2012 年股东会后 CNBC Squawk Box 访谈

May 7, 2012

Warren Buffett appeared live on CNBC’s Squawk Box on May, 7, 2012

http://www.cnbc.com/id/47322740

Announcer: This weekend Warren Buffett faced tens of thousands of Berkshire Hathaway shareholders. Today he faces SQUAWK BOX. Plus, in depth conversations with Berkshire board members Charlie Munger and Bill Gates. This is a special presentation of SQUAWK BOX live from the Hollywood Diner just outside Omaha.

BECKYIt was. It was great seeing you here. We’re going to talk about a lot of things this morning, but obviously with so much of the global market turmoil, there couldn’t be a better day to be joined for three hours by the world’s most successful investor. Warren Buffett is here, got up extra early with us because, of course, out here it’s only 5 AM.

Warren, thanks for getting up early, first of all.

BUFFETTWe’ve got to start this earlier.

BECKYYou saw what happened overnight.

BUFFETTYeah.

BECKYBased on the elections in Europe over the weekend, what do you think about what’s happening right now with the global market sell-off?

BUFFETTWell, it really doesn’t make any difference to us. We were buying stocks on Friday, and we’ll buy the same stocks today, and we’ll buy them a little cheaper. So I never complain about buying things cheaper.

BECKYYou were buying stocks on Friday. You said stocks, multiple. This is not just one issue that you’re in to?

BUFFETTWell, just two.

BECKYThere’s two stocks that you’re buying?

BUFFETTYeah.

BECKYAre these US stocks?

BUFFETTYes.

BECKYAre these— a little— a little bit further.

BUFFETTI think you’ve exhausted your…

BECKYWhat I’m going to get out of you on this? But you had two stocks that you were buying. Are these issues you’ve been looking at for a long time?

BUFFETTIt’s issues, issues we already own.

BECKYOK. So you’re adding to your positions.

BUFFETTYeah.

BECKYAnd you’ll buy more today based on this sell-off?

BUFFETTYeah. We— the lower they go, the more we like it.

BECKYObviously, though, what’s happening right now in Europe is something that people have been looking at for a long time.

BUFFETTSure.

BECKYYou’ve been worried about the Euro for a long time as a result. And when you see this shift away from austerity and the pushback that’s coming from the voters, what do you think it means for the future of Europe?

BUFFETTIt’s going to be very, very difficult to resolve their problems. I mean, not only are there problems of having 17 countries, but you’ve got problems with getting the constituencies in those countries behind and coordinating in some way. So it’s a really tough problem.

BECKYDid you anticipate, just kind of as you thought things through, that the voters might swing this direction over time?

BUFFETTI don’t— it’s not surprising. I mean, you tell people to tighten their belts and then you give them a chance to vote on it.

BECKYHm.

BUFFETTIt’s the real problem of dealing with 17 countries, though, because even if you managed to sell the people on one or two or three countries on the fact that it’s an advisable course of action, you really need 17 going in the same general direction. And if you’re going to have a common monetary unit, you’re going to have to have somewhat common fiscal policies as you go along.

BECKYRight.

BUFFETTAnd it’s difficult.

BECKYSo right now we see what’s happening and— we see what’s happening and we get the fact that this is a bit of a sell-off, this is some trouble that comes along the way. I know it’s really difficult to predict what happens, but if you look a little farther, if you try and look two, three years down the road, where do you think we wind up with Europe?

BUFFETTWell, I really don’t know the answer, but there’s going to be— there’ll be a lot more episodes. On the other hand, 10 or 20 years from now, Europe will be producing more goods per capita. I mean, Europe is not going to go away. It’s a huge market, people have lots of skills, you’ve got lots of— you’ve got factories, you’ve got wonderful companies over there. So it isn’t like it’s the end of the world, but it can be one very messy process in getting from here to there. We will get to there.

BECKYWhat does it do in relationships to the United States? We talked to a lot of people this weekend, including Bill Gates, who pointed out that the United States has not fixed its deficits or its problems. You know, you look at the euro and it’s now at a three-month low. I think it was dropping and testing that 130 mark earlier this morning.

BUFFETTRight.

BECKYThe United States looks like a stronger place, at least the Treasurys have a little safer, but how long can that continue?

BUFFETTI think it’ll continue a long time. The United States is on a different path, and we addressed the problems of our banks three years ago very decisively, and we put lots of capital in them, and they’ve retained lots of capital, and they’ve cleaned out a significant percentage of their bad loans. So we have a whole different banking system in the United States, plus we have our own currency. And being able to issue all of your debt in your own currency is just an entirely different game than having to issue it in some other currency.

BECKYThe ECB has figured out a way to extend its balance sheet, though, with the LTRO. Do you expect more fiscal easing— more monetary easing policy to come from them?

BUFFETTWell, a trillion is not— a trillion euros isn’t bad. I mean, they had a— they really had a funding scare, whatever it was, five or six months ago, and the banks there, they’re in weak capital positions in many cases. They’re— in many cases they’re loaded with sovereign bonds that market to market don’t make them look very good. And so they have— they had a big funding problem coming up, and the ECB stepped in and they stepped in in a very major way and they stepped in with three-year paper. So you have to congratulate the ECB on heading off that particular kind of a funding crisis. But the problems haven’t been solved with the banks over there. The liquidity problems have been solved, the funding problems, but the— they need more capital and they’ve been very reluctant to raise capital. I mean, you have not since the banks over there raise capital. You had one in Italy that did it, but they’ve got a— they’ve got a lot of problems. I want to emphasize they’ll solve them.

BECKYRight.

BUFFETTBut not necessarily without a lot of pain.

BECKYWell, and that’s where the politics get awfully ugly.

BUFFETTYeah, that’s where…

BECKYIn Greece, for this election over the weekend, you actually saw 20 neo-Nazi candidates who came into power. That’s the first time that’s happened since 1974 when the military dictatorship fell there. And I guess you’ve seen a lot of things like this before. Does this worry you as you start to see this turn politically?

BUFFETTThere are a lot of things that worry me in the world, but I also believe that they get resolved. But asking people to vote for pain, you know, is not necessarily a winning political slogan. We’re not going to have two candidates in this country that are going to ask people to vote for pain. And it can be done under certain circumstances. I mean, obviously, in a time like World War II, people really voted to restrict their own consumption and activities, all kinds of things. But it’s not an easy job, and it’s particularly not an easy job to get a number of countries to do it. And they always point at the other guy and say, He’s getting a better deal than we are,’ and that sort of thing.

BECKYRight. I know Joe and Andrew have some questions from back in the studio, too. Guys:

JOE KERNEN reporting:

Questions and comments, I guess.

BUFFETTNot that— that’s a surprise, Joe.

JOEYeah. It just— I guess the whole structure of the EU and the common currency without the fiscal coordination, I guess I didn’t think it through enough to see how it’s actually going to work when this happens. You’re really talking about the southern countries that have sort of lived beyond their means, saying, No, I won’t accept— even though we’re broke, I won’t accept austerity, and I want Germany to keep funding my lifestyle.’ And you’re expecting the Germans who have, you know, they had their own trouble when they had to bring in, you know, Eastern Europe, and they went through a lot of austerity themselves. And they’ve worked hard, and they finally get their day in the sun where things are going well and you’ve got an entire southern region asking them to fund their lifestyle. What would normally happen, Warren, I think, is that you can’t get people to accept austerity, so you devalue your currency, and de facto their buying power goes down, and they sort of have to accept it because that’s the way it works.

BUFFETTYeah.

JOEAnd then you have better exports and seeing— and without being able to do that, I don’t see how this finally works. But I don’t see, you know, when France goes, Nonny, nonny, nonny, we’re going to elect a socialist and not accept austerity, and we want Germany to keep, you know, keep paying for everything,’ it just— I’m watching it happen, and I’m trying to think of the— what we could— how it would work here. I know that we’ve got some poor states that the federal government, you know, has to subsidize more than some of the other states, but we just don’t feel that way here in this country. They have not accomplished the United States of Europe, and they’re nowhere near there.

BUFFETTWell, you should’ve told them that 15 years ago, Joe, because you’ve given an analysis of the problem, and they do not have an answer for you.

JOEI mean, I don’t— I really— and we talked beforehand, Andrew says he’s been worried about it for a while— but short of this just not working and just sort of accepting defeat, I don’t know how this really looks. I don’t see how— I don’t know what the next step is in terms of whether someone— don’t you think it’s time for Greece, maybe, to exit the euro?

ANDREWThey might have to ultimately exit the euro.

JOEWell, everybody might have to ultimately exit.

ANDREWWell, look, that’s what I’ve been saying. I said the second you get Hollande in there, the relationship with Merkel, it’s going to be very difficult. My question for you, Warren, this morning is, is there any company that you’ve been keeping an eye on in Europe or anything in Europe that you would actually invest in today given what’s happening?

BUFFETTWell, we bought outright a Dutch company late last week, so you know, Europe isn’t going away. But everything that Joe said is 100 percent correct, and no one knows the answer to the points that he— that he laid out. But that doesn’t stop us from buying a good business over there. I— if I got a call today on some major company in Europe that I understood and that I knew had good products and a good future, we’d buy it. Now, we don’t— we take into account what’s going on over there, but we buy it.

ANDREWI mean, I…

BECKYWhat would happen, though? Oh, go ahead, Andrew.

JOENo, I’d just be embarrassed if I were the French, you know. It would be like going back to my parents again and again and again and asking for money. Eventually my pride would stop me from— you know, the proud French— but they can’t live the way they’ve been living, and yet they’re still straight-faced going back to the Germans, saying, We’re not— we’re not going to cut. We’re going to continue…’ Because there’s not enough millionaires, are there, Warren, to tax at 75 percent to pay for the 56 percent of GDP that goes for the government? There’s not enough people there to do that.

BUFFETTBut, Joe, if you were an impecunious nephew and you had a rich uncle and he doled some things out to you before, I’m not sure you’d be too embarrassed to go back to him…

JOEYes.

BUFFETT…if you thought you could get a little more.

JOEYou just— you would just— Warren, we had a 2.2 percent GDP, too, which was slowing and— for whatever reason. Then we had the employment report where I think over the weekend it looked more negative to me. The more I read, the more negative it looked as people gave up on looking for the— there’s no way that what’s happening over there can possibly be seen as anything but a negative for our numbers. Maybe it doesn’t take— maybe it doesn’t take a material amount off the GDP, but it’s certainly not going to add to GDP by force here, will it?

BUFFETTWell, I think you’re probably right on that. But we don’t buy stocks or businesses based on the outlook for the next three months or six months.

JOEYeah.

BUFFETTI bought my first stock in the— in the spring of 1942 when I was 11 years old. And, at that point, we were losing the war of the Pacific to the Japanese. And, I mean, if you read the headlines every day, it would be kind of fun to go back and look at the headlines on the day I bought my first stock because, you know, things were looking terrible until the battle of Midway, and I bought in a few months before that. So I think it’s a terrible mistake. I think the worst mistake you can make in stocks is to— is to buy based on— to buy or sell based on current headlines.

JOEMm-hmm.

ANDREWHey, Warren, in the great debate between austerity and stimulus, and it may be almost unfair to frame it that way because we probably need a combination of both, how do you think about this issue when you look at what’s happening in Europe and you look at this debate, which by the way, is a debate that’s happening here?

BUFFETTYeah. I think actually, you know, nobody knows because you can’t run controlled experiments, but actually I think we’ve handled it pretty well here and much better, I might say, than the Europeans, but we’ve had an easier way to handle it than the Europeans. So if we’d had their structure, who knows what would happen. But because we’ve had a structure where if the Fed and the Treasury and the government basically said, We’ve got the will and the ability to give this country a jolt on the way back,’ we can follow the policies we set out to follow. And we have had stimulus from the word go in the fall of 2008. We only call that particular bill, in fact, we didn’t even call that a stimulus bill because the term got unpopular. But we’ve had continued stimulus. Anytime you’re spending 7 or 8 or 9 percent more of GDP than you’re taking in as a government, that is huge stimulus by any Keynesian definition. I don’t care whether you call it stimulus or you call it anti-stimulus, it’s stimulus when the government is spending way more than it’s taking in. And we have stimulus right today. I mean, we are— we are running on at whatever it may be 8 percent of GDP as a deficit and Keynes is probably cheering up in heaven.

BECKYYeah, but the other side is saying it’s too much.

BUFFETTWell, we’re going to have an argument about it, and we’ll have a lot of argument about it between now and Election Day. But I would say overall that the policies we’ve followed since really the great crash of 2008 have been pretty darn good. I mean, I— you know, it’d be nicer if GDP were galloping maybe at 4 percent or 5 percent, but we have had a— we have had a, completely, a resuscitation of the buyability of the— of the banking system. We’ve had, all cases except residential construction, we have had the economy come back in a very significant way. And month by month, it gets better and we’ve got all these businesses. And again, with the exception of residential construction, most of them are having record earnings. The big ones are all having record earnings. We’re employing more people, but not at any galloping pace.

BECKYMaybe we can talk a little bit more about that after this quick break, but maybe this idea of how to you get back to 4 to 5 percent growth, and can the US do it?

BUFFETTMm-hmm.

BECKYOK. Joe, we’ll send it back over to you, but that’s something we can get to right after this.

JOEAll right. I like— does Warren think civilized people don’t invest in gold?

BECKYAh, Charlie’s…

JOECharlie thinks that.

BECKYYeah, Charlie Munger’s comments over the weekend.

JOEI know.

BECKYYeah.

JOEDoes Warren think it, too? I mean, I just— it’s such a great quote, and I love when the— I mean, the gold bugs. We usually dance around the whole discussion about— and Warren in the past has talked— he’d rather own all the farmland or whatever than gold, but that was a real— that was throwing down the gauntlet after all the gold bugs. Classic. I love arguing and I love, you know, stirring things up. And that must’ve really gotten him. No one wants to be called the boorish…

BUFFETTCharlie makes me look mealy…

JOEYeah.

BUFFETTCharlie makes me look mealy-mouthed.

JOEI know. Civilized people don’t buy gold.

Anyway, coming up, gold is traditionally a safe haven investment in times of geopolitical uncertainty. So why does Berkshire Hathaway director and Microsoft chairman Bill Gates shy away from it? Maybe he thinks it’s uncivilized, too. We’re going to find out when SQUAWK BOX returns live from the Hollywood Diner, which is just outside, it says here, I’m not going to read that, but it’s somewhere out there. Anyway, we’ll be back in a second.

