which virus it's like. And so we can understand where it came from. So that's actually our
best tool, is that-- we politely say environmental sampling.
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WARREN BUFFETT: You could see why I delegate philanthropy. I-- my-- urge to sample
sewage has not been--
BILL GATES: We're back--
WARREN BUFFETT: I've gotten to 87 without any urge -- any urge to sample sewage. Bill gets
excited about it.
CHARLIE MUNGER: Well, Bill Gates has-- a huge advantage. Nobody's in favor of infantile
paralysis. And a lotta people are in favor of medical practice as counterproductive.
BECKY QUICK: Although-- it's not a slam dunk for the vaccinations. You've had trouble-- with
some cultures-- who don't like you coming in there and some vaccination workers who have
gotten into big trouble too.
BILL GATES: Well, you get rumors about vaccines-- even in the U.S.-- that is this good for the
child if you s-- have a child that gets a fever afterwards, people worry about that. So you have
to constantly remind people of how beneficial it is. And-- every once in a while, when you--
coverage rates go down, then you'll get lots of measles-- or pertussis-- coming in. So-- y-- t--
people who understand really want these things. And the progress has been phenomenal.
But we have to create demand as well as supply to meet our goals.
BECKY QUICK: Warren, I wanna come back to you just in terms of-- finding a cause that you
think is important, that you maybe hope somebody else will-- spend some time on.
WARREN BUFFETT: Well, I think the number one problem of mankind is weapons of mass
destruction. I mean, we have learned since 1945-- how somebody with bad intent or some
organization with bad intent or m-- occasionally, some government with bad intent, the--
knowledge is there of how to-- kill millions of people. And-- in some cases, the intent might
be there. The materials have been hard in the case of nuclear to some extent, and now
you've added cyber to the equation. So that's the n-- I consider that the number one problem
of mankind. I'm-- I don't how to use money to fight it-- particularly. And-- but then I believe
in-- in-- in-- in-- in women having the right to decide-- what to do with their bodies. And that's
been-- advanced very considerably. But there's-- still a lot of work to be done there. But-- I
believe the number one problem to get beyond weapons of mass destruction in the United
States is to figure out-- how to maintain all the benefits of a market system works-- which
works wondrously in creating more output all of the time. And-- at the same time, make sure
that people-- that are-- really don't fit a market system very well, still lead des-- l-- live decent
lives. And-- we've got the resources to do it. And-- we've made a lotta progress on that. Social
Security was progress. I mean, we-- we take better care of our young and old. But we don't--
we haven't figured out the way to take some-- very good care of somebody that just doesn't
fit into the market system but is a perfectly decent citizen. And a rich society should-- solve
that one.
BECKY QUICK: Andrew has a question as well. Andrew?
ANDREW ROSS SORKIN: I don't have a serious question, Becky. I have-- a hopefully fun
question for the-- for the bunch. This is actually a question-- Warren, that came in over the
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weekend-- from a guy who was in the audience, Alexis Ohanian, who's the CEO of Reddit.
He's also the husband of Serena Williams. He was desperate for us to ask this question so I'm
gonna ask of you. Bill Gates has, by the way, already been asked this question. It's a famous
question on Reddit-- in these Ask Me Anything-- sessions that they do. It's a bit of a logic
train-- question. So the question is this, and I don't know if -- you've ever heard it. Would you
want to battle a – one horse sized duck or 100 duck sized horses? And there's huge debate
on the internet about what the right answer is to this question.
WARREN BUFFETT: Well, you've gone to the wrong place to find the answer. I'll-- I will-- go out
and buy a bunch of ducks that meet the test and horses that meet the test and we'll have a
real life illustration. But-- I do not bring any insight into that one. Bill probably knows the
answer already.
CHARLIE MUNGER: My attitude is that Warren knows more about it than I do.
BECKY QUICK: Hey, I'll ask you guys a question that I was surprised didn't come up this
weekend. You all are voracious readers. And-- generally, somebody will ask you guys at the--
at the annual meeting what you've been reading recently. Let me just toss that out. Bill, you
constantly have a list of what you've been reading. Have-- what-- makes it this year?
BILL GATES: Well, the-- the top would be this new Hans Rosling book called Factfulness. It's
very readable. Talks about how the world has changed and Hans shares how he had some
misperceptions that he didn't see all the progress. And I-- talks to you about how to-- how to
think about-- news and where we're going. So that's-- brilliant.
BECKY QUICK: Charlie?
CHARLIE MUNGER: Well, I read a book by a Chinese-- economist who had worked in the
World Bank. And his general idea was that we had learned better how to help a poor nation
develop. There was a lotta stupidity in the early days when we'd give some very poor and
backward nation a big steel plant. Of course, it wouldn't work. And-- I think this economist
was right. So I think generally speaking-- there's a lot that's right in the world.
BECKY QUICK: Uh-huh. Warren, have you been reading anything lately that's caught your
attention?
WARREN BUFFETT: Well-- yeah-- but I- narrow it down a little bit more. I've already
recommended chapter eight, you know, of The Intelligent Investor, and-- which stays up
there among the top sellers-- for years. But so in that same spirit, I would re-- re--
recommend reading chapter four of-- Steven Pinker's new-- book. And-- there're some very
interesting reasons to be optimistic ab-- about the world in-- in-- in-- in that chapter.
BECKY QUICK: What does it focus in on?
WARREN BUFFETT: Yeah. Tell 'em the name of the book, Bill--
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BILL GATES: It's called Progressive Phobias, the chapter name. And the book is called
Enlightenment Now. It's another book like the Rosling book that talks about the progress
we've made and how we could learn from the places we've made even faster progress. It
came outta the work he did in his previous book-- Better Angels of our Nature, where he saw
that violence was going down. And now he's looked at a lot of other things-- like workplace
safety and happiness. And-- it's-- a more serious read-- than a lot of books, but really
fantastic.
BECKY QUICK: We-- we've-- spoken a little bit with Charlie and Warren about what they've
learned from each other. I'll ask each of you as we're wrapping up this hour what you've
learned from Berkshire-- broadly. As board members, as-- people who travel together, who
work together, who have fun together and spend time together. Just what it's meant over the
years. Bill, I'll go ahead and start with you because you haven't gotten to weigh in on this yet.
Something you've learned from-- Charlie and or Warren and-- the-- board at large.
BILL GATES: Well, from Warren-- the whole approach to thinking logically-- thinking long-
term. It's been an incredible education. And totally shaped how-- I think about things. The
fact that then there's this incredible set of people including Charlie and the managers that
I've gotten exposed to-- we have in our second board meeting, a bunch of man-- the
managers come in and talk about their businesses. And it's one of the most fun times of the
year to hear about very different businesses and the competitive dynamics and how
technology affects them. And how a system where you have these great long term thinkers
with very high integrity who are dealing with these-- challenges. So, you know, my whole
business education-- started the day I met Warren. And-- the Berkshire team has-- has
helped keep it going at full speed.
BECKY QUICK: Warren?
WARREN BUFFETT: Well, it's very important in life to associate with people that are better
than you are. And it's the most important decision -- you will go in the direction of the people
that you associate with. And you'll get ideas from them and you'll see how their behavior
works and all of that sort of thing. And the most important decision usually in that respect--
is your spouse. But it's enormously important among your friends to have people that you
admire as well as have a lot of fun with. And you will move in the direction of their better
behavior. And-- -- with both-- Bill and Charlie, I-- I've learned a lot, I've had an enormous
amount of fun. But I pick up on their ideas. And-- that's been a very good thing.
BECKY QUICK: Charlie, I'd like to have you have the last word today on that topic.
CHARLIE MUNGER: Well, I said to the Berkshire managers this year as I looked out over the
crowd, "The nice thing about this room is that we would all feel pretty safe just delivering our
children to almost anybody selected at random from the group." You couldn't say that at
most places. I should say there's a horserace for power and prominence or something or
other. So we have a very admirable bunch of people. And we have less bureaucracy than
almost anybody. And so that is not a small achievement. I don't think of a single-- I can't think
of a single company of our size that has less bureaucracy than we do.
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BECKY QUICK: Did you set out to do that at the beginning?
CHARLIE MUNGER: Well, we always hated bureaucracy. And so I would say, in a sense, yes.
Wouldn't you say, Warren?
WARREN BUFFETT: Yeah, absolutely. No, we both--
CHARLIE MUNGER: We both hated it.
WARREN BUFFETT: And we had the ability-- or-- you know, were fortunate. We could create
the company, to some extent, that we wanted to have. And I've always said it was crazy to be
a painter painting something at the end you didn't-- it's not the painting you wanted to have.
And Berkshire is a sort of painting. And we have ha-- we haven't walked into some huge
organization, had to claw through the progressions and the politics that went. And we have
created what we wanted to create.
BECKY QUICK: Warren--
CHARLIE MUNGER: I don't think we could fix a big bureaucracy.
WARREN BUFFETT: No, we couldn't. No.
CHARLIE MUNGER: We-- could create something that didn't become a big bureaucracy. But
we-- we couldn't fix one--
WARREN BUFFETT: No.
CHARLIE MUNGER: --that's already bureaucratic.
BECKY QUICK: Charlie, Warren, Bill, I wanna thank all three of you for your time today. We
truly appreciate it. Folks, that does it for us today. Make sure you join us tomorrow. Right
now, it's time for Squawk on the Street.
About CNBC:
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2/26/2019 FULL TRANSCRIPT: BILLIONAIRE INVESTOR WARREN BUFFETT SPEAKS WITH CNBC'S BECKY QUICK ON "SQUAWK BOX" TO…
FULL TRANSCRIPT:
BILLIONAIRE INVESTOR
WARREN BUFFETT SPEAKS
WITH CNBC'S BECKY QUICK
ON "SQUAWK BOX" TODAY
Published 10 Hours Ago
WHEN: Today, Monday, February 25th
Following is the full unofficial transcript of a CNBC interview with

Berkshire Hathaway Chairman & CEO Warren Buffett on CNBC's
"Squawk Box" (M-F, 6AM-9AM ET) today, Monday, February 25th.
Video from the interview is available on CNBC.com.
BECKY QUICK: All right. Yes. Let's bring in our special guest this
morning. Berkshire Hathaway chairman and CEO Warren Buffett joining
us-- just after writing his annual letter to shareholders. And-- Warren, this
is a big deal. It's something that the investment community-- kind of
waits on and-- sees as a must-read because you spend so much time
actually it yourself--
WARREN BUFFETT: Yeah, too much.
BECKY QUICK: When do you start writing the letter?
WARREN BUFFETT: Well, this one I--started very earlier-- very early
because I had one section in mind. It turned out to be the last section
when I talk about the American tailwind. I probably wrote that in-- late
summer. And-- then I work around different sections. But-- it-- takes a
long time. I am not a first draft writer.
BECKY QUICK: Well, for people who have been reading this for a long
time, this letter was markedly different than you've written for the past
three decades or so. Because at the top, the opening of every letter-- in
the past to this point has been-- Berkshire's percentage change in book
value--
BECKY QUICK: --as the measure that you thought was most important.
This time, you kinda stripped it out and said, "It's not the most important
metric anymore for a couple of reasons," one of which Berkshire has
changed so markedly. But also-- you just think it's-- not gonna be the
way that you'll be measuring things in the future.
WARREN BUFFETT: No, it's not-- the more relevant-- figure at least
over time. Not in any one-year period. But basically it's market value.
Because we have become overwhelmingly an operating company. And
we hope to become even more so than-- a company that-- really have a
lot of stocks and bonds. So-- I've-- actually talked about that in previous
reports. I wouldn't have wanted to quit in a year where I got clobbered by
the one I was dropping with adopting one that made me look good. So-- I
actually included 'em both in. And it was a good year to-- make the
transition. And-- you said it's different. It-- I've always had the image that
I am talking to my sisters. I have two sisters. They're both-- Berkshire's
pretty much their whole investment. They're smart. They're not active in
https://www.cnbc.com/2019/02/25/full-transcript-billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box-today.html 1/40
business. So-- they're not reading about it every day. But I pretend
they've been away for a year and I'm reporting to them on their
investment. And then this year because we may be repurchasing shares, I
tried to have the vision that they were talking to me about whether they
should sell their shares and I was explaining to them exactly how I would
look at it if I were in their shoes. So-- it's, "Dear Doris and Bertie," at the
start and then I take that off at the end. But I'm talking to them. And I'm
trying to talk to 'em in a manner where if-- you know, they're practically
entirely in Berkshire and if they were thinking of selling some, here's
what I'd want 'em to know before they made a decision.
BECKY QUICK: To do that, you used-- a new-- description for--coming

up with it this time, which was the idea of having five groves. You being
maybe a timber company and having five groves that Berkshire's really
invested in. You broke down-- and looked at each of them on a case-by-
case basis. One being the-- non-insurance businesses that Berkshire
owns. Another being the equities-- bunch that you have. The final one's
the insurance companies, but you also have treasuries and cash that
you're holding. What am-- oh, and then businesses that you own part of,
not all of—
WARREN BUFFETT: Right, jointly.
BECKY QUICK: --would be the five groves. That's pretty interesting.

How'd you come up with the idea of just the groves? Because it is
something that-- somebody who's not so steeped in business can get their
head around pretty easily.
WARREN BUFFETT: Yeah. Well, Berkshire, you know, has dozens, and
dozens, and dozens of companies. And-- when analysts look at it, you
know, they wanna go out and figure out, you know, how many boxes of
Valentines we sold, you know, in our candy company. And you can get
totally lost in terms of looking at the forest by trying to look at every
tree. cause some of the trees are flourishing, some of 'em are decaying,
and some of 'em are huge and important, and others are more or less
twigs. So I thought I would group the assets in a way that was logical and
where you could sorta figure out-- the valuation that you might attribute
to that particular grove. And-- I think it's a lot better than trying to
describe-- 80 or 90 businesses with three hundred and-- what? Close to
390,000 employees. I mean, we're in one of the businesses right now.
And this is a very interesting business. But we've got Jordan's in Boston.
We've got Star in Houston. We have RC Willey. And to go through every
one and tell 'em about the latest store we opened and it's much better just
to look at 'em in groups because they make sensible groups.
BECKY QUICK: To that point, this is the Ask Warren show, and we
have gotten a lot of questions that have come from viewers, some from
Berkshire shareholders, others from people who are just longtime
watchers. I'd like to bring up a question that comes from-- Marcelo P.
Lima . He-- writes in, and I think this comes from Twitter, "Mr. Buffett,
in your letter you note that some of Berkshire's trees are diseased and
unlikely to be around in a decade. Which ones do you have in mind, and
how do we prevent healthy trees from joining them?"
WARREN BUFFETT: Yeah, well-- I did say that. And-- but I would not
name the ones that have major problems just from a morale standpoint.
With the we're gonna keep running 'em. And-- but they-- we have
companies that are on the downswing as well as on the upswing. And-- it
would be-- it just-- it would be very tough. And-- the ones that are, as I
call it, diseased, they're a very, very, very small part of our earnings.
You'd-- gain nothing analytically, and you'd have a hundred people go to
work today feeling, you know, "Well, we might as well give up," or
something of the sort. So I don't like to name 'em specifically, although
you could probably figure some out by-- looking at our list of companies.
There's-- some companies are just in the wrong industry. I mean, you
know-- if you made-- you know, whatever it may-- well, even making
televisions in this country, I mean, that was a hot industry, you know--
when I was young. And-- we don't do it anymore. We sell a lot of 'em
here at our store, but-- so I would not like it if I were working at
Company X and-- my boss had just got through saying, you know--
"You're in decay."
BECKY QUICK: You do name some of the big redwoods that you
consider to be-- essential to the grove though. I--think you said that--
Berkshire Hathaway Energy and the railroad, Burlington Northern Santa
Fe, are two of the biggest redwoods that stand in the groves.
WARREN BUFFETT: Well, they're big. They're big. And-- both set
records for after-tax earnings last year. Combined, they earn-- right
around $8 billion after tax. And $8 billion's a lot of money to us. That's a
third of our operating earnings. We earn twenty-four-- a large fraction--
of operating earnings last year. $24 billion. And-- those two companies
alone earned $8 billion. Now, Berkshire Hathaway Energy also has
multiple companies. But the BNSF Railroad is just one big railroad.
BECKY QUICK: Let's talk about that operating profit number. It was
$24.8 billion. But on a gap basis, what you're now focusing on, it was $4
billion. And that comes because of an accounting change that came into
play this time around. It was $20.6 billion paper loss on your investment
holdings that you now count back in from the huge amount of securities
that you own and then also the $3 billion write-down on Kraft. You go
out of your way to emphasize again that you don't think people should be
looking at these gap earnings even though you're reporting them that
way.
WARREN BUFFETT: Yeah, we say the same-- well, that's the final gap
earnings. The $24.8 billion also are gap earnings, but they're operating
earnings. And-- I think they were-- we had outside tailwind on that. But--
they were 41% greater than any year we've ever had on operating--
earnings. But-- beyond that, we have this large portfolio of stocks and
also the write-down on Kraft-Heinz. But mainly it was the portfolio of
stocks. And-- we've made a lot of money over-- in stocks over time. But
there's been years-- when we've lost money, too. And I-- tell the
shareholders that-- that we expect-- to make money on stocks over time.
We haven't got the faintest idea what years we'll-- be up or down. And
then they changed the rule last year so that unrealized-- gains or losses
are recognized through gap income. That had not been true-- for dozens
and dozens and dozens of years before. So that changed our figures. But
I-- that's why I explain-- that's why I tell Doris and Bertie what's
happened in accounting during the year as well as the business.
BECKY QUICK: But you should point out this time it was a decline of
more than $20 billion. There will be quarters where you'll see a huge
upswing. And you don't think people should pay attention to the upswing
either –
WARREN BUFFETT: No. Absolutely not.
BECKY QUICK: That these are just fluctuating numbers.
WARREN BUFFETT: No, no. They should pay attention to how we do

over ten years in the stocks we own. But actually the way the rule works
now, every minute it's recorded earnings, it's mark to market. And we're
buying stocks that in some cases we will hold ten, twenty, maybe even
longer years. And those companies are retaining earnings. They're
reducing the number of shares. They've got a lot of things going for
them. And I would, you know, I have bet a lot of money. We had $173
billion of equities at year end. And I love having those. And they will
make us money over time. But I have no idea what they'll do in the next
year or two.
BECKY QUICK: All right. Let's talk through a few other questions that
have come in from viewers just regarding Berkshire while we're here.
Eric LeFante wrote in and said, "Warren, how have you structured Greg
Abel and Ajit Jain's compensation now that they oversee dozens of
different businesses?" You did point out that you think the business is
much better run now that those two are vice-chairmen, each running their
own set of companies.
WARREN BUFFETT: Yeah, our proxy will be out very soon. Shows
what they received. I think unless there's some calendar quirk or
something like, that they will have each received $18 million last year.
And the base salary is a high percentage of that. And then a bonus is
discretionary with me. But they're doing a fabulous job.
BECKY QUICK: Bonus is discretionary just based on—
WARREN BUFFETT: Based on how I wake up in the morning, yeah.
BECKY QUICK: On that same sort of—
WARREN BUFFETT: That may be the only one you'll read about like
that in our proxies.
BECKY QUICK: There's another question that comes in regarding Greg

and Ajit that says – this is from Rational Walk. A suggested question on
Monday. "Given that Abel and Jain are not only responsible for running
most businesses but also vice-chairmen, shouldn't they be up on stage
along with Charlie at the annual meeting? Many of us would like to hear
from them."
WARREN BUFFETT: Yeah, well, you will hear from them more in the
sense that they will be up front with microphones ready to take on any
questions that come. You know, it's not going to be that many years
where the two of us are up on – and they will be up on the stage when we
rearrange the format. And rearranging the format means rearranging me
and Charlie to some degree. But it's logical for them. And I hope lots of
questions get directed to them at the annual meeting because we'll feed
them into them. I should mention one thing about their comp. There's
this rule, and I may not be giving it to you exactly proper, but there's a
rule for public companies that you get to deduct only a million dollars
unless – for compensation – unless the excess is tied to some formula. So
everybody pays, you know, you can be running the super company of all
time, and they tend to range the base salaries so they're a million or $2
million and then call the rest something that qualifies under the IRS
where they get the deduction for it.
BECKY QUICK: I didn't know that's—
WARREN BUFFETT: Oh yeah. Oh, believe me. Every company knows

it. And their employment consultants know it and everything. So you
have all these salaries, but then they have something that makes it very
easy for them to make a lot more money. And that money is deductible
whereas I don't think what we pay in the way of excess – I think it's over
a million – is deductible. But, I mean, it would be a joke. And so we are
paying them a fair amount of money, I believe, that's not deductible,
whereas at almost any other company you see, they're designing it so that
it is deductible.
BECKY QUICK: I always wondered why base level—
WARREN BUFFETT: The base salary is – yeah, it's ridic –
BECKY QUICK: $775,000 or million dollars. I didn't know that's why.
WARREN BUFFETT: I mean, it's so transparent. But it makes

