[0:00]
QuestionerAll right, well, why don't we kick things off right now? Warren, first of all, thanks so much for being here with us today.
WarrenI enjoy it, thanks.
QuestionerYou're coming off of a big weekend, a long weekend, and this was the 51st shareholders' meeting. What's your takeaway from the meeting? What did you think about how things went this time?
WarrenEverything went well. We had this experiment with Yahoo on streaming it. For the first time, actually, webcasting, so the people who weren't here in the building could see what was happening. I'm a guy when the telephone rings. I'm not sure what to pick up or anything. It was a short. So I'm a little bit of a technophobe, so I had my fingers crossed. But all the reports I've gotten back is that it worked like a charm, and I thank Yahoo for that.
QuestionerYou know, there were expectations that as a result, because, again, for the first time, people wouldn't have to be here to hear you and Charlie, that attendance would be down. You said it was down slightly, what would you think?
WarrenMy best guess is that we had an all-time record last year, and it was up quite a bit last year. I think we more or less matched the year before. So I would say we were down close to 10 percent, probably around 40,000. I think we were in the mid-40s last year. But it worked out well. And a number of our companies said sales records, even though the attendance was down.
QuestionerThese are the companies that set up booths on the floor so that shareholders can come around, or are you talking about that, Nebraska Furniture Mart?
WarrenYeah, I'm talking about both, actually. The Furniture Mart on Saturday did $9.3 million in one day. And when any kind of a store does $9.3 million in a day, that's a lot of business.
QuestionerOkay. So that tells you a little bit about the people who were here. There were a lot of headlines that came out of the meeting, and I'd like to talk to you about some of those. But before we do, maybe we can talk about some of the headlines that Joe and Andrew were just mentioning. We saw that the Niki was down 3.1% overnight. That's in large part because the yen has soared. at the end of day, it's around 106 versus 111 last week before the Board of the Bank of Japan decided not to add to additional negative interest rates. And I just wonder what you think. When you see moves like this, when you see central banks getting involved, and when you see currencies kind of jumping around so rapidly.
[2:17]
WarrenMakes me realize how little I know. But it's not it's not a factor for Berkshire. When there was a period, maybe close to 10 years ago, when we had some major. your currency positions. Now we have exposure to current. We do business so much all over the world that I don't really know whether it's good or bad for us what a currency moves. Because we have lost reserves for insurance that are payable in euros and pounds and yen. And we have some foreign currency investments. And then we own stock in companies like IBM or Coke that do a lot of business abroad. So I've sort of given up and trying to figure out when you take. tell me what currencies have done, whether I'm rich or poor.
QuestionerWell, Jim Kramer made the point this morning on Twitter that, hey, a stronger yen is great news for a lot of U.S. companies that are looking to export. I mean, that's something that maybe we wouldn't have anticipated at this point, given the stance from the BOJ and our stance at the Fed.
WarrenYeah, it's one of the reasons I thought the Fed would have trouble a year ago in terms of raising rates. because a stronger dollar hurts the exporters and a weaker dollar, which means a stronger Gian or whatever it may be. I mean, that helps exports. There's no question about it. We, like you said, you realize how much you don't know when you see some. The cost turns. I mean, there's just a million of them. But you must have spent a lot of time thinking about what central banks are doing around the globe because it has a huge impact. It's a fascinating movie to watch. I don't try to make money off the movie, but what we have seen in the last seven years. I don't, I think very, very, very few people would have dreamt in 2009 that we would have have this duration of low rates and have people still expecting low rates after the seven years or so or up this.
QuestionerNo, it's a different world. And it's certainly a different world when you have a lot of money in euros as we do. and you're better off putting it under your mattress than in a bank. There's nothing you can do about that with some of the reinsurance companies or the insurance companies, right?
WarrenNo, there might be a few things we could do. I think Munich Re was talking about actually converting a lot of their short-term funds to actual currency and sticking them in a ball. But we haven't gotten there yet. that could be a point where you'd really want to start withdrawing currency.
[4:58]
QuestionerThat would be an interesting point. If currency in a bank is worth less than a currency in your hands or in a mattress, that could produce something in the way of behavior that nobody's ever anticipated. You're talking about a potential run on the banks, essentially?
WarrenWell, if the deposits aren't doing anything there and they charge you for having them there, I might contemplate taking them out. I don't know exactly. I had to hide them someplace where my wife didn't know where they were.
QuestionerWell, when you talk about that, you think about Berkshire's big position in some of the financials, like a Bank of America or Wells Fargo. Does that change your opinion on the financials?
WarrenIt makes their, it squeezes their earnings. But we don't buy them, but based on what we think they're going to earn next month or next year. They're actually earning pretty good money as it is. but and reserve requirements are probably more important factor almost than low rates. But, no, it's a factor in Berkshire's earning power. It's a factor in Berkshire's earning power. We have close to 60 billion that's out invested at a quarter of a percent or less. You know, one point on 60 billion, $600 million a year. So if we were getting three or four percent on that money, that's a couple billion dollars. That's a couple billion dollars to us. And, you know, it's, you notice it.
QuestionerDo you still think the Fed is doing the right thing by not raising rates simply because being tied?
WarrenI think generally they've done the right way. I think that our recovery, since October of 2008, I think the policy in the United States by both the the Bush administration in the first few months and the Obama administration subsequently. I think it's been very good. People can always look back and say, you know, if you've done this or that. But a lot of those businesses and that could have produced way worse results. Our country has recovered really quite substantially from what was a bodybowl. I mean, it was not like a normal recession that we'd had post-World War, too. So I really give a lot of credit. of credit to the people that were there earlier and that are there now to following a very wise policy.
QuestionerSo at the Federal Reserve, you think they are right in making sure that they're paying a lot more attention to what's happening outside the United States than to what's happening in the United States. Because effectively, the reason for staying at low rates is because of what the Bank of Japan and what the ECB are doing.
[7:44]
QuestionerNot necessarily because when you look at unemployment in this country, it is not something. It is not something that would match up with what we're seeing. Why were you looking at these incredibly low interest rates almost in zero? If things were different in Europe and Japan, we would be following different policies here. And how much different, I don't know. But you have to be affected if you're jealous by what is happening in Europe and Japan. I mean, you do not, if we had rates that were dramatically higher than the Japanese rates or the European rates. we'd be in even more uncharted territory than we are now. Is that just a reflection of a new world order, of a more globalized world, and we're never going back to the way we used to look at things 20 or 30 years ago?
WarrenWell, I don't know. But the, we've always had to take into account major other countries or an entire continent in the case of Europe. We've had to take that into account. But it's way more top of mind with regulation. and policymakers now than it would have been 15 or 20 years ago. They're more worried about, I mean, they've seen things happen that they didn't expect to happen, and they have to worry more about sort of doing something that looks quite novel. So I would think that, I would think that the Fed, if they were plotting scenarios for having 4% rates here, when there were negative rates somewhere around the world, they wouldn't know they would answer, but they wouldn't want to find out the answer either.
QuestionerSo let's talk about the economy here and the jobs outlook, because Joe just pointed out, this Friday as a jobs Friday, we're going to get unemployment numbers again. And again, we've been doing fairly well if you believe the official numbers and if you see where things are headed. What do you think just from your perch and what you can see of the economy?
WarrenWell, you know, our employment goes up a little bit all the time. Not in every area. Our employment in the railroad. road is down over 4,000 people. And if you take the Union Pacific, one of our competitors, theirs is down 4,000 people. Because of efficiencies or because of the lower rail car loads? It's just because of the fact that there's not much traffic moving. And those cuts come pretty fast. I mean, when the trains quit moving or they don't have as many cars, you've got to make your adjustments quickly. So every railroad is down on employment.
[10:17]
QuestionerAnd since we're the largest, in terms of revenue counties. We were, we probably were up at 48,000 and we're probably somewhere around 43,000 now. But most of our businesses would be expanding in numbers to a modest degree. But a town like Omaha has 3% unemployment. I mean, we are, this town is feeling as prosperous generally as it felt during any period there in terms. in recent years. Beyond Omaha, though, when we talked to you last week about the economy, things that you said weren't very reassuring, that it does feel like a 0.5% GDP economy to you. And that doesn't sound all that optimistic, at least for the near term.
WarrenNo, we're not living in a world, though, where I think you expect the U.S. economy to grow it half a percent. And there's one little thing that many people don't understand about the GDP figures, maybe I don't understand it, but my understanding is that they're sequential figures so that you take the change from one quarter to another and multiply by four. So if you're off a tenth on the seasonal adjustment or the compilation of figures, that becomes a four-tenths figure. So I think the GDP figures are inherently a little more suspect in terms of being perceived. in terms of being precise than year over year figures. But that doesn't, that doesn't negate the fact that the business is slow. It's not negative, but it's slow. And I just talked to the fellow that runs our furniture. He was up here at a furniture store in Houston. You know, he's affected by what's going on in the oil business. And our, we have 130,000 tank cars. They don't all carry credit. oil. But we had huge backlogs on those. Now we're getting them back. Our releasing rate has dropped. You see in a lot of places. Which brings us to the price of high of oil prices. You know, look, I hate to say that $45 is a high level, but it's up 20% in very recent rapid succession. What I know again, you never want to talk about where you think oil prices are headed, but swings like that is a damaging to the economy. damaging to the economy to see a big drop in a very quick succession and then a very quick pickup in quick succession, although we're back to just $45 again.
QuestionerYeah. Is it bad for the economy to see these swings? Would it be better to have a more stable price?
WarrenNo, net, the whole economy, we're an oil importer, and if the price of oil is less, it's beneficial to us. But it hurts all kinds of industries and lots of people and lots of specific geographies.
[13:17]
Becky Quickbut if the price of bananas drops, you know, the price of coffee drops, it's net good for the United States, although it has plenty of pockets of places where it hurts people who are in those businesses. But anything you're a net importer of, you're better off getting cheap. All right. We're going to take a quick break. I'm going to send it back to the guys, but Joe and Andrew, when we come back, we'll have a lot more to talk about with Warren. Maybe we talk about some of his top holdings that he mentioned over the weekend. shares like American Express, IBM, Coca-Cola. We'll get into some of those things coming up. Also, coming up at 8 a.m., Berkshire's Charlie Munger and Bill Gates, both the vice chairman of the company and one of the board members, will be sitting down to join this conversation as well. We are with Warren Buffett, the chairman and CEO of Berkshire Hathaway. Again, we're just coming off of the annual shareholders meeting. Or about 43,000 people were here. They're all around this area, right in Omaha, listening to Warren Buffett and Charlie Munger. Take the stage for about four or five. hour, actually for about six hours. You guys were on stage taking questions. A long time, I remember, because I did have to go to the bathroom. Warren, let's talk a little bit about some of the issues that came up at the shareholder meeting. There were some questions about some of Berkshire's top holdings. You guys did answer some questions from this, but people are always curious to hear more. One of those stories was American Express. There was a question about whether the company is still going to be valuable. There are all kinds of changes happening to this industry. And I just wonder what you think about American Express. what you think about American Express if you still have the same level of confidence in it.