BECKYYeah, you were talking a little bit about gold prices, obviously. That’s something— yeah, OK, it’s down about four bucks, 1641. Obviously, it’s a huge question people have asked as we’ve seen a big, big run-up in gold over the last four years or so. And that’s something that was definitely talked about this weekend here at Berkshire. Joe just talked about Charlie Munger’s comments that civilized people don’t buy gold.

This weekend I also got the chance to sit down with Berkshire board member and Microsoft Chairman Bill Gates, and he’s not a huge gold fan either. Listen in.

BECKYGold today was something that both Charlie and Warren made pretty clear they’re not a big fan of. What about you?

Mr. BILL GATES (Microsoft Chairman): Well, I’m certainly in that camp. The— historically, I did have some silver investments that— at a time Warren actually had some silver investments. He got out fairly quickly. You know, I stayed in and did very well on silver. But, you know, gold is a very tough one because it’s so psychological, and if central banks or the IMF ever decided to take advantage— and I think countries need liquidity…

BECKYYeah.

Mr. GATES: …you know, hey, there’s an asset that’s not doing anything for the citizens and then you— you know, because it’s purely psychological it’s not like people would say, Oh, well, when it gets to $800 an ounce people will buy four times as much jewelry.’ There’s no— nothing that steps in as a buyer at any price. It’s just purely Oh, other people think it’s— other people in the future will think it’s worth more than it’s worth today,’ which, you know, if you think the world is scary and people are going to panic, I’m not saying that theory doesn’t exist, but there is no floor if ever people got a view.

And you do— we had a invention session with some people recently— as this price gets high and you look at a 10-, 20-year time frame, the supply equation will change. And so the bulls have to offset the fact that they’ll be quite a bit— not in the near term, but over a period of time— and these people are claiming that they can predict, you know, gold prices out into the future, which certainly with equities you can feel like you can. Well, there you have to understand the innovations in digital mining techniques or some new extraction techniques, which actually, I think, are pretty interesting and I doubt many people factor that in.

BECKYAll right, we’ve never even talked about the supply picture, but he’s talking about eventually being able to increase the supply of gold.

BUFFETTSure.

BECKYYou had a shareholder who asked you a question about gold over the weekend and your response was pretty interesting. Berkshire vs. gold. You want to talk about how that’s performed over the years?

BUFFETTYeah, but we can go beyond that. But— certainly, when we took over Berkshire, Berkshire was selling at $15 a share and gold was selling at $20 an ounce. And then gold is now 1600 and Berkshire’s 120,000. But you can take a broader example of that. If you— if you buy an ounce of gold today and you hold it 100 years, you can go to it every day and you could— you could coo to it and you can caress it and you can fondle it and 100 years from now you’ll have one ounce of gold and it won’t have done anything for you in between.

If you buy 100 acres of farmland, it will produce for you every year. You can use that money to buy more farmland; you can do all kinds of things. For 100 years it’ll produce things for you and you still have 100 acres of farmland at the end of 100 years. You could buy the Dow Jones industrial average for 66 at the start of 1900. Gold was then $20. At the end it was 11,400. But you’d have gotten dividends for 100 years. So a productive asset of any kind, a decent productive asset, is going to kill a nonproductive asset over time. Now, in any given one-year period, five-year period, any asset can outperform another asset. I mean, you know…

JOEWhy…

BUFFETT…tulips did very well for a while.

JOEWhy don’t you— why don’t you join me? Warren, why don’t you join me and buy some cows? I mean, I like your farmland but, you know, you’re in Nebraska for— Iowa, you love steak.

BUFFETTWell…

JOEI mean, I— we can have leather, we can have manure, we can have milk, we can have meat.

ANDREWMilk…(unintelligible)…cheese.

BUFFETTYep.

JOEWe’ll employ people…

BUFFETTWell, you can have— you can have the manure, I’ll take the meat.

JOEI’ve got plenty of the manure. No, but it would employ people…

BUFFETTYeah, I’ve noticed.

JOE…taking care of the cows. I mean, that little bar of gold that’s worth 50— whatever. We had one in here. Look, I think it was worth like 60 or $70,000. I can get like so many head of cattle for that and be product— that was my point. But you like farmland. You just too lazy to take care of the cattle or something? Pay some people.

BUFFETTAbsolutely. Absolutely.

JOEOh, well…

BUFFETTHave you ever tried to take care of cattle, Joe?

JOEIt must be— I think it might be hard. I know, I’ve tipped a few, but I’ve never…

BUFFETTYeah, yeah.

ANDREWHave you tipped…(unintelligible)?

JOENo, I’ve never done it. No.

ANDREWI hope you have not tipped— that is— that’s mean.

JOEI’ve— it’s cruel. It’s cruel.

ANDREWIt is cruel.

JOENo, I’ve— they’re sweet, they’re sweet, but they’re not too bright, like me.

BUFFETTWith land you can get somebody else to do all the work, give them a percentage of the crop, and you can sit back there for a hundred years and get a percentage of the crop and you’ve still got the land when you get all through. I will guarantee you that farmland, over a hundred years, is going to be gold, and so are— so are equities.

BECKYWhy do you think gold bugs get so irate? Because they really come out…(unintelligible).

BUFFETTYeah, it’s very interesting. If you— if you go on CNBC and say that bonds are kind of a poor investment, you know, people don’t get mad at you; you don’t even hear from the Treasury. I mean— all right, you can— you can knock almost any investment and people may get a little irritated, but when you talk about gold— and of course that says something about their motivations for ownership— they want people to agree with them. They want people— everybody— they want everybody to get so scared they run to a cave with gold. And caves may— might be a better investment than gold. I mean, at least they’re not producing more caves all the time. So they want— they want people to be as afraid as they are because that’s what’s going to produce an increase in prices.

Incidentally, they’re right to be afraid of paper money. I mean, they have a very— their basic premise that paper money around the world is going to get worth less and less and less over time is absolutely correct. But…

BECKYYou just disagree with the investment theory beyond that.

BUFFETTYeah, yeah. Where they run from that, and they should run from it, is where, in my view, they make the mistake. But they have a correct basic premise.

BECKYOK.

BECKYAll right, Kayla, thank you very much. Kayla Tausche.

Warren, over the weekend we talked a little bit about this and you mentioned that you have spoken with Mark Zuckerberg about what he needs to be doing with his company. When did you talk to him?

BUFFETTLast year at Sun Valley.

BECKYAnd what was the basic— did he come to you, or did you reach out to him?

BUFFETTWell, he— or a shareholder or somebody said, you know, they’d like to get together to talk a little bit about Facebook, and so we talked to him.

BECKYBut, obviously, you’ve been in a position of taking a private company public. Is that basically what you were talking about?

BUFFETTYeah, although we didn’t exactly— I took a private company public when I was in the tech world and— with Data Documents many years ago, but Berkshire we never really took public.

BECKYWell, you’re a public company now.

BUFFETTYeah.

BECKYIt started as a private partnership.

BUFFETTSure.

BECKYWhen you look at what’s happening with facebook, I know that this is not something you’re a fan of, but you’re also not saying that at this point— you’re— you wouldn’t buy into because it’s not something that you feel comfortable with, but you don’t think this is a bubble scenario.

BUFFETTOh, no. No. I’m an agnostic on a company like Facebook. Any time you get a truly extraordinary business— and it’s obviously— you know, it’s an extraordinary business— but they’re the hardest ones to value because the question is, is whether five or 10 years from now that they will be as extraordinary as they are now, or they may keep doing more and more wonderful things. So I— it’s just harder to figure out than, oh, we’ll say Coca-Cola.

BECKYMm-hmm.

BUFFETTI mean, Coca-Cola 10 years from now is going to be bigger and more profitable, in my view, than it is now, but there won’t be some quantum change in either direction. So it’s much easier for me to figure out what Coca-Cola’s worth than Google or Facebook or, you know, you name it.

BECKYAlthough you did get into technology stocks with IBM, and that caught a lot of people by surprise. Is IBM a very different company than those others?

BUFFETTIt’s certainly a company that’s future will not look as different five or 10 years from now, in my view…

BECKYMm-hmm.

BUFFETT…than it does now, than will happen with a Facebook or an Apple. I— it can be in either direction. I make— you know, I would never shorten those stocks and I’m not— I’m not saying they have anything but brilliant futures, but I just don’t know.

BECKYRight. And so that’s the question is when it’s a fast-growing company in a fast— in a quickly changing arena?

BUFFETTYeah, it’s just harder to figure, you know. And it’s fascinating to watch, but I don’t— I don’t have to— I don’t have to— I don’t have to draw a conclusion on even tens of stocks. I just have to look at one or two…

BECKYMm-hmm.

BUFFETT…and feel that I’ve got a reasonable fix on what those companies will look like in five or 10 years.

BECKYOK.

ANDREWHey, Warren, question on Facebook but technology companies broadly. A number of the IPOs we’ve seen, including Facebook, have dual-class shares where the founder, in this case Mark Zuckerberg, really does control the company. We’ve seen it with Google, we’ve seen it with Zing and so many others. I’m curious, when you think about corporate governance and you think about these dual-class shares, how does it impact you as an investor? And as a CEO, how do you think about it?

BUFFETTYeah, as an investor it doesn’t change my view much. I— we’re buying into a known quantity. When we buy into The Washington Post company, as we did in 1973, the Graham family controlled one of— one of the classes of stock. And actually I wrote Mrs. Graham a letter then and I said— you know, I knew they controlled it and that was fine with me. You know, there are a few other people, if they control— you know, if Castro controlled it or something I might have felt a little differently about coming in.

But I think if you know what you’re getting into, you make a decision on that. And at Berkshire we have two classes of stock and we have made a very careful determination that never under any— Berkshire will never sell out or anything, but we make sure that those two classes have to be treated identically. I think when you have a situation where the super-voting stock can be sold at a big premium if they sell the company to what the— what the diminished voting shares sell for, you know, I think that’s wrong. I don’t think you should be selling the vote when you sell a company, and we’ve— I’ve seen that done. We’ve had it done to us in some situations way back in the past.

ANDREWRight. What…

BECKYWhat about with Google, what we’ve— what we’ve heard with what they’re planning on?

BUFFETTYeah. I do think— I do think that when you have some extraordinary people running a business where the business is very tied to their particular talents, you may want to protect them in some ways to be sure that they get a chance to keep painting their painting over time.

BECKYBut it’s one thing to know what the stock structure is as you buy into a stock.

BUFFETTRight.

BECKYIt’s another thing to have it changed once you’re in.

BUFFETTYeah. As my memory, I think— I think Dow Jones changed it.

BECKYRight.

BUFFETTI think Lee Enterprises changed. There are various companies. I think probably more in the media field than others. A lot of the media companies had a dual structure going in. Others created it after the public was in. I, you know, I think that gets a little more dubious.

ANDREWWarren, one of the arguments is that when things are going well— for example, right now things at Google going relatively well— when everything’s going well, there is no problem, meaning nobody’s going to come after the company or come after the CEO.

BUFFETTRight.

ANDREWBut it is actually when there’s trouble that, as a shareholder, you might want to have a little bit more power than you would in one of these circumstances. No?

BUFFETTWell, no, I won’t argue with that. But I would say this. If you had an extraordinary company back in 1973— Cap Cities Broadcasting was a truly extraordinary company. I knew the company very well. That company in 1973 was selling for a third or less of what it was intrinsically worth even though it was being managed magnificently. And Tom Murphy and Dan Burke, who ran it, did not have that percentage of stock that would enable them to obtain control. So anybody with money, at a time like that, could have walked in and taken away a great group of assets at a discount from its intrinsic value but a big premium to the market value. And that would have been a mistake. But, you know, I can pick out examples the other way, too. I’m no— it is not— it’s not like I’m any big fan of dual classes, but I can see some reasons for them.

BECKYHey, Warren, while we’re on the topic of some of the other companies that are in the news right now, can I ask you bout Yahoo! too? There’s news about its CEO that he did not, in fact, have a degree from— in computer science, and now Dan Loeb and another investor, who I think owns a little over 3 percent of the stock, are pushing for his ouster. What do you think about what happened and the company’s announcement that this was an inadvertent error?

BUFFETTYeah. Well, I don’t know all the facts, but just from the few sentences I read, it doesn’t sound like an inadvertent error. And I would say this, if I thought— if I had thought that, as a director, if I thought that a— an officer had consistently misstated some fact to me, I think I’d probably do something about it.

BECKYMm-hmm.

BUFFETTYeah. We actually had that one time, and if you can’t trust the people you’re working with, you’ve got a problem.

BECKYRight. Another stock that we’ve been watching pretty closely is Walmart, and that is Berkshire’s seventh largest holding, I believe?

BUFFETTThat sounds about right.

BECKYSo Walmart has had its own issues. There was a report in The New York Times alleging bribery in Mexico in its operations there. Has that changed your opinion about the stock?

BUFFETTWell, not really. We have 270,000 people working at Berkshire, and it’s a little early in the morning, but I will guarantee you that during the rest of the day, at least, some people will be doing something wrong. I mean, it’s the thing that scares the dickens out of me as the CEO, because you can’t have 270,000 people without somebody doing something wrong. People are just not that— no matter what instructions you…

ANDREWWarren, but…

BECKYThis is different, though.

BUFFETTYeah. Well, what’s particularly different in this is apparently the way they handled it once it…

BECKYAllegations it went all the way up.

BUFFETT…once it came to their attention. I mean, that’s the problem, and we’ll find out.

ANDREWIt doesn’t— I mean, I guess the question is, does it undermine your faith in the board, given that it does seem to have risen to that— to potentially that level or at least management at that level back here in the US?

BUFFETTYeah. I don’t necessarily think— I’m not ready to think that it got to the board, but I have read things that it got to the management. And if the story, as reported in The New York Times a few weeks ago— and I don’t remember every word of it— but it certainly implied that it got to the higher levels of management and then got brushed aside and did not get reported. If it didn’t get reported, you know, that’s a big mistake.

BECKYWould you have second thoughts about the company at that point?

BUFFETTNo. I— you know, it wouldn’t be the same individuals running it. I mean, they may— there may be— there may be things that happen to certain individuals because of this, but, you know, at Solomon we had a problem there with a few people. I don’t think it changed how I viewed all 8,000 people and what Solomon did. It did mean that it needed to make some changes.