everybody feel good. They passed it, I don't know, ten or twenty years
ago. And immediately everybody, "oh, we just had this revelation that
now that you're really only worth a base salary of a tiny amount," you
know? And it came to be about designing something like this. You know,
and I said, "You know, it's just a joke. I mean, we're not going to pay
them a million dollars a year." So, you know, they've got huge
responsibilities. So you will see a little different situation. I think the
bonus I give them that I think it was 16 base and two bonus. I think the
two is probably deductible.
BECKY QUICK: So 6:19 on the East Coast and you're already making
friends. Well done. Let's get to another question from the audience. This
comes from Brian Chan. He asks, "How are Ted and Todd's performance
since they joined about eight years ago?" The money managers who are
there. "Have they –" Ted Weschler and Todd Combs – "Have they
performed better than index? Charlie said recently that most money
managers did not add any value compared to an index."
WARREN BUFFETT: Yeah. The first few years, each of them they came
at a slightly different time. Maybe a year to a year and a half or
something. Different times. And they got well ahead of the index, and
they got paid compensation. Now, they got paid so it came in thirds, so
that it could be clawed back – two thirds of it if they'd missed the second
year and so on. Overall, they are a tiny bit behind the S&P each by just
almost the same margin over the same time.
BECKY QUICK: Over the entire period?
WARREN BUFFETT: Over the entire period. And the entire period's a
little different for both of them. They now manage about $13 billion
each. They've done better than I have. So I—
BECKY QUICK: Well, that's a good measuring stick.
WARREN BUFFETT: Yeah. So no, it isn't a measuring stick. But I

mentioned it because if I don't, somebody else will. So, you know? They
also – both of them – have done an incredible amount of work in terms
of acquisitions, and Todd in particular on our medical venture. Anything
at Berkshire – we made an arrangement with Lee Enterprises in terms of
managing our newspapers. Ted handled all that. I mean, you know, he
got my approval on it, but a million details. And they both have
contributed all kinds of ways to Berkshire. But it has been a tough time
to beat the S&P. But that's the deal we've got with them. And they've got
a small carry-forward of deficiency to make up. I mean, they had some
clawed back earlier. They made pretty good money for a few years.
Substantial. Some of it clawed back because of the three-year put-back
arrangement. And then now they've got a small carry-forward.
BECKY QUICK: Okay. Another question that came in—
WARREN BUFFETT: But they've done better than I have, Becky.
BECKY QUICK: Tony Dickinson writes in "What changes should we

expect from GEICO with the transition from Tony Nicely to Bill
Roberts? And how do they approach leadership differently?"
WARREN BUFFETT: They're two peas in a pod on that. I mean, they've

worked together so long. They're so compatible. They have the same
feelings about GEICO. I mean, nobody can quite match GEICO's –
Tony's feelings about GEICO, but there's just no change. I was at a
meeting of GEICO that they had maybe forty of their top executives.
And everybody went around, introduced themselves, and gave the length
of time they'd been with GEICO. I think the shortest time any one of
those people said was 19 years.
BECKY QUICK: Wow.
WARREN BUFFETT: GEICO grows its own.
BECKY QUICK: We are here at the Nebraska Furniture Mart, and we're
going to talk more about a story I think you have from Mrs. B., Mrs.
Blumkin, the founder of Nebraska Furniture Mart, coming up a little bit
later. Right now, we're going to take a quick commercial break. When we
come back, we were also going to talk to Warren Buffett about the big
drop in Kraft-Heinz shares on Friday. We'll talk about the markets, we'll
talk about the economy, and much more. Right now though as we head to
that break, let's take a look at the biggest pre-market winners and losers
in the Dow.
BECKY QUICK: Welcome back to a special edition of Squawk Box. We

are live in Omaha, Nebraska with Berkshire Hathaway's chairman and
CEO, Warren Buffett. Warren, we're just sitting down with you for the
first time since the news last week that Kraft-Heinz put out. There was so
much news it's hard to even summarize it all.
BECKY QUICK: They came out with earnings that missed expectations.
They said, "By the way, it's not gonna get better in 2019." They revealed
that there's an SEC investigation taking place into accounting. They
wrote down the value of the brand by just over $15 billion. Were you
surprised by any of this news? What did you think of what happened?
'Cause the street was surprised. The stock was down over 30%.
WARREN BUFFETT: Yeah. Well, I may have learned a week or ten

days before about something -- like the SEC investigation. I'm not-- I'm
not on the board, but Greg's on the board. And I talked to Greg. And
Greg had been talking a lot to the head of the audit committee. And he's
a terrific guy. Jack Pope. But the write-down-- I do my own write-downs
in my mind. So I was not surprised by that, although-- the accounting
firms look at write-downs a little differently than I do. But I would not
argue with 'em on it. And I can give you some math that would
substantiate it. I've been watching-- I was wrong in a couple ways on
Kraft-Heinz. But the-- I think we talked the GLIDE luncheon time about
the packaged goods brands losing some ground against the retailers.
BECKY QUICK: Was that just over a year ago?
WARREN BUFFETT: Six months ago. The GLIDE-- well, the packaged
goods companies are always in a struggle with retailers. My-- our family
had a grocery store for a hundred years. And we-- then we didn't have
much bargaining power. But the really strong brands, they can go toe to
toe with Walmart, or Costco, or whomever it may be. But the weaker
brands tend to lose out. Now, the interesting thing about Kraft-Heinz is
that it's still a wonderful business in that it uses about $7 billion of
tangible assets and earns $6 billion pretax on that. So on the assets
required to run the business, $7 billion-- they earn $6 billion-- roughly
after depreciation pretax. But we and certain predecessors, but primarily
we, we paid $100 billion more than the tangible assets. So for us, it has
to earn on $107 billion, not just on the $7 billion that the the business
employs. And we don't have a way-- it would be a wonderful if we had a
way to deploy another $7 billion and earn $6 billion, but it isn't there. So
I think that when you're going toe to toe with a Walmart, or a Costco, or
maybe an Amazon pretty soon and-- you have a modestly good brand,
maybe one where the trend's a little against it or something like that, you
know, you've got the weaker bargaining hand than you had ten years ago.
The really classic situation is this if you think about it, Becky. Heinz was
started in 1869. So it had all that time to develop various products,
particularly ketchup, things like that. The Kraft part of it's a little more
murky, but it goes back to C.W. Post in 1895. Those companies have
brought all kinds of brands out. All kinds. You know 'em. You had 'em
when you were a kid. You have 'em now, some--
BECKY QUICK: Raisin Bran, sure.
WARREN BUFFETT: --some of 'em. They've been distributed

worldwide through tens and hundreds of thousands of outlets. They've
had hundreds of millions...they spend a fortune on advertising. And their
sales now are $26 billion. Costco introduced the Kirkland brand in 1992,
27 years ago, and that brand did $39 billion last year whereas all the
Kraft and Heinz brands did 27-- $26 or $27 billion. So here they are, a
hundred years plus, tons of advertising, built into people's habits and
everything else, and now Kirkland, a private label brand, comes along
and with only 750 or so outlets does 50% more business than all the
Kraft-Heinz brands. So house brands, private label, is getting stronger. It
varies by country around the world, but it's bigger. And it's gonna keep
getting bigger.
BECKY QUICK: Okay. A couple of questions on it. First of all, does

that mean you overpaid?
WARREN BUFFETT: Well, we did overpay. We didn't overpay for

Kraft. I mean, for Heinz--
BECKY QUICK: For Heinz.
WARREN BUFFETT: We bought that originally. It was a 50-50 deal. It

was private. And--
BECKY QUICK: A 50-50 deal with 3G.
WARREN BUFFETT: Pardon me?
BECKY QUICK: With 3G.
WARREN BUFFETT: Yeah, with 3G. We had two stockholders. And

then we overpaid for Kraft. And we wrote down $15 billion of that. And
that-- you know, and that's the CPAs' work-- way of looking at it.
Actually, the markets marked it down more than that. And probably quite
properly. The thing to remember is-- you know-- you know how the
stock doesn't know you own it. You pay $10 for a stock, it goes to $8,
and you think, "If it ever gets back to $10, I'll sell it." You know, and if it
goes up $20, you say, "I can take-- sell half of it and take all my money
out." All those things are nuts. But in business, if we paid $7 billion for
Kraft, which is all it takes to run the business, it would still earn the same
amount as if we paid the $100 billion premium. The stock-- the business
does not earn more just because you pay more for it. And we not only--
after buying Kraft, everybody started speculating about the things we'd
buy. So the prices of everything went up. And then on top of it we paid
large premiums for it. And we misjudged it.
BECKY QUICK: I hear what you're saying about the house brands and
the competition from places like a private label brand that Costco puts
out. But what about just millennials' changing habits? How much of it is
that younger consumers don't want the brands that their parents and
grandparents wanted?
WARREN BUFFETT: There's some change in habits. But if you think

about it, people don't really change their habits that much. If you try to
think of the billion-dollar brands that have been created in food and
they're private label, there's very few billion-dollar brands being created
in food. Some have did it in yogurt probably. You know? But you don't
really see-- that has not been a huge change. Physical volume hasn't
changed much. The ability to price though has been changed. And that's
huge.
BECKY QUICK: We had an analyst on last week on Friday talking

about what she perceived as the problems with Kraft-Heinz. She said she
thinks they're under-investing in the business. I mean, that's kind of been
3G's way, to cut to the bone. And that's how you make this profitable.
But she thinks the brands have been under-invested in. Would you agree
with that?
WARREN BUFFETT: I don't think so. But that's hard for me to tell. But
see-- well, I was on the board. I mean, I saw lots of innovation on
different products. And you saw them advertised to some extent. I do not
think, but I don't know this for sure. But I think if you take the ten largest
food companies, I think in innovation-- they've tried a lot of things. But
how many things work? If you look Kellogg and General Mills and go
up and down-- Coca-Cola, I mean, how many new products really
become big? You read about 'em and all that. But take Heinz Ketchup.
You know, it's got 60% of the ketchup market. It's got higher percentages
in other parts of the world. And it's a very, very, very strong brand.
Philadelphia Cream Cheese is a strong brand. But other brands are
weaker. And you are right certainly that in certain categories, maybe in a
Kool-Aid, or Jell-O, or something like that-- you know, they go back 75
years or something. And there's some secular trend against that. But that
isn't the key. I mean, they cut costs not in innovation, or in product
quality, or anything like that. They just took it out of SG&A basically.
Now, they may have made a mistake in terms of working-- I shouldn't
say "they." We may have made a mistake in terms of trying to push hard
against certain of the retailers and finding out that we weren't as strong as
we thought they were-- we were.
BECKY QUICK: Let's go to one of the questions from viewers because

we got a lot of questions related to--
BECKY QUICK: --Kraft-Heinz. This one's number T5. Someone named

J.C. Dominguez wrote in, "Is this the type of incident and time when you
buy more Heinz? Or do you pull the plug?"
WARREN BUFFETT: Oh, we don't pull the plug on them. We've never
sold a share of Kraft-Heinz. And if we sold or bought, it has to be
reported within two days. So we wouldn't be able to do anything
significant. But it isn't our style. We are the partners with 3G on it. And
so we have exactly the number of shares we had before. And I guess I
should never say never-- at age 88 in terms of what somebody else might
do. But I can tell you I have absolutely no intention of selling. I've got
absolutely no intention of buying.
BECKY QUICK: Why wouldn't-- if you're sticking with the business

and it's 30% cheaper today, why wouldn't you buy more?
WARREN BUFFETT: 'Cause it isn't worth as much.
BECKY QUICK: So you think it was a fair write-down that the market
gave it?
WARREN BUFFETT: Well, at 35-- you've got a billion, 200 million

shares out. So that's $42 billion for the equity. And we own $30 or $31
billion. So the whole company is selling for $71 or $72 billion. And as I
mentioned, it has about $6 billion of operating income. Now, for $6
billion, would you pay a lot more than $72 billion where it doesn't look
like it's going to be going up for a while? Maybe even-- well, they said it
was gonna go down in 2019. You know, there are other things I think
where you get more for your money and better prospects. Not that I
regard the prospects for Kraft-Heinz as terrible. I may be-- I would-- if I
had to bet one way or another, I think people will eat more of our
products this year than last year.
BECKY QUICK: But if you see better places to deploy money, why
don't you sell?
WARREN BUFFETT: We-- well, A) we can't as a practical matter move

around tens of billions of dollars that easily. But beyond that I mean, if
we're working with a million dollars or $10 million, would I have a
position in it? No. You can move around with a million or $10 million.
And Ted and Todd can move around reasonably well with $13 billion.
But that can be difficult. $173 billion, I mean, you dance like an
elephant. Not like some guy on Dancing With the Stars.
BECKY QUICK: We have a lot more questions that have come in

regarding the partnership with 3G and 3G's style of doing things, but
we'll get to that in just a little bit. In the meantime, we have to take
another break.
WARREN BUFFETT: Okay.
BECKY QUICK: When we come back, we do have much more from

Warren Buffett, including his thoughts on Berkshire's Apple stake, what
he thinks about the markets, too. Right now though as we head to a
break, let's take a look at Friday's S&P 500 winners and losers.
BECKY QUICK: This is a special edition of Squawk Box, live from

Omaha, Nebraska. We are speaking to Berkshire Hathaway chairman and
CEO Warren Buffett. The economy, the markets, trade talks, and much
more. Find out where the legendary investor is putting his money to
work and what he has his eye on this year.
JOE KERNEN: Good morning. Our top story, President Trump

announcing yesterday he would-- delay an increase in U.S. tariffs on
Chinese goods. He cited progress in the trade talks and said if it
continues, there would be a summit. They would plan a summit at Mar-a-
Lago. As a result, stocks in Shanghai surging overnight, up 5.6%. U.S.
equity futures at this hour, sharply higher this morning as well, up triple
digits. As you can see, up 140 on the Dow Jones. The S&P up about 11.
NASDAQ up 38. We're not that far from some new highs. Pretty
amazing. Right now, let's get back to Becky Quick in Omaha with
Warren Buffett. And, you've got important things to talk about. I don't
know if you've talked about March Madness yet, Beck. But, you know,
he--
BECKY QUICK: Nope, we have not.
JOE KERNEN: --he-- he--
BECKY QUICK: Do you want to jump in with that?
JOE KERNEN: Well, no. We can at some point. But, you know, he
always, like, offers up these things. Like, they sound attractive. You--
but, you know, you could win something, and he never pays off. Ever.
Anything. I mean, last year I think it was-- I think it was to get to the--
what--
BECKY QUICK: It's because nobody wins.
JOE KERNEN: --to get to the Elite 8 or something. Let's think about a
way where--
WARREN BUFFETT: No, no, we-- we always -- we always have a sure

winner, Joe. Last year, it-- it's true the favorites got knocked out early.
But-- but we did split-- there's a $100,000 consolation prize for whoever
does the best. Now, that got split eight ways last year. But-- but the year
before, we had five people that came within one game and just to the last
games of-- of winning the million-dollar prize. Now, if they'd won the
million, they would have had to have split it if all five had won it. But
there's a million-dollar prize. And we're going to do it again this year.

And we limit it to employees of--
JOE KERNEN: I know.
WARREN BUFFETT: -- of Berkshire. But close personal friends of mine

who have a brick also may be entitled to enter. I don't know.
BECKY QUICK: Joe, he invited you to enter last year, and you didn't do
it.
JOE KERNEN: No, no. No, we were doing other things where-- where--
depending-- let's do it again this year, Warren, with—with the Creighton
versus Xavier thing. Because they both have losing sort of records, and
they-- they're-- they're not doing quite as well. Although Creighton just
beat Georgetown. And yesterday, Xavier just beat-- Villanova. I don't
know if you saw. It was pretty good. So let's do something there, and
let's-- let's see. There's a NetJet card I could think about. I don't know
what the payout—
WARREN BUFFETT: Well.
JOE KERNEN: --is gonna be, but let's see who goes further.
BECKY QUICK: You can get another brick.
JOE KERNEN: Yeah, exactly. If I'm lucky--
WARREN BUFFETT: I get-- I get 30 s-- I get 30 seconds on the program

versus a NetJet membership for you. Is that it?
JOE KERNEN: Kind of.
WARREN BUFFETT: I'll tell you what I'll do. I'll let you name the bet,
and I will let you name the stakes. And-- and-- we'll go from there.
BECKY QUICK: Whoa.
JOE KERNEN: Really?
WARREN BUFFETT: This is the honor system, Joe.
JOE KERNEN: You know--
JOE KERNEN: --okay, let's do that.
BECKY QUICK: Now, you're talking his language.
JOE KERNEN: But, you know, he's very crafty and very smart. Like, he-
- he sent me a NetJet card. It had my name on it, but it was absolutely
useless. It was like-- you know, it was like-- I used it as a luggage tag. It
was-- it wasn't worth anything. And--
BECKY QUICK: Well, you said-- you said NetJet card. You didn't say it
had to work for flights.
WARREN BUFFETT: That's a starter card. That's a starter card, Joe.

We've got big things planned for you.
JOE KERNEN: I do have great things to talk to you about. I'm worried, I
mean, I think you think the market's expensive, Warren. So I want to talk
to you about that. I mean, you don't like to say that. And you say long
term it's going to be fine. But you've got a lot of metrics you're looking at
there, like the-- market cap to GDP or GNP. That-- that looks expensive
there, right? I mean, there are things that look expensive, and you're
having trouble finding things. So-- you know, you need to be honest with
us about that.
WARREN BUFFETT: The market—
JOE KERNEN: Is it really expensive?
WARREN BUFFETT: Joe, if-- it depends on interest rates. We've talked

about that before. If you tell me that 3% long bonds will prevail over the
next 30 years, stocks are incredibly cheap. Because even-- you know, I
mentioned that Kraft-Heinz earns $6 billion on $7 billion in tangible
assets. Even if you pay $70 billion and you earn $6 billion on it, that's
better than having $70 billion on it and 3% government-- interest rates
govern everything. And-- and if there were a way to short 30-year bonds
and own the S&P for 30 years, I would give you enormous odds that the
S&P is going to beat 30-year bonds. Now, we've had this period of
extended long-term low rates not only here but around the world. And
now, it looks like we're not going to jack them up very fast. So, we may
be in a new world, the world that Japan entered back in 1990. And if so,
stocks will, when we look back on it, will look very cheap. But, you
know, this has not been the history of the United States, to have these
continued low interest rates. So, I -- there's no-- if I-- if I had a choice
today for a ten-year purchase of a ten-year bond at whatever it is or ten
years, or-- or buying the S&P 500 and holding it for ten years, I'd buy the
S&P in a second.
BECKY QUICK: Well, that-- that brings us to a question that a viewer

wrote in. This is T-67. @PiyushPant says: "From the annual report and
the 13F, it looks like Berkshire was the least active in the public markets
in the quarter when the stocks were the cheapest. You also did fewer
buybacks in the fourth quarter when Berkshire was cheaper. Was taking
the foot off the gas in the fourth quarter a conscious decision?" And
based on what you just said-- we got all these signs that-- that looked like
the Fed was not going to be raising rates in the fourth quarter, too. So
why wasn't that a buy signal for you?
WARREN BUFFETT: Well, I-- I thought stocks were a buy in the fourth
quarter, just like they did in the third, and second, and first quarter. But
sometimes we have other things in mind, too, that may use a lot of
money. And sometimes they work out, and sometimes they don't. But--
but--
BECKY QUICK: Wait. Does that mean you were holding your cash in
case a deal came through?
WARREN BUFFETT: We had at least one deal possibly. It wasn't very

large. And, so, we-- I like stocks in the fourth quarter. But-- I like-- I
would like buying a business even better.
BECKY QUICK: Is that still--
WARREN BUFFETT: And incidentally, I-- I did say in the annual report
that we expect to be buyers-- net buyers of stocks in this year. We have
not been net buyers, I should point out. I mean, the market's gone pretty
much straight up. I still think stocks are more attractive, but I have
trouble buying it when every day it's up.
BECKY QUICK: The deal that you just mentioned, is that potentially
still on the books?
WARREN BUFFETT: No.
BECKY QUICK: So it's not--
WARREN BUFFETT: I don't think-- I don't think it is. No.
BECKY QUICK: Is it a deal here in the United States?
WARREN BUFFETT: Yeah, "Is it bigger than a--" yeah.
BECKY QUICK: Is it bigger than a breadbox--
WARREN BUFFETT: I-- I just-- I'll-- I'll give you a hint. It's on this
planet.
BECKY QUICK: So, you went out of your way in the letter to say that
you do think buying businesses outright is more expensive, even though
you don't think stocks are too expensive here.
WARREN BUFFETT: No-- no question that, yeah--in this-- in stocks

now, you have-- or businesses I should say you have a huge, huge, huge
buyer. And-- that's not only-- and companies are eager to buy, too. But
you also have private equity. And if, I don't know whether private equity-
- it's-- it's flexible because they can call on their partners for more money
and all that. But let's just assume that they would have a trillion
available. Now, they use a lot of leverage. They call themselves private
equity, but they're really private debt, you know, to a great extent. But
that trillion might buy as much as, say, $3 trillion of assets if it's
leveraged with $2 trillion of debt. Well, the total stock market is
something like $30 trillion. And if you take the top five companies, you
knock another-- or six companies, you knock four or five-- $4 trillion off
that. So you're down to something where the buying power of private
equity plus just the normal buying power from companies that want to
get-- it's just a huge amount of competition.
BECKY QUICK: When you start looking around, is that-- do you think
the private equity companies are overpaying for this? Or can they--
WARREN BUFFETT: Well, I think they'd--
BECKY QUICK: --make it work?
WARREN BUFFETT: --rather not. I mean, they obviously want to make

the best deals they can. But they are in a game that is so much more
competitive than it was for them. If you go back to a 1970s when. you
know, when-- leveraged buyouts started, which are the same thing they're
doing now but the name kind of lost its appeal there at some point. But
the deals you could make then were enormously more attractive than the
deals you could make now.
BECKY QUICK: Let-- me ask you one more question that came in from
a viewer. You've-- you've kind of answered this, but there-- may be a
little more to the answer. This is T-84, for the control room. Nic writes
in: "Why didn't a large acquisition happen for Berkshire during the fourth
quarter 2008 selloff? Are you anticipating a much bigger decline in the
market?" Or was-- I guess maybe it was the timing of it. Maybe it was so
quick.
WARREN BUFFETT: Yeah. Well, there, too, in-- in 2008, for example,
we were going to buy Constellation Energy. We ended up buying the
stock and making some money on it. But-- but that was part of a deal.
When Constellation fell apart, and it was in the fall of 2008, both-- I was
watching the tape. Dave Sokol was watching what was going on. And we
practically called each other at the same time. And he was on a plane
with Greg to Baltimore.
BECKY QUICK: Greg Abel?
WARREN BUFFETT: Yeah. That day. And-- and we contracted to buy

it. So we-- we were-- we were ready to buy that. And we-- we tried on
other things. And we-- but-- but we participated in marketable securities
big time at that point, too, as you know. We spent-- I think we spent $16
billion in three weeks where-- when nobody else was spending anything.
BECKY QUICK: When was that? What--
WARREN BUFFETT: Well, between about September 15th and October