WarrenWell, I do, but there's no question that the whole area of payments is subject to attack by all kinds of people. And they're very smart people. They're high-tech people. And they're trying to figure out faster, cheaper, better ways of handling payments. And American Express, with that being their business, their business is not only under attack now, but they'll be under attack for as far as the eye can see. But they have a very strong franchise, too. And we'll see how it plays out. Losing the Costco account was a significant item. But Ken Schnault made the decision that under the economics that were being proposed,
[15:37]
Warrenit just didn't make sense. And volume continues to gain per card, cards increase. increase. Credit figures are extremely good. The company's buying in stock at the rate of 6% a year, which I love. You know, if we have a 15% interest in the company at the start of the year, without laying out a dime by the end of the year, we have almost a 16% interest. And we think it's a wonderful business, but it's not a business as competition-free at all, nor will it ever be.
QuestionerWell, let's talk about on two fronts. First of all, just on the stock. buyback aspect of that. That's another thing that you talked about over the weekend, just in terms of Berkshire shares and when you choose to buy Berkshire shares. You have a very clear formula that you lay out for anybody to say, we will buy back shares at this point. Right. And people know that and they get that. But you also made the point that with the exception of Jamie Diamond, you don't see a lot of other companies and other CEOs that are looking at things and trying to evaluate their stock and really look at its valuation before they choose to buy back. to buy back. Just because American Express is buying back 6% of its shares a year, well, that's great, assuming the stock actually goes up. If it goes down, it's not such a good bargain.
WarrenWell, it's great as long as it's worth more than they're paying. Now, if it goes down, that's even better in terms of buying more shares. But they've got to be buying it for less than it's worth. I believe they are buying it for less than its worth. But that's the key. And it is true that hundreds of companies, maybe thousands of companies, announce a buyback. clients every year. And if they were going to buy the X, Y, Z company, they'd say, I'll buy it at $40 a share, but I won't pay 50. They have in mind a limit as to what they pay for any business they buy, except their own. And it's become fashionable to repurchase shares. And a lot of them do it because they really like the idea that they think Wall Street will like it. They like the idea because they think maybe it props the price. I've been in boardrooms, and they've discussed repurchase of shares. And I very seldom heard them talk about it in connection to what they regard the intrinsic value of the business is. The only reason to buy stock is to buy it for less than it's worth. And you buy a company for less than you think it's worth,
[18:02]
Warrenand you buy a stock, which is part of a company for less than it's worth. And you read the next hundred releases that are made about repurchasing shares. And I doubt if you see one that has a word about when it's attractive and when it's unattractive. We think it's attractive at a formula that we lay out and we don't think it's attractive at a different price. And so we do it when we think it's attractive.
QuestionerI know, Andrew, has a question, but I want to ask one quick follow-up on American Express before we move on. American Express, the deal with Costco, Ken Chen Schenalt, you said, made the decision that this was not worthwhile and not worth sticking in it. Do you agree with that assessment?
WarrenYeah, I was, I wasn't involved in negotiations at all. I was aware of what the math was. And of course, they'd lost it in Canada earlier because they couldn't come to terms. And I concur entirely with him walking away. You have to be able to walk away from an acquisition. You have to be able to walk away from a business deal. It may be very tough sometimes. But if you aren't willing to walk away, you're going to get pushed around pretty dramatically. And Costco was a very, very, very valuable co-brand to have. for American Express. But that value wasn't limitless. And we'll see how the new Acquire does with it. We'll see to what extent American Express retains those Costco customers. They did pretty well in Canada on that, but that was a different situation in the U.S. Charlie Munger's on the board of Costco. Maybe we'll ask for his opinion on that. He may give me a different opinion, too. Andrew, I'm sorry. Let's get to Andrew. He has a question, too.
Andrew Ross SorkinHey, hey, guys. This is a question, again, related to Amex and Warren, it came from one of the shareholders. We can get, we can get. to it over the weekend, but relates to this, talking about walking away. The shareholder noted that on American Express's stock, it is now underperformed over a one, three, five, and ten-year period. And the question the shareholder asked was, under what conditions would you decide to walk away? What is it that you would have to see where you decide, okay, you know what? I actually think this is going in the wrong direction.
WarrenWell, I certainly wouldn't decide based on how the stock price behave. I was on this program in March of 2009. And at that time the stock was 11 or 12. And I remember Joe asking me why I didn't buy more of it.
[20:19]
WarrenWell, it was because the Bank Holding Company Act prohibited us buying more. Fortunately, the company kept buying in stock. So I think our interest back then may have been 11 or 12 percent. Now it's approaching 16 percent. We haven't had to lay out a diamond. We've got a much more valuable company. So the stock price has nothing to do with us changing our mind about the company. It may, if it goes up a lot, it could get to where we thought it was selling for a lot more than it was worth and that we could find something else. But if we like the company, we like the stock price to go down because if American Express is going to spend, we'll say, what, 6% of maybe three or four billion dollars buying in stock, the more shares they get for it, the better. But we look at the business. And at the business, you will see that the number of cards is growing at a decent rate. The amount spent per card, which is far, far, far higher than Visa or Master Charge keeps growing. The credit metrics are terrific. You know, the expansion in merchants is terrific. So I feel good about it.
QuestionerHey, Warren, real quick, one of your other shareholders... It will... Go ahead. No, no, I was going to say, one of your other shareholders mentioned that this investment is clearly still in the black. It's a big moneymaker. Do taxes... implications of capital gains weigh on you at all in terms of whether you would stay with a company, even a company that you thought was potentially challenged for a bit?
WarrenWell, yeah, sure. Taxes make a decision, enter into the decision as to whether to sell A and buy B. I mean, if you sell A and you've got no tax basis on it at all, you pay a 35% tax at the corporate level, far higher than at the individual level. So if we were to sell our Coca-Cola, for example, It's almost all profit. So we would have roughly $0.65 to buy anything else. And that means the case for switching has to be more compelling. We still do it. I mean, we sell stocks with very substantial capital gains taxes involved. But it's obviously a factor.
QuestionerWell, let's talk about that because, look, I've actually had questions come into me from people this weekend, too, just suggesting if you look at American Express, if you look at Coca-Cola, if you look at IBM at this point, are these positions that you have some affinity for and companies that you have this legacy with that you would never sell? Is that?
[22:58]
WarrenNo, they're not things I would never sell. No. We would not sell businesses except for the reasons that we lay out in our economic principles. But we want anybody to buys Berkshire to understand how we think. So we have a section in the back, which I run for decades, called the economic principles of Berkshire Hathaway. And it says we will not sell controlled businesses unless they either have major labor problems or they promise to eat up cash. Those are controlled businesses. We're talking about companies where you may be the may be shareholder, but not controlling. Well, then when in terms of companies where we're a shareholder, but not a controlling shareholder, there isn't anything in there in those economic principles that says a thing about what it will buy or sell. Would it pain you to sell American Express? Would it pain you to sell Coca-Cola? No, I don't think so. No. It would, it would, no, in fact, I probably, if that circumstance of presenters, I'd probably enjoy it because I had something I thought was going to do where I was going to do better with the money. So you staying in these stocks is a conviction that this is the best place for your money. Yeah, and now bear in mind that moving around many billions of dollars is not easy for us. So it's not something we make if we think there's a one percent different. or a 3% differential. And there is this tax factor. So there's two different factors that push towards staying in the same place. But if you ask me whether I would feel a pain in the heart, you know, like, like, you know, the girl I've been pursuing for years left me or anything like that, no. Is that in terms of your feelings about these huge positions, some of Berkshire's biggest positions and investments, do you know if Todd and Ted share your thoughts on these companies? because these are the two that you've tapped to really take over running investments. Right now, they're each running about $9 billion of Berkshire money. You guys don't talk an awful lot about, you don't advise them on what stocks to buy, but have you talked to them about these big Berkshire positions, and do they agree with your thoughts on how these stocks are doing? Well, they don't talk, Mike, we talk some when their developments, you know, we go to lunch and we'll talk a little bit. But they don't regard those stocks as their responsibility. But if you were to ask me if I wasn't here today,
[25:15]
WarrenWould they feel that they would want these same big chunks of four or five companies? I'm sure the answer is no. I don't know which ones, you know, they'd look at the situation at the time. Look at those prices, look at their alternative choices. But it's very unlikely. They would come up with the same proportions. It's unlikely Charlie would. Well, fortunately, Charlie's going to be here a little later, and we can ask him for some of the He probably saw them all and buy Costco. Did you talk to Charlie before you bought IBM? Yeah. Yeah. So you've got at least the okay go ahead. If you get anything short of a screaming, no, it's an okay from Charlie.
Becky QuickAll right. Well, we're going to talk a lot more about these issues and much more. Welcome back to Squackbox, everybody. We are live in Omaha, Nebraska with Warren Buffett, the chairman and CEO of Berkshire Hathaway, who is fresh off of his annual shareholder meeting. About 40,000 people who came to town. And Warren, thanks again for being here this morning. I'm enjoying it. You did make a lot of headlines. I've been going through the papers. And today in the Wall Street Journal on C1, the lead story is about how you downplayed the impact of the election. And there were so many people who were here who were wondering your thoughts on the election. You've seen a lot of different elections. What do you think about what we have seen to date in this current cycle?
WarrenWell, it may say I downplay. The election is enormously important. I mean, it's important in terms of the world. But if you ask me whether electing the wrong president can permanently damage the U.S. economy? The answer is no. I mean, we've had 44 presidents so far, and they haven't all been damaged. But this country will move forward regardless. And there's no need to make America great again. America is greater than it's ever been at this point. But it's going to become ever greater. And it's just, this country works and it works in a way that blows the mind. I mean, in the 20th century, the Dow went from 16 to 11,400. And we had, had two world wars and a great depression. And we're just starting. I mean, just think of what your life was like 20 or 25 years ago compared to now. And that's going to keep going. So I know one person as president. It makes a big difference who is president, but it doesn't make a bit, it doesn't, it's not going to change whether America moves forward economically.