BECKYWe had Michael Lewis on the show this week, and he said that the Volcker Rule is not enough, it needs to have way more teeth. There need to be even stricter things, and that sounds a lot like what you’ve said in the past.

Mr. CHARLIE MUNGER (Berkshire Hathaway Vice Chairman): I totally agree with Michael Lewis on that. If I were making the rule, I would make Michael Lewis look like a piker.

BECKYI thought you might say something like that.

Mr. MUNGER: Yeah.

BECKYHow would you lay it if this— if you were a benevolent dictator and this was yours to lay out?

Mr. MUNGER: Well, take the rapid training by the computer geniuses with the computer algorithms. Those people have all the social utility of a bunch of rats admitted to a granary. I never would have allowed the rats to get in the granary. I don’t want the brilliant young men of America doting their lives at being rats in somebody else’s granary. That’s not my idea of the right way to run the republic. And if you let me write the laws, it wouldn’t happen. But of course, nobody’s going to do that.

BECKYSo that’s Charlie’s thoughts on things.

BUFFETTYeah.

BECKYYou know that he would like to see more restrictions on Wall Street, more control over the banks. What do you think about that?

BUFFETTWishy-washy.

BECKYYeah. No strong opinions.

BUFFETTNo. Charlie’s pretty Old Testament. But he and I, I don’t think— I wouldn’t express it quick as strongly and I probably don’t believe it quite as strongly as he does. But we probably— you know, going back to Glass-Steagall, we would have both thought that was— the repeal was a mistake. Banking is a big business, it’s a profitable business, and there’s plenty of money that can be made with banking. Banks in this country, in effect, can issue a government guaranteed piece of paper.

BECKYMm-hmm.

BUFFETTAnd once you have the right to a government guaranteed piece of paper, your customer doesn’t care whether you’re doing dumb things or not. So the market does not impose discipline on you because they’re worried about whether they’re going to get their money back. They’re going to get the money back because of the FDIC. And the undisciplined way of ability to raise huge amounts relative to your capital potentially is dangerous and pretty much, you know, hundreds and hundreds of people can get that power, and we’ve seen that in the past. So you do not want banks to have a free hand in doing lots of things where there’s great interconnectedness and where dominoes can get lined up because that’s what we had a few years ago.

BECKYYou said you opposed the repeal of Glass-Steagall, you and Charlie both thought it was a bad idea, but can you put the genie back in the bottle?

BUFFETTNo. It’s very hard to do and then you get the whole argument about the international situation.

BECKYRight.

BUFFETTAnd we say, do you really want a banking system in the United States that has its hands tied behind its back when competing with European banks and, you know, and I can see that argument. But I— in the end, the government has to decide what banks can do and where they start doing it and where the limits are of things they can do it without getting into an area where they can start causing dominoes to topple.

ANDREWHey, Warren…

BECKYAnd that obviously gets us into the too big to fail topic, which Andrew, who better to ask about that than you.

ANDREWWell, no, no. Warren, what I was— what I was going to ask, and by the way, I don’t know if we have a camera here, I just want you to know, Warren, that I am wearing, actually on the desk right now, your sneakers here. These are very special Berkshire— these are Brooks sneakers that are— they’re Berkshire sneakers, but I do have a question about the Volcker Rule, which is when you think about Glass-Steagall, if we got back to that— if we could have put that in, would that have changed the outcome of the financial crisis? Because I’ve heard so many people say, ah, if we just had that, we wouldn’t have had the crisis. But then I think about Lehman and Bear and I say, you know, the— Glass-Steagall had nothing to do with them.

BUFFETTYeah. Glass-Steagall was not the primary cause of what happened in 2008, and it’s very hard to get at the primary cause because we all participated in a bubble. We liked the bubble while it was going on. Government liked it, you know, Wall Street liked it, Main Street liked it. Homeowners really loved it. They were able to keep refinancing their homes. It became an ATM machine for them. So it’s very hard to pick out one of those groups and say, Ah, there’s the culprit.’ But certainly, the abilities of banks, for example, to have SIVs, that sort of thing, I didn’t what a SIV was before the troubles began with them. And all kinds of things spring up. So you do need— you do need intelligent regulation of banks. And in the end, you can’t let them do everything they want to do because they will— we owned a bank at one time in 1969, and they passed a bank holding company act. And they said it wasn’t a good idea for an entity that owned a whole bunch of other businesses like we did to own a bank, and they were probably right.

ANDREWDo you think the banks are too big, though? Are they still too big? Are they still too big? I mean, Wells Fargo, for example, which I— which I know is— you have a big stake, and also JPMorgan, which you have a personal stake in.

BUFFETTNo. Our banks in this country are less concentrated than most countries of the world, including Canada, which did a first class job of coming through the problems of a few years ago. The— I don’t— I don’t have a problem with the size of banks. You need capital commensurate with size and you need regulation. But size did not cause the problems. Europe has— I mean, in Ireland, the banks achieved a size relative that were 10 times, you know, what they might be here. So the size of our banks was not a problem.

BECKYHey, Joe, you asked about why we were in Iowa, not Nebraska. And Warren can tell you more about that in just a little bit. I don’t know how tight we are up against the top of the hour but there’s an actual reason we’re here.

BUFFETTYeah. Well, the Missouri River defined the border between Nebraska and Iowa, and unfortunately, the Missouri River changed course some years back and it got things all muddled. And my dad was in Congress at the time, and he introduced a bill, as I remember, that was supposed to straighten it out. But it still— it didn’t quite get it right.

JOEIt just looks like…

BECKYSo you’re in…

JOEIt just looks like Omaha. You kind of settled— you didn’t really know whether you wanted to leave Iowa and then…

ANDREWRight.

JOE…all of Nebraska, you just sort of let that out to the west for all the cows and everybody. That’s a great line from “Unforgiven,” remember, the Gene Hackman character says, you know, I thought I was dead, too. Then I found out I was just in Nebraska.’ But it’s sort of like you didn’t really— you didn’t really embrace it. You’re kind of an Iowa-lite.

BUFFETTI can— I can see why you’re saying those things from a distance, Joe. Come out here and say that, Joe.

JOEAre you going to show those sneakers again?

ANDREWOK. Show the sneakers.

JOEAre you going to show that you’re wearing the Buffett style?

ANDREWWell, I don’t know if Warren’s wearing his sneakers right now. He should be. So, Warren…

BECKYI have mine at the table.

ANDREWYou do? OK. So these are Brooks sneakers, Brooks owned by Berkshire. These are special sneakers from this weekend. Here we go. I’ll show them here. They say BRK. These are limited editions, and they have inside the sole here, I don’t know if you can see this, inside the sole, can you see that?

BECKYYeah.

ANDREWThis— there it is. There’s Warren B., the man himself.

And I assume, Warren, you’re going to run a marathon later this year in these sneakers yourself.

BUFFETTYeah. Well, they were selling so strongly the other day, I sold my pair, too.

JOEWhat do they sell for, Warren?

BUFFETTIt was, I think it was under 100.

JOEOver $50? Because Andrew was only too happy to accept this, even though it’s only— it’s over $50. You haven’t been to the legal training.

ANDREWOh, my God, that’s true. That is true.

JOEI just went on Friday. You can wear one of them.

JOELet’s continue our special interview with Warren Buffett following this weekend’s Berkshire Hathaway annual meeting. Warren Buffett and our very own Becky Quick are in Carter Lake, Iowa, which is next to Omaha, Iowa. Which is what it should’ve been. Really— the more I think about it, the more I think that— Warren…

BECKYOh.

JOE…before we talk…

BECKYNext time Warren sends you a brick, he’s going to throw it at your head instead of mailing it to you.

JOEHow much was that— see, I accepted that brick. But what’s a brick go for like that Warren? That’s only— I mean, that’s very— that didn’t cost as much as a sneaker, as a shoelace, even, right?

BUFFETTPersonalized bricks bring big money.

JOEOh, they do. But a regular brick is not that expensive, is it?

BUFFETTWell, no. But you’ve got a very special brick.

JOEIt is a…

BUFFETTAnd if you keep talking this way, you’ll get another special brick.

JOEYeah, I know, I know. You’re really generous with the— with the brick. That is at home in the study, though, Warren, in a very, obviously, a very prominent place.

BUFFETTI won’t ask where. What Joe really wants is he wants a brick on the NetJets.

BECKYThere you go, there you go.

JOESo…

BECKYWarren, we’ve been— oh, go ahead, Joe.

JOENo, no. Just wondering whether— do you have enough, Warren, enough resolution in— you must in all your businesses, to have felt this latest semi-swoon that we’ve seen in the last three months. And do you think that it makes for a repeat of the last two years? Or is it different?

BUFFETTNo, I— what we’ve really seen, Joe, since the fall of 2009, is very steady, but very slow improvement in business, everything except residential construction. And there’s been no acceleration in the rate of improvement in the last few months, but there hasn’t been a big deceleration, either. Our businesses in the first four months, if you look at our five largest businesses outside of insurance, you know, they look to me at the present time like they’ll all set records this year. And our businesses are getting better. They’ve already— in most cases, gotten quite good, but they’re getting— but they’re getting better at a— at a slow pace. And there’s not been any really noticeable deceleration. There certainly hasn’t been any acceleration, either, but I don’t really see much change. I see a little— but it could be a false pick up, but I see a little pick up in the residential construction rate— area. But I wouldn’t want to bet on the fact that that means a lot.

BECKYSo why did we get the worst jobs report on Friday that we’ve seen in six months?

BUFFETTYeah. Well, but the worst jobs report still was 100 and some thousand, you had a revision upward, you know, in the previous months. But that maybe what you see until residential construction comes back, something in that range. Maybe it’ll be 200, maybe it’ll be 100, maybe it’ll be 150. And you know, maybe it’s 2.2 on— or something on GDP. Those are not terrible figures, they’re just not good figures. And we have come back from what was an incredible shock to our economic system, but we’ve kept coming back.

BECKYWhat would it take and could we get the country moving back at a GDP of 4 to 5 percent?

BUFFETTWell, we can’t keep 4 to 5 percent going over time. But we could have a jolt upward when— and we will— when housing construction comes back. When we’re building a million residential units a year, things will be growing faster. But you have to realize, if you get 2.2 percent and you have 1 percent population growth, that’s a 1 percent gain in real output per capita. That means in a generation, in 20 years, you have over a 20 percent gain in the— in GDP on a real basis per capita. That’s tremendous. If every generation was 20 percent better than the generation before, that’s pretty dramatic. Now we need more than that right now to come back from the big dip we took, but if you— if you could guarantee the American people a 2.2 percent real GDP gain for the next century, it would be nirvana.

BECKYYou know, we talked a little bit about— very briefly about the elections, the French elections, the German elections, and what’s happening right here in the United— in the United States. Right now USA Today has something that puts Romney and Obama almost at a dead heat. It’s got Obama at 47, Romney at 45. But I saw another poll that had Romney at 48 and Obama at 47. How much of this is tied directly to the economy?

BUFFETTA lot’s tied to the economy and a lot will be tied to the economy, barring something really unusual. But a lot will be tired to the economy. Overwhelmingly it’ll be tied to the economy, in my view, come November.

BECKYWell, you’re talking about an economy that’s not going to improve that quickly, which means the jobs number is not going to improve that quickly, which— where does that set things up for the fall?

BUFFETTYou know, I guess is it’ll look better in the fall than it does now, but not dramatically better.

BECKYBut won’t…

BUFFETTWhich may mean you have a close— it may mean— it probably means you’ll have a close election.

BECKYMm-hmm.

JOEWarren, you guys— you and Romney were— you weren’t in the same businesses, obviously, but you must look at his track record at Bain and think that he was pretty talented businessman, I guess, right?

BUFFETTWell, I think that they bought some businesses very well and some of those businesses turned out— they bought them at the right prices in most cases and some of those turned out very well. I mean, others did not turn out so well. Because of leverage, the financial results when things worked out well, very extreme leverage, financial results turned out, you know, far better than the basic economics of the business. And of course in some cases, they took a lot of money out of the businesses and then the businesses failed. But overall, you know, I have no fault with him, you know, as a businessperson.

JOEYeah. You’re in a different business, obviously. I have one other totally separate question that I was thinking. You love single-family houses and you’ve expressed that again and again and again as like the best investment out there and you said, I wish I could own 100,000 of them, but it’s too hard to do that because you’ve got to like manage each one.’ A guy like you, I figure you’d been sitting around figuring out the way to do that and I wondered, have you come up with a way to— are you already— I mean, bricks, obviously, one way to do it. But have you come up with a better way to make a big investment in single-family houses? What will be the most— the easiest way to do that?

BUFFETTIt’s very difficult to do in scale. Joe, I— since I made that statement, I’ve got a lot of letters from various promoters around the country saying, you know, join my fund and we’ll do it in the fund. But if you look at the cost of doing it and everything, it’s going to work out fine for the fund manager and how it works out for the investor is a different thing. You know, Wall Street has a way of creating products that work out better for it than it does for the investor. And there’s a lot of frictional costs— there’s a lot of costs to managing single-family houses and if you contract with someone and pay them a very significant percentage of revenues to manage it, you’ve taken a lot of the return away. But what I said I think last time was particularly attractive to somebody who’s got some skill, perhaps, in working with a few renters and perhaps picking up a few houses. I think they’re going to do very well. I know they’re going to do very well if they buy into a city with rising population over time and get those…

JOEWhat about mortgage servicing? There must be something, I mean, there must be some way that you can do it. Something that’s connected to the whole industry that you could buy in bulk that would make sense for Berkshire.

BUFFETTYeah, well, I’ve— obviously, I think about that. But the truth is, when housing comes back, and it will, you know, all of our businesses will do well.

JOEYeah.

BUFFETTThey’re doing pretty well anyway.

JOEMohawk, things like…

BUFFETTBut so we are— we’ve got a big bet on the American economy and we will have it for— our railroad will do better when there’s a million housing units. A lot of our businesses will.

JOERight.

BUFFETTSo I don’t have to play it directly.

ANDREWHey, Warren, I wanted to switch gears for half a second, just what seemed like one of the big headlines as it came out of the weekend, which was your remark that you had almost spent $22 billion buying a company a couple of months ago. And I was hoping you’d give us just a little bit of color. You don’t necessarily— I’d love you if you want to tell us who it is or hint about what happened— but more about necessarily why you didn’t buy the company.