7th or 8th. And then we already had another $3 billion committed to the
Dow, which was not going to get taken down until later on. So we went
through our cash pile pretty fast. Too fast actually.
BECKY QUICK: You have a huge cash pile right now though. What is
it--
WARREN BUFFETT: We have a huge cash pile.
BECKY QUICK: $112 billion?
WARREN BUFFETT: Yeah, we're-- yeah, we're--
BECKY QUICK: And that doesn't even count the other $20 billion in
cash-like--
WARREN BUFFETT: No, that does count it. I mean, but the $110 billion
or something like that, that-- that--
BECKY QUICK: $113 billion, whatever it was, yeah.
WARREN BUFFETT: Yeah, that-- that-- that counts $20 billion. And,
you know, I never get right down to $20 billion anyway. But-- but we've
got a lot of cash. And we'd love to use it. But we're a private equity firm
that's going to borrow six or seven times what they call EBITDA, which
I don't use as a metric-- they're gonna pay more than we are. And, you
know, as I said, we-- we pay too much for cap-- if you pay too much for
something, it doesn't accommodate you by earning more money to make
you look good. It-- it earns what it earns. And if we'd paid-- if we'd paid
$10 billion less for Kraft, it would have still earned the same money, you
know, basically.
BECKY QUICK: Right. This is a question that comes in. This is F-7,
control room. Doug Wofford writes in: "Warren, when you come across
bad news on a holding, for example Kraft-Heinz, can you share the
sequence of criteria you use to determine if the stock is on sale and buy
or a bust and to sell? What really concerns you as-- as what is in-- what--
as to what is in back of a dip?"
WARREN BUFFETT: Yeah, the stock market is there not to instruct me.
It's there to serve me. So if it if there's bad news and the stock goes
down, the question is in my-- I have is-- is the long-term valuation
changed? And-- you know, there was-- well, there was certainly bad
news at GEICO when we bought it, for example. But there was bad news
in American Express when I originally bought it back in the '60s. It was
the investment partnership I ever made. So what you like is bad news
about a fundamentally good business. And then you going to make sure
that it's still a fundamentally good business. But, no, bad news on a good
business. We're better off because Apple stock is down significantly from
where it was four or five months ago than if it stayed there. Apple will
probably-- they may not, but they have said they're going to down to
cash neutral. They could do it either by acquisitions, or dividends, or
repurchases. And my guess is it'll be mostly repurchases. They are about
$130 billion away from cash neutral now. If the stock were at $200, it
would buy 650 million shares. If it's at, you know $150, you buy close to
900 million shares. We're way better off, you know, if it's at a lower price
when they're repurchasing shares. Our partners are selling out to us, and
they're selling out cheaper than otherwise. The worst thing that can
happen from our standpoint with Apple is that it sells at $230 or
something like that because we don't like buying as well at that sort of
price.
BECKY QUICK: We have a lot more to talk about with Apple. There are
a lot of questions that came in from shareholders on that, too, or from
viewers on that. But we are coming up towards the top of the hour. And
to make sure that we make this a good business, Joe, I'm going to send it
back to you right now.
JOE KERNEN: Okay, Beck. Thanks. We have a lot more obviously

coming up. Still have two more hours with the oracle, Warren Buffett.
We're going to talk-- a lot more about his biggest holdings and his view
on the market-- and the economy and much more, and what the Green
New Deal would do for Berkshire Hathaway. I just-- it boggles the mind.
We'll see. Squawk Box will be right back.
BECKY QUICK: This is a special edition of Squawk Box live from

Omaha, Nebraska. We are speaking to Berkshire Hathaway chairman and
CEO Warren Buffett. The economy, the markets, trade talks, and much
more. Find out where the legendary investor is putting his money to
work and what he has his eye on this year.
JOE KERNEN: Plus, all of this morning's headlines and market-moving

news as the second hour of Squawk Box begins right now.
JOE KERNEN: All right, Warren Buffett's annual letter to shareholders

released-- over the weekend. Let's get to-- Becky Quick. And at some
point you gotta find out if he has a favorite-- did he vote in the Geico
contest? Does he have a fa-- I-- the cavemen are still my-- politically
incorrect and--
BECKY QUICK: Oh, oh, of all of-- all the ads? No, me too. I'm glad you
g-- that they brought those back.
JOE KERNEN: And did you notice-- ask Warren if he's noticed, all these
other insurance companies that used to be so serious, they're all tryin' to
do comedy now. There's-- one where a guy has these stupid-- he's ridin' a
bike and he's got these disgusting calves that they-- they're all doin'
comedy 'cause it worked so well for Geico.
BECKY QUICK: Warren?
JOE KERNEN: Has he noticed--
WARREN BUFFETT: The camel, I think, is winning-- the contest--
BECKY QUICK: Oh you know, I liked him too--
JOE KERNEN: Is it?
BECKY QUICK: "Mike, Mike, Mike, Mike, Mike."
WARREN BUFFETT: Yeah, the camels-- yeah, it-- well, I was back at
Geico ten days ago and the camel was running while I had--
JOE KERNEN: Yeah-- you should win some type of--
BECKY QUICK: I- get that.
JOE KERNEN: --of mad-- you know, Mad Men or advertising m--
BECKY QUICK: Mad Men.
JOE KERNEN: You-- singlehandedly-- you know, turned that into-- you
know-- people need to do that. If-- I mean, Geico-- what the heck is a
Geico? It's a government and m-- you know, it woulda gone nowhere, but
you ramped up all that ad spending and look at it now. So I mean, you--
really-- it's sort of a -- they owe you, the whole advertising industry.
WARREN BUFFETT: I'm-- Joe, I-- am so glad that you remembered that
I was the one that came up with the idea of Geico-- the Geico-- I-- the
gecko. I mean-- people--
JOE KERNEN: That lizard--
WARREN BUFFETT: --people at Geico seemed-- people at Geico

misremember that entire-- they think it was their idea, and I remember I
sketched that little--
JOE KERNEN: Isn't that the way it is--
WARREN BUFFETT: --guy out and said, "Why don't we try the g--" I
thought it was crazy--
JOE KERNEN: That happens on the show a lot, I know. We don't--

neither one of us get credit where we-- you know, the people forget what
we do--
WARREN BUFFETT: Yeah, I know that. Yeah, well our day'll come--
BECKY QUICK: It's the heavy lifting. Hey-- Warren, let's talk a little bit
about what Joe was just talking about. Joe, stay there because I know you
wanted to ask about BYD, that might play into this. The trade talks with
China. How big of a deal is that? What have you seen on your
companies, on your investments?
WARREN BUFFETT: Well, I see the monthly reports from the

companies come through, and-- a fair number-- you know, not in
insurance at all obviously, but-- a fair number of 'em are-- the tariffs have
had some impact. Now we're talkin' 10% tariffs-- and they-- a number of
'em say if it get-- if it were 25% there'd be some big adjustments. Some
of it the suppliers have swallowed over in China. -- some we split with
'em, but it's-- it pushes prices up. I mean, there's just-- there's no question
about that. But it hasn't had a big effect at 10%. A number of 'em told me
at 25%, I mean, the world changes. You either get a lot more money for
your product, or you source it differently, or you do something.
BECKY QUICK: So are you relieved to hear of the deadline being

extended, being pushed off? That March 2 it's not all gonna go to 25%
WARREN BUFFETT: Well, I'm relieved at the idea that there's still
some chance that sense will prevail. I-- the-- it is bad for China, it's bad
for us-- if we get into some kind of a trade war. And---- you know,
negotiations are tough and something like this is-- a big deal to both--
both countries. And to some extent you're playing a game of chicken
and-- because it hurts both countries. And I generally think when two
very smart countries have something very important at stake they'll end
up making rational decisions. I mean, I've been figuring that way with
the Russians ever since-- you know, the nuclear bomb. The-- even
though you get all kinds of tensions and-- people generally figure out
what's best for themselves, and the best thing for both China and the
United States is to work out something-- sensible that both sides can live
with.
BECKY QUICK: Did you think there was a valid reason for amping up
these negotiations, for saying, "Hey, hey, hang on a second. We're not
getting a fair shake?"
WARREN BUFFETT: Well, I think we haven't been getting a fair shake

to some degree. But I think we can sustain-- I mean, to some extent-- the
United States can do things that no other country can do. So-- as I think
number of smaller countries, for example, if they wanna run trade
surpluses with us, I mean, and the-- and it strengthens their economy, it
doesn't hurt us that much. I mean, I think we've got a role to play in the
world that way, but I don't think we can be Uncle Sap either.
BECKY QUICK: Joe, you have some breaking news?
JOE KERNEN: Yeah, out of-- General Electric-- breaking to a lot of us

that-- realize GE had-- this much money-- tied up in biopharma. The
company General Electric is selling its biopharma business to Danaher--
kind of interesting-- Danaher for $21.4 billion, and $21 billion of that
will be in cash. GE says it's gonna use the proceeds-- to reduce leverage-
- strengthen its balance sheet. It expects the deal-- to close during the
fourth quarter-- of this year. And it-- there's a lot of-- you know, there's a
lot of comments about how-- you know, from Culp about how this-- is in
keeping with their plan to-- reduce leverage-- strengthen the balance
sheet-- and-- all the other things. The deal-- Danaher meanwhile sees the
deal adding $0.45 to $0.50 to adjusted earnings per share in the first full
year and-- instead of us talkin' about this-- Becky, me or you, I guess--
we should get Warren's-- comments on what he thinks of this move--
BECKY QUICK: Let's do just that. And I do wanna bring up-- this is
something, Warren, that we got viewer questions about too, randomly.
GE-- control room T102, Brian Savage wrote in, "Mr. Buffett, given the
recent turmoil of GE do you believe Larry Culp is the right man for the
job? And if you could advise him what would you inform him he should
do? Lastly, if he is the guy why haven't you invested in a company like
GE given your current funds?"
WARREN BUFFETT: Yeah. Well, I think he should sell-- the medical

operation for $21.4 billion to Danaher. I mean, that sounds-- I-- think
that-- that GE should deleverage. No great insights there. I-- they believe
the same thing, I'm sure. So-- they just-- they owe-- they owe more
money than they should at present, and they should sell assets to some
degree, not in a fire sale at all. And this is not a fire sale price. So I--
applaud what they-- what was just announced And-- I met Larry had a
terrific record-- at Danaher, at-- and-- you know, we are a big customer
of GE, we are a big supplier of GE. You know, I've had some connection
with the company for decades, and they did call us in 2008 when they
needed money. And-- so-- I think all America's cheering for GE, but I'm
certainly one of those that is cheering.
BECKY QUICK: Have they called you more recently?
WARREN BUFFETT: Well-- I've talked to them off and on over the last
year or two, but I've said the same thing, pretty much-- is what I'm
saying right here.
BECKY QUICK: Joe, you have other questions on this front?
JOE KERNEN: Not so much-- on that. I got a lotta things obviously that
we wanna talk about. And I guess Warren probably does know GE pretty
well. I-- does he have-- I'd like a little more color to his comments on
GE. He probably doesn't wanna do that. What do you-- what's your
expression? What do you say? "You--criticize by-- just generally, but you
praise by--"
BECKY QUICK: "By category--"
WARREN BUFFETT: "Criticize by category, praise by name," yeah.

But--
JOE KERNEN: Yeah, yeah, yeah. So I-- guess I can't get you to just slam
GE--
WARREN BUFFETT: --I-- have not read-- I-- have not read their 10-K--
JOE KERNEN: --or Immelt or anything, huh--
WARREN BUFFETT: No, no. No, you'll never get me-- you'll never get
me to do that. no--
JOE KERNEN: What a mess though right
WARREN BUFFETT: And-- -- I haven't seen their 10-K yet. I mean-- I

wanna get their 10-K as soon as I can. And-- it may be-- it's probably out
just about now. And that's the documents you have to read.
JOE KERNEN: A lotta stuff, its up about 50% from the lows, I guess--
WARREN BUFFETT: And givin' you some clues about--
JOE KERNEN: --more, huh?
WARREN BUFFETT: Yeah--
JOE KERNEN: More than that, yeah?
WARREN BUFFETT: But it's-- - you know, it's—selling -- the equity's

selling for about $100 billion. And-- then they have-- they actually have
a preferred issue that's $5 billion or $6 billion. Most people don't even
know about that. And then they have-- they had-- you know, something
over $100 billion of debt. I'm consolidating GE Capital, but I think that's
the way to look at it. And they've got-- they've got a couple of very good
businesses. So-- but-- they were-- they were overleveraged and they've
gotta reduce the leverage, and-- clearly they're doing it.
JOE KERNEN: I mean, you could write a check for that--
BECKY QUICK: Warren, there's a question that comes in f--
JOE KERNEN: --Warren. You could write a check for that, Warren, if
you really liked it.
WARREN BUFFETT: That-- that's true.
JOE KERNEN: It's true that you could, but you won't be. Okay. I'll--
just-- paraphrase
BECKY QUICK: There's a question that came in from a viewer-- and I

ask this because we're talking about GE and it's one of many companies
that's looking at unfunded pension liabilities, potentially down the road.
This is T54 control room, Brian Bannon writes in, "How do you see the
unfunded pension liabilities across the United States affecting our
economy over the next ten years?"
WARREN BUFFETT: Well, if you're talking about the corporate sector--

the unfunded liabilities have been working their way down because all
the new companies don't go for defined benefit plans. So you've got--
you know, if you take the four or five largest companies in the United
States they don't-- they don't have defined benefit plans. We have bought
a number of older companies. So we have-- we have a fair number of
companies with defined benefit plans. We wouldn't start any defined
benefit plans. But that-- it's not a huge problem in corporate America. I
mean, you have a Sears in the pension benefit guarantee, court gets
involved. But-- and there'll be others. But-- - it's way less of a problem
than it was ten years ago or 20 years ago. In the public sector, you know,
it's a disaster. And-- you know, some of the-- it's interesting to me when
they talk about these relocation problems, you know, and New York and
Amazon, all that sort of thing, you know-- I-- if I were relocating into
some state that had a huge unfunded pension plan I'm walking into
liabilities. 'Cause I mean, who knows whether they're gonna get it from
the corporate income tax or my employees-- you know, with personal
income taxes or what. But that-- that liability isn't gonna-- you can't ship
it offshore or anything like that. And those are big numbers, really big
numbers. And they may come--you can delay a long time. I mean, they--
you're getting pushed maybe somewhat. But the politicians are the ones
that really haven't attacked it in a good many states. And when you see
what they would have to do-- I say to myself, "Why do I wanna build a
plant there that has to sit there for 30 or 40 years?" 'Cause I'll be here for
the life of the pension-- plan-- and they will come after corporations,
they'll come after individuals. They-- just-- they're gonna have to raise a
lotta money.
BECKY QUICK: I mean, when you say that the states that come to
mind, having not looked at those statistics in a while, would be Illinois
and New Jersey at the top of the list.
WARREN BUFFETT: Well, as I say I praise by name and-- criticize by

category.
BECKY QUICK: Well, let's talk about the decision of Amazon to say,
"Forget it," to a second headquarters in New York City. We were with
Charlie Munger on that day. This was-- February 14, just-- a week and a
half ago. We were with Charlie Munger the day that announcement came
out, and Charlie had some pretty-- firm comments on it. He said he
thinks it's crazy that states like California and others are basically driving
the rich people out. What do you think about it?
WARREN BUFFETT: Well, I-- heard Charlie on that, and as he says

They-- don't have kids. They don't--" and-- a good many of 'em are
charitable, they tend to get the things that are around them. And they
don't use the services-- nearly as much relative to their taxes that they
pay as the average person. And they-- so they use the hospitals. No, I
obviously-- well, a state like Florida which has no income tax attracts a
lotta rich people, you know? And--- in Texas-- you know, when people -
relocate there, the fact that-- that-- there's no income tax-- is a real factor.
And-- I don't know about those two states specifically, but I have a
feeling that their retirement plans are in pretty good shape compared to
the old industrial states. You get legacy liabilities when you move in.
Nebraska's in very good shape-- that-- for a long time-- that we've really
been against the state having any debt. Now we're all about leasing some.
BECKY QUICK: Well-- you-- what we're talking about is state versus
state. You're now talking about some new taxation plans that are being--
recommended in Congress, or by specific senators or congressmen-- that
are similar to some of those policies that we've seen in the states. I mean,
if you just run through it-- Elizabeth Warren with her wealth tax, and
anybody over $50 million. AOC, Alexandria Ocasio-Cortez, with her
plan to tax anything above $10 million at 70% rate. Bernie Sanders with
his estate tax going up to 77%. If those policies are enacted on a national
basis do you see that same sort of trading off where people would
potentially leave the United States? What do you think about these
plans?
WARREN BUFFETT: Well, that's an interesting question. I would say

this: If tomorrow everybody in the world had a chance to make a one-
time change in where they lived, two billion families all over the world,
only time they're gonna get the chance to make the change, but they will
get transported free to any country they wanna go their family, and have
citizenship. What do you think's gonna happen tomorrow?
BECKY QUICK: A lot of people coming to the United States.
WARREN BUFFETT: A lot of people are going to come to the United