[27:39]
QuestionerYour children are going to live better than you. If we elect three bad presidents in a row, it's, I still care very much about who's president. Well, just this cycle itself. I think it's been really interesting to watch how both the Republican and Democratic Party have had trouble with people who are looking for outsiders. They don't seem to trust the establishment or like the establishment at this point. And that's played out very visibly in this primary season.
WarrenYeah, I've never quite seen it like this. I mean, you in both parties, I mean, you've had Bernie Sanders come from 3% to close to 50%. You've seen Donald Trump come from nowhere with no political background and people are Now, it's primary voting, so you bring out a certain portion of the electorate for primary voting. But you are seeing people say very loudly that they don't like, they don't like what's happened in Congress, they don't like what's happened in media, they don't like what's happened on their job, you know, whatever it may be. It's one of the great protest votes of all time.
QuestionerWhy do you think that's happening? Why does so many people feel so disaffected?
WarrenWell, bad things. certainly happened to them in 2008 and 9. I mean, you know, in terms of nothing's more sacred to most people than their home. And millions and millions of people had trouble with their homeownership. They had their vision shattered about their home, which was an account, couldn't help but go up in price that they refinanced it. So here, their most precious asset in many cases was either taken from them or they developed worries about it that they didn't have earlier. And then they saw a stock market. tank and then they saw no one go to jail and then they saw wall street continue and and rich people continue to get much richer i mean the fortune or the Forbes 400 have all time record net wars so all of those factors and probably many others play into people feeling that even though america is doing well they aren't doing as well as they should and as a result they believe that the system is is rigged against them
Questionerare they right
Warrenthey well they've heard this they've heard that term the system being rigged against them. They feel something is against them. And they're decent citizens. They work hard every day. In many cases, both the husband and the wife work hard every day. They're raising their kids fine. And they see other people getting ahead much faster than they are.
[30:05]
QuestionerOr they may not see themselves getting ahead at all. And they just say, they look at the prosperity around them. And they say, why can't I as a decent citizen doing my part for my community and my kids. Why can't I rise a bit too?
Becky QuickWarren, we're at the end of the hour, so we have to take a quick break. But folks, when we come back, we will have much more from our special guest today, Warren Buffett. On a little later this morning, we're going to be joined by Berkshire Chairman, or Berkshire Hathaway's vice chairman, Charlie Munger, also Microsoft's Bill Gates, who sits on the board of Berkshire. Stick around. Much more squack box still to come.
Becky QuickWarren, let's start talking a little bit more about some of the things that happened over the weekend. One of the big topics that came up and questions from shareholders was the issue. issue of Valiant. Charlie Munger made some headlines earlier this year when he really questioned their business model. And you had a few thoughts about that yourself this weekend. In the B section of the Wall Street Journal today on the front page, there's a story coming off of those comments about how Valiant's CEO also was a key force on the pricing. Because one of the huge issues was Valiant jacked up prices by over 500 percent on a few key drugs that it had acquired. This story says that that was coming straight from the top of Michael Pearson. What do you have think about the company.
WarrenWell, I would have been amazed if it hadn't come straight from the top. I mean, Pearson, you know, I have no direct knowledge, but I've never met it, but he certainly seemed like the sort of person who forged all important policies of the company. And it was a, it was an important policy to jack up prices dramatically. I mean, unbelievably almost, for certain drugs that people really had no substitute for. And we had at Berkshire over the previous year to, because Valiant was a subject of conversation. We had at least two large holders who were urging us to buy. And part of the pitch was essentially what they could do with the pricing of products that they bought from other places. So it... Two holders of Valiant, not two holders of Berkshire. Two holders of Valiant. And then if you listen to... to the Senate hearings, which I did, where you had Senator Collins and Senator McCaskill and then Senator Warren zero in on the policies. There really wasn't any defense, I mean, when you got
[32:39]
Warrenright down to it. For a while, there was a little defense about how they'd contributed a billion dollars or more to patient subsidies for the co-pay. But clearly, that was done for reasons that were dramatically in valiant's interest so they could jack up the prices and the copay didn't stop the prescription of them or the people buying them. And they ended up netting far, far, far, far more money after waiving those patient fees. The whole, the whole system needed a lot of looking at. Charlie called it a sewer. Is that a step too far? Or is he accurate? He uses different words than I use it. But I would say this. I don't think. I don't think you'd want your son to grow up and run a company in the matter that Valiant was run.
QuestionerIn terms of the valiant shareholders who were pushing you to take an active stake, look, there were letters released in a Wall Street Journal earlier from Bill Ackman suggesting that Georgi Apollo of 3G had taken a big stake. And obviously, you've spoken very highly of 3G and of Georgi Apollo in particular.
WarrenYeah. And I think that may have been a mistake. I mean, I don't think it's a mistake by George Apollo. I mean, it was a mistake to say he had bought it. No, I, for all I know, somebody was saying, we bought it. We never bought it, obviously. There was a desire on the part of certain holders to bring in other validating holders. And I think maybe that's where that came from. I don't know. I saw Bill Ackman here this weekend. He's been coming to the shareholders meeting for a long time. A long, long time.
QuestionerHave you talked with him at all about this?
WarrenNot recently. Not recently. But he's talked to me about valiant. He's also compared, he's been compared to an expert Sher Hathaway. When people look at Bill Ackman and look at what he's done, there was a magazine cover not too long ago that laid him out as potentially the next Warren Buffett. What do you think about comparisons like that?
QuestionerThat's what the media does. We're good at that, aren't we?
WarrenYeah. I'm pretty good. Again, Charlie's here a little later, and we can ask him what he thinks about some of these issues, too. You'll probably get as well. I don't think you'll have any trouble getting a reply. Okay. Let's talk about hedge funds. Charlie, I should be noted that Charlie runs a hospital and has run a hospital for decades. Right. So he has had much more contact with this, and he has far more knowledge about it than I do.
[35:18]
QuestionerLet's talk about hedge funds in general, because you did spend a big chunk of the meeting arguing against investments in hedge funds. general. You weren't laying out anybody in particular, but just saying active investing versus passive investing does not always lead to better results. In fact, in a lot of cases, if there are high fees, it leads to worse results.
WarrenWell, active investing as a whole is certain to lead to worse than average results. Because if you divide the universe of investors, make it very simple, and have half of them never make a change in their holdings. They own half of all America, and they just sit there forever. What's their result going to be? It's going to be average, right? It can't be anything else that they own half of everything. Now, if that half is average, you do nothing, and then you have another half that's very active, their gross results also have to be average since the other half is average. And then what they get is way less because they pay these huge fees. So I had this bet, for example, against hedge funds. And part of the reason I'm winning it big is because a very significant part of the original capital that what the hedge funds ended up in the manager's pockets. even though they underperformed an index fund. And it's a very interesting thing. Investment managers as a group produce a negative result after fees compared to a passive thing. Now, an obstetrician does a better job of delivering my wife's baby than I can do. And a dentist job does a better job of taking out teeth. And the plumber does a better job with the toilet than I can do. In almost every field, the professional, something to the party. The professionals as a group in investments bring a negative results to their clientele. And that's a very interesting phenomenon to live with. If you spend your life doing something where your expectancy is to hurt your customer. And yet that is the case for professional. Is that just because there are so many bad people in the industry? No, not the least. Not in the least. Most of them rationalize it one way or another. And they say, well, these people would do even worse on their own. They would do even worse on their own if they did a lot of trading. But they don't need to do any trade. I've got a farm. And if somebody told me to buy and sell farms for the last 30 years and constantly turn them over, I'd have a way worse result than just sitting with the one farm I have.
[37:36]
WarrenBut you can say if I'm going to trade farms every year, I'm better off having an advisor. But that is not my option. And anything that adds to costs without improving aggregate results means a worse result for the client. And it really is interesting to me that you have tens of thousands, hundreds of thousands of people in the business. And you have, you know, all kinds of media devoted to the subject, everything else. And net, they are addressing a group who, in aggregate, because of the expenses involved in it, are going to do worse than if they bought the average and sat for the next 50 years.
Becky QuickI know Joe and Andrew both have questions. Joe, I think you wanted to talk about Coca-Cola. Maybe we need a longer conversation about Coke. I think Andrew's got a quick one because we're going to go to break again. But you want to stay on this subject, Andrew?
Andrew Ross SorkinYou're related to this, Warren, because I know you read all the different filings that have come out. And talking about professional investors, when the 13Fs come out, is there any particular investor or anybody that you actually rush to look at those and say, I want to know what they're holding and what they're not holding and why?
WarrenYeah, when I was 20 years old, you had to write away for them. There was no Internet to get the material from or anything. So the first thing I did, they only reported twice a year was. I wrote the SEC and got these copies, and they did copies in kind of a crummy way. You waited a week or two. But I got the Graham Newman portfolio immediately after it came out, because I was very interested in knowing what Ben Graham's buying and selling. And there were a couple of others as well. Anybody today, though, that you rush out to try to print out the filing to say, I want to see what Bill Ackman's holding? or I want to see what whomever is holding? Not really. Maybe for curiosity reasons, but it would never, it would never lead me to make an investment decision of any kind. But sometimes, you know, I'll have a friend, and I'll look and see what they're doing. But it doesn't, it does not lead to an investment decision.
Andrew Ross SorkinYeah, that's very telling. That's great. So who do you admire that manages money?
WarrenWell, Ben Graham was somebody that. But after him, it's me. And I look at what I'm buying, which is... I'd still like to know what Ben's thinking. I mean...
Andrew Ross SorkinExactly. Exactly. He's been dead about 40 years, but I...
[40:14]
QuestionerIs that a... Does Dairy Queen have an actual coupon book, like a bookup where you can go through and see all the different things? Are you going to send me, like, loose, like, three coupons or something? Is there a coupon book, and is it anything on the menu I can get? Or is it just... things that aren't selling that well. I just... What are you sending me?
WarrenNo, you... You will get a card which has a certain amount of purchasing power build into it, and then you can order blizzards or dilly bars or whatever you'd like. And then at some point, they will tell you that you've used up everything on the card.
Joe KernenWarren, don't be cheap. I don't want like a half of a Sunday or something, all right? I mean, I want to be able to... All right? Let's put some money on there for me. What's the maximum amount I can send you out in any way affecting your judgment? About whether I'm nice to you or not.
Warren$1,000 probably. I wouldn't... Anyway, I have kids. And they have friends.
OtherAnyway, more from... We have $1,000. You do? I was kidding. But hey... Just the thought... Just the thought of me sending you $1,000 card is probably going to cause you to go easier on me in the rest of the interview. I'll share it with Andrew. And Becky. Anyway, more from Warren. Warren Buffett after this break, concluding his thoughts on Coca-Cola.
