Joe KernenLet'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. He is here. He is. He is. He's ready to go. With a spanking new net jets tie on, I see, huh? Is that what that is? He does. You said he had a nice net jets tie, and I ask you, did he also bring a nice net jets card? And I'm sure he didn't. And what did I tell you? What did I tell him? I could ask him myself. I said you'd have to ask him. Yes. Yeah. Did you bring one? or am I getting another brick? Just beg a little, Joe. We'll get to it later. He wants to hear you beg for two hours first. I know, and then he doesn't do anything. I'm going to try. I'll come up with something for you. I'm going to try.
Becky QuickWell, 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 the chance to sit down and talk with you since the prostate cancer treatment. Right. How are you feeling?
WarrenI feel fine. I feel great. 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, you don't feel anything. But I felt it was time to quit when I started getting the urge to pee sitting down.
Becky QuickBut you're feeling good.
WarrenI feel great.
Becky QuickWell, 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, DePont, 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. Markets been selling off over the last week or so. Real concerns, people sitting up and saying, uh-oh, maybe there's something really happening here. Do you think the market's overselling this situation or do you think it's catching up with reality? What do you see?
WarrenWell, I think the stock market generally is the best place to have money. But I think that there's no question that worldwide there is some slowing down going on. And in the United States, actually, residential
[2:24]
Warrenhousing 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. our carpet businesses and brick businesses and all of that will come on with residential construction. And that is turned. But the general economy, I think it's a little bit better in the U.S., well, 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.
QuestionerWhen did you first start to notice this global decline, this global slowdown?
WarrenWe've got a couple of companies that really are kind of real time as to what's going on. The number one would be Iskhar, because they sell these little tiny punching tools or cutting tools. And they fit in these huge machine tools. It costs 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. We can deliver very quickly. So their purchases reflect usage. There are strongest markets in the United States, but Europe and Asia have fallen off some. And we're gaining market share. So there's a decided decline in activity and all that manufacturing where you're stamping metal and doing that sort of thing.
QuestionerWe heard from Doug Oberham and 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?
WarrenIt is at present. Its rate of decline, it's way off a lower base, its rate of decline is not greater, in my view, than the rate of 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 get the freight car buildings. We've had a big energy pickup in the United States. We're getting a housing pickup. Those are pretty big, pretty big industries.
QuestionerLet'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. And Doug Oberhoman 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. He kind of set the thing on his head and said it's the other way around.
[4:53]
WarrenWhich comes first? Well, demand, I think, comes first. I mean, you hire people when you start seeing demand. And you are seeing more demand. You're seeing more demand. You're seeing You're seeing greater purchases a lot. I was with a guy last night at the GE dinner that is in the business of selling lots. And the builders are starting to clamor more for those. We have the largest housing, the manufacturing company in the country at Clayton Holmes. It's manufactured homes. But those, that business is up in the area of 10 to 15%. We see it in our real. In terms of volume? In terms of units. Right. Yeah. In terms of units. Real estate brokerage, we not only see. about a 15% increase in transactions, but we also see a small increase in the median price. 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. You know, we're going to make a lot more money in carpet this year than we made last year, more than double probably. And we hire people when that happens. So the United States economy is not tanking. Asia from a higher level. level, I wouldn't necessarily call a tanking, but it's heading down. And Europe has been having its troubles for some time, and they haven't ended. Does that catch up with us? Does that affect us at some point, too? Well, what we really hope is we affect them over time. And, no, I don't necessarily think so unless there gets to be chaos someplace. We've already adapted to what's going on around the world. 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? 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. They're seeing it in cars. We're seeing it intermodal. They do. We're the biggest in intermodal. We carry 15% of all the freight measured by tonnage, tonn 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. And you're not seeing any downturn? You're seeing actually numbers go up on those?
[7:30]
OtherWe'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. 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 picture of it now?
Greg AbelYeah. Well, you know, kilowatt hours were down this year. But we, well, look at it this way. Berkshire Hathaway in 2010 spent six billion on plant equipment. That was a record. We spent last year 8 billion on plant and equipment, another record. This year we'll spend 9 billion on plant and equipment, another record. And practically all of that's in the United 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. But there's a lot to do. And incidentally, you hear a lot about infrastructure and, you know, terrible shape it's in. The rail industry's infrastructure is in the best shape as ever been in.
OtherOkay. Joe has a question for you as well. Joe?