States. Very few people are going to leave. North Korea might have a
small decrease in population. I mean, the point is, I mean, this is an
incredible country. And it's true that right now we're raising $3.3 trillion
and spending probably $4.3. We're about to have a debt – a deficit of
about $1 trillion in a very good year in the cycle. I mean, year of
prosperity, and that's 5% of GDP, and that's probably more than – you
could actually take a 2% to 3% deficit and not have the ratio of debt to
GDP growth. Five in prosper shares, we're out of whack on that. So we,
you know, you can cut spending, you can raise taxes. But I would say
that the wealthy are definitely undertaxed relative to the general

population.
BECKY QUICK: But your answer to that – that was almost a dodge of
the question. I mean, if these policies drive out the wealthy people, sure.
If you got your choice of where to go, everybody would want to come to
the United States. But would the wealthy people do that if we changed
our tax structure?
WARREN BUFFETT: Well, I think most of the people that have – the
rich people, Mark Rich being one of them. I mean, they leave because
they – in this case, I mean, he's leaving before the feds pick him up. And
I don't think if you offered most of the rich people – if they were sane
anyway – and you said "If you stay we're going to take half your net
worth, and if you leave, you can take it all with you," and you're 88 years
old like me, am I going to leave the United States? You know, I could
move – South Dakota has no state income tax, Wyoming has no state
income – so we've got two states that border Nebraska. Nebraska has a 7
and a fraction percent state income tax. If Iowa, which is right across the
river, had no income – I wouldn't move. I mean, now, I think people want
to come here. I think if you made that offer I made the United States,
there'd be more people come to the United States than anyplace else. And
they would come if the deficit was $1 trillion or $1.2 trillion. I mean, this
is the land of opportunity.
BECKY QUICK: But do you think they're good policies? Do you think
they're good tax policies?
JOE KERNEN: Warren, you're making a decision to leave all your

money to the private sector in terms of charities. And because you think
– I assume you think – maybe it'd be better spent there than by the
government. Isn't it possible that it's just not the right idea to just – what's
already a bloated, you know, what some people would think, a bloated
entity – address the spending side of things. Or else maybe you ought to
reconsider if you think the government is so good at spending money,
why leave it all in the private sector? Go ahead and give it all to the
government and let them do it. You seem to have an idea that it's better
treated if you do it philanthropically.
WARREN BUFFETT: I've got about four choices, Joe. I mean, let's say I
have $80 billion. A) I could spend it all, you know? But even to spend it
all, I would have to sell Berkshire stock. So I would incur taxes of, you
know, $20 billion or so in spending. So the government would then get
20 if I wanted to spend it all I could – I don't know what in the world I'd
spend it on. I can give it all to my wife and then there's no tax. I could
give four million people $20,000 each and there'd be no – well, there'd be
no tax on it as long as I give make gifts to separate people up to $20,000
I can do it, and there's no tax. One thing you could do, the estate tax is
the wealth tax. I mean, in theory you get taxed on wealth on the estate.
Now, you're allowed to give to charity 50% cash, 30% appreciated stocks
and have it deductible from your income. They let you essentially deduct
all the gifts of wealth at death. So you could have a limitation that you
could only give 50% to philanthropy and treat it the same way actually as
if you're giving away from income during your life. There's a lot of
things you can do with the tax law. I mean, the tax – and I think that one
way or another, when the forms for a hundred have gone from $93
billion to $2.7 trillion since 1982, the market system, as it gets more
specialized, will give more and more to the top people. If we were back
in 1800 and we were all working on farms, you'd probably be worth a
little more than I am because you'd work harder and be stronger. But the
top person working on a farm would be worth one and a half to maybe
two times what the bottom person was. But as we get more and more
specialized, the guy that's the best in knocking out some other guy that
weighs 200 pounds is, you know, is worth $30 million a fight. Now, he's
worth $30 million a fight because somebody invented television and

Cablevision. As we get more specialized, the rich will get even richer.
And the question is: how do you take care of the guy who's a wonderful
citizen and father, you know, may have died at Normandy or something,
but he just doesn't have market skills? And I think the earned income tax
credit's the best way to address that question. And that means probably
some more taxes – it should mean some more taxes for guys like me, and
however you come at it I'm fine with.
BECKY QUICK: Okay. We'll continue this conversation. Obviously

inequality's a big issue and it's something that's already roiling politics in
Washington at this point.
BECKY QUICK: We can talk more about that in just a little bit, but Joe,
we'll send it back to you because I think we need to take a break, too.
JOE KERNEN: We do. All right, coming up thanks, Becky. A recap of

this morning's market headlines, including GE's deal with Danaher. It's a
big one. Plus much more from Warren Buffett. Stay tuned, you're
watching "Squawk Box" on CNBC.
JOE KERNEN: Breaking news out of GE, which we told you about
earlier. The company's selling its biopharma business to Danaher for
$21.4 billion, $21 billion of that in cash. GE says it's going to use the
proceeds to reduce leverage and strengthen its balance sheet. Expects the
deal to close during the fourth quarter of this year. There you can see
Danaher is sharply higher on the news as well. On adjusted earnings it
will add to Danaher's results, $0.45 to $0.50 in the first full year,
although on a reported basis it will cut EPS by $1.15 to $1.20. GE will
still have a go forward health care business of $17 billion-- because some
of the-- the health care portfolio of GE isn't going. Pharmaceutical
Diagnostics will remain-- with-- with GE. Danaher's going to borrow
some-- issue some debt, use cash on hand-- to make-- the acquisition,
which-- is part of Culp's—strategy to reduce debt, strengthen the balance
sheet, and reduce the leverage of General Electric, which is now up
almost 12% on the news. And remember, it was down, I think it broke
under 7 briefly in its most recent tough sliding that we saw at the end of
last year. But-- so if you base-- 7% as the low you're all the way back to
almost 12%. So big move if you were able to buy GE right at the lows. In
a major deal-- in the drug sector, Roche is buying Spark Therapeutics for
$4.3 billion, about 140-- $114 a share for Spark. That was 122%
premium, the Friday closing price. Spark working on treatment for
hemophilia and Huntington's Disease. Already has one drug on the
market to-- treat a rare genetic condition-- that causes blindness. When
we return much more from Warren Buffett and Becky Quick in Omaha.
We will be right back after a quick break.
BECKY QUICK: Welcome back to a special edition of Squawk Box. We

are live with Warren Buffett, the chairman and CEO of Berkshire
Hathaway in Omaha, Nebraska. And Warren, thanks again for your time
this morning. We've talked about a lot of things so far, but we have not
gotten your take on the economy to this point. There was just a Federal
Reserve report out on Friday that suggested that GDP for 2018 is
probably going to come in slightly below 3%. What do you think the
economy is doing right now, just based on your businesses, based on the
receipts you see, the companies that you track that you have major
purch-- major shares in?
WARREN BUFFETT: Right now-- just based on the monthly statements

I get, and some cases I get other data in between, but, overall things are a
little better. I mean, the rate of-- the rate of improvement has tapered, but
it certainly hasn't flattened. Now, that could change next month. And—
and home construction, has been disappointing. But most of our

businesses-- I've seen other figures on retail that are strong and-- you
know, including Walmart's. But I would say our retail figures in January
were not strong. But January's a peculiar month. That can be affected a
lot by weather, although any retailer will always blame things on the
weather. I-- no, right now things look fine.
BECKY QUICK: When you say it's-- it's a little better that's relative to
when? What's your comparison period?
WARREN BUFFETT: Well, I'm-- I'm saying that if it developed as I see

in January and February for the whole year, I think we would probably
beat our $24.8 billion, but that would depend on insurance profits
because it could swing either way, they are--
BECKY QUICK: Of your operating profit that you just reported?
WARREN BUFFETT: The operating, yeah. Yeah. So -- business looks--

looks decent. It's not galloping ahead, and the tariffs having a little effect
at 10%. If they went to 25% they would change things quite a bit. And I
do see some more inflationary things. But, no, I don't see anything to be
alarmed about at present. But incidentally--
BECKY QUICK: What inflationary signals --
WARREN BUFFETT: --if you told me GDP would be down this year
we'd still be doing the same things, pretty much.
BECKY QUICK: What inflationary signs do you see at this point?
WARREN BUFFETT: Well, we just-- as I get the reports from the

companies they say, 'These raw material costs are going up.' And, now
oil being down helps us. I mean, that's the basis for a lot of raw material
costs. But overall, there's more cost pressure.
BECKY QUICK: You mentioned that housing has been weaker. Home
building, that you've seen that.
WARREN BUFFETT: Home building.
BECKY QUICK: Why do you think that is?
WARREN BUFFETT: It's puzzling because, you know, before 2008, you
know, we were running higher-- well-- I mean, the one obvious answer--
you expect-- you expect household formations to go way down in a
recession, and we had a bad one. But, you had this big trend-- from home
ownership to renting so that, you know, that's probably changed by five
percentage points. Well, five percentage points, when you talk about 125
million households, or six million houses are people that are living in
rental units rather than houses. So that configuration has really changed.
And I would've thought it would've turned back as people got the jobs
back and all of that. But-- single family construction is really-- I think it's
been quite weak compared to what you would expect after ten years of
recovery and with the stock market, you know, quadrupling from the
lows and unemployment at 3.7%. People are just making different
choices.
BECKY QUICK: Jay Powell, the Chairman of the Federal Reserve, is set
to testify before Congress on Tuesday and Wednesday of this week.
Based on what you've said about the weakness in housing, based on
some of the downturn that you saw, did you think he made the right
move by signaling a much more dovish take last quarter?
WARREN BUFFETT: Yeah. I don't second-guess him at all. I think he's

a terrific choice for Federal Reserve Chairman. He actually was at the
Treasury in 1991 when Solomon was in trouble, and I saw him make a
lotta very good decisions for the United States government. He is a smart
man and he's-- he's very levelheaded, and he-- but he understands both
business and economics, and I don't think you could have a better
chairman. So-- I will never second-guess him.
BECKY QUICK: I know you don't make a lot of investing decisions

based on what the Federal Reserve chief or anybody else is saying, but
what would you be interested in hearing from him this week? What--
what might-- what might you be listening for?
WARREN BUFFETT: Well, I read what he says but it doesn't affect

anything we do. It just doesn't. I mean, it doesn't affect it in investments
or in, you know, the amount of money we're going to spend on the
railroad this year, in energy or anything. We're plowing ahead always.
We always spend more than our appreciation. And we know the country
is going to make lots of progress over time and we don't think we're
smart enough to jump in and out as to when the time is.
BECKY QUICK: A couple of questions that came in from viewers when

it comes to the economy. One is-- T19 control room, Rashad Khan
asking: "Do you think the ten-year yields are likely to rise from current
levels in the long-run?" I don't know what the long-run is.
WARREN BUFFETT: Yeah. Well, I'm amazed that ten years into a
recovery, or nine years into the recovery, ten years from the panic-- I'm
amazed that rates worldwide are what they are. This is not classical
economics to have trillions and trillions of dollars still at negative
interest rates with the world doing really very, very well. I don't know--
you know, I don't understand it. I don't think the economists really
understand it. I mean-- they got to explain it somehow. But the real
question for stock investors are-- are these rates more or less a new
normal? And people who thought the Japanese rates in 1990 couldn't
possibly stay where they were, you know, that turned out to be suicide
for the people that shorted Japanese bonds and so on. We live in a world
that wasn't described in classical economics.
BECKY QUICK: Do you think it's because of the experimentation) by

central banks around the globe?
WARREN BUFFETT: Well, I think the central banks did what they had
to do after 2008 and 2009. In fact, I think Europe was a little late doing
it. But when Draghi finally said, 'We'll do whatever it takes,' the only one
that can say that is central banks. And I think central banks behaved very
well post the recession.
BECKY QUICK: You've mentioned twice this morning how we could

potentially be in a situation like Japan where these interest rates stay at
these incredibly low levels. Will it work out better for us than it has for
Japan?
WARREN BUFFETT: Well, the answer is I just don't know. But Japan
also has a declining population and no energy resources. And, we're a
different case than Japan.
BECKY QUICK: We're here at the Nebraska Furniture Mart today. And I
know that you've talked a little bit before we came on the show this
morning just about Rose Blumkin, who founded the Nebraska Furniture
Mart. You bring up immigration so I thought maybe now would be a
good time to talk about that. She came here from in 1917.
WARREN BUFFETT: Yeah. She came over here on a boat from

Yokohama and she landed in Seattle. And I've got the manifest of the
boat in here, and I've got her entry papers. And she-- and-- she couldn't
speak a word of English. The Red Cross got her to Fort Dodge, Iowa,
where her husband was. She spent two years there, couldn't pick up the
language there. So they decided to come to Omaha where there were

some Russian Jews and they would feel at least they had-- a home of
sorts. And she sold used clothing and did various things, had four
children. And 15 or so years later she'd saved $2,500, and you're in what
was-- became the largest home furnishing store in the country, except we
now have a larger one in Texas. But in the 50-somethingth largest market
she took $2,500 and turned it into the largest home furnishing store. And
the punchline is that she couldn't read or write. And I've got a contract
here that we signed. This is what I came out with. I typed this up in 1983,
August 30--
BECKY QUICK: Is that two pages?
WARREN BUFFETT: Yeah, it's-- it's really just one page. I mean, this is
a signature page here. And that's her signature at the top, and as you can
see it's just a scrawl. And we did not get an audit, we did not look at the
property records to see-- I just said, "Mrs. B, do you owe any money?"
And she says, "No." And that was it. You know, and we--
BECKY QUICK: How much did you pay?
WARREN BUFFETT: Well, at that time we bought-- we rearranged

things within the family some. So we in effect bought 80% at a value of
$60 million-- on 100% basis. But we had-- but we just-- we shook hands
and-- I felt like I had the Bank of England on the other side. And then
she went on to work until she was 103. If any of my managers are out
there listening that's sort of a yardstick we use now on retirement. And
was a marvelous, marvelous woman. And when-- never went to school a
day in her life. And when the family sat down for dinner they sang God
Bless America before eating. Yeah. It-- you know, it's an incredible story.
BECKY QUICK: Warren, in the annual letter this year you write about
the American tailwind. What--
WARREN BUFFETT: Well, as I pointed out in there, I-- on this March

11 in a couple weeks it'll be 77 years since I bought my first stock, and I
paid $114.75 for three shares of Cities Service Preferred. But if you had
bought-- if you'd been a pension fund and you put $1 million into the
S&P 500 at that time and reinvested it during my investing lifetime, that-
- that $1 million would've turned into $5.3 billion. You would've gotten--
for every dollar you put in you've gotten over $5,000 without ever
reading a headline, an annual report. You didn't have to know
accounting, you just had to believe in America. And you didn't have to
pick the right stock, you just picked America. And if that isn't a tailwind-
- it's more like a hurricane. I mean, it is-- American business has done
incredibly well, and America's done incredibly well. And-- you know, I
go back and I point out that there were two 77-year periods before that,
and that takes us back to George Washington getting inaugurated. And
there wasn't anything here then. And now you have $108 trillion of
household wealth in the United States. You know, we've got something
that works, and that framework-- wasn't that we were working harder,
wasn't that we were smarter, but we had a framework that unleashed
human potential. And just think of that, three 77-year periods, one of
which I experienced. And you couldn't help but-- all you had to do was
believe in America and-- you got very, very-- we didn't have to read the
newspapers-- nothing. You didn't have to pick a stock.
BECKY QUICK: That worked the last 77 years, but there's a question
that came in, T29. This is from Scott Baker. "With so many people in the
S&P index funds is it still market neutral and the best investment vehicle
for most people?"
WARREN BUFFETT: Yeah, I think it's the best investment-- because

most people don't know how to pick stocks. And-- most of the time I
don't know how to pick stocks. I mean, it's-- it is not an easy game. And
by definition people are going to do average. I mean, if you take
everybody in aggregate, and if half of 'em are paying big fees and
jumping around and paying brokerage commissions, the other half have
to do better. And-- no, it is-- as I've told people in-- and my widow will
I've instructed-- the trustee to put 90% in an S&P 500 index fund and
10% in governments, just so that-- just for a feeling of security. But--
there's been no better bet than America. There's been nothing like it.
BECKY QUICK: There's one question that came in from-- this is F20,
Ahmad Abu Rasheed, who said, "Would a strong and sustained shift to
the left in fiscal and economic policy rip away at American business
tailwinds moving forward?"
WARREN BUFFETT: Yeah, well, my dad thought, you know,

communism was coming in the '30s and, you know, he was very anti
Roosevelt. All my life I've been hearing half the country say that the
other-- the person favored by the other half wins, things are gonna go to
hell. And so I pointed out in my discussion, I've lived under 15
presidents; 14 of 'em I've invested under. I didn't invest under Hoover, I
was a little young then. But seven were Republicans, seven were
Democrats. I mean, it-- after this last election in-- in 2016 my-- most of
my friends were for Hillary and they thought, "You know, sell stocks.
You know, dig a cave, do whatever it might be." And I told 'em they're
crazy. You know, it-- you do not wanna have a political view in
investing. And most people put it through a political prism, they just
can't keep their politics out of it. They can keep their religion out of it but
politics, they just have to look through those glasses. And if you d-- if
you've done that, if you've been a staunch Republican or a staunch
Democrat through these 77 years you'd a missed out on a lotta the party.
BECKY QUICK: What about now when the parties are-- kind of in flux?
Donald Trump was not a typical Republican, and Bernie Sanders now
looks like he's leading the way in some of these polls, he wasn't even a
Democrat until recently. He's a socialist his whole life who just caucused
with the Democrats.
WARREN BUFFETT: Well, he was-- interesting candidate in 2016

because I would-- you know, he came close, and I would say that 90% of
the people who voted him hadn't heard of him two years earlier. That's
really unusual. It's given hope to a whole lot of other people who are
entering this time. When you look at what Sanders did, when you look at
what Trump did-- a lotta people look in the mirror now and say, "Wow,
you know, that could be me." So Sanders, the big appeal I think he had
was he came-- he had unusual authenticity. I mean, they all wanna seem
authentic, and they are authentic in a certain way. But they do move
around as the polls come in and their advisors come in. You had the
feeling when you listened to Bernie that he was saying exactly what he
believed. You can agree with him or not, but that's a very appealing--
characteristic in a candidate. It may not be enough to carry anybody to
victory, but it is an-- it makes people notice you. They-- really do know,
to some extent, whether you believe what you're saying when you're out
there on the stump. And-- Bernie really-- he really did hate billionaires
and the campaign financing. I mean, he was talking authentically, and
he's still talking authentic-- I- mean, I'll absolutely give him that.
BECKY QUICK: Do you agree with his policies, or his proposed

policies--
WARREN BUFFETT: Well, I agree with certain things that make him
mad. I don't like the campaign finance laws, and I also think that the
inequality gap has widened and will continue to widen-- unless
something is done about it. But I also believe that the most-- important
single thing is to have more golden eggs to distribute around-- so I don't
wanna do anything to the goose that lays the golden eggs. And we've had
the goose that lays more and more golden eggs over the years,
unbelievable in this country. So we've got something that works in terms
of the market system, in terms of turning out lots of goods and services
people want. The question is, what happens to the person who's a decent
citizen, doesn't have market skills? And we can solve that. A rich family
can handle if they've got six children and one of 'em isn't as good in the
market, is just good in every other personal quality. They take care of
him. And we've got $60,000 of GDP per capita in the United States.
That's six times what it was when I was born in real terms. So we can
take care of people and we should. But we shouldn't screw up the market
system.
BECKY QUICK: Well-- Bernie looks mild compared to some of the

candidates who are running to the left of him.
WARREN BUFFETT: Well, that's-- have people seen it or-- I would

work for him.
BECKY QUICK: There-- there's somebody who wrote in-- this is T13,
Ted Waller. This is probably based off a play, off of-- some conversations
we've had with Jamie Dimon. But he says, "Do you still consider
yourself a Democrat?" If you look at--
WARREN BUFFETT: I'm not a card-carrying Democrat, but I never

have been. I've voted for a fair number of Republicans, I've given money
to Republicans. I-- am not-- Bob Strauss called me one time because he
wanted me to handle finances in Nebraska. He said, his first question,
"Warren, are you a card-carrying Democrat?" I said, "No, I'm not, Bob."
I-- mean, I don't think either side has an edge in virtue or anything of the
sort. I mean, I think that they have different views on things and I think
that-- that by the time they get in politics they sorta stake out their
positions, although they move 'em in a period like this when they think it
may help to be further left. You see people that-- that sort of-- had a new
vision all of a sudden-- because they saw how it worked for Bernie. But
no, I will vote for more Democrats than in the last 30 years I've voted for
more Democrats than I've voted for Republicans. I was president of the
Young Republican in 1948 at the University of Pennsylvania. I ran for
delegate to the Republican National Convention in 1960. The only office
I've ever run for.
BECKY QUICK: When we were just out with Charlie Munger he said he
didn't think much of too many politicians, but he did like what Mike
Bloomberg did in the city of New York. What do you think about
Bloomberg as a potential candidate, and what do you think about
Howard Schultz potentially running as a third-party candidate?
WARREN BUFFETT: Well, I-- won't answer you on most questions, but
I'll answer you on political-- I would-- if-- Mike Bloomberg announced
tomorrow that he was a candidate-- I would say I'm for him. And-- I
think he would be-- I think he would be-- a very good president. And-- I
mean, he and I disagree on some things, but I think that-- he knows how
to run things, I think that he's got the right goals for America, he
understands people, he understands the market system, and he
understands the problems of people that don't-- that fall into the markets.
And I-- he-- you know, I-- would have no trouble-- being for him. I--
Howard Schultz-- if he-- well, he-- well, he says he's gonna run as an
Independent. And if he ran as an Independent he-- I think he would take
votes away from any Democrat, including-- Bloomberg if he were
running. So I think it would be-- a real mistake for him to run. And that--
I-- think generally third-party candidates, they're gonna hurt one side or
the other. And they're more likely to hurt the side that they actually favor
because they're closer to that view, and so they pull more people away
that--- would otherwise, you know, go to the second-best with that view.
So I-- hope no third-party candidate runs that pulls any significant