Joe KernenAll right, welcome back. Let's get back out to Becky and Warren. I'm saying Becky, I would think maybe I should say Warren first, but I'm not going to do that just because because he's Warren Buffett. I'm going to send it out to Becky and Warren. But Becky, I have been sort of wanting to talk about about Coca-Cola because even though I was not out there at what... They call that the Woodstock for capitalists. And then they call the White House Correspondents dinner like the nerd prom. prom or the Washington DC Oscars, is what they call it. So I was, you know, I was torn, Warren. But while I was there, I was watching what was happening where you are, and I got a big kick out of your conversation about Coca-Cola. And I want to give you kudos, because I love reading things like that. Because just to make a point, Warren, I googled sugar and heroin. I just Googled sugar the new heroin. Here's some of the headlines. Is sugar as addictive? as heroin, sugar equals heroin, how to cut your addiction. Research shows cocaine and heroin are less addictive. They even have one that says sugar is the new fat, which I love,
[42:40]
Joe Kernenbecause that's basically saying, fat's no longer bad, like we were absolutely sure 10, 15 years ago. Now, sugar's really, you know, they don't even know that they're making fun of themselves. But I actually saw someone ask you whether you're the statistical aberration because you've been drinking your cherry Coke and you're not fat, obese, and dead. And how can that have happened? And you said maybe if you do it in moderation, you won't, those things won't happen. Well, I drink probably five 12-ounce Cokes a day, and that's about 700 calories. And I've been doing it more or less all my life. I can't imagine anybody that feels better than I do. I mean, I'm happy. I enjoy life. You know, I've always wondered if I'd had a twin, and he had to eat broccoli and asparagus and Brussels sprouts and done it every day, and I'd been drinking my Coke and eating potato chips, and there are some cookies that also, you know, have 100 calories per ounce. The, you know, which of us, I think the other guy would be gone. I mean, I think he probably would have committed suicide, actually. And he certainly wouldn't feel as good about life as I feel good every day. It is an example of what's called a cascade where consensus becomes fact. And we've had it in the past that red meat causes heart disease, which we now know probably isn't, it's not that simple. And I've even talked to Andrew about this, looking at sugars linked to diabetes or obesity, even the best study that I've seen, there's all these caveats that it's impossible to do a control. experiment where you get rid of all the other external factors to actually pinpoint what's going on there because there's genetics, there's all these different things. But it becomes, you know, consensus suddenly becomes fact. And it's just, you know, and it's hurting Coca-Cola right now. And as a shareholder, you know, I mean, there's also microaggression and safe zones. And I mean, the world is a little bit crazy right now, Warren, in terms of political correctness.
WarrenYeah, well, I'll make two points. I, I do think you live longer. If you're happy, on balance, I would bet on the person who's extremely happy, living longer than somebody that's sour every day of the year. But beyond that, I mean, if you eat 3,500 calories and you burn up 2,700, I don't care what it is, you're going to get fat. And it's just a question of, you know, how much you put in and what your metabolism is.
[45:22]
WarrenAnd at the annual meeting, we had talked about Coke in the early part. And when I went to lunch, I bought three candy bars. And each one of those candy bars had over 200 calories, whereas a 12-ounce can of Coke has a little under 150. So one of those candy bars, you're getting more calories and you're getting a lot of sugar. And I just think it's a little crazy. They've been selling Coke since 1886. You know, they sold one point. $1.9 billion, 8-ounce servings a day, that's $693 billion servings a year of Coca-Cola products, one kind or another. And I, you know, if you want to eat way to hell more than you burn up, you know, you're going to have some health problems. You know, you can throw GMOs and preservatives and kale and in my book, even CO2. But I mean, all these things at this point, the cascade of where consensus becomes, you know, unquestionable dogma and science. living in a weird age.
QuestionerWarren, one of the things, I got a couple of emails after the question was asked and answered at the meeting that asked it maybe in a different way related to Coke, which is just from an investment perspective and your investment thesis on Coke, how do you feel about the fact that there are countries like Mexico which have added a soda tax? You're starting to see that conversation come up in the UK and parts of Europe, other parts of the world. Again, despite your own soda consumption, there have been questions at least raised, whether they're right or wrong, and how that impacts the way you think about it as an investment.
WarrenWell, it has an effect. Now, the interesting thing is if you want to tax sugar, I would think you would just tax sugar. I mean, whether you get the sugar through Coke or pouring it on cereal in the morning or whatever it may be. So it seems a little illogical to tax sugar in certain forms and overwhelmingly in soft drinks, and then have all kinds of sugar elsewhere. Like I said, I took those three candy bars. They're loaded with sugar. And a lot of the things you eat are loaded with sugar. But it is a negative. There's no question. I mean, if you've got political bodies that are going to tax any product that you make very heavily, it's going to affect demand. And that's a negative for soft drink company. generally and Coca-Cola being the largest in particular right all right great we'll be back we're going to take another quick break with much more from Omaha
[47:58]
Becky Quickstraight ahead I thought it was interesting that even though Berkshire's not a technology company there were some technology names that came up over the weekend some people who were talking about the the newest things what you can do with driverless cars and you even talked a bit about Amazon in some of your comments a shareholder asked a question I can't remember exactly what prompted it but you basically said look, Amazon has done great things, and Berkshire is not going to out Bezos, Jeff Bezos. That is for sure. What did you mean by that? What were you talking about?
WarrenWell, I mean that there's certain people that you do not want to try to beat at their own game. And certainly Jeff Bezos would be number one. I mean, that'd be like me playing chess with Bobby Fisher, you know, 40 years ago to be all over on the first move. Jeff, you know, he's just showing amazing talent in figuring out. how to please customers and in a very short time and what's interesting to some extent about him the same thing's interesting about Fred Smith of Federal Express it isn't that they've had some breakthrough and you know found some molecule this or that or come up with some you know incredible invention they've taken fairly ordinary things I mean starting buying books in them you know but Fred Smith took the airplane and the delivery truck and the postal service, but then he just put it together in a very imaginative way, you know, with a central hub and all that. And came up with a whole new industry out of components that were known to everybody. And in a sense, Bezos has done the same thing. Now he's building big distribution centers and employing the latest technology. But the Kindle came out of there, and there's some products. But overwhelmingly, he's taken things that you and I were buying before, and he's figured out a way to make us happier. buying those products either by fast delivery or prices or whatever it may be. And that's remarkable when you think about it. I mean, a lot of that comes down to just focusing on what the customer wants. All he thinks about is he wants the customer to have a smile on their face. And that's been true of other retailers. I mean, that is not something that R.H. Macy didn't think or Marshall Failed or Bernard Gimble or all these people. But he knew how to do it, you know, in 1997 in a way that nobody. else had come up with. And I'm sure his ideas even evolved as he was doing it. But he laid out
[50:25]
Warrenhis objectives in his first annual report. And you could read them. I mean, his competitors could read him. And he has changed the world in a big way. When you talk about his game, I mean, it's harder and harder to really identify what his game is. It's retailing. It's online retailing. But so much of Amazon's huge profits from the last go-round came from AWS, from the cloud. And that's incredible. He developed that over a six or seven year period. And everybody else sat and watched. I mean, here was a guy that was a business genius, and he's coming on with something big. And the world, his competitors, to a large extent, just sort of ignored it. I mean, they gave him a lead time, which was very, very dramatic. I actually sat next to him at a birthday party for someone and told me how surprised he was. that he didn't get more reaction quicker. You don't, you don't, you don't want to give a guy like Bezos a lead. I mean, he's bad enough if you're starting on the same starting point, but you don't want to give him a lay. He, he's a, we haven't seen many business people like him.
QuestionerRight. Let's talk about another big retailer and another one that came up over the weekend, and that is Walmart. You're in an interesting position with Walmart because, you're a big shareholder in Walmart, but you're also a big supplier to Walmart through a lot of your companies. Sure. And you made the point over the weekend that as far as the suppliers, Walmart is really cracking down. How does that change your opinion of Walmart or your relationship with the company?
WarrenWell, I understand why they're doing it. I mean, and in significant part, I'm sure it's in reaction to Amazon. I mean, I believe that Walmart's online business, and this may be worldwide, I'm not sure about the figure, but you know, you're talking $12 or $14 billion, and you're talking about Amazon having annual gains of numbers like that. So it was very, just as Walmart was totally underestimated by the Sears of the time and everything. I mean, people, the idea that some guy had Bentonville with a pickup truck was going to take them to the cleaners, you know, they was beyond their thinking. And I'm sure that that was a situation at first with traditional retailers in Amazon. You want to be underestimated if you're a new guy in the game. And both of those guys came in under the radar screen. But Walmart, actually, with their own history, and then seeing what is going on at Amazon,
[53:03]
Warrenknows they have to play big in e-commerce. And they have certain advantages in having stores all over the country, which can act as pick-up spots and that sort of thing. But they are under a lot of pressure. And, I mean, they're a huge, powerful company. But they still, you were running Walmart and you looked out five or 10 years and you saw what Amazon was doing, it would feel that the time to go after him was not 10 years from now, but now. And so I think partly in response to that, a year or so ago, maybe a little less, they went to, I think probably all their suppliers pretty much. And in a number of different arenas, said we want to tighten up the terms, either in terms of pricing or in terms of allowance. for warehousing or in terms of dates of payment or that sort of thing. I mean, they're feeling pressure from another retailing form. And I think I think I do the same thing in their position, but they've got a tough competitor.
QuestionerDoes it still make it worth doing business with Walmart with your suppliers? Did your suppliers go ahead and say yes for those terms?
WarrenYeah, we said yes.
QuestionerSo you still see value there?
WarrenOh, Walmart is a terrific customer. And incidentally, historically, they've had a reputation for being very tough on suppliers. They have. But they haven't been that. That's sort of a false.
QuestionerSo the reputation's not deserved? I mean, the reputation that they've built is not a deserved one based on their practices?
WarrenThey've been. They have not, in our, you know, we've sell them at through the loom. We sell them at gerannibles. I mean, we sell them a thousand different ways. They have not been unreasonable over the years in putting on due pressure. In fact, I would say that there's certain other retailers I can think of that have put even more pressure on in the past. But there's going to be pressure. If you're a supplier of any big retailer, you're going to face pressure. You're going to face it if you supply Amazon.
QuestionerRight, right. All right, Warren, thank you. We're going to continue this conversation. Again, Warren Buffett is here with us this morning, and we're spending the entire show with them. We get a lot of time. to talk through some of the things that have been happening in the news. Warren, I thought we'd start with a few of the headlines that have been out. There was just a new poll that was released that showed that slightly more Britons would prefer
[55:31]
Questionerto leave the EU than to stay in it. This comes after President Obama went in and sort of made a plea for why he hopes that Britain will stay in the EU. And this is something that a lot of people are kind of concerned about. What do you think about the entire situation?