Joe KernenYeah, along the same lines, Warren. Let's say that you are going to start a number. I knew Berkshire Hathaway. 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 or trying to take advantage of what happens in this country over the next 20 years. 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?
WarrenNo. But I, but I, you know, I mean, I'm. I'm interested enough to follow it, but I don't think I'll be able to write the newspaper of 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 Men 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. I mean, I read about it. And I feel very good. 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 while I go back to think of some Clark Gable movie or something as to what
[9:46]
QuestionerI'm supposed to do. And I think that's a little out of date. Becky, have you shared your thoughts about, you know, exporting natural gas?
Becky QuickOh, I know where you're going. I just wondered whether you've talked to Warren about that. I mean, you listen to him. I haven't.
Joe KernenWarren, let me tell you, before Joe makes it even sound worse than it is. I have had some concerns about the 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 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 i'm with no i'm with you and charley oh see no no if you if you've got a national treasure and we had that in oil if you go back 50 years we were an exporter oil. I mean, we were producing way more than OPEC. And the Texas Railroad Commission 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 and we were getting three bucks a barrel for it. And, you know, and then we built a strategic petroleum 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 over time. You use the other guys. So there, take that. I never thought Warren was a protectionist. That's amazing. I do. I'll protect something that we're going to need to keep this country going in 50 or 100 years or now. I don't want to ship our talent overboard. 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. It would be for a while. But if you're looking out 100 or 200 years and thank God people 200 years ago, we're looking out in many respects, although we weren't looking at it. We weren't looking out in the 1950s one. I love that you're worried about like a hundred years from now. And it's not just for your ancestors. It's for you a hundred years from now. Exactly. Which I like that. I like that. You've got, listen, I like it that you like it, Joe. Because I do. Andrew.
Andrew Ross SorkinOkay. Real quick, Warren, I'm curious, with the market selling all $500 billion in the past three days,
[12:09]
Questionerknowing 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?
WarrenMaybe in the past week we've done some things. Yeah, we, but basically, I like to buy. And, you know, so that if the market is down, I'm happier buying. I like to buy. If I go to a supermarket and they reduce prices, you know, I feel better. If I go to a men's clothing shop and they've reduced prices, I feel better. So if I go to the stock exchange that they reduce prices, I still feel better.
QuestionerWhat did you buy in the last week?
WarrenIn the last week, I bought some Wells Fargo.
QuestionerYou did?
WarrenYeah. So continue to buy it. We only have 430 some million shares, so I didn't feel we had enough.
QuestionerDo you look at the banking business, though, overall, is it going to be as profitable?
WarrenNo, it can't be as profitable. The profitability of banking is a function of two items. assets and assets to equity. And return on assets is not going to go up particularly. U.S.B has done the very best on that there at about 1.7%. Wells is at between 1.4 and 1.5%. But most banks are lower. Now, if you have 20 times leverage and you're getting 1.5% on assets, you're making 30% on equity. 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 and the same return on assets, you will have a lower return on equity. Banks were earning 25% 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 it and push it 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 if you want to play, you're only going to have 10 to 1 or some
[14:38]
WarrenIt's a good business. Well's very well run. It's a good business. But it's not like, it won't get back to what it was. The European banks still are leveraged to an extraordinary extent just because they don't know how to get out of it. But they aren't earning one and a half percent on deposits either.
QuestionerRight. Okay. Well, Warren, hold with us for just a moment. We're going to take a quick break. Squawk Box. We are speaking to Warren Buffett. And Becky, is out there? Mr. Buffett, just telling us that 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 okay? I'm not going to present. Are you sure?
Joe KernenHey, Warren. Yes, go ahead, Joe. Warren, you like to buy. You just said you like to buy. I remember that. Peter Sellers like to watch. But you like to buy. I remember that. Buying doesn't preclude washing. No, I know. Not with you. I'm sure. But so that I figure anything that moves a 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. Mark, it's been going up. But if you were a voting member and they're, I don't know, they got another one of their meetings today, two day. 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?
WarrenI 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 would listen to his arguments.
Joe KernenBut wait a second. You said with QE2, you thought maybe it was going too far at that point. So QE3 is doubling down on that.
WarrenThat's why I listened carefully, but my instincts are to go against it. I think it's much easier if you're a central bank and you can print money. it's much easier to acquire 2.6 or $7 billion, or trillion, I say, of securities, then it will be to unwind that operation. And you can expand it indefinitely. I mean, if he wanted QE2 to be, you know, 100 billion a month, or QE3, 100 billion a month, he's the one guy that can do it. He has unlimited buying power. Unlimited selling power could be a little different.