BUFFETTWe couldn’t come to terms. But we’re always looking, Andrew, and you know, and there aren’t lots of big companies that you can make a deal on and there are a lot— there are lots of big companies that I don’t understand. So they’re outside my circle of competence. And then there’s, you know, there’s others that have no intention of selling, and then there’s others that are— that were— they may have some intention, but you can’t come together with them on price. So big deals are not going to happen very often, but occasionally they will.

ANDREWIs it possible that…

BUFFETTAnd we’re ready.

ANDREWIs it possible your $22 billion elephant comes back?

BUFFETTIt’s always possible. I mean, you know, when a girl hangs up on me once, I try again. That hasn’t been too successful, though, historically. I hope my batting average is better with companies.

JOEWell, when you call back and her husband answers, normally that puts a damper on things, right, Warren?

BUFFETTIt’s certainly been tough when I called your house. Yeah.

JOEOh. Ow.

BECKYHey, Warren, let’s talk a little bit about what you see with stocks because we did talk about this at the top of the six, but there are people who are waking up right now kind of joining the conversation. They wake up and they see that the markets are down, the Dow’s down about 90 points or so and it’s on a day when people are very worried about the outcome of Europe. What are you doing today in the markets?

BUFFETTWe’ll be buying something today. We’ll be buying it and I’ll feel better about buying it today than I did the same things that I bought on Friday because I’m buying them cheaper and the businesses that— the 10 year, 20 year prospects for the business haven’t changed. And they’re businesses where I like the economics, I like the management, I like the price on Friday, I’ll like that price better today. I mean, it— you know, if McDonald’s lowers the price of hamburgers today, the fact I paid more for one on Friday does not, you know, I’m even more enthused about buying a hamburger today.

BECKYAre you talking about serious amounts of money that you put into the market?

BUFFETTYeah. Well, I mean, we put as much as we can buy without disturbing the price.

BECKYHow much did you spend on Friday?

BUFFETTWell, we probably spent about 60 million. Yeah. We try to buy maybe 10 percent of what trades or something of the sort when we’re buying a stock. When we were buying IBM, I used to— day by day, I would just account for 10 percent of the trading.

BECKYWow. And— but it was done very quietly, you kind of moved your way through?

BUFFETTYeah. I put duct tape over my mouth.

BECKYAll right.

BUFFETTParticularly when I talk to you.

BECKYOK. Again, if you are a retail investor, that’s what you would be telling people to do, don’t pay attention to the headlines.

BUFFETTBecky, retail investors should not pay any attention to the day’s news. If they’re paying attention to the day’s news and they’re trying to buy and sell stocks based on the day’s news, they’re never going to be successful investors. The idea is to buy a good business. I mean, it’s the same way as if you and your, you know, your brother went out to buy a business. You’d look around for a company, some little business that had good prospects over time, had decent and honest management and where the price made sense.

BECKYHm.

BUFFETTAnd you wouldn’t— you wouldn’t read the newspaper before you do it. My partner, Charlie Munger, and I have been working together for over 50 years. In both buying a $34 billion business like Burlington Northern or buying 100 shares of stock, we have never talked about the day’s news or what’s going, you know, or that week’s news or about month’s news. We’re looking at where the business is going to be 10 years from now because we’re going to own it then. That’s where it counts.

BUFFETTFor another thing, its (Hollywood Diner, where interview is being conducted) hamburgers and its strawberry shakes are terrific, and I’ve brought— I’ve brought Bono here, I’ve brought Bill Gates here, I brought Jimmy Buffett and I brought Jay Z.

BECKYYeah, in fact Jay Z, the tie that you’re wearing today is a tie that Jay Z gave you.

BUFFETTWell, he— yeah, he— I’m not sure whether I could say he gave it to me. I kept admiring it and admiring it, said, That is one good-looking tie, Jay.’ And finally after I said that about six or seven times he said, OK, you win,’ and he took it off and he gave it to me. And I tried that again when he opened up his— opened up his nightclub here a while back and I started admiring his tie and he said, You only get one, Warren.’

BECKYWell, it gives us a little insight as to why you have so much money is you don’t spend money on clothes like that, right? You talk them up, and you talk— you talk your way into these things.

BUFFETTYou know, if people want to give me ties, I accept.

BECKYAll right.

JOEDidn’t you get a tie from Obama, too? Didn’t you get a tie from— you stole one from him, too. I remember this story. Didn’t you ask him for one, too?

BUFFETTI didn’t ask him. I just wore this tie that looked like it has been through a washing machine and he noticed that threads were hanging out and everything and he said, I can’t let you leave the White House looking like that.’ So he gave me another tie.

JOEI mean, I’m learning more and more about how people do get really wealthy. And it’s…

ANDREWYou just take people’s ties and it works out.

JOEYeah. It’s unbelievable.

BUFFETTIt works. It works. A rich guy never has to— a rich guy never has to pay for anything.

JOEThat is the Jay Z tie that you’re wearing right there.

BUFFETTThis is the Jay Z tie. It doesn’t look— it doesn’t look as good on me as it did on him. But it’s still— it’s my best tie. We’ll put it that way.

BECKYWarren, we’ve been watching oil prices this morning, too. And as we’ve seen, the risk off trade with stocks under a lot of pressure this morning. You’ve got Treasuries here in the United States a bit higher. Oil prices have been coming down. And this started happening on Friday after we got that lousy jobs number. Right now you can see it’s trading at 97 and change, just below $98. You’ve got a big stake in Conoco. How do you see oil prices going from here and how does it play into your investments?

BUFFETTWell, I— the truth is I don’t have the faintest idea, which is probably why I shouldn’t have phoned Conoco in the first place. We did not make money with Conoco. And this is— you talk about risk off…

BECKYYeah.

BUFFETT…if my understanding— if they take— risk off is selling and going into cash…

BECKYYeah.

BUFFETT…that’s risk on for me.

BECKYYeah.

BUFFETTI think— I think cash is probably as risky an asset as you can own over time. So you’re not taking risk off when you— when you go into cash. You are going into something that is sure to decline in purchasing power over time. So that is the biggest risk on trade I know is to own cash.

BECKYThat’s an excellent point. Joe, did you…

JOENo. Did you get those two pictures I sent out there back?

BECKYLet me see.

BUFFETTOh.

BECKYTake a look at them now. Now, Joe, during the break, for those of you who are watching us at home and couldn’t hear us during the break, sent out a couple of pictures of his wife Penelope…

JOEWe may— we may show…

BECKY…with Warren. Here it is. Here it is, Warren.

JOE…we may show that because he’s got his wallet out.

BUFFETTCan I just— can I just keep looking at this? I want to just keep looking at this.

JOEYeah, exactly. We may— you know, for stocks to watch instead of the animal orchestra we may— we may…

ANDREW(Unintelligible)

JOEIf it’s all— if it’s all right with him, you know, I— but we did found out some other things on break two and I want to— I’m happy for Warren. So that’s— let’s not— let’s not get too deeply into all…

BECKYYeah.

BUFFETTI’ve never seen her look— I’ve never seen her happier.

JOEI know it. I know it. You know what, he opened up— but he’s looking at the wallet, he opened up the wallet and moths flew out. Like it hadn’t been used in so long.

BECKYUh-huh.

JOEAnd there was like $1 in there I think.

BUFFETTI’d forgotten the time lock combination, too. I had a little problem.

BECKYWarren, with Conoco stock, you said you maybe shouldn’t have bought it. It’s still a big position for you.

BUFFETTIt’s a fairly big position. We reduced it somewhat. But the truth is I made— I made a mistake in them.

BECKYWhy?

BUFFETTWell, because I paid too much and the— and I have no special insights about oil prices. Conoco looked very cheap in terms of reserves and they were repurchasing their shares and then unfortunately they spent a lot of money on some gas projects that— and gas did not do as well as oil.

BECKYYou know, we— you often see people kind of moving into this. Recently in the headlines Delta got into the idea where it’s buying a refinery to try and improve its margins because it pays so much in jet fuel costs. What do you think about that move?

BUFFETTWell, we buy a lot of diesel fuel, too, but I’d rather be in the railroad business than be in the diesel fuel business and we would bring nothing special to buying an oil refinery to create our own diesel fuel for Burlington. I mean, to go into a supplier— you know, if I like milk I don’t have to buy a cow, basically.

BECKYSo you wouldn’t yourself look at that as something you would do at Burlington Northern.

BUFFETTNo, I think— I think if you’re in a business that you know and understand and you buy goods from other people that you should probably stick with the business that you know and understand and let the other people run that business. You know, becoming fully integrated in some way— well, just take the newspaper business. You don’t have— you know, it all comes out on news print. News print has been a terrible business forever, you know, pretty much. And some newspapers went and bought news print facilities but they never held any parties afterwards.

BECKYWe do. Before— well, before we get to it real quickly I do just want to take a moment. We spoke with Warren a little bit earlier about his conversations that he’s had with Mark Zuckerberg, but we also caught up with weekend with Berkshire Hathaway shareholder, Microsoft founder Bill Gates. He talked a little bit about his relationship and why don’t you listen in.

GATESMark’s done an amazing job and he and I have had a chance to talk and, no, it’s quite— it’s very impressive.

BECKYDoes he remind you of yourself?

GATESIn some ways. You know, his company is doing a different thing, but he’s— works long hours, he’s a Harvard dropout, he’s very logical in his thinking and he’s willing to pursue his view of the world even when it’s not sort of faddishly, you know, popular. And he’s got a vision of where he wants to go. So, you know, I hope some of those positive attributes might— Mark has that are— have some similarities to my equivalent years.

BECKYHow often do you get to chat with him?

GATESWell, actually you know, we’ve got two topics. He’s, you know, talked to me about some Facebook things, just to get advice. Facebook and Microsoft are partners on a lot of things and so that comes up and also Mark is getting into philanthropy at an earlier age that I did, and so talking about philanthropy in general or the educational work that he’s doing, you know, that’s another topic we’ve been able to talk about.

BECKYAgain, we’re live with Warren Buffett this morning. And, Warren, you hear conversations like that. Does Zuckerberg remind you of either Bill Gates or yourself?

BUFFETTThere— yeah, there’s a certain similarity. And certainly with Bill. They both have this intense focus and I probably have had some of that in the past. I’m maybe calming down a little. And— but you see they’re— they’ve got a vision for their business and no matter what anybody else thinks they’re going to— they’re going to paint the painting the way they see it. And, you know, they’ve both done, you know, extraordinary things and they did them at a very early age. So there’s some real similarities between the two.

BECKYAnd just to quickly recap comments you made earlier, you said that that’s actually a good thing for shareholders to have an owner like that, to maybe cede some control to an owner who does something like that.

BUFFETTYeah. I mean, it can go in the wrong direction, too, as we may have seen an occasion or two in recent months. But when you get somebody like a— go back years, Walt Disney or Steve Jobs or Mark or Bill, what you do see with those people is a passion. And to some extend they’re not thinking solely about the money involved. I mean, they are not running their businesses to get extremely rich. They don’t mind getting rich, and you know they know how to do that, too, but what really drives them is what they’re creating and you see— you saw that with Bill, you see it with Mark and it— when you get that— when you find that and they’ve got big ideas and the rest of the world doesn’t necessarily understand them very well, but they’re doing it. You know, you can get some amazing achievements.

BECKYHey, guys, I know you had a lot of questions you wanted to talk about from back there. You want to bring up a couple of those topics that we had just mentioned before, maybe the Buffett tax?

ANDREWYeah. No, Warren, to me one of the most interesting answers that came out of the meeting was actually about the Buffett rule and in particular it sounded to me like you were indicating that what the White House has done with the Buffett rule is different than what you would have done. And I think you used the quote that it’s been butchered a bit. Could you elaborate on that?

BUFFETTOh, no. No, I said some of the commentary about has been butchered or— but, no, I would not say the rule at all has been butchered. I— obviously if I were writing a bill myself there’d be— there’d be a little difference. For one thing, there’d probably be a different break point, maybe at 10 million or something of the sort. But it’s interesting, you mention the term White House because it’s Senator Whitehouse who introduced the bill, Senator Whitehouse of Rhode Island and I wrote him a letter after he introduced the bill and said, I’m fine with it.’ I mean, everybody knew something a little bit differently. But it encompasses the principles that I believe in.

BECKYSome of the criticism that’s come out, though, has been that it’s really a Band-Aid on a really bad tax system.

BUFFETTWell, it doesn’t— it is a small improvement in a very bad tax system. It doesn’t cure all, it doesn’t cure all revenue problems remotely. In my original article I said, you know, we’ve got major problems on the expenditure side.

JOERight.

BUFFETTAnd no, but it— no, all it does is it says when you’ve got 131 of the 400 largest incomes in the country that are averaging 270 million, you have 100— a third of them paying at rates less than 15 percent counting payroll taxes.

JOEI mean, that’s amazing.

BUFFETTBut that is something that should…

JOEWarren, you said 10 million.

BUFFETTYeah, that should be corrected.

JOEYou’d do it at 10 million. And that’s so totally different than what we’re talking about here. But my point was…

BUFFETTNo, no. I— no, no. what I said, Joe, is I would do the 30 percent at one million and I’d do 35 percent at 10 million.

JOEOh, 35, you’d go up.

BUFFETTYeah, yeah.

JOEBut for you, because you’re a genius, if you had spent as much time on trying to figure out our entitlements, take your pick, Social Security, Medicare, some way of using that mind to figure out a trillion dollar problem instead of something that would raise 40 billion over 10 years, I would put my name on that thing. I would— if…

BUFFETTYeah.

JOE…to rise to the level of something called the Buffett anything, I would make it a much bigger— you know, solve a much bigger one of our problems. I just don’t think you like these 130 people or something.

BUFFETTNo. I think— I think— you know, I like them. Many of them are my friends. I just think in terms of fairness…

JOENot any more.

BUFFETT…it’s a, it’s a very— oh, no, that is not true. I met…

JOEI know, I know, I know.

BUFFETTBut the 47 billion was scored on the basis that the Bush tax cuts would expire. So— which would raise rates generally. Scored on the basis of the present system, it actually comes in at I think something like 170 billion. And that would— that’s the figure given by the same people who gave the 47 if the tax cuts expired. But I agree with you. I think— and incidentally, I think most Republicans and most Democrats, most independents know that we have to bring spending down to 21 or 21 1/2 percent of GDP, and they know they have to bring revenues up to 19 percent. People privately agree on that.