WarrenWell, I hope they stay in, but I don't think it's. I don't think Berkshire or actually the future of the United States is the future of Berkshire or the future of the United States would be going to be dramatically changed by what the brettes do, but I think certainly if I were to vote on it, I would vote that would stay in.
QuestionerI mean, in the past when we've talked to you about the EU as a concept, you've offered some criticisms and some just surprise that it's lasted as long as it has. Because originally the setup wasn't made with the same centralized.
WarrenI will be surprised if it lasts in something very close to its present form for a long, long time. Now, I'm not necessarily surprised that it's last this long. I mean, anytime you put something together that required all of the political will and all the different countries, there's going to be a great attempt to make it work. But I think it has flaws in it. And suddenly, we have flaws in it. in our Constitution. That's why we amended it. So it isn't, that doesn't mean they're fatal flaws, but they'll have to be, I think, addressed in some way or another in future years. I'm all for the concept. But you took in the monetary union, you took, you know, whatever it was, 17 or so countries with vastly different economies and cultures. And I would say that if you try to take 17 countries in North and Central and South America, and come up with a common currency, but they had different fiscal policies and different cultures, there would be a lot of strains. I don't think it would work. I mean, it would take a major modification in the behavior of certain countries to make a North American or a Western Hemisphere monetary union work. And that, a similar problem exists in Europe. And we've seen a lot of manifestations, we've seen strains and cracks. And I don't think they've been. permanently corrected. If the U.K. votes to leave, I mean, that's kind of a huge deal. It would be the first of things falling apart. It would be one of the major strengths of that union outside of France and Germany, who are really the two biggest pillars. I mean, that would be earth-shattering
[58:09]
Questionerto some extent to the EU. And I wonder how that would have implications on the financial system around the world.
WarrenIt would be a big deal. I mean, if Virginia had pulled out of the 13 colonies or something, And there were certain colonies, obviously, that were on the edge about whether what happened in Philadelphia was something they could accept. So it's a major player saying, we've tried this for a while, and we'd rather go it alone. It's a major factory. It doesn't, the world doesn't come down or anything, but it would be a big step backward. Even though they aren't in the monetary union, it would be a big step backward.
QuestionerAnother big headline this morning is that Baker Hughes and Halliburton's deal, they're pulling the deal. They've decided to walk away because of regulatory hurdles that they're facing in multiple countries. Is it harder to get a deal passed these days, or was this a one-off case because of the size of these two companies in the industry?
WarrenYeah, I haven't looked at all the areas in which they compete and applied the Justice Department test to it. But it sounded initially like, you know, that they were putting together together. two companies that were either actual or potential competitors in many ways. And that's the job of the Justice Department. I mean, you know, we have a Sherman Act on the books and the Clayton Agnes. They are to look for when things are anti-competitive. And my guess is that certain competitors of those two companies objected strangely. And it was not a surprise to me that that deal fell through. It's a very tough thing to make a decision. I mean, they've let certain airline mergers go through that reduced competition somewhat. But the industry was doing so poorly that the government probably decided that it would be a more efficient industry if it was reduced in numbers. But if you tried to do it one more time or something to sort, my guess is that they would say, now wait a second, this is getting a little too cozy. I mean, if you look at the oil field, though, I mean, that's another area that's been pretty decimated just by the price of oil. Obviously, prices come back up, we're back at $45 now. But it's been pretty hairy for over a year with oil prices. I guess they just look at that a little differently.
QuestionerWell, I'm sure that has some effect on what the Justice Department is looking at. I mean, conditions do change while it's under review.
[1:00:33]
OtherBut if the directors of two companies really like the deal too much, you may have an antitrust problem. Hey, Joe has a question, too. Joe?
Joe KernenYeah, just not about this specifically more, but and kind of. It relates to the EU and everything else. I was thinking about if I had one question for you, what it would be. And that's just the notion that global growth seems to be more difficult to come by than we remember. And, I mean, you've had a long life, I've had a long life. And, you know, we've heard it's different this time again and again and again. And I'm starting to hear things like that, that it's a demography, and that. people are, you know, there's not enough people being born and there's too many old people around the world that are going to, with not enough young people ready to take care of their retirement. And I'm just wondering whether it's still a hangover from 2008 or whether there's something different about the entire world that, that to get above one and a half or two percent seems so difficult for us right now. What do you tie it to? Just a hangover from the financial crisis or more?
WarrenWell, it may be more. could easily be more, but it certainly, I think, still ties to what happened in 2008 or nine. That was a financial earthquake fell around the world. And I would say that the banks in Europe were in worse shape than the American banks. So it was not, it was a financial shock, we hadn't experienced or the world hadn't experienced since the 1930s. And the 1930s took a long time to come out of it. So I think that's partly the fact. But I would mention again that a world of 2% real per capita growth is a fantastic world in that in our own country, in one generation, you would add $19,000 of GDP per person. That means a family of four, 76,000 in one generation, 25 years, from 2% physical growth. So, you know, it might not be what we had for a while, maybe of 3%, but 2% would do wonders for the world. I mean, you would have a so much more prosperous world 25 years from now if we could have 2% growth throughout the world in real terms. But I think if you ask me what it's the biggest factor is, I think it's the hangover from 2008 and 2009. The world de-leveraged in a very major way. And leveraging up does wonderful things while it's going on and leveraging down is not as much fun.
OtherHey, Warren. A couple other questions. One that we didn't really get to over the weekend, which is to touch a little bit more on IBM and how you're thinking about that company these days.
[1:03:44]
QuestionerIt's trading about $146 right now. What's your basis in IBM?
Questionerbasis on it?
QuestionerYep, for you. Your cost basis?
WarrenYeah, the cost basis is probably a little less than 170.
QuestionerA little less than 170. And are you, a lot of shareholders wrote in trying to understand how you feel about IBM these days, both positively or perhaps negatively?
WarrenYeah, well, we feel fine or we wouldn't own it. And we've never sold a share of IBM. Periodically, we buy a little more, although we're up fairly close to 10%. So we have not. been an aggressive buyer, but we have been a buyer. And we have never sold a share. And it's a company that has lots of tough competitors. One of them may show up here very soon at the studio. And it will always have competitors. We see them doing some interesting things, but the competitors are doing interesting things, too. Overall, we like it. And I think we would, I think I can safely say we would be much more likely to be much more likely to be. buy more in the next 12 or 24 months than we would be to sell shares. But we will make that call as the time goes along.
QuestionerWarren, let's talk about the shares of Yahoo or of the company's situation, I should say Yahoo. We had Sue Decker, who's a Berkshire board member, join us on Friday and talk a little bit about how she sees things at Yahoo. There's just some news out over the weekend about Marissa Meyer having a $55 million severance package. And that package will kick in if there's a change and control at the company. You've been kind of following this remotely. I wouldn't ask you too much about what you think about the digital strategies. I know that's not really your area of expertise, but what have you thought watching things play out?
WarrenWell, obviously they deteriorated significantly. They did a terrific job with our annual meeting. I mean, I've been hearing nothing but positive fallback, you know, on that Andy Serber was in charge of it. And they couldn't have done a better job. So I feel very good about that. But their businesses continuously slipped. And they made a lot of acquisitions in the last couple of years. And clearly they, you know, it has not turned around the company. I think they've said that they expect revenue to be down in 2016 again. And it's, something has to change there, obviously. I think, I think, I think these severance numbers, just generally throughout American industry are a little crazy. I mean, that, you know,
[1:06:30]
Warrenwhen a laid off employee gets, you know, two weeks for every year of service or something like that, and somebody gets eight figures. I think things get a little mixed up. But I've seen it, you know, it's that just continues to build almost anything in executive compensation. Whatever was done last year for people generally becomes the base for an increase the following year. I mean, American CEOs and generally executives and board members, there's just a ratcheting effect that goes on. And somebody says, I've seen a severance package that is X. And then the next person says, well, I want one is one and a half times X. And when they're signing people up, they don't pay much attention to it. If I were the American shareholder, I think I would get a little irritated with some of these goodbye kisses.
Joe KernenHey, Joe. You have another question?
Joe KernenYeah, on a different subject, back to thinking about the, you know, the current environment, Warren. And when you are the one of the richest countries around, I guess there's, you've got to expect that your trade imbalance, you're going to be, your consumers are able to afford so much more that you're never going to have a trade surplus, really. But then again, you know, on both sides of the aisle, it makes. political hay to talk about we're getting the raw end of the deal that, you know, we're not, you know, the money's moving out and, you know, it's not fair that we're not getting more business, you know, domestically from the, I just, you know, I'm just wondering what you think about. I mean, by definition, we're never going to have trade surpluses most places, but is there a way to do trade deals that are more advantageous to American workers? I mean, there's a reason why everybody's so disillusioned.
WarrenYeah, we've had trade surplus. as if we go back a long way, while we were the most prosperous country. But it's kind of interesting. Our total, our total exports were 5% of GDP, I believe, in 1970, and now they're about 12%. So we've gotten really pretty good at selling things to the rest of the world. It's a huge dollars amount and an increasing percentage amount for many years ago. But we've also swung more to imports. And of course, for a long while, a very good bit of that was oil. I, you know, in theory, it's very nice when you can be a net importer because you hand people little pieces of paper and they hand you underwear and socks and shoes and all those sorts of things.
[1:09:10]
WarrenAnd unfortunately, the balance of monetary assets held abroad then grows. And right now the world has about $7 trillion, $7 to $8 trillion. more of our securities than we have of theirs. I don't think that in itself is a dangerous name number, but I don't like that number to go up or certainly go up as a percentage of GDP. American industry has actually been pretty good, though, on exporting. 12% of GDP is not a bad figure when you look at the record historically. And of course, right now, the trade imbalance is, you know, $500 billion a year, which is a 3% factor there about. on GDP, and that's come down somewhat helped by oil. But of course, if oil goes back up, we've got another problem. I would rather see something closer to a balance.