[16:59]
QuestionerBut you needed some cooperation on that. Warren, you're a supporter of the president, though. Governor Romney suggested that he would, I wouldn't suggest that 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 that affect or impact your thinking in terms of politics?
WarrenI think Bernanke has done an absolutely superb job. I mean, what he did in the fall of 2008. was gutty. It was basically right. You know, everybody can talk about tinkering at the edges. But I will say this, that Ben Bernanke hadn't been there in 2008. I'm not sure where we would be now. So I have enormous respect for him. He's a very, very intelligent man. I don't know what you've ever read his four lectures that were giving at George Washington, and you about a year ago. 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 to 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% of our revenues from the profit that the Fed is running on its carry trade. If you look at the United States gets 3% of its revenue? Yeah, the United States. Yeah, that 2.4 or 5 trillion. of revenue. 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. He made $70 or $80 billion last year. 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 borrows, he's got a trillion and a half borrowed from the banks, which he pays him a quarter of a percent for. Then he's got a trillion of money in circulation, which he doesn't pay anything for, except the cost of the paper.
QuestionerBut 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?
WarrenThere's nobody understands that problem better than Bernanke. 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 this.
[19:23]
QuestionerBut 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.
OtherYeah, it depends who it is. But I would vote for Bernanke again. I, you know, and I get my kids out and everybody else to vote for him. But if Bernanke says that he's not even interested in staying. Well, then you get worried because maybe then he knows what he's leaving behind.
QuestionerYeah, people like Kevin Warsh, who knows him closely, has said that, you know, he may have done enough time there.
OtherYeah, well, I think he feels that way, particularly after congressional testimony. But I do think that the President of the United States, ask somebody like Ben Bernanke to stay. stay on. I think he will stay on. I think he's that devoted to the country. And I would rather have him there than anybody else.
QuestionerWarren, 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 okay. But if it'd be a long way from where it is without them, doesn't that sort of to cause some dislocations that eventually are going to come back to haunt us.
WarrenI 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 worth it?
QuestionerYou do. I mean, who doesn't like when the market goes up for whatever reason? 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?
WarrenInterest rates are 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 that the value of some plantation in Brazil or something is geared off it. But everything relates to interest rates. I mean, you start with what you can get to risk-free interest rate. And so it has a huge, huge gravitational pull. It affects what I'm doing. It affects what everybody's doing. It affects what you're doing at Berkshire?
QuestionerOh, yeah. I mean, if I'm getting 0% 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
[21:44]
QuestionerI recommended housing six months ago because the low interest rates had caused low mortgage rates and low mortgage rates that when you can sign up for 30 years off of a policy that may be only in effect for another year or two, you're getting a tremendous steal. But, no, Joe, the Fed has had an enormous effect on interest rates. But it's okay. Now, well, I don't know what it's okay or not, but I know that you're like the prices going up. Well, I would say that it's marvellously okay 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 he's 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, but I think that Bernanke, I think he's a very responsible guy. Now, it doesn't mean he calls him all right, but I think he's a very responsible guy and a very smart guy.
OtherAT&T earnings. They came in and with an adjusted 63 cents. That was three cents ahead of consensus. Consolidated revenue up 2.6% when you exclude or the divested. Advanced Solutions Unit. That was the Yellow Pages one. A company had record cash flow, cash from operations of $11.5 billion, free cash flow of $6.5 billion in the third quarter. And it's increasing its full year 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 KernenYeah. So the lowest churn is what you mean not to, yeah. So the pot. Lowest, best ever mean the lowest churn. Best ever meaning lowest churn. Yeah. Postpaid churn of 1.08%. At this point with AT&T, people just look at how they do in terms of wireless, in wireless ads and how much people are spending. And iPhone. Yeah. And then, of course, you know, you watch with unbelievable yield, 5% 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.
QuestionerWarren, you want to answer that? Verizon and AT&T? You ever look at those companies?
WarrenI don't know what it would look like five or 10 years from now.
Joe KernenAll right. There he goes again. Wow. A hundred years from now. So 5% in the meantime. You know, that's true, though, Warren. People would say, wow, you got a 5% yield. It doesn't take much for stock to go down 5%.