amount of votes. I mean, there'll always be-- a couple people that file.
But I think the third-party candidates are-- can thwart actually the will of
the people.
BECKY QUICK: All right, we're up against the top of the hour. When
we come back, though, we will have Warren Buffett answering more of
your questions. We're also gonna get through a lotta the changes in the
Berkshire Hathaway equity portfolio. A lot of changes that were just
announced and we'll talk through some of those too. In the meantime,
take a look at the futures this morning. Things are up across the board.
Dow futures up by about 137 points after it looks like the tariff deadline
is put off. S&P futures up by about 12, the NASDAQ up by 41. And we
will be right back with this special edition of Squawk Box.
BECKY QUICK: All right, let's get back to our special guest, Berkshire
Hathaway chairman and CEO Warren Buffet, who's sitting down with us
after just coming out with his annual letter to shareholders and, last
week, just filing the 13F that showed what positions you've been moving
around in the stock market as of December 31st. And Warren, there were
a lot of questions that were raised by that. And I just want to run through
some of the holdings, some of the changes, that were registered and get
your take on why. First off, Apple. You trimmed 3 million shares to
249.5 million shares of Apple. And that caught a lot of people by
surprise. They were wondering if you were selling.
WARREN BUFFETT: No. The one other fellow in the office, one of the
two, had about 6 million or 7 million shares. He had it before I did. And
he works with a limited amount of money, $13 billion, roughly. So if he
wants to buy something, he needs to sell something. I want to buy
something, I've got cash around to do it. So he sold about 3 million
shares, I believe, cut it in half, roughly, to buy something else. And I
didn't. I've never sold a share.
BECKY QUICK: So this was not even a conversation you had with him,
I take it. This is either Todd or Ted, you're not going to say who.
WARREN BUFFETT: It's his business. It's his business, yeah. I mean,
they do not check with me. I sometimes order at the end – well, I do. At
the end of the month, I look and see how their portfolio compares to the
month before and see what they've done.
BECKY QUICK: This generated a lot of questions from viewers, and

let's go to one, T14. Jedi Markets wrote in, "If you loved it," meaning
Apple, "undervalued at $200-plus and a $1 trillion valuation, why would
you sell any this past quarter?" You've answered it already. You didn't
sell it.
WARREN BUFFETT: Yeah. And incidentally, I've never paid $200 for
any stock in Apple, anyway.
BECKY QUICK: What'd you start buying, at $160 or something? Was

that—
WARREN BUFFETT: Well, no, I think—
BECKY QUICK: Or average, the average—
WARREN BUFFETT: The average cost is about $141 or something like

that.
BECKY QUICK: Okay. There was a question that also came in from
Rick Saffaraz. This is T90. He said, "Do you plan on adding to your
Apple position throughout 2019?" And I just want to also bring up a
tweet from Jim Cramer. He tweeted, back on February 5th, "Doesn't
Apple trade like Berkshire is back buying?" I spoke with Cramer about
it. And he said, "Look. I don't know anything. It's just, all of a sudden,
the stock's really picking up. It's almost as if…" So are you interested at
lower levels?
WARREN BUFFETT: Look, I'm always interested in lower levels in a

number of stocks we own. There's some where we really can't go over
10%. And generally, I don't like to go over 10%. Because it complicates
life quite a bit. With banks, it actually throws us into the bank holding
company you know. There are stocks that I would buy that we own nine-
and-a-fraction percent, and I actually may be selling a little bit, because
they're repurchasing their shares. And I don't want to drift over 10%. But
Apple I don't see myself selling. Every – the lower it goes, the better I
like it, obviously.
BECKY QUICK: I mean Apple is not one of those 10% stocks. Don't
you own about 5% of the shares?
WARREN BUFFETT: About 5%.
BECKY QUICK: So is this a situation where you have been buying,

since it became so much lower at the end of December?
WARREN BUFFETT: It's been back to where – it may have briefly, very
briefly, got there. But if it were cheaper, we'd be buying it. We aren't
buying it.
BECKY QUICK: There was another question that came in. This is T91,
from Umar Zubair, who said, "Apple decelerated share repurchases from
around $20 billion in the third quarter to around $8 billion in the fourth
quarter, just when the stock price went down by about 30%. In fact,
Apple repurchased zero shares in December of 2018, when the stock hit
a 52-week low. What are your thoughts on Apple's repurchase
deceleration?"
WARREN BUFFETT: Well, Apple has said, publically, that their – and
they've repeated it – that their goal is to reach what they call a cash-
neutral position, where their debt is roughly equal to the cash. I think that
would take $130 billion or so to get there. But of course, they could
make some acquisitions. On the other hand, they're earning a lot more
than their dividends. So that number goes up. Mentally, I say to myself,
we're very likely – and a lot of things could change this with them. And
the lower the price goes, the better it gets. But they should be at 4 billion
shares, probably, in maybe three years. And so our five percent would
become something over six percent at that point. And I like that prospect.
And then we might buy some ourselves. Who knows? It depends on the
price. But they will buy a lot more stock, if it's cheaper than if it's higher.
And you know, it's just simple math. We're better off, if, in the next three
years, Apple is cheaper.
BECKY QUICK: You loaded up on financials in the fourth quarter. You

added to your stake some JP Morgan, Bank of America, Bank of New
York, PNC, and U.S. Bancorp. And six of your top-ten holdings, I
believe, are banks, at this point. Why so much emphasis on the
financials?
WARREN BUFFETT: They're very good investments at sensible prices,

based on my thinking. And they're cheaper than other businesses that are
also good businesses by some margin. And a couple of those we own
nine-and-a-fraction percent of. And I don't like to go to 9.9%. Because
that means the next quarter, maybe, I have to sell some. So I—
BECKY QUICK: Because they buy back.
WARREN BUFFETT: I try to leave myself a year, two years of

repurchases. But Bank of America's been particularly aggressive on
buying in stock. Brian Moynihan has done such a good job running that
company, since he took over. I mean, he was the most-underestimated
bank executive in the country. And he is everything he said he would do.
He's done it, and he's beat it. And he sets tougher targets all the time for
himself. And he's been smart about repurchasing shares.
BECKY QUICK: JP Morgan is a relatively new stake. You had 35

million in the third quarter and that was a new stake. You raised it to 50
million – or 50.1 million shares, I should say, in the fourth quarter. Is that
your purchase?
BECKY QUICK: Because for a long time, you held it in your own
portfolio. Why now?
WARREN BUFFETT: I've still got a little bit. But that goes back years
and years and years, yeah.
BECKY QUICK: So why JP Morgan now?
WARREN BUFFETT: Well, the better question is, why we were so

dumb about not buying it earlier? And the answer, I was dumb not
buying it earlier. But it's a very well-managed bank. And banks are – you
can find a bank like JP Morgan and Ernst, maybe 15%, maybe 17%,
even, on net tangible equity. A business that earns 15% or 16% or 17%
on net tangible equity, that's incredible in a world of 3% bonds. I mean,
just imagine that you had a deposit account with JP Morgan that they
made a mistake and they gave you 15% on it. And they couldn't redeem
it. What would you sell that account for? You wouldn't sell it for 100
cents on the dollar. You wouldn't sell it for 200 cents on the dollar. You
wouldn't even sell it for 300 cents on the dollar. You have an FDIC-
guaranteed instrument that would now be at 300 cents on the dollar. If it
was 15% on equity, you'd be earning 5% on it, which is way better than
treasuries. Now, if on top of that, your deposit allows you to let your
interest compound to some extent, now, that instrument becomes even
worth way more. Because if you have an instrument that could
compound at 15% for ten years and use the added capital, that's worth
way more than three times tangible equity at current interest rates, way
more. So you know, a lot of things can happen that change that equation
around. And the banks, like all other American – almost all other
American business – got a big plus last year with the new tax bill. I
mean, corporations benefitted a lot, including Berkshire, and including
the banks. That can be taken away, you know? So but on the other hand,
the FDIC, now, has gotten a reply. There were special FDIC charges on
the big banks. They ended here, recently. Because the FDIC has $100
billion in it now. That money has all come from the banks. The U.S.
government has not put any money in the FDIC. People think that you
know, that somehow, the FDIC is financed by the government. It's
guaranteed by the government. But the FDIC was started in, I think,
January 1, 1934. And I think, one time, it borrowed temporarily. But it
doesn't have a dime of government money in it. That money – and now,
they've got $100 billion in there. And the banks are much better off.
Because that fund takes care of the bank here and there that goes broke.
Incidentally, last year, was no bank in the United States, no FDIC bank,
went broke. That's the first time in a long time.
BECKY QUICK: Let me slip in one more question, before we take a

break. Oracle. That was a stake that you suddenly popped up in the third
quarter, that Berkshire had $2.1 million – $2.1 billion of Oracle shares at
the end of the third quarter. It went to zero at the end of the fourth
quarter, which it's really unusual to see a technology company creep into
the Berkshire holdings like that. And it's even more unusual to see it
flushed out so quickly. Was that you?
WARREN BUFFETT: Yeah. And Larry Ellison's done a fantastic job

with Oracle. I mean I've followed it from the standpoint of reading about
it. But I felt like I didn't understand the business. Then, after I started
buying it, I felt I still didn't understand the business. I actually changed
my mind in terms of understanding and not in terms of evaluating it. I
think, I mean, Oracle is a great business. But I don't think, particularly
after my experience with IBM, I don't think I understand exactly where
the cloud is going. You know, I've been amazed at what Amazon has
done there. And now Microsoft is doing it as well. So I don't know where
that game is going.
BECKY QUICK: That leads us to F4, which is a question from a viewer

named Mark Hall, who said, "With IBM bouncing back, how do you feel
about getting out?"
WARREN BUFFETT: I'm glad – we got out at a lot higher prices than
this.
BECKY QUICK: And then finally –
WARREN BUFFETT: But I'm not knocking what they're – you know?
But the whole market's come back. And the market's at a high. And that
doesn't mean – I don't mean it's at a high, and then it's going down,
subsequently. I mean that it's just higher than it's been you know, for
well, really, ever. I mean, when we met here ten years ago, the Dow – the
S&P was at 666 and within a day or two of when we got together. And
you know, and people thought America was washed up. And you know,
they were afraid of America. And what's happened? Quadruple in ten
years. How many quadruples do you get in your life?
BECKY QUICK: Right. Okay, we're going to take a quick break right
now. Joe, we'll send it over to you.
JOE KERNEN: All right. Thank you. Coming up much more from the
oracle, Warren Buffet and this big ass Warren Buffet show we got. As we
head to break, though, here's President Trump, tweeting this morning,
"Oil prices getting too high. OPEC, please relax. Take it easy. The world
cannot take a price hike. Fragile!" He also tweeted about Spike Lee,
believe it or not and some Spike's comments yesterday. Checking crude
prices, we're going to see a 2.5% drop this morning. That's pretty funny,
pretty interesting, after the president tweeted. Anyway, down 2.5% on
WTI. "Squawk Box" will be right back.
JOE KERNEN: Welcome back to Squawk Box. Futures continue to trade

up triple digits, 140 now on the Dow Jones. The S&P will be back above
2,800, if it were to close where it is right now. Indicated premarket up 12.
NASDAQ indicated up 41. Coming up, we have much more from our
special guest, Warren Buffett. We'll talk about some of Berkshire's
biggest holdings right after the break, so don't go anywhere. We'll be
right back.
BECKY QUICK: Welcome back, everybody. We have a special guest

today, Berkshire Hathaway Chairman and CEO Warren Buffett. We've
spent a lot of time this morning talking about the annual report, the
economy, the markets, some of the individual stocks that you've been
buying and selling. But Warren, what we haven't spent much time talking
about, and we've mentioned it briefly, was just this idea of what
happened with Amazon and looking for a second headquarters-- in
choosing New York, initially, and then saying, 'Forget about it,' once they
saw the backlash that came up. You're a company that has never really
shopped around for deals like that. What do you think of companies that
do get special deals from states?
JOE KERNEN: Well, I have actually helped Nebraska a few times, when
the governor or somebody's asked me to call a company. And everybody
does it. I mean, say-- it-- it's just -- I mean, it is a competitive game, on
locations. But it-- it can be a little irritating, in a sense, when you're
already here, and you're employing thousands of people, and they want
to give special incentives to somebody who is and-- and which they
haven't give you-- to be -- and in some cases, to be your competitor. I
mean, it-- you know, Amazon's going to compete plenty in New York,
regardless. But I mean, Amazon's-- it's going to affect, negatively, the
business of many, many, many companies in every state, including New
York. As Jeff Bezos says, you know, 'Your gross margin is my
opportunity.'
BECKY QUICK: Does that mean you think New York was right to turn
down the deal or kind of second guess the deal that they had originally--
JOE KERNEN: Yeah. Well, that-- that's what happened, is they—they

both got to the altar, you know? And then the dowry was changed, in a
sense. I don't know all the details. But and you're-- you're in a tough
position, if you're a company negotiating with public officials. Because
the public officials really can't, necessarily, be the last say, whereas, the
company, if the CEO says that you got a deal, you've got a deal. And on
the public side-- you know, there's a city council that has to ratify, a
mayor, or something of the sort. So it's unequal that way. Now, our
experience in New York and Buffalo has been t-- fantastic. I mean, Geico
went there. We got 3,000 people, and the community's help, and
Governor Cuomo's help. I mean, just generally, it's been very, very, very
good for us. But I think, if you're going to have a bad marriage-- it's
better to find out before -- before they pronounce you man and wife than
after. You still-- they're both hurt a little bit by the fact that it went there.
I mean, the-- it makes think-- people think twice about doing a deal,
where the community may get upset about you for one way or another, or
that the politicians can't deliver on it. And it-- from Amazon's standpoint,
I mean, they-- it hurts them a little, too, not-- not in a great, big way for
either one. But it's no plus to have things fall apart. So you really, as
much as possible, you want to have that sort of thing sealed before. But
you need labor unions. You need political figures. I mean, a lot of things
can tank it on the public side.
BECKY QUICK: You know Jeff Bezos-- very well. In fact, you're
working with he-- with him and with Jamie Dimon on this healthcare
initiative between the three companies. Can you give us an update on
where things stand right now?
JOE KERNEN: Well, we've got a terrific fellow, Atul Gawande--

running it. It is a long, long-term-- process. And-- and when we get
through, we have to not only have-- a better medical service, and I think
we've got a lot of great things about our medical system. But it is costing
us now, 18% of GDP, up from 5%. And it is a tapeworm. And if any
other cost in America had gone from 5% to 18%-- federal taxes have
stayed quite constant around 18% for 40 or 50 years. Same time,
medical's gone from 5% to 18%. Now, a little double counting there,
because Medicare's in it. But-- so we've got to stop the cost situation. But
what we're hoping to find is something that will not only do a better job
for our employees, but have them feel better about it and stop the
ascending rate. Because, you know, every point you chew up of GDP
comes out of something-- comes from somebody else. I mean, there are
only 100 cents in the dollar. But it's a very long-term. I mean, it's-- and--
and we'll get something done. The probability is, you know, I mean, it--
we're-- we're trying to change a $3.3 billion indus-- $3.3 trillion industry,
I'm sorry, that really, for the people participating in it, they feel pretty
good about it. I mean, the-- the people getting the $3.4 trillion. The
hospitals are not happy. The PVMs are not happy. The drug I mean, they-
- you know, they may complain a little. But the people that are getting
the $3.4 trillion are not screaming, 'Change, change, change!'
BECKY QUICK: Right. We will have more of our conversation with

Warren Buffett. Still have a half hour to go in this show. When we come
back, we're going to talk a little bit more about his thoughts on Kraft
Heinz and his partnership with 3G. Right now, though, as we had to a
break, take a look at the U.S. equity futures. This morning, things have
been up across the board. Right now, it looks like the Dow futures are
indicated up by about 142 points above fair value. S&P futures up by 12.
The NASDAQ, up by 41. Special edition of Squawk Box back after a
quick break.
JOE KERNEN: Welcome back to Squawk Box on CNBC. Live from the
Nasdaq MarketSite in Times Square. In case you missed it earlier, GE is
selling its biopharma business to Danaher for $21.4 billion. The majority
of that, in fact, $21 billion, in cash. GE says it will use the proceeds to
reduce leverage and strengthen its balance sheet. Expects the deal to
close during the fourth quarter of this year. Both companies have-- the
shares in both-- benefitting nicely from the announcement, with GE up
15%. It's been a long time since we've seen that, almost back to '12.
Danaher indicated up almost 6%. Right now, let's get back to Becky
Quick, in Omaha with Warren Buffett. I'm telling you, Becky, they-- you
know, the big 'Ask Warren,' show doesn't get nearly as much play and
accolades as 'The Big Ass Warren show,' I mean, really. It just-- it just
doesn't. This is a big deal.
BECKY QUICK: I explained that to Warren--
JOE KERNEN: It happened again.
BECKY QUICK: --in this last break--
JOE KERNEN: It happened again. It happened again. People-- people

said--
WARREN BUFFETT: I-- I'm tr--
JOE KERNEN: Yeah, they--
WARREN BUFFETT: I'm trademarking the name, Joe.
JOE KERNEN: That just sounds really--
WARREN BUFFETT: Yeah, you're infringing on my-- you're infringing

on my trademark.
JOE KERNEN: You know what? I wouldn't be surprised. You did that on
break. You did that on break. He tr-- he-- he trademarked that on break--
BECKY QUICK: He-- did. He also said, "It's better than being called the
dumb-ask Warren show.
JOE KERNEN: Yeah, yeah, that's right, or the jack-ask Warren show.
You're right. It's--
WARREN BUFFETT: Yeah. Maybe we'll get into why that name is
appropriate in this.
BECKY QUICK: Oh, speaking of, you know what I'm g-- I'm coming to
next--
WARREN BUFFETT: Yeah, I-- I know.
BECKY QUICK: All right, let's get back into-- the serious business with
Warren Buffett, our special guest today, b-- Berkshire Hathaway's
chairman and CEO. And-- and Warren, I mentioned, before the break,
we'd be talking about Kraft Heinz again.
BECKY QUICK: People watching that, because you own 26.7% of Kraft
Heinz. It came out with a lot of bad news on Thursday, with its earnings
missing, with an SEC investigation being unveiled, with a write-down of
the brands, and by the way, management saying, on the call that they
didn't anticipate things would necessarily get better in 2019, although
they do see improvement in 2020--
WARREN BUFFETT: You forgot to mention, we cut the dividend.
BECKY QUICK: Oh, I forgot about the dividend. You're right. I-- forgot
to mention that. Let's just get to one of the questions we have from a
viewer, T63. This is Rich @BeforeDad: "What are your thoughts on
Kraft Heinz, following all the current news? And what is your biggest
concern, regarding Kraft Heinz's future?"
WARREN BUFFETT: Well, we have some very, very strong brands at