OtherOkay, coming up at the top of the hour, we're going to welcome Berkshire Vice Chair of Charlie Munger, also board member and Microsoft founder, Bill Gates, is going to be with us. We're back in a moment. Our special guest for the hour, Warren Buffett, Berkshire Hathaway's chairman and CEO, Charlie Munger, who's the vice chairman of Berkshire Hathaway, and Bill Gates, who's the founder of Microsoft, obviously running the foundation and also a board member of Berkshire Hathaway. And gentlemen, I want to thank all three of you for being here today. We really appreciate it. We've been talking an awful lot over the last two hours, but looking back at what happened this weekend with the Berkshire annual meeting, I have to say I had a little bit of a tougher time trying to pick out the top headline. There wasn't a major controversy. There wasn't something that seemed to capture singularly the shareholders' attention. So I was hoping I could ask the three of you, what message to shareholders, investors, really stood out from your perspective, something you picked up this year. And Bill, do you mind if I start with you?
OtherWell, the beauty of Berkshire is the consistency of its approach, the commitment to its managers. I do think some of the discussion about the interest rate environment and how does that affect things. I came up in a number of questions, and, you know, of course, there were no forecast made, but I think it is a fascinating thing that's affecting lots of businesses, including insurance business.
OtherYeah, we'll talk a little bit more about what you've been thinking. I'm sure this has been an issue you've considered on that.
[1:11:34]
QuestionerBut Charlie, how about you? What was your headline this weekend? Something you walked out, maybe something you'd thought a little more about.
CharlieWell, I don't think, I think it's become such a favorable experience of frankly everybody. The managers like it, the shareholders like it, the local merchants like it. I mean, so it's become a fundamental part of the culture. And it's just a huge morale builder for everybody. Our new German subsidiary executives were here. And they were practically dancing and tap dancing. And of course, my secretary is German and spoke German. They felt that they just died and gone to heaven. So it's the experience that you take away every time? A lot of people have a very favorable experience, both the companies we've acquired and the people who have invested with it. And of course they like it.
QuestionerWarren, how about you?
WarrenWell, the highlight was the reelection of the re-election of the the chairman. Yes, of course, the entire board of directors up for re-election and overwhelmingly passed.
QuestionerBill, let's talk a little bit about what you brought up with interest rates, because that is a subject that seems to come up every time you have business leaders sitting around and talking about this. How much time do you spend thinking about this? And what's your takeaway on central banks around the world seeming to almost be in a battle to race to the bottom with Japan going negative on interest rates in Europe following?
WarrenWell, it's an unusual situation. It means for a saver that your returns are way lower than would have been expected. I'm not a macroeconomic expert, but it is surprising to me that there aren't more investments that with the cost of money so low, whether it's on the private side or even on the public side, you'd expect that to spur a lot of investment. So it's like the whole world is becoming like Japan and we never really could explain what was going on in Japan or how Japan could get out of that. So I find it fascinating and it does affect some of the choices you make in the investment world. Everything about money is deeply affected by these interest rates.
QuestionerHas it affected your own personal investments?
WarrenNo, I mean, in our foundations paying out something like 6.5%. And so there may be periods that we don't earn as much as we're paying out, but we have lots, there's lots of money still to go into the foundation. So for us, it's less of a concern than it might be for others. For some, you know, whether it's a university
[1:14:23]
CharlieWell, we are, and of course it's interesting. But they haven't figured out Japan either. It surprised all the economists of the world. I don't think much about my macroeconomics because I don't feel I have any special competency. I've been lucky because the people who do think they know a lot about it. Keep getting surprised. I strongly suspect that it was massively stupid for our government to rely so heavily on printing money and so lightly on fiscal stimulus for infrastructure. I think that happened by accident because our politicians couldn't agree. But I think we're way better off if we'd use more fiscal stimulus. Because you get to the limit of this stuff, what can you do after industry gets negative. This approach runs out of firepower. The other approach won't run out of firepower.
QuestionerWas there a point when you started to think that? I mean, back in 2008, 2009.
CharlieI've always thought it. After all, I'm a child of depression. I'm a child of depression. I watched the accidental Keynesianism of World War II fix the economy. I watched the whole damn thing. I saw at work. I saw the Great Depression. I saw it work. I saw the Great Depression. I saw it work. So I'm not a total non-believer in Keynesia. I'm like the man who said, he believed in baptism because he'd seen it done.
QuestionerThat brings you to what you're hearing on the political front. If you're thinking that fiscal spending is the way to get back to this, both Hillary and Donald Trump, the leading candidates in their potential parties right now, have talked a lot about infrastructure spending, potentially changing the tax code, having companies bring it back for infrastructure. If so, I'm all for it. Is that something that Warren, you agree with what, Charles? saying?
WarrenYeah. It's interesting. In talking to Charlie or Bill, we don't spend lots of time on macroeconomics, but I would say that in the last year or two, we've talked a lot about what negative or zero interest rates could do. I mean, that is a subject that comes up. We don't come up with any answers. So I don't want to encourage you, but it is really interesting to, it is really interesting to
[1:17:01]
Questionerobserve and speculate perhaps on what Act 2 is, but I can't really recall talking much in the way of macroeconomics with either one of these two in any other respect in the last couple of years than about this zero interest rate phenomenon. All right, so you don't have an answer, but what's your speculation? What is Act 2, what's your best guess at what Act 2 is?
QuestionerThat's why we talk about all the time because we don't know. But we've seen it go on in Japan for this extensive period. And by the way, they have used a lot of stimulus and still hasn't worked. Right. That doesn't mean we shouldn't try it. So does that lead you to believe that this is the box we can never get out of?
WarrenWe don't know. I wouldn't be that pessimistic. I wouldn't need a bit. Sure. But it does suggest Warren gave a great speech at a conference about. a few years ago about how as America's had this great run, the stock market has had periods where it hasn't appreciated much and then periods where it's appreciated a lot. It does suggest it's possible that in the years ahead, it'll be in one of those periods you wouldn't see huge appreciation. I mean, it also gets back to the idea that you were surprised that we haven't seen more areas of investment, more things that have bubbled up as a result. Maybe we have. We don't know what the counterfactually. is.
QuestionerDo you think places have gotten a little out of control that bubbles have potentially built up in areas? Every one of you last year said that the stock market's valuation depended entirely on where interest rates were headed. And interest rates have gone nowhere. If we did see the Fed suddenly start to raise rates, would that change your perspective on how you would value stocks, how you would look at your investments?
QuestionerOh, absolutely. If they can raise rates without taking the economy, that is the path back to normal and everybody sort of expects that to happen. But a year ago, I would have thought we would be further down that path than we are now. And you know, next year we can discuss it again. Still being on this road. But if they said it and it was believable, it wouldn't be. I mean, it's a total hypothetical. But if they, the government absolutely said interest rates are going to be zero for 50 years, you know, the dollar would be at 100,000. Wow. You know, you bring up a good point just in that, if they could do this without tanking the economy.
[1:19:41]
QuestionerAnd that's what the Fed's constantly thinking about. Do you think we're strong enough an economy to withhold a higher interest rate at this point? What would your call be?
WarrenI think the Fed's doing a good job. I'm not as smart as they are about it. But for everything I know, backing off made sense. It's complicated because the dollar affects the entire world economy, which then in turn affects the United States.
QuestionerRight. And so as they, for a while, you know, they were signaling a couple more bumps. And that did cause the strengthening of the dollar, the weakening of a lot of things. And so I think it was wise that they backed off. But, you know, someday I think they will increase interest rates. Europe's troubles are affecting our monetary.
Warrenare affecting our monetary policy. Now, we don't like to say that, and the Fed isn't going to say that. But if Europe, if Draghi wasn't doing what he was doing in Europe, and I'm not criticizing that at all, but we would have a different policy.
QuestionerYes, but if we wanted to help Europe, probably the best thing to do would be to raise interest rates, because their best solution is to have the euro devalued against the dollar, right? They might not feel that way. But, yeah. But that, that, that, we are being affected by their problems.
QuestionerAll right, we're going to continue this discussion in just a moment, but right now it's time to slip in a quick break. Take a look, you see the yen is also trading at an 18-month low today, 106, after the Bank of Japan decided not to move further into negative interest rates just last week. Right now, we're going to slip in a quick break. When we come back, we will have much more from Warren Buffett, Bill Gates, and Charlie Munger. Welcome back to Squackbox, everyone. Our special guest for this hour, Warren Buffett. Berkshire Hathaway's chairman and CEO, Charlie Munger, the vice chairman of Berkshire Hathaway, and Bill Gates, the founder of Microsoft and a Berkshire board member. And gentlemen, we spoke a little bit earlier this morning about some specific holdings of Berkshire Hathaway, and I thought maybe we could get some of your reactions to this as well. Charlie, earlier today, we talked about American Express and Costco, and Warren defended American Express's decision not to go ahead with Costco. You're a Costco board member. Do you see things the same way? Was that a bad deal for him?
CharlieI don't.
[1:22:02]
QuestionerIf I've been an American Express, I would have made the opposite decision. Why? I think Costco is so powerful that being the only credit card provider in Costco is so valuable that they should have thrown away their rulebook. But that's just my opinion. We also talked a bit about IBM, and there were some shareholder questions that came in over the weekend about shares of IBM, particularly since the shares are now trading at about $145 versus. versus a cost basis of around just under $170 that came into this. You made some comments a few months ago that you're not quite sure what to think about that IBM investment.
WarrenWell, I'm not sure how it's going to come out, but of course, I like the fact they're doing it. And any kind of artificial intelligence is very much in the vote. It may well work. It's just I have no way of predicting.
QuestionerDo you think Warren does?
OtherNo. You take that to the bank.
QuestionerWhen you talk about artificial intelligence, you're talking about Watson in particular?
WarrenI don't think we're paying much for the opportunity. The opportunity to be in shares of IBM? I think that there's not much optimism baked into the current price of the shares. What is it that you like about the artificial intelligence there? I'm guessing Watson? Well, I like the idea of using artificial intelligence because we're so short of the real thing.
QuestionerBill, you've spent some time. Well, you've spent some time working on artificial intelligence and taking a look at some of these things. What do you think is interesting in this arena? Where do you think we run into potential problems? Because you've also said that you think it could be a real issue for humanity if things get out of control.
OtherWell, in the even 10 to 20 year timeframe, artificial intelligence is going to be extremely helpful. And the risk that it gets super smart, that's way out in the future and probably we're talking about. But now what we're seeing is that for the first time, computers can see as well as humans. That's pretty incredible. If you combine that with the ability to have arm-like manipulation, then they can make us far more productive, but then, you know, the job market has to adjust to that. Google, Facebook, Apple, Microsoft are all moving ahead at a great speed in improving this artificial intelligence software. So it's very exciting. And the speed is faster than it was five years ago.
QuestionerWhere would be the one area that you think stands to have the most promise for this?
[1:24:44]
QuestionerI mean, are you thinking the productivity and the labor force like you thought? Are you thinking driverless cars? Are you thinking advances in health and technology, or health and science? Where would you think the real promise lies?