[24:27]
WarrenWe mostly buy stocks for future earnings. And if they use the money to, if they used all the money to repurchase shares like Henry Singleton did with Teledyne years ago, that could be even more advantageous. Because you end up owning a bigger and bigger younger and bigger younger younger. IBM spent $3 billion in each quarter this year. the dollar buying in stock. The cheaper they buy it, the more our interest goes up.
QuestionerYou still like IBM, even after all, the troubles technology companies have seen?
WarrenWell, they're struggling a little. And it was kind of interesting in the, we owned a little more than we owned a year. And we've 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. 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 F.T. did not have a line on it. It didn't get discussed. It was one line in the report and it accounted for all the gain and earnings. And it was the sale of a part of a business. I think the reporting missed the vote on that one.
Becky QuickWelcome 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. 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 mid-sized businesses. There's been an awful lot of questions about jobs and the jobs picture out there. Mid-sized 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?
WarrenWell, Berkshire probably has at least 50 of it, 75 companies that would fit the middle market 10 million to one 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 acquisitions. For this year that we're in right now.
Becky QuickYeah, yeah. Certain
[26:51]
Warrenbusinesses like Geico and Burlington Northern have added people. And they've, and they're And then we bought a fair number of what we call Bolon acquisitions, not big deals, but they bring with them 1,000 or 2,000 people sometimes. 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? There's some jobs growth. I mean, you know, our Clayton Holmes is going to produce maybe 15% 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. our furniture businesses are doing very well. We're selling a lot of carpet and furniture. We add people, but we've also going to add quite a, we've made more bold-on acquisitions this year than ever before in our history by some margin. And they bring with them thousands and thousands of people.
QuestionerHow much cash do you have on hand right now?
WarrenWe probably have at least $40 billion.
QuestionerAre you in the hunt on the hunt for another big acquisition?
WarrenA 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 it when I get, I know the company. So when I get home, I'll call them and I'll ask them for the financials. Have you looked at any other big acquisitions? 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. Prices are tough right now.
QuestionerYeah. All right. And cheap money makes that. That's a factor in it.
Becky QuickWelcome back to this special one-on-one interview with Warren Buffett, chairman and CEO of Berkshire Hathaway. Here now, Becky Quick. 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. Now, 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.
WarrenPricing is difficult and money's cheap. So we don't leverage our purchases, so we're buying out on an all-equity basis. But people that do leverage are getting significant portions of the purchase price at very, very low rates,
[29:22]
Questionerprobably as low as they've ever gotten. So that enables them to bid pretty aggressively. And it doesn't factor into our thinking. But you think at this point maybe some of these acquisition prices. are getting a little out of control?
WarrenWell, that's the way I feel, but, you know, that's natural when you're getting beaten out. But you won't raise your prices to compete. No, no. But now we've had a record for Bolon 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 companies we have. But what I really like is the elephant. So you're always out elephant hunting? Absolutely. With your elephant gun. Yeah. 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 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. So if these deals haven't gone through, that means you've been looking more aggressively for stocks to buy in the market as a result? You've got more cash to do that? Well, we're always looking for stocks. And I've got two fellows that were working for me. I really looking for stocks all the time. But I usually end up buying more of something I already know. Any new companies, 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.
QuestionerLet's go back to IBM. You were talking just a moment ago about IBM. Have you added any shares to that company in the last couple of months?
WarrenMaybe, I don't know it would be quite a couple of months. We've added shares this year. We haven't had a lot of shares, but we've probably added, you know, it'd be in many hundreds of millions. Wells, we'd probably added maybe a billion dollars worth this year or something like that.
QuestionerWhen 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. Right. In looking at IBM, you said it was a little different situation.
[31:34]
QuestionerIt made sense to you at that point. I guess part of that is the services factor of it. 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?
WarrenNo, I'm delighted to be in it. 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 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 isn't quite repeatable, nevertheless. In terms of, you get pretty locked in sometimes with your supplier. What's not repeatable? Well, I asked him how sticky, I won't name the company, necessarily when you got in there, and he said, well, it's like getting age. So it sticks, and it sticks around. It really does.
QuestionerYou know, I should bring up the insurance companies because we didn't talk about that before. Jim Kramer 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. What can you tell us about?
WarrenWell, Berkshire's insurance companies are doing well. I mean, we have about 70 billion of other people's money. We call it float. And when we run it 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.
QuestionerWhat do you know about the consumer, not only from the consumer, 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.