Kraft Heinz. And as I pointed out earlier, the company earns about $6
billion, pretax, but after depreciation, not after amortization, but after
depreciation, earns $6 billion on $7 billion of tangible assets. It's a
fabulous business. It's-- in terms of return on tangible assets, I mean, this
is a great business. We're sitting here in the first year mark. But, returns
much higher at Kraft. It's much higher than it is at JP Morgan. It-- it's
much-- it-- you know, you-- you go up and down the list. There's very
few companies that are earning $6 billion on $7 billion of tangible assets.
But we paid $100 billion more than the tangible assets in buying. And,
we over-payed in in Kraft. I don't think we over-payed in Heinz. And we
borrowed money that related to projections that have not been met. We
earned a lot of money. But we were paying out a lot of money. So we had
very little in the way of retained earnings to reduce debt. So our debt of
$31 billion is higher than we projected originally to rating agencies and
so on. And-- we need to bring it down. Andit comes down very slowly, I
mean-- unless you sell- sell properties. I mean, even if you cut the
dividend from 250 to 160, that's $1.1 billion a year. But on $31 billion,
you'll go the right direction. But there's a lot of -- there's real debt to be
reduced.
BECKY QUICK: A lot of people wrote in and had questions about your
partnership with 3G. 3G were your partners in the Heinz deal and then
with the addition of Kraft, as well. Let's go to T61. This is from James
Shanahan: "Mr. Buffett, how would you characterize the relationship
with 3G today? Would you still consider additional deals with 3G?"
WARREN BUFFETT: Yeah, I consider Jorge Paulo and-- and his

associates. But my primary contact's been with Jorge Paulo Lemann--
over the years, first meeting him on the Gillette board. And I think he's
an absolutely outstanding human being. And-- but a year ago, he pointed
out that the game had changed, in terms of brands. And he gave a talk at
some Forbes event or someplace. And that was a full year ago. And six
months ago, I told you, on, you know, the Glide thing, that brands-- it's
not as-- packaged goods are not as good a business as they were. The
really strong brands are. But, you know, we've learned that over the last
few years, as the struggle between the retailers and the brands has shifted
toward the retailers. And that's why Kirkland is a big-- a very, very big
brand. Walmart's going more to private label. There are some big forces
on the other side. If you've got a good-enough brand, you know, you can-
- you can-- you can also call your terms. Costco dropped Coca-Cola
some years ago. They brought them back.
BECKY QUICK: Do you see that ever shifting? Or do you think that
the-- the game is going to be this way, weighted towards the retailers,
except for the biggest brands?
WARREN BUFFETT: It certainly looks like, particularly with the

addition of Amazon to the picture, I mean, when you-- when you have
Amazon and Walmart fighting, it's a little bit like the elephants fighting,
you know, I mean, the mice get trampled. And, I don't see-- I certainly
don't see the retailers' position getting weaker. I mean, you have Aldi
coming in and stronger. It just-- and you got-- Walmart's done a very,
very, very good job. You had McMillon and-- but he carries around that
list of the ten top retailers of the past and--
BECKY QUICK: From every decade.
WARREN BUFFETT: To sort of remind-- yeah, to remind him, you

know, that it-- it's hard to stay on top. And-- but now, you've got two
very-- and a lot of other players, too, but two particularly strong players
that have got their foot to their floor and-- and, to some extent, will be
pushing their own brands.
BECKY QUICK: In terms of the partnership with 3G-- if the situation

has changed, according to both Jorge Lemann, Jorge Paulo Lemann, and
to you, if-- brands are not as strong as they used to be, and as you've said
in the past, it's gotten really much more expensive to try and look at any
of these other consumer packaged-goods companies and, potentially, buy
them, does that mean the whole 3G formula has kind of been upended?
And is it really difficult to make it work, if you can't go out and buy
another company and then cut costs?
WARREN BUFFETT: Yeah, well, the acquisition-- just don't work as

well. I mean, for one thing, the prices got pushed up. And-- you know,
anything almost-- almost anything, at a price, can be good, not
everything. But anything, at a certain price, can be bad. I mean, if you--
if you pay too much, you pay too much. And-- it doesn't-- that doesn't
change. And if you borrowed a fair amount in conjunction with it, it
takes a while to-- turn around. I-- do not see-- well, we're not in a
position-- to buy additional brands. And I-- have not thought it made
sense-- as we've seen both prices change and the competitive position
change, somewhat. I still like the businesses we have-- very much. I'll be
happy to be in Kraft Heinz five years from now or ten years from now.
I'm certainly happy to be Jorge Paulo's partner. He's a terrific human
being-- and very smart on business. But-- you can say that we both--
misjudged the retail versus-- brand fight, as to-- who would be gaining
ground on the other.
BECKY QUICK: Watching what happened to shares of Kraft Heinz on

Friday, after all that news came out, after the market closed on Thursday-
- I mean, the stock was down 30%. And I think, for Berkshire alone, that
was a loss of about $4 billion on top of your $3 billion share of the $15
billion write down. I know you wrote, in the annual meeting, or the
annual letter, about how-- there are days, because you have such a big
portfolio, $173 billion in stocks, there are days, with market volatility
being back, that you see a swing of plus or minus $4 billion on certain
days.
BECKY QUICK: I know you're like Dr. Spock. You're completely

emotionless, when it comes to dealing with market moves. But is there
any part of you that gets a little queasy, when you see that you've lost $4
billion in a day?
WARREN BUFFETT: Not in the least. No. I mean, it makes me--

assuming I like the business. It depends which ones they are. But
overwhelmingly-- during the fourth quarter that things were going down,
A, they were buying out their own stock. So I'm actually making money
that day, you know, without laying out a dime. And then secondly, I can
buy more of some, although a lot of 'em, I've got that 10%-- problem
with. But I-- mean, there are certain stocks I would've kept buying,
except I was bumping up against-- the 10%. But no, I-- mean, if you paid
X dollars a pound for hamburger yesterday, and you go in today, and
now, it's at 80% of X, maybe you have a little hamburger left in your
refrigerator or something. Do you tear your hair out over that? Or do you
say, "My God, you know, this is terrific. The price is cheaper"? What--
else in the world don't you like to buy cheaper than you're paying the day
before?
BECKY QUICK: That's a fair point--
WARREN BUFFETT: If you're gonna-- if you're gonna keep buying it.
BECKY QUICK: That's a very logical way of looking at things,

(LAUGH) very rational way. Hey, Joe has a question, too. Joe--
JOE KERNEN: So Mr. Spock, mister. Dr. Spock is that whacky guy that-
-
BECKY QUICK: Oh, Dr. Spock.
JOE KERNEN: --tthat wouldn't console his--
BECKY QUICK: Oh, right. He's the baby guy.
JOE KERNEN: That-- that said, "Let the kid cry all day."
BECKY QUICK: I finally said something that got your attention.
JOE KERNEN: No. No, I actually wanted to ask about-- I wanted to ask-
- that-- I was just talking about Dr. Spock with my-- he was-- I don't
know. He was-- I don't know if you would just let kids cry forever. I
think you need to-- anyway.
BECKY QUICK: No. No way--
JOE KERNEN: No, you can't. You can't. That guy was whacko. I'm
tryin' to--
BECKY QUICK: No.
JOE KERNEN: --explain Freud, too, another one.
BECKY QUICK: I agree.
JOE KERNEN: Anyway--
BECKY QUICK: Good luck with that.
JOE KERNEN: Can I ask-- quickly about that 60 Minutes ad, just some
philosophical questions, Warren--
BECKY QUICK: Of course, yeah, yeah.
JOE KERNEN: So the basic thrust of this piece yesterday, on electric

cars, was that-- at least the way I read it is, in this country, I think we're
starting to feel like, maybe, the subsidies that Tesla gets aren't really a
good way to do things, necessarily. And-- over in China, they seem to be
going the other way, where they are gonna subsidize this. It's almost a
state-run enterprise, how much they're subsidizing electrical vehicles. As
a result, the thrust of the piece was, by 2025, they're gonna be doing a
couple of million, 3 million, 4 million electric vehicles. We're gonna be
stuck down under a half million. Is that what we should be doing here,
do-- in your view? Or--is there a reason you're invested over there, in
electric vehicles, rather than here? I mean, is that the way to do it?
Should we be subsidizing it completely here, in the U.S.? Or-- do market
forces-- allocate capital better?
WARREN BUFFETT: Markets are better, generally, Joe. I mean, you

know me. I'm-- but that doesn't mean all the time. There are certain-- but
markets are better. I think-- I actually think electric cars-- I think you're
gonna have a lotta people pushing electric cars, in the United States, even
though the subsidy is going away. I think it goes away at 200,000 units or
something like that. And-- Tesla's hitting it and so on. But-- so I think
electric cars are-- very much in America's future and-- I think, much
sooner than autonomous driving. But I-- listen, I'm all for the Chinese
doing what they're doing. I mean, in- terms of the-- in terms of the
planet, and you know, it's a good thing. So I-- cheer 'em for doing it. I
don't think we'll need to do it, in the United States. I think--
JOE KERNEN: But you're invested over there. You're not--
WARREN BUFFETT: I'm-- I'm--
JOE KERNEN: --invested here, right?
WARREN BUFFETT: Oh, we bought the BYD ten years ago. And
Charlie called me up and said, "Buy this." And this-- that is totally
Charlie's position. And-- it's done fine. And-- he keeps in touch with the
management and all of that. I-- that is not something that-- that-- I could
not tell you, within 20%, what the price of BYD is. I don't look at it.
JOE KERNEN: Okay, so that's not your thing. Okay, but I just watching
it, you know, the-- spin I was getting from 60 Minutes was that, you
know, we're-- we don't understand that you know, you certain industries,
you need full-on government-- assistance or almost-- you know,
subsidies at the-- you know, ten times what they are right now, to try and
win at something, which is not surprising for 60 Minutes. But I was just
wondering whether you thought we're gonna fall behind, if we don't have
a concerted government effort to prop up the industry.
WARREN BUFFETT: I think there's a pretty concerted industry effort,

from what I hear. I mean, it-- no, I think you're gonna see a lot more
electric-- and incidentally, I mean, you know, we have an interest in-- in
Pilot Flying J. And-- so we have-- we have certain businesses that----
would be adversely affected-- with all electric. But I-- think we're going
in that direction. And I think you'll see-- the American companies quite
aggressive in that field.
JOE KERNEN: All right. I was listening the whole time, Becky. What do
you mean, that's the only time I'm-- I was listening. I'm been listening.
I've got nothing else to do here, but listen. So-- but-- I was-- I was
listening. I just like that. I-- I like that-- you know, you know how much I
love mixed metaphors. My favorite is, like-- that's a walk in the cake--
BECKY QUICK: You do.
JOE KERNEN: Like-- you know, or-- you know, there's just so many
good ones-- if you can mix 'em up. But when they--
WARREN BUFFETT: Start working on March.
JOE KERNEN: March madness-
WARREN BUFFETT: Start-- Joe, start working on your March Madness

ballot.
JOE KERNEN: Oh, I-- I know I won't--
WARREN BUFFETT: We're counting on you--
JOE KERNEN: You know, I know how you operate, Buffett. I-- mean,
yeah, I-- you-- why don't you just offer-- why-- offer $100 billion to
someone who gets a perfect bracket. It's never gonna happen. It's never
gonna-- you-- it's never gonna happen, ever.
WARREN BUFFETT: No, no.
BECKY QUICK: It has happened once, didn't it?
WARREN BUFFETT: Well, we--
BECKY QUICK: Didn't a kid win a few years ago with a perfect
bracket, not against you, but--
WARREN BUFFETT: All you have to do is get through the first bracket
to win $1 million, assuming nobody else wins at the same time—then
you split the million.
JOE KERNEN: That's hard.
WARREN BUFFETT: Then you split the $1 million.
JOE KERNEN: So hard. Great though. I can't wait.
WARREN BUFFETT: But we had five of them. Two years ago, we had
five of them that got to the last four games and – perfect.
JOE KERNEN: That's amazing.
WARREN BUFFETT: And four of them went out on one game, and one
went out on the other game. But they split it. They split it.
JOE KERNEN: Last year, you were going to let me take over your
Twitter count, if I got to the final. And I—
BECKY QUICK: Whoa.
JOE KERNEN: Why? I want to do that again.
BECKY QUICK: Whoa, whoa!
JOE KERNEN: If I get all eight.
BECKY QUICK: Whoa! Look out!
JOE KERNEN: If I get all eight. If I get all eight, if I tick all eight, can I
have—
BECKY QUICK: If he gets all –
JOE KERNEN: The lead eight.
WARREN BUFFETT: You got a deal.
BECKY QUICK: Wait, you'd better set some parameters on that. How
long does he get to keep your Twitter account for?
JOE KERNEN: Oh, this is going to be good.
WARREN BUFFETT: Listen, I have other people pretending to be me on

Twitter.
JOE KERNEN: Yeah, you do anyway.
WARREN BUFFETT: You might – I mean, it's very cheap. I mean—
JOE KERNEN: All right. Thanks. We're going to take a break.
BECKY QUICK: All right, Joe, take us away.
JOE KERNEN: All right, I will. Still to come, your last chance to submit
your questions for Warren Buffett with the hashtag Ask Warren. It's not,
you know, ass Warren. Anyway more of his answer after the break. U.S.
equity futures at this hour, 146 on the Dow, 13 on the S&P. We'll be
back.
BECKY QUICK: Welcome back to this special edition of "Squawk

Box." We are live in Omaha, Nebraska, at the Nebraska Furniture Mart,
with Berkshire Hathaway chairman and CEO Warren Buffett. Warren,
we've talked about a lot of things this morning. But for people who are
just tuning in, I'd like to go back just to your thoughts on the overall
market. We just had a conversation with Charlie Munger about a week
and a half ago. And I asked him if he thought the golden era of value
investing was over. And he said, "No, not for forever." But he thinks the
game is a lot harder than it used to be. What are your thoughts, just in
terms of looking around, trying to find businesses, trying to find pieces
of business, versus when you started the game?
WARREN BUFFETT: Well, it's harder for two reasons, one of which is
peculiar to us, is we've got a lot more money. So our universe of possible
things to do has shrunk from thousands and thousands of things that I
used to look at, when I had small amounts of money, to a relatively few
things now.
BECKY QUICK: See, that seems to defy logic. "I have more money, so I
have fewer things I can do." But it's just because a deal—
WARREN BUFFETT: It doesn't—
BECKY QUICK: It's got to be much bigger to move the needle.
WARREN BUFFETT: It doesn't move the needle, yeah. So no, there's

probably 100 stocks. You know, if we put $5 billion in something, and
it's 10% of the market cap, which would be as much as it would be,
you're talking $50 billion in upmarket caps. And $5 billion is 1% of
Berkshire's value. So if it goes up 50%, we make a half a percent, you
know, basically, on value before tax. 35, 40 basis points afterwards.
BECKY QUICK: I'd love to have your problems.
WARREN BUFFETT: Yeah. So and then the second thing is, I mean,
obviously, you've got way more competition than when we started in 19
– well, really, when I took Ben Graham's class in 1951. I mean, the
whole world was my oyster. Because people were not going through the
manuals. And you had to – it's easier to get the data now, for one thing. I
mean, just with the internet, it's far easier. I used to mail away for annual
reports and go to the Interstate Commerce Commission, the Public
Utility Commission, the Insurance Commission. I went to all those
offices and dug through papers. And now, it's, you know, it takes five
seconds for somebody to get the same information.
BECKY QUICK: I'll ask this very fleetingly. Has your position changed
on Bitcoin?
WARREN BUFFETT: No. I mean, it's too bad. But Bitcoin, it's
ingenious. And blockchain is important. But Bitcoin has no unique value
at all. It doesn't produce anything. You can stare at it all day, and no little
Bitcoins come out or anything like that. It's a delusion, basically.
BECKY QUICK: So we've gone from rat poison squared to a delusion.

That's kind of an upgrade.
WARREN BUFFETT: Well, yeah, you know, who knows where we'll be
next year. But I'm really sorry it happens. Because people get their hopes
up that something like that is going to change their lives. And it was a
very ingenious thing, to figure out how to have limited supply and make
it harder and more expensive to create, all that sort of thing. But it
doesn't – the function is, and this was explained to me by people a lot
smarter than I am, but they say blockchain does not depend on bitcoin –
and you know, JP Morgan is talking about creating their own, you know,
JPM. And it'll be worth $1. I mean, it's matched to the dollar to dollar.
And I'm sympathetic to people that own it.
BECKY QUICK: There are a lot of questions that are kind of, like, the
new Bitcoin questions. We've got several questions that came in to ask
you about. I'll go to T46. This is Forca Design, LLC. "Do you think the
hemp and marijuana industry is a viable industry to invest in, even
though there are still restraints on how capital can be moved and used?"
We got lots of variations on this question.
WARREN BUFFETT: Yeah, it's an industry that I don't know, really,

anything about, usage or otherwise.
BECKY QUICK: Never?
WARREN BUFFETT: No, never. No, I couldn't figure out how to do it. I
mean, I couldn't even smoke a cigarette. I mean, you're talking to a guy
that doesn't pick up things very fast.
BECKY QUICK: What do you think about college athletes and whether
they should be paid? And I ask you this having watched what happened
with Zion Williamson, the Duke player whose Nike shoe blew up on him
last week. It kind of reignited that whole debate. And you're a long-time
watcher of college athletics.
WARREN BUFFETT: Well, I'll say this. If I was an athlete, I think I

probably should – I would probably have a view on I should be. I mean
you are – I mean, if you're really good, you're of enormous commercial
value. And the rules are designed to prevent you from cashing in on that
commercial value, you know for some period. It doesn't – the rich
schools are going to win, then. Harvard may have a resurgence of
football.
BECKY QUICK: This one came in, T28. Mititaka Gotu said, "Do you
see any irrational human behavior by investors or corporate Americans
right now?" You're kind of – you and Charlie are kind of like the police
of corporate America. What do you see that you don't like right now?
WARREN BUFFETT: Well, there's always a certain number of people

doing things that are designed to take advantage of other people. I mean,
the market is so big. And so there's always been people. But you know,
maybe it's Bitcoin. Maybe it's new issues. I mean, look at all the things
that have been created around Bitcoin. I mean, there's been a lot of fraud
and disappearance and all these kinds of things. It attracts charlatans,
basically. Because the money's so big. I mean, if you go out and do
something phony in selling yo-yos or something, there's no real money in
it. But when you get into Wall Street, there's huge money. And you can
do it with little pieces of paper. And they don't bounce back on you for a
long time. And a lot of people get well, Madoff was, you know, an
example. But that's going to happen. And that's why we've got an SEC
and why we've got courts. But it'll always continue. It'll always need
policing.
BECKY QUICK: There are a bunch of new technology IPOs that are
slated to come to market this year. I think back to what you thought
about the tech IPOs back in 1999 and not wanting to be near them. These
are a little different. A lot of these actually have earnings. You think of
an Airbnb. You think of Pinterest or something along these lines. Is this
different? What do you – how do you value this stuff?
WARREN BUFFETT: Yeah, some of them – now, yeah, but the big ones
have losses.
BECKY QUICK: Uber.
WARREN BUFFETT: And some of them report earnings differently than

I would report earnings. I mean we haven't bought IPOs. And if you
think about it, you've got a whole bunch of people on the other side who
have an interest in marking up each stage of it, even if it's phony.
Sometimes, they offer one price for the employees that already have the
shares. But then, they have an artificial price so they can say that this
round went at a higher price. They're picking the time to sell to you. I
don't like – I like it when I'm picking the time to buy, in a 2008, rather
than having them pick the time when they've decided, "This is the time
we can cash in by selling to you. We're going to do you a big favor and
let you buy in." So I have never been a big fan of IPOs. And the
valuations are kind of staggering now on some.
BECKY QUICK: Any in particular?
WARREN BUFFETT: Not that I – no.
BECKY QUICK: Not that you feel like discussing.
WARREN BUFFETT: By category.
BECKY QUICK: But let's – the category of those that you think the
valuation is staggering is based on what? Just earnings per the market for
some of these?
WARREN BUFFETT: It's just, I mean, if a company's going to become

public, we'll pick a figure, $50 billion. What should you expect it to earn
in five years? You should certainly expect it to be earning $5 billion,
pretax. I mean, if you wait five years to get 10% on your money. And
people, they don't sell them that way, you know? There aren't that many
companies that earn $5 billion or more, pretax. There's a fair number. But
it's not that easy. And it's particularly not that easy if you count what
you're paying the employees in stock options and all that sort of thing.
BECKY QUICK: A question came in. This is T112 from Todd Marshall.
He says, "Who wins more at the card game bridge – Buffett or Gates?"
Who wins more when you play bridge?
WARREN BUFFETT: Well, I probably play 100 times as often as Bill.