OtherWell, one area is what we call agents. agents where if you're seeking knowledge you can talk in natural language to an expert agent and it will do as well as a human with giving you information. A specific example of that is have the software help you figure out what's important. Today we're kind of slaves to our computer where we have to decide to go to email or Twitter or text and we're the one weighing which might be more important. Software is going to solve that where it'll look at all the new information and present to you knowing about your interests what would be most valuable. So making us more efficient that what I call the alter ego software will be a huge help. It does change the perspective of people when they look at investments long term and people have raised this question with GEICO for a long time. If we have driverless cars, is that going to be an issue for the auto insurance companies like a GEICO?
QuestionerThe answer is yes.
WarrenI think it's a long way off, but there's no question. Anything that makes cars safer is very pro-social and it's bad for the auto insurance industry. But nevertheless, the auto insurance industry has always worked on making cars safer. I mean, they've led the way on things, seed belts and all that. But if there are no accidents, there's no need for insurance. And I think there will be a big reduction in accidents over a longer period of time. And of course, it already has. has. I mean, cars have been made way, way safer. But now when you start making the driver safer, that would be a big, big jump. And that'll happen someday. And when it happens, there'll be a whole lot less auto insurance written.
QuestionerYeah. In the meantime, the auto accidents have gone up, as you pointed out, over the weekend, because of drivers who aren't paying attention. Just the last year.
WarrenI mean, generally speaking, the trend has been fabulous over the years. And, you know, we literally have gone from 15-debt- per 100 million vehicle miles down to something close to one. I mean, that was huge. You got to give Ralph Nader credit for some of that. But last year, there was an uptick, which it seemed, well, there were more miles driven, but I'm expressing this in terms of miles driven.
[1:27:19]
QuestionerSo you have to say that there was some other variable, and I think it's just almost has to be distracted driving. Charlie and Bill, Warren has said repeatedly that he thinks that driverless cars is quite a way and the ways of the distance. Do you, do you two agree with that assessment? You think it's at least 10 years down the road?
WarrenYeah, even though the technology is very good today because of trying to understand the liability issues, it's, you'll see experiments in a few leading edge cities around the world during the next decade. And if those go well, it'll start to spread. So it's, you know, certainly more than 15 years off. before it be a meaningful percentage of cars driven.
QuestionerCharlie?
CharlieIt's intrinsically very difficult thing to do. People are going to want to drive faster than speed limit and so forth, and the software is not going to allow it. I think there are going to be lots of problems. And so, but Berkshire's experienced technological destruction before. One of the earliest examples came from Bill Gates. We had this wonderful company that made this wonderful and psychological that produced $50 million of net income every year like clockwork. And Bill gave away a free encyclopedia with every bit of Microsoft software. And away went a large part of our profits from the encyclopedia business forever. And he grew up on the world book. I mean, he grew up on.
QuestionerHe's a traitor.
CharlieThat's right. And it helped him. It helped him. It helped him make his fortune and now he destroyed it. It's just the way he is.
QuestionerPhil, let's talk about the about Microsoft because Sachinadella came in and a lot of people kind of scratched their heads. They didn't know too much about him, didn't expect him, but he's done a pretty phenomenal job. And the stock has come up pretty sharply as a result. What do you think about the job he's doing? And why do you think that Microsoft is really resonating so much on Wall Street these days?
OtherWell, I think the software industry as a whole has so much opportunity to improve things. And there are key aspects of that, like the Office software, where Microsoft is absolutely the leader, and there's so many more things can be done. In the cloud, we have a number of companies, including Amazon, doing a great job, but Microsoft having some special enterprise support there, which is really quite unique. So, you know, I'm very happy with the job he's doing. I get to send him a little advice.
[1:29:59]
Warrenlittle advice. I put a little bit of time in on that. But there's some great frontiers where Microsoft is one of the leaders to create immense software value.
Andrew Ross SorkinGentlemen, we're going to slip in another quick break right now. But folks, when we come back, we will have much more from Warren Buffett, Bill Gates, and Charlie Munger. That's coming up in just a few minutes.
OtherPuerto Rico won't be making a debt payment due today. The governor there saying that the U.S. territory has issued an executive order suspending payments on debt owed by the island's Government Development Bank. In the meantime, we want to get back over to Becky, who's got a huge cast of characters over there.
Andrew Ross SorkinHey, Bex.
Becky QuickHey, Andrew. Thank you again. Once again, we're joined by Warren Buffett, Charlie Munger and Bill Gates. And gentlemen, Andrew just mentioned one of the headlines today, that Puerto Rico's governor says they're not going to be paying back their debts at the end of business today. It just raises questions about what you think in terms of bondholders, what you think about the health of municipalities around the world. And who would like to start with this? and you want to comment on what you think about Puerto Rico and then a little more generally?
WarrenWell, the problem with municipal finance generally is that, you know, there's Neville Chamberlain that said not in our time, you know, in terms of peace. And basically, many politicians think not in my time when they're dealing with fiscal matters. The pension situation for states and cities and so on, you know, is absolutely terrible. because politicians really don't want to, they want to, they can give out promises now, which translate into votes, and they don't really have, with the pensions, they don't have to deliver on those until they're long long long. And Puerto Rico, you know, they have been kicking the can down the road for a long time. And they even raise new money, I think, not much more than a year ago, at a very high price from hedge funds. You know, the answer to financial problems is not more borrowing, But they'll do it as long as they can. And then finally, the day of reckoning comes. And it would have been so much easier to tackle the problem earlier. And now, you know, you've got all different classes of bondholders and other claimants, and they're going to fight like crazy. And it's, Charlie always says, he says, an ounce of prevention is worth a pound of cure.
[1:32:19]
QuestionerHell, he said, that's wrong. A ounce of prevention is worth a ton of cure. And now you're in the cure stage in Puerto Rico. I mean, this is, it's a ounce of prevention. A messy situation, and I think it affects a lot of people because plenty of people own Puerto Rican bonds. It's something that was seen as completely saved. We don't own any. What's the fix at this point? Is there, what's the fix at this point? Should the U.S. get involved?
WarrenI haven't the faintest idea what the fix is. All I know is it's going to be ferociously difficult and involved, nasty compromise. Is this a situation you see playing out through other states, through other municipalities? Well, I'm no. I'm an expert at avoiding this kind of thing, conducting myself so it doesn't happen. And the people in Puerto Rico behaved a lot like the people in Greece. And, of course, they got in trouble. And I'm not an expert in getting out of that. Charlie is a huge believer in facing up the problems early. I mean, he gives me this lecture all the time. And he's right. Yeah, they never should have been here, but you can't expect politicians to behave like Buffett's. To behave like? Buffets. Oh, Buffett has a fiscal discipline that our politicians don't have. They buy votes with promises that are going to cause terrible problems later.
QuestionerBill, how about you?
OtherThey behave like a drunken air to a great fortune and wants to go through it. Bill, how about you? What do you think about the pension situation in this country, about municipalities, about states?
OtherWe worry about the headlines, but Warren's right. You kind of forget about things that aren't immediately facing a danger situation. Well, for a long time, city and state debt in the United States got paid back. And between that and the accounting that doesn't really properly show these pension and medical liabilities, people were lulled into a sense of safety that now they're realizing that certainly in special cases like Detroit and Puerto Rico is inappropriate. Fortunately, they're looking at other cities and states where these promises are pretty dramatic. It is a real problem, and it's exacerbated by the low returns environment where the assumptions have been very high. And both Warren and I have talked about that a bit as something that we need to get in front of, you know, really look at the numbers, particularly for states where they've decided some of these liabilities are not
[1:35:00]
Questionerdischargeable. So, you know, I think it's manageable, but it, there should be more attention and better accounting in this area. It's way worse in the public sector than in the private sector. And public pensions versus private pensions, you mean?
OtherYeah, and there's a reason for that. I mean, a profit-making organization, even when the CEO is getting ready to retire, there's more incentive to think about the future beyond his retirement. retirement than you have in a city council or state organization thinking beyond the next governor or something. I mean, there's such a tendency just to get through today.
QuestionerWell, government has imposed more discipline by force of law on the private sector than it's imposed on itself. And that's not surprising either. Why don't we talk a little bit about politics and the tax code and beyond? Politics came up a couple of times this week. a couple of times this weekend, but it was not really something, Charlie, that you or Warren really weighed into too much. You have seen a lot of political cycles play out. And with this one in particular, how would you match this up, this primary season, up against what you've seen in the past?
CharlieWell, I liked it a lot better in tone when Adelaide Stevenson was running against Ike Eisenhower. I like the politics of that era better than I like the politics of this era. I don't like the gerrymandered legislatures where the idiots of each party are in control and make nasty deals with one another. I don't like the way politics is developing. I remember a better form of politics. No, it put me down as slightly disappointed.
QuestionerThere's been a lot of discontent on both sides of the political spectrum. If you look at either one of the political parties right now, they're having issues. Whether it be the Democratic national, convention looking out at Bernie Sanders still running and running pretty hard. Whether you look at Trump, who's a complete outsider, who now looks like he is in the poll position to take over the Republican nomination, you've been a lifelong Republican. What do you think about the situation you're facing in your own party?
CharlieWell, in my own party, I think the future looks a lot like the charge of the light brigade against the cannons of bellic lava. Half a league? Half a league? Half a league. on? Yes. I like that politician who said his party was trying to buy a ticket on the Titanic after he'd seen the movie.
[1:37:42]
OtherThat was basic, right? No, no, that was Lindsey Graham. Yeah, it was. If he wanted to run as Donald Trump's second on the ticket? I think either of our two main candidates are likely to lead the charge of the light brigade against the cannons.
OtherAndrew has a question that he'd like to get into. into, Andrew?
Andrew Ross SorkinYeah. You know, guys, the question I wanted to ask, I was actually thinking about writing a column about this for tomorrow, is just the idea that so many young people today, I don't know if you saw this poll from Harvard a week ago, so many young people, millennials claiming that they don't want to identify themselves as capitalists. Some of them actually identify themselves as socialists and what you think has changed or whether you think anything has changed in this country, given the political mood.
WarrenWell, I think in college there's always been some tendency to want to, uh, join in the movement of some sort. I mean, it's a time in life when you're sort of breaking loose from your parents' beliefs, perhaps, and you're looking, you're looking for a greater cause. So you've had a lot of opportunity to do that, particularly on the Democratic side, with Bernie Sanders. And his appeal has just been incredible with younger people. And I understand it. I mean, they see a world that is an enormously rich country, and they see a lot of inequitably. And here comes somebody along that, in many ways, seems very authentic, and he's concerned about something that they have a concern about, and so he becomes their vessel, and he gets a lot of votes. Charlie?