[33:47]
WarrenBut when you think about Coca-Cola's been around since 1886, that's pretty amazing, isn't it? 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% in the first nine months, and that's in a world that's growing maybe at 1%. So their per capita usage of Coca-Cola products has gone up almost every year since 1886. I mean, Moutar 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 8-ounce servings per capita of Coca-Cola products. Man, woman, and child, which is at least 50% higher in the United States. And it grows every year. It grew in the first nine months. It's quite a product.
Becky QuickWe 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 for another commercial break. 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 big. conglomerates. I'll find out what GE's Jeff Imelt is hearing from customers about the state of the economy. We will find out at the top of the hour. We have another special guest with us joining us right now. Jeff Imelt, who is the chairman and CEO of General Electric. And Jeff, thank you very much for joining us this morning. 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 be good. 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?
OtherYou 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 is more clarity around the fiscal cliff and things like that. Europe is bad, but not shockingly bad.
[36:03]
Greg AbelYou know, in other words, it's going to be tough. There's 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 healthcare 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. So from that perspective, I mean, from both of you, you seem to have a more positive outlook than maybe what the market is reacting to over the last several days. Look, I think you can't blame investors for what they read and what they see, and you're going to have a couple days like what we've had. But if you step back, you know, I think for a company like ours, our organic growth was up 8% of the quarter. That is high, you know, and 10% 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. 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 seeing it that way. But the general trend that I see, and we see. 140 countries is still generally positive with volatility. With volatility. And he's getting good prices for locomotives and turbines and all these things he's selling me. Would you like to like a few more, Warren? I could say this morning. He's never going to be a cents off sale.
QuestionerHey, I know Joe has a question as well. Joe? Hey, Joe.
Joe KernenI'm Joe Kerner. This is CNBC. We're used to be one of your favorites. I don't know. Joe, 49% have been. 49% have been. NBC is still 100% of CNBC. So not for good. All right. Jeff, you know, GE Capital, the other report, it'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?
[38:28]
Questionerfor years and years and years, you know, giving so much profit to the company. Is there the 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 want to get, you know, to get to that point again?
OtherLook, it's a great business, okay? I think the difference in this recovery versus 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 competitive. And let those grow. I think what's different, Joe, is that, 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've got a green light on assets we're great at. We're going to continue to grow those. And look, you know, G capital in almost every way is healthier today than in any time in its history. 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. But, you know, we're going to stay at. and there's segments that we're going to do really well in.
Joe KernenYeah. I want to have one more. Oh, sorry, Warren. Warren and I are both large shareholders in GE. And we have a lot of questions. 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.
WarrenJoe, if we, if we vote together, Joe, I think we can control the company.
Joe KernenI'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. Number one, I know GE is involved in a big way in all parts of energy production and natural gas. Is the portfolio right now in energy? Is 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?
OtherYou 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
[40:46]
Greg Abelmade the choice to be a broad-based energy supplier. Wind is going to have its fit. Nuclear is going to have its fit. Coal is 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, it 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.
Joe KernenHey, 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 a lead story in the Financial Times, Jeff, was a story that we talked about on Squawk, 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.
OtherYou 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. Right. 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. 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% of Simpson Bulls. Let's get it done. You know, people say business leaders should be more vocal. Look, we're vocal. 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% of Simpson Bowls. I don't get it. And you're going to have Dave Cody on tomorrow. Right. 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, runs big companies in the country. We are saying, Let's get this done.
[42:58]
WarrenYou guys feel like you're talking and Washington's not listening? Well, Washington's not hold because of the election. 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 manmade. Everybody knows what the general solution should be. And you can argue about whether revenues should be 19 or 18 and a half percent of GDP or whether expenses should be 21 or 21 and a half or 9. But everybody knows basically what the solution is. And Bowles-Simpson fits in there. Simpson, we're going to stay away from that acronym of Bold Simpson. The Rivlin Domenici, I mean, there are hundreds of people 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. 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 Bowls precisely, but something materially close to it will get done by either person selected. 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. $4,000 over 10 years, Becky. It's about a billion, four or five of revenue. It's two and a half, two point six. Yeah. Of cuts. You know, lower the tax rate, broaden the base, you know, global system, stuff like that. You know, we're not going to like that. You know, I guarantee you, we're not going to like all of it. Right. And that's just that. And everybody's going to have something they don't like in it. But, you know, when 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, okay, this is a business I can be in, I can't, I can't do this, I can't do this, I can't do that, let's go. But you want to plan, and you want to know what it is? 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.