So that's probably the only game in the world where I'd have a slight
edge with him, a very slight edge. If he probably spent two solid days
working on it he'd do better. Oh, while you bring up Bill Gates, Melinda
Gates has got a book coming out on April 23rd. I think it's one of the best
books I've ever read.
BECKY QUICK: What's it about?
WARREN BUFFETT: It's about women. And it's about women around
the world, it's about herself. And it's very candidly told. And the stories
are terrific. And I read it the other day in one sitting. It's only 220 or 230
pages. It's coming out April 23rd. And I think it'll be a huge seller.
BECKY QUICK: That's great. We'll look forward to seeing it. Another
question that came in is T55. Steve Pilgrim asks, "For those of us who
have lived our lives and careers reading and listening to Warren Buffett
and Charlie Munger, to whom do they recommend our grandchildren
listen?"
WARREN BUFFETT: Well, I hope it's to us. But that would be sort of an
actuarial freak. No, there's plenty of interesting writers, you know, but I
will tell you this. The fundamentals won't change. You're not going to
discover anything new about investments in the next 50 or 100 years. I
mean, it's buying a business. You have to know how to value the
business. And you have to know something about how markets operate.
But you don't buy a business, unless you can value it. You have to learn
how to value businesses and know the ones that are within your circle of
competence and the ones that are outside. And that won't change. And it
really gets back to laying – investing is laying out a dollar an hour – a
dollar of purchasing power – and getting more back in the future. And
you try and figure out, you know, how much you're willing to pay for
that bird in the bush, compared to the bird in the hand.
BECKY QUICK: Warren, we want to thank you for the three hours that
you've spent with us today. We truly appreciate your time.
WARREN BUFFETT: Thank you.
BECKY QUICK: Warren Buffett, the chairman and CEO of Berkshire

Hathaway. And Joe, do you have that bracket ready?
JOE KERNEN: I have been watching and I'm getting into it now. I
watched a lot yesterday. I watched Michigan-Michigan State. I watched
Cincinnati- Connecticut. I watched Xavier-Villanova. And like I'm into
the Big East again Warren, just so you know. You know, our friend, Bill
Murray, Becky, you believe that? His son no longer coaches at Xavier. So
he's going to send me all of his crap from Xavier. He's immediately
becomes a Louisville fan? That is weak.
BECKY QUICK: Just so you know, Bill's watching. He's been watching
since 5:45, eastern time this morning.
JOE KERNEN: That's weak, though. I don't want his crap.
BECKY QUICK: He's over in Europe somewhere. He's actually

watching.
JOE KERNEN: I don't want his used Xavier stuff. I can't believe he can
just switch like that. We would never do that, would we Warren? You're
going to be watching.
BECKY QUICK: He's a fan of his son, who was coaching at Xavier and
now is at Louisville. You'd do the same.
JOE KERNEN: Whatever. I'm very disappointed. Anyway, Warren—
WARREN BUFFETT: Plus, he'd have some good golf tips for you, Joe.
JOE KERNEN: Good wardrobe.
BECKY QUICK: Says the guy who's suddenly a UPenn.
JOE KERNEN: Good wardrobe. Yeah, exactly.
BECKY QUICK: Yeah, it's true.
JOE KERNEN: All right, thank you, Warren. Becky, thank you.
Mr. Buffett on the Stock Market
Fortune, 11/22/99
The most celebrated of investors says stocks can’t possibly meet the public’s expectations. As for the Internet? He
notes how few people got rich from two other transforming industries, auto and aviation.
Warren Buffett, chairman of Berkshire Hathaway, almost never talks publicly about the general level of
stock prices--neither in his famed annual report nor at Berkshire’s thronged annual meetings nor in the rare
speeches he gives. But in the past few months, on four occasions, Buffett did step up to that subject, laying
out his opinions, in ways both analytical and creative, about the long-term future for stocks. FORTUNE’s
Carol Loomis heard the last of those talks, given in September to a group of Buffett’s friends (of whom she
is one), and also watched a videotape of the first speech, given in July at Allen & Co.’s Sun Valley, Idaho,
bash for business leaders. From those extemporaneous talks (the first made with the Dow Jones industrial
average at 11,194), Loomis distilled the following account of what Buffett said. Buffett reviewed it and
weighed in with some clarifications.
Investors in stocks these days are expecting far too much, and I’m going to explain why. That will inevitably set me
to talking about the general stock market, a subject I’m usually unwilling to discuss. But I want to make one thing
clear going in: Though I will be talking about the level of the market, I will not be predicting its next moves. At
Berkshire we focus almost exclusively on the valuations of individual companies, looking only to a very limited
extent at the valuation of the overall market. Even then, valuing the market has nothing to do with where it’s going
to go next week or next month or next year, a line of thought we never get into. The fact is that markets behave in
ways, sometimes for a very long stretch, that are not linked to value. Sooner or later, though, value counts. So what I
am going to be saying--assuming it’s correct--will have implications for the long-term results to be realized by
American stockholders.
Let’s start by defining “investing.” The definition is simple but often forgotten: Investing is laying out money now
to get more money back in the future--more money in real terms, after taking inflation into account.
Now, to get some historical perspective, let’s look back at the 34 years before this one--and here we are going to see
an almost Biblical kind of symmetry, in the sense of lean years and fat years--to observe what happened in the stock
market. Take, to begin with, the first 17 years of the period, from the end of 1964 through 1981. Here’s what took
place in that interval:
Dow Jones Industrial Average

Dec. 31, 1964: 874.12
Dec. 31, 1981: 875.00
Now I’m known as a long-term investor and a patient guy, but that is not my idea of a big move.
And here’s a major and very opposite fact: During that same 17 years, the GDP of the U.S.--that is, the business
being done in this country--almost quintupled, rising by 370%. Or, if we look at another measure, the sales of the
FORTUNE 500 (a changing mix of companies, of course) more than sextupled. And yet the Dow went exactly
nowhere.
To understand why that happened, we need first to look at one of the two important variables that affect investment
results: interest rates. These act on financial valuations the way gravity acts on matter: The higher the rate, the
greater the downward pull. That’s because the rates of return that investors need from any kind of investment are
directly tied to the risk-free rate that they can earn from government securities. So if the government rate rises, the
prices of all other investments must adjust downward, to a level that brings their expected rates of return into line.
Conversely, if government interest rates fall, the move pushes the prices of all other investments upward. The basic
proposition is this: What an investor should pay today for a dollar to be received tomorrow can only be determined
by first looking at the risk-free interest rate.
Consequently, every time the risk-free rate moves by one basis point--by 0.01%--the value of every investment in
the country changes. People can see this easily in the case of bonds, whose value is normally affected only by
interest rates. In the case of equities or real estate or farms or whatever, other very important variables are almost
always at work, and that means the effect of interest rate changes is usually obscured. Nonetheless, the effect--like
the invisible pull of gravity--is constantly there.
In the 1964-81 period, there was a tremendous increase in the rates on long-term government bonds, which moved
from just over 4% at year-end 1964 to more than 15% by late 1981. That rise in rates had a huge depressing effect
on the value of all investments, but the one we noticed, of course, was the price of equities. So there--in that tripling
of the gravitational pull of interest rates--lies the major explanation of why tremendous growth in the economy was
accompanied by a stock market going nowhere.
Then, in the early 1980s, the situation reversed itself. You will remember Paul Volcker coming in as chairman of the
Fed and remember also how unpopular he was. But the heroic things he did--his taking a two-by-four to the
economy and breaking the back of inflation--caused the interest rate trend to reverse, with some rather spectacular
results. Let’s say you put $1 million into the 14% 30-year U.S. bond issued Nov. 16, 1981, and reinvested the
coupons. That is, every time you got an interest payment, you used it to buy more of that same bond. At the end of
1998, with long-term governments by then selling at 5%, you would have had $8,181,219 and would have earned an
annual return of more than 13%.
That 13% annual return is better than stocks have done in a great many 17-year periods in history--in most 17-year
periods, in fact. It was a helluva result, and from none other than a stodgy bond.
The power of interest rates had the effect of pushing up equities as well, though other things that we will get to
pushed additionally. And so here’s what equities did in that same 17 years: If you’d invested $1 million in the Dow
on Nov. 16, 1981, and reinvested all dividends, you’d have had $19,720,112 on Dec. 31, 1998. And your annual
return would have been 19%.
The increase in equity values since 1981 beats anything you can find in history. This increase even surpasses what
you would have realized if you’d bought stocks in 1932, at their Depression bottom--on its lowest day, July 8, 1932,
the Dow closed at 41.22--and held them for 17 years.
The second thing bearing on stock prices during this 17 years was after-tax corporate profits, which the chart, After-
Tax Corporate Profits as a Percentage of GDP, displays as a percentage of GDP. In effect, what this chart tells you is
what portion of the GDP ended up every year with the shareholders of American business.
The chart, as you will see, starts in 1929. I’m quite fond of 1929, since that’s when it all began for me. My dad was
a stock salesman at the time, and after the Crash came, in the fall, he was afraid to call anyone--all those people
who’d been burned. So he just stayed home in the afternoons. And there wasn’t television then. Soooo ... I was
conceived on or about Nov. 30, 1929 (and born nine months later, on Aug. 30, 1930), and I’ve forever had a kind of
warm feeling about the Crash.
As you can see, corporate profits as a percentage of GDP peaked in 1929, and then they tanked. The left-hand side
of the chart, in fact, is filled with aberrations: not only the Depression but also a wartime profits boom--sedated by
the excess-profits tax--and another boom after the war. But from 1951 on, the percentage settled down pretty much
to a 4% to 6.5% range.
By 1981, though, the trend was headed toward the bottom of that band, and in 1982 profits tumbled to 3.5%. So at
that point investors were looking at two strong negatives: Profits were sub-par and interest rates were sky-high.
And as is so typical, investors projected out into the future what they were seeing. That’s their unshakable habit:
looking into the rear-view mirror instead of through the windshield. What they were observing, looking backward,
made them very discouraged about the country. They were projecting high interest rates, they were projecting low
profits, and they were therefore valuing the Dow at a level that was the same as 17 years earlier, even though GDP
had nearly quintupled.
Now, what happened in the 17 years beginning with 1982? One thing that didn’t happen was comparable growth in
GDP: In this second 17-year period, GDP less than tripled. But interest rates began their descent, and after the
Volcker effect wore off, profits began to climb--not steadily, but nonetheless with real power. You can see the profit
trend in the chart, which shows that by the late 1990s, after-tax profits as a percent of GDP were running close to
6%, which is on the upper part of the “normalcy” band. And at the end of 1998, long-term government interest rates
had made their way down to that 5%.
These dramatic changes in the two fundamentals that matter most to investors explain much, though not all, of the
more than tenfold rise in equity prices--the Dow went from 875 to 9,181--during this 17-year period. What was at
work also, of course, was market psychology. Once a bull market gets under way, and once you reach the point
where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that
is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks. In
effect, these people superimpose an I-can’t-miss-the-party factor on top of the fundamental factors that drive the
market. Like Pavlov’s dog, these “investors” learn that when the bell rings--in this case, the one that opens the New
York Stock Exchange at 9:30 a.m.--they get fed. Through this daily reinforcement, they become convinced that
there is a God and that He wants them to get rich.
Today, staring fixedly back at the road they just traveled, most investors have rosy expectations. A Paine Webber
and Gallup Organization survey released in July shows that the least experienced investors--those who have invested
for less than five years--expect annual returns over the next ten years of 22.6%. Even those who have invested for
more than 20 years are expecting 12.9%.
Now, I’d like to argue that we can’t come even remotely close to that 12.9%, and make my case by examining the
key value-determining factors. Today, if an investor is to achieve juicy profits in the market over ten years or 17 or
20, one or more of three things must happen. I’ll delay talking about the last of them for a bit, but here are the first
two:
(1) Interest rates must fall further. If government interest rates, now at a level of about 6%, were to fall to 3%,
that factor alone would come close to doubling the value of common stocks. Incidentally, if you think interest rates
are going to do that--or fall to the 1% that Japan has experienced--you should head for where you can really make a
bundle: bond options.
(2) Corporate profitability in relation to GDP must rise. You know, someone once told me that New York has
more lawyers than people. I think that’s the same fellow who thinks profits will become larger than GDP. When you
begin to expect the growth of a component factor to forever outpace that of the aggregate, you get into certain
mathematical problems. In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent
of GDP can, for any sustained period, hold much above 6%. One thing keeping the percentage down will be
competition, which is alive and well. In addition, there’s a public-policy point: If corporate investors, in aggregate,
are going to eat an ever-growing portion of the American economic pie, some other group will have to settle for a
smaller portion. That would justifiably raise political problems--and in my view a major reslicing of the pie just isn’t
going to happen.
So where do some reasonable assumptions lead us? Let’s say that GDP grows at an average 5% a year--3% real
growth, which is pretty darn good, plus 2% inflation. If GDP grows at 5%, and you don’t have some help from
interest rates, the aggregate value of equities is not going to grow a whole lot more. Yes, you can add on a bit of
return from dividends. But with stocks selling where they are today, the importance of dividends to total return is
way down from what it used to be. Nor can investors expect to score because companies are busy boosting their per-
share earnings by buying in their stock. The offset here is that the companies are just about as busy issuing new
stock, both through primary offerings and those ever present stock options.
So I come back to my postulation of 5% growth in GDP and remind you that it is a limiting factor in the returns
you’re going to get: You cannot expect to forever realize a 12% annual increase--much less 22%--in the valuation of
American business if its profitability is growing only at 5%. The inescapable fact is that the value of an asset,
whatever its character, cannot over the long term grow faster than its earnings do.
Now, maybe you’d like to argue a different case. Fair enough. But give me your assumptions. If you think the
American public is going to make 12% a year in stocks, I think you have to say, for example, “Well, that’s because I
expect GDP to grow at 10% a year, dividends to add two percentage points to returns, and interest rates to stay at a
constant level.” Or you’ve got to rearrange these key variables in some other manner. The Tinker Bell approach--
clap if you believe--just won’t cut it.
Beyond that, you need to remember that future returns are always affected by current valuations and give some
thought to what you’re getting for your money in the stock market right now. Here are two 1998 figures for the
FORTUNE 500. The companies in this universe account for about 75% of the value of all publicly owned American
businesses, so when you look at the 500, you’re really talking about America Inc.
FORTUNE 500
1998 profits: $334,335,000,000
Market value on March 15, 1999: $9,907,233,000,000
As we focus on those two numbers, we need to be aware that the profits figure has its quirks. Profits in 1998
included one very unusual item--a $16 billion bookkeeping gain that Ford reported from its spinoff of Associates--
and profits also included, as they always do in the 500, the earnings of a few mutual companies, such as State Farm,
that do not have a market value. Additionally, one major corporate expense, stock-option compensation costs, is not
deducted from profits. On the other hand, the profits figure has been reduced in some cases by write-offs that
probably didn’t reflect economic reality and could just as well be added back in. But leaving aside these
qualifications, investors were saying on March 15 this year that they would pay a hefty $10 trillion for the $334
billion in profits.
Bear in mind--this is a critical fact often ignored--that investors as a whole cannot get anything out of their
businesses except what the businesses earn. Sure, you and I can sell each other stocks at higher and higher prices.
Let’s say the FORTUNE 500 was just one business and that the people in this room each owned a piece of it. In that
case, we could sit here and sell each other pieces at ever-ascending prices. You personally might outsmart the next
fellow by buying low and selling high. But no money would leave the game when that happened: You’d simply take
out what he put in. Meanwhile, the experience of the group wouldn’t have been affected a whit, because its fate
would still be tied to profits. The absolute most that the owners of a business, in aggregate, can get out of it in the
end--between now and Judgment Day--is what that business earns over time.
And there’s still another major qualification to be considered. If you and I were trading pieces of our business in this
room, we could escape transactional costs because there would be no brokers around to take a bite out of every trade
we made. But in the real world investors have a habit of wanting to change chairs, or of at least getting advice as to
whether they should, and that costs money--big money. The expenses they bear--I call them frictional costs--are for
a wide range of items. There’s the market maker’s spread, and commissions, and sales loads, and 12b-1 fees, and
management fees, and custodial fees, and wrap fees, and even subscriptions to financial publications. And don’t
brush these expenses off as irrelevancies. If you were evaluating a piece of investment real estate, would you not
deduct management costs in figuring your return? Yes, of course--and in exactly the same way, stock market
investors who are figuring their returns must face up to the frictional costs they bear.
And what do they come to? My estimate is that investors in American stocks pay out well over $100 billion a year--
say, $130 billion--to move around on those chairs or to buy advice as to whether they should! Perhaps $100 billion
of that relates to the FORTUNE 500. In other words, investors are dissipating almost a third of everything that the
FORTUNE 500 is earning for them--that $334 billion in 1998--by handing it over to various types of chair-changing
and chair-advisory “helpers.” And when that handoff is completed, the investors who own the 500 are reaping less
than a $250 billion return on their $10 trillion investment. In my view, that’s slim pickings.
Perhaps by now you’re mentally quarreling with my estimate that $100 billion flows to those “helpers.” How do
they charge thee? Let me count the ways. Start with transaction costs, including commissions, the market maker’s
take, and the spread on underwritten offerings: With double counting stripped out, there will this year be at least 350
billion shares of stock traded in the U.S., and I would estimate that the transaction cost per share for each side--that
is, for both the buyer and the seller--will average 6 cents. That adds up to $42 billion.
Move on to the additional costs: hefty charges for little guys who have wrap accounts; management fees for big
guys; and, looming very large, a raft of expenses for the holders of domestic equity mutual funds. These funds now
have assets of about $3.5 trillion, and you have to conclude that the annual cost of these to their investors--counting
management fees, sales loads, 12b-1 fees, general operating costs--runs to at least 1%, or $35 billion.
And none of the damage I’ve so far described counts the commissions and spreads on options and futures, or the
costs borne by holders of variable annuities, or the myriad other charges that the “helpers” manage to think up. In
short, $100 billion of frictional costs for the owners of the FORTUNE 500--which is 1% of the 500’s market value--
looks to me not only highly defensible as an estimate, but quite possibly on the low side.
It also looks like a horrendous cost. I heard once about a cartoon in which a news commentator says, “There was no
trading on the New York Stock Exchange today. Everyone was happy with what they owned.” Well, if that were
really the case, investors would every year keep around $130 billion in their pockets.
Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive
case that equities will over the next 17 years perform anything like--anything like--they’ve performed in the past 17.
If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate--
repeat, aggregate--would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional
costs, it would be 6%. If you strip out the inflation component from this nominal return (which you would need to
do however inflation fluctuates), that’s 4% in real terms. And if 4% is wrong, I believe that the percentage is just as
likely to be less as more.
Let me come back to what I said earlier: that there are three things that might allow investors to realize significant
profits in the market going forward. The first was that interest rates might fall, and the second was that corporate
profits as a percent of GDP might rise dramatically. I get to the third point now: Perhaps you are an optimist who
believes that though investors as a whole may slog along, you yourself will be a winner. That thought might be
particularly seductive in these early days of the information revolution (which I wholeheartedly believe in). Just pick
the obvious winners, your broker will tell you, and ride the wave.
Well, I thought it would be instructive to go back and look at a couple of industries that transformed this country
much earlier in this century: automobiles and aviation. Take automobiles first: I have here one page, out of 70 in
total, of car and truck manufacturers that have operated in this country. At one time, there was a Berkshire car and
an Omaha car. Naturally I noticed those. But there was also a telephone book of others.
All told, there appear to have been at least 2,000 car makes, in an industry that had an incredible impact on people’s
lives. If you had foreseen in the early days of cars how this industry would develop, you would have said, “Here is
the road to riches.” So what did we progress to by the 1990s? After corporate carnage that never let up, we came
down to three U.S. car companies--themselves no lollapaloozas for investors. So here is an industry that had an
enormous impact on America--and also an enormous impact, though not the anticipated one, on investors.
Sometimes, incidentally, it’s much easier in these transforming events to figure out the losers. You could have
grasped the importance of the auto when it came along but still found it hard to pick companies that would make you
money. But there was one obvious decision you could have made back then--it’s better sometimes to turn these
things upside down--and that was to short horses. Frankly, I’m disappointed that the Buffett family was not short
horses through this entire period. And we really had no excuse: Living in Nebraska, we would have found it super-
easy to borrow horses and avoid a “short squeeze.”
U.S. Horse Population

1900: 21 million
1998: 5 million
The other truly transforming business invention of the first quarter of the century, besides the car, was the airplane--
another industry whose plainly brilliant future would have caused investors to salivate. So I went back to check out
aircraft manufacturers and found that in the 1919-39 period, there were about 300 companies, only a handful still
breathing today. Among the planes made then--we must have been the Silicon Valley of that age--were both the
Nebraska and the Omaha, two aircraft that even the most loyal Nebraskan no longer relies upon.
Move on to failures of airlines. Here’s a list of 129 airlines that in the past 20 years filed for bankruptcy. Continental
was smart enough to make that list twice. As of 1992, in fact--though the picture would have improved since then--
the money that had been made since the dawn of aviation by all of this country’s airline companies was zero.
Absolutely zero.
Sizing all this up, I like to think that if I’d been at Kitty Hawk in 1903 when Orville Wright took off, I would have
been farsighted enough, and public-spirited enough--I owed this to future capitalists--to shoot him down. I mean,
Karl Marx couldn’t have done as much damage to capitalists as Orville did.
I won’t dwell on other glamorous businesses that dramatically changed our lives but concurrently failed to deliver
rewards to U.S. investors: the manufacture of radios and televisions, for example. But I will draw a lesson from
these businesses: The key to investing is not assessing how much an industry is going to affect society, or how much
it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of
that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver
rewards to investors.
This talk of 17-year periods makes me think--incongruously, I admit--of 17-year locusts. What could a current brood
of these critters, scheduled to take flight in 2016, expect to encounter? I see them entering a world in which the
public is less euphoric about stocks than it is now. Naturally, investors will be feeling disappointment--but only
because they started out expecting too much.
Grumpy or not, they will have by then grown considerably wealthier, simply because the American business
establishment that they own will have been chugging along, increasing its profits by 3% annually in real terms. Best
of all, the rewards from this creation of wealth will have flowed through to Americans in general, who will be
enjoying a far higher standard of living than they do today. That wouldn’t be a bad world at all--even if it doesn’t
measure up to what investors got used to in the 17 years just passed.
------------------
Bezos on Buffett
Skeptical of Internet mania, the founder and CEO of Amazon.com is spreading the gospel according to Buffett.
Patricia Sellers
Warren Buffett doesn’t mention the Internet on these pages. But he does talk about two other transforming industries
that failed to reward investors over time: autos and aviation. Only a fool would ignore his implicit warning: A lot of
people will lose a lot of money betting on the Internet. Amazon.com founder and CEO Jeff Bezos was so intrigued
by Buffett’s talk at Herb Allen’s gathering of business leaders in Sun Valley, Idaho, last July that he asked Buffett
for his lists of the automakers and aircraft manufacturers that didn’t make it. “When new industries become
phenomenons, a lot of investors bet on the wrong companies,” Bezos says. Referring to Buffett’s 70-page catalog of
mostly dead car and truck makes, he adds, “I noticed that decades ago, it was de rigueur to use ‘Motors’ in the name,
just as everybody uses ‘dot-com’ today. I thought, Wow, the parallel is interesting.”
Especially interesting to a billionaire like Bezos, who knows something about stock valuations from his previous
career as a hedge fund manager. Interesting also to Bezos the history buff, who likes to talk about the Cambrian
explosion about 550 million years ago, when multicelled life spawned unprecedented variation of species--and with
it, a wave of extinctions. Given this perspective, Bezos says, Buffett’s analogies about bankrupt businesses “resonate
deeply.” Now Bezos is spreading the gospel according to Buffett and urging Amazon employees to run scared every
day. “We still have the opportunity to be a footnote in the e-commerce industry,” he says.
Op-Ed Contributor
Buy American. I Am.