CharlieWell, I think Bernie Sanders is a true believer. It just comes through totally. But he's a true believer in the sense that Eric Hofer used the word. He's a person that will never believe disconfirming evidence once he's reached a conclusion. And that's not the monger system. Bill, how about you?
OtherWell, you know, there are things like free trade that is not doing too well on either side of the political spectrum that, you know, I wish the case of that was better articulated. So, you know, will young people as they grow up embrace capitalism? I think so. It's a great system. We certainly need to tune it. We need to look at the excesses. And, you know, I'm actually pleased there's more debate about how taxes should work. I think that's exactly what you want in a democracy.
OtherAll right, we'll have some more discussion about that coming up in just a little bit.
[1:40:29]
OtherIn the meantime, we're going to head to a commercial break right now. When we come back, we will have much more from Warren Buffett, Bill Gates, and Charlie Munger.
OtherWelcome back to Squackbox here on CNBC. We have some special guests with us this hour, a trio of special guests, Warren Buffett, Charlie Munger, and Bill Gates.
Becky QuickAnd gentlemen, one of the things that Warren and I had talked about a little earlier were just some of the issues that came up at the annual meeting, one of them being Valiant. Charlie, you have had some very strong opinions on Valiant, and there was a piece of following up in the Wall Street Journal today talking about how Valiant's pricing was a strategy that started at the top. They say it was the CEO, Pearson, who really did a lot of that. You said over the weekend that Valiant was a sewer. Yeah, it was. It was. What happened? We also pointed out, you worked at a hospital, you've run a hospital, and you've seen this up front. They were robbing our hospital. What happened?
CharlieHe raised a heart drug that old people really needed by 500%. And is there? It was outrageous. And, but he said, well, I'm correcting underpricing. Now, a man, a bunch of sick old. people being financed for the government. You raise the price of an absolutely necessary drop by 500% and say that you're correcting. Under pricing, he's behaving like Joan of Arc. Well, I would call that, demand it. He's, it started in evil. It not only started at the top, it was touted as a reason for buying the stock and for why he could make the acquisitions he could make at the prices they made him. I mean, it didn't get voiced very often because it wouldn't be the most attractive thing to say, but to large investors, it was conveyed that when they bought something that was one thing for sure was the price was going to go off with the product.
Becky QuickIs that a trend that you think? I mean, it's certainly become a political issue this time around drug pricing. We've seen it with Martin Schrelly, that idiot, but is this a widespread trend?
CharlieThe way they were doing it, it was absolutely certain to cause a response. that was going to be cataclysmic for Valiant. And anybody with any sense would have known it was going to happen. And the CEO has since said that the whole thing was a big mistake. Right. Not an evil conduct, a mistake.
Becky QuickDo you think... Well, it was evil, too. Do you think that this is a widespread practice in the industry,
[1:43:02]
Questioneror are these just a few bad apples? Valiant was leading. There was a other guy that was just... Martin Scareley was the other guy. Yeah, but... But Vali was basically leading the pack. You think that that's been taking? care of with these hearings and with the public publicity that's come out?
OtherNo, I think that there's been other abuse in the pharmaceutical industry. But Valiant was so extreme that he bought a program to them all. Valiant. They know what the prices were of the products when they bought those products. If every month they want to put out what the price was when they bought them and what price they're charging now, I think that you could then figure out exactly how much reform has taken place. place. In terms of just advertising and transparency. You know, we publish the prices for our auto insurance, you know, all kinds of goods. We published the price for hauling coal. And if they just took the price when they bought it, the day before they bought it, what the other guy was charging, and just monthly reported what they were charging for the 50 most, most highest volume products that they have, I think you then would have some basis for judging whether they meant what they said at the Senator Aaron.
QuestionerBill, can I ask you while we're talking about healthcare? I ask you quickly about Zika. It's an issue that we focused on recently. The first death from Zika in the United States and Puerto Rico happened just last week. You've done a lot of research on this, your funding research on this. How big of an issue is this, particularly with a lot of people being prepared to go down to Rio for the Olympics?
OtherWell, first, just on this last topic on and say the pharma companies as a group are doing unbelievable research And, you know, our foundation has partnered with the large companies who are, you know, the good things they're bringing to the world, the risks they take. Overall, you know, it's an industry, I think, that is the pride of American, does good things. So we make about 60% of the best drugs, don't you know, all the whole world? Absolutely. So we're the light of the world here. But that doesn't mean they should behave badly. Yeah. And we, at the foundation, we see a lot of good behavior on their part. And in terms of Zika, it's a surprise. It's a virus that was in Africa for a long time. And even looking back, it doesn't appear to cause these same problems.
[1:45:30]
OtherThe numbers aren't gigantic, but it's a horrific thing. And so both getting rid of this particular mosquito, there's a lot of new ideas about that. new ideas about that, our foundations involved in some of those. And then coming up with the vaccine, everybody's moving as quickly as they can.
QuestionerOkay. A topic of conversation that has gotten a lot of attention from the business world, from government, has been this push-pull situation between government cooperation with technology, and technology companies feeling like there is too much coming from the government the government in terms of requests. This played out very publicly with the Apple DOJ situation. And Bill, you made some comments, I think, on Charlie Rose, where you kind of said, look, in a situation like this, you're always going to have, you compare technology companies to banks where you're going to have to hand over some information from time to time. How do you kind of see this on a broader scale?
OtherWell, the government's been able to do wiretapping when it gets appropriate judicial review. It's been able to see bank accounts. and there should be a debate about is that still an important tool for the government to do its job and exactly how do you make sure that's not abused and then how is it done technically? We're at a stage where all of those things could go completely dark if that's the choice that people make.
QuestionerIn terms of Microsoft though, it just last week I believe filed suit with the government saying that it shouldn't have to hand over any all the time with a blank checks, so to speak, of any request that comes in from the government. How do you find a balance?
OtherWell, yeah, there's actually two issues where Microsoft is saying to the government the policies today aren't quite right. One has to do with information that's outside the United States and how they go about getting that. The second one is that when they do come and ask for information, except in exceptional cases, that shouldn't be invisible to say the company that it's being asked about, that that should be a slightly higher threshold to keep it quiet. And right now, these issues are playing out in the courts. I think eventually a lot of this will move to the Congress.
QuestionerWarren, how do you see this? We've talked a little bit about it in the past.
WarrenYeah, I don't think either privacy, the claim of privacy or the claim of security should be absolute.
[1:48:08]
WarrenI mean, I think we live in a far more dangerous world than existed 100 years ago or 50 years ago, just in terms of the amount of damage that can be inflicted. And we certainly have plenty of people that have got a strong or even countries such as North Korea maybe, but that want to inflict incredible damage. So I see no, I would not want privacy to be an absolute. You want the government to have some. I want the government, but I think it should be, you also don't want somebody that can walk into any courthouse and get all kinds of information when they're just fishing on something minor. So I think, but I do think it's important when there could be some important information that are not going through five appellate courts or anything like that either. I think you should get it very fast and therefore I think you need somebody at a very high level who, if they request the information and it goes to a judge, it gets done very promptly. So whether it's the Attorney General or the President of the United States or whomever, I think there are occasions when we want that information fast and we don't want any question about having it wandered through the courts. Charlie, your thoughts?
CharlieI totally agree with Warren that I'm even more extreme.
QuestionerHow so?
CharlieI just think that we want the government to have a huge amount of power to get information, particularly in dealing with possible terrorism. And we want the procedures to be simple. fact even quick.
QuestionerBill, you mentioned at the end of the last block that you're glad that people are really talking about tax policy at this point, that this has been something more of a national discussion. If you were in charge, and I realize you're not running for office or doing anything along those sorts, in one minute, how could you fix the tax code? What are some easy, quick solutions that might improve the situation that we're in today?
OtherWell, Warren's written about the earned income tax credit, and I heartily, agree with everything he's written about that, particularly with automation moving at this speed, the idea that we can pay more for those jobs than the normal market price. I think that's how you keep employment levels as high as possible. You know, there's always been the question of whether taxes on capital should be a lot lower than taxes on labor. You know, I tend to think they they should be pretty much the same, and that that's an opportunity to be a bit more progressive.
[1:50:47]
QuestionerSo you would raise the capital gains tax or you would bring down the taxes on labor?
WarrenWell, you'd have to fund government, and particularly given the promises that the government's made about medical costs and retirement costs. Unfortunately, the way, the one that makes the numbers add up is to move the lower tax up higher, Although people don't like that, eventually the math really matters, otherwise you get into a Puerto Rico-type situation.
QuestionerCharlie, what do you think about, just in terms of taxes, what you would do if you were given the power?
CharlieWell, you know, I sometimes think about what I would do if I had absolute power. And, of course, it's very different from what is actually being done. And, but I don't think I need to tell your audience my dreams of an ideal, you know, even play.
QuestionerWell, it seems pretty silly when you look at his actual solutions.
CharlieWell, yeah. If you don't lay out an idea. I just don't want to enter the fray.
QuestionerIs there one thing that you might do that? Do you agree with the earned income tax situation?
CharlieOf course, I agree with the earned income. I think, I once made a speech that irritated a bunch of college professors because I said I thought McDonald's, in many ways, was a more effective educational institution than Harvard. Because so many marginal young people went to work at McDonald's and learned how to show up on time and become a responsible. time and become responsible citizens. So when these people start raising the minimum wage so that people who really need to succeed in their first job can't be employed at all, I think it's a totally acidine thing. That's why I like Warren's idea about the earned income credit. Let the people that are really working get some extra money in proportion to their work. But you don't now want to prevent young people from being employable.
QuestionerGentlemen, we're almost at a time, but very quickly, I did have a lot of people write in and then ask if you could just tell them what you're reading right now. Real quickly, could we go down the line? Bill, what are you reading lately?
OtherI just finished the rise in the climate of American growth by Robert Gordon.
QuestionerCharlie, anything on your bedstand these days?
CharlieI read the same book, and I really liked it, particularly until it got to the end. They're wonderful describing the problems, which I really like. When they get into the solutions, it's always somewhat disappointing.
QuestionerWarren?
WarrenWell, I'd like to tell you I read some 2,000-page philosophical tone, but I actually just finished reading Ben Beaumche's, Bob Ben-Mosey's, he died, but it's a recap of this life, but mainly what happened at AIG.
QuestionerGentlemen, I want to thank you all three for your time today. We truly appreciate it. That does it for Squawk Box today. Make sure you join us tomorrow. Right now, it's time for Squawk on the Street.