[45:25]
OtherI 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? That's kind of like, oh, this is really important. I hope something bad doesn't happen. That's a bad strategy, you know? So I think it's a, we just need... We're relying on it at Berkshire. You know, I know Andrew has a question too, Andrew?
Andrew Ross SorkinHey, Jeff, I'm curious on the issue of Simpson Balls. Have you scored what GE's effective tax rate would all? ultimately be in how it would impact the business?
OtherYou 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 around 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. Siemens, Toshiba, every one of our global competitors lives in the territorial system. All we're asking is for the chance to compete on a level playing field against those guys. 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 and everything we do. Just give us the same system that they've got. And I don't think that's too much to ask for.
Andrew Ross SorkinHey, Jeff, real quick, while we have you, we talked to Warren in the last hour about Bernanke and QE3 and the impact. You're able to sell 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.
OtherYou 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 work. So if you love him or hate 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 interest? When interest rates are zero, do you need interest rates lower to bar running? 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.
[47:48]
WarrenI would say there's a pretty fair chance we go over for a short period of time. But, you know, who knows? It depends on which fellow is elected president. It depends on the composition of the House. But it's going to get done, Becky. And how much squire, you know, how long they want to be in the sandbox before they come up with an answer that's obvious and they could come up with today. It just depends on the personalities of leaders of the House, of the Senate, and the President. I don't think it will go on a long time. But you get a... If August, you know, Becky, if August of 2011 hadn't happen. I would say the odds were zero. You know, when we defaulted and lost of credit rating. So I think companies have to be prepared that it might happen. But let's be clear. It shouldn't. Let's be really clear. If it does happen, that's a failure of governance and that's something we shouldn't expect.
QuestionerYeah, 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.
WarrenI'll do some selling here, back. I'm a longer salesman, I'll stay.
QuestionerWe appreciate your time very much.
Becky QuickWelcome back to this special one-on-one interview with Warren Buffett, chairman and CEO of Berksha Hathaway. Here now, Becky Quick. 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. That could be. There was a story yesterday in the Wall Street Journal that took a look at Bob McDonald, the CEO. There have 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
[50:07]
Questionerup 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 McDonald's leaderships. Where do you stand as an investor in Procter and Gamble? And what do you think of Bob McDonald?
WarrenWell, we own more shares in the past, but we sold some shares. under A.G. Laffley, we've 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 on 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 is, you know, the jury's out on that now because they have disappointed in terms of earnings. And we'll see what happens. is actively engaged in trying to come up with a strategy that they think makes sense to take the earnings forward.
QuestionerIn 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 for any other particular purchase, or was it just?
WarrenYeah, no, we've sold that. We've sold crap. We've sold some companies that are very, very good companies. And we've used that money. We used it to buy what? $11 or $12 billion worth of IBM in the last 12 months. We bought more well, another billion dollars worth of that. And then we've bought some more Walmart a while back, another $700 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.
QuestionerTodd and Ted, we maybe talk more about them in just a little bit. managers you're just referring to. I'm giving them more money as we go along.
QuestionerOkay. We'll talk more about that in just a moment. When we come back, we'll have more for Mr. Buffett. Stick around. Spock will be right back. Warren, I think we've let you go for long enough. You are a big supporter of President Obama. Correct. We have an election coming up. Correct. Things have changed in the polls over the last month or so, probably since the first debate. What do you think is going to happen at this point?
WarrenWell, I have no insight that anybody else doesn't have. I, you know,
[52:28]
Joe KernenFifty-four percent? Fifty-five now, 55 in change.
QuestionerThat's movement. That's a fair amount of movement. And I think there has been movement. And it may come down to who has the better ground game right here in Ohio. Right. You've been watching elections a long time, though. What do you think happened? I think the first debate changed things dramatically. I mean, they say in life you never get a first chance, the 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 in the first debate, 69 million people saw a different Romney than they had more or less expected from the earlier Republican debates as well as the advertising. Did you see a different? Did you see a different? Did you see a chance? A different Romney? It was huge. Warren, did you feel like you saw it? Did you see a different Romney in that first abet?
WarrenWell, 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. And Obama was down that night. I mean, there's no question about it. I mean, that was a huge factor in the campaign. 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? 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.
Joe KernenJoe, go ahead. I'm sorry. I want to stick with politics a little bit, Warren. And you always surprised 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.
[54:44]
QuestionerLet'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 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 adding 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 on...
QuestionerYeah, go ahead.