JOEYeah.

BUFFETTThe problem is in our— in the political atmosphere we’re in, neither side wants to go first because they figure they’ll get crucified if they go first, particularly in an election year. But you’re absolutely right.

ANDREWWarren— but Warren, one of the— one of the questions you got over the weekend, and I think Becky was the one who asked it, from a shareholder, was this idea that there are some shareholders who don’t like your politics, and whether that’s either bad for business or bad for the stock. What do you say to that?

BUFFETTWell, I just say that, you know, when I went into business or started running Berkshire Hathaway, I did not— I did not put my citizenship in a blind trust. And I don’t expect any employee, any director of Berkshire, I don’t care what their politics are, I don’t care what their religion is, and I— and I hope they express their views on things that affect citizenship.

ANDREWI remember years ago you guys had that— remember there was the charitable program, and you guys gave money away…

BUFFETTRight.

ANDREWAnd you ended up shutting the program down because ultimately, in an odd way, it became bad for business because it created some controversy.

BUFFETTNo. It didn’t— it didn’t become bad for— it was bad for business in a small way all along. Certain people would say, We’re not going to buy See’s Candy because we don’t like what you’re— the fact you’re giving money to Planned Parenthood,’ even though it was the shareholders making designations and they— and they could easily give more money to pro-life organizations. When we— when we quit it, it was because independent consultants who depended upon a Berkshire company were getting hurt themselves. And they were not— it was not part of Berkshire. These were people who were having their livelihoods threatened by a bunch of radio people who were blasting away at them and trying to interrupt the showings they were making and all that sort of thing. If it just affected Berkshire, we’d still be doing it.

BECKYThat’s interesting. You know, guys, one of the big conversations that we’ve frequently had around the SQUAWK table has been centered around Paul Krugman, The New York Times columnist. We have talked a lot about how he’s been pushing for more stimulus.

And that’s actually something that came up in a conversation, Warren, that I had with Charlie Munger over the weekend. I asked him if he agreed with Krugman on his take about this idea that we need more stimulus to go into the economy. And listen to what he had to say about that.

MUNGERKrugman did not sufficiently understand the kind of sin that the Democrats like. You know, the crooked plaintiffs’ lawyers. That stuff disintegrates the body politick and it affects how well that these economic principles that he believes in works. That said, I think Paul Krugman is one of the smartest and most articulate people we have, and he’s very often right.

BECKYNow, that gets us into a broader discussion, especially after this weekend where we see a lot of the elections in Europe pointing away from austerity and towards more fiscal spending. What do you think about the idea? Just of stimulus, have we done enough? Is there more that needs to happen?

BUFFETTWe are doing a ton of stimulus right now. I mean, we are spending, as a government, you know, maybe 1.2 trillion, maybe 8 percent of GDP, more than we’re taking in. That is stimulus on a scale, like I say, that Keynes would be proud of us. And so we have lots of stimulus, and it’s helped the economy. But do I think we should— do I think we should run $2 trillion deficits instead of 1.2 trillion? Absolutely not. In fact, I think we should start moving the other direction, and I think we should have a well thought out plan, and it should be very clear and it should be very binding, to bring down those deficits over time. But as long as we’re running a deficit, we are stimulating.

BECKYOK. So enough is enough, though, at this point?

BUFFETTI think— I think— I think we should be thinking about bringing them down. Absolutely. You know, I think we have to bring down expenditures and bring up revenues, and I think everybody knows it. And I think the problem is that we can’t find a way for the two political parties to think it’s in their advantage to push forward on both sides of equation.

BECKYWhat does it change— what does it take to change that?

BUFFETTProbably a little time. It’ll change. I mean, we will do the right thing in the end in this country. We always do. But it— you know, it’s probably regarded as a political disadvantage for any Democrat to start going out and talking about cutting expenditures, and it’s thought of as a political disadvantage for any Republican to talk about increasing revenues.

JOEWarren, do you think France should start taxing a lot more and spending a lot more? I mean, what about austerity over there? They’re in a much worse position than we are in terms of this.

BUFFETTYeah.

JOEI mean, do you think that they should just accept the medicine and reform labor laws and do the growth things that need to be done over time? Or should they just go on a big Keynesian, you know, lollapalooza or whatever and just tax the heck out of everyone and just keep spending and add public service jobs for the unemployed? Will that work?

BUFFETTWell, actually Keynes probably wouldn’t tax the heck out of everybody, and he would just— he would probably run very large deficits. But I’m— you know, when you— when you don’t have the luxury of a printing press of your own, that really isn’t so easy to do. I mean, we can run huge deficits. We run the printing presses, if necessary. But they don’t…

JOEYeah.

BUFFETT…they don’t have a printing press. They need the cooperation of the ECB to do that. So I think they’ve got a much, much tougher problem than we have.

BECKYWhat…

JOEBut Krugman is constantly pointing to the— that the austerity’s not working over there, so why should we try and…

BUFFETTYeah.

JOE…why should we try and do it here. But I don’t see what their choices are at this point. It’s like, you know, you can’t— the uncle can’t double the profligate nephew’s credit card when he’s got 100 grand that he already owes. You don’t double it to 200 grand, do you?

BUFFETTNo, particularly when you’ve got a few other nephews around who are saying, I’d like to join that parade, too.’

JOERight.

BUFFETTNo. The contagion problem over there is huge. We’ve got a— we’ve got a far different and far better situation. And actually, you know, our economy is behaving pretty well. We had the incredible overhang in residential housing, and that is a huge asset for people. They borrowed a lot of money against it. It was— it was a big— it was like— it was like 1929 but it was in houses rather than stocks. And the degree to which the public was participating in it was huge. They’d gotten used to using their houses as refinancing machines. They thought they could flip houses if they bought one. They could always sell it for more next year. And it was a huge asset class that just went crazy. And we’ve worked our way out of it to a degree and, in my view, we’re well on our way to recovery.

BECKYHey, Warren, there’s an article on the front page of The New York Times today that takes a look at stock trading. And even though it points out we’ve come back in the major averages and really have made up a lot of ground, volume of trading is still incredibly low. It’s something at 6 1/2 billion shares traded vs. 12.1 billion from well before the collapse in 2008. It points out that one of the main reasons for this is that individual investors, retail investors, still have a lot of concern about what’s happening in the stock market. They’re still scared off by what happened back then. Have they missed the biggest part of the rally? Should they still be getting back into the markets?

BUFFETTIn my view, aside from the single family houses we talked about, I think…

BECKYYeah.

BUFFETT…I think equities are— I think equities are very attractive for the long term. And I— they may get more attractive next week or next month. But it’s the same thing I said in October of 2008. I didn’t know where bottoms were going to be or where they were going to be in a year. But equities, producing businesses, good producing businesses are a great thing to own over time, and they’ve been a great thing to own, you know, for a hundred— several hundred years in this country. They will be a great thing to own for the next 100 years. But who knows whether they go up or down in price next week. As to the volume, though, there’s still way too much volume in the market. I mean, the idea that the ownership of a company should turn over a hundred percent in a year, that is not the way people behave with apartment houses, it’s not the way they behave with farmland. But they have this notion in stocks that they ought to do something every day. The best thing to do with stock is buy stock with a good company and don’t look at the price for five years or something.

BECKYSo you’re not a fan of high speed trading?

BUFFETTI’m not a fan of active trading of any kind.

BECKYRight. So…

BUFFETTI don’t know how to make money trading actively. Maybe if I did, I wouldn’t be so negative on it.

BECKYBut again, the idea that retail investors feel like, wow, they got burned really badly when things collapsed in 2008. Some of them, they’ve had to put off retirement. Some of them maybe didn’t have money that they needed for their kids to go to college. They can’t find other ways to come up with it. You look at that and you think, I don’t want to get burned by that again. I’m going to keep my money in safer investments.’

BUFFETTWhat’s safer? I don’t know anything safer. I know things that don’t bob around in price, but their purchasing power just goes like that over time. So the one thing I can guarantee you is not safe is the dollar in your pocket, you know. That is going to get— become worth less, not worthless, but worth less over time. We’ve got that…

BECKYThat total in the past.

BUFFETTSo, you know, the safest thing, well, greatest asset to own is your own abilities. I mean, no matter what happens in the economy or with currency, if you— if you develop your own talents— I tell the college students that the best thing to have is your— develop your own talents. The second best thing is to buy into other people’s talents. You know, here’s Coca-Cola, and people are going to be drinking it 10 years or 50 years from now, and they’re going to be drinking more of it, and they’ll make more money. So I don’t have any idea what Coca-Cola stock is going to do next week or next month or next year, but I’m pretty darn sure where the company will be in 10 or 20 years. And people beat themselves in the stock market. The stock market, literally, in the— in the 20th century, went from 66 on the Dow to 11,400. And you’d said, How could anybody not have a good experience?’ But millions of people don’t because they get excited at the wrong time, and they get depressed at the wrong time. So you’ve got to put your emotions aside, you’ve got to give up the idea that you can decide when to buy stocks and when to sell stocks. The time to buy stocks is consistently over time.

BECKYYou know, Charlie, we played that sound bite earlier where he talked about high frequency trading, called them rats in a granary.

BUFFETTYeah. He has a colorful way of expressing himself. Sometimes he does that about me, too.

BECKYBut is there— are they dangerous? Is it— is it a situation that we need to be wary of?

BUFFETTWell, just think of it this way. If somebody is— if a group of people are sitting around playing games with computers, depending on beating quotations by a nanosecond, which Charlie would say is a form of front running, and let’s say they’re taking $10 billion a year in aggregate, in— as gross profits. That 10 billion is not— it comes out of investors.

BECKYRight.

BUFFETTI mean, it’s not coming from the profits of the company. The companies will keep making whatever they were making anyway. So 10 billion is somehow moved from the pockets of one group to the pockets of another group. And it is not good. It’s not good for investors as a whole to have something that is siphoning off we’ll say 10 billion or some number a year from the market. It’s like having a tax. I mean, people don’t like a tax on transactions. This is a tax. It’s just— it’s called something else.

BECKYThe rats in a granary tax?

ANDREWWell, I don’t— we’ll let Charlie— I want him to get the hate mail, not me.

BECKYHey, Andrew, I know you have a question, too.

ANDREWYou know, it’s a question that actually came up over the weekend, a number of shareholders, that actually I’d hoped to ask, which was, you know, now, given your size, you’ve suggested that the company in terms of its stock performance isn’t going to necessarily perform the way it did, you know, 15 years ago, but it should still outperform the S&P. If you’re just getting into the market today, how big a chunk of your portfolio would you have in Berkshire? And the answer can’t be 100 percent but— well, it could be if that’s your answer, but.

BUFFETTI’ve got— I’ve got 98 1/2 percent, and I’ve never sold a share. But I feel, what just quoted me as saying is almost right. I would say we cannot do what we did in the past. Not that it’s unlikely, we can’t do what we did in the past. But I feel very comfortable at Berkshire because I think we’re constructed so that it’s very hard over a period of time not to get a reasonably decent result. But an extraordinary result is out of the question. It won’t happen. On the other hand, I think the chances of us doing better than average over a long period of time is pretty good. But it’ll be a small advantage that we have. I think the chances of us doing way worse than other people is very low.

ANDREWSo should investors then have a certain percentage in Berkshire but also some percentage in what you might describe as shoot for the moon stocks, or not even shoot for the moon stocks, stocks that you would have thought looked like Berkshire 15 years ago?

BUFFETTSure, not shoot for the moon stocks. I don’t believe in people trying to get very rich very quickly in stocks. They don’t know how to do it, I don’t know how to do it, nobody knows how to do it. And if you get convinced that you can, you know, you’ve made a mistake. But there are lots— there are plenty of good businesses that if you buy them, you can have— you’ll have a very high probability they’ll be worth more money in five or 10 or 20 years. And Berkshire’s one of those. But it isn’t the best one. I mean, there’s— the chances of getting a bad result at Berkshire are very slight, and therefore you can have, in my view, you can have a higher percentage of your money in Berkshire if you’re willing to be satisfied with a modestly better than average return. And I have members of my family, you know, my sisters and cousins, that have 80 or 90 percent of their money in Berkshire. I’m not uncomfortable with that. But they do not expect to get the kind of results out of Berkshire in the future that they’ve gotten in the past, and they won’t.

BECKYOK. You just talked about returns. You’ve talked about pension funds returns in the past and how we’re looking, a lot of them, for 7, 8 percent growth. Is that a relatively good assumption?

BUFFETTWell, it’s not a good assumption. It’s— if you got an assumption of an 8 percent returns, and you’ve got half your money in bonds that when you roll them over are going to get, you know, 2 percent or 2 1/2 percent…

BECKYyeah.

BUFFETT…that means with the balance you have to be getting like 14 percent. And then when you get— you say, Well, that’s so hard to do that I’m going to have to put my money in a bunch of investments or private funds that are being promoted to me,’ and they’ve got huge management fees and everything like that, it’s not going to happen. You should never— you should never buy your investments with the idea, I have to get a certain return.’ You should look at the best return possible and learn to live with that.

BECKYRight.

BUFFETTBut you should not try to make your investments earn what you feel you need. It doesn’t work that way. The stock doesn’t know you own it. So you can sit there and think I need 8 percent a year, but the stock doesn’t care about that or the bond doesn’t care about that. What you should say is, How much can I earn from my investments?’ and then learn to live with that number.

BECKYHm. Backtrack it instead.

BUFFETTYeah.

BECKYWe are back here in Carter Lake at the Hollywood Diner where Warren’s having the breakfast of champions. He just ordered a strawberry shake and he’s ready to go with the markets. Warren, we’ve been watching what’s been happening with the futures and when we came in this morning, it looked like the Dow futures were off by more than 90 points. Right now they’re only down by about 75 points after all the news coming out of the elections. What’s your take on it?

BUFFETTWell, the lower they go, the better I like it because I’m going to be buying stocks today and obviously I like buying stocks lower rather than higher.

BECKYSo go on down as you’re kind of cheering, I heard, earlier. Like down, down, down, as the futures.

BUFFETTYeah. And— if you’re a net buyer of stocks, you want— you know, you’re better off if stocks go down.

BECKYRight.