By WARREN E. BUFFETT
Published: October 16, 2008
www.nytimes.com/2008/10/17/opinion/17buffett.html
Omaha
THE financial world is a mess, both in the United States and abroad. Its problems,
moreover, have been leaking into the general economy, and the leaks are now turning
into a gusher. In the near term, unemployment will rise, business activity will falter and
headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about,
in which I previously owned nothing but United States government bonds. (This
description leaves aside my Berkshire Hathaway holdings, which are all committed to
philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be
100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when
others are fearful. And most certainly, fear is now widespread, gripping even seasoned
investors. To be sure, investors are right to be wary of highly leveraged entities or
businesses in weak competitive positions. But fears regarding the long-term prosperity of
the nation’s many sound companies make no sense. These businesses will indeed suffer
earnings hiccups, as they always have. But most major companies will be setting new
profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock
market. I haven’t the faintest idea as to whether stocks will be higher or lower a month —
or a year — from now. What is likely, however, is that the market will move higher,
perhaps substantially so, well before either sentiment or the economy turns up. So if you
wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932.
Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office
in March 1933. By that time, the market had already advanced 30 percent. Or think back
to the early days of World War II, when things were going badly for the United States in
Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes
turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the
economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a
slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United
States endured two world wars and other traumatic and expensive military conflicts; the
Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and
the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a
century marked by such an extraordinary gain. But some investors did. The hapless ones
bought stocks only when they felt comfort in doing so and then proceeded to sell when
the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have
opted for a terrible long-term asset, one that pays virtually nothing and is certain to
depreciate in value. Indeed, the policies that government will follow in its efforts to
alleviate the current crisis will probably prove inflationary and therefore accelerate
declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a
substantial degree. Those investors who cling now to cash are betting they can efficiently
time their move away from it later. In waiting for the comfort of good news, they are
ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where
it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what
the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that
opened in an empty bank building and then advertised: “Put your mouth where your
money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding

company.
A Rare Interview of John Templeton, Warren Buffett and Robert
Wilson
gurufocus.com/news/611156/a-rare-interview-of-john-templeton-warren-buffett-and-robert-wilson
The other day I bumped into a video of rare interviews that Adam Smith did with John
Templeton, Warren Buffett (Trades, Portfolio) and Robert Wilson in the mid-1980s.
Although the interviews took place more than 30 years ago, the wisdom is timeless. Below
are the transcripts I made for the interview parts (AS stands for Adam Smith, JT for John
Templeton and RB for Robert Wilson). Please let me know if you find the transcripts
format helpful and would like me to continue publish articles containing transcripts of
interviews or other videos.
John Templeton interview
AS: It’s very pleasant here in the Bahamas, but how

can you run a couple of billions dollars’ worth of
investment from a surrounding like this? Don’t you
have to be on Wall Street?
JT: We did move here (to the Bahamas) because it

is so very pleasant. We now have found that for the
22 years we lived here, the performance of our
mutual fund is better than the 25 years when we
managed from Radio City in New York.
AS: Well how do you account for this? You could work from Radio City and do things
differently.
JT: Well, we tried to. But we go to the same meetings as the other security analysts and the
people who speak are so sensible that we can’t help being influenced. It’s much easier to be
odd when you are a thousand miles away.
AS: You have always said you should buy when the herd is gloomy and sell when the herd is
happiest. How do you know when the herd is gloomy?
JT: Sometimes they are, and of course we make hundreds of mistakes all the time. But we
have found from the very time we started our investment consul operation 44 years ago we
published the motto of our business: to buy when others are despondently selling and to sell
when others are avidly buying requires the greatest fortitude and pays the greatest rewards.
And this applies not only to stock market cycles but it applies to particular industries and
types of stocks. Basically we determine that by finding out why it’s selling at a depressed
price. If a stock is selling at a quarter or a half of what it’s worth, then it’s a bargain and most
likely it’s unpopular with other investors.
AS: Your biggest position is Royal Dutch, but everybody is expecting oil price to go down.
Does that bother you?
1/7
JT: Oh yeah, of course it bothers me, but there are so many other factors. We do own a very
large amount; in fact, it’s the largest holding in our mutual fund because at the present price,
it’s selling for only four times what we think it will earn this year and we estimate that in the
long run, it will earn more, and it’s selling for less than half what they could liquidate for, and
only about three times its present annual free cash flow and pays a little dividend. So for
many many reasons, it looks like the best bargain in the energy industry. It’s very widely
expected that there will be a decrease in the price of oil, and if the low point for share price is
when investors are expecting bad news, not after the bad news comes out. It is possible that
it may get lower. But we are long-range investors; our average holding period is six years. So
in the long run, it will be worth much more.
AS: A couple of years ago, you were heavily in Japan. And now you brought all that money
back in the United States. Is this temporary?
JT: Yes it is temporary. We are worldwide bargain hunters. We search all over the world and
make estimates of the values of each corporation and buy those shares that have the lowest
market price at the time in relation to our estimated value. At one time, that was Japan. In
that nation alone, we have over 50% of our total investments because we were buying the
very finest companies at three times earnings, some at two times earnings. But now, instead
of 50% in Japan, we are less than 3% in Japan because, meanwhile, the prices there have
gone up. The Dow Jones Industrial Average in Japan is now over 25 times earnings. And the
index of smaller companies in Japan over 41 times earnings, so that now there are very
difficult and very few bargains to be found there and more bargains to be found in America
and other nations.
AS: What countries around the world would you pick as the best shot?
JT: We never approach it that way. Almost all securities analysts ask themselves which nation
and which industry before they make a selection. If no one were doing it, that would be a
good method. But since the best results are obtained by [buying] in those areas where other
security analysts were not working, we just say we would buy the best bargains we can find
and later find out what nation it’s in. Now approaching from that end, we have found an
unusually large amount of bargains in the U.S, also in Canada, in Australia and in the
Netherlands.
AS: Three years ago, you said you could see the Dow Jones Industrial at 3,000 within five
years. Which was almost a triple and certainly a double. You have two years left on that
prediction. Do you hold by it?
JT: We keep changing. Well what I said, the chances are as good as even that it would happen.
And I’m saying today that the chances are as good as even that the Dow Jones someday
might be above 3000 before the next presidential election three and a half years from now.
We based it on a very long list of reasons, partly based on valuation, partially based on cash
available.
AS: How do you feel personally about the current takeover mania?
2/7
JT: It’s an illustration that the share prices are among the best bargains in the world. This
takeover mania proves the fact that corporations on the stock exchange are selling for much
less than what they are worth. Also the same thing is proven by the fact that more
corporations than ever are buying their own shares. Those are evidences that values are
unusually low now.
AS: How do you distinguish yourself from Philip Fisher or Warren Buffett (Trades, Portfolio)?
JT: Probably in the fact that I look worldwide more than the others do and search for a wider
variety of areas. Probably because I’m willing to make estimates of the earnings power
further into the future than others are. And certainly because I rely on prayer in everything
we do. We open all our directors meeting with prayer. We pray about every decision we
make. In the long run, that means we’ll still make hundreds of mistakes but less mistakes
than otherwise. We try to follow Solomon and pray for wisdom.
Warren Buffett (Trades, Portfolio) interview
AS: What do you considered the most important quality for an investment manager?
WB: It's the temperament. You don't need tons of IQ in this business. I mean you have to
have enough of IQ to get from here to downtown Omaha but you do not have to be able to
play three dimensional chess or being the top player in a bridge league. You need a stable
personality and temperament that neither derives great pleasure from being with the crowd
or against the crowd because this is not a business where you take polls; it's a business
where you think. Ben Graham would say that you're not right or wrong because a thousand
people agree with you and you're not right or wrong because a thousand people disagree
with you. You're right because your facts and your reasoning are right.
AS: What are you doing that's different than 90% of the money managers who were in the
market?
WB: Certainly most of the professional investor focus on what the stock is likely to do in the
next year. There are all kinds of arcane methods of approaching that. But they do not really
think of themselves as owning a piece of the business. The real test of whether you're
investing from a value standpoint or not is whether you care whether the stock market is
open tomorrow. If you're making a good investment in a security, it shouldn’t bother you if
they close down the stock market for five years. All the tickers tells me is the price and I can
look at the price occasionally to see whether the price is outlandishly cheap or outlandishly
high. But prices don’t tell me anything about the business. Business figures themselves tell
me something about the business. I would rather value a stock or a business first and not
even know the price so that I'm not influenced by the price and establishing my valuation
and then look at the price later to see what its way out of line with my valuation.
AS: How can you stay away from Wall Street?
WB: if I were on Wall Street I'd probably be a lot poorer. You get overstimulated on Wall
Street. You hear lots of things. You may shorten your focus and a short focus is not
conducive to long profits. Here I can just focus on what the business is worth. I don’t need to
3/7
be in Washington to figure out what the Washington Post newspaper is worth. And I don’t
need to be in New York to figure out what a company is worth. It’s an intellectual process and
the less static there is in the intellectural process really the better off you are.
AS: What is the intellectual process?
WB: Intellectual process is defining your area of competence in valuing business and then
within that area of competence finding whatever sells is the cheapest price in relation to
value. And they're all kinds of things I'm not competent to value and there are a few that I am
competent to value.
AS: Have you bought any technology company?
WB: No I haven’t.
AS: In 30 years of investing not even one?
WB: I haven’t understood any.
AS: So you haven't ever owned for example IBM (NYSE:IBM)?
WB: Never owned IBM. It’s a sensational company but I haven’t owned IBM.
AS: So here is this technological revolution going on and you haven’t participated in it?
WB: No, gone right past me.
AS: Is that all right with you?
WB: It’s OK with me. I don’t have to make money in every game. I don’t know what the cocoa
bean is going to do. There are kinds of things that I don’t know about. And that may be too
bad but why should I know about them? I haven’t worked hard on them. In securities
business every day you have thousands of the major American corporations offered you at a
price that changes daily and you don't have to make any decision. Nothing is forced upon
you so there are no called strikes in the business. The pitcher just stands there and throws
balls at you and if you're playing real baseball and it's between the knees and the shoulders
you either swing or you going to get a strike call and if you get too many calls on you and
you're out. In the securities business, you sit there and they throw U.S Steel at 25 and
General Motors at 16 and you don’t have to swing at any of them. They may be wonderful
pitches to swing at but if you don't know anything about them, if you don't have to swing,
and you can sit there and watch thousands of pitches, and finally got one right and you
understand and then you swing.
AS: So you may not swing for six months?
WB: I may not swing for two years.
AS: Is it boring?
4/7
WB: It would bore most people and certainly boredom is a problem with most professional
money managers if they sit out an inning or two. Not only do they get somewhat antsy, but
their clients are starting to yelling swing. That’s very tough for people to do.
AS: Your approach seems so simple. Why doesn't everybody do it?
WB: I think partly because it is so simple. The academics, for example, focus on all kinds of
variables. The data is there, so they focus on whether you buy stocks on Tuesday and sell
them on Friday you are better offer, or if you buy on election and sell them another years
you are better offer. Or you buy small companies. There are all these variables. Because the
data is there and they’ve learned how to manipulate data. And as a friend of mine says, to a
man with a hammer everything looks like a nail, and once you have these skills you just are
dying to utilize them in some way. But they aren't important. If I were being asked to
participate in a business opportunity would it make any difference whether I bought it on a
Tuesday or a Saturday or on an election year? It’s not what a business man thinks about
buying businesses. Then why think about it buying stocks? Because stocks are just pieces of
businesses.
Robert Wilson interview:
AS: John Templeton lives his flower garden in the Bahamas and Warren Buffett (Trades,
Portfolio) lives in Omaha Nebraska and both of them say that living out of New York keeps
them out of everyday flow of overload of information. How do you survive in New York?
RW: Well in the first place I would be bored to death simply living in either the Bahamas or
Omaha and so the most important thing is to enjoy life but secondly, I never really did that
all that well in the market until I came to New York. Unlike these other distinguished
gentlemen, I am not an original thinker. I tend to rely on other people to feed me, if you will,
ideas and I'm very interested and what a lot of other people are thinking. And more bright
people are in New York in this business than anywhere else. I think the difference really is
that they are original thinkers and I'm not. I’m a derivative thinker.
AS: A lot of people say you can’t beat the stock market consistently, but you've beaten the
market and consistently. What’s the principle?
RW: My philosophy is to invest in stocks where earnings are growing rapidly at the time when
I'm investing in them, conversely to short stocks, earnings are contracting rapidly or when
earnings are illusory for one reason or another. I lead a rather placid personal life; it's been a
quiet pleasant life. And the market provides to me the excitement and drama. I like to be in
things that are have a great potential for huge gains or in the case of shorts great potential
for losses. I often tell brokers who give me ideas, I say I'm not interested in buying it if it can't
go down 30%. I'm not interested in stock with limited downside risks. If the downside side
risk is limited then the upside potential is probably also limited. So part of it is a way of
getting by carrying the excitement of another life, a rather placid life.
AS: How do you find the companies that have the rapid growing earnings?
RW: I tend to sit at my desk waiting for people to call me.

5/7
AS: But rapidly growing earnings, those companies are prizes if they are scan for my
computer screen. Mutual fund look for them -- isn't this quality already reflected in the price
of each of those stocks?
RW: The only way one makes money in the market is when the markets perception of the
stock changes, so basically I am looking for stocks where perhaps the earnings have not
started to improve yet, or if they have started to improve, they are going to accelerate. There
has to be an improved perception of that particular stock and that company to make money,
so you're absolutely right about that. To buy a stock simply because earnings have been
going up 30% a year for the last three years and to just do that on a rote bases could be very
good way to lose money fast because when the earnings slow down the stock could easily go
down
AS: Tell me about the short side. That's what characterizes year was a little bit. Haven't you
had an experience on the short side there was at least chastening?
RB: Yes indeed, during the 1970s when the stock market was by and large going down, I
shorted I would think a thousand different stocks and they have been wrong about five
times. I mean I was almost god-like in my ability to pick shorts and you know what happens
to god's who inhabits earth rather than the heavens -- they begin to think that just because
they shorted a stock, they will go down, and this happened to be in the case of Resorts
International, which I shorted because I did not think Atlantic City would amount to anything
as a gambling center. And the earnings came in and I was just so sure that because I had
shorted it I would be right. It was hubris started to run riot and it’s a very human thing and it
happens to all of us. And I think it particularly happens on Wall Street. We tend to, in this
business, to be terribly right for a while, or terribly wrong, and no matter how long or how
often we have been wrong in the past when we had the period when we are right, it’s so
wonderful that we think we are so good. And well I lost a great deal of money and I made the
front page of the Wall Street Journal. I’d often aspired to be on the front page of the Wall
Street Journal but not the way I made it.
AS: If a young person come to you and said when I'm your age I want to be as rich as you are
or where you are today -- how do I do it? What would you tell him?
RW: Money in the abstract, not what money would buy, has to be the important thing in the
world. It is not the most important thing in the world for the vast majority of the people.
AS: You have an object in mind in your investing career?
RW: Yes I want to make a billion dollars. I'm not at all sure I'll be able to do it but I'm going to
try.
The important thing is to try to do it.
Concluding Words:
6/7
AS: I think you can see that as different as these three remarkable investors are, they have
some traits in common. They have Independence of minds. They are not afraid to act alone
when the crowd is going the other way. They trust their own perceptions. They stick to the
style they know and they are all so smart they all probably would have succeeded at
anything. And finally, and most significantly after decades of investing, they still find it so
much fun they can rarely stand to do anything else.
Also check out:
About the author:

Grahamites
A global value investor constantly seeking to acquire worldly wisdom. My investment philosophy
has been inspired by Warren Buffett, Charlie Munger, Howard Marks, Chuck Akre, Li Lu, Zhang Lei
and Peter Lynch.
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Notes to Charlie Rose interview of Warren Buffett

Notes To The Charlie Rose 3 episode interview of Warren Buffett

Part 1 – Warren’s Personal Life

11. He loves home fries.

Part 2 – Warren’s Business Life

Part 3 – Warren, Bill and Melinda Gates are Interviewed

Ronald R. Redfield CPA, PFS

Buffett on Politics, Economy, Pt. 1 10:07 AM ET Tue, 11 Dec 2007

Becky: Do you think prices are as cheap?

Questions? Comments? Email me at buffettwatch@cnbc.com

Buffett on Politics, Economy, Pt. 2 10:15 AM ET Tue, 11 Dec 2007

Buffett: Is his campaign what?

Becky: Is his campaign seeing a surge?

Becky: There is a big football gamethat day.

Questions? Comments? Email me at buffettwatch@cnbc.com

Along with tax rates, the two also discuss:

Threats to the U.S. economy

The second part is on a continuation page.

Brokaw & Buffett, Pt. 1 12:02 AM ET Tue, 30 Oct 2007

Tom: Is the housing crisis as serious as a lot of people think it is?

Tom: You've gone very public with this.

Tom: Who are getting taxed at about 15 percent.

PART TWO OF THE COMPLETE BUFFETT-BROKAW INTERVIEW

Brokaw & Buffett, Pt. 2 12:03 AM ET Tue, 30 Oct 2007

Warren: Yeah, probably more than they'd like to.

Tom: But they haven't moved it to the top of their agenda.

Tom: Does it make you anxious?

Tom: Do you-- do you raise that with them?

Tom: Or in western Europe?

Tom: Executive compensation. You feeling any better about it?

Warren: It was hot for a while.

Tom: It's gone away.

Questions? Comments? Email me at buffettwatch@cnbc.com

This is a transcript of Warren Buffett’s discussion on CNBC in regards to Mars – Wrigley

Warren Buffett: My pleasure.

Buffett: Yeah. I think we’re in a recession. I mean, a recession is defined in a certain

Buffett: Hi, Michael.

Becky: Not the ‘worthless.’

Carl: If you were Warren, you wouldn’t have had to.

Carl: Dark days for those of us who used to live in Chicago.

Buffett: No, I haven’t.

Joe: Seed company?

Joe: You have looked at buying Hershey?

Buffett: No, not really, not really.

Joe: Not really.

Carl: But you really did run away from home?

Carl: That’s pretty good.

Becky: Is there a favorite you have with Wrigley?

Buffett: Yeah, I’m an old-timer. I like spearmint and Juicy Fruit.

Joe: You look at Mars, too. Snickers.

Joe: You have?

Carl: I love Skittles, too.

Buffett: That’s okay. Just buy an interest in a dentist firm.

Becky: Thanks, Warren.

IT IS AN UNEDITED TRANSCRIPT AS PROVIDED BY BURRELLESLUCE.

BUFFETT: No, I try not to complain too much.

BUFFETT: Nice to be here.

(Clip of "I.O.U.S.A." courtesy Roadside Attractions)

BUFFETT: Yeah. There was a debate last night as a matter of fact.

BUFFETT: Oh, I think they could easily go beyond that, yeah.

BUFFETT: Yeah, they're too big to fail.

BUFFETT: I'm not getting called on that specific aspect of it.

QUICK: All right. Now you're telling me we're warm.

BUFFETT: They're looking--they're looking for help, obviously.