WarrenFirst of all, I got to say, Dairy Queen's sales were up 5.8% in September, same store, so that we did quite a bit better to McDonald's. You see where I'm going with this. But an ice cream, you know, I thrive on ice cream. I eat it for breakfast sometimes, and I'm 82, so you'll have to judge it, you know, how I'm doing on this cold.
QuestionerSomebody might not like you doing that at your age, Warren, 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 okay?
WarrenYeah, well, let's look at the 16 ounces of Coke. 16 ounces of Coke has 200 calories in it. And I would say that there are an awful lot of servings of it. awful lot of things that have 200 calories or more, and the idea that you should say that you could 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 I'd, if I'd been on broccoli and spinach, I mean, I'd have been going a long time ago. I mean, to me, it's just, 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?
QuestionerWell, because you said it for me. All right, but you wouldn't disagree with me. I mean, I just, and then I've had people in from Mount Sinai, doctors that tell me, hey, oh, well, cigarettes, you don't want to, you don't, you want, it's like cigarettes. You don't want to tack cigarettes. 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 endobio. So when do they decide? I eat lots of red meat. No, it's not. I eat lots of red meat, Joe. And I drink about 60 ounces, about 5 12-ounce cans of cherry Coke a day.
[57:07]
WarrenAnd that, you know, that's 750 calories. But I like to get, you know, I'm going to get, you know, I'm going to get up 2,700 calories or so a day, and 750 of them are going to be cherry Coke. And my doctor told me, during this thing, he says, drink more, drink more liquids. And I said, I said, how about cherry cocaine? He says, it's fine. It's insanity. It's insanity.
Joe KernenSomeone needs to tell this guy that, although he's still going to be every Democrat or every Republican's favorite Democrat. I don't know. Andrew, God, if he ran for president, you'd be out there, you'd have 40 signs in your yard, Bloomberg for president. If you had a yard. If you had a yard.
Andrew Ross SorkinI think, I've got to say, Mayor Bloomberg has done a lot of terrific things. I've seen him doing it in charity, all kinds of things.
Joe KernenWell, this ruins it. 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. What I say, not what I do.
Andrew Ross SorkinDid you ask him about that?
Joe KernenOh, I actually had a great big bottle of Coke brought out. It was the biggest bottle I had to find it. So I'm valid. You really did?
Andrew Ross SorkinYeah, absolutely. And did he drink from it?
Joe KernenI drank from it. I wasn't going to let him have any.
Andrew Ross SorkinGetting back to the national election, you point out that it could be the ground game right here in Ohio. 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. You used to watch those races very quickly. What do you think it actually comes down to what it means?
Joe KernenI think in Ohio may very well come down to organization. Now, there's been a lot of early voting in Ohio. That's organization. I mean, you want to get out your vote. And 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 a better ground game. No matter who wins the election, we are going to be looking at a different Treasury Secretary.
[59:11]
QuestionerRight. 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?
WarrenYeah, I do. And I won't get a call from, I won't get a call from Congress. Governor Romney asking me my opinion. But I think I've got a pretty good idea. But I'll say that. We'll wait and see whether Obama's elected, and we'll wait and see if he calls.
QuestionerIs it a name that's been out? I mean, Erskine Bowles has been mentioned pretty frequently.
WarrenErskine Bowles would be a terrific guy. I mean, he is, he's smart, he's patriotic. He would absolutely do the best job for the country. I'm not saying that's the name at all. But I would, Erskine Bolz is a fine, a very fine human being. And what he has. 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, it takes a decent human being to get people come together like that. So I admire Erskine a lot.
Becky QuickWelcome back to this special one-on-one interview with Warren Buffett, chairman and CEO of Berksha Hathaway. Here now, Becky Quick. Actually, it's more of a three-on-one interview, but let's get back to our newsman. 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 Eurozone 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, Francois Aland, suggested that the Eurozone as well on its way past this crisis is really moving out the other side of things. Is that the impression that you get?
WarrenI wouldn't say so. I mean, 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, that 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 can create a problem. And it's going to be a very tough thing to have austerity. time grow GDP. 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 ten years from now, but I think it can be pretty
[1:01:37]
Questionerrough there for a while. Is that a good argument for pulling back from the area, or is this a time you think businesses should be?
QuestionerThey either have to come closer together or, I mean, they're going to go one direction together. 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, they've, they've got to come closer together or it won't be sustainable. Although the ECB has made some major moves to try and reassure the markets, and that certainly has given them quite a bit more time.