BUFFETTAnd people generally don’t feel that way, but we do feel that way. On top of that, we own stock in IBM, which is buying in its shares today, undoubtedly. We own stock in Wells Fargo, which maybe buying them in. American Express is buying them in. Coca-Cola maybe buying them in. So we are increasing our ownership in all four of our largest investors— investments without laying out a penny. The lower those stocks are, the more those— the given amount of dollars buys. So we are benefiting, the sooner the market opens, we’re benefiting every minute if they— if they tick down.

BECKYOK, we…

BUFFETTAnd it’s significant over time.

BECKYIt is significant over time.

BUFFETTSure.

BECKYThat’s part of the reason you liked IBM to begin with, correct?

BUFFETTSure, sure. We will— our ownership of IBM has gone up significantly since the end of the year without us— without us laying out any money. And you know, that happens long enough, we— it makes a lot of difference. We bought 6.7 percent of Coca-Cola some years ago. It’s now 9 percent without us laying out another dime.

BECKYThe same thing’s happened with American Express.

BUFFETTAmerican Express.

BECKYHow much do you own of that right now?

BUFFETTI guess, I think we own about 14 percent.

BECKYThirteen percent, 14 percent? Yes.

BUFFETTThirteen, yeah. And it goes up and we haven’t bought a share for I don’t know, 10— we can’t buy it because it’s a bank holding company, but our interest in the company goes up and we love it. It’s a wonderful business and what’s better than owning more and more of a wonderful business without laying out any money?

BECKYRight. This weekend at the shareholders meetings, there were about 35,000 shareholders who came in through Omaha. Was there anything in the questioning that caught you by surprise or that maybe you learned something from?

BUFFETTWell, the questions were just generally were good. And of course, to some extent, you learn what’s on the shareholders’ minds. And to an extent, I will even think about addressing next year in the annual report the kind of questions that— the answers to the kind of questions that we get. And it tells me what shareholders— what I haven’t communicated, perhaps, well enough to shareholders.

BECKYWhat was one of those topics that you might…

BUFFETTWell, one of the topics, I discussed before, but we’ve discussed a logical stock repurchase program in this year’s annual report.

BECKYMm-hmm.

BUFFETTI think we’ll discuss a logical dividend policy in next year’s report. I’ve addressed that before, but…

BECKYYou said yesterday, though, that you would not consider a dividend that this point.

BUFFETTWell, no, but we can discuss the conditions under which it makes sense to pay dividends, how much should be paid in dividends, and when it doesn’t make sense to pay dividends and that should be discussed. We’ll probably discuss it in the annual report, even though I’ve written about it in the past.

BECKYYeah, when does it make sense? I mean, you’re— when you basically can’t find anything else to do with your money?

BUFFETTIt makes sense when you can’t keep money in the business and generate more than a dollar at present value by using that money and then you should distribute it.

BECKYWhat should a company like Apple do with all the billions and billions and billions of dollars that they’re sitting around on.

BUFFETTWell, I got a call from Steve Jobs…

BECKYYeah.

BUFFETT…as I mentioned to you once a couple of years ago about that question and it’s very unlikely and at least when I talked to Steve at that time, that Apple will ever find an acquisition that is in the many, you know, tens and tens and tens of billions of dollars and there’s no sense sitting with the cash over time. So they either ought to pay dividends or they ought to repurchase shares. I guess they’re going to do both now.

BECKYYeah. When you look at some of the issues that were also discussed this weekend, the question of succession came up in the shareholder questions, but more pointedly with that movement that was brought by the AFL-CIO, where they were asking for more specifics. That proposal got voted down. I think it was by 95 percent to 5 percent in favor of it.

BUFFETTYeah.

BECKYBut people have looked at the situation with the question of succession and nothing’s changed from the board’s perspective at this point, correct?

BUFFETTNo, and actually the AFL-CIO— we were on the same page largely.

BECKYUh-huh.

BUFFETTBecause they did not want us to name a name. They just wanted us to include something in the proxy material that related to how we were dealing with it. What we’ve always told people how we’re dealing with it and we’ve put it in the body of the annual report this year, for example. So we were— we were in a very similar position and it— there was not a big disagreement on it. But if you look at our largest holdings again, American Express, Coca-Cola, Wells Fargo, IBM, I do not know the name of the next CEO of any of those four. I don’t even have any idea who it’ll be. When they pick their CEOs, I did not know who they were going to pick. I didn’t know John Stumpf was going to be picked, you know, some years ago at Wells or Ginni Rometty at IBM. I just knew that they have a board of directors who had the job of picking the best person available when the time came and they did it. And our board spends more time on the subject of succession, we’ll meet here in another hour or two, and we will spend more time talking about succession than any other topic, by far. And we’re blessed in the sense that we’ve got multiple candidates and they would— they’re with us. We know them well, we’ve seen them perform and it is not a problem.

BECKYYou just mentioned Ginni Rometty at IBM and it reminded me of a headline that you made this weekend when you made some comments about how as a member of Augusta you’d be OK with women being admitted.

BUFFETTYeah. But they— I’m not on that committee.

BECKYSo they haven’t asked you.

BUFFETTNo. And I knew they wouldn’t ask me when I joined.

BECKYAre you OK with being with a club— obviously, you are as you’re a member of the club.

BUFFETTYeah. I’m OK. Yeah.

BECKYOne way or the other.

Why don’t we talk a little bit about some of the other headlines that have been out there. Joe mentioned before the Walmart situation.

JOEHey, Becky.

BECKYYeah, go ahead, Joe.

JOEYeah. Sorry, Beck. You know, Palmisano became a member, but you know, he was— he was a CEO for five years before he was a member. So who knows what the club finally does. But I don’t think people know that. They figure Palmisano immediately was, you know, because they’re sponsors of the Masters. But it was five years before he, you know, was finally invited in. Warren, how long did it take you to get in, too? I mean, and especially with your skills, I figure they would’ve handed you a silver platter if they had seen you play.

BUFFETTI made just the opposite appeal. I’m the highest handicapped member of the club and I am— I am in there as part of their outreach program. So that was the deal I made. They…

JOEGates— Gates, too, right?

BUFFETTThat was my only chance. Yeah. Oh, yeah. Well, yeah. He may be the second highest handicapped member, but I definitely hold the title and they need me. If they’re going to show they’re democratic in terms of taking any kind of golfer…

JOERight.

BUFFETT…they need me.

JOELetting you— letting you and Gates in is much more open than, I mean, that just shows you they don’t discriminate against really bad golfers.

BUFFETTYou’ve got your— I will not argue that point.

JOELikewise. I know. All right.

BECKYJoe, I’m sorry. Did you want to ask about Walmart? You had asked that before.

JOEI wanted to ask a really…

BECKYWe talked a little bit about it, but you had another question?

JOEI wanted to ask, you know, I just really struggle with this, Warren, and as a shareholder, I mean, I look at the piece that we saw from Holman Jenkins, which talks about the best way to bring a developing country like that up to speed is to, you know, is— one of the ways to get rid of graft and corruption and everything is development. And the net good that Walmart has done there in terms of jobs, in terms of bringing cheap goods to the population of Mexico, I really struggle with as a— I’m not a shareholder, but if I were, if I looked at all the net benefits and net costs, even PR costs, to get that jump-start in Mexico and to do in Rome as the Romans do, I could almost make a case that as a shareholder I would feel really ambiguous about the decisions they made down there. I mean, are you willing to say just outright they should’ve never done anything in terms of, you know, trying to grease the skids down there?

BUFFETTNo, I heard your argument, but in the end, you know, when in Rome, you know, you can only do what the Romans do unless it’s against the law in your own country. And…

JOEBut maybe the law— maybe the law’s antiquated. And it…

BUFFETTIt…

JOEI made the point that let’s say that you were in sub-Saharan Africa and that there was a government there that wouldn’t allow you to bring in vaccines for children and, you know, Bill’s got a big interest for that. And for whatever reason, it’s one of these governments you just can’t deal with at all, but you find out there’s a way to do it through bribes.

BUFFETTYeah.

JOEWould you do that? You wouldn’t do that.

BUFFETTYou’re making…

JOEIf it’s against the law, but you would do it because the, you know, I hate to say the ends justify the means, but in that case, nine out of 10 people would say got for it for, you know, to bring…

BUFFETTYeah, but…

BECKYYeah, but that’s a different case, when you talk about bringing in vaccines for children vs. building a new store.

JOEWell, that’s— but it is and it isn’t. It is and it— it depends on what you think is…

ANDREWThis is so untoward.

JOEWhat? What?

BUFFETTYeah.

ANDREWBribery unto itself is untoward.

JOEOK. So you would never do it.

ANDREWYou know where I stand on this. I would not.

JOEI don’t know. Walmart would definitely not be where it is down there without…

ANDREWAnd you know what, maybe that’s OK.

JOEBut as a shareholder is what I’m talking about. It has benefited the…

BUFFETTWell…

ANDREWIt’s a very tough. It’s a very tough issue.

JOEYeah. Go ahead, Warren.

BUFFETTYou’re right. Yeah, you are at a disadvantage if you’re in a country where there’s a lot of corruption and your own country says you can’t engage in it and some other country doesn’t say their particular companies can engage in it. But in the end, you’ve got to follow the laws of your country and you’ve got to have people working for you that believe that you follow the laws of your country. You would not want to…

JOEWell then— and you— you would think that the CEO, if he knew all along what was happening and then they decided not what, you know, to not investigate it in a more strict way, then he should go then.

BUFFETTWell, I don’t know the facts about the CEO or anything.

JOEOK.

BUFFETTBut I do know— I do know this, I do know this. You know, the thing I worry about at Berkshire is that with 270,000 people, somebody’s doing something wrong. I’ll guarantee you they’re doing something wrong today. I mean, we’re— we probably have 10 people, maybe 20 people doing something they shouldn’t be doing today at Berkshire. What I hope is that we find out about it, that it’s minor and I certainly hope that we hear about it and get it, you know, get it corrected. But you can’t have a huge organization— anybody that runs a huge organization, I don’t care whether it’s a church or an army or a political organization, a governmental department, I mean, that’s what haunts you is that down the line people are doing things that, you know, they’re not supposed to be doing and you have various methods to try and keep that under control. You’ll never— you’ll never solve it 100 percent. You have to make sure when you do find out about it, you do something about it.

ANDREWHey, hey Warren, if we learn within the Walmart issue that somehow it really did get to the board and that there really was a cover-up of grander proportion than even we know, would that change your view about whether you want to own this stock or is the business unto itself so solid that it doesn’t matter who’s running it?

BUFFETTWell, my— I really don’t want to get into a hypothetical going to the board because I don’t think it did. I mean, I would— I’ll take some other company, XYZ company, and my guess is that if something really terrible got to the board and they didn’t do anything about it, you’d change the board and then there’d be no problem owning the stock, you know, in terms of a new board being there. I don’t— I don’t think it’s a reason to throw away a business because somebody— if one of our subsidiaries, if somebody does something wrong, the answer’s not to get rid of the subsidiary, the answer is to get rid of the person that did something wrong.

BECKYMm-hmm. You’ve said in the past that you want to own businesses that could be run by a ham sandwich?

BUFFETTYeah, well, that’s true. But I’ve also said we always want to have business— we want to have people that match our principles and not principles that match our people.

BECKYHm, OK. Warren, just a little bit out of left field here, you did an interview, I don’t know, about a month ago or something, where you were asked who was the most difficult person you’ve ever had time talking to. And you came up with an interesting answer.

BUFFETTWell, it was Jackie Kennedy and Princess Di.

BECKYYeah.

BUFFETTYeah. I was in a room alone one time with Princess Di at a party. Somehow we found ourselves in this library and I— in 15 minutes, I don’t think I could take it. I had trouble remembering my name, I couldn’t— I couldn’t think of anything to say, and it was a total disaster.

And then— but the more interesting thing is, I only met her one other time. It was a party at Kay Graham’s house, which was where the first party was, and it was shortly before her death, very shortly before her death. And I was at the table, they put me across the table after my previous disaster. But she was sitting between Barry Diller and Teddy Forstmann. And after she died a few weeks later, all these papers called and said, What did she talk about that evening?’ I didn’t tell them, but I will tell you today that a comment she made, which was absolutely true, and I can see Barry and Teddy’s faces as she said it. She had been at the White House that day and she said that Bill Clinton was the sexiest man alive. And I didn’t ask her who the least sexy guy in the world alive was. I was afraid I might get my play in there.

BECKYWow.

BUFFETTBut Barry and Teddy, they tried to keep their faces steady as she made that proclamation. But that’s the last thing I heard from her before she died.

BECKYWow. OK. Andrew, Joe, on that note, I’m going to send it back to you guys. We’re going to come back with more in just a moment.

JOEI don’t even know— I don’t know where— you know, I just…

ANDREWWhat could be said? Who was the sexiest— what would you say?

JOEI’ll tell you what— what would I say? I would say that Bill, obviously, I’ve heard that about him, Becky. And you’ve told me that about him, too. He will look at your like you’re the…

BECKYOh, I didn’t say the sexiest man alive, but I will say he makes— he makes you feel like you’re…

JOEHe will look at you like you’re the only person— you’re the only person in the world.

ANDREWRight. That’s true.

BECKYYeah.

JOESo think— that’s what you’d say. You’re the only person in the world…

BUFFETTI have…

ANDREWRight.

BECKYYeah.

JOEI think he could make me feel like he’s the sexiest man alive. Right?

BUFFETTHe has not heard this before. So he’s probably having a good day today.

BECKYSo this is news to him.

BUFFETTI never told him this.

JOEI get…

BECKYNo, but it’s true. He’s a person who walks into the room and focuses on you and makes you feel like you are special no matter what.

BUFFETTYeah.

JOEI mean, the…

BUFFETTWhen Princess Di was looking at me and said that he was the sexiest man alive, the fact that she was looking at me did not make me feel…

ANDREWDidn’t make you feel better, right?

JOEAnd that whole— you saw how many jokes there were if it had been— if it had been Bill down in Colombia with the Secret Service guys, you’ve seen the jokes, It would have been a whole different ball game, probably down there, I’ll tell you, right? I mean, a lot of high-fives probably.

BUFFETTYou’re on your— you’re on your own, Joe.

BECKYWelcome back to SQUAWK BOX, everyone. The euro has been under quite a bit of pressure this morning after the news over the weekend about the elections in Greece, Germany and in France. Right now it’s trading just a hair above 130. Obviously, though, there have been some people who question why the euro hasn’t seen even more pressures based on all the troubles they’ve been having there. Over this weekend we got the chance to catch up with Bill Gates, who is a director at Berkshire Hathaway, and he talked a little bit about his thoughts on currencies and why you’ve seen some of these things happen. Why don’t you take a listen.