WarrenYeah. Well, you know, central banks can print money. 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 is going to have consequences. And sometimes those consequences are delayed. printing money has consequences. And I can say not printing money would have consequences in the United States too. But we haven't seen it. The movie's not over in Europe.
OtherJoe, you have a question too?
Joe KernenWell, Warren, 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 said, 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 tried to figure out a way to do it?
WarrenYeah, 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, 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 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. Five years from now, it's going to be a different picture, and that's... And rates will be higher and all kinds of things. I mean, this is the time to buy. If you know where you want, you've got to want to live there. I mean, and a home's a wonderful thing.
[1:03:56]
WarrenI wouldn't buy one if I was going to move in six months or something of the sort. And I wouldn't buy one if I was terribly nervous about my job.
QuestionerWarren, a couple of times you have mentioned Ted and Todd, Ted Weschler, 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 it is theirs?
WarrenVery little of its mine. I mean, if it's Wells Fargo or IBM or Coca-Cola. I mean, I've got four stocks that are... aggregate over 50 billion that I managed. And 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 insecurities than I would be. But there's a lot of styles at 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 indictment of the tax system when you look at two guys who have just moved to doing the same exact thing from morning the night they did before, and now they pay double with tax rate for it, more than double.
QuestionerThat's good point.
Andrew Ross SorkinAndrew?
Andrew Ross SorkinHey, Warren, I wanted to get an update on my favorite subject newspapers. You bought the Omaha World Herald earlier this year. You now had a little bit of time to get under the hood. What do you think?
WarrenI'll have a big section in the annual report about newspapers. And I did write a letter all in newspaper publishers. 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 you're in Grand Island, Nebraska, where we have a product, we've got to be relevant to what the people. and the people in Grand Island are interested in. And that's a much tougher problem as you get into bigger metropolitan papers. But it's working better or worse than you expected.
Andrew Ross SorkinI only say it because Newsweek just said they were going to stop printing recently.
[1:06:09]
OtherI know community newspapers are a different situation, but a lot of people always have questions. Yeah, our small newspapers, and by that I mean towns of 20,000, 25,000, are small newspapers this year that have operated throughout the entire year for us, the revenues are down about 1%. 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%. So there is a real difference based on the relevance of the paper to a very wide, very significant portion of its community. The bigger the community, the harder it is to have a community feeling.
QuestionerYou 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?
WarrenI 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 bank it 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 buffets. I think that, I did not think that reflected great editorial judgment.
QuestionerOkay. 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. The 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 you think of. And the question we get most frequently from people about you coming on is what should they be buying right now? So if I say buy, you say,
WarrenI say basically hold. I mean, the idea that the European news or slow down in this or that or anything like that, that would not cause you if you owned a good farm and had it run by a good tenant. You wouldn't sell it because somebody said, here's a news item, you know, this is happening in Greece or something. If you owned an apartment house and you got to raise your rents a little as well-located,
[1:08:28]
Warrenyou had 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 be thinking about buying or selling it every day. Now, when you own socks, you own pieces of businesses, and they're wonderful business. 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 ten. 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. But you said, I said buying, you changed it to hold. Does that mean don't sell or does that mean? Well, I mean, if you haven't got to me yet, you buy them consistently over time. So you sort of average overtime. 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 Corregador was falling, and they had the death March at Baton and all the news was terrible. It was a great time to buy stocks. And I should have held that stock forever and I've been buying stocks ever since.
QuestionerGuys, you have any last quick thoughts? Go ahead. I do. Warren, if 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?
WarrenProbably 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. There's a billion of them out there. So I like to buy things where I feel I've got a reasonable idea of how the business is going to be doing five or ten years ago, just like 10 years from now, just like I would buy an apartment in the house or a farm with the idea that I would think it was going to be a good thing to own five or ten years later.
QuestionerThere 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 a game changer for Facebook. Kernan's going to be on Facebook.
WarrenWell, actually, Joe, I thought instead, you know, you know you've always wanted a share of net jets. I've got a net jet's tie here and instead of giving you an eight 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. You are now a mat.
Joe KernenHere we go, Joe. Yeah, exactly. Here we are. Thousands of jets and I'm getting a tie. All right. Dozens of planes. Right. Dozens of planes on it.
QuestionerWell, thank you very much for your time today. Thank you. Thank you. Thank you. Thank you. Make sure you join us tomorrow. Squawk on the street begins right now. I get a tie.