GATESThere’s some of these currencies like, you know, the Canadian dollar where you can say OK they’ve done a better job, therefore won’t they benefit over time. The challenge with currencies is all the big ones have some difficulty. You know, it’s not like the Americans have solved their deficit and, you know, when you bet on currency you’re looking at that long-term thing. What is the equilibrium at which the US starts to pay back the net debt that it has externally, which is primarily to oil-producing countries. A little bit to China. You know, clearly some currency equalization will be involved in that. So it’s not like you can say OK, you know, I’ll just buy the dollar.’ Also, most investors, including, myself, most of your things are naturally in a dollar. So you start out, you could say, overweighted in the dollar and you have to go to quite lengths even just to get neutral and then the question’s OK, what do you— if you don’t like the euro how do you get neutral? You know, there’s not that many heavily traded currencies other than the euro.

BECKYAgain, we are live with Warren Buffett this morning. And, Mr. Buffett, you hear those comments coming from Bill Gates and it’s a good question for a lot of investors like himself. He is already overweighted in the dollar.

BUFFETTSure.

BECKYBecause he owns everything in it. So what do you do?

BUFFETTWell, Bill and I probably talk about currencies as much over the years as stocks. It’s a fascinating subject and Bill’s done well with currencies. But we are all dollar heavy. I mean, you know, it’s natural. You’re going to be dominant unless you make a very, very conscious effort you’re going to be very heavily weighted in dollars. And he’s thought about it and I’ve thought about it and I am not— I don’t like any currencies over time. I like the dollar better than most currencies, but I don’t know whether Bill talked about the Canadian dollar there. I didn’t listen to the whole thing.

BECKYHe talked very briefly where he just said, you know, they’ve— you would think the Canadians might do, the Canadian dollar might be— do better over time because they’ve done very well and haven’t gotten into a lot of the problems that we’ve gotten ourselves into.

BUFFETTYeah, yeah. Their economy is— it’s been run better over the last 10 or 12 years than ours. And incidentally, their banks are bigger relative to the size of their economy than ours are. So…

BECKYMm-hmm.

BUFFETT…so they’ve actually done it with bigger banks relatively. But Bill would— I think Bill’s done very well in Canadian currency and I just wish we’d made as much money as he had out of it.

BECKYBut as an investor, when you look at currencies it’s difficult when you’re as big as Berkshire to try and find things that you can really move into.

BUFFETTYeah. Well, and we’re in so many different ways. We have insurance liabilities in all kinds of currencies around the world. We have businesses earning money in other currencies. It’s— it would be very hard for me to tell you precisely where we stand in regard to the euro, whether going up or going down, actually— how it actually affects us because we have so many— so much interplay between our financial assets and our operational aspects.

BECKYDo you worry about trying to hedge in currencies or you just going to play it?

BUFFETTNo, I don’t— I don’t worry about trying to hedge, no, no.

BECKYOK.

BUFFETTWhen we bought Burlington they would— they would engage in a lot of hedging of their fuel. I mean, most companies hedge. But the truth is if they really knew what those currencies were going to do, they might as well close down the railroad. You know, we just— we just play around with the oil market. And all of those things have costs attached to them. And I’m going to live a long time and my guess is that we take all of the hedges of all the companies that we might be exposed to and added them all up over a 50-year period, net they would have cost me money. So I don’t worry about what we earn from quarter to quarter. And people that worry a lot about what they’re reporting every quarter engage in a lot of hedges, which probably have an economic cost to them. But that they care more about what they report quarterly than they do about the net result over a 10-year period.

BECKYLet’s talk about Burlington Northern. You’ve always loved the railroads because you say it’s a very early indicator of how the economy’s going.

BUFFETTI didn’t love them early enough. I should have loved them a little earlier. But I— but they’re a very interesting set of statistics comes with them that tells you a lot about the economy.

BECKYSo what are you seeing right now?

BUFFETTWe’re seeing that little bit of improvement month to month and over time. And it’s not much different than we’ve seen since the fall of 2009 in that it just keeps getting a little bit better consistently. Now you see given coal is down, for example…

BECKYMm-hmm.

BUFFETT…you know, and, of course grain will depend on crops and all. But overall I see improvement.

BECKYIf natural gas becomes a bigger and bigger play over the long haul, we’ve seen recently some companies actually putting some real money into making the conversion to natural gas.

BUFFETTAbsolutely.

BECKYIs that a big problem for the railroads?

BUFFETTNo, you could even— you could even think in terms of natural gas being the fuel for locomotives. I mean, you get a big enough differential between oil and natural gas and you’ll figure out a lot of ways to do a lot of different things. And, of course, we’re seeing that in utility generation right now in terms of the move to gas.

BECKYWhat’s MidAmerican doing, MidAmerican Energy doing? Is it looking to make that conversion to natural gas with anything, or to find other…

BUFFETTWell, where we have units that have the option of using gas, gas is cheap, most units don’t move around that easily. So you’re never going to have a major change in a short period of time from one energy base to another. But, you know, you— gas is going to be the preferred method between gas, coal and oil obviously in terms of utility generation now.

BECKYOK. We’re going to slip in a quick break here, but when we come back we do have much more from Warren Buffett.

And, Joe, I don’t know which direction you want to take this, but I think you’ve got a few questions coming up, too.

JOEYeah, I don’t know where we’re going to go. I’m going to talk it over with Andrew here.

Where do you want to go, Andrew?

ANDREWI got— I got a couple of questions that we didn’t get to sneak into the— to the annual meeting that I think will be kind of fun, actually.

JOEWasn’t it like hours?

ANDREWIt was hours, but there was two clever ones. Warren knows one of them because I saw him at dinner afterwards and we should probably get to it because it’s kind of fun.

JOEAll right, good. Coming up— that’s a good— pretty good tease for you.

ANDREWI’m trying.

JOEDamn good. We heard a lot from Berkshire Hathaway’s Warren Buffett this morning, but there’s plenty more to come.

BUFFETTWe got a big bet on the American economy and we will have it for— our railroad will do better when there’s a million housing units. A lot of our businesses will.

JOERight.

BUFFETTSo I don’t have to play it directly.

BECKYAndrew, thank you. Of course, our newsmaker of the morning is Warren Buffett, who is just coming fresh off the Berkshire Hathaway annual meeting right next door in Omaha, Nebraska. Thirty-five thousand shareholders descended on Omaha this weekend, Warren, and they did a little bit of shopping.

BUFFETTYeah, it’s interesting when you mention 35,000 because our furniture store in the one week surrounding the meeting, which will end today, will do 35 million of business. So we’ve done $1,000 of business for every man, woman, and child that attended the meeting. And that’s almost 10 percent higher than we’ve done before. When a retail stores does $35 million in a week, that is a lot of business and the shareholders were out getting bargains.

BECKYThat says an awful lot about the shareholders, the numbers who are coming in, but it says something about consumers, too.

BUFFETTOh, sure. You know, they’re in a different mood than they were a few years ago. And I saw that at the jewelry store, too. I sold— I sold jewelry for two and a quarter hours and I couldn’t write tickets fast enough. Crazy Warren was in his element.

BECKYYeah, it’s a special thing, though, when people are buying it from you. There’s a little bit more of a clamor than maybe every day that they see that.

BUFFETTThey get a better price.

BECKYHey, Andrew, I know you had some questions, too. Things you didn’t get to this weekend?

ANDREWWell, one question, and Warren and I talked about it briefly was this, and it came in from a shareholder in Chicago. And the question was “Google self-driving cars are expected to hit the road within 10 years. How does this new technology impact auto insurance premiums and how GEICO is preparing itself for a future with no car accidents?” I actually thought it was a pretty good question.

BUFFETTYeah. It’s— well it’s interesting. I’ve seen, you know, news clips of that car. I would doubt in a country with 250 million vehicles that you and I will feel great driving around with a whole bunch of driverless cars. I don’t think it’ll happen, but I— you know, the Google guys come up with a lot interesting things and I will say this, if you end up with no accidents we will end up with no insurance company.

ANDREWOK, so Warren…

BECKYHelp!

ANDREW…here’s the follow-up and this was another shareholder with a different, but GEICO-related question. The shareholder writes, “If GEICO consistently operates with an underwriting profits and I buy insurance from GEICO, does this mean I’m overpaying for my insurance?”

BUFFETTNo, it means that our operating costs are far lower than most of our competitors and it means that we can pass on some of those savings in operating costs and at the— and at the same time they’re large enough so that we can still make a profit. Our advantage comes from the fact that we’re a low-cost operator. We wouldn’t have bought GEICO except for the fact that it was and will continue to be very much the low-cost operator.

BECKYWhat does it have different in terms of overhead that other more traditional companies do have?

BUFFETTWell, we— our expense ratio runs about 17 percent, about 6— we could run as low as 11 or 12 percent if we didn’t want to grow. And many companies operate at anywhere from 25 to 30 percent. And we’re also very efficient because as we get scale advantages we even get that in terms of the loss adjustment costs as well. It’s a very efficient operation.

BECKYJoe, I’m sorry, did I cut you off?

JOENo, I was asking Andrew, I was trying to really figure that one out. I mean, I was thinking about in reference to Jeeves. You already got a— it’s not a driverless car, but you have nothing to do with the— but I— was that— that was a serious question, though, and I don’t— I guess…

ANDREWNo, it was about whether Google…

JOEThere would still be…

ANDREWNo, no, this is what— but people would say that…

JOEThere’s going to be more accidents, though.

ANDREWNo, but people say that technology…

JOEThe cars are going to…

ANDREWTechnology changes everything, always, and…

JOEYeah, but there’ll be…

ANDREW…it invariably gets better.

JOEThe— I figure…

ANDREWYou might think…

JOE…if something— think if there’s a virus…

ANDREWYou know.

JOE…or something goes wrong, there’s going to be pileups everywhere. I think you ought to add to your position there, Warren. I think there would be accidents all over, don’t you…

BUFFETTYeah.

JOE…if people aren’t driving their cars? I’d double down.

BUFFETTI…

ANDREWWhat’s the Tom Cruise movie where they’re in the future?

BUFFETTIt’s not at— it’s not at the top of the list of my worries, I’ll put it that way.

JOEI— no, but I would figure— and I wasn’t going to ask you this, Warren, but I might ask it in terms of climate change and, you know, God, we had a warm summer in the— or winter in the— on the— you know, in North America, not the rest of the world, but— and we had a very cold winter the previous one…

BUFFETTYeah.

JOE…but suddenly people are factoring in more catastrophic events in coming years, and they’re positing it as if it’s going to be a fact, even though you remember the year of the hurricane, that hasn’t repeated itself again yet. And you knew it wouldn’t because you knew the next couple of years would be great for a hurricane, I mean, you were writing policies left and right because of the higher premiums. You knew there weren’t going to be a lot of hurricanes for a few years, right?

BUFFETTWell, I don’t know what the hurricane ratio is going to be, but I know that weather— the fact that this year was unusually warm and the year before was unusually cool does not make— does not change my evaluation of the expectancy for hurricanes or earthquakes or tornadoes. You know, it— people extrapolate too much out of current experience in…

JOEI agree. Yeah.

BUFFETT…in a whole lot of arenas…

BECKYYeah.

JOEYeah.

BECKYWarren, let’s talk about some of the other stocks that you own positions in.

BUFFETTSure.

BECKYProcter & Gamble is one of those stocks.

BUFFETTYeah.

BECKYRecently, I think it caught— is full-year outlook talked about some disappointing market conditions in some arenas.

BUFFETTYeah.

BECKYWhat did you think of that?

BUFFETTWell, I think they’ve found that they’re having problems, you know, raising prices in certain areas and…

BECKYRight.

BUFFETTNo, they have learned— and I’m privy to know special information on this but…

BECKYMm-hmm.

BUFFETT…but clearly they have found they did not have the pricing flexibility with some items that they thought they had.

BECKYIs that— I mean, it may be surprising when you’re talking about how consumers are feeling a lot better. I guess consumers have pared back the same way that businesses have.

BUFFETTIt depends on the item, though, to some extent.

BECKYYeah.

BUFFETTBut I— but consumers are always looking for values, I mean…

BECKYMm-hmm.

BUFFETT…you know, it— you want to be with a low-cost operator. Now, that’s an advantage that Walmart has, that’s an advantage a Costco has, and you can look throughout the field. People that are low-cost operators have an advantage. And P&G has been selling higher-end products generally compared to private labels that were available.

BECKYMm-hmm. It doesn’t change your opinion as a shareholder, I take it. You’re a long-term holder.

BUFFETTWell, we’ve been a long-term holder.

BECKYThat sounds less…

BUFFETTIt sounds a little weasely, doesn’t it?

BECKYIt does— it does sound a little weasely. Are you selling?

BUFFETTYeah, well, it’s a little weasely.

BECKYSo are you selling or…

BUFFETTI’ll just say that we’ve been a long-term holder.

BECKYWe’ll leave it at that.

BUFFETTAnd that I’m being weasely.

BECKYAnd that you’re being weasely. But you did, for the people who didn’t hear earlier, you are going to be buying two different stocks in the market today.

BUFFETTAnd the cheaper we buy them, the better I feel. And I should note, I think last year if you looked at our holdings, I think we did reduce our holdings of P&G, so.

BECKYOK. So that tells you a little bit about that. Why don’t we also talk a little bit about what’s happening in Washington right now. You…

BUFFETTNot much.

BECKYYeah. Are you frustrated, just as an American who thinks that we need to be getting our deficits under control, are you frustrated that more hasn’t happened in an election year?

BUFFETTYeah. Well, I would say this, we have the richest country in the world. Our problem is not that we’re— we don’t have all kinds of financial and economic strengths. This is a wonderful country, $48,000 of GDP per capita. You know, we should be able to work out our problems. And the interesting thing is, I think, most people know how to do it. You’ve got to cut expenditures significantly, even a rich family can spend too much money, and you need to get some more revenues. And you can argue about how you do it on both sides, but I think most people could come to reasonable agreements on that on both sides. But each side feels that if they speak first that it will hurt them politically, so you have this stand-off where each one— they Democrats want the Republicans to move on revenue and the Republicans want the Democrats to move on expenditures. And normally, when you get an impasse like that, you hope that the leaders meet in private and work out something. They can’t do it in public, you can’t do it on the Sunday talk shows or something…

BECKYMm-hmm.

BUFFETT…and— because you lose face and you lose bargaining position and everything, so you try to work it out privately and then get your troops to follow you, and the problem is that people worry about troops following.

BECKYIs that because we’ve seen more extreme positions both on the right and the left?

BUFFETTYeah, we’ve got— we’ve got more people that— I mean the primary system leads to that to some degree and, I mean, you— many, many, many people who are in Congress worry more about winning their primaries than they do about winning the general election, and that means— that pushes people to the extremes. We’ll get over this, but it is— it’s gumming up government to some extent.

BECKYWelcome back, everybody. We are live this morning at the Hollywood Diner in Carter Lake, Iowa, which is just aside from Omaha, Nebraska, and that’s where we’ve been speaking with Warren Buffett all through the morning. This was the annual Berkshire Hathaway shareholders’ meeting, a lot of things happening here this weekend. And at one point over the weekend, I got the chance to sit down with Charlie Munger and ask him what he thought about Mitt Romney’s chances against Barack Obama, coming up in this year’s presidential election. Listen in.

CHARLIE MUNGERI think he’s by far the best of the Republican nominees. So did Warren.

BECKYMm-hmm.

Mr. MUNGER: I think considering how poisonous the political atmosphere in the country is it’s amazing that we have two people as outstanding as those we have. I think that people will live to have two candidates out there and just hate having to make the choice. I think there’s a lot of merit in both these people.

BECKYAgain, that was Charlie Munger.

And, Warren, Charlie pointed out just before that sound began that he’s a Republican, you’re a Democrat. Obviously, the two of you have worked beautifully together for decades.

BUFFETTSure.

BECKYWhat do you think’s really poisoning the atmosphere in Washington right now?

BUFFETTWell, I— it’s the desire to get elected. And each side— there’s this important issue of what you do with the economy, and each side is worried about getting tagged with the unpopular side of two sides that are both going to be unpopular.

BECKYRight. When we have— the end of this year, we’re facing a pretty big fiscal cliff, some people are calling this, where the Bush tax cuts are set to expire. A lot of the one-time tax pullbacks have been set to expire, too. What do you think should happen?

BUFFETTWell, what should happen is we should be working right now on something, and you could take Simpson-Bowles as the starting point, and we should be working on something that gets us to where the gap between spending and expenditures is in the 2 to 2 1/2 percent area and that— and that there’s certainty that we will get to that within a reasonably short period of time, and that will require people bending on both sides. And everybody knows that, and nobody wants to bend first.

BECKYYou said earlier in the program that we are nearing that point where we shouldn’t have any more stimulus that’s coming through. But if all those tax cuts expire at the same time in January, is that going to be a huge hit for the economy?

BUFFETTWell, we always have some stimulus if we’re operating at a deficit, so I really— I really advocate a position of 2 or 2 1/2 percent deficits averaged over time. And that’s stimulative. I mean that— it isn’t wildly stimulative, like our present situation. But we will need more revenue, and we will need less in expenditures. And I know it and you know it and the American public knows it, and it may be that this cliff that we’re facing at the end of the year will produce action. I mean, you— like I said— going back to Simpson-Bowles, those are two high class people, they got people as far apart as Durbin and— to agree. We need to do something like that. And it isn’t— it isn’t because we don’t have the resources, and it isn’t because we don’t have intelligent people…

BECKYMm-hmm.

BUFFETT…it’s because we got two parties that want to win an election.

BECKYBut I guess what I’m trying to get at is from the investors’ perspective, if we do hit this fiscal cliff and we plunge right off of it because we can’t find some sort of agreement in the, you know, 90 days or something from the election— or from November, December…

BUFFETTYeah.

BECKY…until we get back into January, is that a big problem for— from the market’s perspective?

BUFFETTIt’s a— well, I’m not sure whether it’s a problem from the markets— it’s a big problem.

BECKYYeah.

BUFFETTBut there’s always a big problem and lots of big problems. And the— I would— I do not give that a 1 percent— make that a 1 percent factor in determining what I’m doing today in investing.

BECKYSo…

BUFFETTWe’re always going to— things are going to come out of, you know, right field. You’re going to have 9/11s. You’re going to have October 19th, 1987s. You’re going to have flash crises…

BECKYMm-hmm.

BUFFETT…all kinds of things are going to happen. I’m not trying to sit around and predict which of those are going to happen, I’m trying to figure where businesses will be five or 10 years from now. And whenever we buy a stock I say am I happy owning that stock if the stock market closes for a couple of years? You know, if I’ve got a good business here and the stock market closes for a couple of years, I’m fine. And if I own part of a good business I do not need the stock market to be open for the next couple of years to do fine in investing.

BECKYThat was one of the questions that came up quite a bit this weekend was the valuation of Berkshire shares right now. Some people think it’s severely undervalued, in fact you yourself— you and Charlie have decided to go ahead and start buying back shares, which was a pretty unusual move.

BUFFETTUnusual. Mm-hmm.

BECKYWhat do you think it is that’s holding back Berkshire shares?

BUFFETTBerkshire has been underpriced sometimes during its— the 45-plus years I’ve been there— has been overpriced. Most of the time it’s been in with the range of value. In the next 50 years it’ll be overpriced, sometimes it’ll be underpriced, it’s the nature of stocks. That’s what makes stock investing so wonderful. I mean, if everything was perfectly priced all the time there would be no money in the game.

BECKYMm-hmm.

BUFFETTI love the fact that Coca-Cola gets underpriced or overpriced sometimes, I love the fact that Wells-Fargo gets underpriced or overpriced. It’s fine with me, you know, if that happens with Berkshire, it will always happen with Berkshire, I will guarantee you that in the next 10 or 20 years you’re going to see times when Berkshire’s overpriced or underpriced.

BECKYYou think the stock market has more opportunities where there are significant mispricings right now?

BUFFETTSure. Sure. I would love it if they only allowed me and a whole bunch of psychotic drunks to trade in stocks and I would get very rich.

BECKYI don’t expect to see rules like that put in any time soon but…

BUFFETTWell…

BECKY…there have been a lot of talk when you start looking at some new regulations that have been proposed for some of the futures markets, particularly if you look at commodities and some of the things. We’ve talked with Bart Chilton recently and one of the ideas that they’ve put forth with the CFTC is that nobody should be allowed to own more than 10 percent of, let’s say, the oil market, or something along those lines.

BUFFETTYeah.

BECKYIs that a good idea? Do you need rules like that?

BUFFETTWell, the— you do need some rules to prevent cornering. I mean, you know, that goes back 100 years when people tried to corner, weed, or do that sort of thing. But in stocks, it’s not— it’s basically not a problem. The real problem in stocks is that people are emotional about them. I mean, the problem isn’t with the companies, the problem is with the people that call themselves investors. And if you look at how American business has done over history, it’s done magnificently. And if you just owned a cross-section of it, you didn’t— you didn’t need to know how to run a— read a balance sheet or anything. But the problem is that people get excited about getting rich very quickly or they get depressed when they thought they were going to get rich very quickly and they didn’t, and people beat themselves in the stock market. The stock— the companies don’t beat them, the stocks don’t beat them, they beat themselves.

BECKYJoe, you have a question, too?

JOENo, I was listening to Warren, and I saw a piece over the weekend, Warren, about volume on the New York Stock Exchange, that maybe it’s finally coming home to roost, that electronic trading was, you know, was going to take over. And it was really a negative piece on the prospects for the Big Board. But to me it just looked like an incredibly positive piece for the commentary about the stock market itself.

BUFFETTYeah.

JOEBecause I think that lack of enthusiasm for the retail investor means they’re not in and when they’re not in it just means they’re eventually going to get in but at much higher levels. So I mean, I know you don’t time the markets, but this is a really opportune time, don’t you think?

BUFFETTI certainly think that stocks are the most attractive investment aside from that exception I made for single-family homes. I think they’re the most attractive investment available— generally available to the American public.

BECKYHey, Warren, you said that you don’t think what’s happening right now with social networking stocks is a bubble and that, you know, with housing that was a bubble, that was something that was out there. We’re always trying to find out what the next bubble is…

BUFFETTYeah.

BECKY…where the next place is, where it’s inflating too much because of some policy gone wrong or some unforeseen consequences. Have you seen any arenas where it seems to you like there’s a little too much helium that’s starting to build in?

BUFFETTNot really. But I’ll guarantee you it will happen, there will be bubbles in the future. I mean, people get excited about things that have gone up in price, and that very excitement becomes further proof to them and the rise in prices. I mean, it becomes circular, and it keeps going until it ends, and that’s when bubbles pop. But we will— we will have a lot of bubbles, and you can get very rich on bubbles if you take advantage of them rather than participate in them.

BECKYThere was— there’s some talk— people think the bubble— next bubble’s going to be coming from all this easy monetary policy, not only from the Fed, but from Central Banks around the world. They start looking at where you see commodities prices creeping up or oil prices or other things, because all that money has to go somewhere.

BUFFETTYeah. That’s not a bubble, that’s inflation.

BECKYOK.

BUFFETTI mean— yeah. If you print enough money, you know, the price of everything will go up even though the value of it doesn’t go up, in a sense. And if you mail out a million dollars to every American family, you know, you will— you will not have a bubble, you’ll have inflation. You’ll also have a lot of activity for a while. But the printing of money results in the decline in the value of money. It’s very simple.

BECKYDo we need a bubble to get us back to stronger GDP growth?

BUFFETTNo, we don’t need a bubble. We’re— we need— we need the housing— the excess housing supply to be sopped up, and that— and that is happening. I think, for example, in Omaha, you know, we’re very close to equilibrium.

BECKYBut, I mean, that was the last bubble, you don’t need that bubble to reinflate, but you need it to come back to its normal…

BUFFETTNo, you just need— you just need it at normal levels.

BECKYBut if that drove the last great…

BUFFETTWe don’t want to do something like that again. What we— what we want to have is the normal growth that comes out of an economy where people are finding more and more things to do that please you and me in terms of what we buy.

BECKYMm-hmm. You know, Warren, we have not gotten the chance to talk to you about this live. It was discussed this weekend at the shareholders’ meeting, but how are you feeling?

BUFFETTOh, I feel terrific.

BECKYYeah.

BUFFETTI mean, I’m here with my strawberry shake, and I’m enjoying life and— there is absolutely no change in my life, I— my energy level is 100 percent. I have no symptoms of any kind, I mean…

BECKYMm-hmm.

BUFFETTNo, I— nothing has changed.

BECKYWell, guys, this is your last chance to jump in with a last-minute question. I know we’re just about out of time.

ANDREWHey, Becks, I got a question— it’s actually from Doug Cass, Beck, you and I talked about it over the weekend, actually, it’s an interesting one. Doug says that, for many years, Warren, you referred to Henry Singleton, the founder of Teledyne, the big conglomerate, as one of the brightest CEOs in corporate America. Henry ended up breaking up Teledyne into four companies before he died to enable his managements to focus on what they knew and put in an options program. So Doug asks, “What’s the rationale for having this business as a diverse and— as an— as unconnected as Berkshire?” And have you ever really thought hard about doing something like Henry?

BUFFETTYeah. It’s interesting, Henry did incredibly well. He repurchased an astounding percentage of his stock over the years, and he ran the business as well. And then after he did what you just got through talking about, it didn’t work so well. So you’re— that was in his later years, and apparently, you know, he wasn’t functioning as well then. His record was made not by what happened when what you described took place, it was— all happened prior to that while he was following exactly the kind of policies that I advocate.

ANDREWOK. Good answer.

BECKYYeah. So…

ANDREWBefore you guys go, I should mention, and maybe you can do a little mentioning yourself, Warren, there, that Becky got a star on the Hollywood Diner’s walk of fame over the weekend.

BECKYOh.

ANDREWAlong with Jay Z. You can see Steve Forbes there. CNBC. Who else is on the list there? Warren Buffett, of course.

BECKYI think Bill Gates has been here.

BUFFETTYeah, Bill’s been here. Jimmy Buffett’s been here.

ANDREWAnd now— and now the Becky Quick. So you’re in good company, Becky. They did a nice job there.

BECKYWell, Andrew, you…

BUFFETTAnd you’re the first female, you’re the first female, I believe.

BECKYAh. Well, Andrew, here’s something to do. Next time you’re here you got to make sure you come here, too.

ANDREWWell, I’ll have to work on that. I don’t— I don’t know if I— if I’ll qualify. But you’re the first female, so they’re doing better than Augusta at the moment.

BECKYYeah.

ANDREWThat was a bad joke.

BECKYWarren, we want to thank you very much for joining us for these three hours. I know it’s been a very busy weekend, but we love having these chats with you, so.

BUFFETTI had a lot of fun. Thank you.

BECKYThank you for taking the time, we really appreciate it. And, guys, we’ll send it back over to you.

JOEExcellent. Thank you, Becky. You know, you could hear— he talks all weekend long, and then— and then he— those three hours…

ANDREWAnd he’s got more— I got to tell you, he has more energy than just— than I do, I can tell you that, and it’s just a remarkable thing to see at any age.

JOEI even noticed when I asked him that question about, you know, the— obviously, there’s not a whole lot of retail excitement at this point, I think we’re all— maybe a lot of people are gun-shy.

ANDREWRight.

JOEAnd he wants to say, yeah, this is a great time, but he doesn’t say it that, you know, that stridently because I think he doesn’t want everyone to know. I think he’s going to do a lot of buying and position himself. But I think he has that same feeling that when you see the public…

ANDREWWell, look, he’s…

JOE…as…

ANDREWYep.

JOE…as unexcited as they are right now, that’s got to be it.

ANDREWWell, you just heard him— you heard him say it. He…

JOEYeah.

ANDREWHe was buying on Friday.

JOERight.

ANDREWHe’s going to be buying today. That $22 billion acquisition I’m going to— I’m going to be wondering what that is for a very long time, but it’s an interesting…

JOEThat would— that narrows it down to like— I mean the S&P 500 is mostly…

ANDREWThere’s not a lot…

JOENo, there’s a lot of $22 billion companies.

ANDREWWe could figure it out if we— if we get our way.

JOEAll right, you go ahead. Get to work.

ANDREWOur very special thanks, of course, to Warren Buffett for a great three hours